Lotte Pakistan posts losses in successive quarters

Declining revenues, squeezed margins leave earnings suppressed.

KARACHI:

Lotte Pakistan reported a net loss of Rs422 million for the first nine months of 2012 from a profit of Rs4.6 billion in the corresponding period of the preceding year, according to a notice sent to the Karachi Stock Exchange on Tuesday.

The organisation registered a loss of Rs127.9 million in the first quarter of fiscal year 2013. The company posted back to back losses in successive quarters mainly due to declining revenues, squeezed margins, lower finance income and considerably higher unconsolidated financial charges.

Lotte Pakistan PTA is a supplier of purified terephthalic acid (PTA), an essential raw material used in the polyester industry. Over 30% of PTA is sold to the Polyethylene Terephthalate (PET) sector while the rest goes to polyester staple fibre and other sectors. PET is used in the plastics industry for the production of bottles and bed sheets.

The severe hammering of PTA-PX margins below breakeven level remained the primary reason behind the sluggish financial performance of the company while considerable decline in finance income further dented profitability, according to a BMA Capital analyst report.

Revenues declined 10.5% to Rs40 billion from Rs44.8 billion in the corresponding period last year, due to a 16% drop in average PTA prices during the period.

Apart from weak PTA prices, strong PX prices remained the major reason behind worsening PTA-PX margins. Average PTA-PX margin stood at $75 per ton (below breakeven level). Resultantly, the company posted gross loss of Rs62 million in the period.

However, the company was able to cut its distribution and selling expenses but at the expense of no export sales. Other operating expenses witnessed a decline as the company did not have to make provision for Worker’s Profit Participation Fund due to operating losses.

Finance income of the company decreased by massive 64% to Rs241 million due to lower cash balance, thus further denting the bottom-line.

Cash balance of the company was substantially reduced during July to August 2012 owing to repayment to the parent company for a loan and capital expenditure incurred on co-generation power plant. Moreover, deterioration in the rupee against the dollar also dented other income.

Lotte Powergen, wholly-owned subsidiary of the company, supported the company’s road to consolidated profitability of Rs47 million.

Outlook

Going forward, margins will remain squeezed during the last three months of 2012, leading to continued suppressed earnings. However, a gradual improvement in PTA demand is expected towards the end of second half of 2013 when supply pressures are expected to ease and lead to improvement in industry dynamics.

Published in The Express Tribune, October 24^th, 2012.