Pakistan. FFC shows Rs 4.89 billion net earnings despite heavy taxation

05.08.2016

A leading fertiliser company has shown net earnings of Rs 4.89 billion for the period ending June 30, 2016 despite imposition of three percent Super Tax, heavy taxation, GIDC, volatile market conditions and absorption of part of fertilizer subsidy.

Analyst told Business Recorder here on Thursday that contrary to claims that urea producers are enjoying high profits, it must be taken into consideration that fertilizer plants require huge financial capital/investments for establishment; therefore their profits cannot only be judged on year to year basis. Fertilizer companies are paying more taxes, GIDC and other form of taxes to the government of Pakistan. Moreover, fertilizer gas price at $5.5 per MMBTU against average of International prices of $2.5 per MMBTU on feedstock in Pakistan pose a challenge to domestic fertilizer producers.

Fauji Fertiliser Company (FFC) announced half yearly results amid unprecedented adverse market conditions. As per fertiliser policy 2001, Clause 5.1, "Selling price of fertiliser shall remain deregulated on the understanding that while manufacturers will allow free market forces to prevail." Contrary to free market principles and to benefit farmers in Pakistan, in past when imported fertiliser cost was quite high the domestic fertiliser producers were providing subsidised fertiliser to farmers of Pakistan despite the fact that international fertiliser prices were sky high. Domestically produced urea was available at Rs 1700-1800, while at the same time, the price of imported urea was in the region of Rs 2400 - 2500 and government had to provide subsidy to imported fertiliser.

Similarly, fertiliser sector in Pakistan faces numerous challenges with extremely high producer inventory being a major issue. The profitability of the fertiliser industry has declined substantially in 2016 vs 2015. According to a report published recently, fertiliser companies are already paying GIDC of Rs 300/MMBTU, on old fertiliser plants which is highest when amongst any other sector paying GIDC.

Despite the fact that there is no restriction on urea import which also enjoy zero percent import duty and only one percent withholding tax, domestic fertiliser industry pays corporate tax up to 5-10 percent of the selling price. Fertiliser industry for the better benefit of the farmer community also reduced the prices from over Rs 2000/bag to Rs 1700/bag even before the implementation of the Kissan package. Rs 200 were absorbed by the producers while government accounted for Rs 100 in that reduction. The government Fertiliser producers' joint effort for improving farmer economics is a model worth praise.

Experts said the government had extended some concessions to fertiliser sector but that is not to benefit the fertiliser producers but rather to benefit the farmers of the country. The fertiliser industry has given much more benefit to the farmer than it has received from the government in the form of lower feed gas prices, allowing farmers to easily get their hands on fertiliser and also improved the farmer economic to a great extent.

In spite of volatile market conditions, FFC recorded net earnings of Rs 4.89 billion for the period ending June 30, 2016, though, the core business of the company witnessed significant decline due to factors highlighted above, however, the deficit has been bridged by highest ever dividend of Rs 2.27 billion received through associated companies. The company earned Rs 3.85 per share, while declaring divided per share of Rs 1.55.

The company created a new benchmark during the period in terms of highest ever urea production of 1.25 million tons with lowest shut down periods which reflects operational excellence of the professional company. FFC also achieved 12.6 million man-hours of safe operations without lost work injury. FFC's expenditures of its profits into well being of the community as CSR and payment of dividends to stake holders who are spending into hospitals and education of community is again a matter of pride for the business community.

The rising inventory and high cost of production continue to pose substantial risk to the Company's profitability, however, their press release says that the FFC management is committed to mitigate the negative impact of the current business environment through various strategies, they added.


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