The financial performance of Lotte Pakistan PTA for the half year ended June 30, 2012 based on the company notice sent to KSE yesterday looks awful. Lotte - one of the hottest scrips traded on the local bourse - is in deep loss, thanks to a dismal second quarter performance. Massive profitability decline in 1QCY12 foretold tough times ahead, but a net loss of nearly half a billion rupees in the following quarter is stunning. Lotte is a leading supplier of purified terephthalic acid (PTA) - an essential raw material for the polyester industry. Lottes profitability is dependent on the differential between the prices of PTA (the sales product) and Paraxylene (the raw material), along with the costs of acetic acid and electricity. The management has attributed this half-yearly loss to significantly lower PTA prices in the second quarter which blew a hole in PTA-Px margin. The revenues of the firm have shrunk by 13.45 percent in 1HCY12 over same period last year. On top of declining PTA prices, the export sales also plummeted during the period under review. Yet despite the considerable decline in the top line, the firms cost of sales shot up by 6.83 percent to exhaust equivalent to 100.66 percent of the firms revenues, leaving the ensuing margins in the red zone right from the onset. Continuous deterioration in the PTA-Px margin worsened in 2QCY12 - thereby plunging the gross profits by a massive 103 percent and registering a gross margin of negative 0.66 percent in 1HCY12. Other operating performances improved during the period, as the distribution and administrative expenses both declined by 2.87 percent and 7.81 percent, respectively. Other operating expenses fell by 97.22 percent during the period, due to reversal of provision for Workers Profit Participation and Welfare Funds due to operating loss. This provided some cushion to the struggling operating performance. But that was not enough to lift the operating margin which declined to negative 1.5 percent in 1HCY12, compared to a healthy 16.32 percent same period last year. Despite a 55.82 percent decline in finance costs, a voluminous decline of over Rs300 million in finance income - due to lower cash generation - made matters worse in the end. Eventually, Lotte closed its half yearly books with a net loss of Rs294.4 millions, and a net margin of negative 1.11 percent. Each Lotte shareholder lost 19-paisa per share held; compared to an earning of Rs2.44 per share in 1HCY11. Going forward, improvements in the PTA-Px margin can turn this abysmal situation around for Lotte, as the operational efficiency is already there. The firm started operating its cogeneration power project in July which will reduce the power costs in the future. The demand of PTA, however, may remain stressed owing to subdued production in the domestic textile market.
============================================================= Lotte Pakistan PTA Limited ============================================================= Rs (mn) 1HCY12 1HCY11 chg ============================================================= Revenues 26,538 30,661 -13% Cost of sales (26,712) (25,005) 7% Gross margin -0.66% 18.45% - Operating profit (399) 5,003 -108% Finance income 198 504 -61% Profit after taxation (294) 3,697 -108% Net margin -1.11% 12.06% - EPS (Rs) -0.19 2.44 =============================================================
Source: KSE notice
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