DG Khan Cement Company took the market by surprise as it announced its FY12 financial results yesterday, recording a humungous 24 times increase in net profits year-on-year. The phenomenal performance was similar to the industrys trend for FY12, backed by strong fundamentals. Yet there was an element of surprise in the earnings announcement. It all started at the top, where the top line grew by an impressive 24 percent, wholly due to robust increase in cement retention prices, especially in the local market. The cement industry for a change, refrained from price-wars in FY12, which yielded good results, as DGKC despite showing no growth in terms of volumetric sales, was able to ride on high local cement prices. Cement prices for FY12 are believed to have averaged around Rs345/bag, a 16 percent year-on-year increase. DGKC witnessed a nominal four percent year-on-year decline in export volumetric sales. However margins in the local market yielded higher returns for the company than international sales. The export market prices also improved considerably in FY12 over $50 per ton, yet, apart from Afghan and South African markets, DGKC was not lured into engaging in aggressive export sales. Further, support was lent by a sizeable increase in gross profit margins to 33 percent in FY12, up from 24 percent in FY11. DGKCs continuous drive for Waste Heat Recovery is bearing fruits, as it was pivotal in augmenting the profit margins, besides, decline in international coal prices, favourably impacting the gross profits. The bottom line was further aided by a meaningful reduction in selling and distribution expenses, both in absolute and relative terms. Selling and distribution expenses as a percentage of sales came down to 9.6 percent from 13.3 percent last year - which could be explained by reduced activity at the export front. Finance cost too was reduced by 20 percent, and the company attributes this to a combination of improved cash flows reduction in long-term and short-term loans and the declining interest rates. Other income, on the other hand, remained largely flat, as dividend contributions from major investments mirrored those of the previous year. The core reason why the bottom line deviated from the market expectation was the tax expense for the year, as DGKC accounted for tax reversal claiming the deferred tax advantage. Going forward, the Company expects market to stabilise around the current band of Rs400 per bag, and expects the local market sales to increase, FY13 being an election year.
======================================================= D.G. KHAN CEMENT COMPANY ======================================================= (Rs mn) FY12 FY11 chg ======================================================= Sales 22,950 18,577 24% Cost of sales 15,443 14,192 9% Gross profit 7,507 4,385 71% Gross margin 32.7% 23.6% Selling & distribution exp 2,203 2,471 -11% Other income 1,188 1,134 5% Operating profit 5,723 2,680 114% Finance cost 1,671 2,079 -20% PAT 4,108 171 2303% EPS (Rs) 9.38 0.45 =======================================================
Source: KSE notice
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