FY17 turned out to be a tough year for Fauji Cement Company Limited (PSX: FCCL) as the company saw a whopping 51 percent year-on-year decline in its bottomline. However, this decline did not come in as a surprise as the cement manufacturer had unfortunately witnessed an accident back in 2016 at its manufacturing facility that damaged the coal mill area of one of the company's two production lines, and suspended the operations from this line.
FY17's revenues for Fauji Cement look stable; however, those in the latest quarter (4QFY17) were down by around 4 percent due to lower retention prices.
Unlike the modest growth in sales, the growth in cost of sales for FY17 was overbearing; the rise in the cost of sales came mainly from the purchase of clinker from other cement firms at a much higher cost post the cement facility accident. This can be seen in gross margins shrinking by half, which continued to affect net margins in the same way.
While some respite was brought by the insurance claim and lower operational and finance costs, Fauji Cement has been unable to operate at full capacity while it has been working on repair and maintenance.
But things are likely to change for better in FY18. To bring the production cost down, it is installing another Waste Heat Recovery unit, which is expected to be operational by January 2018. And the good news is that the second production plant of FCCL that got damaged is expected to restore its operation from October 2017, which will hopefully nomalise margins once again.
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