FFBLs result announcement brought the first major surprise of the earnings season on Tuesday, as the firm posted an astonishingly high growth of 31 percent in net earnings for year ending December 2009.
The biggest surprise was the unexpected other high income contribution, which added strength to the topline driven by healthy growth in DAP sales. To the surprise of many, the company announced a final dividend of Rs2.25/share, taking the shareholder back to the golden days of high payouts.
The companys DAP sales more than doubled during the first 11 months of CY09 as favourable DAP prices encouraged farmers to apply more phosphate fertilizer to the soil. In 2008, DAP off-take remained damp for a good part of the season as prices had shot up to unaffordable levels for growers, which in turn had piled up huge DAP inventory at FFBLs warehouses. It was this huge carryover inventory which allowed the firm to sell 200,000 tons more than what was actually produced.
Urea sales for FFBL, however, remained lacklustre and dropped by 11 percent - partly due to DAP substitution effect and partly because of 7 percent lower urea production on account of plant maintenance shutdown, which continued for an extended period of time than it normally does.
The sales revenue, however, didn rise as much as the volume, since DAP prices averaged 27 percent lower, year-on-year, during the period owing to a sharp dip in global phosacid prices, whereas urea prices also edged 4 percent lower in the retail market.
Offsetting the revenue growth, however, were depressed gross margins after feedstock gas prices rose three times during the period, following the expiration of concessional price agreement available to FFBL in CY08. Although, phosacid prices cooled by 23 percent year-on-year, the product prices went down by a greater magnitude eroding the DAP margins by 12 percent.
The single most important factor that caused the massive deviation of 22 percent in net profits from consensus estimates was the surge in other operating income in the last quarter. The biggest surprise came from PMP Morocco plant - a joint venture of FFBL - which contributed Rs285 million in other income during the quarter.
Interestingly, the company itself was not top optimistic of any revival in PMPs fortune in CY09. The management had expected to incur more losses than income as significant inventory writedowns and imbalance issues between input and output prices were not likely to settle down during 4QCY09.
Moreover, income on bank deposits and investments also remained strong as FFBLs cash position was strong, evident by the increase in cash to Rs9.6 billion in 4QCY09 from Rs5.4 billion in 3QCY09 - a consequence of strong DAP sales and full receipt of DAP subsidy from the government. The firms short-term investments also surged from Rs3.1 billion in the previous quarter to Rs4.7 billion in the final quarter.
A slowdown in DAP sales should be expected in CY10 as DAP prices have shot up in January 2010 by Rs300/bag. Moreover, the phosacid global contracts also signal further increase in the raw material cost as phosacid CFR prices have already increased by 23 percent month-on-month, in January so far.
Although, PMPs performance in the last quarter is commendable, it is too early to judge its sustainability until the official word comes out. Perhaps, the companys annual analysts briefing will have something to add clarity.
===================================================
FFBL P&L CY09 CY08 % chg
Rs mn
===================================================
Sales 36,725 26,821 37%
Cost of sales 27,060 18,595 46%
Gross profit 9,665 8,226 17%
Gross margins 26% 31% -14%
Finance cost 1,460 2,792 -48%
Other operating income 683 1,520 -55%
PAT 3,784 2,900 31%
EPS (Rs) 4.05 3.10 31%
DPS (Rs) 4.00 2.00 100%
===================================================
Source: KSE announcement
FFBL earnings beat all odds
FFBLs result announcement brought the first major surprise of the earnings season on Tuesday, as the firm posted an astonishingly high growth of 31 percent in net earnings for year ending December 2009.
The biggest surprise was the unexpected other high income contribution, which added strength to the topline driven by healthy growth in DAP sales. To the surprise of many, the company announced a final dividend of Rs2.25/share, taking the shareholder back to the golden days of high payouts.
The companys DAP sales more than doubled during the first 11 months of CY09 as favourable DAP prices encouraged farmers to apply more phosphate fertilizer to the soil. In 2008, DAP off-take remained damp for a good part of the season as prices had shot up to unaffordable levels for growers, which in turn had piled up huge DAP inventory at FFBLs warehouses. It was this huge carryover inventory which allowed the firm to sell 200,000 tons more than what was actually produced.
Urea sales for FFBL, however, remained lacklustre and dropped by 11 percent - partly due to DAP substitution effect and partly because of 7 percent lower urea production on account of plant maintenance shutdown, which continued for an extended period of time than it normally does.
The sales revenue, however, didn rise as much as the volume, since DAP prices averaged 27 percent lower, year-on-year, during the period owing to a sharp dip in global phosacid prices, whereas urea prices also edged 4 percent lower in the retail market.
Offsetting the revenue growth, however, were depressed gross margins after feedstock gas prices rose three times during the period, following the expiration of concessional price agreement available to FFBL in CY08. Although, phosacid prices cooled by 23 percent year-on-year, the product prices went down by a greater magnitude eroding the DAP margins by 12 percent.
The single most important factor that caused the massive deviation of 22 percent in net profits from consensus estimates was the surge in other operating income in the last quarter. The biggest surprise came from PMP Morocco plant - a joint venture of FFBL - which contributed Rs285 million in other income during the quarter.
Interestingly, the company itself was not top optimistic of any revival in PMPs fortune in CY09. The management had expected to incur more losses than income as significant inventory writedowns and imbalance issues between input and output prices were not likely to settle down during 4QCY09.
Moreover, income on bank deposits and investments also remained strong as FFBLs cash position was strong, evident by the increase in cash to Rs9.6 billion in 4QCY09 from Rs5.4 billion in 3QCY09 - a consequence of strong DAP sales and full receipt of DAP subsidy from the government. The firms short-term investments also surged from Rs3.1 billion in the previous quarter to Rs4.7 billion in the final quarter.
A slowdown in DAP sales should be expected in CY10 as DAP prices have shot up in January 2010 by Rs300/bag. Moreover, the phosacid global contracts also signal further increase in the raw material cost as phosacid CFR prices have already increased by 23 percent month-on-month, in January so far.
Although, PMPs performance in the last quarter is commendable, it is too early to judge its sustainability until the official word comes out. Perhaps, the companys annual analysts briefing will have something to add clarity.
===================================================
FFBL P&L CY09 CY08 % chg
Rs mn
===================================================
Sales 36,725 26,821 37%
Cost of sales 27,060 18,595 46%
Gross profit 9,665 8,226 17%
Gross margins 26% 31% -14%
Finance cost 1,460 2,792 -48%
Other operating income 683 1,520 -55%
PAT 3,784 2,900 31%
EPS (Rs) 4.05 3.10 31%
DPS (Rs) 4.00 2.00 100%
===================================================
Source: KSE announcement