That Lotte Pakistan PTA Limited will be posting a loss for 2012 was pretty much expected, since PTA-Px margins have been under pressure for all of the year gone by.
For 2012, revenues fell by more than 8 percent, while the cost of sales surged more than 4 percent. The dent on the gross profit was, therefore, expected, with the company netting a gross loss.
The loss cascaded down the companys P&L. Even a year-on-year decrease in distribution, administration and operating expenses couldn lead to a positive operating result, with the company reporting an operating loss as well.
All in all, a net loss was imminent, despite the year-on-year decrease in LOTPTAs finance costs.
The saga behind Lotte PPTAs key profit margins being in red in 2012 has low PTA prices and high Px prices at its heels. PTA prices were low during the last year mainly because of three reasons. Firstly, poor economic conditions in leading global economies - EU and US - led to a slowdown in the downstream polyester sector.
Secondly, an increase in PTA supplies on a global level was brought about with start-ups of 3.7 million tonnes per annum capacities of PTA in China, leading to a further dent in PTA prices as the downstream sector could not absorb the additional production.
Finally, reduced cotton prices internationally meant a further dent on downstream polyester demand.
Px, the main raw material for making PTA, meanwhile saw its prices rising as demand from new PTA startups increased. Global PTA-Px margins have a bearing on local dynamics too, as obvious from LOTPTAs result for 2012.
However, the cyclicality of the business should be borne in mind, with anticipations of improving margins for the company later in 2013.
Overall, on a consolidated basis though, the company managed to nearly breakeven with a slight profit of Rs0.8 million, thanks mainly to energy savings from Lotte Powergen.
Going forward, 2013 is expected to be more promising year for the company, with the recent increase in international cotton prices also expected to lend support to PTA prices, and hence the companys future margins.
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LOTPTA P&L - unconsolidated
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(Rs in mn) 2012 Y/Y chg
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Revenues 52,823 -8%
Cost of sales 53,038 4%
Gross profit -215 -
Gross margin -0.40% -
Distribution & selling expense 437 -33%
Other operating expenses 22 -96%
Operating Profit -370 -
Operating margin -0.70% -
Finance income 270 -66%
Profit after taxation -184 -
Net margin -0.30% -
EPS (Rs) -0.12 -
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Source: KSE announcement