Chemicals: CLARIANT PAKISTAN LIMITED - Analysis of Financial Statements - December 2003 - March 2007
Clariant Pakistan Limited, a subsidiary of Clariant International Limited incorporated in Switzerland, is a limited liability company which is incorporated and domiciled in Pakistan. It is listed on the Karachi Stock Exchange.
The Company manufactures and sells multiproducts like chemicals, dyestuffs, emulsions and master batches. Each of its four divisions (Master batches, textiles, leather and paper chemicals, functional chemicals and, pigments and additives) caters to a different market. Hence it also acts as an indenting agent.
At present, the business environment continues to be highly challenging with ever increasing input cots on the account of rising raw-material prices due to widening gap of demand-supply position of key raw material compounded by soaring interest rates and adverse foreign exchange rates. Despite this inflating the cost of business, Clariant Pakistan Ltd. has managed to improve on its overall performance. A brief analysis of its financial performance is discussed below.
On the whole, CPL's profitability depicted a good performance, considering the highly competitive business environment. The net sales of the CPL showed a growth of 6 % in FY 06.
This sales growth is a result of improvement in all business sectors of the company, in particular the Textiles and the Masterbatches business sectors, where development of 7% and 3% was recorded largely on the account of increased volumes.
The cost of sales also showed an increase, primarily due to a surge in raw material prices as a result of rising prices of petroleum based products, which not only related to costly purchases of raw materials but also inflated every other business cost. However, tighter controls on selling and administrative expenses ensured that the effect of rising cost of goods sold was mitigated.
Despite the above measures, CPL managed to improved only marginally on its bottom-line profits compared to previous years on the account of burgeoning foreign currency exchange rates and interest costs compounded with the surge in prices of petroleum based raw materials.
Consequently, the net and gross profit margins, have also marginally increased. Moreover, ROA and ROE have shown a rising trend till FY '05 but declined slightly in FY '06 for the afore-mentioned reasons.
CPL has shown a considerably stable liquidity trend, enjoying a strong liquidity position over the years. The net cash flow stood at around 244 million during 2006, indeed an enormously affirmative indicator of the company's efficient allocation of assets.
The higher rise in CR in FY'06 is mainly due to a decline in current liabilities, mainly in the short term loans, payable taxation and current portion of redeemable capital. The net current assets of the company have shown a rise in terms of receivables, however, thanks to a greater proportionate decline in current liabilities, the overall liquidity position of the company is surely laudable.
An indicator of an efficient credit policy, the days sales outstanding of the company have been following a declining trend upto FY '06, showing that the company is receiving cash against its receivables on a shorter period over the years.
The inventory turnover ratio, however, followed a rising trend till 2005, until it declined again in 2006. This can be attributed to better credit policies and marketing practices that enabled the company to sell off its inventories to its customers in a more effective and efficient manner. Also the sales growth was much higher in FY '06 due to good performance particularly in textiles and Masterbatch sector.
Overall, the operating cycle declined for CPL over the years, showing that the company has improved on its performance in terms of receiving cash against its inventories.
The total assets turnover ratio was positive as it steadily increased over the years. This can be attributed to phenomenal growth in net sales during the years, even though the total assets of the company increased but by a lesser percent. However. its sales/ equity ratio showed a decline in FY 06, after showing a rising trend in previous years. This decline is on the account of proportionately higher increase in CPL's shareholder's Equity. There has been increase in its issued capital, reserves and unapproporated profit. This shows that CPL is trying to expand its equity base at the moment.
D/E and D/A ratios which are showing a considerable decline over the years, further consolidate the finding that PCL is expanding its equity base and reducing its dependence on debt financing. Furthermore, a steady Long term debt to equity ratio manifests that PCL is maintaining appropriate amount of long term debts. A marginal increase in the ratio in FY '06 can be attributed to higher long term liabilities in that year.
Owing to a higher increase in the operating profit over the years, especially during FY 05 and a decline in the financial charges of the company, the Times Interest Earned ratio of the company improved considerably till '05. However, it suffered a major decline in FY '06 owing to the nearly double finance cost because of tight monetary stance by SBP. This increase far out weighted the increase in operating profit for the year, thereby bring the overall TIE ratio to 4.51 from 8.26 in the previous year. This is a manifestation of the adverse impact of rising interest rates on the industry and also alarms the company to generate enough operating profit to cover up its interest and financial expenses.
The Net earnings per share increased till FY '05 but declined in FY '06 due to increase in the share capital issued as well as comparatively lower earnings owing to nearly double finance cost, reflecting the adverse impacts of high interest rates on the earnings of the business. The book value of the business also followed the same pattern as EPS. The decline in FY '06 is due to increase in the no. of shares issued.
The average market price increased considerably over the years, increasing by approximately 42.54%, 10% and 21% during 2004, 2005 and 2006 respectively. Hence the P/e ratio also showed an increase except in FY ;o6 where it declined due to low EPS.
Hence, overall, Clariant Pakistan has crossed all previous performance records and continues to adapt itself to the changing marketing environment and needs of its customers.
FUTURE OUTLOOK:
Pakistan's economy has exhibited a strong recovery over the past few years with a DP growth of above 6 %. However the first half of the current fiscal year with rising interest costs, increasing inflation growing trade deficit and resultant decline in exports does show a picture of an over-heated economy that now needs to go through a correction phase.
Recent consolidated proposals under consideration by the Government in co-ordination with the affected export industry especially Textiles to reduce their cost of doing business and provide them with a level-palying field against the regional competitiors by corrective measures would probably be a step in right direction. As a result of the forthcoming "textile Policy" to be announced by the Government, the businesses are optimistic about an improvement in their operational activity.
In view of the government's additional support to export industries through recently announced Trade Policy, CPL is confident that it shall be able to maintain its growth trend and further consolidate its market leadership in all business sectors.
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CLARIANT PAKISTAN - FINANCIALS
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Income Statement FY'03 FY'04 FY'05 FY'06
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Total Revenue 3,362,090 3,964,938 4,798,884 5,081,003
Cost of Goods Sold 2,468,171 3,068,394 3,661,151 3,790,048
Gross Profit 682,323 676,506 878,891 986,645
Selling & Distribution Expenses 211,596 220,038 258,842 304,310
General & Administrative Expenses 97,060 98,924 94,166 98,924
Operating Profit (EBIT) 575,884 644,239 761,263 838,943
Financial Charges 112,810 98,405 92,184 186,071
Net Income Before Taxes 463,074 545,834 669,079 652,872
Net Income After Taxes 284,009 335,721 432,938 436,928
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Balance Sheet FY'03 FY'04 FY'05 FY'06
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Trade Debts 951,229 1,145,330 1,185,633 1,231,429
Loans and advances 8,649 9,939 14,321 14,329
Deposits and short term prepayment 3,979 5,179 4,797 5,084
Other receivables 11,243 21,020 137,631 246,119
Cash and bank balances 86,538 103,627 257,287 244,214
Total Current Assets 1,993,651 2,370,389 2,860,115 2,950,047
Property, plant,and equipment 584,081 547,350 527,589 600,980
Long term loans and advances 17,043 22,084 28,258 27,566
Long Term Deposits and Prepayments 1,504 2,080 1,943 2,769
Total Assets 2,634,392 2,941,903 3,426,822 3,597,217
Total Current Liabilities 1,336,120 1,564,594 1,877,259 1,574,491
Total Non Current Liabilities 541,667 479,942 500,000 700,000
Total Liabilities 1,877,787 2,044,536 2,377,259 2,274,491
Total Equity 756,605 897,367 1,049,563 1,322,726
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PROFITABILITY
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Gross profit margin 20.29% 17.06% 18.31% 19.42%
Profit margin 8.45% 8.47% 9.02% 8.60%
Return on Asset 10.78% 11.41% 12.63% 12.15%
Return on Common Equity 37.54% 37.41% 41.25% 33.03%
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LIQUIDITY RATIO
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Current Ratio 1.49 1.52 1.52 1.87
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ASSET MANAGEMENT
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Inventory Turnover(Days) 87.19 90.31 94.56 85.65
Day Sales Outstanding (Days) 101.85 103.99 88.94 87.25
Operating cycle (Days) 189.05 194.30 183.50 172.90
Total Asset turnover 1.28 1.35 1.40 1.41
Sales/Equity 4.44 4.42 4.57 3.84
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DEBT MANAGEMENT
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Debt to Asset(%) 0.71 0.69 0.69 0.63
Debt/Equity (Times) 2.48 2.28 2.26 1.72
Times Interest Earned (Times) 5.10 6.55 8.26 4.51
Long Term Debt to Equity(%) 0.72 0.53 0.48 0.53
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PER SHARE
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Earning per share 18.21 21.52 27.76 20.01
Price earning ratio 5.63 8.29 7.14 12.49
Dividend per share 11.00 13.00 14.00 12.50
Book value 48.51 57.54 67.29 60.58
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COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].
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