INTRODUCTION: Established in May, 1950 under the Companies Ordinance 1984, Crescent Textile Mills Limited is a public limited company, with its head office in Lahore. It started its export operations to the US, Europe, the Middle East and Japan in 1956 and enjoys the status of being one of the largest manufacturers and exporters of home textiles, specialising in 100 percent cotton, polyester and blended, yarn and woven fabrics and made-ups.
FINANCIAL ANALYSIS OF CRESCENT TEXTILE MILLS LIMITED
Profitability
Company sales increased by 21.55 percent in FY 09 over the previous year figures, reaching Rs 10.75 billion. This improvement was the result of increase in the sale of value added products along with the devaluation of the local currency.
At the same time, there was a 16.49 percent increase in the cost of sales, and a 127.69 percent increase in the operating costs over the previous years' value.
Despite these increases in costs, the company managed to show an after tax profit of Rs 179.020 million. This value, however, was negatively impacted by an increase in the financial and other operating expenses for the year.
During the FY 10, the company managed to perform well despite rising cost pressures, severe power crisis and rising cotton prices. Sales revenue improved to Rs 10.86 billion compared with Rs 10.76 billion in the previous year.
Cost of sales for the FY 10 showed an increase, moving to Rs 9,407 million compared with the value of Rs 9,175 million a year earlier. Rising fuel, freight and distribution expenses also had an impact on profitability of the company. However, the company was successful in reducing its other operating expenses and financial costs by 63.63 percent and 34.28 percent respectively from last year. This had favourable impact on its bottom line results, which increased to Rs 345 million for the year.
Net sales revenue of the company increased by 35.86 percent in FY 11 compared with the figures from the previous year, on the back of exports which recorded a growth of 46.32 percent, despite extremely difficult business conditions including energy crisis and weak security and political environment. This was due to higher sales volumes by the company as well as better selling prices.
However, this improvement was not transformed into positive earnings for the company mainly due to the jump in the cost of sales, which went up by 42.40 percent owing to increased input costs (increased by Rs 3,987.99 million from the last financial year).
Additionally, in the 4th quarter, a decline in the demand added to the inventory cost. Selling and distribution cost was higher on increased rates of ocean freight due higher oil prices. Gas outages throughout the year also increased the consumption of expensive fuels. Other costs including stores consumption, maintenance and insurance increased due higher inflationary impact.
Resultantly, the company closed its books at a loss after tax of Rs 119 million; significantly lower than the profit of Rs 345 million a year earlier.
Liquidity
In FY10, the government was unable to fully provide the benefits through subsidy on long term loans and export finances it had promised under the Textile Policy 2009. It also blocked sales tax refunds and rebates thereby increasing the finance cost and liquidity crunch.
The management of the company is working hard to ensure a satisfactory liquidity position of the company. Despite the cash crunch, the company has managed to maintain a current ratio of 0.70 for the past three fiscal years.
Debt Management
To control the rising inflation, depletion of foreign reserves and adherence to conditions of the IMF for obtaining loans, SBP increased discount rates to 15 percent for FY 09, resulting in increased finance cost to the company.
This cost decreased in the following year despite higher borrowing, due to the stable rupee as lower interest rates on availing US dollar loans proved very economical. Export finance loans at concessional rates also contributed favourably in this cost reduction.
Interest rate expenses followed its downward trend in FY 11, moving from Rs 567 million in FY 10 to Rs 527 in FY 11 even with increased bank borrowings. This may be attributed to a decline in the average mark up rates from 8.72 percent in FY 10 to 7.45 percent in FY 11.
The management of CTML has shown its dedication in reducing the debt to equity ratio since FY 09. It has fallen from 48.99 percent to 22.55 percent in FY 11, indicating the company's stable growth financing.
Operational Efficiency
All operations of the company achieved efficiencies at 90 percent during FY 09 and its plants operated throughout the year with gas and HFO operated captive power arrangements.
The operational efficiency of various processes was achieved to 88-98 percent in FY 10. Gas loadshedding, however, affected the company's potential output. The management of CTML used alternate energy sources to ensure satisfactory operational performance.
In FY 11, however, despite the presence of alternate expensive fuel usage, the operational performance of the company was hampered due to the frequent and yearlong gas outages. The company had to outsource its production for export commitments, which not only increased deliver time but also added to the company's fixed costs for underutilizing its own processes.
Future Prospects
The company expects order placements in the ongoing year as a result of stability in the cotton market and better access to the European Union for some textile products along with the depreciation of the local currency.
The challenge in the coming times is optimal capacity utilisation in the presence of serious energy outages. With the hopes of FESCO connection running, the company will be able to reduce its fuel cost and fully utilise its capacities.
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