Century Paper and Board Mills Limited

Century Paper and Board Mills Limited (PSX: CEPB) was established in 1984 and started commercial production in 1990. It is part of the larger Lakson Group of Companies Pakistan. The company has two major business lines- paper and paperboard business and corrugated cartons business under which it manufactures and markets paper, board, and related products.

Shareholding pattern

At almost 69 percent, Century Paper and Board Mills is largely held by associated companies, undertakings, and related parties. Within this category, the two major shareholders are SIZA (Private) Limited and SIZA Services (Private) Limited. About 13 percent of the shares are distributed with the general public followed by a little over 7 percent in modarabas and mutual funds. The directors, CEO, their spouses, and minor children hold less than 1 percent.

Historical operational performance

In the last five years the company experienced rising profit margins until they fell in FY19 before increasing again in FY20, whereas topline saw consistent positive incline throughout the decade with the exception of FY15 when it reduced by 10 percent.

In FY15, the company experienced a decline in topline for the first time in the decade. Although demand for the products was stable, the company was unable to maintain market share due to the influx of imports that were comparatively cheaper. The company’s production level was 158,000 tons, lower than last year’s 175,000 tons. This is because the company focused on production of goods, the price of which could offset costs. Moreover, the cost of production jumped to 93 percent of the revenue due to high cost of producing energy to compensate for the shortage on the national grid. In addition, other income, although constitutes a small share in revenue, also reduced relative to last year, creating further dent in profits. Thus, the year concluded with a loss of Rs205 million.

The company saw marginal improvement in topline during FY16. It was able to increase production levels to 186, 416 metric tons while sales volumes increased to 176,482 metric tons. During the year, the company received uninterrupted supply of gas/RLNG in addition to receiving it at better prices as well. This was also reflected in the relatively lower cost of production which was down to 90 percent of the revenue. The effect of this trickled down to the bottomline as other expenses remained more or less similar. Reduction in finance expense also helped to improve margins for the year. The former was a result of “declining interest rates and better portfolio management of funds”.

After three years, in FY17 Century Paper and Board Mills witnessed double digit growth at 15 percent. This was attributed to increase in the share of domestic industry in addition to the overall economic growth of the country. Sales volumes improved to 203,752 metric tons while increase in production volume also increased the capacity utilization. Cost of production also reduced to 88 percent that helped to improve margins whereas other income also contributed to the bottomline that doubled year on year. Other income increased due to settlement agreement in favour of the company for 18MW Coal Based Co-Generation Power Plant between Century Paper and Runh Power Corporation Limited.

The company saw the highest growth in about seven years in topline during FY18 at 23 percent. Production volumes saw a 7 percent increase while sales volumes saw a 5 percent increase. the lower growth in sales volume compared to the growth in sales value indicates that there was also an improvement in selling price. Cost of production as a percentage of revenue reduced for the third consecutive period that increased profit margins. With other expenses remaining more or less similar, the effect was reflected in the bottomline as well.

Century Paper saw another year of double-digit growth in its topline in FY19 at 17 percent. Sales also grew in terms of volumes to 216,771 metric tons. After reducing for three consecutive years, the company saw an increase in cost of production as a percentage of revenue. This was due to an increase in cost of raw materials and fuel items. In FY19, the country saw structural and economic reforms such as exchange rate adjustment and monetary tightening. Inflation and interest rates picked up that had an effect on majority of the companies’ financials. century Paper being no exception, also saw a reduction in profit margins for the year.

Recent results and future outlook

Revenue growth, at 9 percent was relatively subdued, in FY20 compared to that seen in previous years. A year after stabilization measures undertaken by the new government, FY20 began with some economic recovery in sight. However, this was soon marred by the outbreak of Covid-19 that led to strict lockdown. This further led to a contraction of industrial and service sectors. However, the company managed to sustain and cater to demand in addition to exploring avenues for exports to regional countries such as Afghanistan and the Middle East. With a notable decline in cost of production as a percentage of revenue, the company increased its profit margins, with bottomline crossing Rs 1 billion.

With adopting economic stimulus measures with the State Bank of Pakistan (SBP), the support lent by the government to businesses would help with economic recovery. The company having focused on innovation and upgradation of processes over the years has expanded production capacity to increase market size.