Frontier Ceramics Limited (PSX: FRCL) was established in July 1982 as a public limited company listed on the stock exchange. It is essentially engaged in the manufacturing and selling of ceramic wall and floor tiles under the widely known brand name "FORTE".
Shareholding pattern
Frontier Ceramics Limited is a closely held company with 92 percent of shares owned by the directors, CEO, their spouses and minor children. Of this, Mr. Omer Khalid, the CEO of the company holds majority of the shares at about 27 percent. the local general public owns around 6 percent of the company while negligible ownership is distributed between public sector companies and corporations, banks, DFIs, NBFIs, takaful, modarabas, pension funds and 'others'.
Historical performance
The top-line of the company has been growing at various rates since the past five years. Prior to that, from FY12 to FY14 Frontier Ceramics Limited the top-line followed a downward trend, and gained momentum FY15 onwards.
The top-line of the company grew by a significant 33 percent year on year due to increase in sales price of the tiles at the start of FY15 in addition to introduction of new sizes of tiles. Gas and electricity expenses consumed a big share of the FRCL's cost of production- about 47 percent in FY15. Despite increase in value terms, as a percentage of sales, the cost of production has been rather controlled owing to reducing wastages in the process and curtailing unnecessary usage of spares.
Moreover, a cost of court settle charges which were present in FY14 was eliminated in FY15, reducing other expenses from Rs21 million in FY14 to Rs0.7 million in FY15. Despite the overall reduction in costs combined with an increase in top-line, the company was unable to lift margins, as bottom-line in FY14 was abnormally high due to income earned from other sources such as loans and liabilities written back which is absent in FY15.
During the year FY15, FRCL also approved the issue of 30,132,621 million ordinary shares by way of rights issue to finance their floor tiles project.
In FY16, the top-line of Frontier Ceramics continued to grow although at a lower rate of about 10 percent year on year. This was due to challenge posed by availability of cheaper tiles from China and introduction of 3D designs by competitors. An application to protect the local industry by imposing anti-dumping duties was also filed with the National Tariff Commission (NTC) during the year.
In addition, the cost of sales as a percentage of sales increased marginally, although it consumed about 92 percent of the net revenue. This was attributable to increase in consumption of raw materials and stores and spares. Net margins suffered due to the finance costs doubling during the year as a result of long term financing and short term borrowings.
In FY17 the growth rate of the top-line further reduced to around 5 percent compared to last year's around 10 percent. This was due to the continued challenge faced from availability of cheaper tiles from China combined with fluctuating gas pressure, with the latter affecting production. While gross margins decreased slightly, operating and net margins improved as a result of income generated through exchange gain and liabilities written back among other sources.
Frontier Ceramics Limited saw some recovery in the growth rate of its top-line, the latter increasing by nearly 56 percent mostly achieved through volumetric sales. Profitability peaked in FY18 with gross margins nearly doubling as a percentage of net revenue- growing from 7 percent in FY17 to almost 16 percent in FY18. Although cost of production rose on a year to year basis, as a percentage of sales it has rather declined thus lifting margins.
While top-line continued its growth trajectory during FY19, increasing by about 17 percent year on year, margins declined considerably, with cost of production consuming a massive 97 percent of net revenue. Increase in top-line was achieved through an increase in sales volume.
Various factors were at play which resulted in losses for the period. The increase in costs, both in value terms and as a percentage of net revenue was attributable to increase in raw materials and stores and spares consumed, whereas gas load shedding combined with currency devaluation adversely affected profit figures. Moreover, income generated from other sources was also absent during the year, eventually leading to a loss recorded of Rs88 million- highest figured seen in nearly a decade of operations.
Quarterly results and future outlook
After incurring losses in the preceding year, FRCL undertook cost cutting procedures resulting in year on year decline in costs of production by 11 percent in 1QFY20. This largely contributed to improvement in profit margins. While gross margins doubled in value terms, bottom-line remained flat as a result of ballooning finance cost in the first quarter of FY20.
Frontier Ceramics Limited foresees an increase in construction of commercial and housing schemes which would lead to an increase in demand for their products in future. According to the company's annual report of FY19 import trade price (ITP) of imported tiles continues to be a challenge. Thus a rationalisation in ITP in addition to a curtailment in energy prices would help to "provide a level playing field for local tile manufacturers".
========================================================== FRCL: Quarterly results ========================================================== Rs (mn) 1QFY20 1QFY19 YoY ========================================================== Sales 171 173 -1.16% Cost of sales -143 -161 -11.18% Gross profit 28 12 133.33% Distribution cost -3 -3 0.00% Administrative expenses -7 -5 40.00% Other operating expenses -1 0 -1918.18% Other income 1 0 177.78% Operating profit 18 4 307.70% Finance cost -9 -1 800.00% Profit before taxation 9 3 163.54% Taxation -6 -1 1100.00% Profit after taxation 3 3 2.92% EPS 0.09 0.07 28.57% ==========================================================
Source: Company accounts
=========================================================== TGL: Pattern of shareholding as at June 30, 2019 =========================================================== Categories of shareholders % =========================================================== Directors, CEO, their spouses and minor children 92.51 Public sector companies and corporations 0.29 Banks, DFIs and NBFIs, insurance companies, 0.51 takaful, modarabas and pension funds Local general public 6.61 Others 0.08 =========================================================== Total 100 ===========================================================
Source: Company accounts
Comments
Comments are closed.