The company has too distinct business units, a steel division and a cotton division. The accounting for these units is done separately in an arms length manner at the true profit before tax for each unit.
During FY06, the company's sales declined by 36.5% to Rs 1,707.13 million as compared to Rs 2,686.60 million in the previous year FY05. But company's gross margin remained under pressure lowering its gross profit. Despite positive factors as pointed out in this column, the company could not improve its profitability and profit before tax at Rs 262.62 million showed decline as compared to Rs 394.22 million in the preceding year. Profit after taxation went down in FY06 at Rs 260 million as compared to Rs 312 million in the preceding year.
The company has excellent track record of profit distribution in terms of regular announcements and high distribution rate. For the year under review, in FY06, the company declared bonus stock dividend at 20% identical to last year's. Last year the company had announced cash dividend at 30% in addition to bonus stock dividend.
The share in the company is trading at Rs 45 per 10-rupee share.
Crescent Steel & Allied Products Ltd was incorporated in August 1983 as a public limited company and is quoted on all stock exchanges of Pakistan.
It is one of the downstream industries of Pakistan Steel Mills, manufacturing large diameter spiral welded steel line pipes at Nooriabad, Distt Jamshoro in the province of Sindh. The company has coating facility capable of applying three-layer high density polyethylene coating on steel pipes. The coating plant commenced commercial production from November 16, 1992. The company acquired a running spinning unit of 14,400 spindles at Jaranwala District Faisalabad from Crescent Jute Products Limited. Another spinning unit (CCP-II) has been added with 25,344 spindles. The cotton spinning activity is carried out by the company under the name and title of Crescent Cotton Products a division of Crescent Steel & Allied Products Ltd (the cotton division).
It has been clarified in the company's Annual Report 2006 that the activities of the company have been grouped into two segments of related products. The steel division comprises manufacturing and coating of steel pipes whereas the cotton division is involved in yarn manufacturing activity. The steel division charges certain percentage of common administrative expenditure to the cotton division.
In addition, the funds utilised by inter division are charged at mark-up rate of 9.0 percent (2005: 7.5 and 9 percent) subject to financial charges incurred by the steel division.
During FY06, the year under review the company's sales in terms of value amounted to Rs 1,707.13 million (FY05: Rs 2,686.60 million) registering 36% decline YoY. In FY06, the contribution of the steel division in the company's sales was lower at 59.4% (FY05: 76.2%). This ratio reveals higher growth in the sales of cotton division whereas shrinkage in the sales of steel division.
Hence it would be apt to further probe the role of steel division of the company. In this connection, it has been reported that the order in take in FY06 was much less than previous fiscal mainly due to high steel prices and depriving of projects by customers. Bare pipe production decreased to 21,820 tonnes in FY06 as compared to 42,099 tonnes in FY05. Sales revenue of the steel division at Rs 1,014.1 million was 50% less than the amount of Rs 2,046.5 million in FY05. High steel prices and non availability of any large order largely led to decline in sales volume.
In this division FY06 gross profit margin, during FY06 was 11% as against 17% last year. The chief executive of the company attributed the decline in the profit margin to high price of steel, price fluctuation of local as well as imported raw materials and stiffer competition among the market players of the steel industry. Resultantly there was big gap in the gross profit in FY06 at Rs 111.21 million between gross profit at Rs 349.05 million of FY05 almost 68% lower YoY.
In FY06 operating expenses were 28% lower, other operating income 41% higher, and share of associate at Rs 11.92 million was lower compared to Rs 19.50 million of FY05. Even Finance Costs were half of last year's. Despite these positive factors the steel division's pretax profit was 20.5% lower at Rs 330.82 million as compared to Rs 416.04 million previous year.
As regards cotton division it achieved 20/s converted production of 7.69 million kgs of yarn as compared to 6.17 million kgs produced last year. Revenue of cotton division increased by 8.2% over FY05. Financial charges increased due to a long term loan of Rs 450 million Q2FY06 to finance planned capital expenditure of Unit II. In addition there was regular upward trend in interest rates. The Cotton Division Booked operating profit at Rs 7.85 million in FY06 but this could not fully absorb its finance cost. Hence it booked pretax loss of Rs 21.82 million.
======================================================
Performance Statistics (Million Rupees)
======================================================
30 June 2006 2005
======================================================
Share Capital Paid-up: 349.96 243.03
Reserves & Surplus: 1,687.74 1,617.50
Shareholders Equity: 2,037.70 1,860.53
Deferred Income: - 0.30
L.T. Debts: 548.32 236.15
Deferred Taxation: 1.63 3.88
Current Liabilities: 1,127.10 468.89
Tangible Fixed Assets: 1,339.59 441.84
Intangible Assets: 1.11 4.99
L.T. Investments: 485.19 339.12
L.T. Deposits & Prepayments: 5.75 4.31
Current Assets: 1,883.61 1,779.49
Total Assets: 3,714.75 2,569.75
------------------------------------------------------
Sales, Profit & Pay Out:
------------------------------------------------------
Sales: 1,707.13: 2,686.60
Gross Profit: 140.33 371.92
Other Operating Income: 357.45 264.05
Operating Profit: 357.27 457.67
Finance (Costs): (82.94) (43.95)
(Depreciation): (97.40) (82.60)
Share of (Loss) in Associates: (11.92) (19.50)
Profit Before Taxation: 262.41 394.22
Profit After Taxation: 259.62 312.40
Earnings Per Share (Rs): 7.42 8.93
Dividend Cash (%): - 30.00
Dividend Bonus Stock: 20.00 20.00
Share Price (Rs) on 02/02/2007: 45.00 -
------------------------------------------------------
Financial Ratios:
------------------------------------------------------
Price/Earning Ratio: 6.06 -
Book Value Per Share: 58.23 76.55
Price/Book Value Ratio: 0.77 -
Debt/Equity Ratio: 21:79 11:89
Current Ratio: 1.67 3.80
Asset Turn Over Ratio: 0.46 1.05
Days Receivables: 16 18
Days Inventory: 109 30
Gross Profit Margin (%): 8.22 14
Net Profit Margin (%): 15.21 11.63
R.O.A (%): 6.99 12.16
R.O.C.E (%): 10.03 14.87
======================================================
The plant installed/rated capacity for production based on single shift is 30,000 tons (2005: 30,000 tons) annually on the basis of national pipe size 30" dia x thickness. The actual production achieved during the year was 21,820 tons (2005: 42,099 tons) line pipes of various sizes and thickness, which is equivalent to 46,981 tons (2005, 73,501 tons) if actual production is translated to the notional pipe size of 30' diameter.
The capacity of the plant works out to 600,000 square meters outside surface of pipes based on national size of 30" dia on single shift working. Coating of 249,463 meters of different dia pipes (242,847 square meters surface area) was achieved during the year (2005: 250,717 square meters surface area).
The plant capacity converted to 20s count based on three shifts per day for 1,080 shifts is 9,284,825 kilograms. Actual production converted into 20s count was 1,361,947 kilograms.
The capacities of the planet were utilized to the extent of orders received.