Flying Cement Company Limited (PSX: FLYNG) was incorporated in Pakistan as a public limited company in 1992. The company is engaged in the manufacturing, marketing and sale of cement.

Pattern of Shareholding

As of June 30, 2023, FLYNG has a total of 694.8 million shares outstanding which are held by 8072 shareholders. Local general public has the highest stake of 49.68 percent in the company followed by the company’s directors, CEO and their children holding 44.13 percent shares. Foreign general public accounts for 2.02 percent of the outstanding shares of FLYNG. The remaining ownership is distributed among other categories of shareholders.

Financial Performance (2018-23)

During the period under consideration, FLYNG’s topline has posted a plunge twice i.e. in 2020 and 2023. Conversely, FLYNG’s bottomline and margins followed a downhill journey until 2020 where the company posted a net loss. In the subsequent two years, the company’s bottomline and margins considerably recovered only to fall again in 2023 (see graph of profitability ratios). The detailed performance review of each of the years under consideration is given below.

In 2019, FYLNG’s topline inched up by 12 percent year-on-year.While cement dispatches slid by 2.06 percent year-on-year to clock in at 514,890 metric tons, the topline growth was the effect of upward revision in prices in line with high cost of production owing to Pak Rupee depreciation, hike in commodity prices, high electricity tariff, inflation as well as discount rate. Corresponding to reduced off-take, production and capacity utilization also plummeted in 2019 (see the graph of production and capacity utilization). Cost of sales spiked by 16 percent year-on-year in 2019 due to factors mentioned before. However, it couldn’t be fully passed on to the consumers, resulting in 26 percent dip in gross profit in 2019 with GP margin falling down from 8.8 percent in 2018 to 5.8 percent in 2019. Operating expense grew by 10 percent year-on-year in 2019 mainly on account of higher payroll expense as the number of employees grew from 347 in 2018 to 398 in 2019. Lower profit related provisioning resulted in 26 percent thinner other expense in 2019 while other income swelled by 7 percent owing to creditors written off during the year. Operating profit slipped by 22 percent year-on-year in 2019 with OP margin shrinking from 9.5 percent in 2018 to 6.6 percent in 2019. FLYNG was able to cut back on its finance cost by 25 percent in 2019 despite higher prevailing discount rate. Gearing ratio also narrowed down in 2019 (see the graph of gearing ratio). Net profit registered a year-on-year decline of 22 percent in 2019 to clock in at Rs.142.36 million with EPS falling down from Rs.1.03 in 2018 to Rs.0.81 in 2019.

In 2020, FLYNG’s topline posted a drastic 67 percent year-on-year erosion. This was on account of global recession that kick-started owing to the advent of COVID-19. Cement dispatches posted a steep decline of 83 percent year-on-year to clock in at 86,957 metric tons in 2020. Owing to sluggish demand and the closure of plant due to lockdown, FLYNG could operate its cement plant at 12 percent capacity in 2020 versus 71 percent in 2019. Clinker plant functioned at 27 percent capacity in 2020 versus 68 percent in 2019. Cost of sales also plummeted, however, with a lower magnitude of 50 percent due to inefficient absorption of fixed cost in 2020. FLYNG registered a gross loss of Rs.462.38 million in 2020. Operating expense mounted by 12 percent year-on-year in 2020 due to higher payroll expense, insurance as well as fee & subscription charges. FLYNG’s workforce further grew to 415 employees in 2020. The company didn’t book any provision for WWF and WPPF in 2020; hence there was no other expense. Other income also marched down by 3 percent in 2020 owing to lesser creditors written off during the year. Operating loss clocked in at Rs.432.86 million in 2020. Finance cost magnified by 144 percent in 2020 due to higher discount rate for most part of the year coupled with excessive borrowing which drove up its gearing ratio to 47.3 percent in 2020. FLYNG recorded a net loss of Rs.530.72 million in 2020 with loss per share of Rs.3.02.

In 2021, FLYNG’s topline posted a staggering year-on-year rise of 197 percent. This was on account of continued efforts put in place by the government to boost the real-estate sector; revival of CPEC activities as well as low discount rate which encouraged investors to park their savings in the sector. FLYNG’s dispatches grew by a robust 346 percent growth to clock in at 388,157 metric tons in 2021. Capacity utilization also jumped up to 55 percent and 43 percent for cement and clinker plant respectively in 2021. Cost of sales grew by 88 percent year-on-year in 2021. The company posted a gross profit of Rs.302.94 million in 2021. GP margin also considerably recovered to 9.4 percent as the company increased its prices during the year. FLYNG was able to trim down its operating expense by 2 percent in 2021 by cutting down its legal & professional charges, communication charges as well as fee & subscription charges. The contraction of these charges offset the higher payroll expense incurred during the year as FLYNG’s workforce rose to 544 employees in 2021. Higher sale of trees, scrap and damaged stock pushed other income up by 11 percent in 2021. FLYNG posted operating profit of Rs.325.37 million in 2021 with OP margin clocking in at 10 percent. Finance cost slid by 10 percent in 2021 on account of low discount rate. The company posted net profit of Rs.143.68 million in 2021 with EPS of Rs.0.38 and NP margin of 4.5 percent.

The ascending journey of FLYNG’s net sales continued in 2022 with 66 percent year-on-year rebound in net sales. This came on the back of 35 percent rise in its off-take which clocked in at 522,881 metric tons in 2022. Economic activities continued to pick up post COVID-19 buttressing the construction and real-estate sector. In line with rising demand, FLYNG operated its cement and clinker plant at 63 percent and 76 percent capacity respectively. While there was an upsurge in demand in 2022, there were grave downside risks to company’s performance which included political headwinds, Russia-Ukraine crisis, sharp appreciation of electricity tariff, fuel & energy prices as well Pak Rupee depreciation. Yet, FLYNG was able to significantly drive up its GP margin to 16.3 percent by raising its prices and also by adoption of Waste Heat Recovery Power Plant which rendered significant cost saving in power consumption. Operating expense escalated by 40 percent year-on-year in 2022 due to higher payroll expense, utility charges, fee & subscription charges as well as donations. Higher profit related provisioning pushed up the other expense by 126 percent in 2022; however, no creditors written back during the year resulted in 18 percent lesser other income earned during the year. Operating profit magnified by 154 percent in 2022 with OP margin climbing up to 15.5 percent. Finance cost surged by 61 percent in 2022 on account of high discount rate although there was a slump in external borrowings during the year. Net profit magnified by 545 percent year-on-year in 2022 to clock in at Rs.926.10 million with EPS of Rs.1.33 and NP margin of 17.4 percent.

FLYNG’s net sales succumbed to geopolitical, economic and political uncertainties and tumbled by 20 percent year-on-year in 2023. Destructive floods in 1QFY23 also halted the construction and infrastructure related activities in the southern region of the country, impeding the cement demand. FLYNG’s dispatches dwindled by 37 percent year-on-year in 2023 to clock in at 329,211 metric tons. Capacity utilization also shrank to 42 percent and 47 percent for cement and clinker plants respectively in 2023. Constant currency depreciation, high inflation as well as hike in energy tariff didn’t allow FLYNG’s cost of sales to slide down by the same magnitude as its net sales, resulting in 34 percent leaner gross profit and GP margin slipping down to 13.6 percent in 2023. Operating expense spiked by 16 percent year-on-year in 2023 on account of a considerable rise in payroll expense, directors’ remuneration, advertisement and communication expense incurred during the year. Other expense dived down by 40 percent owing to lesser provisioning for WWF and WPPF. Other income ticked up by 5 percent on account of higher sale of trees, scrap and damaged stock. Operating profit narrowed down by 35 percent year-on-year in 2023 with OP margin plunging to 12.7 percent. Finance cost swelled by 46 percent year-on-year in 2023 due to excessive monetary tightening and increased borrowings. As a consequence, net profit weakened by 71 percent year-on-year in 2023 to clock in at Rs.271.25 million with EPS of Rs.0.39 and NP margin of 6.4 percent.

Recent Performance (1QFY24)

During 1QFY24, FLYNG’s net sales witnessed sound recovery as it grew by 27 percent year-on-year. While the company has no publicized its off-take for the period, the industry-wide data posted by APCMA shows that there was an impressive 23 percent growth in cement dispatches in 1QFY24. Higher cement prices have played a significant role in improved net sales during the period. Ease of import restrictions have put downward pressure of local and Afghan coal prices, resulting in 77 percent higher gross profit boasted by FLYNG in 1QFY24 with GP margin jumping up from 15 percent in 1QFY23 to 21 percent in 1QFY24. Operating expense escalated by 50 percent year-on-year in 1QFY24. Yet operating profit improved by 82 percent with OP margin ticking up from 13 percent in 1QFY23 to 18.5 percent in 1QFY24. Finance cost grew by 32 percent year-on-year owing to high discount rate and increased borrowings. Net profit registered 55 percent year-on-year rise to clock in at Rs.88.85 million in 1QFY24 with EPS of Rs.0.13, up from Rs.0.08 during the same period last year. NP margin also picked up from 6.4 percent in 1QFY23 to 7.7 percent in 1QFY24.

Future Outlook

The corrective measures taken by the authorities have resulted in an uptick in the value of local currency off-late. This coupled with a slight ease of inflationary pressures and resumption of economic activities have positively impacted the cement industry and improved its sales and profitability. Infrastructure projects related to roads network and hydropower have already kicked in, buttressing cement sector volumes. Then ease in local and Afghan coal prices have strengthened the gross margin of the industry amid no reduction in cement prices. Going forward, any change in coal prices will dictate the margins. Moreover, hike in international energy prices along with political ambiguity can hinder the capacity utilization.