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.
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