Final ProjectOn Fertilizer Sector Analysis (FFC & FFBL DH)Submitted to: Mr. Faisal Dhedhi By:Deepa bai Gian ChandJunaid (9705) Smareen Ahmed Mushq Jamal LETTER OF TRANSMITTAL

April 14 , 2012

Mr. Faisal DhedhiCourse Instructor, Analysis of Financial Statement

Iqra University Karachi. Dear Sir:

We herewith present our Term Report authorized by you as a requirement for this course. In this report, we have tried to provide the industry review & analysis of financial statements of FFC, FFBL and DH for the year 2010-2011. An in depth comparison has also been done with the Industry ratios that has been attained with the average of FFC, FFBL and DH ratios.

We hope we have covered all that was required in the report, & foresee your acceptance of the report.

Sincerely,

Deepa bai

Gian Chand

Junaid

Samree Ahmed

Mushq Jamal

ACKNOWLEDGEMENT In the name of Allah, the most beneficent and merciful who gave us strength and knowledge to complete this report. This report is a part of our course Analysis of Financial Statement. This has proved to be a great learning experience for all of us about analyzing financial statements and thereby making decisions accordingly. We would like to express gratitude to our teacher Mr. Faisal Dhedhi who gave us this opportunity to learn & project our capabilities through this report. We would also like to thank family & friends who supported us in completion of this report by giving us helpful information & the priceless comments and suggestions.

TABLE OF CONTENTS

FERTILZERS SECTOR1. INTRODUCTION1-1 Introduction ------------------------------------------------------------------------------------- 051-2 History of Pakistan Fertilizer Industry -------------------------------------------------------051-3 Fertilizer Sector in the 1990'S -----------------------------------------------------------------051-4 Industry overview--------------------------------------------------------------------------------062. SWOT ANALYSIS2-1 Strength -------------------------------------------------------------------------------------------072-2 Weakness-----------------------------------------------------------------------------------------072-3 Opportunities ------------------------------------------------------------------------------------072-4 Threats---------------------------------------------------------------------------------------------073. FAUJI FERTILIZER COMPANY3-1 Introduction------------------------------------------------------------------------------------- 093-2 Balance Sheet -----------------------------------------------------------------------------------103-3 Profit & Loss Statement------------------------------------------------------------------------123-4 Cash flow-----------------------------------------------------------------------------------------133-5 Ratios-------------------------------------------------------------------------------------------- 143-6 INTERPRETATION OF CASH FLOW STATEMENT---------------------------------204. FAUJI FERTILIZER BIN QASIM LTD.4-1 Introduction--------------------------------------------------------------------------------------224-2 Balance Sheet ---------------------------------------------------------------------------------234-3 Profit & Loss Statement------------------------------------------------------------------------244-4 Cashflow Statement-----------------------------------------------------------------------------254-2 Ratios----------------------------------------------------------------------------------------------24-3 Cash flow------------------------------------------------------------------------------------------215. Dawood Hercules Corporation Limited5-1 Introduction--------------------------------------------------------------------------------------304-2 Balance Sheet ---------------------------------------------------------------------------------314-4 Cashflow Statement------------------------------------------------------------------------------334-3 Profit & Loss Statement------------------------------------------------------------------------345-2 Ratios---------------------------------------------------------------------------------------------355-3 Cash flow----------------------------------------------------------------------------------------37FERTILIZER INDUSTRY REVIEWIntroduction:Pakistan Fertilizer Companies - Fertilizers are the materials which provide nutrients to plant or improve soil fertility. Fertilizers are the efficient resources of growing up crop production and for enhancing the nature of crop. Fertilizers may also have two different types, artificial fertilizers and natural fertilizers. Fertilizers are used to provide extra nutrient in the soil naturally.History of Pakistan Fertilizer Industry:The fertilizer sector in Pakistan currently comprises of 10 companies 4 of which are in the public sector (Hazara Phosphate Fertilizer (Pvt) Limited, Lyallpur Chemical & Fertilizer Limited, Pak Arab Fertilizer Limited, and Pak American Fertilizers Limited) while 6 are in the private sector (Engro Chemicals Pakistan Limited, Dawood Hercules Chemicals Limited, Fauji Fertilizer Company Limited and FFC-Jordan Fertilizer Company Limited, Pak China Fertilizer and Pak Saudi Fertilizer Company Limited now owned by FFC).Fauji Fertilizer Company Limited (FFC) is the largest fertilizer manufacturer in the country with a designed production capacity of 1,887 thousand tons of urea (including the production capacity of Pak Saudi Fertilizer).Fertilizer production is concentrated in nitrogenous fertilizers, which comprise 85% of all fertilizers produced in the country. Although other types of fertilizers are also produced in Pakistan, the bulk of whose demand is imported. The main reason for this concentration on nitrogenous fertilizers is that its main raw materials i.e. natural gas, is cheaply available in the country. The raw material for other fertilizers such as potassium and phosphate has to be imported and thus local manufacturing is not economically viable as demonstrated by Fauji Jordan's problems.Fertilizer Sector in the 1990'S:The deregulation of the fertilizer sector attracted considerable additional investment in the sector as a result of which the production capacity of the sector doubled from 2.95m tons in FY 1990.1990's also saw the privatization phenomena with the fertilizer plants owned by the government and managed by NFC being sold to private parties. The first plant to be privatized was Pak-China Fertilizer, which was bought by the Schon Group in 1992. After this the process of privatization became very slow largely due to the political instability, which plagued the 1990s.Pak Saudi Fertilizer was purchased by FFC in FY 2001 for a purchase price of PkR7.3bn rupees. This was the second fertilizer plant to be privatized. The government is in the process of privatizing Pak Arab Fertilizer, Lyallpur Chemicals and Fertilizers Limited (whose EoIs have been invited) and Pak American Fertilizer Company. However, no deadlines have been set for these privatizations.Another factor that affected the fertilizer sector in the 1990's was the shift of the GoP's emphasis towards the energy sector. It started with the Fertilizer Policy of 1989, which fixed prices for new plants for 10 years and subjected old plants to rising feed stock prices. Also the 1990's saw the gradual decrease in the fuel gas subsidy provided to the sector.Reference: http://www.pakistaneconomist.com/issue2002/issue27/market3.htm Overview of the Industry: Low penetration to fertilizer expected to improve. Excess demand situation here Seller is the king. Low resources costs results in high profitability. Expansion may open up attractive export avenues. The countrys GOP has grown at a CAGR of 7.55% over the past 3 years.

Incentives offered by Government:

The Government has provided following incentives under Fertilizer Policy, 2001, to encourage fertilizer production in the country:

To fulfill local demand of fertilizers at affordable prices, the Government is providing subsidy on production and import of fertilizers. Investors will be allowed to relocate second hand plant, equipment and machinery, with the same concession/exemption as applicable to new plants.

The Government is providing concessionary feed stock gas to the fertilizer plants for production of urea.

Import by manufacturers of Rock Phosphate and Phosphorous of fertilizer free ofcustoms duty.

Tax relaxation has also been offered by the Government.

Export benefit to suppliers of capital goods for new/modernization projects offertilizer.

Gas price has been fixed for 10 years for new investments.

Gas for balancing, modernization, replacement expansion for existing plants hasbeen filed for 7 years

Incentives that Industry asking for:

Industry is asking for the following incentives: Subsidy on the production. Tax relaxation

Custom free import of raw material and machinery.

Low prices of Natural gas. Grantee of gas supply for both Fuel and Feeds.

.

SWOT ANALYSIS:

Strengths:

1: The players operating in this sector are financially strong.2: GOP supports in the form of subsidy.3: Cheap labor.4: Heavy demand.

Weaknesses:

1: Low capacity as compared to demand (demand supply Gap).2: Due to existence of black market and heavy demand Farmers had to pay above the stated price.3: Technological backwardness: Lack of local resources.Opportunities:

1: As the demand is high compared to supply, fertilizer sector has an opportunity to expand capacity to fulfill the local demand.2: Export.3: Introduction of BT crops.

Threats:1: Scarce water resources2: Load-shedding of gas.3: Hike in fuel prices.4: Taxes5: Removal of subsidy.6: Rising global prices of fertilizer products.7: Government intervenes to stabilize the prices.

Strategic Plan:

Gas is the most importantcomponent used in fertilizer industry both as stock and as fuel so the shortage of gas creates the problem the fertilizer industry should demand for availability of gas. The government should check the prices at which the farmers are getting fertilizer they should make a platform for farmers where they can come up with such problems. A list of fertilizer prices should be provided by the government to the local shops so thatthe farmers are aware of the prices which the government has set and are saving from blackmarket.

Pricing Analysis:

17% will likely to take ex-factory urea prices to PKR 1,149/bag from the current level of PKR 1020/bag while DAP price is estimated to increase to the tune of PKR 497/bag (expected to take DAP ex-factory price to PKR 3,597/bag) GOP provides a subsidy of PKR 393/bag which effectively results in industry provided subsidy to the tune of 361/bag. GST is an add on tax, it is unlikely to have an impact on profitability.

Financial Ratios:

A statistic has little value in isolation. Hence, a profit figure of Rs.100 million is meaningless unless it is related to either the firms turnover (sales revenue) or the value of its assets. Accounting ratios attempt to highlight the relationships between significant items in the accounts of a firm.Financial ratios are the analysts microscope; they allow them to get a better view of the firms financial health than just looking at the raw financial statements

Ratios are used by both internal and external analysts

Internal uses Planning Evaluation of managementExternal uses Credit granting Performance monitoring Investment decisions Making of policies

FAUJI FERTILIZER COMAPNYIntroduction:FFC was incorporated in 1978 as a PVT. Basically this was the joint venture between Fauji foundation and Haldor Topsoe of Denmark. The initial capital of the company was 813.9 Million Rupees. The present share capital of the company stands at Rs. 3.0 Billion. FFC has Rs. 1.0 Billion stakes in the subsidiary Fauji Fertilizer Bin Qasim Limited (formerly FFC-Jordan Fertilizer Company Limited). RawalpindiPLANT LOCATION:There are 3 plants of FFC in Pakistan 2 plants are located in Gothmachhi 1 plant in MirpurmatheloProduct offered: Sona urea Sona DAP Sona SOPSona Urea:Most widely used fertilizer in the country. Fertilizer is white in color, free flowing, readily soluble in water and both contain 46% Nitrogen. Because of its high solubility, it is suitable for solution fertilizers. Sona DAP:Is the most concentrated phosphate fertilizer containing 46% P2O5 and 18% Nitrogen. It is the widely used phosphoric fertilizer in the world as well as Pakistan. itan ideal fertilizer, to meet the initial requirement of most of the crops. Sona SOP: This fertilizer is an important source of Potash, which is a quality nutrient forproduction of crops especially fruits and vegetables. Potash improves the resistance of the plants againstpests, diseases and stresses like water.

Balance Sheet

as at December 31, 2011/10

20112010

EQUITY AND LIABILITIES(Rupees 000)(Rupees 000)

EQUITYShare capital8,481,5886,785,271

Capital reserves972,682973,083

Revenue reserves16,308,7629,522,587

25,763,03217,280,941

NON - CONTROLLING INTEREST6,688,5505,988,208

TOTAL EQUITY32,451,58223,269,149

NON - CURRENT LIABILITIES

Long Term LiabilitesLong term borrowings10,080,8907,708,608

Deferred taxation7,504,4017,671,871

17,585,29115,380,479

CURRENT LIABILITIES

Current LiabilitesTrade and other payables20,956,92117,481,446

Interest and mark - up accrued496,159294,063

Short term borrowings16,211,79411,293,144

Current portion of long term borrowings1,615,6551,967,877

Murabaha-19,338

Loans648,201648,201

Taxation4,425,0683,663,165

44,353,79835,367,234

Total Equity & Liabilities94,390,67174,016,862

ASSETS

NON - CURRENT ASSETSProperty, plant and equipment37,161,88230,971,029

Intangible asset46,39974,060

Goodwill1,569,2341,569,234

Equity accounted investments5,503,1234,859,358

Long term investments250,818261,772

Long term loans and advances605,883455,328

Long term deposits and prepayments90,48797,351

Total Non-Current Assets45,227,82638,288,132

CURRENT ASSETS

Stores, spares and loose tools4,353,1904,235,495

Stock in trade4,043,9161,482,387

Trade debts733,1851,187,941

Loans and advances872,320557,575

Deposits and prepayments67,00964,170

Other receivables1,055,982856,429

Short term investments30,632,71713,270,581

Cash and bank balances7,404,52614,074,152

Total Current Assets49,162,84535,728,730

Total Assets94,390,67174,016,862

Profit and Loss Account

for the year ended December 31, 2010/09

20112010

Sales 111,111,913 88,154,698

Cost of sales 56,625,023 55,103,948

GROSS PROFIT 54,486,890 33,050,750

Administrative expenses and distribution cost 7,731,516 7,286,329

46,755,374 25,764,421

Other expenses3,831,4472,086,563

Finance cost1,824,4712,001,355

41,099,456 21,676,503

Other income3,228,8751,635,389

Share in profit of equity accounted investments409,077193,430

NET PROFIT BEFORE TAXATION 44,737,408 23,505,322

Provision for taxation16,096,2338,456,139

NET PROFIT AFTER TAXATION 28,641,175 15,049,183

ATTRIBUTABLE TO:

Equity holders of Fauji Fertilizer Company Limited23,351,86811,859,670

Non-controlling interests5,289,3073,189,513

2864117515049183

Weighted average number of shares in issue during the year678,527

Earnings per share 16.25

Dividend Per Share15.50

Total Dividends 10,517,169

CASH FLOW FFC

20112010

(Rupees 000)

CASH FLOWS FROM OPERATING ACTIVITIES

Cash generated from operations49,367,83633,563,894

Finance cost paid(1,413,481)(1,943,386)

Income tax paid(15,645,446)(7,748,746)

Payment to gratuity fund(121,523)(90,930)

Payment to pension fund(109,220)(77,446)

Payment to Workers Welfare Fund(329,070)(390,686)

Payment to Workers Profit Participation Fund - net(2,729,781)(1,129,518)

Compensated absences paid(110,263)(112,774)

(20,458,784)(11,493,486)

Net cash generated from operating activities28,909,05222,070,408

CASH FLOWS FROM INVESTING ACTIVITIES

Fixed capital expenditure(8,702,512)(4,188,198)

Proceeds from sale of property, plant and equipment20,16991,696

Interest received1,931,3551,068,578

Decrease / (increase) in other investments-11,093,7622,387,250

Dividends received1,003,657205,452

Net cash generated from / (used in) investing activities(16,841,093)(435,222)

CASH FLOWS FROM FINANCING ACTIVITIES

Long term financing -disbursements4,636,1381,500,000

repayments(2,616,078)(3,364,549)

Long term murabaha - repayments(19,338)(38,679)

Short term borrowings - net2,168,762 1,626,238

Dividends paid(19,150,348)(13,258,877)

Net cash used in financing activities(14,980,864)(13,535,867)

Net (decrease)/ increase in cash and cash equivalents(2,912,905)8,099,319

Cash and cash equivalents at beginning of the year19,131,86711,013,641

Effect of exchange rate changes23,89318907

Cash and cash equivalents at end of the year16,242,85519,131,867

FAUJI FERTILIZER RATIOSLIQUIDITY RATIOS:Ratios20112010Ind.avg

Current Ratio1.1081.0105.201

Quick Ratio0.280.4644.723

Cash Ratio0.2580.4400.235

Working Capital 4809047 3614963153092.33

The current ratio indicates more liquidity level when compared to last year and very lower liquidity than the industry average. This shows that company has mad an improvement in current year to pay off its obligations and company has 0.835 of its current assets to pay off its 1 current liability.The quick ration indicates lower liquidity than the last year and also very lower than the industry line. This shows that the company is not receiving its receivables quickly than last year and making inefficient use of cash on hand to pay off its obligations.The cash ratio is lower than the last year but some extent higher with the industry line. This again shows that company has inefficient cash in current year as compared to last year to pay off its obligations.

1. WORKING CAPITAL RATIO:

The last year working capital ratio is 361496 and current year is 4809047.Since the company has positive working capital ratio and it has been increased from last year also, this shows that company has a potential to further expand its operations and ability to pay off its obligations also.

EFFICENCY RATIOS:Receivable turnover116.20110.85

Rec.days3.143.29

Inventory Turnover13.1915.239

Inv.days27.6823.98

Payable Turnover2.954.325

Pay.days123.8987.402

Cash Conversion Cycle-93.06-57.157

AVERAGE COLLECTION PERIODIt indicates that how many days are required to collect amount from the trade debts. The earlier the cash is received from the debtors; the better will be for the company. Dso is a bit lower than the companys past performance and also lower than the industry average. ACCOUNT RECEIVABLE TURNOVER:Account receivable turnover indicates that how many times accounts receivable is converted into cash a high turnover indicates the efficiency of the management. Accounts receivable turnover has increased to 116 times in 2011 from 111 times in the year 2010. This is good sign for the company. INVENTORY TURNOVER:Inventory turnover commonly measure the activity, or liquidity, of a firms inventory. Inventory turnover is much lower than the last year but higher than the industry average. This suggest that this year the company is not managing inventory efficiently and may have obsolete stock. AVERAGE AGE OF INVENTORY Tells that for how many days on average the inventory is held .The greater the number of days, the inefficient will be the management. Average age of inventory of the company has more than the last year .This might mean that too much capital is tied up in inventory and could mean that inventory is obsolete. PAYABLE TURNOVERAccounts payable turnover indicates that how many times accounts payable converted into cash payments. It should be maximum one. Accounts payable has decreased to 2.95 times in 2011 from 4.325 times in 2010 that is not a good sign for the company. AVERAGE PAYMENT PERIODAverage payment period indicates that after how many days the payment to creditors is made. This time period should be maximum one. Average payment period of the company has decreased to 124 days in 2011 from 85 days in 2010. This is good sign for the company. CASH CONVERSION CYCLE:Operating cycle of any company shows the number of days lapsed from the acquisition of raw material till the receipt of cash from the sale of finished goods both year company having negative conversion cycle. This means that company in 2010 is less than in 2011 is selling their inventory and collecting their receivables before company has to pay their payables.

RATIOSFFC-11FFC-10

GP Margin0.4937%

Operating Income Margin0.4229%

Pre-tax Margin0.4027%

Net profit Margin0.2617%

GROSS PROFITThe gross profit margin measures the percentage of each sales dollar remaining after the firm has paid for its goods. The higher the gross profit margin, the better and the lower the relative cost of merchandise sold. Gross profit margin of the company has increased 49% in the year 2011 as compared to last year, which has gross profit margin of 37%. And also more than the industry avg. OPERATING PROFIT MARGINThe operating profit margin measures the percentage of each sales dollar remaining after all costs and expenses other than interest and taxes are deducted. It represents the pure profits earned on each sales dollar. A high operating profit margin is preferred. Operating profit margin of the company has increased to 42% in 2011 as compared to the year 2010(29%). This has decreased due to decreased selling and administrative expenses.

NET PROFIT MARGIN:The net profit margin measures the percentage of each sales dollar remaining after all costs and expenses, including interest and taxes, have been deducted. The higher the firms net profit margin, the better. The net profit margin is commonly cited measure of the firms success with respect to earnings. Net profit margin of the company has increased to 26% in the year 2010 against 17% in the year 2009. But lower than the industry Avg. Per-Tax Margin (EBT margin)This ratio indicates the profitability of Company's operations. This ratio does not take into account the company's tax structure. The ratio is slightly high as compared to 2010 which is 27% these slight Change occur due to increase in finance and expense cost and other income also increase and also increased from the industry average.

RATIOSFFC-11FFC-10

Return on assets36%20%

Return on Equity103%54%

Return on common equity103%54%

RETURN ON ASSETS (ROA)This ratio measures the operating efficacy of a company without regards to financial structure. Return on Total asset of the company has increased to 36% in the year 2011 from 20% in the year 2010. And also has increased from the industry avg. It shows efficiency of the company management to generate profit on the total assets. RETURN ON EQUITY:The amount of net incomereturnedas a percentageof shareholders equity.Return on equitymeasures a corporation's profitabilityby revealing how muchprofit a company generateswith the money shareholders have invested in 2011 RoE is 103% which is higher than last year 54% and also higher than the industry avg.It shows greater profitability a company generate with the money shareholder have investment . RETURN ON COMMON EQUITY:Return on common equity, explained is a measure of how well a company uses its investment dollars to generate profits, it is more important to a shareholder than return on investment (ROI). It tells common stock investors how effectively their capital is being reinvested. A company with high return on equity is more successful in generating cash internally. Investors are always looking for companies with high and growing returns on common equity. However, not all high ROE companies make good investments. In 2011 company having 103% ROCE which is good as compare to last year because in last year ROCE in 54%. The higher the ratio, the better the company.RATIOSFFC-11FFC-10

Fixed Asset turnover2.662.11

Total assets turnover1.321.05

Equity Turnover3.993.16

Fixed-Asset TurnoverThis ratio is similar to total asset turnover; the difference is that only fixed assets are taken into account.Net fixed assets turnover of the company is 2.66 times in the year 2011 which has significantly increased as compared to the last year s turnover of 2.11 times. This is a good sign for the company and also increased than the company avg.

TOTAL ASSET TURNOVERTotal assets turnover indicates the efficiency with which the firm uses all its assets to generate sales. Generally, the higher a firms total asset turnover, the more efficiently its assets have been used. This measure is probably of greatest interest to management, because it indicates whether the firms operations have been financially efficient. Fauji Fertilizer Company turns its asset over in 2011 by1.32 times and it was 1.05 times in the year 2010 This shows that the total assets turnover has been very slightly high. Thus it shows efficiency of the management of the firm to use assets to generate revenues.

EQUITY TURNOVER: Equity turnover is used to calculate the rate of return on common equity, and is a measure of how well a firm uses its stockholders' equity to generate revenue. Fauzi fertilizer in 2011 have 3.99 times but in 2010 is 3.16 this shows that firm is more efficiently using its capital/equity also know as capital turnover.FINANCIAL RISK RATIOSDebt to Capital ratio0.660.69

Interest Coverage ratio25.6312.87

Dupont ROE*1.360.57

Asset to equity Ratio2.913.18

DEBT TO CAPITAL RATIOThe debt-equity ratio indicates the relationship between the long-term funds provided by creditors and those provided by the firms owners. It is commonly used to measure the degree of financial leverage of the firm. FFCs debt equity ratio is 66% in the year 2011 and has decreased significantly from 69% in the year 2010. This shows that debts are less as compared to shareholders equity so this shows positive signal for the investors. INTEREST COVERAGE RATIO:Interest coverage ration tells that how many times the firm is able to pay its financial charges out of its profit .A high ratio is desirable. This ratio for the company is 25.63 times in the year 2011 and has significantly increased from 12.87 times in the year 2010. This shows good sign for the company. It shows that due to less debts financial charges of the company has decrease:

DUPONT ROE* By using the DuPont equation, we can easily determine what processes the company does well and what processes can be improved. Furthermore, ROE represents the profitability of funds invested by the owners of the firm.fauji fertilizer in 2011 roe is high as compared to year 2010. However, wes should be aware that ROE can be high for the wrong reasons. For example, when ROE is high because the equity multiplier is high, this means that high returns are really coming from overuse of debt, which can spell trouble. ASSET TO EQUITY RATIOIn essence the ratio is determining how much of a companys assets are owned by the company and how much are leveraged or financed through debt. The Asset to Equity Ratio shows the relationship between the value of assets a company holds versus how much of the company is owned by the shareholders. In essence, the ratio shows how much of a companys assets are owned by the company and how much are leveraged or financed through debt.

It is not necessarily true that a high ratio is bad and a low ratio is good.in 2010 ratio is slightly high which is 3.18 times as compared to 2011 ratio which is 2.91 .fauji fertilizer in 2010 ratio indicate that a company is taking on too much debt and could be at higher risk for defaulting. Or, it could mean that a company is capitalizing on high growth potential or on a high return for borrowed capital. In 2011 Indicates that a company is not taking on too much debt and its not on higher risk for defaulting or it means that company is not capitalizing on high growth potential or not on high returned for borrowed capital.Payout Ratio0.690.98

Earning per share2613

Growth Rate

Dividend payout ratio A low payout ratio demonstrate that a companys dividend is small compared to its earnings, indicating that the dividend is likely to be secure and reliable.Company is giving minimum dividend to its shareholders in 2011 which is 69% but in 2010 98% EARNING PER SHAREThe firms earnings per share (EPS) are generally of interest to present or prospective stockholders and management. The earnings per share represent the number of dollars earned on behalf of each outstanding share of common stock. They are closely watched by the investing public and considered an important indicator of corporate success. Earning per share of the company has increased to 26.5 per share in the year 2011 against 13 per share in the year 2010INTERPRETATION OF CASH FLOW STATEMENT

OPERATING ACTIVITIES:The statement allows the analysit to see the actual sources and uses of cash generated by 3 significant sections that is operations, investing and financing. The companies operating part has shown a positive part with respect to the net income this allows the analyst to evaluate that the company generate reasonable revenue from day to day operations.net of current expenses thus implies efficient working capital management. The cash generated from operations in current year is above than the last year. In both years outflows has been occurred and the inflow is the cash which has been generated from operations. Because of all outflows and large amount of cash generation in current year the revenue generated in current year is higher than the last year. Positive amount shows that company has potential to perform better. INVESTING ACTIVITIES:The current year investing amount is negtaive which shows that this year company was working more on debt and liabilities and due to some outflows the company investing amount was in negative which in turn shows the weak capital structure and working management at weak side.But in last year the company has shown a good improvement. Only two outflow has been occurred and rest activities are inflow which results in positive amount in investing side in last year and it shows that working management is at normal level.FINANCING ACTIVITIES:In over all terms if we compare last year and current year cash flow, the current year activities seem to result in favor of the company. Similarly, the current year financing activities show that company is current year has payed off its huge amount of debts and liabilities as compared to the last year which is a good sign for the company. FAUJI FERTILIZER BIN QASIM Ltd.INTRODUCTION: Fauji Fertilizer Bin Qasim ltd is a modern granular urea and Di-Ammonium phosphate (DAP) manufacturing fertilizer company. Its initial name was FFC-Jordan Fertilizer Company (FJFC). It was built with a cost of US $468 million. Located in Eastern Zone of Bin Qasim, Karachi, with Head Office at Harley Street, Rawalpindi. FFBL is the only fertilizer complex in Pakistan producing DAP fertilizer and Granular Urea thus making significant contribution towards agricultural growth of the country by meeting 45% of the demand of DAP and 13% of Urea in domestic market.

Fauji Fertilizer Company

Balance Sheet

20112010

EQUITY AND LIABILITIES(Rupees 000)(Rupees 000)

EQUITYShare capital8,481,5886,785,271

Capital reserves972,682973,083

Revenue reserves16,308,7629,522,587

25,763,03217,280,941

NON - CONTROLLING INTEREST6,688,5505,988,208

TOTAL EQUITY32,451,58223,269,149

NON - CURRENT LIABILITIES

Long Term LiabilitesLong term borrowings10,080,8907,708,608

Deferred taxation7,504,4017,671,871

17,585,29115,380,479

CURRENT LIABILITIES

Current LiabilitesTrade and other payables20,956,92117,481,446

Interest and mark - up accrued496,159294,063

Short term borrowings16,211,79411,293,144

Current portion of long term borrowings1,615,6551,967,877

Murabaha-19,338

Loans648,201648,201

Taxation4,425,0683,663,165

44,353,79835,367,234

Total Equity & Liabilities94,390,67174,016,862

ASSETS

NON - CURRENT ASSETSProperty, plant and equipment37,161,88230,971,029

Intangible asset46,39974,060

Goodwill1,569,2341,569,234

Equity accounted investments5,503,1234,859,358

Long term investments250,818261,772

Long term loans and advances605,883455,328

Long term deposits and prepayments90,48797,351

Total Non-Current Assets45,227,82638,288,132

CURRENT ASSETS

Stores, spares and loose tools4,353,1904,235,495

Stock in trade4,043,9161,482,387

Trade debts733,1851,187,941

Loans and advances872,320557,575

Deposits and prepayments67,00964,170

Other receivables1,055,982856,429

Short term investments30,632,71713,270,581

Cash and bank balances7,404,52614,074,152

Total Current Assets49,162,84535,728,730

Total Assets94,390,67174,016,862

Fauji Fertilizer Company

Profit and Loss Account

20112010

Sales 111,111,913 88,154,698

Cost of sales 56,625,023 55,103,948

GROSS PROFIT 54,486,890 33,050,750

Administrative expenses and distribution cost 7,731,516 7,286,329

46,755,374 25,764,421

Other expenses3,831,4472,086,563

Finance cost1,824,4712,001,355

41,099,456 21,676,503

Other income3,228,8751,635,389

Share in profit of equity accounted investments409,077193,430

NET PROFIT BEFORE TAXATION 44,737,408 23,505,322

Provision for taxation16,096,2338,456,139

NET PROFIT AFTER TAXATION 28,641,175 15,049,183

ATTRIBUTABLE TO:

Equity holders of Fauji Fertilizer Company Limited23,351,86811,859,670

Non-controlling interests5,289,3073,189,513

2864117515049183

Weighted average number of shares in issue during the year678,527

Earnings per share 16.25

Dividend Per Share15.50

Total Dividends 10,517,169

Fauji Fertilizer Company

Cash Flow Statements

20112010

(Rupees 000)

CASH FLOWS FROM OPERATING ACTIVITIES

Cash generated from operations49,367,83633,563,894

Finance cost paid(1,413,481)(1,943,386)

Income tax paid(15,645,446)(7,748,746)

Payment to gratuity fund(121,523)(90,930)

Payment to pension fund(109,220)(77,446)

Payment to Workers Welfare Fund(329,070)(390,686)

Payment to Workers Profit Participation Fund - net(2,729,781)(1,129,518)

Compensated absences paid(110,263)(112,774)

(20,458,784)(11,493,486)

Net cash generated from operating activities28,909,05222,070,408

CASH FLOWS FROM INVESTING ACTIVITIES

Fixed capital expenditure(8,702,512)(4,188,198)

Proceeds from sale of property, plant and equipment20,16991,696

Interest received1,931,3551,068,578

Decrease / (increase) in other investments-11,093,7622,387,250

Dividends received1,003,657205,452

Net cash generated from / (used in) investing activities(16,841,093)(435,222)

CASH FLOWS FROM FINANCING ACTIVITIES

Long term financing -disbursements4,636,1381,500,000

repayments(2,616,078)(3,364,549)

Long term murabaha - repayments(19,338)(38,679)

Short term borrowings - net2,168,762 1,626,238

Dividends paid(19,150,348)(13,258,877)

Net cash used in financing activities(14,980,864)(13,535,867)

Net (decrease)/ increase in cash and cash equivalents(2,912,905)8,099,319

Cash and cash equivalents at beginning of the year19,131,86711,013,641

Effect of exchange rate changes23,89318907

Cash and cash equivalents at end of the year16,242,85519,131,867

INTERPREATATION OF RATIOS:LIQUIDITY RATIOS:S.noRatios20112010

1Current Ratio1.171.19

2Quick Ratio0.560.92

3Cash Ratio0.450.92

4Working Capital 32731092928638

CURRENT RATIO: The current ratio indicates the equal liquidity levels when compare to last year. The more the current ratio the company will able to pay its liabilities.QUICK RATIO: The quick ratio is lower than the last year this means that this year the company has not much enough cash to pay its short term CASH RATIO:The cash ratio of last year is 0.92 and cash ratio of current year is 0.45. This shows that company has inefficient cash in current year as compared to last year cannot pay off its obligations. WORKING CAPITAL RATIO:The last year working capital ratio is 2928638 and current year is 3273109. Since the company has positive working capital ratio and it has been increased from last year also, this shows that company has potential to further expand its operations and ability to pay off its obligations also. INTERPRETATION OF LIQUIDITY RATIOS WITH RESPECT TO INDUSTRY AVERAGE:

All liquidity ratios of F.F.B.L shows that there is an decrease in current year with respect to last year and in both years the company liquidity ratios are lower than industry average which means that company is not performing efficiently and not using its all current assets efficiently to pay off its liabilities.EFFICIENCY/ TURNOVER RATIOS:Receivable turnover49262

Rec.days71

Inventory Turnover18.7815.88

Inv.days1923

Payable Turnover3.353.52

Pay.days108.94103.75

Cash Conversion Cycle-82-79

ACCOUNT RECEIVABLE TURNOVER :Accounts receivable turnover has decreased to 262 times in 2010 from 49 times in the year 2011. This is bad sign for the company,this means that this year the company management is inefficient.REC DAYS :Average collection period of the company has increased to 1 days in the year 2010 from the year 2011 figure of 7 days. This shows inefficiency in the collection of Accounts receivable.PAYABLE TURNOVER: Accounts payable has decreased to 3.35 times in 2011 from 3.53 times in 2010 that is a good sign for the company.AVERAGE PAYMENT PERIOD: Average payment period of the company has 1ncreased to 109 days in 2011 from 104 days in 2009. This is good sign for the company.OPERATING PROFITABILITY RATIOS: GP Margin36%31%

Operating Income Margin2.95%2.67%

Pre-tax Margin28.94%22.39%

Net profit Margin19.27%15.06%

GROSS PROFIT MARGIN: The last year gross profit margin ratio was 31% and the current year is 36%. The current year ratio is high than the last year, this shows that company is making 36% of its profit considering only sale and cost of goods sold. From industry point of view in both years it is underperforming and this means that company has potential to perform much better. OPERATING PROFIT MARGIN: The last year operating profit margin was 2.6% and current year is 2.9%. The current year ratio is above than the last year, this shows that company is making from its profit from its current operations. From industry point of view company is under performing in both years PRE-TAX MARGIN:The last year pretax margin was 22% and current year is 29%. The current year ratio is above than the last year, this shows that currently the company is making 29% of its profit from its current operations after deducting its interest expense also but it does not take account its tax structure. From industry point of view company is underperforming in both years. NET PROFIT MARGIN: The last year net profit margin was 15% and current year is 19% which shows that currently company is making 19% of its profit from its overall operations and it is high than the last year also. From industry point of view company is underperforming in both years. RETURN ON INVESTMENTS:Return on assets4.373.06%

Return on Equity78.96%53.35%

RETURN ON ASSETS: The last year return on assets was 3.06% and current year is 4.37%, the current year return is high than the last year and this shows that company is making 4.37% of its profit from utilization of its assets. From industry point of view, both the year current year the company is under performing RETURN ON EQUITY: The last year return on equity was 53% and current year is 78%. The current year return is high than the last year and this shows that company is getting return of 78% from its preferred stockholders and common stockholders. From industry point of view, in current year company is over performing and compared with the last year company is under performing. OPERATING EFFICIENCY RATIOS:Fixed Asset turnover3.242.54

Total assets turnover1.391.22

Equity Turnover4.323.35

FIXED ASSETS TURNOVER: The last year fixed assets turnover was 2.54 times and current year3.24. There is an increase from last year and this shows that company is generating its 3.24 of sales after utilizing its fixed assets only. TOTAL ASSETS TURNOVER: The last year total assets turnover was 1.22 times current year turnover is 1.39 times. We can see that in current year slight increase has been occurred and this shows that company is generating its 1.39 sales by utilizing its 1 asset EQUITY TURNOVER: The last year equity turnover was 3.35 times and current year is 4.32 times and it has been increased from last year also. This shows that company is generating is 4.32 of its sales from the investment that has been occurred in total equity. FINANCIAL RISK RATIOS:Debt to Capital ratio66.06%65.45%

Interest Coverage ratio1.521.24

Dupont ROE*115.8661.71

Asset to equity Ratio2.951.89

Payout Ratio8794

Earning per share127

Growth Rate

DEBT TO CAPITAL RATIO: F.F.B.L debt to capital ratio is 65% in 2010 and current year is 66% in 2011. The current debt to capital ratio has been increased which is not a good sign also and it means that equity holders are making extensive use of debt which in turns effect the credit worthiness of the company. INTEREST COVERAGE RATIO: The last year interest coverage ratio was 1.24 and current year is 1.5. A high interest coverage ratio is a good sign and it shows a high degree of protection available to creditors. DUPONT ROE: The last year DuPont Roe was 61.7 and current year is 115.86. This means that current year DuPont Roe is higher than the last year but we should be aware that ROE can be high for the wrong reasons. For example, when ROE is high because the equity multiplier is high, this means that high returns are really coming from overuse of debt, which can spell trouble. ASSETS TO EQUITY RATIO:The last year asset to equity ratio was 1.89 and current year is 2.95. We can say that in current year the company is at high risk because it was more on debt side but in last year the ratio has been decreased which shows that company is not at high risk. PAYOUT RATIO:Low payout ratios demonstrate that a companys dividend is small compared to its earnings, indicating that the dividend is likely to be secure and reliable. Company is giving low dividend to its shareholders in 2011 which is 87% but in 2010 it is giving 94%.

DH Fertilizers Limited (DHFL) is a urea fertilizer manufacturing and marketing concern incorporated in August 2010 as a wholly owned subsidiary of the Dawood Hercules Corporation Limited (previously Dawood Hercules Chemicals Limited). DHFL manufactures and markets urea under the brand name "Bubber Sher" with market capitalization of PKR 29.39 billion. Bubber Sher has consistently delivered quality and value for more than 35 years and today it is recognized as a household name for farmers and agriculturists. Anhydrous Ammonia is provided for the manufacture of soda ash, fructose and other miscellaneous chemicals. The 445 KT urea plant is located in Sheikhupura, Punjab.The manufacturing facility was established in 1968 as a joint venture with Hercules Chemicals Inc. of the USA. It was the first private sector venture in Pakistan to receive a loan from the World Bank and was the largest ammonia/urea plant in country at that time. Initially the plant's capacity was 345,000 metric tons of urea per annum. The plant was revamped in 1989 / 1991 to enhance the capacity to 445,500 metric tons of urea per annum. This also made the manufacturing facilities more energy efficient and environment friendly.dawood hercules fertilizer

Balance Sheet

2,011 2,010

Assets Rs. (000`s) Rs. (000`s)

FixedAssets NON-CURRENT ASSETS

Property, plant and equipment 2,093,015 1,871,708

Capital work in progress 23,619 366,514

2,116,634 2,238,222

Investment in associate 24,701,636 22,424,778

Long term loans and advances 2,200 1,680

26,820,470 24,664,680

Current Assets CURRENT ASSETS

Stores, spares and loose tools 800,608 1,073,544

Stock in trade 151,267 216,117

Trade debts 2,686 2,131

Loans, advances, deposits, prepayments and other receivables 71,682 83,188

Advance income tax 437,322 625,148

Short term investments 2,951,088 2,439,931

Cash and bank balances 730,748 1,250,263

5,145,401 5,690,322

Total Assets 31,965,871 30,355,002

Liablities & Equities

Share Capital & Reserves SHARE CAPITAL AND RESERVES

Issued, subscribed and paid up capital 4,812,871 1,203,217

Revenue reserves 20,495,916 21,332,823

Others (180,731) (312,226)

Fair value reserve - 135,765

25,128,056 22,359,579

Non-currentLiablities NON-CURRENT LIABILITIES

Long term loans 4,800,000 5,042,000

Deferred taxation 869,117 581,908

Staff retirement and other service benefits 53,059 51,590

5,722,176 5,675,498

CurrentLiablities CURRENT LIABILITIES AND PROVISIONS

Current portion - long term loan - 660,500

Short term financing - secured - 45,725

Trade and other payables 641,025 694,717

Accrued markup 8,614 232,983

Provision for taxation 466,000 686,000

1,115,639 2,319,925

Total Liablities & Equity 31,965,871 30,355,002

In recent years, Dawood Hercules has made a colossal investment to incorporate the latest technology, the most significant of which is the construction of a new prilling tower in record time. The tower is the tallest industrial structure in Pakistan. Other fundamental technological improvements and investments include the replacement of the Primary Waste Heat Exchanger, Primary Reformer Harps Assemblies and conventional instrumentation (with Distributed Control System). DHFL has the privilege of becoming the first fertilizer manufacturing company to obtain ISO-9000:2000 certification. It has also been the recipient of numerous safety and excellence awards.dawood hercules fertilizer

Cashflow Statement

2,011 2,010 2,009

Cash Flow from Operating ActivitiesRs.(000`s)Rs.(000`s)Rs.(000`s)

Cash generated from operation2,260,038 3,142,781 3,107,852

Finance Cost(1,034,452)(956,881)(980,327)

Taxes paid(498,175)(698,348)(849,759)

Staff retirement and other service benefits paid(25,621)(24,906)(16,205)

Decrease / (Increase) in long term loans and advances(520)743 (1,164)

Net cash generated from operations701,270 1,463,389 1,260,397

Cash Flow from Investing Activities

Fixed capital expenditure(91,643)(393,117)(833,174)

Proceeds from sale of property, plant and equipment13,986 34,776 7,897

Proceeds from disposal of available for sale investments173,408 1,835,913 1,145,649

Profit on time deposits109,415 63,218 63,670

Investment at fair value through profit or loss(1,277,266)(560,000)(1,929,785)

Investment in associated / subsidiary company - - (1,623,148)

Dividends received919,862 867,135 616,796

Net cash generated from / (used in) investing activities(152,238)1,847,925 (2,552,095)

Cash Flow from Financing Activities

Short term financing(45,725)(1,150,878)1,126,464

Proceeds from diminishing musharka4,800,000 - -

Long term loans(5,702,500)(600,000) -

Dividends paid(120,322)(588,318)(490,559)

Net Cash generated from Financing(1,068,547)(2,339,196)635,905

Net Increase / (decrease) in cash and cash equivalents(519,515)972,118 (655,793)

Cash and cash equivalents at the beginning of year1,250,263 278,145 933,938

Cash at the Year end730,748 1,250,263 278,145

dawood hercules fertilizer

Profit & Loss Statement

2,011 2,010

Rs. (000`s) Rs. (000`s)

Sales-net 6,309,624 8,715,711

Less: Cost of sales 4,043,873 (5,214,376)

GROSS PROFIT 2,265,751 3,501,335

Less:

Distribution expenses (67,291) (267,724)

Administrative expenses (418,109) (431,999)

Impairment loss (586,710) (2,391)

Other operating expenses (82,302) (115,866)

Add: Other operating income 350,525 461,853

Operating income 1,461,864 3,145,208

Less: Finance cost 810,829 (909,596)

PROFIT BEFORE TAXATION 651,035 2,235,612

Less Share of Profit from associate, net of tax 2,980,632 1,955,580

PROFIT AFTER TAXATION 3,631,667 4,191,192

Income tax Expenses (738,598) (943,209)

Profit for the year from continuing operations 2,893,069 3,247,983

Profit Attributal to owners of the company 2,893,069 3,247,983

Earnings per share - basic and diluted 6.01 6.75

RATIOSDawood Hercules

INDUSTRY AVG.ANALYSIS

20112010

Current Ratio4.612.452.30The current ratio of DH is higher than the average of industry and also increased as compare to last year, because in 2011 the current assets are decreased by 10% on the other hand current liabilities of the company decreased by 52%.

Quick Ratio4.482.362.12In comparison to the average industry the quick ratio is much higher. It reflects that the company is more capable to pay off its current liabilities.

Cash Ratio0.790.630.79The cash ratio of the company is equals to the ratio of average industry. And it also increased as compare to last year because of the decrease in current liabilities.

Working Capital 40297623370397.004037306The working capital of the company is increased as compare to the last year because of great decrease in current liabilities, but it is less than the working capital of average industry.

Receivable turnover79.02109.1655.58As compare to the average industry the collection of the company is less in days. It indicates that the company is not offering much credit sales to its clients.

Receivable days4.623.347.73

Inventory Turnover22.0128.3919.26As compare to the average industry the company is converting its inventory in sales faster.

Inventory days16.5812.8619.42

Payable Turnover5.968.014.33The company uses a lot of credit from its suppliers. The days clearly shows that the company has no credit worthiness in comparison to the industry, on year on year basis its is increased.

Payables Turnover days61.2645.5990.66

Cash Conversion Cycle-40.07-29.39-63.51The cash conversion cycle of the company is increased on year on year basis which reflects that now the investments of company is converting in cash in more days, but as compare to industry its is performing better.

GP Margin36%40%40%Company has decreased its Gross profit margin from last year and average industry as Sales has decreased. This ratio is not fairly well than the industry .

Operating Income Margin23%36%32%The same reason applies here too. The fall in sales and GP which are the reason the margin decreased from last year and industry average too.

Pre-tax Margin58%48%42%In 2011, the finance cost was decreases from the previous year so the pre-tax margin was increased by 10%. The lesser the finance cost the good impact will reflect on net income and current liability too.

Net profit Margin46%37%30%After the taxes were paid off, the company managed to increase its NP margin from last year & performed well in comparison to the industry too.

Return on assets 0.14 0.16 0.33 The company is not doing well in terms of earning returns on its total assets in comparison to last year as well as industry. They have to use their assets efficiently in order to achieve good sales and profits too. Thats why the return on assets was below by the industry level.

Return on equity 0.12 0.14 0.66 As compared with last year and average industry it has been worst in position due to decrease in paid up capital, but considering the industry it is a failure, as the industry is earning greater return on equity, so from an investment point of view this cannot return a good percentage back to its shareholders..

Fixed Asset turnover 2.90 4.00 2.94 The increase in long term deposits and Property, plant, & equipment has caused in operational efficiency that in return This ratio is fairly well in terms of industry. The company has to maintain the fixed asset turnover to make it successful.

Total assets turnover 0.20 0.28 1.00 The same situation is occurred in 2011 that company was still below the industry average because company doesnt use its resources very well. They are not

Equity Turnover 0.27 0.37 2.86 The turnover of on equity decreased from last year and industry average because of decrease in sales. In comparison to the industry company has to work harder as its present ratio.

Debt to Capital ratio 0.21 0.26 0.51 In 2010 & 2011, the company was below the industry but its shows good sign that the company has invested much part of equity and debt side is low. The main reason is that the Dawood Hercules is investment corporation too so they are working very efficiently and also they could be very low finance cost.

Debt to equity0.270.361.38Year to year the company has maintain its liability side because they had spread their money from the equity section so time by time they improved.

Interest Coverage ratio1.803.4614.43The Coverage ratio decreased drastically from last year and average industry because there debt portion is not so much so thats why they are very lesser from the industry. In 2011, the finance cost was increased but in 2010 there was very low at that moment.

INTERPRETATION OF CASH FLOW STATEMENTCASHFLOW FROM OPERATING ACTIVITIES:Cash flow statement makes an analyst to understand about the operating, investing and financing activities of a company. It tells how a company generates cash and payoff its expenses.The companys operating part has shown a moreover better impact on company. Cash generated from operations shows a good amount comparatively less than previous years but even then it is showing cash generated in millions. This clearly means that there has been correct usage of assets of the company. Finance cost has been paid more than previous year and taxes have also been paid which is to be considered a positive point for the company.Hence, cash generated from operations is in positive figures which show an overall good performance of the company in operating activities but comparatively less than previous years.

CASHFLOW FROM INVESTING ACTIVITIES:This part of cashflow statement shows the overall investments done by a company to get profits, dividends and other investments. It also tells shows the company investments and whether the company has invested its cash in some other activities to get profits or the company has paid-off its debts.The current years investing activities shows a negative figure which means the investing part of company has shown disappointing results then previous year. This shows that this year company was working more on debt and liabilities.Company has received its dividends this year more than previous years. The amounts of profits have decreased than previous years. Even investments done on fair value have shown a huge increase in figures more than previous year. Also, Proceeds from disposal of available for sale investments have decreased from last year.

CASHFLOW FROM FINANCING ACTIVITIES:The presentation of the financial activities shows the repayments of short-term and long-term loans and borrowings of the company.Current years financing activities has shown less clearance of short-term financing and payment of dividends by the company whereas the company has paid its long-term loans more than the previous year.Overall the performance of the company in current years cashflow is not so good than the last years performance. There has been moreover a impressive activity done in operations section, very less investments done and more profits on times deposits received and moreover in financing activities, company have only paid huge amount of long-term loans than the last year. But even then, the positive figure shown in cash at the end of the year is somehow showing a good impact but even then equally disappointing due to lesser amount then previous year.

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