2009

PROFITABILITY The profitability of NML has declined considerably, in line with the textile industry. Despite a rise in the gross margin from 15.41% in FY08 to 18.23% in FY09 on the back of improved top line, the profit margin reduced to 5.31% in FY09 as against 31.86% in FY08. The factors contributing to this fall in bottom line are the 32% increase in operating costs and 59.4% increase in the financial charges. The 6-month KIBOR rate surged up by 380bps which in turn increased the finance costs by 50% for the textile sector. Return to equity and return to asset demonstrate a similar negative trend,declining my 75% and 73% respectively. Power Generation Diesel Gas Plants Capacity Furnace Gas Steam (MW) Oil Engines Turbines Engines Faisalabad 36.32 2 6 1 Bhikki 13.80 3 4 1 Lahore 26.54 7 7 4 Ferozewatwan 7.80 3 5 POWER GENERATION Nishat s own power generation plants provided a huge competitive edge over others to keep running spinning, weaving, processing and stitching and apparel units without any failures. This also played a vital role to maintain an extraordinary record of timely shipments. Nishat Mills has installed captive power plants at all its sites. Most modern machinery is chosen for the power plants in order to keep the cost of power generation low at the same time taking environmental concerns into consideration. The plants are based on natural gas fired generators, which besides generating electricity efficiently produce steam through exhaust gas and chilling through hot water from engine cooling system. This concept utilizes the fuel to the fullest at the same time reducing atmospheric pollution. In order to mitigate the power crises being faced by the country, Nishat Mills is supplying surplus power from its different sites to PEPCO distribution companies. LIQUIDITY The liquidity analysis shows that the liquidity has declined in FY09. This has been the second consecutive year of deteriorating liquidity position. The current ratio has declined from 1.19 in FY08 to 0.86 in FY09 while the quick ratio has declined from 0.80 in FY08 to 0.38 in FY09. The decrease in current liabilities in FY09 is 18.08% while the decrease in current assets is by 40.46%. There is a decline in quick assets by 52.5% against a substantial decline in quick assets of the company. In order to comply with the requirements of IAS 39 and in view of market conditions and current economic scenario in the country, the company decided to record full impairment of Rs 17.259 million against those available for sale securities where fair market values were less than their cost as at 30 June 2009. Despite improved revenue the firm has low working capital available for short-term funding needs. ASSET MANAGEMENT The operating cycle has decreased from 110.66 days to 89.80 days. The inventory turnover in days has

also decreased from 85.83 days to 70.19 days. The days sales outstanding has decreased from 24.83 days to 19.61 days. These changes are indicative of better inventory management by the company and an efficient credit policy towards in debtors. The total asset turnover increased from 0.51 in FY08 to 0.76 in FY09. Sales to equity has increased from 0.77 to 1.23. The last two ratios show that the sales collections have improved and were higher relative to both assets and equity. DEBT MANAGEMENT The debt burden of the company had reduced considerably over the past eight years till FY08 but is slowly tipping towards risky scales in FY09. Debt to asset has increased from 0.34 in FY08 to 0.39 in FY09. The decrease in total assets is by 16.9% while decrease in debt is by 4.61%. Debt to equity ratio has increased from 0.51 in FY08 to 0.63 in FY09. The decrease in equity is 23.13% against decrease in debt by 4.61%. The fall in equity is on the back of shrunken unappropriated profit, which was eroded by the impairment costs. The long-term debt to equity ratio has increased from 0.04 in FY08 to 0.13 in FY09. The tie interest earned ratio has deteriorated from 8.05 in FY08 to 2.03 in FY09, showing a strain on the company s ability to meet all short-term interest charges. The company acquired a long-term loan from Habib Bank of Rs 1 million. The 6-month KIBOR rate surged up by 380bps during the period, which in turn increased the finance costs by 50% for the textile sector. The effects are evident on NML s result. MARKET VALUE The price to earnings ratio shows a positive surge despite the prevalent uncertain market conditions. EPS declined by 82.27% due to the eroded profitability. The prices displayed an overall declining trend amongst several fluctuations from a high of Rs 85.97 in FY08 to a low of Rs 22 but recovering to Rs 34.29 at the end of FY09. The dividend per share has declined from Rs 2.5/share to Rs 2/share. The book value has shown a decline due to increase in the number of shares outstanding. The company issued 79,892,858 ordinary shares of Rs 10 each, paid at Rs 25 per share (inclusive of premium of Rs 15 per share). Thus, the paid up capital of the Company has increased from Rs 1,597,857,170 to Rs 2,396,785,750 by the issue of said right shares. The funds were utilized by the company to meet the working capital requirements and to counter the liquidity crunch of banks. FUTURE OUTLOOK The ensuing years appear to be positive for NML, as the economy turns on to the road of recovery. Rising local and international cotton prices will strain the profitability, but NML has considerable sources to generate incomes from. NML has the plan to start the functioning of the Operational Product Development Department to help it better focus on clients. NML s plans to harness the benefits from increasing international demand for apparel and garments particularly in the western economies can help maintain a healthy bottom line. In August 2009, Government of Pakistan looked in the framing a five year textile policy which incorporates the strategies that are essential to address the challenges confronting this sector on a sustainable basis besides meeting the expectations of the industry. The government steps for the promotion of textiles industry and its exports coupled with recent incentives in the budget and trade policy can facilitate NML in becoming one of the top candidates to reap the benefits of the ongoing developments in the industry. 2004 2005 2006 2007 2000 2009 (Rupees in Thousands) =PROFIT AND LOSS

--Net Sales 14,875,877 11,374,630 16,659,607 17,180,192 19,589,804 23,870,379 Gross Profit 1,933,924 2,134,899 2,957,981 2,844,988 2,811,746 4,351,541 Profit before tax 905,502 2,033,354 1,758,866 1,355,208 5,118,687 1,561,501 Profit after tax 751,060 1,867,354 1,632,866 1,211,208 5,857,587 1,268,001 --- CASH OUTFLOWS -----Taxes paid 141,850 116,756 196,772 145,751 238,252 257,289 Financial Charges Paid 443,665 351,094 692,267 838,759 875,636 1,458,602 Fixed capital expenditures 1,703,273 1,743,535 2,331,519 1,076,493 1,239,492 917,312

-----BALANCE SHEET ---- Current assets 8,074,343 7,746,417 9,743,720 13,309,087 8,818,379 8,294,838 Current Liabilities 7,456,610 6,253,333 7,051,533 7,649,373 12,053,926 9,602,265 Operating fixed assets- Owned 7,681,620 7,920,838 8,898,310 10,309,611 11,188,560 11,102,355 Total assets 19,581,627 21,917,602 30,661,326 39,587,091 40,277,289 31,512,686 Long term loans and finances 2,622,873 2,858,155 3,015,384 1,773,820 1,321,912 2,334,411 Shareholders Equity 9,502,144 12,806,114 20,594,409 30,163,898 25,492,070 19,330,767 ---RATIOS---Current rate 1.08 : 1 1.24 : 1 1.38 : 1 1.74 : 1 0.73 : 1 0.86 : 1 Gearing ratio 48.65 37.70 29.49 21.17 30.62 34.34 Gross profit % 13.00 18.77 17.76 16.56 14.35 18.23 Net profit % (before tax) 6.09 17.88 10.56 7.89 31.23 6.54 Earning per share 5.17 12.86 10.22 7.58 36.86 6.81 COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder. DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].

extile: NISHAT MILLS LIMITED - Analysis of Financial Statements - Financial Year 2005 - 3Q 2011
JUNE 20, 2011 RECORDER REPORT 0 COMMENTS

Nishat Mills Limited (NML) is the largest textile composite unit of Pakistan engaged in the business of textile manufacturing and of spinning, combing, weaving, bleaching, dyeing, printing, stitching, buying, selling and otherwise dealing in yarn, linen, cloth and other goods and fabrics made from raw cotton, synthetic fibre and cloth, and to generate, accumulate, distribute and supply electricity. The shares of the company are listed on all stock exchanges in the country. Its manufacturing facilities are located at five different locations in three districts of Punjab.

From the foregoing it can be seen that it is a gigantic and wider diversified unit and textile processing functions are fully integrated by means of information technology as business processing is dependent on timely providing information and data.

At NML, the management has built comprehensive information systems for all the locations of the company providing relevant information accurately to ensure thoroughness in decision making and managing company's resources. For reliable and cheaper power, Nishat has installed its power generation plants. These are cutting edge technology highly efficient reciprocating engines and gas turbines generators, which besides generating power are supplying steam and air conditioning, being produced using so called "waste heat", to the production units. In fact, Nishat Mills is the trendsetter in this type of power generation in the country. On the marketing side it has entrenched customer bases in Hong Kong and Europe and during the past few years it set its goal to achieve greater market share in Central American, Spanish, French, Portuguese markets which it managed to achieve. RECENT RESULTS 3Q'11: Sales increased by 54% to be Rs 34.8 billion on back of both higher volumes in all segments along with higher prices. Due to sharp increase in raw material prices along with energy issues that hiked up the cost of production, gross profits increased only by 41%, driving down the GP margin to 16.5% from 18.25 in the same period last year. There was an increase of 201.78% in other operating income of the Company from Rs 558.159 million for the period ended March 31, 2010 to Rs 1,684.406 million (for the period ended March 31, 2011). This increase was mainly comprised of dividend received on the new investments made in Lalpir Power Limited and Pak Gen Power Limited, increase in dividend received on old investments, gain on sale of investment in Nishat Power Limited and large financial gain on foreign exchange derivatives. The increase in distribution and administrative expenses was 26.62% and 18.81% respectively. Meanwhile, financial costs increased by 49.50% (March 2010: Rs 808.800 million, March 2011: Rs 1,209.133 million) from the previous corresponding period. PAT increased by 92% to be Rs 3,481.882 million compared to Rs 1,810.674 million in the previous corresponding period ended March 31, 2010. The above results were the result of excellent performance of all the segments. Yarn sales were up by 71%, mostly contributed by a 70% increase in sales. Grey cloth sales increased by 62%, mostly driven by a 35% increase in sales. Processing and home textile sales also increased by 41%, again driven by 31% increase in prices.

NML basically capitalized on its timely purchase of cotton stock at reasonable prices. Also diversification into newer categories and variants like dyed yarn has received good response from the customers. SALES: The sales have shown a consistent inclining trend except a decline in 2005 mainly due to abolition of the MFA agreement. The sales have increased by 12.15% in FY'08, 23.89% in FY'09 and 32% in FY'10. The breaks up composition of sales are as follows: SPINNING: NML achieved growth in its sale quantities as well as sale prices and increased its profitability with timely investment in cotton to stabilize fluctuations in the cotton prices. In FY09-10 local cotton purchase price was Rs 4,016 per maund and imported cotton purchase price was Rs 6,004 per maund. Furthermore, continuous diminution in Pak Rupee, increasing demand of cotton yarn, slight improvement in global economic scenario favorably supported export of cotton yarn. Nishat Mills has also upgraded its spinning machinery with erection of most modern and efficient Ring Frames and Cone Winding machines in two spinning units and replacement of similar machines of other units to help increase automation, reduce labour cost and produce better quality yarn. The installation of Yarn Dyeing facility of 7 Tons / day is in progress which is expected to start operating from July 2010. WEAVING: Financial year 2009-2010 was a very turbulent. Sharp increase in cotton prices, high volatility in yarn prices together with continued effects of global economic recession started during the previous year made the current year extremely challenging. Sharp increase in cotton and yarn prices and pressure on selling prices in Europe and America has squeezed profit margins since this sharp rise in cotton and yarn prices could not be fully passed on to customers. It has been very difficult for us to get appropriate price increase particularly from the customers in Europe. PROCESSING AND HOME TEXTILES During the current financial year the markets had been very volatile owing to impact of continued global economic recession, significant increase in cotton, yarn and grey fabric prices and lower demand in international markets that had resulted in negative impacts on processing and home textile business also. However, during the current year, global economic recession in American and European markets slightly eased out. Despite these challenges, Nishat has once again proved its ability to survive in the difficult times and it has achieved growth of 25.76% in sales volumes, however, with the significant increase in prices of raw material NML could only maintain profitability levels of the previous year GARMENTS The current financial year started with challenges of high prices of cotton and frequent electricity and gas shut downs. Energy bills are much higher compared to the previous years. However, with strong commitment, effective management planning and better business strategies towards facing these challenges, NML has been successful in achieving excellent results. POWER GENERATION:

In order to mitigate the power crises being faced by the country, Nishat Mills is supplying surplus power from its different sites to PEPCO distribution companies. PROFITABILITY:

The net sales for the period rose by 32% from Rs 23,870 Million to Rs 31,535 Million in FY'10. Both the sales quantity and sales volume rose for the period. The exports rose from Rs 18,624 Million to Rs 23,928 Million whereas the local sales rose from Rs 5156 Million to Rs 7312 Million. The cost of sales also rose by 31% from Rs 19,518 Million to Rs 25,555 Million in FY'10. This was basically due to cloth and yarn purchased, salaries wages and other benefits, and stores, spares and loose tools used. However, the overall effect on the gross profit was an increase of 37% from Rs 4351 Million to Rs 5980 Million. All business segments of the Company have been able to realize benefit from the slightly improved economic scenario during the current year for the textile sector of the country compared to the corresponding previous year and have contributed towards the excellent results. In particular spinning and garment businesses of the Company has performed tremendously well in the current year by generating higher margins.

The spinning business through effective planning, timely investment in cotton and excellent production facilities has grasped optimum benefits offered by the sharp rise in demand of cotton yarn and its selling prices even though later in the year the sales margins were affected by imposition of additional duties by the Government. The timely investment in garments segment has started showing positive results in the current year and it has shown a growth in revenue and gross margin of 107% and 335% respectively. Administrative, General, distribution and Selling expenses rose by 31% for the fiscal year basically due to Outward freight and handling, commission to selling agents, travelling and conveyance and salaries and benefits. Overall the operating profit rose by 42% for FY'10. A major portion of other operating expenses was formed by worker's profit participation fund and worker's welfare funds which overall rose from Rs 191 million to Rs 289 Million. In other operating income (from financial assets) NML earned Rs 847 Million as opposed to Rs 512 million in FY'09. NML earned dividend income from MCB bank for Rs 537 Million and Security General Insurance Company for Rs 20 million. Other operating income from non financial assets rose from Rs 86 Million to Rs134 Million. This was basically due to gain in property, plant and equipment for Rs 29 Million The finance cost declined for the fiscal year by 22% owing to improved cash inflows resulting from excellent profits earned by the Company, interest rates subsidy given by the Government and more effective funds management. Although the long term borrowing rose from Rs 253 million to Rs 320 Million, the short term borrowings fell from Rs 986 Million to Rs 636 Million. Bank charges and commission also fell for the period from Rs 203 Million to Rs 168 Million. The profit after taxation, thus, rose by a huge 130% from Rs 2915 Million to Rs1268 Million. EPS for the period is Rs 10.5 In the past 6 years, NML has witnessed a mixed trend in the profitability ratios. 2008 was the best year where all the profitability ratios had reached their peaks. In 2009, the profitability ratios declined severely. However, in FY'10, there was only a slight increase in gross profit margin whereas a prominent rise in Net profit margin, Return on assets and Return on equity. LIQUIDITY: The liquidity analysis shows that the liquidity improved in FY'10. After a consecutive decline of 2 years, the liquidity position improved in FY'10. The current ratio improved from 0.86 to 1.11 whereas the quick ratio improved from 0.38 to 0.47. The current assets rose by 41% for FY'10 whereas current liabilites rose by 10%, thus causing a rise in current ratio for NML. The quick assets rose by 36% as well. Although cash balances fell by 1%, yet the trade debts rose by 57% and other receivables rose by 124%. This was basically due to increase in export rebate and claims, sales tax refundable, fair value of forward exchange contracts and markup rate support receivable from financial institutions. ASSET MANAGEMENT: The operating cycle has increased from 89 days to 100 days. The inventory turnover in days has decreased from 70 days to 77 days. The days sales outstanding has increased from 19 days to 23 days.

These changes are indicative of not so effecient inventory management by the company and an inefficient credit policyt towards in debtors. The total asset turnover decreased from 0.86 to 0.58 in FY'10. The sales to equity has decreased from 1.23 to 1.01. The last two ratios show that the sales collection have become worse and were lower relative to both assets and equity. DEBT MANAGEMENT: The debt burden of the company had reduced considerably over the past eight years till FY'08 but is slowly tipping towards risky scales in FY'09. The condition improved in FY'10. The debt to asset has decreased from 0.39 to 0.32 and debt to equity decreased from 0.63 to 0.47. However, long term debt to equity rose by 1% from 0.13 to 0.14 and TIE ratio increased from 2.08 to 3.92. Although the total liabilities rose by 22% and total non current liabilites rose by 64%, equity rose by 62% for the fiscal year causing the debt management ratios to show a positive picture. The Company issued 109,117,194 Ordinary Right Shares of Rs 10 each @ 45% to be paid at Rs 40 per share including premium of Rs 30 per share. Thus, the paid up capital of the Company has increased from Rs 2,424,826,540 to Rs 3,515,998,480 by issue of said right shares. The funds were utilized by the Company to earn higher dividend income through investments in power projects namely AES Lal Pir (Private) Limited and AES Pak Gen (Private) Company, production capacity enhancement and resultantly improved margins, strengthening of the equity and improved financial health and liquidity of the Company. INVESTMENT The investment ratios depict a positive picture whereby the dividend per share rose to Rs 2.5 from Rs 2 in Fy'09. The EPS rose from Rs 6.81 to Rs 10.50 due to better profibility in FY'09 because of higher sales and higher income from other operations. The Book value per share also show a rise from Rs 79.72 to Rs 89 per share depicting a positive outlook for the company. Although the ratios improved for the period, these are nowhere near the 2007 levels. However, after a consective decline in 2008 and 2009, a rise in investment ratios in 2010 depict a positive future. FUTURE OUTLOOK: With the recent floods, the rising raw material costs are of the concern to the business. Although exact details of the damage to crops have not yet been released by the government, initial impressions and conversations with industry experts suggest that expected cotton crop damage is around two million bales, according to JS Global Capital. This coupled with the news of fungus attack on the crop could exert an upward pressure on cotton prices in the near future, said JS Global Capital analyst Bilal Qamar. Rising local and international cotton prices will strain the profitability, but NML has considerable sources to generate incomes from. With respect to processing and textiles, in order to cope with these circumstances NML is taking all necessary measures, which include ensuring timely sufficient and cheap purchase of grey cloth, negotiating prices with all customers based on prevailing market conditions, focusing on maintaining certain contribution margins and retaining key customers. Furthermore, NML has already started focusing on further developing business in up-market brands over and above the regular mill-runner articles. NML's local retail business of Nishat Linen shops has also expanded during the current year.

With respect to garments, NML's future strategies include investments in building and machineries, thus increasing the capacities to well over 600,000 units per month. For this purpose NML has already ordered world's best laundry machines and is in process of acquiring modernized equipment to add two new production lines. Moreover, NML has upgraded processing plant with the narrow width printing machine. NML is further focusing on to improve production capacities as well as production efficiencies along with optimum utilization of human resources. The company has also planned installation of a new bleaching plant and increasing sewing capacity with the purchase of number of new sewing machines which will help further enhance ability to handle large volumes and on time deliveries. To combat ever increasing energy costs, Pakistan's vertically integrated fabric producer, Nishat Mills has ordered six Energy Towers from A. Monforts Textilmaschinen. Nishat Mills, has ordered six Energy Towers from Monforts to ensure significant energy savings. This will further enhance profitability in the upcoming years. The government steps for the promotion of Textiles Industry and its exports coupled with recent incentives in the budget and trade policy can facilitate NML in becoming one of the top candidates to reap the benefits of the ongoing developments in the industry. COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder. DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].