KARACHI, Jan 26: With the advent of the new reporting season, Fauji Fertilizer Bin Qasim (FFBL) was one of the earliest of major companies to announce on Tuesday, the company's financial figures for the year ended December 31, 2004.

Both sales and profit growth were in line with expectations of much of the market though small investors were disappointed with the Board's decision to skip the final dividend.

An interim at Re1 per share had already been paid with the accounts for the third quarter, but the market hoped for 5pc cash in final dividend. That was not to be and the share in the company dropped by Rs1.60 to close at Rs30.60, from the opening price of Rs32.20, following the declaration of the year-end results. Around 67m shares changed hands.

At Tuesday's closing price of Rs30.60, the scrip was generally thought to be expensive, since it was trading at price-to-earnings (p/e) ratio of 15.46 times on the FY'04 EPS of Rs1.96 and the current fertilizer sector P/E multiple of 14.22.

But during the calendar year 2004, the FFBL stock had turned out impressive performance. It had provided a return of 83pc (inclusive of dividends and capital gains) to its shareholders during 2004, so as to outperform the benchmark KSE-100 index by 44pc.

The market was maintaining positive stance on FFBL in the medium term, due to availability of gas at highly subsidized rate of Rs36.77 per mmbtu as a feedstock to the company as compared to Rs72.94 per mmbtu for both Engro and Fauji Fertilizer Company (FFCL).

Excluding the government subsidy of Rs455m, Bin Qasim announced profit after tax amounting to Rs1.4bn (EPS Rs1.47) for the year ended December 31, 2004, which represented considerable growth from Rs501m (Diluted EPS Rs0.53) earned during 2003.

Including the government compensation of Rs455m, the company managed to earn Rs1.83bn (EPS Rs1.96) in 2004. The healthy growth in profitability was driven mainly by a strong sales growth and improvement in gross margins.

Sales witnessed a jump of 122pc, which climbed to Rs11,462m against Rs5,167m reported during the previous year. Increase in sales was attributable to high urea off-take, resumption of company's DAP plant and a considerable increase in prices of fertilizer products.

During the year the company managed to improve its gross margins which increased from 22.52pc to 28.45pc - an increase of 592 bps. The gross profit of the company recorded an upsurge of 180pc to Rs3,260m from Rs1,164m.

Operating margins also improved to 19.5pc in FY'04 from 9.7pc last year due to better capacity utilization. However, net margins declined to 16.0pc in FY'04 against 23.2pc last year due to rise in 'other expenses' by more than four times to Rs114m in FY'04 against Rs20m in FY'03.

A charge of Rs772m taxation in FY'04 as compared to Rs381m net positive tax adjustment last year, converted Rs364m profit before tax to Rs745m in after tax profit the earlier year.

Analysts said that the profitability during 2004 had accrued mainly due to record-high international DAP prices. Since FFBL was the only DAP producer in the country, accounting for nearly 40pc of Pakistan's DAP off take, it was able to take full advantage of import parity pricing.

Also, as part of a deal with the government, the company's financial charges had been reduced significantly owing to taking up of most of the debt by the government at no interest cost.

Most market researchers forecast the growth in company's top and bottom-line to continue in the foreseeable future on the back of promising growth of fertilizer products coupled with increasing prices and ongoing expansion plans of DAP and Ammonia plant.

Analysts said that higher demand and increase in retention prices had helped in adding to the company's profitability. Fertilizer off-take for the 11 months of FY'04 (up to November) was the highest in the last five years but supply situation remained tight in the Rabi season.

Moving forward the company was expected to expand its current capacities via BMR after which the production capacity of DAP would go up to 2,000 tons from 1,300 tons and the urea from 1,670 to 2,300 tons per day.

Another development was the agreement with OCP of Morocco to set up a joint venture phosphoric acid manufacturing facility in Morocco. Bin Qasim would be contributing a quarter of the equity of dollars 80m expected to be required for the joint venture.