KARACHI, Oct 8: Dewan Salman Fibre Limited — the largest PSF producer in the country — was likely to announce disappointing financial figures for the year ended September 30, 2003, at the meeting of the board on Thursday.

Analysts’ consensus view was that the board of directors of the company would come up with an announcement of a sharp plunge in profit for FY2003. The company was also expected to skip a cash dividend for fourth year in a row. The previous financial year, Dewan Salman had posted after tax profit of Rs 317 million. Everyone agreed that the company would report deterioration in the bottomline for FY03. But how steep would the drop be? Earnings forecasts varied from Rs60 million to as low as Rs27.3 million.

Khalid Iqbal Siddiqui, analysts at brokerage InvestCap said that the earnings had plunged during FY03, due to higher operating costs, coupled with 600bps drop in gross margins as a result of unfavourable international PSF and raw material prices. And Tanvir Abid, head of research at Jahangir Siddiqui Capital Markets agreed that squeeze in PSF margins along with a loss- making sequel in the Acrylic division and rising operating expenses were expected to dent the company’s profitability.

Analyst said that in spite of the 27 per cent drop in financial charges (ensuing from debt re-profiling and the soft interest rate environment), cost saving of around Rs367 million would not be able to gloss over the pretax profit margin which was forecast to turn out at 0.6 per cent, down from 3.1 per cent in FY02.

For the three-quarters to end-March 2003, the company had reported 94 per cent drop in net earnings to Rs22m, from Rs363 million in the corresponding period of the previous year and analysts thought that the deterioration would have continued to the end of the financial year.

But going forward, most analyst expect Dewan Salman Fibre to be able to improve its bottomline. Analysts observed that in the wake of declining interest rate scenario, the highly leveraged Dewan Salman had been able to obtain a financial package to re- profile its costly debt structure and to finance its expansion plans.

“The company has negotiated funding agreements with IFC and a local banking syndicate,” said Abid, adding that an amount of $15 million would be utilized for setting up the Speciality Fibre Project (SFP) and the remaining would be utilized for repayment of high cost outstanding debt.

The re-profiling of debt was expected to result in annual savings in financial charges by Rs300m on long term liabilities.

The 20,000 tons per annum Speciality Fibre Project was estimated to cost $15 million (Rs 870 million). The plant was currently under trial production and management had indicated that commercial operations could begin during the current quarter.