KARACHI, May 28: On Tuesday, the company came up with two pieces of bad news: One, that the public had subscribed to only a quarter of its offer of Term Finance Certificates (TFCs) and second the company had run into dreadfully huge losses in the first half of the year.

Shahmurad Sugar Mills Limited of Jhok Sharif, Taluka Mirpur Bathoro, district Thatta, Sindh, informed the Karachi Stock Exchange that it had received Rs18.2 million from the public as subscription to its Term Finance Certificates (TFCs). The offer was under-subscribed and the balance three-quarters of the issue, amounting to Rs56.8 million had been called up from the underwriters in proportions published in the prospectus.

The company also released on Tuesday the financial figures for the half year ended March 31, 2002, posting an after tax loss in the sum of Rs66.2 million. This replaced the after-tax profit of Rs19.1 million earned in the corresponding half year of 2001. While most of the three dozen publicly quoted sugar mills had reported bitter results for all of the last financial full year ended September 31, 2001, a few such as Shahmurad Sugar Mills had managed to go happily against the trend.

The company had managed to return to an after-tax profit of Rs20 million in 2001, from loss of Rs15 million the year before. Its improved results, nonetheless, had more to do with reduction in operating costs, than higher turnover.

The return to the red in the first six months of the current year must, therefore, come as a disappointment to the shareholders. Including the previous losses, there is now an accumulated deficit of Rs80 million on the balance sheet. The company had to omit the dividend last year; it paid 10 per cent cash for 2000. The share in Shahmurad Sugar Mills Limited is currently trading at 40 per cent discount to its par value. When good times were rolling the stock had hit its historic high of Rs60 in 1994. There are some 21.2 million shares outstanding.

Sales for the six months to end-March 2002 showed 8.8 per cent improvement to Rs458.5 million, from Rs421.7 million in the corresponding half year of 2001. Cost of sales increased by a disproportionate 42.6 per cent to Rs454.8 million, from Rs318.8 million, which cut down the gross profit to Rs3.7 million, from Rs102.9 million. Administration expenses decreased by 19 per cent to Rs17 million, from Rs20.9 million and selling-distribution expenses were down 30 per cent to Rs4.5 million, from Rs6.4 million.

Operating loss of Rs17.8 million for the six months ended March 31, 2002, replaced operating profit of Rs75.6 million in the similar period of last year. “Other income” contribution also stood down to Rs0.1 million, from Rs6.6 million. Financial charges, which though down 20 per cent to Rs45.7 million, from Rs57.3 million, were still the bane of business.

The directors’ report to the half year accounts would possibly be released in a week to ten days. But the millwise statement of April 30, 2002, earlier released by the Pakistan Sugar Mills Association (PSMA) had recorded that Shahmurad had begun crushing sugar cane on November 17, 2001 and by the close on March 17, 2002, the mill had crushed 470,839 tons of sugar cane, producing 45,030 tons of sugar at average sucrose recovery of 9.61 per cent.

By the reporting date on April 30, the mill had been able to sell 6,912 tons of sugar, representing 15 per cent of its production; the remaining 38,118 tons of sugar was being carried by the mill in inventory. Unless the company is able to liquidate the stocks quickly at fair price, the carrying costs would naturally impact the results of the second half of the year.

It is important that companies be asked to issue half yearly directors’ report in some detail. Shahmurad’s mid-term management report is likely to set out the sugar stock position at this time of the year, as well as spell out management’s prognosis for the company in particular and the sugar industry in general.