KARACHI, Jan 21: On Tuesday, Tri-Pack Films Limited — the manufacturers of Biaxially Oriented Polypropylene (BOPP) — unveiled the financial figures for the year ended December 31, 2002, posting profit that fell quite in line with analysts’ expectations, but not the dividend.

The company reported pretax profit of Rs230.3 million, which represented growth of 18 per cent over the pretax profit of Rs194.8 million earned by the company the previous year. Analysts were forecasting figures ranging between Rs200 to Rs250 million. Due to favourable tax adjustment in the sum of Rs17.7 million for the year under review, at the after tax level profit increased 28.9 per cent to Rs248.0 million, from Rs192.4 million.

The Board which met on Tuesday, recommended cash dividend at 30 per cent (Rs3 per share). The dividend was the same as last year, though some of the market players were looking at a payout up to Rs5 (50 per cent) for the year. Compared with 47 per cent of the taxed profit distributed by the company in 2001, for the latest year, the company paid out 36 per cent of the after tax profit. The company has called the shareholders AGM on February 28, at which the Board may wish to discuss why it decided to prefer more retention over distribution. There may be expansion plans.

The bull run at the Karachi Stock Exchange may have begun in 2001, but the share in Tri-Pack Films had started to rise several years earlier. In 1997, the stock was trading at the discounted price of Rs8, but in two years following, the share had hit Rs32; the market price now is Rs53. It would have yielded capital gains of 563 per cent for an investor, who may have acquired the stock at the depth of its despair. The company also disbursed the maiden dividend in 1999 at Rs2.50 per share; the dividend having materialized four years after listing of the company at the stock exchanges.

Tri-Pack Films Limited is a joint venture between Mitsubishi Corporation of Japan and the Packages Limited. Registered office of the company is situated in Karachi, head office is in Islamabad and the plant is located in Hattar Industrial Estate, NWFP.

The installation of plant and machinery was completed in March 1995 and commercial production began in June the same year. With a huge operational capacity to produce finished BOPP, the project is the largest in Pakistan. BOPP as a versatile packaging material is used mainly in biscuit, confectionery, snacks, soap, detergent, processed food, garments, hosiery, tobacco and the ice cream industries. “Increasing demand for BOPP films is keeping Tri-Pack’s capacity utilization around 90 per cent in 2002, as compared with 72 per cent in 2001”, says Abdul Azeem, analyst at stock brokerage firm, Invest Capital.

Net sales in terms of value increased 25.5 per cent to Rs1,278.9 million for the year under review, from Rs1,018.7 million the year earlier. Gross profit improved 22.9 per cent to Rs385.9 million, from Rs314.1 million, but the gross margin remained at about the same: 30.4 per cent. Operating profit increased 19.7 per cent to Rs302.0 million, from Rs252.4 million, but the operating margin slipped to 23.6 per cent, from 24.7 per cent.

Analyst Abdul Azeem explained that in the budget for financial year 2002-03, import duty on BOPP was reduced by 5 per cent from 30 to 25 per cent, but raw material import duty was not reduced accordingly. All of which resulted in the company reducing its selling price to compete with imported BOPP, using same relatively expensive raw material. And that explains the pressure on margins.

Although Tri-Pack was trying to cater to the increasing demand through full capacity utilization, low prices were not allowing it to increase profitability and sales in rupee terms. The options were to reduce costs as well as lobby with the Government for revision in import duty structure.

The bottomline was likely to come under greater strain as the tax shelters currently enjoyed by the company for its location in Hattar were coming to an end; starting June 2003, the Tri-Pack profits would be taxed at the normal corporate tax rate of 35 per cent.