20000320

Brief recordings

BY SCANNER

Textile Spinning

Island Textile Mills Limited

Year Ended September 30, 1999

Overview

Chairman Anwar Ahmed Tata has constructed optimistic future scenario and shared his thoughts with the shareholders who have been invited for AGM of the company on one day before the Pakistan Day on March 23 at Beach Luxury Hotel. He said, "by the Grace of Almighty Allah, the cotton crop has been very good and we hope the year 1999-2000 shall be very bright for us. Moreover the reduction in mark-up rates by the State Bank of Pakistan shall also have a healthier effect on overall results." This optimism is genuine despite busted equity base due to massive capital deficiency based on waferthin capital base and accumulated loss ballooned beyond proportion. Now the company has turned the table by posting gross profit more than three times of last year's and by replacing the last year's relatively large net loss of Rs 6.45 million with after tax profit of Rs 10.25 million. This has produced EPS at Rs 20.50 inducing the management to declare dividend after 1997. This year the dividend is at Rs 2.50 per share.

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The company is limited by shares and was incorporated in the province of Sindh in May 1970. Its shares were listed at Karachi Stock Exchange in 1973.

It is a textile spinning unit with 18,232 spindles. During the accounting year 1998-99, this textile operated in three shifts and produced higher operating efficiency much above the installed capacity. The manufacturing facilities of the company are located in Sindh Industrial Trading Estate Kotri District Dadu. This year its output, when converted into 20/s count of yarn was recorded at 4.769 million kgs which in terms of the utilisation of the installed capacity works out to 150%, and the utilisation is 7% higher than previous year's. During the last accounting year, the unit had spun 4.601 million kgs of yarn. The comparison of outputs of the two years shows that this year's output outpaced the last year's output by 3.7% over the previous year's figure which is a commendable performance. In terms of benefits, due to over utilisation of the capacity, the unit attained larger economies of scale, and lowering overhead cost per unit of yarn and making the operation cost efficient which was substantial support to profitability during the year when raw material cost was increasing.

Cost of sales, as a percentage of sales works out to 88.48% for the year under review and it is noteworthy that this ratio was the lowest since 1995. This lowering of cost of sales was a great breather despite power charges around Rs 35 million and wages and benefits around Rs 36 million were the highest figures since 1995. Apparently higher output has significantly contributed to attain cost efficiency. The year's output was the highest during since 1995.

The optimisation of cost was also due to the result of the prudent production mix because the unit is in the production of poly cotton yarn. This has contributed in improving the quality of yarn for better yarn rates for maximising the sales in terms of value.

Sales in terms of value amounted to Rs 367.78 million (1997-98: Rs 305 million) and reflected significant growth of 20 percent. This growth has induced the gross profit to increase at a commendable rate of 244% which has beefed up the bottom line despite rise in the financial charges as well as depreciation being the same as in last year.

Gross profit recorded at Rs 42.34 million (1997-98: Rs 12.32 million) and as a percentage of sales it was 11.51 percent as compared to 4.03 percent, last year.

Financial charges for the year aggregated to Rs 14.44 million registering relatively exorbitant rise of Rs 2.9 million or by a quarter of last year's. It is baffling that the financial charges scaled so high whereas at the end of the year under review, the borrowings both on long term and short term basis sharply declined.

During the year, the company posted pre-tax profit at Rs 10.25 million which replaced the previous year's loss at Rs 6.45 million. This works out to the earning per share at Rs 20.50 (1997-98: Rs 12.90 loss per share) which induced the company to declare dividend. It was cash dividend at Rs 2.50 per share despite large capital deficiency.

The company's accumulated losses were reduced to Rs 63.82 million from the losses accumulated upto Rs 72.82 million last year. This busted the equity base and produced very high negative equity figure at Rs 58.82 million. The book value per share negative figure rose to Rs 117.64.

The negative equity has altered the debt equity ratio with negative equity and positive long term debts. But there is large book entry in the account of surplus on revaluation of fixed assets. This has improved the long term debt to equity ratio to 19:81, showing a comfortable situation of long term debt coverage. Obviously this scenario is only notional.

Current ratio remained much lower than the benchmark of 'ONE', although improved to 0.7 from 0.5. So the liquidity position has not been enriched to comfortables level. Moreover, the incremental liquidity remained locked-in the mounting inventory and substantial increase in receivables. Fortunately, due to the rise in sales, the receivables period stagnated for at 34 days in both the years under comparison. The period of inventory sharply increased to 7.4 weeks from 4.7 weeks in the preceding year. But this would lead to critical question that the carryover stock from the previous year's carried higher cost of cotton last year. This may be incompatible to the forthcoming financial year (1999-2000) stock based on lower cotton prices. That solution of product mix of high cost inventory of last year and lower cost inventory of the forthcoming year will require some strategic marketing decision.

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Performance Statistics (Million Rupees)

September 30 1999 1998

Capital & LiabilitiesÉÉÉ

Paid-up Capital: 5.00 5.00

Accumulated (Loss): (53.82) (62.82)

Equity: (58.82) (67.82)

Surplus Revaluation F/A: 80.64 84.92

L.T. Debts: 6.14 8.19

Deferred Liability: 40.46 3.20

Current Liabilities: 151.70 168.64

AssetsÉÉÉ

Fixed Capital Expenditure: 113.30 115.40

L.T. Investments: 2.00 2.00

L.T. Deposits: 0.05 0.04

Current Assets: 104.77 79.69

Total Assets: 220.12 197.13

Sales, Profit & PayoutÉÉÉ

Sales: 367.78 305.00

Gross Profit: 42.34 12.32

Operating Profit: 32.08 5.07

Other Income: 1.66 1.62

Depreciation: 12.06 12.00

Financial Charges: 14.44 11.54

Profit /(Loss) Before Taxation: 18.34 (4.85)

Profit /(Loss) After Taxation: 10.25 (6.45)

(Loss) Brought Forward: (72.82) (66.37)

Dividend Cash 25% (1998: Nil %)

Financial RatiosÉÉÉ

Share Price (Rs) 1/3/2000: 12.00 Ñ

Book Value Per Share (Rs): (117.64) (135.64)

Price/Book Value Ratio: Ñ Ñ

Debt/Equity Ratio: 19:81 32:68

Current Ratio: 0.69 0.47

Asset Turnover Ratio: 1.67 1.52

Days Receivables: 34 34

Days Inventory: 52 33

Gross Profit Margin (%): 11.51 4.03

Operating Margin (%): 8.72 1.66

Net Profit Margin (%): 2.79 (2.11)

EPS (Rs): 20.50 (12.90)

Price/Earning Ratio: 0.58 Ñ

R.O.E. (%): (Ñ) (Ñ)

R.O.A. (%): 4.66 (Ñ)

R.O.C.E. (%): 14.98 (Ñ)

Plant Capacity & Actual Production (Million Kgs)ÉÉÉ

A) Yarn Convt. 20/s CountÉÉÉ

Capacity: 3.183 3.223

Production: 4.769 4.601

Capacity Utilisation (%): 149.83 142.75

B) Spindles Installed/Worked: 18,232 18,464

C) Number of Shifts Per Day: 3 3

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Company information: Chairman: Anwar Ahmed Tata. Chief Executive: Shahid Anwar Tata. Directors: Shahzada Alam/Shafique Alam/Kausar Ejaz/Ms. Parveen Anwar/Mushtaq Ali Kazi. Company Secretary: Farooq Advani. Registered Office: 8-8th Floor, Textile Plaza, M.A. Jinnah Road, Karachi. Phone: NA. Fax: NA. E-mail: NA. Factory: A/12 SITE, Kotri (Sindh).