Fatima Sugar Mills Chairman's Message

The extraordinary returns from sugarcane farming would encourage farmers to plant more sugarcane.

On behalf of the Fatima Sugar Mills Limited, I welcome you to the Company’s website.

The Economy

Pakistan’s economy has gone through some turbulent times over the past few years but the outgoing fiscal year has witnessed some remarkable improvements. The visible improvement has also been recognized by international agencies and investors including multilateral and bilateral donors. Large Scale Manufacturing has also improved with the PBS published index increasing by 4.2% against 3.6% last year. Several other key indicators have also evidenced economic recovery, as the fiscal deficit has come down significantly to 5.7% from 8.2% last year. Similarly, revenue collection through FBR has increased by 16%, while remittances continue to support the external front - up by 14%. The external front was also supported by a contraction of 2.6% in the trade deficit as exports went up by 2.7% while imports largely remained almost flat, up by 0.3%. The government has reinitiated the privatization program after eight years and two capital market transactions have already been closed successfully. The tremendous amount of interest shown by investors, both foreign and local, is also evidence of Pakistan’s improving economy. It is also encouraging that the government remains focused and committed to privatization of distressed state owned enterprises. Eurobonds of USD 2 billion were also issued during the year after an absence of seven years from international markets, further reflecting strong investor confidence in Pakistan. Pakistan’s foreign exchange reserves rise to USD 14.1 billion by the end of June 2014 from USD 11.0 billion last year after repayment of debt worth USD 6.825 billion versus USD 5.978 billion last year. The improving external front is also reflected in the Pakistan Rupee and it has strengthen by more than 9% from its low of over Rs.108/ USD in December 2013 to its June 2014 close of around Rs.98.6/USD. The outgoing year has concluded on a high note as far as key economic indicators are concerned but structural challenges remain unresolved; such as the power sector receivables have not improved.

Industry Review

The sugar industry of Pakistan plays a vital role in creating economic activity for the country’s farmers as well as sugar manufacturers. It is the second largest agro based industry of the country after textiles and in terms of acreage, Pakistan is the sixth largest producer of sugarcane and 12th largest producer of refined sugar amongst global players. In Pakistan, sugarcane is grown on approximately one million hectares and provides raw material for the 84 sugar mills operating nationwide presently. In addition to sugar, molasses, a sugar cane by product, is also used in the production of pharmaceutical and fuel grade ethanol while bagasse, another by-product of the process, is used in paper and chip board manufacturing. Out of the total income generated by the sugar sector, majority of the proportion is routed to the growers while a sizeable amount is also paid to the government in lieu of taxes and federal excise duty.

The production of sugar in Pakistan reached a new record of 5.33 million metric tons in year 2013-14. The Surplus production with delayed permissions for export has put tremendous pressure on local prices of the commodity and have caused heavy losses to the sugar industry. Sugar prices are a function of various factors including policies affecting sugarcane pricing, the supply of sugar to markets and import possibilities to overcome demand – supply gap, if any. During the recent crushing season, supply of sugar has superseded the demand which has exerted downward pressure on the prices. Currently, the ex-mill price of sugar is around Rs. 50/kg while wholesale price is around Rs. 51.5/kg. The availability of ample carryover stock and the surplus production forecasted for crushing season 2014-15, prices are expected to remain within a narrow range. Imposition of 15 % regulatory duty on export of molasses is also causing heavy losses to the sugar mills having no distillery set up.

Company Performance

During the crushing season 2013-14 the company operated at 89.62% efficiency vs 85.31% the last season, the sucrose recovery was slightly decreased by 0.07%. Overall Production of sugar increased by 6.02% whereas production of molasses increased by 4.78% as comparison to last year. For the season 2014-15 the crushing was commenced on November 28, 2014 and the average crushing and recovery till date are ever highest in the history of the company. During the FY 2013-14 the Company has earned profit after tax amounting to Rs. 140 million as compared to a profit after tax of Rs. 199 million in the last year. Gross profit ratio remained 9.53%. The sales during the year have increased by 9.11% amounting Rs. 5.939 billion including export sales of 1.668 billion vis-à-vis Rs. 5.443 billion including export sales of Rs. 1.973 billion for the corresponding year, the growth in sales is attributable to increase in sales volume over the corresponding year as selling price remained almost similar.

Future Outlook

In Pakistan, sugarcane’s production cycle lasts between 2-3 years. After three successive years of increases in sugar production, the production is likely to decrease in the ensuing year mainly due to significant acreage of ratoon crop (older crop). In the season 2014-15 sugarcane production is forecast at 59 million tons, a reduction of over 3 percent over the last year, sugarcane acreage is expected to decrease slightly to 995,000 hectares. The provincial governments set procurement prices of sugarcane in consultation with representatives of both the sugar industry and farmers’ organizations, based on recommendations from Agricultural Policy Institute (API) and their departments of agriculture, food, and industry. For the 2014/15 crushing season, the provincial governments of Punjab and Khyber Pakhtunkhawah (KPK) announced a minimum support price (MSP) of Rs. 180 per 40 Kg, whereas, Sindh announced a price of Rs. 182 per 40 Kg but later changed it to Rs. 155 per 40 Kg this disparity in prices will definitely reduce sugarcane sowing in Sindh, the reduced supply of Sugarcane will resultantly reduce production and supply of sugar resultantly the Mills margin will improve. The company’s support in research, development, training of farmers and transfer of new technologies to growers in collaboration with Mauritius Sugar Research Institute in its endeavor to raise cane yields and sugar recovery rates have started showing its results and during the current season the farmer yield and sucrose recovery both are at ever highest figures.

On a positive side, Federal Govt. has allowed export of sugar up to 650,000 tons with by 15th May 2015. The GOP has also approved an inland freight subsidy of Rs. 2 / kg and cash subsidy of Rs. 8 / kg on export of sugar. The Government's announcement is likely to improve sugar price in the country. However, its tangible impact depends upon sugar price in the international market and actual export of sugar. We hope that in spite of all the challenges, next season would be better comparatively, and with the improvement in productivity of various divisions, your Company would continue on track of profitability.

Your company has always had a positive forward looking approach in its operations and hopes for the same for all its business segments. We expect to achieve economies of scale, revisiting and simplifying our organizational layout and reducing costs company-wide for coming years.

FOR AND ON BEHALF OF BOARD OF DIRECTORS
OF FATIMA SUGAR MILLS LIMITED

Page Last Updated: Monday, May 02, 2016