Lahore July 30 2022: JDW Sugar Mills Limited profitability grew two and a half times during the nine months period ended on June 30 2022, according to company filling to the exchange.
During the nine months period ended on June 30 2022, from October 2021 to June 2022, company has earned net profit after tax amounting to Rs. 3,755 million as against net profit after tax Rs. 1,487 million in the corresponding period, resultantly earnings per share of the Company have improved to Rs. 63 from Rs. 25.
The main reason for low profitability in the comparative period was booking of a huge write off of Rs. 3,326 million on account of receivables from CPPA-G for sharing of fixed energy charges over and above the plant factor of 45%, whereas in the current period better profitability is mainly attributable to sale of carry over sugar stocks at better prices, in the beginning favorable sugar & molasses prices for the current production, better results of the Co-Generation operations and turnaround of the Corporate Farms in view of good sugarcane support prices and better yield per acre.
Deharki Sugar Mills (Pvt.) Limited, a 100% owned subsidiary of the Company has earned profit after tax amounting to Rs. 96 million as compared to profit after tax of Rs. 380 million in the same period last year. Decline in the profitability is mainly due to lesser sale of sugar stocks.
There has been 5% increase in the gross turnover which is primarily due to more sale of molasses and slight increase in the sale of sugar stocks. However, there is a drop in the gross profit ratio from 18% to 17% owing to increase in the procurement cost of sugarcane.
There has been normal increase in administrative and selling expenses. Other income, however, has increased by 25% due to increase in mark up on delayed payments from CPPA-G and increase in the net fair value gain on sugarcane crop at the point of harves
Other expenses have substantially reduced because as mentioned above a huge write off amounting to Rs. 3,326 million was booked last time on account of receivables from CPPA-G.
There has been increase of 34% in the financial charges of the company which have increased from Rs. 1.8 billion to Rs. 2.4 billion for the period under review despite repayment of approx. Rs. 4.2 billion on account of long-term loans of JDW Group. This has happened due to increase in the discount rate by SBP to 15% and more increase in the working capital requirements of the Company caused by higher inflation in the country. Financial charges are expected to increase further and to service debt at such a huge mark up rate is going to be a challenge for the Company. Substantial increase in mark up rate will have negative impact on future profitability of the company.
47 % increase in taxation is because of two reasons i.e., a) increase in the provision of deferred tax by Rs. 163 million; and b) booking a provision of super tax amounting to Rs. 230 million imposed through Finance Bill 2022.
The balance sheet size has increased to Rs. 56 billion from Rs. 36 billion. Accumulated reserves are approximately 28 times of the paid-up capital of the Company.
“All major key financial covenants’ have improved and maintained as were in the comparative period and the company is fully compliant with all the financial covenants agreed upon with all the financial institutions. The Company is fulfilling it’s all financial obligations on time and enjoys cordial relationship with all the financial institutions it’s dealing with.” Says Raheal Masud company Chief Executive Officer.
Federal Board of Revenue “FBR” has issued Sales Tax General Order No. 05 of 2021-22 on 11 November 2021, with subject of Implementation of Track & Trace System. As per order, no sugar bags shall be allowed to be removed from production site or factory without affixation of Tax Stamps / Unique Identification Marking (UIMs) with effect from 11 November 2021, which are to be obtained / procured from FBR Licensed vendor only. FBR has achieved marvelous success in the implementation of Track & Trace System and results are quite satisfactory.
“We congratulate FBR on achieving this milestone which will result in giving level playing fields to fully compliant sugar mills and substantial increase in the revenue of FBR. Hope FBR will continue its efforts with the same spirit for next crushing season 2022-23 as well and will also come over the shortcomings it faced during the last crushing season. Now FBR should also find out practical ways out to document the sugar trade which is also another uphill task.” Says Raheal Masud.
As usual growers’ payment has remained our top priority being one of the main keys of our success. This was the 4th consecutive crushing season in which all the growers of the Company were successfully fully paid through bank accounts throughout the season which was very well appreciated by the growers. Company regularly provides financial assistance and technical support to its growers. Due to these policies and preferential treatment with growers, the Company enjoys excellent relationship with all of them.
In view of better profitability, the Board of Directors is pleased to announce 2nd interim cash dividend of current year of Rs. 7.50 per share i.e.,75 % (30 June 21: Rs. Nil) per share for the nine months period ended 30 June 2022.
Financial year 2021-22 seems to be more challenging where cost of production was higher due to increase in support prices in the both provinces whereas due to more production, sugar prices are below Rs. 80 per kg which for most of the sugar mills is below the sugar production cost. Due to surplus sugar in the country, sugar industry has time and again requested the Govt. to allow export of sugar for some quantity and also create strategic reserve of sugar stocks of 5 to 6 lacs tons by purchasing through Trading Corporation of Pakistan to bring sugar prices upward at sustainable level to rescue sugar industry from any crisis. Surplus sugar in the country is around 1.0 million tons and Govt. by allowing initially export of half million ton can earn foreign exchange of approx. US Dollar 300 million and sugar mills can get price of Rs. 150 per kg without sales tax on sugar to be sent abroad.
JDW Group which was previously highly leveraged has managed its debt very effectively and efficiently during last couple of years. We will focus more on further reduction of debt to reduce the financial charges but State Bank of Pakistan (SBP) has recently increased base rate thrice firstly by 250 bps, secondly by 150 bps and recently by 125 bps raising it to 15%. consequently markup rates have gone up which will result in increasing the financial cost of the Company. We, however, will continue to borrow short term loans as per our requirements to meet working capital needs specially to ensure timely payments to growers. Unsustainable sugar prices as explained above are the potential threat which can have negative impact on the profitability of the company in the last quarter of the accounting year.
