Flying Cement Company Limited

In 1992, Flying Cement Company Limited (PSX: FLYNG) was established as a public limited company in Pakistan. The firm is involved in the production, promotion, and retail of cement.

Pattern of Shareholding

Eighty-seven stockholders own 694.8 million of the outstanding shares of FLYNG as of June 30, 2023. The company's directors, CEO, and their offspring own 44.13 percent of the company's shares, while the local public has the largest interest, 49.68 percent. The foreign general public owns 2.02% of FLYNG's outstanding shares. Other categories of shareholders split up the remaining ownership.

Cash Management (2018–23)

The company's profits and margins significantly improved in the next two years, but in 2023 they declined once more (refer to the profitability ratios graph). Below is a full performance review for each of the years that are being considered.

FYLNG's topline increased by 12% on an annual basis in 2019.Cement shipments decreased by 2.06% on an annual basis to 514,890 metric tons, but the topline growth was driven by higher prices due to increased production costs brought on by the depreciation of the Pakistani rupee, rising commodity prices, high electricity tariffs, inflation, and discount rate. Production and capacity utilization fell precipitously in 2019 in tandem with decreased off-take (refer to the production and capacity utilization graph). The aforementioned variables contributed to a 16 percent year-over-year increase in cost of sales in 2019. The inability to properly pass it on to customers, however, resulted in a 26% decline in gross profit in 2019 and a GP margin that dropped from 8.8% in 2018 to 5.8% in 2019. Operating expenses increased by 10% annually in 2019 due primarily to increased payroll costs as staff numbers increased from 347 in 2018 to 398 in 2019. 2019 saw a 26% decrease in other expenses due to lower profit-related provisioning, while other income increased by 7% as a result of creditors' write-offs over the year. With the operating profit margin declining from 9.5 percent in 2018 to 6.6 percent in 2019, operating profit decreased by 22% on an annual basis. In 2019, FLYNG managed to reduce its financing costs by 25% despite the higher than average prevailing discount rate. 2019 saw a further decrease in the gearing ratio (see the gearing ratio graph). Net profit decreased by 22% year over year in 2019 to Rs. 142.36 million, while EPS decreased from Rs. 1.03 in 2018 to Rs. 0.81 in 2019.

Book Value VS Market Value per Share

FLYNG's topline showed a sharp 67 percent year-over-year decline in 2020. This was due to the worldwide recession that began as a result of the COVID-19 pandemic. In 2020, cement dispatches totaled 86,957 metric tons, a sharp decrease of 83% year over year. Due to low demand and the plant's lockup stoppage, FLYNG may only run its cement production at 12 percent of its potential in 2020 as opposed to 71 percent in 2019. In 2020, the clinker plant operated at 27% of its capacity, compared to 68% in 2019. However, the decline in cost of sales was only half as severe in 2020 because of poor fixed cost absorption. In 2020, FLYNG reported a gross loss of Rs. 462.38 million. Operating expenses increased by 12% in 2020 as a result of increased insurance, payroll, and fee and subscription costs. By 2020, FLYNG had 415 workers, a considerable increase in its personnel. Since the business did not record a provision for WWF or WPPF in 2020, there was no additional expense. 2020 saw a 3% decrease in other revenue as a result of fewer creditors being written off during the year. In 2020, operating loss was recorded at Rs. 432.86 million. Due to excessive borrowing and a higher discount rate for the majority of the year, which increased the gearing ratio to 47.3 percent in 2020, the financing cost multiplied by 144 percent. In 2020, FLYNG reported a net loss of Rs. 530.72 million, or Rs. 3.02 per share.

Production & Capacity Utilization

FLYNG's top line saw an incredible 197% year-over-year increase in 2021. This was due to the government's ongoing attempts to stimulate the real estate market, the resurgence of CPEC operations, and the low discount rate that enticed investors to deposit their funds in the industry. In 2021, FLYNG's dispatches increased by a strong 346 percent, totaling 388,157 metric tons. Additionally, in 2021, capacity utilization increased to 55% for cement plants and 43% for clinker plants, respectively. In 2021, the cost of sales increased by 88% on an annual basis. In 2021, the business had a gross profit of Rs. 302.94 million. The company's GP margin significantly improved to 9.4% as a result of the price increases during the year. By reducing its fees and subscriptions, legal and professional fees, and communication costs, FLYNG was able to reduce its operational expenses by 2% in 2021. The decrease in these costs more than made up for the increased payroll expense that the company incurred during the year, since FLYNG hired 544 more people in 2021. 2021 saw an 11% increase in other income due to higher sales of trees, junk, and damaged goods. FLYNG reported operating profit of Rs. 325.37 million in 2021, with an OP margin of 10%. In 2021, finance costs decreased by 10% due to a low discount rate. In 2021, the company had a net profit of Rs. 143.68 million, with an NP margin of 4.5 percent and an EPS of Rs. 0.38.

Gearing Ratio and Finance Cost

With a 66 percent year-over-year increase in net sales in 2022, FLYNG's net sales continued their upward trajectory. This followed a 35% increase in its off-take in 2022, which totaled 522,881 metric tons. Following COVID-19, economic activity increased further, supporting the real estate and construction industries. FLYNG ran its clinker and cement plants at 76 percent and 63 percent of capacity, respectively, to meet the increasing demand. Demand increased in 2022, but there were significant threats to the company's profitability as well. These risks were depreciating Pakistani rupees, political headwinds, the Russia-Ukraine crisis, steep increases in electricity tariffs, and fuel and energy prices. However, FLYNG was able to raise its GP margin to 16.3 percent by increasing its rates and implementing a waste heat recovery power plant, which resulted in significant power consumption cost savings. In 2022, operating expenses increased by 40% annually as a result of increased payroll costs, utility bills, fees and subscription costs, and donations. In 2022, higher profit-related provisioning increased other expenses by 126%; nevertheless, no creditors' write-backs during the year led to an 18% decrease in other revenue gained. In 2022, operating profit increased by 154%, and the operating profit margin increased to 15.5%. Due to a high discount rate, finance costs increased by 61% in 2022 despite a decline in external borrowing during the same year. In 2022, net profit increased by 545 percent on an annual basis to Rs. 926.10 million, with an NP margin of 17.4 percent and an EPS of Rs. 1.33.

Return on Assets, Equity and Captial Emplyed

Due to geopolitical, economic, and political unpredictability, FLYNG's net sales fell by 20% in 2023 on an annual basis. Destructive floods in the first quarter of FY23 also stopped infrastructure-related and construction activity in the country's south, which hindered the demand for cement. In 2023, FLYNG's dispatches decreased by 37% year over year to a total of 329,211 metric tons. In 2023, capacity utilization for cement and clinker plants decreased to 42% and 47%, respectively. Due to ongoing currency depreciation, elevated inflation, and an increase in energy tariffs, FLYNG's cost of sales was unable to decrease in tandem with its net sales. As a result, the company's gross profit margin shrank to 13.6 percent in 2023, a 34 percent decrease from the previous year. Operating expenses increased by 16 percent in 2023 due to significant increases in directors' compensation, payroll costs, and advertising and marketing expenses. A 40% decrease in other expenses was caused by lower provisioning for WWF and WPPF. Due to increased sales of trees, scrap, and damaged items, other income increased by 5%. In 2023, operating profit decreased by 35% on an annual basis, with an OP margin of just 12.7%. Due to excessive monetary tightening and rising borrowing, finance costs climbed by 46% in 2023. Consequently, net profit in 2023 declined by 71% year over year to Rs. 271.25 million, with an EPS of Rs. 0.39 and an NP margin of 6.4 percent.

Recent Profit 1QFY24

FLYNG's net revenues saw a strong comeback in 1QFY24, rising by 27% on an annual basis. Although the company has not disclosed its off-take for the period, APCMA's industry-wide statistics indicates a noteworthy 23 percent increase in cement dispatches in 1QFY24. Improved net sales during the time have been mostly attributed to higher cement prices. The domestic and Afghan coal prices have been under pressure to decline due to the relaxation of import restrictions. As a result, FLYNG reported a 77 percent greater gross profit in 1QFY24, with a GP margin that increased from 15 percent in 1QFY23 to 21 percent in 1QFY24. In 1QFY24, operating expenses increased by 50% year over year. However, operating profit increased by 82% in 1QFY24, with OP margin increasing slightly from 13% in 1QFY23 to 18.5 % in 1QFY24. Due to more borrowing and a high discount rate, finance costs increased by 32% annually. In 1QFY24, net profit increased by 55% year over year to Rs. 88.85 million, with an EPS of Rs. 0.13, compared to Rs. 0.08 in the same period the previous year. Additionally, from 6.4 percent in 1QFY23 to 7.7 percent in 1QFY24, the NP margin increased. 

Future Prognosis

The government' corrective actions have caused the value of local currency to rise recently. This has had a favorable effect on the cement industry, increasing sales and profitability, along with a minor alleviation of inflationary pressures and the restart of economic activity. The initiation of infrastructure projects pertaining to hydropower and road networks has supported the volumes in the cement business. Then, despite no decline in cement costs, the industry's gross margin has been reinforced by the loosening of local and Afghan coal prices. Any future shift in the price of coal will determine the margins. Furthermore, a rise in global energy costs combined with political unpredictability may make capacity utilization difficult.