2009

PROFITABILITY The profitability of NML has declined considerably, in line with the textile industry. Despite a rise in the gross margin from 15.41% in FY08 to 18.23% in FY09 on the back of improved top line, the profit margin reduced to 5.31% in FY09 as against 31.86% in FY08. The factors contributing to this fall in bottom line are the 32% increase in operating costs and 59.4% increase in the financial charges. The 6-month KIBOR rate surged up by 380bps which in turn increased the finance costs by 50% for the textile sector. Return to equity and return to asset demonstrate a similar negative trend,declining my 75% and 73% respectively. Power Generation Diesel Gas Plants Capacity Furnace Gas Steam (MW) Oil Engines Turbines Engines Faisalabad 36.32 2 6 1 Bhikki 13.80 3 4 1 Lahore 26.54 7 7 4 Ferozewatwan 7.80 3 5 POWER GENERATION Nishat s own power generation plants provided a huge competitive edge over others to keep running spinning, weaving, processing and stitching and apparel units without any failures. This also played a vital role to maintain an extraordinary record of timely shipments. Nishat Mills has installed captive power plants at all its sites. Most modern machinery is chosen for the power plants in order to keep the cost of power generation low at the same time taking environmental concerns into consideration. The plants are based on natural gas fired generators, which besides generating electricity efficiently produce steam through exhaust gas and chilling through hot water from engine cooling system. This concept utilizes the fuel to the fullest at the same time reducing atmospheric pollution. In order to mitigate the power crises being faced by the country, Nishat Mills is supplying surplus power from its different sites to PEPCO distribution companies. LIQUIDITY The liquidity analysis shows that the liquidity has declined in FY09. This has been the second consecutive year of deteriorating liquidity position. The current ratio has declined from 1.19 in FY08 to 0.86 in FY09 while the quick ratio has declined from 0.80 in FY08 to 0.38 in FY09. The decrease in current liabilities in FY09 is 18.08% while the decrease in current assets is by 40.46%. There is a decline in quick assets by 52.5% against a substantial decline in quick assets of the company. In order to comply with the requirements of IAS 39 and in view of market conditions and current economic scenario in the country, the company decided to record full impairment of Rs 17.259 million against those available for sale securities where fair market values were less than their cost as at 30 June 2009. Despite improved revenue the firm has low working capital available for short-term funding needs. ASSET MANAGEMENT The operating cycle has decreased from 110.66 days to 89.80 days. The inventory turnover in days has

also decreased from 85.83 days to 70.19 days. The days sales outstanding has decreased from 24.83 days to 19.61 days. These changes are indicative of better inventory management by the company and an efficient credit policy towards in debtors. The total asset turnover increased from 0.51 in FY08 to 0.76 in FY09. Sales to equity has increased from 0.77 to 1.23. The last two ratios show that the sales collections have improved and were higher relative to both assets and equity. DEBT MANAGEMENT The debt burden of the company had reduced considerably over the past eight years till FY08 but is slowly tipping towards risky scales in FY09. Debt to asset has increased from 0.34 in FY08 to 0.39 in FY09. The decrease in total assets is by 16.9% while decrease in debt is by 4.61%. Debt to equity ratio has increased from 0.51 in FY08 to 0.63 in FY09. The decrease in equity is 23.13% against decrease in debt by 4.61%. The fall in equity is on the back of shrunken unappropriated profit, which was eroded by the impairment costs. The long-term debt to equity ratio has increased from 0.04 in FY08 to 0.13 in FY09. The tie interest earned ratio has deteriorated from 8.05 in FY08 to 2.03 in FY09, showing a strain on the company s ability to meet all short-term interest charges. The company acquired a long-term loan from Habib Bank of Rs 1 million. The 6-month KIBOR rate surged up by 380bps during the period, which in turn increased the finance costs by 50% for the textile sector. The effects are evident on NML s result. MARKET VALUE The price to earnings ratio shows a positive surge despite the prevalent uncertain market conditions. EPS declined by 82.27% due to the eroded profitability. The prices displayed an overall declining trend amongst several fluctuations from a high of Rs 85.97 in FY08 to a low of Rs 22 but recovering to Rs 34.29 at the end of FY09. The dividend per share has declined from Rs 2.5/share to Rs 2/share. The book value has shown a decline due to increase in the number of shares outstanding. The company issued 79,892,858 ordinary shares of Rs 10 each, paid at Rs 25 per share (inclusive of premium of Rs 15 per share). Thus, the paid up capital of the Company has increased from Rs 1,597,857,170 to Rs 2,396,785,750 by the issue of said right shares. The funds were utilized by the company to meet the working capital requirements and to counter the liquidity crunch of banks. FUTURE OUTLOOK The ensuing years appear to be positive for NML, as the economy turns on to the road of recovery. Rising local and international cotton prices will strain the profitability, but NML has considerable sources to generate incomes from. NML has the plan to start the functioning of the Operational Product Development Department to help it better focus on clients. NML s plans to harness the benefits from increasing international demand for apparel and garments particularly in the western economies can help maintain a healthy bottom line. In August 2009, Government of Pakistan looked in the framing a five year textile policy which incorporates the strategies that are essential to address the challenges confronting this sector on a sustainable basis besides meeting the expectations of the industry. The government steps for the promotion of textiles industry and its exports coupled with recent incentives in the budget and trade policy can facilitate NML in becoming one of the top candidates to reap the benefits of the ongoing developments in the industry. 2004 2005 2006 2007 2000 2009 (Rupees in Thousands) =PROFIT AND LOSS

--Net Sales 14,875,877 11,374,630 16,659,607 17,180,192 19,589,804 23,870,379 Gross Profit 1,933,924 2,134,899 2,957,981 2,844,988 2,811,746 4,351,541 Profit before tax 905,502 2,033,354 1,758,866 1,355,208 5,118,687 1,561,501 Profit after tax 751,060 1,867,354 1,632,866 1,211,208 5,857,587 1,268,001 --- CASH OUTFLOWS -----Taxes paid 141,850 116,756 196,772 145,751 238,252 257,289 Financial Charges Paid 443,665 351,094 692,267 838,759 875,636 1,458,602 Fixed capital expenditures 1,703,273 1,743,535 2,331,519 1,076,493 1,239,492 917,312

-----BALANCE SHEET ---- Current assets 8,074,343 7,746,417 9,743,720 13,309,087 8,818,379 8,294,838 Current Liabilities 7,456,610 6,253,333 7,051,533 7,649,373 12,053,926 9,602,265 Operating fixed assets- Owned 7,681,620 7,920,838 8,898,310 10,309,611 11,188,560 11,102,355 Total assets 19,581,627 21,917,602 30,661,326 39,587,091 40,277,289 31,512,686 Long term loans and finances 2,622,873 2,858,155 3,015,384 1,773,820 1,321,912 2,334,411 Shareholders Equity 9,502,144 12,806,114 20,594,409 30,163,898 25,492,070 19,330,767 ---RATIOS---Current rate 1.08 : 1 1.24 : 1 1.38 : 1 1.74 : 1 0.73 : 1 0.86 : 1 Gearing ratio 48.65 37.70 29.49 21.17 30.62 34.34 Gross profit % 13.00 18.77 17.76 16.56 14.35 18.23 Net profit % (before tax) 6.09 17.88 10.56 7.89 31.23 6.54 Earning per share 5.17 12.86 10.22 7.58 36.86 6.81 COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder. DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].