NEWS COVERAGE PERIOD FROM DECEMBER 28TH TO JANUARY 3RD2016
STRIVING TO BEAT COMPETITION IN PACKAGED MILK INDUSTRY
Dawn, Business & Finance weekly, December 14th, 2015
ENGRO Foods is engaged in the manufacturing, processing and marketing of dairy products, ice cream, frozen desserts and beverages. The company also owns and operates a dairy farm.
The company’s CEO, Babur Sultan, told this writer last week that the firm derives 92pc of its income from the dairy segment, with the ice cream segment contributing 7pc to revenues.
EFOODS’ ultra high temperature (UHT) business comprises three brands: ‘Olpers,’ ‘Tarang’ and the affordable ‘Umang’. Sultan asserted that tea whitener is a fast-growing product segment as opposed to liquid or loose milk since tea is widely consumed in the country, while the habit of drinking milk is not that widespread.
Sultan asserted that ‘Olpers’ had managed to wrest a bigger market share, while Tarang’s market share dropped a little.
A food sector analyst suggested that Tarang had dug its heels in the rural segment, which was why the recently launched liquid tea whitener ‘Cup Shup’ by Dalda, the cooking oil manufacturer, would not pose an immediate danger for EFOODS. The company’s management reckons that Dalda’s entry into the segment will require a lot of investment and its brand will take time to develop an identity.
Meanwhile, the Fauji group has also entered the dairy business with its acquisition of Noon Pakistan Limited (NOPK), the producer of the ‘Nurpur’ brand of butter and other dairy products.
However, Babur Sultan told this scribe that EFOODS will remain ahead of the competition by focusing on key growth parameters like innovation in packaging, brand health, national line extensions and the launch of new products.
Engro Foods posted an after-tax profit of Rs2.6bn for the nine months ending September 30 (9MCY15), a growth of 9.3 times from net earnings of Rs252m in the corresponding period of 2014. Its sales rose 22.8pc to Rs37.7bn from Rs30.7bn. The company’s directors noted in their report to shareholders that the top-line growth was “mainly on the back of robust performance in the dairy segment”.
Topline Securities analyst Nabeel Khursheed noted that EFOODS recorded revenues of Rs12.8bn in the third quarter (3QCY15), up 17pc from 3QCY14. This was a result of an increase in volumetric sales, resolution of distribution issues and lower inflation, which led to higher disposable income for consumers. This led to the company’s market share in the UHT segment rising to 56pc from 53pc last year.
The company also jumped out of a red of Rs77m in 3QCY14 to a post-tax profit of Rs624m in the third quarter of this year.
Hasan Azhar, an analyst at Taurus Securities, said the firm’s revenues jumped by 4pc to Rs12.8bn in 3QCY15 from the previous quarter (QoQ) owing to a 5pc volumetric improvement in the dairy and beverage segment. However, its gross margins witnessed a seasonal drop of 260 basis points from 2QCY15 as the cost of raw milk was said to have risen during the ‘lean’ season. Consequently, the company’s gross profit declined by 7pc QoQ to Rs2.9bn.
Amreen Soorani, an analyst at JS Global Securities, commented that the firm’s third quarter earnings “fell short of street expectations owing to a decline in 3QCY15 margins and a one-time cost pertaining to the Employee Share Option Scheme (ESOS)”.
At an analyst briefing held a day after the announcement of the third quarter results, the EFOODS management said revenues from both the dairy and ice cream segments had grown, leading to a 1pc rise in the company’s market share in the ice cream segment to 29pc.
The ‘Omore’ ice cream brand contributed Rs1.34bn to EFOODS’ top-line and Rs140m to net earnings for the third quarter, said the CEO.
Arif Habib Limited analyst Tahir Abbas pointed out that “a bigger herd size enabled the company to reduce its losses in the farm segment”.
The CEO, Sultan, added energy costs for the company had reduced and there was not a burdensome increase in international fodder prices, which helped the firm’s farm segment.
By end-September, the company held total assets of Rs28.1bn. Its share capital stood at Rs7.67bn in the form of 767m outstanding shares, 667.4m (87.06pc) of which were held by its parent Engro Corporation. Its free float is estimated at 15pc (115m shares), while no other shareholder has over 10pc of the company’s equity (which requires mandatory reporting).
At last Thursday’s closing price of Rs150.91, the company’s market capitalisation works out at Rs115.7bn.
Some of the possible risk factors identified by sector analysts include an unanticipated rise in international milk powder prices, drop in farmers’ income and competition from new entrants in the tea-whitener category.
Some key upside triggers are thought to include a further drop in skimmed milk powder prices, better-than-expected volumetric growth and collaboration with foreign entities to enter into value-added products.
http://www.dawn.com/news/1226135
UAE, CHINESE ENERGY FIRMS TO INVEST $5BN IN PAKISTAN
Dawn, December 16th, 2015
ISLAMABAD: A joint venture between two companies from China and the United Arab Emirates will make an investment of $5 billion in Pakistan’s energy sector for setting up three coal-fired power plants, with a combined output of 3,960MW, at Port Qasim.
The agreement between UAE’s Metal Investment Holding Corporation and Power China E&M International was signed at the Board of Investment (BoI) on Tuesday.
Metal Investment Holding Corporation Chairman Haji Amin Pardesi and Finance Power China E&M International GM Zhou Xinwei signed the agreement in the presence of BoI Chairman Miftah Ismail.
Speaking on the occasion, the BoI chairman assured the two companies of complete support for the project’s completion.
He said BoI will assist them in obtaining all administrative and regulatory approvals, consents and permissions for the development of the project, including acquisition of land and the import of plant and machinery.
Mr Ismail said the present government has identified energy sector as an engine of growth and has taken a number of initiatives to attract foreign investment for exploration of new energy resources and to make the existing power system efficient.
Hoping that China would become a leading investor in Pakistan, he stressed on the huge potential for investment between the two countries. On the occasion, Mr Pardesi appreciated BoI for playing a proactive role from the inception of the project.
http://www.dawn.com/news/1226621/uae-chinese-energy-firms-to-invest-5bn-in-pakistan
FDI IMPROVES DESPITE NEGATIVE INDICATORS
Dawn, December 18, 2015
Karachi Dec 18: The foreign direct investment (FDI) slightly rose during the last five months despite the country beset with negative indicators resulting from tense relations with both of its neighbours.
The official data showed that $1.603 billion came as FDI in the country during July-Nov, which was 1.5 per cent higher than the corresponding months of last year if privatisation proceeds are excluded from last year’s total. This year no privatisation proceeds are part of FDI.
However, with the inclusion of $133.2 million as privatisation proceeds in the total figure of last year, the FDI of the five months of this year showed a decline of 6.38 per cent.
The biggest fall of 57 per cent was noted in the FDI from the United States during the period under review. The FDI fell to $315 million from $735 million last year.
The figures also revealed that the biggest slash in FDI was exhibited from the developed economies as it fell to $727 million from $1,119.4 million of last year.
The FDI in Pakistan was greatly supported by the emerging economies, including Singapore and Malaysia, which kept the FDI reasonably higher for the country.
The details also show that the trend of FDI did not change and only few sectors remained attractive for the foreign investment.The financial sector attracted $444 million FDI, which was 49 per cent higher than the corresponding period of last year. The financial sector is under tremendous pressure in the developed economies and even giant banks are facing a gradual meltdown, while a number of banks have massively cut their operations.
This is encouraging for Pakistan that its financial sector is still attractive for investors, while it is facing global uncertainty.
Though the telecommunication sector attracted $336.7 million during the five months, it was still 41 per cent lower than the corresponding period of last year.
The third attraction was oil and gas exploration sector where the foreign investment increased by 18 per cent. During the five months the FDI in the sector rose to $275.5 million against $232.6 million of last year.
“This is highly encouraging that the inflow of foreign investment in this sector is intact despite highly disturbing economic and political situation of the country,” said Abid Saleem, a researcher.
Analysts and researchers said that FDI inflows were boosting confidence of the investors willing to invest in Pakistan. At the same time, it also negated the impression that Pakistan was a failing economy.
“The tension mounted on our border with India after Mumbai attack is highly discouraging for investors, while the ever-increasing current account deficit was giving wrong signals but still some sectors of the economy have great potential to be exploited,” said Abid adding that situation would be improved once the current account deficit and fiscal deficit were controlled by the economic managers.
The State Bank data also spoke about the portfolio investment, which was obviously negative mainly because of closure of stock markets for more than 100 days and global downtrend in capital market business.
http://www.dawn.com/news/334802/fdi-improves-despite-negative-indicators
ECC SEEKS LAW MINISTRY’S VIEW ON GAS SUPPLY TO ENGRO
The Express Tribune, January 2nd, 2016.
ISLAMABAD: The Economic Coordination Committee (ECC) of the cabinet has sought opinion of the Ministry of Law on a proposal to continue gas supply to Engro Fertilizers, a subsidiary of Engro Corporation, from the Mari field, an official says.
The issue arose after the arrangement for gas supply from the Mari field to the fertiliser manufacturer ended on December 21, 2015. The gas was earlier being provided to the Guddu power plant.
In a move meant to support the agricultural sector, the Ministry of Petroleum and Natural Resources, in a summary sent to the ECC, has argued since the gas belongs to Mari-based fertiliser plants, it should continue to support the country’s urea production.
In order to make up for the gas loss to the Guddu plant, the ministry has proposed allocation of 44 million cubic feet per day (mmcfd) by diverting it from Star Power Generation.
It pointed out that 100 mmcfd from the Mari’s deep reservoir was earmarked for new power projects near the gas field, which were identified by the Ministry of Water and Power in accordance with the approved power policy.
The power ministry made the gas available to Foundation Power Company Deharki and Star Power Generation in the ratio of 60:40 mmcfd. Subsequently, the volume was enhanced to 65 mmcfd and 44 mmcfd respectively in line with an ECC decision.
However, Star Power has not been able to start construction of its power plant to date and has also failed to achieve financial close. Owing to the breach of gas supply agreement with Mari, the ECC diverted the gas from Star Power to Sui Northern Gas Pipelines for onward supply to the Guddu thermal power station.
The issue has landed in court and the petroleum ministry wants to allocate the gas to the Guddu plant and subsequently continue supply of 60 mmcfd to Engro, which was diverted from Guddu.
“The ECC has no objection to continuing gas supply to Engro, but it needs the opinion of law ministry for the allocation of 44 mmcfd, which is in litigation,” the official said.
In the summary, the petroleum ministry pointed out that under the 2001 fertiliser policy, the government had dedicated a shallow reservoir of Mari field to the fertiliser industry whereas the deep reservoir was dedicated to power producers as it was suitable for electricity generation.
http://tribune.com.pk/story/1020585/ecc-seeks-law-ministrys-view-on-gas-supply-to-engro/
REPATRIATION OF PROFITS ON FOREIGN INVESTMENTS RISES TO $802 MILLION
Dawn, January 3rd, 2016
KARACHI: Repatriation of profits on foreign investments rose to $802 million during the first five months (July to November) of this fiscal year, indicating that the half-year repayment will easily cross $1 billion, according to data released by the State Bank of Pakistan (SBP).
What is more concerning for Pakistan is the inflow of net foreign direct investment (FDI), which stood at $640m during the period.
Outflows as dividends and profits have been increasing each year while FDI has been in decline, making things worse for a country already overloaded with foreign debts.
Payments on foreign private investments (FPI), which were $1.061bn in FY12, jumped to $1.221bn in FY14 and then to $1.632bn in FY15.
And if the pace of outflows remains the same during the seven months from December to June, the outflow could surpass $2bn during this fiscal year.
The economic team of the government, which has failed to attract foreign investors, is now trying to convince the nation that Chinese investments will bring about a revolution and that no other foreign investment is required.
However, the Chinese investments are extremely slow since the two countries signed agreements for investment of $46bn under the China-Pakistan Economic Corridor. Moreover, government officials have now made it clear that most of the $46bn would be comprised of loans to Pakistan.
The details of the State Bank’s report showed that for the first time coal has attracted foreign investments. During July-November 2015, the power sector attracted $273m as FDI, with coal power dominating with a share of $211m. The amount was significantly higher than $59m coal attracted during the same period of preceding fiscal year.
Pakistan has been making effort for last several years to use its coal reserves but the investors did not show interest except the Chinese ones. For the first time Pakistan is expected to generate electricity through coal reserves.
For the power sector, payments on FDI were $113m during July-November. The country expects to receive up to $2.5bn for the coal power projects that will certainly increase the outflow from this sector as profits.
Extreme imbalance was visible in the inflow and outflow of the financial business. During the five-month period under review, the net inflow in the financial business (banks) as FDI was just $5m while repayment on FDI for this sector was $121m which was the highest repayments among all sectors.
Pakistani banking industry has large foreign investments from the Middle East which is reflected through the outflow of profits and dividends from this sector.
Being poorest among all in the region regarding FDI, Pakistan needs to improve its performance to attract foreign investors, otherwise the country will continue to sink in the debts and debts servicing which could be more than $7bn in FY16.
http://www.dawn.com/news/1230367
US STRESSES NEED FOR IMPROVEMENT IN INDIA-PAKISTAN TIES ON ALL ISSUES
Dawn June 19th, 2015
WASHINGTON: For the fourth time in a row, the US State Department commented on the current tensions between India and Pakistan, urging both to improve relations over a range of issues.
Pakistan’s ambassador to Washington Jalil Abbas Jilani welcomed this gesture, saying that the United States was playing “a positive role” for reducing tensions between the two South Asian neighbours.
At the State Department, spokesperson John Kirby said the United States desired “that relations between the two countries continue to improve over a range of issues”.
On Tuesday, US Secretary of State John Kerry also stressed the need for reducing tensions between the two neighbours.
And earlier this week, another State Department official, Jeff Rathke, urged India and Pakistan “to take steps to reduce tensions and to move towards resuming talks.”
Yet another State Department official said that the relationship between India and Pakistan was “critical to advancing peace and stability in South Asia”.
Alarmed by the recent spate of threats and counter-threats between Pakistan and India, Secretary Kerry telephoned Prime Minister Nawaz Sharif on Tuesday and later told a briefing in Washington that he had a positive and frank conversation with the Pakistani leader.
Mr Sharif had “just finished a conversation himself with the prime minister of India” when he called him,” Mr Kerry said.
“The (Pakistani) prime minister was extremely forthcoming. He could not have been more direct,” he said.
Secretary Kerry said the tension was a cause “of enormous concern to all of us for all the obvious reasons”.
Another State Department official told reporters that Washington was “in touch with India” as well “at the highest level”.
http://www.dawn.com/news/1189050
NEWS COVERAGE PERIOD FROM DECEMBER 21st TO DECEMBER 27th 2015
MINISTRY WANTS ENGRO TO CONTINUE GETTING GAS FROM MARI
The Express Tribune, December 22th, 2015.
Zafar Bhutta
ISLAMABAD: The Ministry of Petroleum and Natural Resources is looking to convince the country’s economic decision-making body to continue gas supply to Engro Fertilizers – a subsidiary of conglomerate Engro Corporation – through the Mari field.
The proposed plan comes after the arrangement to supply gas to the fertiliser manufacturer lapsed on December 21, 2015.
In a move meant to support the agriculture sector, the ministry of petroleum has moved the summary to the Economic Coordination Committee (ECC), arguing that since the gas belongs to Mari-based fertiliser plants, it should continue to support the country’s urea production.
The move comes a month after it was reported that gas would be diverted from Engro Fertilizers to the Guddu power plant, keeping in mind electricity shortage in the country. However, Shahid Khaqan Abbasi, the petroleum minister, insisted that Engro would be supplied gas through other means.
Now, the ministry, in its summary to the ECC, has said that under the fertiliser policy 2001, the government had dedicated a shallow reservoir of Mari gas field to the fertiliser industry. The deep reservoir has been dedicated for the power sector as it was suitable for electricity generation, it added.
The petroleum ministry said that 100 mmcfd gas from Mari deep was allocated and dedicated to new power projects near Mari gas field identified by the Ministry of Water and Power in accordance with the approved power policy.
Later, the water and power ministry made this gas available to the Foundation Power Company Deharki (FPCDL) and Star Power Generation (SPGL) in the ratio of 60:40 mmcfd, respectively.
Subsequently, the gas allocation volume was enhanced up to 65 mmcfd and 44 mmcfd to FPCDL and SPGL, respectively, pursuant to the ECC decision.
However, SPGL, to date, has been unable to commence construction of its power plant, while failing to achieve financial close as well. Resultantly, it was added, due to the breach of the gas supply agreement with Mari, the ECC allocated this gas to SNGPL for onward supply to thermal power station Guddu for a period of two years.
Supply of gas commenced on March 10, 2012 before the allocation expired on March 9, 2014. Despite the expiry, Mari Petroleum has continued to supply 44 mmcfd of gas to the Guddu power station. However, gas offtake has remained till date, stated the petroleum ministry.
NETSOL SIGNS $100MLN CONTRACT TO IMPLEMENT SOLUTIONS
The News, December24, 2015
LAHORE: NetSol Technologies Inc, a global business services and enterprise application solutions provider, signed $100 million contract to provide its solutions and services in 12 markets in Asia and South Africa, the company said on Wednesday.
The agreement calls for upgrading to NetSol’s Next-Generation Finance (NFS) Ascent platform, the company’s advanced solution for the auto and equipment finance and leasing industry, from the company’s NFS platform in Australia, China, Hong Kong, India, Japan, New Zealand, Singapore, South Korea, Taiwan, Thailand and Malaysia. The contract also includes implementation of NFS Ascent in South Africa, a new market for NetSol.
The implementation phase spans a five-year period, with maintenance and support over ten years.
“The monumental deal will usher NetSol into a new phase and further cement our position as leaders in the domain of finance and leasing,” said Salim Ghauri, chief executive officer at NetSol Technologies.
“This deal is a testament to our continued commitment to innovation, excellence and promoting a culture within NetSol of constantly striving to do business in new and revolutionary ways. The reception of our latest and cutting edge product by giants of the asset finance and leasing shows that we are producing the best new products and services in the industry.”
NetSol Technologies globally launched its newest product, NFS Ascent, developed on the latest architecture platform, considering the future needs of auto captives and asset finance and leasing business in mind.
Ghauri said the agreement will prove to be transformative and groundbreaking for the Pakistani tech industry as it is possibly the largest ever contract awarded to local company for developing and deploying an enterprise grade platform.
The implementation encompasses the full end-to-end finance and leasing lifecycle, covering NFS ascent’s loan origination system, contract management system, wholesale financing system and its dealer/auditor access system.
It also includes NFS Mobility mAccount, which gives customers visibility into their auto financing contract.
Once complete, the system will provide a single regional platform that improves business visibility and assists with strategic planning.
POWER MINISTRY OPPOSES GAS SUPPLY TO ENGRO PLANT
The Express Tribune, December 25th, 2015
ISLAMABAD: The Ministry of Water and Power has opposed the proposal of continuing gas supply to Engro Fertilizers from the Mari field and wants to divert it back to the Genco-2 power plant.
Engro has continued to receive gas from the Mari field since July 2013. Earlier, the Pakistan Peoples Party government had allocated 60 million cubic feet of gas per day (mmcfd) from the field to the Guddu power plant, which was later diverted to Engro.
The Ministry of Water and Power’s remarks came following a summary sent by the Ministry of Petroleum and Natural Resources to the Economic Coordination Committee (ECC), suggesting that since the gas belonged to Mari-based fertiliser plants, it should permanently remain with the fertiliser sector without affecting production of urea.
In an ECC meeting on December 24, 2014, Engro was permitted to consume 60 mmcfd from the Mari shallow reservoir after the company agreed to install a gas-boosting compressor for the 747-megawatt combined-cycle Genco-2 plant. The gas diversion to Engro was valid until December 21, 2015.
The water and power ministry, while giving its opinion, said according to the government’s decision, the power sector stood second in priority to domestic consumers in gas allocation.
As such, it said, the power sector should be given priority over fertiliser plants and the Guddu plant was currently the largest power generation facility in the public sector with available capacity of around 1,320MW. Apart from this, rehabilitation work was undertaken to increase the capacity by 360MW by year-end. As such, the power plant required adequate gas supply.
The ministry said the 60 mmcfd gas was taken from Genco-2 in July 2013 and was given to Engro in a temporary arrangement. Through a contract between Genco-2 and Engro, it was agreed that Engro would continue to use the gas until December 2015 and install a gas compressor at the power plant.
“In view of the above, the Ministry of Water and Power reiterates that the 60 mmcfd gas should be allocated to Genco-2 in compliance with the ECC’s earlier decision and the contractual agreement between Engro and Genco-2,” the ministry said.
The petroleum ministry, however, said under the fertiliser policy for 2001 the government had dedicated the shallow reservoir of Mari field to the fertiliser industry while the deep reservoir had been earmarked for the power plants as it was suitable for electricity generation.
It pointed out that 100 mmcfd from the Mari deep was allocated to the new power projects near Mari gas field which would be identified by the Ministry of Water and Power in accordance with the approved power policy.
Later, the allocated gas was supplied to Foundation Power Company Deharki and Star Power Generation Limited (SPGL) at the rate of 60 and 40 mmcfd respectively. Later, the volume was enhanced to 65 and 44 mmcfd respectively in line with an ECC’s decision.
So far, SPGL has not been able to start construction of its power plant and has not even achieved the financial close. In view of its failure to utilise its share of gas, the ECC in May 2011 allocated the gas to SNGPL for onward supply to the Thermal Power Station Guddu (Genco-2) for two years.
After laying a pipeline, gas supply to the thermal power station began in March 2012. This allocation ended on March 9, 2014.
However, Mari Petroleum has continued to supply gas to the power station in the national interest. However, gas offtakes by the power station has remained very erratic.
NEWS COVERAGE PERIOD FROM DECEMBER 14TH TO DECEMBER 20TH, 2015
STRIVING TO BEAT COMPETITION IN PACKAGED MILK INDUSTRY
Dawn, Business & Finance weekly, December 14th, 2015
ENGRO Foods is engaged in the manufacturing, processing and marketing of dairy products, ice cream, frozen desserts and beverages. The company also owns and operates a dairy farm.
The company’s CEO, Babur Sultan, told this writer last week that the firm derives 92pc of its income from the dairy segment, with the ice cream segment contributing 7pc to revenues.
EFOODS’ ultra high temperature (UHT) business comprises three brands: ‘Olpers,’ ‘Tarang’ and the affordable ‘Umang’. Sultan asserted that tea whitener is a fast-growing product segment as opposed to liquid or loose milk since tea is widely consumed in the country, while the habit of drinking milk is not that widespread.
Sultan asserted that ‘Olpers’ had managed to wrest a bigger market share, while Tarang’s market share dropped a little.
A food sector analyst suggested that Tarang had dug its heels in the rural segment, which was why the recently launched liquid tea whitener ‘Cup Shup’ by Dalda, the cooking oil manufacturer, would not pose an immediate danger for EFOODS. The company’s management reckons that Dalda’s entry into the segment will require a lot of investment and its brand will take time to develop an identity.
Meanwhile, the Fauji group has also entered the dairy business with its acquisition of Noon Pakistan Limited (NOPK), the producer of the ‘Nurpur’ brand of butter and other dairy products.
However, Babur Sultan told this scribe that EFOODS will remain ahead of the competition by focusing on key growth parameters like innovation in packaging, brand health, national line extensions and the launch of new products.
Engro Foods posted an after-tax profit of Rs2.6bn for the nine months ending September 30 (9MCY15), a growth of 9.3 times from net earnings of Rs252m in the corresponding period of 2014. Its sales rose 22.8pc to Rs37.7bn from Rs30.7bn. The company’s directors noted in their report to shareholders that the top-line growth was “mainly on the back of robust performance in the dairy segment”.
Topline Securities analyst Nabeel Khursheed noted that EFOODS recorded revenues of Rs12.8bn in the third quarter (3QCY15), up 17pc from 3QCY14. This was a result of an increase in volumetric sales, resolution of distribution issues and lower inflation, which led to higher disposable income for consumers. This led to the company’s market share in the UHT segment rising to 56pc from 53pc last year.
The company also jumped out of a red of Rs77m in 3QCY14 to a post-tax profit of Rs624m in the third quarter of this year.
Hasan Azhar, an analyst at Taurus Securities, said the firm’s revenues jumped by 4pc to Rs12.8bn in 3QCY15 from the previous quarter (QoQ) owing to a 5pc volumetric improvement in the dairy and beverage segment. However, its gross margins witnessed a seasonal drop of 260 basis points from 2QCY15 as the cost of raw milk was said to have risen during the ‘lean’ season. Consequently, the company’s gross profit declined by 7pc QoQ to Rs2.9bn.
Amreen Soorani, an analyst at JS Global Securities, commented that the firm’s third quarter earnings “fell short of street expectations owing to a decline in 3QCY15 margins and a one-time cost pertaining to the Employee Share Option Scheme (ESOS)”.
At an analyst briefing held a day after the announcement of the third quarter results, the EFOODS management said revenues from both the dairy and ice cream segments had grown, leading to a 1pc rise in the company’s market share in the ice cream segment to 29pc.
The ‘Omore’ ice cream brand contributed Rs1.34bn to EFOODS’ top-line and Rs140m to net earnings for the third quarter, said the CEO.
Arif Habib Limited analyst Tahir Abbas pointed out that “a bigger herd size enabled the company to reduce its losses in the farm segment”.
The CEO, Sultan, added energy costs for the company had reduced and there was not a burdensome increase in international fodder prices, which helped the firm’s farm segment.
By end-September, the company held total assets of Rs28.1bn. Its share capital stood at Rs7.67bn in the form of 767m outstanding shares, 667.4m (87.06pc) of which were held by its parent Engro Corporation. Its free float is estimated at 15pc (115m shares), while no other shareholder has over 10pc of the company’s equity (which requires mandatory reporting).
At last Thursday’s closing price of Rs150.91, the company’s market capitalisation works out at Rs115.7bn.
Some of the possible risk factors identified by sector analysts include an unanticipated rise in international milk powder prices, drop in farmers’ income and competition from new entrants in the tea-whitener category.
Some key upside triggers are thought to include a further drop in skimmed milk powder prices, better-than-expected volumetric growth and collaboration with foreign entities to enter into value-added products.
http://www.dawn.com/news/1226135
UAE, CHINESE ENERGY FIRMS TO INVEST $5BN IN PAKISTAN
Dawn, December 16th, 2015
ISLAMABAD: A joint venture between two companies from China and the United Arab Emirates will make an investment of $5 billion in Pakistan’s energy sector for setting up three coal-fired power plants, with a combined output of 3,960MW, at Port Qasim.
The agreement between UAE’s Metal Investment Holding Corporation and Power China E&M International was signed at the Board of Investment (BoI) on Tuesday.
Metal Investment Holding Corporation Chairman Haji Amin Pardesi and Finance Power China E&M International GM Zhou Xinwei signed the agreement in the presence of BoI Chairman Miftah Ismail.
Speaking on the occasion, the BoI chairman assured the two companies of complete support for the project’s completion.
He said BoI will assist them in obtaining all administrative and regulatory approvals, consents and permissions for the development of the project, including acquisition of land and the import of plant and machinery.
Mr Ismail said the present government has identified energy sector as an engine of growth and has taken a number of initiatives to attract foreign investment for exploration of new energy resources and to make the existing power system efficient.
Hoping that China would become a leading investor in Pakistan, he stressed on the huge potential for investment between the two countries. On the occasion, Mr Pardesi appreciated BoI for playing a proactive role from the inception of the project.
www.dawn.com/news/1226621/uae-chinese-energy-firms-to-invest-5bn-in-pakistan
FDI IMPROVES DESPITE NEGATIVE INDICATORS
Dawn, December 18, 2015
Karachi Dec 18: The foreign direct investment (FDI) slightly rose during the last five months despite the country beset with negative indicators resulting from tense relations with both of its neighbours.
The official data showed that $1.603 billion came as FDI in the country during July-Nov, which was 1.5 per cent higher than the corresponding months of last year if privatisation proceeds are excluded from last year’s total. This year no privatisation proceeds are part of FDI.
However, with the inclusion of $133.2 million as privatisation proceeds in the total figure of last year, the FDI of the five months of this year showed a decline of 6.38 per cent.
The biggest fall of 57 per cent was noted in the FDI from the United States during the period under review. The FDI fell to $315 million from $735 million last year.
The figures also revealed that the biggest slash in FDI was exhibited from the developed economies as it fell to $727 million from $1,119.4 million of last year.
The FDI in Pakistan was greatly supported by the emerging economies, including Singapore and Malaysia, which kept the FDI reasonably higher for the country.
The details also show that the trend of FDI did not change and only few sectors remained attractive for the foreign investment.The financial sector attracted $444 million FDI, which was 49 per cent higher than the corresponding period of last year. The financial sector is under tremendous pressure in the developed economies and even giant banks are facing a gradual meltdown, while a number of banks have massively cut their operations.
This is encouraging for Pakistan that its financial sector is still attractive for investors, while it is facing global uncertainty.
Though the telecommunication sector attracted $336.7 million during the five months, it was still 41 per cent lower than the corresponding period of last year.
The third attraction was oil and gas exploration sector where the foreign investment increased by 18 per cent. During the five months the FDI in the sector rose to $275.5 million against $232.6 million of last year.
“This is highly encouraging that the inflow of foreign investment in this sector is intact despite highly disturbing economic and political situation of the country,” said Abid Saleem, a researcher.
Analysts and researchers said that FDI inflows were boosting confidence of the investors willing to invest in Pakistan. At the same time, it also negated the impression that Pakistan was a failing economy.
“The tension mounted on our border with India after Mumbai attack is highly discouraging for investors, while the ever-increasing current account deficit was giving wrong signals but still some sectors of the economy have great potential to be exploited,” said Abid adding that situation would be improved once the current account deficit and fiscal deficit were controlled by the economic managers.
The State Bank data also spoke about the portfolio investment, which was obviously negative mainly because of closure of stock markets for more than 100 days and global downtrend in capital market business.
http://www.dawn.com/news/334802/fdi-improves-despite-negative-indicators
NEWS COVERAGE PERIOD FROM DECEMBER 7TH TO DECEMBER13TH, 2015
CHANGING INVESTORS’ MOOD
Dawn, Business & Finance weekly, December 7th, 2015
AFSHAN SUBOHI
THE noise about the emerging investment scenario is said to have grown louder in boardrooms and lounges of elite clubs, but Pakistan’s private sector still seems to be waiting and watching the situation, though more closely.
There is a cautious approach to capital spending except for a few power projects that promise guaranteed returns.
Former State Bank of Pakistan governor Syed Salim Raza, while discussing the possibility of a surge in domestic investment, said the indicators so far do not suggest a major change in businesses’ attitude.
“There are positive vibes in business circles and people are closely watching CPEC-related projects. Beyond that, if there are major expansion plans or new projects on drawing boards, they have yet to surface,” he said over phone.
According to the SBP, net private sector credit off-take fell to Rs21.462bn during July-October against Rs58.377bn in the same period last year. The record-low interest rates have clearly, on their own, failed to push the business community into action.
So far, much of the capital spending has gone into business consolidation, which has been generally self-financed by investors. Some traditional manufacturing sectors are operating below their capacities.
Earlier, the Pakistan Economic Survey 2014-15 had reported a deceleration in the industrial growth rate. The industrial sector grew 3.6pc in the year, against 4.5pc a year before. Manufacturing, which contributes 65pc to the industrial sector, grew by a mere 3.1pc as compared to 4.4pc a year before.
According to the same report, the total investment-to-GDP ratio remained stagnant at 15pc. But private investment had actually declined from 10pc of GDP in 2013-14 to 9.6pc in 2014-15.
It has been observed that local billionaires find the country attractive for ventures in the services sector, trading, informal segments and real estate. But they are reluctant to commit their capital to long-term manufacturing projects, even though the country desperately needs an expansion in the industrial base to improve the pace and the quality of growth.
When contacted, some businessmen who head major conglomerates declined to comment on the record. But they attributed the low investment rate to a lack of factors like reliable physical infrastructure, security of investment, skilled manpower, sound judicial system, transparent regulatory framework and political stability, apart from lopsided taxation regime and abrupt policy changes.
But a senior economist at the Planning Commission dismissed the businessmen’s view as ‘lame excuses’ and a reflection of their myopic mindset and not-so-responsible social behaviour.
“Had the business environment actually been as bad as these tycoons project it to be, would they be in Pakistan rolling in riches? They had financial prowess to relocate their businesses anywhere outside their home country. If they opted for Pakistan, it was because they knew business would be harder and far less rewarding anywhere else,” he argued.
“It is difficult to assess their net worth because of the wide range of their business portfolio, but it is safe to say that most old business houses have multiplied their fortunes many times over in the last three decades. And the country has also seen the emergence of a new class of super-rich tycoons in the media, education, health and real estate sectors,” he said.
“The point is that there is no dearth of resources and expertise. What the country lacks is the drive in the private sector to excel and compete and their trust on Pakistan as a country with a promising future. Instead of putting in place a policy framework to nudge private capital towards socially desirable areas, successive governments patronized them, which deepened their flawed approach,” he lamented.
Fahim ul Islam, member for private sector development at the Planning Commission, said the government was looking at the low rate of domestic investment as a key economic challenge and was actively working on several ideas to mobilise the local investor community.
“Besides several other initiatives to engage the private sector, the Planning Commission intends to soon convene a forum with leading businessmen to persuade them to boost private investment in the manufacturing sector,” he told this writer over phone from Islamabad.
Minister of State for Privatisation Mohammad Zubair defended the private sector, which, he felt, was keeping the wheel of the economy moving in adverse circumstances.
Commenting on the slow pace of investment in manufacturing, he expressed hope that the ‘economic turnaround’ achieved by the PML-N government would revive the private sector’s confidence in the future of Pakistan. This, he believed, was necessary to boost investment in long-term projects.
“By 2017, we hope to deliver on our promise of uninterrupted, affordable power supply and security. I am positive that given the right environment, the business community will assume the role it is destined to play in the country’s development,” he said.
http://www.dawn.com/news/1224599
Fall in consumer spending?
Dawn, Business & Finance weekly, December 7th, 2015
NASIR JAMAL
NESTLÉ Pakistan is one of the country’s fastest growing food processing companies. It is mainly involved in manufacturing and selling packaged milk and milk products, juices and bottled water.
A subsidiary of Nestle S.A., with the Swiss company controlling 59pc of its shares, the firm has invested heavily ($180m) since 2012 to increase its production capacity (mostly at the milk powder drying facility) and improve its operational reliability and supply chain.
The new investments have paid off and significantly impacted the firm’s sales as well as its profits, as its gross turnover rose to Rs105bn in 2014.
The rapid and consistent growth in the sales and profitability of Nestlé, which entered the Pakistani market in 1988 under a joint venture with Milk Pak (whose management it took over in 1992), over the last several years indicates the potential of the food processing industry in the country.
The company more than trebled its after-tax profits to Rs5.8bn between 2007 and 2012 — the years marked by increased terrorist attacks and sectarian violence, heightened political volatility, higher food and headline inflation, energy shortages, and below 3pc GDP growth.
During 2013-14, the company’s profits spiked by 36pc and reached Rs7.9bn despite disruptions caused by security conditions, political instability, energy crunch and weakened purchasing power of consumers on account of a slow-growing economy.
“[Last] year continued to be a challenging year owing to the adverse security situation coupled with uncertainties around the political environment and the ongoing energy crisis, resulting in regular disruptions of business,” the company’s directors said in their report to shareholders in 2014. “Growth was fuelled by effective product mix management and optimisation of our value chain.”
The company’s revenues and profits have continued to grow this year. Its sales grew 3.9pc to Rs77.2bn and its after-tax profit spiked by a hefty 20pc to Rs7.68bn in the first three quarters of the year from a year ago. The growth came on the back of low input costs, higher sales volumes and a ‘stable’ currency.
But a comparison of the unaudited financial results for the three quarters shows that the firm earned 47pc of its profit in the first quarter, with its sales rising to Rs25.34bn — less than one-third of total sales during the nine-month period.
The major reason for the lower profits in the second and third quarters of the year is the sharp rise in the cost of goods sold as a percentage of sales, which increased to 67pc in the two quarters from 62pc in the first quarter.
A company spokesperson, nevertheless, argues that it is not relevant to compare the profit earned in one quarter with that in others in the same year because of the seasonality of different businesses.
Analysts contend that food companies emerged as one of the best performing corporates in the first half of this year. “But the trend appears to have reversed in the third quarter,” an analyst working for a brokerage company in Karachi insists.
The global decline in commodity prices, primarily the collapsing of international powdered milk prices, as well as lower milk procurement costs, decreased oil prices and transportation expenses, stronger rupee, higher demand and domestic retail prices etc are all said to have contributed to the profits of Nestlé and other food companies.
“In recent years, GDP growth in Pakistan has remained rather inadequate. Yet, the consumer sector has thrived with high double-digit growths in income. But the financial results of the third quarter are not very encouraging,” says the analyst.
Sector watchers believe that low commodity prices and crop losses, which have greatly impacted rural incomes, have led to a substantive decline in overall consumer spending.
“The drop in sales of food and consumer goods companies may be seasonal and temporary because the demand for packaged foods has grown rapidly in cities across the country as well as in villages in Punjab.
Or it could last longer than we expect it to as reports of cotton crop losses in Punjab are rife,” another financial analyst observes.
http://www.dawn.com/news/1224592
CHINESE COMPANIES VISIT TO EXPLORE PAKISTANI MARKET
The Express Tribune, December 13th, 2015.
ISLAMABAD: A delegation of Chinese entrepreneurs on Saturday visited the Islamabad Chamber of Commerce and Industry (ICCI) in a bid to explore business ventures for various products including construction machinery, heavy duty vehicles and glass wares.
The delegation was representing some of the major companies of China including Foxconn Technology Group, Jiangsu Nantong Liujian Construction Group Co Ltd, Wealthpower Technology Ltd and Suzhou Super Glass Optical Technology Co Ltd.
The delegation informed that Foxconn Technology Group – which manufactures Apple products – was one of the most dependable partners for joint-design, joint-development, manufacturing, assembly and after-sales services and was looking for partners in Pakistan.
The group said that after the finalisation of China-Pakistan Economic Corridor (CPEC) between the two countries, many Chinese investors were taking increased interest in Pakistan for investment and they have come on an exploratory visit to find out various opportunities of joint ventures in Pakistan.
Speaking at the occasion, ICCI President Atif Ikram Sheikh and Vice President Sheikh Abdul Waheed said several lucrative investment opportunities existed in Pakistan’s IT, construction, infrastructure development and other sectors.
They said Pakistan offers an extensive market with a strong demand for consumers’ electronics including computers, laptops, mobile phones, printers, copiers and digital cameras. “Chinese investors should set up manufacturing plants in Pakistan to exploit these opportunities.”
They added that the government has started many construction projects in various cities while the CPEC would usher in more projects in energy and infrastructure development.
They said Chinese investors should make Pakistan a production hub to meet domestic needs and export products to other regions.
http://tribune.com.pk/story/1009039/partnership-chinese-companies-visit-to-explore-pakistani-market/
NEWS COVERAGE PERIOD NOVEMBER 30th TO DECEMBER 6th, 2015
ENRO SHEDDING ITS LOSS-MAKING BUSINESS
Dawn, Business & Finance weekly, November 30th, 2015
DILAWAR HUSSAIN
Engro Polymer and Chemicals Ltd President and CEO Khalid Siraj Subhani stated in his annual 2014 report that “the domestic PVC market [had] demonstrated resilience in 2014 despite a contraction due to the imposition of duty on PVC and products and depletion of inventory by end-users. The domestic market for caustic soda remains well supplied…. restricting EPCL [from] influencing pricing and [also] its ability to pass on cost pressures due to an increase in energy prices”.
THE Engro Corporation Ltd — a conglomerate that operates in such diverse fields as fertiliser, food and energy — has decided to part ways with its subsidiary, Engro Polymer and Chemicals Ltd.
Engro has offered to sell all of the 373m shares it holds in the subsidiary, which account for 56.19pc of EPCL’s paid-up capital, along with management control of the company. The company is engaged in the manufacturing, marketing and selling of poly vinyl chloride (PVC), vinyl chloride moomer (VCM), caustic soda and other related chemical products.
The potential buyers of EPCL have been identified as “ATS Synthetic (Pvt.) Ltd, along with persons acting in concert”. Although knowledgeable market people were aware of EPCL as a target for acquisition, the market is still speculating about the reasons behind Engro’s decision to spin off and let go of the chemical business.
In a November 18 report, analysts at KASB Securities and Economic Research said the step is part of the conglomerate’s restructuring. They added that another Engro subsidiary, Eximp, would be scaling down its B2B business while exploring opportunities in the more profitable and less risky B2C segment. The pilot project ‘Onaaj Chakki Atta’ was launched in that spirit and had received a positive response from consumers.
They also claimed that Engro intends to reduce its stake in the Sindh Engro Coal Mining Company (SECMC) and Engro Powergen Thar (Pvt.) Ltd (EPTL) to 12pc and 51pc respectively.
“We also expect the company to consider divesting its stake in Engro Powergen Qadirpur Ltd and believe a further divestment from Engro Fertiliser is also possible at this stage.” Some other independent observers agreed in varying degrees with these statements.
EPCL was established in 1997 and is the only fully integrated chlor vinyl chemical complex in the country.
“If the current sale of EPCL goes through at a market rate of Rs11.54 per share, the Engro Corporation will book capital gains of Rs1.24 per share on a standalone basis,” calculated a sector analyst.
EPCL’s other major shareholders include the Inter¬national Finance Corpora¬tion with a 14.64pc stake and the Mitsubishi Corporation with a 10.24pc equity interest. It is still unclear if these two entities will retain their stake in the company after Engro’s withdrawal.
In case of a successful bid, the acquirer shall make a public announcement of the offer to EPCL’s shareholders in accordance with the Securities Act 2015. By end-2014, 32,542 small shareholders had 79m or 11.9pc of the company’s stock.
Meanwhile, after having invested in the country’s first LNG terminal, Engro is also making progress on its Thar coal mining and power plant projects. Financial close of both projects is expected to be achieved by next June.
The company had Rs26.3bn worth of assets by end-2014, and its share capital was Rs6.6bn. The EPCL stock closed last Thursday at Rs11.78 a share, giving the company a market capitalisation of Rs7.8bn. In 2014, it ‘generated wealth’ amounting to Rs5.7bn, of which Rs3.4bn (59pc) was paid to the government in taxes, levies and workers’ funds.
However, EPCL’s performance over the last few years has been far from satisfactory. Although net sales continued to grow from Rs12bn in 2009 to Rs24bn in 2014, the company suffered after-tax losses in four of those six years, with the highest loss amounting to Rs1bn in 2014.
For the nine months ending September 30, the company posted consolidated revenues of Rs17.1bn — about the same as last year. However, it suffered a big loss of Rs813m in the period, translating into a loss-per-share of Rs1.22, against a loss of Rs33m or Re0.05 per share in the corresponding period last year.
Yousuf Rehman, an analyst at Global Securities, remarked that EPCL’s caustic soda segment had been a key contributor to earnings over the years. For the past two years, however, the segment had come under strain due to an oversupply of the chemical, which had caused its price to recede.
But Rehman believed that the segment’s performance would improve upon the recommencement of stable plant operations. For the longer run, power sector reforms and a consequent increase in the textile sector’s operating rates are expected to increase demand for caustic soda and alleviate the current surplus.
EPCL’s President and CEO, Khalid Siraj Subhani, stated in his annual 2014 report that “the domestic PVC market [had] demonstrated resilience in 2014 despite a contraction due to the imposition of duty on PVC and products and depletion of inventory by end-users. The domestic market for caustic soda remains well supplied. The overall supply situation may restrict EPCL [from] influencing pricing and [also] restrict its ability to pass on cost pressures due to an increase in energy prices”.
“However, economic value-creation [by] the company remains largely linked to uncontrollable factors such as vinyl chain prices in the international market, energy prices, duty on primary raw materials and currency volatility”.
But some still hold hopes high for EPCL. “The ongoing China-Pakistan Economic Corridor will significantly boost construction activities in the country, increasing demand for PVC as a result,” said one.
http://www.dawn.com/news/1223130
Malaysia keen to invest in Pakistan
Dawn, December 4th, 2015
PESHAWAR: Malaysia is willing to invest in various sectors in Pakistan, including tourism, power generation and infrastructure development.
This was stated by Malaysian High Commissioner Dato’ Dr Hasrul Sani bin Mujtabar at the ‘Guest Hour’ programme of Peshawar Press Club on Thursday. He said that Pakistan, especially its Khyber Pakhtunkhwa province, was full of natural resources and his country was interested in various sectors in the province.
The envoy said that several Pakistani items, particularly mango, cloth, rice and sports goods, were very popular in Malaysia and during his recent meetings he discussed such issues with Governor Mahtab Ahmed Khan and Chief Minister Pervez Khattak.
He said that there were at least 8,000 Pakistanis associated with different business activities in Malaysia. He said that every year around 30,000 tourists visited Malaysia and majority of them were from Pakistan.
The envoy said that Malaysia had great opportunities for Pakistanis, particularly for students to take admissions there. He said that over 4,000 Pakistanis were currently getting education in Malaysia because the expenses were nominal compared to other countries.
http://www.dawn.com/news/1224173
NEWS COVERAGE PERIOD NOVEMBER 23rd TO NOVEMBER 29th, 2015
DYNAMICS OF MIDDLE CLASS CONSUMER MARKET
Dawn, Business & Finance weekly, November 23rd, 2015
AFSHAN SUBOHI
Pakistan’s middle class consumer market assessed on the basis of reports of market research companies and data from multiple sources is projected at Rs30tr ($290bn). Adding the share of the country’s huge informal market would make the numbers fly higher.
“The sales data of different items, like Honda selling 70,000 motorbikes in October, leaves one wondering about the purchasing capacity of Pakistani households. But in the absence of proper consolidated sales data, it would be hard to defend any projection,” a seasoned economist commented.
The spending habits of the middle-class households are transforming fast as they aspire to climb higher on the social ladder and enter traditional bazaars, modern malls or switch to online shopping. With the pickup in GDP growth, many households are joining the millions enjoying discretionary consumption.
It poses both an opportunity and a challenge to existing companies and interested global players — inspired by the stellar performance of multinational fast moving consumer goods companies (FMCGs), and electronics, food, clothing, cosmetics, drug and auto industry firms — as they aspire to enter the Pakistani market.
The companies active in Pakistan will need to build flexibilities into their systems to make quick adjustments to match the changing preference of consumers. It will also be necessary as more foreign companies ultimately enter the domestic market, intensifying competition.
Besides closely observing the market for changes, the old players will have to monitor the actions of their current and future potential competitors that will drive companies to offer better value for the money spent.
Experts define the middle class in different ways, including on the basis of income and people’s spending on food, transportation, entertainment etc, as well as investment in education and healthcare. More importantly, the consumption-oriented middle class is not just a beneficiary of economic growth but is also a major factor contributing to it.
On average, this vibrant middle class, which is understood to be a trendsetter, is expected to expand by over 6pc annually in the next few years, i.e. at nearly double the real GDP growth rate (economic growth rate minus population growth rate). The GDP growth rate expectations are over 5pc per year and the population growth rate is projected at 1.5pc.
In its Global Wealth Report 2015, Credit Suisse said Pakistan had the 18th largest middle class (6.27m people) in the world. Unlike the more common practice of using income and the standard of living to define a social class, Credit Suisse used the measure of ‘personal wealth band’ to determine the middle class.
According to the bank, to be a member of the middle class in 2015, a Pakistani adult must have a wealth of at least $14,413. At a rate of Rs106 to a dollar, this comes to Rs1.53m.
The bank calculated the total wealth in Pakistan at $495bn, or Rs52.47tr. It used the IMF’s series of purchasing power parity to drive the equivalent middle class wealth bounds in local terms.
In a 2011 publication titled ‘Estimating the middle class in Pakistan,’ Dr Dur-e-Nayab, an economist associated with the Pakistan Institute of Development Economics (PIDE), came up with a figure of 61m people (about 40pc of the population) for the country’s middle class. The categorisation was on the basis of a criterion she called ‘expanded middle class’.
On the basis of the same definition, the Indian middle class is estimated to be 25pc of that country’s population. She did not comment on the economy of this class in Pakistan while talking to this writer over phone from Islamabad.
Many top tier local companies and multinationals have commissioned research studies on the size, value, trends and spending capacities of different social classes in Pakistan from reputable service providers, such as Euromonitor, McKinsey, Neilson etc to evolve their corporate strategy in the country.
A few senior executives were approached but termed the relevant material ‘confidential’.
Overseas Investors Chamber of Commerce and Industry (OICCI) Secretary General M. Abdul Aleem was helpful and said valuing the country’s middle class market at Rs30tr appeared credible.
“On the basis of the current material available online and with privileged access to some confidential reports of certain OICCI members on some segments, the projected value should not be too off the mark,” he commented over phone.
Sakib Sherani, CEO of Macro Economic Insights, a consultancy firm, found the projection exaggerated. He told this writer that he did a study to gauge the worth of this segment of the market sometime back and the results were different.
“In my opinion, these projections appear to be on the higher side. My estimate is closer to $250bn (Rs26.5tr), inclusive of the documented as well as the undocumented economy,” he said in a written response.
PIDE VC Dr Asad Zaman was out of the country and other senior staff declined to offer formal comments on the projection of the middle class economy.
Dr Nadeem Javed, chief economist at the Planning Commission, was approached but his response was not made available in time.
Most businessmen from the medium-scale industry did not express much interest in the subject as their focus was too narrow to care for what goes on beyond their area of interest.
http://www.dawn.com/news/1221600
ROLE OF CAPITAL GAINS IN BANKS’ EARNINGS
Dawn, Business & Finance weekly, November 23rd, 2015
ALI RAZA MEHDI
WITH almost all banks having come out with their third-quarter results, a debate has yet again begun if they will be able to sustain their big profits next year.
Such debates had erupted in late 2014 and early 2015 as well. The central bank had embarked upon a monetary easing cycle in November 2014, and since then (till last Thursday), the benchmark interest rate has been reduced by a whopping 400 basis points to 6pc from 10pc.
Such a big drop in the policy rate in a relatively short period of time had sector watchers wondering if the banks can continue on their merry money-making spree. It also didn’t help when the central bank tweaked its interest rate corridor in May, which led to a systematic (albeit slight) reduction in banks’ margins.
However, the banks’ profits kept on rising. The post-tax earnings during the first nine months of the year (9MCY15) of the 10 largest, listed conventional banks clocked in at around Rs119.4bn — up almost 19pc from the same period last year. The average rise in profitability for each bank worked out at 26.2pc.
There are two major explanations for the seemingly immunity of banks’ profits to declining interest rates. First, over the past couple of years, banks have been piling on longer-tenured, high-yielding Pakistan Investment Bonds (PIBs) onto their balance sheets.
While yields on PIBs have followed the downward trajectory of the policy rate since last year, their longer duration has meant that banks keep on enjoying higher yields.
For instance, the cut-off yield on three-year PIBs issued in July 2013 was 10.3261pc, while that on the bonds issued on October 8 was 7.1967pc. During this three-year period, the highest cut-off yield on three-year bonds was 12.0862pc (in December 2013). This means that a bank that bought that bond and is still holding it is enjoying a coupon rate of over 12pc, while the prevalent rate on a bond of the same duration issued last month is hovering around 7pc.
“[Banks’] profitability will remain closely linked to the strength of the government, as the [their] investments in high-yielding government securities account for around half of their net interest income,” wrote Elena Panayiotou, assistant vice president at credit ratings firm Moody’s, in a recent research report.
However, that represents just one part of the equation. Banks of all sizes have resorted to booking hefty capital gains by selling their government securities in the secondary market to shore up their overall earnings this year.
During 9MCY15, the top 10 banks booked a cumulative Rs38.8bn in capital gains — up a significant 138pc from the Rs16.3bn they had booked in 9MCY14.
Apart from Allied Bank, all the banks under review booked significantly higher capital gains this year than they did last year.
In terms of percentage, Bank Al Habib’s capital gains increased the most, going from just Rs0.3m in 9MCY14 to Rs228.5m in 9MCY15. Next was Habib Bank, which booked over Rs10.56bn in capital gains this year against Rs886m last year.
In fact, HBL and state-owned National Bank of Pakistan were responsible for over half (Rs20.74bn) of the cumulative capital gains realised by the top 10 banks in this year’s first three quarters.
Apart from low interest rates, banks have also been under pressure from the 4pc ‘super tax’ and some other fiscal adjustments imposed on the industry in the FY16 budget. Therefore, they have increasingly relied on the non-core segment to shore up their after-tax profits. And capital gains are one of the biggest sources of income under this head.
For instance, Habib Metropolitan Bank realised 465pc higher capital gains (worth Rs4.5bn) in 9MCY15. This contributed heavily to the 92pc year-over-year growth in its post-tax earnings in the period, which reached almost Rs6bn.
Similarly, Bank Alfalah recorded 130pc higher capital gains in the nine-month period, while its after-tax profit grew 50.6pc to Rs6.05bn.
Not all banks give a breakdown of the sources of their income from capital gains in their quarterly financial reports. One of the firms that did provide one, Askari Bank, specified that almost Rs2.46bn (78pc) of its overall capital gains of Rs3.14bn in 9MCY15 came from the sale of government securities.
By October 31, scheduled banks were sitting on around Rs3.09tr worth of PIBs and another Rs2.56tr worth of Treasury bills, SBP data shows.
“By selling these sizable in increments, banks are likely to keep on booking capital gains in the near future and puff up their earnings. Besides, banks continue to eagerly await a reversal in the central bank’s loose monetary policy, as policy rate hike(s) will automatically translate into higher yields on freshly issued government debt,” remarked one market source.
Equities: Nonetheless, not all of the capital gains have come from the banks’ bond portfolios. While their magnitude may have been lower, but gains realised from equities have also added millions to banks’ bottom lines this year.
From January 1 to last Wednesday, banks and development financial institutions sold a net Rs6.92bn worth of equities, likely resulting in billions more in capital gains for the industry.
“Banks are naturally among the biggest players in the equity market because of their liquidity levels. And the stock market this year has witnessed plenty of volatility, granting many opportunities to skilled investors, including banks, to make quick money from short-term trading,” remarked Zeeshan Afzal, head of research at Taurus Securities.
He added that banks’ reliance on capital gains in particular and on the non-interest income segment in general will only increase from next year when the first batch of PIBs start maturing, putting simultaneous pressure on their top and bottom lines.
http://www.dawn.com/news/1221597
PEPSICO FRANCHISEE JOINS HANDS WITH SIDEL
Dawn, November 24th, 2015
KARACHI: Pakistan Beverage Limited has purchased Standalone SBO8 Universal2Eco Blower for Carbonated Soft Drinks from Sidel, a leading global provider of PET solutions for liquid packaging, to increase its production and meet the market demand said a press release.
This is the second blower that PBL has purchased from Sidel in less than a year.
http://www.dawn.com/news/1221767
CORPORATE PHILANTHROPY
The News, November 29, 2015
Alauddin Masood
Corporate Social Responsibility (CSR) is steadily taking roots in Pakistan where commercial enterprises spent Rs5.9 billion for corporate philanthropy in 2014, way up from Rs228 million in 2008.
Health, education, social development, environment and disaster relief were the top priority areas where funds went. But, most of the organisations in this country are still operating with a mentality that was prevalent in the 1960s among US entrepreneurs who argued that they could either control pollution or maximize profits and expand. Now, this orthodox view has changed around the world.
In neighbouring India and China, the management of many industrial ventures has found that long-term survival was linked to their level of corporate social responsibility. Even the value-added textile exporters of Bangladesh now make substantial provisions for discounted food for their workers to ensure that workforce and their families get proper nutrition. Creditable studies have proved that productivity is linked to quality of nutrition. But, in Pakistan quality nutrition is not available to ordinary workers due to high inflation. It is, therefore, in the interest of entrepreneurs to look after this basic need of their workers.
However, across the globe, we find that these days both public and private organisations undertake many activities for the welfare of their workers and the surrounding community with the objective to further the goals for which they primarily exist. Aside their main area of work, all activities that entities undertake for the welfare of the society come under the CSR purview. For a business entity, CSR is commitment to behave ethically and contribute to economic development while improving the quality of life of the community in which it happens to be operating and the society at large.
However, this does not imply that CSR ensures viability or continued success of CSR-compliant companies. But, it is one factor that enables a company to absorb pressure because the human resources in CSR-compliant companies are more loyal, responsible and efficient than their counterparts in non-compliant organisations. In CSR-compliant ventures, workforce feels a sense of ownership in the company and often it goes beyond a call of duty to ensure the success of their organisation.
Now, ILO promotes CSR as a means of creating industrial peace and enhancing industrial and economic growth. Another global body — International Standards Organization (ISO) — offers guidance on socially responsible behaviour and possible actions. As a guidance document, its ISO 26,000 (issued in November 2010) encourages organisations to discuss their social issues and possible actions with relevant stakeholders. There are a lot of studies which have shown that there is a positive relationship between CSR and financial performance of an organisation.
Cognizant of this fact, now not only governments but commercial organisations also play an important role in the development of the society; and the relationship between community and organisations has developed the concept of CSR. Since nobody wishes to gain an award from a disreputable or even an unknown or undistinguished patron, it follows that those who make public awards need to be reputable and well-known. Consequently, sponsorship bears a mark of approval, which is good PR in itself.
If we look around in Pakistan, we find innumerable hospitals, educational and welfare institutions being run by various industrial, trade and business houses. Perhaps, many of you might have heard about Madina-tul-Hikmat, an institute for higher learning and research in Tib, set-up by the Hamdard Foundation for promoting the Unani (Greek) system of medicine.
Another organisation which has a noteworthy public welfare programme is Fauji Foundation. Set up by the Pakistan Army, Fauji Foundation (FF) is undertaking CSR activities in healthcare, education and vocational training for ex-servicemen and their families. It was running 11 hospitals, 23 medical centres, 31 fixed dispensaries and 41 mobile dispensaries in areas not catered for by the existing network of army hospitals. In addition to 90 schools and colleges, with enrolment of about 40,000 students, it was running nine technical training centres for males and 66 vocational centres for females. It has about 12,400 employees, including about 4,620 ex-servicemen.
Formed on the principle of generating profits to buy additional welfare for the armed forces personnel and to provide post-retirement employment for retired personnel, Army Welfare Trust (AWT) and its entities, like Askari Bank, Askari Insurance, etcetera, have provided jobs to about 5,000 persons.
In Pakistan, PTC is one of those private sector organisations that have the largest CSR programme. PTC’s proactive approach towards environment, health and safety has won it numerous awards. The company, which has over 600,000 people economically associated with its operations and paid Rs75 billion in taxes and duties in 2014, distributes about four million saplings annually, free of cost, under its afforestation programme. Earlier, it provided more than 600,000 saplings for plantation along the entire 157km Peshawar-Islamabad motorway.
It also extends help in modernising agriculture. “From introducing new techniques of cultivation,” says Buner farmer Muahmmad Yousuf, “to helping us in distressful times like 2010 floods, pest attacks and other calamities, PTC has always been there for us,” treating farmers, both in good and bad times, like family members.
Sialkot Chamber of Commerce and Industry is another organisation which has earned esteem and people’s trust by undertaking CSR projects. Some of the projects launched by it include: Sialkot International Airport, Sialkot dry port, roads and infrastructure development projects, elimination of child labour, Sialkot Business and Commerce Centre, Sialkot Export Processing Zone, Sialkot Public School, Sports Industries Development Centre, Sialkot Tanneries Zone and a centre for Seerat Studies.
Prominent among other local organisations undertaking CSR projects are: Shaheen Foundation, Police Foundation, OPF, PPL, NBP, PTCL, PSO and Bahria Town. Recently, PSO has donated Rs8.5 million to the Cancer Foundation for building a 100-bed not-for-profit cancer hospital in Karachi.
In some countries, it is lawful for corporate bodies to give donations to political parties as well. For instance, since 1974, big corporations in the USA bear most of the cost of national conventions of both the Republican and Democratic Parties. The sponsors say, the voters should not consider corporate contributions to the conventions to be different from advertising for major sports events, like the Super bowl. In the USA, corporations also sponsor events ranging from local parades to nightly news on the television networks. In Pakistan, some entities sponsor television talk shows, news bulletins, plays, etc.
Even important international conferences are sometimes underwritten by big business. In 1999, for example, corporate donations, mostly from major arms contractors, covered about one-third of the cost of NATO’s 50th anniversary summit celebrations in Washington. Several months later, the World Trade Organization’s meeting in Seattle was heavily financed by big companies, all of them highly dependent on trade. In some countries, including Denmark, it is mandatory for 1,000 largest companies, investors and state-owned companies to include information on CSR in their annual financial reports.
In Pakistan, the Employers Federation of Pakistan (EFP) has taken the responsibility of promoting CSR in the industry. For companies demonstrating best practices in CSR as well as occupational safety and health, the EFP has instituted awards.
http://tns.thenews.com.pk/corporate-philanthropy/#.VlwdJ3YrK1s
COMPANIES BILL 2015 TO FACILITATE CORPORATE SECTOR
Dawn, November 29th, 2015
ISLAMABAD: Securities and Exchange Commission of Pakistan (SECP) Chairman Zafarul Haq Hijazi on Saturday presented the draft Companies Bill 2015 to Finance Minister Ishaq Dar.
The bill envisages replacing the existing Companies Ordinance 1984, and would facilitate the corporate sector.
He said it aims to strengthen the regulatory regime, especially for companies having public interest, and would streamline the procedure for issuance of new shares to ensure that adequate consideration is received against the issuance of shares and first right of allotment is given to existing shareholders.
The Bill also envisages maximum use of technology by the regulator and regulatees, including attending meetings through video-conferencing.
The bill aims to strengthen the legal framework for NGOs/NPOs licenced by the SECP and to provide a mechanism for resolution of disputes through mediation.
The finance minister directed the SECP to ascertain and incorporate views of all stakeholders in the draft bill before it is placed before the parliament.
He desired that the draft bill should be posted on the website of SECP forthwith for public sharing. Besides, detailed consultative process through seminars, roundtables with the stake-holders should also be initiated, he remarked.
The National Assembly and the Senate recently approved the amendment in the existing law, the Companies Ordinance 1984. The amendment (95-A) relates to shares buy-back also called the ‘Treasure Shares.’ These amendments were presented to the finance ministry for approval in 2009 by the SECP.
The draft, after being approved by the finance ministry, would be presented to the National Assembly by the finance minister, which will be forwarded to relevant standing committee for a thorough discussion.
Earlier, Zafar Hijazi briefed the minister on integration of stock exchanges.
He said the SECP would facilitate completion of the integration process in a smooth manner which involves balancing the needs of all stakeholders.
The process, he added, was expected to be completed next month to ensure operationalization of the integrated Pakistan Stock Exchange on Jan 1.
http://www.dawn.com/news/1222985
NEWS COVERAGE PERIOD NOVEMBER 17TH TO NOVEMBER 22ND, 2015
CASE TO MAKE FDI STAY IN PAKISTAN
The Express Tribune, November 16th, 2015.
LAHORE: China and the United Kingdom have displaced the United States and the Gulf as Pakistan’s largest sources of foreign direct investments. As work on the Pakistan-China Economic Corridor picks up, some commentators are anticipating an unprecedented surge in such investments.
Foreign investments come to Pakistan in two forms: direct investments (FDI) and portfolio investments (FPI). Direct investments are so called because the foreign investor is actively involved in the management of the domestic concern.
These are what the preceding graph shows. Portfolio investments, on the other hand, are passive: the foreign investor holds a business’s securities without involving itself in the management.
Since direct investors are more deeply involved in the domestic economy, most academics reason that direct investments should be less volatile than portfolio investments. Surprisingly, if one examines the data from the last decade, the reverse is true in Pakistan. It appears that direct investment has plummeted faster than portfolio investment. Why should this be? And why should we care?
To answer the second question first, FDI is associated with better run businesses. Most multinational corporations (MNCs) in Pakistan are foreign direct investments. Our home-grown multinationals, such as Descon and Engro, are equally outstanding businesses. However, they are vastly outnumbered by foreign MNCs, and so the latter have larger spillover effects on the economy.
These spillover effects are the main reason that governments prefer direct investments to portfolio investments. Four positive externalities of FDI are knowledge transfer, competition, privatisation, and deregulation. First, with a direct investment, the foreign investor brings expertise that its employees can later adapt to any local ventures that they join.
Second, foreign businesses provide healthy competition to local concerns, which should lead to lower prices for consumers.
Third, foreign investors are sometimes the only bidders with adequate resources to acquire privatised government enterprises such as PTCL.
Finally, foreign investors are supported by their home governments, which allow them to push against rent-seeking regulations in ways that no domestic business can.
A second reason that governments prefer FDI is that it is supposed to last longer than FPI. This brings us to our first question: why is FDI so volatile in Pakistan? Portfolio investors can easily sell their securities and move on; however, direct investors have substantial assets on the ground, and have to bear onerous costs to relocate elsewhere.
There are at least four reasons why FDI might nevertheless be more volatile than FPI. First, FPI levels have always been low in Pakistan, so no great variation has been possible, whereas FDI levels mushroomed in the mid-nineties. Second, Pakistan makes several concessions to lure direct investments, some of which enable quick divestment.
Third, some FDI concerns are especially vulnerable to shortages of electricity and other resources. Finally, country-level risks such as insecurity and political instability can also add to the direct investor’s uncertainty.
Since a foreign direct investor is a long-term investor, it is particularly interested in the long-term prospects of the host country. FDI that is lured by transient incentives is likely to leave when those incentives expire. However, improvements in long-term indicators lead to long-term FDI, but temporary incentives yield temporary investments.
We are currently seeing glimpses of a revival in FDI.
MNCs that have thrived in Pakistan have contributed substantially to employment, consumer satisfaction, and corporate social responsibility. So the question is how do we get FDI to stay? Since direct investments are long-term propositions, there is no shortcut to retaining them.
There are two routes to offering such long-term protections: one is to give the foreign investor privileges and protections beyond those offered to local investors; another is to improve the protections offered to all investors, whether local or foreign.
The first solution, typified by bilateral investment treaties, entails compromises of national sovereignty. The second solution, which requires improvements in general legal protections, whether for foreign or domestic investors, is more sustainable. This is the route taken by countries that lead the FDI rankings: our erstwhile top investor, the United States, and our present top investor, China.
The writer is a professor of law and adjunct professor of business at Lums
http://tribune.com.pk/story/992036/review-case-to-make-fdi-stay-in-pakistan/
CM INVITES EUROPEAN COUNTRIES TO INVEST IN SINDH
Dawn, November 17th, 2015
KARACHI: Chief Minister Syed Qaim Ali Shah has said that the Sindh government is fighting against terrorism and the law and order situation has improved considerably because of the targeted operation and National Action Plan against terrorists.
Saying that all diplomats, national and foreign investors were being provided foolproof security, the chief minister invited investors from the Netherlands, Spain and other European countries to avail of the potential investment opportunities in Sindh for which they would be provided full security and other incentives.
The chief minister stated this while holding separate meetings with Teannette Seppen, ambassador of the Netherlands and Spain Ambassador Carlos Morales, who called on him at CM House on Monday.
Condemning the terrorist attacks in Paris, the chief minister said terrorists were common enemies of humanity and “we must eliminate this menace under joint efforts”. “We are seriously fighting against terrorists for which we have raised the budget of the Sindh police by more than 100 per cent. We’ve got our police officers trained in developed countries and created a Rapid Response Force to combat terrorists.”
He said the performance of Pakistan’s intelligence agencies could be gauged from the fact that suspects in the Safoora Chowk bus carnage were detected within a month. Similarly, other high-profile incidents were also traced out in short periods.
Referring to the bilateral relations, the chief minister said: “We have good relations with the Netherlands and we want to further promote them, especially on the cultural and economic side.
We are facing deficiency in energy and a shortage of water which have hit our economy. We have indigenous resources to solve both our problems with efficient investment and technology from advanced countries.”
He said there were huge reserves of coal and a good potential wind corridor, having a capacity to generate 50,000 megawatts of electricity, but at present “we are generating only 200mw”.
He said investment in that sector was being made both by national and foreign investors, and gradually “we will get more and more power from this sector”.
The chief minister said that despite a water shortage, Sindh was in surplus production in cotton, rice, wheat, sugar cane and fruits. And by using modern technology in cultivation and irrigation, “we can get more production from the agriculture sector. He said Karachi was a very important city where besides the seaports more than 60 per cent industries were situated. “We need foreign investment and expertise to solve our transport problem in Karachi as well.”
Ambassador of the Netherlands Teannette Seppen said her country had expertise in the energy, water and transport sectors and was keen to enhance “our bilateral relations, specially on economic and cultural side”.
http://www.dawn.com/news/1220129
US INVESTORS PULL OUT AS FDI DROPS 24%
The Express Tribune, November 18th, 2015.
KARACHI: Foreign direct investment (FDI) dropped by almost one-quarter in the first four months of 2015-16, statistics released by the State Bank of Pakistan (SBP) on Tuesday showed.
Pakistan received FDI of $350.8 million in July-October, which is 24.1% less than the FDI received in the same four-month period of the preceding fiscal year. FDI decreased $111.7 million year on year in July-October, as it amounted to $462.5 million in the corresponding months of 2014-15.
Despite being one of the principal foreign investors in Pakistan historically, the United States is now pulling out its investments at a massive level. US investors have pulled out $104.5 million from Pakistan in the first four months of 2015-16, although net inflows from the world’s largest economy amounted to $84.3 million in the same period of the last fiscal year.
Direct investment pulled out by American investors in the four months constitutes over 93% of the total outflow of FDI from Pakistan registered over the same period.
Pakistan has faced low levels of foreign investment in recent years. The SBP has called an increase in FDI “imperative” for the sustainability of the economy’s external sector.
Other major outflows of FDI were from Saudi Arabian (-$42.5 million), Egyptian (-$15.5 million) and German (-$3.6 million) investors in July-October, SBP data shows.
Net FDI in October alone clocked up at $134.6 million, down a whopping 48.6% from the net inflow of $261.9 million recorded in the same month of the preceding fiscal year.
The largest net outflow of FDI in July-October was recorded in the petro chemicals (-$135.8 million) followed by metal products (-$19 million).
Largest contributor to the FDI in July-October was China ($272.8 million), followed by the United Arab Emirates ($74.5 million), United Kingdom ($41.4 million), Switzerland ($40.5 million) and Italy ($34.5 million).
The largest increase in FDI in July-October was in the category of power, which attracted $168.7 million. Other sectors that attracted substantial FDI in the first four months of 2015-16 were communications ($67.2 million), oil and gas exploration ($56 million), tobacco and cigarettes ($28.5 million) and financial businesses ($25.8 million). However, the FDI in the oil and gas exploration category dropped 53.6% on a year-on-year basis.
Pakistan received FDI of $709.3 million in 2014-15, which was 58.2% less than the FDI received in the preceding fiscal year. Largest contributor to the FDI during 2014-15 was the United States ($238.7 million), followed by China ($229.5 million) and United Arab Emirates ($222.4 million).
Many foreign investors have left Pakistan for good in recent years because of the energy crisis and bad governance. At least four multinational pharmaceutical companies have left Pakistan for good in the last six years. The category of pharmaceutical and over-the-counter products lost FDI of $47.2 million in the last fiscal year.
However, FDI from China is expected to rise further in view of the recently announced China-Pakistan Economic Corridor (CPEC), according to the SBP. “The implementation of infrastructure development and energy projects under the CPEC will further enhance the improving investment environment,” it said in a recent statement.
http://tribune.com.pk/story/993402/july-october-us-investors-pull-out-as-fdi-drops-24/
FAIR PRICE CAN BOOST CORPORATE PROFITS
The News, November 19, 2015
Mansoor Ahmad
LAHORE: The right pricing could increase company profits in an era when corporate profits are declining due to general decline in the purchasing power of the consumers and availability of technology that has made it easier to compare the prices of competitors.
Other sources putting pressure on prices are the large retailer chains that demand extra discounts on very large purchases, the experts claim. They point out that these newer factors have eroded corporate pricing power, increasing the discomfort of corporate bosses.
“Is it possible to think of increasing the prices in such stiff competition,” asked marketing executive Yusuf Ahmad. He said a product is priced at three levels. The first, he added is the industry level. The managers fix the retail prices in line with the prices of similar products marketed by competitors. The corporate bosses, he added have to keep in mind supply, demand costs and regulations.
“In order to keep generating revenue, companies have to increase the prices,” he said. A look at the sales profile of any product reveals that companies award discounts at the retail price to the distributors, large retail chains, apart from promotional discount to the retailers, cash discount or discount on achieving yearly sales target by the distributor, advertisement and freight. He said in such circumstances, the companies can increase the net sales price without increasing the retail price. He said right pricing at this level reduces downward pressures on prices and makes the company the price leader in the industry.
The next is the market strategy level where the company chalks out a pricing mechanism relative to competition. He said in doing so managers realise that customers go through all offerings and compare attributes of all similar products with each other and other advantages. With these analyses companies can set visible list prices which accurately reflect the competitive strengths or weaknesses of their offerings, he added.
Ahmad said the most important price level is the transaction price. He said the competence of corporate managers to decide exact price for each transaction could lead the company to new heights. He said they start from list price and determine which discounts, allowances, payment terms, bonuses, and other incentives should be applied at each transaction. He said this is the most time consuming task, requiring best expertise. The trick lies in capturing opportunities in transaction pricing.
Marketing guru Farooq Iftikhar said through prudent transaction pricing, the average price the company obtains from different modes of discounts could be increased. He said it has been established that an increase of one percent in average price of a product would generate an eight percent increase in operating profits, provided volumes and other cost variables remain stable. Similarly, he added a decline of one percent in average price would reduce the operating profits by eight percent if other factors remain stable. He said most of the companies can generate an additional one percent or more in prices if they carefully adjust the price of a product or service. Right pricing is a more delicate process than setting list prices or even tracking invoice prices. He said the leakages at customers discount, incentives, promotions and other give-aways could be reduced prudently to obtain some increase in real price.
He said in practice, pricing experts focus on invoice prices, which are readily available, but the net price is the one that matters in company profits. He said many off-invoice reduction in prices include cash discounts for prompt payment, the cost of carrying accounts receivable, cooperative advertising allowances, rebates based on a distributor’s total annual volume, off-invoice promotional programmes, and freight expenses.
Iftikhar said a closer look at pricing mechanism of high turnover products reveals that the same product is sold at less than 30 percent of the standard list price in some cases while in few the price is 90 percent of the list price or more. He said to an outsider this range looks spectacular, but is in vogue in many product lines. He said an ice cream distributor may get a 30 percent discount. A medium size retailer 17 percent and the neighbourhood shop seven percent discount on listed price.
http://www.thenews.com.pk/Todays-News-3-351985-Fair-price-can-boost-corporate-profits
CHINESE FIRMS TO INVEST $250M IN SINDH
Dawn, November 21st, 2015
KARACHI: The Sindh government on Friday signed a memorandum of understanding with two Chinese firms under which the province would receive foreign direct investment of $250 million to set up a cement plant, said a statement released on Friday.
Under the MoU, Sinohydro Corporation Ltd in collaboration with Deer International Group Ltd (DIGL) would establish a cement plant of “zero per cent pollution and low energy consumption” in Sindh. That would also help create 2,500 jobs and generate an annual tax revenue of Rs3 billion.
Sindh Chief Minister Syed Qaim Ali Shah, along with Senior Sindh Minister for Finance Syed Murad Ali Shah, Sindh Minister for Industries Muhammad Ali Malkani, Senator Saleem Mand-viwalla, Consul General China Ma Yaou, Chief Secretary Sindh Muhammad Siddique Memon, Sindh Board of Investment (SBI) Chairman Dr Asif Brohi and others witnessed the signing ceremony, the statement said.
SBI Director General Iftikhar Ali Shailwani and DIGL Chairman He Ying signed the MoU on behalf of their organisations.
The chief minister assured the company of full co-operation for establishment of cement plant in the province. He invited management of the company to also invest in water and energy sectors.
He said that since Sinohydro Corporation Ltd was world’s largest water conservancy and hydropower construction company, it can efficiently exploit the indigenous resources available in Sindh. “We are facing deficiencies in these sectors which are the main hurdle in the development.”
The province was also rich in natural resources like gas, coal and wind, he said. “We will welcome full investment and even become partner with investing organisation under the PPP mode of investment,” he added.
Mandviwalla, the chairman of Senate’s Standing Committee on Finance, described the agreement as a “milestone achieved by Sindh government”.
Deer International’s chairman said it was a Chinese firm listed in the Nasdaq stock exchange of the United States and sought to invest in the manufacturing sector of Pakistan. The company sold its products in more than 80 countries, he said.
He said the establishment of cement plants in Pakistan will be more important because of implementation on the CPEC.
SBI Chairman Asif A. Brohi briefed that Sinohydro Corporation’s core business covered water, infrastructure, power and communication work.
http://www.dawn.com/news/1221092/chinese-firms-to-invest-250m-in-sindh
PAKISTAN AND RUSSIA USHER IN NEW ERA OF COOPERATION
The Express Tribune, November 21th, 2015
ISLAMABAD: Pakistan and Russia on Friday expressed their resolve to strengthen defence and economic ties besides cooperating in regional matters, as a fast-changing regional security situation warms relations between adversaries of the cold war era.
Russian Federation’s Federal Drug Control Service Director and Russia-Pakistan Inter-Governmental Commission (IGC) Co-Chairman Victor P Ivanov acknowledged Pakistan’s role in regional stability.
“Both countries would hold joint navy exercises next month, underscoring the growing cooperation,” he said.
He appreciated Pakistan’s stance on Ukraine and Syria, and on behalf of Russia, offered MI-35 helicopters to curb drug trafficking.
Ivanov, along with Minister of Finance Ishaq Dar, announced scores of measures both countries would take to strengthen bilateral ties in areas of defence, industry, finance, transport and energy. The Russian Co-Chair also proposed having direct air link between Moscow and Pakistan.
“Both sides have also decided to set up five working groups on industry with a focus on Pakistan Steel Mills (PSM). There will be a finance and banking group, food and agriculture group, transport and logistics group and education group,” announced Dar while sharing outcomes of the two-day meeting with IGC.
In recent years, Pakistan that sided with the United States in cold war era has decided to improve its relations with Russia.
“Political will to improve relations is now being translated into economic cooperation and building projects,” said Ivanov, while addressing a press conference. “The primary task for both countries is to implement the North South Gas Pipeline project by ensuring supplies from Russia.”
Dar also appreciated Russia’s largest investment in Pakistan through Inter-Government Agreement on North South Gas pipeline on October 16, 2015. “Pakistan wants to complete the $2-billion North South Gas pipeline project by December 2017,” said Dar.
“Our countries believe in peaceful regional moves,” said Ivanov. He said Pakistan and Russia shared common views on Afghanistan and threats to regional peace like extremism and drug trafficking require close coordination between both countries.
Both countries signed two agreements on dispute settlement over $117 million Russian deposits and cooperation in science and technology besides setting new timelines to reach agreements on over a dozen projects and areas.
“Pakistan desires to strengthen diplomatic and economic ties with Russia and now we have a clear roadmap in front of us,” added Dar.
“Both countries have decided to share information to choke terrorism financing and combat money laundering,” said Economic Affairs Division Secretary Tariq Bajwa. “Russia has offered to supply Pakistan Sukhoi Super Jet (SSJ-100) prototypes and Jet airliner Irkut MC21.”
Pakistan sought Russian cooperation in power generation, textile, construction, LNG, oil & gas and petrochemical sectors. Dar offered to set up a ‘Special Economic Zone’ exclusively for Russian investors.
Both sides also agreed to begin talks for Preferential Trade Agreement (PTA), terming the current volume of bilateral trade a “little disappointing”. Russia also showed interest in becoming a partner in four-nation Central Asia-South Asia 1000 electricity supply project. Russia wants to supply power through CASA transmission line during winter season when energy supplies from CASA partners will not be feasible.
To cement cooperation in the power sector, it has been decided that a joint coordination committee will be set up to follow progress on projects that have been picked for Russian investment. “Russia may finance seven mega energy sector projects,” said the Water and Power Additional Secretary.
“The 1,200MW Guddu power project, 600MW Jamshoro power plant, exploration of Thar coal blocks 8, 9 and 10, setting up Hubco power transmission line and Thar-Lahore power transmission line and providing machinery for Dasu and Tarbela hydro power projects are the projects that have been finalised for seeking Russian investment,” he said.
OIL INVESTORS GAIN OVER $86BN IN BEST WEEK SINCE 2008
Dawn, October 11th, 2015
LONDON: European oil companies had the best weekly performance in seven years as they added about $86 billion in value following crude’s surge this week.
The 23-member Stoxx Europe 600 Oil & Gas index climbed 11 per cent this week, the most since November 2008. Tullow Oil, which operates oilfields in Africa, was the best performer with a 33pc increase while Royal Dutch Shell’s A shares in London advanced 13pc, also their biggest weekly gain in seven years.
Oil rebounded this week with the US benchmark going past $50 for the first time since July as output from the world’s biggest consumer drops and Shell and Pacific Investment Management Co said the worst may be over. That helped make energy companies the best performing industry group in the MSCI World index this week after languishing at the bottom for most of this year.
“The stocks have been oversold over the past year and that’s helping the rally now,” Jason Kenney, European head of oil and gas equity research at Banco Santander, said by phone from Edinburgh.
“Question is where will oil prices settle now? Investors think oil companies can weather the storm because they’ve got so many levers to pull.”
Even before crude slumped to a six-year low in August, oil companies were in the midst of programmes to slash spending, halt projects and reduce their workforces to preserve cash and protect their balance sheets. Producers have deferred more than $200bn of projects over the past 15 months, according to consultant Wood Mackenzie.
BP reduced its spending forecast for this year to less than $20bn after investing about $23bn in 2014. Shell is cutting 6,500 jobs and plans to lower spending by $7bn. US explorers have idled more than half the country’s oil rigs since last October.
“The higher share prices recently is because investors see the big oil companies delivering on their promise of cutting costs,” said Pedro Antonio Merino Garcia, chief economist at Repsol, Spain’s biggest oil producer, which has gained 15pc this week.
“Investors had oversold earlier, afraid of the outlook for oil prices. Over the last few days, they’re more confident regarding oil supply and demand,” he said Oct 7 in London.
Shell’s Chief Executive Officer Ben Van Beurden was the first among oil majors’ bosses to say this week he saw signs of a recovery. Cutting investment in oil exploration and production by a record 20pc this year will eventually reduce or eliminate oversupply, IEA Executive Director Fatih Birol said in London Oct 6. The industry will defer more major projects again next year, according to Ali Moshiri, Chevron Corp’s president of exploration and production in Latin America and Africa.
Chevron, the second-biggest US oil company, has gained 9pc this week, heading for the best performance since December 2014. Exxon Mobil, the world’s biggest oil company by market value, has climbed 4.6pc.
Services companies, among the worst affected as oil slumped, returned more than 18pc in Europe over the week, with shares of Petrofac making a record weekly gain of almost 27pc. Norway’s Aker Solutions had its best weekly performance since at least October last year, soaring 24pc.
Oil may rise to a “baseline” of about $60 a barrel in one year’s time as the impact of supply cuts becomes more evident from early 2016, Greg Sharenow, an executive vice-president at Pimco, said in an email. US crude output is down about 440,000 barrels a day from a four-decade high of 9.61 million barrels in June.
Still, companies remain cautious after a rally earlier this year was short lived. While production cuts may help draw a line under the rout, prices are set to remain “lower for longer” because of excess inventories, according to Pimco, which manages $15bn of commodity assets. Shell plans for a long stretch of low prices, Van Beurden said this week in London.
“People could be thinking, how much worse can it get from here, so there’s a rotation from short positions to long,” Michael Powell, a managing director of investment banking at Barclays, said in London this week. “Then you ask, is this the spring of this year all over again?”
http://www.dawn.com/news/1212247/oil-investors-gain-over-86bn-in-best-week-since-2008
FOREIGN FIRMS REPATRIATE $359.4 MILLION PROFITS IN JULY-SEPTEMBER
The News, October 27, 2015
Foreign companies repatriated $359.4 million in profits and dividends from Pakistan during the first quarter of the current fiscal year of 2015/16, an indication that they are enjoying robust profitability.
The State Bank of Pakistan’s (SBP) data showed on Monday that the amount was 52.61 percent higher than $235.5 million in the corresponding period of the last fiscal year.
Analysts said that foreign companies are witnessing growth in earnings. The higher repatriation of profit and dividends show the growth in corporate earnings and resilient payouts.
“In Pakistan, companies pay biggest dividend yields and payouts,” said analyst AhsanMehanti at ArifHabib Corp.
But, “This also suggests that the economy is still uncertain that’s why instead of going for expansion the multinationals are pulling out their investment from the country and offering higher payouts to their shareholders,” Mehanti added.
In September alone, businesses sent $216.2 million worth of overseas earnings back to their headquarters.
Oil and gas sector repatriated the largest amount of $70 million to their shareholders/sponsors in foreign countries in July-September 2015/16 as compared to $50.7 million in the same period last fiscal year.
Mehanti said the rising pace is unlikely to sustain on account of slowdown in earnings of the oil companies.
“Slump in oil and natural gas prices since last year has driven major global oil companies into losses,” he said.
“Likewise, local listed exploration and production (E&P) companies also witnessed the same trend, as their profits stood almost half compared to the last year.”
Total sales of three KSE-listed E&P companies dropped 33 percent to Rs70.8 billion ($681 million) in the first three months as Arab light crude, which is used as the benchmark for pricing of local E&P companies, was lower by an average 48 percent over the same period last year.
Pakistan’s net foreign direct investment amounted $216.2 million in July-September 2015/16.
The SBP data showed that the repatriated profits of the financial sector were $66.8 million in the first three months of the current fiscal year compared with $61.9 million a year ago.
The repatriated profits of the telecommunication sector were $32.5 million as against $13.9 million.
The power sector’s share in the repatriated profits in July-September 2015/16 was $53.3 million as against $26.5 million in the comparable period.
Other sectors were beverages ($42.5 million), transport equipment ($28.5 million) and food ($14.1 million), showed the data.