Continuing onward its growth trajectory through expansion, CPBM finalised the setting up of a new coated board plant with 130,000 metric tons per annum capacity with Korea's Posco Daewoo Corporation. Currently its production capacity is 240,000 tonnes.
Sector overview
Pakistan did not have a paper or packaging industry at the time of its inception. The dawn of the sector came about in 1956 with the establishment of Adamjee Paper Board. By 2001, nearly 80 percent of local demand was catered to domestically.
Production of paper and paperboard requires wood pulp, non-wood pulp and recycled paper. Due to extremely low density of forests in Pakistan because of unhindered de-forestation, there is difficulty in maintaining consistency of wood supplies. Therefore, pulp production in Pakistan is based on non-wood fibrous material such as wheat straw, baggase, and river grass.
At present there are about a 100 units in the organised and unorganised sectors producing paper for writing, printing, wrapping, packing, for chipboard and other uses. Collectively, the units have a capacity of about 650,000 tons per annum with units in the unorganised sector having a capacity of 20 to 300 tons per day.
70 percent of the paper mills are located in Punjab due to its availability of underground water and wheat straw as a primary raw material. 20 percent of the mills are located in Sindh and 10 percent in KP as per the latest data available.
Currently, the sector's weight in LSM is 2.3 percent. The industry grew by 7.2 percent in the last fiscal year according to SBP's report. Since the LSM grew by over 5 percent, it positively impacted the paper and paperboard industry, which supplies the packaging of products. Growth in the FMCG sector in particular positively impacts the paper and paperboard industry.
Financial overview
From 2012 to 2015, the sales and profitability of CPBM increased steadily before taking a sharp turn downward. The problems started with the closing down of gas from December to March in FY14. Further exacerbating the problem was that in the summer months, gas was supplied for only two days a week, which forced the company to opt for expensive alternate fuels to continue production. Though sales continued to rise in this period, this adversely affected profits. This gave the company impetus to invest in a coal fired co-generation plant.
In FY15, the energy problems continued on one hand while there was an international slump in the prices of paperboard products on the other. This led to an influx of Chinese imports that drove down the sales of the CPMB and as a result utilization capacity stood at 66 percent.
Economic growth in the country, increase in domestic market share, and better utilization of the coal based co-generation power plant that began operations in 2016 has allowed CPMB to continue on its recent trend of growth in sales and profitability. Increase in demand led to 90 percent capacity utilization of CPBM's production facilities in the last fiscal year. The company has also been lobbying successfully for imposition of anti-dumping duties.
In FY17, the company invested Rs 669 million to remove bottlenecks in production and improve the quality of products of its offerings. New sheeting machines, modernisation of corrugators and the up gradation of quality control systems helped drive the increase in profits in the recent fiscal quarters.
9MFY18 Performance
So far, it has been a good year for Century. The top-line grew significantly, in part to the 6 percent increase in volume of production of paper and paperboard, increasing to over 169,000 metric tonnes from about 160,000 metric tons for 9MFY18 year-on-year. Optimal utilization of facilities, consistent and constant supply of energy generated from coal (and a mix of alternate fuels) resulted in higher production numbers. Higher volume with competitive selling prices led the higher growth numbers for revenue for the period.
Similar to previous quarters, it appears that the gross profit margin was driven by economies of scale, which came about because of higher volumes. Optimal product mix and control in costs of key inputs has been the formula with which CPBM manages it gross profit margin.
The huge jump in net profit was through better management of costs. The company expects demand to continue to rise, which is why it plans to invest $120 million to install 8 plants and further increase production capacity.
Future outlook
The current macro-environment of increase in urbanization and awareness bodes well for FMCGs that are the main consumers of paper and paperboard products and the least impacted by the political climate. Increase in household spending of the middle income classes through the measures marked in the latest budget should help boost growth in FMCGs as well.
Based on CPMB's application, the NTC recently announced anti-dumping duty on imported Coated Bleach Board from China. Previously, the company had already been successful in have anti-dumping duties levied on coated duplex board. This will allow the company to increase its import substitution and grow its market share. In the past few months, there had been news of an up tick in the cost of local and imported raw materials. However, it appears that the profitability of the company has to been unaffected and it may likely to continue posting strong financial results.
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Pattern of shareholding (as at June 30, 2017)
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Shareholders' Category Shares Held %
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Directors, CEO, their spouses and minor children 63,938 0.04
Associated Companies/undertakings and related parties 100,163,810 68.13
NIT and ICP 5,346,031 3.64
Public Sector Companies and Corporation 3,253,537 2.21
Banks, Development Financial Institutions, Non Banking Financial Inst 905,518 0.62
Modarabas and Mutual Funds 10,329,955 7.02
Insurance Companies 54,500 0.04
Shareholders holding 10% or more 72,765,433 49.49
General Public 16,113,102 10.96
Others 10,787,954 7.34
Shareholders holding 5% or more
SIZA Services (Private) Limited 32,614,961 22.7
SIZA (Private) Limited 40,150,472 27.3
Premier Fashions (Private) Limited 12,390,648 8.4
SIZA Commodities (Private) Limited 12,499,634 8.5
Note: Some of the Shareholders are reflected in more than one category
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Source: company accounts
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Century Paper & Boards Mills Limited
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Rs. (mn) 9QFY18 9QFY17 YoY
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Sales 14,000 11,533 21%
Cost of sales -12,135 -10,238 19%
Gross profit 1,864 1,295 44%
General and administrative expenses -311 -279 11%
Selling expenses -40 -37 8%
Distribution expenses -51 -45 13%
Other operating expenses -104 -72 44%
Other income 54 97 -44%
Operating profit 1,414 958 48%
Finance cost -348 -309 13%
Profit/(loss) before taxation 1,065 649 64%
Taxation -321 -194 65%
Profit/(loss) after taxation 744 455 64%
EPS 4.71 2.76 71%
Gross profit margin 13% 11% 19%
Net profit margin 5% 4% 35%
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Source: company accounts