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OGDC’s income plunged by 14% YoY owing to higher...

October 29, 2020 (MLN): The state-owned Oil and Gas Development Company Limited (OGDC) has unveiled its financial performance for the first quarter of FY21, as per which the company’s profitability nosedived by 14% YoY to Rs 23.4 billion from Rs 27.3 billion realized in 1QFY20.

This reflected in company’s earnings per share which also plummeted by the same percent from Rs 6.35 to Rs 5.45.

The decline in profitability can be attributed to lower realizable oil prices and higher operating expenses compared to same quarter last year.

Despite increase in oil and gas production, OGDC’s net sales went down by 10% YoY to Rs 59.5 billion mainly due to decline in crude oil prices.

Operating expenditures of the company remained on higher side, showing a jump of 16% YoY which was partially offset by lower exploration and prospecting.

As a result, the gross margins of the company shrank to 59% from 65% in the same quarter previous year.

The Exploration expenses of the company clocked in at Rs 2.9 billion, down by 25% YoY because of lower exploratory and development related activities as in 1QFY21, OGDC has planned 45 new wells, including 21 exploratory wells and 17 development wells for FY21 and so far the company has spudded 3 exploratory and 1 development well in 1QFY21, a report by Pearl Securities highlighted.

Furthermore, the Other income surged 16%YoY to Rs3.3 billion. This was due to low base effect as OGDC booked Rs1.7 billion exchange loss during the corresponding period last year.

On the tax front, the company booked effective tax rate at 31%.

In conjunction with the results, OGDC also announced cash dividend of Rs 2 per share for the quarter mentioned above.

Profit and Loss Account for the Quarter ended September 30th, 2020 ('000 Rupees)

 

Sep-20

Sep-19

% Change

Sales - net

                             59,528,070

                             66,203,989

-10.08%

Royalty

                             (6,726,750)

                             (7,738,740)

-13.08%

Operating expenses

                           (17,274,321)

                           (14,885,516)

16.05%

Transportation charges

                                 (228,999)

                                 (388,928)

-41.12%

 

                           (24,230,070)

                           (23,013,184)

5.29%

Gross profit

                             35,298,000

                             43,190,805

-18.27%

Other income

                               3,294,396

                               2,844,568

15.81%

Exploration and prospecting expenditure

                             (2,956,774)

                             (3,961,861)

-25.37%

General and administration expenses

                             (1,073,562)

                             (1,043,878)

2.84%

Finance cost

                                 (564,323)

                                 (744,999)

-24.25%

Workers' profit participation fund

                             (1,790,549)

                             (2,088,861)

-14.28%

Share of profit in associate - net of taxation

                               1,813,241

                               1,492,591

21.48%

Profit before taxation

                             34,020,429

                             39,688,365

-14.28%

Taxation

                           (10,593,046)

                           (12,372,015)

-14.38%

Profit for the period

                             23,427,383

                             27,316,350

-14.24%

Basic and diluted earnings per share - Rupees)

                                          5.45

                                          6.35

-14.17%

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Interloop approves merger of wholly-owned subsidiary

October 29, 2020 (MLN): The Board of Directors of Interloop Limited, in its meeting held on October 28, 2020, has passed a resolution approving a scheme of amalgamation to amalgamate its wholly-owned subsidiary, IL Apparel (Private) Limited with and into the Interloop Limited.

As such, as of the Completion Date of January 31, 2021, the entire undertaking IL Apparel (Private) Limited will stand merged with and into the Interloop Limited.

According to the notice issued to Exchange, the Board has also passed a resolution approving disinvestment of entire shareholding (31,825,000 Ordinary Shares representing 31.61% of total shareholding therein) in IL Bangla Limited, a Bangladesh based Associated Company, subject to the approval of the members of the Company and all other regulatory approvals as may be necessary in this regard.

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Fatima Fertilizers sees a mere growth of 4% in...

October 29, 2020 (MLN): Fatima Fertilizers Limited has reported earnings of Rs. 9.56 billion (EPS: 4.55) for the nine months ended September 30, 2020, which is around 4% higher than the profits recorded in the same period of last year.

The trivial change in earnings was mostly due to gross profits which remained somewhat static at Rs. 21 billion over the same period of last year. The revenues fell by 9.3% owing to lower dispatches, whereas the cost of sales fell by 17%.

The major highlight for the company during the period under review was the 114% growth in other income. Other factors such as a 13% fall in other expenses and an 11.4% increase in the share of profit from associates also provided some respite to the company.

However, the positive impact of the above changes was partially negated by an increase in finance costs and income tax expense by 15% and 1.7%, respectively.

Financial Results for the nine months ended September 30, 2020 (Rupees'000)

 

Sep-20

Sep-19

% Change

Net sales

    46,448,423

    51,238,878

-9.3%

Cost of sales

 (25,073,685)

  (30,135,228)

-16.8%

Gross profit

    21,374,738

    21,103,650

1.3%

Distribution cost

    (2,777,209)

    (2,689,839)

3.2%

Administrative expenses

    (2,407,711)

    (2,009,946)

19.8%

Other income

      1,548,445

          723,786

113.9%

Other operating expenses

    (1,219,326)

    (1,396,206)

-12.7%

Share of profit / (loss) from associates

            18,607

             16,701

11.4%

Finance cost

    (2,901,676)

    (2,526,354)

14.9%

Profit before taxation

    13,635,868

    13,221,792

3.1%

Taxation

    (4,073,358)

    (4,003,372)

1.7%

Profit after taxation

      9,562,510

       9,218,420

3.7%

Earnings per share

4.55

4.39

3.6%

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EIU- A new era of slow growth, low inflation...

October 29, 2020 (MLN): The coronavirus (Covid-19) outbreak has prompted advanced economies to unveil extraordinary fiscal measures. So far, this year G20 countries have announced stimulus programmes worth around US$11trn (or nearly the size of the Japanese, German and French economies combined).

The Economist Intelligence Unit’s recent report on ‘A new era of slow growth, low inflation and high debt’ has examined and explained the impact of fiscal measures on public debt and future of global economy post-COVID-19.

According to the report, these fiscal measures have helped many companies to stay afloat, kept workers employed and stabilised financial markets. However, they will also push fiscal deficits to an average level of 17% of GDP across OECD countries. In turn, public-debt-to GDP ratios will rise to around 140% of GDP (or US$13,000 per head) across developed economies.

In the past, such high levels of indebtedness would have alarmed economists and prompted heated discussions about which country would be the first to experience a sovereign debt crisis.

However, this no longer appears to be the case. As per EIU, two factors explain this shift. First, instead of depleting their (already empty) coffers, governments have enlisted central banks to finance their spending spree: over the past few months, the central banks of the US, Japan, the eurozone and the UK have created US$3.7trn in new reserves of money to buy government and corporate bonds.

Second, low inflation means that sovereign debt will erode over time and, crucially, cost virtually nothing to service. As Olivier Blanchard, a former chief economist for the IMF puts it, at a zero-interest rate, it “does not matter whether you finance by money or finance by debt”. This was not a given. There were fears at the start of the pandemic that shortages of goods or supply-chain disruptions would prompt price spikes. However, inflation has remained subdued across major economies over the past few months.

The report stated that governments are too busy dealing with the pandemic to worry about fiscal deficits, but the debt pile-up will have to be tackled eventually. Once the pandemic is over, austerity will not be a credible option. Cutting expenses take up a huge amount of political capital, which will be in short supply once citizens start to scrutinise their governments’ response to the outbreak.

From the revenue side, tax increases are possible, but they will not be sizeable enough to narrow the fiscal shortfall meaningfully. Sovereign defaults do not appear to be a likely option, either, the report said.

Over time, if nominal growth remains higher than interest rates, the debt pileups will simply disappear; with interest rates at zero, and assuming that fiscal stimulus manages to boost growth, this does not look like a far-fetched assumption.

The governments of developed countries will hope that investors will continue to be willing to invest in their sovereign bonds: with debt-to-GDP ratios shooting up across all advanced economies, the point at which investors see sovereign debt as too risky could move up from 100% of GDP to, say, 200% of GDP. The situation appears unprecedented, but it is not. In the years that followed the second world war, the US public-debt-to-GDP ratio stood at 112%; that of the UK was more than twice that figure, at 259% of GDP.

As was the case 75 years ago, this situation creates opportunities to finance investment and research in an attempt to fuel the post-pandemic recovery and boost long-term growth prospects. However, this new normal also comes with risks. Generous furlough schemes and support measures will help to keep otherwise unprofitable companies alive, weighing on productivity and innovation and fuelling a rise in the number of “zombie” firms, the report assessed.

In addition, if inflation rises unexpectedly, central banks would have no choice but to hike interest rates to curb price growth. In turn, the cost of sovereign borrowing would spiral out of control.

One commonly accepted view is that there is a relationship between unemployment and inflation: when labour markets boom, inflation rises. If this theory holds true, governments will be in difficulty as soon as the economic picture starts to improve, and labour markets recover. However, this economic precept seems to have broken down after the 2009 global financial crisis. Since then, unemployment and inflation have not moved in sync.

Giving an example of Japan’s economy when equity and real estate bubbles burst in 1989, the report highlighted that its economy crashed abruptly before going through a “lost decade” of feeble growth between 1991 and 2001. The government tried to boost activity via fiscal stimulus programmes, which increased the debt-to-GDP ratio to around 240%. These measures failed, and subdued demand meant that inflation remained stubbornly low. The report raised a question i.e. ‘Will the pandemic turn us all Japanese?’

Coupled with a bleak demographic outlook, as per EIU’s report, these three characteristics—slow growth, low inflation and high debt—will become common features of advanced economies in the coming decades. The impact of such unprecedented conditions will be a game-changer for the global economy. The pandemic may not last once a vaccine is found. However, the post-coronavirus zombification of advanced economies appears to be here to stay.

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Bank of Japan cuts growth outlook, holds monetary policy

October 29, 2020: The Bank of Japan on Thursday lowered its economic growth and inflation forecasts for this fiscal year owing to the impact of the coronavirus but left its massive monetary easing policy untouched.

"Japan's economy is likely to follow an improving trend, with economic activity returning and the impact of the novel coronavirus waning gradually, but the pace is expected to be only moderate while vigilance against Covid-19 continues," the central bank said in its quarterly report issued after a policy meeting.

It said its forecast for growth was now lower compared with that given in July, "mainly due to a delay in recovery in services demand but is somewhat higher for fiscal 2021 and more or less unchanged for fiscal 2022".

The year-on-year change in prices excluding fresh food "is likely to be negative for the time being", officials said, citing factors including the virus, previous declines in oil prices and a domestic travel subsidy programme.

For the year to March 2021, the BoJ expects the economy to shrink 5.5 percent, against a 4.7 percent contraction in the July estimate, while prices are seen falling 0.6 percent, compared with a previously forecast 0.5 percent decline.

For the fiscal year to March 2022, however, it revised up growth and inflation forecasts to 3.6 percent from 3.3 percent and 0.4 percent from 0.3 percent, respectively.

The BoJ kept its negative interest rate of 0.1 percent on bank deposits, as well as its policy of unlimited purchases of Japanese government bonds, to ensure their 10-year yields remain around zero percent.

"The Bank will closely monitor the impact of the novel coronavirus and will not hesitate to take additional easing measures if necessary," it said.

The virus situation in Japan has been relatively stable in recent months, with around 97,000 infections and 1,700 deaths recorded so far.

But a second wave is accelerating in key markets, including in Europe, where France has announced a new nationwide lockdown.

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