Fauji Report

Fauji Fertillizer Company Fauji Fertillizer Company

Report on Fauji Fertilizer Company

Business Communication Assignment

Submitted By:Asad Aftab

Submitted to:Sir Abdur Rehman

16-3-2015

Textile Institute of Pakistan

Their motto/slogan is very easy which is

Vision

To be a leading national enterprise with global aspirations, effectively pursuing multiple growth opportunities, maximizing returns to the stakeholders, remaining socially and ethically responsible.

Mission

To provide our customers with premium quality products in a safe, reliable, efficient and environmentally sound manner, deliver exceptional services and customer support, maximizing returns to the shareholders through core business and diversification, providing a dynamic and challenging environment for our employees.

Corporate Strategy

Maintaining our competitive position in the core business, we employ our brand name, unique organizational culture, professional excellence and financial strength diversifying in local and multinational environments through acquisitions and new projects thus achieving synergy towards value creation for our stakeholders.

Executive Summary

EXECUTIVE SUMMARY

21% of Pakistans GDP is backed by the agriculture sector and a hefty 62% of countrys population is

directly or indirectly dependent on agriculture. The A

griculture sectors strong linkages with the rest of

the economy are not fully captured in the statistics. While on the one hand, the sector is a primary

supplier of raw materials to downstream industry, contributing substantially to Pakistans exports, on

the other, it is a large market for industrial products such as fertilizer, pesticides, tractors and agricultural implements. A thriving agriculture sector is also essential to the prosperity of manufacturing sector of the economy which mainly consists of agro based industries such as textiles, sugar, food etc. Fertilizers are substances added to soil to improve the growth of plants, as well as their yield. Fertilizer industry in Pakistan is dominated by two main products; urea (nitrogen based product, accounting for

66% market share) and DAP (phosphorus based product, having 19% market share). Countrys annual

urea demand is approximately 6.5mn tons with local manufacturing capacity being 5.0mn tons. Delta demand is met through imports. While Fauji Fertilizer Bin Qasim is the sole producer of DAP in Pakistan, accounting for 42% of local DAP market share, whereas the remaining 58% demand is met through imports. Due to this high dependence ratio on agriculture sector, Government has always maintained a transparent and consistent policy for fertilizer industry regarding, a) fresh investments, b) input prices, c) supply of inputs. After domestic consumers, fertilizer industry is placed at priority list when it comes to rationing of gas. The largest domestic urea producing companies receive their gas supply from Mari Gas field. Mari field gas is not pipeline quality due to which there is limited risk of gas diversion, even if there is shortage of gas in other segments.

The government sets minimum purchase prices of major crops (wheat, paddy, sugarcane). In the absence of a commodity exchange, support prices ensure a fair return to the farmers, thus giving them incentives to invest in these crops. Besides this, the farmer income is exempt from corporate and general sales tax. Pakistan is currently deficient in urea production by 1.5mn tons, but the scenario will change in the next few months once Fatima Fertilizer and Engro plants comes online. The total urea capacity of two plants will be around 1.8mn tons. The concerns that the country may face excess capacity in domestic market leading to under utilizations or price wars is exaggerated as new urea capacity of 1.8mn tons is only 0.3mn tons above the current deficit. The gas load shedding is estimated to reduce domestic fertilizer production by 0.3-0.6mn tons at least. Looking at current local demand supply balance, imports, future expansions and gas curtailment, it is likely that Pakistan will face urea shortage from 2012 and onwards on a conservative basis. Flash floods so far depict a devastating picture. While final numbers would take time to shape up, the situation is dire and macro targets for FY11E are destined to change. In a nutshell we see demand for both urea & DAP will be soft in 2010E and should correct in 2011E. The last instance of excessive flooding in Pakistan (c. Sep 1992

i.e., FY93) resulted in FY93 agricultural growth of -5.3% (from +9.5%

in FY92). Likewise, the year following 1992 floods, nitrogen application growth slowed down to +1% while phosphate demand slipped to -5%. A potential positive for the longer term is that the present

increase in dams water level may actually bode well for agricultural growth and fertilizer demand one

year out where lower than mean water availability has stunted growth in major crops in the last couple of years.

History

With a vision to acquire self - sufficiency in fertilizer production in the country, FFC was incorporated in 1978 as a private limited company. This was a joint venture between Fauji Foundation and Haldor Topsoe A/S.

The initial share capital of the company was 813.9 Million Rupees. The present share capital of the company stands above Rs. 8.48 Billion. Additionally, FFC has more than Rs. 8.3 Billion as long term investments which include stakes in the subsidiaries FFBL, FFCEL and associate FCCL.

FFC commenced commercial production of urea in 1982.

FFC was established in 1978 as a joint venture ofFauji FoundationandHaldor Topsoe. The firstureacomplex was commissioned in 1982. Plant-1 was improved in 1992, and a second plant was built in 1993. In the year 2002, FFC acquired exPak Saudi Fertilizers Limited(PSFL) Urea Plant situated atMirpur Mathelo,District GhotkifromNational Fertilizer Corporation(NFC) through aprivatisationprocess of theGovernment of Pakistan. This acquisition at Rs. 8,151 million represents one of the largest industrial sector transactions in Pakistan. FFC now has three plants with a combined capacity of 5770 MTPD ofprilled urea.

Fauji Fertilizer Bin Qasim Limited(FFBL) is another company where FFC has controlling shares it produces 1670 MTPD of granular urea plus 2250 MTPD DAP after revamping (1350 MTPD before revamp) DAP.Ammoniaand urea plants capacity factors right from the plants start-up have been 100% or more. Today, FFC is also involved manpower training and turnaround services provider, especially within Pakistan and in the Middle East.

Fauji Fertiliser Bin Qasim would enter meat, dairy and power businesses with an estimated investment of over Rs33 billion ($330 million). The wholly owned subsidiaries ofFauji Meat,Fauji FoodsandFauji Powerwill be involved in these businesses

OUR CORE VALUES

At FFC we seek uncompromising integrity through each individuals effort towards quality product for our customers, maximizing returns to the shareholders and sizable contribution to the national exchequer.

Our business success is dependent on trusting relationships. Our reputation is founded on the integrity of the Companys personnel and our commitment to the principles of:

Honestyin communicating within the Company and with our business partners, suppliers and customers, while at the same time protecting the Companys confidential information and trade secrets.

Excellencein high-quality products and services to our customers.

Consistencyin our word and deed.

Compassionin our relationships with our employees and the communities affected by our business.

Fairnessto our fellow employees, stakeholders, business partners, customers and suppliers through adherence to all applicable laws, regulations and policies and a high standard of moral behavior.

Examples of Premium Quality Products

Sona Urea

Sona Urea is the most concentrated solid, straight nitrogenous and most widely used fertilizer in the country. Mostly it is manufactured in the form of prills, but FFC is producing in prilled as well as granular forms.

DAP

Sona DAP is the most concentrated phosphatic fertilizer. It is the widely used phosphatic fertilizer in the world as well as Pakistan.:

FFC SOP SONA BORON

Production and Sale at a Glance

FFC is a leading manufacturing company with over 60% shares of urea manufacturing and marketing in Pakistan.

Urea Production (Met/Year)

Sale (Met/Year)

Years

Goth Machi

M.Mathelo

Total

Urea Domestic

Urea Export

Urea Imported

Phos*/ Potassic

Total

Plant-I

Plant-II

Plant-III

2010

867,346

806,589

810,706

2,484,641

3,006,074

-

-

-

722,766

3,728,840

2011

841,755

782,752

711,195

2,395,702

2,839,162

-

-

-

662,387/9,588

3,511,353

2012

799,432

772,307

834,054

2,405,784

2,677,668

-

-

-

677,917/6,489

3,362,286

2013

774,835

803,287

829,600

2,407,722

2,635,287

-

-

-

845,383/7,795

3,488,706

Urea Market Participation

FFC is a leading manufacturing company with over 60% shares of urea manufacturing and marketing in Pakistan.

IT Vision

The IT Strategy at FFC shall complement our Corporate Vision by business transformation through technology innovation, introducing best practices and connecting our processes for timely information and optimized performance to succeed in our endeavors.

Information Technology

The Company shall continue its focus on realignment of its IT capabilities with the corporate objectives. With the passage of time, our SAP ERP continued to mature while several new initiatives were undertaken to bring value to users, across the organization.

Business Planning and Consolidation

In order to enhance management control, a state of the art Business Planning and Consolidation (BPC) solution has been implemented with the objective of providing online budget preparation and monitoring.

The implementation of SAP BPC solution is the first of its kind in Pakistan. Coordinated from HO, FFC users joined from all over Pakistan t to carry out the system implementation. The method, though challenging, reduced the cost of implementation manifolds.

Shipment Planning and Processing Application (SPPA)

Several initiatives centered on improved intercompany accounts, credit and transportation management were undertaken and completed.

In relation to transportation cost which represents the largest component of distribution cost, a custom application "Shipment Planning and Processing Application" (SPPA) was made available to users in FFC for optimization and better management of the transportation function.

Mobility & GIS

The first step towards a mobile enabled business was undertaken by connecting SAP database with SMS service, for timely availability of sales orders and shipment information to our marketing field force.

Another application was designed in coordination with marketing and the R&D cell at HO, utilizing databases of soil analysis with a Web based GIS map of Pakistan. The application has the potential of becoming a potent tool at all levels of the sales and marketing function. Mobile applications have also been deployed for recording and retrieving soil analysis data based on GPS coordinates.

The application will considerably enhance accuracy of recommendations made to farmers.

Enterprise Central Component 6.0

A major advantage of SAP is access to latest enhancements of business solutions. In order to leverage this facility, SAP ERP was upgraded to the latest enhancement package of Enterprise Central Component (ECC 6.0).

The upgrade will not only bring technical benefits but also introduce new functionality. This highly technical upgrade exercise was led by an internal FFC team with significant cost savings in the consulting fee.

Material Requirement Planning (MRP)

All purchasing and inventory control functions have been brought under SAP Materials Management, enhancing visibility and improving control over inventory management functions. The module has the potential of bringing significant benefits by reducing inventory levels.

KPI Monitoring Dashboards

With streamlined business functions and reliable data capture and processing in order, attention was focused on providing rich and powerful reporting capabilities to management.

Custom designed KPI dashboards were deployed for Plants, Marketing and Finance users providing management tools for quick performance reviews and rapidly zeroing in on areas of attention.

IT Strategy - Legacy Applications

FFCs core business applications have already been absorbed into SAP - ERP. However, some residual applications remain. These Legacy Applications have high costs of ownership and therefore hinder the purpose of an ERP.

FFC is following a well-defined strategy of either incorporating these applications in SAP or developing new applications tightly integrated with SAP and hosted at the central data center.

Health, Safety and Environment (HSE) Applications Occupational Health & Safety

Recognizing the importance of HSE, FFC has developed a web based solution to centralize, streamline and standardize occupational health and safety (OH&S) data management across the organizations operations.

The system is developed on a distributed architecture scaling down to meet increasing data requirements while providing a secure and rich user experience. The interface assists end users in performing day-to-day OH&S related tasks with minimal guidance.

Workflow engines available in the system then routes the OH&S process documents for review/approval and notifications/ alerts are generated through email. Centralized reporting on real time data provided by the system assists in timely decision making and compliance with OH&S standards.

Information Technology Governance

Information technology governance at FFC provides advice, oversight and contributes to the overall strategic decision making by the management keeping in view the impact of information technology on shareholder value and returns.

FFCs IT Governance practices encompasses,

Engaging stakeholders to establish priorities for technology investment that are aligned with institutional goals and priorities

Influence the development and design of technology services, policies and solutions

IT governance promotes transparency, accountability and dialogue about technology that facilitates effective strategy adoption

Ensuring compatibility, integration and avoiding redundancy

Maximizing return on technology investment and controlling spending, while providing FFC with a coherent, integrated IT architecture and management structure

Securing the Companys data

Keeping the IT function proactive from an innovation perspective, providing ideas to the business

Risk Management

Risk management is the process of identifying vulnerabilities and threats to the information resources used by an organization in achieving business objectives, and deciding what countermeasures, if any, to take in mitigating risk to an acceptable level, based on the value of the information resource.

After the implementation of SAP as a backbone ERP system in FFC, dependency of imperative and usual business transactions on the system have become a prime driving force for optimizing business continuity and efficiency. With emergence of technological innovations, associated risks are emerging at a rapid pace and with respect to business continuity there are inherent risks including virus outbreaks, power outages, equipment breakdowns etc.

FFC IT has undertaken adequate measures to minimize risks using both strategic and operational controls. With the introduction of a state-of-the-art data center, probability of downtime due to equipment breakdown has reduced radically. Multiple UPS and power generators are in place to overcome issues arising due to power failure. Industry grade antivirus solution, Intrusion Prevention System and firewalls have been deployed to restrict virus outbreak in the computing environment. For monitoring incidents occurring on network, a Monitoring, Analysis and Response System has been placed in the network topology. A highly efficient data backup system ensures safeguarding of data against corruption.

As part of Business Continuity Planning, a Disaster Recovery site (DR) has also been established to further strengthen the availability of SAP services in case of a disaster. This site hosts backup servers for shifting of services during a disaster. A comprehensive set of policies and procedures have also been implemented to ensure hassle free movement of transactions from prime site to DR site. Detailed responsibilities, actions and procedures have been defined to recover computer, communications and network environment in the event of an unexpected and unscheduled interruption. An organization wide information security department has also been established for enhancing overall security posture of the organization.

CODE OF CONDUCT

We shall conduct our employment activities with the highest principles of honesty, integrity, truthfulness and honor. To this end, we are to avoid not only impropriety, but also the appearance of impropriety.

We shall not make, recommend, or cause to be taken any action, contract, agreement, investment, expenditure or transaction known or believed to be in violation of any law, regulation or corporate policy.

We shall not use our respective positions in employment to force, induce, coerce, harass, intimidate, or in any manner influence any person, including subordinates, to provide any favor, gift or benefit, whether financial or otherwise, to ourselves or others.

In business dealings with suppliers, contractors, consultants, customers and government entities, we shall not provide or offer to provide, any gratuity, favour or other benefit and all such activities shall be conducted strictly on an arms length business basis.

While representing the Company in dealings with third parties we shall not allow ourselves to be placed in a position in which an actual or apparent conflict of interest exists. All such activities shall be conducted strictly on an arms length business basis.

All of us shall exercise great care in situations in which a preexisting personal relationship exists between an individual and any third party or Government employee or official of an agency with whom the Company has an existing or potential business relationship. Where there is any doubt as to the propriety of the relationship, the individual shall report the relationship to management so as to avoid even the appearance of impropriety.

We shall not engage in outside business activities, either directly or indirectly, with a customer, vendor, supplier or agent of the Company, or engage in business activities which are inconsistent with, or contrary to, the business activities of the Company.

We shall not use or disclose the Companys trade secret, proprietary or confidential information, or any other confidential information gained in the performance of Company duties as a means of making private profit, gain or benefit.

Introduction to FFC CSR

For Fauji Fertilizer Company Limited, social responsibility means facilitating communities and empowering its people. Sustainability shall always remain quintessential for the performance of CSR. Historically, FFC has always been socially a responsible corporate entity. The Company started its CSR per se as early as in 1982 by introducing Agri-Services thus helping in poverty alleviation of common farmer and assisting them in sustained empowerment. Gradually FFC started interventions in most of the defined sectors and has developed a history of about 30 years of contributions to the society. FFC, further plans to bring sustainability in its interventions and desires to achieve international standards by aligning CSR with our business objectives. FFC is also committed to improve quality and quantum of its interventions by maximizing on the available resources.

Since FFC has become member of covenants like UNGC, the CSR has to be aligned with international guidelines. It is necessary to standardize the interventions and monitor the quality of interventions at a central level. We need to stay committed to its principles. Keeping the vision of responsible corporate entity in mind, FFC has moved in this direction. FFC has made quality as its core value when it comes to CSR intervention at any level, and in future this will remain as the prime objective.

CSR Objectives

Companys obligations of paying back to the society from which it derives its economic gains.

Address stakeholder concerns and invest in the communities in the vicinity of our fertilizer plants.

Empower the small and medium farmers all over Pakistan

Incorporating UNGC Principles in our governance.

Contribute in achievement of UN Millennium Development Goals.

Current CSR Interventions

As most of the sustainability conscious organizations around the world do, FFC is playing its part actively in this direction. Being the brand leader in fertilizer sector with the biggest market share and counted among one of the leading corporate entity in Pakistan, FFC understands its obligation in nation building and well being of deprived communities around the plant sites. Under the charter of FFC CSR interventions, following sectors have been made part of the program

Education

Health Care

Environment

Poverty Alleviation

Sports

Annual Fun Fares

Financial Information

Shares Value

Fauji Fertilizer Company Limited Fluctuation For The Years 1996-2011

Year

Date

High

Date

Low

1996

25-JUN-96

90.75

01-JAN-96

50.50

1997

22-OCT-97

100.00

09-JAN-97

66.00

1998

14-APR-98

89.00

21-OCT-98

31.55

1999

15-MAR-99

57.30

08-FEB-99

39.30

2000

21-JAN-00

67.50

19-OCT-00

36.50

2001

02-FEB-01

50.00

24-SEP-01

28.40

2002

26-DEC-02

73.95

22-May-02

38.85

2003

29-AUG-03

105.95

28-FEB-03

69.15

2004

29-DEC-04

143.90

01-JAN-04

95.75

2005

16-MAR-05

180.00

27-JUN-05

118

2006

31-JAN-06

144.90

29-DEC-06

105.50

2007

13-JUL-07

131.90

05-JAN-07

103.00

2008

02-APR-08

149.85

31-DEC-08

54.30

2009

14-DEC-09

109.90

01-JAN-09

58.90

2010

30-DEC-10

128.50

15-JUN-10

101.10

2011

18-OCT-11

198.35

25-FEB-11

109.82

2012

30-JAN-12

190.95

13-JUN-12

105.75

2013

23-JAN-13

121.60

30-SEP-13

100.00

Dividend Details/Book ClosureCurrent Year

Status of Div

Dividend

Bonus Shares

BOD

BOOK CLOSURE

%

Total

%

Total

From

To

1st Interim-14

30

-

-

-

164

19-05-14

25-05-14

2nd Interim-14

34

165

05-09-14

11-09-14

3rd Interim-14

37.5

167

08-12-14

14-12-14

Final-2014

35

136.5

169

11-03-15

17-03-15

Other FinancialInformation

1.

Company Registration Number

0006241

2.

National Tax Number

1435809-3

3.

Financial Highlights for previous five years

Open PDF File

4.

Earnings per Share (Year ended Dec. 31, 2014)

Rs 14.28

5.

Price Earnings Ratio (Year ended Dec. 31, 2014)

8.20 (Times)

6.

Breakup value (Year ended Dec. 31, 2014)

Rs 20.18

7.

Name of Auditor of the Company

M/s A.F Ferguson & Co.

Chartered Accountants

8.

Name of Share Registrar

THK Associates (Pvt) Ltd

Ground Floor, State Life Building No. 3

Dr. Ziauddin Ahmed Road, Karachi-75530

P.O. Box No. 8533UAN: +92(21)111-000-322

Fax: +92(21)35655595

Email Address:[email protected]

Website Link:www.thk.com.pk

9.

Free Float of Shares

689,548,617

10.

Status of Company

Economically Significant Company

11.

Name of Legal Advisor

Raja Jibran Tariq Ali

12.

Membership of Industry Association & Trade Bodies

IFA, AFA, RCCI

13.

Permissible Business

To manufacture, buy, sell, deal in and use chemicals of all kinds and all articles and things used in the manufacture, maintenance and working thereof, and also all apparatus and implements and things for use either alone or in connection with the products of which they are ingredients, or in the manufacture of which they are a factor.

14.7- Environment certificates ISO Certifications

ISO Certifications

Sr. No

Certification Name

Brief Description of Certifications

1

ISO-9001:2000

Quality Management System

2

ISO 14001:1996

Environmental Management System

3

OHSAS 18001:1999

Occupational Health & Safety Assessment Series

Safety Awards

The effectiveness of the safety program is reflected by the various awards won from National Safety Council (USA) since 1982. The company has received 15 awards of honour. Two special safety awards on outstanding performance were given to FFC in 1989 / 1993 by the council for constantly achieving outstanding performance in the field of safety.

FFC also has the honor of achieving all time best 16.49 Million man-hours without lost time injury as of 31 December 2001, which is the all time best field of safety.

Organizational Chart