Chenab finally announces financial results for June 2024. What took so long?

ISLAMABAD: Chenab has announced its latest financial results for the year ended June 2024. Yes, you read that right. After almost 6 months of the period ending, the company has finally announced its results which are showing reduced losses and the company getting to terms with its losses. But the question is raised, what actually took so long for the company to finally release these financial accounts? 

In order to understand the reason for the delay, there is a need to go back a few years. Chenab had been suffering through a long period of losses and the company was not able to pay back its creditors. As the situation became worse, the banks went ahead and filed a claim in the Lahore High Court to recover their dues. The company was not able to pay back its creditors and a restructuring deal was negotiated which was spearheaded by Habib Bank. Chenab was given a chance to breathe new life into a textile manufacturing business that was suffering due to energy crises which had plagued it since 2008. Now it has a chance to restart its closed operations and wants to bring back the glorious past it had once enjoyed.

The rise of Chenab can be traced back nearly 40 years when the company started exporting and selling locally. As the empire of the company expanded, it started to export to more than 40 countries around the world while also establishing its local brand Chen One for the local market.Sales for the company were around Rs 3.4 billion in 2001 which increased to Rs 9 billion by the end of 2010. Most of this growth was on the back of borrowing that was carried out as banks were encouraged to lend to the private sector in the early 2000s.

The growth story hit a bump in later years when Pakistan’s economy and textile industry was hit with many different issues. First of all, the interest rates in the country started to increase which impacted the finance cost being charged to the company. This was compounded by the energy crisis and a subsequent increase in labour cost saw costs rising due to the inflation prevailing in the country. In terms of demand, the company was also impacted as China and India started to cut into the export market that Chenab was catering to. Many of the other countries were subsidizing their textile industry which was not being given to the local textile exporters. With demand and supply both being impacted, the company started to suffer losses. The exports were also impacted after the assassination of Benazir Bhutto which saw transport infrastructure being impacted. This saw containers waiting at the ports for days rather than being shipped.

Chenab was already seeing low margins as their profits were thin even in the times when the company was performing well. The company made a loss of Rs 2.6 billion when revenues were around Rs 9 billion. Once the sales started to decrease, the company was impacted further as its losses started to accumulate on its books. The worst part of the whole crisis was that clients who had built a relationship with the company were not having their commitments met which meant they decided to go to other companies who could fulfil their orders. Once the clients left, they never turned back. This would not only have an effect on current revenues but also future revenues which could have been generated from these clients.

As the losses started to increase, the company had to take out further loans in order to finance its working capital needs and by 2014, Chenab announced that they would not be able to pay back their debt obligations. The banks had little they could do but file recovery petitions against Chenab. The banks pursued the case and in 2017 the High Court ordered for the company to be sold and the proceeds to be paid back against their debt. Chenab is a listed company which means that they have to give out their annual accounts to the stock exchange on a quarterly basis. Before the winding up orders were passed, the company released its results for the 3rd quarter of 2017 on 26th of April 2017. From this day till December of 2021, the company appealed the winding up orders and won the battle. The winding up orders were reversed on the back of successful negotiations between the banks and the company. A new restructuring deal was made and the company was allowed to start their operations again. While the company was busy fighting the orders, no accounts were released for the period.

As normal operations have started to return, the management has started to post the accounts from the past and so there is a steady flow of quarterly accounts taking place. The company started to publish its accounts from June of 2017 at the start of 2022 and has caught up till December of 2023 till now.

So what do the accounts actually show?

Even before the court orders had been passed, it was evident that the cost of production was too high. Since 2010, the company had started to see gross loss which meant that the sales were not even able to cover the cost of production for the company. This showed that the company was suffering with low prices and high cost of manufacturing. This problem seems to have persisted for the company as it suffered gross losses from 2010 to 2022. The only times the company saw zero gross loss was in June 2020 and June 2021 when the company carried out zero sales that lasted for 9 quarters from June 2019 to September 2021. Only recently has the company been able to earn gross profits with 2024 showing an amount of Rs 1 crores. 

As gross losses were the starting point from 2010,  the company faced additional costs on an annual basis and saw huge finance costs being suffered which meant that net losses were the constant till 2018. There was a break in this trend in 2019 and 2021 which was owed to the restructuring deal being made. The company registered other income caused by the restructuring of Rs 41 crores in 2019 which led to the company earning net profit of Rs 14 crores.

In 2021, the company was actually closed as it was too expensive to keep operating. This year saw other income of Rs 1.2 billion which led to a net profit of Rs 1 billion for the company. This highlights the fact that the company was mostly earning by writing back its debt which was considered an income and Chenab was yielding a higher profit when it was closed down rather than being operational. From 2022, the plant was operating on a normal basis and the company again slumped into losses. In 2022, the gross losses were Rs 22 crores and after taking other income into account, the company was able to decrease some of its operating losses. In the end, a net loss of Rs 45 crores was made as well. 

In terms of the positives, it can be seen that 2023 was a great year as the company finally earned a gross profit which shows that its core operations were turning a profit for the company. The gross profit was Rs 1.5 crores and a large chunk of income was again seen in terms of other income which were around 12 crores. After taking all the other costs into account, the company made a net loss of Rs 41 crores which was lower than the year before. One of the biggest costs was finance cost which was around Rs 52 crores. As the company was realizing some of its written down debt as income, it was mandated to record the finance cost according to the restructured deal. The earning per share for 2023 was Rs -3.52. 2024 seems to be another step in the positive direction as the company has been able to increase sales from Rs 2.1 billion in 2023 to Rs 3.3 billion in 2024. 

Even though gross profits have decreased from Rs 1.4 crores to 1.1 crores, the increase in sales shows that the company is expanding its sales base. Other income recorded for the year was Rs 42 crore again which is making up a major chunk of the income. In terms of the expenses, the company has recorded similar expenses, however, finance cost has jumped to Rs 72 crores in 2024 compared to Rs 52 crores a year ago. This seems to be a rise in cost in relation to the increase in other income. At the end of the year, Chenab saw a gross loss of Rs 33 crores which had decreased from Rs 41 crores in 2023. The loss per share has also fallen from Rs -3.52 to Rs -2.84 which shows that the company is headed in the right direction.