Finance review of Fertilizer sector 2014

8/10/2019 Finance review of Fertilizer sector 2014

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Corporate Finance

Final project:

The Fertilizer Industry


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Company Risk Characteristics Investment Performance

CapitalStructure Dividend Policy Valuations

ach BetaJensen's

Alpha

R

squaredROE -

COEROC -

WACC EVA

CurrentDebtratio

Optimal

Debt

Ratio

Change

in

WACC Duration Dividends FCFE Value/share Price/Share

Put overall sector chart here combined wala

B 6.26 -5.92% 35.00% n.m.

-

8.15% (1,129.50) 86.65% 20.00%

-

7.06% 0 0 765.3 10.06 10.20

-B 1.24 27.35% 27.00% 5.24% 2.01% 53.30 23.87% 10.00% 0.04% 5.3 0 23.5205 6.76 5.55

- -

B 1.42 4.43% 7.00% 2.80%

-

2.27%

-

(191.00) 44.86% 45.00% 0.00%

-

3.3 145 257.1 3.22 5.80

B 0.82 28.42% 15.00% 3.23% 3.53% (37.30) 0.00% 20.00% 0.54% 0 14.3 41.2 31.69 30.45

1


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I. 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 Agriculture 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 loadshedding 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.


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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.

R i sk P r ofi le

We used ___ measures of beta to estimate the exposure of each company to market risk. The

results reflect the fundamental characteristics of each company and in particular variance of earnings

and leverage. The riskiest company as measured by historical regression beta is

__________________ and the least risky__________. Because of the historical character of the

regressions beta and high standard errors of the estimates we used bottom-up betas in our further

analysis.

In addition, we used ______methods to compute returns of each company with relation to itsrisk

_____________________ratio. Under both methods the top performing companies were ______

and ______.

Investment Analysis

We used accounting measures of return to analyze the return on typical investment projects

at which the companies are investing in fertilizer sector, such as ROC and ROE.

___________proved to be the company with highest returns and the EVA of the companies was

_____________.In addition we assessed the future prospects of each company, analyzing the

sustainability of its competitive advantages. This analysis was used as a basis for the valuation of the

Firms.

C a p i t a l st r u ct u r e

The three companies adopt very different policies with regards to their capital structure,

ranging from the highly over levered _____________ (debt ratio of _____) to the all equity financed

________. Taking into account the potential benefits and disadvantages from the use of debt we

computed optimal capital structures for each firm and assessed the impact on the share price from


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moving from the current capital structure to the optimal. The result was an average of _____%

increase/decrease in the firm


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value of the firms, most of this increase comes from __________. It was interesting to find that

____________ current debt ratio is equal to its optimumroughly ____%

D ivi den d p o li cy

All three companies are dividend paying companies, although for very different reason, FFC

Bin Qasim pays out all profit in its dividend .__________exhibits a great potential to invest in projects

with positive excess returns (ROC exceeds Cost of capital). ______and ________ are companies

with more steady and predictable cash flows and reinvestment needs and this is reflected in their

dividend policies. Our analysis is presented in Sections____ and _____.

V a lu a t i o n

The results from our valuations are presented in the table below:Valuations wale combine kr k excel k paste here.

Valuation summary

Fatima

FFCBL FFC SectorModel Chosen

Value per Share

FCFF 2 Stage

10.06

FCFF 3 Stage

6.76

FCFF 2 Stage

3.22

FCFF 2 Stage

31.69

Current Stock Price 10.20 5.55 5.80 30.45

Undervalued / (overvalued) -1.3% 21.8% -44.4% 4.1%

Reccomendation HOLD BUY SELL HOLD

Source: Analysis

pages.

The valuation models are based on the results from our analysis as presented in the following

II. Introduction and the companies

1. Introduction

The current report examines major trends in the Fertilizer sector focusing on 3 major production

companie in particular Fatima Fertilizer (__), Fauji Fertilizer company and Fauji Fertilizer Bin

Qasim. The companies reviewed operate in same businesses, Fertilizer production industry, utilize

different business models and are at different stage of their life cycle. The purpose of the report is to

analyze different aspects of their corporate finance policies and to assess the effect of these policies on

the value the managements of these firms create for their shareholders. Summary information for each

company is presented in Figure 1.


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Figure 1 Summary company information

Same excel thing

American

Company information Airlines Ryanair BAA Asur

Country of incorporation United States Ireland United Kingdom Mexico

Primary listing NYSE ISE London Stock

Exchange

NYSE

Year of establishment 1926 19851965

1998

Year of stock exchange listing 1939 19971987

2000

Reporting currency US dollar Euro British pound US dollar

Revenues in 2004 (MM local

currency)

18,645 1,074 1,970 1,976

Revenues in 2004 ($ equivalent1) 18,645 1,336 3,546 177

Book value of capital (MM 2004

local currency2)

Book value of capital (2004 $

equivalent)

13,749 2,939 8,960 12,326

13,749 2,158 16,128 1,106

Throughout the report analysis has been presented based on information gathered from

various public sources, including statutory filings with regulatory authorities in the respective

jurisdiction, company annual reports, management presentation and other publicly available

information. We have tried to acknowledge each source of information where possible. Figures

and data that is not referenced to any source has been result of our own analysis.

For computational ease the analysis for each company has been undertaken in the reporting currency

under which the company reports annual results.

2. Brief description of the companies

Fatima Fertilizer

1About the company

Fatima Fertilizer is a joint venture of Fatima Group and Arif Habib Group. Fatima Group and Arif Habib Group

also own Pak Arab Fertilizers Limited which produces CAN, NP and UREA having a total capacity of 0.85mn

tons/annum. Fatima Fertilizer is setting up largest fertilizer complex with production capacity of 1.58 Million

tons/annum. 110 MMCFD gas has been allocated from Mari Gas Company Limited for ten years which can be

extended afterwards. China National Chemical Engineering Corporation (CNCEC) was the main Civil,

Mechanical and commissioning contractor.

1http://wwwfatima-groupcom.itrademarket.com/profile/fatima-fertilizers-comapany-ltd.htm
http://wwwfatima-groupcom.itrademarket.com/profile/fatima-fertilizers-comapany-ltd.htmhttp://wwwfatima-groupcom.itrademarket.com/profile/fatima-fertilizers-comapany-ltd.htmhttp://wwwfatima-groupcom.itrademarket.com/profile/fatima-fertilizers-comapany-ltd.htmhttp://wwwfatima-groupcom.itrademarket.com/profile/fatima-fertilizers-comapany-ltd.htm


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CAN and Urea have already started production. NP plant is projected to start commercial production from

December this year. The project is located on 947 Acres of land acquired at Plant site Mukhtar Garh

Sadiqabad, Rahim Yar Khan in the Punjab Province.

Final Products

Urea plant1,500 TPD

Calcium Ammonium Nitrate Plant (CAN)1,400 TPD

Nitro Phosphate Plant (NP)1,200 TPD

Intermediary Products

Ammonia Plant1,500 TPD

Nitric Acid Plant (NA)1,500 TPD

Cost estimates

The cost of the project has increased to around PKR63bn from the initial PKR60bn. As of 1QCY10 balance

sheet (post share offering), 34% of the project was financed by common share holders, 7% by preferred

stocks which are convertible and whose dividends are cumulative (carrying a high dividend rate of 6M KIBOR

plus 3%). The rest of the project is to be financed by debt and subordinated loan from sponsors. The

management also stated that they are planning to issue an American Depository Receipt (ADR) by end 2010

with Bank of New York Mellon assistance.


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Plant Performance

Commercial production for the urea and CAN plants had started in Apr-10, while the NP/NPK plant is slated

to come online by Dec-10. As per NFDC, urea and CAN production for the first two months (Apr-May) stoodat 69.4k tons and 23.9k tons. As per the mgmt., current utilization of both urea and CAN plants stands at

107% and 94% respectively.


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Fauji Fertilizer Company Limited

2About the Company

Fauji Fertilizer Company (FFC) was incorporated in 1978 as a private limited company, in a joint

venture between Fauji Foundation (a leading charitable trust in Pakistan) and Haldor Topsoe A/S of

Denmark. Present share capital of the company stands at PKR6.8bn. FFC has 51%, 12.5% and 13.5%

stake in Fauji Fertilizer Bin Qasim Limited (formerly FFC-Jordan Fertilizer Company Limited), Pak

Maroc Phosphore (PMP) and Fauji Cement Company Limited (FCCL) respectively. FFC commenced

commercial production of urea in 1982 with designed annual capacity of 570k tons, which has been

subsequently augmented to 1.9mn tons at present. FFC currently has 678.5mn shares outstanding

out of which 44% shares are held by Fauji Foundation, being the largest shareholder of the

company.

FFC is involved in manufacturing & sale of urea, and also imports and sells phosphate fertilizers.

Fauji holds 50.88% share in Fauji Fertilizer Bin Qasim (FFBL), a listed company involved in

manufacturing and sale of urea and DAP. FFBL is the only DAP manufacturer in the country. FC also

has joint-venture investment with OCP of Morocco in phosphoric acid manufacturing operations

(Pak Maroc Phosphore). PMP is a USD 240mn project with FFC holding 12.5% of the equity.

Sone Ureamost widely used fertilizer in the country. Fertilizer is white in color, free flowing, readily

soluble in water and both contain 46% Nitrogen. Because of its high solubility, it is suitable for

solution fetilizers.

Sona DAPis the most concentrated phosphatic fertilizer containing 46% P 2O5 and 18% Nitrogen. It

is the widely used phosphatic fertilizer in the world as well as Pakistan. The solubility of DAP is more

than 95%. Its nitrogen to phosphoris ratio (1 : 2.5 ) makes it an ideal fertilizer, to meet the initial

requirement of most of the crops.

Sona SOPThis fertilizer is an important source of Potash, which is a quality nutrient for production

of crops especially fruits and vegetables. Potash improves the resistance of the plants against pests,

diseases and stresses like water.

Largest Urea producer

2http://www.ffc.com.pk/Foundation Securities Fertilizer Sector Analysis* also referred own previous research work
http://www.ffc.com.pk/http://www.ffc.com.pk/http://www.ffc.com.pk/http://www.ffc.com.pk/


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FFC is currently the largest urea manufacturer in the country (Engro, after its 1.3mn ton expansion

will overtake FFC to become the largest urea manufacturer in 2010) with a market share of 42%.

The company has a production capacity of approximately 1.9mn tons. Being the largest urea

manufacturer, FFC benefits from economies of scale, and as a result has the best gross, operating

and net margins in the industry.

Graph: 5 year average margins

Production Efficiency

GOTH MACHHI-Urea Production (met Tons/Year)

Base Unit Expansion Unit Total

Years Production

CapacityFactor (%

Design)Production

Capacity

Factor (%

Design)

Production

Capacity

Factor (%

Design)

1982 325,452* 93.86 - - 325,452 93.86


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1983 566,771 99.43 - - 566,771 99.43

1984 589,258 103.37 - - 589,258 103.37

1985 598,694 105.03 - - 598,694 105.03

1986 594,901 104.36 - - 594,901 104.36

1987 632,079 110.89 - - 632,079 110.89

1988 637,737 111.88 - - 637,737 111.88

1989 632,972 111.04 - - 632,972 111.04

1990 652,665 114.50 - - 652,665 114.50

1991 629,266 110.39 - - 629,266 110.39

1992 648,178 102.55 - - 648,178 102.55

1993 657,376 94.58 477,339** 95.85 1,134,715 100.41

1994 678,114 97.57 659,526 103.86 1,337,640 100.57

1995 680,062 97.85 700,031 110.24 1,380,093 103.76

1996 710,862 102.28 695,749 109.56 1,406,611 105.76

1997 773,048 111.22 734,275 115.63 1,507,323 113.33

1998 742,599 106.84 682,969 107.55 1,425,568 107.18

1999 726,723 104.56 734,689 115.69 1,461,412 109.88

2000 729,864 105.01 695,938 109.59 1,42,5802 107.20

2001 737,607 106.13 756,417 119.12 1,494,024 112.33

2002 801,825 115.43 713,889 112.38 1,515,714 113.97

* Start-up of commercial production on 14 June 1982

** Start-up of commercial production on 21 March 1983


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MIRPUR MATHELO-Urea Production (met Tons/Year)

Base Unit Expansion Unit Total

Years Production

Capacity

Factor (%

Design)

Production

Capacity

Factor (%

Design)

ProductionCapacity Factor

(% Design)

2002 59,886* 102.91 - - 590,886 102.91

* FFC aacquired 100% management control of PSFL-Mirpur Mathelo

effective from July 1,2002

Source: http://www.ffc.com.pk/contents/manfacturing.htm

Vast distribution networks an important plus point

FFC being the current market leader in urea, has the most stretched out distribution network. The

company has its outreach in all four provinces with market leadership in Punjab, Baluchistan and

NWFP provinces, whereas the companys prime competitor Engro only has a strong hold in Sindh

region. FFC also markets FFBLs products through its distribution setup. The company charges

commission for marketing these products. This ensures that FFBL is able to cost efficiently and

effectively sell its produce throughout the country, which indirectly benefits FFC through dividendincome.

Low leverage levels

One of the strongest points for FFC is its low level of leverage. In the current environment of high

interest rates, this attribute gives FFC an edge over its competitors which are suffering from high

finance costs. FFC, currently does not have any significant expansion plans in sight other than BMRE


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on plant 1 (this would not require any significant financing requirement). Hence, the debt level is

expected to remain low. However, in case of any attractive future investment plans, FFC could

easily leverage its balance sheet to fund the investments.

Gas curtailment more than offset by price hike

FFC and Engro have more than offset the negative impact of lost production by raising urea prices

by PKR 75/50kg bag. The price increase was calculated on the assumption of 12% gas curtailment

on Mari field based plants whereas the actual curtailment during 1h2010 has been only 4-5%. Mari

field based fertilizers plants have witnessed margin increased during 2q2010 due to lesser than

expected gas curtailment.

Mulling purchase of Agritech Ltd

FFC is reportedly contemplating bidding for Agritech Ltd (AGL) and its 100% owned subsidiary

Hazara Phosphate Fertilizers (HPFL), as Azgard Nine Ltd, the majority shareholder of Agritech, has

decided to completely divest its 80% equity stake in the company. Agritech currently has the

capacity to produce 0.38mn tons of urea and 0.1mn tons of single super phosphate (SSP) per

annum. The company plans to increase urea capacity to approx 0.46mn tons / annum through BMR

in Cy10.

While the details on the proposed transaction are not yet available, simplistic calculation indicatesthat FFC can easily fund its acquisition through leverage due to companys low current leverage.

Assuming acquisition price is equal to prevailing market price of approximately PKR 23/share, FFC

would require approx PKR 9bn to purchase 100% equity of the target company. Given that cash and

liquid investments amounted to PKR 3.8bn as at Mar 31, 2010, out of which payment of ~PKR 2.7bn

would have been made for the 1qCy10 dividend, FFC would be left with PKR 1.1bn in

cash/investments. Assuming this as minimum cash balance required for working capital needs, it is

likely that the company takes on PKR 9bn (100%) worth of debt to fund the acquisition.

Furthermore, given FFCs strong internal cash generation, it is plausible that the company funds the

acquisition through financing. As such, additional annual financial charges of PKR 1,350mn(assuming 15% cost of debt), is hardly significant compared to companys average annual EBITDA of

Rs15bn.

Wind power project expected to commence in 1qCy12


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Financial close for the USD 130mn, 50MW wind power project proposed to be set up at Jhimpir,

Thatta is now expected to be achieved in Sept-2010 against earlier expectation of June-2010. The

project is likely to start commercial production approx 16 months after financial close (1qCy12).

Benefits from Engroscost increase and margin push

To mitigate its rising expansion costs, stemming from depreciating Rupee and higher financial

charges, Engro has been pushing for increase in urea selling prices. This as a result has directly

benefited FFC, as the company has followed Engros price hikes. The above has resulted in margin

increase for the company. During CY07 and CY08, local urea prices have increased by approximately

PKR170/bag, while FFCs gross margins have increased by 800 bps over the same period. We expect

Engro to continue with price hikes, (at least till local supply demand scenario remains favorable

for manufacturers) which will continue to benefit FFC.

2. Management compensation

Management compensation does not appear to be an issue at any of the companies analyzed.

All CEO getting market competitive compensations. All firms, with the exception of ______ use

stock options as a mean to align managements interest with those of shareholders, but with the

exception of ________, none of the CEOs own a significant stake in their companies. Details

about the CEOs, their compensations and the composition of the Board are presented in Figure 3 and


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IF data not available just write it down.


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Figure 3 Brief presentation of management

Chief Executive Officers

American

Airlines Ryanair BAA Asur

Name

Age 46 43 52 50

6 (Asur), 11

Years at the Company 23 17 4 (CPH)Years as CEO 3 9 3 1

Education MBA n.a. MA, Engeneering, (Denmark)

Salary ('000) 518.8 505.0 553.0 N/A

Bonus ('000) - 127.0 167.0 N/A

Other (000) 0.2 49.0 21.0 N/A

Stock Options (000.) 172.0 502.0 525.0 0

Total Compensation (000).) 691.0 1,183.0 741.0 1,317.0*

Stock Ownership (% of Total) 0.1% 5.44% 0.001% 0%

Market Value of Stock Held (mm) 1.14 237 0.1 0.0

* Compensation to all 5 executive officers including the CEO

Source: Annual reports, Statutory filings

Figure 4 Board of Directors

Board of Directors

Number of members 13 9 9 7

Insiders 1 1 5 3

CEO of other Companies? 7 no yes 3

Related Companies? 2 no No Yes

Source: Annual reports, Bloomberg,KSE various public sources


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4. Social responsibility

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 sec tors 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 internationalguidelines. 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.

Relief

In districts Rahim Yar Khan and Ghotki, flood had crippled the lives of people of the area. FFC thu

took the task of shouldering its share of responsibility initially in flood relief effort for the affected

natives of District Rahim Yar Khan and Ghotki. Some of these relief efforts were:

Distribution of cooked food

Dry ration for families

Transport for Evacuation

Mineral & FFC filtered Drinking Water

Tents/ shelters

Cloths, Blankets & Shoes for the affected families

Soap & Washing Powder

Crockery

FFC employees voluntarily made remarkable contribution in their respective plant sites which

amounts to millions. Food, drinking water, beddings, shelters and clothing was provided to the floo

affectees in the relief phase of the operation. Medical teams from FFC medical units performed day

night service for the flood affectees in Rahim Yar Khan and Ghotki, saving many precious lives.


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Rehabilitation

FFC has taken up the challenge of reconstructing 3 villages of districts Rahim Yar Khan and Ghotk

The intervention is planned in Reconstructing of Houses, Education, Health, Shelter, Water and

Sanitation and Infrastructure. This project of rehabilitation and reconstruction will cost 102 million

(PKR) out of which 50% will be contributed by FFC.

A project has been devised to construct Houses, water supply, pathways & sanitation facility for the

affected natives of Muaza Chacharan, Mohib Shah (Rahim Yar Khan) and Chuttoo Chachar

(Ghotki). FFC while acting as a responsible corporate entity has lead from the front in this time of

national grief and has played an exemplary role for other entities to come forward and contribute

their share.

Fatima Fertilizer CSR

At Fatima Fertilizer Company, CSR revolves around a self-regulating mechanism and adheres to the laws, ethical

standards and internal values.

Fatima Fertilizer Welfare Hospital

Fatima Fertilizer Welfare Hospital (FFWH) is a key project of Company's vision towards community welfare.

The Company, under the guidance of Government of Punjab has undertaken to establish a modern welfare hospital i

the vicinity of Plant site, to cater for the needs of underprivileged of the area.

This is the first ever initiative of its kind and magnitude in private sector.

Clean Development Mechanism

Global warming has become the most important challenge the world is facing in the 21st century. A lot of research an

development is being done for curtailing greenhouse gas emissions. Following its accession to the Kyoto Protocol of

the United Nations Framework Convention on Climate Change (UNFCCC) in January 2005 Pakistan made the

Ministry of Environment the Designated National Authority (DNA) for CDM under the protocol. A CDM cell was

created in the Ministry in August 2005.

In order to care for the environment and greenhouse effect, the Management has installed a Clean Development

Mechanism (CDM) Project on its Nitric Acid plant.

It is expected that about 1.3 million CER's per annum will accrue from the start of the project up to 2020.

Mitsubishi Corporation has assisted in implementation of the project and is now in the process of registration of

Fatima Fertilizer's CDM Project with the United Nations.

Uhde has provided the technology and equipment and also helping with the implementation of CDM for Fatima

Fertilizer.


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IV. Stockholder Analysis

V. Risk Profile

1. Market risk and return

In analyzing the risk characteristics of the three companies we first looked at their returns over

a ____ year period compared them to the returns of a broad based market index such as the KSE 100.

Figure 12 below presents the rebased share prices of all three companies and the level of the KSE 100


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"' "' "' "' " " "

Figure 12 Stock price performance (insert chart of market and companies stocks)

300%

250%Asur

200%

150%

100%

50%

0%0 0 0 C) ..;-

S' 0 S'

'3

S' 0 '3'3

S' 0 S'

'3

S' 0 S'

'3

S' 0 S' S

g' S'

"' >"--'. 0 "' >"--'. 0 "' >"--'. 0 "' >"--'. 0 "' >"--'.

In general,______ out of the _____ firms did better than the market. These results were

expected for ______ and _____. _ _ _ _ _ _ on the other hand, is more mature less volatile company

characterized by steady income stream and cash flows.

To analyze the market risk of the three firms we regressed their returns againstbroad based

market index and used the coefficient of the regression as a measure of market risk. We used __ year

monthly returns for the regression. The choice of index reflected the marginal investor in each

company, assuming that each investor is exposed to the same market risks in their respective

market.

17


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focuses on the regression coefficient (beta), the regression constant (used for computation of Jensen s

alpha) and the regression R-squared. The results from the regressions are summarized in Figure 13.

Figure 13 Risk return characteristics

Risk profile FFC Fatima FFCBL Faisal

Regression Beta

Reference index

4.67

KSE 100

1.21

KSE100

0.35

KSE 100

0.99

KSE 100

Industry average beta 1.34 1.80 0.95 0.95

Average Risk free rate 4.59% 4.58% 4.24%

Jensen's Alpha -5.92% 27.35% 4.43% 28.42%

R2

of Regression 35.0% 27.0% 7.0% 15.0%

Standard Error of Beta

Jansen's Alpha -

0.56 0.48 0.17 0.32

industry average -4.27% -4.27% n/a n/a

Source: Bloomberg,Kstock.com,FX Street.com,ForexFactory.com analysis, www.damodaran.com

Slope of the regression - Beta

The coefficients of the individual regressions are the companies betas and are used as a

measure of the company exposure to market risk. The analysis indicates that ____________ is the

company with highest exposure to market risk (regression beta of ____), which is also more/less than

__ times the industry average. This is a reflection of high indebtedness and negative and volatile

earnings. _______ and ____________ on the other hand have regression betas much lower than

the industry averages. The reasons behind the different risk profiles of each firm will be examined

in greater details further in the report.

We also examined the excess returns of each firm as measured by its Treynor ratio. The

Treynor ratio measures the excess return of a stock given its level of risk (non-diversifiable) and is

computed with the formula below:

TreynorRstock " R

=!

Figure 14 below presents the Treynor ratios and the spread between stock Treynor ratio and

the market Treynor ratio over different investment horizons. The results suggest that over the last 5

years Ryanair had highest excess return compared to the market taking into consideration its risk.

None of the stocks outperformed the market over a 10 year period. Over the last couple of years the

best performing stock was Asur. These two stock were excluded from the 10 year horizon analysis, as

data for them was not available.
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Treynorratio

Excessreturn

.

Figure 14 Treynor ratios

80.0%

70.0%

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

-10.0%

-20.0%

1 year 2 year 5 year 10 year

Investment horizon

70.00%

60.00%

50.00%

40.00%

30.00%

20.00%

10.00%

0.00%

-10.00%

-20.00%

Treynor ratio AA Treynor ratio Ryanair Treynor ratio BAA Treynor ratio Asur

Excess return AA Excess return Ryanair Excess return BAA Excess return Asur

The calculations of the Treynor ratios are presented in Appendix II.

In t ercep t o f the r egressi o n a n d Jen sen s a lpha

We further used the intercept of the regression to compare the actual stock performance of

each company to the market expectation. For each stock we computed Jensensalpha equal to

In t er cep t R i sk Fr ee r a t e x (1 Bet a), using the average monthly risk free over the period. The

results were annualized using the formula:

(1+Mo n thly excess ret u rn)12 1

The annualized returns indicated that on average all companies except for ___________

generated returns that exceeded the markets expectations. In addition, comparing _________

high/low excess return to the negative/Positive industry Jensensalpha suggests that the company

performed better/Worse than expected at a time when the sector as whole did not meet the markets

expectations.


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R -sq u a r ed

R-squared of the regression provides information as to what proportion of the variability in

returns could be explained by the regression. The market non-diversifiable risk represents

__%,__% and ___% for _________, __________, and ________ respectively. The remainder is

company specific, non-diversifiable risk. While the relatively low/high R-squared for ______and

________ could be explained by the fact that they were small, fast growing companies during the

observed period and were facing numerous company specific challenges in establishing their business

models, we were surprised to estimate that __________was characterized by a large proportion of (___%)

of company specific, diversifiable risk.

S t a n d a r d er r o r s

The standard errors of the regression betas appear to be _________, suggesting a ______interval

for the possible values of the beta. This is one of the reasons why we considered an

____________approach to measuring the companys exposure to market risk, which is described below.

2. Bottom up betas

As an alternative approach to regressions betas we considered using bottom-up betas for our

analysis.

Est i m a t es o f u n levered bet a

We used market information about firms in the sector to estimate the risk profile of each of

the companies. The main stream of cash flows for _______ and _______ come from their core

business. Calculation of the unlevered beta of

Presented in Figure 15 and Figure 16.

Figure 15 Unlevered Bottom up Beta for BAA

Estimated Unlevered Division Weight *

Business line Value Comparable Firms Beta Weight Beta

Airport 4,125 AirportDevelopment/Maintenance

Retail 4,770 Retail (Consumer Electronics /

Luxury / Restaurants)

0.73 46% 0.34

1.05 54% 0.56

Firm total 8,895 0.90

Figure 16 Unlevered Bottom up Beta for Asur

Estimated Unlevered Division Weight *

Business Line Value Comparable Firms Beta Weight Beta

Aeronautical services 684.2 Airports 0.88 75.0% 0.66


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Non-aeronautical services 228.5

Commercial activities 76.3

Luxury 38.2

Retail Perfume &

Cosmetics 1.08 4.2% 0.05

Restaurants 38.2 Retail - Restaurants 0.82 4.2% 0.03

Real Estate

Access fees 152.2 Mgmt/Services 0.47 16.7% 0.08Firm total 912.7 100.0% 0.82


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Bottom-up betas

After estimating unlevered beta for each firm we levered back the beta to estimate a firm beta

that reflects the additional risk associated with financial leverage. The sector betas were unlevered and

re-levered using the formulae bellow:

{3unlevered

Where:

T

f3market

(1+ (1-T)(DIE)

applicable tax rate;

f3tevered = f3unteveredx(l + (1-T )x(DIE))

D/E market value of debt / market value of equity

The market value of equity has been computed as current share price multiplied by the number of

shares outstanding. Details of the computation of the market value of debt are presented in Figure 21.

Figure 17 Beta estimation - summary

American

Beta measure Airlines Ryanair BAA Asur

Top down Beta 4.67 1.21 0.35 0.99

Bottom up Beta (levered) 6.26 1.24 1.42 0.82

Industry avg. Beta (levered) 1.34 1.80 0.95 0.88

3. Cost of equity

The computed bottom up beta has been use to compute the cost of equity for the firms. The cost of

equity has been calculate using the Capital Asset Pricing Model and includes the following inputs:

Risk free rate of return (Rf) -in estimating the cost of equity we have used long term government

bond denominated in the respective currency to come up with the risk free. The current 10 year

bond yields were used in the analysis . The 10 year maturity of the bond used reflects the long

term investment horizon of the likelyprojects. Other periods should be considered for shorter

term projects.

Market risk premium (Rp)- this measure reflects the excess return to which an investor is entitled

as a compensation for the higher risk he /she undertakes by investing in risky security rather than a

??


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riskless one. We have used the geometric average of excess returns from the market over long

term Treasury bonds for the period between 19___ and 20__.

Betaas computed above.

The cost of equity, for all companies except Asur, is defined as:

Ke = Rf + x Rp

The cost of equity for Asur, is defined as:

Ke = Rf + x (Rp+Country Risk)

The cost of equity computation is summarized in Figure 18.

Figure 18 Calculation of cost of equity

Cost of Equity American Airlines Ryanair BAA Asur

Risk Free Rate 4.27% 3.47% 4.5% 4.24%

Beta 6.26 1.24 1.42 0.82

Risk Premium 4.82% 4.82% 4.82% 4.82%

Country Risk - - - 1.80%

Cost of Equity 34.54% 9.45% 11.30% 9.65%

4. Cost of debt

The other important component of the cost of capital is the cost of debt. It reflects the

perceived risk of the companies by lenders and debt investors, or its credit risk. The two components

of credit risk are default risk (or the probability that a company will cease making payments as agreed

in the credit agreement) and non-recovery risk (or the probability of recovery of the capital provided,

once the company goes in default). More detailed analysis of the borrowing policies of all firms is

presented in Section VII Capital Structure.


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The cost of debt for each company has two components a risk free rate of return and

compensation for the credit risk associated with the company. In estimating the credit risk for each

company we took __ approaches:

write down approaches used company wise in just one line each

After obtaining the respective credit ratings we looked at the credit default spreads

corresponding to each rating, which is a measure of the risk premium required. For all companies we

used the credit default spread embedded in current yields of publicly traded debt. We computed the

cost of debt for each by adding the default spread to the risk free rate for the respective company. The

results are presented in Figure 19.

Figure 19 Calculation of cost of debt

Cost of debt American Airlines Ryanair BAA Asur

Credit Rating

Spread vs. Treasury (a)

CCC

9.66%

A-

1.00%

A+

0.70%

n.a.

0.00%

Risk Free Rate (b) 4.27% 3.47% 4.47% 0.00%

Pre-tax Cost of Debt (c) = (a) + (b) 13.93% 4.47% 5.17% 0.00%

Marginal Tax Rate 35.00% 12.50% 30.00% 33.00%

After Tax Cost of Debt (c) * (1-tax rate) 13.93% 3.91% 3.62% 0.00%

After computing the cost of debt for each firm we computed the after tax cost of debt. The after tax cost of debt

reflects the fact that interest payable on debt is deductible from the operating income for tax purposes and results in

tax savings for the firms.


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5. Cost of capital

Ma rket va lu e o f eq u i t y

The market value of equity for each firm has been estimated by multiplying the number of

shares outstanding for each company by the current share price. The market values of equity are

presented in Figure 20.

Figure 20 Market values of equity place from excel file

Market Value of Equity (million) American Airlines Ryanair BAA Asur

Market Value of Equity (million) 1,862.2 4,352.4 6,153.3 912.7

Source: KSE

Ma rket va lu e o f deb t

In estimating the market value of debt we again took __ approaches:

Use the current value for debt that is publicly traded and information is obtainable; Project interest and principal payments and discount them back at the current cost of

debt as estimated above.

In projecting the interest payments we have used the current interest payments to book value

of debt ratio as a proxy for the average interest rate payable on the debt; and the average maturity of

the outstanding debt.

Summary of the market value of debt calculation is presented in Figure 21.


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Figure 21 Estimation of market value of debt

Market value of debt (million) American Airlines Ryanair BAA Asur

Book Value of Debt 14,254.0 1,178.7 4,578.7 -

Current cost of debt 13.93% 4.47% 5.17% 0.00%

Average maturity 7.3 6.4 11.1 -

Interest Expense 894.0 53.3 143.0 -

Market Value of Debt (a) 6,261.3 1,179.6 4,618.2 -PV of Operating Leases (b) 5,822.57 181.64 388.82 -

Total Market Value of Debt (a) + (b) 12,083.9 1,361.3 5,007.1 -

Deb t a n d Eq u i t y r a t i o s

The market values of debt and equity have been used as weights in calculating the weighted

average cost of capital.

Figure 22 Capital weightsAmerican

Airlines Ryanair

IndustryAvg.* BAA Asur

IndustryAvg.**

Market Value of Equity (a) 1,862.2 4,352.4 6,153.3 912.7

Market Value of Debt (b) 12,083.8 1,361.3 5,007.1 -

Firm Value (a) + (b) 13,946.0 5,713.7 11,160.4 912.7

D/(D+E) 86.65% 23.82% 33% - 49% 44.86% 0% 9% - 35%

E/(D+E) 13.4% 76.2% 67% - 51% 55.1% 100% 91% - 65%

Source: Bloomberg, own analysis, www.damodaran.com

*Airline Transportation industry, **Airport maintenance and operation industry

Comparing the debt ratios for the analyzed companies to the industry average we observe that

_________s financial leverage is significantly higher/lower than that of the average for the sector

(between __% for companies).

These inputs are used in computing the cost of capital for each firm. The weighted average

cost of capital is computed as follows:

W A C C = Ke x E/ (D+E) +Kd x D /(E+D )

The inputs and results are summarized in

Figure 23.
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Figure 23 Calculation of cost of capital

Cost of capital American Airlines Ryanair BAA Asur

Beta 6.26 1.24 1.42 0.82

Cost of Equity 34.54% 9.45% 11.30% 9.65%

E/(D+E) 13.35% 76.18% 55.14% 100.00%

After-tax Cost of Debt 13.93% 3.91% 3.62% 0.00%

D/(D+E) 86.65% 23.82% 44.86% 0.00%

WACC 16.69% 8.13% 7.85% 9.65%

the company with highest cost of capital is _______. The lowest cost of capital, is that of

_______.

The ability of each firm to grow and create value for its stockholders ultimately depends on its

management capability to identify and undertake projects that generate returns exceeding the cost of

capital employed. In this section we will analyze the quality of the projects that the three companies

undertake ad review the past performance of the companies as measured by indicators such as Return

on Capital (ROC) and Return on Equity (ROE).

1. Typical project

The companies, subject to our analysis are involved primarily in fertilizer business. Some of

the characteristics of a typical project for each business are presented in Figure 24.


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Figure 24 Typical projects

Business Typical Project / Flow Characteristics

Airlines

Aeronautical Services

Retail

Fleet Acquisition: Long term payment, Long life of the asset

New Route Opening: local offices and labor force. Long term and

different currenciesSet up of new bases long term, may have option value to expand in

new routes at a later stage.

New Terminal buildings and maintenance. Long term, single currency

Cash flows are volatile and sensitive to macroeconomic risk factors.

Medium to long term

Cash outflows that are primarily in local currency,

but there could be a significant dollar component

Cash inflows that are almost exclusively in local currency

Part of cash flows related to passengers can be volatile and sensitive toglobal risk factors.

Another significant part of cash flows is less volatile as it consists of

fixed payments made by airlines for use of facilities and servicing.Medium term

Cash outflows that are almost exclusively in local currency

Cash inflows that are primarily in local currency,

but there could be a significant dollar component

Can be very volatile, specially sensitive to global risk factors

In general, the time horizon of the core businesses of companies is agriculture related business

only.

2. Measuring Returns

ROE and ROC

For each of the company we computed the Return on Equity (ROE) and Return on Capital (ROC) asfollows:

where:

ROE =NetIncome

(BVEt +BVEt!1 ) / 2ROC =

Op.Income(1!T )

(BVEt +BVDt +BVEt!1 +BVDt!1) / 2


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BVE - book value of equity

BVD - book value of debt

T - tax rate

t - time period

The historical returns are presented in

Figure 25 and Figure 26.

Figure 25 ROE, ROC and industry averages

16.00%

14.00%

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%

American Airlines Ry anair BAA Asur

16.00%

14.00%

12.00%

10.00%

8.00%

6.00%

4.00%

2.00%

0.00%

-2.00%

-4.00%

ROE ROC ROE (indusry average) ROC (indust ry average)

Source: Analysis and industry average fromwww.damodaran.com

Figure 26 Investment returnsAmerican


ROE n.m.3 14.69% 8.50% 5.15%

ROC 8.54% 16.94% 5.59% 4.76%

Eco n o m i c V alu e A d ded

We further compared the obtained returns to the cost of equity and cost of capital. The results arepresented in Figure 27 and Figure 28.

3The ROE calculation is not meaningful as it has negative net earnings and negative book value of equity
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Figure 27 Equity Economic Value AddedAmerican


ROE (a)4

nm 14.69% 8.50% 5.15%

Cost of Equity (b) 34.54% 9.45% 11.30% 9.65%

Equity Return Spread (a)-(b) nm 5.24% -2.80% -3.23%

Average book value of equity (268.0) 1,574.7 4,797.0 1,057.7

Equity EVA n.a 82.5 (134.5) (47.6)

From the companies included in the analysis _______ created excess returns on equity

(Return in Equity Cost of Equity). It created a positive equity economic value added (EVA) of________pkr million based on the last 12 months results. At the same time the fertilizer industrydestroyed on average value of ________pkr in 2014. Both ________ and _______ had return onequity lower/higher than their cost of equity. Comparing these results with the positive Jensen s alphavalues calculated in Section IV, we can conclude that, both firms performed better/poor that the

market expected, they have/not generated equity returns in excess of their equity costs.Multiplying the spread between the return on capital and cost of capital for each company by

the average book value of total capital (equity + debt) we estimated the economic value added for each

firm.

Figure 28 Economic Value AddedAmerican


ROC 8.54% 10.14% 5.59% 4.76%

Cost of Capital (b) 16.69% 8.13% 7.85% 9.65%

Capital Return Spread (a)-(b) -8.15% 2.01% -2.27% -4.89%

Average book value of capital 13,862.5 2,652.8 8,427.0 1,057.7EVA (million) (1,129.5) 53.3 (191.0) (51.7)

the company that created value during the observed period was _______ and _____.

The average EVA for the sector in 2014 was $_______

3. Future outlookThe ability of any of the companies to generate positive excess returns depends on its competitive

Advantages and their sustainability in the medium and long term. In this section we look at some key

4The ROE calculation is not meaningful as it has negative net earnings and negative book value of equity


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indicators for the Fertilizer sector, which could help us to understand how the companies are

positioned for the future.

Figure 29 Comparison of key figures airline transportation

Traditional and low cost air carriers at a glance AMR RyanAir

US Industry

Average

EU Industry

Average

Revenue Yield per Passenger Mile (RAPM) ($ cents) 11.5 n.a. 12.3 15.8Load Factor 72.8% 84.0% 73.4% 64.8%

Number of Planes 1,013 79 213 80.9

Revenue per Employee ('000 $ or EURO) 202.4 489.3 174.6 n.a.

Average Age of planes 12.5 n.a. 11.2 n.a.

Source: AMR annual Report, Ryan Air Annual Report, ATA (Air Transport Association), AEA (association of European

Airlines) and Elfaa (association of low fares airlines) Economic reports

The analysis suggests that __________ has more efficient operations which is evident

from higher capacity utilization and higher revenues per employee (Pkr_____K7 compared to

Pkr____K for______________. Further analysis supports the fact that __________ relies on___________ efficiencies to maintain its cost

advantages:

Figure 30 Key Performance Indicators add Chart of key performance indicator

KPI Ryanair Low cost carriers Industry Average

Passenger per employee 10,050 6,000 1,069

Average fare (Euros) 40.0 86.3 206.6

Lost bags per 1000 passengers 0.5 n.a. 11.3

Employees per aircraft 35 n.a. n.a.

Schedule on time 93.0% 85.0% 81.2%

C o n clu si o n s

In conclusion, we believe that in the medium term ______________ can sustain competitive

advantages which will allow the company to earn return on capital in excess of its cost of capital. The

company has an investment program aimed at increasing its capacity from the current

____________to __________ by 20__. This would enhance _________ growth.

Returns on capital and operating margin long term are going to be positive/negative again.

.

VII. Capital Structure Choices

1. Current financing mix

Figure 32 below summarizes the current debt structure of all three companies. has no debt). As can


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be observed, the three companies employ very different kinds of debt:

FFC check the infoand verify

has outstanding a variety of debt notes, from bank debt, plain vanilla bonds to more structured debtinstruments. On one hand this is driven by the necessity to tailor the debt to match the

companys cash flow profile and risk, which is very specific. On the other hand this is a symptom of

the financial difficulties the company has been going through and the need to raise capital in any form

it was available.

1 FFCBinQasim

____________has _________ debt outstanding and this is a reflection of both the early stage of the

life cycle is in and its ability to generate cash flows, thus funding growth largely with internal funds.

We expect the financing mix to change as the company continues to expand.


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2 atima ertilizer

Fatima debt is almost all made up by _________bonds (____% of the total), with the rest coming from

______ debt and_______ bonds issues. This is due to the ____________ and ______________ of

its cash flows and have its D/E from___% to __% ..

Figure 32 Current debt characteristics add chart of debt if not available

leave it. And delete this chart only

Company Type of Financing Amount (mm)Secured Variable and Fixed rate

Interest Rate on

Books Maturity

Americal Airlines

indebtness 6,340.0 2.03% - 9.16% 2021

Enhanced Equipment trust

certificates 3,707.0 2.14% - 9.09% 2011

Special facility revenue bond 946.0 6.00% - 8.50% 2036

Credit Facility Agreement 850.0 9.150% 2010

Senior Convertibles Notes 619.0 4.25% - 4.50% 2023-2024

Debentures 330.0 9.00% - 10.20% 2021

Notes 303.0 7.88% - 10.55% 2039

Other 1,159.0

Straight Bond 200.0 7.875% 2007

Straight Bond 400.0 5.750% 2013

Straight Bond 300.0 11.750% 2016

Straight Bond 250.0 8.500% 2021

BAA Straight Bond 200.0 6.375% 2028

Straight Bond 900.0 5.750% 2031

Straight Bond 750.0 4.500% 2014

Convertible Bond 424.0 2.940% 2008

Convertible Bond 425.0 2.625% 2009

Secured bank debt 80.3 n.a. 2005


Ryanair Secured bank debt 88.1 n.a. 2007



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Based on the above analysis, we draw the following conclusions:

______ and _______________ have the ability to carry higher debt ratios given the relative

stability of their cash flow profile compared to ____________ and __________. Whereas_________debt ratio is a at the correct level.

compared to other, ____________ should be able to have a higher debt ratio.

_ _ _ _ _ _ _ _ _ _ _ _ _ debt ratio is clearly too high.

VIII. Optimal Capital Structure

1. Current Cost of Capital / Financing Mix

In the table below we computed the current cost of capital for each of our companies, with the

cost of equity based on a levered bottom-up beta and using market values to compute the debt/equity

weights. As expected given their operating and financial profiles, __________ has the highest cost of

capital and __________ the lowest.

Figure 35 Current cost of capital and inputs for calculation of optimal cost of capital

Cost of capital - summary American Airlines Ryanair BAA Asur

Cost of Equity 34.54% 9.45% 11.30% 9.65%

After-tax Cost of Debt 14% 4% 4% 0%

D/(D+E) 87% 24% 45% 0%

E/(D+E)

Rating

13%

CCC

76%

A-

55%

A+

100%

Not Rated

Stock Price 10.2 5.77 5.8 30.45

Cost of Capital 16.69% 8.13% 7.85% 9.65%

Firm Value (million) 13,946.0 5,713.7 11,160.4 912.7

2. Cost of Capital at Different Financing Mixes

As the next step in our analysis to estimate the optimal capital structure we used the cost of

capital approach to compute a different WACC at each debt ratio for our companies. The table below

Summarizes our results

Cost of capital


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Debt Ratio American Airlines Ryanair BAA Asur

0.0% 10.07% 8.16% 8.82% 9.65%

10.0% 9.76% 8.09% 8.58% 9.48%

20.0% 9.63% 8.13% 8.39% 9.39%

30.0% 10.96% 8.71% 8.24% 9.56%

40.0% 11.78% 11.30% 8.18% 9.93%

50.0% 13.86% 13.33% 8.90% 12.01%

60.0% 20.06% 14.53% 11.03% 12.48%

70.0% 22.06% 21.40% 14.79% 13.89%

80.0% 24.06% 23.40% 15.99% 14.50%

90.0% 26.06% 25.40% 17.19% 15.11%

Based on the objective of minimizing the cost of capital, the table above yields the following results:

_________ Fertilizer: assuming a EBIT of _______million (which results in a ROC of

_____%, ___________ should reduce/increase its debt/capital ratio from the current ___% to___%.

________fertilizer: this analysis shows that _______ is currently over/under levered and

should decrease/increase its debt/capital ratio from its current ___% to ____%.

______Fertilizer: is currently at its optimal capital ratio (the actual optimum is at the current

debt ratio of around __%).

3. Firm Value at Optimal

The following tables present the computed expected Firm Value and Stock Price if our

companies were to move to their optimal capital ratios.


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Figure 36 Effect of moving to the optimal capital structure

paste optimal structure chart here

American

Optimal Ratios


Cost of Equity 11.01% 8.62% 11.30% 10.56%

After-tax Cost of Debt 4.07% 3.34% 3.62% 4.72%

D/(D+E) 20.00% 10.00% 44.86% 20.00%

E/(D+E) 80.00% 90.00% 55.14% 80.00%

A- (probably capped at

Rating BB+ AAA A+ BBB)


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(2)

Current stock price 10.20 5.77 5.8 30.45

Cost of Capital 9.63% 8.09% 7.85% 9.39%

Firm Value(1)

(million) 24,173.0 5,742.7 11,160.4938.1

Firm Value(2)

(million) 33,107.3 5,763.7 *951.2

Stock Price at optimum(1)

$74.99 $5.80 *31.30

31.74Stock Price at optimum $130.41 $5.83 *

(1) assuming no growth, (2) assumi ng 3% growth

* BAA is curr ently at its optimum debt rati o

Figure 37 Firm value at the optimum capital structureFirm value at

structure

ptimal capital American


Debt Ratio Current 86.65% 23.87% 44.86% 0%

Optimal 20.00% 10.00% - 20%

Rating Current

Optimal

CCC

BB+

A-

AAA

A+

-

Not Rated

A- (probably

capped atBBB)

Cost of Capital Current 16.69% 8.13% 7.85% 10.13%

Optimal 9.63% 8.09% 7.85% 9.59%

Firm Value(1)

Current 13,946.0 5,716.8 11,160.4912.7

Optimal 24,173.0 5,742.7 11,160.4 963.5

Change in firm value 10,227.0 25.9 0.0 50.8

(1) assuming no growth

As the table shows ___________ is the company that would benefit the most from the transition,

whereas the effect on _________ and ____________ value would be more limited. More in detail:

4. Optimal capital structureAPV approcah

We also applied the APV approach with American airlines in order to verify the optimal capital

structure we have identified earlier. Given its state of financial distress we believed that this additional

approach can give us more insight about their real debt capacity.

Our basic assumptions in this process are:

Cost of Bankruptcy: direct and indirect costs of bankruptcy are estimated very high given the high

capital intensive business model and the complex regulations of the industry. Our guess estimate is

45% of firm value.

Tax rate is assumed at 35% stable

Unlevered firm value is calculated as Current Firm Valuetax benefits on debt + Expected

Bankruptcy cost.

Figure 38 APV optimal capital structure - assumptionsBasic


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American Airlines Assumptions

Current Debt ratio 86.8%

Unlevered Firm Value = $12,615.13

Current Firm Market Value $13,923.99

Tax rate 35%

Debt Market value $12,083.85

Tax Benefits on Debt $4,229.35

Expected Bankruptcy costs 45%

Bankruptcy probability 47%

Cost of Bankruptcy $2,920.49


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We have undergone an iterative process that yielded us the capital structure that maximize the firm

value.

Figure 39 AA optimum debt level APC approach

Unlevered Expected

Debtratio

$ Debt TaxRate

Firm

Value

Taxbenefit

Rating Prob ofDefault

Bankruptcy

Costs

Value ofFirm

0% $0.00 35% $12,615.13 $0.00 AAA 0.01% $0.57 $12,614.57

10% $1,307.21 35% $12,615.13 $457.52 AAA 0.01% $0.59 $13,072.07

20% $2,707.69 35% $12,615.13 $947.69 A+ 0.40% $24.37 $13,538.46

30% $4,198.77 35% $12,615.13 $1,469.57 A- 1.41% $88.80 $13,995.90

40% $5,515.42 35% $12,615.13 $1,930.40 BB 12.20% $756.99 $13,788.54

50% $6,687.62 35% $12,615.13 $2,340.67 B 26.26% $1,580.55 $13,375.25

60% $7,457.22 35% $12,615.13 $2,610.03 CCC 50.00% $2,796.46 $12,428.70

70% $9,010.81 35% $12,615.13 $3,153.78 CCC 50.00% $2,896.33 $12,872.59

80% $10,679.48 35% $12,615.13 $3,737.82 CCC 50.00% $3,003.60 $13,349.35

87% $11,072.48 35% $12,615.13 $3,875.37 0 65.00% $3,731.89 $12,758.6190% $11,614.96 35% $12,615.13 $4,065.24 CC 65.00% $3,774.86 $12,905.51

Source Aswath Damodaran, AMR Annual Report, our estimates

The analysis yields us an optimal debt ratio of 30%, not far from the results obtained with the

optimal capital structure model.

However, given the high subjectivity of the bankruptcy cost, we have run a sensitivity analysis

that, taking into account also the tax rate, provide a measure of the debt ratio that maximize the firm

value.

Figure 40 Sensitivity analysis

tax rate (horizontal axis) and bankruptcy costs (vertical axis)$0.30 20% 25% 30% 35% 40% 45% 50% 55% 60%

20% 80% 80% 90% 90% 90% 90% 90% 90% 90%

25% 30% 80% 80% 80% 90% 90% 90% 90% 90%

30% 30% 30% 80% 80% 80% 90% 90% 90% 90%

35% 30% 30% 30% 80% 80% 80% 80% 90% 90%

40% 30% 30% 30% 30% 80% 80% 80% 80% 90%

45% 30% 30% 30% 30% 30% 80% 80% 80% 80%

50% 30% 30% 30% 30% 30% 30% 80% 80% 80%

55% 30% 30% 30% 30% 30% 30% 30% 80% 80%

60% 30% 30% 30% 30% 30% 30% 30% 30% 80%

65% 30% 30% 30% 30% 30% 30% 30% 30% 30%70% 30% 30% 30% 30% 30% 30% 30% 30% 30%


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5. Sector and market debt ratios

Sect o r deb t r a t i o s

In addition, we looked at the sector and the debt ratios at which other firms in the fertilizer

industry operate. There are only 4 listed companies in sector and we analyzed 3 of them which are our

companies too, for their debt to capital ratios. In order to account for the difference in size, risk and tax

rate we regressed the market debt ratio against ln(Revenues), beta and effective tax rate for each

company. The resultant regression is as follows:M a rket D eb t t o C a p i t a l = 0.387 - 0.260 Eff Ta x

R a t e - 0.0195 L n Rev+ 0.137 3- y r

Regressi o n Bet a

The R-squared of the regression is ___%. The T-statistics reveal insignificance at ___% confidence

interval. The results from the regression indicate the following debt ratios:

Figure 41 Debt ratios based on sector information.

Variable Coefficient AA Ryanair BAA Asur

Constant

Tax rate

0.387

-0.26 0% 9.90% 29% 33.5%

LnRev -0.0195 9.83 6.98 7.59 7.59

Beta 0.137 6.26 1.24 1.42 0.82

Predicted Debt ratio 105% 40% 36% 26%

Ma rket deb t r a t i o s

We additionally looked at a regression based on the overall market. The regression applied is:

Ma rket D eb t t o C a p i t a l = 4.881 + 0.81 Eff T a x R a t e - 0.304 In si der ho ld i n g +0.841EBIT D A / A V C a pex / T o t a l asset s

The results are summarized below:

Figure 42 Optimal capital structure market regression

Variable Coefficient AA Ryanair BAA Asur

Constant 4.881

Insider holdings -0.304 2.00 12.47 0.03 30.59

Effective tax rate 0.81 - 9.9 29.0 33.5

EBITDA/EV 0.841 7.92 9.03 9.46 13.75

Capex/Total assets -2.987 2.85 10.44 12.56 3.25

Predicted Debt ratio 2.44% -14.47% -1.20% 24.61%


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IX. Mechanics of moving towards the optimal

Quantitative Analysis and Overall Recommendation on Financing Mix

To further evaluate the optimal debt characteristics for each company we regressed the firm

value and the EBITDA of each of our companies against: Change in Long Term Rate, GDP growth,

Change in local currency, Change in inflation.

The Firm value regression results and the conclusion for each company are shown below. Regressions

on EBITDA against macroeconomic variables are presented in Appendix IV.

FFC

Long Term Interest Rates: very weak/strong R square and T statistic. The regression

suggests that the duration of the operating assets of the company is very low/high/normal. .

GDP Growth: The companys earnings are _______ and shows a positive/negative

coefficient with EBITDA. R-squared is fairly significant: The negative/positive coefficient

with firm value is likely to be related to the high leverage: high GDP growth rates are

usually related to high interest rates that affects negatively the firm value.

Currency: A weaker currency helps EBITDA, but at the same time has a negative effect

on firm value. Revenues in foreign currencies (about __% of total sales) although the effect

is small (probably offset by foreign currency costs and expenses.

Inflation: Does not impact significantly EBITDA, while is negatively correlated to the firm

value, probably due to the high amount of debt, hence higher discount rate.

The regression results for FV are presented below


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Figure 44 Regression of Firm value against macroeconomic variables

American Airlines Constant Coefficient T-statistic R2

Firm value (dependent variable)

Change in Long Term rate 8.205 1.81 0.55 1.6%

GDP growth 20.3 -4.08 -2.08 19.3%

Change in Dollar 8.2 0.61 1.2 7.4%

Change in Inflation 7.29 -3.3 -1.13 6.6%

Change in price of oil 7.34 0.047 0.24 0.3%

FFC BinQasim

L o n g Ter m In t er est R a t es: - the regression on change of firm value on change in long term

rates indicates that the average duration of the operating assets of the firm is approximately

_____ year

G D P G r o w t h: the firm value is positively related to the GDP growth of countries

(where the companies generates its revenues), while the operating income is

negatively/positivel related. One possible interpretation of this is that higher GDP growth

boasts companyslong term growth prospects.

Currency: - the value of the firm does/does not appear to be influenced by the exchange

rate, stronger currency has significant/insignificant negative impact on operating income.

Infla t i o n : ________firm value seems to be significantly related to the inflation rate.

The results from the regressions are presented in the tables below.


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BAA Constant Coefficient T-statistic


Change in Long Term rate 8.80 -3.30 0.21

GDP growth 6.60 1.72 0.20

Change in GBP 10.30 -0.72 -0.04

Change in Inflation 11.50 15.9 0.74

Ryanair Constant Coefficient

T-statistic of

coefficient R2


Change in Long Term rate 30.2 -5.3 -0.2 0.70%

GDP growth 6.03 3.24 2.63 36.60%

Change in EURO 32.4 0.68 -0.27 1.20%Change in Inflation 18.8 6.56 1.56 16.80%

Change in price of oil 38.5 -0.532 -1.08 16.3%

3 F

a

t

i

m

a

F

e

r

t

i

l

i

z

e

r

Fatima Fertilizer

Long Term Interest Rates: Both regressions have a negative/positive coefficient which

points to a longer/shorter duration of debt, approx. __years. It should be noted that the T-

statistic and the R2 of both regressions are very weak/strong.

GDP Growth: ______ is positively correlated to GDP growth but shows a low degree

of cyclicality as evidenced by the coefficients.

C u r r e n c y :_______ is not/is influenced by changes in the British Pound.

Inflation: the FV regression shows a high positive sensitivity to changes in inflation, which

therefore suggests the use of floating/Fixed rate debt


R2

0.6%

0.2%

0.0%

7.2%

3. Summary of desirable debt charachteristics

The profile of the ideal debt that the companies should use is presented in Figure 48 below:


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Figure 48 Summary of desired debt features

Company Maturity Currency Interest rate Comments Other featuresAmerican Airlines Medium to long term, US dollars Fixed rate Analysis distorted by None, provided

despite the regression the distressed state of that the company

the firm is hedged against

sharp movement in

price of oil

Ryanair medium term (5 Euro Floating rate Analysis is distorted None, providedyears) by the growth stage of that the company

the firm is hedged against

sharp movement in

price of oil

BAA short term (2 years) British Fixed rate n.a. n.a.

Pounds

Asur short to medium term Peso Floating rate n.a. n.a.

X. Dividend Policy

1. Current Dividend Policy

companies that we are analyzing, all of them pay dividends:

FFC

BAA has kept a stable/non stable dividend policy over the past __ years, with an averagedividend yield of

____%.


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Figure 49 Dividend policy - BAA

Historical Dividends BAA 2000 2001 2002 2003 2004

Dividend Paid (mm) 150 178 188 196 205

Stock Buyback 0 141 0 0 0

Total Cash to shareholders 150 319 188 196 205

Average Market Cap 4,071 6,604 6,787 5,027 6,106Dividend Yield (%) 3.7% 2.7% 2.8% 3.9% 3.4%

Dividend Payout (%) 58% 46% 114% 52% 54%

Source: BAA annual reports, Bloomberg

Fatima Fertilizer

The company generates and still have a dividend payout ratio ___.. the companysROC is far

lower/higher than its cost of capital and it is rapidly accumulating excess cash.

Figure 50 Dividend policy - Asur

Dividend policy ASUR 2000 2001 2002 2003 2004

Dividend Paid ($ mm) 0.00 0.00 43.42 13.88 n.a.

Stock Buyback 0.00 0.00 0.00 0.00 n.a.

Total Cash to shareholders 0.00 0.00 43.42 13.88 n.a.

Dividend Yield (%) 0.0% 0.0% 12.0% 3.4% n.a.

Dividend Payout (%) 0.0% 0.0% 213.0% 56.5% n.a.

Source: Asur Annual reports

FFC BIN QASIM

The company pays out all of its profit in dividend

The dividend policy in below:

(chart for div policy)


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\Figure 59 Analysis of historical returns

30.00%

25.00%

20.00%

15.00%

10.00%

5.00%

0.00%

-5.00%

-10.00%

-15.00%

-20.00%

-25.00%

-30.00%

2001 2002 2003 2004

- 32.8%

- 366.9%

- 2669.6%

20.00%

10.00%

0.00%

-10.00%

-20.00%

-30.00%

-40.00%

-50.00%


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American airlines ROE Ryanair ROE BAA ROE

Asur ROE AA Spread Ryanair Spread

BAA Spread Asur Spread

Reco m men d a t i o n sWrite 2 to 3 lines recommendation on each company kuch bhi hawai fire from above pasted chart

XI

1. Valuation models

Based on the analysis presented above we proceeded to perform valuation of the market value

of the equity of all three companies. Table Figure 60 below summarizes the choice of our valuation

model and the results.

Figure 60 Summary of valuation results

Valuation summary

American


Model Chosen

Value per Share

FCFF 2 Stage

10.06

FCFF 3 Stage

6.76

FCFF 2 Stage

3.22

FCFF 2 Stage

31.69



Reccomendation HOLD BUY SELL HOLD

Source: Analysis

The choice of growth period reflects the sustainability of competitive advantages of each firm as

outlined in aboveInvestment Returns and Future prospects.

2. Valuation assumptions and inputs.

The valuation assumptions are presented in Figure 61 to Figure 64 below.

CHECK BELOW MENTIONS INPUSTS AND COPY PASTE ALL INPUTS FILES WE USED FOR

ASSIGNMENT IN VALUATIONS replacing all input till next text below


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Figure 61 American Airlines DCF valuation assumptions

American Airlines High Growth Phase Stable Growth

Length of Period 10.0 Forver

Revenues 18,883.0

Pre-tax Operating Margin 13.8%

Tax Rate 35% (theoretical) 35.0%

Return on Capital 8.5% 10.5%Non-Cash Working Capital -8.4% -8.4%

Reinvestment Rate (Net Cap Ex + Working

Capital Investments/EBIT 16.5% 19.0%

Expected growth Rate in EBIT 1.4% 2.0%

Debt Capital Ratio 86.6% 25.0%

Beta 6.26 1.22

Cost of Equity 34.5% 10.2%

Cost of Debt 13.9% 25.0%

Source: Company reports, analysis

Figure 62 Ryanair

DCF valuation assumptionsRyanair High Growth Phase Stable Growth

Length of Period 4 years and 4 years transitional period Forever

Operating income growth 22.53% 3%

Tax Rate 12.50% 20.00%

Return on Capital 15.48% 7.78%

Cost of capital 8.13% 7.78%

Non-Cash Working Capital starting at 8.45% and declining to 2% 2.00%

Reinvestment Rate (Net Cap Ex + Working

Capital Investments/EBIT 146% 39%

Debt Capital Ratio 23.87% 10.00%

Beta 1.24 1.00Cost of Equity 9.5% 8.3%



Figure 63 BAA DCF valuation assumptions

BAA High Growth Phase Stable Growth

Length of Period 4 Years Forever

Starting at 1,970 and growing with 4.8%

Revenues CAGR Growing at 2.00%

Tax Rate 30% 30%

Return on Capital 5.23% 6.93%Reinvestment Rate (Net Cap Ex + Working

Capital Investments/EBIT Starting at 161.65% and declining to 28.85% 28.85%

Expected growth Rate in EBIT starting at 8.45% and declining to 2% 2.00%

Debt Capital Ratio 45% 45%

Beta 1.42 0.90

Cost of Equity 11.30% 8.81%




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Value of Operating Assets 13,776.0 5,272.9 7,452.1 848.0

Cash & Marketable Securities 148.0 1,447.9 973.9 102.8

Firm Value 13,924.0 6,720.7 8,426.0 950.8

Market Value of Debt 12,083.8 1,549.1 5,007.1 -

Equity Value 1,840.1 5,171.7 3,417.9. 950.8

Value of Equity in Options 217.9 71.7 2.45 -

Value of Equity in Common Stock 1,622.3 5,099.9 3,415.4 950.8Number of Shares 161.2 754.3 1,060.9 30.0

Value per Share 10.06 6.76 3.22 31.69

Source: Analysis

We performed the DCF valuation on the basis of the inputs presented above. The equity values

of FFC, Fatima and FFC BinQasim includes also the equity options outstanding written by the

companies. In computing the options values we have used the ____________ in the __________log-

normal returns

&P1 #on a monthly basis for 5 years (Ln$P

!), the average strike price and maturity of the options.% 0 "

On the basis of the valuations results we reached the following conclusions

Valuation summary American Airlines Ryanair BAA Asur

Value per Share 10.06 6.76 3.22 31.69



Recommendation HOLD BUY SELL HOLD

Source: Analysis


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Appendix I

From here paste the financial info we used here off all 3 companiesAMR Income Statement 2001 2002 2003 2004 1Q04 1Q05 2004TTM

Passenger Revenues 17,208 15,871 15,851 16,897 4,098 4,292 17,09

of which American Airlines 15,780 14,440 14,332 15,021 3,678 3,841 15,18

of which Regional 1,428 1,431 1,519 1,876 420 451 1,90

Cargo 662 561 558 625 148 151 62

Other 1,099 988 1,031 1,123 266 307 1,16

Total Revenues 18,969 17,420 17,440 18,645 4,512 4,750 18,88

Labour Costs -8,032 -8,392 -7,264 -6,719 -1,640 -1,644 -6,72

Fuel -2,888 -2,562 -2,772 -3,969 -808 -1,097 -4,25

Commission and Bookings -1,540 -1,163 -1,063 -1,107 -288 -271 -1,09

Maintenance -1,165 -1,108 -860 -971 -231 -235 -97

Other rentals and airport fees -1,197 -1,198 -1,173 -1,187 -305 -300 -1,18

Food Service -778 -698 -611 -558 -137 -125 -54

Other Operating -2,996 -2,715 -2,428 -2,366 -582 -617 -2,40

Special Charges -1,466 -718 -407 -11 0 0 -1

US Government Grant 856 10 358 0 0 0

Ebitdar -237 -1,124 1,220 1,757 521 461 1,69

Aircraft Rentals -829 -840 -687 -609 -153 -148 -60

Ebitda -1,066 -1,964 533 1,148 368 313 1,09Depreciation and Amortization -1,404 -1,366 -1,377 -1,292 -326 -290 -1,25

Ebit -2,470 -3,330 -844 -144 42 23 -16

Interest Income 110 71 55 66 14 36 8

Interest Charges -538 -685 -703 -871 -212 -235 -89

Capitalized Interest 144 86 71 80 18 23 8

Other -2 -2 113 108 -28 -9 12

Financial Income / (Charges) -286 -530 -464 -617 -208 -185 -59

EBT -2,756 -3,860 -1,308 -761 -166 -162 -75

Tax Benefits 994 1337 80 0

Income (Loss)

Accounting Change Impact

Net Loss

-1,762

0

-1,762

-2,523

-988

-3,511

-1,228

0

-1,228

-761

-761

-75

-75


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AA Balance Sheet 2001 2002 2003 2004 1Q05

Current Assets 6,469 4,833 4,562 4,851 5,272

Currrent Liabilities -6,740 -6,372 -5,755 -6,212 -6,852

Inventory 0 0 0 0 0

Net Working Capital -271 -1,539 -1,193 -1,361 -1,580

Tangible Assets 19,655 19,694 19,460 19,137 19,116

Intangible Assets 6,615 5,636 5,188 4,665 4,631Financial Assets (cash) 102 104 120 120 148

Total Assets 26,372 25,434 24,768 23,922 23,895

Termination Indemnity

reserves -10,122 -9,760 -9,599 -8,812 -8,758

Net Capital Employed 15,979 14,135 13,976 13,749 13,557

Total Debt -10,606 -13,178 -13,930 -14,330 -14,254

Total Equity 5,373 957 46 -581 -697

Net Capital Employed 15,979 14,135 13,976 13,749 13,557


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Ryanair - Income statement

Last Twelve

months Dec-04 Dec-03 2004 2003 2002 2001 2000

'000 EUR '000 EUR '000 EUR '000 EUR

'000

EUR

'000

EUR '000 EUR

'000

EUR

Operating revenues 1,238,387 1,015,536 851,373 1,074,224 842,508 624,050 487,405 370,137

Operating expenses

Depreciation and amortization (100,623) (70,960) (71,728) (101,391) (76,865) (59,010) (59,175) (44,052)

Lease payments (42,018) (23,636) (6,450) (24,832) - (4,021) (7,286) (2,097 )

Staff, fuel, route charges and others (811,193) (636,753) (509,771) (684,211) (502,169) 398,086) (306,933) (239,933)

Total operating expenses (953,834) (731,349) (587,949) (810,434) (579,034) (461,117) (373,394) (286,082)

Operating profit before exceptional costs 284,553 284,187 263,424 263,790 263,474 162,933 114,011 84,055

Reorganization costs - - (3,012) (3,012)

Other exceptional costs - - (9,491) (9,491)

Amortization of goodwill (2,287) (1,702) (1,757) (2,342)

Total exceptional costs (2,287) (1,702) (14,260) (14,845) - - - -

EBIT 282,266 282,485 249,164 248,945 263,474 162,933 114,011 84,055

383 350 340 222 173 128

Financial charges -

Interest expenses (53,254) (40,992) (35,302) (47,564) (30,886) (19,609) (11,962) (3,781)

Other financial income/(charge) 25,981 17,368 18,486 27,099 31,962 29,050 21,339 9,820

Total (27,273) (23,624) (16,816) (20,465) 1,076 9,441 9,377 6,039

Profit before tax 254,993 258,861 232,348 228,480 264,550 172,374 123,388 90,094

Taxes (23,680) (24,257) (22,446) (21,869) (25,152) (21,999) (18,905) (17,576)

-

Netincome 231,313 34,604 209,902 206,611 239,398 150,375 104,483 72,518


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Balance sheet

Last Twelve

months Dec-04 Dec-03 2004 2003 2002 2001

'000 EUR '000 EUR '000 EUR '000 EUR '000 EUR '000 EUR '000 EUR

Fixed assets

Intangible 30,872 30,872 45,085 44,499 - 36

Tangible 1,845,452 1,845,452 1,611,127 1,576,526 1,352,361 951,806 613,591 3

Total f ixed assets

Current asets

Cash and liquid resources

1,876,324

1,447,850

1,876,324

1,447,850

1,656,212

1,124,671

1,621,025

1,257,350

1,352,361

1,060,218

951,806

899,275

613,627

626,720

3

3

Receivables 14,467 14,467 11,478 14,932 14,970 10,331 8,695

Prepayments and other receivables 18,608 18,608 22,977 19,251 16,370 11,035 12,235

Inventories 27,160 27,160 24,183 26,440 22,788 17,125 15,975

Total cur rent assets 1,508,085 1,508,085 1,183,309 1,317,973 1,114,346 937,766 663,625 3

Total assets 3,384,409 3,384,409 2,839,521 2,938,998 2,466,707 1,889,572 1,277,252 7

Current liabilities

Payables 89,439 89,439 82,491 67,936 61,604 46,779 29,998

Accrued expenses and others 317,049 317,049 223,679 338,208 251,328 217,108 139,406 1

Current portion of long term debt 106,841 106,841 79,545 80,337 63,291 38,800 27,994

Short term borrowings 2,325 2,325 4,454 345 1,316 5,505 5,078

Total cur rent liabili ties

Long term liabilities

Provisions

515,654

107,741

515,654

107,741

390,169

97,915

486,826

94,192

377,539

67,833

308,192

49,317

202,476

30,122

1

Other creditors 22,958 22,958 268 30,047 5,673 18,086

Long term debt 1,046,546 1,046,546 893,285 872,645 773,934 511,703 374,756 1

Total long term l iabili ties

Shareholders equity

Share capital

1,177,245

9,652

1,177,245

9,652

991,468

9,637

996,884

9,643

847,440

9,588

579,106

9,587

404,878

9,194

Share premium 562,015 562,015 559,717 560,406 553,512 553,457 371,849 2

Profit and loss 1,119,843 1,119,843 888,530 885,239 678,628 439,230 288,855 1

Total equity fun ds 1,691,510 1,691,510 1,457,884 1,455,288 1,241,728 1,002,274 669,898 4

Total liabilities and equity 3,384,409 3,384,409 2,839,521 2,938,998 2,466,707 1,889,572 1,277,252 7


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BAA - Income Statement 2002 2003 9M 2003 2004 9M 2004 2004LTM

Retail (incl. World Duty Free) 866 755 802

Airport/traffic charges 677 690 734

Property/op. facilities 260 266 282

Other 60 49 59

Total Airports 1,863 1,760 1,452 1,877 1,589 2,014

Rail 58 64 50 67 51 68

Other 51 58 18 26 15 23

Total Revenues 1,972 1,882 1,520 1,970 1,655 2,105

Labour Costs (443) (420) (475)

Retail Expenditure (276) (167) (176)

Operating Leases Expenses (45) (43) (44)

Other Operating Costs (401) (407) (401)

Total Costs (1,165) (1,037) (829) (1,096) (882) (1,149)

Share of operating prof

Finance review of Fertilizer sector 2014

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