Fazal Cloth Mills Limited ("FCML" or "the Company") operates as a public limited Company under the Companies Act, 1913 (now the Companies Act, 2017), listed on the Pakistan Stock Exchange.

The Company established its first spinning unit in 1972 in Muzaffargarh. Since then, it has undergone several strategic expansions and continuous balancing, modernization, and replacement (BMR) activities to enhance the overall production capacity and operational efficiency. Currently, the Company is operating with eleven manufacturing units.

FCML is the flagship Company of the Fazal Group. It is engaged in the manufacturing and sale of various categories of yarn and greige fabric. The Company’s operational infrastructure includes 274,524 spindles, 8,820 open-end rotors, 1,752 MVS spindles/rotors, and 119 doubling machines, along with a weaving unit comprising 224 air-jet looms located in Multan and Muzaffargarh. The Company’s registered office is located at 69/7, Abid Majeed Road, Survey No. 248/7, Lahore Cantt, while the head office is situated at 59/3, Abdali Road, Multan. To ensure uninterrupted operations, the Company operates two gas-fired captive power plants with a combined capacity of 51 MW, a 7.2 MW diesel-powered backup plant and renewable energy facility generating approximately 25 MW.

The Company's majority stakes are owned by Fazal Group and Fatima Group (44.6% each). The remaining shareholding vests with financial institutions (6.8%) and the general public (4.0%). Herein, "Group means members of the family without reference to any law of Pakistan".

The Company's ownership structure is expected to remain stable in the foreseeable future due to its association with two renowned business groups: Fatima Group and Fazal Group. The considerable positions in the Company are held by Sheikh Naseem's family and the third generation is gradually being inducted into the business. The Group has a holding company in place and the responsibilities are clearly defined among family members. However, the transfer of ownership to the next generation has not been formally documented yet.

The sponsoring groups have a strong presence across multiple sectors of the country's economy. They possess in-depth industry knowledge and expertise, which has helped the Company maintain its position in a volatile market and navigate unforeseen challenges effectively. The Company has continued to grow under the visionary leadership and strong business acumen of its sponsors.

The financial strength of FCML emanates from the solid business profile and credibility of its sponsoring groups. The sponsors hold a prominent position across various diversified sectors of the national economy, with interests in textiles, fertilizers, energy and trading. This portfolio provides financial resilience and cross-sectoral support to FCML, enhancing its stability in volatile economic conditions. The sponsors possess strong financial capacity to support the Company, if needed.

The overall control of the Board is vested in nine members, including the Chairman and the Chief Executive Officer. The Board comprises an equal representation of executive, non-executive, and independent directors, reflecting a strong governance framework.

Mr. Sheikh Naseem Ahmad, the Chairman, is a graduate with over five decades of experience in the textile industry. He also serves as the CEO of Fazal Holdings (Pvt.) Limited, Zafar Nasir Oil Extraction, and Hussain Ginneries Limited. The Chief Executive Officer, Mr. Rehman Naseem, holds a graduate degree in Economics from Columbia University and possesses more than two decades of expertise in the textile sector. Mr. Amir Naseem, also a graduate, has over twenty years of experience in the textile industry and currently serves as the CEO of Rashid Brothers Associates (Pvt.) Limited. Mr. Faisal Ahmed, a law graduate, serves as a Director at Reliance Weaving Mills Limited. Mr. Muhammad Mukhtar brings over five years of experience in the textile, sugar, and fertilizer sectors. Mr. Abbas Mukhtar is a foreign graduate with twelve years of professional experience. Overall, the Board members possess vast knowledge and extensive experience across the textile value chain.

In line with best corporate governance practices, the Company has established three formal Board committees: the Audit Committee, chaired by Ms. Parveen Akhtar Malik; the Human Resource & Remuneration Committee, chaired by Mr. Babar Ali; and the Strategic Planning Committee, chaired by Mr. Rehman Naseem. Audit Committee meetings are held quarterly, while the Human Resource & Remuneration Committee and the Strategic Planning Committee convene annually. During FY24, four meetings of the Board of Directors were held to review the Company’s financial performance and monitor progress toward strategic objectives. The attendance of Board members remained strong, indicating their dedication and commitment. The minutes of these meetings are formally maintained.

During the period under review, ShineWing Hameed Chaudhri & Co., Chartered Accountants, rated as 'Category B' by the State Bank of Pakistan (SBP), have been appointed as the Company’s new external auditors. The Company also maintains a robust internal audit department comprising nineteen qualified professionals. Operating independently, the department reports on a quarterly basis to both the Chief Executive Officer and the Board Audit Committee. It is headed by Mr. Abdul Saboor, a Fellow Chartered Accountant.

The management control of the Company rests with the Fazal Group. A well-defined organizational structure is in place to ensure the smooth flow of operations. Overall, the Company operates through six functional departments, each with clearly segregated roles and responsibilities.

The CEO, Mr. Rehman Naseem, is a Columbia University graduate and brings over 27 years of experience in the textile sector. The Group CFO, Mr. Muhammad Azam, is both an FCA and FCMA and has been associated with the Company since 2004. He reports directly to the CEO and is supported by a team of highly qualified and experienced professionals.

To ensure management effectiveness, the Company has established a three-member Executive Committee at the operational level, chaired by the Group CFO, Mr. Muhammad Azam. The Committee meets regularly to discuss routine operational matters and proactively address financial and legal bottlenecks. Additionally, reports based on pre-defined key performance indicators (KPIs) are prepared and submitted to senior management for ad hoc reviews and informed decision-making.

The Company utilizes a fully integrated ERP system from Oracle Corporation, upgraded to version R12.2.7. The deployed modules include Payables, Receivables, Fixed Assets, Cash Management, General Ledger, Purchasing, Inventory, Cost Management, Order Management, Human Resource, and Payroll. During the year, the Company strengthened its IT infrastructure by implementing Microsoft 365, enhancing collaboration, productivity, and data security across the organization. Additionally, the existing IT environment was modernized through hardware upgrades and enhanced network systems to ensure system reliability and performance.

FCML is accredited with various international certifications, reflecting its commitment to compliance and quality. The Company adheres to the latest Quality Assurance Standards for yarn and fabric production. Notable certifications include ISO 9001, Lycra Assured, Fair Trade, and Organic Exchange, which align well with a strong control environment. Recently, the Company has deployed a wireless solution for seamless, high-speed connectivity across all facilities. Additionally, a next-generation firewall has been implemented at the Head Office to enhance cybersecurity, supported by centralized monitoring to ensure secure operations.

During MY25, approximately 24.4 million MT of cotton was produced globally, compared to about 24.2 million MT in MY24. Throughout the year, low cotton production was observed in India and Pakistan. However, this was partly offset by increases in cotton production in China, the United States, and Brazil by roughly 9.7%, 19.4%, and 15.7%, respectively. China remains the largest producer and consumer of cotton worldwide (MY21-25). Pakistan's cotton output declined by approximately 30.7%, due to reduced cultivation area and a surge in duty-free imports of cotton and yarn, which disrupted domestic markets. Conversely, cotton imports increased by around 234.0% YoY during the same period to satisfy domestic demand (FY24: roughly 70.0% YoY decline). Cotton arrivals for FY24-25 totaled about 5.5 million bales. The target for cotton production in FY26 is set at approximately 10.2 million bales.

The sector's rising dependence on imported cotton poses a supply-side risk. For FY25, imports accounted for approximately 35% of the cotton supply (~11% in FY24), adding about USD 1.27 billion (USD 448 million in FY24) to the country's import bill. Textile exports reached USD 17.9 billion in FY25, a modest rise from USD 16.7 billion the previous year, reflecting a 7.2% year-over-year growth. The largest contribution came from the composite and garments segment, at USD 14 billion, which included the weaving segment at USD 1.8 billion and the spinning segment at USD 0.7 billion. The production of cotton cloth in FY25 declined by approximately 0.7% year over year, reaching around 877.1 million square meters. During FY25, about 25.3% of the cotton cloth produced was exported (compared to roughly 27.2% in FY24), with the rest used for the domestic market. The country's fabric exports fell by approximately 4.4% in FY25 (FY24: up about 5.8% YoY), with approximately 23.4% of Pakistan's cotton cloth exports going to Bangladesh (compared to about 19.9% in FY24), followed by the USA with about 8.1% of cotton cloth exports (compared to approximately 7.8% in FY24).

In FY25, the transition from the final tax regime to the normal tax regime is expected to affect the profitability of export-oriented units, with a 29% tax on profits and a super tax of up to 10%. The recent removal of GST exemption (Finance Bill, 2025) on textile inputs for exporters registered under the Export Facilitation Scheme (EFS) will offer tax protection and create a level playing field for domestic cotton and yarn producers. Currently, international cotton prices are higher than the price of locally produced cotton. The gap has widened to approximately 9.8 cents per pound (as of July 18, 2025), resulting in an average increase of about USD 36.8 per bale of imported cotton. A greater reliance on imported cotton could lead to higher raw material costs, ultimately impacting yarn prices and profit margins for the sector. Conversely, energy and finance costs are expected to stay within a range, given the projected reduction in interest rates and the absence of any major energy tariff increases.

Considering the current climate change, flooding in major cotton regions, and shifting crop patterns, the target of approximately 10.2 million bales for FY26 appears challenging.

FCML holds a considerable position in the respective industry with 274,524 spindles, 8,820 open-end rotors, 1,752 MVS spindles/rotors,119 doubling machines and 224 air jet looms.

Over the years, the Company's topline experienced a robust growth, reflecting a 3-year CAGR of 25.1% from 2022 to 2024. In FY24, the revenue mix remained dominated by the local sales and clocked at PKR 59.5bln (FY23: PKR 56.8), contributing ~61.3% to the Company's topline.  Additionally, the export posted a notable increase on a year-on-year basis reported at PKR 37.5bln (FY23: PKR 20.8). This increase was primarily driven by the management's focused efforts for onboarding of new customers, with the indirect exports rising to PKR 20.3bln (FY23: PKR 4.6bln). Yarn remained the Company’s top-selling product, both in terms of volume and average selling price. China and America were the leading export destinations of the Company. In the domestic market, the top ten client concentration remained in a moderate range, supported by a stable and diversified customer base. Major clients included prominent industry players such as Nishat Mills Limited, Liberty Mills Limited, Artistic Milliners (Private) Limited, and Gul Ahmed Textile Mills Limited, among others.

During 9MFY25, the Company's topline saw a contraction and clocked at PKR 69.0bln (9MFY24: PKR 72.0bln), down by 4.2% on a quarter-on-quarter basis. Exports witnessed a sharp decline due to halted demand from China following the announcement of US reciprocal tariffs.

In FY24, the gross margin squeezed to 11.3% (FY23: PKR 13.0%) due to the inflated cost of production. The operating margin dropped to 7.0% (FY23: 9.8%), in line with the prevailing inflationary pressures. However, a considerable dividend income and exchange gain provided some cushion to the net profitability. This, however, was offset by the historically high finance cost of PKR 8.3bln (FY23: PKR 5.0bln). The Company's bottom line reflected an improvement and clocked at PKR 1.7bln (FY23: PKR 586mln) with the net profit margin of 1.8% (FY23: 0.8%).

In 9MFY25, the Company's gross margin declined further to 8.5% (9MFY24: 11.2%). However, the gradual decrease in interest rates led to a significant reduction in finance costs. Resultantly, the Company's net profit margin improved to 1.6% (9MFY24: 0.6%).

The Company has achieved operational efficiency through continuous expansion and BMR activities executed during the preceding years. The management is mindful of the energy cost risk and is investing in an additional 29 megawatt solar project.

The working capital requirements are met through a combination of short-term borrowings and internally generated cash flows. During 9MFY25, the net working capital cycle extended to 157 days (FY24: 144 days), primarily due to elevated inventory levels resulting from upfront cotton procurement — a common trend in the spinning industry to hedge against price volatility and ensure raw material availability. The Company has sufficient borrowing capacity, as reflected by the short-term trade leverage. Furthermore, the Company maintained its strong liquidity position, with a current ratio of 4.8x, indicating a strong capacity to meet short-term obligations.

In 9MFY25, the Company's free cash flows from operations (FCFO) were recorded at PKR 3.9bln (FY24: PKR 14.6bln) following a decline in EBITDA. This indicates a moderate operational performance during the period. The Company has a cushion for debt servicing, as illustrated by the Company's interest coverage and core operating coverage ratios, standing at 1.9x (FY24: 1.6x) and 0.6x (FY24: 1.2x) respectively.

FCML has a moderately leveraged capital structure. In 9MFY25, the Company's leveraging ratio went up to 51.1% (FY24: 45.4%), mainly attributed to a significant rise in the total borrowings. The Company's debt profile remained heavily concentrated in conventional debt, alongside subsidized borrowings under the SBP scheme. However, the equity base strengthened further to PKR 46.8bln (FY24: PKR 44.3bln), supported by the plowback of profits from previous years.