Corporate Governance AND ITS effect on the performance of a company

1. Fauji Fertilizer Company Limited
CORPORATE GOVERNANCE AND ITS
EFFECT ON THE PERFORMANCE OF A
COMPANY

2. 2
 Corporate Governance is the application of best management practices, compliance
of law in true letter and spirit and adherence to ethical standards for effective
management and distribution of wealth and discharge of social responsibility for
sustainable development of all stakeholders.
 Conduct of business in accordance with shareholders desires (maximizing wealth) while
confirming to the basic rules of the society embodied in the Law and Local Customs
 Relationships among various participants in determining the direction and performance
of a corporation.
 Effective management of relationships among Shareholders, Managers, Board of
directors, employees, Customers, Creditors, Suppliers, community.
What is Corporate Governance ?

3. Why Corporate Governance?
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 Better access to external finance
 Lower costs of capital – interest rates on loans
 Improved company performance –sustainability
 Higher firm valuation and share performance
 Reduced risk of corporate crisis and scandals.
 Transparency in decision-making
 Improve company image in the community
 Ensure legal compliance with the laws
 Confront corruption

4. Principles of Corporate Governance
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 Sustainable development of all stake holders- To ensure growth of all individuals
associated with or effected by the enterprise on sustainable basis
 Effective management and distribution of wealth- To ensue that enterprise creates
maximum wealth and judiciously uses the wealth so created for providing maximum
benefits to all stake holders and enhancing its wealth creation capabilities to maintain
sustainability.
 Discharge of social responsibility- To ensure that enterprise is acceptable to the
society in which it is functioning

5. Principles of Corporate Governance
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 Application of best management practices- To ensure excellence in functioning of
enterprise and optimum creation of wealth on sustainable basis
 Compliance of law in letter & spirit- to ensure value enhancement for all stakeholders
guaranteed by the law for maintaining socio-economic balance
 Adherence to ethical standards- to ensure integrity, transparency, independence and
accountability in dealings with all stakeholders

6. Corporate Governance Parties
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 Shareholders – those that own the company
 Directors – Guardians of the Company’s assets for the Shareholders
 Managers – who use the Company’s assets
 Primarily concerned with public listed companies i.e. those listed on a Stock Exchange

7. Four Pillars of Corporate Governance
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 Accountability
a- Ensure that management is accountable to the Board
b- Ensure that the Board is accountable to Shareholders
 Fairness
a-Protect Shareholders rights
b-Treat all shareholders including minorities, equitably
c-Provide effective redress for violations

8. 8
 Transparency
Ensure timely, accurate disclosure on all material matters,
including the financial situation, performance, ownership and
corporate governance
 Independence– those that own the company
a-Procedures and structures are in place so as to minimize, or
avoid completely
conflicts of interest
b- Independent Directors and Advisers i.e. free from the
influence of others
Four Pillars of Corporate Governance

9. Characteristics of good Corporate Governance
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 Discipline
 Transparency
 Independence
 Accountability
 Responsibility
 Fairness
 Social
Responsibility

10. Elements of Corporate Governance
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 Good Board practices
a- Clearly defined roles and authorities b- Duties & responsibilities of Directors understood
c- Board is well structured d-Appropriate composition and mix of skills
 Control Environment
a- Internal control procedures b- Risk management framework present
c- Disaster recovery systems in place d- Media management techniques in use
e-Business continuity procedures in place f- Independent external auditor conducts audits
g- Independent audit committee established h- Internal Audit Function
i- Management Info. systems established j- Compliance Function established

11. Elements of good Corporate Governance
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 Transparent disclosure
a- Financial Information disclosed b- Non-Financial Information disclosed
c- Financials prepared according to International Financial Reporting Standards (IFRS)
d- Companies Registry filings up to date e- High-Quality annual report published
f- Web-based disclosure
 Well-defined shareholder rights
a-Minority shareholder rights formalized b- Well-organised shareholder meetings conducted
c- Policy on related party transactions d-Policy on extraordinary transactions
e- Clearly defined and explicit dividend policy

12. Elements of good Corporate Governance
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 Board commitment
a. The Board discusses corporate governance issues & has created a CG committee
b. The company has a corporate governance champion
c. A corporate governance improvement plan has been created
d. Appropriate resources are committed to corporate governance initiatives
e. Policies and procedures have been formalized and distributed to relevant staff
f. A corporate governance & code of ethics code has been developed
g. The company is recognized as a corporate governance leader

13. Fauji Fertilizer Company Limited
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14. 14
Vision , Mission & Corporate Strategy

15. Introduction
 FFC was established in 1978 as a joint venture of Fauji
Foundation and Haldor Topsoe. The first urea complex was commissioned in
1982. Plant-1 was improved in 1992, and a second plant was built in 1993.
In the year 2002, FFC acquired ex Pak Saudi Fertilizers Limited (PSFL) Urea
Plant situated at Mirpur Mathelo, District Ghotki from National Fertilizer
Corporation (NFC) through a privatisation process of the Government of
Pakistan. This acquisition at Rs. 8,151 million represents one of the largest
industrial sector transactions in Pakistan. FFC now has three plants with a
combined capacity of 5770 MTPD of prilled urea
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Fauji Fertilizer Company Limited
Non-Executive Directors= 8 Independent Directors= 4

16. 16
Organizational
Chart

17. FFC CORE VALUES
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Honesty in communicating within the Company and with our
business partners, suppliers and customers, while at the same
time protecting the Company’s confidential information and
trade secrets.
Excellence in high-quality products and services to our
customers.
Consistency in our word and deed.
Compassion in our relationships with our employees and the
communities affected by our business.
Fairness to our fellow employees, stakeholders, business
partners, customers and suppliers through adherence to all
applicable laws, regulations, policies and a high standard of
moral behavior.

18. Share Holding Pattern
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19. Products
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20. 20
0
10
20
30
40
50
60
2012 2013 2014 2015 2016 2017
Gross Profit Ratio %
0
10
20
30
40
50
2012 2013 2014 2015 2016 2017
EBITDA Margin to sales %
0
20000
40000
60000
80000
100000
2012 2013 2014 2015 2016 2017
Sales Rs. in million
0
5
10
15
20
25
30
2012 2013 2014 2015 2016 2017
Net profit to sales %
Key Financial Data

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0
20000
40000
60000
80000
2012 2013 2014 2015 2016 2017
Contribution to National Exchequer Rs in
million
2200
2300
2400
2500
2600
2700
2800
2012 2013 2014 2015 2016 2017
Sona Urea Sales KT
0
5
10
15
20
2012 2013 2014 2015 2016 2017
Earnings per share (EPS) and
Diluted EPS - restated Rs
0
50
100
150
2012 2013 2014 2015 2016 2017
Market value per share -
Year end Rs.
Key Financial Data

22. 22
FFC Position in Karachi Stock Exchange
Among 25 Companies
FFC in 2010
No. 1
FFC in 2011
No. 1
FFC in 2012
No. 1
FFC in 2013
No. 1

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The Impact of Corporate Governance on
Financial Performance of a company-Research
 Good corporate governance instills investors’ trust in the financial market. Good governance
creates goodwill, enhances firm financial performance but if the companies are governed
poorly then they lose confidence of each stakeholder due to suboptimal financial
performance.
 Wealth maximization occurs when stock price is increased for current shareholders. The
goal of shareholders and other corporate stakeholders including lenders, employee,
business associates, society at large and government is accomplished if there exists sound
governance in companies. If companies are governed poorly, will face poor financial
performance (Hashim, Khattak & Kee, 2017). It is believed that practice of corporate
governance is an internal mechanism for operation of corporations. According to Ghabayen,
(2012) corporate governance is a useful tool for guaranteeing excellent performance.

24. Conclusion
 This Case study of FFC is evident that corporate governance positively effects firms’
performance . The result indicates that financial performance is highly affected due
to application of corporate governance.
 The analysis reveals that corporate governance plays a vital role in order to
enhance firm performance.
 The fraction of independent director(s) in the board and audit committee positively
affects the financial performance of firm.
 The fraction of insider directors enhances financial performance of firm identify that
more improvement in profitability is accomplished by corporations with more
independent directors.
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25. Thanks
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