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 275,724 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 ~54MW solar, which is fully operational.

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 composition includes 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. As of FY25, four board meetings, four audit committee meetings, one HR & Remuneration Committee meeting and two Strategic Planning Committee meetings were held. The attendance of Board members remained strong, indicating their dedication and commitment. The minutes of these meetings are formally maintained.

ShineWing Hameed Chaudhri & Co., Chartered Accountants, rated as 'Category B' by the State Bank of Pakistan (SBP), have been appointed as the Company’s external auditors. They expressed an unqualified opinion on the financial statements of the Company for the period ended June 2026.  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.

Pakistan's textile sector constitutes the largest manufacturing industry in the country and accounts for ~8.5% of GDP, with over 442 spinning units operational nationwide and an installed spinning capacity exceeding 10 million spindles. The sector is the primary contributor to the country's export revenue, consistently accounting for more than 60% of total merchandise exports. Pakistan stands among the world's top five yarn-producing nations as of 2026, supported by a long-established spinning infrastructure and comparatively low labour costs, which together provide a structural buffer against regional competitive erosion. Textile exports reached ~USD 17.9 billion in FY25, representing a year-on-year growth of ~7.2% over the USD 16.7 billion recorded in FY24, with the composite and garments segment contributing the largest share at USD 14 billion. Within this, the weaving segment accounted for USD 1.8 billion and the spinning segment for USD 0.7 billion. Cotton remains the primary raw material input for the sector. Pakistan's domestic cotton production for the 2024/25 season is estimated at 4.8 million bales, reflecting a ~4% decline from the prior year, and the production estimate for the 2025/26 crop season is also pegged at 4.8 million bales with a harvested area of 2 million hectares, indicating continued supply-side constraint. Domestic cotton use has been revised slightly downward to 10.6 million bales, driven by a slower pace of textile exports during the first quarter of FY26. The sector's rising dependence on imported cotton poses a structural supply-side risk. For FY25, imports accounted for ~35% of total cotton supply, a significant increase from ~11% in FY24, adding approximately USD 1.27 billion to the country's import bill. This reliance on imported raw material exposes producers to international price volatility; international cotton prices currently exceed domestically produced cotton prices, with the gap estimated at ~9.8 cents per pound, translating into an average cost premium of ~USD 36.8 per imported bale. The sector faces multiple demand-side headwinds, including reduced export offtake from China following the imposition of US reciprocal tariffs, which have disrupted established trade flows for Pakistani yarn exporters. Energy cost pressures represent a persistent structural challenge. While interest rates have eased from their peak levels, providing relief on finance costs, energy tariffs remain elevated for the spinning sub-sector. The ongoing transition from the final tax regime to the normal tax regime, implying a 29% tax on profits plus a super tax of up to 10% on export-oriented units, is expected to compress net profitability across the sector. The removal of GST exemption on textile inputs under the Export Facilitation Scheme is anticipated to create a more level competitive environment between domestic and export-focused producers. On the regulatory side, the EU's Carbon Border Adjustment Mechanism and evolving ESG compliance requirements from international buyers are emerging as longer-term structural obligations for Pakistani exporters, particularly those targeting premium markets in Europe and North America. The sector's production of cotton cloth declined by ~0.7% year-on-year in FY25, reaching ~877.1 million square metres, with the export share of domestic production falling to ~25.3% from ~27.2% in FY24. The key credit risk factors endemic to the sector include commodity price cyclicality in raw cotton, energy cost escalation and supply disruptions, exchange rate volatility for exporters, the risk of policy discontinuity in government support measures and tax incentives, and geopolitical-driven demand disruption affecting key export corridors such as China and the United States.

FCML holds a considerable position in the respective industry with 275,724 spindles, 8,820 open-end rotors, 1,752 MVS spindles/rotors,119 doubling machines and 224 air jet looms.

Over the years, the Company has demonstrated sustained growth in its business volumes, leveraging its long-standing operational presence and established market position. The Company’s sales mix has increasingly tilted towards domestic sales as part of its evolving business strategy. During FY25, local sales registered a notable growth of ~26% and stood at PKR 75.1bln (FY24: PKR 59.5bln), primarily driven by an increase in overall business volumes. Conversely, export sales declined to PKR 14.8bln (FY24: PKR 37.6bln), mainly attributable to unfavorable product pricing and intense competition from regional players in international markets.

Yarn remained the Company’s key product segment, both in terms of sales volumes and average selling prices. The Company’s export portfolio remained geographically diversified, with China and Singapore representing the leading export destinations, followed by the USA, Bangladesh, East Africa, Germany, and other markets, thereby indicating relatively low geographic concentration risk. In the domestic market, the Company maintained a diversified customer base, with the concentration of its top ten customers remaining within a moderate range. Major customers included prominent industry players such as Style Textile (Private) Limited, Nishat Mills Limited, Feroze 1888 Mills Limited, and US Denim Mills (Private) Limited, among others.

During 9MFY26, the Company’s topline further expanded to PKR 71.6bln (9MFY25: PKR 69.0bln), reflecting a quarter-on-quarter growth of ~3.8%. The revenue mix, however, remained largely unchanged, with domestic sales continuing to constitute the predominant share of the Company’s overall revenue base.

During FY25, the Company’s profitability margins remained under pressure, with the gross profit margin declining to 8.6% (FY24: 11.3%) and the operating margin contracting to 7.0% (FY24: 10.0%). The reduction in policy rates and the consequent easing in borrowing costs resulted in a significant decline in finance costs to PKR 5.3bln (FY24: PKR 8.3bln). However, the elevated taxation expense continued to weigh on the bottom line. Consequently, the Company’s net income stood at PKR 117mln during FY25 (FY24: PKR 1.8bln), translating into a net profit margin of 0.1% (FY24: 1.8%).

During 9MFY26, the Company’s gross profit margin remained broadly stable at 8.0% (9MFY25: 8.5%), while the operating margin marginally declined to 6.5% (9MFY25: 7.0%). The finance cost stood at PKR 3.9bln during 9MFY26 (9MFY25: PKR 3.9bln), remaining broadly stable on a quarter-on-quarter basis. The Company’s bottom line clocked at PKR 356mln (9MFY25: PKR 382mln), translating into a net profit margin of 0.5% (9MFY25: 0.6%).

The Company has achieved operational efficiencies through continuous capacity expansion and BMR activities undertaken over the preceding years. Management remains cognizant of the risk posed by elevated energy costs and invested in an additional ~28MW solar power project, reaching the targeted solar capacity of ~54MW. Furthermore, the initiatives undertaken to strengthen the Company’s liquidity position are expected to support its long-term financial sustainability and overall business profile.

The Company’s working capital requirements are met through a combination of short-term borrowings and internally generated cash flows. In 9MFY26, the gross working capital cycle increased to 168 days from 160 days, primarily due to higher inventory days, which rose to 122 days from 116 days. The receivables cycle also increased to 47 days (FY25: 43 days), mainly reflecting slower sales during 2QFY26, resulting in an accumulation of receivables in 3QFY26. Consequently, the net working capital cycle increased to 165 days from 156 days. Short-term trade leverage of the Company improved to 47.9% (FY25: 45.1%). Despite the elongation in the working capital cycle, the Company maintained a strong liquidity position, with the current ratio improving marginally to 5.3x (FY25: 4.6x).

In 9MFY26, the Company’s free cash flow from operations (FCFO) stood at PKR 7.0bln (FY25: PKR 9.5bln). Despite the decline in FCFO, FCFO/Finance Cost improved to 1.8x (FY25: 1.2x), supported by prudent management of finance costs and debt levels. Meanwhile, the core operating coverage ratio stood at 0.9x each (FY25: 0.6x), indicating a modest recovery in overall debt servicing coverage. The debt payback period improved significantly to 6.9 years from 28.4 years, reflecting stronger debt repayment capacity during the period. The improvement in coverage metrics was supported by prudent debt management and strategic debt reprofiling, which helped moderate near-term repayment pressures.

FCML maintains a moderately leveraged capital structure, with leverage standing at 50.3% in 9MFY26 compared with 50.0% in FY25. Total borrowings stood at PKR 49.3bln compared with PKR 46.9bln in FY25, while the equity base strengthened to PKR 48.8bln as at 9MFY26. The debt profile continues to comprise conventional borrowings alongside subsidized financing under SBP schemes. The Company’s borrowing mix tilted towards long-term borrowings (LTBs), following strategic debt reprofiling aimed at improving liquidity and providing greater flexibility in repayment terms.