Cement: FAUJI CEMENT COMPANY LIMITED - Analysis of

Financial Statements June 2003 - 2001 H 2010

Monday, 26 April 2010 12:06

Highlights - Corporate News

OVERVIEW : Fauji Cement Company Limited was incorporated in Rawalpindi in 1992. It is a subsidiary of
Fauji Foundation and headquartered in Islamabad. It operates a cement plant at Jhang Bahtar, Tehsil Fateh
Jang, District Attock in Punjab. The plant has an annual production capacity of 1.165 million tons.

RECENT RESULTS 2001 H 2010

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COMPANY SNAPSHOT

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Symbol: FCCL

Nature of the Business Cement

Current Rate: Rs 7.08

Turnover: Rs 18228

Outstanding Shares: 693289500

Market Capitalisation: Rs 4908489660

EPS( 1Q 09) Rs 0.21

Price/Earnings (1Q 09) 36.50

During the period under review, FCCL s capacity utilisation stood at 95.40% as compared to 91.16% in the
corresponding first half of the last year. The company s local dispatches stood at 433,390 tons as compared
to 387,226 tons during the corresponding period last year, depicting an increase of 11.92%, but the export of
cement remained 122,570 tons as compared to 144,017 tons in the same period last year, depicting a
decrease of 14.89%.
Sales decreased to Rs 2,537 million in 1H10 from Rs 3,245 million in 1H09. The decline was witnessed in
both local, as well as export arena. Gross profit margin declined to 13.7% from 24% in 1H09. Financial
charges reduced to Rs 164 million as compared to Rs 16.5 million. PAT was Rs 193 million as compared to
Rs 514 million. Cost of sales declined due to lower cost of fuel consumed, as has been the trend for the
entire cement industry.Long-term financing has increased, which means increased financial charges in the
near future.

A. FCCL

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2008-09 2007-08 Difference

(%)

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(1) Domestic Despatches (tons) 891,250 899,405 -0.91

(2) Exports (tons) 275,340 278,095 -0.99

(3) Total Despatches (tons) 1,166,590 1,177,500 -0.93

(4) Capacity Utilisation (%) 100.09 101.03 -0.93

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B. INDUSTRY

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2008-09 2007-08 Difference

(%)

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(1) Domestic Despatches (tons) 19,394,024 22,395,522 -13.40

(2) Exports (tons) 11,380,830 7,716,620 47.48

(3) Total Despatches (tons) 30,774,854 30,112,142 2.20

(4) Capacity Utilisation (%) 73.69 81.04 -9.07

Sales in FY09 heavily increased by 49.88% compared to a marginal 2.39% increase in FY08. The main
reason attributing to such increase would be the increase in exports experienced by the cement industry in
FY09 period. This has led to sales growth really high. Comparatively the 1Q09 sales are still on the rise.
However, concerns over electricity charges and gas bill increases have added to the cost of production,
which might further lead to decline in the cost advantage which was lost due to depreciation of the rupee
against the dollar.

Profitability-wise, the company had performed well with most of its ratios showing an upward trend in FY09.
Considering the Gross Profit Ratio, it increased from a change of 18.96% in FY08 to 31.75% in FY09.
Similarly the net profit margin too showed a considerable increase of 18.56% in FY09, owing to better
operational efficiencies and controlling of other expenses to reduce the operational costs.

Fauji Cement posted after tax profit of Rs 1007623 million in FY09 as compared with the figures of FY08 of
Rs 413598 million.

The increasing trend was passed on to ROA and ROE, where the ROA increased by a 4.70% in FY09
compared to 3.32% in FY08. On the other hand, ROE showed a better increase to the ratio as it increased
from 4.45% in FY08 to 10.40 in FY09.

The liquidity condition was severely under constrain, as the current ratio fell to 0.63x in FY09 from a healthy
2.65x in FY08. The two main reasons for the major decline was: First, the cash bank balance reduced by
95% in FY09. Further, explanation to this was as a result of the decline in the deposit accounts of the
company which was used up in the period.

Second, the trade and other payables also showed 192% increase in FY09 compared to FY08. This again
can be brought down to an increase of the current portion of the cross currency swap and amount of Rs50m
payable to the Fauji Foundation Group, which led to such high increase.

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FY 2009 FY 2008 change

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Cash and bank balances 175,947 3,783,909 -(3,607,962)

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FY 2009 FY 2008 change

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Trade and other payables 1,441,825 493,210 948,615

The company improved its asset management in FY09 and also in 1Q09 as the figures improved for major
areas. The inventory turnover was reduced to 79.63 days in FY09, however, 1Q09 showed a really lagging
approach as the inventory turnover was increased to 347.5 days.

Another improvement can be seen in the operating cycle in FY09, which was reduced to 83.40 days
showing the operational efficiency by the company of converting assets into cash.

Lastly the total asset turnover marginally increased to 1.28 in FY09 compared to 0.28 in FY08, owing to the
fact that the company was able to increase its turnover with respect to the assets employed. For 1Q09, it
improved to 2.28x.

The gearing ratio of the company deteriorated in FY09 and 1Q09. The company had taken leverages to
finance the upcoming projects. The debt to equity ratio saw a decline to 0.40 in FY09 and 1.17 in 1Q09. This
would mean the company is highly geared in this CY10.

The long-term debt to equity showed a similar trend as the ratio deteriorated from 0.03 in FY08 to 0.64 in
FY09 and further decline to 1.08x in 1Q09. This again points out that the company is planning a project and
requires finance for it.

EPS has been on volatile since FY08. In FY09, it increased to Rs 1.45 mainly due to the increase in the net
profit after tax of the company mentioned above, as the outstanding shares remained constant for the
period.

Secondly, the price earning multiple showed a huge decline in FY09, but a sharp rise in 1Q09. The ratio
declined to 4.45 because of the market value of the shares declined from Rs 16.60 to Rs 6.60, showing the
loss of confidence of the investors in the company. However, a sudden increase of P/E ratio was because of
an increase in the value of the share, as the investors thinking of the increased expansion project would lead
to more profitability in the future for the company.

FUTURE OUTLOOK

With capacity expansions, set to bring the total capacity up to 51 million MT by FY10, the sector has been
exposed to huge financial leverage in the recent years. The long-term debt usually carries a floating interest
rate pegged to the 6-month KIBOR. With the industry debt-asset ratio averaging around 60%, and long-term
debt to assets varying around 38%, the volatility in interest rates is likely to affect the financial charges and
hence erode the cement manufacturers bottom lines.

However the discount rate was reduced to 12% decreasing the financial charges of cement manufacturers.

Apart from these financial issues the sector faces severe gas shortages. As many sectors including the
cement sector has been affected as Sui Northern Gas Pipeline Limited (SNGPL) has curtailed gas supplies.
Huge fiscal deficit has forced the government to cut down on physical infrastructure expenditure, which
would impact the domestic sales negatively. Secondly rising costs of constructing a house and tower have
lowered the demand of both domestic customer and businessmen.

On the export front, depreciation of rupee has rendered Pakistani cement as a highly attractive option. The
exports primarily increased due the demand coming from Afghanistan that accounts for 28 percent of the
exports (36 percent in FY08).

However with economic recovery and the cement industry proportion to the increase of the GDP, the cement
industry might be benefiting not only domestically but also internationally.

The major threat to the sector only comes in the shape of higher cost of sales, which in turn, are caused by
higher fuel costs, higher material/packing costs, and labour costs.

COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared
this analytical report for Business Recorder.

DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial,
investment and business decision. The [above information] is general in nature and has not been prepared
for any specific decision making process. [The newspaper] has not independently verified all of the [above
information] and has relied on sources that have been deemed reliable in the past. Accordingly, the
newspaper or any its staff or sources of information do not bear any liability or responsibility of any
consequences for decisions or actions based on the [above information].
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Courtesy: Business Recorder

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limited-analysis-of-financial-statements-june-2003-2001-h-2010.html