Accounting Report: Fauji Cement Pakistan
INTRODUCTION TO THE COMPANY
FAUJI CEMENT
1 – The company Fauji Cement is the subsidiary of the Fauji Foundation , a trust established for the welfare of the ex-servicemen.
2 – The company was incorporated in Pakistan on November 23, 1992 as a public limited company for the establishment and operation of a cement plant at fateh Jang , District Attock , Punjab . Its shares are qouted at the stock exchanges in Pakistan.
3 – The plant is located at Fateh Jang , some 40 kms from Islamabad. The company commenced its commercial production from November 16 , 1997. Production capacity of the plant is 3,000 tonnes par day .
4 – The total cost of the plant is Rs. 5.3 billion . Out of the total 10,500 tonnes equipment , about 5,600 tonnes equipment has been imported from Denmark and other European countries. Most of the machinery had been supplied by the FL Smith and Company of Denmark whereas local machinery has been manufactured by DESCON works where designed by the local consultant A . A . Associates .
5 – Fauji Foundation owns some 46% equity of the plant with 9% of Industialisation fund for developing countries (IFE) , FL Smith & Company and International Finance Corporation (IFE) , 6% of Commonwealth Development Corporation (CDC), 3% of Netherlands Financierings – Maatschappij Voor Ontwikkelingslarden n.v.(FMO) , and Al-Fayasal Investment Bank Limited (AFIBL) , 2% of Dutsche Investment(DEG), 1% of FCCL Employes Trust and general public holds 12% equity of the Company.
6 – The plant is pollution free as the sponsors had carried out a thorough environment impact and the plant complies with the environmental guidelines prescribed by the World Bank .
TRENDS OF CEMENT INDUSTRY IN PAKISTAN
1 – Pakistan is rich in the deposits of limestone , shale and gypsum which are the basic ingredients for manufacturing cement . Cost of raising these raw materials works out only about Rs. 100 per tonne , which constitutes about 6% of the total cost of production of cement . In this way , cement can be categorized , to have the highest value added component amongst all other industries in the country .
2 – The chemical composition of cement is as under :
- i) CaO 70%
- ii) SiO2 23%
iii) Al2O3 4%
- iv) Fe2O4 3%
Large deposits of CaO (limestone) are found in Fateh Jang , where the plant of Fauji Cement is located .
3 – There are three conventional processes to manufacture cement :
- Wet process
- Semi – wet process
- Dry process
Wet process is now obselete due to large consumption of water.
Semi – wet process has also become obselete due to high fuel/energy consumption. Throughout the world dry process is widely used due to less fuel requirement , easy to maintain , and shorter kiln which requires less space .
4 – One of the few industries that existed in Pakistan before partition of the sub-continent was the cement industry , the annual production being about
300,000 tonnes in 1947
and it increased up to
660,000 tonnes in 1953-54
The production capacity of the industry went upto nearly
1,000,000 tonnes , in 1956
5 – There are 28 cement palnts in the country presently . 23 of them are in private sector and 5 of them in public sector .
EXISTING CEMENT PLANTS IN PAKISTAN
| Company | Annual Production(tonnes) | Expansion(tonnes) | Year ofCompletion | Total Production(tonnes) |
Army Welfare |
945,000 | – | 1997 | 945,000 |
| Anwarzaib Cement | 56,000 | – | 1988 | 56,700 |
| Attock Cement | 693,000 | – | 1986 | 693,000 |
| Best Way Cement | 1,008,000 | – | 1997 | 1,008,000 |
| Chakwal Cement | 550,000 | – | 1998 | 550,000 |
| Cherat Cement | 760,000 | – | 1985 | 760,000 |
| D.G.Khan Cement | 660,000 | 1,039,000 | 1997 | 1,669,500 |
| Dadabhoy Cement | 409,500 | – | – | 409,500 |
| Dandot Cement | 504,000 | – | 1983 | 504,000 |
| Essa Cement | 150,000 | – | 1989 | 150,000 |
| Fecto Cement | 600,000 | – | 1989 | 600,000 |
| Fauji Cement | 990,000 | – | 1997 | 990,000 |
| Gharibwal Cement | 540,000 | 945,000 | 1997 | 1,485,000 |
| Lasbella Cement | 30,000 | – | – | 30,000 |
| Lucky Cement | 1,260,000 | – | 1996 | 1,260,000 |
| Mustehkam Cement | 630,000 | 1,039,500 | 1997 | 1,699,500 |
| Maple Leaf Cement | 1,540,000 | – | 1940 | 1,540,000 |
| Pakland Cement | 504,000 | 504,000 | 1997 | 1,008,000 |
| Pioneer Cement | 660,000 | 100,000 | 1994 | 760,000 |
| Pak.Slag Cement | 180,000 | 150,000 | 1993 | 330,000 |
| Saadi Cement | 1,008,000 | – | 1997 | 1,008,000 |
| Thatta Cement | 330,000 | – | 1985 | 330,000 |
| Zeal Pak Cement | 1,134,000 | – | 1956 | 1,134,000 |
| Javedan Cement | 600,000 | – | 1997 | 600,000 |
| Kohat Cement | 315,000 | 252,000 | 1996 | 567,000 |
TOTAL : 16,057,700 19,143,200
6 – Cement Production in 1997-98 is estimated at 9.799 million tonnes as compared to 9.536 million tonnes in the preceding year . The present installed capacity of 28 cement plants is 17,312 million tonnes . Total production at 10,384 million tonnes in 1998-99 .
PRODUCTION OF CEMENT
| Year | No. of units | Production | %change | Capacity Utilisation |
| 1989-90 | 23 | 7488 | 5.0 | 92,000 |
| 1990-91 | 22 | 7762 | 5.0 | 95,300 |
| 1991-92 | 22 | 8321 | 7.2 | 96,200 |
| 1992-93 | 20 | 8558 | 2.7 | 98,900 |
| 1993-94 | 20 | 8100 | (-)5.3 | 99,800 |
| 1994-95 | 20 | 7913 | (-)23.0 | 97,500 |
| 1995-96 | 20 | 9567 | 20.9 | 117,900 |
| 1996-97 | 20 | 9536 | – | 117,500 |
| 1197-98 | 23 | 9799 | 2.7 | 107,600 |
7 – As many as nine new cement plants are being planned . The capacity of these projects is estimated at 9.670 miilion tonnes . The existing plants have also planned to expand their capacities . This worked out to 4.030 million tonnes . Thus , the total capacity of cement projects , existing and upcoming would be as follows :
CAPACITY OF CEMENT PLANTS
| Status | No. | Capacity(M.tonnes) |
| Existing Plants | 28 | 19.143 |
| Expansion | – | 4.030 |
| New Projects | 9 | 9.670 |
| 35 | 32.843 |
NEW CEMENT PROJECTS
Projecst |
Location |
Capacity(tonnes) |
Year of completion |
| Galadari Cement | Balochistan | 600,000 | – |
| Hercules Cement | – | 1,900,000 | 1998-99 |
| Ibrahim Cement | – | 945,000 | 1998-99 |
| Lillah Cement | – | 1,500,000 | – |
| Royal Cement | Punjab | 945,000 | 1998-99 |
| Kaisar Cement | – | 945,000 | 2000-01 |
| Sapphire Cement | – | 945,000 | 2000-01 |
| Sakhi Cement | D.G.Khan | 945,000 | 1998-99 |
| Shewan Cement | Khanote Dadu | 945,000 | 1998-99 |
| TOTAL | 9,670,000 |
8 – The per capita consumption in country is around 71.0 kg but it is little less than the internationally accepted standard of nearly 100 kg , but it is still better than many countries in the region like India , Nepal ,bangladesh , and Malawi.
9 – Demand of the cement has a high correlation with a GDP , co-efficient of correlation found to be 93% following the privatisation of the bulk of the public sector capacity and shrinkage of its operational jurisdiction , the development approach in the renewed scenario focused squarely on the realisation of incremental capacity gains at the existing cement plants by improving their running factors and efficiency levels .
10 – Pakistan will have a surplus of 2.150 million tonnes of cement in the year 2001-02 , incase the industry operates at 60% capacity . Pakistan , then , can export cement to the countries like Bangladesh , Sri lanka , Syria , Myanmar , Lebnan , Singapore , And Vietnam .
RATIO & TRENDS ANALYSIS
CURRENT RATIO
This ratio measures the debt paying ability of a company in short run.
Current ratio = Current assets
Current liabilities
| 1997 | 1998 | ||||
| Current Assets | 543,857,545 | 510,554,991 | |||
| Current Liabilities | 675,917,501 | 1,329,571,509 | |||
Ratio |
0.8 | 0.38 |
INFERENCE:
This shows the drop in the debt paying ability of the company in short run by nearly 5o%.
DEBT RATIO
Debt ratio indicates the percentage of assets financed through borrowing by a company .
Debt Ratio = Total Liabilities
Total assets
| 1997 | 1998 | |
| Total liabilities | 4,230,141,963 | 4,370,685,138 |
| Total Assets | 5,943,249,953 | 6,015,689,191 |
Ratio |
0.7 | 0.7 |
INFERENCE
There has been no significant change .The assets are being financed by borrowing by the company .
EQUITY RATIO
The equity ratio shows the protection to the creditors and the extent of leverage being used .
Equity Ratio = Total Stockholders Equity
Total Assets
| 1997 | 1998 | |
| Total Stockholders’ equity | 1,713,104,990 | 1,645,004,543 |
| Total Assets | 5,943,246,953 | 6,015,689,191 |
Ratio |
0.29 | 0.27 |
INFERENCE:
This shows a fall in the equity ratio by 4%(approx.) in 1998.
WORKING CAPITAL
This measurement also shows the debt paying ability of a company in the short run.
Working Capital = Current Assets – Current Liabilities
| 1997 | 1998 | |
| Current Assets | 543,857,545 | 510,554,991 |
| Current Liabilities | 675,917,501 | 1,329,571,509 |
Working Capital |
0 | 0 |
INFERENCE:
The company has no working capital and it has little debt paying ability in the short run and is continuously falling very badly.
OPERATING EXPENSE RATIO
This ratio indicates the management ability to control expenses of the company.
Operating Expense = Operating Expense
Net sales
| 1998 | |
| Operating Expense | 2,3890,545 |
| Net sales | 811,277,389 |
| Ratio | 0.02 |
INFERENCE:
The figure indicates that the management is able to control the operating expense of the company.
QUICK RATIO
This ratio measures the liquidity of a company in a short run.
Quick Ratio = Quick Assets
Current Liabilities
| 1997 | 1998 | |
| Quick Assets | 529,531,790 | 399,720,639 |
| Current Liabilities | 675,917,501 | 1,329,571,509 |
| Ratio | 0.7 | 0.3 |
INFERENCE :
There is significant (55%) fall in liquidity of the company from 1997 to 1998.
RETURN ON ASSETS
This ratio measures the productivity of assets of a company regardless of the capital structure.
Return on Assets = Operating Loss
Average total assets
Return on Assets = 61,425,308
527,206,268
= O.1
INFERENCE:
This ratio is isolated, as no comparisons are available.
ACCOUNTS RECEIVABLE TURNOVER RATE
The accounts receivable turnover rate indicates the reasonableness of accounts receivable balance and effectiveness of collections by a company .
Accounts Turnover rate = Net Sales
Average Receivables
A \ R Turnover rate = 848,812,102
167,427,143
= 8.06
INFERENCE:
This shows that the average account receivable of company takes 2 months to recover.
INVENTORY TURNOVER RATE
The inventory turnover rate indicates the marketability of the inventory of a company and the reasonableness of quantity on hand .
Inventory Turnover Rate = Cost of Goods Sold
Average Inventory
= 848,812,102
65,154,488
= 13.0
Average no. of days to sell inventory = 365/ 13 = 28 days
INFERENCE:
Since the product is a not FMCG , The inventory turnover rate
Of 13 days is not bad .
BALANCE SHEET
As at June 30, 1998.
Assets
Current Assets 543,857,545
Fixed capital Expenditure 5,332,205,036
Long Term security Deposits &
Receivables 48,772,234
Deferred Cost 18,412,138
6,0150,689,191
Liabilities & Shareholders’equity
Current Liabilities 675,917,501
Shareholders Equity 1,713,104,990
Long Term Loans 3,554,224,462
6,015,589,191
PROFIT AND LOSS ACCOUNT
For the period Nov.16.1997 to June 30,1998
Sales 1,401,386,777
Less: Excise duty 590,109,388
Net Sales 811,277,389
Less: cost of Sales 848,812,102
Gross Loss (37,534,713)
General &
Administration Expenses 17,120,253
Selling &
Distribution expenses 6,770,342
23,890,595
Operating Loss (61,425,308)
Other Income 6,949,664
(54,475,664)
Financial Charges 452,520,523
Loss before Taxation (506.996,167)
Provision for Taxation 4,248,770
Loss after Taxation (511,244,937)
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CASH FLOW STATEMENT
For the year ended June 30,1998
Cash Flow from operating activities
Loss before Taxation (506,996,167)
Net Cash provided
by operating activities 183,969,953
Cash Flows from investing activities
Net Cash used
in investing activities (168,413,501)
Cash Flows from financing activities
Net Cash used
in Financing Activities (305,478,1930
Net decrease in cash
and bank balances (289,922,101)
Cash and bank balances
at the beginning of the year 435,289,859
Cash and bank balances
at the end of the year 145,367,758
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