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 :

 

  1. i) CaO               70%
  2. ii) SiO2                 23%

iii)   Al2O3                        4%

  1. 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 :

 

  1. Wet process
  2. 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

CompanyAnnual Production(tonnes)Expansion(tonnes)Year ofCompletionTotal Production(tonnes)

Army Welfare

945,0001997945,000
Anwarzaib Cement56,000198856,700
Attock Cement693,0001986693,000
Best Way Cement1,008,00019971,008,000
Chakwal Cement550,0001998550,000
Cherat Cement760,0001985760,000
D.G.Khan Cement660,0001,039,00019971,669,500
Dadabhoy Cement409,500409,500
Dandot Cement504,0001983504,000
Essa Cement150,0001989150,000
Fecto Cement600,0001989600,000
Fauji Cement990,0001997990,000
Gharibwal Cement540,000945,00019971,485,000
 Lasbella Cement30,00030,000
Lucky Cement1,260,00019961,260,000
Mustehkam Cement630,0001,039,50019971,699,500
Maple Leaf Cement1,540,00019401,540,000
Pakland Cement504,000504,00019971,008,000
Pioneer Cement660,000100,0001994760,000
Pak.Slag Cement180,000150,0001993330,000
Saadi Cement1,008,00019971,008,000
Thatta Cement330,0001985330,000
Zeal Pak Cement1,134,00019561,134,000
Javedan Cement600,0001997600,000
Kohat Cement315,000252,0001996567,000

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

YearNo. of unitsProduction%changeCapacity Utilisation
1989-902374885.092,000
1990-912277625.095,300
1991-922283217.296,200
1992-932085582.798,900
  1993-94208100(-)5.399,800
1994-95207913(-)23.097,500
1995-9620956720.9117,900
1996-97209536117,500
1197-982397992.7107,600

 

 

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

StatusNo.Capacity(M.tonnes)
Existing Plants2819.143
Expansion4.030
New Projects99.670
3532.843

 

 

NEW CEMENT PROJECTS

Projecst

Location

Capacity

(tonnes)

Year of completion

Galadari CementBalochistan600,000
Hercules Cement1,900,0001998-99
Ibrahim Cement945,0001998-99
Lillah Cement1,500,000
Royal CementPunjab945,0001998-99
Kaisar Cement945,0002000-01
Sapphire Cement945,0002000-01
Sakhi CementD.G.Khan945,0001998-99
Shewan CementKhanote Dadu945,0001998-99
              TOTAL9,670,000

 

 

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

 

19971998
Current Assets543,857,545510,554,991
Current Liabilities675,917,5011,329,571,509
Ratio
0.80.38

 

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

 

 

19971998
Total liabilities4,230,141,9634,370,685,138
Total Assets5,943,249,9536,015,689,191
Ratio
0.70.7

 

 

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

 

19971998
Total  Stockholders’ equity1,713,104,9901,645,004,543
Total Assets5,943,246,9536,015,689,191
Ratio
0.290.27

 

 

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

 

19971998
Current Assets543,857,545510,554,991
Current Liabilities675,917,5011,329,571,509
Working Capital
00

 

 

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  Expense2,3890,545
Net sales811,277,389
Ratio0.02

 

 

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

 

19971998
Quick  Assets529,531,790399,720,639
Current Liabilities675,917,5011,329,571,509
Ratio0.70.3

 

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)

—————–

 

 

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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