TERM REPORT

FAUJI CEMENT COMPANY LIMITED

Submitted to :

Ms. Asfeeya Majeed

Submitted By :

Murad Dashti
Ali Basharat
BBA 1 / 2

Dated : 6th of December , 1999.

INSTITUTE OF BUSINESS ADMINISTRATION

 TABLE OF CONTENTS

Contents Page No.

Introduction to the company 4

Cement Industry Trends In Pakistan 5

Ratios & Trends Analysis

Current ratio 10
Debt Ratio 11
Equity Ratio 12
Working Capital 13
Operating Expense Ratio 14
Quick Ratio 15
Return On Assets 16
Accounts Receivable Turnover Rate 17
Inventory Turnover Rate 18

Balance Sheet 19

Profit & loss Account 20

Cash Flow Statement 21

I NTRO DU CTI O N TO TH E CO M PANY

 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 :

i) Wet process
ii) Semi - wet process
iii) 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 Expansion Year of Total

Production (tonnes) Completi Production
(tonnes) on (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 630,000 1,039,500 1997 1,699,500
Cement
Maple Leaf 1,540,000 - 1940 1,540,000
Cement
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 Production %change Capacity

units 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

TOT 35 32.843
 AL

NEW CEMENT PROJECTS

Projecst Location Capacity Year of

(tonnes) 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

CURR EN T RATI O

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: Current Ratio

This shows t h e d r o p i n t h e 0.8

debt paying ability of the company in
1
short run by nearly 5o%. 0.38 1997
Ratio 0.5
1998
0
DEBT RATI O
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

Debt Ratio

1 0.7 0.7
1997
0.5 1998

0
 INFERENCE
There has been no significant change .The assets are being financed by
borrowing by the company .

EQ UI TY RATI O

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’ 1,713,104,990 1,645,004,543
equity
Total Assets 5,943,246,953 6,015,689,191

Ratio 0.29 0.27

Equity Ratio

0.29
0.29
1997
0.28 0.27
1998
0.27

0.26
 INFERENCE:
This shows a fall in the equity ratio by 4%(approx.) in 1998.

WO RK I NG CAPI TA L

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.
 O PERATI NG EXPEN SE RATI O

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.
 Q UI CK RATI O

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

Quick Ratio

1 0.7
1997
0.5 0.3 1998

INFERENCE :

There is significant (55%) fall in liquidity of the company from 1997

to 1998.
 RETUR N O N ASSE TS

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.

 ACCO UNT S RECEI VAB LE TURNO VE R
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.
 I NVEN TO RY TURNO VE R 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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