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c c 

Lucky Cement saw a growth of revenue of 35.42%, 55.29% by the end of FY08 and FY09
respectively, which is pretty decent. However FY10 does not show a comparative increase in
sales revenue. Rather it shows a downfall by 6.92%.

Turnover (Rs.)


10000000 Turnover (Rs.)

FY08 FY09 FY10

FY08 FY09 FY10

Turnover 16957879 26330404 24508793

The increase in revenue over FY08 and FY09 was owed to both, increase in sales volume and
net retentions in those years. There was a shift in price trend over FY08 to FY09. The first three
quarters of FY08 saw pressured prices at the domestic level, which was later relieved in the last
quarter due to rising costs of productions and tax and duties levied by the Government in the
federal budget, whereas FY09 enjoyed a price rise throughout.

The point to consider is why the sales revenue fell over FY10? The main reason for this as per
Lucky Cement͛s annual report for 2010 was a decline in cement sales prices, both in the
domestic and export markets. The prices of cement in domestic market were under severe
pressure during the year and on overall weighted average basis, local prices declined by 26.6%
despite of increase in cost of production. The export prices declined by 8.7%.

International markets provided robust price levels over both FY08 and FY09, and over both
these years, we notice sales concentration on the export market. The ratio of sales revenue
from exports was 54.43% whereas the local sales accounted for 45.57% during the FY08 and
60% to 40% for FY09. Despite the sales price decline in the export market in FY10, we find that
Lucky Cement continues to derive majority of its sales revenue from the International market,
amounting to 59% of total revenue.

When we look at sales volume, we notice that FY08 witnessed a decline in local sales by 9.21%
over the previous year. This is essentially attributed to a focus towards high yield exports.
Êxport sales growth is accounted for as 83% for FY08, and continues to grow by 28.8% for FY09
and 2.21% for FY10. Hence we can see that export orientation increases, but at a declining rate
over these years. Nevertheless the export market sales continue to outweigh those made in the
local market.




0 2000000 4000000 6000000 8000000

c c VO (Tons) FY08 FY09 FY10

ocal 2889736 2469291 3119107

ort 2666450 3434348 3510083

Total 5556186 5903639 6629190

Ôc  c c

If we analyze the COS ratios of Lucky Cement over three year period under review, we notice
the following:

1) Overall, the COS ratio has improved significantly by reducing from 74.27% in 2008 to
67.44% in 2010, which is quite remarkable.
2) However, if we compare the COS ratio of FY09 to that of FY10, we notice that it has
worsened a little. It has increased from 62.74% to 67.44%, which is a minor rise by 4.7%.
Ô  ratio
65.00% COGS ratio
FY08 FY09 FY10

FY06 FY07 FY08

ÔOc 74.27% 62.74% 67.44%


Investigation of the factors attributing to the improvement of the COS ratio revealed some
interesting findings. Firstly we need to realize that the major component of the company͛s cost
of production remains to be energy cost. It amounted to 68.77%, 72.62% and 62% of cost of
production for FY08, FY09 and FY10 respectively. Therefore any increase/decrease in energy
price is bound to reflect on the overall cost of sales figure.
FY08 witnessed a sharp rise in the International prices of coal which increased to approximately
US$210 per ton by 30th June 2008, from US$80 per ton in the previous year. This resulted in a
detrimental effect on cost of production for cement industries worldwide. Moreover the rising
oil prices added to the already inflated cost of sales, as furnace oil became more expensive. On
top of that, the cost of cement bags went up due a rise in the price of paper and polypropylene
in that year.
To deal and cope with this issue, Lucky cement employed the following tactics which as we
have now seen from the COS ratios, proved to be effective.

1) My 30th June 2008, the company converted 30% of its oil-based generators belonging to
the Pezu plant to gas generators. The remaining 70% conversion continued to progress
after the year end.
2) The replacement of oil-based generators at the Karachi plant, added to further cost
reduction. 30% of power generation at the Karachi plant was oil-based, which was
subsequently reduced to 10%.

My 2009, the projects undertaken in the earlier were successfully completed. However their
waste heat recovery project was still under process and was progressing as per schedule. The
waste heat generated from the cement production process can be used to generate electrical
energy with no additional fuel consumption and ultimate reduction in greenhouse gases. Part of
the Rs. 8.4 billion spent as capital expenditure during that was spent on conversion of dual fuel
power generators.
However, the major reason why the company͛s COS ratio improved so much was the fact that,
in line with oil prices, coal prices fell in the International market and prevailed in the range of
US$65 to US$85 per ton. Thus despite of an increase in the cost of sales by 31% in absolute
terms, and a 23% rise in cost per ton of cement, the company enjoyed a reduced COS ratio.

Coming to the FY10, we notice that the cost of sales remains almost at par. Upon investigation
of the components that make up cost of sales, we find that, in note 28 to the financial
statements of Lucky Cement͛s annual report, fuel and power cost has reduced by 16.2% which
is Rs. 1,959,732,000, which almost equals RS.2 billion, and a very significant amount. The reason
for this is coal procurement at lower prices and startup of the Waste Heat Recovery Project at
Karachi plant during the 3rd quarter of FY10. As per note 5.4 to the financial statements
additions to generators amounted to Rs. 1,823,334,000, which is a substantial investment for
becoming more cost efficient. As an additional measure to become cost efficient, Lucky Cement
is in the process of setting up a cost handling/transportation operation. In the first phase, 18
long trailers have been ordered and are expected to begin operation shortly.

Of course, we must also consider the fact that Lucky Cement is also exposed to Foreign
Currency Risk as its sales are more export oriented as opposed to local. Thus any minor
fluctuations in sales and also costs, since it imports material as well can be attributed to foreign
exchange movements.


The gross profit margin ratio showed an overall improvement over the three year period under
review. It increased from 25.73% in FY08 to 32.56% in FY10. However, comparing the ratios of
FY09 to FY10, we find a slight deterioration from 37.26% to 32.56%. Naturally, the gross profit
margin ratio and the COS ratio discussed above are interlinked and hence their performances
are reflective of each other. The overall improvement can be linked to reduced coal and oil
prices and introduction of Waste Heat Recovery Project in Karachi.
The decline in Gross profit Margin ratio over FY09 and FY10 is attributed to decreased selling
prices which were partially offset by reduced cost per ton.

The net profit margin ratio improved from 15.79% in FY08 to 17.46% in FY09, despite an
increase in finance costs from Rs.126.7 million to Rs.1237 million. This increase in finance costs
occurred due to winding up of cross currency swap transfers during the first quarter of FY09
which were providing interest rate hedging to the company. Moreover, the markup rates were
also increased by the State Mank of Pakistan which further added to financing costs. Distribution
costs also increased in FY09 due to increased exports, sea freights as well as oil used for
A logical reason to explain this improvement of ratios is the fact that net sales increased by
almost Rs.9 billion (Rs.9, 372,525,000) in FY09 as compared to FY08.





20.00% Gross profit margin

15.00% Net profit margin



FY08 FY09 FY10

FY08 FY09 FY10

Gross rofit margin 25.73% 37.26% 32.56%
Net rofit margin 15.79% 17.46% 12.80%

In FY10 we find that the Net Profit Margin ratio has declined to 12.80%, which is the lowest
over the three year period under review. Êven though finance costs were brought down to
Rs.569.18 million and financing cost reduced from Rs.210 to Rs.86 per ton, the net profit margin
in FY10 suffered as compared to the previous two years.
Distribution cost also continued to increase due to the same reasons as in FY09. Ocean freight
in FY10 accounted for 49.8% of total export expenses as opposed to 24.6% in FY09.


Return on Assets is an indicator of how profitable a company is relative to its total assets. ROA
gives us an idea of how effective company management is at generating earnings by using its
assets. In other words it tells us what income was generated from capital invested. Assets
include both debt and equity. The higher the ROA number, the better as it indicates that the
company is earning more money on less investment.

ROA for Lucky Cement increases in FY09 from 7.82% to 12% and reduces to 8.20% in FY10.
When we refer to the Analysis of Malance sheet in the Financial Highlights section of Lucky
Cement͛s Annual Report 2010, we notice that total assets have increased by almost Rs.4 billion
in FY09 as compared to FY08 with a corresponding increase in net profit of approximately Rs. 2
billion. Whereas in FY10, the assets figure remains almost stagnant, except for a slight decline
and the net profit figure actually reduces by approximately Rs.1 billion. To some extent, this
explains the reason behind the fall in ROA in FY10 as against FY09.

Return on Equity measures the rate of return on the ownership interest (shareholders' equity)
of the common stock owners. It measures a firm's efficiency at generating profits from every
unit of shareholders' equity (also known as net assets or assets minus liabilities). ROÊ shows
how well a company uses investment funds to generate earnings growthë

Investors are normally interested in companies where ROÊ is high and growing. A high ROÊ
indicates good potential for generating cash internally. In FY09, the company͛s ROÊ showed an
improvement as it increased from 14.35% to 19.77%. However in FY10, it declined to 12.50%.
When we investigate, we find that ROÊ of the company also underwent a sharp decline in FY08
due to the issuance of 150,000 GDR͛s which equaled 30,000,000 shares, at RS110 per share.
This caused equity to rise by a great amount and hence caused ROÊ to deteriorate. Comparing
to FY10, we see that no significant changes in equity took place, though the reserves did
increase. However, the profit after tax in FY10 was lower than that of FY09 which explains why
the ROÊ ratio fell.

Return on Ôapital Employed compares earnings with capital invested in the company. It is
similar to Return on Assets (ROA), but takes into account sources of financing. It is used to show
the value/return the business gains on its assets and liabilities.
ROCÊ should always be higher than the rate at which the company borrows; otherwise any
increase in borrowing will reduce shareholders' earnings.

Lucky Cement͛s ROCÊ rose decently from 11.59% in FY08 to 24.64% in FY09. It fell down to
14.80% in FY10. If we compare the profit before tax in FY10 to that in FY09, we see that it has
reduced by Rs.1, 759,544,000. The total assets reduced by Rs.82, 118,000, which is not too
significant a reduction. This explains why the ROCÊ fell in FY10.



FY08 FY09 FY10

FY08 FY09 FY10

RO 7.82% 12.00% 8.20%

RO 14.35% 19.77% 12.50%

ROÔ 11.59% 24.64% 14.80%


The asset turnover ratio indicates the relationship between assets and revenue. Companies
with low profit margins tend to have a high asset turnover and vice verse. It is an indicator of
pricing strategy.
Lucky Cement͛s asset turnover shows an improvement from 49.53% to 68.58% but then reduces to
63.97% in FY10. Thus, over FY08/09 we notice a trend of volumetric growth of sales in line with total
assets. In FY10 we see a slight decline due to a fall in revenue.

Debtor turnover period (days)



10 Debtor turnover
5 period (days)

0 1 2 3 4
FY08 FY09 FY10
Asset Turnover 49.53% 68.58% 63.97%

     Ô Ô

Debtor Turnover Period and Ôreditor Turnover Period
Debtor period/days measures the average time taken to receive payment. An increase in
debtor days could imply that the quality of a company͛s debtors is decreasing. This means that
there is a higher risk of default and possibility of weakened cash flow position of a company.
More working capital is required in such a case.

Debtor days of Lucky Cement rise to approximately 18 days in FY09 from 16 days in FY08. Then
in FY10 the figure falls to 12 days. This implies better debt management, improved quality of
debtors and a stronger cash flow position as compared to FY09. Considering the fact that Lucky
Cement is a largely export oriented company, this implies that they are dealing with foreign
debt in an efficient manner as well.

50 Debtor turnover
40 period (days)
reditor turnover
20 period (days)
FY08 FY09 FY10

FY08 FY09 FY10

Debtor turnover 11.6 17.57 15.3
Äeriod (days)
Creditor turnover 73.81 68.79 63.16
Äeriod (days)

As far as creditor days are concerned, they represent the number of days a company takes in
average to repay its debts. This figure reduced from about 74 days in FY08 to 69 days in FY09 to
63 days in FY10. This indicates that cash outflow has increased, which could cause working
capital requirement to rise. However, when compared to debtor days, this shows that
payments are received much earlier than payments are made, which improves liquidity. Since
creditor days are showing a declining trend, it could prove to be an adverse sign. There was a
limitation involved with obtaining the creditor days. These figures were mentioned in the
financial highlights of the annual accounts for FY10. It is very rare that a company discloses its
purchases in its annual accounts. Hence I had to rely on the ratio figures available in the
accounts. Often, the Cost of sales figure is used to substitute the annual purchases figure for
calculating this ratio. However, it is only accurate for an entity which is purely a trading
operation and the whole of its cost of sales is the cost of purchases. For a manufacturing
organization like Lucky Cement, this approach is likely to be inaccurate.

Inventory Turnover Period

This ratio represents the number of times inventory is sold and replaced over a period. Over the
three year period under review, this ratio has been pretty consistent and does not cross 18
times. In FY09 it reduces to 17 times approximately but recovers to 18 times in FY10. Ofcourse,
the higher the inventory turnover period, the better it is for the company. It is worth noting
that since Lucky Cement exports majority of its products, there is transit time involved in
transport of the stock to the desired destination.
Inventory turnover (times)


FY09 Inventory turnover


16.5 17 17.5 18 18.5

FY06 FY07 FY08

Inventory turnover 18.54 15.97 18.18

Ôurrent and Acid Test Ratio

The current ratio is mainly used to give an idea of the company's ability to pay back its short-
term liabilities with its short-term assets. The higher the current ratio, the more capable the
company is of paying its obligations. A ratio under 1 suggests that the
company would be unable to pay off its obligations if they came due at that point. While
this shows the company is not in good financial health, it does not necessarily mean that it will
go bankrupt - as there are many ways to access financing - but it is definitely not a good sign. A
ratio of 2:1 is considered ideal.
Similarly, the acid test ratio is also used to assess liquidity of a company, and is calculated in a
manner very similar to that in which the current ratio is calculated, except that this ratio
excludes stock and prepayments as assets that can be easily liquidated.
0.6 Current Ratio
0.4 Acid Test Ratio
FY08 FY09 FY10

FY08 FY09 FY10

Ôurrent Ratio 1.09 0.86 0.71
Acid Test Ratio 1.00 0.73 0.65

The current and acid test ratio figures show a very gloomy picture of the company͛s liquidity. A declining
trend is evident from the graph above. Moreover, liquidity has fallen even below 1. The stock in trade
and debtors figure have declined significantly in FY10 as compared to FY09. Overall current liabilities
have risen. The company has utilized the export refinance option (note 25, 25.1 and 25.2 to financial
statements for FY10) to boost liquidity, but it is highly required that appropriate measures be taken to
improve liquidity situation of the company to maintain healthy working capital management.

Net Ôash Flows from perations to Ôurrent Liabilities

This ratio shows how effectively current liabilities are covered by cash flowing inside an entity
via regular operative activities.
Net cash flow
from operations
0.5 to current
0.4 liabilities
FY08 FY09 FY10

FY08 FY09 FY10

Net cash flow from
operations to current 0.166 0.716 0.546

Over the three year period under review FY09 shows the most favorable result. The ratio declines to
0.546 in FY10. This can be attributed to the fall in cash flow from operating activities by
Rs.1,247,742,000. A significant curtailment in finance costs has been achieved but this has not assisted
in boosting the cash flow from operating activities figure above that in FY09.
We can also conveniently attribute this to the fact that sales (dispatches) have been much lower than
production of clinker. The table below shows some relevant figures extracted from the director͛s report
from the 2010 annual accounts.

Particulars FY10 FY09

Ôlinker production (tons) 6,054,713 5,610,455
Ôement production (tons) 6,461,726 5,715,860
Ôement dispatches (tons) 6,475,376 5,675,871
Ôlinker dispatches (tons) 153,814 227,768

Clearly there is a lot of holdup of clinker inventory which can be a very genuine reason why Lucky
Cement͛s cash flows are suffering.

Gearing is a measure of financial leverage, demonstrating the degree to which a firm's activities
are funded by owner's funds versus creditor's funds.
A company with high gearing (high leverage) is more vulnerable to downturns in the business
cycle because the company must continue to service its debt regardless of how bad sales are. A
greater proportion of equity provides a cushion and is seen as a measure of financial strength.

We can use the following pie chart analysis to demonstrate Lucky Cement͛s total gearing structure for
the three year period under review:

FY08 FY09
46% Êquity Êquity
54% 61%



40.00% FY08
10.00% FY10
Total debt Total debt Long term Long term
to assets to equity debt to debt to
equity Capital

Considering the chart above, we see a trend which suggests improving debt management.
The issued share capital figured has remained unchanged over the three years under review.
Total equity increased from Rs. 18,655,423,000 in FY08 to 25,095,929,000 in FY10. Capital
expenditure of Rs.2.3billion on Waste Heat Recovery Project was incurred. Long term finance
has reduced by Rs. 2,641,400,000 over FY09/10 which reflects reduced reliance on long term
debt and hence relief from potential finance cost as well.

Interest Ôover
This ratio represents the ease with which earnings of a company can cover interest piled on
outstanding debts. Ideally, this ratio should not be 1.5 times or below. If it comes to less than 1
then there is a serious concern that company will face troubles while servicing its debts. In
other words, the company is not generating enough earnings (before interest and tax) to cover
interest expense.

Interest cover
10 Interest cover
FY08 FY09 FY10

FY08 FY09 FY10

Interest cover 24.27 5.83 7.45

As evident from the chart above the interest cover ratio declined severely over FY08/09. This
was due to the termination of an interest rate swap arrangement entered into by Lucky Cement
in FY08. The financing cost of Lucky Cement during FY10 was reduced by Rs.667.79 million, i.e.
from Rs.1,236.97 million last year to Rs.569.18 million during this financial year. Resultantly, the
financing cost per ton also reduced from Rs.210 per ton to Rs.86 per ton during this financial
year. This cost was mainly reduced due to early repayment of high markup carrying long term
loans and resorting to export refinance and Foreign Currency Import Finance (FCIF) facilities.
The FCIF is based on Libor and repayable in USD, therefore, the Company is carrying certain
exchange risk but the same is covered on the back of natural hedge of exports.
This indicates why the ratio improves over FY09/10.

EP and PE Ratios

The Êarnings per share ratio (ÊPS) is considered as one of the basic measures of a company͛s
profitability and acts as a very important factor in determination of share price.
In line the trend of profit after tax, the ÊPS of Lucky Cement increases in FY09 to Rs.14.21 per
share and then falls down to 9.70 per share in FY10. A reduction in investor confidence is
reflective here.




FY08 FY09 FY10

FY08 FY09 FY10

EP 9.84 14.21 9.70

The Price earnings ratio represents a company͛s share price as a ratio of its ÊPS. A high P/Ê ratio
implies that investors are expecting an earnings growth in future compared to companies with
a lower P/Ê ratio and vice versa.

P/E ratio
5 P/Ê ratio
FY08 FY09 FY10

Lucky Cement͛s P/Ê ratio shows a decline in FY09 and an uplift in FY10 indicating a future boost
in investor confidence.
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Lucky Ôement company with D Khan cement company

Lucky Ôement vs. Dg Khan Ôement

A B Ô D=(B-Ô)÷Ô100

2010 Ratios LUÔKY DK Variance

Gross profit margin 32.56% 16.62% 95.90%

Net Profit Margin 12.80% 1.43% 795.10%

Return On Capital Êmployed 14.80% 4.81% 207.69%

Return on Êquity 12.50% 0.88% 1320.45%

Current Ratio 0.71 1.19 (40.34)%

Acid Test Ratio 0.65 1.12 (41.96)%

Inventory Turnover Period (times) 18.31 14.01 30.69%

Debtor Turnover Period (days) 11.60 6.82 70.09%

Interest Coverage (times) 7.45 1.19 526.05%

Clearly, from the comparison above, Lucky Cement Company͛s performance is much better
than that of DGK Cement Company. The gross profit margin and net profit margin of Lucky
Cement are 95.90% and 795.10% greater than that of DGK. Similarly the ROCÊ and ROÊ ratio
comparison reveals that they are also greater incase of Lucky Cement by 207.69% and
1320.45% respectively.
The liquidity ratios of DGK are far more commendable than Lucky Cement͛s. Though they are
not at an ideal level i.e. 2, they still imply that DGK is in a better position to pay off current
liabilities using it͛s current assets. The quick ratio further emphasizes this fact.
Lucky cement is doing better when it comes to inventory turnover as their ratio exceeds that of
DGK by 30.69%. Thus the inventory cycle is circulating more rapidly at Lucky Cement. Same
cannot be said for debtor collection period as DGK͛s debtors are likely to pay back
approximately 5 days earlier than those of Lucky Cement͛s, as seen in comparison above. This
could also explain the variance in their current ratios. Interest coverage at Lucky Cement is
526.05% greater than that at DGK implying that Lucky Cement would find it much easier to
cover finance costs with its profit before interest and tax as opposed to DGK who can only
cover it about once.

c   c c
 Current market leader in terms of both capacity and sales. Dominates both local and
export market.
(Annual Report 2010)
 Êxpanding in a timely manner. Lucky Cement͛s decision to expand in Southern Pakistan
enabled it to exploit booming construction activities in the Middle Êast, when countries
like Iran, Êgypt and India were facing a shortage.
(Annual Report 2010)
 Strong dealer network comprising of 200 dealers located at strategic positions
throughout the country has enabled the creation of an impressive distribution system to
even remote areas of the country.
(Annual report 2010)
 Recipient of National CSR excellence award as recognition for participation in social
(Annual Report 2010)
 Good brand image. Lucky Cement was declared as the Mrand of the Year-2009 in
category of cement. This award represents their:
a) brand popularity
b) product availability
c) quality and consistency.
(Annual Report 2010)
 Received Annual Ênvironment Êxcellence Award from the National Forum for
Ênvironment and Health (NFÊH) as recognition for their pro environment initiatives
including the installation of the Waste Heat Recovery Plant at its production facilities
and active support for the President of Pakistan͛s Forestation Program aimed at
promoting a cleaner environment.
(Annual Report 2010)
 Loose cement storage and ship loading terminal facilitates deliveries to customers in a
timely manner. Also reduces idle time.
 Lucky Cement became the first Pakistani cement company to receive a certification for
exports from the Mureau of Indian Standards (MIS).
 Reduced reliance on debt as a source of finance.
 Karachi serves as an ideal location to manage exports from due to the availability of
 Availability of cheap labour in Pakistan.

 Deteriorating liquidity position of the company as suggested by the current and quick
 Pressure on prices due to over capacity in the cement industry poses as a challenge.
 Increase in prices of petroleum products and coal in the international market.
Moreover, price of cement paper bags has risen to Rs 450 per ton from Rs 300 of last
year. It left no room for keeping the prices unchangedë
 The devastating floods have caused a greater decline in cement consumption and have
badly affected the country͛s exports in July, according to All Pakistan Cement
Manufacturers͛ Association (APCMA.
During the first quarter of the upcoming financial year, this year͛s monsoons and floods
are likely to dampen cement demand in some parts of the country.
(Annual Report 2010)


 Cement demand many rise when reconstruction is started to restore the infrastructure
in certain parts of country destroyed due to floods.
(Annual Report 2010)
 Government expenditure on infrastructure shall lead to an increase in cement demand.
(Annual Report 2010)
 Cement demand from local market may increase in fiscal year 2010-2011, in the wake of
reconstruction activities in the flood-affected areas, analyst said.
 There are still a lot of areas affected by the 2005 earthquake that still require attention
due to backlog on construction work done.
 Reconstruction of dams damaged during flood and construction of new ones.
 Political uncertainty in Pakistan. The prevailing political conditions in Pakistan
leave little scope for investment in the country and hence less demand for
construction work.
 Frequent bombings in the country suicide attacks suppress investment even
 Possible rise in oil and coal prices in the future
 Increased competition
 Deteriorating relations with India and heavy regulations on exports to India can
pose to be a threat.
 Depreciating Pakistani currency can pose as a serious threat to export income,
especially for Lucky Cement since its major focus is on exports.


Statement of Financial Position,

as at June 30
2010 2009 2008
(Rupees in