"Attock Cement Pakistan LTD.": Research and Analysis Project
"Attock Cement Pakistan LTD.": Research and Analysis Project
"Attock Cement Pakistan LTD.": Research and Analysis Project
No.
Contents
Page
No.
1
1.1
1.2
1.3
Introduction
Reasons for choosing the topic and company
Project objectives and research questions
Overall Research approach
3.
3.
4.
2
2.1
2.2
Information Gathering
Sources of information (Primary and secondary)
Description of methods used to collect information
5.
5.
2.3
2.4
2.5
3
3.1
3.2
3.3
3.4
3.5
Analysis
Over view of the economy
Company history
Company products
Cement industry
Ratio analysis and competitor analysis
Sales analysis and profitability analysis
Liquidity and working capital analysis
Capital and debt structure analysis
Valuation ratios
Porters five forces analysis
SWOT analysis
3.6
3.7
4
A
B
C
D
E
6.
7.
8.
9.
9.
9.
10.
18.
19.
20.
23.
25.
27.
28.
29.
1. INTRODUCTION
1.1 Reasons for choosing the topic and company
One of the reasons for choosing this topic was that as an
accountancy student I always studied the analysis of a company
using ratio analysis and other business tools but obviously that
has very little scope. Performing analysis of an actual company is
a very challenging and it also involves analyzing the environment
too that is full of learning and that gives a wider scope.
Another reason for choosing the analysis of a companys
financial statement was the ease of availability of annual
accounts. Thats because companies today do not want to share
their internal information with outsiders and are reluctant to
share the documents that was important for other topics.
I foresee my future in the field of business analyst and
performing the analysis of a real entity was obviously my interest
and gave me real insight of the work of this field that how things
happen practically.
One of the very strong reasons of choosing the topic was that is
related to my studies.
Reason for choosing the cement industry was that this industry is
one of the biggest contributors to the economy of Pakistan.
One of the reasons for choosing ATTOCK CEMENT PAKISTAN
LIMITED (ACPL) was due to the up to date and readily available
information of this company through several sources.
Research questions
To have a clear structure and objectives of the project in my mind I
devised the following questions:
What information will be required initially and during the
project to start and assist me in the project?
What will be the sources of information that I have to find out
and get sufficient information about the company and sector?
What are the methods to gather the information?
What will be the areas I have to focus in the financial
statements to get my work properly done?
What will be the IT skills required to perform and present my
work properly?
What will be the communication skills required when meeting
my mentor and other people in the process of information
gathering?
How can I establish the strategic position of the company?
What will be the level of learning in performing all the work?
Will it help me in the future? (Johnson, 2005)
How the conclusion will be designed from the work done?
lot in deciding me the topic. After selecting the topic I figured out the
industry and the company I will use in my project.
Then I started working on the sources of information from which I can
get reliable information about the cement sector and ACPL. I used
many sources including internet, newspapers, magazines, accounting
books, ACCA syllabus books, library and of course annual accounts of
the company. I also interviewed personnel of ACPL and asked many
questions to them that helped to increase my knowledge.
Then I selected the tools that I used during analysis. They include both
financial and non-financial. I used ratio analysis for the financial
analysis and SWOT and Porters five forces as non-financial tools. I
gathered information about a competitor so that the analysis can be
comparable.
Meanwhile I was in the contact with my mentor through a series of
meetings who helped me in the issues that arose during the process.
He guided me, referred me different books for referencing and also
helped me plan my work.
2. INFORMATION GATHERING
2.1 Sources of information - Primary and secondary
Primary sources of information allow the learner to access original and
unedited information. A primary source requires the learner to interact
with the source and extract information. Secondary sources are edited
primary sources, second-hand versions. They represent someone
else's thinking. (www.graphic.org)
Primary sources that I used were interviews, questionnaires and visits
that I made to the office of ACPL. First of all I arranged a meeting with
the managers of accounts and marketing department. Meeting the
company personnel was very informative experience and the
information I got helped me in performing my work. First of all I
identified the informed persons of the company and asked them to fill
the questionnaire. Questionnaire included many questions about the
company and its production.
Then I interviewed the persons I was supposed to meet. They firstly
provided me the annual accounts for the year ended June, 2009. While
interviewing I got solved many problems that I was facing in
understanding the annual accounts. Then I met manager marketing
department that helped me understand the companys strategy and
also the cement sector of Pakistan. The information helped me in
performing SWOT and Porters five forces analysis.
Secondary sources of information that I used were as follows:
Internet is the main source of information now days in all
fields, and that helped me a lot throughout my work. The sites
I used to visit were www.google.com and www.wikipedia.org.
The web site of ACPL and Karachi Stock Exchange were also
very useful which are as follows: www.attockcement.com.
I used to study business magazines to be up to date with the
changing business environment.
Annual reports of the company over a three year period along
with the competitors report were really helpful in acquiring
financial data of company.
Analyst reports were used to gain the industry and ACPL
related information.
The newspapers business sections were also one of the
sources of my information inputs.
The ACCA syllabus books and the ACCAs magazine student
accountant was also a part of my study. I had to search the
6
Ratio analysis
A tool used by individuals to conduct a quantitative analysis of
information in a companys financial statements. Ratios are calculated
for current year numbers and are then compared to previous years,
other companies, the industry or even the economy to judge the
performance of the company. Ratio analysis is predominantly used bye
proponents of fundamental analysis. (www.investopedia.com)
Limitations of ratios
SWOT analysis
SWOT analysis can be used to gauge the degree of fit between the
organizations strategies and its environment, and to suggest ways in
which the organization can profit from strengths and opportunities and
shield itself against weaknesses and threats. (Adams, 2005)
10
PROFITABILITY ANALYSIS
Net Turnover (Rs. million)
Sales growth
Gross profit margin
Net profit before tax margin
Return on Capital employed
(ROCE)
ACPL
FY07
ACPL
FY08
ACPL
FY09
BWCL
FY09
4,560
31.29%
34.10%
26.16%
18.11%
5,001
9.67%
22.27%
13.49%
10.00%
8,510
70.16%
31.83%
23.37%
27.63%
14,814
97.86%
32.19%
8.13%
4.95%
SALES ANALYSIS
The net sales of ACPL in the absolute terms were augmented to
Rs.8,501million during FY09 compared to Rs.5,001million in FY08. The
increase was due to higher quantity sold and better retention during
the year owing to higher selling prices of cement in the country but the
demand was remain depressed in the local market. The sales volume
of ACPL was increased by 25% in the year from 1,359,487tons in FY08
to 1,719,162tons during FY09 mainly due to successful commissioning
of Line-2, and net retention was also augmented by 37%. The reason
11
6000
5000
4000
3000
2000
1000
0
2005
2006
2007
YEAR
2008
2009
The local currency rupee was highly depreciated against other major
currencies that contributed substantially towards the rise in net
retention as a consequence of exports. The domestic sales volume of
ACPL reduced by 1% because of lower demand owing to less
construction activities in the country. (Daily Times, 2009)
On the other hand, the export sales of ACPL increased by 412% and it
contributed 27% of total sales volume compared to 7% in FY08. The
domestic sales percentage was 73% of total volume in comparison
with 93% in FY08 that was a good sign as international prices are
higher as compared to local cement prices.
During FY08 the net turnover of ACPL elevated by 9.67%
Rs.5,001million as compared to Rs.4,560million in FY07. The reason of
increased revenue was attributable to higher quantity sold in the year
by 11% as 1,359,487tons of cement was sold by the company
compared to 1,228,793tons in FY07. The local cement market faced
oversupply situation during FY08 as a result of expanded production
capacity by all cement manufacturers, on the other hand demand was
lower and the prices were almost stable for the whole year. ACPL was
unable to explore new export markets to attain retention prices during
FY08 due to lower than expected production from one of its plant as a
result of technical problems. The export sales of the company
contributed 7% of the total sales volume during FY08 as compared to
3% in FY07.
12
13
YEAR
2008
2007
2006
2005
0
500
1000
1500
MILLION
2000
2500
14
result of higher profits earned during FY09, though the equity of the
company also increased due to retained profits in the year.
The ROCE showed a decline to 10.00% in FY08 as compared to a
higher figure of 18.11% achieved in FY07 this was due to the
deteriorating profitability owing to slow growth in sales and higher
input costs that worsened the margins and consequently the returns
dropped in the year.
The ROCE of BWCL was also lesser than ACPL during FY09 primarily
because BWCL issued shares during the year for cash which led to
increase in equity.
LIQUIDITY ANALYSIS
LIQUIDITY ANALYSIS
Current ratio
Acid test ratio
ACPL
FY07
ACPL
FY08
ACPL
FY09
BWCL
FY09
1.26:1
0.65:1
1.51:1
0.45:1
2.43:1
1.36:1
0.64:1
0.26:1
CURRENT RATIO
The liquidity ratio of ACPL is quite good at 2.43 even above than ideal
level of 2:1. The reason behind such positive results was incredible
increase in current assets by 86% during FY09 on account of huge
short-term investments made by the company. ACPL had capitalized
on high interest rates and have earned in short-term, getting both
profits and liquidity. This was a good strategy of a company as
currently money market is the safest investment with such high
interest rates. ACPL invested Rs.100million in a certificate of
investment that would offer 13.35% on maturity in FY09. Likewise
ACPL also invested Rs.206 million in income funds, which allowed them
to let their income grow along with receiving of periodic cash flows.
The current liabilities also showed a nominal growth of 15% on account
of increase in accrued liabilities compared to FY08.
15
CU RRENT ASSETS
3000
2762
MILLION
2500
2000
1500
1000
1285
837
1480
575
500
0
2005
2006
2007
2008
2009
YEAR
ACPL
FY08
ACPL
FY09
BWCL
FY09
2days
24days
33days
3days
40days
38days
2days
18days
38days
14days
11days
26days
17
ACPL
FY08
ACPL
FY09
BWCL
FY09
22:78
12.65tim
es
18:82
5.41time
s
11:89
58:42
17.71tim 1.52time
es
s
DEBT-TO-CAPITAL RATIO
ACPL financed its activities through both equity and debts sources as
depicted from its long-term debt-to-equity ratio. But the debt portion
constituted a little amount in total capital of the company. The
company retained much of its profits earned during FY09 that boosted
its overall equity, though its share capital remained the same. The
company acquired long-term loans for the capacity expansion project
in FY06 and now repaying its debts over the years. So the
disbursement of long-term loans and significant increase in equity
during the period reduced its reliance on debt and the ratio decreased
to 11:89 as compared to FY08.
The long-term debt-to-equity ratio in FY08 also declined slightly from
22:78 to 18:82 this was also as a result of dual effect of increase in
equity and decline in debt portion due to repayment of loans in the
year. ACPL is one of the low leveraged companies in the cement
industry of Pakistan ultimately retained low risk. BWCL was a high
leveraged company due to acquisition of long-term loans for the
capacity expansion in FY09.
INTEREST COVER
The interest cover of ACPL improved drastically to 17.71times in FY09
compared to 5.41times in FY08. This has been observed because of
23% drop in companys finance costs. The reason behind fall in
financial charges was dearth of short-term borrowings that was taken
by the company in last year. This was because of excess liquidity it had
due to higher sales revenue.
Similarly, in FY08 ACPL acquired short-term borrowings to fulfill the
needs of working capital as its liquidity deteriorated in the year. Higher
interest rates increased the borrowing cost for the company and its
interest cover reduced to 5.41times in FY08 compared to 12.65times in
FY07. The lower margins of the company during FY08 due to slow
growth and higher costs also contributed in lowering the interest cover
of the company during FY08.
VALUATION ANALYSIS
18
VALUATION ANALYSIS
Earnings per share
Dividend per share
Share value
Price to earnings
Dividend yield
ACPL
FY07
ACPL
FY08
ACPL
FY09
BWCL
FY09
Rs.11.04
Rs.4.50
Rs.118.2
5
10.71tim
es
3.80%
Rs.6.03
Rs.1.50
Rs.69.25
Rs.20.69
Rs.3.25
Rs.70.36
Rs.3.17
0
Rs.28.00
11.48tim
es
2.17%
3.40time
s
4.61%
8.83time
s
0
almost all sectors; similarly the market vale of ACPLs share was also
constant despite the increase in earnings during FY09. However, during
FY08 the share price fell drastically to Rs.69.25 from Rs.118.25 during
FY07. The share price of BWCL was mush lesser than ACPL.
PRICE TO EARNING RATIO
The price earning ratio of the company has been very volatile with the
changes in market value and does not depict a true picture regarding
the investor confidence on the company.
DIVIDEND YIELD
Dividend yield of the company decreased in FY08 as compared to FY07
as ACPL announced lower dividends however the market price of
shares also declined in the year. ACPL increased the amount of
dividends in FY09 ultimately improved the dividend yield compared to
the last year.
DISTRIBUTION OF TOTAL REVENUE
8%
1%
7%
Cost of sales
Operating expenses
17%
Retained profit
Corporate taxes
Financial charges
67%
power of the suppliers of power and fuel is low as they cannot exert
too much pressure upon ACPL because it uses coal as an alternate
resource of fuel. As coal is traded in an open market so its suppliers
have a low bargaining power they have to sell according to
international prices.
BARGAINING POWER OF CUSTOMERS
The strength of customers depends on survival factors and the number
of customers. The cement industry of Pakistan is widely spread and
has a large number of customers who buy in small quantities.
However, commercial use of cement is increasing and the switching
cost of customers is also low so their bargaining power goes up.
Generally the price awareness of small customers is low and quality of
cement cannot be measured, moreover, the cartelization between
cement manufacturers further reduced the bargaining power.
THREAT OF NEW ENTRANTS
The barriers of entry in the cement industry are high because there are
27 listed companies at stock exchange that are already engaged and
have developed a strong brand loyalty and well-established distribution
networks. The cement industry has benefited a lot by shifting towards
dry process, installation of electrostatic precipitators and pre-heaters,
automation of processes and installation of online analyzer which has
resulted in environmentally better and energy-efficient industry on the
other hand high capital is required to enter in such situation.
RIVALRY AMONGST COMPETITORS
All the manufacturers have expanded their production capacities that
created an over supply situation in the country and now every firm
trying to get more market share in the presence of lower demand due
to reduced construction activities. Many of the companies are equally
balanced. There is oligopoly in cement sector in Pakistan. Therefore,
the rivalry is very high. Now apart from the local competition many
firms are competing for the regional market share and trying to
explore new markets for better retention keeping in view their
production capacity.
21
WEAKNESSES
OPPORTUNITIES
THREATS
22
23
LIQUIDITY ANALYSIS
The minimum requirement of current ratio is at 2:1 but ACPLs ratio
lingers above this requirement in FY09 due to huge short-term
investments. The ratio was also stable in FY08 and FY07. The quick
ratio fell in FY08 due to higher inventory level whereas it improved in
FY09. Stock management has been managed in all years owing to the
future demand of cement in an efficient way and as most of the sales
are done on cash basis debtor days were also on a lower side. Creditor
days seemed to be on the higher side in FY08 as a result of weakened
profitability but again managed considerably during FY09. BWCL has
lesser liquidity because of higher short-term borrowings. Activity ratios
are not materially different from ACPL.
DEBT-TO-CAPITAL STRUCTURE
Expansions were done through equity and debt-finance in the past
years. Although previous long-term loans are being repaid through
internal cash flows, hence the company registered a lower debt-toequity ratio during the years under comparison. Interest cover was also
so much improved in FY07 due to higher operating profits and
declining finance costs. BWCL has higher gearing because of loans for
its expansion.
VALUATION ANALYSIS
ACPLs earning per share, dividend per share improved in FY09
compared to the last as result of higher profits but the share price
remained constant due to weakening market situation in the year.
Dividend yield also improved in FY09 compared to last year. ACPLs
performance was much impressive than its rival company BWCL during
FY09.
FIVE FORCES MODEL
There is also no threat of substitutes and the bargaining power of
suppliers and customers is also low. After analyzing factors it can be
concluded that competitive rivalry for ACPL is high. Also, as strength of
barriers to entry shows the threat of new entrants to the market is low.
SWOT ANALYSIS
ACPL is utilizing its strengths and opportunities, and also trying to
mitigate the threats and weaknesses to make its position stronger.
SUGGESTIONS
24
The company is performing well for the financial point of view. ACPLs
distribution channels are also effective, but it should pay great
attention towards the transportation and loading side for exporting
cement and also take some steps to reduce its costs so that better
margins can be achieved. The cement industry is in a dire need of
government support in the development of local coal mines and
thereby reduces the dependence on imported coal.
25
APPENDIX
A:
BIBLIOGRAPHY
REFERENCING
AND
27
28
APPENDIX B: QUESTIONNAIRE
1.
2.
3.
4.
5.
RESPONSE
1. ACPL was incorporated in 1981 as a public limited company. It is
listed on the Karachi Stock Exchange. The Attock Cement project
was a Pak-Saudi venture. The project was completed and the plant
started commercial production on 1st June 1988. It is a part of
Pharaon Group as the Pharaon Commercial Investment Company
Limited has a majority stake of 84.06% in ACPL.
2. ACPL introduced the pre-calcination/pre-heating dry process
technology in Pakistan. ACPL manufactures three types of cement:
Ordinary Portland Cement which is used in general construction;
Sulphate Resistant Cement is suitable for construction in sea or
near coastal areas and Portland Blast Furnace Slag Cement for
massive constructions e.g. dams and canals. The company also
produces specially formulated mixes of cement to meet the
different customer requirements.
3. It markets its cement under the brand name of 'Falcon Cement.' The
company focuses on meeting the Pakistan and international quality
standards and in 2002 it achieved the ISO 9001: 2000 certification.
A visible slowdown has been observed in the local demand.
4. The main reasons behind this slowdown were the poor law and
order situation and political turmoil in the country. Another
significant reason for this slowdown is increase in overall
construction cost due to higher inflation and interest rates.
5. It is anticipated that the local demand would continue to remain
under pressure because of higher interest rates and poor law and
order situation currently prevailing in the country. The export
29
2008
1,364,5
11
1,359,4
87
30
2007
2006
1,234,878 842,296
2005
728,487
1,228,793 843,137
730,704
APPENDIX C: RATIOS
PROFITABILITY ANALYSIS
Net Turnover (Rs.
million)
Sales growth
Gross profit margin
Net profit before tax
margin
Return On Capital
employed/ROCE
LIQUIDITY ANALYSIS
Current ratio
Acid test ratio
WORKING CAPITAL RATIOS
Debtor collection days
Creditor payment days
Inventory holding days
DEBT TO CAPITAL
STRUCTURE
Debt to capital ratio
Interest cover
VALUATION ANALYSIS
Earnings per share
Dividend per share
Share value
Price to earnings
Dividend yield
ACPL
FY07
ACPL
FY08
ACPL
FY09
BWCL
FY09
4,560
5,001
8,510
14,814
31.29%
34.10%
26.16%
9.67%
22.27%
13.49%
70.16%
31.83%
23.37%
97.86%
32.19%
8.13%
18.11%
10.00%
27.63%
4.95%
1.26:1
0.65:1
1.51:1
0.45:1
2.43:1
1.36:1
0.64:1
0.26:1
2days
24days
33days
3days
40days
38days
2days
18days
38days
14days
11days
26days
22:78
12.65time
s
18:82
5.41times
11:89
17.71time
s
58:42
1.52times
Rs.11.04
Rs.4.50
Rs.118.25
10.71time
s
3.80%
Rs.6.03
Rs.1.50
Rs.69.25
11.48time
s
2.17%
Rs.20.69
Rs.3.25
Rs.70.36
3.40times
Rs.3.17
0
Rs.28.00
8.83time
s
0
31
4.61%
APPENDIX D GRAPHS
DISTRIBUTION OF TOTAL REVENUE
1%
8%
7%
Cost of sales
Operating expenses
17%
Retained profit
Corporate taxes
Financial charges
67%
NET SALES
9000
8000
MILLION
7000
6000
5000
4000
3000
2000
1000
0
2005
2006
2007
YEAR
2008
2009
YEAR
2008
2007
2006
2005
0
500
1000
1500
MILLION
2000
2500
CURRENT ASSETS
3000
2762
MILLION
2500
2000
1500
1000
1285
837
500
1480
575
0
2005
2006
2007
YEAR
32
2008
2009
2008
2007
(Rupees '000')
1,25
0,000
1,250
,000
1,25
0,000
721
,629
4,04
3,176
13
,062
4,77
7,867
721
,629
2,784
,754
25
,196
3,531
,579
721
,629
2,67
4,462
422
,500
636
,870
1,05
9,370
622
,500
736
,449
1,358
,949
109
822
,500
554
,213
1,37
6,822
856
,330
8
,914
767
,579
12
,731
819
,785
14
,413
109
200
,000
980
,419
5,87
0,947
1
,076
177
,500
1,01
2,774
5,78
5,640
(47)
3,39
6,044
NON-CURRENT LIABILITIES
Liabilities against assets subject to finance
leases
Long term murabaha
Deferred taxation
CURRENT LIABILITIES
33
70
,320
200
,000
1,13
5,564
6,97
2,801
4,14
3,534
4
,500
19
,438
42
,980
4,21
0,452
4,333
,363
4,
500
9,
775
42
,980
4,390
,618
4,44
3,222
4
,500
9
,912
42
,980
4,50
0,614
599
,605
613
,934
46
,485
26
,208
12
,362
7
,676
26
,988
622
,758
409
,498
49
,799
21
,213
10
,351
2,
154
49
,403
183
,950
20
,246
110
,957
1,480
,329
5,87
0,947
348
,714
276
,428
19
,897
35
,099
2
,894
2
,154
23
,489
107
,073
203
,502
265
,776
1,28
5,026
5,78
5,640
CURRENT ASSETS
34
557
,265
871
,826
2,76
2,349
6,97
2,801
Net Sales
071
Cost of sales
099
Gross profit
972
Distribution cost
194
Administrative
expenses
420
Other operating
expenses
402
Other operating
income
533
Operating profit
489
Finance cost
763
726
Taxation
775
951
2008
(Rupees
'000')
5,001,
350
4,560,
402
5,801,
3,887,
147
3,005,
726
2,708,
1,114,
203
1,554,
676
8,510,
437,
2007
124,
744
182,
582
147,
83,
360
133,
701
54,
841
166,
840
2,108,
27,
828,
909
1,988,
153,
674,
967
495,
942
1,492,
88,
465
876
119,
110,
239,
299
1,295,
449
072
102,
1,193,
377
944
435,
025
23,
396,
796,
433
2008
(Rupees '000')
35
2007
Net Sales
8510071
5001350
4560402
Cost of sales
5801099
3887147
3005726
Gross profit
=SUM(B8B10)
=SUM(C8C10)
=SUM(E8E10)
Distribution cost
437194
124744
83360
Administrative
expenses
182420
133582
110701
Other operating
expenses
147402
54841
88465
Other operating
income
166533
27840
23299
Operating profit
2108489
828876
1295449
119763
153909
102072
1988726
674967
1193377
495775
239942
396944
=SUM(B26B28)
=SUM(C26C28)
=SUM(E26E28)
Finance cost
Profit before taxation
Taxation
Profit after taxation
36