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PIONEER CEMENT LTD
Annual Reports 2002
CONTENTS
Notice of Meeting
Chairman's Review & Directors' Report
Six Years Summary
Best Corporate Practice
Auditors' Certificate on Corporate Governance
Auditors' Report to the Members
Balance Sheet
Profit nad Loss Account
Statement of Changes in Financial Position
Statement of Changes in Equity
Notes to the Accounts
Pattern of Holding of Shares
CORPORATE INFORMATION
Board of Directors	Malik Manzoor Hayat Noon		Chairman
	Mr. Javed Ali Khan		Chief Executive
	Mr. K. Iqbal Talib
	Mr. Muhammad Anwer Mir
	Dr. Parvez Hassan
	Malik Salman Hayat Noon
	Mr. Soren Iversen
	Mr. Allan Lee (ADB)
Audit Committee	Malik Salman Hayat Noon		Chairman
	Mr. Muhammad Anwer Mir
	Mr. Javed Ali Khan
Management	Mr. Javed Ali Khan		Chief Executive
Committee	Mr. Usman Masud Khan		Executive Director
	Mr. Badruddin Fakhri		Director Finance & Admin.
	Mr. Javed Elahi		Director Works
	Mr. Nurul Ibad		Gen. Manager Lahore Office
	Mr. Javed Iqbal		Gen. Manager Marketing
Company Secretary	Syed Anwer Ali
Statutory Auditors	Ford, Rhodes, Robson, Morrow.
Cost Auditors	En Em Associates
Legal Advisers	Hassan & Hassan
Bankers	Bank Al-Habib Limited
	National Bank of Pakistan
	Habib Bank Limited
Registered Office	1st Floor, Alfalah Building,
	Shahrah-e-Quaid-e-Azam, Lahore.
	Ph: (042) 6301914-6 Fax: (042)6301912
	E-mail: marketing@pioneercement.com
Shares Office	66-67, Garden Block,
	New Garden Town, Lahore.
	Ph: (042) 5831462-63
	E-mail: noonshr@brain.net.pk
	shares@pioneercement.com
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the 16th Annual General Meeting of Pioneer Cement Limited will
be held at 66, Garden Block, New Garden Town, Lahore on Monday, 28th October, 2002 at
11.30 a.m. to transact the following business:-
1. To confirm the minutes of the Annual General Meeting held on 31 st December, 2001.
2. To receive, consider and adopt the audited accounts for the year ended 30th June, 2002
and the reports of the directors and auditors thereon.
3. To approve payment of dividend.
4. To appoint auditors for the ensuing period and fix their remuneration.
5. To elect directors in accordance with provisions of the Companies Ordinance, 1984.
6. To transact any other business as may be placed before the meeting with the permission
of the Chairman.
The share transfer books of the company will remain closed from 22nd October, 2002 to 31st
October, 2002 (both days inclusive). Share transfers received up to close of business on 21st
October, 2002 shall entitle the transferees to the aforesaid dividend.
The board of Directors have fixed the number of elected directors as seven for the purpose of
elections at this meeting. The tenure of the elected directors will be three years from the date
of election.
The names of the retiring director are :-
1- Malik Manzoor Hayat Noon		2- Mr. Javed Ali Khan
3- Mr. K. Iqbal Talib		4- Mr. M. Anwer Mir
5- Dr. Parvez Hassan		6- Malik Salman Hayat Noon
7- Mr. Soren Iversen
In terms of section 178 (3) of the Companies Ordinance, 1984 any person who seeks to contest
this election shall file with the Company at the registered office, not later than fourteen days
before the date of the meeting, a notice of his/her intention to offer himself/herself for election
as a director.
The Company has received nominations from the following persons to contest this election:-
1 - Malik Manzoor Hayat Noon		2- Mr. Javed Ali Khan
3- Mr. K. Iqbal Talib		4- Mr. M. Anwer Mir
5- Malik Adnan Hayat Noon		6- Malik Salman Hayat Noon
7- Mr. Soren Iversen
A member entitled to attend and vote at this meeting may appoint another member as his/her
proxy to attend, speak and vote on his/her behalf. Proxies in order to be effective must be
received by the Company at the registered office not less than 48 hours before the meeting.
Account holders of CDC are requested to bring their original National Identity Cards/Passport
for the purpose of identification to attend the meeting.
By Order of the Board
SYED ANWER ALI
Secretary
Lahore: 27th September, 2002
CHAIRMAN'S REVIEW & DIRECTORS' REPORT
It gives me pleasure to present the Annual Report and Audited Accounts of the
Company for the financial year ended 30th June, 2002, on behalf of the Board of
Directors of the Company.
CORPORATE RESULTS
You will be pleased to know that by the grace of Almighty Allah the company has
earned a net profit ofRs.44 million during the year under review, as against a loss
ofRs.295 million sustained during the preceding year. Directors have recomended
5% dividend for the year under review. Sponsors have forgone their right to the
dividend.
Appropriation				Rs. / Million
Net Profit after taxation				44.426
Dividend @ 5% (subject to approval from the lenders)				29.289
Net Profit carried forward				15.136
The improvement ofRs.339 million in the profitability is mainly attributable to the
following factors:
Coal Firing System
Fuel cost in cement industry is the major component of cost of production. Due to
unprecedented surge in prices of furnace oil, its impact on the cost of production
had gone as high as 42% of the manufacturing cost of cement. The management of
your Company took due cognizance of the abnormal rise in the prices of furnace
oil and undertook the installation of Coal Firing System on topmost priority. You
will be pleased to know that the Coal Firing System commissioned in January, 2002
and is the first plant of the country which started using 100% coal for manufacturing
of cement. The entire coal firing plant is new except for coal pulverizing mills of
US make which are second hand. The coal technology in cement sector was almost
non-existent in the country. The designing of coal processing and integration of
Coal Firing Plant with the Cement Plant & its PLC system was carried out by HMC,
Taxila.
A number of teething problems have been encountered. These problems are being resolved
one by one with the help of Turkish Consultants, M/s. Dal Technik who specialize in cement
and coal technology. It is hoped that the plant will be stabilized and completed after the
installation of dynamic separator and interlocking of different sections of the plant somewhere
in November, 2002.
The reduction in fuel cost has enormously contributed in achieving a turnaround situation
during the year under review.
Price of Cement
Cement price, as you know had tumbled during the last financial year, due to fierce competition
amongst cement manufacturers. Average net retention price during last year worked out to
Rs.2,262/'- per ton which improved to Rs.2,502 per ton during the year under review.
Cost Reduction Measures
The efforts of the management to cut down cost of production to the optimum level continued
and as a result, significant savings were achieved under the heads of Fuel, Raw Materials,
Stores & Spares, Repairs and Maintenance etc, Certain concessions were also extended by the
lenders resulting in savings.
DEBT-SERVICING
In addition to financing the Coal Firing Plant, the company paid a sum ofRs.156 million
towards debt-servicing during the year under review. The company has, as such, by June,
2002 paid a total of about two billion rupees to its lenders towards principal as well as interest
/ mark-up.
CONTRIBUTION TO NATIONAL EXCHEQUER
Rs.616 million were paid during the year under review towards excise duty and sales tax alone.
Overall contribution of the company towards the national exchequer since its inception (1994)
works out to Rs.5.7 billion.
TAXATION ON CEMENT
Unfortunately, tax on cement in Pakistan continues to remain HIGHEST in the region.
Although the cement industry has incurred loss of over Rs.12 billion since 1996, it continues
to pay around Rs.15 billion each year to the national exchequer. The federal government is
requested to consider reduction in Excise Duty to the level prevailing in the region.
MARKETING
The demand of cement in the country has registered a decline of over one
percent during the year under review. There continues to remain a surplus
capacity of about 8 million tonnes in the country, which keeps the prices under
pressure. The sale ofOPC during the year under review was 396,498 tonnes
as against 405,819 tonnes sold last year. Sale of Sulphate Resistant (SR) Cement
was curtailed to 355 tonnes as against 26,640 tonnes sold during the preceding
year as economics of producing SR Cement and selling almost at the same
price as Portland Cement did not justify to continue producing it, although
your company was the pioneer in producing S.R. cement in the Northern Area
of the country.
Export to Afghanistan has unfortunately not yet taken off. A negligible quantity
of 96,218 tonnes was exported from Pakistan to Afghanistan during the year
under review. Future prospects largely depend on stability within Afghanistan
and disbursement of funds promised by international community for the war-
torn country. Your company however has exported a small quantity to
Afghanistan. If reconstruction of Afghanistan will start in a big way, then your
company can certainly be in the frontline to capture the market in Afghanistan.
Brochures and calendars of the Company have been distributed in a sizeable
quantity across Afghanistan to develop an institutional image of the company
in that country.
PRODUCTION
Production of clinker during the year under review was 439,221 tonnes as
against the capacity of 600,000 tonnes and last year production of 401,473
tonnes.
You will be pleased to know that the plant of your company is completely
environment friendly. The management ensures full compliance of National
Environmental Quality Standards. Certification under ISO 14001 relating to
environmental management system is in the process of issuance by Moody
International Certification Limited, United Kingdom. Their auditors have sent
their recommendation after carrying out environmental audit of the factory in
the second week of September, 2002.
INDUSTRY DYNAMICS
Cement Industry in Pakistan has miserably suffered because of over-capacity
hovering since 1996 and the stagnation witnessed in the demand of cement due
to poor economic performance of the country. Per capita cement consumption
continues to remain at 70 kg in Pakistan, as against 90 kg in India where demand
has been growing @ 8% per annum and world's average of 260 kg. In the eighties,
the demand of cement was growing @ 7% per annum in Pakistan, but due to
political instability the demand of cement did not post any significant rise in the
nineties. Inspite of this factor, the capacity of cement industry kept on expanding
on the basis of growth in demand witnessed until the beginning of the nineties.
Currently the demand of cement is around Rs.10 million tonnes against capacity
of 18 million tonnes. The over-capacity works out to as high as 80% of demand
of cement.
While the price of cement has remained under pressure in the wake of overcapacity
hangover, the prices of inputs have continued to escalate. Since energy constitutes
about 60% of cost of manufacturing of cement, frequent increases in the prices
of furnace oil and electricity have substantially eroded the margins of the industry.
The industry has suffered a loss of over Rs.12 billion during last seven years.
Another factor which has adversely affected the profits of the cement industry in
Pakistan is high taxation on cement. Pakistan is the only country in the region
where cement is subject to highest taxation. Excise Duty in Pakistan is Rs.1,000/-
per ton against Rs.350/- in India and Sales Tax is 15% against 10% in India. As
such taxation on cement in Pakistan is about 100% higher than India and almost
400% higher than other neighbouring countries, where taxation on cement are
10% of its price as against about 40% in Pakistan.
Given the above scenario, cement industry in Pakistan is struggling for its survival.
Only old cement plants or plants with no or little financial charges are making
some profits. Others, particularly new cement plants established with loans are
either suffering losses or are just breaking even. The risks and uncertainties, as
such continue to be associated with the Company, but the management has been
endeavouring to produce best possible operating results by bringing innovations
and improvements in its operations. After switching over to Coal Firing System,
the management is eagerly looking for other options to become reasonably profitable
even within the existing adverse conditions.
Three Board meetings were held during the year which were attended by the
directors as under:
MARKETING
The demand of cement in the country has registered a decline of over one
percent during the year under review. There continues to remain a surplus
capacity of about 8 million tonnes in the country, which keeps the prices under
pressure. The sale ofOPC during the year under review was 396,498 tonnes
as against 405,819 tonnes sold last year. Sale of Sulphate Resistant (SR) Cement
was curtailed to 355 tonnes as against 26,640 tonnes sold during the preceding
year as economics of producing SR Cement and selling almost at the same
price as Portland Cement did not justify to continue producing it, although
your company was the pioneer in producing S.R. cement in the Northern Area
of the country.
Export to Afghanistan has unfortunately not yet taken off. A negligible quantity
of 96,218 tonnes was exported from Pakistan to Afghanistan during the year
under review. Future prospects largely depend on stability within Afghanistan
and disbursement of funds promised by international community for the war-
torn country. Your company however has exported a small quantity to
Afghanistan. If reconstruction of Afghanistan will start in a big way, then your
company can certainly be in the frontline to capture the market in Afghanistan.
Brochures and calendars of the Company have been distributed in a sizeable
quantity across Afghanistan to develop an institutional image of the company
in that country.
PRODUCTION
Production of clinker during the year under review was 439,221 tonnes as
against the capacity of 600,000 tonnes and last year production of 401,473
tonnes.
You will be pleased to know that the plant of your company is completely
environment friendly. The management ensures full compliance of National
Environmental Quality Standards. Certification under ISO 14001 relating to
environmental management system is in the process of issuance by Moody
International Certification Limited, United Kingdom. Their auditors have sent
their recommendation after carrying out environmental audit of the factory in
the second week of September, 2002.
All these steps if materialized, are likely to stimulate the demand of cement in a big
way and in that event the Company will be able to show improve corporate results.
GOING CONCERN ASSUMPTION
In their report, the auditors have raised doubts about the ability of the Company to
continue on a going concern basis, mainly because rescheduling agreement with
National Bank of Pakistan (NBP) is yet to be signed. The fact of the matter is that
National Bank of Pakistan have in principle agreed to reschedule the loan. The
terms of rescheduling mutually agreed between the Bank and the Company are in
the process of formal approval. As soon as the same are approved, the rescheduling
agreement will be signed with National Bank of Pakistan. As regards accumulated
losses, the same have started reducing. The profitability of the Company has greatly
improved after switching over to Coal Firing System and because of improvement
in the price of cement. The Company has achieved a turnaround situation during
the year under review and the management is fully confident that the Company will
continue to operate as a going concern.
AUDITORS
The present auditors M/s. Ford Rhodes Robson Morrow, Chartered Accountants
retire and being eligible, offer themselves for re-appointment.
ACKNOWLEDGEMENT
We are grateful to Asian Development Bank and Asian Finance & Investment
Corporation Limited for appreciating the constraints of cement industry in Pakistan
and extending concessions while agreeing to reschedule the loans. We are also
grateful to National Bank of Pakistan for agreeing to reschedule their dues. Thanks
are due to NBP (former NDFC), BEL, IDBP and SAPICO for their help being
extended to the Company on account of difficult times faced by the cement industry.
We are also greatful to M/s. Dal Technik of Turkey for their assistance in the Coal
Firing Project.
Thanks are due to the dealers, contractors and suppliers for their cooperation. Thanks
are also due to the employees who are the most valuable asset of the company and
have worked hard in facing all the challenges posed by an industry which has been
in crisis for the last six years.
MALIK MANZOOR HAYAT NOON
Chairman
STATEMENTS   ON   CORPORATE   GOVERNANCE
The Board is pleased to certify that:
a) the financial statements prepared by the management of the Company present
fairly its state of affairs, the result of its operations, cash flow and changes
in equity.
b) proper books of accounts of the Company have been maintained.
c) appropriate accounting policies have been consistently applied in preparation
of financial statements and accounting estimates are based on reasonable and
prudent judgment.
d) international accounting standards, as applicable in Pakistan, have been
followed in preparation of financial statements.
e) the system of internal control is being further strengthened.
f)  the management view in the matter of company's ability to continue on a
going concern basis has been explained in note 1.2 of financial statments and
hereinafter.
g) there has been no material departure from the best practices of corporate
governance, as detailed in the listing regulations.
Key operating and financial data of last six years is annexed to the report.
Value of investments of Provident Fund