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Annual Report '96

MAPLE LEAF

CEMENT FACTORY LIMITED

A Company of Kohinoor ( Rawalpindi) Group

Contents

COMPANY INFORMATION

Board of Directors

Mr. Tariq Sayeed Saigol

Chairman

Mr. Mohammad Hanif

Chief Executive

Mr. Taufique Sayeed Saigol

Mr. Usman Said

Mr. Sarmad Amin

Mr. Aamir Fayyaz Sheikh

Mr. Palle O. Jorgerisen

(Representing FLS & IFU)

Mr. Sk. Jahangir

(Representing NIT)

Company Secretary

Mr. Mohammad Sharif

Bankers of the Company

Muslim Commercial Bank Limited

Union Bank Limited

Habib Bank Limited

National Bank of Pakistan

Soneri Bank Limited

American Express Bank Ltd.

The Bank of Punjab

Auditors

1. Ford, Rhodes, Robson, Morrow

Chartered Accountants

2. Amin, Mudassar & Co.

Chartered Accountants

Legal Advisors

1. Cornelious Lane and Mufti

Nawa-e-Waqt Building

4-Fatima Jinnah Road, Lahore.

2. Ch. Sadiq Hussain

Advocate,

Supreme Court of Pakistan

Lahore High Court.

Registered Office

42-Lawrence Road, Lahore.

Phone: 6305883, 6278904-5

Fax: (042) 6363184

Factory

Iskanderabad Distt Mianwali.

Phones: (0459) 392237 - 8

NOTICE OF THE ANNUAL GENERAL MEETING

Notice is hereby given that the 36th Annual.

General Meeting of the members of

Maple Leaf Cement Factory Limited will be

held at its registered office, 42-Lawrence

Road, Lahore on Thursday, 26th December,

1996 at 3.00 p.m. to transact the following

business:

1) To confirm the minutes of last

General Meeting.

2) To receive and adopt Audited Accounts

of the company for the year ended June

30, 1996 together with the Auditors and

Directors Reports thereon.

3) To appoint the Auditors and fix their

remuneration. M/s Ford, Rhodes,

Robson, Morrow, Chartered

Accountants and M/s Amin, Mudassar

& Co, Chartered Accountants the

retiring joint auditors, being eligible,

offer themselves for reappointment for

the next year.

4) To transact any other business with the

permission of Chair.

Notes:

1. Shares Transfer Books of the company

will remain closed from 25th December,

1996 to 31 st December, 1996 (both days

inclusive). Transfers received in order at

company's share department, 42-

Lawarence Road, Lahore upto the close

of business on 24th December, 1996

will be considered in time.

2. A member eligible to attend and vote at

this meeting may appoint another

member as his/her proxy to attend and

vote instead of him/her. Proxies in order

to be effective must reach the

company's registered office not less

than 48 hours before the time for

holding the Meeting.

3. Shareholders are requested to immedi-

ately notify the change in address, if any.

By order of the Board

Mohammad Sharif

Company Secretary

Lahore: December 4, 1996

CHAIRMAN'S REVIEW

I am pleased to present annual report for

the year ended June 30, 1996.

The Pakistan cement industry is facing the

worst-ever crisis owing to a massive decline

in demand, unprecedented increase in excise

duty & sales tax, rising cost of fuel & energy

and packing materials which make it

extremely difficult for the manufacturers to

continue their operations efficiently.

Furnace oil prices have been doubled in the

last one year and the power tariff has also

been increased tremendously. The

devaluation of Pak Rupee has also affected

the profitability of the company by

increasing cost of imported inputs.

Cement industry is continuously under

pressure of inconsistent and varying policies

announced by the Government of Pakistan

since 1993 as explained below:

i) Abolition of capacity taxation w.e.f

August, 1993 has taken away the special

incentive for the cement manufacturers

to produce more adversely affecting the

overall production of the country and

resulting in the decline of revenues. It is

in the larger national interest that the

Government revives the scheme of

capacity tax to arrest declining

revenues.

ii) The incentive of exemption from sales

tax has been given to industrial units set

up in the provinces of NWFP and

Baluchistan. This will detract the

attention of investors considering to set

up industrial units in other areas. In

particular the industrial units set up

close to NWFP and Baluchistan which

are also the underdeveloped districts of

Punjab like D.G.Khan and Mianwali

face marketing problems, because of

paying 18% sales tax more than their

competitors in NWFP and Baluchistan.

This anomaly in taxation of same

product manufactured by the units

located close to each others needs to be

rationalized.

iii) The taxes and duties have been

increased and presently 35% excise duty

and 18% sales tax is leviable on cement

on retail price basis. The price of cement

has not been increased to cover this

levy and increased cost inputs due to

over supply. The absorption of the

additional levies squeezed the profit

margins to an alarming level.

iv) Cement has been charged to excise duty

and sales tax on retail price with printing

retail price on cement bags vide

amendment in the law. The system of

excise duty and sales tax on retail price

is not workable as cement being a

voluminous item, freight differs very

widely from place to place.

v) The price of furnace oil has been

increased substantially during the year.

The furnace oil is a major cost input in

cement manufacturing. The increase in

furnace oil price has squeezed the profit

margins. thus discouraging the investors

to invest in this sector.

vi) Imported machinery for the expansion

project was exempt from import duties

and sales tax under SRO No. 484 (I)/92

which expired on June 30, 1995 and

additionally 10% regulatory duty has

been imposed on imported goods. This

has increased the capital cost of the

on-going projects. The cost of stores &

spares shall also increase due to the

imposition of additional import duties &

taxes and devaluation of Pak Rupee.

In order to give relief to the manufacturers

and to consumers, the Government should

decrease taxes otherwise this industry would

become sick like the textile sector. The

Government has allowed export of

cement only by sea which will provide

relief to the southern region producers.

The export of cement by road will help

the northern producers by exporting

cement to Afghanistan, Iran and Central

Asian Republics. The facility of export by

road can help to save the industry from

crisis and will also earn foreign exchange

for the country.

Despite the adverse circumstances, the

performance of your company in the year

under review has been satisfactory. The

Expansion Project of 3300 tonnes per day

clinker capacity with installation of Environ-

mental Improvement project and up grading

the existing plant, undertaken by the

management is going on schedule and will

be completed as per schedule i.e September,

1997. On completion of the project the

annual production of the company will

increase to 1.5 million tones.

I record my appreciation for International

Finance Corporation, F.L.Smidth & Co.

(the expansion plant supplier) and IFU

(Danish Government Fund for Developing

Countries) who have invested in the

expansion project undertaken by the

company.

I would like to close with thanks to the

company's management team, executives,

workers and stockiest for their valuable

contribution to the affairs of the company

and hope for better and prosperous future.

Tariq Sayeed Saigol

Chairman

Maple Leaf CEMENT FACTORY LTD

FIVE YEARS SUMMARY

1995-96

1994-95

1993-94

1992-93

1991-92

Quantity Data (M.Ton):

Grey Cement:

Production

488,961

487,785

497,651

521,060

479,200

Sales

481,881

492,611

489,494

520,225

482,043

White Cement :

Production

34,720

38,299

35,125

36,008

36,951

Sales

34,450

38,375

35,091

36,113

36,309

Sales (Rs.000)

Gross Sales

1,675,074

1,803,122

1,528,307

1,346,968

1,096,621

Less: Excise Duty

397,782

433,530

267,787

231,266

232,056

Sales Tax

235,457

260,118

196,795

151,004

121,763

SCCP Surcharge

24,046

Rebate

11,001

13,542

391

227

Net Sales

1,030,834

1,095,932

1,063,334

964,698

718,529

Gross Profit

201,972

352,405

359,366

346,838

151,526

Profit Before Tax

238,554

342,817

314,360

259,972

115,640

Provision for Taxation

98,000

126,000

113,219

83,500

41,797

---------

Profit After Tax

140,554

216,817

201,141

176,472

73,843

=========

Tangible Fixed Assets - Net

3,780,420

1,481,822

606,396

513,606

494,392

Investment & Other Assets

380,163

376,870

215,710

112,167

9,458

---------

4,160,583

1,858,692

822,106

625,773

503,850

Current Assets

1,880,883

2,102,296

468,992

536,610

523,720

Less: Current Liabilities

(380,854)

(313,766)

(324,947)

(359,363)

(327,498)

---------

Net Working Capital

1,500,029

1,788,530

144,045

177,247

196,222

---------

Capital Employed

5,660,612

3,647,222

966,151

863,020

700,072

Less: Long Term Loan

& Other Liabilities

(2,557,172)

(673,999)

(350,955)

(388,965)

(430,014)

---------

Share holders equity

3,103,440

2,973,223

615,196

414,055

270,058

=========

Represented by:

Share Capital

930,209

826,853

129,901

Reserves & Unappropriated

Profit

2,173,731

2,146,370

485,295

284,154

140,157

---------

31,113,440

2,973,223

615,196

414,055

270,058

=========

Ratios

Gross Profit to Sales (%age)

19.59

32.16

33.80

35.95

21.09

Net Profit to Sales (%age)

13.63

19.78

18.92

18.29

10.28

Debt Equity Ratio

44:56

15:85

26:74

38:62

52:48

Current Ratio

4.94

6.70

1.44

1.49

1.60

Break up Value per

Share of Rs. 10 each

33.36

35.96

47.36

31.87

20.79

DIRECTORS' REPORT TO THE Shareholders

The directors take pleasure in placing their

report alongwith audited accounts and

auditors report thereon for the year

ended June30, 1996.

OPERATING RESULTS

In the year under report cement industry

suffered heavily by currency devaluation,

higher cost inputs especially furnace oil,

recession in the market, increase in duty &

taxes and low selling price. However, your

company has closed the year with reasonable

profitability.

The net sales revenue for the year under

report amounted to Rs. 1,030.834 million

against the last year Rs. 1,095.932 million

and pre-tax profit Rs. 238.554 million (1995:

Rs. 342.817 million). The decrease in profit

over the last year is attributable to increased

cost inputs i.e. substantial increase in

furnace oil, diesel & POL rates, power

tariff and prices of stores & spare. The

profitability also decreased due to sluggish

market conditions. Furnace oil prices

increased substantially during the year which

had a very adverse impact. The increased

taxes imposed in the annual budget 1996

which are around 50% of the ex-factory

price, has reduced the sales revenue and

squeezed profit margin.

The production and sales for the year under

review are given as under:

PRODUCTION (M. Tones)

Grey

White

Clinker

Cement

Clinker

Cement

1996

488,933

488,961

34,581

34.720

1995

483,138

487,785

35,424

38,299

SALES (M.Tones)

1996

481,881

34,450

1995

492,612

38,375

The performance has been satisfactory and

the decrease in sales by 2% was due to

depressed market conditions. While the

availability of cement in the country

increased due to commissioning Of new and

expansion of the existing plants, a decline in

demand was witnessed mainly on account of

reduced development work and low

economic activities. It is estimated that

supply was surplus in a relentless

competition and as a consequence cement

prices remained under pressure.

Three factors will lead to a further downturn

in the market. a) Cement demand depends

largely on infrastructure projects and

housing demand, but in Pakistan, with a

continuous budget deficit and fall in

general purchasing power, any substantial

increase in cement demand is not foreseen in

the near future. b) Due to the implementation

of ongoing projects, there may be a surplus

in the market and prices will remain under

pressure. c) Due to tight budgetary con-

straints the Government has increased taxes

on cement industry i.e increased sales tax

from 15% to 18% and excise duty from 25%

to 35%. The overall position could be

expected to improve on implementation of

stabilised economic and investment

policies in the country.

APPROPRIATION

Available profits have been appropriated as under:

(Rupees in thousand)

1996

1995

Net profit for the year after tax

140,554

216,817

Un-appropriated profit brought forward

4,177

8,360

Income tax: short provided last year

(21,000)

---------

Available for appropriation

144,731

204,177

=========

Appropriations:

Your directors propose following appropriation of profit:

Transfer to general reserve

140,000

200,000

Balance carried forward

4,731

4,177

---------

144,731

204,177

=========

In view of cash requirement for the ongoing

expansion project, it has not been considered

appropriate to recommend any cash dividend

for the year 1995-96.

EXPANSION PROJECT

The Expansion Project already undertaken

comprises of a complete new line of

production of 3,300 tonnes per day clinker

capacity based on most modem dry process

technology in addition to improving/

upgrading the present production facilities

and installation of environmental control

equipment. The project is of national

importance as it will provide job

opportunities to the local areas and also

resulting in number of down stream benefits.

The project is approved for financing by Int-

ernational Finance Corporation, Washington

who disbursed USS 65.0 million as long term

loan and USS 5.2 million as equity invest-

ment. F.L. Smidth & Co. and IFU .(Danish

Government Fund for Developing Countries)

Denmark have also invested USS 5.0 million

each towards equity participation. Local

currency loan of Rs. 146.9 million has been

availed from Muslim Commercial Bank

Limited for expansion project.

The cost of the project is re-estimated at

Rs. 5,969.16 million considering the impact

of additional cost resulting primarily from

increase in the duty structure on the import

of plant and machinery and devaluation in

Pak Rupee against US dollar and other

currencies.

The revised project cost and financial

plan as agreed with International Finance

Corporation is given as under:

(Rupees in Million)

Total Project Cost

5,969.16

Means of Financing

Long Term Debt

Foreign currency - (IFC US $65.0 Million)

2,235.61

Sanctioned local loans

396.90

2,632.51

Additional local loans under process

300.00