copy of internship report

ACKNOWLEDGEMENT

My report will remain incomplete if I do not mention the efforts of

those people who helped me in completing this work.

First of all I will thank my ALLAH ALMIGHTY Who enables me to

make this project. Second, I will thank to college authorities which make

the internship compulsory in any corporate body in order to make us able

to get know-how about the practical work. Third, I will thank to the teacher

who provides me the guidelines about the format of internship report. In

the last, I will thank to my all the teachers who teach me throughout the

session, explore and enhance my abilities, and make me able to work

efficiently throughout internship period with experienced persons.

I will also thank to the Chief Financial Officer (CFO) of ALMOIZ

INDUSTRIES LIMITED which organized all internship program in such a

way so that I could learn the practical work. In addition, I will also thank to

the Mr. Amjad Ali – AGM Finance of ALMOIZ INDUSTRIES LIMITED –

who was my instructor and guide me throughout the internship period while

performing assigned duties. I am really thankful for his co-operation during

the internship.

At last, I would like to thank all those other persons who helped me

in completing this report.

1

I am also thankful to following persons:

Mr. Shamim Khan Chief Executive

Mr. Nauman Ahmed Khan Managing Director

Mr. Wasif Mahmood Chief Financial Officer

Mr. Amjad Ali AGM Finance

Mr. Muhammad Nazir Dy. Manager (Finance)

Mr. Shahid Nazir Dy. Manager (Accounts)

Mr. Mehmood Zubair Asst. Manager (System Development)

Mr. Ahmed Hassan Accountant

Mr. Ahsan Aziz Accountant

Mr. Basit Hafeez Cashier

Furthermore all the other executives and staff members of Almoiz Industries Limited,

Head Office and Site deserve my thankfulness for their co-operation and guidance

during the course my internship at Almoiz Industries Limited. Finally I would like

acknowledging the contributions by many other sources of information used in

preparation of this report.

MAJID NADEEM

2

Contents Page#

Executive Summary 4History 5Introduction 6Overview of Organization 9Detail of Sugar Mills in Pakistan 11History of Organization 14Company Information 15Mission Statement 17Organization Structure 17Activities Performed 18Ration Analysis 20Liquidity Ratio 20Debt Ratio 21Time Interest Earned Ratio 22Gross Profit Margin 23Operating Profit Margin 24Net Profit Margin 25Earning Per Share 26Return on Asset 27Return on Equity 28Inventory Turnover 29Avg. Collection Period 30Asset Turnover 31Avg. Payment Period 32Interpretation & Analysis 33SWOT Analysis 40Strengths 40Weaknesses 42Opportunities 44Threats 46Conclusion 53Recommendation 53Skills Acquired 54Bibliography 55Encl. Detail 55

3

Executive Summary

　　

This report is based on the activities performed during the internship at ALMOIZ

INDUSTREIS LIMITED. Internship duration was 6 weeks and it provided practical

knowledge of working in professional environment. This learning experience is

described in detail n the various sections of this report.

In the first section, there is some detail about the company. The history and

present status of the company is explained. The organization structure and the

details of its management along with its location are also discussed.

The second section provides information about the activities that I performed

during the internship. I worked as an internee mainly in Finance/Accounts

department.

The third section included the Ratio Analysis of 2 years and the interpretation of

the Ratio. There is also the SWOT analysis of the sugar industry and of the

company.

The fourth and last section includes Conclusion and the recommendations.

4

ALMOIZ INDUSTREIS LIMITEDHistory

Pakistan is the 15th largest producer of sugar in the world, 5th largest in terms of

area under sugar cultivation and 60th in yield. The sugar industry is the 2nd

largest agro based industry which comprises of 81 sugar mills. With this

scenario, Pakistan has to import sugar which exposes it to the effects of shortage

and rising prices in the world. The present sugar crisis has opened up new

avenues for researcher to analyze the performance and efficiency of the firms in

this sector. Total factor productivity plays a significant role in measuring the

performance of a firm which ultimately affects the shareholder’s value. This paper

analyzes the performance of sugar firms in Pakistan and estimate/calculate the

Malmquist total factor productivity growth indices using non-parametric approach.

TFP growth is further decomposed into technical, scale and managerial efficiency

change using balanced panel data of 20 sugar firms listed on Karachi Stock

Exchange for the period 1998 to 2007. The results reflect a tormenting picture for

the sugar industry. Overall sugar industry improved technological progress by

0.8% while managerial efficiency change put a negative effect on the productivity

by a same percentage; as a result the overall total factor productivity during

1998-2007 remained almost static with a decline of 0.1%. If we see the TFP and

its components in individual year for overall sugar industry, it presents divergent

trend. The research suggests that sugar industry is facing serious productivity

growth problems where no increase is recorded in total factor productivity during

1998 to 2007. The sugar industry is lacking in terms of managerial efficiency

which could be explained by a general reduction in the quality of managerial

decision making among the best practice firms, Regardless of the reason for this

decline, it has potentially serious implications for the longer-term financial viability

of these sugar firms. The pattern of TFP growth tends to be driven more by

technical change (or technical progress) rather than improvements in technical

efficiency.

5

Introduction

Sugarcane is among the most valuable crops of Pakistan. It is a source of raw

material for entire sugar industry. At present, the sugar industry is second largest

agro-based industry in Pakistan. Production efficiency has become an important

determinant for the future of this industry in Pakistan due to declining

competitiveness of the domestic sugar industry because of increasing imports,

and high costs of production. The Development and adoption of new production

technologies can improve productive efficiency. But at present it is difficult due to

limited income and credit to the out growers. Therefore, this industry can improve

the efficiency of its operations using currently available technology. Measures of

productivity, its growth and sources for the sugar industry of Pakistan play a

significant role for policy development. Productivity growth can be decomposed

into three components: technical change, scale effects, and changes in the

degree of technical efficiency (Coelli et al 2005). Technical change means

progress in technology not only physically in the form of improved machinery but

also innovations in the knowledge base. Regarding scale effects, it relate to

economies in production. If there exist increasing economies of scale it indicates

that the production of additional outputs will require a less than proportional

increase in inputs. Improvements in the degree of technical efficiency arise from

situations where resources can be used more efficiently by applying practices

from the present stock of knowledge.

The most comprehensive measure of aggregate or sectoral productivity is Total

Factor Productivity (TFP). However, given the paucity of good data, this area of

research has remained quite limited in Pakistan (Ali, 2004). There are some

studies on manufacturing sector of Pakistan which include Raheman et. al.

(2008), where total factor productivity and its components are estimated using

Malmquist Productivity growth index for major manufacturing industries of

Pakistan using aggregate firm level financial data but sugar industry is not among

the industries analyzed. The results of the study highlighted the role of efficiency

change in the TFP growth while deficiencies in terms of technological progress.

6

The efficiency of the large scale manufacturing sector of Pakistan was examined

by Mahmood et. al. (2007) using the stochastic production frontier approach for

periods 1995-96 and 2000-01. The results of this study showed that there was

some improvement in the efficiency of the large scale manufacturing sector,

although the magnitude was small. The results were mixed at the disaggregated

level, whereas a majority of industries had gained in terms of technical efficiency

and some industries were also weaker in terms of their efficiency level. , Afzal

(2006) also estimated total factor productivity for the large scale manufacturing

sector from 1975 to 2001 using three different approaches. Overall results

showed that productivity was affected by many factors like labor, capital, Gross

National Product and per capita income. Further, different economic models were

applicable and predictable to the data of large scale manufacturing sector of

Pakistan and macroeconomic policies might help in improving productivity of

large scale manufacturing sector. Burki and Khan (2005) analyzed the

implications of allocative efficiency on resource allocation and energy

substitutability for large scale manufacturing. There are no reported productivity

efficiency studies for the sugar industry in Pakistan This study attempts to fill this

gap by estimating firm level efficiency and total factor productivity growth and its

components for a sample of twenty sugar firms in the sugar industry and to

assess the variations in TFP growth between firms and over Time. The

TFP growth is estimated for the period 1998 to 2007 using improved ideas of

output and inputs measures. This study, therefore, would provide a fresh

perspective on the growth of TFP in sugar sector for use in developing

appropriate policy responses towards this sector of Pakistan’s economy.

There are several techniques available, parametric and non-parametric, to

estimate total factor productivity. The most widely used example of a non-

parametric technique is DEA (Coelli, 1995; Seiford, 1996). Parametric techniques

encompass stochastic frontier techniques and Bayesian methods (Kalirajan and

Shand 1999). In this paper we employ DEA to estimate Malmquist TFP indices

from panel data set. The reason for the choice of DEA as the method of

7

estimation is that the methodology has been employed widely to conduct

benchmarking analysis (for example, see Jaforullah and Whiteman 1999). Most

of the existing studies that employs panel data for estimation of efficiency and

productivity change reports estimates for the entire data period, while in the

present study our focus is on the annual estimates because we wish to examine

how productivity changes through time at the firm level. The basic objective of

this paper is to use the data envelopment analysis as a tool for the measurement

of total factor productivity growth for sugar industry and sugar firms. The

objective is also to decompose TFP growth into technical change, technical

efficiency change and scale efficiency change for understanding the source of

productivity for Pakistani sugar firms listed at Karachi Stock Exchange. This

decomposition enables policymakers to trace lagging productivity to particular

factors. For example, if slowing technical progress causes declining TFP growth,

the production frontier can be shifted upward through investment in research and

development (R&D); if slow productivity growth is traced primarily to deteriorating

technical efficiency (TE), learning-by-doing processes and managerial practices

can be targeted for this purpose; if there will be benefits from SE, production

scales should be adjusted toward optimum values. The specific objective of the

study is to consider implications for policy and strategies for improving sugar

firm’s production efficiency. Policymakers can recommend policies that

improve the productivity of firms only if they understand the sources of variation

in productivity growth. Studies on Productivity growth at the country level are

usually based on the overall or aggregate data; therefore, results of those studies

are average of the overall economy which comprises of different sectors. Hence

contribution in each country’s productivity has different proportion of sectors. This

study uses financial data of sugar firms extracted from annual reports obtained

from different sources. This data allows examination of the TFP performance of

individual firms, which was not previously done. The structure of this article is as

follows. In the following section, an overview of sugar industry of Pakistan is

presented followed by the third section which describes the data used in the

analysis and methodology opted for analysis including discussion of input and

8

output variables. Then the results of our Malmquist TFP estimates are presented.

In the final section we discuss the results presented and provide conclusions.

Overview of Sugar Industry of Pakistan

Sugarcane is an important industrial and cash crop in Pakistan. Pakistan is an

important sugarcane producing country and is ranked fifth in terms of area under

sugar cultivation, 60th in yield and 15th in sugar production. Sugarcane is grown

on over a million hectares and provides the raw material for Pakistan’s 84 sugar

mills which comprise the country’s second largest agro-industry after textiles. The

sugar sector constitutes 4.2% of manufacturing. In size, the sugar sector atches

the cement sector. Sugar industry has an indirect socio-economic impact in

overall terms which is significantly larger than its direct contribution to GDP

because of it’s backward (sugarcane growers) and forward linkages (food

processors) in the economy.

Egypt is the highest in terms of sugarcane yield per hector which is 110.8 tons

per hector while the Pakistan is the lowest in terms of this yield. As far as the

sugar recovery is concerned, Brazil has the highest percentage and again

Pakistan is at the lowest. If we analyze the sugar yield from sugarcane, Australia

has the highest sugar yield in these countries and again Pakistan is at the lowest

with 3.54 tons per hector. It indicates that in Pakistan, improvements can be

made in terms of sugarcane yield, sugar recovery and sugar yield.

During the year 2007/08 production of sugar was estimated at 61.5Million Metric

Ton (MMT), an increase of 12% over previous year due to increase in area under

cultivation and yield. While during 2008/09 sugar production is estimated at

5MMT a decline of 10% over the previous year. According to press reports,

Pakistan's 2009-10 sugar production is expected around 3 millions tons as

against 3.2 million tons in the last year. The country's annual sugar consumption

fluctuates between 3.6 to 4.2 million tons, but industry's officials say it has gone

down since October, because of higher prices and an economic slowdown that

resulted in lower demand from industries such as drink producers. According to

9

farmers association, the area under sugarcane cultivation has gone down

slightly, but they are expecting better yield because of the better varieties of

seeds. With this scenario, Pakistan has to import sugar which exposes it to the

effects of shortage and rising prices in the world.

Sugar consumption has been showing an increasing trend for the last 15 years. It

has increased from 2.89 million tons in 1995-96 to 3.95 million tons in 2005-06.

One of the many reasons behind this increase is rise in the total population of the

country, which has reached 170 million. For 2008-09, the overall sugar

consumption is forecast at over 4 million tons, which is less than the target

production. According to a rough estimate, the country will need approximately

5.5 million tons of sugar to meet the local demand by year 2020. It will require

about 1.5 million hectares of area under cultivation which is at present about 1

hector. The per capita sugar consumption is around 25kg per year which is

highest in the developing countries. The demand of sugar will increase in the

coming years at the rate of about 2.3% because of growth in the population

which is about 2.3%. The sugarcane production in terms of sugarcane crushed,

sugar made and recovery percentage is presented in the table 3 for period 1997-

98 to 2006-07.

10

DETAIL OF SUGAR MILLS IN PAKISTAN

PUNJAB

Adam Chishtian Bahawalnagar

Ashraf Ashrafabad Bahawalpur

Baba Farid Okara Okara

Brothers Pattoki Kasur

Chanar Tandlianwala Faisalabad

Choudary Pensara Road Gojra

Chistia Sillianwali Sargodha

Crescent Nishatabad Faisalabad

Fatima Kot Addu Muzaffarghar

Fauji Sheikhupura Sheikhupura

Fecto Darya Khan Bhakkar

Gojra Sam Gogra Faisalabad

Haseeb Waqas Mirajabad Nankana Sahib

Husein Jaranwala Faisalabad

Hyesons Jetha Bhutta Rahimyar Khan

Ittefaq Sahiwal Sahiwal

JDW Mouza Sharin Rahim Yar Khan

Kamalia Kamalia Tobatek singh

Kohinoor Jauharabad Khushab

Layyah Sugar Mills

National Sargodha Sargodha

Noon Bhalwal Sargodha

Pasrur Pasrur Sialkot

Pattoki Pattoki Ka

Phalia Karmanwala Gujrat

11

Punjab Man Channu Khanewal

Pahirianwali Lalian Jhang

Ramzan Chiniot Sargodha

Shahtaj Mandi Bahauddin Gujrat

Shakarganj Jhang Jhang

Sheikhoo Kot Addu Muzafargarh

Tandlianwala Kanjwani Faisalabad

United Sadiqabad Rahimyar Khan

Indus Kot Bahadur Rajan Pur

Madina Chattah Khankah Hafizabad

Qand Ghar Shahkot Faisalabad

Yousaf Shahpur Sargodha

SINDH

Al-Abbas Mirwah Gorchani Mirpurkhas

Al-Asif Garho Thatta

Al-Noor Moro Naushero Feroz

Army Welfare Badin Badin

Bawany Talhar Badin

Dadu Piarogoth Dadu

Dewan Budho Talpur Thatta

Faran Sheikh Bhirkio Hyderabad

Fauji-Kho Khoski Badin

Fauji TMK Tando M. Khan Hyderabad

Habib Nawabshah Nawabshah

Kiran Rohri Sukkur

Khairpur Khairpur Khairpur

12

Larr Sajawal Thatta

Matiari Matiari Hyderabad

Mehran Tando M. Khan Hyderabad

Mirpurkhas Mirpurkhas Mirpurkhas

Mirza Kadhan Badin

Pangrio Deh Rajauri-2 Badin

Sakrand Sakrand Nawabshah

Sanghar Sindhri Sanghar

Shahmurad Jhok Sharif Thatta

Sindabadgar Deenpur Hyderabad

Thatta Deh Bijoro Thatta

Consolidated Ranipur Khairpur

Larkana Naudero Larkana

N.W.F.P

Bannu Sarai Naurang Bannu

Chshma D.I. Khan D.I. Khan

Frontier Takht-I-Bhai Mardan

Khazana Peshawar Peshawar

Premier Mardan Mardan

Saleem Charsadda Charsadda

AZAD KASHMIR

Mian Mohammad Mirpur Azad Kashmir

13

Introduction/Historical Overview

The name of the company is “ALMOIZ INDUSTRIES LIMITED” having its

registered office in the province of Punjab at 12-D-1 Gulberg III Lahore Pakistan.

The Company has incorporated on 5th of May, 2005 under company ordinance

1984 as a public unlisted limited by shares. The company is engaged in

production and sale of ultra refined sugar and electricity.

SHARE CAPITAL & RESERVES

Authorized capital

20,000,000 Shares of Rs. 10 each Rs. 200,000,000

Main product:

The main product of the Almoiz Industries Limited is white crystalline sugar.

BY PRODUCT:

The by products are following

1…………… BAGGASSES

2…………… MALLASSES

3…………… PRESS MUD

4…………… PULP

5………….. ELECTRICITY

DEPARTMENTS OF the ORGANIZATION

There are six main departments in Indus Sugar Mills.

I) Cane/ Agriculture

II) Mechanical

III) Chemical

IV) Electrical

v) Finance/ Accounts

VI) Administration

14

Company’s Information:

BOARD OF DIRECTORS:

CHAIRMAN/CEO: Mr. Muhammad shamim Khan

MANAGING DIRECTOR: Mr. Nauman Ahmed Khan

DIRECTORS:

Mrs. Qaiser Shamim Khan

Mr. Muhammad Imran Khan

Mr. Adnan Ahmed khan

Mrs. Farrah Khan

Mrs. Samreen khan

AUDIT COMMITTEE:

Mr.Adnan Ahmed Khan (Chairman)

Mrs. Qaiser Shamim Khan (Member)

Mr. Muhammad Khan (Member)

CHIEF FINANCIAL OFFICER & COMPANY SECRETARY:

Mr. Wasif Mehmood- CA

AUDITORS:M/s.Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants

BANKERS:

15

Habib Bank limited.

MCB Bank Limited

National Bank Of Pakistan.

Allied Bank Limited

United Bank Limited

Kasb Bank Limted

Bank Al-Habib Limited

Bank Alfalah Limited

JS Bank Limited

Email: [email protected]

Head Office:

2D-1, Gulberg III,

Lahore 54660

Pakistan.

Ph: 92-423-5771066- 71

Fax: 92-423-5756687

Mills Site:

Almoiz Industries Limited,

26-KM Chashma Road,

Dera Ismail Khan

Pakistan

Ph: 92-454-720063 to 66

Fax: 92-454-720880

16

Mission Statement

We shall build on our core competencies and achieve in performance to become

a leading Procedure of best sugar quality. In doing so we aim to meet or exceed

the expectations of all our stake holders.

ORGANIZATIONAL STRUCTURE

CHAIRMAN│││M.D. (Managing Director)│││Board of Directors││││G.M.││┌-------------┬----------┼-----------------┐│ │ │ ││ │ │ │G.M. G.M. G.M. G.M.(Cane) (Tech.) Production Administration│││┌-------------┘││Technical Commercial Plant Production ElectricalManager Manager Manager Manager Manager│││Chief Engineer││┌--------------┴--------------┐│ │ Shift Engineer Senior Engineer

17

ACTIVITIES PERFORMED

I joined ALMOIZ INDUSTRIES LIMITED as an internee on 05 July 2011 in Finance/

Accounts Department. By the grace of Allah Almighty I completed it on 19 August 2011.

During my internship I worked in the head office of this company and I learned many

things in this department. All the staff of this company is very cooperative and helped me

out in my every problem during my internship.

During my internship program learnt the following things:

Record Keeping;

o Established practices of record keeping to ensure proper documentation

and storage of information.

o Maintaining files of Bank Payment Vouchers

o Maintaining files of Cash payment Voucher

o Maintaining files of Bank Receipt Vouchers

o Maintaining files of Cash Receipt Vouchers

o Maintaining files of Journal Vouchers

o Maintaining files of Income tax Challan

o Maintaining files of Sales tax challan

o Maintaining files of Correspondence with Mills site

o Maintaining files of other misc. documents

Sales;

o Maintained the sales record of company and liaison with Marketing

Department for reconciliation.

o Maintained the Sales tax Invoices of Sugar

o Maintained the Sales tax Invoices of Pulp

o Maintained the Sales tax Invoices of Molasses

o Maintained the Sales tax Invoices of Mud

o Maintained the Sales tax Invoices of Scrap

o Maintained the Sales tax Invoices of Electricity

18

o Correspondence with Sugar & Molasses Debtors

o Correspondence with banks regarding Sales Payments

Tax;

o Weekly updating of advance tax deducted on payments in online portal of

Federal Board of Revenue.

o Filing Monthly Return

o Learned how to calculate the Employees Salary Tax

Finance;

o Liaoning with Banks for confirmation of amounts due from debtors and

preparation of reconciliations.

o Preparing Bank Reconciliations Statements at the end of the Month of

more than 5 Banks.

o Posting all kinds of Vouchers

19

Ratio Analysis

Liquidity Ratio

What Does Liquidity Ratios Mean?

A class of financial metrics that is used to determine a company's ability to pay

off its short-terms debts obligations. Generally, the higher the value of the ratio,

the larger the margin of safety that the company possesses to cover short-term

debts.

20

Liquidity RatioRatio 2010 2009

Current 1.08 1.04

Quick 0.58 0.46

2010

2009

-

0.20

0.40

0.60

0.80

1.00

1.20

Liquidity Ratio

CurrentQuick

Debt Ratio

What Does Debt Ratio Mean?

A ratio that indicates what proportion of debt a company has relative to its assets.

The measure gives an idea to the leverage of the company along with the

potential risks the company faces in terms of its debt-load.

A debt ratio of greater than 1 indicates that a company has more debt than

assets, meanwhile, a debt ratio of less than 1 indicates that a company has more

assets than debt. Used in conjunction with other measures of financial health, the

debt ratio can help investors determine a company's level of risk.

Debt Ratio Ratio 2010 2009

Debt Ratio 80 82

21

2010 200979

79.5

80

80.5

81

81.5

82

82.5

Debt Ratio

Debt Ratio

Times Interest Earned Ratio Analysis

Times interest earned ratio measures a company’s ability to continue to service

its debt. It is an indicator to tell if a company is running into financial trouble. A

high ratio means that a company is able to meet its interest obligations because

earnings are significantly greater than annual interest obligations. However, a

high ratio can also mean that a company has an undesirably low level of

leverage or pays down too much debt with earnings that could be used for other

Investment opportunities to get higher rate of return.

A lower times interest earned ratio means fewer earnings are available to meet

interest payments. Failing to meet these obligations could force a company into

bankruptcy. It is used by both lenders and borrowers in determining a company’s

debt capacity.

22

Debt Ratio

Ratio 2010 2009

Time Interest Earned Ratio 1.82 2.65

2010 2009 -

0.50

1.00

1.50

2.00

2.50

3.00

Time Interest Earned Ratio

Time Interest Earned Ratio

Profitability Ratio

What Does Gross Profit Margin Mean?

A financial metric used to assess a firm's financial health by revealing

the proportion of money left over from revenues after accounting for the cost of

goods sold. Gross profit margin serves as the source for paying additional

expenses and future savings.

For example, suppose that ABC Corp. earned $20 million in revenue from

producing widgets and incurred $10 million in COGS-related expense. ABC's

gross profit margin would be 50%. This means that for every dollar that ABC

earns on widgets, it really has only $0.50 at the end of the day.

Profitability RatioRatio 2010 2009

23

Gross Profit Margin 10.51 17.34

2010 200902468

101214161820

Gross Profit Margin (In %)

Gross Profit Margin

What Does Operating Margin Mean?

A ratio used to measure a company's pricing strategy and operating efficiency.

perating margin is a measurement of what proportion of a company's revenue is

left over after paying for variable costs of production such as wages, raw

materials, etc. A healthy operating margin is required for a company to be able to

pay for its fixed costs, such as interest on debt.

Also known as "operating profit margin" or "net profit margin".

Operating margin gives analysts an idea of how much a company makes (before

interest and taxes) on each dollar of sales. When looking at operating margin to

determine the quality of a company, it is best to look at the change in operating

margin over time and to compare the company's yearly or quarterly figures to

those of its competitors. If a company's margin is increasing, it is earning more

per dollar of sales. The higher the margin, the better.


24

Operating Profit Margin 8.1 13.65

2010 20090

2

4

6

8

10

12

14

16

Operating Profit Margin (In %)

Operating Profit Margin

What Does Profit Margin Mean?

A ratio of profitability calculated as net income divided by revenues, or net profits

divided by sales. It measures how much out of every dollar of sales a company

actually keeps in earnings.

Looking at the earnings of a company often doesn't tell the entire story.

Increased earnings are good, but an increase does not mean that the profit

margin of a company is improving. For instance, if a company has costs that

have increased at a greater rate than sales, it leads to a lower profit margin. This

is an indication that costs need to be under better control.


Net Profit Margin 3.59 8.07

25

2010 20090

1

2

3

4

5

6

7

8

9

Net Profit Margin (In %)

Net Profit Margin

What Does Earnings Per Share - EPS Mean?

The portion of a company's profit allocated to each outstanding share of common

stock. Earnings per share serves as an indicator of a company's profitability.

When calculating, it is more accurate to use a weighted average number of

shares outstanding over the reporting term, because the number of shares

outstanding can change over time. However, data sources sometimes simplify

the calculation by using the number of shares outstanding at the end of the

period.

Earnings per share is generally considered to be the single most important

variable in determining a share's price. It is also a major component used to

calculate the price-to-earnings valuation ratio.


Earning Per Share 7.93 13.04

26

2010 20090

2

4

6

8

10

12

14

Earning Per Share

Earning Per Share

What Does After-Tax Return On Assets Mean?

A profitability measure that indicates how well a company uses its capital

resources to generate income. To calculate after-tax return on assets, divide the

company's total after-tax income by the value of its total assets. The resulting

figure, multiplied by 100, will be a percentage; the higher the percentage, the

more efficiently the company uses its assets.

The after-tax return on assets ratio can be helpful in comparing the profitability of

different-sized companies because it allows investors to see how efficiently a

company works with what it has, regardless of how big the company is. If a

company has $20 million in net income and $100 million in total assets, its after-

tax return on assets would be 20%. A smaller company might only bring in $5

million after taxes, but if its assets totaled $20 million, it would have a superior

after-tax return on assets of 25%.


Return on Asset 3.96 6.59

27

2010 20090

1

2

3

4

5

6

7

Return on Asset (In %)

Return on Asset

What Does Return On Equity - ROE Mean?

The amount of net income returned as a percentage of shareholders

equity. Return on equity measures a corporation's profitability by revealing how

much profit a company generates with the money shareholders have invested.

The ROE is useful for comparing the profitability of a company to that of other

firms in the same industry.


Return on Common Equity 19.53 37.60

28

2010 20090

5

10

15

20

25

30

35

40

Return on Common Equity (In %)

Return on Common Equity

Activity RatioWhat Does Inventory Turnover Mean?

A ratio showing how many times a company's inventory is sold and replaced over

a period.

The days in the period can then be divided by the inventory turnover formula to

calculate the days it takes to sell the inventory on hand or "inventory turnover

days".

Although the first calculation is more frequently used, COGS (cost of goods sold)

may be substituted because sales are recorded at market value, while

inventories are usually recorded at cost. Also, average inventory may be used

instead of the ending inventory level to minimize seasonal factors.

Activity RatioRatio 2010 2009

Inventory Turnover 9.73 4.52

29

2010 20090

2

4

6

8

10

12Inventory Turnover

Inventory Turnover

What Does Average Collection Period Mean?

The approximate amount of time that it takes for a business to receive payments

owed, in terms of receivables, from its customers and clients.

Due to the size of transactions, most businesses allow customers to purchase

goods or services via credit, but one of the problems with extending credit is not

knowing when the customer will make cash payments. Therefore, possessing a

lower average collection period is seen as optimal, because this means that it

does not take a company very long to turn its receivables into cash. Ultimately,

every business needs cash to pay off its own expenses (such as operating and

administrative expenses).


Avg. Collection Period 11 10

30

2010 20099.4

9.6

9.8

10

10.2

10.4

10.6

10.8

11

11.2

Avg. Collection Period (In Days)

Avg. Collec-tion Period

What Does Fixed-Asset Turnover Ratio Mean?

A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio

measures a company's ability to generate net sales from fixed-asset investments

- specifically property, plant and equipment (PP&E) - net of depreciation. A

higher fixed-asset turnover ratio shows that the company has been more

effective in using the investment in fixed assets to generate revenues.

his ratio is often used as a measure in manufacturing industries, where major

purchases are made for PP&E to help increase output. When companies make

these large purchases, prudent investors watch this ratio in following years to see

how effective the investment in the fixed assets was.


Asset Turnover 2.17 1.28

31

2010 20090

0.5

1

1.5

2

2.5

Asset Turnover

Asset Turnover

What Does Average Payment Period Mean?

The approximate amount of time that it takes for a business to receive payments

owed, in terms of receivables, from its customers and clients.

Due to the size of transactions, most businesses allow customers to purchase

goods or services via credit, but one of the problems with extending credit is not

knowing when the customer will make cash payments. Therefore, possessing a

lower average collection period is seen as optimal, because this means that it

does not take a company very long to turn its receivables into cash. Ultimately,

every business needs cash to pay off its own expenses (such as operating and

administrative expenses).


Avg. Payment Period 13 11

32

2010 200910

10.5

11

11.5

12

12.5

13

13.5

Avg. Payment Period

Avg. Payment Period

Interpretation of Financial Ratios

PERFORMANCE OF THE COMPANY

Despite the fact that sugarcane crop was around 25% short as compared to

last year, your company was able to crush 1,154,967 M. Tons sugarcane and

produced 99,829 M. Tons white refined sugar at an average recovery of 8.556% as

compared to last year’s sugarcane crushing of 1,142,669 M. Tons sugarcane,

produced 105,601 M. Tons white sugar at an average recovery of 9.24%.

FINANCIAL HIGHLIGHTS

The pretax profit during the fourth quarter was recorded at Rs. 130.882 million as

compared to the third quarter pretax profit of Rs. 13.596 million. This increase in the

profit was mainly attributed to increase in the sugar price in local market & as well as

in international market.

During the financial year under review the company earned pretax profit of Rs.

234.591 million and after tax profit of Rs. 119.191 million as compared to last year

pretax profit of Rs. 307.071 million and after tax profit of Rs. 195.874.

33

1. Statement of capacity utilization of the plant:

The installed capacity, its actual utilization and reasons of variance between the two

2. Statement of stock in trade:

The statement of quantity and cost of each item included in stock at the year end

distinguishing between;

I. Stock of raw material and components.

ii. Stock of work in process

iii. Stock of finished products, and

iv. Other stocks.

3. PARTICULARS TO BE INCLUDED IN THE REPORT:

1) Capacity:

a. Licensed installed and utilized capacities of the factory for the products under

reference.

b. If the company is engaged in other activities besides the manufacture of the

product under reference, give a brief note on the nature of such other activities.

2) Cost accounting system:

Brief comments on the cost accounting system and its adequacy or otherwise to

determine correctly the cost of products under reference

3) Production:

I. Production in quantities of each type of product under reference.

ii. Percentage of production of the product under reference in relation to installed

capacity. If there is any shortfall in production as compared to capacity, brief

comments as to the reasons for shortfall.

34

iii. If there is any addition to the production capacity during the year under review or

in the immediately preceding two years this may also be mentioned.

4) Raw materials:

a. The cost of major raw material consumed in terms of both quantity and value.

Where the cost of transport etc. of raw material is significant, specify the same

separately.

b. Consumption of major raw material per unit of production compared with the

standard requirement, if any.

c. Explanation for variances, if any, in the consumption of major raw material per unit

of production as compared to the preceding two years, and with standard

requirement, if any.

d. Comments on method of accounting followed for recording the quantities and

values of the

Receipts, issues and balances of all material directly used in production.

5) Wages and salaries:

a. Total wages and salaries paid for all categories of employees, separately in

respect of each of the following namely:

Direct labor cost on production;

Indirect employees’ cost on production;

Employees’ cost on administration;

Employees’ cost on selling and distribution;

Bonus to workers and employees;

Other employees’ cost, if any (including taxes and levies); and

Total employees’ cost {total of items (i) to (iv) above}

35

b. Salaries and perquisites of directors and Chief Executive.

c. Total man-days of direct labor available and actually worked for the year.

d. Average number of workers employed for the year.

e. Direct labor cost per ton of output of product (give information in respect of each).

f. Brief explanations for variance in item (e) above, if any, as compared to

g. the previous two years.

h. Comments on incentives schemes, if any, with particular reference to its

contributions towards increasing productivity and its effect of cost of production.

6) Stores and spare parts:

a. The expenditure per unit of output on stores, etc. b. Comments on the system of

stores accounting for recording receipts, issues and balances, both in quantities and

values. c. If practicable, the proportion of closing inventory of stores representing

items, which have not moved for over twenty four months.

7) Depreciation:

a. The method of depreciation adopted by the company, e.g., straight line or

diminishing balance, etc. b. The basis of allocation of depreciation on common

assets to the different departments. c. The basis of charging depreciation to the cost

of products.

8) Overheads:

a. The total amount of the following overheads and a break-up of items (i), (ii) and

(iii) below: i. Factory overheads. ii. Administration overheads. iii. Selling and

distribution overheads. iv. Financial Charges. b. Reasons for any significant

variances in the expenditure incurred against the item, included in the overheads as

36

compared with previous two years. c. The basis of allocation of overheads to cost

centers and absorption to products with brief comments, if any, on the basis of

allocation adopted by the company. d. Cost of packing, if any, of the products under

reference to be shown separately with details to the extent possible.

9) Royalty / technical aid payments:

The total amount of royalty / technical aid fees payable for the year and the amount chargeable per unit of the product.

10) Abnormal non-recurring features:

a. If there were any abnormal features affecting production during the year, e.g.

strikes, lockouts, major breakdown in the plant, substantial power cuts, serious

accidents, they shall, wherever practicable, be briefly mentioned indicating their

impact on the cost of production.

b. If there are special expenses which have been directly allocated to products under

reference, the total amount as also incidence per unit of product shall be shown.

11) Cost of production:

The cost per unit of different categories, or qualities of each of the products under

reference with comparative figures for the previous year and comments on the

reasons of difference.

12) Sales:

a. The sales in quantities and net sales realization of the different categories,

varieties or quantities of product under reference showing the average sales

realization per unit.

b. If product under reference is exported, quantity exported, net realization per unit,

countries to which exported, indicating the profit or loss incurred in export.

13) Profitability:

The profit per unit earned on each category, variety or quantity of the products,

comments on the comparative profits of different categories of the products per unit

37

as well as in term of per machine hour etc. and comments on the adequacy or

otherwise of product for maximization of profit.

14) Cost auditors’ observations and conclusions:

a. Matters which appear to him to be clearly wrong in principal or apparently

unjustifiable.

b. Cases where the company funds have been used in a negligent or inefficient

manner.

c. Factors which could have been controlled but have not been done resulting in

increase in the cost of production.

PRODUCTION

Scope:

Production in quantities of each type of product under reference.

Percentage of production of the product under reference in relation to installed

capacity. If there is any shortfall in production as compared to installed capacity,

brief comments as to the reasons for shortfall.

If there is any addition to the production capacity during the year under review or

in the immediately preceding two years this may also be mentioned.

Suggestion for improvements in performance by:

Rectification of general imbalance in production facilities.

Fuller utilization of installed capacity.

Comments on areas offering scope for:

i. Cost reduction;

ii. Increased productivity;

iii. Key limiting factors causing production bottle-necks;

iv. Improved inventory policies; or

38

v. Energy conservancy.

iv. State of technology, whether modern or obsolete.

Plant, whether new or second hand when installed.

RAW MATERIAL

Scope:

The cost of major raw material consumed in terms of both quantity and value.

Where the cost of the transport, etc., of raw material is significant, specify the

same separately.

Consumption of major raw material per unit of production compared with the

standard requirements, if any.

Explanations for variances, if any, in the consumption of major raw material per

unit of production as compared to the preceding two years, and with standard

requirement, if any.

Comments on the method of accounting followed for recording the quantities and

values of the receipts, issues and balances of all material directly used in

production.

SALARIES AND WAGES

Scope:

Total wages and salaries paid for all categories of employees, separately in

respect of each of the following namely:

Direct labour cost on production;

Indirect employees’ cost on production;

Employees’ cost on administration;

Employees’ cost on selling and distribution;

Bonus to workers and employees;

39

Other employees cost, if any (including taxes and levies); and

Total employees cost [total of items (i) to (iv) above].

Salaries and perquisites of directors and Chief Executive.

Total man-days of direct labour available and actually worked for the year.

Average number of workers employed for the year.

Direct labour cost per unit of output of the product. (give information in respect of

each)

Brief explanations for variance in items (e) above, if any, as compared to the

previous two years.

Comments on the incentive schemes, if any, with particular reference to its

contributions towards increasing productivity and its effect on cost of production.

SWOT ANALYSIS

STRENGTHS

Research on productivity growth is very important because economic growth

cannot be sustainable without improvement in the Total Factor Productivity. From

a policy point of view, the assessment of TFP growth is important as it serves as

a guide for resource allocation and invest not decisions. This paper applied DEA

approach to estimate the total factor productivity growth, technical efficiency

change and technological progress in Pakistan’s sugar industry using panel data

for twenty sugar firms from 1998 to 2007. Malmquist productivity index was used

to measure the productivity growth. Following Fare et. al. (1994), this paper

decomposed the Malmquist productivity index into technical efficiency and

technical change component. This decomposition helped us to identify

improvement in efficiency and contribution of technological progress and

innovation to productivity growth in sugar industry. Most of the studies of

productivity growth efficiency which are based on panel data discuss the

estimates of overall sample or sector. However, we have presented the

estimated TFP growth, efficiency change and technical change at each firm level

40

and for each year during 1998 to 2007 which shows that these estimates varies

widely at firm level during the data period.

The empirical estimates on the performance of sugar industry yielded several

striking results. The Malmquist TFP results reflect a tormenting picture for the

sugar industry. Overall sugar industry improved technological progress by 0.8%

while managerial efficiency change put a negative effect on the productivity by a

same percentage; as a result the overall total factor productivity during 1998-

2007 remained almost static with a decline of 0.1%. If we see the TFP and its

components in individual year for overall sugar industry, it presents divergent

trend.

The results from individual industries show that static TFP growth is mainly

contributed by technical efficiency which declined for nine sugar firms and

remained equal to one for nine sugar firms during period 1998 to 2007, while the

technical change is positive for eleven out of twenty sugar firms. It suggests that

sugar industry is lacking in terms of managerial efficiency which could be

explained by a general reduction in the quality of managerial decision-making

among the best practice firms, Regardless of the reason for this decline, it has

potentially serious implications for the longer-term financial viability of these

sugar firms.

Further, year wise analysis highlights that there is divergence in all sugar firms

over 1998-2007 in terms of total factor productivity, technical efficiency and

technical change. Except few firms which are relatively stable include Shakarganj

mills limited and Al Abass sugar mills limited, all sugar firms have a mix trend

over 1998-2007 which affects the productivity and ranking of firms.

The pattern of TFP growth tends to be driven more by technical change (or

technical progress) rather than improvements in technical efficiency. Shakarganj

Mills Limited is at the top in ranking in terms of TFP due to highest technical

change and also due to better performance in terms of managerial efficiency

change. This firm has also performed better in terms of stability over the period

1998 to 2007, where the total factor productivity increased for seven out of nine

years. Mirpurkhas sugar mill comes next in ranking where again the major source

41

is technical change. Sind Abadgar sugar mill and Habib sugar mill are also

relatively better performer where the technical change is the main source while

Sanghar sugar mill is also among the top ranking firms where the main sources

is managerial efficiency. The Frontier sugar mill is among the worst performers

in terms of productivity over 1998 to 2007 where the problem lies in managerial

efficiency and also non adoption of new technologies. Similarly, The Thal

Industries is also one of the laggard firms in terms of total factor productivity

where the major source is non adoption of new technologies although top in

ranking in terms of efficiency change.

The research suggests that the Pakistani sugar industry is facing serious

productivity growth problems where no increase is recorded in total factor

productivity during 1998 to 2007. Therefore, this industry must increase total

factor productivity in most of the firms under study and efforts must be made to

provide a stable pattern to the productivity growth. In sugar industry, there is a

need to improve both technical efficiency and technological progress.

Improvement in technical efficiency requires improvement in quality of input like

capital and labor. The management aspect is also very important in terms of

capital. These strategies will improve the technical change as well which also

relies on managing technology and adoption capability of firms. The research

and development (R & D) activities can play a vital role to bring technological

progress. Although there is very little increase in the technical change but for

further considerable increase in the productivity, efforts could be made to

increase the research and development (R & D) activities in this industry.

Therefore firms in the sugar industry need greater investment in (R & D) activities

and adoption of new technologies. Increase in skilled worker through human

resource development reduces skills shortage which hampers technological

adoption.

WEAKNESSES

42

Sugarcane is an important crop of Pakistan. It occupies about 4 per cent of the

cropped area and contributes about 14 per cent to the value added by the crop

sector in the gross domestic product. This crop is the main supplier of

sweeteners to the country's population and is one of the major cash crop for the

farmers. Except the southern zone, the other parts of the country are not ideally

suited to the cultivation of sugarcane but it suits well in the crop rotations.

Sugarcane production has, since after independence been increasing at a rate

which favourably matched with the growth rate of the population. However,

during the decade ending 1989-90, its production has slowed down to about one

per cent a year, on an average, against the population growth of 3 per cent per

annum. It is, therefore, quite evident that the per capita production of sugarcane

has been going down by about 2 per cent a year during this period. This is a

matter which merits concern for the policy makers to review options in the matter.

Should the domestic sugarcane production be increased or greater reliance be

placed on the import of sugar? If local production is the option, should it be

realised through accent on expansion in area or yield per acre? If the answer lies

in the area, to what extent the area should be allowed to increase so that the

areas under competing crops like cotton, rice and even wheat and oilseeds,

which are also important in their own rights, are not adversely effected? If only

the yield per acre is to be raised, what measures are necessary to achieve this

objective without allowing the mis-allocation of area to take place if at, all this

would be possible? In this article, an attempt is made to discuss and raise some

of the issues that need careful attention of the policy makers in the national

interest.

Notwithstanding the yearly fluctuations, it is estimated that of the total sugarcane

production, about 10-15 per cent is used for seed, chewing and fodder. The rest

of the production is crushed either by the sugar mills for manufacturing of white

sugar, or by the farmers for making gur, shakkar or khandsari. With the

production of sugarcane increasing at a much lower rate than the population

growth, the per capital availability of domestically produced sweeteners has

43

decreased. Meanwhile the demand for white sugar has increased which has lead

the fast expansion of the sugar industry. The number of mills has gone up from

31 in 1979-80 to 45 in 1989-90, with the result that the production of sugar has

increased to over 1.8 million tonnes from about 600 thousand tonnes during the

same period. Consequently more and more sugarcane has been going to the

mills for white sugar manufacturing thus leaving lesser quantities for the

production of other sweeteners. So if the consumption of the sweeteners is to be

kept at the present level, the country would need to import sweeteners at an

increasing rate every year provided the domestic sugarcane production does not

keep pace with the population growth. The import of gur, shakkar or khandsari is

not practical because of their availability abraod, their keeping quality, distribution

system, and the local demand. Therefore, the country has to resort to the import

of white sugar to meet the local needs. Upto August 1985, sugar was rationed,

the demand remained restricted and adjusted to the availability of sugar

(domestic production plus imports). After the rationing system was abolished in

August 1985, the demand of white sugar increased rapidly. According to one

study, the per capita annual consumption of sugar which was about 14 kgs. in

1984-85, has reached the level of 20 kgs a year. Domestic sugar production

being inadequate to meet the demand, the Government had to import to meet the

national requirements. For example, the country imported 258 thousand tonnes

in 1985-86, 750 thousand tonnes in 1986-87, about 210 thousand tonnes in

1987-88, and only about 25 thousand tonnes, an estimated for 1988-89, It is

anticipated that during 1989-90, the imports would be over 50 thousand tonnes;

the exact quantity to be imported would depend on the quantities domesitically

produced during the current crushing season and the volume of stocks to be

maintained.

With the fast expansion of the refined sugar industry, when sugarcane production

was increasing only nominally, the availability of sugarcane for converting it to

sugar, "shakkar" and khandsari has been decreasing. According to an estimate,

44

the annual average availability of these three sweeteners has halved to about 10

kgs. per head as compared with about

OPPORTUNITIES

The sugar industry plays an important role in the economy of the country. It is the

second largest industry after textiles. At the time of independence in 1947, there

were only two sugar factories in Pakistan. The output of these factories was not

sufficient for meeting the domestic requirements. The country started to import

sugar from other countries and huge foreign exchange was spent on this item.

Need was felt to increase the production of sugar. Keeping in view the

importance of sugar industry, the Government setup a commission in 1957 to

frame a scheme for the development of sugar industry. In this way the first sugar

mill was established at Tando Muhammad Khan in Sindh province in the year

1961. At present there are 76 sugar mills operating in Pakistan.

The Sugar industry employs over 75000 people, including management experts,

technologists, engineers, financial experts, skilled, semiskilled and unskilled

workers. It contributes around 4 billion rupees only under the head of excise duty

and other levies to the Government are also paramount significance.

This research article firstly describes introduction, secondly cultivated area,

production and per hectare yield of sugar cane, thirdly examines per hectare

yield with other countries, fourthly crushing capacity of sugar mills, output and

recovery percent of sugar, fifthly projection of sugar demand with the increasing

of population and lastly conclusion.

At the time of independence in 1947, Pakistan got two sugar mills as its share.

The output of these mills was not sufficient for meeting the domestic

requirements. Huge amount of foreign exchange was being spent on the import

of sugar. The cane commission was setup in 1957 to form plan for increasing the

output of cane and establishing sugar mill in the country.

45

This research article analyses the position of sugar industry during the period

1990/91-1999/2000. During this period the cultivated area under cane increased

at average rate of 10.7 percent, output of cane production rose at average rate of

24 percent and the yield per hectare went up at the average rate 11.7 percent.

But the per hectare yield was lower in the country as compared to other cane

growing countries.

Looking at Table 3, it was pointed out that the existing number of operating mills

reached to 71 in the year 1998-99 but again declined to 67 due to closure of

certain units. The crushing capacity of cane and production of sugar increased

up to 1998-99 and again decreased which created shortage of sugar. This can

be increased by introducing new varieties of cane as well as starting the closure

units.

THREATS

The sugar industry in Pakistan has continued to expand heavily in spite of

negative fundamentals and continuous advice of Pakistan Sugar Mills

Association to the contrary for the last six years. New units have been

established and the number increased from 52 mills in 1991-92 to 74 in the

current season which has commenced last month. Besides, the mills already in

operation have enhanced their sugarcane crushing and sugar refining capacities

through BMR. The increase in the number of sugar mills, in such an unplanned

manner, has been blamed by many on the government and the financial

institutions who have provided long-term loans and wasted limited resources.

The political angle

Initially the sugar mills in the country were established by the business

community but during the last 8 to 10 years establishment of sugar mills has

become a prerogative of people indulging in politics directly or indirectly. They

were not only able to get the permissions to establish sugar mills but to acquire

46

huge credits from the financial institutions as well. The cost of projects

established after the mid-eighties was not only very high but credits were

disbursed at 80:20 resulting in very high financial cost.

All these new mills have been established in prime sugarcane growing areas

where the operating mills had spent resources to educate farmers in ahieving

better yields and had arranged soft-term credits for the farmers for the

procurement of seed, fertilizer and agricultural implements. With the

establishment of mills by people enjoying political clout and power, the growers

were forced to sell their produce to these mills. During the last season, industry

sources said, one of the politicians ownng sugar mills was instrumental in closure

of a sugar mill as it was paying higher prices to the growers.

Cost of production

The shortfall in sugarcane availability resulting in under-utilization of capacity,

coupled with regular enhancement in its support price fixed by the government,

have been factors responsible for the increase in cost of production of sugar.

Since the nature of production is seasonal and consumption continues

throughout the year, the financial cost incurred on carrying for over six months

squeezes profit margins or increases accumulated losses of the mills.

Not only the government has been increasing sugarcane support price, the

growers have also started demanding prices higher than those fixed by the

government. Knowing the limited availability of sugarcane, the growers either

completely stop the supplies or curtail them to a large extent.

Succumbing to pressure from the growers, the mills are forced to pay price for

sugarcane much higher than those fixed by the government. The situation further

aggravates the mills' position as they are not in a position to recover even the

47

season's variable cost which affects repayment of loan installments and interest

charges to the financial institutions.

Factors affecting sugarcane supply

Over the years many factors have been responsible for shortfall in sugarcane supply.

They include increased consumption by the mills and failure of the growers to increase

sugarcane production. Production could be increased either by increasing the area

under sugarcane cultivation or more importantly by improving the yield per acre

substantially.

A comparative analysis of sugarcane yield and recovery between India and Pakistan

prepared by the Pakistan Sugar Mills Association indicates that Pakistan is far behind

India. While in Pakistani Punjab farmers are able to get a yield of only 43 tonnes per

acre, in the Indian Punjabthe yield is over 63 tonnes per acre. The average recovery is

9.39% in Indian Punjab as compared to an average recovery of 8.44% attained in the

Pakistani Punjab.

Similarly, the average yield and recovery in Indian Gujrat is 89.6 tonnes per acre and

11.34% respectively ascompared to 57.3 tonnes per acre and 9% recovery in Sindh.

In both the provinces, Sindh and Punjab, the sugarcane cultivation directly competes

with cotton. If the prices of cotton are better, the farmers switch over to it, or vice versa.

When the CLV attacks on cotton were common, a large number of farmers, originally

growing cotton, switched over to sugarcane cultivation. But with the improvement in

cotton prices and availability of virus resistant varieties, the farmers have gone back to

cotton cultivation.

The area as well as production of sugarcane shrank by 5 and 4 percent respectively in

1995-96 as compared to last year.

In the past, the provincial governments used to ban production of 'gur ' during sugarcane

crushing season but lately its production has increased manifold. The percentage of

sugarcane consumed by the sugar mills in Sindh is still the highest as compared to the

other two provinces. 'gur' making has progressed without paying any taxes and has

therefore been consuming more sugarcane to the detriment of the sugar industry.

48

The average utilization of sugarcane on countrywide basis touched the highest - 76.93%

in 1993-94 but has gone down during the last two years.

In the Punjab the maximum utilisation was 81.87% in the same year but came down to

63.22% during 1995-96. But the consumption of sugarcane by mills is NWFP was

reduced to only 17% in 1995-96. Contrary to this, Sindh has the highest sugarcane

consumption record. The maximum consumption touched 93.85% in 1992-93 and came

down to 75.28% in 1995-96.

Myth behind massive expansion

Over the last few years most of the existing mills have enhanced their crushing

capacities 2- to 3-fold. They give two reasons for this: expansion is much

cheaper as compared to establishing new mills of equivalent size and they also

want to achieve better recovery by curtailing the number of crushing days. The

recovery at the beginning and at the tail-end of the season is low. Therefore it

was considered to restrict the crushing period to about 150 days to achieve a

better rate of recovery and reduce the variable cost of the season.

Incidentally, the hypothesis got some proof last year. Delay in commencement of

crushing in Sindh has been instrumental in achieving a higher recovery rate. Mills

in Sindh are thinking about beginning the crushing in November rather than in

October.

Liquidity crunch

The commercial banks were directed by the State Bank of Pakistan to adjust by

August 20, 1996, the balances of credit made available to the sugar industry

against sugar stocks. The action was based on information that the mills were

hoarding the stocks. Industry sources, however say that they prepare fortnightly

reports pertaining to sugar production, its lifting and stocks. Besides, the mills

would never like to hoard the stocks and their priority was to empty their

godowns as quickly as possible as carrying a huge inventory meant huge

financial cost.

Existing problems

49

Sugar mills in Sindh pay quality premium regularly - while the mills located in the

other two province do not pay such premium - and paid Rs. 733 million to the

farmers in 1995-96 alone resulting in additional cost of production.

Oblivious of the difficult situation faced by the sugar industry, federal, provincial

and local levels, persistently keep hanking for more revenue. Some of the

revenue measures imposed in Sindh lately are, imposition of market committee

fee, road cess, surcharge on sugarcane cess, varying rates of octroi, export tax

and rawangi mahsool.

Although the Sindh High Court declared collection of rawangi mahsool

unconstitutional, bad in law and without authority, and the Supreme Court also

dismissed the appeal, yet the district councils recover this tax by a novel

procedure.

New deterrents

The central excise division of the Central Board of Revenue vide SRO 329(I)96

dated May 30, 1996 curtailed the period of sugar storage, without payment of

duty, to six months from the date of production. However, the collectorate has

been given discretion to extend the period.

The custom & central excise division of the CBR during June 1996 directed the

sugar industry to manage clearance of sugar on the basis of 'first-in-first-out'.

According to the Association sources, stacking of sugar bags and clearance

strictly on the prescribed lines is not manageable and practical. The instructions

seem to have been issued by error of judgment and common sense. It looks as if

the person who has issued the directive has never visited a sugar mill and does

not understand its operation.

Structure of sugar industry in the country

50

While sugar production is primarily confined to two provinces, Sindh and Punjab,

and a small quantity in the NWFP, the product is consumed in all the four

provinces and Azad Jammun and Kashmir. Every year a substantial quantity is

smuggled to Iran and Afghanistan and even goes as far as the newly- liberated

Central Asian states.

Traditionally, Sindh has always had surplus production and fed Balochistan,

lower Punjab and at times supplies were made to the NWFP, upper Punjab and

Azad Kashmir. However, over the years Punjab has attained self-sufficiency.

Since the price of sugar is more or less uniform throughout the country, higher

cost of freight incurred on dispatches to far-flung areas squeezes the profit

margins of mills located in Sindh.

Imported sugar also enters Pakistan via Karachi, Sindh and since most of the

quantity is sold in the wholesale markets in Karachi, the prices remain subdued

in the province.

Although a number of new mills with large capacities have been established in

the Punjab the fact remains that cultivation of sugarcane and production of sugar

in the province involves higher costs. The yield per acre and recovery are also

low. It is mainly because the climatic conditions are not conducive for cultivation

of sugarcane in the province. The climate in Punjab is dry and the average

temperature is high which reduces the moisture content in the standing crop.

Sugarcane needs high temperature and humid atmosphere. The conditions

prevailing in the lower Sindh are most conducive and therefore the yield per acre

and average sugar recovery percentage is the highest in the province.

The industry experts and agriculturists are strongly of the view that shift of sugar

production from Sindh to Punjab is one of the major reasons for increase in its

cost of production in the country.

Key players

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The sugar mills in Punjab which produced over 60,000 tonnes of sugar in 1995-

96 included the names of Brothers, waqas, Shakarganj, Tandlianwal and

Shahtaj. Waqas crushed the highest quaintly of sugarcane and also produced

the highest quantity of sugar.

In Sindh, Dewan crushed the highest quantity of sugarcane and also produced

the largest quantity of sugar exceeding 100,000 tonnes. The other mills which

produced over 50,000 tonnes were Bawany, Faran, Habib, Shahmurad and

Sindh Aabadgar.

Dewan Sugar Mills started sugarcane crushing on October 18 and ended April 14

during the last season. By crushing 983,489 tonnes sugarcane during the period

with an average recovery of 10.15% it produced 100,008 tonnes of sugar. In the

half-yearly report the directors' review expressed on the increase of sugarcane

prices which touched new heights as most of the mills entered into an open

warfare for procurement of sugarcane. Dewan has been declaring modest cash

dividend in the past in spite of persistent increase in the procurement prices of

sugarcane. The mills located in prime sugarcane growing area of Sindh was

established in 1987.

Habib Sugar Mills established in Nawabshah in 1963 has not only tripled its

crushing capacity using in-house expertise but is among the few sugar mills

which have been declaring handsome dividends in the past. During 143 days of

crushing during 1995-96 season it produced over 60,000 tonnes of sugar with an

average recovery of 9.2%. It also produces industrial alcohol. The modifications

in the distillery has helped to streamline its operating efficiency.

Shahtaj Sugar Mills worked for 157 days during the last season and achieved the

highest level of crushing and sugar production since the unit was established.

According to directors' report the company could have crushed larger quantity

had there been no shortage of sugarcane. The unit is located in Punjab and also

suffered from shortage of sugarcane and increase in sugarcane support price.

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Mirpurkhas Sugar Mills also suffered from the shortage of sugarcane and the

number of days it worked was reduced to 157 as against 178 days during the last

season. The company exported 14,600 tonnes of sugar from last year production

and earned over half a million dollars.

Noon Sugar Mills produced lesser quantity of sugar mainly due to limited

availability of sugarcane and disruption of supplies for two weeks. The company

supplied 59,000 bags of 50 kg each to the government for sale through utility

stores during the last season.

Import of sugar

Import of sugar is a short-term measure to ensure availability and stabilize its

price in the domestic market. However, the recent experiment proved a futile

effort. In spite of import of sugar, the government failed in arresting the upward

trend of sugar prices.

The industry experts have a valid point that increase in support price and quality

premium have failed in increasing yield per acre and recovery percentage but the

cost of sugarcane per tonne has been increasing over the years pushing up the

cost of production of sugar. Therefore, the farmers should improve yield per acre

or the industry would not be able to sustain further losses.

Conclusion

At present there is no such organization in the world that is free from problem

and challenges. Every concern has to strive and struggle a lot to be more

profitable and to get more competitive edge.

The management of ALMOIZ INDUSTRIES LIMITED is taking strategic steps to

enable the mill to become strong and progressive institution. It is continuing to

make efforts to refine its products and operations to make them more compatible.

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As the business and economic conditions remain uncertain, ALMOIZ

INDUSTREIS LIMITED continues to develop the new products like it has been

doing in past.

Recommendations

There should be a safety department in the company to assure the safety

of the workers.

A regular training program should be a permanent policy of the

management so as to provide not only the required skill to employees but

also to help them keeping their skills up to date.

Balance should be at a distance of 5 kilo-meters from the cutters

There should be card system for every employee from helper to manager

for punctuality.

Wages of workers should not be less than Rs3000 per month.

There should be family quarters for all married workers.

There should be a high school and a college as well for boys and girls in

the factory area.

There should be transport facility for workers within the district.

All the employees especially those associated with production should be

encouraged, and should be involved in decision making and empowered

to make innovative decisions. In this way employees can add to the

organization, a lot. e.g. a new cost effective production technique can

result in comparatively huge profits

SKILLS AQUIERED

During my internship program I learned many things. I leaned about the practical life. By

working with the professionals I learned how to communicate to the officials. I have also

learned the following skills;

Message Construction

Can construct effective informative presentations (in various media)

54

Can construct effective persuasive messages (in various media)

Able to use a variety of message forms

Can construct policy making cases and arguments

Effective oral communication skills

Effective written communication skills

Strong abilities in layout and visual presentation of messages Strong

research skills for developing supporting materials for reports,

presentations, etc.

Interpersonal / Organizational Skills

Effective group communication and teamwork skills

Knowledgeable in group decision-making techniques

Knowledgeable of conflict management techniques

Skilled/experienced in managing conflict, building teams, etc.

Strong interpersonal skills

Experienced in working in teams

Reasoning logically and critically

Technology

Ability to use various types of software

Ability to use specific features of software in interesting ways (e.g. mail

merge, video clips on web pages, email survey research, etc.)

Ability to use other (than computer/software) technology

Performance Ability

Effective oral communication skills

Effective written communication skills

Personal

organized, self-motivated, people-oriented, goal driven, energetic

55

BIBLIOGRAPHY

Accounts Department Finance Department http://www.investopedia.com/terms/f/fixed-asset-turnover.asp#axzz1VS8QYT7Q Business Finance by Gitman

Encl:

Copy of Balance Sheet Copy of Income statement Copy of Statement of Cash Flows Copy of Statement of Changes in Owner’s Equity

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http://www.investopedia.com/terms/f/fixed-asset-turnover.asp#axzz1VS8QYT7Q