PRESENTED TO:

SIR MAQBOOL-UR-REHMAN

FACULTY OF ACCOUNTS AND FINANCE

INSTITUTE OF BUSINESS MANAGEMENT

PRESENTED BY:

ANUM IMTIAZ KAZI

ID# 9260

ANALYSIS OF FINANCIAL STATEMENTS

DATE: 30TH JANUARY, 2010

CONTENTSNo table of contents entries found.

COMPANY PROFILEA longtime leader in the cement manufacturing industry, Fauji Cement Company, Headquartered in Islamabad, operates a cement plant at Jhang Bahtar, Tehsil Fateh Jang, District Attock in the province of Punjab. The Company has a strong and longstanding tradition of service, reliability, and quality that reaches back more than 11 years. Sponsored by Fauji Foundation, the Company was incorporated in Rawalpindi in 1992.

The cement plant operating in the Fauji Cement is one of the most efficient and best maintained in the Country and has an annual production capacity of 1.165 million tons of cement. The quality portland cement produced at this plant is the best in the Country and is preferred in the construction of highways, bridges, commercial and industrial complexes, residential homes, and a myriad of other structures, fundamental to Pakistan's economic vitality and quality of life.

In line with the Cement Industry, Fauji Cement has signed a contract with Polysius, a German cement plant manufacturing firm for installation of state of the art, the largest single line (7200 tons per day of clinker) ever commissioned in Pakistan. Meaningful expansion will help the Company to expand its market share. The project is expected to be commissioned in the 3rd/4th quarter of 2010.

In pursuance of its commitment to produce cement under stringent environment friendly conditions, the Company has taken the lead by installing first ever Refuse Derived Fuel (RDF) Processing Plant at a cost of Rs. 320 Million. This project acts as a beacon to the entire industrial sector of the Country towards an environment friendly production, RDF is not only providing economical fuel to the Company but also contributing towards solving the problem of Municipal Garbage Disposal. Minimum 300-400 tons of garbage is being lifted from each garbage dump located at Rawalpindi and Islamabad. In addition, the other important advantages include reduced use of fossil fuel, lowering of green house gases in the atmosphere and availability of compost fertilizer as a by product.

COMPANY HISTORYFauji Cement Company Limited was sponsored by Fauji Foundation and incorporated as a public limited company on 23 November 1992. It obtained the Certificate of Commencement of Business on 22 May 1993. The Company has been setup with primary objective of producing and selling Ordinary Portland Cement (OPC). For the purpose of selection of sound process technology, state of the art equipment, civil design and project monitoring, local and foreign consultants were engaged.

The Company entered into a contract with World renowned cement plant manufacturers M/s

F.L. Smidth to carry out design, engineering, procurement, manufacturing, delivery, erection, installation, testing and commissioning at site of a new, state of the art, cement plant including all auxiliary and ancillary equipment, complete in all respects for the purpose of manufacturing a minimum of 3,000 tpd clinker and corresponding quantity of Ordinary Portland Cement as per Pakistan/ British Standard Specifications. The contract came into force on 1 January 1994. Physical work on the project started in August 1994.

Commissioning activities started in May 1997 generally remained smooth and trouble free, which enabled first batch of clinker production on 26 September 1997 followed by cement production in November 1997.

Subsequently in 2005, the Plant capacity was increased to 3,700 tons of clinker per day i.e. 3,885 tons of cement per day.

In line with the Cement Industry, Fauji Cement has signed a contract with Polysius, a German cement plant manufacturing firm for installation of state of the art, the largest single line (7200 tons per day of clinker) ever commissioned in Pakistan. Meaningful expansion will help the Company to expand its market share. The project is expected to be commissioned in the 3rd/4th quarter of 2010.

BUSINESSThe Company has been set up with the primary objective of producing and selling ordinary Portland cement. The finest quality of cement is available for all types of customers whether for dams, canals, industrial structures, highways, commercial or residential needs using latest state of the art dry process cement manufacturing process.

VISIONTo transform FCCL into a role model cement manufacturing Company fully aware of generally accepted principles of corporate social responsibilities engaged in nation building through most efficient utilization of resources and optimally benefiting all stake holders while enjoying public respect and goodwill.

MISSIONFCCL while maintaining its leading position in quality of cement and through greater market outreach will build up and improve its value addition with a view to ensuring optimum returns to the shareholders.

STRATEGIESWe shall achieve our vision by maintaining high quality product, relentless pursuit of customer satisfaction, empowering FCCL employees to lead cement industry and achieve manufacturing excellence, producing superior returns to our shareholders.

VALUES

CustomersWe listen to our customers and improve our product to meet their present and future needs.

PeopleOur success depends upon high performing people working together in a safe and healthy work place where diversity, development and team work are valued and recognized.

AccountabilityWe expect superior performance and results. Our leaders set clear goals and expectations, are supportive and provide and seek frequent feed back.

Social Responsibility

We support the communities where we do business, hold ourselves to the highest standards of ethical conduct and environment responsibility, and communicate openly with public and FCCL employees.

MANAGEMENT

Board of Directors

Lt Gen Hamid Rab Nawaz, HI(M) (Retd) ChairmanLt Gen Javed Alam Khan, HI(M) (Retd) Chief Executive/ Managing DirectorMr. Qaiser Javed Director

Mr. Riyaz H. Bokhari, IFU Director

Brig Rahat Khan, SI(M) (Retd) Director

Dr. Nadeem Inayat Director

Brig Liaqat Ali, TI(M) (Retd) Director

Brig Agha Ali Hassan, SI(M) (Retd) Director

Brig Parvez Sarwar Khan, SI(M) (Retd) Director

Brig Sajjad Azam Khan, SI(M) TBt (Retd) Company Secretary

Human Resource Committee

Dr. Nadeem Inayat President

Mr. Qaiser Javed Member

Brig Liaqat Ali, TI(M) (Retd) Member

Brig Sajjad Azam Khan, SI(M) TBt (Retd) Secretary

Audit Committee

Mr. Qaiser Javed President

Mr. Riyaz H. Bokhari Member

Brig Rahat Khan, SI(M) (Retd) Member

Dr. Nadeem Inayat Member

Brig Sajjad Azam Khan, SI(M) TBt (Retd) Secretary

Technical Committee

Brig Rahat Khan, SI(M) (Retd) President

Brig Liaqat Ali TI(M) (Retd) Member

Brig Parvez Sarwar Khan SI(M) (Retd) Member

Rais Ahmed Secretary

PRODUCTS

Ordinary Portland CementPS:232-2008 (R) : 53 GradeIngredients:

- Clinker 95%

- Gypsum 5%

28 days compressive strength up to 9000 psi

Fauji Cement also meets the requirements of following international standards:

- ASTM-C-150, Type I- BS EN-197-1, Strength Class 42.5 N

Quality Policy

EMPHASIS ON 100% CUSTOMER SATISFACTION.

100 % EFFECTIVE UTILIZATION OF PLANT CAPACITIES.

EMPHASIS ON 100% TOP QUALITY HUMAN RESOURCES.

EMPHASIS ON 100% QUALITY CULTURE.

Fauji Cement Company Limited (FCCL) is a Pakistan-based company. The Company is engaged in the manufacturing and sale of ordinary Portland cement. The Company operates a cement plant at Jhang Bahtar, Tehsil Fateh Jang, District Attock in the province of Punjab. As of June 30, 2010, the Company had installed capacity to produce 1,165,500 metric tons of cement. During the fiscal year ended June 30, 2010, the Company produced 1,066,625 tons of clinker and 1,183,684 tons of cement.

MANUFACTURING PROCESS

Fauji Cement is manufactured from best quality raw materials using dry process. Major portion of such raw ingredients consists of Limestone and Clay. The raw materials are quarried, crushed and corrected. After which they are mixed in the correct proportions to form the best raw mix. The raw mix is then ground in a raw mill and subsequently burnt in a rotary kiln at a temperature around 1450 °C. The raw materials undergo a number of complex chemical reactions in the burning phase and leave the kiln as cement clinker, consisting of agglomerate of clinker minerals. Finally the clinker is ground to a fine powder called cement, in a Cement Mill together with 4-6% gypsum. The gypsum serves to retard the setting time of the cement, which would otherwise harden, immediately with the addition of water.

 

Local Sales

• Fauji Cement Company supplies cement throughout Pakistan especially in the provinces of Punjab, AJK and NWFP through extensive dealer’s network.

• Fauji cement is a first choice for all hydro electric power projects and projects which specially requires strength and durability to overcome structural problems.

Direct SalesDirect sales have been made to mega and large projects. Some of them are:-

- CGGC- CMEC- NJ (Neelum Jehlum Hydro Electric Power Project), Muzaffarabad City- Mangla Dam Raising Development Project

- Motorway (M1-Project, Islamabad-Peshawar)- Bahria Town / Safari Villas, Rawalpindi City - Pak Gulf Construction Pvt Ltd (CENTAURUS)

- Karakorum Highway (KKH Project) Islamabad- Dong Fang Electric Corp, Batagram, NWFP- Yucel Turk Const (Pvt)Ltd, Mansehra City

- Sino Hydro Power Project, Duber Khwar, Bisham Swat City- Siyahkalem Engineering,Construction Company, Muzaffarabad City

- Essem Hotel and Serena Hotel, Islamabad.- Malakand (Dargai) Hydro Power Projects

- Army Housing Schemes - Air Force Housing Schemes

- National Logistic Cell Projects- Fauji Foundation Projects

- Agha Khan Development Network, Muzaffarabad City.- Projects of Izhar Group of Industries.

- Mineral Development Project, Islamabad.- A Q Khan Laboratory, Rawalpindi City

- National Highway Authority Projects- Shifa International Hospital, Islamabad.

- Habib Rafique (Pvt)Ltd, Islamabad.

Exports

Fauji Cement is one of the major exporters of cement to Afghanistan, with an effective presence in all cities. Our dealer’s network effectively cover the markets of Jalalbad, Kabul,

Northern Afghanistan (Kunduz-Mazar Sharif and surrounding areas) and other markets of Afghanistan.

We also export to Tajikistan and India.

INVESTORS

Pattern of the shareholding is as under

        

  

Shares Percentage 

  Fauji Foundation including Directors 235,938,214 31.7981 

  FFC93,750000 12.6350  

  FFBL18,750,000 2.5270 

  FOTCO18,750,000 2.5270 

  General Public374,800,472 50.5129 

  Total:   100.00%  

Company Snapshot===========================================

Symbol FCCL-------------------------------------------

Nature of the Business Cement ProductionMarket Price Rs 4.94

Outstanding Shares 741,988Market Capitalization 3,665,421

EPS Rs 0.31Price/Earnings 20.87

Production Of Selected Large-Scale Manufacturing Items

ItemsWeight

s

Adjusted

Weights

Percentage

Change ItemsWeight

s

Adjusted

Weights

Percentag

ChangeFY10 FY11 FY10

Textile 24.492 32.623 0.0 -14.3 Automobile 3.955 5.268 23.6

   Cotton Yarn 13.066 17.404 -0.3 -12.9    Cars & jeeps       2.534 3.375 -0.3

   Cotton Cloth 7.549 10.056 2.6 -3.1    Tractors 0.700 0.932 26.6

   Cotton Ginned 3.368 4.486 13.0 0.0     LCVs 0.441 0.587 -37.0

   Other Five Items 0.509 0.677 -13.5 -32.3     Motorcycles 0.137 0.182 28.2

Food, Beverages & Tobacco 

14.352 19.116 -4.1 -5.3    Buses 0.084 0.112 -22.2

   Vegetable Ghee 4.242 5.651 3.0 2.4    Trucks 0.060 0.080 -45.9

   Sugar 4.150 5.527 0.0 0.0 Metal industries 3.475 4.628 -50.5

   Cigarettes 3.055 4.069 -3.4 -12.4    Pig iron 1.613 2.149 -62.2

   Cooking Oil 1.319 1.757 17.9 20.4    Coke 1.441 1.919 40.6

Wheat Milling 0.988 1.315 6.2 6.1    Billets 0.340 0.452 -46.6

   Tea 0.319 0.425 -3.5 -8.3 H.R/coils and plates  0.081 0.108 -55.4

   Beverages 0.279 0.372 15.8 -12.8          

Petroleum products  5.232 6.969 -20.1 5.9 Fertilizers 3.383 4.506 -2.7

Pharmaceuticals 5.030 6.700 0.5 0.0    Phosphatic 1.885 2.511 -9.9

   Tablets 2.575 3.430 0.4 0.7    Nitrogenous  1.498 1.995 -1.4

   Syrup 1.525 2.031 -1.2 11.3 Electronics  2.485 3.310 3.2

   Injections 0.444 0.591 -1.3 -36.3   Electric transformers

0.570 0.760 -42.5

   Capsules 0.217 0.289 2.5 10.3    Refrigerators 0.589 0.785 4.9

   Other Two Items 0.270 0.359 4.0 28.0    Deep freezers 0.399 0.532 37.9

Chemicals 4.800 6.393 -2.1 7.7    TV sets 0.226 0.302 -42.1

   Caustic Soda 0.731 0.974 -26.4 -5.7    Air conditioners 0.074 0.099 35.1

   Soda Ash 0.088 0.551 5.0 12.8    Electric Fans 0.183 0.243 14.2

   Other Ten Items 3.981 4.869 0.8 3.8    Other five items 0.444 0.591 6.4

Non Metallic Minerals 4.192 5.583 9.1 24.8 Engineering items 0.446 0.594 9.3

   Cement  4.141 5.516 13.5 -4.7    Safety razor blades 0.260 0.346 5.0

   Glass Sheets 0.051 0.067 2.1 -13.0    Bicycles 0.064 0.086 33.9

Leather Products 2.272 3.027 -9.3 37.3    Sewing machines 0.081 0.107 -16.1

Paper & Board  0.600 0.799 -10.1 22.8    Power looms 0.016 0.021 22.6

Tyres & Tubes 0.303 0.404 38.3 -0.5    Diesel engines 0.011 0.015 -51.2

Wood Products 0.030 0.040 -61.9 29.0    Other five items 0.014 0.019 -8.9

Overall Growth               -1.07

ANALYSIS OF FINANCIAL STATEMENTS

2000-2009

Fauji Cement Co Ltd

Summarized Income Statement

For the Year Ended 30 June, 2003 To 2007 (in 000)

2003 2004 2005 2006 2007

Rupees Rupees Rupees Rupees Rupees

SALES 2,488,992 3,247,262 3,921,363 5,683,456 4,780,036

Less : Sales tax and excise duty 978,254 951,031 1,076,219 1,397,317 1,316,753

NET SALES 1,510,738 2,296,231 2,845,144 4,286,139 3,463,283

Less: Cost of sales

Raw Material 75,725 115,164 136,819 205,751 235,379

Direct Labor 65,299 91,289 87,091 142,070 133,780

Factory Overhead

Rent Rate & Taxes 882 952 1,378 2,562 2,213

Fuel Consumed 472,772 564,591 699,818 843,909 979,044

Power Consumed 246,489 310,041 332,383 393,785 431,609

Depreciation 245,737 243,056 251,981 261,566 276,244

Other F.OH 192,730 238,876 245,183 325,001 355,819

Total F.OH 1,158,610 1,357,516 1,530,743 1,826,823 2,044,929

Total Manufacturing Cost 1,299,634 1,563,969 1,754,653 2,174,644 2,414,088

Work in Process 37,601 -21,944 16,137 -82,047 -21,550

Cost of goods manufactured 1,337,235 1,542,025 1,770,790 2,092,597 2,392,538

Finished goods -2,104 13,381 -7,223 2,430 -20,750

Cost of Sales 1,335,131 1,555,406 1,763,567 2,095,027 2,371,788

Gross Profit 175,607 740,825 1,081,577 2,191,112 1,091,495

Less Operating Expenses

General & Admin Expenses

Salary, wages and benefits 15,408 21,817 21,835 35,663 42,439

Traveling and entertainment 2,933 2,053 3,320 4,769 3,487

Legal and Professional charges 12,117 1,655 3,148 3,490 2,281

Other General and Admin Expenses 7,917 14,542 13,991 22,706 23,095

Total 38,375 40,067 42,294 66,628 71,302

Selling and Distribution Expenses

Salary, wages and benefits 7,992 12,011 11,085 21,388 20,651

Rent Rate & Taxes 1,209 1,144 1,172 1,112 1,353

Communication Expenses 1,149 1,850 2,590 2,376 2,871

Advertisement and sales Promotion 1,737 2,296 2,101 2,866 2,029

Other selling expenses 2,930 3,116 4,386 3,953 13,741

FINANCIAL RATIOS

LIQUIDITY

Current Ratio

The current ratio determines short term debt paying ability and is computed as:

Current Ratio = Current Assets / Current Liabilities

Current Ratio ( Amounts in Rs. “000”)

Years 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Current Ratio in Times

0.24 1.53 1.54 0.92 1.25 1.35 2.16 0.81

2000 2001 2002 2003 2004 2005 2006 2007 2008 20090

0.5

1

1.5

2

2.5

0.21 0.23 0.2

1.53 1.54

0.921.25 1.35

2.16

0.81

Years

Years

Interpretation

In the above table the ratio is increasing in the first years that mean the company has more funds to pay its current liabilities. But in the coming year there is a decrease in the ratio. That affects the company’s debt paying ability. In the last two years the ratio increased due to increase in the current assets. So that is the positive sign for the company. It increases the short term, liquidity of the company and it attracts the short term loan providers on the cost of profitability.

Acid Test Ratio / Quick Ratio

The acid test ratio relates the most liquid assets to current liabilities. Inventory is removed from current

assets when computing the acid test ratio. Reason for removing inventory is that inventory may be slow

moving or possibly obsolete and parts of the inventory may have been pledged to specific creditors.

Acid Test Ratio / Quick Ratio = (Current Assets – Inventory) / Current Liabilities

Acid Test Ratio ( Amounts in Rs. “000”)

Years 2000

2001

2002

2003 2004 2005 2006 2007 2008

2009

Current Assets

721,338

574,461 1,113,721 1,579,382 1,953,527

Inventory 236,602

259,000 353,806 635,978 652,078

Current Liabilities

472332 372116 1206946 1267199 1442287

Acid Test Ratio

1.03 0.85 0.63 0.74 0.90 2.06 0.74

Interpretation

In the above table we can see that there is a decreasing trend in the ratio. This ratio is taken on the basis of quick assets (cash or cash equivalents). The main reason of the decline is the increase in the current

liabilities. The other reason is increase in the inventory that decreases the required ratio.

Cash Ratio

The best indicator for the company’s short term liquidity may be the cash ratio. It is computed as

follows,

Cash Ratio = (Cash & Cash Equivalent + Marketable Securities) / Current Liabilities

Cash Ratio ( Amounts in Rs. “000”)

Years 2003 2004 2005 2006 2007

Cash & Cash Equivalent & Marketable Securities

193992 197088 603110 847590 423133

Current Liabilities 472332 372116 1206946 1267199 1442287

Cash Ratio 0.41 0.53 0.50 0.67 0.29

0.41

0.53 0.50

0.67

0.29

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

2003 2004 2005 2006 2007

Years

Cas

h R

atio

( T

imes

)

Series1

Interpretation

A high cash ratio indicates that the firm is not using its cash to its best advantage. A cash ratio that is too

low could indicate an immediate problem with paying bills.