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Research and Analysis Project

Analysis of financial statements over a three year period

ending June 2009, 2008 and 2007 of


A project for BSc. (Hons.) in applied accounting

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No. Contents Page

1 Introduction
1.1 Reasons for choosing the topic and company 3.
1.2 Project objectives and research questions 3.
1.3 Overall Research approach 4.

2 Information Gathering
2.1 Sources of information (Primary and secondary) 5.
2.2 Description of methods used to collect information 5.

2.3 Limitations of information gathered 6.
2.4 Ethical issues during information gathering 7.
2.5 Accounting/business tech. used and their limitations 8.

3 Analysis
3.1 Over view of the economy
3.2 Company history 9.
3.3 Company products 9.
3.4 Cement industry 9.
3.5 Ratio analysis and competitor analysis 10.
Sales analysis and profitability analysis
Liquidity and working capital analysis
Capital and debt structure analysis
Valuation ratios
3.6 Porters five forces analysis 18.
3.7 SWOT analysis 19.

4 Conclusion and suggestions 20.

A Referencing and bibliography 23.
B Questionnaire 25.
C Ratios 27.
D Graphs 28.
E Financial statements 29.

1.1 Reasons for choosing the topic and company

One of the reasons for choosing this topic was that as an

accountancy student I always studied the analysis of a company
using ratio analysis and other business tools but obviously that
has very little scope. Performing analysis of an actual company is
a very challenging and it also involves analyzing the environment
too that is full of learning and that gives a wider scope.

Another reason for choosing the analysis of a companys

financial statement was the ease of availability of annual
accounts. Thats because companies today do not want to share
their internal information with outsiders and are reluctant to
share the documents that was important for other topics.

I foresee my future in the field of business analyst and

performing the analysis of a real entity was obviously my interest

and gave me real insight of the work of this field that how things
happen practically.

One of the very strong reasons of choosing the topic was that is
related to my studies.

Reason for choosing the cement industry was that this industry is
one of the biggest contributors to the economy of Pakistan.

One of the reasons for choosing ATTOCK CEMENT PAKISTAN

LIMITED (ACPL) was due to the up to date and readily available
information of this company through several sources.

1.2 Project objectives and research questions

The project objective consists of the benefits that an

organization/person expects to achieve as a result of spending time
and exerting effort to complete a project.

The basic objective of the project is to analysis the financial

statements of ACPL and to analyze its business performance, sub-
divided into:

Analyzing the financial position and performance of the

company I need to do the following:
Sales analysis will be done to analysis the sales of the
company its trend towards increase or decrease and the reason for
Profitability ratios measure how well a company is performing
by analyzing how profit was earned relative to sales, total assets
and net worth. (
Evaluation of ACPL short-term liquidity to assess the position
of company to pay off its short-term obligations on time. (Heitger,
Matulich, 1987)
Long-term solvency and capital structure will be analyzed by
calculating the gearing ratio which indicates the companys
financial structure and debt capital ratio.
Investors ratios will be used to give an examination of the
company from the point of view of investors.

SWOT analysis of the company will be done to analyze the
strengths, weaknesses in the company and opportunities and
threats that company faces in the environment in which it
operates. P3 Business analysis BPP 2008

Porters five forces analysis will be done to analyze the

competitive environment and the strength of the competition
in the cement sector of Pakistan.

Conclusion will be devised on the bases of my analysis done

and some recommendations will be given if there is any room
for improvement.

Research questions

To have a clear structure and objectives of the project in my mind I

devised the following questions:
What information will be required initially and during the
project to start and assist me in the project?
What will be the sources of information that I have to find out
and get sufficient information about the company and sector?
What are the methods to gather the information?
What will be the areas I have to focus in the financial
statements to get my work properly done?
What will be the IT skills required to perform and present my
work properly?
What will be the communication skills required when meeting
my mentor and other people in the process of information
How can I establish the strategic position of the company?
What will be the level of learning in performing all the work?
Will it help me in the future? (Johnson, 2005)
How the conclusion will be designed from the work done?

1.3 Overall research approach

It is very important to perform a task properly to plan all the work

before it is started. As a saying goes that if you fail to plan you plan to
fail. So the research approach I adopted helped me a lot to minimize
the wastage of time and energy.

Firstly I did some background research about the project and got the
information about the options on which I can prepare my project. For
this first of all I arranged a meeting with my mentor who helped me a

lot in deciding me the topic. After selecting the topic I figured out the
industry and the company I will use in my project.

Then I started working on the sources of information from which I can

get reliable information about the cement sector and ACPL. I used
many sources including internet, newspapers, magazines, accounting
books, ACCA syllabus books, library and of course annual accounts of
the company. I also interviewed personnel of ACPL and asked many
questions to them that helped to increase my knowledge.

Then I selected the tools that I used during analysis. They include both
financial and non-financial. I used ratio analysis for the financial
analysis and SWOT and Porters five forces as non-financial tools. I
gathered information about a competitor so that the analysis can be

Meanwhile I was in the contact with my mentor through a series of

meetings who helped me in the issues that arose during the process.
He guided me, referred me different books for referencing and also
helped me plan my work.

2.1 Sources of information - Primary and secondary

Primary sources of information allow the learner to access original and

unedited information. A primary source requires the learner to interact
with the source and extract information. Secondary sources are edited
primary sources, second-hand versions. They represent someone
else's thinking. (

Primary sources that I used were interviews, questionnaires and visits

that I made to the office of ACPL. First of all I arranged a meeting with
the managers of accounts and marketing department. Meeting the
company personnel was very informative experience and the
information I got helped me in performing my work. First of all I
identified the informed persons of the company and asked them to fill
the questionnaire. Questionnaire included many questions about the
company and its production.

Then I interviewed the persons I was supposed to meet. They firstly

provided me the annual accounts for the year ended June, 2009. While
interviewing I got solved many problems that I was facing in
understanding the annual accounts. Then I met manager marketing
department that helped me understand the companys strategy and
also the cement sector of Pakistan. The information helped me in
performing SWOT and Porters five forces analysis.

Secondary sources of information that I used were as follows:

Internet is the main source of information now days in all

fields, and that helped me a lot throughout my work. The sites
I used to visit were and
The web site of ACPL and Karachi Stock Exchange were also
very useful which are as follows:
I used to study business magazines to be up to date with the
changing business environment.
Annual reports of the company over a three year period along
with the competitors report were really helpful in acquiring
financial data of company.
Analyst reports were used to gain the industry and ACPL
related information.
The newspapers business sections were also one of the
sources of my information inputs.
The ACCA syllabus books and the ACCAs magazine student
accountant was also a part of my study. I had to search the

archive to refer the back issues of student accountant
magazine. Other business and accountancy related books
were also used for this purpose.

2.2 Description of methods used to collect


I used different methods to gather the information as some of them are

discussed earlier but the main from which I got a lot of help were as

Books and newspapers and other literary sources

2.3 Limitations of information gathering

There were some limitations that I faced while collecting the

information for my project.

One of main issues was the meeting with the required person. The
issue of non-availability of the personnel wasted a lot of my time.
Another issue was that while interviewing, company managers were
very reluctant to provide the information. At times the personnel used
to window dress the companys positions so I was very conscious about
sorting out true picture of company. Permission of senior manager to
fill the questionnaires was also an issue.

Internet was the main source of my information but I had loads of

information that I had to sort out carefully because many times
information was not up-to-date and reliability of data was an issue too.

2.4 Ethical issues during information gathering

Ethical issues arose while interviewing the company personnel. As

mentioned above, they were reluctant to share the sensitive and
confidential information without the consent of the senior managers.
So I met their seniors and told the purpose of the information i.e. to
use it only for research work. My convincing argument to managers
was that as I am a student of a ACCA which is a professional body who
is bound by a strong codes of ethics which are objectivity, integrity,
confidentiality, professional behavior and professional competence and
due care. Then he agreed to provide me the information at some

2.5 Accounting/Business techniques used and their

I basically used three types of tools to analyze the companys financial

position and its performance that are ratio analysis, SWOT analysis and
Porters five force analysis.

Ratio analysis
A tool used by individuals to conduct a quantitative analysis of
information in a companys financial statements. Ratios are calculated
for current year numbers and are then compared to previous years,
other companies, the industry or even the economy to judge the
performance of the company. Ratio analysis is predominantly used bye
proponents of fundamental analysis. (

Limitations of ratios
Most ratios by them selves are not highly meaningful. They
should be viewed as indicators, with several of them combined to
paint a picture of the firms situation. (
Ratios dont capture significant off-balance sheet items
The difference of accounting policies used different companies
can distort the inter company comparison.
Ratios are not definitive measure and must be used carefully.
They can just provide clues about position of the company.
Ratios don't always tell about changes that are coming - looking
at historical data does not predict the future. (
Many large firms operate different divisions in different
industries. For these companies it is difficult to find a meaningful
set of industry-average ratios. (

Porters five forces analysis

Porters five forces is framework of the industry analysis and business
strategy development developed by M.E. Porter. It uses concepts
developing industrial organization economies to derive five forces
which determine the competitive intensity and therefore attractiveness
of market. (Michael E. Porter, 1980)

Limitation of Porters five forces analysis

One of the main limitations of the model is that it assumes the
market as a static market which is not practically possible
because the industrial and general environment is constantly

In the economic sense, the model assumes a classic perfect
market. The more an industry is regulated, the less meaningful
insights the model can deliver.
The model is best applicable for analysis of simple market
structures. A comprehensive description and analysis of all five
forces gets very difficult in complex industries with multiple
interrelations, product groups, byproducts and segments. A too
narrow focus on particular segments of such industries, however,
bears the risk of missing important elements.(FTC, 2008)

SWOT analysis
SWOT analysis can be used to gauge the degree of fit between the
organizations strategies and its environment, and to suggest ways in
which the organization can profit from strengths and opportunities and
shield itself against weaknesses and threats. (Adams, 2005)

Limitations of SWOT analysis

The same factor can also be a strength and weakness.
The SWOT framework has a tendency to oversimplify the
situation by classifying the firms environmental factor into
categories in which they may not always fit.
The assessment of strengths and weaknesses may be unreliable,
being base on aspiration, biases sand hopes. (Henry, 2007)

3.1 Overview of the economy

The year 2008-2009 was a difficult year for global economies as well as
Pakistan. The worst-ever global financial crisis has had extremely
serious repercussions for both developed and developing economies all
over the Globe. This fall out created serious credit crunch through out
the world as all the global financial markets are closely interlinked. In
the emerging markets like Pakistan the financial melt down resulted in
flight of capital and corresponding steep fall in the local currency
against US$. Pakistans economy is not only affected due to this global
meltdown but also due to the countrys active involvement in war on
terror and therefore registered GDP growth of only 2%. (The Dawn,

3.2 Company history

ACPL project was conceived and the company was incorporated in

1981 the plant finally commenced commercial production on June 1,
1988. The project involved an initial outlay of Rs.1.5billion with foreign
exchange components of around US$45 million. The factory is located
in the province of Balochistan.

ACPL is a part of Pharaon Group and is a Saudi-Pak joint project. Its

major shareholder Pharaon commercial Investment Company limited
holds 84.06% of total paid up share capital where as the general public
holds a total of 15.94% shares. Pharaon Group has a diversified stakes
in Pakistan mainly in oil and gas sectors. (Business Recorder, 2009)

3.3 Company products

ACPL is currently engaged in the production and sales of following

three products with the registered brand name of Falcon
Ordinary Portland cement (OPC)
Sulfate resistant cement (SRC)
Portland blast furnace slang cement (PBFSC)

3.4 Cement industry

Pakistan cement factories continue to make significant progress in

cement exports. Now Pakistan is ranked 5th in the worlds cement

exports after a huge increase of 47% in exports during FY09. (Daily
Times, 2009)

Pakistan cement sector ended FY09 with local sales witnessing a

meager 2% growth at 30.8 million tons, the growth in overall cement
sales mainly came from the record high cement exports during the
year. Though traditionally Pakistan has seen impressive consumption
growth of 7% in terms of CAGR (capacity growth rate) but the period
commencing from FY02 through FY08 witnessed average growth of
around 15%, which was un-precedent. However, in FY09 the local
demand registered a negative growth of 14%, which was mainly
attributable to political uncertainties coupled with global turmoil. (All
Pakistan Cement Manufacturers Association, 2009)

After six years of consecutive growth, the domestic cement market

depicted a declining pattern in the wake of lukewarm construction
activities amid economic slowdown, high interest rates, liquidity crunch
and cut in infrastructure spending both in public and private sectors.
(Muhammad Rehan Khan, 2009)

3.5 Ratio analysis



FY07 FY08 FY09 FY09
Net Turnover (Rs. million) 4,560 5,001 8,510 14,814
Sales growth 31.29% 9.67% 70.16% 97.86%
Gross profit margin 34.10% 22.27% 31.83% 32.19%
Net profit before tax margin 26.16% 13.49% 23.37% 8.13%
Return on Capital employed 18.11% 10.00% 27.63% 4.95%


The net sales of ACPL in the absolute terms were augmented to

Rs.8,501million during FY09 compared to Rs.5,001million in FY08. The
increase was due to higher quantity sold and better retention during
the year owing to higher selling prices of cement in the country but the
demand was remain depressed in the local market. The sales volume
of ACPL was increased by 25% in the year from 1,359,487tons in FY08
to 1,719,162tons during FY09 mainly due to successful commissioning
of Line-2, and net retention was also augmented by 37%. The reason

of increase in volume was as a result of exports to other countries that
provided better retention as compared to the domestic market. The
cement selling prices increased significantly in the domestic market as
a result of cartelization between cement manufacturers during FY09.
(Irfan Malik, 2008)


2005 2006 2007 2008 2009

The local currency rupee was highly depreciated against other major
currencies that contributed substantially towards the rise in net
retention as a consequence of exports. The domestic sales volume of
ACPL reduced by 1% because of lower demand owing to less
construction activities in the country. (Daily Times, 2009)

On the other hand, the export sales of ACPL increased by 412% and it
contributed 27% of total sales volume compared to 7% in FY08. The
domestic sales percentage was 73% of total volume in comparison
with 93% in FY08 that was a good sign as international prices are
higher as compared to local cement prices.

During FY08 the net turnover of ACPL elevated by 9.67%

Rs.5,001million as compared to Rs.4,560million in FY07. The reason of
increased revenue was attributable to higher quantity sold in the year
by 11% as 1,359,487tons of cement was sold by the company
compared to 1,228,793tons in FY07. The local cement market faced
oversupply situation during FY08 as a result of expanded production
capacity by all cement manufacturers, on the other hand demand was
lower and the prices were almost stable for the whole year. ACPL was
unable to explore new export markets to attain retention prices during
FY08 due to lower than expected production from one of its plant as a
result of technical problems. The export sales of the company
contributed 7% of the total sales volume during FY08 as compared to
3% in FY07.

BWCL also showed a remarkable growth in sales during FY09 even
more than its rival company due to increased quantity sold and higher
percentage growth was attributable to incredible increase in cement
prices both at local and international level as BWCL also exports
cement to other countries.


During FY09 ACPLs gross profit ratio enhanced to 31.83% as compared

to 22.27% in FY08. Owing to the huge demand of Pakistani cement in
the international market especially in the countries which are in the
process of rehabilitation like Iraq and Somalia, ACPL increased its
export sales to those countries, consequently it earned higher margins.
The production costs also increased enormously by 49.25%, it was
primarily increased due to higher fuel consumed during production
process which constitutes 60% of the total costs and further increased
by 60.40% in FY09 as compared to the last year. Coal is the basic fuel
used by ACPL for the production of cement, though the international
prices of fuel declined in FY09 but the depreciation of local currency
offset its effect as all the companies import coal from other countries
that affected adversely on the total costs. Overall capacity utilization
increased by 18% during FY09, and higher absorption of fixed
overheads and higher selling prices contributed positively towards
gross margin.

The gross profit ratio of ACPL declined by 34.69% from 34.10% in FY07
to 22.27% during FY08. The main reason behind the drop in margin
despite the growth in sales revenue was the higher cost of goods sold
mainly as a result of increased fuel costs in the year that increased by
57.68% during FY08 compared to FY07, as the international prices of
coal were on a peak. (Monem Farooqi, 2008)

The cost of goods sold of ACPL increased by 29% including packing

material and raw material costs which was raised by 18.30% and these
two heads constituted 56% of the total costs.

The gross margin of BWCL was more or less same in FY09 as compared
to ACPL again due to higher selling prices despite escalating fuel and
energy costs.








0 500 1000 1500 2000 2500


The net margin of ACPL was 23.37% in FY09 as compared to 13.49% in

FY08 showed an increase of 73.23%. The distribution expenses
increased by 250% in FY09 owing to higher exports in the year that
reached to Rs.311million as compared to Rs.78million in the last year,
and the administration expenses were also enhanced by 36% as
compared to FY08 due to inflationary affect. The administrative
expenses enhanced due to increase in minimum wage rate ultimately
boosted the salaries and wages during FY09. The improvement in
margin was positively effected by higher growth in sales along with
better gross margin in FY09. The finance charges for ACPL also
declined by 33% in 2009 as compared to the last year due to reduced
mark up on short-term loans and running finance.

The net profit margin of ACPL deteriorated in FY08 by 51.56% to

13.49% from 26.16% in FY07. The primary reason of this fall was the
higher interest charges that increased by 50% due to relatively higher
interest rates prevailed during FY09 attributable to poor economic
conditions in the country. The distribution costs of the company was
also increased by 37% and main portion comprised of export expenses
that formed 68% of total distribution costs and though slightly
augmented by 5% as compared to FY07 as the export sales were quite
low in FY08. In case of administrative expenses, a hike was only seen
under the head of salaries and wages, as other remained almost
constant throughout the year.

The net margin of BWCL was lower than ACPL due to higher finance
costs as a result of short-term borrowings to meet the working capital
requirements in FY08.


The better profitability during FY09 provided high returns as a result of

total capital employed in the company that was increased to 27.63%
compared to 10.00% in FY08. This remarkable improvement was as a

result of higher profits earned during FY09, though the equity of the
company also increased due to retained profits in the year.

The ROCE showed a decline to 10.00% in FY08 as compared to a

higher figure of 18.11% achieved in FY07 this was due to the
deteriorating profitability owing to slow growth in sales and higher
input costs that worsened the margins and consequently the returns
dropped in the year.

The ROCE of BWCL was also lesser than ACPL during FY09 primarily
because BWCL issued shares during the year for cash which led to
increase in equity.



FY07 FY08 FY09 FY09
Current ratio 1.26:1 1.51:1 2.43:1 0.64:1
Acid test ratio 0.65:1 0.45:1 1.36:1 0.26:1


The liquidity ratio of ACPL is quite good at 2.43 even above than ideal
level of 2:1. The reason behind such positive results was incredible
increase in current assets by 86% during FY09 on account of huge
short-term investments made by the company. ACPL had capitalized
on high interest rates and have earned in short-term, getting both
profits and liquidity. This was a good strategy of a company as
currently money market is the safest investment with such high
interest rates. ACPL invested Rs.100million in a certificate of
investment that would offer 13.35% on maturity in FY09. Likewise
ACPL also invested Rs.206 million in income funds, which allowed them
to let their income grow along with receiving of periodic cash flows.
The current liabilities also showed a nominal growth of 15% on account
of increase in accrued liabilities compared to FY08.




1500 1480
500 575

2005 2006 2007 2008 2009

The current ratio of ACPL was slightly improved to 1.51 in FY08

compared to 1.26 in FY07. During the year current assets of the
company were increased by 15.17% from Rs.1,480million
Rs.1,285million on account of stores, spare and loose tools and stock-
in-trade due to production work stoppage by one of the companys
plants as mentioned above and ACPL was incapable to book export
orders during the year. On the contrary, the current liabilities
decreased by 4% attributed that improved the current ratio marginally.
The current ratio of BWCL was much worsened than its rival company
due to huge short-term borrowings.


The quick ratio during FY09 was 1.36 which improved from 0.45 in
FY08. The illiquid assets like stock-in-trade and stores, spares and
loose tools comprised 43% of the total current assets near to its half,
but the cash and bank balances along with the other short-term
investments made the quick ratio constructive as compared to the last

The quick ratio of the company declined in FY08 to 0.45 as compared

to 0.65 in FY07 as a result of huge inventory maintained by the
company in terms of raw material and work in process due to lower
production by the company as a result of technical problems in one of
its plant. This item is highly illiquid so impacted negatively on quick
ratio of the company. Likewise, current ratio the quick ratio of BWCL
was much lower than ACPL.



FY07 FY08 FY09 FY09

Debtor collection days 2days 3days 2days 14days
Creditor payment days 24days 40days 18days 11days
Inventory holding days 33days 38days 38days 26days


The debtor collection days of ACPL varying between 2days to 3days in

all three years under review. The reason for such lower period is that
ACPL operates on cash sales to distributors who sell to the wider
community on retail basis. The small amount of debtors is due to a few
days credit sales allowed to large and old customers. BWCL allowed
longer credit limits to its customers so its collection period was 14days.


The creditor payment days stood at 40days in FY08, which was

increased from 24days in FY07 due to increase in creditors by 135%,
and most of this increase was attributable to fuel and power suppliers.
ACPL decreased its creditor days considerably in FY09 to 18days as
compared to 40days in FY08. This was a deliberate step by the
company to improve its goodwill in the eyes of its suppliers of imported
coal. BWCL paid its creditors earlier than ACPL.


The inventory holding days of ACPL were constant for FY09 if

compared with FY08 as the company is anticipated to receive more
orders from the regional market due to increasing demand of cement,
so they built up the strategy to produce in bulk for the timely delivery
as country faced severe fuel and power shortages. Its inventory
increased by 49.87% during FY09 compared to FY08.

The inventory holding days of ACPL enhanced by 5days and reached to

38days during FY08 as compared to 33days in FY07. This increase was
due to increase in inventory owing to lower export orders and
unattractive demand in the domestic market. One of the reasons of
higher inventory level was the lower production and hoarded raw
materials at the year end. BWCL sell its inventory within 26days
compared to ACPL.



FY07 FY08 FY09 FY09

Debt to capital ratio 22:78 18:82 11:89 58:42
12.65tim 5.41time 17.71tim 1.52time
Interest cover
es s es s


ACPL financed its activities through both equity and debts sources as
depicted from its long-term debt-to-equity ratio. But the debt portion
constituted a little amount in total capital of the company. The
company retained much of its profits earned during FY09 that boosted
its overall equity, though its share capital remained the same. The
company acquired long-term loans for the capacity expansion project
in FY06 and now repaying its debts over the years. So the
disbursement of long-term loans and significant increase in equity
during the period reduced its reliance on debt and the ratio decreased
to 11:89 as compared to FY08.

The long-term debt-to-equity ratio in FY08 also declined slightly from

22:78 to 18:82 this was also as a result of dual effect of increase in
equity and decline in debt portion due to repayment of loans in the
year. ACPL is one of the low leveraged companies in the cement
industry of Pakistan ultimately retained low risk. BWCL was a high
leveraged company due to acquisition of long-term loans for the
capacity expansion in FY09.


The interest cover of ACPL improved drastically to 17.71times in FY09

compared to 5.41times in FY08. This has been observed because of
23% drop in companys finance costs. The reason behind fall in
financial charges was dearth of short-term borrowings that was taken
by the company in last year. This was because of excess liquidity it had
due to higher sales revenue.

Similarly, in FY08 ACPL acquired short-term borrowings to fulfill the

needs of working capital as its liquidity deteriorated in the year. Higher
interest rates increased the borrowing cost for the company and its
interest cover reduced to 5.41times in FY08 compared to 12.65times in
FY07. The lower margins of the company during FY08 due to slow
growth and higher costs also contributed in lowering the interest cover
of the company during FY08.


FY07 FY08 FY09 FY09
Earnings per share Rs.11.04 Rs.6.03 Rs.20.69 Rs.3.17
Dividend per share Rs.4.50 Rs.1.50 Rs.3.25 0
Rs.118.2 Rs.69.25 Rs.70.36 Rs.28.00
Share value
10.71tim 11.48tim 3.40time 8.83time
Price to earnings
es es s s
Dividend yield 3.80% 2.17% 4.61% 0


ACPL had a earning per share of Rs.20.69 during FY09 that

improved from Rs.6.03 in FY08, the higher earnings against the equity
invested was due to improved profitability of the company as the
number of shares was constant and higher margins gave high net
profits at the year end consequently build up earnings. The share
capital remained stable in FY08 as compared to FY07 but the lower
margins weakened the earning per share that reduced from Rs.11.04
to Rs.6.03. Earning per share of BWCL was quite lower than ACPL at


The dividend policy of the company was consistent with an increase in

earning per share of ACPL as it declared Rs.3.25 dividend per share in
FY09 on account of better profits earned compared to the last year.
Though, it also retained much of its profits as ACPL is anticipating
higher demand from regional markets so it would be used to finance
further projects in the future.

The dividend per share was Rs.4.50 in FY07 that reduced to Rs.1.50 in
FY08 due to lower profitability owing to lower margins but just to
satisfy the shareholders company provided the dividends when the
local cement industry was in a difficult phase due to lower domestic
demand with oversupply and lower prices resulted in poor liquidity
position and losses incurred. BWCL had not provided any dividends in


As a result of poor economic conditions in Pakistan during FY09, the

stock market did not perform well witnesses the fall in share prices of

almost all sectors; similarly the market vale of ACPLs share was also
constant despite the increase in earnings during FY09. However, during
FY08 the share price fell drastically to Rs.69.25 from Rs.118.25 during
FY07. The share price of BWCL was mush lesser than ACPL.


The price earning ratio of the company has been very volatile with the
changes in market value and does not depict a true picture regarding
the investor confidence on the company.


Dividend yield of the company decreased in FY08 as compared to FY07

as ACPL announced lower dividends however the market price of
shares also declined in the year. ACPL increased the amount of
dividends in FY09 ultimately improved the dividend yield compared to
the last year.


8% 1%


Cost of sales
Operating expenses
17% Retained profit
Corporate taxes

Financial charges

3.6 Porters five forces model


There is no substitute of cement so the threat remained low since past



Cement industry requires materials in an unrefined form. The basic

component of cement is limestone which is extracted directly from
ridges and exists in a colossal quantity in Pakistan. Thus the bargaining
power of suppliers of limestone is low. In addition, the bargaining

power of the suppliers of power and fuel is low as they cannot exert
too much pressure upon ACPL because it uses coal as an alternate
resource of fuel. As coal is traded in an open market so its suppliers
have a low bargaining power they have to sell according to
international prices.


The strength of customers depends on survival factors and the number

of customers. The cement industry of Pakistan is widely spread and
has a large number of customers who buy in small quantities.
However, commercial use of cement is increasing and the switching
cost of customers is also low so their bargaining power goes up.
Generally the price awareness of small customers is low and quality of
cement cannot be measured, moreover, the cartelization between
cement manufacturers further reduced the bargaining power.


The barriers of entry in the cement industry are high because there are
27 listed companies at stock exchange that are already engaged and
have developed a strong brand loyalty and well-established distribution
networks. The cement industry has benefited a lot by shifting towards
dry process, installation of electrostatic precipitators and pre-heaters,
automation of processes and installation of online analyzer which has
resulted in environmentally better and energy-efficient industry on the
other hand high capital is required to enter in such situation.


All the manufacturers have expanded their production capacities that

created an over supply situation in the country and now every firm
trying to get more market share in the presence of lower demand due
to reduced construction activities. Many of the companies are equally
balanced. There is oligopoly in cement sector in Pakistan. Therefore,
the rivalry is very high. Now apart from the local competition many
firms are competing for the regional market share and trying to
explore new markets for better retention keeping in view their
production capacity.

3.7 SWOT Analysis


It is one of the most cost efficient companies in the industry.
Cost efficiencies due to fuel-efficient plants and economies of
scale are the major reasons for this trend.
The company holds a strong position in the northern region,
which caters to 80% of the total demand.
The sound market reputation of the company
ACL claims pioneer status in bringing the pre-calcinations/pre-heating
dry process technology to Pakistan
Decreasing level of debt every year
Maximum returns to shareholders (
ACPL has managed to develop brand loyalty among its
Superior quality (Saad Hassan, 2010)
Management quality remains its core strength


ACPL has faced some hindrances in the export of cement as its

transportation and loading facility is not too good.
The cost of manufacturing is too much dependant on energy
costs; consists more than 60% of fuel and power.


With the newly installed capacity, the company will be able to

benefit from greater exports.
A substantially higher Public Sector Development Programme
(PSDP) allocation and development-oriented foreign assistance
during 2009-10 will result in some improvement in the domestic
demand of cement. (Ijaz Kakakhel, 2010)
The State Bank has recently announced reduction in interest
rates to stimulate growth in the industry. (Babar Farooq, 2010)
ACPL would be a high beneficiary in case of construction of dams
in the country as it produces Portland Blast Furnace Slag Cement
which is specifically used in construction of dams. (Appendix-B)
The company plans to takeover relatively weaker Al-Abbas
cement; this will give an edge to ACPL (Wasi Mehdi, 2010)
There is a hope for cement sector on the international front.
Regional shortage of cement has presented a favorable
opportunity for the cement manufacturers. (Global cement,


Severe energy shortages (Hussain, 2010)
The declining GDP and volatile economic situation may restrict
the construction activities and may hit the demand for cement.
(Jang, 2009)
Though the Government has announced a very ambitious PSDP
but because of poor law and order situation and the current
financial constraints of the government, the spending may not be
materialized to its fullest extent. (Arif Ahmad, 2009)
Higher coal prices
Depreciation of Pakistani Rupee against dollar



The company was incorporated in Pakistan on October 1981 as a

public limited company and is listed on Karachi Stock Exchange. Its
main business activity is manufacturing and sale of cement.


The marginal growth in cement industry during FY09 was achieved due
to higher exports. The local demand registered negative growth of 14%
due to less construction activities, however, the cement prices both at
local and international level increased during the year.


Looking at the overall position of this company, it can be concluded

that ACPLs sales grew in all three years. The company performed
better in FY09 as compared to FY08 as its profitability position
improved in terms of higher gross and net margin due to increased
selling prices and quantity sold that were witnessed as a result of
tremendous growth in sales revenue, but during FY08 the position was
weakened as there was a surge in cement production capacity by all
manufacturers that created the oversupply situation in the country.
Prices were stable; ACPLs sales grew with slower pace due to increase
in quantity sold during FY08. Despite the growing sales, the net profit
went down drastically due to increased costs of production (overall
increases in fuel costs and higher interest rates). BWCLs sales grew at
a staggering rate as compared to its competitor, however, its gross
margin was not materially different from that of ACPL. Net margin was
lower than ACPL basically because of higher finance costs. ROCE is less
because of issuance of shares.


The minimum requirement of current ratio is at 2:1 but ACPLs ratio

lingers above this requirement in FY09 due to huge short-term
investments. The ratio was also stable in FY08 and FY07. The quick
ratio fell in FY08 due to higher inventory level whereas it improved in
FY09. Stock management has been managed in all years owing to the
future demand of cement in an efficient way and as most of the sales
are done on cash basis debtor days were also on a lower side. Creditor
days seemed to be on the higher side in FY08 as a result of weakened
profitability but again managed considerably during FY09. BWCL has
lesser liquidity because of higher short-term borrowings. Activity ratios
are not materially different from ACPL.


Expansions were done through equity and debt-finance in the past

years. Although previous long-term loans are being repaid through
internal cash flows, hence the company registered a lower debt-to-
equity ratio during the years under comparison. Interest cover was also
so much improved in FY07 due to higher operating profits and
declining finance costs. BWCL has higher gearing because of loans for
its expansion.


ACPLs earning per share, dividend per share improved in FY09

compared to the last as result of higher profits but the share price
remained constant due to weakening market situation in the year.
Dividend yield also improved in FY09 compared to last year. ACPLs
performance was much impressive than its rival company BWCL during


There is also no threat of substitutes and the bargaining power of

suppliers and customers is also low. After analyzing factors it can be
concluded that competitive rivalry for ACPL is high. Also, as strength of
barriers to entry shows the threat of new entrants to the market is low.


ACPL is utilizing its strengths and opportunities, and also trying to

mitigate the threats and weaknesses to make its position stronger.


The company is performing well for the financial point of view. ACPLs
distribution channels are also effective, but it should pay great
attention towards the transportation and loading side for exporting
cement and also take some steps to reduce its costs so that better
margins can be achieved. The cement industry is in a dire need of
government support in the development of local coal mines and
thereby reduces the dependence on imported coal.

Anon. (n.d.) Project objectives, [Online]
Anon. (n.d.) Profitability ratios, [Online]
Lester E. Heitger, Serge Matulich. (1987) Managerial Accounting,
2nd Edition, McGraw Hill.
BPP (2008) P3 Business analysis, ACCA syllabus UK: BPP
Shane Johnson (06 Jun 2005), How not to rap, Student
Accountant, ACCA publications, UK
Anon. (n.d.) Primary sources, [Online]
Anon. (n.d.) Ratios, [Online]
Anon. (n.d.) Limitations of ratios, [Online]
Michael E. Porter (1980), How Competition Forces Shape
Strategy, Harvard Business Review, SepOct 1980, USA
FTC (2008) P3 Business analysis, ACCA syllabus UK: Kaplan
Adams, J. (2005), Analyze Your Company Using SWOTs, Supply
House Times, Vol. 48 Issue 7, pg. 26-28.
Anthony Henry. (2008) Understanding Strategic Management,
pg. 120, Oxford University Press, New York, USA.
The Dawn (2009) Business: Pakistans economic growth weak,
The Dawn, Monday, 10th August, Karachi.
Staff reporter (2009) Business news: brief recordings, Business
Recorder, 09the June, Karachi.
ACPL (2009) Company products, [online]

Daily Times (2009) Pakistan ranked 5th in cement exports,
surpasses Germany, Daily Times, 01st August, Karachi.
All Pakistan Cement Manufacturers Association (2009) Cement
industry, [online]
Muhammad Rehan Khan (2009) Analyst report: Cement industry
of Pakistan, First Capital Equities Limited, 11th July Karachi.
Irfan Malik. (2008) Cartel increases cement prices, The Nation,
22nd November, Lahore.
Daily Times (2009) Local cement demand fell 13 percent in
FY09, Daily Times, 11th July, 2009, Karachi.
Monem Farooqi. (2008) Cement sector to face rising costs,
slowdown in demand in FY09, The Nation, 10th July, Lahore.
KSE (2009) Strengths, [online]
Saad Hassan (2010) Business news: Attock cement, The News
International, 31st March, Karachi.
Ijaz Kakakhel (10th Jan 2010) Business: Government projects
Rs.300billion PSDP utilisation for FY 2009-10. Sunday Daily
Babar Farooq. (2010) Analyst report: Domestic cement demand
will grow IGI Securities.
Wasi Mehdi. (2010) Analyst report: ACPL eyeing Al Abbas, Invisor
Securities, 31st March.
Global cement (2009) High cement demand in Iraq and
Afghanistan, Global Cement magazine for the month of March,
Hussain Ahmed Siddiqui (May 03 2010) Business magazine
Economic and Business Review. Karachi.
Jang (2010) Trading news: stock market pressure and
investment declined. The daily Jang Lahore. 21st April.
Arif Ahmad (2009) Analyst report: PSDP in 2009-2010 budget,
Guardian Securities Pvt Limited, 11th August, Lahore.
Annual reports of Attock cement Pakistan Limited for the year
ending June 2007, 2008 and 2009.
Annual report of Bestway Cement Company Limited (Competitor
Company) for the year ending June 2009.
Andrew E. Schwartz (24th March, 2010) Ready set present, A.E.
Schwartz & Associates of Boston [online]
Anon. (n.d.) Research questions,

Anon. (17th August 2009) Interpersonal skills, [online]

1. Please provide a brief introduction of ACPL?
2. Name the products of company it manufactures?
3. What is the brand name of the company?
4. What are the reasons of lower demand in the country?
5. What are the future expectation regarding local cement
6. What are the future plans of ACPL?
7. Please provide production and sales figures of ACPL (in
Tons) for last five years?


1. ACPL was incorporated in 1981 as a public limited company. It is

listed on the Karachi Stock Exchange. The Attock Cement project
was a Pak-Saudi venture. The project was completed and the plant
started commercial production on 1st June 1988. It is a part of
Pharaon Group as the Pharaon Commercial Investment Company
Limited has a majority stake of 84.06% in ACPL.

2. ACPL introduced the pre-calcination/pre-heating dry process

technology in Pakistan. ACPL manufactures three types of cement:
Ordinary Portland Cement which is used in general construction;
Sulphate Resistant Cement is suitable for construction in sea or
near coastal areas and Portland Blast Furnace Slag Cement for
massive constructions e.g. dams and canals. The company also
produces specially formulated mixes of cement to meet the
different customer requirements.

3. It markets its cement under the brand name of 'Falcon Cement.' The
company focuses on meeting the Pakistan and international quality
standards and in 2002 it achieved the ISO 9001: 2000 certification.
A visible slowdown has been observed in the local demand.

4. The main reasons behind this slowdown were the poor law and
order situation and political turmoil in the country. Another
significant reason for this slowdown is increase in overall
construction cost due to higher inflation and interest rates.

5. It is anticipated that the local demand would continue to remain

under pressure because of higher interest rates and poor law and
order situation currently prevailing in the country. The export

markets, in terms of prices, would remain sensitive because of stiff
competition from regional capacities. Given cement status as
commodity in the regional countries, it can be assumed that any
struggle for market share will have to be conducted in term of

6. The key strategic factor is to sustain the business growth and to

explore more and more new markets for our products. The
geographic location of our country is ideal for export in the region
and with the availability of surplus capacity we have potential for
earning sizeable foreign exchange. We have seen a tremendous
export growth that has recognized Pakistan as potential cement
exporting country. With the availability of infrastructure facilities at
port the country has the potential to export 15million tons of
cement and clinker.

2009 2008 2007 2006 2005
Cement production 1,712,6 1,364,5 1,234,878 842,296 728,487
(Tons) 65 11
Cement sales (Tons) 1,719,1 1,359,4 1,228,793 843,137 730,704
62 87



FY07 FY08 FY09 FY09
Net Turnover (Rs. 4,560 5,001 8,510 14,814
Sales growth 31.29% 9.67% 70.16% 97.86%
Gross profit margin 34.10% 22.27% 31.83% 32.19%
Net profit before tax 26.16% 13.49% 23.37% 8.13%
Return On Capital 18.11% 10.00% 27.63% 4.95%
Debtor collection days 2days 3days 2days 14days
Creditor payment days 24days 40days 18days 11days
Inventory holding days 33days 38days 38days 26days
12.65time 5.41times 17.71time 1.52times
Interest cover
s s
Share value Rs.118.25 Rs.69.25 Rs.70.36 Rs.28.00
10.71time 11.48time 3.40times 8.83time
Price to earnings
s s s
Dividend yield 3.80% 2.17% 4.61% 0


8% 1%


Cost of sales
Operating expenses
17% Retained profit
Corporate taxes
Financial charges


2005 2006 2007 2008 2009







0 500 1000 1500 2000 2500





1500 1480
500 575

2005 2006 2007 2008 2009


Balance Sheet
As at June 30,

2009 2008 2007

(Rupees '000')
Share Capital and Reserves
Authorized capital 125,000,000 ordinary 1,25 1,250 1,25
shares of Rs 10 each 0,000 ,000 0,000

721 721 721

Issued subscribed and paid up capital ,629 ,629 ,629
4,04 2,784 2,67
Unappropriated profit 3,176 ,754 4,462
13 25
Hedging reserve ,062 ,196 (47)
4,77 3,531 3,39
7,867 ,579 6,044

Liabilities against assets subject to finance

leases - 109
422 622 822
Long term murabaha ,500 ,500 ,500
636 736 554
Deferred taxation ,870 ,449 ,213
1,05 1,358 1,37
9,370 ,949 6,822

856 767 819

Trade and other payables ,330 ,579 ,785
8 12 14
Accrued markup ,914 ,731 ,413

Current maturity of liabilities against assets -

70 1
Subject to finance leases ,320 109 ,076
200 200 177
Current maturity of long term murabaha ,000 ,000 ,500
1,13 980 1,01
5,564 ,419 2,774
6,97 5,87 5,78
2,801 0,947 5,640

4,14 4,333 4,44
Fixed assets 3,534 ,363 3,222
4 4, 4
Long term investment ,500 500 ,500
19 9, 9
Long term loans and advances ,438 775 ,912
42 42 42
Long term deposits ,980 ,980 ,980
4,21 4,390 4,50
0,452 ,618 0,614

599 622 348

Stores, spares and loose tools ,605 ,758 ,714
613 409 276
Stock-in-trade ,934 ,498 ,428
46 49 19
Trade debts - considered good ,485 ,799 ,897
26 21 35
Loans and advances ,208 ,213 ,099
12 10 2
Short-term deposits and prepayments ,362 ,351 ,894
7 2, 2
Interest accrued ,676 154 ,154
26 49 23
Other receivables ,988 ,403 ,489
183 107
Taxation - ,950 ,073
557 20 203
Investments at fair value through profit or loss ,265 ,246 ,502
871 110 265
Cash and bank balances ,826 ,957 ,776
2,76 1,480 1,28
2,349 ,329 5,026
6,97 5,87 5,78
2,801 0,947 5,640

Profit and Loss Account
For the year ended June 30,
2009 2008 2007
8,510, 5,001, 4,560,
Net Sales 071 350 402

5,801, 3,887, 3,005,

Cost of sales 099 147 726

2,708, 1,114, 1,554,

Gross profit 972 203 676

437, 124, 83,

Distribution cost 194 744 360

Administrative 182, 133, 110,

expenses 420 582 701

Other operating 147, 54, 88,

expenses 402 841 465

Other operating 166, 27, 23,

income 533 840 299

2,108, 828, 1,295,

Operating profit 489 876 449

119, 153, 102,

Finance cost 763 909 072

1,988, 674, 1,193,

Profit before taxation 726 967 377

495, 239, 396,

Taxation 775 942 944

1,492, 435, 796,

Profit after taxation 951 025 433

Profit and Loss Account

For the year ended June 30,
2009 2008 2007
(Rupees '000')

Net Sales 8510071 5001350 4560402

Cost of sales 5801099 3887147 3005726

=SUM(B8- =SUM(C8- =SUM(E8-

Gross profit B10) C10) E10)

Distribution cost 437194 124744 83360

expenses 182420 133582 110701

Other operating
expenses 147402 54841 88465

Other operating
income 166533 27840 23299

Operating profit 2108489 828876 1295449

Finance cost 119763 153909 102072

Profit before taxation 1988726 674967 1193377

Taxation 495775 239942 396944

=SUM(B26- =SUM(C26- =SUM(E26-

Profit after taxation B28) C28) E28)