Cement: JAVEDAN CEMENT LIMITED - Analysis of Financial Performance June 2003- June 2006
Javedan Cement Limited (JCL) is a public limited company incorporated in Pakistan on 8th June, 1961. The company was incorporated in the name of Valika Cement Limited and nationalized by the Federal Government in 1972 and the name of the company was changed to Javedan Cement Limited.
The principal activity of the company is to manufacture and sell ordinary Portland cement, blast furnace slag cement and sulphate resisting cement. Total installed annual capacity of the company is 600,000 tons. The following was the pattern of shareholding of the company on June 30th, 2006.
The company was privatized in September 2006 whereby the 96.34% were transferred from State Cement Corporation of Pakistan to Al-Abbas Holdings Private Limited and Ghani Holdings Private Limited in equal proportions.
The profitability of the company has increased markedly since 2003. The profitability profile of the company was in the negative in 2003 owing to lower cement production and sales mainly and also due to higher administrative expenses and financial charges. As the production and sales of cement doubled in 2004, the profits of the company shot up. The company also eliminated its doubtful debts in years subsequent to 2003.
The profits of the company have continued to increase since on account of better capacity utilization (that increased from 36% to 75% and then to 80.50% in 2006), leading to enhanced production and better sales of cement and also higher demand (due to construction sector boom) and higher cement prices especially in 2005 and 2006.
The liquidity profile of the company has improved over the years, indicating that the company is better positioned to meet any short-term obligations easily and comfortably. The current assets of the company were less than its current liabilities until 2005.
Subsequent to 2004, the current assets outperformed its current liabilities due to increases in raw materials and finished goods and short term investments in bonds. The company also retired its interest payable on mortgaged property to the holding company, State Cement Corporation of Pakistan, in 2006. The company was also able to recover its receivables. There was also witnessed a considerable decline in the advances to the suppliers indicating that the company received its shipments of raw materials on time.
The company's ability to manage its assets has increased quite remarkably particularly after 2003. Its assets that is inventory now takes less time to convert into finished goods that is cement and clinker. This is clear from its inventory turnover, days sales outstanding and operating cycle of the company that have decreased over the years. This reflects a prudent asset management, better run factor and in time inventory handling. Moreover, the company has increased its capacity utilization and also opened its previously closed kiln plant (that represents about 25% of the production capacity of clinker) for operation in 2004 and onwards. The sales of the company have also increased. The sales to equity ratio of the company peaked in 2004 due to a double increase in its net sales. However, subsequent to that, the net sales of the company have increased at a rate less than its equity. In 2006, its equity increased by 31% whereas its net sales increased by 24%.
The profile demonstrates a fine debt management. The total assets of JCL have been increasing at a faster rate than its total liabilities. The company has been able to recover its dues and pay back its payables. In addition, the inventories have also grown on the back of higher demand and the consequent production and sales. The debt to equity ratio has decreased which points to the fact that the company is now becoming less financially leveraged and has enhanced its equity financing and capital base through issue of bonus shares in recent years.
The composition of JCL's liabilities has changed with the prominent emergence of long-term debt and a decline in current liabilities. The long-term debt of the JCL has increased owing to deposits from cement stockists/dealers. Times interest earned has risen due to greater bank charges and commissions and as the interest on worker's participation fund increased 6 times in 2006 from 2005.
The market value of the company shows a marked increase. The market price of the company has increased as the cement prices have been rising since previous years due to greater demand. The price of JCL's share increased twice since 2005 and three times in 2005 from 2004.
The company has been pursuing a policy of retaining its earnings and distributing less dividends to finance its capacity enhancement programme. Many plants have been under maintenance. The book value per share of the company has increased considerably due to increasing equity.
Future outlook:
Economic activities are on the rise in the country and the government has also made big allocations for development expenditures. This is likely to translate into a higher demand for cement in the future. The price of the company's share is likely to increase in future as investors keep an outlook following the privatization of the company. As the company is currently pursuing a capacity enhancement plant maintenance programme, the production and sales of the company may increase in future. This is likely to further improve the liquidity and solvency picture of the company.
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Javedan Cement Limited Financials
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Rupees in Million 2003 2004 2005 2006
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Balance sheet 2003 2004 2005 2006
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Property, plant and equipment 172,263 160,937 165,951 152,709
Other non-current assets 67259 65822 48145 35858
Inventories 166867 169344 195013 198768
Trade debts 794 0 0 0
Cash and cash equivalents 80,041 231612 397272 394931
at the end of the year
Current assets 312,256 437,257 771,067 776,056
Quick Assets 145,389 267,913 576,054 577,288
Total assets 551,778 700,017 985,162 964,623
Ordinary share capital 560000 560000 560000 560000
Preference share capital 0 0 0 0
Reserves 646,966 646,966 75,466 75,466
Total equity 125,574 168,271 379,419 499,746
Surplus on revaluation
of fixed assets 0 0 2681 0
Non-current liabilities 291 291 36291 34307
Current liabilities 425,913 531,454 566,771 430,570
Total liabilities 426,204 531,745 603,062 464,877
Total equity and liabilities 551,779 700,017 985,162 964,623
Net current (liabilities)
/ assets -113,657 -94,197 204,296 345,486
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Profit and loss 2003 2004 2005 2006
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Net sales 533,619 ,111,306 1,390,369 1,726,610
COGS 567,502 969,746 1,083,516 1,295,821
Gross profit -33,882 141,562 306,854 430,789
Operating profit / EBIT -51,015 124,547 287,150 412,560
Finance Cost 536 398 927 1,088
Profit before tax -37,815 121,698 294,958 422,784
Taxation 2,739 37,000 83,811 78,457
Profit after tax -40,554 84,698 211,147 344,327
Ordinary cash dividends 0 42,000 0 318,000
Capital expenditure 435000 350000 181000 60000
No of Shares Outstanding 56,000 56,000 56,000 55,986
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FINANCIAL RATIOS 2003 2004 2005 2006
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PROFITABILITY RATIOS
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Profit Margin -7.60% 7.62% 15.19% 19.94%
Gross profit margin -6.35% 12.74% 22.07% 24.95%
Return on Assets -6.85% 17.39% 29.94% 43.83%
Return on Equity -32.29% 50.33% 55.65% 68.90%
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LIQUIDITY RATIOS
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Quick Ratio 0.34 0.50 1.02 1.34
Current Ratio 0.73 0.82 1.36 1.80
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ASSET MANAGEMENT RATIOS
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Inventory Turnover(Days) 112.57 54.86 50.49 41.44
Day Sales Outstanding (Days) 0.54 0.00 0.00 0.00
Operating cycle (Days) 113.11 54.86 50.49 41.44
Total Asset Turnover 0.97 1.59 1.41 1.79
Sales/Equity 4.25 6.60 3.66 3.45
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DEBT MANAGEMENT RATIOS
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Debt to Asset 0.77 0.76 0.61 0.48
Debt to Equity Ratio 3.39 3.16 1.59 0.93
Long Term Debt to Equity 0.00 0.00 0.10 0.07
Times Interest Earned -95.18 312.93 309.76 379.19
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MARKET RATIOS
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Earning per share -0.85 1.51 3.77 6.15
Price/Earnings Ratio -10.88 10.79 13.93 17.44
Dividend per share 0.00 0.75 0.00 5.68
Book value per share 2.24 3.00 6.78 8.93
No of Shares issued 56000000 56000000 56000000 55985915
Market prices(Year end) 9.25 16.30 52.50 107.25
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COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].
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