Maple Leaf Cement: tax takes a toll

Domestic cement prices rallied in the Jul-Dec 2014 period and Maple Leaf Cement (MLCF) emerged as one of the key beneficiaries of higher demand within the country. According to the half yearly accounts posted by the company at KSE, the top line saw an improvement of 9.4 percent during 1HFY15. Gross margins also registered a slight up tick during the period, mainly due to lower coal and fuel prices.
The reduction of 50 basis points in the discount rate was a silver lining for the company during 1HFY15 as its finance cost posted a hefty reduction of almost 25 percent. Since the benchmark rate has dropped by another 100 basis points since then, it is likely that cheaper leveraging benefits will continue to accrue through the rest of the fiscal for MLCF.
Despite the lower cost of funds and higher sales, the cement manufacturer was unable to stem a contraction in its bottom line. Higher distribution costs may be attributable to higher proportion of exports in the sales mix, administrative expenses and other operating expenses jumped also.
Despite those costs, MLCF managed a higher profit before taxation; clocking in at Rs1.93 billion in 1HFY15, compared to Rs1.48 billion. "However Alternate Corporate Tax adjustment took a bite out of that earning (almost Rs500 million), hence pushing down the earnings per share by nine paisa when compared to the same period, last year.
The positive surprise for investors came in the form of a Re1 dividend; the first ever interim dividend by the company. The payout is reflective of the deleveraging that the company has been pursuing actively.
Going forward, the companys fortunes may be closely tied to disbursements from PSDP allocations. However, lower energy costs should help to curtail distribution and production costs while finance costs are also likely to tame in line with a dovish monetary policy.

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Maple Leaf Cement Factory

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Rs (mn)                  1HFY14    1HFY15      chg

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Sales                      8844      9675     9.4%

Cost of goods sold         5848      6187     5.8%

Gross profit               2996      3488    16.4%

Gross margin                34%       36%

Distribution cost           477       639    33.9%

Administrative expenses     140       180    28.8%

Other operating expenses     92       121    31.1%

Finance cost                852       641   -24.8%

PAT                        1482      1434    -3.3%

Net margin                  17%       15%

EPS (Rs)                   2.81      2.72    -3.2%

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Source: KSE notice