JAVEDAN Cement Limited - Analysis of Financial Statements Financial Year 2009-1Half Financial Year 2011
Javedan Cement Limited was incorporated in Pakistan on June 08, 1961, as a public limited company under the Repealed Companies Act, 1913 (now Companies Ordinance, 1984).
It is listed on the Karachi Stock Exchange. Its principal activity is to manufacture and sell Ordinary Portland Cement, blast furnace slag cement and Sulphate Resistance Cement. The company has three kilns, having a total annual clinker production capacity of 600,000 metric tonnes. However, the company shrunk and eventually closed down its cement business, and is now planning to engage in a housing scheme business.
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COMPANY SNAPSHOT
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Name of company Javedan Cement Limited
Nature of Business Construction and Materials
Ticker JVDC
Cement Sales FY '09 Rs 1,622,216,000
Cement Sales FY '10 Rs 610,134,000
Share price (avg.) Rs 78.64 per share
Market Capitalization Rs 4,571,201,648
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OPERATIONS:
Over FY09-10, clinker production/procured decreased by from 287,472 MT to 120,487 MT, cement production declined from 368,357 MT to 148,948 MT, and cement sales reduced from 366,295 MT to 163,968 MT. This was due to problems arising from the fuel-intensive nature operations, as quoted by the management.
However, starting from FY11 onward, the company ceased its cement business entirely, due to these reasons cited:
* Non-availability of the natural gas, since November 2009 onwards.
* Small capacity production lines with obsolete plant and machinery.
* Difficulty faced in drilling and blasting for the excavation of raw materials due to expanded population area.
Beta analysis
The company has a beta of 0.87 compared to KSE-100 benchmark beta of 1.00, which is indicative of low riskiness as well as low returns on JVDC stock. The low riskiness is due to risk coverage by sponsors. Since the company has been experiencing turbulent conditions and has witnessed the closing down of operations, the return has consequently been lower.
Financial performance (FY09-10)
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PERFORMANCE FY'09-FY'10
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Rupees in 000s FY'09 FY'10 % Change
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Sales-net 1,662,216 610,134 -63.29
Cost of goods sold (1,372,868) (657,227) -52.13
Gross profit/(loss) 249,348 (47,093) -118.89
Distribution costs (25,750) (9,260) -64.04
Administrative expenses (23,161) (23,358) 0.85
Profit/(loss) from operations 200,437 (79,711) -139.77
Finance cost (582,979) (587,424) 0.76
Other operating income 12,175 543,095 4360.74
Profit/(loss) before taxation (370,367) (124,040) -66.51
Taxation (57,655) (4,876) -91.54
Profit/(loss) after taxation (428,022) (128,916) -69.88
Earnings/(loss) per share (8.37) (2.36) -71.80
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Sales experienced a 63.29% decrease over FY09-10 from Rs 1622 million to Rs 610 million due to contraction in cement business. Furthermore, cost of goods sold did not decrease proportionately and could not be covered by sales, thus resulting in a gross loss of Rs 47.09 million in FY10. In line with the reduced spending on cement sales, distribution costs reduced by 64.04% from Rs 25.75 million in FY09 to Rs 9.26 million in FY10. The administrative expenses remained almost same with a 0.85% increase. The result was an operating loss of Rs 79.71 million. However, the increase in other income by 4360% from Rs 12.18 million in FY09 to Rs 543.09 million in FY10, helped to mitigate the operating loss, albeit the fact that other income was gained through gain on sale of operating fixed assets and stores.
The finance cost remained almost the same, increasing by 0.76% to Rs 587 million in FY10. This finance cost arose due to privately placed Term Finance Certificates issued by the company to a consortium of banks. The taxation decreased by 91.54% due to decreased sales. The overall result was that net loss improved over FY09-10 from Rs 428 million to Rs 128 million, mainly due to the increased other income. The EPS reflected this improvement, increasing from Rs (8.37) per share in FY09 to Rs (2.36) per share in FY10.
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Recent performance (1H11)
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Rupees in 000's HY'10 HY'11 % Change
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Sales-net 322,783 - -100
Cost of goods sold (324,314) - -100
Gross profit/(loss) (1,531) - -100
Distribution costs (5,713) - -100
Administrative expenses (7,949) (50,848) 539.68
Profit/(loss) from operations (15,169) (50,848) 235.21
Finance cost (290,198) (302,073) 4.09
Other operating income 2,512 8,741 247.97
Profit/(loss) before taxation (302,855) (344,180) 13.65
Taxation (3,535) (34) -99.04
Profit/(loss) after taxation (306,438) (344,214) 12.33
Earnings/(loss) per share (5.99) (5.92) -1.17
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The recent half-year 2011 performance of the company shows that the cement trade has been shut down entirely, leading to zero sales and zero gross profit. In this scenario, where no income has been generated to cover the fixed administrative expenses, loss from operations deteriorated by 235%over the corresponding period last year, from Rs 15.17 million to Rs 50.85 million. The finance cost which increased by 4.09% over the corresponding period last year, also supplemented to the worsening of the bottom line. However, increase in other income by 247%, from Rs 2.51 million in HY09 to Rs 8.74 million in HY10, aided the recovery of the net loss. The net loss worsened by 12.33% from Rs 306 million in FY09 to Rs 344 million in FY10, and the EPS recovered by 1.17% over the same period.
Profitability
The gross profit margin declined from 0.15 in FY09 to (0.08) in FY10 due to reduced operations. However, the net profit margin witnessed an increase from (0.25) to (0.21), aided by other income.
The EBITDA margin showed improvement from 0.14 in FY09 to 0.80 in FY10. The return on assets increased from (0.07) to (0.01) over FY09-10 due to lower net loss and increase in total assets from Rs 5.86 million in FY09 to Rs 9.50 million in FY10. The return on equity also increased from (0.25) to (0.03) over FY09-10, since the equity also increased from Rs 1.68 million in FY09 to Rs 5.21 million in FY10.
Liquidity
Liquidity worsened as the current ratio declined from 0.72 in FY09 to 0.55 in FY10. Although the current assets increased from Rs 468 million in FY09 to Rs 851 million in FY10 mainly due to increase in deposits, prepayments and other receivables, the current liabilities increased more from Rs 647 million in FY09 to Rs 1555 million in FY10, owing to increase in current maturity of long-term liabilities.
ASSET MANAGEMENT
Total assets turnover declined from 0.28 in FY09 to 0.06 in FY10, due to both the decrease in sales and the increase in total assets mentioned earlier. The fixed assets turnover also reduced from 0.31 in FY09 to 0.07 in FY10, since fixed assets increased from Rs 5.39 million in FY09 to Rs 8.64 million in FY10. Sales to equity ratio likewise reduced from 0.99 in FY09 to 0.12 in FY10.
OPERATING CYCLE
The operating cycle of Javedan Cement experienced a reckless trend in FY10, since cement production was minimized and inventories were sold out speedily. This is reflected in the inventory turnover, which decreased from 42.51 days in FY09 to 3.54 days in FY10. On the other hand the day sales outstanding increased from 2.15 days in FY09 to 20.20 days in FY10, showing that a greater amount of credit sales were made in FY10 and the recovery time of receivables worsened.
DEBT MANAGEMENT
Debt to asset ratio reduced from 0.71 in FY09 to 0.45 in FY10 due to increase in total assets in FY10, although the amount of total debt remained about the same, increasing from Rs 4.17 million in FY09 to Rs 4.29 million in FY10. The debt to equity ratio also declined from 2.48 in FY09 to 0.82 in FY10. The trends in both these ratios show an improvement in the bottom line value of the company. Times interest earned also rose from 0.37 in FY09 to 0.79 in FY10 due to other-income-aided increase in EBITDA, although the finance cost remained almost the same.
Market value
Market value per share decreased from Rs 106.38 in FY09 to Rs 78.64 in FY10 due to overall declining performance of the company. The EPS recovered from a loss per share of Rs 8.37 in FY09 to Rs 2.36 in FY10. However, the increase in EPS was not sufficient to offset the decrease in market value per share, thus the price earnings ratio declined from (12.71) in FY09 to (33.32) in FY10. The company did not issue cash dividends in either FY09 or FY10.
Future outlook
The company has planned to dispose of freehold land by developing the Housing Schemes through a "business diversification strategy" which will include housing units, open plots, flat sites and commercial sites. Approval has been taken from Lyari Development Authority for the housing scheme spread over 1,238 acres and process has been initiated to seek approval from KBCA. A team of qualified professionals has been engaged to conduct development/construction and marketing/sales activities for the housing scheme. The scheme was expected to be launched in November 2010. To date, construction of sales office has finished and model houses at project site are at completion stage.
The company has signed a formal sale agreement in respect of plant and machinery, as well as stock and spares, at a selling price of Rs 670 million. The proceeds will be utilized towards repayment of the company's liabilities, including the long-term and short-term debt, in order to reduce the loans and the finance cost.
COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
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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