Attock Cement Pakistan Limited

Established in 1981, the Attock Cement Pakistan Limited (KSE: ACPL) is a member of the Pharaon Group of Companies in Pakistan. As a joint venture between Pakistan and Saudi Arabia, the project initially involved an outlay of around Rs 1.5 billion, with a foreign exchange component of US $45 million. The Pharaon Group is known to have interests in diversified fields including oil and gas, power generation, and information technology. The Group is sponsored by Dr Ghaith R. Pharaon, an international industrialist.
ACPL's plant is located at Hub, District Lasbela in Balochistan, about 45 kilometres North West of Karachi (South region). The plant has an annual production capacity of 1.8 million tonnes of cement. Some of ACPL's major projects have included the Jinnah Terminal in Karachi, MCB Tower, HUBCO Power Company, Lyari Expressway and Bahria Complex III.
The company is ISO 9001:2000 and ISO 1400 certified from Lloyds Register Quality Assurance. ACPL also boasts to have received certifications from the standards bureaus in India, South Africa, Sri Lanka, Britain and America. Further, the company has also promoted its brand 'Falcon' in various overseas markets including India, Sri Lanka, UAE, Iraq, Qatar, Mauritius, Somalia, Tanzania, Sudan, Djibouti/Ethiopia, Kuwait, Oman, South Africa, Zanzibar and Yemen.
ACPL's products include the signature Falcon cement, aside from Ordinary Portland Cement (OPC), Sulphate Resistant Cement (SRC), Block Cement, and Portland Blast Furnace Slag Cement (PBFSC). The company is governed by a board of seven members with Dr Ghaith R. Pharaon as the Chairman and Babar Bashir Nawaz as the Executive Director and CEO.
INDUSTRIAL REVIEW By and large, the cement and construction sector has had a decent year, posting record local sales. In terms of financials as well, most players in the sector performed well, with a few also announcing expansion plans in line with robust demand projections.
This is further supported by the high allocations towards infrastructure development in the Public Sector Development Programme (PSDP) for FY15. The year 2013-14 did witness a decline in exports, however. The overall cement industry witnessed a net growth of around 2.5 percent. The country wide local demand increased by 4.33 percent and exports declined by 2.8 percent.
Contrary to the North region, cumulatively, volumes for players in the South during FY14 benefited more from exports rather than local despatches, even though export despatches came down for the industry at large. In fact, local despatches declined by 5.3 percent for the industrial players in the South, while exports from the region grew by a significant 20 percent during FY14.
Cumulatively, higher cement prices propelled revenues through the year, contributing approximately 12 percent to the sector's net sales. In order to counter inflationary pressures, including electricity tariff and power hikes, prices were raised by 13 percent, which led to higher profit-before-taxation compared with FY13. At the same time, average profitability was subdued due to the increase in effective taxation. However, an important element in supporting net margins has been a widespread decrease in financing costs owing to smooth deleveraging. Furthermore, other operating income has also risen significantly at the aggregate level in the cement sector.
PERFORMANCE FY14 ACPL was able to achieve production over its total rated capacity in both its lines of production during FY14 and also sell its entire production volume during the year in both local as well as overseas markets.
The company's volumes have also benefited more from exports rather than local despatches. Sales volumes were recorded at 1.9 million tonnes, the highest figure achieved by the company, depicting an increase of 3 percent compared with the previous year.
Of this, about 1.2 million tonnes of cement was sold in the local market. Demand remained particularly weak in the South region as mega projects remained low, coupled with a poor law-and-order situation in Karachi. Consequently, local sales for ACPL registered a decline of 11.32 percent during FY14.
The remainder of the quantity was sold exported to regional markets, including South Africa, Sri Lanka, Iraq and Sub-Saharan Africa. Exports were focused upon in order to ensure 100 percent capacity utilisation in the advent of weak local demand. Sales registered an increase of 9 percent during the year owing to both, increase in the prices of cement by 6 percent and higher volumetric sales which contributed up to Rs 328 million of additional revenue to the company.
ACPL's earnings suffered a decline of 5.7 percent compared with the previous fiscal year. Earnings were marred by the significant increase in financing and distribution costs, which rose by 100 percent and 40 percent, respectively. Increase in payables was also witnessed in the form of taxation, which rose by 15 percent during the year. Consequently, the company's margins declined even though there was an increase in volumes by up to 9 percent. Gross margins were also affected by the 11 percent increase registered in the cost of goods sold.
Other expenses for ACPL registered an increase of 15 percent along with an 18.72 percent increase in other income. However, the significant increase in distribution costs and administrative expenses, which rose by 40 percent and 17 percent, respectively, continued to exert pressure on operating margins, which also came down cumulatively.
Increase in financing costs of ACPL, which have contributed most the decline in the company's bottom line, may be attributed to the 'Iraq project'. During the last quarter, the company had announced the signing of a joint venture agreement with Al Keetan Trading and Commercial Agencies Limited for the construction and management of a cement grinding unit with a capacity of 3,000 tonnes per day. Subsequently, the company had begun the formation of a Limited Liability Company in Iraq. With ACPL's reliance on exports and the developing situation in Afghanistan not very encouraging for cement manufacturers, the company's bottom line is likely to remain dependent on diversifying export markets.

================================================================

ACPL - Key Financials

================================================================

Rs (mn)                                  2014      2013      Chg

================================================================

Net sales                               12547     11508       9%

Cost of sales                           -8843     -7971      11%

Gross margin                              30%       31%        -

Distribution costs                       -806      -578      40%

Operating margin                          21%       23%        -

Finance cost                              -30       -15     100%

Net margin                                16%       19%        -

Total comprehensive income for the year  1937      2054      -6%

Basic and diluted EPS (Rs)               17.6      18.7      -6%

================================================================