Flying Cement Company Limited

Flying Cement Company (FLCCL) formerly known as Zaman Cement Company Limited was incorporated as a Public Limited Company in 1992 under the Companies Ordinance 1984. The company is listed on the PSX. The factory is located in Mangowal, District Khushab, in the heart of Punjab Province, comprising of land in excess of 121 acres. The company has an existing installed capacity of 600,000 tons per annum using dry process technology. Company information available online shows that the plant was supplied by IHI Japan who is the supplier and technical advisor of FLCCL. Per its capacity, the company is one of the smaller firms in a widely expanding cement industry which carries less than two percent of the cement industry production capacity.

Flying Cement also has a fleet of eight (18 wheeler) trucks that facilitate cement delivery and dispatch across the country. The management also launched a grid station of 132/6.3 KVA in 2010 for the production of electricity with a capacity to generate 24.8MW of power.

Holdings and group activities

Flying Cement is part of Flying Group founded in 1979 comprising of companies in the paper and board products sector. Its product portfolio include photo copy paper, writing and printing paper, coated duplex board, kraft paper and tissue paper besides dry portland cement. Almost half of the company's shares belong to the company's directors, CEO and/or family (47.2%), while the rest of the majority (47.7%) is held by the general public. There aren't any other significant shareholders.

Six year financial performance

Despite being a smaller operation, Flying cement has come a long way in overcoming its shortcomings. It conducted a BMR to improve efficiency of its plant. Because of old technology and machinery, the company faced high operational costs which were controlled to a huge extent recently, though margins still remain considerably lower than peers in the cement sector.

Production has steadily been increased; in FY16, production of 387,500 units increased by 12 percent (FY15: 9%), while dispatches also grew by 12 percent in FY16 as opposed to a 10 percent increase in cement dispatches. Capacity utilisation for the company has gone up as well; from 53 percent in FY14 to 65 percent in FY16, which is a significant improvement, though there is plenty of idle capacity that can be utilized by further improving production efficiency.

According to the company's notes, a major reason in short fall of production and capacity is due to old plant and machinery causing frequent break down of the plant. Meanwhile, frequent and prolonged load- shedding, also hurt production. The top line has increased gradually from about Rs 730 million to Rs 2.5 billion between FY11 and FY16. In the outgoing fiscal, revenues rose by 11 percent. Its cost of sales has historically remained high but has come down recently-going from 123 percent as a share of revenues in FY11 to 93 percent in FY16. But despite reining on operational costs, margins have remained suppressed, going from -13 percent in FY12 to 5 percent in FY15 and 7 percent in FY16. These margins are significantly lower than the industry average of about 40 percent.

The top line has been maintained due to better prices. Meanwhile electricity costs, as to percentage of cost of sales, has come down from 50 percent in FY14 to 42 percent in FY16; a cut that is commendable.

While the company was incurring losses until FY12, it rebounded with a (before tax) bottom line of about Rs 30 million in FY13, going up in FY16 to Rs 195 million. In FY16, after tax profit went up by 24 percent. The company has not declared a dividend due to non-availability of sufficient revenue reserves.

Opportunities and threats - Outlook going forward

The expanding demand of construction and cement will bode well for smaller as well as larger firms in the sector and Flying is no exception. Though the company is moving toward improving its margins, the company's management must be mindful of the fact that its operation costs; specifically cost of fuel, power and energy must be significantly cut down in addition to others so that the advantage of higher prices can be trickled down to a better bottom line. Margins compared to other players are still much lower and competitiveness should be a huge agenda going forward for the company to reach growing markets locally.

At this point, the production capacity of 600,000 tons is also lower than other players that are fast investing in expansion projects. According to the company's accounts, the directors of the company are financing an interest-free expansion project, though we have limited information of said expansion. An expansion of capacity would help bring the company from below the surface with competitor brands who might capture higher portion of the growing market. The existing capacity of 45 million tons will go up by 22 million in the next 3-5 years which is estimated to absorb the demand. Though the company is now earning a healthy profit, there is still a lot of work to be done. But if high operational costs are controlled; Flying cement has the potential to become a growing enterprise.