The FY2009-10 was one of growth and prosperity for the company in terms of its production and sales volume. Clinker and cement production increased by 2% and 4% respectively as compared to FY08-09 position taking the firm to its full operational capacity, the chart below depicts this trend.
The company considers it a great achievement as these marks the second consecutive year of production at 100% capacity utilisation despite the depressive conditions in the domestic and foreign cement markets. The firm stands with a cumulative market share of 38% representing a 4% growth over the past years, even though the overall size of the market had shrunk by 3% due to the onset of floods and as an aftermath of the recession.
RECENT RESULTS (3Q11)
During the 9M11, the volumetric local sales have seen a downfall along with export sales to the tune of 8% and 15% respectively. Financial constraints in both the local as well as the regional markets led to demand paucity in relation to supply. However, local demand has been picking up in the last quarter due to rural demand after a good season and higher support prices on the produce.
Sales have increased marginally by 5.2%, mostly due to higher export sales and better prices on the local dispatches despite a decline in the quantity sold. However, a 19% increase in the cost of goods sold resulted in a decline in the GPM to 22% as compared to 28% in the same period last year. Attock Cement has been unable to tap high retention price areas, which could have allowed it to pass on the raw material and energy price increases. Although overall expenses remained under control, other operating income suffered a more than 50% decline. Operating profit declined to Rs 611 million as compared to Rs 1247 million in the same period last year. PAT saw a decline to Rs 425 million from Rs 893 million in the same period last year.
PROFITABILITY
The chart below depicts the sales trend for the company over the past five years; it is surprising how despite the 4% volumetric growth mentioned earlier the sales revenue actually dipped by a pronounce 10% to Rs 7668 million in FY10. The major factor that explains such peculiar findings is the decrease in cement prices both in the domestic and international markets. It was cited earlier that the company produced at maximum capacity during the tenor under consideration. However, we cannot ignore the absorptive capacity of the markets during the same period as they seem to have been the major cause of the contraction in sales revenue. The overall average net retention for Attock Cement fell by Rs 656 per ton as compared to FY09.
As far as the profitability position is concerned, a dip was observed in profit figures across the board for the company. Where Gross Profit declined by an astounding 27.7% compared to last year the operating and post tax profit positions took harder hits with 30.5% and 31.9% decreases in each respectively. A due examination of the cost structure reveals that the contraction in cost of goods sold was a mere 1.56% as compared to the 10% dip in sales volume discussed earlier; this implies that the company absorbed the adverse impacts of the demand contractions itself rather than passing it onto the consumers by drastically cutting its margins on sales.
The firm seemed to have adopted an overhead control mechanism reflected in the reduction of other operating expenses by 30%; other areas such as distribution and administration however continued to experience a spike in their accumulated figures. The most prominent factor other than the reduction in selling price as reflected in the contraction in the average net retention for the company that led to the depressive profit position was the substantial enhancement of the electricity tariff in FY10.
Given the excess capacity position the increase of almost Rs 149 per ton of cement brought about by this did not bode well with the company's profitability position. However, one factor that served to offset the decline in profitability position cited above was the declining fuel cost as the company embarked on its program to procure coal at lower prices.
ASSET MANAGEMENT AND LIQUIDITY
The asset position of the company over FY10 presents a very ambiguous position primarily explained by the price depression and excess capacity reasons cited above. The liquidity position strengthened, reflected in the improvement in the current ratio from 2.4 to 2.6 in this period. The firm's greater marketing efforts to increase sales volume in the regional markets by tapping into newer avenues like Sri Lanka and Sweden was aptly reflected in the improvement of inventory turnover and the consequent reduction in inventory days. Hence the greater expenses absorbed by the firm during times of price uncompetitiveness helped it to consolidate its position in the cement markets greatly.
A cause of concern is the rise in DSO over the FY10, this value has doubled indicating the liberal trade debt policy adopted by the firm. Although this could have been another initiative to encourage sales and increase sales volume the company needs to prudently evaluate if such a drastic change was wise. However, the overall impact of the changes discussed above was a contraction of the Operating cycle, reinforcing the liquidity improvement experienced during this year. Moreover, the reduction in sales revenue combined with the rising investment in non-current assets served to bring down the Total Asset Turnover figure during the period.
INVESTMENT POSITION
The two factors in addition to those discusses earlier that contributed to the improvement in the firm's standing over FY10 and helped to offset the effects of deteriorating profitability were the trimming of the finance costs and the generation of interest income from other investments. Since both of these heads pertain to the current section under consideration their discussion was reserved for this end; the finance cost declined by an astonishing 35% over this tenor taking the Times Interest Earned ratio up to 18.9 from a previous value of 17.6 despite the depressive streak observed in the profitability position. Furthermore, the 57% increase in income from other sources is partially explained by the Rs 175 million worth of interest income earned by the firm on excess funds invested in short term securities. This represented an absolute increase of Rs 80 million on the Rs 95 million generated under this head in the previous year.
The debt position of the company experienced a positive trend during this year. Where the gearing significantly declined from 31% to 24% in this year, it came primarily from the halving of the long-term debt to equity position from 22% to 11%. Also that the shareholder's position strengthened on the reigns of the company, duly reflected in the 15% point reduction in the Debt to Equity ratio from 46% to 31%; however, the book value decreased from Rs 66 to Rs 62 whereas the EPS declined from Rs 20.69 to Rs 11.74 this year.
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2009 2010
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LIQUIDITY
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Current Ratio 2.432579 2.621657
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ASSET MANAGEMENT
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Inventory Turnover (times) 4.534032 5.12996
Average No of days to sell inventory 79.39953 70.17599
Days Sales Outstanding 1.966447 2.599298
Operating Cycle 81.36597 72.77529
Total Asset Turnover 1.220467 1.086306
Sales/Equity 1.781144 1.42123
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DEBT MANAGEMENT
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Debt to Asset Ratio 0.314785 0.235658
Debt to Equity Ratio 0.459396 0.308315
Long Term Debt to Equity 0.221724 0.11089
Times Interest Earned 17.60551 18.88423
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PROFITABILITY
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Gross Profit Margin 31.83254 25.53382
Profit Margin 17.54334 13.25857
Return on Assets 21.41107 14.40286
Return on Equity 31.24723 18.84349
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MARKET VALUE
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Book Value 66.20937 62.306
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MARKET/BOOK RATIO
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EPS 20.69 11.74
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