The Company: Fauji Cement Company Limited (FCCL) was incorporated as a public limited company on 23rd November 1992. The Company is engaged in the manufacturing and sale of ordinary Portland cement and its production facilities are located in tehsil Fateh Jang of district Attock, Punjab province. FCCL's registered offices are situated at Fauji Towers, Rawalpindi.
According to All Pakistan Cement Manufacturers' Association (ACPMA), FCCL's installed production capacity currently stands at 3.27 million tons for clinker and 3.43 million tons for Portland cement. This rounds off to 7.8 percent share of total manufacturing capacity in the country as of October 2013.
FCCL's higher capacity share came with plant expansion in 2011 that brought 7,560 Tons Per Day (TPD) incremental capacity online in June of the same year. Higher capacity has helped the Company increase its share in the local market, adding both volume and value to the Company's sale.
Fauji Foundation
FCCL is mostly owned by the committee of Fauji Foundation, with a cumulative ordinary and preference share holding of 39.9 percent. Fauji Foundation has additional holding of the Company through other group companies such as Fauji Fertilizer, Fauji Bin Qasim and Fauji Oil Terminal & Distribution, totalling 9.51 percent. This cedes effective management control of FCCL to Fauji Foundation, which hence dominates the board of the Company.
Fauji Foundation is incorporated as a trust under the Charitable Endowments Act of 1890, established in 1954 for the welfare of the ex-servicemen and their dependants. The trust set up its business operations with an initial investment of Rs 18.2 million in a textile mill that has since grown into one of the largest business conglomerate of the country, operating in 18 different industries.
The trust manages its business operations as either fully owned projects or associated companies, which include diverse interests ranging from banking, cement, cereal, chemicals, experimental and seed multiplication farming, fertilizer, investment services, oil terminal and distribution, overseas employment, petroleum and gas exploration, power and wind energy.
Industry Review
In FY13, total industry cement sales grew by nearly three percent. This was despite the two percent decline in cement export due to lower demand for bagged cement. However, domestic sales proved to be the saving grace for the sector, which grew by more than 1.11 million tons, making up for the lost export volumes.
For several years, exports have stood at around a quarter of total cement dispatches for the industry. During the year, FCCL's cumulative share in the export market remained flat at 6.0 percent. FCCL's share in the export market has grown progressively in the previous years, from a low of 2.4 percent in FY09 to peaking at 6.0 percent last year. The share in the export market inched forward by a single percentage point in FY12 and has remained intact ever since.
In the domestic market, FCCL's share improved by 120 basis points to eight percent since last year. The share has gradually improved since the installation of additional capacity in FY12, before which Company's local share stood at a meager 2.9 percent. During FY13, FCCL's market share was 7.5 percent of total industry off-take.
The industry has 18 major players, with installed capacity greater than demand for cement in the country. In line with industry wide trend, FCCL's plants operated below capacity during FY13, with utilisation levels clocking in at 72.8 percent. To put FCCL's performance in perspective, capacity utilisation for industry leader Lucky Cement was 83 percent during the year among the highest in the sector.
Performance Brief FY13
FY13 was a good year for the Company with local sales growing by 23.7 percent on a year-on-year basis, comparing with just 4.6 percent growth in the industry's domestic off-take. According to the industry experts, the catalysts for this demand was higher government spending on infrastructure during an election year, coupled with increased private spending on new construction driven by growth in remittances from expatriate Pakistanis.
Over the years, the flooding of traditional export market with cheaper cement has stifled growth for local industry. Surplus production capacity in the Middle East as well as decline in exports has encouraged players to look inwards. During the past two years, FCCL has been successful in doing just that: the Company has reduced its reliance on exports from the peak of 42 percent export share in Company's total cement sales in FY12 to just 20 percent in FY13, while at the same time growing its overall sale volumes and market share in the total industry off-take by increasing focus on the local market.
FCCL's growth in the domestic market has outperformed the industry for a number of years. Over the past six years, total industry's domestic off-take has grown at a CAGR of meager 1.89 percent, compared to FCCL's 14.25 percent. For an industry facing over capacity, Fauji Cement's volumetric growth speaks of an impressive performance.
Financial Performance FY13
Increase in cement prices in domestic market allowed turnover for the Company to grow by 38.57 percent compared to last year. Coal prices also remain under control. Consequently, cost of sales declined as percentage over net turnover from 73.4 percent last year to 68.2 percent in FY13.
Distribution cost and administrative expenses grew with inflation but remained stable as percentages of net sales. Other operating expenses grew on the back of greater contributions to worker participation fund from Company's profits.
During the year, FCCL reduced the share of long-term financing on its books brought on due to plant expansion in previous years. Finance cost, hence, grew by 17.2 percent over the year, at the same time reducing total non-current liabilities on the Company's balance sheets. Other income also improved during the year from the higher profits earned on deposits and financial assets held by the Company.
Profitability
Improved product prices and domestic demand contributed coupled with stable cost of sales helped inch the gross margin forward by more than five percentage points to 31.8 percent. Nominal growth in admin and distribution expenses ensured that selling, general and administrative costs do not eat in to operating profits as much as it did in the previous years. Operating margin clocked in at 28.8 percent, up from 24.2 percent last year.
Interests and other financial charges on long- and short-term borrowing, however, did take away a big chunk of pre-tax profits. Still, the Company recorded net profit of Rs 2.09 million for the year, with net margin of 19.3 percent--more than twice of the number posted last year.
Outlook
Going forward, cement sector in general as well as FCCL is expected to see growth in FY14 on the back of higher budget allocations towards PSDP by the new Federal Government. However, inflationary macroeconomic outlook for FY14 and depreciation of Pak rupee may prove to be obstacle in the sector's growth. And while FCCL plans to continue reducing its debt over the coming period, it could be negatively affected by the successive increases in the discount rate by the central bank.
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FAUJI CEMENT COMPANY LIMITED
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Rs (mn) FY13 FY12 FY11 FY10 FY09 FY08
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Financial Performance
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Turnover - net 15,968 11,523 4,743 3,808 5,315 3,546
Cost of sales (10,887) (8,455) (3,920) (3,293) (3,627) (2,888)
Gross profit 5,080 3,068 823 516 1,687 658
Administrative expenses (205) (129) (148) (103) (103) (76)
Distribution cost (144) (102) (74) (48) (50) (53)
Other operating expenses (229) (72) (37) (25) (78) (34)
Finance cost (1,512) (1,825) (104) (41) (225) (147)
Operating Profit 4,598 2,792 592 366 1,646 602
Other income 95 27 28 27 190 108
Profit before taxation 3,086 966 488 325 1,422 455
Taxation (988) (414) (62) (74) (414) (41)
Profit for the year 2,097 553 426 250 1,008 414
Earnings per share Basic (Rs) 1.42 0.29 0.52 0.31 1.43 0.85
Earnings per share Diluted (Rs) 1.42 0.29 0.34 0.30 4.36 0.77
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Source: Company Accounts
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FAUJI CEMENT COMPANY LIMITED
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Rs (mn) FY13 FY12 FY11 FY10 FY09 FY08
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Financial Position
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Share capital and reserves 15,936 13,905 11,014 9,611 9,691 9,284
Non-current liabilities 9,959 11,304 15,812 13,184 9,128 716
Current liabilities 4,409 5,494 5,385 3,985 2,628 2,455
Total liabilities 14,369 16,798 21,197 17,169 11,756 3,171
Total equity and liabilities 30,305 30,703 32,211 26,780 21,447 12,454
Non-current assets 25,266 26,544 27,419 24,709 19,792 7,160
Current assets 5,039 4,160 4,792 2,071 1,654 5,294
Total assets 30,305 30,703 32,211 26,780 21,447 12,454
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Source: Company Accounts
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Year ending June UoM FY13 FY12 FY11 FY10 FY09 FY08
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Profitability
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Gross margin % 31.8% 26.6% 17.4% 13.5% 31.8% 18.6%
Operating marign % 28.8% 24.2% 12.5% 9.6% 31.0% 17.0%
Pre tax margin % 19.3% 8.4% 10.3% 8.5% 26.7% 12.8%
Net margin % 13.1% 4.8% 9.0% 6.6% 19.0% 11.7%
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Performance
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Return on total assets % 6.92% 1.8% 1.3% 0.9% 4.7% 3.3%
Return on paid-up share capital % 15.2% 4.0% 5.7% 3.4% 13.6% 5.6%
Total asset turnover times 0.53 0.38 0.15 0.14 0.25 0.28
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Leverage
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Debt-to-equity times 0.40 0.47 0.55 0.57 0.40 0.09
Current ratio times 1.14 0.76 0.89 0.63 0.81 2.16
Quick ratio times 0.92 0.58 0.80 0.60 0.74 2.06
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Valuation
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EPS (basic) Rs 1.42 0.29 0.52 0.31 1.43 0.85
Breakup value per share (basic) Rs 11.97 10.44 15.89 13.86 13.97 13.39
Market price per share (average) Rs 7.90 4.53 4.72 6.67 6.49 16.60
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Source: Company Accounts
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