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RESEARCH AND ANALYSIS REPORT
THE BUSINESS AND FINANCIAL PERFORMANCE OVER A THREE YEARS PERIOD OF
LUCKY CEMENT LIMITED
By: Muhammad Umer Khan Rao
Registration no. 1148976
Information gathering and accounting / business techniques 2. 1.2 Critical analysis and evaluation of results 3. analysis.1 Description and presentation of results 3.4 Recommendations 3 3 4 5 6 3.5 An explanation of accounting/or business techniques & their Limitations Results. Dividends Appendix E – Balance Sheet and Profit and Loss Account Appendix F – Ratios Sheet Appendix G – Questionnaire and its response 2 .2 Objectives and research questions 1.3 An explanation of overall research approach 2.3 Conclusion 3. Project objectives and overall research approach 1. conclusions and recommendations 3.3 Limitations of gathering information 2.2 Description of methods used to gather information 2. 7 13 16 18 19 20 21 23 Appendix A – References and Bibliography Appendix B – Urea Market Share Appendix C – Fertilizer Sales Volume (Thousand Metric Tons) Appendix D – Per share Earnings vs.Contents Page No.4 Ethical issues arose during information gathering 2.1 Topic & Organization chosen and Reason for selection 1.1 Sources of information to obtain relevent data 2.
Then the task was to identify and choose an organization.1. In addition to all above. it turned into a difficult one. After thinking deeply. efficiency ratio.5 billion in the year 2007 [Annual Report LCL (2007)] provided with an extensive infrastructure consisting of relevant. analyzing the financial situation. Project objectives and overall research approach Topic and organization chosen and reason for selection It was important to identify the topic in which I could apply my best capabilities. liquidity. I have studied all these papers and I thought it would be a good chance to apply the concepts. I should have the required capabilities regarding the topic and should not be struck in between the project. He induced me to present him a detailed report on the company for his decision-making purposes.” LCL. performance measurement and environmental analysis is an integral part of the syllabus for the ACCA professional examinations for Paper F7 – Financial Reporting. whether its investors friendly or not. the reasons that forced me to select this topic are. liquidity position. Secondly. Analyzing the financial situation of LCL operating in this important economic sector enabled me to grasp a better understanding of Pakistan’s economy. which include profitability. accurate. being a public limited company with an annual turnover of about Rs. the information should be easily accessible. reliable and up-to-date information. risk and shareholders’ interest. 1. Paper P5 – Advanced Performance Management. medium term and long term. Therefore. [E Dunn (2001)] Research questions of this research and analysis project are: What was the financial situation of the compnay in terms of profitability in short term. Though it was hard. 12. I gave a deep thought in selection of the topic. Fourthly. Firstly. which I have learned theoretically. Paper P3 –Business Analysis and Paper P2 – Corporate Reporting. but I finally reached at the conclusion of trying: “The business and financial performance of an organization over a three year period” In choosing the topic. and what rate of return they can expect? 3 . the topic should be easily understood and its context should be clear to me. long term solvency and capital structure and financial risk? How the investors see the LCL from investor’s perspective. management efficiency.1 Objectives and research questions Users of accounting information are interested in a number of concepts. another strong reason to choose this topic is that my father is an active investor in Lahore Stock Exchange and has a substantial portion of his portfolio comprising shares of LCL. Thirdly. I decided to work on “Lucky Cement Limited (LCL). Initially every topic looked easy to me but when I went into its details.
Both are discussed as follows: 2. where there is a scope • To comment on the treasury and financial risk management policies of the company. After evaluating the ratios and the environment. the next and last part of my report would be to draw a conclusion regarding the over all performance of the organization based on my analysis. 1.1 Primary data: It can be defined as data collected by researcher himself. • To assess whether the company is effectively managing its foreign exchange.2 Secondary data: Secondary data is the data collected by others to be "re-used" by the researcher (School of Law and Social Sciences. However he also facilitated me by providing some non financial information along with financial. 2.Whether the company has enough resources and capabilities to compete in envoironment which it operates both external and internal? What is the company’s intensity of competetion in the industry in which it operates? Objectives of this research and analysis project are: • • • To analyze expected future position To draw meaningful conclusions on the basis of such analysis To make practical recommendations for improvements. (School of Law and Social Sciences. interest rate. Glasgow Caledonian University) Sources and their reasons for use in collection of both qualitative and quantitative secondary data are: 4 . Glasgow Caledonian University) I was not able to gather much primary data however telephonic interview with CFO “Mr Omer Ashraf” had helped me to enlighten some areas of concern. • To asses whether company fulfilling investors’ expectations.2 An explanation of overall research approach Information gathering and accounting / business techniques While researching for my project I had to gather financial as well as non financial data from numerous resources according to researcher’s terminology this can be bifurcated in to primary and secondary data. credit and liquidity risks or not.
Bodhanwala. Daily times” to make my self familiar and informed with cement industry environment. P-5 and P-2 have provided me thorough understanding of the analysis models and appraisal techniques used and I was able to deploy all that theoretical knowledge in a live practical situation. ► The internet provided me a platform to initiate my research work and this electronic information proved very relevant and useful as I stepped forwarded. and other business segment to determine which should be emphasized. whether its investor friendly or not. So I was eventually able to gather relevant data that facilitated me to analyze FCCL in particular and cement industry and economy in general. “Investor Information Guide” also proved a helping hand in understating over all industrial environment of cement sector. “Pakistan economist” and in general newspapers business segments i. ► Some industry specific articles by Government of Pakistan i. These were available at library of Institute of Chartered Accountants of Pakistan. Ratios are simply representatives of a larger figure. like “Business Recorder”.e. managers often want to know which segment is most and least profitable. “The Dawn. It involves establishing a financial relationship between the components of financial statements. Relative profitability is concerned with ranking products. customers. economy trends and future prospective. 2006) • • 5 . Almost all of financial statements of FCCL from FY 2002-2003 up to FY 2006-2007 were available at company official web site and the same was for competitor MLCFL. 2006) PROFITABILITY: Even when every segment is absolutely profitable. (Garrison-Noreen. ► BPP text books for papers P-3. ► I have studied some business specific news papers and magazines in particular. (BPP. In order to meet above mentioned objectives and answer the research question I have carried out the financial and non-financial analysis using the following analytical tools and techniques: • RATIO ANALYSIS: It presents potential user a brief statement which describes the health of the company.e. These ratios indicate the relationship of the firm’s share price to dividends and earnings. Some books available at above mentioned library on Interpersonal and report writing skills also facilitated me and obviously “Oxford Brookes University Research and Analysis Project Guidelines" along with ACCA Student Accountant articles were critical.► No doubt annual financial statements were essential and a key source for gathering financial information’s and than analyzing and interpreting financial position. 2004) SHAREHOLDERS’ INVESTMENT RATIOS: To view PTC from the investor’s perspective. (Singhvi. “Digest Of Industrial Sectors Pakistan”.
investors in the business would rather take their money and place it somewhere else. whether these are positive and negative. Results. 1990) SWOT ANALYSIS: Is a conducting of internal strengths and weaknesses in the organization. In order for the assets to be used effectively. With production facilities in Pezu (Production capacity: 13.000 Tons per day) as well as in Karachi (Production capacity: 8000 Tons per day) it has the tendency to become the hub of cement production in Asia. (www. 2006 • • • • • 3. (Student Accountant. The primary purpose of the SWOT analysis is to identify and assign each significant factor.• LIQUIDITY RATIO: Is the ability of a company to meet its payment obligations on time. African Markets. (FTC. the threat of substitutes. the power of suppliers. the business needs a high turnover. conclusions and recommendations Company History. (Robbins Stephen. analysis. PORTER’S FIVE FORCE ANALYSIS: It will help in identifying the sources of competition in an industry or sector. Five forces analysis focuses on five key areas: the threat of entry. and whether its debt burden seems heavy or light.com). and rated amongst the few best Plants in Asia. Lucky Cement is aggressively pursuing to develop export markets for cement to export bulk loose cement from Pakistan to the Gulf Countries. Business & Profile Lucky Cement came into existence in 1996 with a daily production capacity of 4200 Tons per day. The SWOT analysis is a useful tool in developing and confirming goals and marketing strategy of the business. Liquidity also measures the speed at which assets turn over compared with liabilities. 2002) COVERAGE: It measures the business capacity to generate enough income to pay the interest on its loans or measure the ability of a company to pay for its interest costs is measured through interest cover.bplans. and competitive rivalry. currently is an omnipotent cement plant of Pakistan. (Rees. 2005) LONG-TERM SOLVENCY AND STABILITY: To evaluate how much PTC owes in relation to its size. whether it is getting into heavier debt or improving its situation. In addition. External opportunities and threats that affect the organization. to one of the four categories. allowing you to take an objective look at your business. 2006) ACTIVITY RATIO: If a business does not use its assets effectively. (Pascal Quiry. Lucky Cement has 6 . Considering sizeable exports potential. the power of buyers. and Far East Region including Nepal & Sri Lanka. based on market and the overall environment in which company operates.
It is envisaged to increase installed capacity to 28. mainly Portland cement. clay and gypsum. Weaving. which reached to a level of 1. has an installed capacity of producing 17. only five cement factories were established during the initial thirty years of independence.lucky-cement. (www. (www. north and south. Lucky Cement Limited has been sponsored by Yunus Brothers Group (YB Group) which is one of the largest business groups of the Country based in Karachi and has grown up remarkably over the last 50 years. currently 22 units are operative. Consequently.55 million tonnes of cement per annum. Spinning.com) Pakistan’s cement market is divided into two distinct regions. Central Asian States and other Middle Eastern countries. with aggregate capacity of 3. Finishing.com) Overview of cement sector Out of a total of 24 cement plants. Its scarcity also hampered the development process in the country.decided to increase the capacity of its Karachi Plant by addition of two more Production lines. having capacity of 2. Pakistan is fortunately rich in the deposits of limestone. “All Pakistan Cement Manufacturer Association” APCMA is a trade association safeguarding the interest of manufactures.3 million tonnes in the year 1981-82. at present. Import of cement continued from 1971 to 1985.The sector has the potential to export cement worth $1 billion per year to Saudi Arabia.fnetrade. The expansion program is likely to be completed by end 2008. In spite of having abundant raw materials and rising growth in demand of cement. 17 companies being listed on the Karachi Stock Exchange. Pakistan had to import cement for a long period.2 million tonnes. Stitching and Power Generation. which constitute basic raw materials for manufacturing of cement.21 million tonnes per annum by 2008. The YB Group is engaged in diversified manufacturing activities including Textile.5 Million Tons per Annum. The country. Processing. 7 .
E30/6/07 12.G Khan Cement Company Limited (DGKCCL) FY’07 financial statements have been used to compare with financials of LCL. 315/bag in Fy-06. The domestic market share of LCL was 15.3 20.4 27. PROFITABILITY AND RETURN: Ratio Turnover (Rs in Million) Change in sales % Operating profit to sales % Gross profit to sales % Pre-Tax profit to sales % After-Tax profit to sales % ROCE % ROE % DGKCCL Y. Competitor: D.13% whereas LC L acquired 45.6 36.2005) 8 .2 LCL LCL Y.522 56.3 23.3 14.2006.E30/06/06 Y.4 29. This trend can be easily traced out in FY-07 when after reaching highs of Rs.9 32.2 7.4 16.1 (Source: Annual Reports 2007.8 4. APCMA members set cement prices with agreement through out the country.7 32.8 11.E30/06/07 6.3 31.8 LCL Y. RATIO ANALYSIS The ratios have been calculated and other quantitative financial data has been taken from Annual Audited Financial Statements of LCL from 2005 to 2007.5 34. Average cement prices were Rs.8 28.6 20. In return it brings together every one again on platform of APCMA.9 36. 2007 as compared with Rs. Therefore before moving onward a brief but short overview of price methodology is vital. This sometime objected as a cartel. Generally prices remain standardized.8 25.70% in overall exports. 234/bag as on 17th May.7 30.420 -19. however sometimes the price fluctuates due to cartel breakdown but this does not prevail for long.0 34.7 26.4 24.980 100.0 30. 430/bag cement prices fell sharply during early FY-07.1 27.985 3.E30/06/05 7.3 3.Company market share and contribution in sector LCL successfully has managed an overall market share of 19.16% of the industry for the period under review.
The industry also achieved a new level of dispatches of 24.9% % GROWTH IN QUANTATIVE SALES AVERAGE PRICE PER TONE % GROWTH IN PRICE TOTAL INDUSTRIAL QUNATATIVE SALES Domestic Sales (Tones) 21.420.049 4.833.A) Turnover Growth: .174 1.268 1.1% 16.143.Share Export.557.187 334.2 7.222.8% 1.369 26.196.814 1.457.8% 1.2% 14.6% 3635.22 mtpa against the last year dispatches of 18.7 -25.101 277.278 Export Sales (Tones) 3.0% 15.7% 19.991 111.864 2.051 54.959 18.Share Total industrial share 32.3% 12.0% 7.504.034.3% 2698.702 % GRQWTH IN INDUSTRIAL SALES LCL SHARE IN INDUSTRY Domestic.It can be further breakdown in to quantitative growth and price change.9 29.1% 45.7% 17.182.1% 22. PARTIULARS LCL QUNATATIVE SALES Domestic Sales (Tones) Export Sales Total Sales (Tones) (Tones) FY-2007 FY-2006 FY-2005 3.188.7% FY-2007 There has been a robust growth of cement demand seen both in domestic and export markets during the FY 2007.999 16.773 12.861.8% 8.34 mtpa and registered an overall robust growth of 32.942 1.2% 11.1% which is 9 .173 20.424 Total Industry Sales 24.639.8% 2802.346.338.788.
FY-2007 There has been drastic increase in operating income by Rs 629. Even then LCL operating profit margin falls to 28.8%.e.e.7% as compared with FY 2005 of 30. Large part of the distribution cost increment consists of Exports Logistics and related charges.6% compared to FY 2005 with 36. partly because of increase in exports and partly because of increment in freight and cargo charges due to increased fuel charges.0% this might be because of price increase in FY 2007 discouraging buyers to postpone their projects due to large budget variances.the highest in the history of Pakistan cement industry both in terms of percentage and volumetric growth.8 millions.4% in FY 2007.6% in FY 2006 and 26.1% again this is because of increment in distribution costs.8% as compared to only 7.3% than LCL in FY 2007.3 million in FY 2007 as compared with FY 2006 which is only Rs 203 thousands due to large gain from Excise duty refundable of Rs 538. DGKCCL has greater operating profit margin ratio with 34.8% as compared to its competitor DGKCCL with reduction in turnover by 19. however in FY 2006 it was 32.8% in FY 2005.9% in FY 2005.3%. however this ratio also decreased in FY 2007 as compared to FY 2006 it was 49.20 mtpa and registered an overall tremendous growth of 111. 10 . however in FY 2006 there is a reduction in Operating income i.2% which is lower than FY 2005 i. This happened because there has been large increase in distribution cost by 381% in FY 2007.0%. This is due to large price increase by 29. FY 2007 was a great milestone both for the company.64 mtpa during the FY 2007 against the last year sales of 2. B) Operating profit Margin. LCL has made a land mark achievement by making a record quantitative sale of 4. As far as industry is concerned its sales growth in FY 2006 is 12.1 million in FY 2005.9%. FY-2006-2005 In FY 2006 operating profit margin was 32. LCL has made growth in turnover in monetary terms by 56. 100.e. Despite reduction in price by -25. Rs 203 thousands in FY 2006 and Rs 1.7%.8% as compared to last year where price increased by 29. 20. FY-2006 and 2005 In FY 2006 there has been a tremendous sale growth in monetary terms i.9% of LCL despite the quantitative sales growth stood at 54.
310.861.182.830. DGKCCL also has higher after-tax profit margin of 25.457. Current tax charges increased by 58% due to increase in sales.7%.187 334. 11 .196. this was due to high sales prices plays an important role in increasing GP margin.7% which is a bit higher than LCL which shows DGKCCL also controlling its cost efficiently.3% because of reduced tax expense due to reduction in sales. however deferred tax for FY 2007 decreased by -86.5% which is much higher than FY 2007. The gross profit of LCL for FY 2007 registered a growth of 23.942 1.101 277. PARTICULAR S LCL Q U NATATIVE SALES Domestic Sales (Tones) Export Sales Total Sales (Tones) (Tones) FY-20 07 FY-20 06 FY-200 5 3.2% which brings after-tax profit margin to 20.420.864 2.C) Gross profit Margin.6%.143. The cost per ton of LCL reduced by 17.e.051 2.268 1.8% in FY 2007 which is higher than LCL due very little increase in finance cost i. 3. DGKCCL has GP margin of 31. DGKCCL has pre-tax profit margin of 26.906. Same trend showed in FY 2005 in which GP margin was 34.92 AVERAGE CO ST PER TO NE FY 2007 GP margin has been declined to 29.049 4.32% in terms of value over last year because of volumetric growth in sales and reduction in cost of production.3% there is no brief information available about why deferred tax reduced drastically. higher sales volume growth of LCL partially offset it. However.42 1.639.8%. FY 2006 and 2005 In FY 2006 GP margin of LCL was 36.5% during the year under review because of economy of scale and efficiency in fuel and power consumption in-spite of increase in the prices of coal and oil in the international markets.62 1.3% mainly due to reduced sale prices.369 1. D) Pre and After Tax Margins FY 2007 In FY 2007 Finance cost increased by 942% due to large increase in Mark-up on long term finance and short term borrowings and reduce pre-tax profit margin to 23.991 1.
which shows LCL giving much more return on its capital employed than DGKCCL.60:1 2. Trade debts have increased substantially in FY 2007. However ROE remains about the same as previous years at 27.E31/06/05 0. Eliminating the closing stock.e.1% and 16.E31/06/06 0.8% and 4. DGKCCL has ROCE and ROE at 3.8% respectively which is way lower than LCL.57:1 (Source: Annual Reports 2007. only . stock of DGKCCL contributes very little portion 12 . A higher growth in current liabilities resulted in a decline in its current ratio.1% respectively due to boost in profits this causes nomitor to increase thus increasing ROCE and ROE. One of the most significant reasons for this growth was an increase in the short term borrowings of the company.94:1 0.85:1 0. Quick ratio should be 1:1. LIQUIDITY RATIO Ratio Current ratio (X) Quick ratio (X) DGKCCL Y. in case of LCL again it is lower than ideal point and declined from last year. 2005). The cash balances on the other hand.FY 2006 and 2005 Pre-tax profit margin was 32.2%. This ratio shows how quickly a company can pay its liabilities (Meigs & Meigs. 2006. Again this may reflect a change in the management's credit policy. 2005) FY 2007 The liquidity stance assessed with respect to the current ratio. spares and focusing on near cash and receivables.E31/06/07 0.4% and 20.0% and 30. However there is substantial amount of deferred tax in FY 2006 and FY 2005 as compared to FY 2007 which brings after-tax profit margin to 24. FY-2006-2005 In FY 2006 ROCE and ROE showed increase 11.8% for FY 2006 and FY 2005 respectively.85:1 LCL Y. prepayment.4% due to increase in profits and some reduction in long term debt. i. deteriorated during FY 2007 from an already weak position in FY 2006. have declined for the same period.2% lower than last year because.2% and 27. DGKCCL performed well in this ratio and both current and quick ratio is above the ideal point.4% respectively as compared to FY 2005 with only 7.56:1 LCL Y.4 in FY 2006 and FY 2005 respectively which is higher than FY 2007 because finance costs are much lower as compared to FY2007.63:1 0. there is no issuance of shares in this year. E) ROCE and ROE FY-2007 In FY 2007 ROCE increased to 14.74:1 LCL Y.E30/06/07 2. however there is an increase in profits but reserves also increased. nominator and denominator both increased.
E30/6/07 LCL Y.E31/6/05 13 .57:1 respectively.in current assets and because of this there is no significant difference between current and quick ratio. ACTIVITY/EFFICIENCY RATIO Ratio Total Assets Turnover Net Interest Cover (X) Return on total Assets (Source: Annual Reports 2007.63:1 and 0.E31/6/07 LCL Y. in FY 2006 it shows that company was improving its liquidity position but this trend does not shown in FY 2007. 2006.94:1 and 0.E31/6/06 LCL Y. FY-2006-2005 In FY 2006 both current and quick ratio increased to 0. 2005) DGKCCL Y.85:1 respectively as compared to FY 2005 where both ratios were 0.
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