Fauji Cement Company Limited - Annual Reports

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Fauji Cement Company Limited

Annual Report 2000

CONTENTS

Company Information at a Glance

Notice of the Eighth Annual General Meeting

Report of the Directors

Auditors' Report

Balance Sheet

Profit and Loss Account

Cash Flow Statement

Statement of Changes in Equity

Notes to the Accounts

Pattern of Shareholdings as on 30 June 2000

COMPANY

INFORMATION

AT A GLANCE

Board of Directors

Lt Gen (Retd) Muhammad Maqbool, HI(M), S Bt

Chairman

Maj Gen (Retd) Sayeed Ul Hasan Zaidi, HI(M)

Chief Executive/Managing Director

Brig (Retd) Muhammad Saeed Baig, SI(M)

Director

Brig (Retd) Ghulam Hussain, SI(M)

Director

Mr. Qaiser Javed

Director

Maj Gen (Retd) Khalid Aziz, HI(M)

Director

Non Executive Directors

Mr. David Vivian Johns, CDC

Director

Mr. Palle O. Jorgensen, F L Smidth & Co

Director

Mr. I-Henrik Starup, IFU

Director

Company Secretary:

Brig (Retd) Moien Ud Din Chughtai, SI (M)

Registered Office:

70-Harley Street, Rawalpindi Cantt, Pakistan

Tel: (051) 5515512, 5514474, 5514965, 5568596, 5566104

Fax: (051) 5517311

Factory:

Near Village Jhang, Tehsil Fateh Jhang

District Attack

Tel: 0596-538047-48

Fax: 0596-538025

Marketing/Sales

M-40-1, Ist Floor, Hotel Pakland,

Department:

Bank Road, Saddar, Rawalpindi- Pakistan

Tel: (051) 5528960-64

Tel:: (051) 5528965-66

Auditors:

A.F. Ferguson & Co.

Chartered Accountants

Legal Advisors:

Orr, Dignam & Co. Advocates.

M/s Rizvi & Rizvi, Advocates

Registration &

Mr. Taqi Ahmad Khan

Shares Transfer

Shares Manager

Office:

61, Harley Street, Rawalpindi Cantt

Tel: (051) 5567496

Notice of the Eight Annual General Meeting

All Shareholders of the Company.

M/s A.F. Ferguson & Company, Auditors of Fauji Cement Company Limited.

Notice is hereby given that the Eighth Annual General Meeting will be held at 11:00 A.M on Wednesday, December

13, 2000 at hotel Pearl Continental, The Mall, Rawalpindi, to transact the following business:-

1. To confirm

ANNUAL

2. To receive, consider and adopt the Audited Accounts of the Company together with the Auditors' Report and

Directors' Report for the year ended 30 June 2000

3. To appoint Auditors of the Company and to fix their remuneration.

4. To elect Directors of the Company for a period of three years commencing from the date of elections, as stipu-

lated vide Section 178 of tile Companies Ordinance, 1984, in that:-

4.1 Pursuant to Section 178 (1) and (2) (a) of the Companies Ordinance 1984, the Board of Directors

through a Resolution Passed in the Meeting of the Board of Directors held on October 18, 2000, have

fixed the number of Directors at 9, comprising 6 elected Directors and 3 nominee Directors (nominee

Directors are not required to undergo the process of elections).

4.2 Pursuant to Section 178 (2) (b), (3) of the Companies Ordinance 1984, names of the retiring Directors

are as under and they have offered themselves for re-election as Directors:-

4.2.1 Lt Gen (Retd) Muhammad Maqbool, Chairman

4.2.2 Maj Gen (Retd) Sayeed Ul Hasan Zaidi, Managing Director

4.2.3 Brig (Retd) Muhammad Saeed Baig, Director

4.2.4 Brig (Retd) Ghulam Hussain, Director

4.2.5 Mr. Qaiser Javed, Director

4.2.6 Maj Gen (Retd) Khalid Aziz, Director

5. To transact any other business with the permission of the Chair.

By Order of the Board

Place: Rawalpindi

Brig (Retd) Moien Ud Din Chughtai

Date: November 15, 2000

Company Secretary

NOTES:

1. The Share Transfer Books of the Company will remain closed from December 13, 2000 to December 19, 2000 (both

days inclusive).

2. A member entitled to attend and vote at the Annual General Meeting may appoint a proxy to attend and vote in place

of the Member. Proxies, in order to be effective, must be received at the Registered Office of the Company, 70 Harley

Street, Rawalpindi duly stamped and signed, not less than 48 hours before the Meeting. A member may not appoint

more than one proxy. Proxy form is attached.

3. Shareholders are requested to promptly notify any change in their address.

REPORT OF THE DIRECTORS

General

The Directors take pleasure in presenting their Eighth Annual Report alongwith the Company's audited accounts for the

year ended 30 June 2000 and the Auditors' Report thereon.

Marketing and Financial Aspects

2. Cement industry in Pakistan continues to be in crisis. Primary reason is that the installed capacity (approximately 17

million tons per annum) of the production in the country, far exceeds the demand (about ] 0 million tons per annum). The

possibility of exports, particularly from the Northern Zone is no where in sight because of very low international price. The only

possible opening towards Afghanistan too is yet elusive. Any mega project in public or private sector has yet to come up.

Macro - economic situation in Pakistan does not promise any worthwhile increase in domestic consumption.

3. There has been a consistent rise in the fuel and power costs which form nearly 53 percent of the total cost of

production. The price of Furnace Oil doubled during the financial year under review. The rate of electricity also increased

substantially. The consequent increase in the cost of production has greatly reduced the profitability of cement industry.

4. The management is making concerted efforts to cope with the adverse environments. On one hand it enforced various

economy measures and on the other hand has managed to keep the production/sales level at about 66 per cent of the rated

capacity.

5. Major economy measures undertaken are:-

a. Reduction in Cost of Raw Material. Under previous contractual arrangements we were gelling Raw Material

(Lime & Clay) at a Composite Rate of Rs. 94.10 per ton from M/s HAKAS. The contract was terminated on

25 August 1999. Through a fresh contract we started getting the Raw Material at the rate of

Rs. 50.20 per ton wef 1 November 1999, which due to escalation/increase in price of diesel was later increased

to Rs. 52.72 per ton wef 18 June 2000. This has yielded a saving of about Rs. 40 million (M/s HAKAS has

gone into litigation. The case is still subjudice).

b. Paper Sacks. Similarly various contracts for the supply of Paper Sacks at a rate between Rs. 11.60 to Rs. 12.40

(including GST) were examined and it was determined that the rate could be reduced. These contracts were

terminated in April 2000 and we entered into a fresh contract with Khyber Papers (Private) Limited at the rate

of Rs. 9.50 per sack (excluding GST), thus saving o[ over a million rupees per month.

c. Industrial Water. For supply of Industrial Water, FCCL had installed four tube wells (in addition to the one already

installed by the owner) on the land of a local land owner for which FCCL under a contract was paying a total of

Rs. 85,000.00 per month, to the land owner. We planned to get out of this very costly dependency. Installed

two of our own tube wells in December 1999 and another one in April 2000. We are now self sufficient in our

requirement of Industrial Water, however installation of another tube well is in hand as a reserve. We stopped

paying the land owner for one tube well wef 1 December 1999, second tube well wef 1 April 2000 and for the

remaining tube wells, wef 1 June 2000.

d. Right Sizing of Manpower

(1) After an in-depth study of the requirement of Manpower a total of 65 personnel (including 4 officers) were

discharged during August - September 1999.-The reduction in expenses on this count comes to about

Rs. 250,000.00 per month.

(2) In October 1999, Lahore office was closed down, thus reducing the expenditure to the tune of about

Rs. 300,000/- per month.

e. Saving Electricity Costs. By installing a Time of Day Meter and more Efficient Load Management, have effected

a saving of about Rs. 22.5 million, despite the fact that General Sales Tax at the rate of 15 percent was imposed

on electricity wef 1 January 2000.

f. Indigenisation. Maximum efforts are being made to use locally manufactured items wherever possible for the

replacement of imported items/parts. An estimated saving on this count is nearly Rs. 55 million.

g. Loading Cost. Instead of continuing with the services of Labour Contractor for this purpose, as all other cement

companies are doing, we have started doing it under own arrangements since 1 November 1999 at nearly half

the previous cost on this count.

h. Conversion from Oil 1o Gas. Have taken up a case with SNGP/Ministry for supply of gas/gas pipeline so that

we could convert from Furnace Oil Fired System to Gas Fired System. This can yield a substantial reduction in

energy costs. The case is stuck up with the concerned authorities.

6. Inspite of the stringent market conditions the sales during the year ended 30 June 2000, increased to Rs. 2.574

billion as compared to previous year's sales of Rs. 2.281 billion. The Gross Profit at the operating level increased to

Rs. 523 million from Rs. 222 million in the previous year- an increase of 136 percent. All this was possible because of

fetching higher retention price due to aggressive marketing and drastic management measures to lower the cost of production

and expenses on sales and distribution. Some of these include lowering the cost of quarrying, rationalising manpower

structure more meticulously, finding and developing own sources of industrial water, economizing on power consumption and

lowering the cost of paper bags. However, the company could not show any profit because of heavy burden of financial

charges. The net loss for this financial year reduced to Rs. 274 million as compared to the previous year's loss of Rs. 555

million. These results are indicative of the efforts of management of FCCL to cope with the crises on various fronts.

The Case of Custom Duty and Sales Tax

7. The case is still subjudice. Central Board of Revenue raised its claims from Rs. 490 million to Rs. 808 million. We won

the case at Sindh High Court in May 2000, however, Central Board of Revenue has gone into appeal against it, in the Supreme

Court of Pakistan.

The Plant

8. The performance of the plant during the period under review remained satisfactory. The overall plant efficiency remained

over 100 percent. The fuel and power consumption at the rate of 77.93 Kg/ton Clinker and 99 Kwh/Ton of Cement

respectively, rate among the best in the country. The raw material consumption at the rate of 1.55 tons/ton of clinker is

among the best in the industry. Our labour cost is the lowest in Pakistan. FCCL is maintaining a very high standard of quality

and has established its goodwill in the market.

Pattern of Share Holdings

9. Pattern of Share Holdings as on June 30, 2000 is attached.

Personnel and Relations With the Locals

10. Relationship between the management and the workers continue to be cordial and conducive to efficient functioning of

the factory. Special emphasis is laid on maintaining good relations with the locals inhabiting the areas surrounding the Factory.

For personal use of the locals we provide the cement at Factory Rate. At the Factory we have established a modest medical

facility with one male and one female doctor. The locals are allowed to benefit from it free of cost. FCCL has been successful

in enhancing the goodwill despite a dispute with one of the influential local land owner on whom we were previously

dependent for our water supply for the plant.

Directors

11. On resignation of Mr. Martin M Kristensen, Mr. Hernrik Starup, IFU has been appointed as Director of the Company wef

03 November 1999.

12. Maj Gen (Retd) Sayeed Ul Hasan Zaidi, has been appointed Chief Executive/Managing Director Fauji Cement Company

Limited wef 21 March 2000 in place of Lt Gen (Retd) Muhammad Maqbool

13. On resignation of Brig (Retd) Karam Dad, Maj Gen (Retd) Khalid Aziz has been appointed as a Director of the Company

wef 10 October 2000.

14. The Board places on record its appreciation for the valuable advice and services rendered by the retired Directors and

welcomes the new Directors on the Board.

Election of Directors

15. The tenure of following elected directors has since expired and they will continue to perform their functions till their

successors are ejected during the Eighth Annual General Meeting. '[hey have offered themselves for re-election:-

a. Lt Gen (Retd) Muhammad Maqbool, Chairman

b. Maj Gen (Retd) Sayeed Ul Hasan Zaidi, Managing Director

c. Brig (Retd) Muhammad Saeed Baig, Director

d. Brig (Retd) Ghulam Hussain, Director

e. Mr. Qaiser Javed, Director

f. Maj Gen (Retd) Khalid Aziz, Director

Auditors

16. M/s A.F. Ferguson & Company, Chartered Accountants, will retire at the conclusion of the Eighth Annual General

Meeting and, being eligible, have offered themselves for re-appointment.

Financial Position/Dividend

17. Despite all the efforts of the management to reduce operating costs and enhance the operating profit, the Company

continues to accrue and accumulate the loss. Efforts at Financial Re-structuring of FCCL are continuing since long. Partial

success has been achieved with local lenders but any mutually acceptable solution to manage the Foreign Currency Loans has

not yet emerged. Whatever may be the final outcome/solution, it is certain that FCCL will not be in a position to pay any

dividend in the near future.

Acknowledgments

18. The Directors express their heartfelt appreciation for the continued encouragement and support of their sponsors - Fauji

Foundation, dedication of their employees and cooperation of the Government of Pakistan, the suppliers and other agencies.

With such a cooperative and accommodative altitude by the key players in the financial aspects of FCCL, the Directors are

quite confident to cope with the enormous burden of Financial Charges, albeit through a long and laborious process. The

Directors are specially thankful to the shareholders who have not received any dividends so far, but continue to repose their

trust in FCCL.

For and on behalf of the Board

Rawalpindi

Lt. General Muhammad Maqbool, HI (M), S Bt

15 November 2000

Chairman

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of Fauji Cement Company Limited as at June 30, 2000 and the related

profit and loss account, cash flow statement and statement of changes in equity together with the notes forming part

thereof, for the year then ended and we state that we have obtained all the information and explanations which, to the

best of our knowledge and belief, were necessary for the purposes of our audit.

It is the responsibility of the Company's management to establish and maintain a system of internal control, and pre-

pare and present the above said statements in conformity with the approved accounting standards and the requirements

of the Companies Ordinance, 1984. Our responsibility is to express an opinion on these statements based on our audit.

We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards require that we

plan and perform the audit to obtain reasonable assurance about whether the above said statements are free of any materi-

al misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the above

said statements. An audit also includes assessing the accounting policies and significant estimates made by management, as

well as, evaluating the overall presentation of the above said statements. We believe that our audit provides a reasonable

basis for our opinion and, after due verification, we report that:

(a) in our opinion, proper books of account have been kept by the Company as required by the Companies

Ordinance, 1984;

(b) in our opinion

(i) the balance sheet and profit and loss account together with the notes thereon have been drawn up

in conformity with the Companies Ordinance, 1984, and are in agreement with the books of account

and are further in accordance with accounting policies consistently applied;

(ii) the expenditure incurred during the year was for the purpose of the Company's business; and

(iii) the business conducted, investments made and the expenditure incurred during the year were in

accordance with the objects of the Company;

sheet, profit and loss account, cash flow statement and statement of changes in equity, together with the notes

forming part thereof, conform with approved accounting standards as applicable in Pakistan, and give the infor-

mation required by the Companies Ordinance, 1984, in the manner so required and respectively give a true

and fair view of the state of the Company's affairs as at June 30, 2000 and of the Joss, its cash flows and

changes in equity for the year then ended; and

(d) in our opinion no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980.

Without qualifying our opinion we draw attention to contents of note 4.5 to the accounts related to negotiations being held

by the company with foreign and local lenders for restructuring of. long term foreign and local currency loans to revise the

repayment schedule in respect of Joan installments outstanding.

Islamabad

A.F. Ferguson & Co.

15 November 2000

Chartered Accountants

BALANCE SHEET AS AT JUNE 30, 2000

2000

1999

Note

Rupees

SHAREHOLDERS EQUITY

Share capital

Authorized capital

250,000,000 ordinary shares of Rs 10 each

2,500,000,000

==========

Issued, subscribed and paid-up capital

171,310,499 ordinary shares of Rs 10 each

1,713,104,990

Advance against shares to be issued

443,144,000

Accumulated loss

(1,357,119,720)

(1,074,145,953)

-----------

799,129,270

1,082,103,037

LONG TERM LOANS

1,713,183,138

2,477,346,579

PROVISION FOR STAFF GRATUITY

2,033,331

1,334,959

CURRENT LIABILITIES

Current portion of long term loans

2,010,272,489

1,278,204,943

Short term loan

40,000,000

Creditors, accrued and other liabilities

988,440,972

844,872,870

3,038,713,461

2,163,077,813

CONTINGENCIES AND COMMITMENTS

-----------

5,553,059,200

5,723,862,388

===========

FIXED CAPITAL EXPENDITURE

Operating assets

5,050,126,970

5,283,901,395

Capital work in progress

1,953,045

Stores held for capital expenditure

87,659,692

92,841,097

-----------

5,139,739,707

5,376,742,492

LONG TERM DEPOSIT

21,600,000

DEFERRED COST

6,150,486

CURRENT ASSETS

Stores, spares and loose tools

99,259,291

87,041,077

Stock in trade

74,257,232

78,197,867

Trade debtors- unsecured, considered good

25,070,811

10,807,206

Advances, deposits, prepayments and other

receivables

76,146,380

70,439,405

Cash and bank balances

116,985,779

72,883,855

-----------

391,719,493

319,369,410

-----------

5,553,059,200

5,723,862,388

==========

The annexed notes form an integral part of these accounts.

Chairman

Chief Executive

Director

PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED JUNE 30, 2000

2000

1999

Note

Rupees

SALES

2,574,546,962

2,281,823,078

Excise duty

877,966,264

941,412,569

-----------

NET SALES

1,696,580,698

1,340,410,509

Cost of sales

1,173,693,427

1,118,071,714

-----------

GROSS PROFIT

522,887,271

222,338,795

General and administration expenses

27,781,087

28,426,630

Selling and distribution expenses

13,025,529

15,311,415

-----------

40,806,616

43,738,045

-----------

OPERATING PROFIT

482,080,655

178,600,750

Other income

7,851,156

11,263,267

-----------

489,931,811

189,864,017

Financial charges

763,905,578

745,565,033

-----------

(LOSS) BEFORE TAXATION

(273,973,767)

(555,701,016)

Provision for taxation

9,000,000

7,200,000

-----------

(LOSS) AFTER TAXATION

(282,973,767)

(562,901,016)

(Loss) brought forward

(1,074,145,953)

(511,244,937)

-----------

ACCUMULATED (LOSS)

(1,357,119,720)

(1,074,145,953)

==========

The annexed notes form an integral part of these accounts.

Chairman

Chief Executive

Director

CASH FLOW STATEMENT

FOR THE YEAR ENDED JUNE 30,

2000

1999

Rupees

CASH FLOWS OPERATING ACTIVITIES

(Loss) before taxation

(273,973,767)

(555,701,016)

Adjustment for non cash charges and other items:

Depreciation

240,243,542

233,816,271

Amortization of deferred cost

6,150,486

Financial charges

763,905,578

745,565,033

Profit on disposal of fixed assets

(99,999)

(280,916)

Income on bank deposits

(7,035,607)

(10,938,841)

(Increase) in stores and stocks

(3,096,175)

(56,144,486)

(Increase)/decrease in receivables

(23,640,068)

44,990,587

(Decrease) In payables

(893,721)

(23,880,130)

Taxes paid

(6,609,375)

(9,131,675)

-----------

Cash provided by operating activities

694,950,894

374,445,313

CASH FLOWS FROM INVESTING ACTIVITIES

Fixed capital expenditure

(21,018,056)

(74,868,280)

Sale proceeds of fixed assets

100,000

690,436

Long term deposits

24,253,363

Income received on bank deposits

8,314,469

12,069,436

-----------

Cash used in investing activities

(12,603,587)

(37,855,045)

CASH FLOWS FROM FINANCING ACTIVITIES

Short term loan received

40,000,000

Long term loans repaid

(19,500,000)

Financial charges paid

(618,745,3831

(449,074,171)

-----------

Cash used in financing activities

(638,245,383)

(409,074,171)

-----------