Cement Industries Analysis

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Industries AnalysisCement Industry of Pakistan

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CONTENTS

Introduction:.............................................................................................................................................3Structure....................................................................................................................................................3Cement Companies:..................................................................................................................................3Comaprision:.............................................................................................................................................3Companies Information:...........................................................................................................................4

Bestway Cement:..................................................................................................................................4Vision................................................................................................................................................4Corporate Mission............................................................................................................................4List of Products:..........................................................................................................................4Introduction:.....................................................................................................................................4Industry Overview............................................................................................................................5Production and Sales.........................................................................................................................5Operating Highlights........................................................................................................................5

Fauji Cement:......................................................................................................................................14Introduction:...................................................................................................................................14Our Vision....................................................................................................................................14Mission Statement...................................................................................................................14Our Strategies...........................................................................................................................14Our Values..................................................................................................................................14Market Overview............................................................................................................................15Production Review..........................................................................................................................16Financial Performance....................................................................................................................16

Cherat Cement:...................................................................................................................................23Vision:.............................................................................................................................................23Mission:..........................................................................................................................................23Strategic objectives:........................................................................................................................23Core Values:...................................................................................................................................23Company information:....................................................................................................................23Operating performance...................................................................................................................25

Conclusion:.............................................................................................................................................30

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Introduction:

Cement industry is indeed a highly important segment of industrial sector that plays a pivotal role inthe socio-economic development. Though the cement industry in Pakistan has witnessed its lowsand highs in recent past, it has recovered during the last couple of years and is buoyant once again.

Structure:

A market is a group of buyers and sellers exchanging goods that are highly substitutable for oneanother. Markets are defined by demand conditions; they embody the zone of consumer choice forthe goods.

Cement Companies:

1. Bestway Cement 2. Fauji Cement3. Cherat Cement

Comaprision:

Comparision of these cement companies is made on the following basis.

Production Capacity Financial Report Net Profit Contractor’s Survey Market Survey Growth per Annum Stakeholders

The companies got their position due to their mangment abilities.

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Companies Information:

Bestway Cement:

VISION:

To Produce High Quality Cement At The Lowest Cost

CORPORATE MISSION: Bestway will consistently produce High Quality Cement. Bestway will endeavor to be the lowest cost producer. It is company’s aim to achieve 15% of the market share of North Zone from

present 12% by year 2008 and ultimately to 25% in the longer term. Bestway will continue to provide a high standard of customer service. In order to meet future expansion needs, Bestway will continue its policies

of staff training and development, promoting from within whenever possible.

Bestway appreciates it has responsibility towards the community within which it operates. It will continue to set aside 2.5% of the net profit for education and charitable purposes.

List of Products: 1. Ordinary Portland Cement2. Sulphate Resistant Cement3. Quick Setting Cement

For other types of cement, please contact our Marketing Department.

INTRODUCTION:

Bestway (Holdings) Limited of United Kingdom is the ultimate parent company of theCompany.

In response to successive governments' efforts to attract foreign investment in the country Bestway Group has invested heavily in Pakistan. Today, the Group is the largest overseas Pakistani investor in the local economy with investments in excess of US$ 1.0 billion. In just under a decade Bestway has emerged as the second largest cement producer in the country with a capacity of 4.0 million tonnes per annum. A further 2.0 million tonnes per annum is under construction and will come online by the end of 2007.In early 1995 when the Group decided to set up its first cement plant it faced

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multiple challenges - mainly due to the absence of operating experience in Pakistan. The macroeconomic situation was far from satisfactory due to lack of fiscal and monetary stimulus; political instability etc. Even though Bestway had initial difficulties it has thrived and continues to be bullish about Pakistan.

INDUSTRY OVERVIEW:

During the year under review, despatches of cement by the industry increased by 32% to30.14 million tonnes as against 24.29 million tonnes for last year. The domestic marketgrew by 6.6% while exports recorded a healthy increase of 142%. Overall capacityutilisation for the industry stood at 78% for the year under review as against 81% for lastyear. The decline in capacity utilisation was mainly due to slower growth in domesticmarket and additional capacity coming online during the year.

PRODUCTION AND SALES:

Hattar 2008 2007 Increase/ %

DecreaseCement production 1,166,737 1,170,392 (3,655) (0.3%)Cement sales 1,164,540 1,163,161 1,379 0.12%

Chakwal 2008 2007 Increase/ %

DecreaseCement production 1,453,523 1,119,117 334,406 30%Cement sales 1,446,470 1,086,812 359,658 33%

Despite fierce competition your Company was able to retain 11% of the market in thenorth zone and its position as one of the largest cement producers in the country. BestwayCement remains one of the largest exporters of cement to Afghanistan. The industry as awhole exported 7,716,628 tonnes during the year as against 3,188,424 tonnes during theyear ended 30th June 2007. Bestway Cement’s share stood at 7.3% of total exports at

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565,716 tonnes as against 304, 001 tonnes in 2007 which represents an increase of 86%.

OPERATING HIGHLIGHTS:

The Company recorded sales of Rs. 10,670 million compared to Rs. 8,409 million duringthe preceding year. Net turnover amounted to Rs. 7,487 million compared to Rs. 5,649million in the corresponding period last year, which represents an increase of 33%, afterpayment of Rs. 2,771 million towards Sales Tax and Excise Duty and Rs. 412 million asrebates and discounts to customers. Gross Profit decreased to Rs. 1,008 million from Rs.1,013 million last year. The increase in sales couldn’t result in proportionate increase inprofits mainly due to low retentions and high energy costs.Finance cost increased to Rs.1,236 million for the year ended 30th June 2008 from Rs.1,212 million last year. Loss before taxation for the year ended 30th June 2008 stood atRs. 419 million as compared to Rs. 56 million profit for the previous year. Profit aftertaxation for the year ended 30th June 2008 amounted to Rs.169 million as compared to Rs.52 million profit of last year, which is an increase of 227%. Earnings per share of theCompany for the year ended 30th June 2008 on its increased paid up capital stood atRs.0.51 as compared to last year’s restated EPS of Rs.0.10.

BALANCE SHEET:

This year the capital and reserves of your Company have increased to Rs.6.86 billion ascompared to Rs.5.98 billion.Your Company has continued to discharge its repayment obligations on all types of loanson time. The net current liabilities on 30th June 2008 stood at Rs.5,372 million as againstRs. 3,414 million on 30th June 2007.

CHAKWAL LINE II:

Work on Line-2 of 6,000 tpd cement capacity completed in the fourth quarter andproduction was started in the month of June 2008 resulting in capitalisation of project on

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30th June 2008.

WASTE HEAT RECOVERY POWER PLANT:

The management of your Company decided to setup a waste heat recovery power plant atChakwal. The kiln preheater and clinker cooler outlet release a lot of exit gases at hightemperature which leads to the wastage of heat energy. The implementation of thisproject will reduce emission of waste gases and will have a very positive impact onEnvironment besides generating 14~15 MW power. This project will significantly reduceCompany’s dependence on external source of electricity and will also help in reduction incost of production. The project is expected to be operational during fourth quarter of2008-09.

OTHER INVESTMENTS:

Bestway’s investment in United Bank Limited continues to prove highly successful as thebank continued to show steady performance for yet another year. Profit before tax for theyear ended 31st December 2008 stood at Rs.13 billion as against Rs.14.2 billion for thecorresponding period of last year which represents a decrease of 8% year on year. The bank’s balance sheet further strengthened during the year with a staggering 21% growthin Performing Advances to Rs. 293 billion, which is one of the highest growth ratesamongst the large network banks. Customer deposits and other accounts increased by20% to Rs.402 billion.We are delighted to inform you that the Bank announced a cash dividend of 30% and25% bonus shares for the year ended 31st December 2007 thus providing a return ofRs.186 million along with 15.5 million bonus shares on your investment in the Bank.

PLANT PERFORMANCE:

Your Company’s management follows an elaborate plan of preventative maintenance,which it has adopted, right from the beginning. This proactive approach ensures efficient

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and stable operations with minimum disruptions. Our well-knit team of dedicatedmanagers, engineers, technicians and other members of the management andadministrative staff play key role in the successful implementation of this approach.Hattar plant continued to operate smoothly throughout the year at well above its ratedcapacity.Chakwal Line-1 after commencing operation in June 2007 and, barring a few teethingproblems, operated smoothly.Chakwal Line-11 after commencing operation in June 2008 is also operating smoothly.

MARKETING:

Bestway Cement is a company driven by efficiency and quality consciousness. Strictquality control procedures are applied to ensure that these aims are achieved. Some of thebest quality control equipment in Pakistan is in use at the plants. Apart from the usualequipment, Bestway’s laboratories are equipped with state-of-the-art technologyincluding X-ray Fluorescent Analyser and Diffractometer. Bestway Cement introducedthis technology in Pakistan for the first time. By virtue of this equipment, the Companyhas been able to consistently produce better quality cement than is currently available inthe country.Bestway continues to be among the top brands both in the domestic market and inAfghanistan where it is now firmly established as the best brand. Your Company has beenable to maintain its status as a market leader due to its consistently superior quality,effective marketing strategy, customer care and sheer dedication of its marketing team.With the successful completion of Chakwal Line-2 your Company has become the 2nd

largest cement producer in Pakistan.In recognition of its performance, your Company continues to win awards for being theleading exporter, including a trophy from the Rawalpindi Chamber of Commerce &Industry for the 6th consecutive year.

TRAINING AND DEVELOPMENT:

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The Company places great importance on the training, development and education of itspersonnel. In order to keep its workforce abreast with best operational techniques and practices, technical and general managerial training courses are organised for variousdepartments and categories of personnel. Staff is also sent on courses, workshops andseminars organised externally by other institutions. The Company actively encouragesand assists its employees in pursuit of professional development and career enhancement.

HEALTH, SAFETY AND ENVIRONMENT:

Your Company attaches highest priority to the health and safety of its personnel who arean essential and valuable component of its operations. Initiatives including safetymeetings, incident reporting, safety audits, good housekeeping and hygiene controls areactively and consistently pursued to instil safe behaviour in all personnel.Bestway Cement actively pursues protection and up gradation of the environment byensuring that its plants continue to comply with established environmental qualitystandards at all times. Our plant not only meets the stringent environmental qualitystandards prescribed by the Environment Protection Authority of Pakistan, it evensurpasses the international standards for emissions. Your Company always participates invarious environment uplift programmes including the Tree Plantation drive each year byplanting thousands of plants and trees in our factory areas and surrounding hills in orderto contribute our share towards the improvement of environment.

SOCIAL RESPONSIBILITY:

Your Company regards itself as a responsible corporate citizen. Right from the outset,Bestway Cement has taken its social responsibilities, particularly towards the localcommunity, very seriously and takes pride in its active participation in the developmentand welfare of the under-privileged.Bestway Foundation, the charitable trust of the Bestway Group to which your Companyis a major contributor, was established in the year 1997. The Foundation is also certified

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from the Pakistan Centre for Philanthropy. During the year ended 30th June 2008, yourCompany contributed nearly Rs.14 million to the Foundation for its various social causes.Bestway Foundation’s main goal is provision of education in rural communities. Qualityeducation is fundamental to building up a strong and vibrant society. This aspect has longbeen neglected especially in the rural areas where masses are still deprived of goodeducational facilities. Bearing this in mind the Foundation embarked upon an ambitiousplan of revitalising primary and secondary education in rural areas. Bestway Foundation(in collaboration with the District Government Education Department) adopted 29schools in the far-flung corners of Rawalpindi District, which lacked basic infrastructure,facilities and sufficient number of teachers. You will be pleased to learn that theFoundation has been able to achieve desired results and the schools being supported bythe Foundation have shown marked improvement and students have shown very goodresults in the Secondary School Examinations of 2008 also.In addition, the Foundation continues to provide scholarships to talented students who,for want of sufficient resources are unable to continue with their higher studies. Financialassistance is also provided to a large number of widows and indigents of the localcommunity in the shape of monthly stipends. In the area of basic health, free medicalfacilities are provided to the local community through a dispensary located at our factorypremises.

FUTURE PROSPECTS:

Cement industry has benefited from sustained economic growth in the last few years. Theyear under review however witnessed a slowdown in domestic cement consumption dueto political and economic uncertainty in the country. Election of a democratic governmentshould bring about political stability in the country which should encourage moreeconomic activity in the country thus positively impacting demand for cement. On theexport front, there remains a huge shortage of cement in numerous Middle Eastern andAsian countries most notably UAE, Qatar and India. Besides, there are other potential

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markets including some African and Central Asian states.While there are huge opportunities for cement industry in the future, there are potentialthreats also. Looming global economic crisis may adversely impact the demand forcement both domestically and internationally. Also, worsening economic condition in thecountry is likely to hit the domestic consumption of cement. These factors coupled withmore production capacity coming online in the future both within the country and theregion, the markets are likely to become more competitive. Your management iscognisant of the challenges that lie ahead and will be making all out efforts to ensurefurther growth and superior returns in the ensuing years.

CORPORATE GOVERNANCE:

Statement on Compliance with Code of Corporate Governance is annexed.

PATTERN OF SHAREHOLDING:

Pattern of shareholding as required under the Code of Corporate Governance is given inthe accounts.

PRESENTATION OF FINANCIAL STATEMENTS:

The financial statements prepared by the management of the Company fairly present its state of affairs, the results of its operations, cash flows and changes in equity.

BOOKS OF ACCOUNT:

The Company has maintained proper books of account.

ACCOUNTING POLICIES:

Appropriate accounting policies have been adopted and consistently applied inpreparation of financial statements, except for the change in estimate as mentioned in thenote 3.6, and accounting estimates are based on reasonable and prudent judgement.

APPLICATION OF INTERNATIONAL ACCOUNTING STANDARDS:

International Accounting Standards, as applicable in Pakistan, have been followed inpreparation of financial statements.

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INTERNAL CONTROL SYSTEM:

The system of internal controls is sound in design and has been effectively implemented.The system itself is also subject to continuous review for enhancement wherever andwhenever necessary.

GOING CONCERN:

There are no doubts about the Company’s ability to continue as a going concern.

LISTING REGULATIONS:

There has been no material departure from the best practices of corporate governance, asdetailed in the listing regulations.

FINANCIAL HIGHLIGHTS:

Key financial data for the last eight years is annexed.

BOARD MEETINGS:

Attendance by each director in the 30 Board Meetings held during the year was as givenbelow:

AUDITORS:

The present auditors, Messrs KPMG Taseer Hadi & Co., Chartered Accountants retire atthe conclusion of the Meeting and, being eligible, have offered themselves forreappointment. The Audit committee of the Company has considered the matter andrecommended the retiring auditors for reappointment.

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Bestway Cement Company limited

Key Financial Data of Last 8 years

BESTWAY CEMENT LIMITEDJUNE 30, 2008Eight Years Key Data

2008 2007 2006 2005 2004 2003 2002 2001Operating Results Rupees in millionsTurnover (net) 7,487 5,649 4,544 3,536 2,666 1,792 1,738 2,078Cost of sales 6,479 4,637 2,250 1,987 1,596 1,334 1,118 1,591Gross profit 1,008 1,013 2,294 1,549 1,070 458 621 487Operating profit 587 871 2,144 1,431 1,009 405 570 431Financial charges 1,236 1,212 469 140 139 269 245 354(Loss)/profit before taxation (419) 56 1,730 1,298 994 159 329 191Profit after taxation 169 52 1,226 931 679 113 236 178

Balance SheetShareholders' funds 6,857 5,544 4,850 3,597 2,859 2,181 2,213 2,003Operating fixed assets 16,004 14,175 10,689 5,069 3,200 3,306 3,287 3,456Long term finance 12,507 12,380 9,459 3,148 1,895 1,701 1,579 1,993Net current liabilities 1,622 607 624 221 80 1,289 168 50

Significant Financial Ratios PercentagesGross profit ratio 13.46 17.93 50.48 43.81 40.14 25.56 35.73 23.44Net profit ratio 2.26 0.92 26.98 26.33 25.47 6.31 13.58 8.57Interest coverage ratio 0.66 1.05 4.69 10.27 7.69 1.59 2.34 1.54Return on equity 7.09 2.02 52.37 43.75 35.10 5.84 12.20 9.20Earnings per share 0.51 0.20 5.24 3.98 3.19 0.58 1.22 0.92Dividend - - 10.00 10.00 10.00 7.50 7.50 5.00

In thousand metric tonnesDespatches of cement 2,610 2,250 1,203 1,206 1,039 837 650 751

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Bestway Cement Company limitedBalance Sheet as on 30 June 2008

BESTWAY CEMENT LIMITEDBALANCE SHEET AS AT 30 JUNE 2008

2008 2007 2008 2007Notes Rupees Rupees Notes Rupees Rupees

Restated RestatedEQUITY AND LIABILITIES ASSETSShare capital and reserves Non-current assetsAuthorised share capital

350,000,000 (2007: 300,000,000) ordinary shares of Rs. 10 each 3,500,000,000 3,000,000,000Property, plant and equipment 13 16,004,481,991 14,175,374,753

Investment property 14 291,330,764 277,155,456Issued, subscribed and paid up share capital 4 2,832,587,750 2,575,079,770

Share premium account 901,277,930 - Long term investments 15 5,297,902,301 5,077,151,793Unappropriated profit 2,020,561,237 1,851,979,758

Advance for issue of right shares 5 1,102,077,293 1,116,466,140 Long term advances and deposits 16 102,474,847 307,325,0476,856,504,210 5,543,525,668 21,696,189,903 19,837,007,049

Non-current liabilitiesCurrent assets

Long term financing - secured 6 12,506,666,668 12,380,000,005 Stores, spare parts and loose tools 17 1,719,953,575 1,062,334,034Liability against assets subject to finance lease 7 258,138,491 230,976,141 Stock in trade 18 729,726,744 290,830,696Deferred liabilities 8 441,207,639 1,055,573,197 Trade debts- considered good 19 365,120,641 84,633,511

Long term advances 9 12,249,720 23,607,975 Advances, deposits, prepayments13,218,262,518 13,690,157,318 and other receivables 20 555,926,017 482,675,425

Cash and bank balances 21 348,573,987 886,327,763Current liabilities 3,719,300,964 2,806,801,429

Trade and other payables 10 1,542,716,340 693,718,916Markup payable 286,999,641 256,189,604Short term borrowings - secured 11 1,507,674,824 756,384,619Current portion of long term financing 6 2,003,333,334 1,703,832,354

5,340,724,139 3,410,125,493

25,415,490,867 22,643,808,478 25,415,490,867 22,643,808,478

Contingencies and commitments 12-

Theannexed notes from 1 to 35 form an integral part of these financial statements. (0.00478076934814453)

CHIEF EXECUTIVE DIRECTOR & CFO

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Bestway Cement LimitedPROFIT AND LOSS ACCOUNT

BESTWAY CEMENT LIMITEDPROFIT AND LOSS ACCOUNTFOR THE YEAR ENDED 30 JUNE 2008

2008 2007Notes Rupees Rupees

Turnover-net 22 7,487,162,751 5,649,378,012Cost of sales 23 6,478,902,770 4,636,508,040

Gross profit 1,008,259,981 1,012,869,972

Administration and general expenses 24 119,917,940 103,121,152Distribution cost 25 300,827,927 38,278,894Finance cost 26 1,236,140,238 1,211,745,924Other income 27 (229,490,785) (396,632,200)

1,427,395,320 956,513,770

(Loss)/ profit before taxation (419,135,339) 56,356,202

Taxation 28 587,716,818 4,817,471

Profit after taxation 168,581,479 51,538,731

RestatedEarnings per share (basic and diluted) 32 0.60 0.18

The annexed notes from 1 to 35 form an integral part of these financial statements.

CHIEF EXECUTIVE DIRECTOR & CFO

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Fauji Cement:

INTRODUCTION:

A longtime leader in the cement manufacturing industry, Fauji Cement Company, headquartered in Islamabad, operates a cement plant at Jhang Bahtar, Tehsil Fateh Jang, District Attock in the province of Punjab. The company has a strong and longstanding tradition of service, reliability, and quality that reaches back more than 10 years. Sponsored by Fauji Foundation the Company was incorporated in Rawalpindi in 1992.

The cement plant operating in the Fauji Cement is one of the most efficient and best maintained in the country and has an annual production capacity of 1.165 million tons of cement. The quality portland cement produced at this plant is the best in the Country and is preferred the construction of highways, bridges, commercial and industrial complexes, residential homes, and a myriad of other structures needing speedy strengthening bond, fundamental to Pakistan's economic vitality and quality of life.

OUR VISION:

To transform FCCL into a role model cement manufacturing Company fully aware of generally accepted principles of corporate social responsibilities engaged in nation building through most efficient utilisation of resources and optimally benefiting all stake holders while enjoying public respect and goodwill.

MISSION STATEMENT :

FCCL while maintaining its leading position in quality of cement and through greater market outreach will build up and improve its value addition with a view to ensuring optimum returns to the shareholders.

OUR STRATEGIES:

We shall achieve our vision by making total quality the FCCL way of doing business, Relentless pursuit of full customer satisfaction, Empowering FCCL people leading the industry of Cement world and manufacturing excellence producing superior returns to our shareholders.

OUR VALUES:

CustomersWe listen to our customers and improve our product to meet their present and future needs.

People Our success depends upon high performing people

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working together in a safe and healthy work place where diversity, development and team work are valued and recognized.

AccountabilityWe expect superior performance and results. Our leaders set clear goals and expectations, are supportive and provide and seek frequent feed back.

Citizen Ship

We support the communities where we do business, hold ourselves to the highest standards of ethical conduct and environment responsibility, and communicate openly with FCCL people and the public.

Financial ResponsibilityWe are prudent and effective in the use of the resources entrusted to us.

MARKET OVERVIEW:

The Cement Industry witnessed an unprecedented demand for its product during Fiscal Year 2007-Total cement despatches stood at 30 Million tons which is the highest figure ever achieved by the Cement Industry. It reflected a growth of 24.31% over 24 Million tons of sales during last fiscal year. Whereas, local demand grew by 6.47 % over the last year, the exports recorded a historic growth of 142% to an all time high level of 7.72 Million tons as compared to 3.19 Million tons during the last year. As a result of above, the overall capacity utilization of the Industry stood at 81.04% as compared to 80.07 % of the last year.Comparing with the Industry, the overall performance of FCCL has been substantially higher. It achieved the capacity utilization of 101.03% as compared to 81.04% of the Industry. Similarly, the exports showed an increase of 82.63% over the last year, i.e, from 152,268 tons in Fiscal Year 2006-07 to 278,095 tons in Fiscal Year 2007-08. Apart from Afghanistan, FCCL has been able to create an effective market niche in India and expects it to expand further.

The highlights of the performance of the Company vis-à-vis the Industry are as under:-

Fuaji Cement Comparison 2007-08 2006-07 Difference (%)(1) Domestic Despatches (tons) 899,405 960,8236 .39-(2) Exports (tons) 278,095 152,2688 2.63(3) Total Despatches (tons) 1,177,500 1,143,091 3.01(4) Capacity Utilization (%) 101.03 98.08 3.01

Industry Comparison 2007-08 2006-07 Difference (%) (1) Domestic Despatches (tons) 22,395,522 21,034,278 6.47(2) Exports (tons) 7,716,620 3,188,424 142.02(3) Total Despatches (tons) 30,112,142 24,222,702 24.31

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(4) Capacity Utilization (%) 81.04 80.07 1.21

PRODUCTION REVIEW:

Performance of the plant remained above satisfactory level with an overall production levelexceeding 100.83%, which is the highest ever achieved in the history of Fauji Cement. Efficiency in terms of fuel, power and raw material consumption at the plant is amongst the best, while labour cost is also one of the lowest in Cement Industry. Comparative production figures are given as under:-

2007 ~ 08 2006 ~ 07a. Clinker ( Tons ) 1,119,221 1,098,019b. Cement ( Tons ) 1,174,722 1,153,711

FINANCIAL PERFORMANCE:

PROFITABILITY:

The Company earned a Profit After Tax of Rs. 414 Million as compared to the lastyear's profit of Rs. 646 Million. The profit from operations decreased from Rs. 995 Million to Rs. 602 Million depicting a decrease of 39 % owing to reduction in cement prices and higher manufacturing cost due to increase in prices of fuel, power and packing material.

CONTRIBUTION TO NATIONAL EXCHEQUER:

The Company contributed a sum of Rs. 1,268 Million to the national exchequer in the form of taxes and duties during the year under review. Concurrently, Fauji Cement earned USD 13.804 Million through export of cement.

PRESENTATION OF FINANCIAL STATEMENTS:

The financial statements prepared by the Management present the Company's state of affairs, the results of its operations, cash flows and changes in equity in a fair and accurate manner.

BOOKS OF ACCOUNT:

Proper books of account have been maintained.

ACCOUNTING POLICIES:

Appropriate accounting policies have been consistently applied in preparation of financial statements and accounting estimates are based on reasonable and prudent judgement.

COMPLIANCE WITH INTERNATIONAL ACCOUNTING STANDARDS (IAS) AND INTERNATIONAL FINANCIALREPORTING STANDARDS (IFRS).

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International Accounting Standards and International Financial Reporting Standards (IFRS) as applicable in Pakistan have been followed in preparation of financial statements.

INTERNAL CONTROL SYSTEM:

The system of internal control is sound in design and has been effectively implemented and monitored.

GOING CONCERN:

There is no doubt that the Company has the ability and strength to operate as a going concern.

BEST PRACTICES OF CORPORATE GOVERNANCE:

There has been no material departure from the best practices of corporate governance, as given in the listing regulations.

Fauji Cement Limited

Financial Data of Last Six Years.

Description 2008 2007 2006 2005 2004 2003

Operating Results(Rs. In Million)

Net Sales 3,545.902 3,463.283 4,286.138 2,845.143 2,296.231 1,510.738

Gross Profit 658.112 1,091.495 2,191.111 1,081.576 740.824 175.605

Operating Profit 601.518 995.285 2,041.984 988.673 723.084 122.213

Financial Charges 146.954 207.105 264.297 229.634 204.223 463.409

Profit/(Loss) after 413.598 646.323 1,203.735 510.490 314.148 (531.381)taxation

Balance Sheet

Shareholder’s Equity 9,283.981 3,735.206 3,282.617 2,449.624 1,939.134 1,624.986

Fixed Assets 7,106.599 4,392.450 4,563.115 4,658.272 4,729.254 4,659.449

Long Term Loans 875.000 1,425.000 1,975.000 3,075.000 3,645.347 4,325.878including current portion

EPS (Rs)

Basic 0.85 1.73 3.21 1.36 0.84 (1.42)

Restated Restated Restated Restated Restated

Diluted 0.77 1.53 2.84 1.21 0.74 (1.26)

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OUTSTANDING STATUTORY DUES:

The Company does not have any outstanding statutory dues.

VALUE OF INVESTMENT OF EMPLOYEES:

Value as on 30 June 2008 is given below:-

Management Staff Non-Management Staff

Provident Fund : Rs. 57,414,581 Rs. 35,864,510

SALIENT ASPECTS OF COMPANY'S CONTROL AND REPORTING SYSTEMS.

The Company complies with all the requirements of the Code of Corporate Governance as contained in the listing regulations of the Stock Exchanges. The Board's primary role is the protection and enhancement of long term shareholders' value. To fulfil this role, the Board is responsible to implement overall corporate governance in the Company including approval of the strategic direction as recommended by the Management, approving and monitoring capital expenditure, appointing, removing and creating succession policies for the senior management, establishing and monitoring the achievement of management's goals and ensuring the integrity of internal control and Management Information Systems. It is also responsible for approving and monitoring financial and other reporting. The Board has delegated responsibility for operation and administration of the Company to the Chief Executive / Managing Director. Responsibilities are delineated by formal authority delegations. The Board has constituted the following committees which work under theguidance of Board of Directors:

Audit Committee. Technical Committee. Human Resources Committee.

ATTENDANCE OF MEETINGS:

During the year under review, the Board of Directors held six meetings and Audit Committee held five meetings.

DISCLOSURES:

To the best of our knowledge, the Directors, CEO, CFO, Company Secretary, Company Auditors, their spouses and their minor children have not undertaken any trading in shares of the Company during the FY 2007-08.

PATTERN OF SHARE-HOLDING:

Pattern of share-holding as on 30 June 2008 is attached.

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RELATIONS WITH COMPANY PERSONNEL:

Relations between the management and the workers continued to be extremely cordial based on mutual respect and confidence contributing to optimal efficiency. The Company has allocated funds for Provident Fund and Profit Participation Fund for its employees.

CORPORATE SOCIAL RESPONSIBILITIES:

Concurrently, the Company continues to enjoy a high degree of goodwill and cooperation with local community as it respects their environment through responsible business practices. The Company runs a free dispensary for the locals and also provides good education facilities up to secondary school level at reasonable fee.

DIRECTORS:

As a result of resignation, tendered by Brig Munawar Ahmed Rana, SI (M) (Retd), Brig Liaqat Ali (Retd) has been appointed as Director of the Company with effect from 8 November 2007.As a result of resignation of Ms Tine Bremholm Kokfelt, FLS, Brig Munawar Ahmed Rana,SI(M) (Retd) has been appointed as Director of the Company with effect from 28 August 2008. The Board places on record its appreciation of the invaluable services rendered by the outgoing Directors and welcomes the new Directors on the Board.

EXTERNAL AUDITORS:

The present Auditors M/s KPMG Taseer Hadi & Co, Chartered Accountants will stand retired at the conclusion of the 16th Annual General Meeting. However, they have expressed their willingness for reappointment. They have also been recommended by the Audit Committee.

PRODUCT QUALITY:

FCCL has always endeavoured to produce the best quality cement in Pakistan, which is amply reflected in the premium price and its high demand, both inside and outside the Country. As a company, FCCL is focused on customers' satisfaction, employees' morale and fair deal to its partners in the business. It strictly adheres to the following:-1. Quality Policy. Customers' satisfaction through quality assurance.2. Objectives

a. To be a cost effective and efficient organisation.b. Continuous improvement through well planned training.c. Commitment to leadership and team-work.d. To maintain quality culture within FCCL.e. To remain a leading manufacturer of high quality Portland Cement in

Pakistan.

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The Company, by grace of Almighty ALLAH, is an ISO 9001-2000 and ISO-14001-2004 Certified Company.

Fauji Cement Company LimitedBalance Sheet as at June 30, 2008

2008 2007Note Rupees'000 Rupees'000

SHARE CAPITAL AND RESERVES

Share capital 3 7,419,887 4,194,422Reserves 4 1,864,094 (459,216)

9,283,981 3,735,206

NON - CURRENT LIABILITIES

Long term financing 5 325,000 875,000Deferred liability - compensated absences 6 9,468 8,277Deferred tax liability - net 7 363,154 339,918Retention money payable 18,129 -

CURRENT LIABILITIESTrade and other payables 8 493,210 468,447

Short term borrowings - secured 9 1,378,365 375,510Current portion of long term financing 5 550,000 550,000

2,454,761 1,442,287

12,454,493 6,400,688

CONTINGENCIES AND COMMITMENTS 10

The annexed notes from 1 to 33 form an integral part of these financial statements.These financial statements were authorised for issue by the Board of Directors of theCompany in their meeting held on 17 September 2008.

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Markup accrued 33,186 48,330

2008 2007

Note Rupees'000 Rupees'000

FIXED ASSETS - Tangible

Property, plant and equipment 11 7,106,599 4,392,450

LONG TERM ADVANCE 12 7,200 8,100

LONG TERM DEPOSITS 13 46,611 46,611

CURRENT ASSETS

Stores, spares and loose tools 14 907,591 468,769Stock in trade 15 230,089 183,309Trade debts 16 26,927 19,558Advances, deposits, prepayments and otherreceivables 17 345,567 858,758Cash and bank balances 18 3,783,909 423,133

5,294,083 1,953,52712,454,493

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Fauji Cement Company LimitedProfit and Loss Account

For the Year Ended June 30, 2008

2008 2007Note Rupees'000 Rupees'000

SALES 19 4,749,217 4,780,036Less: Government levies 19 (1,203,315) (1,316,753)NET SALES 3,545,902 3,463,283

Less: Cost of sales 20 (2,887,790) (2,371,788)GROSS PROFIT 658,112 1,091,495

Other income 21 107,574 73,835Distribution cost 22 (53,383) (40,645)Administrative expenses 23 (76,495) (71,302)Other operating expenses 24 (34,290) (58,098)Finance cost 25 (146,954) (207,105)NET PROFIT BEFORE TAXATION 454,564 788,180

Taxation 26 (40,966) (141,857)

NET PROFIT AFTER TAXATION 413,598 646,323

Restated

Earnings per share - Basic 27.1 0.85 1.73Earnings per share - Diluted 27.2 0.77 1.53

The annexed notes from 1 to 33 form an integral part of these financial statements.

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Cherat Cement:

VISION:

Growth through the best value creation for the benefit of all stakeholders

MISSION:

Invest in projects that will optimize the risk-return profile of the Company. Achieve excellence in business. Maintain competitiveness by leveraging technology. Continuously develop our human resource. To be regarded by investors as amongst the best blue-chip stocks in the country.

STRATEGIC OBJECTIVES:

We strive to improve the efficiency of our operations through continuous innovation. We intend to grow through expansion of our core business and through opportunities of diversification. It is our Endeavour to create value for our shareholders by maximizing the risk adjusted return on our investments. We intend to achieve customer satisfaction by way of providing our clients a cost effective, quality product.We aim to develop the long-term sustainability of the organization by grooming and training our employees and providing a congenial work environment, where they are motivated to perform at the highest standards. We remain committed to the highest ethical and moral business values and to the true spirit of the Code of Corporate Governance.

CORE VALUES:

Always deliver best quality product to our customers. Maintain the highest level of integrity, honesty and ethics. Use technology to continuously improve our processes. Develop the capability of our workforce on an ongoing basis. Safeguard the interests of all our stakeholders.

COMPANY INFORMATION:

OVERVIEW:

The year 2007/08 proved to be one of the most challenging years for the country in terms of economic out look and performance. Political uncertainty, coupled with a rising trade deficit, a reduction in the PSDP allocation, and a tightening of monetary policy by the Central Bank have adversely impacted all sectors of the national economy. The cement sector was no different. Unlike the previous

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couple of years, domestic sales remained relatively sluggish and grew by only 6%. However, export sales to Afghanistan and other destinations like Middle East and Africa continued to show unprecedented growth. During the year under review, aggregate sales of the cement industry touched 30 million tons compared to 24 million tons last year mainly on account of increase in export sales. The profitability of the cement plants, however, remained under pressure due to substantial increase in the cost of production.

PERFORMANCE OF THE COMPANY:

The year 2007/08 marked the first full year of operations for the Company following the optimization of the plant. During the year, the production and dispatch volumes rose by 15% and 11% respectively compared to last year. However, significant increase in the cost of input items like coal, furnace oil and raw and packing materials, depressed the margins and the Company could only earn an after tax profit of Rs. 10 million against net sales of Rs. 3,014 million compared to an after tax profit of Rs. 184 million against net sales of Rs. 2,620 million in the corresponding period last year.

PRODUCTION:

During the year under review, the clinker production increased by 127,665 tons to 1,000,710 tons while cement production increased by 100,715 tons to 1,026,830 tons. Comparative production figures of clinker and cement are stated under:

2008 2007 % Increase/ Decrease

Clinker 1,000,710 873,045 15%Cement 1,026,830 926,115 11%

SALES AND DISPATCHES:

While domestic sales of the Company increased only by 3,245 tons due to factors explained above, exports sales increased by 96,354 tons i.e. 35% due to a greater focus on the Afghan market where prices were more attractive during the year. The export figure also includes 700 tons of cement exported to UAE. The contribution of exports sales to the total sales of the Company increased to 36% compared to 30% last year.


Local Sales 656,268 653,023 1%Export 370,955 274,60 35%

1,027,223 927,624 11 %

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OPERATING PERFORMANCE:

Despite almost Rs. 400 million i.e. 15% increase in the sales revenue from the corresponding period last year, there was a drop in the profitability of the Company compared to last year. Depressed cement prices for most part of the year, owing to substantial increase in production capacity of the industry coupled with rising costs of major inputs such as furnace oil, coal and raw and packing materials, reduced margins substantially. There was also a drop in the other income due to reduced level of investments made by the Company. After taking into consideration various expenses and government taxes, the company was able to earn an after tax profit of Rs. 10.35 million during the year under review.

Summarized operating performance of the Company for the current year and that of last year is as follows:


Rs. in Million

Net Sales 3,013.75 2,619.96 15%Cost of Sales 2,834.33 2,242,30 26%Gross Profit 179.42 377.66 (52%)Expenses & Taxes 169.07 193.50 (13%)Net Profit 10.35 184.16 (94%)

WASTE HEAT RECOVERY:

In order to mitigate the risk of rising energy cost which constitutes a major portion of cost of production, the Company has decided to install Waste Heat Recovery Boilers. The installation of this equipment by the end of ensuing financial year is expected to help in reducing the rising cost of production in the days ahead.

MADIAN HYDRO POWER:

We wish to update our shareholders that the Project Consultants for Madian Hydro Power Limited - M/s. Fichtner GmbH have almost completed work on the Phase II of the feasibility study and will soon be presenting the draft feasibility report. Given the power shortage situation in the country, the project is of high significance with lots of potential, however, the law and order situation in the project area remains a major cause of concern.

CORPORATE SOCIAL RESPONSIBILTY:

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As a conscientious member of the corporate community, the Company generously contributed to various social and charitable causes during the year.STATEMENT ON CORPORATE AND FINANCIAL REPORTING FRAMEWORK:

The financial statements prepared by the Company fairly present its state of affairs, the results of operations, cash flows and changes in equity.

Proper books of account have been maintained by the Company. Appropriate accounting policies have been consistently applied in the

preparation of financial statements and accounting estimates are based on reasonable and prudent judgment.

Applicable International Accounting Standards have been followed in preparation of financial statements and there has been no departure there from.

The system of internal controls has been effectively implemented and is continuously reviewed and monitored.

The Company is a going concern and there are no doubts about its ability to continue.

There has been no material departure from the best practices of corporate governance, as detailed in the listing regulations.

Key operating and financial data for last six (6) years in summarized form is annexed.

There is nothing outstanding against your company on account of taxes, duties, levies and other charges except for those which are being made in the normal course of business.

The Company maintains Provident and Gratuity Fund accounts for its employees. Stated below are the values of the investments of the fund as on 30th June 2008:

• Provident Fund Rs. 184,392,362• Gratuity Fund Rs. 72,967,659

The pattern of shareholding is annexed.Earnings per share (EPS) during the year was Re. 0.11 as against Rs. 1.93 last year.

DIVIDEND:

In view of the liquidity requirements for on going projects, the Company will not be able to pay any dividend this year.

FUTURE PROSPECTS:

While increased demand for cement from Middle East and other destinations is expected to contribute to higher cement sale volumes, expected reduction in the PSDP allocation, rising interest rates and political uncertainty in the country will continue to have a negative impact on domestic demand. We are hopeful that the government will address these issues effectively, and will take necessary measures to revive the economy which in turn could spur the demand of cement for infrastructural and housing projects and exports through land and sea routes.

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AUDITORS:

The present auditors M/s. Ford Rhodes Sidat Hyder & Co., Chartered Accountants, retire and being eligible, offer themselves for reappointment.

Cherat Cement Company Limited

Financial data of Last 7 Years for the year ended June 30, 2008

2008 2007 2006 2005 2004 2003 2002 2008 2007

(Tons in '000)

Clinker production 1,001 873 575 749 774 656 528

Cement production 1,027 926 598 792 802 693 555

Cement despatched 1,027 928 596 792 789 706 555

ASSETS EMPLOYED(Rs. in million)

Tangible fixed assets 2,522 2,197 2,270 1,773 1,252 1,276 1,135

Investment and long-term loan,

advances & deposits 111 71 33 18 17 19 101

Derivative financial assets 29 25 41 28 - - -

Current assets 1,720 1,240 1,268 1,384 913 601 664

Total assets employed 4,382 3,533 3,612 3,203 2,182 1,896 1,900

FINANCED BY

Shereholders equity 2,158 2,236 2,113 1,742 1,432 1,007 1,063

Long-term liabilities 393 452 664 829 210 312 66

Deferred liabilities 233 303 319 167 170 170 175

Derivative financial liabilities - - - 15 - - -

Current liabilities 1,598 542 516 450 370 407 596Total funds invested 4,382 3,533 3,612 3,203 2,182 1,896 1,900

TURN OVER & PROFIT

Turn over (net) 3,014 2,620 2,435 2,401 2,085 1,508 1,423

Operating profit 25 323 799 718 592 59 202

Profit / (loss) before taxation (56) 247 719 684 574 25 177

Profit after taxation 10 184 538 512 426 10 138

Cash dividend - 96 83 199 213 66 120

Bonus shares - - 125 166 133 - -

Transfer to reserves - - - - - - 5

Transfer from reserves - - - - - 30 -

Year 2008 2007 2006 2005 2004 2003 2002

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Balance Sheet as at June 30, 2008

20072008Ford Rhodes Sidat Hyder & Co.Chertard Accountants NoteProgressive Plaza, Beaumont RoadP.O.Box 15541, Karachi75530, Pakistan ASSETS (Rupees ‘000)

Tel: +9221 5650007Fax: +9221 5681965 NON-CURRENT ASSETSwww.ey.com/pk Property, plant and equipment 3 2,522,040 2,196,964

We have audited the annexed balance sheet of CHERAT CEMENT COMPANY LIMITED as at 30 June 2008 Derivative financial assets 6 28,643 25,094and the related profit and loss account, cash flow statement and statement of changes in equity together with 2,662,325 2,292,920

the notes forming part thereof, for the year then ended and we state that we have obtained all the informationand explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit. CURRENT ASSETS

It is the responsibility of the Company’s management to establish and maintain a system of internal control, and Stock-in-trade 8 207,491 117,288prepare and present the above said statements in conformity with the approved accounting standards and the Loans and advances 9 8,279 11,644requirements of the Companies Ordinance, 1984. Our responsibility is to express an opinion on these statementsbased on our audit. Trade deposits and short-term prepayments 10 50,218 3,633

We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards Short-term investments 12 574 411,132require that we plan and perform the audit to obtain reasonable assurance about whether the above said Taxation – net 12,525 -statements are free of any material misstatement. An audit includes examining, on a test basis, evidence Cash and bank balances 13 65,529 75,471supporting the amounts and disclosures in the above said statements. An audit also includes assessing the 1,719,948 1,240,430accounting policies and significant estimates made by management, as well as, evaluating the overall presentationof the above said statements. We believe that our audit provides a reasonable basis for our opinion and, after TOTAL ASSETS 4,382,273 3,533,350due verification, we report that:

a) in our opinion, proper books of account have been kept by the Company as required by the EQUITY AND LIABILITIES

Companies Ordinance, 1984; SHARE CAPITAL AND RESERVES

b) in our opinion: Share Capital 14 955,801 955,801

i) the balance sheet and profit and loss account together with the notes thereon have been drawn 2,158,106 2,236,592up 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; NON-CURRENT LIABILITIES

ii) the expenditure incurred during the year was for the purpose of the Company's business; and Long-term deposits 17 13,376 14,477iii) the business conducted, investments made and the expenditure incurred during the year were Deferred taxation 18 232,588 302,756

in accordance with the objects of the Company; 626,464 754,733

c) in our opinion and to the best of our information and according to the explanations given to us, the CURRENT LIABILITIESbalance sheet, profit and loss account, cash flow statement and statement of changes in equity Trade and other payables 19 913,588 211,741together with the notes forming part thereof conform with approved accounting standards as Short-term running finance 20 496,874 94,667applicable in Pakistan, and, give the information required by the Companies Ordinance, 1984 in Current maturity of long-term financing 16 175,000 212,500the manner so required and respectively give a true and fair view of the state of the Company's Taxation – net - 11,392affairs as at 30 June 2008 and of the profit, its cash flows and changes in equity for the year then Unclaimed dividend 12,241 11,725ended; and 1,597,703 542,025

d) in our opinion, Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980)was deducted by the Company and deposited in the Central Zakat Fund established under section CONTINGENCIES AND COMMITMENTS 21

7 of that Ordinance. TOTAL EQUITY AND LIABILITIES 4,382,273 3,533,350

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Profit & Loss Accountfor the year ended June 30, 2008

Note 2008 2007(Rupees ‘000)

Note 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES

(Rupees ‘000) Profit / (loss) before taxation (56,498) 247,027

Turnover – net 22 3,013,752 2,619,960 Adjustment for:Depreciation 3.1.2 176,722 236,501Return on loan to a related party 27 - (10,970)

Cost of sales 23 (2,834,336) (2,242,296) Unrealised fair value loss / (gain) on short-term investments 27 717 (15,337)Return on US Dollar Bonds 27 (145) (365)Gain on disposal of operating property, plant and equipment 3.1.4 (1,704) (651)Gross profit

179,416 377,664 Finance cost 28Exchange loss – net 3,112 104

Distribution cost 24 (73,898) (64,655) Share of loss in joint venture 4.1.2 413 -Administrative expenses 25 (92,923) (84,953) Dividend income 27

(4,973) (6,365) 255,718 278,448Other operating expenses 26 (6,608) (21,541) Operating profit before working capital changes 199,220 525,475(173,429) (171,149)

(Increase) / decrease in current assetsStores, spare parts and loose tools (684,597) (214,887)

Other operating income 27 19,091 116,043 Stock-in-trade(90,203) 27,939Loans and advances 3,365 147,802

Operating profit 25,078 322,558 Trade deposits and short-term prepayments (46,585) (835)Other receivables (70,589) (426)

(888,609) (40,407)Finance cost 28 (81,576) (75,531) (689,389)

485,068 Increase / (decrease) in current liabilitiesProfit / (loss) before taxation (56,498) 247,027 Trade and other payables 697,298 (67,801)Short-term running finance 402,207 34,667

1,099,505 (33,134)Taxation410,116Current - for the year (15,095) (77,145)Income tax paid - net

(27,620) (44,039)- prior years 11,3923,072 Net cash generated from operating Deferred 70,555 11,204

29 66,852 (62,869) CASH FLOWS FROM INVESTING ACTIVITIESAdditions to operating property, plant and equipment 3.1.1 (293,876) (82,758)Sale proceeds of operating property, plant and equipment 3.1.4 5,090 5,849

Profit after taxation 10,354 184,158 Capital work-in-progress 3.2 (211,308) (86,057)Long-term loans and advances (821) 2,731Earnings per share – basic 30 Re. 0.11 Rs. 1.93 Investments – net

372,817 (237,250)Dividend received 27 4,973 6,365Long-term security deposits (59) 304

Net cash used in investing activities (123,184) (390,816)

CASH FLOWS FROM FINANCING ACTIVITIESLong-term financing – net (94,500) (162,500)Finance lease payments - (1,172)

The annexed notes from 1 to 37 form an integral part of these financial statements.(1,101) Dividend paid (95,064) (82,659)

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Conclusion:

On the basis of above financial data we ca assume that currently Bestway Cement is leader of the market.Following by Fauji Cement on 2nd position.

Production Capacity1. Bestway2. Fauji3. Cherat

Financial Report1. Bestway2. Fauji3. Cherat

Net Profit1. Bestway2. Fauji3. Cherat

Contractor’s Survey A survey of contractors and construction companies conducted by

our group. Most of the constructors say that the management of Bestway Cement is very efficient and cooperative to their customers. Some contractors are satisfied with Fauji Cement management. That’s why Charat Cement is facing tough competition.

Market Survey Cement dealers describes that the quality and price of Bestway

Cement is reasonable. And they deliver cement with in give time whereas Fauji Cement has also good quality but slightly expensive then Bestway cement. Cherat cement gives very low profit margin to cement dealers. Their marketing promotion is also not very competitive.

Growth per Annum1. Bestway2. Fauji3. Cherat


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Documents

Cement Industries Analysis