Maple Leaf Cement Factory Limited is one of the companies that form the Kohinoor

Maple Leaf Group. Maple Leaf Cement was established in 1956, through a joint co
llaboration between the government of Canada and the West Pakistan Industrial De
velopment Corporation.
The factory situated at Daudkhel in district Mianwali is the third largest cemen
t factory in the country. It was acquired by the Kohinoor group in 1992, when th
e government of Pakistan privatised the factory. At present, Maple Leaf Cement h
olds a nine percent share in the market for ordinary Portland cement (OPC) and i
s considered one of the leading cement brands of Pakistan with a diverse custome
r base. It is also the largest producer of white cement in the country, holding
a significant 80 percent of the local market share.
Since the privatisation of the company in 1992, the capacity of Maple Leaf to pr
oduce OPC has increased from 1,000 tons per day (tpd) to a total capacity of 11,
700 tpd. Its capacity to produce white cement has also increased from 100 tpd to
500 tpd, with the addition of a new plant. This plant also has provisions for d
oubling of its productive capacity to 1,000 tpd.
FINANCIAL ANALYSIS OF MAPLE LEAF CEMENT FACTORY LIMITED
Profitability As a result of better capacity utilisation, net sales revenue of t
he company almost doubled, to Rs 15,251 million in FY09 against Rs 7,816 million
in the corresponding period, last year. This revenue was realised mainly from t
he export of cement, as demand has remained subdued of late in the local market.
Despite considerable sales volume in FY09, the net sales revenue per unit did no
t increase due to reduction in net retention resulting in declining profitabilit
y. The company suffered a pre-tax loss of Rs 917.651 million in FY09, after acco
unting for interest cost, depreciation and distribution cost, totalling Rs 6,788
million, against the corresponding period last year, when pre-tax loss was reco
rded at Rs 1,364 million.
In FY10, despite a volumetric increase of 6.26 percent, net sales revenue fell b
y 10.63 percent compared to FY09. This reflects the extremely poor cement pricin
g that prevailed during the year owing to intense competition in the market. The
company incurred pre-tax losses of Rs 2.5 billion in FY10, which is an increase
of 180 percent since FY09, after accounting for massive financial and distribut
ion charges owing to increased export sales.
Capacity utilisation decreased during the first nine months of FY11 compared wit
h the same period last year, mainly due to supply overhang and weak export marke
ts. This led to a decline of net sales revenue from Rs 10,056 million in July-Ma
rch 2010 to Rs 9,566 million during the same period this year.
The company suffered post-tax loss of Rs 1,565 million during the period July-Ma
rch 2011 after accounting for distribution cost and financial charges of Rs 1,23
7 million and Rs 1,605 million, respectively, against the corresponding period l
ast year, when the post-tax loss amounted to Rs 1,843 million. International pri
ces of coal had rallied during this period along with costs of fuel.
Since these are two most important inputs for cement production, the cost of pro
duction was driven up. At the same time, government's developmental spending has
been slashed down significantly due to budget constraints while the high cost o
f borrowing and poor law and order situation have discouraged private sector fro
m investing in new constructions. Hence, faced with higher costs, weak demand an
d intense competition, the company has had to contend with reduced operating mar
gins.
Liquidity The company manages liquidity risk by maintaining adequate reserves, b

anking facilities and reserve borrowing facilities. It has to continuously monit

or forecasted and actual cash flows to be able to match the maturity profiles of
financial assets and liabilities. Despite negative profitability, the company h
as maintained a reasonable short-term liquidity position. This is reflected in t
he current ratio which moved from 0.81 in FY08 to 0.52 in FY09, falling slightly
to 0.54 in FY10.
Debt Management Interest expense for the company increased from Rs 1 billion in
FY08, to Rs 3 billion in the following year. This increase in finance cost is du
e to the induction of interest-bearing finances along with hike in the discount
rate and devaluation of the local currency over the relevant period.
Owing to poor financial performance during FY10, Maple Leaf Cement was unable to
service its long-term debts and had to resort to restructuring of its liabiliti
es. Several meetings were held with the SUKUK and syndicate lenders which culmin
ated in the form of a restructuring agreement in March 2010.
Market Value High taxation on cement, substantial export expenses, increases in
power tariffs, debt burden of the company, losses on fair-value measurement of c
ross-currency swaps, slowdown in economic activity and anticipated cuts in the p
ublic sector development programme (PSDP) by the Government drove the company to
the loss per share (EPS) of Rs 2.78 in FY09 as compared to Rs 1.96 in FY08. Pro
fitability continued to head south in FY10, taking the company's loss per share
to Rs 7.08, in FY10.
Future Prospects The company is struggling to cut down costs that are considerab
ly affecting its operating results. To reduce the cost of electricity, the compa
ny has commenced operations at its Waste Heat Recovery Plant which is currently
running in-trial. Besides bringing down costs associated with energy consumption
for the company, this facility will also reduce dependence on fossil fuels as t
he plant operates on heat captured from industrial processes.
The present economic downturn is a challenge for Maple Lead cement and the local
cement industry as a whole. The power shortage in the country shows no signs of
letting up in coming months while power tariffs are likely to increase further.
While the discount rate has been slashed down by 150 basis points by the State
Bank of Pakistan in its recent monetary policy statement on October 8, 2011; the
cost of borrowing in the country is still high given the fact that the base rat
e currently stands at 12 percent.
However, to its credit, the company has launched itself into cutting down costs
and improving overall efficiency which may help it bring down losses, if not tur
n profitable in coming months. Further, MLCF is also aggressively exploring new
markets for the export of cement. If the company is able to secure more orders f
rom international buyers, it will be able to improve the capacity utilisation of
its plants.
Rebuilding of roads, bridges, houses and other construction activities in floodaffected areas may also provide some impetus for the company in coming months. F
urther, if the central bank continues to loosen its monetary stance, the private
sector may also be encouraged to resume the relatively stalled construction act
ivities in the country.