Final Internship Report

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

D.G. Khan Cement Company Ltd Introduction NISHAT GROUP Nishat Group is one of the leading and most diversified business groups in South East Asia. With assets over PRs.300 billion, it ranks amongst the top five business houses of Pakistan. The group has strong presence in three most important business sectors of the region namely Textiles, Cement and Financial Services. In addition, the Group has also interest in Insurance, Power Generation, Paper products and Aviation. It also has the distinction of being one of the largest players in each sector. The Group is considered at par with multinationals operating locally in terms of its quality of products & services and management skills. Mian Mohammad Mansha, the chairman of Nishat Group continues the spirit of entrepreneurship and has led the Group successfully to make it the premier business group of the region. The group has become a multidimensional corporation and has played an important role in the industrial development of the country. In recognition of his unparallel contribution, the Government of Pakistan has also conferred him with “Sitara-e-Imtiaz”, one of the most prestigious civil awards of the country.

D.G. Khan Cement Company: D.G. Khan Cement Company Limited (DGKCC), a unit of Nishat group, is the second largest cement-manufacturing unit in Pakistan with a production capacity of 13,400 tons clinker per day. It has a countrywide distribution network and its products are preferred on projects of national repute both locally and internationally due to the unparallel and consistent quality. It is list on all the Stock Exchanges of Pakistan. DGKCC was established under the management control of State Cement Corporation of Pakistan Limited (SCCP) in 1978. DGKCC started its commercial production in April 1986 with 2000 tons per day (TPD) clinker based on dry process technology. Plant & Machinery was supplied by UBE Industries of Japan. Acquisition of DGKCC by Nishat Group Nishat Group acquired DGKCC in 1992 under the privatization initiative of the government. Starting from the privatization, the focus of the management has been on increasing capacity as well as utilization level of the plant. The company undertook the optimization by raising the capacity immediately after the privatization by 200tpd to 2200tpd in 1993. 1|Page H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

Capacity Addition To meet the increasing demand and to capitalize on its geographic location, the management further expanded the capacity by adding another production line with a capacity of 3,300 tons per day in year 1998. Design of the new plant is based on latest dry process technology, energy efficient and environmental protection from particulate pollution according to the international standards. The plant and machinery was supplied by M/s F.L. Smidth of Denmark. As a result, DGKCC emerged as the largest cement production plant in Pakistan with annual production capacity of 1,650,000 M tons of clinker (1,732,000 M.Tons Cement) constituting about 10% share of the total cement production capacity of the country. The optimization plan is still underway to increase the total capacity of the two units to 6700 TPD by mid of 2005 from 5500 TPD at present. Expansion -Khairpur Project Furthermore, the Group has also set up a new cement production line of 6,700 TPD clinker near Kalar Kahar, Distt, Chakwal, the single largest production line in the country. First of its kind in cement industry of Pakistan, the new plant have two strings of pre-heater towers, the advantage of twin strings lies in the operational flexibility whereby production may be adjusted according to market conditions. The project equipped with two vertical cement grinding mills. The cement grinding mills are first vertical Mills in Pakistan. The new plant is not only increasing the capacity but also providing proximity to the untapped market of Northern Punjab and NWFP besides making it more convenient to export to Afghanistan from northern borders. Power Generation For continuous and smooth operations of the plant uninterrupted power supply is very crucial. The company has its own power generation plant along with WAPDA supply. The installed generation capacity is 23.84 MW. Environmental Management DG Khan Cement Co. Ltd., production processes are environment friendly and comply with the World Bank’s environmental standards. It has been certified for “Environment Management System” ISO 14001 by Quality Assurance Services, Australia. The company was also certified for ISO-9002 (Quality Management System) in 1998. By achieving this landmark, DG Khan Cement became the first and only cement factory in Pakistan certified for both ISO 9002 & ISO 14001...

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D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

COMPANY PROFILE Company Name: D.G. KHAN CEMENT COMPANY LIMITED Legal Status: Public Limited Company Registered Office: Nishat House, 53-A, Lawrence Road, Lahore, Pakistan. Phone:

92-42-6367812-20

Fax:

92-42-6367414

E-mail: [email protected] Web:

www.dgcement.com

Chairperson Mrs. Naz Mansha Chief Executive: Mr. Mian Raza Mansha

Board of Directors: •

Mrs. Naz Mansha

Chairperson/Director

•

Mian Raza Mansha

Chief Executive/Director

•

Saqib Elahi

Director

•

Khalid Qadeer Qureshi

Director

•

Mohammad Azam

Director

•

Zaka ud din

Director

•

Inayat Ullah Niazi

Director & Chief Financial Officer

Company’s Secretary: Mr. Khalid Mahmood Chohan

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D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

Auditors: KPMG Taseer Hadi & Co, Chartered Accountants Legal Advisor: Mr. Shahid Hameed, Bar-at-Law Bankers: Royal Bank of Scotland (Formerly ABN AMRO Bank (Pakistan) Limited) Allied Bank Limited Askari Bank Limited Bank Alfalah Limited CitiBank N.A. Habib Bank Limited MCB Bank Limited National Bank of Pakistan Standard Chartered Bank (Pakistan) Limited The Bank of Punjab United Bank Limited Sales Offices Lahore Regional Sales Office Multan Regional Sales Office DG Khan Regional Sales Office Karachi Regional Sales Office

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D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

Mission Statement To provide quality products to customers and explore new markets to promote/expand sales of the Company through good governance and foster a sound and dynamic team, so as to achieve optimum prices of products of the Company for sustainable and equitable growth and prosperity of the Company.

Vision Statement To transform the Company into modern and dynamic cement manufacturing company with qualified professionals and fully equipped to play a meaningful role on sustainable basis in the economy of Pakistan.

Corporate Strategy Their Corporate Strategy and objectives for the future are to find new and improved means of cost reduction, fuel economy and to acquire advanced manufacturing capabilities to support their product development efforts and product line expansion and stand ready to leverage their debts and be responsive to the changing economic scenario. DG Khan Cement believe in harnessing the inherent strengths of available human resource and materials to the utmost and a commitment for building a solid foundation poised for sustainable growth for the long-term benefit of their shareholders and their employees.

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D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

Cement Production Process The following raw material is required in the production process: 1. Lime stone: This raw material is company owned and is extracted from the nearby mountains of Dera Gazi khan Unit. Limestone has the highest composition in the cement product. 76% of the cement constitutes of limestone. 2. Clay: Clay is another natural resource. This raw material is also company owned. 24% of cement composition comprises of clay 3. Iron Ore, Bauxites and silica sand: Iron Ore is the only resource that is bought from contractors. Iron Ore, Bauxites and silica sand are added in small quantities less then one percent and it helps to strengthen the cement. 4. Gypsum: Gypsum acts as a retarding agent. It slows down the hardening process which in turn gives the constructor enough time to use it.

Step 1: Raw Materials: There are basically three main raw materials that are used for the production of cement. In addition to that, a small proportion of other additives such as silica and Bauxites are also added. 1. Limestone 76% 2. Clay 24% 3. Iron ore (less than 1%) 4. Silica sand (less than 1%) 5. Bauxites

(less than 1%)

Lime stone and clay are extracted from the same place. Iron ore is bought from a contractor. Step 2: The raw materials are providing for separate “crushers” that break them into smaller pieces. After that they are stored in separate piles.

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D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

Storage area: It is a stacker that provides immediate storage. In case there is a problem with the crusher, the stock present can be utilized immediately to provide enough amounts to be used for three days. Step 3: From the stacker the components are mixed and made into an ultra fine powder in the grinder. A weighing scale is maintained to check that the appropriate composition of the materials is maintained and the right quantity is added. Again the mixture is stored in a Consistent flow Silo. It is to be noted that until now only a physical change has taken place. The next step would involve a chemical change. Step 4: The mixture is then added into a KILN. This is a rotating machine that heats the mixture up to 1300*C where it is converted into a compound as a chemical reaction takes place. This compound is the cement produced in molten form. As it moves onwards an air cooler is present that cools the cement and converts it into small stones known as CLINKER. This is the intermediate product that is formed. After that the clinker is stacked in piles, 1.5 ton clinker produced 1 ton cement. Step 5: The clinker is then added into a grinder. At this stage another element known as Gypsum is added. The composition of the cement is 95% and that of gypsum is 5 %. The gypsum acts as a retarding agent. Cement on its own when kept in contact with water hardens very fast. It ensures rapid setting but gives cement the time to harden in the grinder the cement is crushed into a powder form. This stage is very critical in the cement production process because of the fact that if something goes wrong with the composition, the quality of the cement gets affected and the whole costs that are incurred to produce the cement is wasted. Because of that the quality check at this stage is the maximum and continuous.

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D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

Cement Production Process: Raw material from Quarry blasting

Crushing and grinding of lime stone and clay

Preheating

Cooling

Clinker storage

Cement Grinding + Gypsum

Rotary Kiln

Cement Mill

Cement Packing Plant

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D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

MARKETING & SALES Department INTRODUCTION The basic aim of company’s marketing strategy is to get the unique competitive position for the company. Their marketing strategy is very evident from the mission of the company. It stresses on to provide quality products to customers and explore new markets to promote the sales of the company and to achieve optimum prices of products of the company for sustainable and equitable growth and prosperity of the company. Sales and Marketing Department Sales are the lifeblood of any business. This department deals in booking and sales of the cement. This department also takes part in the marketing decisions of the company. All the staff in this section is qualified and trained for their professional duties. These are the people who are responsible to create image of the company and its products. Leading personality of this department having a smiling look on his face is always ready to solve the customer’s problem. All the members in this section are very frank as to their behavior. They are very hard working and conscious as to the customer care and their marketing targets. Marketing division is soul of company’s goodwill. This is the marketing effort of this department who win the confidence of consumers and distributors. Sales and Marketing sections are combined. The marketing and sales division of the company faces all the competition. First objective of marketing staff is to attract the customer and next is to gain his confidence through the solution of his problem, if any. The structure and working of this department is as following:

a. Director marketing Mr. Farid Fazal A man of success takes special care of company staff and employees. Being responsible personnel of the company he engages best of his efforts to bring success for the company. This man of unique ideas knows how to keep the company flag up and up, to improve the market share of the company. Company’s own products rely upon this brain. He played a key role in this successful organization, and still enthusiastic about further achievements.

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D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

b. Deputy General Manager (Marketing) Mr. Chaudhary Muhammad Aslam He is the key person in marketing department because he is the oldest one and has a lot of experience of cement industry. He has been working in the organization since it was run under the name of State Cement. c.

Deputy Manager Sales Mr. Aabid Nasir As I told earlier that sale are the lifeblood of any business and in this department Mr. Aabid Naseer is the lifeblood of sales department. He is a sales deputy manager but he is also controlling the advertisement. He is although a young man but he is experienced and professional at his job. He is a man of remarkable success, responsible for sales and advertisement. He has always good and innovative ideas to improve the sales and to promote the company’s image. He is very hard working and has a good command over his work.

d. Assistant Manager Sales Mr. Nadeem Badshah He is key person in sales as he controlling all the booking and sales in the department. He is really a competent and hard working person and master of his work, performing his duties well. He is really a catalyst as he says that managers are catalysts. He is very jolly and frank with all the team at marketing department. He is playing a leading role in the department.

Marketing and Competitive Strategy Product: Two different products are produced at DGKCC namely Ordinary Portland Cement and Sulphate Resistant Cement. These products are marketed through two different brands: •

DG brand & Elephant brand Ordinary Portland Cement

•

DG brand Sulphate Resistant Cement

Products: •

Ordinary Portland Cement

•

Sulphate Resistant Cement 10 | P a g e

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D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

Ordinary Portland cement: Exceptional Strength: At DGKCC the chemical composition and grinding fineness are closely monitored to ensure that both Pakistani and British standards are surpassed and our customers get cement of exceptional strength. Ideal Setting Time: In order to allow sufficient time for application, cement must have a quick initial settings time, however once in place; the final settings should not take too long. At DGKCC ideal initial and final setting times are maintained.

Sulphate Resistant Cement: Low C3A Content: Sulphate salts present in this soil combine with moisture and tricalcium alumnate (C3A), one of the constituents of cement to form a compound known as Sulpho, Alumnate off Hydrated Calcium. This compound is highly expansive and gradually results in the destruction of concrete. However, if “C 3A” content is very low, it is rendered inert and there is thus no reaction at all. British and Pakistani standards specify that in a Sulphate Resistant Cement, the C3A content must not exceed 3.5%. D.G Sulphate Resistant Cement has a much lower C3A content, making the cement highly effective against Sulphate attacks. Low Heat of Hydration: Heat of hydration is the heat generated on reaction of cement and water. This is undesirable because it produces a corresponding thermal expansion which deforms the concrete. Upon cooling down, there is a thermal contraction which causes the concrete to crack. D.G Sulphate Resistant Cement has a low heat of hydration making it EXTREMELY SUITABLE for BULK POURING and MASS CONCRETING. High Strength: As with any type of cement, strength is the fundamental property of Sulphate Resistant Cement D.G. Sulphate Resistant Cement achieves high strength through finer grinding and better particle distribution. In term of strength,, it not only exceeds by far the standards specified for Sulphate Resistant Cement, but also exceeds those of Ordinary Portland cement Low Alkali Content: Certain aggregates contain alkali sensitive ingredients, which under unfavorable conditions; can result in expansion leading to cracking of concrete. The presence of alkali also causes staining and other undesirable effects 11 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

on concrete. American Standards specify that cement can be termed low-alkali if its alkali content does not excced 0.6% D.G. Sulphate Resistant Cement has alkali content below 0.6 and a unique distinction of being a Sulphate Resistance Cement that can also be classified as low - alkali cement.

PRICE: One of the four major elements of the marketing mix is price. Pricing is an important issue because it is related to product positioning. Furthermore pricing affects other marketing mix elements such as product features, channel decisions, and promotions. At DG cement prices are relatively high than competitors, which reflect their quality of product. They have settled different prices for different segments. It is very high in DG khan where factory is located. The reason for this is that there is no competitor in that region. So they are monopolist in that region. They have settled different prices for both brands, as their cost is different.

PLACE: The company uses distributors for the distribution of its products. Company uses the term stockist and non-stockist. Agency is issued if party deposits amount of 2500050000 on the basis of agency sales. Company gives incentives to the agency holder for each bag. So they use push strategy to promote the product.

PROMOTION: Company used a long ago their advertisement for the promotion of their product but now a day’s company is not using any advertisement program. They are just relying on giveaways, which are distributed among the distributors only. So they much rely on the push strategy.

POSITIONING: Company positions its product through its slogan, which is about durability. So they use product features to position its product.

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D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

COMPETITIVE STRATEGY Company’s main competitors are Lucky Cement, Maple Leaf cement, Askari cement, and Bestway cement. So they set all their strategies keeping in view the strategies of these companies. They set their prices according to the pricing strategy of their competitors. More over they have competitive edge of their plant, which is of modern technology. So they produce cement of much better quality than their competitors. They also have competitive edge of their factory site, which is in vicinity of all raw materials and in that area they have no competitors

HR And MIS Department HR department is playing key role in recruitment. For recruitment jobs/posts are advertised in newspapers and then formal procedure for interviewing and testing is used. The main function of MIS department is to develop the software for the company. It is also responsible for the maintenance of the software. Inbox provides Oracle License Renewal to D.G. Khan Cement Inbox Business Technologies provides Oracle License Renewal to D.G. Khan Cement. The services provided are mainly for: •

Oracle E-Business Suite,

•

Oracle Enterprise Asset Management,

•

Oracle Enterprise Planning & Budgeting,

•

Oracle HR Intelligence,

•

Oracle Payroll,

•

Oracle Time & Labor,

•

Oracle Advanced Benefits, and Discoverer Desktop Edition.

This would enable the cement manufacturing company to continue running their current systems and processes smoothly. Being an Oracle Certified Partner, Inbox is authorized to provide Oracle products and services to customers in Pakistan. 13 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

DG Khan Factory Site At site there are Finance, HR and Admin, Power Generation, MIS, Operations, Quality control, Sales and Dispatch, security, and Operations departments. A brief description of all these departments is as following: Finance department is working on the same standards as that of head office. HR department is also working on the same patterns as that of the head office. HR department at site is headed over by Naseem-ul-Ghani who is General Manager HR & ADMIN at site. At site power is generated by the Power Plant, which is of WATSILLA Co. (Finland). The plant is operated on gas and it produces 8.5 MW (Mega Watts) per plant. There are three such plants. They are running on gas. Before gas the plant was operated on coal. The plant is providing electricity facility to the colony and the cement plant as well. Operations department controls the working of cement plant. There are three cement plants are working. At DG Khan Site, one is old plant of Japanese technology. Its capacity was 2200 tpd (tons per day). Its capacity was expanded in 2005 and after expansion its capacity has increased from 2200 tpd to 2700 tpd. But according to the site engineers it is producing more than guaranteed 2700 tpd with substantial savings in fuel and energy. The plant 2 is of F.L.Smidths (Denmark) and its capacity is 4000 tpd. The total production capacity of the two plants is about 7000 tpd. Third plant was installed at Khairpur it is Major Expantion with the capacity of 6700 tpd.unit. Quality Control department ensures the Quality. Department is headed over by Dr. Hafeez Ulah Shah who is Sr. Manager Quality Control. According to Mr. Shah Quality is not that which cement sells better but quality is to control all the necessary elements of cement and how effectively your cement plant controls these elements so that better cement can be produced for the consumers. To ensure the quality, the samples are checked after every hour so that quality cement should be produced. Samples are checked physically as well as chemically. CCR department controls plant digitally. Sales and Dispatch Department is responsible for all the cement dispatches. Cement is packed from cement silos electronically. The workers only have to fix the sacks on the Machine. After packing the cement is loaded on the trucks for delivery. Mr. Shahab controls this department. 14 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

Facilities for Workers at Site (Factory DG Khan) Company has tried its best to provide all the basic facilities to the workers at site. Company has provided them houses there at company’s colony. There are about 4000 to 4500 workers living in the colony. There are about 350-400 houses built for the workers. They have been provided with a hospital, two schools, and ambulance services. They are also provided with playgrounds and clubs. There is also a water purification plant for the purification of canal water to make it useable for drink.

FINANCE DEPARTMENT Introduction: Director Finance heads finance department and working is controlled by Mr. InayatUllah Niazi who is General Manager Finance. All the accounts are maintained according to international accounting standards. Software is used to maintain the accounting records, which is developed by the MIS department. Software is developing in Oracle e-business suit. The whole system of the organization is computerized and sales department is also using this software for booking purposes and software is linked to the Dera Gazi Khan Units and Kairpur unit. Finance department has very important role in for any business firm now a days. So DGKCCL has established its own Finance Department on professional basis. DGKCCL has different financial managers who are responsible for the financial aspects of the DGKCCL. This department plays a key role in organization’s performance. Finance department is responsible to maintains accounts of all departments within the organization. For solving the complex and difficult problems, Finance Department is segregated into four divisions. These divisions are as follows: 1. Account Division 2. Internal Audit Division 3. Cost & Tax Division Major Functions of Finance Department Finance department performs different functions in the organization to run the finance of the organization more effectively. Finance Manager is responsible for the 15 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

company’s financial management. The major functions which by this department are as follows: •

Calculate different expenses of the organization.

•

Calculation of all incomes, receiving from sales & other resources.

•

Financial planning of the organization.

•

Distribution of profit to the share holders.

•

Getting loans from banks and other financial institutions.

•

Costing the production.

•

To make the efficient use of money of the company.

•

Maintains all the accounts about inventory & imports of material.

•

Maintains all the records about purchases made by organization.

ACCOUNT DIVISION: Finance department maintains all types of accounts in the organization. Finance department records the transaction, design & implement the accounting system and prepares the financial statements for the company. This department is under the Finance Manager. a) Inventory Section b) Sales Accounts Section c) Purchase Section d) Cash & Bank Section e) Pay Roll Section f) Excise & Tax Section g) Import & Export Section

a) Inventory Section Inventory Section plays a very important role in any organization & is an important part of the Accounting Section. This section maintains all the record and accounts about inventory and imports of material. It is concerned mainly with the: •

Control of inventory

•

Imports

•

Investments 16 | P a g e

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D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

•

Loans

•

Accounting aspects of fixed assets

All store items lying in the stores of DGKCCL includes in inventory. Each item of inventory is recorded on BIN CARDS or TAGS. These provide an independent check on the store ledger. It is the duty of inventory section to know how much inventory is there in stores and for how long it is going to be kept. This section also checks the value of all assets. Inventory section also reconciles the quantity of various assets with the help of store keeper to prepare the STOCK EVALUATION REPORT. Inventory valuation is based on the average principle because they believe that it is the best system. Inventory section also deals with the loans of the company. DGKCCL has the policy to finance all long term projects through loaning. Documentation Used in Inventory Section The Inventory Section deals with different types of documents such as: •

Issuance Requisition (IR)

•

Store Transfer Note

•

Goods Received Notes

•

Store Evaluation Report

•

Store Return Report

Principles followed by Inventory Section Accounting principles followed by inventory section: •

Assets are depreciated at Straight Line Method.

•

Issue requisition of goods received note is the source of information of inventory.

•

Fixed assets are stated at cost less accumulated depreciation.

•

Inventory evaluation is based on Average Method of Costing.

•

Assets, raw material and other stocks are recorded.

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D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

Depreciation in respect of such assets is charged in annual installments so as to write off their yearend book value over their remaining re-estimated useful lives.

b) Sales Accounts Section: The sales account section maintains customer’s record and the sales records. Sales department is actually deals with the Marketing Department and assist the sales force about the financial aspects. Sales department deals with three basic documents. These documents are very important in the activities of Sales Section. These are: •

Order Confirmation

•

Internal Sale Order (ISO)

•

Dispatch Note (DN)

The actual procedure starts when the sales officer of Marketing Department gets an order from his clients.

When a customer confirms an order, the Marketing

Department issues an “Order Confirmation Slip”. The customer must sign the order confirmation. After the confirmation, another document is prepared which is called the “Internal Sales Order” which is used within the company. It is includes details such as the following: •

Purchase Order Number

•

Product Code

•

Quantity Ordered

•

Rate Agreed

•

Total Value of the Order

•

Sales Officer’s Code

•

Code of the Unit where cement are to be manufactured

The other document Dispatch Notes are prepared by the Dispatch Section, which exists in the Marketing Department. Dispatch Notes contains: •

Name of the customer

•

Customer number

•

Dispatch date 18 | P a g e

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D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

•

Dispatched to

•

Mode of transfer

•

Destination code

Sales section convert this ISO into coding and then check coding with ISO’s and send this coding in computer section which enter this coding into computer. MIS department then send Edit Report to the Sales Section to check it. After checking this edit report it sends back to computer section and gets Invoice & Freight Debit Note. Another job of the Sales Section is to pay customer’s claims. If there are any difference in the agreed quantity, quality or specifications the customer send a claim and is verified by the Area Marketing Manager. Then the Marketing Department sends a “Sales Return Note”, to the Planning Department and Accounts Department. A “Credit Note” is issued in favor of the customer. Sales are debited and the customer is credited, as the accounting entry. If transportation company is responsible then sales department issue Debit Note to the concerned company. All accounting process in the sales section are computerized. A “Debit Note” is issued to the customer for the extra goods (more than the ordered) delivered. The customer is debited and sales are credited. As a policy matter, DGKCCL prefers to deal with customers who pay in advance or against an LC for which the guarantee is provided by a bank. Insurance for the delivered goods is borne by the customer, but he can request for a notification to his insurance about the delivery of the goods. As for as exports are concerned, all export documents are also prepared by this section and so are the local LCs. A record book containing all the current accounts of the company’s sales is also maintained and is called the “Account Current Ledger”. c)

Purchase Section:

DGKCCL has its own Purchase Accounting section. This section normally deals with the records of all purchase made by DGKCCL. In DGKCCL purchases are actually made by the Commercial Department but its accounts deal by the Purchase Section.

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D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

Purchase department also deal with different documents such as: •

Issue Requisition (IR)

•

Purchase journal (PJ)

•

Cash Voucher (CV)

•

Purchase Journal Through Staff (PJS)

•

Goods Received Note (GRN)

•

Purchase Requisition (PR)

•

Store Return Note (SRN)

•

Store Transfer Note (STN)

The purchases section records all the daily purchases of company made by commercial division or any other department. The purchases made by DGKCCL may be on cash or Credit basis. There are two types of purchases made by the company: 1.

Credit Purchases:

Some purchases of goods made on credit. Such types of purchases are done by authorized purchases of the company on the credit basis. Credit purchases are of two types: •

Against goods

•

Against services rendered

Normally goods need for manufacturing purpose such as packaging machinery, chemicals etc. purchase on credit. 2.

Local Purchase through Staff:

Commercial Department Staff members purchase this type of purchases. In this type of purchases cash is paid immediately. Such purchases are recorded in purchase journal through commercial staff and send it to the Purchase Section. d)

Cash and Bank Section

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D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

The staff of this section is assigned the job of making payments on behalf of the company. It receives checks and records them in the cash and bank book on daily basis. All the travelling allowance bills, petty cash expenses and monthly payments of salaries are made through this section.

Operations of Cash & Bank Section:

1.

•

To maintain Cash Book

•

The Management of Short Term Loans

•

Payments in the Shape of Cheques

•

Payments to the suppliers

•

To check the Bank Reconciliation Statement

•

Payments for Local Travelling

Cash Book:

The cash & bank section maintains a cash book in which details of all cash receipts and payments are noted. A daily balance is prepared after examining daily cash receipts and payments which is carried towards the next day as beginning balance of the next day. All receipts of the organization are recorded on the credit side and all the payments are recorded on the debit side. 2.

Payments for Local Travelling:

Travelling within a radius of 50 km from DGKCCL is considered as local travelling f or which traveling allowance is given to the employees. It is only given when an employee uses a mode of transport for official purpose. 3.

Short Term Loans Management:

In DGKCCL loans are also given for the purchase of cars and motorcycles. The recommendations this regard is given by the departmental head and is finally approved by the Finance Manager. The payments are made by loaner on installments basis i.e., a part of his/her salary is deducted as installment. It is the Cash & Bank Section responsibility to maintains it. This section is also responsible for the management of all short term loans of the DGKCCL. DGKCCL is getting the 21 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

banking facilities from about eleven banks. In this regard this section normally seeks the Bank Guarantees and Working Capital Loans in form of over draft facility. All the machinery in the DGKCCL is on leasing, so it is Cash & Bank Section duty to see the accounts of all things. The basic objective of this section is to finance the company’s operations in a better way.

4.

Issuance of Cheque:

When payment is not made on cash, then the organization issues cheques to its creditors. The cheque issued has four copies. The original copy is sent to the creditor or supplier. One copy is kept for posting purposes. One other copy is sent to the sales department and the last copy is kept as a record. It is the job of Cash & Bank Section to reimburse all those expenses paid by the employees on behalf of the organization. Normally this payment is made twice in a month. All employees send the details of the expenses incurred by them on the prescribed form. Cash & Bank Section pays the amount either on the 1st day of the month or on the 15th day 5.

Payment to the Suppliers:

One of the most important jobs of Cash & Bank section is to made payments to the suppliers for the goods or services which they provided to the company. The purchase section sends the bill indicating that the goods have been received and the payment should be made. e) Pay Roll Section This section deals with the salaries and wages of the employees working in the organization. There are two categories of employees: •

Working on hourly basis

•

Working on monthly basis

The hourly paid employees are paid every fortnight whereas the other category receives the salary at the end of month. f) Payable & TAX Section

22 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

DGKCCL is engaged in production of Cement, payable section deals with the payment of suppliers, sales tax, income tax, withholding tax and excise duty. Mr. Khalid Mahmood Khalid (Manager A. Payable) responsible for confirmation of payments document, these documents included, purchase order, Material Receiving Report, sales tax invoice and the copy of journal voucher. He make sure that the payment is according to purchase order and the requirements of purchase order is fulfill, this section is also responsible for the computation of tax and maintaining the whole tax data. Computation of sales tax payable: Sales Tax payable can be calculated by undertaking the following four steps: •

Step 1: Calculation of Output tax payable

•

Step 2: Calculation of Input tax payable

•

Step 3: Payable Tax = Difference between Output tax payable and

•

Step 4: Submission of sales tax returns

There are hundreds of suppliers every new case is different from previous one. •

NO Deduction Certificate: some suppliers have Deduction Certificate in this case DGKCCL not deduct With Holding Tax (WHT) from supplier’s payment. Suppliers are responsible to make direct payment to Government.

•

Advance Payments: Some suppliers have Advance Payments in this case DGKCCL payable section check supplier’s ledger before payment.

•

Sales tax Invoice: some suppliers have dispute in income tax payable to Govt. in this case payable section require sale tax invoice from supplier for sales tax returns.

23 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

SWOT ANALYSIS SWOT analysis is a tool for auditing an organization and its environment. It is the first stage of planning and helps marketers to focus on key issues. SWOT stands for Strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors. Opportunities and threats are external factors. The SWOT analysis of DG Khan Cement Co. is as following:

Strengths: 1. Availability of Raw Material. 2. DG Cement is a well-known brand in Pakistan and it has good image in the market. People rely on this cement. The customer demands for the DG Cement. They have good positioning through their slogan, which represents durability. 3. Imported Machinery and plants in most of companies, which provide better quality to over all process. 4. Pakistan has been ranked 5th in the world’s cement exports after a jump of 47 percent in exports during last fiscal year, the Global Cement Report shows. ( Daily Times Saturday, August 01, 2009) 5. The compressive strength is a very important factor of cement. The Portland cement achieves its maximum strength in 28 days. The Pakistan standard PSS 232-1883 (R) & British Standard BS 12: 1978 provides for 28 days strength of 5000Psi and 5950Psi respectively for mortar cubes. 6. Cement industries in Pakistan are currently operating at their maximum capacity due to the boom in commercial and industrial construction within Pakistan. 24 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

7. Housing demand to grow: Following indications have showed a considerable demand of cement in Pakistan: •

Housing projects consume roughly 40% of cement demand

•

Currently 0.3mn houses are built annually against demand of 0.5mn

•

Low interest rates, post 9/11 remittances’ inflow, and real estate boom have helped housing sector growth

•

Easy mortgage availability and announcement of low cost housing schemes will determine housing sector growth in the long-run.

8. Government’s development spending shall continue to rise due to: •

Government development expenditures count for one third of total cement consumption

•

Increase in development expenditures has helped cement demand to grow at very high rates

•

Increase in PSDP- as announced in Medium Term Development Framework 2005-10 will help cement demand to grow in the country

•

Infrastructure development in a region triggers private development projects having even positive impact on cement demand.

25 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

9. Pakistan cement industry is one the largest exporter in Asia, major markets are of Afghanistan and Iraq will be after peace. It’s increased GDP by exports, providing cements in Large Dams Project and earthquake rehabilitations projects. 10.

Laboratory testing facilities meeting all American and European

standards and Vertical cement grinding mills. 11.

Today, we find a relatively better scenario as compare to past. Most of

the cement plants, that used to operate on furnace oil, have now been converted into coal and gas system, which has substantially reduced cost of production. 12. The most modern selection of production equipment possible in every major department of the plant. 13. Cement export to India through railway •

Most of the cement export to India is through railway. In order to facilitate cement export to India, the railways has doubled its cement capacity and increase its frequency of trains to India from Pakistan. This step has been taken by Pakistan Railways in order to increase cement export to India. This is regarded as a highly profitable market.

14. Use of Coal •

Coal is found in all the four provinces of Pakistan. The country has huge coal resources, about 185 billion tones, out of which 3.3 billion tones are in proven/measured category and about 11 billion are indicated reserves, the bulk of it is found in Sindh.

•

At present most of the cement companies have switch to coal or gas as their basic fuel; the process has been completed in the last 6 to 7 years. According to the data of the All Pakistan Cement Manufacturing Association of mid-2007, the cost of cement production per ton by furnace oil was around Rs2, 083 whereas the cost of production per ton by coal was Rs8, 68, saving Rs1, 215 per ton. Similarly, the saving per bag was Rs60.75, which is a huge difference. Reserves of coal can become strength for Pakistani cement industry if Pakistan import sulphur washing plant from

26 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

European country than Pakistan cement industry is able to utilize local coal to meet its energy requirement 15. Cheaper labor •

The labor of Pakistan is very cheap. This is the important strength of the cement industry as the cement companies of Pakistan has to pay less to their labor which result in saving of their income which later on can be utilized in the expansion of cement plant. Which will increase the cement production?

16. Good Domestic and Foreign Market •

The export reached to $ 500 million during 2008. Data for the first quarter of FY08 shows that Afghanistan is Pakistan’s largest cement export market. The prospects for cement exports seem bright in the medium term due to rising domestic as well as regional cement demand.

17. Good Government Policies •

Government policies are in the favor of cement sector. Due to the government favorable policies the cement sector gets the highest growth rate of 21.11% among all the industries of Pakistan in year 2006-07. The total industry installed capacity is expected to reach 49.1 million tons per annum by FY10

18. High Quality of Cement •

Pakistan produces good quality of cement. This is the main reason due to which recently Russia is offering high price for Pakistani cement. Globally Pakistan is recognized for producing good quality of cement due to which countries like Afghanistan, India, Middle East and some African countries prefer to import cement from Pakistan.

Weaknesses: 1. The stage of industrial development, in most of the segments, is still at a very low level of technology and the existing industrial base is very narrow and 27 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

consists of very basic industries such as cement, sugar, textile, cigarette, edible oil, fertilizer, soda ash, caustic soda, PVC etc. 2. Since cement is a specialized product, requiring sophisticated infrastructure and production location. So, most of the cement industries in Pakistan are located near/within mountainous regions that are rich in clay, iron and mineral capacity. Structure of Cement industry in Pakistan is as such that there is not much substitutability to buyers. Which shows that the Cross elasticity of demand is negligible. 3. The customer has no choice at all to switch between two brands of cement due to cartel of all of the cement manufacturers in Pakistan. 4. The freight charges are a massive 20% of the retail prices. The plants located very close to each other and tapping the same market will have to expand their markets which will increase their freight expenses. Dandot, Pioneer, Maple Leaf and Garibwal are all located within a radius of 100 kilometers and are selling bulk of their production in the same areas and will thus face serious competition from each other. 5. Consumers face a tough decision with regards to prefer which brand over which because of the similar pricing of cement industry. The formation of cartel by the cement manufacturers have exploited local consumers a lot and this has led to the concentrated degree of oligopoly, where the firms are acting as a single unit to perform their monopoly. Their combined market power is simply a diluted version of the dominance that a single firm with a monopoly market share can exert. 6. Increase freight charges •

Exporters of the cement often complain that railways freight charges for carrying cement from Lahore city to the border of India are Rs500 per ton ($8 per ton) while it covers only 35 km. Against this, they say on the Indian side, the freight is only $3 per ton for bringing goods from Chundrigar to the border area. Cement exports have been badly hit by high fee that is being charged by trucks and also by foreign shipping companies for the haulage of cement from Pakistan to India. This increase in freight charges effect our exports due to which our exports is declining 28 | P a g e

H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

7. Logistic Problem •

Some of the cement companies of Pakistan have received orders from Russia with a price tag of Rs 860 per bag. But our logistics is the biggest hurdle in the way as our transportation system is not good enough to transport cement to Russia due to which our cement companies might lose the chance to capture the Russian market which is a highly profitable market.

8. Usage of Paper bag •

Pakistani cement companies export there cement in paper bags because paper bags are cheap as compared to plastic bags. But the Cement exported in paper bags is against the International standards and companies have to pack the cement in plastic bag. The cement export to India could be affected by the shortage of plastic bags used for transporting the commodity. Although there are two companies that are manufacturing plastic bags for cement but they are not able meet the demand. So that’s why Pakistan cement companies export cement in paper bags.

9. Idle capacity of various players: •

The biggest problem of cement industry is the idle capacity of various players. As many cement players are not operating at their full capacity.

10. They are still using obsolete marketing practices. Top management should use up-to-date marketing practices rather to use orthodox ideas. This is the age of advertisement and they should advertise their product rather use push 29 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

strategy. They should emphasize on pull strategy as well. They have good, energetic, experienced marketing and sales team they should use it constructively. 11. They have not divided their zones for marketing and sales teams. 12. They are not paying much attention to promotional tools. They are not advertising their product. They are only using trade promotions, which are not enough to have a good positioning in the market. 13. They do not have much interaction with the distributors. They do not go to the distributors for inquiring about the sales.

Threats: 1. Unanticipated increase in interest rates or less than expected demand growth

might create severe crises for the sector couple of years forward. 2. Lack of demand or depressed demand in future will prove to be lethal for the sector that has just started to recover from the miseries of 90s. Lack of demand forced cement units to operate at very low capacity utilization in nineties. There was a fierce competition among cement manufacturers. 3. A price war was witnessed which ended up with no conqueror. Similar apprehensions exist for the future when there will be plenty of excess capacity. Any hurdle in the growth of cement demand may force the sector into the price war. Yet, we expect cement manufacturers to act prudent and learn lesson from the history. Any mistake, similar to the one made in the last decade, will again coerce the sector into the era where all are losers with no winner. 4. Main component of the cost is fuel. Pakistan's cement industry has converted their plants to coal considering it to be the cheapest fuel, but its price in international markets has gone up by more than 300 per cent in the last one year, which directly relate increasing the cost of production. 5. The demand of cement falls heavily during rainy weather in the country, which directly affects the running cost of a unit. It is only the rising levels of cement exports, which are sustaining the industry. 6. Instead of appreciating the marketing skills of cement entrepreneurs to explore new markets for cement, the industry is being pressurized constantly without realizing that any reduction in cement exports from Pakistan will not 30 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

only deprive the country of foreign exchange ($2 billion last year), but will also result in losses to the industry. 7. The burden of increased input costs has to be borne by the consumers. It is only the government, which can provide relief to the consumers by cutting down or abolishing the central excise duty. 8. Problems of oversupply situation: Following problems might arise with the oversupply situation in cement industry: •

Lower capacity utilization will reduce benefits of economies of scale. High leverage will also adversely affect profitability of new plants.

•

New plants will gain market share at the cost of older players, which are not undergoing expansion. Large idle capacity is will create panic in players and this may result in price wars in the coming years.

9. IMF Package in Future can cause to decrease GDP and economical development in Pakistan. Which will also be cause to stop development of infrastructure? So it will have huge effect on cement industry also. 10. Indian and Iran industry is also expanding its cement capacity •

Presently, India faces an acute cement shortage in its Southern states of Tamilnado and Madras and in north Punjab. However, reports indicated that the Indian industry is also working on a fast track

to

expand their capacity in these regions to off-set the shortfall Major

capacities

of countries like India and Iran are expected to

come online by FY10 and onwards which are likely to convert these countries from dependent importers to potential exporters. 11. High energy prices •

Recently cement industry of Pakistan is facing high energy prices due to increase in the international prices of coal and oil. As our coal contain high percentage of sulphur. Due to which Pakistan cement industry is not able to use local coal as a source of energy. Due to 31 | P a g e

H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

which Pakistan cement industry has to import coal from different countries at high prices. High finance and depreciation cost as Pakistan cement industry is expanding its capacity to get the proper advantage of strong demand of cement in different countries. The total industry installed capacity is expected to reach 49.1 million tons per annum by FY10 and because of higher expansion finance and depreciation cost is also going to rise by the FY10. 12. Decrease profitability due to competition in cement industry •

The sharp decline in cement prices has been witnessed due to domestic competition among producers has dampened the profitability of the industry. This increase in competition among the players has further decreased the prices of cement in the local market. The cement manufacturers decrease the prices of their products in order to get high market as compared to its competitor.

13. High level of taxation •

Presently, the cement industry of Pakistan is heavily burdened due to levy of Federal Excise Duty @ Rs. 750 per ton and General Sales Tax @ 16% on duty paid value. In addition to Federal Excise Duty and General Sales Tax, cement industry is also paying the provincial levies (Royalty and Excise Duty) on acquiring of raw material for production of cement i.e. lime stone and shall clay.

Opportunities: 1. The local cement industry faces high upfront fuel costs. In order to facilitate their conversion to coal, which is widely available in the country, the government has given incentives for imported plant and equipment for coal firing units. 2. The demand of Pakistani cement is expected to continue to grow at the rate of 20 per cent for about four years to come. It may then follow traditional growth rate of seven per cent per year. Announcement of major dams will dramatically increase this demand. 3. Deregulation after accession of Pakistan to WTO is expected to open the window of competition from cheaper markets. There may be no tariff after this 32 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

deregulation on import of cement allowing its entry into Pakistan from cheaper market at lower rate. Cement from cheaper markets may also block Pakistan’s export of cement to its neighboring countries. Global market has vigorously taken up the advantage of economy of scales and multinational giants now control more than 40 per cent of world production (China not included). The recent acquisition of Chakwal Cement by an Egyptian giant, Orascom may be a beginning of such an entry in Pakistan by multinationals. New avenues for export of cement are opening up for the indigenous industry as Sri Lanka has recently shown interest to import 30,000 tons cement from Pakistan every month. If the industry is able for avail the opportunity offered, it may secure a significant share of Sri Lanka market by supplying 360,000 tons of cement annually. 4. Government Development Expenditure •

Government development expenditures count for one third of total

cement consumption. Increase in development expenditures has helped cement demand to grow at very high rates. Increase in PSDPas announced in Medium Term Development Framework 2005-10 – made the cement demand to grow in the country. Infrastructure development in a region triggers private development projects having even positive impact on cement demand. 5. Construction of large dams •

Construction of four large dams will generate demand of 3.7mn tons as construction activities start. Our estimate does not include demand 33 | P a g e

H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

generation from Skardu-Katzarah dam as its feasibility study in not yet completed. Extent of demand generation will depend on size of dam, type of dam, and extent of relocation/resettlement activities required. Bhasha dam will generate maximum demand as it is RCC concrete dam whereas other dams being Earth fill/Rock fill dams will require less cement for their construction. Resettlement activities for Kalabagh dam will generate maximum demand as it is located in a highly populated area. 6. Improved access to regional market •

Afghanistan is Pakistan’s largest cement export market. The prospects for cement exports seem bright in the medium term due to rising domestic as well as regional cement demand. Pakistan also achieved improved access to India after the complete removal of the 12.5 percent custom duty on Portland cement imports in this country from January 2007, showing improved export opportunities for Pakistan. India is planning to import more cement from Pakistan to stabilize prices in the market and the government wants a balance in demand and supply of cement in the current fiscal year. The import of cement from Pakistan has increased manifold during last four months. India has registered a number of Pakistani cement manufacturers, a requirement to facilitate import of cement. Pakistan has already increased the frequency of trains from one to three in a week to carry cement from Pakistan to Wagah border. Due to boom in the construction industry, India needs cement in bulk to meet its growing needs.

7. Demand of Pakistani cement by Russia •

Fresh enquiries have been received from Russia and buyers are quoting very attractive prices as Pakistani cement quality is of very high standard and holds good strength.

8. High prices of cement in the international market •

Cement exports are expected to soar by a massive 107 per cent due to the primary source of overall cement growth in FY08, the high exports 34 | P a g e

H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

owing to the cement supply shortage in India and Middle East which lead to rocketing cement prices in the region. 9. Increase in demand of cement due to the upcoming sports event •

South Africa is schedule to host the football world cup of 2010 due to which they need to make the football stadiums for the World Cup and Sri Lanka are also expected to approach Pakistani companies for cement imports because Sri Lanka to co-host the cricket world cup of 2011. CEMENT

PRODUCT LIFE CYCLE Product Life Cycle Stages Maturity

Growth

Decline

Introduction

The product life cycle model can help analyzing product and industry maturity stages. In the above diagram arrow shows the product life cycle stage of cement and cement industry as well. According to this diagram cement is at this time the sales of cement are increasing because of enormous demand for the cement in both local and foreign markets. More over competitors in this industry are increasing day by. They are rushing to this industry because of ever increasing demand of cement. So the product of the company is at growth stage and whole cement industry is also at the growth stage. 35 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

BUSINESS ANALYSIS Cement sector background At the time of independence in 1947, only one or two units were producing grey cement in the country. During the decade of 1948-58, the number of cement units increased to six. During the Ayub era the economy started to grow and the construction activities underwent a boom. To meet the growing demand of cement new units were set up. During the decade of 1958-68, the number of cement units increased from 6 to 9. During the following period of Zulfiqar Ali Bhutto all the industrial units, including cement industry, were nationalized, therefore, no new unit was set up during 1971-77. During the period of General Zia-ul-Haq, 1977-88, denationalization of industrial units boosted the investments. Housing and construction industries picked up and the demand for cement increased. Thus, the number of cement units increased from 9 to 23 and finally 24. The cement industry in Pakistan has become a long way since independence when country had less than half a million tons per annum production capacity. By now it has exceeded 10 million tons per annum as a result of establishment of new manufacturing facilities and expansion by existing units. Privatization and effective price decontrol in 1991-92 heralded a new era in which the industry has reached a level where surplus production after meeting local demand is expected in 1997. The cement industry is needed a highly important segment of industrial sector that plays a pivotal role in the socio-economic development. Through the cement industry in Pakistan has witnessed its lows and high in recent past, it has recovered during the last couple of years and is buoyant once again. There are total number of units are 23, from which 4 units are in the public sector while the remaining 19 units are owned by the private sector. Two of the four units in 36 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

the public sector had to close down their operations due to stiff competition and heavy cost of production. The cement plants are located in every province of Pakistan. The province wise distribution of cement plant is as under. Providence

Units

Capacity

Punjab Sindh NWFP Baluchistan Total

8 8 6 1 23

Tons) 7.488 3.851 4.945 0.758 17.040

(Million

Three additional cement plants with installed capacity of over 2.1 million tons are in the final stage of completion despite the available excess capacity in this sector. The following table shows installation of new cement factories and expansion of the existing facilities during the current decade. The industry is divided into two broad regions, the northern region and the southern region. The northern region has over 87 percent share in total cement dispatches while the units based in the southern region contributes 13 percent to the annual cement sales.

37 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

Name

of New/ Expansion

company Northern Region Askari Cement Askari cement Bestway cement D.G Khan cement Fauji cement Lucky cement Maple Leaf cement Pioneer cement Sub-Total Southern Region Essa cement Total

Year

of New

Capacity

Commission

Created(Tons)

Expansion New New Expansion New New Expansion

1964 1996 1988 1988 1997 1996 1998

945,000 630,000 1,039,500 1,039,500 945,000 1,260,000 1,039,500

New

1994

630,000 7,528,500

Expansion

1988

315,000 7,843,500

Financial Analysis Of DG khan Cement Company Ltd Overview of Income Statement Overview of Income statement Sales Cost of sales Gross profit Administrative expenses Selling and distribution expenses Other operating expenses Other operating income Profit from operations Finance cost Share of loss of associated

2008 12,445,996 -10,530,723 1,915,273 -111,658 -561,465 -581,913 847,344 1,507,581 -1,749,837 -8,674

2007 6,419,625 -4,387,640 2,031,985 -104,169 -65,122 (139,721 479,420 2,202,393 -467,759 -14,163

2006 7,955,665 -3,992,822 3,962,843 -121,953 -34,352 -191,850 294,114 3,908,802 -450,696 -9,573

2005 5,279,560 -3,330,769 1,948,791 -76,480 -60,905 -93,786 707,692 2,425,312 -304,041

2004 3,882,756 -2,497,262 1,385,494 -68,645 -38,560 -61,735 128,462 1,345,016 -224,601

companies Profit\ Loss before tax

-250,930

1,720,471

3,448,533

2,121,271

1,120,415

38 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group) Taxation Profit\ Loss for the year Basic earnings per

share

197,700 -53,230 -0.21

Rupees Diluted earnings per share

-98,000 1,622,471 6.43

-1,030,078 2,418,455 10.37

-439,193 1,682,078 9.12

-325,922 794,493 4.31

6.43

9.14

7.82

3.78

Overview of Balance sheet Overview of Balance sheet

2008

2007

2006

2005

2004

Capital and Reserve

30528440

33923185

19268200

9317998

6317055

Non-current Liabilities

10250352

10430917

9020740

5642649

3020575

Current Liabilities

12899306

7390229

6015436

3055858

2376989

Non-current Assets

33835927

32529377

24394481

13819736

8833476

Current Assets

19842171

19214954

9909895

4196769

2881143

Assets

Liquidity Position with Graphical Presentation Liquidity Position Liquidity Position

2008

2007

2006

2005

2004

Current Ratio Acid Test Ratio Cash Ratio

1.54 1.22 1.18

2.60 2.33 2.31

1.65 1.44 1.43

1.37 0.96 0.94

1.21 0.64 0.62

3 2.5 2

current ratio

1.5

acid test ratio cash ratio

1 0.5 0 2008

2007

2006

2005

2004

The liquidity position of DGKC deteriorated during the first nine months of FY'09. This was due to a 40% decrease in current assets and a 14% increase in current liabilities if the company. The current liabilities of the company increased due to 14% rise in trade payables, 61% increase in accrued markup and around 7% increase in short term borrowing by the company.

39 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

On the other hand, current assets of the company declined due to decrease in investments from Rs 15 billion at the end of FY08 to Rs 7 billion at the end of March FY09. Also the cash and bank balance of the company decreased by 22%. Thus, decrease in current assets and a corresponding increase in current liabilities resulted in a less favorable liquidity position as compared to that in FY08. DGKC's liquidity stance had been strengthening since FY04 and in FY07 its liquidity position was the most favorable. The increase in current assets had brought about this change. There was a 98% increase in short term investments. Furthermore, the cash and bank balances had also risen considerably. In FY08 the current assets of the company declined slightly but a 63% rise in current liabilities caused a decrease in the liquidity of the company. Investments constitute nearly 79% of the company's total current assets and they declined by 11% in FY08. The investments decreased further from Rs 15 billion at year-end FY08 to Rs 10.9 billion by end of 1Q09.

Activity Ratios Activity Ratios 2008 Days Sales in 13.57 days

2007 8.20

2006 3.40 days

2005 5.27 days

2004 4.95 days

Receivables Account

41.02

days 58.78

105.79

81.94

73.78

Receivables

times

times

times

times

times

Turnover Account

8.89 days

6.20

3.45 days

4.45 days

4.94 days

Receivables

days

Turnover in Days Activity

120 100

days sale s in receivables

80 60 40 20 0 2008

2007

2006

2005

2004

Ratio Inventory

A/R turnover

Turnover

A/R turnover in days

in days Inventory Turnover Days Sales in Inventory

40 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

Operating Cycle Activity

2008

2007

2006

2005

2004

Ratio Operating

36.55days

27.89 days

18.41 days

26.34 days

48.58 days

Cycle

60 50 40 30

operating cycle

20 10 0 2008

2007

2006

2005

2004

Debt Ratios Debt Ratios 2008 Debt to Tangible net 77

2007 52

2006 78

2005 93

2004 85

worth Debt To Equity Ratio Debt Ratio

53 34

78 44

93 48

85 46

76 43

250 200 debt to tangible networth

150

debt/equity ratio

100

debt ratio

50 0 2008

2007

2006

2005

2004

The debt management ratios of DGKC showed a positive trend during FY07. The debt to asset and equity ratios as well as the long-term debt ratio all receded during the period and this reflected a reduction in the company's dependence on debt 41 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

financing. However, during FY08 the debt ratios of the company rose because the total debt increased in FY08 mainly due to a 63% increase in the current liabilities which form 55% of the total debt. Long term debt however decreased. The long term debt to equity increased because of a decline in the equity base due to fall in reserves. The TIE ratio continued to fall in FY08 against a positive trend that prevailed before FY07. The reason is substantial rise in finance charges due to high interest rates in the economy. Also the operating income in FY08 decreased, thus reducing the extent to which operating income can decline before the firm is rendered unable to meet its interest costs. Due to the losses that DGKC experienced in FY08 and the decrease in profitability during July-March FY09, its Earning per Share (EPS) and Price to Earning (P/E) Ratio have been negative. During July-May 2009 the share price averaged around Rs 31.1. This shows that the dismal profits of the company have started reflecting in the low investor confidence and falling share price. The average share price of DGKC had hovered around Rs 100/share except during the fourth quarter of FY08 when share price fell well below the average. The management did not recommend any dividend for FY08 due to the dismal profitability situation in the period.

Profitability Ratios Profitability Ratios

2008

2007

2006

2005

2004

Gross Profit Margin 15 Operating Profit 12

32 34

49 49

37 46

36 35

Margin Net Profit Margin

25

31

31

20

7.84

140 120

gross profit margin

100 80 60

operating income magin

40

net profit margin

20 0 2008

2007

2006

2005

2004

42 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

After experiencing declining profitability during FY08, the cement sector came back strongly to post a growth of 167% in earnings during first quarter (July-September) of fiscal year 2009. The cement sector posted profit after taxation of Rs 1.3 billion in first quarter of FY09 as compared to Rs 500 million in the corresponding period of a year earlier. This growth was mainly due to higher local retention prices and depreciation of the rupee against the dollar that resulted in an increase of rupee-based export sales. The net sales of the cement sector in the period July-March FY09 was 58% higher than the net sales generated during the corresponding period of FY08. It is believed that the profits of cement companies increased due to an arrangement among them to keep prices high in the local market. However, higher sales revenue could not be translated into an increase in profits during the period. Increased costs of sales, operating expenses and finance expenses caused the profitability of DGKC to remain low during July-March FY09. The cost of sales of the company increased by 30% during the period and resulted in a gross profit of Rs 3,733 million. The furnace oil/coal costs for the period July-March FY09 was Rs 5,258.6 million as compared to Rs 3,095.7 million during the corresponding period of FY08. The electricity and gas costs were lower, however, the cost of raw material and packing material consumed increased by 12%. The administration expenses increased by 31% while the selling & distribution expenses increased drastically by 456% (from Rs 246 million in July-March FY08 to Rs 1,370 million in July-March FY09). Selling expenses may have increased due to higher transportation costs involved with exports and higher fuel costs. Also, the finance costs increased substantially by 77% as interest rates rose owing to tight monetary policy and liquidity crunch in the market. These rising costs greatly hampered the profitability of the company and resulted in a profit after taxation of Rs 321 million in the period July-March FY09, which is 34% lower than the profit (Rs 487 million) during July-March FY08. Therefore, the earning per share (EPS) of the company declined from Rs 1.92 in July-March FY08 to Rs 1.27.

Profitability - Financial Year 2002 to Financial Year 2008 The profitability ratios of the company have shown a declining trend since after 43 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

FY05. The gross profit margin increased in FY06 only to fall in FY07 and FY08. The profit margin of the company has decreased continuously along with return on assets (ROA) and return on equity (ROE). The profit after taxation had declined by 33% in FY07 due to lower net retention prices caused by a supply overhang in the overall industry. Also the problem of rising input costs had begun in FY07. This rise in cost of production and raw material have continued into FY08 and further aggravated, causing the declining trend of the profitability of DGKC. Despite a strong growth in cement dispatches, the cement sector experienced declining profitability during FY08. The profitability of the sector fell by 73.6% to Rs 562 million till March 2008 from Rs 2,133 million in the corresponding period of FY07. Although the sales volume of the cement companies increased, the net sales revenue did not increase to an equal extent due to decrease in net retention prices in the sector. Over the years all cement manufacturers undertook huge capacity expansion plans. This created a situation of excess supply in the market. Companies resorted to price wars leading to a fall in prices and reduced the profit margins for the companies. The average cement price during the period July-March FY08 was Rs 128.3 per bag as compared to Rs 133.6 per bag in the same period in FY07. Similar was the case with DGKCC. Increased production facilitated higher sales volume which in turn translated into almost doubling of sales revenue in FY08. The company had earned the highest sales revenue of Rs 12.445 billion in FY08. However, despite this, the gross profit of DGKC in FY08 (amounting to Rs 1.9 billion) was around 6% lower than the gross profit posted in FY07 (Rs 2.0 billion). The reason for lower gross profit was a 140% increase in the cost of sales during the fiscal year. Major input costs increased and dampened the profitability of DGKC and resulted in a loss after taxation of Rs 53.230 million in FY08 against a profit after taxation of Rs 1.622 billion in FY07. The cement manufacturers in the industry were faced with rising fuel and power costs during FY08. The cost of production for the cement companies went up due to rise in the prices of imported coal. The cement companies in Pakistan have shifted from oil to coal or gas during the past few years. Coal is now used as a basic fuel by all cement manufacturers. Pakistan has huge reserves of coal, but cement companies are compelled to import it, as local coal has high sulphur content.

44 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

Crude oil prices shot up during FY08 and had its impact on prices of coal and natural gas. The rise in the costs of international coal prices has been one of the biggest reasons behind the dampening of gross margins of cement companies during FY08. There was a nearly 50% rise in the coal prices in FY08 Along with the hike in the international coal prices, the depreciation of the rupee against the dollar also added to the cost of importing coal. Finance charges rose due to higher interest rates, long term finances, short term borrowing and inclusion of workers' profit participation fund in FY08.

Assets Utilization Asset Utilization 2008 Sales to Fixed Assets 54 Return on Operating 24

2007 43 33

2006 108 10

2005 80 13

2004 62 11

Assets Operating

9.6

20

28

33

3.8

23

11

6.60

Asset 20

turnover Return on Assets

18.5

250

sales to fixed assets

200 150

return on operating assets

100

operating assets turnover return on assets

50

total asset turnover

0 2008

2007

2006

2005

2004

The performance of DGKC in terms of asset management was weak during FY07. During the year, the inventory turnover (days) of the company more than doubled compared to FY06 when the management of inventory seemed most efficient (evident from the lowest inventory turnover in days). This could be traced back to lower sales revenue for the period, coupled with a higher stock of inventory. 45 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

At the same time, the average time taken by the company to recover cash from sales also increased. The increase in inventory turnover in days and Days sales outstanding (DSO) prolonged the operating cycle of the company in FY07. However, in FY08 the asset management of DGKC improved as the inventory turnover rate increased because the company earned sales revenue more in proportion to the increase in inventory. Thus the days to convert inventory into sales became less (from approx. 100 days in FY07 to 79 days in FY08).

Although the days to convert sales into cash (DSO) increased slightly, the substantial decrease in ITO (days) led to the shortening of the operating cycle in FY08. The days sales outstanding was higher because the trade debt increased substantially (by 153%) during FY08 as against sales. Besides this the sales to equity and total asset turnover of the company which had a declining trend till FY07 increased in FY08. The sales to equity ratio had been decreasing because of an increase in the paid up capital. But the trend was reversed in FY08 because the paid up capital remained same while the reserves fell, causing a decrease in the equity base of the company. Also higher growth in sales increased the sales/equity ratio. Total asset turnover also improved because the management of the company's assets was effective in generating higher sales revenue. The company's performance in the area has improved as full-scale production from the newly inaugurated Khairpur plant has augmented the sales.

Return on Investment Return on total equity

Return

2008

2007

2006

2005

2004

5.34

12.58

15.47

10.07

Ratios Return on 2.92 Investment 46 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

Return on 0.30

0.37

17

22

13

Total Equity

25 20 15

Return on investment Return on total equity

10 5 0 2008

2007

2006

2005

2004

One of the most important profitability metrics is return on equity [or ROE for short]. Return on equity reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet. If you think back to lesson three, you will remember that shareholder equity is equal to total assets minus total liabilities. It's what the shareholders "own". Shareholder equity is a creation of accounting that represents the assets created by the retained earnings of the business and the paid-in capital of the owners. The return on Equity has decreased drastically and there is quite a hell of decrement in ROE, which is not very much encouraging for the investors in shares.

Investment Ratios • Degree of financial leverage • Earnings per common shares • Price earnings ratio 2008

2007

2006

2005

2004

financial 15.48

1.27

1.13

1.14

1.20

Earning per common 0.017

0.60

0.10

0.76

0.35

Investment ratios Degree

of

leverage

shares 47 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

Price earning ratio

258.08

4.81

3.38

3.96

8.19

100% 80%

Price earning ratio

60%

Earning per common shares

40%

Degree of financial leverage

20% 0% 2008

2007

2006

2005

2004

A leverage ratio summarizing the affect a particular amount of financial leverage has on a company's earnings per share (EPS). Financial leverage involves using fixed costs to finance the firm, and will include higher expenses before interest and taxes (EBIT). The higher the degree of financial leverage, the more volatile EPS will be, all other things remaining the same. Most likely, the firm under evaluation will be trying to optimize EPS, and this ratio can be used to help determine the most appropriate level of financial leverage to use to achieve that goal. The company’s ratio ha increased dramatically in the year 2008 by 15 times. So there is quite a margin for company to get leveraged. The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability. Earnings per share are generally considered to be the single most important variable in determining a share's price. It is also a major component used to calculate the price-to-earnings valuation ratio. The EPS of company is fluctuating but in current year it has decreed drastically which is not a good sign for share holders. An important aspect of EPS that's often ignored is the capital that is required to generate the earnings (net income) in the calculation. Two companies could generate the same EPS number, but one could do so with less equity (investment) that company would be more efficient at using its capital to generate income and, all other things being equal would be a "better" company. Investors also need to be aware of earnings manipulation that will affect the quality of the earnings number. It 48 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

is important not to rely on any one financial measure, but to use it in conjunction with statement analysis and other measures. A valuation ratio of a company's current share price compared to its per-share earnings is Price Earning ratio. In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as

each

industry

has

much

different

growth

prospects.

The P/E is sometimes referred to as the "multiple", because it shows how much investors are willing to pay per dollar of earnings. It is important that investors note an important problem that arises with the P/E measure, and to avoid basing a decision on this measure alone. The denominator (earnings) is based on an accounting measure of earnings that is susceptible to forms of manipulation, making the quality of the P/E only as good as the quality of the underlying earnings number.

Investment Ratios • Dividend payout ratio • Dividend yield ratio • Book value per share

Investment ratios

2008

2007

2006

2005

2004

Dividend payout ratio

19.83

23.62

48.31

28.37

27.74

Dividend yield ratio

7.68

4.90

14.23

7.17

3.38

Book value per share

18.74

20.87

16.62

7.80

5.29

49 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

60 50 40

Dividend payout ratio

30

Dividend yield ratio

20

Book value per share

10 0 2008

2007

2006

2005

2004

Indicates the proportion of earnings that are used to pay dividends to shareholders. A reduction in dividends paid is looked poorly upon by investors, and the stock price usually depreciates as investors seek other dividend paying stocks . A stable dividend payout ratio indicates a solid dividend policy by the company's board of directors. The situation of DG Khan Cement Co. Ltd. Shows increment in 2006 but from there is consistent decrement in this ratio by more than two times so company is trying to build there retained earnings instead of giving dividend. During bull markets the stock price is more likely to trade significantly higher than book value, and in a bear market the two values may be close to equal. The dividend yield or the dividend-price ratio on a company stock is the company's annual dividend payments divided by its market cap, or the dividend per share divided by the price per share. It is often expressed as a percentage. There is quite fluctuations in this ratio which shows there is lack of stability in the company policy towards this section. Now if we look at the book value per share, as we know that somewhat similar to the earnings per share, but it relates the stockholder's equity to the number of shares outstanding, giving the shares a raw value. Comparing the market value to the book value can indicate whether or not the stock in overvalued or undervalued. During bull markets the stock price is more likely to trade significantly higher than book value, and in a bear market the two values may be close to equal.

50 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

Univariate Model 1. Cash flow/Total debt

2008 2007 2006 2005 2004

Calculation in (Rupees’ 000) (641970)/23149658 475661/17821146 4190452/15036176 2484759/8698507 945521/8698507

Values -2.773% 2.67 27.869 28.57 10.8

2. Net Income/Total Assets (Return on Assets) Year Calculation

in

(Rupees’ Values

200

000) 25685/53678098

0.047%

8 200

1622471/51744331

3.13

7 200

2418455/34304376

7.05

6 200

1682078/18016505

9.34

5 200

794493/11714619

6.78

4

3. T o t

al debt/Total Assets (debt ratio) Year 200

Calculation in (Rupees’ 000) 23149658/53678098

Values 43.13%

8 200

17821146/51744331

34.44

7 200

15036176/34304376

43.83

6 200

8698507/18016505

48.28

5 200

5397564/11714619

46.07s

4

51 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

Multivariate Model X1= Working Capital/Total Assets Year 2008 2007 2006 2005 2004

Calculation in (Rupees’ 000) 6942865/53678098 11824725/51744331 3894459/34304376 1140911/18016505 504154/11714619

X1 12.934% 22.85 11.35 6.33 4.30

X2=Retained Earning/Total Assets Year 2008 2007 2006 2005 2004

Calculation in (Rupees’ 000) 30202533/53678098 33923185/51744331 19259849/34304376 9317998/18016505 6317055/11714619

X2 56.27% 65.56 56.144 51.72 53.9

X3=EBIT/Total assets Year 2008 2007 2006 2005 2004

Calculation in (Rupees’ 000) 1513505/53678098 2202393/5174 3908802/34304376 2425312/18016505 1345016/11714619

X3 2.82% 4.26 21.69 13.46 11.48

X4= Market value of equity/Book value of total debt Year 2008 2007 2006 2005 2004

Calculation in (Rupees’ 000) 253541157*30.97/23149658 253541157*30.97/17821146 184393569*30.97/1503176 184393569*30.97/8698507 167630518*30.97/5397564

X4 339.19% 440.60 379.79 656.51 961.82s

X5=Sales/Total Assets Year Calculation in (Rupees’ 000) 200 12464347/53678098

X5 23.22%

8 200

6419625/51744331

124.79

7 200

7955665/34304376

23.19

6 200

5279560/18016505

29.30

5 H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR) 200 3882756/11714619 4

52 | P a g e

33.14

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

DuPont Analysis 1. DuPont Return on Assets= (Net profit margin).(Total assets turnover) Year

Calculation

2008 2007 2006 2005 2004

(Rupees,000) 7.84*0.24 0.25*0.15 0.31*0.74 0.31*0.35 0.20*0.33

in Dupont

Return

on Assets 1.88 3.75 22.94 10.85 6.60s

DuPont return on Assets has a decreasing trend. In 2008 net profit of co decrease due to high cost of goods sold. Co does not utilize its assets properly in 2008. In 2007 trend of this ratio is good. But in last 3 years it also has increasing trend.

Horizontal Analysis of Income Statements

Net sales Cost of sale Gross profit administrative

2008 321.01 % (421.58) 139.75 (61.33)

2007 165.34 % (175.7) 146.66 (151.75)

2006 204.89 % (159.89) 286.02 (177.66)

2005 135.97 (133.38) 140.66 (111.41)

2004 100 % 100 100 100 53 | P a g e

H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

expense selling

&dist. (145.98)

(168.88)

(89.09)

(157.95)

100

expenses other operating (964.90)

(226.32)

(310.76)

(151.29)

-100

expense other Operating 659.03

373.20

228.95

550.89

100

income profit from operation 112.53 finance cost (786.41) share of loss of -

163.74 (208.26) -

290.61 (200.66) -

180.32 (1345.25) -

100 100 100

associated company income before 15.64

153.56

307.79

189.33

100

taxes Provision

(30.06)

(316.05)

(134.75)

100

204.21

304.40

211.72

100

for (61.66)

taxation Net profit

3.23

Horizontal analysis of income statement shows that net sales of the Co has increasing trend. But on the other hand Cost of goods sold jump quickly. This is not a good trend. Cost of goods sold of the Co increases due to expensive raw materials. Gross profit of the co decreases from last year’s due to high cost of goods sold. Administrative and selling expense of the Co has decreasing trend. Other operating expenses of the Company are increasing quickly. Company is also increasing trend in other operating income. Profit from operations also decreases. Co also has high finance cost from last years. Income before taxes has decreasing trend due to high cost of goods sold and finance cost. Net profit of the Company is Very small as compare to last years.

Vertical Analysis of Income Statements 2008 Net sales 100% Cost of sale (84.46%) Gross profit 15.35 administrative expense (0.88) selling &dist. expenses (4.52) other operating (4.78)

2007 100% (68.35%) 31.64 (1.62) (1.01) (2.17)

2006 100% (50.18%) 49.81 (1.53) (0.43) (2.41)

2005 100% (63.09%) 36.91 (1.45) (1.15) (1.78)

2004 100 % (64.32%) 35.68 (1.77) (0.99) (1.59)

expense other

7.47

3.70

13.40

3.37

34.31 (7.28)

49.13 (5.66)

45.94 (5.76)

34.64 (5.78)

Operating 6.79

income profit from operation finance cost

12.14 (14.17)

54 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

Excess

of

acquires 0.69

interest

in

the

assets of acquire share of loss

net of (0.66)

associated company income before taxes Provision for taxation Net profit

1.41 (1.61) 20.20

-

-

(0.22)

(0.12)

26.80 (1.53) 25.27

43.34 (12.95) 30.40

-

-

40.18 (8.32) 31.86

28.86 (8.39) 20.46

In vertical analysis of income statement shows that has high cost of goods sold from last years. Gross Profit of the Co has decreasing trend. This is decrease due to high cost of goods sold. Operative expense of the co has minimum portion in the income statement. Profit from operations also has decreasing trend. Share of loss of associated co also increases Income before taxes also decreases from last years. Provision for income taxes also has decreasing trend.

Horizontal Analysis of Balance Sheet 2008 subscribed 151.25

2007 151.25

2006 110.00

2005 110.00

2004 100

& paid up capital reserves 629.62 accumulated profit 12.87

675.08 698.43

343.70 926.07

163.96 110.26

100 100

537.01

305.02

147.51

100

318.12 1.36

269.99 34.50

179.42 158.09

100 100

261.71 104.40

69.65

119.96

100

1176.81

1129.71

389.13

100

Assets issued

total Total non-current

-

Liabilities long term finance 324.88 liabilities against 0.47 assets

subject

to

lease finance long-term deposits 243.34 retirement and other 141.59 benefit deferred taxation current liabilities

906.52

55 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

trade

and

other 293.56

207.96

284.81

233.70

100

accrued mark up 28.78 current portion of 580.43

25.18 419.14

25.03 332.27

70.60 123.07

100 100

100 310.91

100 25.47

100 128.56

100 100

360.92

122.74

108.31

100

payables

long term liabilities provision for taxes 100 total 542.67 assets non-current assets property plant & 395.29 equipment assets subject

to 4.10

80.06

177.12

190.45

100

finance lease capital work

in 220.96

169.35

1044.28

353.71

100

475.06 loans 2094.94

589.07 99

323 1342.11

188.13 1084.80

100 100

100 and 247.53

115.7 159.37

116.10 89.05

121.51 110.25

123 100

98.86 274.11 11221.05 190.57 138.32

75.79 140.94 616.07 126.71 91.88

33.83 144.88 199.67 100.96 111.72

100 100 100 100 100

progress investment long-term &deposits current assets stores spares

loose tools stock in trade trade debts investment advanced deposits cash and bank

435.56 880.71 1087.57 355.55 290.60

balance Liabilities and owner equity of the balance sheet shows that issued and paid up capital of the company is increasing. And reserves of the co also jump 343% to 675% in the year of 2006 to 2007. Accumulated profits of the co have decreasing trend. And it is dangerous for the co. Noncurrent liabilities of the co increases from 2004 to 2007 but there is a decline in 2008. Current liabilities of the co also have increasing trend. This horizontal analysis of balance sheet shows that Fixed Assets of the Co increase from last years. It means Co have much productive assets. It shows a good trend of fixed assets. On other side trend of assets subjects to finance lease going to decrease. Co also have asset that are work in progress but trend of these assets also going to decrease. Co also invests in long term investment and this asset also

56 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

has increasing trend from 2004 to 2008. Co also has long term deposits and these also have increasing trend. Current Assets of the Co also have increasing trend. Trade debts of the Co also have increasing trend and its debts are not in a good position.

Short term

investments of the co also increase and Co use its idle cash in good manners. .

Vertical analysis of balance sheet 2008 issued subscribed 4.72%

2007 4.89%

2006 5.37%

2005 10.23%

2004 14.31%

& paid up capital reserves 51.48 accumulated profit 0.06

57.26 3.39

43.97 6.79

39.94 1.54

37.47 2.15

65.55

56.16

51.72

53.92

16.79 0.0022

2.49 0.084

27.19 0.73

23.31 0.71

lease finance Long term 0.13

0.15

0.098

0.16

0.26

deposits retirement

0.077

0.077

0.25

0.32

3.14 20.16

4.54 26.29

2.98 31.32

1.18 25.78

1.98

4.10

6.41

4.22

0.66

0.99

5.33

11.61

7.62

7.62

3.95

4.72

3.33

4.16

0.068 14.28

0.10 17.54

0.19 16.96

0.29 20.29

Assets

total Total Non-current

56.26

Liabilities long term finance 16.52 liabilities against 0.000732 assets subject to

and 0.10

other benefit deffered taxation 2.33 Total 19.09 Current liabilities Trade & other 2.70 payables accrued mark up Short

0.73

term 15.26

borrowing secured current portion of 5.27 long term liabilities provision for taxes total assets

0.06 24.03

57 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

non-current assets property plant & 45.13

42.74

21.92

36.83

52.31

equipment assets subject to 0.012

0.26

0.86

1.76

1.42

finance lease capital work

3.68

34.28

22.11

9.61

15.79 0.38

13.06 0.97

14.49 1.51

11.85 0.21

62.86

71.11

76.71

75.41

2.89

2.44

5.75

8.01

progress investment long-term

in 4.63

12.28 loans 0.97

&deposits Total 63.03 Current liabilities stores spares and 4.32 loose tools stock in trade trade debts investment advanced deposits cash and bank

2.42 0.86 28.09 0.79 0.45

0.57 0.27 32.72 0.44 0.22

0.66 0.22 24.90 0.44 0.22

0.56 0.42 15.37 0.67 0.52

2.55 0.45 11.84 1.03 0.72

balance Total

36.26

37.13

28.88

23.29

24.59

Vertical Analysis of the balance sheets shows that in 2008 that Equity portion of Co have large portion of equity .And there is minimum portion of noncurrent liabilities. And it shows a good trend. Co finances his assets through equity and pay minimum amount of interest. Current liabilities of the co increase from last years. On current assets co do not pay interest. Co pays his obligation timely and there is no chance of insolvency. On the other side of balance sheet are assets of the Co. Co have more productive assets. Analysis show that Company Finance minimum assets at lease. Current assets of the Co slightly decrease from last year.

LEARNING AS AN INTERNEE

58 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)



The actual purpose of internship is the basic learning of practical and professional approach of the studies. As an internee in DG Khan Cement Company I have been assigned different duties.



My internship of Six weeks includes 36 working days. The whole ‘work done by me’ can be well illustrated by distributing among six weeks depending upon the nature of work, thereto. It can be well explained under following heads;



WEEK-1 •

Department: I. •

Finance/ Accounts

Worked with: I.

•



Mr. Khalid Mahmood Khalid (Manager A. Payable)

Duties and Accomplishments: I.

Work on Rectification of error

II.

Work on Closing Entries

WEEK-2 •

Department: I. •

•

Finance/ Accounts

Worked with: I.

Mr. Khalid Mahmood Khalid (Manager A. Payable)

II.

Mr. Sultan (Dy Manager)

Duties and Accomplishments: “COMPUTATION

I.

OF

SALES

TAX

PAYABLE” II.



Sales Tax Status for Reconciliation

WEEK-3 •

Department: I. •

Finance/ Accounts

Worked with: 59 | P a g e

H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

•



I.

Mr. Elahi Bakhsh

II.

Mr. Sultan (Dy Manager)

Duties and Accomplishments: I.

Cement Manufacturing Process

II.

Book keeping, Filing and Maintaining the records

III.

Intra Company Reconciliation

IV.

Bank reconciliation statement

WEEK-4 •

•

•

Department: I.

Finance (Export Section)

II.

Marketing and Sales

Worked with: I.

Mr. Elahi Bakhsh

II.

Mr. Abid Nasir

III.

Mr. Haneef

Duties and Accomplishments: I.

Sales procedure and dealing with the Customers

II.

Preparation of Sales Documents.

III.

Letter Of Credit (L/C)

IV.

Maintaining payments document

V.

Export Process

WEEK-5 •

•

Department: I.

Sales and Marketing

II.

MIS/ ERP

Worked with: 60 | P a g e

H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

I.

Mr. Abid Nasir

II.

Mr. Amir

III.

Mr. Waqas ( C.A)

IV.

Mr. Hanif •

Duties and Accomplishments:

I.

Cash disbursements

II.

Accounting module of Oracle E-Business

III.

Maintaining Customer order form

IV.

Report Generation 

WEEK-6 •

Department:

I. ERP (enterprise Resource planning) •

Worked with: I. Mr. Kashif: Manager Audit in Ferguson & Co.

II. Mr. Waqas •

Duties and Accomplishments:

I. Maintaining information reports II. Reporting of General Ledger III. Maintain suppliers Ledger

RECOMMENDATIONS 61 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)



Top management should use up-to-date marketing practices rather to use orthodox ideas. This is the age of advertisement and they should advertise their product rather use push strategy. They should emphasize on pull strategy as well. They have good, energetic, experienced marketing and sales team they should use it constructively.



They should divide their zones for marketing and sales teams and should send their teams to the distributors so that company should live in contact with the distributors.



They should pay much attention to promotional tools. They should advertise their product. They are only using trade promotions, which are not enough to have a good positioning in the market. They should use other promotional tools as well



They should pay much attention to their employee’s promotion. They should use better performance appraisal system.



The middle level management should be involved in decision-making. In this way they will feel sense of responsibility and their productivity will increase. Their loyalty with the organization will also increase.



They should also introduce some employee recognition program. In this way the employees will be more satisfied with their jobs and ultimately will be beneficial for the organization in terms of high productivity.



Skills and performance based performance appraisal program should be applied and should not rely on one person’s formulated ACR.



Employees should be promoted on the basis of their achievement.



Employees should be rotated in different jobs and tasks, as monotony decreases productivity

62 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

Consolidation is needed for industry stability because of following observations. 1. Cartels are unstable by their nature. 2. Industry needs one or

two dominant players for

long-term sustainability

in prices and profits 3. Top four players command 46% of market share in the industry that will be increased to 50% in FY10. 4. World norm is that top four players have more than 60% market share 5. Consolidation process will be needed to increase market

share of larger

players rather than going for capacity expansions 6. We may

see

acquisitions

in

the

industry

as

the

industry

goes

through overcapacity cycle.

CONCLUSION It was really a good experience as I have learnt a lot about the practical environment of the offices, particularly about the cement industry I have learnt for the first time. In my opinion working environment of large business groups is not much different from that of theoretical study of management.

International Trend Although international energy prices have declined recently, any beneficial impact on margins has largely been negated by substantial depreciation of Pak Rupee. PACRA,

therefore,

believes

that

the

performance

of

cement companies

could weaken further impacting their financial profile. Pakistan's cement industry is poised to face a tough challenge as the regional markets, mainly China and India, are likely to emerge as competitors in the export market, following a slowdown in their domestic economies and enhanced production capacity.

63 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

Glossary MIS

Management Information System

HR

Human Resource

DGKCCL

Dera Gazi Khan Cement Company Limited

ERP

Enterprise Resource planning

IR

Issuance Requisition

STN

Store Transfer Note

GRN

Goods Received Notes

SER

Store Evaluation Report

SRR

Store Return Report

OC

Order Confirmation

DN

Dispatch Note (DN)

PO

Purchase Order

PC

Product Code

QO

Quantity Ordered

SOC

Sales Officer’s Code

ISO

Internal Sale Order (ISO)

RC

Reconciliation Statement

CV

Cash voucher

BV

Bank voucher

JV

Journal voucher

64 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

References Mr. Elahi Bakhsh

Manager Finance

Mr. Khalid Mahmood Khalid

Manager (A. Payable)

Mr. Ch. Abid nasir

Sr. Deputy Manager Marketing

Mr. Shehzad Gul

Assistant Manager (fin)

Mr. Sultan Mahmood

Deputy Manager Finance

Electronic References www.kmlg.com www.dgcement.com/ www.pioneercement.com/ www.bestwaycement.com/ www.luckycement.com/ www.iptu.co.uk/content/pakistan_employment_law.asp www.unescap.org www.defence.pk/forums/economy-development www.cia.gov www.iht.com/articles/ap/2008/07/29/business/AS-Pakistan-Interest-Rates.php www.thenews.com.pk/daily_detail.asp?id=123450 www.pakistan.gov.pk www.probertencyclopaedia.com www.thepost.com.pk www.pwc.com/pk

65 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)

D.G. KHAN CEMENT COMPANY LTD. (A unit of Nishat Group)

Annexure Summarized Income Statement 1. Summarized Balance Sheet 2. Liquidity Ratios Long Term Debt Paying Ability Profitability Ratios 3. Assets Utilization Investment Ratios 4. DGCCL’s ORGANOGRAM ( Head office) 5. Organizational Chart Purchase accounting system Production process Sale accounting system

66 | P a g e H. Waqar Akhtar (CIIT/FA06-BBA-26/LHR)