Maple Leaf Internship Report

Maple Leaf Cement factory

COMSATS Institute of Information Technology Lahore Campus

Maple Leaf Cement Factory Limited

ADVISOR SIR SHAKEEL ASLAM

SUBMITTED BY Yaser Arshad CIIT/FA05-BBA-001/LHR

SUBMISSION DATE September 15, 2008

COMSATS Institute of Information Technology Defense Road off Raiwand Road Lahore

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory

ACKNOWLEDGEMENT I offer my humblest thanks to ALMIGHTY ALLAH, The most Beneficent and the Most Considerate and the entire source of all knowledge and wisdom. I thank ALMIGHTY, ALLAH, who gave me the aptitude to do this project efficiently and successfully. I offer my humblest respects to the HOLY PROPHET HAZRAT MUHAMMAD (Peace Be upon Him) who is, forever a torch of guidance and knowledge for humankind as a whole. I faced a lot of difficulties during this phase of developing internship report. But Allah gave me a lot of patience and due to the continuous encouragement of my teachers and other people concerned; I was able to complete this project. It’s not very easy for me to find the right words to express my gratefulness to our praiseworthy advisor Mr. Shakeel Aslam, his enthusiastic interest, in time and useful suggestions, continuous encouragement, vivacious supervision and kind behavior throughout my internship period. Apart from my respectable advisor, there are many other people who have been very helpful to me right from the beginning. I would whole heartedly acknowledge the entire management of Maple Leaf Cement Factory Limited who provided me this opportunity to achieve this practical experience under their valuable supervision and helping suggestions to complete this report. I’d like to mention Mr. Abdul Rauf, Mr. Ilyas, Mr. Ijaz Ahmed, Mr. Khalid Sahrif, Mr. Omer, and last but not least Ms. Hina Noreen. I also pay my regards to all others whose names can not be included due to the scarcity of space and time. At the end I’d like to thank Samya Tahir and Bilal Ahmed, my class fellows and my internship colleagues as well, whose company was a cause of support and motivation, because without naming them this acknowledgement will be incomplete.

Yaser Arshad

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory

1. Executive Summary

This report is based on my nine weeks EXPERIENCE at MAPLE LEAF CEMENT FACTORY LIMITED as an internee from 19th June to 24th august. THE COMPANY IS a highly reputed organization. Maple Leaf is one of the pioneers of the cement industry in Pakistan. It owns and operates grey and white cement plants located at Daudkhel District Mianwali

The salient features of this report are: Maple Leaf’s background, its vision, corporate values and goals. This report focuses its business operations including major areas as its overall marketing strategies, its production and operations, and it’s Human Resource. The Financial Analysis of the firm has been done in detail. The Ratio Analysis, Common Size Analysis and Index Analysis of the firm are really a fascinating experience of mine.

This report accentuates the details of my learning and observation at Maple Leaf. It also includes the actual forms that are used in this organization to carry out basic business processes. And I am sure that this report will provide you a complete and clear image of organization.

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory

2. Introduction 2.1. Mission Statement:

“The Maple Leaf Cement Factory Limited stated mission is to achieve and then remain as the most progressive and profitable company in Pakistan in terms of industry standards and stakeholders interests. The company shall achieve its mission through a continuous process of having sourced and implemented the best leading edge technology, industry best practice, and human resource and by conducting its business professionally and efficiently with responsibility to all its stakeholders and community.”

2.2. Corporate Strategy: We at Maple Leaf Cement Factory Limited manufacture and market different types of consistently high quality cement, according to the demanding requirements of the construction industry. Our strategy is to be competitive in the market through quality and efficient operations. As a responsible member of the community, we are committed to serve the interest of all our stakeholders and contribute towards the prosperity of the country.

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory

2.3. History and Background: The Cement Industry: In August 1947, Pakistan inherited four cement plants having total installed capacity of 0.471 million tons per annum and total production of 0.300 million tons. By 1953-54, the production increased to 0.660 million tons against demand of one million tons. As the private sector did not have resources, the public sector in the form of Pakistan Industrial Development Corporation (PIDC) took the lead and established two cement plants – Maple Leaf and Zeal Pak. These units came into production in 1956, increasing the production capacity to one million tons per annum. By mid-sixties, the private sector acquired sufficient confidence, expertise & capital and established the following three plants: •

Valika Cement (now Javedan) in Karachi in 1964

•

Ismail Cement (now Gharibwal) at Gharibwal in 1965 and

•

Pak Cement (now Mustehkam) at Hattar in 1965.

Nationalization: Under the Economic Reforms Order, all private sector cement plants were nationalized in 1972 and State Cement Corporation of Pakistan (SCCP) was formed to manage cement plants. Installed production capacity was substantially expanded during this period. The capacity of Javedan and Mustehkam were doubled and new plants were installed at Thatta, Dandot, Kohat, D.G.Khan and Daudkhel. As a result, total production capacity expanded by 2.45 million tons per annum. During this period, growth in demand of cement was around 7 percent per annum. New capacities were not coming up to match the demand. Consequently, Pakistan had to start importing cement in 1976-77 and continued to import cement till 1994-95.

Re – Introduction of the Private Sector:

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory In order to meet the increasing demand for cement that led to continuous shortage since the mid 70s, the private sector was again allowed to establish cement plants. As a result of change in policy, seven projects having capacity of 2.54 million tons were installed in private sector and simultaneously, SCCP also brought in four more projects with a total capacity of 1.6 million tons. Resultantly the total capacity of the cement industry enhanced to the level of 8.5 million tons by the end of 1990. The units allowed in the private sector were Cherat (1985), Pakland (1985), Attock (1986), Dadabhoy (1988), Essa (1988), Fecto (1989) and Anwarzeb White Cement (1988).

Kohinoor Maple Leaf Group: The Kohinoor Maple Leaf Group (KMLG) is one of the largest groups in Pakistan. It is one of the leading manufacturers of the country with a composite textile unit, two weaving units, two dyeing units and one spinning unit aside from its cement operations.

The group also has presence in power generation, and insurance sectors consisting of a total of seven group companies, all of which are ISO 9002 certified. In 1999, KMLG entered into a contract with oracle to upgrade all Management Information Systems

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory including the integration of its financials, cost and management accounting, production, marketing, and human resource functions. Out of 7 companies of KMLG, 5 are listed on the stock exchanges in Pakistan with operations comprising of vertically integrated textile operations, power generation, and cement production.

A) Textiles: this is the core focus of KMLG. The group has 50 years experience in manufacturing and employs a strategy of diversified marketing and a focus on customers globally. The group has effective quality control due to the combined synergies of vertically integrated textile manufacturer. B) Spinning: Kohinoor Textiles comprises of two spinning divisions located at Rawalpindi (KTML) and Gujjar Khan (KGM). There are a total of nine units with 151,000 spindles capable of spinning a complete range of coarse and fine count yarn from natural and man made fibres. In particular, Kohinoor specializes in fine count yarn for high thread count home textile products. The total production of yarn is 28,800,000 Lbs per annum. Five units with 85,500 spindles are at Rawalpindi and four units with 65,500 spindles are at KGM. Both divisions are modern facilities with state of the art machinery from Europe and Japan. C) Weaving: Kohinoor Raiwind Mills (KRM) is the weaving division of Kohinoor Textiles Mills and is situated in Raiwind. Since the company’s inception in 1991, the management of KRM has invested in state of the art technology and equipment making it one of the most modern weaving plants in the country. Presently there are 204 wide width air jet looms capable of producing over 25 million linear yards of greige fabric per annum. By the end of 2006 the total number of looms will increase to 312 with the addition of a third shed. All 204 looms have been supplied by Picanol (Belgium) and are of the following models: Picanol Omni P800 and Picanol Omni Plus D) Dyeing and painting: Kohinoor has a state of the art dye house equipped with European and Japanese technology to pre-treat, dye and print fabric with an average weight range of 75gsm to 350gsm. The dyeing and printing capacity is 48 million meters per annum and the capacity for pre-treatment and bleaching is

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory 6 million meters. The maximum width capacity for bleaching is 3.4 meters and for dyeing and printing is 3.2 meters. E) Cement: Maple leaf Cement factory limited.

Maple Leaf Cement Factory Limited: Maple Leaf is one of the pioneers of the cement industry in Pakistan. It owns and operates grey and white cement plants located at Daudkhel District Mianwali.

History: Maple leaf Cement Factory Limited was established by the Pakistan Industrial Development Corporation (PIDC) in 1956. It was later incorporated as “Maple Leaf Factory Limited” in April 1960. The company started as a producer of grey Portland cement, with a wet process plant of 400 tons per day (“tpd”) clinker capacity installed with the assistance of the Canadian Government, in 1960 a second wet process plant Portland cement was installed with a clinker capacity of 600 tpd.

In 1969, a company by the name of White Cement Industries Limited (WCIL) was formed with a 50 tpd white cement plant.

In 1974, under the PIDC Transfer of Company & Project Ordinance, the management of two companies, namely MLCFL and WCIL were transferred to the newly established State Cement Corporation of Pakistan (SCCP), which controlled the entire cement industry in Pakistan after nationalization.

In 1983 SCCP expanded WCIL’s white cement plant by adding another unit of the same capacity parallel to the existing one. In 1986 SCCP also set up another production unit of grey cement with a capacity of 600 tpd based on wet technology under the name of Pak Cement

Privatization

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory Under the privatization policy of the government, the ownership and management of MLCFL, WCIL, and PCCL, was transferred to the Kohinoor Maple Leaf Group. All three companies were merged into Maple Leaf Cement Factory Limited on July 1, 1992. The arrangement worked well as the plants of all three companies were within a common boundary wall, sharing facilities such as raw material supply, power supply, water, and other infrastructural facilities.

Management MLCFL is a part of the Kohinoor Maple Leaf Group, one of the largest groups in Pakistan. It is primarily being run by Mr. Tariq Sayeed Saigol, the son of late Mian Sayeed Saigol, founder of the Saigol Group. Mr. Tariq S. Saigol is an ex- chairman of All Pakistan Textile Mills Association. He has also been the Chairman of the Government’s Export Committee as well as a director of SBP and member of the Prime Minister’s Committee of Tariff Reforms, Resource Mobilization, Tax Reforms and Down Sizing of the government. He is also the architect of Textile Vision 2005.Other senior management has vast experience in the textile industry. Top management id the hub of strategic decisions, with middle management playing implementation role.

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory

2.4. Company’s Policy “Quality Policy” MLCFL’s policy for quality is based upon the mission statement.

MLCFL manufactures grey ordinary Portland cement for industrial and domestic use.

MLCFL shall achieve its policy through the application of quality management system; by identifying, understanding, managing, and maintaining a quality system of inter related quality processes which are structured to comply with the requirements of ISO 9001: 2000 (E) and all applicable regulatory and statutory requirements.

MLCFL shall continually improve the effectiveness of Quality Management System for the organizations over all performance and efficiency. All the employees of MLCFL believe in

“Continual improvement through team work”

MLCFL understands that the involvement of people at all levels is equally beneficial for both the organization and its employees and the effective decision at all functions shall be based on the analysis of data and information.

MLCFL believes that the suppliers are important part of the organization and play a key role in the smooth operation of plant.

This policy is issued to clearly indicate the attitude of the company with regard to quality and customer satisfaction for the long term of MLCFL’s competitive position, reputation and employees’ satisfaction.

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory

3. Organization Structure and Strategies 3.1. Organizational Structure: CEO

Figure 1

CFO

Export Marketing

Finance

HCD

Procureme nt / Purchase

Accounts

IT

Marketing

Manager (1)

Manager (1)

GM (1)

AGM / DGM (1)

GM (1)

GM (1)

AM / SAM (1)

Dm / SDM (1)

DM / SDM (1)

AM / SAM (1)

AM / SAM (1)

JE (1)

C.E.O C.O.O D.O.P C.F.O G.M. D.G.M A.G.M S.M. Managers

1 1 1 1 8 2 3 17 15

AM / SAM (1)

Manager (2)

JE (1)

Mgt. Trainee (1)

DM / SDM (3)

DM / SDM (1)

JO (1)

AM / SAM (2)

AM / SAM (3)

AM / SAM (1)

Assistants (2)

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

JO (2)

JE (1)

JE (6)

JO (1)

Assistants (2)

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Maple Leaf Cement factory

The Figure 1 shows the organization structure of the KMLG head office, Lahore. At present there are 105 employees working in the head office. Empowerment Maple leaf has centralized operations, major decision making power lies in the hand of the central head quarters however delegation of authority has been done in such a way that the senior management has enough power to direct employees without informing the top management at the central office so as to avoid operation hindrance only .

3.2. SWOT Analysis:

Strengths: •

The company is situated in Daud Khel, district Mianwali. This location is rich with raw material that is required by the cement industries for the production of cement.

•

Maple leaf is operating with a present production capacity of 1.5 mntpa. Further expansion of 2.0 mntpa is expected in the near future which will make MLFCL, the third largest capacity wise player after Lucky cement and D.G. Cement.

•

The production of the cement in maple leaf is completely automated.

•

The company has imported the machinery for dry process from Denmark. The use of this advance machinery has helped the company produce good quality cement with much efficiency.

•

The company is going to import the waste heat recovery plant from Denmark, which will help the company to cut the power expenditures.

•

Maple leaf cement factory is the only cement factory that produces both grey cement and white cement.

•

It also has developed a niche market by being the only manufacturer of oil well cement in Pakistan.

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory •

Maple leaf is one of the pioneers of cement industries in Pakistan, established in 1956. This long time span of the company has helped it earn customer loyalty all over Pakistan.

•

Maple leaf, having a good brand image, has the advantage to charge their customers at a higher price than the other competitors.

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The price of maple leaf cement is high in the international market as compared to its local competitors who are involved in the exports as well.

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The company brand image is very strong in the market, both local and international.

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The brand equity of maple leaf is $ 500 million

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Maple leaf is an ISO certified company. The company has obtained the ISO 9001 - 9 making it a reliable producer for production of quality products in the international market.

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Maple leaf along with Lucky cement, are the only two companies to obtain the BIS certification from India.

•

The maple leaf cement factory compensates its employees, better than all the other industries.

•

The basic salary of the company employees is higher than even the salary package offered in the industry.

Weaknesses: •

The location where the cement plant of maple leaf is located is a very remote area.

•

Maple leaf faces problems in hiring good quality of employees for the factory place due to this reason in spite of a good salary package.

•

The company has been established since 1956. Therefore the technology being used by the factory, i.e. the production of cement through wet process, is old and yields low profits and high costs.

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory •

Although, maple leaf is taking steps to convert its wet process plants into dry process plants, but at present these plants are causing the increase in per bag cost of the cement.

•

The cost of freight charges further reduces the retention price of the cement, hampering the profitability of the company.

•

Hence maple leaf is extraordinarily sensitive to the changes in cement prices. Excess capacity expansion, over supply of the product in the market and price pressure over the company negatively affects the company.

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The location of the company limits the ability of the company to distribute its product all over Pakistan.

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According to Rizwan Butt, the means of transportation for the company is main problem at present for the company.

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This problem has affected both the local and export sales of the company.

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Maple leaf is short of trucks to distribute their product in local markets.

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India is a very big market for the cement industry, as there is a construction boom in the country. But due to the shortages of trucks and the Pakistani train wagons not meeting the standards of Indian authority, maple leaf is unable to avail the golden opportunity at its fullest.

•

The company has borrowed heavy loans from the financiers, further increasing the debt burden over maple leaf.

Opportunities: •

At present the demand for cement in the domestic market is increasing. Maple leaf is benefiting quite well at present.

•

If Kala Bagh dam is commissioned, MLFC will be the major beneficiaries in the industry.

•

At present, maple leaf along with Lucky cement is the only two cement factories that have received the BIS certification.

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This has given maple leaf a golden opportunity to capture the Indian market with very less competition.

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory •

The demand of cement outside Pakistan has been increasing rapidly, providing maple leaf a good chance to explore these markets.

•

Maple leaf is also exploring new markets for the potential customers of white cement, which will give maple leaf a competitive edge against the competitors.

•

The conversion of wet process plants to dry process plants and the shifting of company from coal based production to waste heat production will cut down the company’s expenses and increase company’s retention prices.

Threats: •

The company is highly vulnerable to price competition since it faces higher cost of production per bag.

•

The rocketing increase in prices of furnace oil, and even 300 % increase in the price of coal has been affecting badly to company’s profitability.

•

The export to Indian market highly depends on diplomatic relations between the two countries.

•

The day after day terrorist attacks and the suicidal bombing have caused the unrest in the country. Along with creating a sense of non security among the citizens of Pakistan, these activities have proved to be hazardous to the manufacturing companies as well. The incident of rocket launcher fired on the grid station in Mianwali caused a great damage.

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory

3.3. PEST Analysis:

Political factors Political factors include government regulations and legal issues and define both formal and informal rules under which the firms operate. The rule and regulations that the cement industries follow are as follows:

Tax Policies o According to the tax memorandum 2008, the cement industries have to abide by the following rules: o The tax rates on telephones will be collected at the rate of 10 % of the amount exceeding Rs. 1000. o General sales tax is enhanced from 15 % to 16 % including sales tax on services under the Provincial Sales Tax Ordinance, etc. o Due to the increase in the general rates of sales tax, the rate sales tax on the natural gas has been increased from 24 % to 25 %. o Duty on cement (that includes Portland cement, aluminous cement, slag cement, super sulphate cement and similar hydraulic cements, whether or not colored or in the form of clinkers) has been enhanced from Rs. 750 to Rs. 900 per metric ton. o The government has put special excise duty of 1 % as well. o Duty on the services such as goods insurance, fire Insurance, theft Insurance, theft Insurance, marine Insurance, other Insurance, non-fund services provided by banking companies or non-banking companies has been enhanced from 5 % to 10 %. o The rate of tax for the collection at the import stage for all imports of goods has been reduced to 2 % from 5 %. o According to the tax memorandum 2008, the importer will not be taxed at the importing stage of goods such as mineral fuels, mineral oils and products of their distillation.

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory o Under SRO 575 (I)/ 2006, raw materials, machinery, components & equipments etc. were exempted from the whole of the sales tax and subjected to the custom duty at 0 to 5 per cent, with the condition that such imported goods were not locally manufactured. Now the condition of not being locally manufactured for the import of capital goods worth US $ 50 million or above for setting up of new industrial projects has been removed.

Employment Laws The labor policy issued by the Government of Pakistan lays down the parameters for the growth of trade unionism, the protection of workers' rights, the settlement of industrial disputes, and the redress of workers' grievances. The policy also provides for the compliance with international labor standards ratified by Pakistan. At present, the labor policy as approved in year 2002 is in force. The minimum wages for unskilled worker is Rs. 2,500. The minimum threshold of income for taxation of salaried individuals has been enhanced from Rs. 150,000 to 180,000 per annum.

Environment regulations At present Pakistan industries follow the Pakistan Environmental Protection Act, 1997. o The

Pakistan

government

has

now

become

conscious

of

the

environmental pollution. o It has set some specific laws that all the manufacturing industries have to follow according to the Pakistan Environmental Protection act, 1997.

Political stability o The present situation regarding the political stability is negative in Pakistan. o This political instability has been in process since the fate full attack of 9/11, 2001.

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory o This instability has affected the businesses adversely. o The poor security situation and uncertainty leading up to the parliamentary elections in February have caused a capital flight from Pakistan, and its rupee currency has fallen 13% against the US dollar since January 2008. o However, the stepping down of Pervaiz Musharraf as president has shown some hope for the reviving of the political stability. o According to the survey conducted by IRI (international republican institute), 52 % of the people expected that the things will get better now that there is a new government o But still there are many factors that are prevailing up till now and are the cause of the unrest. o More over, the geographical region where Pakistan is located, having the neighbors such as India and Afghanistan, and the pertaining international situation regarding the war against terrorism, not only the direct investors have stepped back even the investors who have made investments in the country are backing up. o The demonstrations, social unrest, suicidal attacks and terrorist’s attacks on different areas as well are highest risks to the company’s operations.

Economic factors Economic factors affect the purchasing power of potential customers and the firm’s cost of capital. Following are the factors affecting the macro economy: Economic growth o According to the report of UN Economic and Social Commission for Asia and the Pacific Pakistan maintained its momentum in 2007, slightly more than the 6.6 % for 2006. o The manufacturing sector growth continued 8.4 % in 2007, which is slightly more moderate than 10 % for the year 2006.

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory o The industry also suffered from a drastic decline in profitability as the combined industry profits declined by 56% from Rs 12.3 billion in FY06 to Rs 5.3 billion in FY'07. o Growth in Pakistan’s exports and imports slowed sharply in 2007: the rate for exports fell to 3.4%, for imports to 6.9%. o Pakistan has formulated sound macro economic policies that will help the Pakistani economy to grow stronger but the recent political violence and uncertainties could slow down the growth. o However according to the report, including all the sectors Pakistan’s economic growth is expected to remain strong at 6.5 % in 2008.

Figure 2

Inflation rate

inflation 1996 - 2007 14

o Pakistan, with a population of 16

million

people

has

undergone a remarkable macro

CPI index

about

12 10 8 6

economic growth during last few

4

years, but the core problems of the

0

2 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

economy

are

still

unsolved.

year

Inflation is one of these core problems. o The inflation in year 2008 has recorded to be the highest according to the Federal Bureau of Statistics. o Consumer Price jumped to 17.21% in March 2008 according to the statistics given by Federal Bureau of Statistics. o In April 2008, the Pakistan inflation accelerated at it fasted pace and the inflation is still increasing. o The reason behind this is that in April 2008 the food prices rose 25.5 percent from a year ago and fuel prices climbed 8.6 percent and the tension among the political leaders.

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory

Interest rates o The monetary policy of Pakistan is controlled by the state bank of Pakistan. o The state bank, in order to control the inflation has taken measures and tightened up the monetary policies. o Pakistan has raised its main interest rate by 1 percentage point to 13 % to help fight inflation. Figure 3

Exchange rates The exchange rates of Pakistan with respect to the U.S. dollar, has declined. The Pakistani rupee has depreciated since the proclamation of emergency rule in November 2007. In other words we can say that the value of the rupee has fallen as the time passed by. In figure 3 we can see the rise in the value of dollar in the moth of July. Minimum was recorded as Rs. 71.2556 and maximum as Rs. 76.2183

Social factors Health consciousness o Health consciousness among the people of Pakistan has been increasing day by day. o The citizens of Pakistan are getting aware of their duties in order to maintain the healthy environment. o Government is taking several steps in order to educate, how important it is for the people to live in the healthy environment. o The government discourages the operation of the industries with in the city by charging these factories with environmental charges.

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory o In spite of this discouragement, there are many factories that are running inside the city, discharging poisonous gases and chemicals. o By the passage of time, the people as well along with the government are discouraging such activities and demand for clean environment.

Technological factors Automation o This is the era of high competition o The Pakistani industries not only have to compete among them selves but with the international market as well. o Pakistan is steadily automating particularly its development sectors to stir quality production and ensure skilled management, as it would ensure a good place for the country in the global competitive market. o The ERP is being implemented or is in the phase of being implemented in the cement industry.

Technology incentives o According to the report issued by the ministry of technology, the government will invest in various fiscal and non-fiscal incentives to nurture, develop, and promote the use of IT in organizations, to increase their efficiency and productivity. o The strategies focus on promotion of venture capital industry through incentives, recognition of software development as a priority industry for financing by the banks and DFIs, creation of investment friendly environment, and building investors confidence

Rate of technological change o In recent years, technology has been seen to be progressing at very fast rate all over the world.

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory o It has helped to raise income and alleviate poverty in the developing countries. o The change in technology can be seen in the Pakistani industries as well.

PEST Analysis and Maple Leaf: According to the Chairman All Pakistan Cement Manufacturers Association (APCMA), Aizaz Mansoor Sheikh the increase in taxes has made Pakistani cement the highest taxed cement in the world, while addressing to the daily times. The excise duty has been increased from Rs 750 per ton to Rs 900 per ton along with additional excise duty of 1 percent. Increase of General Sales Tax from 15 percent to 16 percent has increased the threat of double taxation as General Sales Tax is charged on excise duty paid value. The minimum wages has also been increased by the government of Pakistan which is another increase in the expense on behalf of the cement producers. However, Maple Leaf is a private organization and therefore the employee pays aren’t regulated by any government stipulations. There aren’t specified strategies or labor laws that protect the labor wages at the factory. Maple Leaf considers employee satisfaction as a major contributor to their success in the market and therefore has undertaken extensive planning to ensure the employed labor force is happy with there salary packages. Emissions of carbon dioxide, sulphur dioxide, and particulate are the major sources of air pollution at thermal power plants and in the cement industry in Pakistan. These not only pose nausea and potential health hazards to human beings, they also damage landscape and wildlife. Maple leaf cement factory has brought into considerations such problems and taken steps to control such problems. The factory is going to install waste heat recovery plant worth PKR 1600 million. To carry out this project, the factory has take loan from Habib Bank Limited worth Rs. 1160 million. The political stability in Pakistan is at unrest. Due to this, the cement Factories along with Maple leaf are facing problems regarding the investments they have made. The stock market has shown sheer down fall since the political unrest. Although the market share index showed improvement after the resignation of Pervaiz Musharraf on 18th of August. But still the failure to reinstate the judges on time and many other issues has

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory made the share index to slope downward once again. The day after day terrorist attacks and the suicidal bombing have caused the unrest in the country as well. Along with creating a sense of non security among the citizens of Pakistan, these activities have proved to be hazardous to the manufacturing companies as well. The incident of rocket launcher fired on the grid station in Mianwali caused a great damage. Maple leaf and other cement factories along with other industries located in the area have to either shut down their factories for the time being or generate their own power, like maple leaf. The economic growth in the manufacturing sector was stated to be 8.4 % in the year 2007. According to the federal bureau of statistics, Pakistan has hit record inflation during 2008. The SBP, in order to control the inflation, it has to tighten the monetary policies by increasing the interest rates. The increase in the interest rates has made the industries to pay more interest against the long term loans that they had borrowed at lower interest rates. The Pakistani currency has been depreciating since the emergency declared by Pervaiz Musharraf in November 2007. This caused a great problem to the industries who have taken loans in the foreign exchange currencies like FE 25 loans etc. The investors in the cement sector are well aware of the importance of technology in the present day and they quite well realize the returns they can get using advance technologies. The cement factories such as D.G. cement, lucky cement and may other factories is using latest technologies. However, the old cement industries such as maple leaf are now shifting towards the new technology as well.

COMSATS Institute of Information and Technology, Jinnah campus; Off Raiwind Road Lahore

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Maple Leaf Cement factory

4. Marketing 4.1. Market Potential: Domestic The demand growth rate of the cement industry in the local market is expected to grow at the rate of 13 % capacity growth rate. The factors that affect the domestic growth rate of cement industries are as follows: • Strong GDP growth The cement industry is highly cyclical in nature and depends largely on the economic growth of the country. There is a high degree of correlation between the GDP growth and the growth in cement consumption. Hence, if the GDP growth slows down, so does the demand for cement. Higher GDP has positive impact on the cement demand. • Increase in the housing demand According to the report from statistical bureau of Pakistan the housing projects consume 40 % of the cement demand. Currently 0.3 million houses are built annually against demand of 0.5 million. • Dams The construction of the four dams will generate demand of 3.7 million metric tones in case the construction activities of these dams start. According to the reports the the Kala Bagh dam (if settled) will generate the maximum demand since it is situated in highly populous area. • The Development Plans The Government developmental plans for the infrastructure also help the demand of cement to grow. The government developmental expenditures count for one third of the total cement consumption. 60 percent higher Public Sector Development Projects (PSDP) allocation by the government was on of the reasons of increase in the growth rate cement consumption in the FY 07 and 08.

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Maple Leaf Cement factory Export: According to Ismat Sabir (A journalist as well as a researcher) the prospects for cement exports seem bright in the medium term due to rising domestic as well as regional cement demand. •

The cement export started in the FY 02 to Afghanistan, which is still a major market.

•

Pakistan has 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 further planning to import more cement from Pakistan in order meet its growing needs due to the boom in the construction industry.

•

The exports for FY08 have already surpassed the last whole year’s export of 3.19 million tonnes and are likely to reach to 6.67 million tonnes in 2008.

•

The targets for exports for 2009 and 2010 are set to be 9.99 million and 10 million tonnes respectively.

•

Currently, the export demand is expected to be from India along with other countries like Gulf Cooperation Council (GCC) countries, due to rising oil pricesled economic growth.

•

More countries like South Africa to make the football stadiums for the World Cup and Sri Lanka are also expected to approach Pakistani companies for cement imports.

•

The operating capacity of cement in FY05 and FY06 was 18 million and 21million tonnes, which rose to 37 million tonnes by the end of FY07.

•

The cement manufacturers added eight million tonnes to the capacity and the total production is expected to be 45 million tonnes by the end of 2010.

•

It may result in a supply surplus of eleven million, nine million and seven million tonnes in 2008, 2009 and 2010 respectively.

•

Despite an excess supply of 11 million tonnes in 2008, it is estimated that the price would increase in domestic as well in regional markets that may surely boost the profitability and give relief to the industry on its new investment.

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Maple Leaf Cement factory

4.2. Maple Leaf Products: It is an industrial product. It is classified as component material which

is categorized

under manufactured materials and parts. 4.2.1 Product diversification:

Figure 4

Product Line

Properties

Price in Rupees* (Per bag)

It is also known as grey cement. It is one of OPC (Ordinary Portland Cement)

the main products of Maple leaf. It is used for building houses, buildings etc…It is also

357

used for other purposes such as plaster and many other construction purposes. It is another main product. It is mostly used

White Cement

during the finishing of the building such as

400

flooring. Maple leaf has developed a niche market for this specialized product. It is used in the Low Alkali

under ground basement construction of plazas, construction of bridges, flyovers etc

390

in order to prevent the structure from water also called seam. It has same properties as low alkali cement, SRC

but its chemical formula is a bit different. It

(Sulphate Resistance

has more quantity of alkali which makes it

Cement)

one step down than low alkali. It is also

375

mostly used for the same purposes as low

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Maple Leaf Cement factory alkali. It is used as the name suggest for the oil Oil Well Cement

wells. Maple leaf is the only producer of oil

335

well cement in Pakistan. One of the main raw materials for the Clinker**

production of cement, but it is also used as consumer product. It is used in the road

--

construction projects. Although it is used as raw material for the Hydrated lime**

production of cement but also as a consumer

--

product as well. It is also know as Choona

* The above prices assumed since the management wasn’t willing to disclose the actual price. **The price of the product is set on the bases of the deal and bargain with the customer.

4.2.2. Brand name The brand name of the cement products of maple leaf Cement is “Maple Leaf”. The branding is done by combining the corporate name with the product name such as “maple leaf – white Portland Cement”. According to Mr. Hassan, the manager of marketing – export, the brand equity of maple leaf at present is US $ 500 million. Maple leaf is sold as premium brand in the local and international market, he added. He said that the people acknowledge its superior quality and are loyal to brand. It is also known to many people by the name of “pattay wala cement”.

Maple Leaf

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Maple Leaf Cement factory 4.2.3. Market Share

Figure 5

M arket share (local)

Bestw ay, 14.26% Flying, 0.33% Lucky, 13.09%

Dandhot, 1.12% Kohat, 2.00% Dew an, 3.00%

Maple Leaf , 12.55%

Fecto, 3.15% Cherat, 4.35% Ask. Wah, 4.66%

D.G. Khan, 8.99%

Askari NZP, 5.07% Fauji, 5.18% Pioneer, 6.56%

D.G.Chakw al, 8.40% Pakistan, 7.28%

Market share ( export)

Pakistan, 5.63% D.G. Chakw al, 5.73% D.G. Khan, 7.42%

Pioneer, 5.27% Ask NZP, 5.14% Al Abbas, 5.07% Cherat, 3.90% Fauji, 2.82%

Maple leaf , 11.14%

Fecto, 2.14% Ask Wah, 1.70% Dew an, 1.63% Best w ay, 11.17%

Attock, 1.35% Kohat, 1.07% Lucky, 28.81%

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Maple Leaf Cement factory Figure 5 shows the market share of the north zone and exports. The manufacturing plant of maple leaf is the third largest in Pakistan. It is one of the largest manufacturing plants, capacity wise. Maple leaf cement’s market share in north zone is 12.55% and 11.14 % respectively. 4.2.4. Packaging and Labeling • Packaging Two types of cement bags are used for the packaging of the cement. 1. Paper Bags This packaging is used for the local sale purposes. It is a standard 50 Kg packing. The quality of the paper bag used is better than many of the competitors which give maple leaf a competitive edge in the local market. 2. Poly propylene bags: This packing is used only for the purpose of export. The reason behind using this packing is that the life of the cement is increased. The packing of the bag may be of 50 Kg, 40 Kg, or even 25 Kg depending on the order made. • Labeling The product is labeled with the maple leaf logo and the brand name. It also includes the name of the product i.e. OPC, white Portland cement etc along with the gross weight of the bag and quantity of cement. The labeling is same for the export packaging as well however, the company is planning to label the cement exported in India in hindi, since it is the demand of the customers in India.

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Maple Leaf Cement factory 4.2.5. Product stage of PLC

Figure 6

Maturity

Growth

MLFC

Decline

Introduction

At present maple leaf cement factory is at the growth stage. This fact can be justified by analyzing the sales of the company. Although the company is established since 1956, but the recent construction boom in Pakistan and all over the world as well has caused the sales of cement to increase. One of the major reasons for the increase of its sales is the entrance of maple leaf in the international business. More over the expansion projects started by the company is another indication, that the company has the potential for further growth.

4.3. Product Positioning Product positioning is actually a perception that a person or a consumer has about the product or brand. According to Mr. Amir, in order to know about the customer’s perception about maple leaf cement, the management flow questionnaires in the market to get the feed back from the market. According to him the people acknowledge maple

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Maple Leaf Cement factory leaf for best quality and good strength. More over maple leaf has the highest price among its competitors.

4.4. Distribution: 4.4.1. Market coverage Local market: Maple leaf cement factory covers the local market by allocating the distributors their specific area of sales. The target of the company is to cover the market all over Pakistan, but its major focus is in covering the maximum of the north zone. The reason behind is the location of the maple leaf manufacturing plant. The plant is situated at Daud Khel in Mian Wali. The company has to bear lots of transportation cost for the south zone, which it has to, at the end add in the price of the cement bag. This will end up in losing the customer despite of the claim of good quality. More over, due to long distance and time, the packaging of the cement is affected which in results in increased number of waste product. Export market: Maple leaf exports its major products ordinary Portland cement and white Portland cement. The major markets of maple leaf are Afghanistan, India, Middle East along with other countries such as Nepal, Burma, and Srilanka. There are many other countries that maple leaf is and has already explored such as Nigeria, Vietnam where there is an increase in demand of cement. 4.4.2. Channel structure: The following figure 7 shows the channel structures followed by maple leaf at present for the local sales. There are basically two levels at which the goods are sold to the customers.

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Maple Leaf Cement factory Zero level is the level at which the company handle the customers directly. This case arises when the customer wants to order large quantity for the project such as Plazas or any other mega construction. In 1- level channel structure, the distributors act as the intermediary in between the company and the customer. In case of export however, there is no intermediary. The company at the moment is dealing the export customers as their direct customers i.e. at 0 - level.

Figure 7

0-level Manufacturer

1- level

0 – level (export)

Manufacturer

Manufacturer

Industrial Distributor

Industrial Or Direct customer

Industrial Or Direct customers

Industrial Or Direct customers

4.4.3. Supply Chain Management: Maple leaf is situated at a strategic location which is rich with raw materials such as lime stone clay, gypsum, and iron ore. The mines of these raw materials are owned by the factory. These raw materials are transported to the manufacturing plant through trucks. The raw material such as coal, and furnace oil are imported. Although Pakistan land is rich in coal mines, but the quality of the coal produced is not good. It produces greater

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Maple Leaf Cement factory amount of fumes and ashes and even catches fire if exposed to sunlight. Hence good quality of coal is imported from countries such as Indonesia and china. After the manufacturing process is completed the cement is then packed in two types of packaging. One is for the purpose of local sales and the other for export. Local supply: The company covers the market by two marketing channels. The first priority of the company is to dispatch the goods to the distributors. There are 17 distributors working for maple leaf. Maple leaf has assigned certain quota for the daily dispatch depending on total capacity of production of the plant where the distributor is situated as well. Maple leaf deals with customers directly as well. The company entertains only those customers directly who have started a mega project and require huge amount of cement. The goods are dispatched from the factory via trucks to their respective destinations Export: The factory currently deals with the importers as direct customers. The manufactured product is sent to the ware houses situated in Lahore and Karachi. Here the orders are then dispatched as per the deal i.e. via road, train or sea, any mode of transportation that is best suited. The supply chain management of maple leaf is shown in figure 8

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Maple Leaf Cement factory

Figure 8

Raw Material

Transportation

Manufactured

Dispatch from the Factory

Transportation

Transportation

Stored in the Ware House

Distributors

Board on Ship

Customers

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Maple Leaf Cement factory

4.4. Pricing: The pricing of per bag of cement is given by the cartel seated in APCMA. Almost all the owners of the cement manufacturing plants are member of this association. Depending on the government regulations, such as increase in taxes, excise duties, fuels and other expenses, the association decides a price on consensus. A threshold is decided by the cartel, below which no member of the association is allow to sell its product. Maple leaf always keeps lead in the market regarding the pricing. It charges more than the competitors.

4.5. Promotions 4.5.1. Communication Channels: Maple leaf uses two communication channels to reach their customer. 1. Media 2. Public relations 3. Word of Mouth 1. Media Maple leaf is using two types of media. •

Print media such as news paper Maple leaf releases its news about the financial achievements in the market through the news paper and this activity is done quite frequently.

•

Internet The company has its own website by the name of its mother company KMLG. The name of the site is www.KMLG.com

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Maple Leaf Cement factory 2. Public relations: This communication channel is widely being used for the purpose export. This is mostly done by conducting seminars. 3. Word of mouth: The company claims that there most effective and efficient means of communication has been good word of mouth. The deputy manager, Adeel Sheikh said that they always claim their cement to be of the best quality and their customers have always acknowledged it. 4.5.3. Promotion tools: The promotional tools that are used for local and export sales are as follows: 1. Discounts 2. Commission 3. Patronage awards 4. Seminars and conferences 5. Public – Service activities Discounts to the distributors are given when he carries certain quantity of cement bags from the factory. Commission is given to the distributors @ Rupees 5 per bag. Patronage awards are given away in the form of certificates. These are given to the distributors depending on their performance. The company analyses the distributors by observing their daily sales, on season and off season. The company officer then categorizes them accordingly as A, B, C. The distributors whose performance is 80 - 90 % and above lie in category A The distributors whose performance is 70 – 80 % lie in category B

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Maple Leaf Cement factory The distributors whose performance is 70 % and below, lie in category C The company gives out certificates of the best distributors to the ones lying in category A. It also gives preference to these distributors, when they require goods more than the quota assigned to them. The distributors lying in category B are reminded to improve their performance, every now and then. However, the distributors in category C are given written warnings from the company. .Seminars and Conferences are frequently carried out by the company in the other countries such as India, Middle East, Canada and many others, in order to present and market their products to the prospective consumers. Another major means of marketing promotion that is carried out by the company is through the buying houses. The agents of the buying houses work as intermediaries between the international customers and Maple Leaf. They even conduct seminars and conferences on behalf of maple leaf. In return they get a lucrative commission by the company. Public – Service activities The Kohinoor Maple Leaf Group is committed to fulfilling its social responsibilities and has therefore invested in numerous projects to promote issues relating to health, education and culture in Pakistan. The Sayeed Saigol Cardiac Wing at Ghulab Devi; The Kohinoor Maple Group has donated a state of the art Cardiac facility to the Ghulab Devi Chest Hospital in Lahore. It is hospital that provides treatment almost free of cost to patients suffering from tuberculosis and severe chest diseases. The facility is currently under construction and will be operational at the end of 2006.

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Maple Leaf Cement factory The Sayeed Saigol boarding house at the Chandbagh School; The Kohinoor Maple Leaf Group feels strongly about promoting education in Pakistan. The group was actively involved in the establishment of the Chandbagh School located in Muridkee and has donated a boarding facility for students at the school premises. The Lahore Art Gallery; The Lahore Art Gallery was commissioned by the Kohinoor Maple Group in 1990.It is the first non-profit organization of its kind dedicated to projecting and promoting artists from Pakistan at a domestic and international level. The gallery is located at Kohinoor’s head office and will eventually be converted into a museum housing some of the finest works of art from the region.

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Maple Leaf Cement factory

5. Productions and Operations 5.1. Flow of Activities in production: The following raw material is required in the production process 1. Lime stone: This raw material is company owned and is extracted from the near by mountains of Iskanderabad. Limestone has the highest composition in the cement product. 75% to 80% of the cement constitutes of limestone 2. Clay: Clay is another natural resource. This raw material is also company owned. 15% to 20% of cement composition comprises of clay 3. Iron Ore: Iron Ore is the only resource that is bought from contractors. Iron Ore is added in small quantities 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. 5. Furnace oil: It is used mainly for power generation.

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 are also added. 1. Limestone 80% 2. Clay 20% 3. Iron ore Lime stone and clay are extracted from the same place. Iron ore is bought from a contractor near Kalabagh. Step 2: The raw materials are feeded in separate “crushers” that break them into smaller pieces. After that they are stored in separate piles. 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.

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Maple Leaf Cement factory 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. 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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Maple Leaf Cement factory

Figure 9 Crushing and grinding

Lime Stone Quarrying

Cooling

Clinker storage

Preheating

Rotary Kiln

Cement Grinding

Cement Dispatching

5.2. TECHNOLOGY IMPROVEMENT The Maple Leaf Cement Factory is completely automated and the plant installation. The engineers constantly work to improve the efficiency and effectiveness of the machinery. The highlighted techniques included 1. Troubleshooting 2. Continuous improvement under the Kiazen approach 3. ISO specified changes in work procedures and capacity utilization 4. Change in Hierarchy to support production

5.3. Quality Assurance System 5.3.1 International Standards: The company follows the ISO9002-9001 certification attached in appendix IV to ensure maximum quality in the factory processes. They are following standards which are as such: •

PS (Pakistani Standards)

•

BS (British Standards)

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Maple Leaf Cement factory •

ASTM (American Society for Testing & Materials)

•

ISO (International Organization for Standards)

The British Standards that are being followed by Maple Leaf Cement are BS - 8110 & BS-5750.

5.3.2 Quality Control Approaches for improving product quality: •

PQ Teams: PQ teams exist at every level of the hierarchy

•

TQM

•

Zero Defect product

•

Productivity Maintenance Department

•

Quality assurance Department

•

Preventative measure and maintenance team

The success of any organization and its ability to outshine competitors depend on the right mix of quality and quantity. According the management the quality of cement at Maple Leaf is much higher than the required Pakistani standards. The quality of the cement is kept at par with international standards since Maple Leaf Cement Factory Ltd is importing a large chunk of their production to foreign countries such as India and China. Furthermore quality retention is very important because there is intense competition in the local market.

5.3.4. Feedback and suggestions: There is suggestion boxes placed all across the factory so that workers can drop their suggestions. The box is opened separately by the ISO Department every month. The suggestions that are adopted are referred to as winning suggestions and a reward is given to the employee who has made the suggestion.

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Maple Leaf Cement factory

5.4. Warehousing and Storage: After the production process of cement is complete, some part of the cement is stored in the storage house. 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. Maple leaf also has two warehouses in Lahore and Karachi. These warehouses are used for the export purpose. The goods to be exported to other countries are stacked in here.

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Maple Leaf Cement factory

6. Finance 6.1. Ratio Analysis Current ratio: Current Assets Current ratio = ----------------------Current Liabilities Calculation Current Ratios

2007

2006

1.1 : 1

1.005 : 1

The value of current ratio has risen slightly from the previous year. The industry median calculated indicates that attaining the current ratio up to 1.16 is sufficient for the cement industry to able to meet its obligations. The current ratio of maple leaf is 1.1, which is almost close to the industrial median. This is a Figure 10

good signal for the short term creditors that the company

has

potential

to

pay

back

the

obligations in the near future. The figure 10 shows the current ratio of the company has been better than the over all

1.4 1.2 1 0.8

cement industry

0.6

maple leaf

0.4

industry for the most of the time. It became low in 2007 due to the increase in the current portion of the long term loans and finances which the

0.2 0 2007

2006

2005

2004

company has taken for the installation of new plant.

Quick Ratio: Current Assets - Inventory Quick Ratio = -------------------------------------Current Liabilities

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Maple Leaf Cement factory

Calculation Quick Ratio

2007

2006

0.98 : 1

0.92 : 1

The calculations above show that the quick ratios have showed improvement with respect to the previous year. But, comparing the calculations with the industrial median of 1.08 we realize that the company’s potential to pay the obligations has decreased. However, according to figure 11, which shows the four years comparison between the cement industry and the maple Figure 11 Quick Ratio comparison of Cement Industry and maple leaf

leaf, we can clearly see that the value of the quick ratio of maple leaf has always been

1.4 1.2

higher than the industry before

1 0.8 0.6 0.4

2007.

0.2 0 2007

2006 Cement Industry

2005

2004

maple leaf

Activity Ratios: Inventory Turn over: Cost of goods sold

340118

Inventory turnover = ---------------------------- =

---------------- = 9.2 times

Inventory

369709 365

Average age of inventory (2007) = -------------

= 40 days.

9.2

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Maple Leaf Cement factory

Calculation Average age of Inventory

2007

2006

(days)

40

21

The above results show that maple leaf converts its inventory into goods 9.2 times in the year 2007. Maple leaf had a very bad result for the year 2007. The average age of inventory in the year 2007 decreased by 100 %. The industrial median of the industry was also 26 giving a view of bad inventory management of maple leaf. The present situation i.e. 2007 seems to be unfavorable for the creditors to provide loans to the company. However, when we compare the four year inventory turnover rate of maple leaf with the cement industry as Figure 12 shown in the figure

Comparison of average age of inventry of cement industry and maple leaf

12, we see that the company has always been

managing

inventory well.

its The

reason for its bad management for the

50 40 30 20 10

year

2007

is

the

major break down of the cement grinding

0 2007

2006 Cement industry

2005

2004

Maple leaf

mill. Due to this break down, the cost of work in process increased and so as the cost of finished goods, hence causing the cost of goods to rise in spite of fewer sales.

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Maple Leaf Cement factory Average collection period: Accounts receivables Average collection period =

---------------------------------Average sales per day

Calculation Average collection period

2007

2006

20

18

The average collection period in 2007 has increased to 20 days from 18 days in 2006. The industrial median of the cement industry in 2007 is 20.07 which make it favorable condition for the company. But, in fact the company is not able to keep up with its own policy of 15 days credit policy. Figure 13

This shows that the company

comparison of the average collection of the cement industry and maple leaf

had been managing its debtor more efficiently in the previous 30

year. Looking at the figure 13,

25

we see that the company is not able to manage its debtors quite

20 15 10

well.

5 0 2007

2006 the cement industry

2005

2004

Maple leaf

Total asset turnover: Sales Total asset turnover = -----------------Total assets

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Maple Leaf Cement factory Calculation Total asset turnover

2007

2006

0.16

0.3

From the results above we see that in the year 2006, every rupee invested in the total assets generated 30 paisa where as in the year 2007, it generated only for about 16 paisa showing a decrease of 47 %. The total turn over of the company is lower than the industrial median as well. The industrial median also shows that the over all industry earned 27 paisa over every 1 rupee of the total assets. The four year industrial analysis maple

shows leaf

has

that Figure 14 Comparison of total assets turnover for the cement industry and maple leaf

been

always performing well as

compared

to

the

0.6

cement industry.

0.5

The reason behind this

0.4

decrease was that in spite of the fact that the total

assets

of

0.3 0.2 0.1

the

company increased by

0 2007

cement industry

22 %, but due the break down

of

the

2006

2005

2004

maple leaf

cement

grinding mill the sales lacked behind by 35 % than the sales in 2006.

Debt Ratios Debt – to – total assets ratio Total liabilities Debt – to – total assets ratio = ---------------------------Total assets

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Maple Leaf Cement factory Calculation Debt – to – total assets

2007

2006

62

60

ratio

The above ratio tells us that in the year 2006, 60 % of the firm’s assets are financed with debt, where as in the year 2007, the percentage increased to 62 %. The industrial median of the cement industry also shows the debt – to – assets ratio of 60.52. The debt burden on the company has increased instead of decreasing. However,

this

Figure 15

Comparison of debt - to - assets ratio of cement industry and maple leaf

doesn’t to need be some

so

worry for

the

company at the moment.

The

reason for this is that, if we look at comparison

of

70 60 50 40 30 20 10 0 2007

2006

2005

2004

maple leaf with the

cement

cement industry

maple leaf cement factory

industry in figure 15, we realize that the position of the company regarding debt management has been better than the entire industry. The debt on the industry increased due to the expansion projects that have been started by the company and also other purposes such as the conversion of wet process plants to dry process plants and other capital expenditure requirements.

Debt – to – equity ratio: Total Liabilities Debt – to – equity ratio = -------------------------Share holder’s equity

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Maple Leaf Cement factory Calculation Debt – to – equity ratio

2007

2006

1.61

1.57

The ratio tells us that the creditor is providing Rs. 1.61 of financing for each Re. 1 being provided by the share holder. This ratio has increased as well, as compared to the year 2006. In the ratio form, the results for the year 2007 can be stated as 55: 45 and that of the year 2006 is 51: 49. The creditors always prefer this ratio to be low. the lower the ratio, the higher the level of the firm’s financing that is being provided by the share holders, and larger the creditor cushion in the event of shrinking assets values. The industrial median for the year 2007, however is 1.79, showing that maple leaf is better off as compared to the industry.

Figure 16

If we see the figure comparison of debt - to - equity ratio of cement industry and maple leaf

16, we see that the company’s ratio in the past years have been

2.5

in the favor of the

2

the

1.5

requirement of loans

1

creditors,

for

the

projects

but

expansion started

by

0.5 0 2007

2006

2005

2004

the company, along with

conversion

cement industry

of

maple leaf

wet dry processes into dry process plants have caused the ratio to increase.

Interest coverage ratio: EBIT Interest Coverage Ratio = -------------------------Interest

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Maple Leaf Cement factory

Calculation Interest Coverage Ratio

2007

2006

0.6

6

The ratio of the year 2007 show that earnings of the company before interest and taxes is 0.6 times greater than its interest payments. In the year 2006, the position of the company was considerably better. The company’s ratio has fallen below the industrial median. The reason for this down fall is the low operating income earned by the company. If we see the industrial

Figure 17

Comparison of interest coverage ratio of the cement industry and maple leaf

analysis of the company with

other

companies,

we see that, the position

25

of

company

20

regarding this ratio has

15

been low. However in the

10

year 2007, the industrial

5

ratio

the

has

also

fallen

0 2007

2006

2005

2004

down. The major credit cement industry

for this fall down can be

maple leaf

given to the increase in the interest rates by SBP, to stricken the monetary policy. But the condition of maple leaf was still worse.

Profitability Ratios: Gross Profit Margin:

Gross profit Gross Profit Margin = -------------------Sales

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Maple Leaf Cement factory

Calculation Gross Profit Margin

2007

2006

8.35

19.50

The ratios show that in the year 2006 the company’s gross profit was almost 20 paisa on ever Re. 1. But in the year 2007, the gross profit fell by 57 %, to only 0.08 paisa per 1 rupee of sale. The company has shown very poor performance in this year. The industrial median is also 19.35, which puts maple leaf in an alarming situation as well. The reason behind this decrease was the sales of the companies decreased by 35 % with respect to 2006, but Figure 18

the

cost

decreased

of

goods

only

by

Comparison of profit margin of the cement industry with the maple leaf

4

%.the reason for this was the 40 days of major

50

break

the

40

cement grinding mill due

30

to which the average age

20

down

of

of inventory by about 100 %. Another reason for

10 0 2007

2006

2005

2004

the cost increase was the increased production

cement industry

maple leaf

from the wet process kiln due to stoppage of dry kiln for the routine maintenance. If we see the figure 18, the four years comparison shows that the maple leaf has been earning gross profit below average. We can also see that in 2007 the industry’s gross profit margin has also fallen down. The reason behind this drastic reduction is the increasing pressure on the cement prices with a perception of over supply due to new capacities coming on line.

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Maple Leaf Cement factory Net Profit Margin: Net Profit Net Profit Margin = ------------------------Net Sales

Calculation Net Profit Margin

2007

2006

1.13

18.55

In 2007, the company generated 0.013 paisa from every rupee of sale. However, in 2006 the situation was quite good since the company earned 93 % more than in 2007. The industrial median was also higher than that of the companies. The reason behind the reduction was the reduction in sales along Figure 19 comparison of net profit margin of the cement industry and maple leaf

with the relative increase in the cost of goods sold. The

sales

the

30

company reduced due to

25

the production from wet

20

process

of

kiln

due

to

15 10

stoppage of dry process

5

kiln

0

for

routine

maintenance, which is expensive process

than and

dry

2007

2006 cement industry

2005

2004

maple leaf

also

because of the break down of the cement grinding mill for a period of more than a month which restricted the sales volume. This fault even disabled the company to get full benefit of the improved cement prices in March and April 2007. The figure 19 shows the comparison of the net margin generated by maple leaf and the over all industry. The earnings have always been low of maple leaf, which is not a healthy sign for the company. Even the net profit earned by the over all industry has

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Maple Leaf Cement factory fallen in the year 2007. The reason for this is the sharp increase in the mark up rates which raised the financial costs.

Operating Expense: Operating Expense Operating Expense ratio = ----------------------------Sales

Calculation Operating expense ratio

The operating expense ratio of

the

company

2007

2006

4.1

3.5

Figure 20

has

comparison of the operating expenses of cement industry and maple leaf

increased by 17 % in 2007. This increase was due to the increase in the distribution costs of the company. How ever

this

ratio

remained

below the industrial median. The industrial median was 8 %. This shows that the management control

the

is

able

to

10 8 6 4 2 0 2007

2006 cement industry

2005

2004

maple leaf

expenses

efficiently. The four years comparison of maple leaf with the industry in fig also shows that the company has controlled its expenses quite well.

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Maple Leaf Cement factory E.P.S: Net Income – preference shares EPS = --------------------------------------------------------No. of shares of common stock out standing

Calculation E.P.S.

2007

2006

(0.03)

3.16

The earning per share of the company has gone to the negative digits, i.e. – 0.03 in the year 2007. The earning per share in the year 2006 was 3.16. This showed that on each share of common stock outstanding, the investor earned Rs.3.16 but this earning has fallen by 99 %, showing negative earning. The industrial median is also 3.14, for the year 2007. The reason behind the low earning is the lowering of net income

Figure 21

by 96 % due to the break

comparison of EPS of the cement industry and maple leaf

down of the grinding mill for 40 days and increase in the

7

financing costs and slight

6

increase in the number of

5 4

shares by 1 % as well.

3

The four years comparison

2

of

maple

industry

leaf

with

the

1

shows

that

the

0

company’s

earning

share

always

has

per

-1

2007

been

2006 cement industry

2005

2004

maple leaf

lower than the industry’s average earning per share. This is a demotivating factor for the investors and they will prefer to invest in some other cement industry instead of Maple leaf which is unfavorable for the company.

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Maple Leaf Cement factory Return on total assets: Net Income Return on total assets = -----------------------Total Assets

Calculation Return on total assets

2007

2006

0.18

5.64

This means that, in the year 2006 the company earned 5.64 paisa over every rupee invested in the assets and in the year 2007 the company earned 0.18 paisa over every rupee invested in the assets. The present position of the company to earn against its assets is very bad The ratio is also below than the industry median. The industrial median for the year 2007 is 2.9 %. If we compare the four years Figure 21 industrial median with the

Comparison of return on assets of the cement industry and maple leaf

company in the figure 21, we see that the company has not been performing well for the last three years in a row.

35 30 25 20

So, along with blaming the

15 10

increase in the cost of

5

goods due to trial run

0 2007

operation, the increase in coal

and

oil

2006 cement industry

2005

2004

maple leaf

prices,

increased production from wet process kiln due to stoppage of dry process kiln for routine maintenance, and a 40-day unfortunate breakdown of the cement grinding mill, and high finance cost, the management of the maple leaf should be blamed as well for the un efficient performance through out the years

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Maple Leaf Cement factory Return on equity Net income Return on equity = ----------------------------Stock holder’s equity

Calculation Return on equity

2007

2006

0.47

14.51

The return on equity for the year 2006 shows that the investors earned 14.5% on their investments where as for the year 2007 the investors earned only 0.47%. The industrial median for the year 2007 was 2.35 which made the company look more miserable. The reason behind the low

Figure 22

returns was the unfortunate comparison of return on equity for cement industry and maple leaf

break down of the cement grinding mill for 40 days, which caused the decrease in sales and the increase in the cost. The cost of goods sold also increased due to trial run operation, and there is an increase in coal and oil prices, increased production

45 40 35 30 25 20 15 10 5 0 2007

2006

2005

2004

from wet process kiln due to stoppage of dry process kiln

cement industry

maple leaf

for routine maintenance, which is expensive than dry process, and high finance cost. When we look at the over all industry and maple leaf in fig, we see that the maple leafs performance has been very low as compared to the industry. The management is not able to generate enough revenues against the investments made by the share holders.

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Maple Leaf Cement factory

6.1. Common Size Analysis: Common Size Analysis of Balance Sheet: The calculations of the common size analysis of balance sheet have been annexed in appendix - II. Assets The total assets of the company are 100% which includes 17.3% current assets and 82.7% non current assets for 2007. The major contributor to no-current assets is property plant and equipment. These are 82.5% of total assets. This includes 39% operating fixed assets 59%. Capital work in progress and 2% stores and spares held for capital expenditure. Major contributor to operating fixed assets is plant and machinery, it is 75% of total operating fixed assets, and other major contributor is building. And the major contributors to capital work-in-progress are plant and machinery, mechanical works, electrical works and the un-allocated capital expenditure. And for the 17.3% current assets, major contributors are stores, spares and loose tools with 8.6% and investments with 4%.

Equities and Liabilities The Company is using 38.4% equity and 61% debtors’ money to run its operations and finance its assets. The firm’s degree of indebtedness is high. For the 38.4% equity portion, the company has 18.2% issued subscribed and paid-up capital and 19% reserves. For the 61% liabilities Portion Company has 16% current liabilities and 45.6% noncurrent liabilities. For the 45.6% non-current liabilities major contributors are term loans and finances worth 36.6%. These loans have been taken from different banks, consortium and syndicate of commercial banks. And for the 16.02% current liabilities major contributor is cement parties of long term loans and finance with 7.6%.

Common Size Analysis of Income Statement: The calculation of common size analysis of income statement is annexed (appendix – II). In common size analysis sales are bench marked as 100%. Cost of goods sold is 91.6% of the sales, leaving a very low gross profit of 8.4% for 2007. And it was 37.6 in

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Maple Leaf Cement factory 2006. This sharp decline in 2007 is because of high costs of goods sold due to trial run operations of the new installed plant from 01 March, 2007 to 30th June 2007. The operating expenses are 4.2% of total sales, leaving the operating profit to only 4.2% adding 1.2 operating income. Maple Leaf has an operating profit of only 5.3% to total sales. The total finance cost of the company is 9.1% of sales because of high mark-up rates on long term and short-term loans and finances, bank guarantees commission and exchange fluctuation loss. After the deduction of finance cost, the company suffered pre-tax loss of 3.8% of total sales. After the tax calculation, the company earned net profit of only 3.8 % of the total sales.

6.2. Index Analysis: Index Analysis of Balance sheet: The calculations of index analysis is shown in appendix (III)

Equities and Liabilities For equity issued, subscribed and paid-up capital increased by 21% reserves by 45% and a decrease in inappropriate profit by 62%. For the liability portion, current liabilities increased by 41% and non-current liabilities by 19%. For current liabilities major contributor is of current portion of long term loans and finances which increased by 232% because of increase in interest rates. Then the other major contributor is current portion of liabilities against assets subject to finance lease it is increased by 209%. Non-current liabilities increased by 19% with major increase in liabilities against assets subjected to finance lease agreement with first National Bank to acquire two units of imparted Volvo wheel loaders.

Assets The total assets of the maple leaf have increased by 22% since the previous year. There is an increase of 17% in non-current assets. The property plant and equipment

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Maple Leaf Cement factory has increased by 70% because company acquired a new building, plant and machinery. Also the capital work in progress increased because of plant and machinery, electrical and mechanical works, unallocated capital expenditure done for the expansion project of 6700 tpd clinker capacity. No investments were made in 2007 showing a 100 % decrease. Then the deposits and prepayments increased by 71%. There is an increase of 52% current assets, where major indicators are stock in trade, loans and advances, deposits and short term prepayments, receivables cash and bank balances. Stock in trade increased by 83% from last year because of low turnover of work-in-progress and finished goods. There is a decrease of 72% in loans and advances because of earnest money deposited with the privatization commission, Govt. of Pakistan for participating in the bidding of 100% shareholding of Pak American Fertilizer ltd. As the Company’s bid could not succeed this balance was fully received back during the current year. Then there is an increase of 10% in the deposits and short term payments which also includes margin against letters of credit. Finally cash and bank balances also increased by 22% from last year.

Index Analysis of Income Statement The year 2006 is kept as base year and all financial statement items are 100% for this year. Now, comparing the sales in 2007 to its sales in 2006, the index is 64.9, showing a 35% decrease in sales and this is prominently due to reduction in cement retention prices, and a 40-day unfortunate breakdown of a cement grinding mill. Now the reduction in cost of sales is only 5%, showing company is producing on a very high cost and this is prominently due to increase in coal and oil prices and the 2354% increase in work-in-progress transferred to normal operations during trial run operations for further processing. Because of high cost of sales and low revenues, the company’s gross profit for 2007 is 85% less than the 2006. After the deduction of operating expenses the company is left with operating profit of 155,210,000, which is 92% less than the previous year. There is an increase of 62% in operating income, where major increase is due to sale of scrap. Gain on disposal of operating fixed assets and dividends. Finance cost remains

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Maple Leaf Cement factory almost the same as in 2006. Profit before taxation is 91% less than 2006. And profit after taxation is 96% less than 2006. The year 2007 is eventful year for the cement sector of Pakistan but Maple Leaf suffered a drastic decrease in profits in its 6 year history.

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Maple Leaf Cement factory

7. Human Resource Maple Leaf is a private organization and therefore the employee pays aren’t regulated by any government stipulations. There aren’t specified strategies or labor laws that protect the labor wages at the factory. However Maple Leaf considers employee satisfaction as a major contributor to their success in the market and therefore has undertaken extensive planning to ensure the employed labor force is happy with there salary packages. The general employee salary and benefit package includes •

Basic Salary

•

Remote area allowance

•

Bonuses

•

House allowance

•

Free medical benefits

•

Subsidized utility bills

•

Education allowance for employee children who are over 15, currently it is rupees 100/month however it is subjected to revision shortly.

Although the basic salary figure for factory workers has remained un-disclosed but the management confirmed that is was slightly above the industrial average which in turn also helped to reduce the turnover since most workers were aware of the fact that their salaries alone were better than those offered by industrial competitors.

7.1. Recruitment strategies and methods There are two sources to recruit employees. 1. Internal search 2. external search The source of recruitment depends on the nature of the job, whether it is for the upper management or for the lower staff.

1. Internal Search The very first preferred source of recruitment by the company is the internal search. The policy of the company is to promote – from – within – when ever – possible. When ever

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Maple Leaf Cement factory there is any vacancy in the company, the upper management posts the notice for the “position open” on the bulletin board in the factory or the office. The internal search depends on the nature of the job, i.e. what sort of qualification and skills are required for the job available.

Incase, no candidate from with in the company is eligible for the job according to the job specifications, or the company’s management wishes to look for diversified and variety of talented candidates, then the company moves towards the external search.

2. External Search The company does recruitment for the out side candidate through advertisements in the news papers. This is the most frequently used channel by the company. How ever the company has begun to advertise on the internet as well on their site “www.kmlg.com”. A sample of the job advertisement by the company is shown in Appendix V

7.2. The Selection Process

The over all selection process takes about one and a half month. Following are the steps that are followed by maple leaf.

7.2.1. The Initial Screening Process: The very first and basic requirement of Maple leaf is that the candidate should have degree recognized by the H.E.C. The GPA or the percentage required is defined by the company as per the requirement and the level of job. Many of the job respondents are eliminated based on the job description and job specification.

7.2.2. Completing the application form: The next after the initial screening is the filling of the organization’s application form. This application form requires the information that can help the company satisfy that the applicant is according to their requirement. The candidates who do not match the requirements of the company are eliminated in this round.

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Maple Leaf Cement factory 7.2.3 Written test: Maple leaf Cement factory did not conducted written test until 2008. The company has recently made the policy to conduct written test comprising of technical skills as per the job description, English and mathematical skills. The technical, analytical and mathematical skills required for the entry-level posts are judged using written tests that requires a lot of calculations to be done within the limited time. This test helps screen individuals for their analytical capabilities that are the main requirement for employees who have to do a lot of paper work, calculations and book keeping without making mistakes. As they have to prepare documents that serve as a basic source of information for manager to make decisions. According to Mr. Obaid, the written tests also include multiple choice questions and sometimes essay questions. Especially for posts, that requires individuals to make inferences and deduct logic and reasons out of numerical data such as cost accountants providing reasons for cost variances and standards. Along with that candidates are provided with different scenarios, for which they have to reply in best appropriate way and then they are judged on their responses.

7.2.4. Comprehensive Interview: After the passing of the candidates in the written test, the comprehensive interview, which is also the final interview, is taken for the candidate. Mostly a panel of four interviewers is seated for the hiring of the candidate. The employees sitting in the panel depends on the nature of the job. If the selection is for the upper management job, the C.E.O., C.F.O and C.O.O along with the General manger of H.R. sit in the panel. However, the lower level jobs such as for the management trainee officers, the interview is conducted by H.R. manager, the C.F.O, the A.M. of the human resource and the supervisor under whom the candidate has to work in the future. The best candidate is then hired by the authorities after which, he enters the training and development phase.

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Maple Leaf Cement factory 7.2.5. Orientation: Once the candidates are selected for new job, they are introduced to following things. •

Culture and values of the Maple Leaf Cement Factory.

•

New employees are given detailed information about the task they have to perform in their respective department.

•

New employees are introduced to current employees working in the department, so that they can socialize properly and can work easily in the new environment.

7.3. Employee Training and Development Management training takes place regularly at the head cities from where the technical operations are controlled. The head cities include Lahore and Islamabad. Training is also conducted abroad mostly in Denmark since most of the industries machinery has been imported from Denmark. Technical collaboration for skill development programs are also being conducted in Germany, Sweden, Turkey and Egypt

7.4. Performance evaluation Maple leaf has introduced the H.R. Department just recently. So, there are many activities and policies that are still to be introduced by the department. However the appraisal criteria that is being used by the company is only the feed back from the supervisor about the subordinate. According to Mr. Obaid, they will be introducing the appraisal criteria for their employees in the near future.

7.5. EMPLOYEE BENEFITS AND COMPENSATIONS 7.5.1. Bonuses: Bonuses to the factory workers are given on the basis of their performance on ground i.e. the factory floor operations. According to specified standards the plant should be run for 330 days at maximum. If the employee/labor force is able to do that they get a bonus

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Maple Leaf Cement factory which is equal to their two salaries. The bonus is a group incentive since it is not paid to individuals but rather to all employees if collectively they are successful in running the factory for 330 days a year.

7.5.2. Employee Promotion: Another major incentive for working at Maple Leaf Cement Factory Ltd includes the fact that promotions are very speedy in the organization, they are based on employee competency which means it is performance based rather than the number of years the employee has worked in the organization. This serves as a major incentive for the young employees who enter into the organization since they work hard to get to better positions in the firm quickly to get better salaries, benefits and authority. The employees in the factory are recruited on the bases of their competency and ability to perform the specified job tasks. Preference is given to hiring internal workers for better positions since this serves to motivate employees at Maple Leaf however incase the recruiters do not find a suitable candidate they select employees from the external potential employee pool. There is a vast pool of potential employees therefore there is never a shortage of employees; one can also find a replacement at Maple. This is because either lower level worker is promoted upwards provided they are capable otherwise there is a vast pool to choose from externally.

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Maple Leaf Cement factory

8. Learning as a student Internee 8.1 New Knowledge Acquired

8.1.1. Export department: The very first department in maple leaf that I was introduced was the export - finance department. There are two employees in this department. 1. Mr. Ijaz Ahmad ( Assistant manager ) 2. Mr. Omer

( M.T.O )

I spent three weeks in this department. It was a very good experience working in this department. I learned a lot of new things about the export process during the stay.

Introduction: Maple leaf cement factory began exporting the O.P.C. (Ordinary Portland Cement) in 2006. Maple leaf cement factory along with lucky cement factory, have only been the ones in Pakistan cement industry to acquire the BIS certificate from India for the export of cement. Maple leaf has market share of 11.4 % in exports markets. Its major markets are India, Middle East, and Afghanistan along with other countries such as Nepal, Srilanka, and Nigeria.

EXPORT FINANCING: The major issue that one has to face in international trade is the lack of trust that exists when one must put faith in a stranger. Firms engaged in international trade have to trust someone they may have never seen, who lives in a different country, who speaks a different language, who abides by (or does not abide by) a different legal system, and who could be very difficult to track down if he or she defaults on an obligation. The modes of transactions that are agreed upon on the bases of trust and confidence are •

C.A.D.

•

Advance payment

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Maple Leaf Cement factory •

Letter of Credit

C.A.D: It is an abbreviation for cash against documents. Cash against documents (CAD) is a payment term for exported goods in which the shipping documents are sent to a bank, agent, etc., in the country to which the goods are being shipped, and the buyer then obtains the documents by paying the invoice amount in cash to the bank, agent, etc. Having the shipping documents enables the buyer to take possession of the goods when they arrive at their port of destination; this is known as documents against presentation. According to the Mr. Ijaz Ahmad, this mode of payment is not practiced by maple leaf cement factory, since it carries risk on behalf of the company.

Advance Payment: As the name suggests, advance payment is the mode of payment in which the customer makes the payment in advance to the company as per the invoice amount. The company makes the shipment according to the agreement and sends the shipping documents to the buyer so that he can claim the possession of the goods when they arrive at the port. This practice of payment is very profitable to the company, since the company receives the cash as soon as possible with out any delay.

Letter of Credit: “Letter of Credit is an obligation undertaken by the issuing bank on behalf of the importer to pay certain sum of money to the order of exporter against the specified and complied documents.” (Ijaz Ahmad, Assistant manager – Export, MLCF)

The Letter of Credit process: Usually there are four participants in the L/C process. •

Buyer

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Maple Leaf Cement factory •

Issuing bank

•

Advising bank

•

Seller (beneficiary)

The steps required for processing the letter of credit are: 1. Buyer and seller agree to the terms including means of transport, period of credit offered (if any), and latest date of shipment acceptable 2. Buyer applies to bank for the issue of letter of credit. Bank will evaluate he buyer’s credit standing, and may require cash cover and/ or reduction of other lending limits. 3. Issuing bank issues L/C, sending it to the advising bank by air mail or electronic means such as telex or SWIFT. 4. Advising bank establishes authenticity of the letter of credit using signature books or test codes, then informs the seller. 5. Seller should now check that L/C matches the commercial agreements and that all its terms and conditions can be satisfied. 6. Seller ships the goods, then assembles the documents called for in the L/C (invoice, transport documents, etc.) 7. The advising banks checks the documents against the L/C. if the documents are compliant, the bank pays the seller and forwards the documents to the issuing bank. 8. The issuing bank now checks the documents itself. If they are in order, reimburses the seller’s bank immediately. 9. The issuing bank debits the buyer and releases the documents (including transport document), so the buyer can claim the goods from the carrier.

Export Process: The flow chart of the general export procedure is shown in figure i and the procedure of how the company carries out its operations is shown in appendix IV

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Maple Leaf Cement factory

Figure i

Export Query

Performa Invoice LC / Advance Payment Received Order Booking

Dispatch from factory Truck freight Payment Shipment Customs, Forwarder, Inspections Air / Sea Freight Payments Document submission in bank

LC Payment realization

Commission Payment t Agent

EPRC Receipt from Bank

Rebate Case Filing

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Maple Leaf Cement factory Export Query: The very first step begins with the export query. The company’s marketing department manager Mr. Abid or the customer himself gets in correspondence with one another. The marketer and the customer agree on the certain terms and conditions. These terms and conditions are mostly agreed upon, on the telephone. The customers then send their order as per requirement to the company via fax or any other means that is quick and convenient. The company and the After this the export marketing manager issues a Performa invoice as per the agreement between both the parties. This invoice entails the following details: •

The description of the goods that has been demanded by the customer.

•

The quantity he requires

•

The unit price at which both the parties have come to an agreement.

•

The mode of shipment by which the goods will reach to the customer.

•

The mode of payment as per the agreement, whether it is through is through L/C, advance payment, or through C.A.D.

•

The address of the banks through which the transaction of the money will take place and the address of the location where the goods are to be delivered.

The Performa invoice is the given forward to the sales export department who keeps the record of this invoice. According to the agreement between the company and the customer, the customer sends the advance payment or issues the L/C from his respective bank to the bank of the company. The receiving / advising bank makes intimation with the company as soon as it receives the advance payment or the L/C in the form of bank advice. This advice is then put forward to the accounts department who makes a voucher against the advice and enters it in their data base. The voucher that has been punched by the head office is then sent to the factory, where the data is entered once again.

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Maple Leaf Cement factory Order Booking: When the export marketing department receives the copy of L/C or the intimation of the bank advice they request Mr. Shahbaz, the junior executive, in the sales marketing issues a customer order form against the performa invoice.

Dispatch: After the issuance of the customer order form, the data is delivered to the factory via the system software and after the confirmation the factory dispatches the required order to its destination.

Truck and Freight payment: The truck and freight payment is either charged by the company according to the terms and conditions. The terms can be as follows: • Ex works • FOB • CIF • CNF

Ex works It is also called as ex- factory, and ex mills. This term means that the customer will bear all the truck and freight charges. No charge will be on the company’s behalf as soon as the order leaves the factory.

FOB It is also called free on board. The term FOB is commonly used when shipping goods, to indicate who pays loading and transportation costs, and/or the point at which the responsibility of the goods transfers from shipper (seller) to the buyer.

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Maple Leaf Cement factory CIF It is abbreviation for cost, insurance and freight. It means that the seller must pay the cost and freight necessary to bring the goods to the named port of destination and any other additional charges that are put during the delivery. According to this term the seller has to procure the marine insurance as well. CNF CNF also symbolized as C&F, is abbreviation for cost and freight. According to this term the seller is responsible for the shipment of the goods and the ocean freight us charged from the sellers account.

Shipment: Primary documentation: A request of E form is then generated by the marketing department to the export department. It contains the detail of the quantity of goods, the price as per decided, terms of sale, port of destination, mode of transportation, port of shipment, and load custom port. The sample of request form that is issued by the company is shown in appendix. Along with the issuance of E form, there are certain other primary documents that are required during the custom clearance. The primary documents required are as follows: 1. Primary Invoice 2. E-Form 3. Packing List 4. Sales Tax Invoice 5. Undertaking by the Shipper

1. Primary Invoice:
Primary invoice shows the shipping marks, description of goods, total quantity, unit price and total value, gross and net weight plus certain other details like the L/C number, type and tenor is prepared wholly from Customs Clearance point of view and it may not be as per L/C.

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Maple Leaf Cement factory
It also contains a declaration on behalf of the exporter and claim to rebate based on the items being exported and rate of rebate that can be claimed.

2. E-Form
E-form is the export form that is issued by the bank to the company.
E-form is filled manually or by type writer whish is then signed by an authorized person / manger.
The filled ‘E’ form is then taken to the concerned branch of the bank to get it verified / attested and to obtain a C&F certificate and NOC if required.
A set of ‘E’ form is completed with 1st (Original), 2nd (Duplicate), 3rd (Triplicate), 4th (Quadruplicate), Bank certificate and NOC if required.
Original and Duplicate E-Forms will be submitted in primary documents. o The original is sent for the custom clearance. o The duplicate is kept as a record by the company.
The triplicate and quadruplicate are given to the bank. o The triplicate is sent to the state bank of Pakistan o The quadruplicate is kept by the bank as a record.

3. Packing List
The packing list details are sent by the mills. This document shows the way the product is packed and other details like ; o Number of pieces in one carton/bag o Number of cartons/bags o Weight of one piece both net and gross weights o The production complete specifications o Shipping marks printed on cartons and so on. This packing list is prepared for customs clearance purpose and it may be not exactly as per L/C. A sample of packing list is shown in appendix.

4. Sales Tax Invoice Sales Tax Invoice is prepared by Sales/tax or accounts department and is also an

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Maple Leaf Cement factory integral part of the primary documents.

5. Undertaking by the Shipper An undertaking is given by the shipper on its LETTER HEAD that there is no item included in consignment such like NARCOTICS etc. The E form is filled by the designated person and then it is verified and stamped by the authorized person or the manager. It is then verified by the advising bank and then submitted to the customs by the agent along with the other primary documents that are mentioned above. Custom clearance: All the primary documents are submitted to the concerned clearing/forwarding agent who prepares one more document after collecting information from primary documents. Such document is called SHIPPING BILLS. •

The agent clears the consignment and now it is loaded on a carrier which may be by road/water/air.

•

If it is by vessel, after departure, we are issued carrier receipt which is called BILL OF LADING (B/L).

Document submission in the bank: Once customs clearance is completed and the vessel is sailed, the clearing agent returns the company the following documents; •

Bills of Lading

•

Shipping Bills

•

E-Form DUPLICATE

•

Customs attested primary invoice

•

Customs attested primary packing list

Now the company is ready to prepare commercial documents that are to be submitted to the bank for the L.C. payment realization.

The commercial documents consist of the documents as per the bank and the L/C requirements.

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Maple Leaf Cement factory Commercial Invoice: Invoice is issued by beneficiary, unless otherwise stipulated in the L/C. Description of goods on invoice is identical to that called for in the L/C. Unit price and total value matches with that quoted in L/C. Calculations must be correct. Cuttings / alterations are properly authenticated. Correct reference of LC number appears on invoices. Invoice is signed as desired in the LC. Information given on invoice corresponds to that on all other documents. All certificates on invoice are worded in terms of the LC. Invoice meets all other terms & conditions as mentioned in the LC a sample of commercial invoice is attached in appendix.

PACKING LIST (COMMERCIAL) Packing list relates to correct LC number. Correct number of copies of the packing list as called for in the LC is submitted. It is issued by beneficiary of LC. Total contents of each packing equal’s total quantity of goods as mentioned on invoice. All information, as required in the credit to appear on packing list. Cuttings / alterations are properly authenticated. All information corresponds that on all other documents. A sample of the packing list is attached in appendix.

Any other documents/certificates required for in the L/C Documentary Credit may call for any other document or certificate to which seller and buyer may have agreed in their contract of sales, or the opening bank may also include certain documents or certificates in the documents under LC. If such documents / certificates are called for, these should be examined to verify that, Submitted documents / certificates refer to correct credit number. o Carry all the required information as called for in the credit. o Carry information corresponding all other documents. o Cuttings / alterations are properly authenticated.

BILLS OF LADING o It comprises of full set of originals, and copies as required in the credit. o Shipper is beneficiary, unless otherwise stipulated in the LC.

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Maple Leaf Cement factory o It is consigned to or endorsed to the order of opening bank. o Name & address of notify parties are as per LC. o Port of loading or place of taking goods in charge is same as required in the LC. o Port of discharge or place of final destination is same as required in the LC. o Merchandise description corresponds with that on the invoice and other documents, and is in terms of the LC. o Shipping marks and numbers correspond with that on invoice, packing list, insurance and other documents. o Name of carrying vessel appearing on BL should be same as mentioned on other documents. o Should bear date of issuance. o Should indicate date of loading on board after date of issuance of BL and such date should be within latest date of shipment stipulated in the LC. o “On Board” notation, if printed, should bear vessel name and date of loading on board, under signatures of carrying vessel or its named agent. o There should be no superimposed clauses on face of BL, which expressly declare a defective condition of the goods or packing, such as, contents leaking, bags broken or similar. o Total number of boxes, crates, bags etc or tonnage or quantity indicated on bill of lading agrees with the same information appearing on invoice and other accompanying documents. o Cuttings / alterations on bill of lading should be properly authenticated.

A sample of bill of lading is shown in appendix.

Once the commercial documents are complete, they are submitted to the concerned BANK who onwards endorses the same and sends the documents to consignee/ applicant /importer’s bank. E-form 2nd and 3rd copies are submitted along with other commercial documents. 3rd copy is onwards sent to State Bank of Pakistan, thus 4th copy (quadruplicate is hold by shipper for records).A covering letter by shipper is put above the commercial documents and submitted to the Bank.

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Maple Leaf Cement factory L/C Payment Realization The Bank issues a letter with FDBC (Foreign Documentary Bills of Collection) number, containing the details of dispatched documents to the Consignee’s Bank. The Bank confirms payment on its receipt and issues the payment transfer advice against the FDBC number which last but not the least document.

After the realization of the L/C from the bank and receiving the EPRC from the bank, the marketing department prepares the rebate documents to claim the rebate on the export and the payment of the agent’s commission as well. The rebate cheque is received is then punched in by the accounts department and fed in the computer software. The copy of the voucher is further send to the factory as well for the entry of data.

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Maple Leaf Cement factory

8.1.2. Treasury Department: This department is under the direct control of Mr. Abdul Rauf. Mr. Kahlid and Ms. Hina Noreen are working under his supervision. The major work in this department is to manage the long term and the short term loans. I learned a lot of terms and conditions and basic requirements regarding these loans.

Short term loans: Short term loans are obtained against the current assets of the company. When the company requires a short term loan it sends a request for the loan to the bank along with the BBF (basic borrower sheet) along with other basic bank requirements. The banks or other financiers put down their facilities in a term sheet against which they can provide the loan to the company. Some of the most frequently used facilities are as follows: •

Money Market Deal

•

RF

•

FE 25

•

FAPC

•

ERF

Money Market deal: According to this facility, the company has to pay the mark up to the lending bank right from the date the deal has been confirmed between the parties.

RF It is known as the running finance facility. This facility is provided to the company for a specific period of time over a certain amount. According to this facility, the company will be charged only when the company draws the money from this facility. This charge will be only against the amount with drawn.

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Maple Leaf Cement factory FE 25 It is the facility provided on foreign exchange. The loan is given to only those companies who are involved in international business. The mark up rate is charged according to the LIBOR rate plus the spread i.e. the interest charged by the bank. The loan borrowed from the bank is returned in the foreign currency.

FAPC It is the finance against the packing credit. It is another export based loan. The company can receive this loan against the export of its products. The loan payment is done when the company receives its payments.

ERF It is also called as export running finance. It is provided to the company directly from the State Bank of Pakistan. It is an export based loan. The interest rate that is charged against this loan is the KIBOR rate.

The other requirement that the bank requires is the promissory notes, and the securities such as personal guarantee of the owners and the letter of hypothecation which show the assets that are used to secure the loan for the company.

Long term Loans: The long term loans are obtained against the fixed assets of the company. These assets must be insured by the insurance company. This is the basic requirement for the bank. When the company requires a huge amount of loan it contacts to the bank for the loan. The bank than forms a consortium or syndicate along with other banks in order to arrange the amount. A finance agreement is signed by both the parties and the loan is given under the agreed terms and conditions.

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Maple Leaf Cement factory

8.1.3. Accounts Department: Accounts Department: This department comes directly under Mr. Mohsin, the general accounts manager. Here, I came under the supervision of Mr. Ashraf, deputy manager - accounts. I learned the following things in this department; the department’s job was the adjustments of the payables by the company. First document is purchase order. It is issued by the purchase department to the supplier to supply the items as per terms and conditions. Purchase order contains order number, date, description, units, quantity, rate, total, GST, grand total, delivery, period of delivery, mode of dispatch, destination. 2nd is the receiving report, this is issued by the factory (mianwali) when they received their demanded product. If some goods are outstanding these are not present in the description present on the Receiving Report. 3rd document was extension letter; this is issued whenever the supplier extended his delivery time (lets say from 30 days to 45 days). 4th document is the exemption certificate; this is attached with only some bills, when the supplier has already paid his income tax to the government. 5th document is the sales tax invoice this has the information about the cost of goods and than the sales tax added to the cost of goods. 6th document is the Bill which has the complete information about the Number of items, description, quantity, rate and grand total. 7th document is the Interdepartmental note which is issued by the purchase department to the accounts department for making the payment to the supplier. These documents are first checked and verified by the employee and then punched into the system for the preparation of vouchers. These details are then automatically recorded in the trial and balance of the accounting system.

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Maple Leaf Cement factory

8.1.4. The Marketing Department The marketing department is under the supervision of Mr. Rizwan Butt, the general marketing manager. I came in this department for a very short span. I was under the supervision of Shahbaz, junior executive. I learned how the orders were dispatched from the factory. The distributors of the company pick goods from the company on the daily bases. They are assigned a specific quota for picking the product every day according to the production capacity of the company. The direct customers however approach the management of the company for the buying the cement. The company then sells the product to these customers according to the rate at which they give to their distributors of that area. The daily report of sales are sent to the marketing department by the factory, through the computer system and then the marketing department records the sales made in their system as well.

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Appendices

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Appendix – I Calculations of ratios and Industrial Median:

Current Ratio Quick Ratio Inventory turnover (days) Accounts receivable turnover (days) Total assets turnover

MapleLeaf Cement 1.1 0.98

Lucky D.G. Cement Cement .85 2.6 0.74 2.56 Activity Ratios

Pioneer Cement 0.82 0.73

Bestway Cement 0.48 0.41

Industrial Median 1.16 1.08

40

23

24.5

19.5

23

26

20

19

21.23

3.49

36.65

19.6

0.16

0.5

0.12

0.36

0.24

0.27

Debt Ratios Debt – to – total assets ratio (%) Debt – to –equity ratio(times) Interest coverage Ratio

62

63.6

34

69

74

60.52

1.61

1.75

0.52

2.22

2.85

1.79

0.6

3.55

4.70

0.31

1.05

2.04

Profitability Ratios Gross Profit Margin (%) Net Profit margin (%) Operating expense (%) Earning Per share Return on total assets (%) Return on equity (%)

8.35

29.35

31.65

10.2

17.93

19.5

1.13

20.34

25.27

(3)

0.92

8.93

4.17

4.8

4.8

4.7

2.5

4.2

(0.03)

9.67

6.43

0.20

(0.55)

3.14

0.18

10

3.13

1.08

0.22

2.9

0.47

27.23

4.78

4.5

2.02

2.35

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Appendix – II Common Size Analysis Common Size Analysis of Balance Sheet 2007

2006

(RUPEES IN THOUSADS)

Equity and Liabilities Share capital and reserves Authorized capital Issued, subscribed and paid- up capital Reserves Unappropriated profit

18.2 19.01 1.2 38.4

18.4 16 5.1 39.5

1.06 36.6 1.1

41.1 0.06

2.9

0.4

0.02 3.8 0.06 45.6

0.02 5.1 0.05 46.7

Non-current liabilities Loans from related parties Long term loans and finances Liabilities against assets subject to finance lease Lease finance advances and accrued interest thereon Long term deposits Deferred taxation Employees' compensated absences

Current liabilities Current portion of : - redeemable capital - long term loans and finances - liabilities against assets subject to finance lease Short term finances Trade and other payables Accrued profit and interest / mark-up Taxation – net Dividends

-

-

7.6 0.06

2.8 0.02

3.4 3.1 1.6 0.2

3.9 3.9 1.5 0.2 0.3

16.02 100

13.8 100

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Maple Leaf Cement factory

ASSETS 2007

2006 (RUPESS IN THOUSANDS)

Non-Current Assets Property, plant and equipment Intangible assets Investments Loans to employees Deposits and prepayments

82.5 0.02

84.04 1.9 0.04 0.08 86.08

0.03 0.2 82.7

Current assets Stores, spares and loose tools Stock-in-trade Trade debts - unsecured considered good Fair value derivative financial instruments Loans and advances Investments Deposits & short term prepayment Accrued profit Sales tax, customs and excise duty Due from gratuity fund trust Other receivables Taxation – net Cash and bank balances

8.6 1.6 0.8 1.03 0.4 4.03 0.07 0.002 0.2 0.04 0.005 0.06 0.5 17.3 100

9.7 1.04 0.9 1.6 0.04 0.003 0.2 0.05 0.5 13.9 100

Common Size Analysis of Income Statement 2007 Sales Cost of sales Gross profit Administrative expenses Distribution cost Other operating expenses

Other operating income Finance cost (Loss) / profit before taxation Taxation Current Deferred Profit after taxation

100 91.6 8.4 1.8 1.9 0.49 4.2 4.2 1.2 5.3 9.1 3.8

2006 (RUPESS IN THOUSANDS) 100 62.4 37.6 1.05 0.4 2.06 3.5 34.1 0.5 34.6 6 28.6

0.3 46.5 4.9 1.1

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Maple Leaf Cement factory

Appendix – III Index Analysis Index Analysis of Balance Sheet 2008

2006

(RUPEES IN THOUSADS)

Equity and Liabilities Share capital and reserves Authorized capital Issued, subscribed and paid- up capital Reserves Unappropriated profit

121.2 145.5 27.9 119.0

100 100 100 100

108.99 2192.4

100 100

916.67

100

90.76 92.38 128.7 119.55

100 100 100 100

332.85 309.26

100 100

84.2 95.6 135.67 99.9

100 100 100 100 100

141.8 122.42

100 100

Non-current liabilities Loans from related parties Long term loans and finances Liabilities against assets subject to finance lease Lease finance advances and accrued interest thereon Long term deposits Deferred taxation Employees' compensated absences

Current liabilities Current portion of : - redeemable capital - long term loans and finances - liabilities against assets subject to finance lease Short term finances Trade and other payables Accrued profit and interest / mark-up Taxation – net Dividends

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Maple Leaf Cement factory ASSETS 2007

2006

(RUPESS IN THOUSANDS) Non-Current Assets Property, plant and equipment Intangible assets Investments Loans to employees Deposits and prepayments Current assets Stores, spares and loose tools Stock-in-trade Trade debts - unsecured considered good Fair value derivative financial instruments Loans and advances Investments Deposits & short term prepayment Accrued profit Sales tax, customs and excise duty Due from gratuity fund trust Other receivables Taxation – net Cash and bank balances

120.15

100 100 100 100 100 100

89.4 271.3 117.6 109.01 183.98 119.04

100 100 100 100 100 100 100 100 100 100 100 100 100 100 100

28.58 210.2 71.9 109.05 12.7 122.2 152.1 122.42

PROFIT AND LOSS ACCOUNT 2007 Sales Cost of sales Gross profit Administrative expenses Distribution cost Other operating expenses

2006

(RUPESS IN THOUSANDS) 100 100 100 100 100 100 100 100 100 100 100 100

Finance cost (Loss) / profit before taxation

64.99 95.5 14.4 111.3 329.28 15.565 77.55 7.963 162.06 10.04 99.26 8.56

Taxation Current Deferred

33.2 31.55 31.6

100 100 100

Profit after taxation

3.969

100

Other operating income

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Appendix IV

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Appendix V Trainee Engineers Required in Maple Leaf Cement Factory Ltd-Lahore-Pakistan

THE COMPANY & ITS VISION Maple Leaf Cement Factory Limited, a member of Kohinoor Maple Leaf Group (KLMG) is one of the leading cement manufacturers of Pakistan. As our production capacity is being increased, the organization is experiencing significant growth in its operations for which it needs to strengthen its human capital, especially in the Plant Operation and Maintenance Services to effectively cope with work load. With a vision to become the most preferred manufacturer of quality cement in the country, we have taken a wide range of initiatives to stay ahead of competition and retain our leadership position. Manufacturing using state of the art technology and employing resources for efficient plant operation is the main consideration in the organization's plans. We are inducting fresh Graduate Engineers in Mechanical, Electrical, Electronics and Chemical disciplines who are interested to start their career and grow in a challenging professional environment.

TRAINEE ENGINEERS JOB RESPONSIBILITIES & CHALLENGES Successful candidates will be provided an opportunity to develop their professional career through an extensive training program designed to meet the objectives of the organization. The position is based at our plant located in Iskanderabad, District Mianwali. Performance of the individuals shall be evaluated during the training period on the basis of initiative, capability to accept challenges, devotion to work, communication skills, planning and organizing capabilities. JOB REQUIREMENTS * Bachelors degree in Engineering from UGC recognized institutions. * Registered with Pakistan Engineering Council. * Age maximum 25 years. TRAINING PERIOD & EMOLUMENTS Training period will be one year. During training a fixed stipend of Rs 20,000 per month with free bachelor accommodation and medical facilities will be provided by the company. Depending on the availability of vacancies, trainee engineers showing outstanding performance may be offered employment in regular grade on completion of training. If you fulfill the above mentioned criteria and are interested to develop your career in the cement industry then send your CV at: [email protected] latest by 30 April 2007.

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Book References •

Philip Kotler, Kevin Lane Keller, 12th edition, Marketing Management, Prentice Hall

• •

David A. De Cenzo, Stephen P. Robbin, 8th edition, Fundamentals of human resource management Charles W. Hill, 6th edition, International business, Mc Graw Hill / Irwin

•

James C. Van Horne, John M. Wachowicz Jr., Fundamentals of financial management, 11th edition.

•

Jan R. Williams, Susan F. Haka, Mark S. Bettner, 13th edition, Financial & managerial accounting, Mc Graw – Hill / Irwin

•

Tax Memorandum 2008, A.F. Ferguson & CO.

•

Annual report 2007, Maple Leaf Cement Factory Limited, Kohinoor Maple Leaf Group

•

Prospectus, Public subscription on 18 & 19 July 2002, Maple Leaf Cement Factory, Kohinoor Maple Leaf Group, Puma Art Publishers

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

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