DG Khan Cement Company: Business and Financial Performance

DG KHAN CEMENT COMPANY
Table of Contents
PART 1: PROJECT OBJECTIVES AND OVERALL RESEARCH APPROACH ..... 4
Reason For Choosing The Topic ............................................................................... 5
Company Selection .................................................................................................... 5
Industry Analysis ........................................................................................................ 6
Research, Aims and Objectives ................................................................................. 8
Framework Of The Report .......................................................................................... 9
PART 2: INFORMATION GATHERING AND ACCOUTNIGN/BUSINESS

TECHNIQUES .......................................................................................................... 10
Information ................................................................................................................ 11
Sources Of Information............................................................................................. 11
Limitations Of Information Gathering........................................................................ 12
Ethical Considerations .............................................................................................. 13
Accounting Techniques Used................................................................................... 13
Business Techniques Used ...................................................................................... 15
PART 3: FINDINGS, ANALYSIS, CONCLUSION AND RECOMMENDATIONS ... 19
Horizontal Analysis ................................................................................................... 20
Ratio Analysis ........................................................................................................... 23
a) Profitability Ratios ............................................................................................... 23
b) Liquidity Ratios .................................................................................................... 28
c) Activity Ratios ...................................................................................................... 31
d) Gearing Ratios .................................................................................................... 35
e) Investors Ratios .................................................................................................. 38
Business Analysis ..................................................................................................... 42
BUSINESS AND FINANCIAL PERFORMANCE 2

a) SWOT Analysis ................................................................................................... 42
b) PEST Analysis .................................................................................................... 45
Conclusion ................................................................................................................ 47
Recommendations.................................................................................................... 48

PART 1: PROJECT OBJECTIVES AND OVERALL

RESEARCH APPROACH
WORD COUNT: 870

TOPIC SELECTION
The rationale of my Research and Analysis Project (RAP) aims at conducting ‘’an
analysis and evaluation of the business and financial performance of an
organization over a three year period’’ (topic 8).
Throughout my ACCA studies, I have developed in-depth knowledge and understanding
of business and financial models to evaluate financial and business performance of a
company. The purpose of the chosen topic is to advance and boost my understanding
of how to use financial as well as non-financial information to value organizations. This
allows me to apply interpretative and analytical skills to construe the numbers contained
in financial reports. Being an accountant myself, it will help me relate this RAP with my
knowledge and everyday experiences, providing me with an opportunity of practical
application.
COMPANY SELECTION
Cement sector being one of the well growing and the most stable sectors in Pakistan
serves as a centre attraction in my selection of the company. Pakistan has been ranked
at 5th in the world’s cement exports after a significant shoot in export volume during last
few years. The sector has contributed massively to country’s economy which led the
government attaching great significance to the prosperity and escalation of the sector.
(Moonis, 2009)
ABOUT THE COMPANY
DGKCC is among largest cement-manufacturing units in Pakistan with its plant located
in the north and south of the country with a remarkable production capacity of 14000
tons of cement per day. It has a country wide distribution network and its products are
favoured on projects of national standing both locally and internationally due to the
unswerving quality.
(Business Recorder, 2012)
DGKCC is part of a leading conglomerate group of Pakistan called Nishat. It was

established by the State Cement Corporation of Pakistan in 1978 which was later on

acquired by Nishat in 1992. Following privatization, the company was listed on Stock
Exchanges of Karachi, Lahore and Islamabad in September 1992. DGKCCC produces
two different products namely Ordinary Portland Cement and Sulphate Resistant
Cement. For smooth operations of the plant, the company has its own power generation
plant along with WAPDA supply.
(DG Cement, 2013)

Rationale for the selection of this company comes from my keen interest in getting to
know DGKCC in greater detail as it has shown an unparalleled growth in past few
years. The company was able to switch its profitability from millions to billions growing
4.5 times to Rs1.44 billion in the first quarter of 2012-13 from Rs 317.8 million in the
corresponding quarter of the prior year (Raheel, 2012).
ABOUT THE INDUSTRY
The cement industry in Pakistan has developed immensely since independence with the
cement market divided into two distinct regions, North and South. Pakistan is affluent
with the key raw materials for manufacturing cement which are limestone and gypsum.
It exports to India, Afghanistan and other several countries, hence a source of foreign
income. The cement industry in Pakistan is dominated by few major players namely
DGKCC, Bestway Cement, Lucky Cement Ltd (LCL) and Maple Cement, making the
competitive nature of cement industry oligopolistic in terms of market structure.
(Shabbir, 1996)
With a total capacity of 44.768 million tonnes per year, cement industry in Pakistan
produces major products such as Bagged Cement, Sulphate Resistant Cement, Loose
Cement, clinker and Blocked Cement.
(Website of APCMA, 2013)

Cement Industry Sales- Pakistan

162
180
160
130 129
140 113
120
BILLION 100
Sales
80
60
40
20
0
2009 2010 2011 2012
YEARS
(Karachi Stock Exchange, 2013)

In 2010, despite adverse economic and political situations such as meager business
and terrorist activities, cement industry grew by 15% which was mainly due to low
cement prices in the country which occurred as a result of price war among cement
manufacturers (Annual Report DGKCC, 2010, pg 05). In 2011, overall demand in
residential construction and infrastructure sector weakened due to rising interest rate
and high inflation and transportation problems (Annual Report DGKCC, 2011, pg 05). In
2012, construction sector grew by 6.4% with a significant growth in local sales
dispatched whereas exports dispatched remained at negative 9.12 % (Annual Report
DGKCC, 2012, pg 07).

Cement Industry Market Share (FY 2011-12)
14.20%
11%
44.60%
9.60%
20.60%
Others LCL Maple Leaf Bestway DGKCCC
(Source: Annual reports LCL, DGKCC, Maple Leaf Cement, Bestway Cement, 2012)
The above chart depicts the annual market share of top four cement companies which
rule the cement sector in Pakistan.
RAP OBJECTIVES
Following are the RAP objectives:
 To perform financial analysis of DGKCC using horizontal and ratio analysis over the
three year period i.e. 2010, 2011 and 2012.
 To perform business analysis using SWOT and PEST models to recognize what
factors, internal and external to DGKCC, shape its business and financial
performance.
 To make comparison of DGKCC’s financial performance with that of its competitor
LCL.
 To evaluate policy of DGKCC’s involvement in social and environmental concerns
and corporate responsibility.

RAP FRAMEWORK
To accomplish the objectives mentioned above, pertinent information has been
gathered via diversified sources taking into consideration their respective limitations.
This facilitates a detailed analysis of financial performance which is conducted using
financial ratios and SWOT analysis which evaluates the company’s position. Along with
this, PEST model has been used to evaluate macro environment that affects the
business performance of DGKCC. Following this, is a detailed industry analysis to
depict where the company stands? Finally, based on the successful findings and
analyses, conclusion and recommendations have been made.

PART 2: INFORMATION GATHERING AND

ACCOUNTING/BUSINESS TECHNIQUES
WORD COUNT: 1300

WHAT IS INFORMATION?
‘’Data that is accurate and timely, specific and organized for a purpose, presented within
a context that gives it meaning and relevance, and can lead to
an increase in understanding and decrease in uncertainty’’
(Business dictionary, 2013)
The gathering of relevant and reliable information was one of the most imperative tasks
throughout the project. Detailed information was collected via diversified sources and
refined in such a way as to facilitate efficient evaluation and conclusion.
SOURCES OF INFORMATION
Following are the sources of information:
 Annual reports:
Annual reports provide the most unswerving and appropriate information having both
financial and non-financial data. They are issued periodically, are formal and highly
up-to-date. They serve as an essential means of communication between
stakeholders and the company and contain many important things about a company
including:
 Its core business activities
 Its future prospects
 Whether it is making a profit or loss
 Its strategy
Annual reports for 2010, 2011, and 2012 of DGKCC and LCL have been used to
facilitate the preparation of RAP.
 Official website:
DGKCC official website was extensively utilized to get relevant information about the
company which includes its history, events, core products, yearly annual reports, CSR,
awards and achievements, and other useful insights.

 Books:
ACCA study texts were used which covered meaningful interpretation of ratios and
financial statements, and proper evaluation of business models. Appropriate books
used were F7 study text Financial Reporting and P3 study text Business Analysis.
 News and media:
The wide reach offered by mass media is phenomenal. It can target a global audience
and is easily accessible. Information has been obtained from Business Recorder, Daily
times, Pakistan economy, Express tribune, etc to gain news on economic situation of
the country and articles related to DGKCC.
 Other websites:
To compliment the data gathered from stated sources, other relevant websites were
used such as apcma.com, kse.com.pk, Nishat Pak, etc.
LIMITATIONS OF INFORMATION GATHERING

 Although highly reliable, annual reports are based on past information and can
be manipulated to the company's favor. They fail to confer company’s
weaknesses or issues with organizational effectiveness and credibility. It also
fails to provide inside information of the company.
 The company official website doesn’t possess up-to date information which
undermines its credibility.
 Other websites possess junk of information much of which is outdated and less
relevant. This also raises serious reliability issues as internet contains a lot of
contradictory and counterfeit information.
 Books provide only theoretical knowledge which leads to difficulty in applying it to
practical scenarios.
 Information specifically relating to the company is not available frequently in
news and media.

ETHICAL CONSIDERATIONS
With great emphasis put on ethical standards including objectivity and confidentiality,
analysis has been done independently without favoring the organization. Facts and
figures obtained are relevant and reliable and presented without any bias or
manipulation. Information was extracted from annual reports, websites and other
sources specified which has been properly referenced to using Harvard referencing
system to eliminate any threat of plagiarism.
ACCOUNTING TECHNIGUES FOR FINANCIAL ANALYSIS:
Ratio Analysis
Ratio analysis is a tool for analyzing financial statements quantitatively by comparing
ratios with industry benchmarks, competitors and previous year’s ratios. Following are
the main categories of ratios calculated for this RAP:
(Kaplan F7, Financial Reporting, 2011)
Profitablity ratios Investors' ratios Gearing ratios

• Gross profit margin • EPS • Debt/Equity
• Net profit margin • P/E ratios • Interest cover
• ROCE • Dividend cover
Activity ratios Liquidity ratios

• Debtors turnover • Current ratio
• Creditors turnover • Quick ratio
• Inventory turnover
Profitability ratios: ‘’A class of financial metrics that are used to assess a business's

ability to generate earnings as compared to its expenses and other relevant costs
incurred during a specific period of time’’
Activity ratios: ‘’Activity ratios are used to measure the relative efficiency of a firm
based on its use of its assets, leverage or other such balance sheet items’’
Gearing ratios: ‘’Gearing is a measure of financial leverage, demonstrating the degree
to which a firm's activities are funded by owner's funds versus creditor's funds’’
Investors’ ratios: ‘’Ratios that can be used by investors to estimate the attractiveness
of a potential or existing investment and get an idea of its valuation’’
Liquidity ratios: ‘’ A class of financial metrics that is used to determine a company's
ability to pay off its short-terms debts obligations’’
(Investopedia, 2013a)
Limitations
 Ratios are calculated on the basis of past results which may not always reflect
future performance of a company. Thus, cannot be relied upon.
 While calculating ratios, it averages out the figures instead of using actual figures.
 It fails to incorporate the impact of inflation due to which comparison of ratios
becomes pointless over time.
 Ratios are prone to manipulation which leads to practices such as window dressing
and creative accounting.
 Ratios are not comparable if companies have different accounting policies or
accounting standards.
(Kaplan F7, Financial Reporting, 2011)
Horizontal Analysis
It is a financial analysis technique which compares financial ratios over a certain period
of time. This technique is also known as trend analysis and is useful in evaluating the
trends of performance of a company which determines its financial health.
(Investopedia, 2013b)

Limitations
 It doesn’t clearly give reason as to why the trend occurred in a financial model.
 It fails to specify whether the results of trend were superior/inferior to some
benchmark.
 It also fails to substantiate the happening of negative numbers.
(Financial Modeling Guide, 2013)
BUSINESS ANALYSIS TECHNIQUES

SWOT Analysis
‘’It summarizes the key issues from the business environment and the strategic
capability of an organization that are most likely to impact on strategy development’’ –
JS&W
This tool evaluates the impacts of internal strengths and weaknesses, and external
opportunities and threats, on the success of the company.
STRENGTHS WEAKNESSES
SWOT
OPPORTUNITIES THREATS
Strengths are resources, capabilities and core competencies that the organization

holds which can be used effectively to achieve its performance objectives and
distinctive advantage over its competitors.
Weaknesses are limitations such as having inferior capabilities or resources as

compared to the competitors that prevent it from achieving its objectives.
Opportunities incorporate any favorable situations in the organization’s environment

that allow the organization to add to its competitive position.
Threats include any forthcoming changes in an organization’s environment that

threaten its ability to compete.
(BPP P3, Business Analysis, 2012)
Limitations
 SWOT provides no real guidance on how individual organizations can identify and
deal with these elements for themselves.
 The framework also fails to distinguish whether something in the external
environment represents an opportunity or a threat to an organization.
 It fails to show the long term picture of the company as market and data that is
available at one moment become obsolete quickly leading to business decisions
based on unreliable or irrelevant data.
(Henry, 2008)
PEST Analysis
PEST is a strategic management tool used to evaluate how Political, Economic, Social
and Technological factors affect an organization.
(Henry, 2008)

POLITICAL
TECHNOLOGICAL
PEST ECONOMICAL
SOCIAL
Political factors deal with the government policies and legislation such as tax policy,
trade restrictions, etc.
Economic factors include economic growth, interest rates and the inflation rate. These
factors have major impacts on how businesses operate and make decisions.
Social factors incorporate cultural changes, population growth rate, etc.
Technological factors take account of emergence of innovative technology,
technology incentives and the rate of technological change.
(BPP P3, Business Analysis, 2012)
Limitations
 The external factors considered during PEST analysis are dynamic, thus changes
may occur constantly, making it difficult to predict why and how these factors may
influence the present or future of the project.

 Collecting huge amount of relevant data from the right sources takes up resources,
especially since most of the data must be collected from external agencies. This
makes PEST analysis not only time consuming but costly to perform and update.
 PEST analysis is insufficient for the purpose of strategic planning, since it focuses
only on the external environment and completely ignores the internal environment.
(Henry, 2008)

PART 3 - RESULTS, ANALYSIS, CONCLUSIONS
AND RECOMMENDATIONS
WORD COUNT: 4,330

HORIZONTAL ANALYSIS
Ratios of DGKCCL have been compared with LCL to conduct comparison analysis.
Revenue Trend Analysis
Sales Revenue (Rs. Bn)
25 23.1 % 22.9
9.8% 14.1% 18.6
20 18.04
16.3
15
BILLION
10
0
2009 2010 2011 2012
DGKCCC 18.04 16.3 18.6 22.9
(Appendix 2)
Sales revenue decreased by 9.8% in 2010 when net sales amounted to 16.3 billion
whereas in 2009 sales were 18.04 billion. Total sales in 2010 comprised of 82.4% local
sales and 17.6% export sales.

Sales volume in Million Tons

METRIC
TONS5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
2010 2011 2012
Local 4.1 2.9 2.8 Export Local
Export 0.9 1.4 1.3
(Appendix 5)
In 2011, net sales amounted to 18.6 billion, mounting by 14.1% with export revenue of
the company increasing by 3.4 billion i.e. 93% since 2010. Despite of decline in sales
volume by 0.7 million tons (5-4.3), there is an increase in revenue in 2011 which can be
credited to improved cement prices in local markets. Increased reconstruction and
rehabilitation in flood effect areas also led to increased revenue. Export volume
increased from 0.9 million in 2010 to 1.4 million tons in 2011. Company witnessed a rise
in export of clinker (71,041 tons in 2010 to 98,521 tons in 2011) i.e. by 38%.
(Annual Report DGKCC, 2011)
In 2012 net sales increased by 22% (22.9 billion) and exports amounted to 7.1 billion.
Export volume reduced to 1.3 million tonnes i.e. by 7.1% with exports of clinker falling in
2012 by 94% (2011: 0.98 million metric tons and 2012: 5945 metric tons). Domestic
sales volume decreased in all segments compared with 2010, largely because sales
prices augmented in international and domestic market in 2012. The major export
markets were Africa, India, Afghanistan, Iraq and Sri Lanka.

Cement industry faced a decline of 1.64% in exports of cement as compared to 2011

which was mainly due to increase in cost of fuel, high interest rates and low prices in
international market (Islamabad Chamber of Commerce and Industry, 2012).
Devaluation of PKR against Dollar during the year was another major factor that
contributed to increased revenue. However, due to this company had to face exchange
loss of 6.2 million and 0.28 billion in 2011 and 2012 respectively (Annual Report
DGKCC, 2012, p.64).

RATIO ANALYSIS (For ratios definitions, refer to Appendix 6)
PROFITABILITY RATIOS
Gross Profit Margin
GROSS PROFIT MARGIN (GPM)

40
35
30
PERCENTAGE (%)
25
20
15
10
2010 2011 2012
Lucky Cement 32.6 33.5 38.2
D.G Khan Cement 16.6 23.6 32.7
(Appendix 4)
Throughout these years, DGKCC has witnessed a positive trend in GPM.
In 2011, GPM was 23.60% which grew by 7% since last year whereas in 2012, GPM
dramatically increased to 32.7% This was largely due to 14%(2.3 billion) and 23.5%
(Rs. 4.4 billion) increase in sales in 2011 and 2012 respectively. Although various cost
cutting policies were adopted such as installation of Waste Heat Recovery Plant (WHR),
cost of sales (COS) increased by 4.5% (0.6bn) and 8.8% (1.3 billion) in 2011 and 2012
respectively as compared to preceding years. The major increase in COS was due to
inflated energy prices, raw material and packaging cost, transportation costs relating to
exports (Annual Report DGKCC, 2011). Increase in COS in 2012 was also mainly due
to amortization of intangible assets which amounted to 12.9 million. Increased sales

were made possible due to large increase in exports and also due to the right prices
charged for the product in 2011 and 2012.
(Appendix 2)
It is evident from the graph, however, that LCL’s GPM of 32.6%, 33.5% and 38.2% is
higher than DGKCC’s 16.6%, 26.6% and 32.7% in 2010, 2011 and 2012 respectively.
This is largely due to increased net sales of LCL as it has remarkable dealers network.
This indicates that LCL has a better control over its production cost as compared to
DGKCC, being profitable at the same time.
(Annual Report LCL, 2012)
Net Profit Margin
25
NET PROFIT MARGIN (NPM)
20
PERCENTAGE (%)
15
10
0
2010 2011 2012
(Appendix 4)
NPM of DGKCC seems to have grown over time though there was a slight decrease of
0.51% in NPM in 2011 as compared to 2010. In 2010, NPM was 1.43%.

In 2011, NPM further declined to 0.92% which can be attributed to increase in selling
and distribution expenses by 148% (22.5-0.99) and administrative expenses by
approximately 23% (0.21-0.17). This decline in NPM also constituted an increase in
finance cost by 9.3% (2.1-1.9) due to increase in inflation, and impairment on
investments amounting to 118.8m. On the other hand, net sales increased by 14.1% as
which has been discussed above in detail.
(Appendix 2)
However, in 2012, DGKCC witnessed a tremendous growth in its NPM which was
17.90% when it managed to grow by 17% since 2010 (17.9-0.9). Net sales increased by
23.5% and PBIT improved significantly by 1135% (5.7 billion-2.7 billion) as compared to
preceding year. Large sales were due to better cement prices in domestic market and
efficient cost control as selling and distribution costs fell by 10.8% and finance cost
decreased by 19.6% (2.1-1.7 billion) due to decrease in long term finance by 5.2%.
Increase of 4.7% (1.19-1.13) in operating income also contributed to this which was
made possible due to increased dividend income from related parties. Decreased
production cost was also due to installation of WHR and alternate fuel plants.
(Appendix 2)
Despite of this, LCL reported greater NPM of 12.8, 15.3 and 20.4 than DGKCC’s 1.4%,
0.92% and 17.9% in 2010, 2011 and 2012 respectively, indicating LCL was better at
controlling cost and converting revenues into profits.

Return On Capital Employed
RETURN ON CAPITAL EMPLYOED (ROCE)

25
PERCENTAGE (%)
20
15
10
0
2010 2011 2012
(Appendix 4)
Underlying trend shows that ROCE of both DGKCC and LCL have improved over three
years indicating efficient utilization of assets. Because ROCE is a combination of
Operating Profit Margin (OPM) and Capital Employed Turnover (CET), their respective
effects have also been incorporated.
In 2011, ROCE rose to 7.24 due to increase in total assets by 5.6% and PBIT by 18.5%.
PPE decreased by 0.7 billion due to 2.7% in depreciation charge while PPE have not
been replaced. OPM decreased from 1.43% in 2010 to 0.92% in 2011. CET ratio
increased from 0.49 times in 2010 to 0.50 times 2011 due to reduction in Current
liabilities (CL) by 8.2%. In 2012, profit grew immensely by 113.5% as compared to
preceding year, with OPM increasing from 0.92% in 2011 to 17.9% in 2012. PPE
increased by 1.2 billion (4.6%) due to which depreciation augmented by 1.2%. CL
reduced by 12% whereas total assets increased by 2% (2012: Rs. 50.7 billion) due to
which CET grew by only 16% (0.58-0.5), hence increased ROCE of 14.5 in 2012.

(Appendix 1, 2)
Despite of this, LCL is leading DGKCC with higher ROCEs in all three years with 14.8%,
16.9% and 24.3% in 2010, 2011 and 2012 respectively. Although there was no huge
difference in both companies Noncurrent assets, DGKCC revenue was 22.9 billion
whereas LCLs revenue was 33.2 billion indicating efficient utilization of assets at LCL.
(Appendix 1)
LIQUIDITY RATIOS
Current Ratio

CURRENT RATIO
3
2.5
2
TIMES
1.5
0.5
0
2010 2011 2012
(Appendix 4)
DGKCC’s current ratio (CR) grew by 22% from 1.19 in 2010 to 1.45 in 2011 which was
due to increase in current assets (CA) by 11.6% (18.3-16.4) and decrease in CL by 8%
(13.8-12.7) as compared to preceding year. Increase in CA by 1.9 billion is attributed to
increase in trade debts, investments and stores, spares and tools (which increased due
to increased local sales). On the other hand, CL decreased by 1.1 billion due to decline
in secured short term borrowings and accrued markup. Decrease in short term
borrowings was mainly due to huge decline in short term finances and import finances
as company obtained import facilities from commercial banks under favorable mark up
arrangements.
In 2012, CR increased to 1.65 which, however, grew at a declining rate. CA increased

slightly by 0.63% (0.1 billion) whereas CL decreased by 13.2% (1.5 billion). Trade
payables, accrued markup and short term liabilities decreased by 26%, 42.7% and

22.5% respectively. Increase in CA was due to increase in receivables, cash and stock
by 30%, 117% and 15.6% respectively whereas trade debts decreased by 30.8%.
Increased receivable were mainly due to advances given to suppliers and claims
recoverable from government such as export rebate and income tax. Increased stock
was again due to increased local sales.
LCL’s CR of 0.7 and 0.9 was lower than DGKCC CR of 1.2 and 1.4 during both 2010
and 2011. However, LCL CR increased to 2.6 in 2012 leading behind DGKCC. This
was made possible mainly due to nil balance of short term borrowings in 2012 from
PKR 6.3bn in 2011(Annual Report LCL, 2011).
QUICK RATIO
QUICK RATIO
1.40
1.20
1.00
TIMES
0.80
0.60
0.40
0.20
0.00
2010 2011 2012
(Appendix 4)
The chart depicts an increasing trend of quick ratio of DGKCC 0.9, 1.1 and 1.2 in 2010,
2011 and 2012 respectively. This is due to increase in inventory as the percentage of
total current assets i.e. 24.1% (2010: 24.7%) which can be attributed to increase in

stock by 8.6% (4.4-4.05) in 2011 as compared to preceding year. In 2012, there was a
further increase in inventory as the percentage of total CA i.e. 27.6% which again was
due to increase in stock by 15.6% (5.1-4.4) as compared to 2011.
On the other hand, LCL’s QR seemed somewhat irregular. It declined from 0.23 in 2010
to 0.18 in 2011. In 2012, it managed to raise its QR to 0.8 due to decrease in inventory
as the percentage of total CA i.e. 16% as compared to preceding year (2011: 18%).
Throughout these years, DGKCC QR was better than LCL signifying an efficient liquidity
management at DGKCC.
(Appendix 1)
ACTIVITY RATIOS
Debtors Turnover (Days)

RECEIVABLES COLLECTION PERIOD (DAYS)
2012
2011
2010
0 2 4 DAYS
6 8 10 12 14
2010 2011 2012

D.G Khan Cement 7 9 5
(Appendix 4)
There seems to be variations in the collection period of DGKCC in all three years. In
2010, debtors’ days were 7 which increased to 9 in 2011 which was due to a significant
cut in sales volume by 14.3% (2011). On the other hand, a vast increase in exports by
60% (2011) resulted in 51% increase in trade debts, hence slow collection of payments
due to foreign customers. In 2012, debtor’s days decreased to 5 days because sales
and export volume decreased by 5.6% and 10.3% respectively whereas trade debts
decreased by 30.8% in 2012.
(Appendix 5)
Comparatively, in all three years, DGKCC’s receivable collection period (days) of 7, 9

and 5 were better than LCL’s 12, 9 and 12 demonstrating efficient credit control at
DGKCC as it has offered early discount settlements to customers for early payments of
invoices.
(Annual Report LCL, 2012)
Inventory Turnover (Days)

INVENTORY TURNOVER (DAYS)
2012
2011
2010
0 20 40 60 DAYS 80 100 120 140 160 180
2010 2011 2012

Lucky Cement 102 159 118
(Appendix 4)
Overall, the inventory turnover at DGKCC is slightly higher (except for 2011) than that of
LCL’s, indicating a slower inventory management.
The increase in 2011 could be traced to 7.3% rise in inventory (4.4-4.1) and the
corresponding 4.6% increase in COS. Increase in inventory was due to growth in sales
by 14% as compared to 2010. In 2012, it further increased to 120 days which was
largely due to 16% increase in inventory (5.1-4.4) and COS rising by only 9%, resulting
in increased inventory days.
(Appendix 1, 2)
Comparatively, LCL inventory period was better than DGKCC in 2010 due to a slight
increase in inventory and COS by 0.19% and 0.065% respectively. However, this trend
discontinued in next year and DGKCC’s 113 inventory days were better than LCLs 159
days which is attributed to significant increase in LCL COS (2011: 4.7 %,) indicative of
poor inventory management. Again in 2012, LCL inventory turnover improved to 118

while DGKCC’s inventory turnover days were 120. However, higher inventory turnover
is not necessarily bad as it could signify increased inventory to avoid stock outs and
buying in large quantity to avail volume discounts.
(Appendix 1, 2)
Creditors Turnover (Days)
PAYABLES PAYMENT PERIOD (DAYS)
2012
2011
2010
0 50 100 DAYS 150 200 250
2010 2011 2012

(Appendix 4)
DGKCC’s creditor’s days were 70 and 41 in 2010 and 2011 respectively. Both COS
(raw and packaging material only) and trade creditors have decreased by 5.6% and
45.7% respectively. Decrease in COS is attributed to decrease in demand of cement in
local market, hence less raw material purchased and consumed in 2011. In 2012,
creditors increased largely by 217% whereas COS (raw and packaging material only)
increased by 4% due to inflated price of coal, oil and other production related material.
This led to increased creditors days by 207% (126-41).
(Appendix 1, 2)

DGKCC’s creditor’s period days were 70 and 41 while LCL payable days were 138 and
218 in 2011 and 2012 respectively indicating better credit management at DGKCC.
However, the trend changed in 2012 with DGKCC payable days increasing to 126
whereas LCL payable days decreasing to 91. Overall, the trend shows the practice of
cement industry in Pakistan in paying its creditors.
GEARING RATIOS
Debt/ Equity

DEBT/EQUITY RATIO
20
18
PERCENTAGE (%)
16
14
12
10
8
6
4
2
0
2010 2011 2012
(Appendix 4)
The above chart depicts that DGKCC has been aggressive in financing growth through
debt in 2010, 2011 and 2012. However, it was able to reduce its reliance on debt
finance to fund growth which can be seen from the decrease in ratio from 19.2% to
14.1% in the last three years. Decrease in DGKCC’s Debt/Equity ratio is attributed to
the 13.9% increase in equity, and corresponding 4.1% and 8.2% decline in noncurrent
liabilities (NCL) and CL in 2011, which mainly occurred due to repayment of long term
finance and short term borrowings.
(Appendix 1)
Similarly, in 2012, equity rose by 9% while NCL and CL decreased by 3.7% and 11.7%
respectively which was made possible mainly because of repayment of long term and
short term borrowings. The increase in share capital in 2010 and 2011 was due to the
issuance of ordinary shares to the qualifying shareholders of DGKCC.
(Annual Report DGKCC, 2011, 2012)

DGKCC's gearing of 19.2, 16.2 and 14.1 was higher than LCL’s gearing i.e. 6.6, 2.4 and
1.2 in 2010, 2011 and 2012 respectively indicating LCL is a low geared company.
Interest Cover Ratio
INTEREST COVER RATIO
40
35
TIMES
30
25
20
15
10
5
0
2010 2011 2012
Lucky Cement 7.5 10 35.6
(Appendix 4)
The chart shows that LCL has performed well than DGKCC as its interest cover is quite
higher than DGKCC. It had an interest cover of 1.2 times in 2010 i.e. out of the
operating profits they could pay up to 1.2 times the interest they are paying actually.
This increased to 1.3 times in 2011, i.e. by 8.4%. This increase could be traced back to
the 18.5% increase in operating profits and 9.3% increase in financial charges due to
increased debt as discussed above.
(Appendix 1, 2)
In 2012, the interest cover rose to 3.4 times, due to 113.5% rise in operating profits and
19.4% reduction in financial charges which was due to decrease in long term finance
i.e. loan under Musharika arrangement and repayment of other short term and long term
borrowings.

Comparatively, throughout this three year period, LCL has performed better with interest
cover of 7.45, 9.97 and 35.58 as compared to DGKCC’s interest cover of 1.2, 1.3 and
3.4 in 2010, 2011 and 2012 respectively.
INVESTORS RATIOS
Earnings per Share

EARNINGS PER SHARE (EPS)
25
PER SHARE
20
15
10
0
2010 2011 2012
Lucky Cement 9.7 12.3 21
(Appendix 4)
Over three years, DGKCC has shown a fluctuating trend in its EPS as it has fallen from
0.7 in 2010 to 0.45 in 2011 while it increased to 4.8 in 2012. The decrease in DGKCC
EPS in 2010 was due to the 33.2% reduction in Net profits matched with 21% increase
in share capital. Net profits decreased due to increased expenses in 2011 as discussed
above.
(Appendix 1, 2)
Share capital increased by 14% and 9%, while net profits recorded a growth of 18.5%
and 114% in 2011 and 2012 respectively, leading to decreased EPS in 2011 whereas
increased EPS in 2012 compared to last year. The rise in share capital was again due
to issuance of shares whereas increase in profit was due to cost cutting measures
discussed above.
(Appendix 1, 2)
In 2010, there was a difference of 9 between LCL’s EPS of 9.7 and DGKCC’s 0.7. In
2011 LCL’s EPS increased to 12.3 whereas DGKCC EPS decreased to 0.5 resulting in
a difference of 11.8 between both companies EPS. Yet again in 2012, LCL EPS of 21

was greater than DGKCC EPS of 9.4, resulting in difference of 11.6 between these two
companies EPS.
P/E Ratio
60
P/E RATIO
50
40
TIMES
30
20
10
0
2010 2011 2012
(Appendix 4)
The chart depicts the fact the stock market values DGKCC shares more highly than
they value LCL as DGKCC’s P/E ratio is quite higher than LCL’s during 2010 and 2011.
In 2010, DGKCC reported a P/E ratio of 33.74 as a result of EPS valued at 0.72 per
share and market share price of 23.62. This means that shareholders were willing to
pay 33.74 for the earnings.
(Appendix 1, 2)
DGKCC P/E ratio increased by 51.4% in 2011 due to 2.7% decrease in market share
price (2010: 23.62 and 2011: 22.99) although market index augmented by 28.5% (2010:
9721.91 and 2011: 12496.03). On the other hand, EPS fell by 37.5% which, when
combined with MSP impact, led to a radical increase in P/E ratio. In 2012, P/E ratio
dropped to 4.2 by 92% which was mainly due to increase in EPS and 71.3% increase in
MSP (2011: 22.99 and 2012: 39.38) whereas market index increased only by 10.4%

(2011: 12496.03 and 2012: 13801.41), showing that DGKCCC performed way better
than the market. However, growth in EPS outweighed increase in MSP, hence
decreased P/E ratio.
(Appendix 1, 2)
In both 2010 and 2011, DGKCC P/E ratio of 33.74 and 53.4 leads LCL’s whose P/E
ratio is 6.41 and 5.78 in 2011 respectively although its MSP has increased in
2010(58.53) and 2011(70.84). However, the trend discontinued in 2012 when LCL’s
MSP was 115.4, resulting in P/E ratio of 5.5 which was greater than DGKCC’s P/E ratio
of 4.2.
DIVIDEND COVER
7 DIVIDEND COVER
6
4
TIMES
0
2010 2011 2012
D.G Khan Cement 0 0 6.3
(Appendix 4)
DGKCC paid no dividend in 2010 and 2011 leading to nil dividend cover. However, after
retaining profits in all three years DGKCC's paid a dividend of 1.5 per share in 2012
resulting in a dividend cover of 6.25. This can also be attributed to impressive increased
EPS of 9.4 as compared to preceding year.

(Appendix 2)
In 2010 and 2011, LCL’s dividend cover was 2.4 and 3.1 whereas DGKCCC’s Dividend
cover remained at 0. However, in 2012, DGKCCC’s dividend cover (6.65) was greater
than LCL’s dividend cover (3.5).
BUSINESS ANALYSIS
SWOT ANALYSIS

STRENGTHS
 Well Developed Infrastructure:
To control the overall production cost, DGKCC invested in Refused Derived Fuel
(RDF), a modern technology that uses the municipal waste and other means to low cost
fuel to produce energy. It also has a plant installed near Chakwal doubled its production
capacity, helping DG in gaining competitive edge other competitors in the north region.
(DGKCC, 2013)
 Part of Nishat Group

DGKCC is part of Nishat which is one of the leading and most diversified conglomerate
business groups in South East Asia which ranks amongst the top five business houses
of Pakistan.
(Nishat Pak, 2013)
 Power Generation:
The company has its own power generation plants in the factory so to meet the plant
requirements mainly because Pakistan is suffering from severe energy crisis. This way
company is less dependent on WAPDA unlike others in the industry while at the same
time reducing energy costs.
(DGKCC, 2013)
WEAKNESSES
 Heavy Reliance on Exports
Due to recession, construction activities in Middle East have declined which resulted in
decreased demand of cement. This affects the company’s export volume rendering
total revenue relapsed accordingly.
 Low return

DGKCC ROCE is lower as compared to other companies. This is due to underutilization

of plants full capacity which is attributed to decrease in demand and has too much
spare capacity, indicating ineffective utilization of its resources.
(Appendix 4)
 Poor law and order situation Formatted: Font: Underline
The poor law and order conditions in the country discourage the foreign investor to
invest in Pakistan, thereby decreasing construction and development activities.
(Weekly Pulse, 2012)
OPPORTUNITIES
 Increasing Demand
It is anticipated that the demand will grow in Pakistan for government work such as
construction of Bhasha Dam. These mega projects would boost domestic market
requirement (Dawn, 2012). Furthermore, the ongoing trade negotiations will raise
cement exports to India. (Tirmizi, 2012).
 Exploration Of New Export Markets
The company’s marketing activities aims towards exploration of export markets in Africa
and Asia. Reconstruction in Iraq and Libya provides the company with an opportunity to
target vast market using possible future excess capacities. With government’s
permission to export cement to India through land routes, company will witness an
increase in its exports. In addition, the strengthening of the dollar also mean that export
will increase profit margins.
 Favorable Government Policies

A reduction in customs duty on the import of scrap tires to 10 percent has been
announced. DGKCC uses TDF (tire-derived fuel) as an alternate fuel making this is a
positive step. The increase in PSDP expenditures by 19% will be particularly rewarding
in terms of improved prospects for domestic demand of cement.
(Business Recorder, 2012)
THREATS
 Increased Competition
Competition from the Middle East has adversely affected the country’s export market.
The sharp decline in cement prices due to domestic competition among companies has
dampened the profitability of the company. This increase in competition among the
players has further decreased the prices of cement in the local market which forces the
company to charge reduced prices for market share.
 Oil Prices and High Transportation and Distribution Cost
The intensifying cost of fuels like, furnace oil and diesel prices in international markets is
another serious threat which considerably increases production and transportation
costs. High transportation cost keeps cement from being profitable over long distances.
Similarly, shipping cement costs more than the profit from selling it.
(Pakistan Today, 2012)

PEST ANALYSIS
Political
Due to ineffective political framework and security turmoil, Pakistan has been facing
severe political tribulations which have adversely affected country’s economy. Similarly
the control of the coal rates, power tariffs, railway tariffs, excise duty etc is in the hands
of government which ultimately sets cement prices. In recent years changes in taxation
policies and trade restrictions have resulted in an increase cost of business and
decreased in export revenues.
(Pak Economy, 2012)
Economical
Construction industry is susceptible to fluctuations in interest rates. In 2011, SBP

announced its new monetary policy of reduction in discount rate from 13.5% to 12 %
(Shaddab, 2011). Furthermore, almost over 40% depreciation of Pakistan rupee against
US dollar (July 2008: 68.28 and June 2012: Rs 94.63) has nearly halted economic
growth in the country (Pakistan Times, 2013). On the other hand, consumer price index
decreased from 12.4% in July 2011 to 9.6% in July 2012 which is expected to improve
consumer spending (Pakonomy, 2013). GDP rate for 2011-12 remained below
expectation i.e. 3.7% whereas tax rates in the country were as high as 35% (Trading
economics, 2013).
Social
Over the years the company has built a good reputation in the industry by effectively
incorporating the social and environment responsibility towards the society. In 2010, 1.7
million were donated for financial assistance for new campus for PhD programs at
Chakwal and construction of Choa Suiden Shah by pass road. Furthermore, company
bore cost of more than Rs. 11.292 million during 2010 due to establishment of two
schools in DG Khan (Annual Report DGKCC 2010). In 2011, Rs. 0.14 million were

donated for the rehabilitation of the flood victims (Annual Report DGKCC 2011). Again,
in 2012, Rs 0.35 million were spent on rehabilitation of disabled persons, FATA
displaced person and floor relief activities (Annual Report DGKCC 2012).
Technological
The cement industry relies on technology for that edge needed to stay competitive in
the market. DGKCC has adopted automated process to reduce its cost, in order to
achieve high profits. It installed duel fuel (Gas and Fuel Oil) power generation
plant enhancing its power generation capabilities with intention to minimizing reliance on
WAPDA power supply. The company has also installed RDF and WHR Plants as
discussed above.

CONCLUSION
DGKCC’s performance with regard to non-financial dimensions is remarkable because

of its continuous focus on quality of service and flexibility which guarantees
maintenance of a strong brand image in years to come. Company’s strong commitment
towards cleaner environment and energy efficiency cannot be overlooked such as its
installation of WHR Plant.
Although there has been an increasing trend in GPM, NPM and ROCE throughout these
years, these ratios have been lower than LCL. Favorable support from government and
PSDP such as decrease in excise duty and permission to export to India through land
routes will also result in increase in company results.
From the efficiency perspective, activity ratios of DGKCC were impressive as it took
lesser time to realize cash out of receivables and paying its creditors (except for 2012)
quicker than LCL. Liquidity position of DGKCC was notable as its current ratio (except
for 2012) and quick ratio had been better than LCL.
DGKCC has higher Debt/Equity ratio and lower interest cover ratio as compared to LCL,
meaning that the company is much geared and thus investors should worry about future
dividends and proper utilization of their holdings. However, the company seems to have
reduced its dependence on debt financing. Furthermore, interest rates are reduced by
1.5% which is encouraging for companies like DGKCC.
From investor’s perspective, dividend cover of DGKCC has been better but its EPS has
been worse than LCL for three year which is a poor sign for current investors.

DGKCC can use its core strengths to grow even larger by availing opportunities and
providing value to key stakeholders. An effective policy framework from Government
can help the cement industry flourish by allowing for price adjustments in cement
products so that the whole industry’s survival is guaranteed in short run and long run.
RECOMMENDATIONS
 More products could be launched in the future to cater to the needs of a growing
population.
 Take initiative for effective cost controls in all possible areas in order to better
manage the increasing raw material and utility costs. Also, the devaluation of rupee
places further burden that if not dealt correctly can cause the margins to decline.
 DG could have a plan in place for targeting potential foreign markets in future and
achieve further sales growth through those markets.
 They could pay attention to promotional tools and advertise its products. A proactive
approach could be in place for marketing and promotion of products
 Surplus cash flow could be used to acquire more latest and innovative technologies
which eventually would lower the work burden.
 At present, DG only produces SRC and OPC but there is still a room for producing
the white cement which can increase its sales as well as profits.
SKILLS AND LEARNING STATEMENT

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(Accessed: 15th March 2013)



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Prepared by: Zahbunissa Sadruddin ACCA id: xxx
Mentoring By: Mr. T

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DG KHAN CEMENT COMPANY

PART 1: PROJECT OBJECTIVES AND OVERALL RESEARCH APPROACH ..... 4

Reason For Choosing The Topic ............................................................................... 5

Company Selection .................................................................................................... 5

Industry Analysis ........................................................................................................ 6

Research, Aims and Objectives ................................................................................. 8

Framework Of The Report .......................................................................................... 9

PART 2: INFORMATION GATHERING AND ACCOUTNIGN/BUSINESS

Limitations Of Information Gathering........................................................................ 12

Ethical Considerations .............................................................................................. 13

Accounting Techniques Used................................................................................... 13

Business Techniques Used ...................................................................................... 15

PART 3: FINDINGS, ANALYSIS, CONCLUSION AND RECOMMENDATIONS ... 19

Horizontal Analysis ................................................................................................... 20

Ratio Analysis ........................................................................................................... 23

a) Profitability Ratios ............................................................................................... 23

b) Liquidity Ratios .................................................................................................... 28

c) Activity Ratios ...................................................................................................... 31

d) Gearing Ratios .................................................................................................... 35

e) Investors Ratios .................................................................................................. 38

Business Analysis ..................................................................................................... 42

BUSINESS AND FINANCIAL PERFORMANCE 2

a) SWOT Analysis ................................................................................................... 42

b) PEST Analysis .................................................................................................... 45

BUSINESS AND FINANCIAL PERFORMANCE 3

PART 1: PROJECT OBJECTIVES AND OVERALL

WORD COUNT: 870

BUSINESS AND FINANCIAL PERFORMANCE 4

(Business Recorder, 2012)

DGKCC is part of a leading conglomerate group of Pakistan called Nishat. It was

BUSINESS AND FINANCIAL PERFORMANCE 5

(DG Cement, 2013)

ABOUT THE INDUSTRY

(Website of APCMA, 2013)

BUSINESS AND FINANCIAL PERFORMANCE 6

Cement Industry Sales- Pakistan

(Karachi Stock Exchange, 2013)

BUSINESS AND FINANCIAL PERFORMANCE 7

Cement Industry Market Share (FY 2011-12)

Others LCL Maple Leaf Bestway DGKCCC

BUSINESS AND FINANCIAL PERFORMANCE 8

BUSINESS AND FINANCIAL PERFORMANCE 9

PART 2: INFORMATION GATHERING AND

WORD COUNT: 1300

BUSINESS AND FINANCIAL PERFORMANCE 10

BUSINESS AND FINANCIAL PERFORMANCE 11

LIMITATIONS OF INFORMATION GATHERING

BUSINESS AND FINANCIAL PERFORMANCE 12

ACCOUNTING TECHNIGUES FOR FINANCIAL ANALYSIS:

Profitablity ratios Investors' ratios Gearing ratios

Activity ratios Liquidity ratios

BUSINESS AND FINANCIAL PERFORMANCE 13

BUSINESS AND FINANCIAL PERFORMANCE 14

BUSINESS ANALYSIS TECHNIQUES

BUSINESS AND FINANCIAL PERFORMANCE 15

Weaknesses are limitations such as having inferior capabilities or resources as

Opportunities incorporate any favorable situations in the organization’s environment

Threats include any forthcoming changes in an organization’s environment that

(BPP P3, Business Analysis, 2012)

BUSINESS AND FINANCIAL PERFORMANCE 16

BUSINESS AND FINANCIAL PERFORMANCE 17

BUSINESS AND FINANCIAL PERFORMANCE 18

PART 3 - RESULTS, ANALYSIS, CONCLUSIONS