Industries Analysis Cement Industry of Pakistan

CONTENTS
Introduction:..............................................................................................................................................3 Structure:...................................................................................................................................................3 Cement Companies:..................................................................................................................................3 Comaprision:.............................................................................................................................................3 Companies Information:...........................................................................................................................4 Bestway Cement:..................................................................................................................................4 CORPORATE MISSION:................................................................................................................4 List of Products: ...............................................................................................................................4 INTRODUCTION:...........................................................................................................................4 INDUSTRY OVERVIEW:...............................................................................................................5 PRODUCTION AND SALES:.........................................................................................................5 OPERATING HIGHLIGHTS:..........................................................................................................6 Fauji Cement:......................................................................................................................................16 INTRODUCTION:.........................................................................................................................16 OUR VISION:................................................................................................................................16 MISSION STATEMENT :.............................................................................................................16 OUR STRATEGIES:......................................................................................................................16 OUR VALUES:..............................................................................................................................16 MARKET OVERVIEW:................................................................................................................17 PRODUCTION REVIEW:.............................................................................................................18 FINANCIAL PERFORMANCE:...................................................................................................18 Cherat Cement:...................................................................................................................................25 VISION:..........................................................................................................................................25 MISSION:.......................................................................................................................................25 STRATEGIC OBJECTIVES:.........................................................................................................25 CORE VALUES:............................................................................................................................25 COMPANY INFORMATION:......................................................................................................25 OPERATING PERFORMANCE:..................................................................................................27 Conclusion:.............................................................................................................................................32

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

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

Cement Companies:
1. Bestway Cement 2. Fauji Cement 3. Cherat Cement

Comaprision:
Comparision of these cement companies is made on the following basis. Production Capacity Financial Report Net Profit Contractors Survey Market Survey Growth per Annum Stakeholders

The companies got their position due to their mangment abilities.

Companies Information:
Bestway Cement:
VISION:
To Produce High Quality Cement At The Lowest Cost

CORPORATE MISSION:

Bestway will consistently produce High Quality Cement. Bestway will endeavor to be the lowest cost producer. It is companys aim to achieve 15% of the market share of North Zone from present 12% by year 2008 and ultimately to 25% in the longer term. Bestway will continue to provide a high standard of customer service. In order to meet future expansion needs, Bestway will continue its policies of staff training and development, promoting from within whenever possible. Bestway appreciates it has responsibility towards the community within which it operates. It will continue to set aside 2.5% of the net profit for education and charitable purposes.

List of Products:
1. Ordinary Portland Cement 2. Sulphate Resistant Cement 3. Quick Setting Cement For other types of cement, please contact our Marketing Department.

INTRODUCTION:
Bestway (Holdings) Limited of United Kingdom is the ultimate parent company of the Company. In response to successive governments' efforts to attract foreign investment in the country Bestway Group has invested heavily in Pakistan. Today, the Group is the largest overseas Pakistani investor in the local economy with investments in excess of US$ 1.0 billion. In just under a decade Bestway has emerged as the second largest cement producer in the country with a capacity of 4.0 million tonnes per annum. A further 2.0 million tonnes per annum is under construction and will come online by the end of 2007. In early 1995 when the Group decided to set up its first cement plant it faced multiple challenges - mainly due to the absence of operating experience in Pakistan. The macroeconomic situation was far from satisfactory due to lack of 4

fiscal and monetary stimulus; political instability etc. Even though Bestway had initial difficulties it has thrived and continues to be bullish about Pakistan.

INDUSTRY OVERVIEW:
During the year under review, despatches of cement by the industry increased by 32% to 30.14 million tonnes as against 24.29 million tonnes for last year. The domestic market grew by 6.6% while exports recorded a healthy increase of 142%. Overall capacity utilisation for the industry stood at 78% for the year under review as against 81% for last year. The decline in capacity utilisation was mainly due to slower growth in domestic market and additional capacity coming online during the year.

PRODUCTION AND SALES:

Hattar 2008 Cement production Cement sales Increase/ % Decrease 1,166,737 1,170,392 (3,655) (0.3%) 1,164,540 1,163,161 1,379 0.12% 2007

Chakwal Cement production Cement sales Increase/ % Decrease 1,453,523 1,119,117 334,406 30% 1,446,470 1,086,812 359,658 33% 2008 2007

Despite fierce competition your Company was able to retain 11% of the market in the north zone and its position as one of the largest cement producers in the country. Bestway Cement remains one of the largest exporters of cement to Afghanistan. The industry as a whole exported 7,716,628 tonnes during the year as against 3,188,424 tonnes during the year ended 30th June 2007. Bestway Cements share stood at 7.3% of total exports at 565,716 tonnes as against 304, 001 tonnes in 2007 which represents an increase of 86%. 5

OPERATING HIGHLIGHTS:
The Company recorded sales of Rs. 10,670 million compared to Rs. 8,409 million during the preceding year. Net turnover amounted to Rs. 7,487 million compared to Rs. 5,649 million in the corresponding period last year, which represents an increase of 33%, after payment of Rs. 2,771 million towards Sales Tax and Excise Duty and Rs. 412 million as rebates and discounts to customers. Gross Profit decreased to Rs. 1,008 million from Rs. 1,013 million last year. The increase in sales couldnt result in proportionate increase in profits mainly due to low retentions and high energy costs. Finance cost increased to Rs.1,236 million for the year ended 30th June 2008 from Rs. 1,212 million last year. Loss before taxation for the year ended 30th June 2008 stood at Rs. 419 million as compared to Rs. 56 million profit for the previous year. Profit after taxation for the year ended 30th June 2008 amounted to Rs.169 million as compared to Rs. 52 million profit of last year, which is an increase of 227%. Earnings per share of the Company for the year ended 30th June 2008 on its increased paid up capital stood at Rs.0.51 as compared to last years restated EPS of Rs.0.10. BALANCE SHEET: This year the capital and reserves of your Company have increased to Rs.6.86 billion as compared to Rs.5.98 billion. Your Company has continued to discharge its repayment obligations on all types of loans on time. The net current liabilities on 30th June 2008 stood at Rs.5,372 million as against Rs. 3,414 million on 30th June 2007. CHAKWAL LINE II: Work on Line-2 of 6,000 tpd cement capacity completed in the fourth quarter and production was started in the month of June 2008 resulting in capitalisation of project on 30th June 2008. 6

WASTE HEAT RECOVERY POWER PLANT: The management of your Company decided to setup a waste heat recovery power plant at Chakwal. The kiln preheater and clinker cooler outlet release a lot of exit gases at high temperature which leads to the wastage of heat energy. The implementation of this project will reduce emission of waste gases and will have a very positive impact on Environment besides generating 14~15 MW power. This project will significantly reduce Companys dependence on external source of electricity and will also help in reduction in cost of production. The project is expected to be operational during fourth quarter of 2008-09. OTHER INVESTMENTS: Bestways investment in United Bank Limited continues to prove highly successful as the bank continued to show steady performance for yet another year. Profit before tax for the year ended 31st December 2008 stood at Rs.13 billion as against Rs.14.2 billion for the corresponding period of last year which represents a decrease of 8% year on year. The banks balance sheet further strengthened during the year with a staggering 21% growth in Performing Advances to Rs. 293 billion, which is one of the highest growth rates amongst the large network banks. Customer deposits and other accounts increased by 20% to Rs.402 billion. We are delighted to inform you that the Bank announced a cash dividend of 30% and 25% bonus shares for the year ended 31st December 2007 thus providing a return of Rs.186 million along with 15.5 million bonus shares on your investment in the Bank. PLANT PERFORMANCE: Your Companys management follows an elaborate plan of preventative maintenance, which it has adopted, right from the beginning. This proactive approach ensures efficient and stable operations with minimum disruptions. Our well-knit team of dedicated managers, engineers, technicians and other members of the management and 7

administrative staff play key role in the successful implementation of this approach. Hattar plant continued to operate smoothly throughout the year at well above its rated capacity. Chakwal Line-1 after commencing operation in June 2007 and, barring a few teething problems, operated smoothly. Chakwal Line-11 after commencing operation in June 2008 is also operating smoothly. MARKETING: Bestway Cement is a company driven by efficiency and quality consciousness. Strict quality control procedures are applied to ensure that these aims are achieved. Some of the best quality control equipment in Pakistan is in use at the plants. Apart from the usual equipment, Bestways laboratories are equipped with state-of-the-art technology including X-ray Fluorescent Analyser and Diffractometer. Bestway Cement introduced this technology in Pakistan for the first time. By virtue of this equipment, the Company has been able to consistently produce better quality cement than is currently available in the country. Bestway continues to be among the top brands both in the domestic market and in Afghanistan where it is now firmly established as the best brand. Your Company has been able to maintain its status as a market leader due to its consistently superior quality, effective marketing strategy, customer care and sheer dedication of its marketing team. With the successful completion of Chakwal Line-2 your Company has become the 2nd largest cement producer in Pakistan. In recognition of its performance, your Company continues to win awards for being the leading exporter, including a trophy from the Rawalpindi Chamber of Commerce & Industry for the 6th consecutive year. TRAINING AND DEVELOPMENT: The Company places great importance on the training, development and education of its 8

personnel. In order to keep its workforce abreast with best operational techniques and practices, technical and general managerial training courses are organised for various departments and categories of personnel. Staff is also sent on courses, workshops and seminars organised externally by other institutions. The Company actively encourages and assists its employees in pursuit of professional development and career enhancement. HEALTH, SAFETY AND ENVIRONMENT: Your Company attaches highest priority to the health and safety of its personnel who are an essential and valuable component of its operations. Initiatives including safety meetings, incident reporting, safety audits, good housekeeping and hygiene controls are actively and consistently pursued to instil safe behaviour in all personnel. Bestway Cement actively pursues protection and up gradation of the environment by ensuring that its plants continue to comply with established environmental quality standards at all times. Our plant not only meets the stringent environmental quality standards prescribed by the Environment Protection Authority of Pakistan, it even surpasses the international standards for emissions. Your Company always participates in various environment uplift programmes including the Tree Plantation drive each year by planting thousands of plants and trees in our factory areas and surrounding hills in order to contribute our share towards the improvement of environment. SOCIAL RESPONSIBILITY: Your Company regards itself as a responsible corporate citizen. Right from the outset, Bestway Cement has taken its social responsibilities, particularly towards the local community, very seriously and takes pride in its active participation in the development and welfare of the under-privileged. Bestway Foundation, the charitable trust of the Bestway Group to which your Company is a major contributor, was established in the year 1997. The Foundation is also certified from the Pakistan Centre for Philanthropy. During the year ended 30th June 2008, your 9

Company contributed nearly Rs.14 million to the Foundation for its various social causes. Bestway Foundations main goal is provision of education in rural communities. Quality education is fundamental to building up a strong and vibrant society. This aspect has long been neglected especially in the rural areas where masses are still deprived of good educational facilities. Bearing this in mind the Foundation embarked upon an ambitious plan of revitalising primary and secondary education in rural areas. Bestway Foundation (in collaboration with the District Government Education Department) adopted 29 schools in the far-flung corners of Rawalpindi District, which lacked basic infrastructure, facilities and sufficient number of teachers. You will be pleased to learn that the Foundation has been able to achieve desired results and the schools being supported by the Foundation have shown marked improvement and students have shown very good results in the Secondary School Examinations of 2008 also. In addition, the Foundation continues to provide scholarships to talented students who, for want of sufficient resources are unable to continue with their higher studies. Financial assistance is also provided to a large number of widows and indigents of the local community in the shape of monthly stipends. In the area of basic health, free medical facilities are provided to the local community through a dispensary located at our factory premises. FUTURE PROSPECTS: Cement industry has benefited from sustained economic growth in the last few years. The year under review however witnessed a slowdown in domestic cement consumption due to political and economic uncertainty in the country. Election of a democratic government should bring about political stability in the country which should encourage more economic activity in the country thus positively impacting demand for cement. On the export front, there remains a huge shortage of cement in numerous Middle Eastern and Asian countries most notably UAE, Qatar and India. Besides, there are other potential markets including some African and Central Asian states. 10

While there are huge opportunities for cement industry in the future, there are potential threats also. Looming global economic crisis may adversely impact the demand for cement both domestically and internationally. Also, worsening economic condition in the country is likely to hit the domestic consumption of cement. These factors coupled with more production capacity coming online in the future both within the country and the region, the markets are likely to become more competitive. Your management is cognisant of the challenges that lie ahead and will be making all out efforts to ensure further growth and superior returns in the ensuing years. CORPORATE GOVERNANCE: Statement on Compliance with Code of Corporate Governance is annexed. PATTERN OF SHAREHOLDING: Pattern of shareholding as required under the Code of Corporate Governance is given in the accounts. PRESENTATION OF FINANCIAL STATEMENTS: The financial statements prepared by the management of the Company fairly present its state of affairs, the results of its operations, cash flows and changes in equity. BOOKS OF ACCOUNT: The Company has maintained proper books of account. ACCOUNTING POLICIES: Appropriate accounting policies have been adopted and consistently applied in preparation of financial statements, except for the change in estimate as mentioned in the note 3.6, and accounting estimates are based on reasonable and prudent judgement. APPLICATION OF INTERNATIONAL ACCOUNTING STANDARDS: International Accounting Standards, as applicable in Pakistan, have been followed in preparation of financial statements. 11

INTERNAL CONTROL SYSTEM: The system of internal controls is sound in design and has been effectively implemented. The system itself is also subject to continuous review for enhancement wherever and whenever necessary. GOING CONCERN: There are no doubts about the Companys ability to continue as a going concern. LISTING REGULATIONS: There has been no material departure from the best practices of corporate governance, as detailed in the listing regulations. FINANCIAL HIGHLIGHTS: Key financial data for the last eight years is annexed. BOARD MEETINGS: Attendance by each director in the 30 Board Meetings held during the year was as given below: AUDITORS: The present auditors, Messrs KPMG Taseer Hadi & Co., Chartered Accountants retire at the conclusion of the Meeting and, being eligible, have offered themselves for reappointment. The Audit committee of the Company has considered the matter and recommended the retiring auditors for reappointment.

12

Bestway Cement Company limited

Key Financial Data of Last 8 years
BESTWAY CEMENT LIMITED JUNE 30, 2008 Eight Years Key Data 2008 Operating Results Turnover (net) Cost of sales Gross profit Operating profit Financial charges (Loss)/profit before taxation Profit after taxation 7,487 6,479 1,008 587 (419) 169 2007 5,649 4,637 1,013 871 1,236 56 52 2006 4,544 2,250 2,294 2,144 1,212 1,730 1,226 2005 3,536 1,987 1,549 1,431 469 1,298 931 2004 2,666 1,596 1,070 1,009 140 994 679 2003 2002 Rupees in 1,792 1,738 1,334 1,118 458 621 405 570 139 269 159 329 113 236 2001 millions 2,078 1,591 487 431 245 354 191 178

Balance Sheet Shareholders' funds Operating fixed assets Long term finance Net current liabilities

6,857 5,544 4,850 3,597 2,859 16,004 14,175 10,689 5,069 3,200 12,507 12,380 9,459 3,148 1,622 607 624 221 80

2,181 3,306 1,895 1,289

2,213 3,287 1,701 168

2,003 3,456 1,579 50

1,993

Significant Financial Ratios Gross profit ratio Net profit ratio Interest coverage ratio Return on equity Earnings per share Dividend

2.26 0.66 0.51

13.46 0.92 1.05 7.09 0.20 -

17.93 26.98 4.69 2.02 5.24 -

Percentages 50.48 43.81 26.33 25.47 10.27 7.69 52.37 43.75 3.98 3.19 10.00 10.00

40.14 6.31 1.59 35.10 0.58 10.00

25.56 13.58 2.34 5.84 1.22 7.50

35.73 8.57 1.54 12.20 0.92 7.50

23.44 9.20 5.00

Despatches of cement

2,610

2,250

In thousand metric tonnes 1,203 1,206 1,039 837

650

751

13

Bestway Cement Company limited

Balance Sheet as on 30 June 2008
BESTWAY CEMENT LIMITED BALANCE SHEET AS AT 30 JUNE 2008 2008 Rupees 2007 Rupees Restated ASSETS Non-current assets 3,500,000,000 3,000,000,000 Property, plant and equipment Investment property 2,575,079,770 Long term investments 1,851,979,758 1,116,466,140 Long term advances and deposits 5,543,525,668 Current assets Stores, spare parts and loose tools Stock in trade Trade debts- considered good Advances, deposits, prepayments and other receivables Cash and bank balances 13 14 15 16 16,004,481,991 291,330,764 5,297,902,301 102,474,847 21,696,189,903 14,175,374,753 277,155,456 5,077,151,793 307,325,047 19,837,007,049 2008 Rupees 2007 Rupees Restated

Notes EQUITY AND LIABILITIES Share capital and reserves Authorised share capital 350,000,000 (2007: 300,000,000) ordinary shares of Rs. 10 each

Notes

Issued, subscribed and paid up share capital Share premium account Unappropriated profit Advance for issue of right shares Non-current liabilities Long term financing - secured Liability against assets subject to finance lease Deferred liabilities Long term advances

2,832,587,750 901,277,930 2,020,561,237 1,102,077,293 6,856,504,210

6 7 8 9

12,506,666,668 258,138,491 441,207,639 12,249,720 13,218,262,518

12,380,000,005 230,976,141 1,055,573,197 23,607,975 13,690,157,318

17 18 19 20 21

1,719,953,575 729,726,744 365,120,641 555,926,017 348,573,987 3,719,300,964

1,062,334,034 290,830,696 84,633,511 482,675,425 886,327,763 2,806,801,429

Current liabilities Trade and other payables Markup payable Short term borrowings - secured Current portion of long term financing

10 11 6

1,542,716,340 286,999,641 1,507,674,824 2,003,333,334 5,340,724,139

693,718,916 256,189,604 756,384,619 1,703,832,354 3,410,125,493

25,415,490,867 Contingencies and commitments 12

22,643,808,478

25,415,490,867

22,643,808,478

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

CHIEF EXECUTIVE

DIRECTOR & CFO

14

Bestway Cement Limited

PROFIT AND LOSS ACCOUNT
BESTWAY CEMENT LIMITED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 JUNE 2008

Notes Turnover-net Cost of sales Gross profit Administration and general expenses Distribution cost Finance cost Other income 24 25 26 27 22 23

2008 Rupees 7,487,162,751 6,478,902,770 1,008,259,981 119,917,940 300,827,927 1,236,140,238 (229,490,785) 1,427,395,320 (419,135,339)

2007 Rupees 5,649,378,012 4,636,508,040 1,012,869,972 103,121,152 38,278,894 1,211,745,924 (396,632,200) 956,513,770 56,356,202 4,817,471 51,538,731 0.18 Restated

(Loss)/ profit before taxation Taxation Profit after taxation Earnings per share (basic and diluted) 32 28

587,716,818 168,581,479 0.60

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

CHIEF EXECUTIVE

DIRECTOR & CFO

15

Fauji Cement:
INTRODUCTION:
A longtime leader in the cement manufacturing industry, Fauji Cement Company, headquartered in Islamabad, operates a cement plant at Jhang Bahtar, Tehsil Fateh Jang, District Attock in the province of Punjab. The company has a strong and longstanding tradition of service, reliability, and quality that reaches back more than 10 years. Sponsored by Fauji Foundation the Company was incorporated in Rawalpindi in 1992. The cement plant operating in the Fauji Cement is one of the most efficient and best maintained in the country and has an annual production capacity of 1.165 million tons of cement. The quality portland cement produced at this plant is the best in the Country and is preferred the construction of highways, bridges, commercial and industrial complexes, residential homes, and a myriad of other structures needing speedy strengthening bond, fundamental to Pakistan's economic vitality and quality of life.

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

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

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

OUR VALUES:
Customers People We listen to our customers and improve our product to meet their present and future needs. Our success depends upon high performing people 16

Accountability

Citizen Ship Financial Responsibility

working together in a safe and healthy work place where diversity, development and team work are valued and recognized. We expect superior performance and results. Our leaders set clear goals and expectations, are supportive and provide and seek frequent feed back. We support the communities where we do business, hold ourselves to the highest standards of ethical conduct and environment responsibility, and communicate openly with FCCL people and the public. We are prudent and effective in the use of the resources entrusted to us.

MARKET OVERVIEW:
The Cement Industry witnessed an unprecedented demand for its product during Fiscal Year 2007Total cement despatches stood at 30 Million tons which is the highest figure ever achieved by the Cement Industry. It reflected a growth of 24.31% over 24 Million tons of sales during last fiscal year. Whereas, local demand grew by 6.47 % over the last year, the exports recorded a historic growth of 142% to an all time high level of 7.72 Million tons as compared to 3.19 Million tons during the last year. As a result of above, the overall capacity utilization of the Industry stood at 81.04% as compared to 80.07 % of the last year. Comparing with the Industry, the overall performance of FCCL has been substantially higher. It achieved the capacity utilization of 101.03% as compared to 81.04% of the Industry. Similarly, the exports showed an increase of 82.63% over the last year, i.e, from 152,268 tons in Fiscal Year 2006-07 to 278,095 tons in Fiscal Year 2007-08. Apart from Afghanistan, FCCL has been able to create an effective market niche in India and expects it to expand further. The highlights of the performance of the Company vis--vis the Industry are as under:Fuaji Cement Comparison (1) (2) (3) (4) 2007-08 2006-07 Difference (%) Domestic Despatches (tons) 899,405 960,8236 .39Exports (tons) 278,095 152,2688 2.63 Total Despatches (tons) 1,177,500 1,143,091 3.01 Capacity Utilization (%) 101.03 98.08 3.01

Industry Comparison (1) (2) (3) 2007-08 2006-07 Difference (%) Domestic Despatches (tons) 22,395,522 21,034,278 6.47 Exports (tons) 7,716,620 3,188,424 142.02 Total Despatches (tons) 30,112,142 24,222,702 24.31 17

(4)

Capacity Utilization (%)

81.04

80.07

1.21

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

a. Clinker ( Tons ) b. Cement ( Tons )

2007 ~ 08 1,119,221 1,174,722

2006 ~ 07 1,098,019 1,153,711

FINANCIAL PERFORMANCE:
PROFITABILITY: The Company earned a Profit After Tax of Rs. 414 Million as compared to the last year's profit of Rs. 646 Million. The profit from operations decreased from Rs. 995 Million to Rs. 602 Million depicting a decrease of 39 % owing to reduction in cement prices and higher manufacturing cost due to increase in prices of fuel, power and packing material. CONTRIBUTION TO NATIONAL EXCHEQUER: The Company contributed a sum of Rs. 1,268 Million to the national exchequer in the form of taxes and duties during the year under review. Concurrently, Fauji Cement earned USD 13.804 Million through export of cement. PRESENTATION OF FINANCIAL STATEMENTS: The financial statements prepared by the Management present the Company's state of affairs, the results of its operations, cash flows and changes in equity in a fair and accurate manner. BOOKS OF ACCOUNT: Proper books of account have been maintained. ACCOUNTING POLICIES: Appropriate accounting policies have been consistently applied in preparation of financial statements and accounting estimates are based on reasonable and prudent judgement. COMPLIANCE WITH INTERNATIONAL ACCOUNTING STANDARDS (IAS) AND INTERNATIONAL FINANCIALREPORTING STANDARDS (IFRS). 18

International Accounting Standards and International Financial Reporting Standards (IFRS) as applicable in Pakistan have been followed in preparation of financial statements. INTERNAL CONTROL SYSTEM: The system of internal control is sound in design and has been effectively implemented and monitored. GOING CONCERN: There is no doubt that the Company has the ability and strength to operate as a going concern. BEST PRACTICES OF CORPORATE GOVERNANCE: There has been no material departure from the best practices of corporate governance, as given in the listing regulations.

Fauji Cement Limited

Financial Data of Last Six Years.
Description
Operating Results (Rs. In Million) Net Sales Gross Profit Operating Profit Financial Charges Profit/(Loss) after taxation Balance Sheet Shareholders Equity Fixed Assets Long Term Loans including current portion EPS (Rs) Basic 0.85 1.73 Restated Diluted 0.77 1.53 3.21 Restated 2.84 1.36 Restated 1.21 0.84 Restated 0.74 (1.42) Restated (1.26) 9,283.981 7,106.599 875.000 3,735.206 4,392.450 1,425.000 3,282.617 4,563.115 1,975.000 2,449.624 4,658.272 3,075.000 1,939.134 4,729.254 3,645.347 1,624.986 4,659.449 4,325.878 3,545.902 658.112 601.518 146.954 413.598 3,463.283 1,091.495 995.285 207.105 646.323 4,286.138 2,191.111 2,041.984 264.297 1,203.735 2,845.143 1,081.576 988.673 229.634 510.490 2,296.231 740.824 723.084 204.223 314.148 1,510.738 175.605 122.213 463.409 (531.381)

2008

2007

2006

2005

2004

2003

19

OUTSTANDING STATUTORY DUES: The Company does not have any outstanding statutory dues. VALUE OF INVESTMENT OF EMPLOYEES: Value as on 30 June 2008 is given below:Management Staff Staff Provident Fund : Rs. 57,414,581 Non-Management Rs. 35,864,510

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

ATTENDANCE OF MEETINGS: During the year under review, the Board of Directors held six meetings and Audit Committee held five meetings. DISCLOSURES: To the best of our knowledge, the Directors, CEO, CFO, Company Secretary, Company Auditors, their spouses and their minor children have not undertaken any trading in shares of the Company during the FY 2007-08.

PATTERN OF SHARE-HOLDING: Pattern of share-holding as on 30 June 2008 is attached. 20

RELATIONS WITH COMPANY PERSONNEL: Relations between the management and the workers continued to be extremely cordial based on mutual respect and confidence contributing to optimal efficiency. The Company has allocated funds for Provident Fund and Profit Participation Fund for its employees. CORPORATE SOCIAL RESPONSIBILITIES: Concurrently, the Company continues to enjoy a high degree of goodwill and cooperation with local community as it respects their environment through responsible business practices. The Company runs a free dispensary for the locals and also provides good education facilities up to secondary school level at reasonable fee. DIRECTORS: As a result of resignation, tendered by Brig Munawar Ahmed Rana, SI (M) (Retd), Brig Liaqat Ali (Retd) has been appointed as Director of the Company with effect from 8 November 2007. As a result of resignation of Ms Tine Bremholm Kokfelt, FLS, Brig Munawar Ahmed Rana,SI(M) (Retd) has been appointed as Director of the Company with effect from 28 August 2008. The Board places on record its appreciation of the invaluable services rendered by the outgoing Directors and welcomes the new Directors on the Board. EXTERNAL AUDITORS: The present Auditors M/s KPMG Taseer Hadi & Co, Chartered Accountants will stand retired at the conclusion of the 16th Annual General Meeting. However, they have expressed their willingness for reappointment. They have also been recommended by the Audit Committee. PRODUCT QUALITY: FCCL has always endeavoured to produce the best quality cement in Pakistan, which is amply reflected in the premium price and its high demand, both inside and outside the Country. As a company, FCCL is focused on customers' satisfaction, employees' morale and fair deal to its partners in the business. It strictly adheres to the following:1. Quality Policy. Customers' satisfaction through quality assurance. 2. Objectives a. To be a cost effective and efficient organisation. b. Continuous improvement through well planned training. c. Commitment to leadership and team-work. d. To maintain quality culture within FCCL. e. To remain a leading manufacturer of high quality Portland Cement in Pakistan.

21

The Company, by grace of Almighty ALLAH, is an ISO 9001-2000 and ISO-140012004 Certified Company.

Fauji Cement Company Limited

Balance Sheet as at June 30, 2008

Note SHARE CAPITAL AND RESERVES Share capital Reserves 3 4

2008 Rupees'000

2007 Rupees'000

7,419,887 1,864,094 9,283,981

4,194,422 (459,216) 3,735,206

NON - CURRENT LIABILITIES Long term financing 5 Deferred liability - compensated absences 6 Deferred tax liability - net 7 Retention money payable CURRENT LIABILITIES and other payables Trade Short term borrowings - secured Current portion of long term financing

325,000 9,468 363,154 18,129

875,000 8,277 339,918 -

8 9 5

493,210 1,378,365 550,000 2,454,761 12,454,493

468,447 375,510 550,000 1,442,287 6,400,688

CONTINGENCIES AND COMMITMENTS

10

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

22

2008 Note FIXED ASSETS Tangible Property, plant and equipment Markup accrued LONG TERM ADVANCE LONG TERM DEPOSITS CURRENT ASSETS Stores, spares and loose tools Stock in trade Trade debts Advances, deposits, prepayments and other receivables Cash and bank balances 14 15 16 17 18 907,591 230,089 26,927 345,567 3,783,909 5,294,083 12,454,493 Rupees'000

2007 Rupees'000

11 33,186 12 13

7,106,599 48,330 7,200 46,611

4,392,450 8,100 46,611

468,769 183,309 19,558 858,758 423,133 1,953,527

23

Fauji Cement Company Limited

Profit and Loss Account

For the Year Ended June 30, 2008

Note SALES Less: Government levies NET SALES Less: Cost of sales GROSS PROFIT Other income Distribution cost Administrative expenses Other operating expenses Finance cost NET PROFIT BEFORE TAXATION Taxation NET PROFIT AFTER TAXATION 19 19 2008 Rupees'000 4,749,217 (1,203,315) 3,545,902 (2,887,790) 658,112 107,574 (53,383) (76,495) (34,290) (146,954) 454,564 (40,966) 413,598 2007 Rupees'000 4,780,036 (1,316,753) 3,463,283 (2,371,788) 1,091,495 73,835 (40,645) (71,302) (58,098) (207,105) 788,180 (141,857) 646,323 Restated Earnings per share - Basic Earnings per share - Diluted 27.1 27.2 0.85 0.77 1.73 1.53

20

21 22 23 24 25

26

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

24

Cherat Cement:
VISION:
Growth through the best value creation for the benefit of all stakeholders

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

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

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

COMPANY INFORMATION:
OVERVIEW: The year 2007/08 proved to be one of the most challenging years for the country in terms of economic out look and performance. Political uncertainty, coupled with a rising trade deficit, a reduction in the PSDP allocation, and a tightening of monetary policy by the Central Bank have adversely impacted all sectors of the national economy. The cement sector was no different. Unlike the previous 25

couple of years, domestic sales remained relatively sluggish and grew by only 6%. However, export sales to Afghanistan and other destinations like Middle East and Africa continued to show unprecedented growth. During the year under review, aggregate sales of the cement industry touched 30 million tons compared to 24 million tons last year mainly on account of increase in export sales. The profitability of the cement plants, however, remained under pressure due to substantial increase in the cost of production. PERFORMANCE OF THE COMPANY: The year 2007/08 marked the first full year of operations for the Company following the optimization of the plant. During the year, the production and dispatch volumes rose by 15% and 11% respectively compared to last year. However, significant increase in the cost of input items like coal, furnace oil and raw and packing materials, depressed the margins and the Company could only earn an after tax profit of Rs. 10 million against net sales of Rs. 3,014 million compared to an after tax profit of Rs. 184 million against net sales of Rs. 2,620 million in the corresponding period last year. PRODUCTION: During the year under review, the clinker production increased by 127,665 tons to 1,000,710 tons while cement production increased by 100,715 tons to 1,026,830 tons. Comparative production figures of clinker and cement are stated under: 2008 Clinker Cement 2007 % Increase/ Decrease 15% 11%

1,000,710 873,045 1,026,830 926,115

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

Local Sales Export

% Increase/ Decrease 656,268 653,023 1% 370,955 274,60 35%

1,027,223 927,624 11 %

2008

2007

26

OPERATING PERFORMANCE:
Despite almost Rs. 400 million i.e. 15% increase in the sales revenue from the corresponding period last year, there was a drop in the profitability of the Company compared to last year. Depressed cement prices for most part of the year, owing to substantial increase in production capacity of the industry coupled with rising costs of major inputs such as furnace oil, coal and raw and packing materials, reduced margins substantially. There was also a drop in the other income due to reduced level of investments made by the Company. After taking into consideration various expenses and government taxes, the company was able to earn an after tax profit of Rs. 10.35 million during the year under review. Summarized operating performance of the Company for the current year and that of last year is as follows: 2008 Net Sales Cost of Sales Gross Profit Expenses & Taxes Net Profit 2007
Rs. in Million

% Increase/ Decrease 26% (52%) (13%) (94%)

3,013.75 2,619.96 15% 2,834.33 2,242,30 179.42 377.66 169.07 193.50 10.35 184.16

WASTE HEAT RECOVERY: In order to mitigate the risk of rising energy cost which constitutes a major portion of cost of production, the Company has decided to install Waste Heat Recovery Boilers. The installation of this equipment by the end of ensuing financial year is expected to help in reducing the rising cost of production in the days ahead. MADIAN HYDRO POWER: We wish to update our shareholders that the Project Consultants for Madian Hydro Power Limited - M/s. Fichtner GmbH have almost completed work on the Phase II of the feasibility study and will soon be presenting the draft feasibility report. Given the power shortage situation in the country, the project is of high significance with lots of potential, however, the law and order situation in the project area remains a major cause of concern. CORPORATE SOCIAL RESPONSIBILTY: 27

As a conscientious member of the corporate community, the Company generously contributed to various social and charitable causes during the year. STATEMENT ON CORPORATE AND FINANCIAL REPORTING FRAMEWORK: The financial statements prepared by the Company fairly present its state of affairs, the results of operations, cash flows and changes in equity. Proper books of account have been maintained by the Company. Appropriate accounting policies have been consistently applied in the preparation of financial statements and accounting estimates are based on reasonable and prudent judgment. Applicable International Accounting Standards have been followed in preparation of financial statements and there has been no departure there from. The system of internal controls has been effectively implemented and is continuously reviewed and monitored. The Company is a going concern and there are no doubts about its ability to continue. There has been no material departure from the best practices of corporate governance, as detailed in the listing regulations. Key operating and financial data for last six (6) years in summarized form is annexed. There is nothing outstanding against your company on account of taxes, duties, levies and other charges except for those which are being made in the normal course of business. The Company maintains Provident and Gratuity Fund accounts for its employees. Stated below are the values of the investments of the fund as on 30th June 2008: Provident Fund Gratuity Fund Rs. 184,392,362 Rs. 72,967,659

The pattern of shareholding is annexed. Earnings per share (EPS) during the year was Re. 0.11 as against Rs. 1.93 last year. DIVIDEND: In view of the liquidity requirements for on going projects, the Company will not be able to pay any dividend this year. FUTURE PROSPECTS: While increased demand for cement from Middle East and other destinations is expected to contribute to higher cement sale volumes, expected reduction in the PSDP allocation, rising interest rates and political uncertainty in the country will continue to have a negative impact on domestic demand. We are hopeful that the government will address these issues effectively, and will take necessary measures to revive the economy which in turn could spur the demand of cement for infrastructural and housing projects and exports through land and sea routes. 28

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

Cherat Cement Company Limited

Financial data of Last 7 Years
2008 2007Year 2006

for the year ended June 30, 2008

2005 2004 2003

2002

2008 2008

2007 2007

2006

2005

2004

2003

2002

(Tons in '000) Clinker production Cement production Cement despatched 1,001 1,027 1,027 873 926 928 575 598 596 749 792 792 774 802 789 656 693 706 528 555 555

ASSETS EMPLOYED (Rs. in million) Tangible fixed assets Investment and long-term loan, advances & deposits Derivative financial assets Current assets Total assets employed 111 29 1,720 4,382 71 25 1,240 3,533 33 41 1,268 3,612 18 28 1,384 3,203 17 913 2,182 19 601 1,896 101 664 1,900 2,522 2,197 2,270 1,773 1,252 1,276 1,135

FINANCED BY Shereholders equity Long-term liabilities Deferred liabilities Derivative financial liabilities Current liabilities Total funds invested 2,158 393 233 4,382 2,236 452 303 2,113 664 319 1,742 829 167 15 1,432 210 170 1,007 312 170 1,063 66 175 596

1,598 542 516 450 370 407 3,533 3,612 3,203 2,182 1,896 1,900

TURN OVER & PROFIT Turn over (net) Operating profit Profit / (loss) before taxation Profit after taxation Cash dividend Bonus shares Transfer to reserves Transfer from reserves 3,014 25 (56) 10 2,620 323 247 184 96 2,435 799 719 538 83 125 2,401 718 684 512 199 166 2,085 592 574 426 213 133 1,508 59 25 10 66 1,423 202 177 138 120 5 30 -

29

Cherat Cement Company Limited

Balance Sheet as at June 30, 2008
2008
Ford Rhodes Sidat Hyder & Co. Chertard Accountants Progressive Plaza, Beaumont Road P.O.Box 15541, Karachi75530, Pakistan Tel: +9221 5650007 Fax: +9221 5681965 www.ey.com/pk

2007

We have audited the annexed balance sheet of CHERAT CEMENT COMPANY LIMITED as at 30 June 2008 and the related profit and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof, for the year then ended and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit. It is the responsibility of the Companys management to establish and maintain a system of internal control, and prepare and present the above said statements in conformity with the approved accounting standards and the requirements of the Companies Ordinance, 1984. Our responsibility is to express an opinion on these statements based on our audit. We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the above said statements are free of any material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the above said statements. An audit also includes assessing the accounting policies and significant estimates made by management, as well as, evaluating the overall presentation of the above said statements. We believe that our audit provides a reasonable basis for our opinion and, after due verification, we report that: a) in our opinion, proper books of account have been kept by the Company as required by the Companies Ordinance, 1984; b) in our opinion: i) the balance sheet and profit and loss account together with the notes thereon have been drawn upaccount and are further in accordance with accounting policies consistentlywith the books of in conformity with the Companies Ordinance, 1984, and are in agreement applied; ii) the expenditure incurred during the year was for the purpose of the Company's business; and iii) the business conducted, investments made and the expenditure incurred during the year were in accordance with the objects of the Company; c) in our opinion and to the best of our information and according to the explanations given to us, the balance sheet, profit and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof conform with approved accounting standards as applicable in Pakistan, and, give the information required by the Companies Ordinance, 1984 in the manner so required and respectively give a true and fair view of the state of the Company's affairs as at 30 June 2008 and of the profit, its cash flows and changes in equity for the year then ended; and d) in our opinion, Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980) was deducted by the Company and deposited in the Central Zakat Fund established under section 7 of that Ordinance.

30

Cherat Cement Company Limited Profit & Loss Account

for the year ended June 30, 2008

Note Note
(Rupees 000)

2008

2007
(Rupees 000)

2008

2007 22 23
27

CASH FLOWS FROM OPERATING ACTIVITIES Profit / (loss) before taxation (56,498)

Turnover net Cost of sales

Depreciation Return on loan to a related party

3.1.2 27

3,013,752

Return on US Dollar loss / (gain) on short-term investments Bonds Gain on disposal of operating property, plant and equipment

27 717 3.1.4

(2,834,336) 179,416

176,722 -

2,619,960

(2,242,296)
(145) (15,337) (1,704) 3,112

Distribution cost Administrative expenses venture

working capital changes

Exchange loss net

377,664

24 25 4.1.2 26

Other operating expenses

Stores, spare parts and loose tools Loans and advances

(4,973) 199,220

(73,898) (92,923) 413

(6,365)

(6,608)

255,718

(64,655) (84,953) (21,541)

Adjustment for: 236,501 (10,970) Unrealised fair value (365) (651)Gross profit Finance cost 28 104 Share of loss in joint Dividend income 27 278,448 Operating profit before

Other operating income Operating profit Finance cost

27
(90,203)

Other short-term prepayments receivables

28
485,068 Short-term running finance

Profit / (loss) before taxation

payables

Taxation Current - for the year Deferred 66,852

525,475 (173,429) (171,149) (Increase) / decrease in current assets (684,597) (214,887) 19,091 116,043 Stock-in-trade 27,939 3,365 147,802 25,078 322,558 Trade deposits and (426) (46,585) (70,589) (835) (888,609) (40,407) (81,576) (75,531) (689,389) Increase / (decrease) in current liabilities (56,498) 247,027 Trade and other 402,207 697,298 (67,801) 34,667 1,099,505 (33,134)

(15,095)
(27,620)

(77,145)Income tax paid - net (44,039)- prior years 11,392

Net cash generated from operating 70,555 11,204

3,072 (62,869)

29

Profit after taxation

progress

Additions to operating property, plant and equipment Sale proceeds of operating property, plant and equipment Long-term loans and advances

Earnings per share basic

Dividend received Long-term security deposits Net cash used in investing activities Long-term financing net Finance lease payments Dividend paid

30
372,817

CASH FLOWS FROM INVESTING ACTIVITIES 3.1.1 (293,876) (82,758) 3.1.4 5,090 5,849 10,354 184,158 Capital work-in3.2 (211,308) (86,057) (821) 2,731 Re. 0.11 Rs. 1.93 Investments net 27 (237,250) 4,973 6,365 (59) 304 (123,184) (390,816) CASH FLOWS FROM FINANCING ACTIVITIES (94,500) (162,500) (1,172) (95,064) (82,659)

The annexed notes from 1 to 37 form an integral part of these financial statements.

31

Conclusion:

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

Production Capacity 1. Bestway 2. Fauji 3. Cherat Financial Report 1. Bestway 2. Fauji 3. Cherat Net Profit 1. Bestway 2. Fauji 3. Cherat Contractors Survey A survey of contractors and construction companies conducted by our group. Most of the constructors say that the management of Bestway Cement is very efficient and cooperative to their customers. Some contractors are satisfied with Fauji Cement management. Thats why Charat Cement is facing tough competition. Market Survey Cement dealers describes that the quality and price of Bestway Cement is reasonable. And they deliver cement with in give time whereas Fauji Cement has also good quality but slightly expensive then Bestway cement. Cherat cement gives very low profit margin to cement dealers. Their marketing promotion is also not very competitive. Growth per Annum 1. Bestway 2. Fauji 3. Cherat

32