Corporate Finance

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COMSATS Institute of Information Technology Islamabad

CF Research project
D.G.Khan Cement & Bestway Cement
Muhammad Hanif Raja

2010
Sp09-Mba-088 MBA 3A

Contents
D.G. Khan Cement Company Ltd. ................................ ................................ ................................ ............... 3 Mian Mohammad Mansha, the chairman of Nishat Group continues the spirit of entrepreneurship and has led the Group successfully to make it the premier business group of the region. The group has become a multidimensional corporation and has played an important role in the industrial development of the country. In recognition of his unparallel contribution, the Government of Pakistan has also conferred him with ³Sitara-e-Imtiaz´, one of the most prestigious civil awards of the country. ............... 3 Acquisition of DGKCC by Nishat Group................................ ................................ ................................ ....... 4 Expansion -Khairpur Project ................................ ................................ ................................ ...................... 4 Power Generation ................................ ................................ ................................ ................................ ..... 5 Environmental Management ................................ ................................ ................................ ..................... 5 Owners of the company ................................ ................................ ................................ ............................ 5 Board of Directors ................................ ................................ ................................ ................................ ..... 6 Incorporation date ................................ ................................ ................................ ................................ .... 6 Products ................................ ................................ ................................ ................................ .................... 6 Competitors ................................ ................................ ................................ ................................ .............. 6 Number of shares outstanding ................................ ................................ ................................ .................. 7 Total Market capitalization ................................ ................................ ................................ ........................ 7 Book Value per Share ................................ ................................ ................................ ................................ 7 M/B Ratio ................................ ................................ ................................ ................................ .................. 7 Start of fiscal Year................................ ................................ ................................ ................................ ...... 7 Capital Structure ................................ ................................ ................................ ................................ ....... 7 Debt ................................ ................................ ................................ ................................ ...................... 7 Equity ................................ ................................ ................................ ................................ .................... 7 Dividend policy ................................ ................................ ................................ ................................ .......... 8 Leases ................................ ................................ ................................ ................................ ....................... 8 Finance leases ................................ ................................ ................................ ................................ ....... 8 Operating leases ................................ ................................ ................................ ................................ .... 9 Depreciation Method ................................ ................................ ................................ ................................ 9 Bestway Cement limited ................................ ................................ ................................ .......................... 10 Bestway Cement Hattar ................................ ................................ ................................ ....................... 11 Plant Conversion to Gas................................ ................................ ................................ ....................... 11

D.G.Khan Cement

Bestway Cement

Plant Conversion to Coal................................ ................................ ................................ ...................... 11 Capacity Enhancement ................................ ................................ ................................ ........................ 12 Listing on KSE ................................ ................................ ................................ ................................ ...... 12 Exports ................................ ................................ ................................ ................................ ................ 12 Bestway Cement Chakwal-I................................ ................................ ................................ .................. 13 Mustehkam Cement ................................ ................................ ................................ ............................ 13 Capacity Enhancement and Modernisation................................ ................................ .......................... 14 Bestway Cement Chakwal-II................................ ................................ ................................ ................. 14 Environment a top Priority................................ ................................ ................................ ................... 14 Quality Assurance................................ ................................ ................................ ................................ 14 Incorporation Date ................................ ................................ ................................ ................................ .. 15 Listing date ................................ ................................ ................................ ................................ .............. 15 Products ................................ ................................ ................................ ................................ .................. 15 Competitors ................................ ................................ ................................ ................................ ............ 15 Number of shares outstanding ................................ ................................ ................................ ................ 15 Total Market capitalization ................................ ................................ ................................ ...................... 15 Book Value per Share ................................ ................................ ................................ .............................. 16 M/B Ratio ................................ ................................ ................................ ................................ ................ 16 Start of fiscal Year................................ ................................ ................................ ................................ .... 16 Capital Structure ................................ ................................ ................................ ................................ ..... 16 Debt ................................ ................................ ................................ ................................ .................... 16 Equity ................................ ................................ ................................ ................................ .................. 16 Dividend policy ................................ ................................ ................................ ................................ ........ 16 Leasing ................................ ................................ ................................ ................................ .................... 16 Depreciation Method ................................ ................................ ................................ .............................. 17
References:................................ ................................ ................................ ................................ .............. 17

D.G.Khan Cement

Bestway Cement

D.G. Khan Cement Company Ltd.
NISHAT GROUP

Nishat Group is one of the leading and most diversified business groups in South East Asia. With assets over PRs.300 billion, it ranks amongst the top five business houses of Pakistan. The group has strong presence in three most important business sectors of the region namely Textiles, Cement and Financial Services. In addition, the Group has also interest in Insurance, Power Generation, Paper products and Aviation. It also has the distinction of being one of the largest players in each sector. The Group is considered at par with multinationals operating locally in terms of its quality of products & services and management skills.

Mian Mohammad Mansha, the chairman of Nishat Group continues the spirit
of entrepreneurship and has led the Group successfully to make it the premier business group of the region. The group has become a multidimensional corporation and has played an important role in the industrial development of the country. In recognition of his unparallel contribution, the Government of Pakistan has also conferred him with ³Sitara-e-Imtiaz´, one of the most prestigious civil awards of the country. D.G. Khan Cement Company Limited (DGKCC), a unit of Nishat group, is the largest cement-manufacturing unit in Pakistan with a production capacity of 5,500 tons clinker per day. It has a countrywide distribution network and its products are preferred on projects of national repute both locally and internationally due to the unparallel and consistent quality. It is list on all the Stock Exchanges of Pakistan. DGKCC was established under the management control of State Cement Corporation of Pakistan Limited (SCCP) in 1978. DGKCC started its commercial production in April 1986 with 2000 tons per day (TPD) clinker based on dry process technology. Plant & Machinery was supplied by UBE Industries of Japan.

D.G.Khan Cement

Bestway Cement

Acquisition of DGKCC by Nishat Group Nishat Group acquired DGKCC in 1992 under the privatization initiative of the government. Starting from the privatization, the focus of the management has been on increasing capacity as well as utilization level of the plant. The company undertook the optimization by raising the capacity immediately after the privatization by 200tpd to 2200tpd in 1993.

Capacity Addition

To meet the increasing demand and to capitalize on its geographic location, the management further expanded the capacity by adding another production line with a capacity of 3,300 tons per day in year 1998. Design of the new plant is based on latest dry process technology, energy efficient and environmental protection from particulate pollution according to the international standards. The plant and machinery was supplied by M/s F.L. Smidth of Denmark. As a result, DGKCC emerged as the largest cement production plant in Pakistan with annual production capacity of 1,650,000 M tons of clinker (1,732,000 M.Tons Cement) constituting about 10% share of the total cement production capacity of the country. The optimization plan is still underway to increase the total capacity of the two units to 6700 TPD by mid of 2005 from 5500 TPD at present. Expansion -Khairpur Project Furthermore, the Group is also setting up a new cement production line of 6,700 TPD clinker near KalarKahar, Distt. Chakwal, the single largest production line in the country. First of its kind in cement industry of Pakistan, the new plant will have two strings of pre-heater towers, the advantage of twin strings lies in the operational flexibility whereby production may be adjusted according to market conditions. The project will be equipped with two vertical cement grinding mills. The cement grinding mills are first vertical Mills in Pakistan. The new plant would not only increase the capacity but would also provide proximity to the untapped market of Northern Punjab and NWFP besides making it more convenient to export to Afghanistan from northern borders.

D.G.Khan Cement

Bestway Cement

Power Generation For continuous and smooth operations of the plant uninterrupted power supply is very crucial. The company has its own power generation plant along with WAPDA supply. The installed generation capacity is 23.84 MW. Environmental Management DG Khan Cement Co. Ltd., production processes are environment friendly and comply with the World Bank¶s environmental standards. It has been certified for ³Environment Management System´ ISO 14001 by Quality Assurance Services, Australia. The company was also certified for ISO-9002 (Quality Management System) in 1998. By achieving this landmark, DG Khan Cement became the first and only cement factory in Pakistan certified for both ISO 9002 & ISO 14001... Owners of the company
SHARES HELD PERCENTAGE 95,537,640 1,173,287 1,400 31.40 0.39 0.00 1. NISHAT MILLS LTD. 2. ADAMJEE INSURANCE COMPANY LIMITED 3. INVESTMENT CORPORATION OF PAKISTAN 4. NATIONAL BANK OF PAKISTAN-TRUSTEE WING (NATIONAL INVESTMENT (UNIT) TRUST) 5. MRS. NAZ MANSHA DIRECTOR/ CHAIRPERSON 6. MIAN RAZA MANSHA DIRECTOR/ CHIEF EXECUTIVE 7. MR. I.U. NIAZI DIRECTOR/CFO 8. MS. NABIHA SHAHNAWAZ CHEEMA DIRECTOR 9. MRS. AMMIL RAZA MANSHA (SPOUSE OF CHIEF EXECUTIVE) 10. Joint Stock Companies 11. Investment Companies 12. Insurance Companies 13. Financial Institutions 14. Modaraba Companies 134,836,295 10,209,621 8,681,346 9,912,827 3,338,100 44.32 3.36 2.85 3.26 1.10 1,928 3,000 4,091,041 0.00 0.00 1.34 6,717,422 2.21 10,184,217 78,541 3.35 0.0 3

D.G.Khan Cement

Bestway Cement

Board of Directors Mrs. Naz Mansha Chairperson Mian Raza Mansha Mr. Khalid Qadeer Qureshi Mr. Zaka-ud-Din Mr. Muhammad Azam Mr. Inayat Ullah Niazi Ms. Nabiha Shahnawaz Cheema

Chief Executive

Chief Financial Officer

Incorporation date DGKCC was established under the management control of State Cement Corporation of Pakistan Limited (SCCP) in 1978. DGKCC started its commercial production in April 1986 with 2000 tons per day (TPD) clinker based on dry process technology.

Products i. Ordinary Portland Cement ii. Clinker iii. Sulphate Resistant Cement

Competitors i. Fauji cement ii. Bestway cement iii. Dewan cement iv. Lucky cement

D.G.Khan Cement

Bestway Cement

Number of shares outstanding

304,249,400
Total Market capitalization

7,950,036,822

Book Value per Share

67.1108

M/B Ratio

0.3893

Start of fiscal Year Fiscal year of DG cement starts from 1st July and ends at 30 June. Capital Structure DG cement is using equity and debt both but its capital structure is not complex capital structure.
Debt

51.04% 48.96%

Equity

D.G.Khan Cement

Bestway Cement

Dividend policy Dividend distribution to the shareholders is recognised as a liability in the period in which the dividends are approved.According to annual report 2009 DG cement offers no dividend this year. Leases
Finance leases

Leases where the Company has substantially all the risks and rewards of ownership are classified as finance leases. At inception, finance leases are capitalised at the lower of present value of minimum lease payments under the lease agreements and the fair value of the assets, less accumulated depreciation and impairment loss, if any. The related rental obligations, net of finance costs, are included in liabilities against assets subject to finance lease as referred to in note 8. The liabilities are classified as current and non-current depending upon the timing of the payment. Minimum lease payments made under finance leases are apportioned between the finance cost and the reduction of the outstanding liability. The finance cost is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments , if any are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed. The interest element of the rental is charged to income over the lease term. Assets acquired under a finance lease are depreciated over the estimated useful life of the assets on reducing balance method except plant and machinery which is depreciated on straight line method at the rates mentioned in note 18. Depreciation of leased assets is charged to profit and loss. Depreciation methods, residual values and the useful lives of the assets are reviewed at least at each financial year-end and adjusted if impact of depreciation is significant.

D.G.Khan Cement

Bestway Cement

Depreciation on additions to leased assets is charged from the month in which an asset is acquired while no depreciation is charged for the month in which the asset is disposed off.
Operating leases

Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit on a straight-line basis over the lease term.

Depreciation Method 1) Assets acquired under a finance lease are depreciated over the estimated useful life of the assets on reducing balance method. 2) Plant and machinery is depreciated on straight line method.

D.G.Khan Cement

Bestway Cement

Bestway Cement limited Bestway Cement Limited is part of the Bestway Group of the United Kingdom. Bestway Group was founded by Sir Mohammed Anwar Perveznearly thirty three years ago on what could be best described as one man¶s vision and passion. Since then it has translated into a unique and successful group of businesses spread across the globe with the help of committed, professional and hardworking management and staff, together with loyal customers and suppliers. The Group has a welldiversified portfolio incorporating within its folds cement manufacturing, global banking, wholesale cash & carry business, a string of retail outlets, real estate investment, ethnic food and beverage import and distribution and milling of rice. Recently the group has embarked upon a large power generation project in Pakistan thus further diversifying its operations and revenue base. Bestway Group is an example of a dynamic enterprise. Over the last three decades the Group has achieved remarkable success and positioned itself amongst United Kingdom¶s top 10 privately owned companies. Bestway is U.K¶s second largest cash and carry operator in terms of turnover with group annual turnover in excess of US Dollars 3.6 billion and profits in excess of US Dollars 135 million; the second largest cement producer in Pakistan and joint owner of Pakistan¶s third largest bank, United Bank Limited. Its rice milling facilities are one of the largest of its kind in the country. The group is the largest overseas Pakistani investor with investments in excess of US Dollars 1 billion and a global workforce of over 22,000 people spread over four continents. In response to successive governments¶ efforts to attract foreign investment in the country Bestway Group has invested heavily in Pakistan. In just over decade Bestway¶s cement production capacity is set to more than quadruple to over 6.0 million tonnes per annum, making Bestway the second largest cement producer in the country. In early 1992 when the Group decided to set up its first cement plant it faced multiple challenges mainly due to a lack of credibility as a business due to the absence of a track record in Pakistan. The domestic economy was highly inhospitable characterized by high interest rates, high inflation and low liquidity

D.G.Khan Cement

Bestway Cement

leading to a general economic and political inertia. It has however successfully exhibited its managerial dynamism and technical excellence in setting up and managing the manufacturing facilities and achieving market dominance through its diversification strategy by investing in the local cement industry and continues to be bullish about Pakistan. Even during the period of economic slowdown and recession in the country in the late 1990¶s which adversely affected the profitability of the industry Bestway was able to record pre-tax profits even at 60% capacity utilization. The Company has been amongst the leaders in the recent market boom, operating at above 100% of its installed capacity.
Bestway Cement Hattar

In 1994 work was started on the cement plant in the under developed area of Hattar, Haripur in the North West Frontier Province, Pakistan. This was an initial investment of US$120 million. The contract for the supply of main plant was signed with Mitsubishi Corporation of Japan in June 1995. The suppliers sub contracted some of the equipment to other international manufacturers, namely the crushers to FAM of Germany, Cement mill to Fuller of USA and electrical and instrumentation to ABB of Switzerland and Siemens of Germany. Civil works started in January 1996 and the Kiln was fired in April 1998, which is a record in itself.
Plant Conversion to Gas

Prior to 2001 production at Bestway Cement was being carried out using furnace oil as fuel. The management¶s proactive decision in anticipation of a further hike in oil prices lead to modification of its plant to operate on natural gas. These were the first steps in achieving a cost efficient production process and ultimately the production process was converted to coal with a further investment of approximately US$10 million.
Plant Conversion to Coal

The machinery for coal conversion was procured from IPPR Engineering of China while some of the fabrication and erection work was done locally. The whole project was supervised by a highly skilful team of Chinese engineers alongside the Company¶s own engineers. The entire project from signing the agreement to commissioning was completed within a record period of 10 months. The Company has also set up its own coal testing and analysis laboratory, which is equipped with the most up-to-date equipment to ensure that only quality coal is used in the process
D.G.Khan Cement Bestway Cement

to prevent undesired operational and environmental effects. Conversion to natural gas and then to coal has significantly reduced the energy cost component, which at times constituted about 65% of the total production cost.
Capacity Enhancement

Bestway¶s proactive management has kept the Company one step ahead of its competitors. The timely and strategic decisions of the management have enabled the Company to maintain its current market share of around 8% and its position as the lead exporter. Hattar plant¶s initial capacity was 1.0 million tonnes per annum. In 2002, at a cost of US$20 million, plant capacity was enhanced to 1.15 million tonnes per annum to meet the ever increasing demand for quality cement. Owing to the management¶s insight on growing market demand and the potential to export, in 2004 the plant¶s capacity was further upgraded to 1.25 million tonnes of clinker production.
Listing on KSE

Despite all the challenges the cement plant, since it¶s commissioning in October 1998, has been generating positive cash flows. Bestway Cement was listed on the Karachi Stock Exchange in February 2001 and since listing its market capitalisation has grown by approximately 850% making Bestway Cement one of the largest companies by market capitalization. Bestway Cement Hattar continues to play a key role in the local economy, providing direct employment to over 600 people with a further 1,500 jobs being created in the transportation of cement from the plant. Due to its prudent policies and professional management Bestway has been one of the most profitable entities in the industry since it commenced commercial operations in 1998 making substantial contributions to the public exchequer through direct and indirect taxes.
Exports

The Company has been able to maintain its status as a market leader due to superior product quality, effective marketing, customer focus and staff dedication. Prior to the commissioning of Chakwal-I and Mustehkam Cement, Bestway enjoyed more than 8% of the market share of the domestic market. Successful introduction of its brand in Afghanistan and more recently in India, Africa and Middle East has made Bestway one of the largest exporters of cement in Pakistan.
D.G.Khan Cement Bestway Cement

Bestway Cement Chakwal-I

In February 2004 owing to the growth in market demand, Bestway Group took the strategic decision of expanding its operations through the setting up of a 1.8 million tonnes per annum cement plant near Village Tatral of District Chakwal, Punjab Province, Pakistan. This is the Group¶s second Greenfield development project at a cost of US$ 140 million. The Company started its land acquisition in June 2004 and civil constructions in January 2005. The plant specifications were compiled by Bestway¶s own engineers selecting the best equipments available. The raw-mill and coal-mill has been supplied by Loesche, fans by Venti, gear boxes by Flender, Switch Gear by ABB, Bucket Elevators by Aumund, Motors, Motor Control Systems and Automation by Siemens of Germany. In April 2005, the Prime Minister of Pakistan, Mr Shaukat Aziz performed the groundbreaking ceremony for the plant. Civil works for Bestway Chakwal were initiated in January 2005, the Kiln was fired in May 2006 and the plant went into production in June 2006 which is an industry record. During the planning and construction phase the company took all the necessary steps to guarantee that the plant and machinery not only met the local and international environmental standards but also exceeded them. Bestway Cement Chakwal-I has led to the direct and indirect creation of jobs for more than 2,000 jobs - injecting a new lease of life in one of the most economically dispossessed parts of Pakistan.
Mustehkam Cement

To further extend its presence in the cement industry, Bestway decided to bid for 85.29% of equity of Mustehkam Cement Limited a 0.6 million tonnes per annum capacity plant, following an offering by the Privatisation Commission, Government of Pakistan. The company¶s bid of approximately US$70.0 million was accepted in September 2005. Mustehkam¶s plant is in close vicinity of our existing operations in Hattar, District Haripur, NWFP. Though the production of the enterprise had been discontinued in 1999, due to the hard work and dedication of our local staff and management, Mustehkam started production in December 2005 ± one month after acquisition.

D.G.Khan Cement

Bestway Cement

Capacity Enhancement and Modernisation

Mustehkam Cement has a glorious past with the company winning best performance awards from the local stock exchanges. Through increased investments in capacity and plant upgradation Bestway seeks to return past glory to Mustehkam Cement. Recently, Bestway has embarked upon a major upgradation and modernization of Mustehkam. In the initial phase, one of the process lines at Mustehkam is being upgraded to a capacity of 0.9 million tonnes per annum at an estimated cost of US Dollars 50 million. This enhancement is being carried out mainly with the assistance of FL Smidth and will take the total production capacity at Mustehkam to above 1.2 million tonnes per annum of clinker. Planning is already in progress to upgrade and enhance the remaining production lines also.
Bestway Cement Chakwal-II

In May 2006 the Group announced plans for the establishment of a second 1.8 million tonnes per annum capacity plant adjacent to our existing operations in Chakwal at a cost of US$180.0 million. This would be Bestway¶s third Greenfield cement plant in Pakistan. This would be an identical plant to the existing Line-1, having 1.8 million tonnes capacity. By the end of the first quarter of 2008, through these investments, the Group¶s cement manufacturing capacity is set to exceed 6.0 million tonnes per annum, making Bestway the second largest cement producer in the country.
Environment a top Priority

Bestway¶s plants are environmentally friendly with emission standards that far exceed prevailing acceptable standards, both local and international. The plants¶ emission levels are 50 microns whereas the Government of Pakistan¶s acceptable standards are 300 microns and international standards are 100 microns per cubic meter of air at NTP.
Quality Assurance

Bestway Cement is driven by high standards of efficiency and quality. Strict quality control procedures are applied to ensure that these aims are achieved. The best quality control equipment in Pakistan is in use at its plants. Apart from the usual equipment, Bestway¶s laboratories are equipped with state-of-the-art X-ray Fluorescent Analyzer and Diffractometer technology. Bestway Group was a pioneer
D.G.Khan Cement Bestway Cement

in introducing 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. Since inception, Bestway has been producing Portland cement of specifications far superior to the Pakistani, Indian, British and American standards. Incorporation Date 1st Cement plant of Bestway was incorporated in 1992. Listing date Bestway cement was listed at Karachi stock exchange on Feb, 2001. Products i. Ordinary Portland Cement ii. Clinker iii. Sulphate Resistant Cement iv. Quick setting cement Competitors v. Fauji cement vi. DGK cement vii. Dewan cement viii. Lucky cement Number of shares outstanding

325,747,591
Total Market capitalization

6,511,694,344

D.G.Khan Cement

Bestway Cement

Book Value per Share

25.22
M/B Ratio

0.7926
Start of fiscal Year Fiscal year of Bestway starts from 1st July. Capital Structure
Debt

29.12% 70.88%

Equity

Dividend policy Dividend distribution to the shareholders is recognised as liability in the period in which it is declared. Leasing Leases in term of which the Company assumes substantially all the risks and rewards of ownership are classified as finance lease. Assets acquired by way of finance lease are stated at amounts equal to the lower of their fair value and the present value of minimum lease payments at the inception of the lease less accumulated depreciation and impairment losses, if any. Outstanding obligations under the lease less finance charges allocated to the future periods are shown as liability. Depreciation on assets held under finance lease is charged in a manner consistent with that for depreciable assets which are owned by the Company.

D.G.Khan Cement

Bestway Cement

Depreciation Method 1. Depreciation is charged to income applying the reducing balance method. 2. Buildings and plant and machinery are depreciated on straight line method. 3. Leasehold land is amortized over the remaining period of the lease.

References:

www.corporateinformation.com www.scribd.com www.yahoofinance.com www.khistocks.com www.kse.com.pk www.brecorder.com www.bestway.com www.dgkcement.com

D.G.Khan Cement

Bestway Cement

D.G.Khan Cement

Bestway Cement

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