KARACHI, Jan 4: Only two of the 22 listed cement companies appear to have posted improved profits in the current reporting season: Bestway and Lucky. With after tax profit at the industry-highest Rs256 million for the year ended June 30, 2001, Lucky Cement possibly could take up the top slot. And the shareholders in the company were no less luckier: They received the first dividend in seven years — the company came to be publicly traded at the stock exchange in 1994. Notwithstanding the improved profitability and maiden dividend, the share in Lucky Cement — like the majority of other quoted cement stocks — continues to trade at discount to par value.

The Board decided to pay cash dividend to the shareholders at 7.5 per cent. In percentage terms, the dividend looks modest. But being a 100 per cent equity-based project, the company holds a colossal sum of Rs2,450 million in paid up capital, which would entail disbursement of a huge sum of Rs184 million in dividend.

On the other hand, the company is able to save enormous sums in financial charges, which stood at a low Rs65m — down from Rs124m the year earlier; thanks to comparatively low debts.

Chairman A.R. Thaplawala stated that during the period from 1995 to 1999, a number of cement plants had sprung up following the opening up of cement industry to the private sector. “Lucky cement comes out as a distinct exception, because all other companies reported negative operating results”, he said.

But it has to be admitted that cement companies generally have posted devastating financial results for the year 2001, with at least two companies showing losses that came close to half a billion rupees.

Analysts at brokerage house, Taurus Securities observed that the profit after tax at Lucky Cement had surged in the second half of the year to end-June 30, 2001 due to two reasons: Firstly, the revival of cement cartel from February 2001 and therefore the improvement in overall industry margins and secondly, the overall decline in furnace oil prices which averaged around Rs10,500 per ton for February-May 2001, down from Rs11,500 per ton in the first half of the year. Nothing of that however, is meant to rob Lucky of the credit that is its due; the company has managed to outperform the sector.

Pre-tax profit for the year ended June 30, 2001 stood at Rs267 million, representing 9.4 per cent increase over Rs244 million earned the year ago. After tax profit grew 13 per cent to Rs256 million, from Rs226 million. Sales in terms of value rose to Rs2,203 million, from Rs2,049 million, but costs rose faster, pushing down the gross profit to Rs415 million, from Rs438 million. Gross profit margin slipped to 18.9 per cent, from 21.4 per cent and operating profit margin dropped to 15.7 per cent from 11.9 per cent. Financial charges to sales could be lightened to 3 per cent, from 6.05 per cent, which went to jack up the profit before tax to sales margin to 12.1 per cent, from 11.9 per cent.

The chief executive admitted that the bottomline was glossier “due mainly to substantial reduction in financial charges”. He claimed that the company was not only able to meet all its repayment obligations in time, but was also able to repay some of the borrowings in advance. That enabled the company to reduce its long term obligations from Rs291m at the end of last financial year to Rs184m at end-June 2001. He stated that the outstanding liabilities against financial lease had been paid off in full during the year under review. Debt/equity ratio stood at 0.08:1, which represented an enviable financial strength.

Clinker production increased during the year to 824,190 tons, from 819,180 tons the previous year. The company continued to work on upgrading and modernization of equipment, which increased production capability to almost 2,400 tons per day of clinker, from original minimum design capacity of 2,000 tons per day.

The company expected cement demand to increase on the back of reconstruction in Afghanistan and implementation of some development projects. Other than that, the demand for cement was said to be stagnant with the industry able to operate at just about 60 per cent of the production capacity.