KARACHI, Nov 12: For the financial year ended June 30, 2004, Pioneer Cement posted a profit after tax in the sum of Rs424 million , which marked a turnaround from after tax loss of Rs157 million suffered in the previous year.

Like for most other companies on the cement sector, almost everything went right for the company during FY04. Economy was expanding; sales graph -- both local and exports went through the roof; tied to mutual benefits, companies prevented the cartel to split apart and that helped them sell cement at the asking price.

Conversion to coal from furnace oil contributed immensely for cement companies to cut costs. For Pioneer Cement, the increase in cost of sales was restricted to just two per cent, against the surge in sales by 28 per cent to Rs1,323 million. The company was believed to be using 40 per cent of domestic and 60 per cent of foreign coal.

The current price of the 10-rupee stock in Pioneer Cement is Rs18.10. For FY04, the board asked the shareholders for cash in right issue at 50 per cent, which would raise company's paid-up capital from Rs954 million to Rs1.43 billion. That produces FY04 earnings per share (diluted) at Rs2.98 and places the stock on price-to-earnings (p/e) multiple of 6.1x.

Earlier also in 1995, the company had issued right shares at 35 per cent. Since listing in 1992, a single cash dividend materialized in 2002 at five per cent. The omission of a cash dividend for FY04 was explained as the need to retain cash for financing part of the cost of another production line that the company planned to set up.

The current clinker capacity is 2,000 tons per day (TPA) and Pioneer is adding another line with capacity of 4,000 TPA. That would take the aggregate cement capacity to 1.89 tons by mid or late FY06. The right issue worth Rs477 million is also to meet part of the expansion costs.

Can the company look forward to a brighter future? Pioneer boasted as the first cement company to convert all of its output into coal from costly furnace oil. That enabled the company to cut down the production cost per ton by 50 per cent.

For the year ended June 30, 2004, the cost of sales edged higher by only two per cent to Rs936 million from a year ago figure of Rs917 million. Gross profit shot up by 239 per cent to Rs387 million from Rs114 million, and the gross margin improved to 20 per cent from six per cent.

Operating profit multiplied by as much as eight times to Rs300 million, from Rs34 million in 2003. During FY04, the company managed to raise its capacity utilization to 80 per cent in line with concrete demand that grew by around 14 per cent year-on-year on the back of a boom in the construction industry.

Grounds used for parking lots were cleared and plazas and other housing projects began to sprout up, thanks to easy financing schemes by banks. The government began looking afresh at the infrastructure projects that had been shelved for years. And what is more, the monstrous, unfinished Hyatt Regency, which has stood out as a blot on the Karachi landscape for three decades, is being cleared up of debris in preparation for construction of a new building. These events reflect growing demand for cement.

Another factor that has pushed corporate profitability all across-the-board is the decline in financial charges. Pioneer was able to restructure its debts, which helped it cut financial charges by 40 per cent to Rs117 million from Rs197 million.

A major reason for a high after tax profit during FY04 was the fact that Pioneer was able to defer its taxes for the year 2004 since the company produced losses. According to the International Accounting Standard (IAS) 34, which is applicable in Pakistan, the company used past losses to create a net asset on the basis of deferred taxes. Taxation thus showed a positive of Rs186 million, against only Rs5 million last year. This helped elevate net earnings.

Although the company can scarcely boast a brilliant record of dividend payouts with a single five per cent materialising after 10 years in 2002, there is a hope in the air.

Given a possible boost in profitability and the company's ability to remunerate 50 per cent additional shares offered thought the 2004 right, could a cash dividend materialize in FY05? Ask investors at the market and there would be as many nods, as shake of the head and shrug of the shoulders.