Maple Leaf Cement Factory Limited’s placement of company on the non-compliant segment of the exchange on account of default of the listing regulation
Karachi: At the outset, we are thankful for acceding to our request and allowing extension in time to the Company for placement in the Non-Compliant Segment of the Exchange up to June 30, 2011 vide your earlier letter dated July 5, 2010.
Regarding continuing poor performance of the Company, it may please be noted that the ongoing year also remained one of the worst in the history for the local cement industry in terms of selling prices, capacity utilization and profitability. The current recession coupled with excess supply resulted in free fall in prices due to a severe price war. The capacity utilization at industry level hovered around 70%. The fierce price war has drastically eroded retention prices and a significant decrease in export was also witnessed during the year. As a result, the industry incurred severe losses with most of the plants showing negative results, which are mainly due to external factors beyond the control of the management(s).
The prospects of the local cement industry are linked to improvements in the economy, especially macro-economic indicators and law and order situation. According to the Federal Budget 2010-2011, Rs. 663 Billion were allocated to public sector development program (PSDP). However, this amount was largely slashed in the aftermath of the floods. The prolonged unstable economic conditions have continued to plague the Company and drastically affected its financial health. The Company suffered post tax loss of Rs. 1,565 million during the period July-March, 2011 after accounting for distribution cost and financial charges of Rs. 1,237 million and Rs. 1,605 million respectively. Rising cost of coal, fuels and packing materials also adversely impacted the production costs. Coal in international market is hovering around US$ 145/ ton against US$ 82/ ton in corresponding period last year. In addition, constant rise of electricity tariff also reduced operating margins of the Company. The prevailing sales prices were not able to offset rise in input costs.
The present economic down turn, power load shedding, high inflationary trends and still higher cost of financing are serious impediments to economic growth in the country and adversely affected the prices and dispatches of cement. The infrastructure redevelopment of flood affected areas is also a potential for cement demand and the Company is hopeful that cement demand will rise in the local market following the commencement of rebuilding activities in flood affected areas.
The Company has taken several measures to overcome the challenges thrown up by the economic recession. Efforts are being made to economise on input costs wherever possible. Management has commissioned the Waste Heat Recovery Project and is expecting to generate cheaper electricity from it which will have salutary effect on conversion as well as an invaluable impact on production cost. The Company has also taken other measures to ensure maximum cost reduction and optimum utilization of the plant. The Company continues to explore new export markets for ensuring maximum capacity utilization.
In view of the above dilated corrective measures taken by the management, level headed allocation of a sum of Rs.730 billion for PSDP in the current budget, permission to export cement to India, reconstruction activities in Afghanistan, waiver of 2.5% special duty and reduction in rates of sales tax and excise duty, it is expected will stimulate the demand of cement in the country.
Moreover, management of the Company is optimistic that collective efforts of well knit team with progressive and customer focused marketing strategy will result to maintain position of the Company above the industry average level, The utmost efforts are made to manage the affairs of the Company in accordance with sound business principles and prudent commercial practices and we hope that the Company will be in the position to distribute profit to its valued shareholders at an appropriate point of time who faced situations with patience, However, Please note that the creditors have made it a condition precedent for restructuring that that no dividend payouts can be made without prior approval of Sukuk lenders till of the long term debts are repaid.
We positively hope that the Exchange will appreciate the efforts being made by the Company and will allow extension in time for another year. Therefore, we hereby formally reiterate our request to the Exchange not to place the Company on Non-Compliant Segment Counter in light of the proviso of Regulation 30(2) on the basis of plausible grounds and bonafide reasons as explained above,
In anticipation of your favorable response, we thank you for your esteemed co-operation.
For more information, contact:
Maple Leaf Cement Factory Limited
42-Lawrence Road, Lahore (Pakistan)
Tel: +9242 36278904-5
Fax: +9242 36363184