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Maple Leaf Cement

Maple Leaf Cement started operations as a private company in 1992 when it was acquired by the Kohinoor Maple Leaf Group. Based in Lahore, the company has since positioned itself as a prominent cement manufacturer of the country with a diverse customer base.

MLCFL owns and operates three production lines for grey and three production lines for white cement. The plants are located at Daudkhel District Mianwali. It is the largest producer of white cement in the country with 80 percent of market share and total annual clinker capacity of the company is recorded at 3.69 million tons.

Profitability Just as almost every other local cement players, Maple Leaf Cement is also enjoying the bonanza of rising cement prices in Pakistan. Relative to last year domestic cement prices increased by a substantial 20 percent in FY12. The growth came despite the reduction in GST, FED and SED offered to the sector in the FY12 budget, which supposedly reduced the price of each 5kg bag of cement by Rs 22-23.

In line with the industry trend of high cement prices, net sales improved by about 18 percent during FY12, driven primarily by improved retention prices of cement during the period under review. This was cascaded into a year-on-year improvement of nine percentage points in the gross margins of the company for FY12.

Many players in the cement sector have been working towards lowering their production costs by employing cost reduction measures by using alternate power sources such as the waste heat recovery plants installed by several key players. With Maple Leaf Cement also running its waste heat recovery plant, some of the improvement in gross margins can also be attributed to this attempt of the company.

Further, many players up north have been relying less on exports via sea because of lower margins on exports, especially in the wake of better prices at home. Consequently, Maple Leaf's also curtailed its exports via sea, leading to a consequent reduction in distribution expenses, which decreased 49 percent in FY12 relative to FY11. However, export sales to Afghanistan improved on account of an improvement in reconstruction activities in the country.

Overall, reduction in distribution and selling expenses helped improved the operating efficiency of the company. Compared to an operating profit of Rs 585 million in FY11, the company registered operating profits worth Rs 2,795 million in FY12.

However, finance costs are the real Achilles Heel of the company, eroding on any operating gains the highly leveraged company could boast of. Since FY09, the company's finance costs have been over 15 percent of net sales for all the fiscal years, and were 15.2 percent of net sales in FY12.

But with better retention prices of cement, Maple Leaf Cement was able to turn around the losses reported in FY11 into profits in FY12.


Maple Leaf Cement's leverage position has put it under the radar of rating agencies. The company had taken up immense debt for expanding cement production capacity, putting the financial health of the company in jeopardy. Since FY10, the debt-to-equity ratio has been fairly high at approximately 2.0.

Beginning 2008, the company's financial health came under severe pressure, with the company attempting to negotiate with lenders regarding restructuring their debt in 1HFY09. These did not materialise, resulting in Pacra downgrading Maple's Sukuk issue of Rs 8 billion from BBB to D.

When the company succeeded in getting a majority of its long-term loans restructure in FY10, with the sponsors - the Kohinoor Group - even injecting Rs 1 billion as 'quasi-equity' interest-free loan into the company, the company's credit rating was revised to BB.

However, rising energy costs, poor economic conditions leading to dwindling cement demand, together with interest rate spikes witnessed in most of FY11 struck a further blow to the company's ability to service its debt obligation. The company was unable to honour the first mark-up payment of its restructured Sukuk, which was due on September 03, 2011, putting it back under the watchdog Pacra.

However, the recent improvement in operating margins at the back of improving sale prices of cement has helped improve the company's leverage position, with an improved debt to equity ratio. Greater profits helped contribute to an improved equity situation while debt owed decreased as the company paid off a portion of its long-term loan.

Liquidity The company's net working capital has been in the negative since FY08, standing at a negative Rs 4.7 billion by FY12. The current ratio, on the other hand has lingered around 0.5 during the last three fiscal years, though a slight improvement in FY12 was seen.

On the cash flow side, in FY12, a significant cash outflow of Rs 2.3 billion was paid off as finance costs, helped by improved cash flows from operating activities. All this indicates that the company is better able to meet its debt obligations to financial institutions and other creditors, though better management of working capital still remains a challenge because of payments of long-term loans coming due.

Investment Unsurprisingly, Maple Leaf Cement has not paid any dividend to its investors in the last three fiscal years, and is being traded below par at the KSE at the moment. Overall, analysts are positive on this scrip, which had been an actively traded stock in the bourse over the past few weeks.

Source: Company accounts

Copyright Business Recorder, 2013


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Foreign Debt $60.9bn
Per Cap Income $1,368
GDP Growth 3.6%
Average CPI 7.5%
Trade Balance $-1.433 bln
Exports $2.167 bln
Imports $3.600 bln
WeeklyApril 14, 2014
Reserves $9.713 bln