Maple struggles to cement its business

Improvements in the overall economy have remained marginal. Many industries and prominent business houses of the country continue to suffer owing to bleak business environment, infrastructure problems and non-availability of utilities.
According to a KSE notice on Monday, Maple Leaf Cements directors did not consider it feasible to pay dividend, adding that the company is bound by creditors approval before dividend payouts can be made.
Though it didn come as much of a surprise to investors who had priced in financial constraints to the northern cement maker, it reflects the fragile recovery in the economy.
Just when the company completed its expansion projects, increasing production to 12,000 tons per day, demand for cement in the local market nose-dived. The company had taken on significant debt to finance the project. Its long term debt-to-equity profile has worsened from 26:74 in FY05 to 72:28 in the first nine months of FY10. And if short term is incorporated, the ratio edged to 74:26 during the same time.
To remain afloat, cement makers had to find demand in regional markets extending as far as Africa. Being a northern player, in Mianwali, Maple "has one the highest freight costs in the industry", according to Waleed Tariq Saigol, a director of the firm.
Though sales and gross margins cast a positive light on the companies operations, working capital requirements of the firm are deep in the red with a shortfall of Rs 4.7 billion in FY09.
Maple Leaf Cement was unable to meet its financial obligations with Allied Bank and has had to restructure its obligations to the creditor. The Sukuk-based loan has been rescheduled on favourable terms for the group.
Foreign denominated loans cost the firm dearly. In FY09, the firm ended up booking losses of Rs438 million on account of rupee devaluation on its loans in major currencies.
Efforts to hedge the risk from creeping devaluation-2~3 percent a year-through an interest rate swap were thwarted when the rupee slipped significantly, nearly 40 percent in three years, against the greenback, costing Maple Cement Rs634 million.
In a show of its commitment to the enterprise, the sponsors have injected liquidity of Rs1 billion to boost investor confidence about Kohinoor Groups liquidity position.
"Increase in capacity utilization, better infrastructure and reduction of trade barriers with India may help revive the companys performance in the future" said Waleed Saigol.
Its too early to say whether Maple Cement will be able to untangle itself from the financial quagmire, but it is certainly making the right moves in these challenging times.

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Maple Leaf Cement

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                          FY09       9MFY10

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Current Ratio             0.52         0.63

Debt Equity              57,43        72,28

Gross Margins               32%         21%

Net Margins              -6.45%        -19%

Financing (Rs mn)

Exchange Rate              438           24

Derivative Cost            635           10

Borrowing Cost           1,871        1,473

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Source: Company Accounts