Lucky Cements first half results show how good planning and better resource utilization helped the firm withstand the pressure faced by the industry due to supply glut and high cost of production.
The appetite for cement increased during the period as evident by increase in both local and export sales by 12.percent and 29 percent respectively. The export market for Lucky was mainly driven by demand in Middle East, African countries and Sri Lanka. However, the price war got the better of high volume sales as prices dipped by 26 percent and 16 percent in local and export market respectively.
The useful combination of luck and effort helped the company keep the cost of production in check. The coal cost, which accounts for nearly two-third of total production remained relatively low, provided enough cushion to the decline in topline revenue. Moreover, the company made a shift to use gas instead of the previously used oil for fuel purposes, which reduced the energy cost by 9 percent.
With increase in sales volume, distribution cost of the company jumped by more than half. But then, Luckys distribution cost is comparatively lower than other big industry players since its presence in both north and south facilitates the firm to save inland freight costs. On an average, cement exporters located in north pay $4/ ton to transport cement dispatches, while those located in south pay $3.5 / ton.
Finance cost more than halved due to early repayment of long-term loans, carrying high mark up, while, reduction in interest rate also lifted pressure from the bottom line, as a result of which profit fell by just 1.5 percent
Lucky is considered as an epitome of excellence in the local cement industry, as it has been successful to endure the decline in cement prices when other major players are struggling for survival.
The company has also been evolving strategies to cut its production cost. Waste heat recovery project, which is scheduled to commence from next month will further reduce its energy bill. Similarly, it has also signed MOU with Oracle Coal Fields for the supply of indigenous coal.
On one hand, it will reduce companys exposure to depreciation of rupee, which makes imported coal expensive, and on the other, it will improve its cash cycle as easy access and availability of local resources will help the company maintain small inventory levels.
Going forward, sales revenue is all set to improve on the back of increased demand, partly due to influx of foreign funds, which will initiate development projects at home, and partly to export demand from African countries and Sri Lanka.
============================================
LUCKY HALF YEAR RESULT
============================================
Rs (mn) 1HFY10 1HFY09 % chg
============================================
Sales 12,116 12,406 -2%
Cost of sales 7,591 7,523 1%
Gross margin 37% 39% -5%
Distribution cost 1,726 1,099 57%
Finance cost 297 825 -64%
Profit 1,907 1,938 -2%
============================================
Source: KSE announcement