KARACHI, Oct 3: Results released by the company on September 26 showed an incredible recovery to an after tax profit of Rs279.9 million for financial year 2002, from a huge loss of Rs444.0 million the year ago. Shareholders could have reason to celebrate the return to the black after four years of serial losses. Board also announced the resumption of a payout; stock bonus at 10 per cent has been proposed for the latest year.

But for all that, some cement sector analysts are not quite impressed by the company’s “reported” earnings for financial year 2002. They argue that almost Rs270 million in the current net earnings of Rs280 million are a result of change in depreciation policy. During the year, the company changed its depreciation policy on plant 2, cutting down the rate from 10 to 5 per cent. The change of depreciation policy would not however, have affected the company’s cash flow position.

D.G.Khan Cement Company has the largest cement manufacturing capacity in the country. Listed in 1992, the company had distributed the last cash dividend to the shareholders in 1994 at 15 per cent; while a 10 per cent bonus along with a right at 33 per cent did materialize in 1995. Paid-up capital of the company is Rs1,524 million, which had stood raised from Rs1,324 million by the issue of 20 million new shares to the shareholders in D.G.Khan Electric Company Limited in 2000. The shares were issued after the merger of the two companies effective July 1, 1999, in the ratio of one-for-one. D.G.Khan cement has also announced its plan to float a Rs396 million cumulative preference issue with a tenor of 4 years.

For financial year 2002, the company posted topline growth at 6.54 per cent with sales at Rs2,718.7 million, from the earlier year’s sales amounting to Rs2,551.8 million. The improvement attributable to some 5-10 per cent increase in cement prices during the year. Gross profit jumped up to Rs770.9 million for the year under review, from only Rs24.9 million in 2001. The company emerged into an operating profit of Rs707.7 million in the latest year, from operating loss of Rs33.7 million the previous year. Financial charges decreased 14.2 per cent to Rs515.1 million for the year under review, from Rs600.4 million the earlier year, clearly on the back of lower interest rates. Gross margin grew from 1 per cent in 2001 to 28 per cent in the year under review. Analysts at brokerage, First Capital attributed it to reduction in rate of depreciation; lower average furnace oil prices during the year and partial conversion to coal firing system.

D.G.Khan, Pioneer, Lucky, Maple Leaf, Cherat and Bestways, were believed to be leading the pack of most of the 21 cement producers in the country that were racing to convert all of the production to coal by the end of the current calendar year. Already Pioneer and Lucky have announced full conversion. By the end of April this year, D.G.Khan was said to have converted about 60 per cent of its current manufacturing process to coal.

D.G.Khan Cement was established by the State Cement Corporation of Pakistan (SSCP) at Dera Ghazi Khan in 1986. It was privatized to the Nishat group in 1994-95 at Rs35.90 per share.

In 1995, D.G Khan Cement (DGK) was at the top of the 19 listed cement units in terms of profits earned and total assets and ranked second in respect of sales. The company then enjoyed excellent liquidity with no short term borrowings; minimal long term liabilities and a mountain of cash as high as Rs2.1 billion at end-December, 1995.

By the middle of last decade, the days of sunshine and glory were all but over for the cement sector. Excess capacity; the teething competition; economic recession and the spiralling cost of production all pushed cement producing units in the quagmire of losses.

D.G.Khan still carries Rs1 billion accumulated deficit on its balance sheet. In the run up to the bull market of 1994, the 10-rupee share in the company had touched its record high price of Rs125 at the market; the stock is now trading at a tenth of that price.