D.G. KHAN CEMENT COMPANY LIMITED Annual Report 2019 For Investors’ Relations: Mr. Inayat Ullah Niazi – Chief Financial Officer [email protected] Mr. Khalid Mahmood Chohan – Company Secretary [email protected] D.G. Khan Cement Company Limited Head Office Nishat House, 53-A, Lawrence Road, Lahore, Pakistan UAN: +92-42-111 11 33 33 Phone: +92-42-36360154 Fax: +92-42-36367414 Email: [email protected] Contents Vision & Mission 1 Group Profile, Company Information and Corporate Structure 3 Chairperson’s Message 4 The Company - Introduction 5 Product Features 5 Quality Standards 6 Production Facilities 7 Nishat - Introduction 8 Group Companies 8 Pattern of Share Holding 9 DGKC-Group Cross Investments 16 Board of Directors 16 Management Structure and Organogram 17 Profiles of Directors and Management 18 Chairperson’s Review Report on Board Performance 21 Stakeholders’ Engagement 22 Statement of Compliance with Listed Companies 23 Independent Auditor's Review Report to the Members of D.G. 25 Event Calander 26 Principles 28 Company Rating 29 Board Audit Committee Report 30 Board & its Committees Performance 31 Share Registrar, Auditors, Legal Advisor 31 Macro-Economic, Industry & Internal Analysis 33 Global Economy 34 Pakistan Economy 35 Global Cement Industry 41 Pakistan Cement Industry 41 Pakistan Cement Industry Location Map 44 Company Business Risks 46 Geographical Presence in Pakistan 49 Business Performance Review 51 Key Highlights 52 Chief Executive’s Review 54 Financial Statement Analysis 55 Quarterly Analysis 63 Six years at a glance 64 Horizontal Analysis of Balance Sheet 66 Vertical Analysis of Balance Sheet 67 Horizontal Analysis of Profit & Loss Account 68 Vertical Analysis of Profit & Loss Account 68 Value added Statement - Accrual Basis 69 Per Share Income Statement 69 Directors’ Report on Unconsolidated Financial Statements 70 Directors’ Report on Consolidated Financial Statements 74 Unconsolidated Financial Statements 77 Unconsolidated Statement of Financial Position 84 Unconsolidated Statement of Profit or Loss 86 Unconsolidated Statement of Comprehensive Income 87 Unconsolidated Statement of Changes in Equity 88 Unconsolidated Statement of Cash Flow 89 Notes to and Forming Part of the Unconsolidated Financial Statements 90 Consolidated Financial Statements 151 Independent Auditor’s Report 152 Consolidated Statement of Financial Position 158 Consolidated Statement of Profit or Loss 160 Consolidated Statement of Comprehensive Income 161 Consolidated Statement of Changes in Equity 162 Consolidated Statement of Cash Flow 163 Notes to and Forming Part of the Unconsolidated Financial Statements 164 Glossary of Terms 236 Consolidated Directors’ Report in Urdu 238 DGKC Directors’ Report in Urdu 244 Notice of Annual General Meeting 245 Jama Punji Ad 265 Form of Proxy 267 This section is prepared on best effort basis. Besides company’s own data and other information, this involves macro-economic, international and national data, estimates, forecasts and opinions available publicly. Such figures may vary among organizations producing such data. Furthermore, interpretations and derivations from this information could be different from person to person. Wherever dividend for FY19 is referred in this section, that is subject to approval from shareholders of the Company. Where period/year is referred to in analysis, it is financial year that starts from July 01 and ends on June 30 unless contrary is stated specifically. Wherever sales quantity is reported, it is exclusive of own consumption. ANNUAL REPORT 2019 DG Cement Vision Statement To transform the Company into a modern and dynamic cement manufacturing company with qualified professionals and fully equipped to play a meaningful role on sustainable basis in the economy of Pakistan. Mission Statement To provide quality products to customers and explore new markets to promote/expand sales of the Company through good governance and foster a sound and dynamic team, so as to achieve optimum prices of products of the Company for sustainable and equitable growth and prosperity of the Company. PAGE 1 DG Cement ANNUAL REPORT 2019 PAGE 2 ANNUAL REPORT 2019 DG Cement GROUP PROFILE, COMPANY INFORMATION AND CORPORATE STRUCTURE PAGE 3 DG Cement ANNUAL REPORT 2019 Chairperson’s Message I am delighted to share my views on occasion of presenting the annual report of the Company. Financial Year 2019 has seen the declining profitability in cement industry showing dismal performance due to a combination of factors, including dwindling local demands and the rising cost of production. Facing fiscal challenges, the government not only slashed Public Sector Development Program (PSDP) spending, but private sector commercial and housing construction spending also registered decline, leading to lower cement sales. Border tensions with India in February 2019 also resulted in decline in exports of cement industry. As a result, overall utilization of the industry shrinked to about 84% as compared to 95% in FY18. Rising inflation, KIBOR and exchange rate devaluation affected the purchasing power of the people. Due to fierce competition resulting from increase in cement production capacity in the country, rise in costs could not be fully passed on to customers, affecting profitability ratios. It was first full year operations of Hub plant. However, it has not reached to its full potential due to shrinking in market size leading to unfavorable prices. In order to remain optimally utilized, clinker was exported to generate contribution to cover fixed costs. Overall utilization of the Company remained above the industry at about 90% but way below the last year of 114%. With the country entering into new IMF program, I expect better economic activity in the coming years as foreign direct investments are expected to come. However, inflationary pressure persist in the short term that may curtail the demand of commercial and housing construction. World economy is also expected to slow down in the year 2019-20, finding significant new market opportunities for exports may be difficult. Beyond 2020, I expect overall economy may stabilize after the period of correction and local demand to grow. It is need of the hour that Pakistani businesses develop corporate culture with industry best practices. Businesses need to develop new strategy through research and development to sustain growth, dig out new sustainable markets, brand development, improve supply chain management and create multinational approach. With CPEC entering into new phase and new Free Trade Agreement with China, Pakistan is becoming lucrative for investment. I am hopeful that the Country will bounce back to make significant progress. The industry will revive. The Company will keep its values, maintain its policy of persistent struggle and steer for continuous growth. Mrs. Naz Mansha Chairperson PAGE 4 ANNUAL REPORT 2019 DG Cement The Company Product Features D.G. Khan Cement Company Limited (DGKC/the Company) is a Ordinary Portland public limited company incorporated in Pakistan on 27-09-1978 as limited liability company under company law in Islamic Strength Republic of Pakistan. It is listed on Pakistan Stock Exchange. It is a blue-chip stock. The Company is created and governed by its To ensure that cement dispatched to customers is with zero statutory documents, Memorandum and Articles of Association, defect quality and has exceptionally high strength superseding registered with country corporate authority. national and international standards, automatic quality control is done through online X-ray analyzer and computer-controlled The Company is primarily engaged in production and sale of systems. Our focus is not only on the quality of cement Clinker and Cement. dispatched but on the consistency of the high-quality cement dispatched. We may further add that the Quality Control Applicable Laws & Regulations department carries out regular checks and analysis of various raw materials, intermediate products and final products in order to Many laws and regulations apply to the Company including: have additional quality checks. At DGKC the chemical composition and grinding fineness are closely monitored to The Companies Act ensure that both Pakistani and other international standards are Stock Exchange Regulations surpassed and our customers get cement of exceptional strength. Code of Corporate Governance International Accounting and Financial Reporting Standards Ideal Setting Time International Auditing Standards Income Tax Law In order to allow sufficient time for application, cement must have Sales Tax Law a quick initial settings time. However, once in place, the final Excise Laws settings should not take too long. At DGKC ideal initial and final Property Laws setting times are maintained. Labour Laws Health & Safety Laws Sulphate Resistant Environmental Laws Banking Regulations Low C3A Content Important Identification Numbers of Company Sulphate salts present in some soils combine with moisture and tri-calcium aluminate (C3A) , one of the constituents of cement to CUIN: 0006469 form a compound known as Sulpho Aluminate off Hydrated NTN: 1213275-6 Calcium. This compound is highly expansive and gradually results STRN: 0402252300164 in the destruction of concrete. However, if a C3A content is very PSX Symbol: DGKC low, it is rendered inert and there is thus no reaction at all. British and Pakistani standards specify that in a Sulphate Resistant Company Products Cement, the C3A content must not exceed 3.5%. D.G Sulphate Resistant Cement has a