Naveed Zafar Ashfaq Jaffery & Co. ‘1st Floor, Modern Motors House, ‘Beaumont Road, Karachi, Pakistan Chartered Accountants Ph +92:21-35671909, 35673754 Fax: 492:21-25210626 Amember firm of Emailkhi@nza|.compk @ PrimeGlobal | ‘wee erent COST AUDITORS’ REPORT We, Naveed Zafar Ashfaq Jaffery & Co., Chartered Accountants having been appointed to conduct an audit of cost accounts of Attock Cement Pakistan Limited have examined the books of account and the statement prescribed under clause (e) of sub-section 230 of the Companies Ordinance, 1984 and the other relevant records for the year ended June 30, 2016 and report that: 1. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of this audit. 2. in our opinion: a. proper cost accounting records as required by clause (e) of sub-section (1) of section 230 of the Companies Ordinance 1984 (XLVI of 1984), and as required by these rules, have been kept by the company; b. proper returns, statements and schedules for the purpose of audit of cost accounts relating to branches were not required as the company has no branches in or outside Pakistan; . the said books and records give the information required by the rules in the manner so required ; and in our opinion and, subject to best of our information: a. the annexed statements of capacity utilization and stock-in-trade are in agreement with the books of account of the company and exhibit true and fair view of the company’s affairs; and b. cost accounting records have been properly kept so as to give a true and fair view of the cost of production, processing, manufacturing and marketing of the undermentioned products of the company, namely: 1. Ordinary Portland Cement, 2. Sulphate Resistance Cement, 3. Falcon Block Cement, and 4, Ordinary Portland Clinker The matters contained in the ANNEXED Forms are part of this report. Chartered Account ae : Shahid Hussain - ra ee ‘Other | 35, ATS Contre, S0-Woet, Fazal ULHaq Road, Blue Area, Islamabad, Pakistan - Ph: 792 61-2870SU0.52 Fax: +02 61 2206209 Email: el@nzal compk offices | 201-Regency Plaza, M.M. Alam Road, Gulbergell, Lahore, Pakistan - Ph: +92 42-37321969, 37249053 Fax: +02 42-37324103 Emall; l@nzaj.com.pkAttock Cement Pakistan Limited Cost Audit Report, 2016 4. CAPACITY (Tone) Licensed installed Uillized % of installed Clinker Capacity Capacity Capacity Kilns (2,600 TID x 300 days) 750,000 807,067 108 Kilell (2,800 T/D x 300 days) 290,000 4,059,930 407, 1,740,000 4,866,907 407 The company’s main business activity is manufacturing and sale of cement 2, COST ACCOUNTING SYSTEM = Manufacturing of cement is @ continuous process, therefore, the company uses process cost accounting system as prescribed by SECP as per Cement Industry (Cost Accounting Records) Order, 1994 + The company is operating a fully online integrated costing system, which generates cost statements relating to six stages / departments and allocates cost thereon. 3, PRODUCTION Qy. in Tone Production Increase/(Decrease) @ YEARS = Clinker 2016 2015, Tonne % Line-t Ordinary Portland Clinker 641,017 620,031 20986| 3.4% ‘Sulphate Resistance Clinker 166,050 178,869 (12.819)| 7.2% 807,087 "798,00 ate7] 1.0% Line. Ordinary Portland Clinker 1,059,930 1,036,354 23576| 23% Sulphate Resistance Clinker - : : : 4,059,930) 1,036,354 23576| 2.3% 1,866,997 4,835,254 31,743] 1.7% + Cement Ordinary Portland Cement 1,723,888, 1,688,248 35620] 2.1% Sulphate Resistance Cement 152,194 152,454 (260) 0.2% Block Cement 91,329 36,448 54g8t| 1.0%, 1,967,391 4,877,150 90241] 4.8% (b) The plant design faclities production of the various types of cement as per production requirements within the installed capacity limits (c) There is no addition to producton capacity during the year under review. ©zeoeee = = eowese = = sie b8 = sto a ou - - - Beis punoip 6e1g 98's sos'ver —aze'sz zs" gos'es: cee esr 68928 060'08 unsdho, ele wee'en v92'96 oze z16'SL sus'z6 ous J6b'19 s0e'z8 \asois uaa ue pues eoilis 20 UOs} ‘ ys ‘ fons ‘i Sasa pues, ost ver'sie = 66L'ISZ'L aL eio'sze —st'60u' ee zee FEL'SHL'L —Gexy uopunquang / 24s zoe vosoor —L0'866 uz oee'soe ——Oz6'v10' sue eucove 940'080'L euoisouiry auueL | ,000,usy | (euuel) | —uuo] —] 00, 0 Sa Teuuoay ‘ouuoT “000, usa | feuuoi) sedisop_| omen | Arnuenp | sadisop | amen Anuend 4od3s09 aniea Anueno swat rd sh02 9407 pewnsuod sjevarew men sofew (2) TwraLyn mvs > ‘Boz wodeuUPHY IoD POUT WEST WSWED HOONYAttock Cement Pakistan Limited Cost Audit Report, 2016 (b) Major Raw Materials consumption per unit of production compared with standard requirements, i. Ordinary Portland Cement ‘Ordinary Poriand Cement ‘increase / (Decrease) Description Standard | 2046 2015 2016 as compared to Standard Tonne Tonne, Tonne Tonne 2016 201s | 2016 Limestone Clinker 0240 oes 0.520 0507 137 wan [Shale / Overburden/ Mag Sand Clinker 1328 097s 1.006 1.028 en nS) ron Ore / Baux. ron CCinker 0.032 oat 0.088 0.088 a 38 “1 [Salica Sand Clinker : 3 - stag Clinker : : : 100 TOTAL Clinker 41.600 41.559 1.568 1581 -2.50% 201% 4.19% Gypsum ‘Cement 0.050 0.081 0.057 0.081 9) 13 (8) ‘Sulphate Resistance Comont ‘Sulphate Resistance Cement ‘% increase / (Decrease) Description ‘Standard | 2016 2015 2016 as compared to Standard tonne | tonne | tonne | tonne [2046 2018; 2014 Limestone clinker 0240 ©0829 0.861 oan 287 2028s [Shale /Overburden /Mag Sand Clinker 1264 0.829 0595 0,599 (68) sa lion Ore Baux. ron Clinker 0.098 = 0.110 0110 0.110 14 4 4 \Salica Sand Clinker - = a 2 . - stag Clinker < . 7 3 : ss . TOTAL Clinker 1.500 1.567 1.565 1580 -205% 2am 4.25% Gypsum Cement 0.050 0.028 0.042 0.042 «3) “5 a8) lil, Falcon Block Cement Falcon Block Cement ‘increase (Decrease) Description Standard [— 2016 2015 2018 as compared to Standard tonne | tonne | tonne | tonne [2016 2015 2016 Limestone Clinker 0240 0.598 710 0707 149 198195 [Shale / Overburden / Mag Sand Clinker 1298 0.12 0776 0792 0) a) Iron Ore / Baux. ron Clinker 0.064 0.050 0.081 0.081 21) 25 28 \Salica Sand linker - - - - - = stag Clinker “ : 5 - . . TOTAL, Clinkor 1.500 +1560 1.566 1500 -2.48% 210% 4.25% Gypsum Cement 0.050 0.042 0.083 0.040 45) 6 6 {(c) Explanation of Variances ~The variances from standard requirements are atibuted to chemical contents of raw materials, {@) Method of Accounting + The company is maintaining raw material records using perpetual inventory system. The per unit cost for issue of material is determined using weighted average basis. = Limestone, shale, overburden and magzine sand are extracted from leased mines. + Salica Sand, Iron ore, Bauxite, Gypsum and Siag are purchased from open market. The quantilies and values are recorded in the store ledger and general ledger from stores receiving report. &5, WAGES AND SALARIES (@) Total wages and salaries paid for all categories of employees 2016 2015 2014 | ‘hinerease / (Decrease) Rs. in’000"| fs. in 000" | Rs. in 000" | Base 2015 | Base 2016 Direct labour cost on production 405,942 340,596 «(298.228 6 6 Indirect labour east on production euas70 738.920 977.821 14 25 129712 10087.515 976,045 18 2 Employees’ cost on administration 205515 242,888 201,288 2 a Employees’ cost on selling and distribution e471 75361 65,084, 13 20 Total employees cost 7530,088 405,754 1,242,307 76 3 (b) Salaries and perquisites of Chief Executive, Directors and Executives = The aggregate amounts charged in the financial accounts for remuneration to the Chief Executive, Directors and Executives ‘of the company are as follows: 2018 2016 ein 000" in 000" het] Executive ‘hiot | Executive Execute | Directors | PMN | csocuve | Directors | Freewlves Managerial remuneration zen 14aas 167220883 CST SC AB Housing Allowance 7309 $201 7haa7 was 4.752 70288 Utility Allowance 2708 4st t5.264 1 945 14900 Bonus 1740s 2005 tezeso = 1.220 see (t07.288 Retirement benefits ser 2a eas 4002.27 41708 Others sors 3733 sao 3.7748 3.201 34541 5743030424 640,162 49,094 __33.01____450,08 Number of person(s) 1 z 152 i z 15 = The Chief Executive, Executive Directors and certain executives are provided with free use of company maintained cars and are also provided with medical facilities in accordance with their entitements = Inaddion to the above, fee paid to 3 (2015: 3) non-executive directors for attending Board of Directors meetings during the year amounted to Rs. 1.93 milion (2016: Rs. 1.73 milion) (€) Total man-days of direct labour Worked ‘Available se Worked 300 days x 312 workers = 93,600 93,600) 93,600 00.00 300 days x312 workers = 93,600 — (0) Average number of production workers employed 2016 2015 | % increase / (Decrease) 32, 378, 2% (0) Direct tabour cost per tonne ao 8 pots [Zt lnerease /(Deerease) Base 2014 | Base 2013 Direct labour cost (Rs. in 000) 4052 | 348.506| 208224 16 36 Production in tonne sioe701 | 1g77,150[ 912,921 5 3 Cost per tonne (Rs. tonne) 206 186. 156, 2 2 (9 Comments on incentives Scheme = _ The company awards bonus based on the profitability of the company and performance of the employees. WeSTORES AND SPARE PARTS (0) Expenditure per unit of output 2016 2016 | ‘of increase / (Decrease) ‘Stores & spares consumed (Rs.in'000) asqa7t | 455,657 oy Production in tonne “1967,301 | 1.877.150 5 Cost per tonne (Rs.stonne) 229 243 © = Per tonne cost of stores and spares decreased during the year due to increase in production, (b) System of stores + These are valued at monthly weighted average cost less provision for slow moving and obsolete stores, spares and loose tools. tems in transit are stated at cost + Allitems of stores are properly coded and entered by designated staff members ofthe finance department through network (6) Proportion of closing inventory of stores representing items which have not ‘moved for over twenty four months. = Provision against slow moving items amounting to Rs. 36.502 millon which represents 2,70% of closing inventory (2016: 24,061 milion: 4.11% of closing inventory) 7. DEPRECIATION (a) Method of depreciation + These are stated at cost less accumulated depreciation and impairment losses (if any) except freehold land, capital work in ‘progress and stores held for capital expenditures which are stated at cost, Depreciation is calculated using the straight line ‘method on all assets in use to charge off their cost excluding residual value, if not insignificant, over their estimated useful lives, + Depreciation on acquisition is charged from the month of addition whereas no depreciation is charged in the month of disposal + Company accounts for impairment, where indications exist, by reducing lis canying value to the estimated recoverable value. + Maintenance and normal repairs are charged to profit and loss account as and when incurred. Major renewals and improvements are capitalized and the assets so replaced, if any, are retired. + Gains and losses on disposal / retirement of fixed assets are included in proft and loss account. (b) Basis of allocation of depreciation on common assets to the different departments, 2016 2018; Depreciation on common assets is allocated as under: (Rs. 000) % | (Rs.000) % () Cost of Sales 414.608, 9683 404.591 6.82 () Administrative Expenses 13,504 317 13,298 318 (i) Distribution Cost - - 5202 00 ai7,624 00, (©) Basis of charging depreciation to cost of products ~The depreciation i allocated to cost of production on the value of assets employed. weAttock Cement Pakistan Limited Cost Audit Report, 2016 8. OVERHEADS: {a} Total amounts of the overheads ( Factory (iy Administration (i) Seling & distribution () Financial () Factory Overheads Repairs and maintenance Vehicle running & maintenance Traveling and entertainment Depreciation Insurance Others 2016 2015 2014. Rs. in:000" | Rs. in '000"| "Rn 000" 727 717.688 008,785 401792 940,946, 307,163, 954,745 980,573, 206,050 21,309 25.899, 29,704 % increase (Decrease) 28 2s Boa | Basodon | Based on Rsinooo | Rs.inooo | Rs.in 000" | 2016 2016 119445 «118870 70,118, ° ot e148 88.307 93078 © 2) 7782 5374 7.387 45 5 414609404331 984,458 3 8 soese 62505 60,701 6 @ 94322 100,122 74,955 e 3 T7271 777,689 696,785 © 2 = Overall factory overheads almost remain same but there significant increase in travelling and entertainment. (ii) Administration Overheads Salaries, wages and benefits Utities Repairs and maintenance Depreciation Traveling and entertainment Communication and printing ‘Auditors’ remuneration Legal and professional charges Rent, rates and taxes Donations Insurance Other expenses “4 increase (Decrease) 2 2s 2a Based on Rein0oo | Rs.in000" | Re.in'000"| 2018 2016 285518 242.888 201,288 2 a7 4356 sar7 Bats 53 a) 9240 © 10.495 11,768 ro en 13504 13.203 13,101 2 3 8.065 see ear 5 48 1380 15560 16,542 ay (18) 3607 3.489 4730 3 cy 17832 © 162181475. 10 2 14441 16288 12.813, © 6 vert 8401 5.465 2 4 2578 2532 3.40 2 3) 9451 9.042 8.364 5 13 401792 346,948 307,163, 6 3 + The increase is mainly due to increase in salaries, wages and benefits utlites, donations ete = Salaries, Wages and benefits include Rs.11.02 millon and Rs. 6.31 milion (2015: Rs. 12.01 milion and Rs. 5.74 milion) in respect of charge for defined beneft plans and contributory provident fund respectively. &Attock Cement Pakist @ © @ (il) Seling and Distribution Overheads Ye Increase | (Decrease) 26 2s 72014 | Based on | Gased on Reino" | Rs.in'000" 2015, 2014 Salaries, wages and benefits e497 75351 65,084 8 30 PSI marking fee 14283 1388812818 7 " Carriage outward on export sales 2ei257 33007229447 (28) a) Carriage outward on local sales 11390085788 2.728 73 107 ‘Advertisement and sales promotion 1185 377 1736 ) 63) “Traveling and entertainment sat 1.984 4,398 16 25 Henaling and other export related expenses 443,008 451,564 319,880, @ 30 Commission on export sales egos 37845 63,091, 2 24) Other expenses 1918 4926 1,304 45 7 ‘354,746 666,573 806,050. a 16 Selling & istrbution expenses decreased mainly due to decrease in carriage outwar sales promotion etc. Salaries, Wages and benefits include Rs. 3.40 milion and Rs. 1.76 million (2015: Rs. 3.29 milion and Rs. 1.77 milion) in respect of charge for defined beneft plans and contributory provident fund respectively ‘on export sales, advertisement and (iv) Financial Charges “increase / (Decrease) 2016 2015, 2014 | Based on | Based on Reinooo | Rs.ino00" | rs.in'o00'| 2015 2014 Finance charges on finance lease 220 1305 1291 4) 25) Bank charges and commission 18,120 22.228 «18,288, (18) © Interest on workers’ profits participation fund 2,26 2378 2.248 6 1 Exchange loss 6,969 100 The decrease in finance cost is mainly due to decrease in finance charges on finance lease. Reasons for any significant variances in the overheads Reasons have already been given against items where ever necessary. Basis of allocation of overheads The allocation was made on activity based on ‘kage basis. Cost of Packing ‘Quantity Sold (M. Tonno) OPC + SRC +FBC 2016, 2015, Packed cement 1.934.955 7164597 Bulk cement 35,634 17.244 Total 1.970,588 71381,981 2016 2018 Increase / (Decrease) e.in'000"| RupessiTon | R.1n°000" | RupeosrTon | Rupessiton| Yh Packing material 950.052 «401.61—=«905,174 33.60 (42) @ Power 38417 1950 43,988 2337 ® 7) Solaries & wages 22188 1128 18.808 1001 1 2 ‘Stores / spares, repair & maint e814 rz 72718 3864 Oy (10) Insurance 4.193 ost 1,252 os? o (10) Depreciation 8.202 421 8.087 430 o @ ther overheads 125,718 6430 110.266 6284 1 2 1.216.043 625.98 1,258,328 673.52 a) m & Limited Cost Audit Report, 20169, ROYALTY/ TECHNICAL AID PAYMENTS 2016 2018 Production | Amount | Rupees’ | Production | Amount | Rupees’ intone | Rs.in'000| tonne | inTonne | Re.tn'v00 | tonne Limestone, Shale/Overburden & Magsand 27e7g21 165815 so27 291.284 _164650___58.55 = Royalty, excise duty and lease rent is paid to the provincial government on the quantiy of Imestone, shale / overburden extracted and transported to mil from quarries at statutory rates, 10. ABNORMAL NON-RECURRING FEATURES (2) Features affecting production NONE (b) Special expenses NONE 11. COST OF PRODUCTION (As per Schedule-1 attached) 2016 201s ‘crease @y.in | Rein Rs. ay.in | Rein Rs. | (Decrease) Tonne, ooo | Perton | tonne 000__| perton | %Rs.Piton Coment orc. azsees| 7210726 aes] 688200] 77aatee] 4587 ea SRC 152.14 [ 657.502 4s20| 152484] 762700] 6,003 (2.88) FBC si,sz0| 967.530 4oz8[ 36.008| 155,608 4.956 4) Ground Siag - : : - ‘Sub-total 8,266,396 8,665,572, Clinker 74364] 42405 2.558 = 7 TOTAL 08, 5572 Roasons for variances = Cost per tonne decreased mainly due to decrease in per ton cost of fuel and power. 12. SALES (As per Schedule-2 attached) FERS 201s Tnerease7 Gyn] Asia Be Gyn] Rain Rs. | (Decrease) Tonne. 00 | Perton | tonne 000 | Perron | % Prton LocaL, ope 1.18725] 4.944.000 zssi] _oo.4e0| 7.722608] 7.727 25) sre +s1,038 | 1.155.592 resi] 36767] erv3es| 25.062 94 Fec 99,932| 639,000 rox] 108.208| a7ser2| 2.506 47070 ‘Ground Slag : - - - - : Sub-total 10,738,592 8.875.961 EXPORT ope 530,176 | 3,108,059, s77s|__693033| s.e2a16] 5746 0.50 SRC 2e20| 17,380 e103] 4367] zar7ea] 412 25.45 FBC “ : 2 P ‘i Ground Slag : e « . z z Clinker s4sse| 4310 3.784 . 2 3,179,748 4210,180, TOTAL 13,918,340 = Export sales were made to regional markets of Srilanka, Yemen, India, other East African and Indian Ocean markets. \13, PROFITABILITY (As per Schedule-3 attached) Local ‘ope sR FBC Ground Slag Sub-total EXPORT ope. SRC Ground Slag Clinker (OPC) TOTAL 2016, 208 Tnerease7 ay.in | Asin Rs yin] Rs.in Rs. _] (Decrease) Tone, 00 | perton | tonne 000 | Porton | % Piton 1.187.625 | 3,600,304 0x7] os0.400| 2esaor2] 2.056 3 ssi036 | 424471 zero] 106286] s25604| 3.066 @) soso] 240,184 ees] s6767| soso10| 2,965 al 4275030 3,388,925 sagas] (27768) a] 603.033] 102,650) (148) (55) 2.820 sa wo] ase] sry) ais) 99) s4sss| 1513) 02 - - (99:333] (168,273) 4235,706 220,554 ‘The increase in net profi is mainly cue to increase in local sales and decrease in cost of sales. 10 woAttock Cement Pakistan Limited Cost Audit Report, 2016 14 Cost Auditors’ Observations and Conclusions (a) Matters which appear to him to be clearly wrong in principle or apparently unjustifiable No such matters have so far come to our notice during the year under review. (b) Cases where the company funds have been used in a negligent or inefficient manner. NONE (€) Factors which could have been controlled but have not been done resulting In increase in the cost of production. NONE (d) (i) The Adequacy or otherwise of Budgetary Control System, if any, in vogue in the company. ‘The company prepares its budget on annual basis. A monthly report comparing actual results with budget is generated along with the reasons for major variances. On the basis of such variances corrective measures are initiated, implemented and followed up. The scope and performance of Internal Audit, if any. ‘The Board has outsourced the internal audit function to M/s. Ernst & Young Ford Rhodes Sidat Hyder & Co., Chartered Accountants who are involved in the internal audit function on a full ime basis, (e) Suggestion for improvements in performance. (i) rectification of general imbalance in production facilities Apparently, there is no general imbalance in production facilities. (li) fuller utilization of installed capacity ‘The plant has already utilized maximum capacity shown by Kiln # |, It has achieved 108% capacity utilization where as Kiln # II achieved 107% of capacity utilization which has yielded good production results. (iil) Comments on ares offering scope for: (@) Cost reduction In order to improve the plant efficiencies and cost reduction, the company is continously making capital ‘expenditures in terms of balancing, modemaization and rehabilitation of plant. (®) Increased productivity ‘The Company is installing a new production line of 4,000 Tons per Day at its existing Plant site. (©) Key limiting factors causing production bottle necks. NONE wh 1"Attock Cement Pakistan Limited Cost Audit Report, 2016 (A) Improved inventory policies Present inventory policies are satisfactory. () Energy conservancy ‘The company has already switched over to ‘COAL’ as one of the cheapest source of energy. (iv) State of technology ‘The company uses 'Dry Process’ which is the latest technology in cement production. (v) Plant ‘The plant was new when installed. 18 RECONCILIATIONS WITH FINANCIAL STATEMENTS, The cost accounts are reconciled with audited financial accounts for the year ended June 30, 2016 as per reconciliation statement annexed herewith 16 COST STATEMENTS Copies of all cost statements on the formats prescribed by Securities and Exchange Commission of Pakistan under clause (e) of sub-section (1) of section 230 of the Companies Ordinance, 1984, duly authenticated by the Chief Executive and Chief Financial Officer of the company, and verified by us are appended to the report. 17 MISCELLANEOUS Figures have been rounded off to nearest thousand and rupee one. Previous year's figures have been re-arranged and regrouped where necessary to facilitate comparison, Karachi Nessbae (shfag . Datec tered Agicot ts 2