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1
ANALYSES OF FINANCIAL STATEMENTS
PRESENTED TO:
Sir Maqbool-ur-rehman
Course Instructor,
Analysis of financial statements
PRESENTED BY:
Wajiah Rahat (7211)
Student
LETTER OF ACKNOWLEDGEMENT
Sir Maqbool-ur-rehman
2
Course Instructor
IoBM, Karachi
Dear Readers:
This report was authorized to us by our course instructor. This report was
assigned to analyze the financial statements of any one of the textile
composite company.
Sincerely,
Wajiah Rahat,
LETTER OF TRANSMITTAL
3
Sir Maqbool-ur-rehman
Course Instructor
IoBM, Karachi
Respected Sir:
I am pleased to inform you that the final report you assigned to us on start
of this fall semester has been completed and is ready for your
examination. The report as per your instruction has covered all areas to
analyze the financial statements of the company.
I hope that you will find this report comprehensive and interesting. For
any queries regarding the report you can reach me at
wajiahrahat@live.com
Sincerely,
Wajiah Rahat,
TABLE OF CONTENTS
4
• Sectoral
Outlook………………………………………………………………………
………..8
- About the sector
- Porter Five Forces Analysis
- Pest Analysis
- Other Driving Forces Influencing the Industry
- Demand & Supply
- Pricing
- Government Policies
- Problems faced by the sector
- Financial Analysis of The Sector
- Forecasts & Future Outlook
- Conclusion
• Company
Introduction…………………………………………………………………
……..21
- About the company
- Mission & Vision
- Plant Location
- Capacity
- Product Line
• Analysis of Company
Outlook……………………………………………………………...24
- SWOT Analysis
- PEST Analysis
- demand & supply (also mention about exports)
- Contribution to Sectoral GDP
- Position among other Companies in the Sector
- Sales And Growth ( Both real & nominal)
• Ratio
Analysis………………………………………………………………………
…………40
• Analysis of Financial
Statements…………………………………………………………..42
5
Income Statement
- Analysis of basic elements of income statement
- Analysis of special income statement item (if
present)
Balance Sheet
- Analysis and insight on Assets
- Analysis and insight on Liabilities and
Shareholder’s Equity
- Analysis and insight on Shareholder’s investment
Cash Flow Statement
Analysis of Statement of Changes in Equity
• Conclusion……………………………………………………………
……………………….70
• References…………………………………………………………
………………………….72
6
7
Sectoral outlook
The development of the Manufacturing Sector has been given the highest
priority since Pakistan’s founding with major stress on Agro-Based Industries.
For Pakistan which was one of the leading producers of cotton in the world,
the development of a Textile Industry making full use of its abundant
resources of cotton has been a priority area towards industrialization. At
8
present, there are 1,221 ginning units, 442 spinning units, 124 large spinning
units and 425 small units which produce textile products.
High value added products i.e. garments and textile made-ups have over the
years progressively increased their share in the textile export portfolio.
Currently these products constitute 57% of the total textile exports. During
early nineties the textile exports were dominated by yarn and greige fabric
which had a share of almost 56% in the total exports. As far as the markets
are concerned 60% -70% of the merchandise is exported to the USA and the
EU.
• Ginning Industry
• Spinning Industry
• Weaving Industry
• Knitting Industry
9
• Garment Industry
• Polyester Fiber Industry
Established capacity
The industry has a total of 1221 units engaged in ginning and 442 units
engaged in spinning. There are around 124 large units that undertake
weaving and 425 small units. There are around 20600 power looms in
operation in the industry. The industry also houses around 10 large finishing
units and 625 small units.
Pakistan’s textile industry has about 50 large and 2500 small garment
manufacturing units. Moreover, it also houses around 600 knitwear-producing
units and 400 towel-producing units.
Contribution to exports
According to recent figures, the Pakistan textile industry contributes more than
60% to the country’s total exports, which amounts to around 5.2 billion US
dollars. The industry contributes around 46% to the total output produced in
the country.
10
figure of 15 million. However, the proportion of skilled labor is very less as
compared to that of unskilled labor.
All Pakistan Textile Mills Association is the chief organization that determines
the rules and regulations in the Pakistan textile industry.
Opportunities available
The world demand for textiles is rising at around 2.5%, due to which there is a
greater opportunity for rise in exports from Pakistan.
One of the worst hit sectors during the skyrocketing interest rate scenario in the late 90s and
early 2000s, the debt-laden Indian textile industry has spun many turn-around stories since
then. Aided by lower interest rates, restructuring packages from financial institutions and the
recent dismantle of quotas; the sector is today well poised to capture growth opportunities. In
2005, the sector contributed 20% to industrial production, 9% to excise collections, 18% of
employment in industrial sector, nearly 20% to the country's total export earnings and 4% to
the GDP. The textile sector employs nearly 35 m people and is the second highest employer
in the country. Infect, it is estimated that one out of every six households in the country
directly or indirectly depend on this sector. Here we analyze the sector's dynamics through
Porter's five-factor model.
11
Bargaining power of customers (demand scenario)
Global textile & clothing industry is currently pegged at around US$ 440 bn. US and European
markets dominate the global textile trade accounting for 64% of clothing and 39% of textile
market. With the dismantling of quotas, global textile trade is expected to grow (as per Mc
Kinsey estimates) to US$ 650 bn by 2010 (5 year CAGR of 10%). Although China is likely to
become the 'supplier of choice', other low cost producers like India would also benefit as the
overseas importers would try to mitigate their risk of sourcing from only one country. The two-
fold increase in global textile trade is also likely to drive India's exports growth. India's textile
export (at US$ 15 bn in 2005) is expected to grow to US$ 40 bn, capturing a market share of
close to 8% by 2010. India, in particular, is likely to benefit from the rising demand in the
home textiles and apparels segment, wherein it has competitive edge against its neighbor.
Nonetheless, a rapid slowdown in the denim cycle poses risks to fabric players.
12
on improving the yield per hectare would ensure higher productivity and production, thereby
providing the much-needed security of raw-material supply to textile producers.
India also enjoys a significant lead in terms of labor cost per hour (US$ 0.6 in 2004), over
developed countries like US (US$ 15.1) and newly industrialized economies like Hong Kong
(US$ 5.1), Taiwan (US$ 7.1), South Korea (US$ 5.7) and China (US$ 0.9). Also, India is rich
in traditional workers adept at value-adding tasks, which could give Indian companies
significant margin advantage.
Threat of substitutes
Low cost producing countries like Pakistan and Bangladesh (labor cost 50% cheaper) are
also posing a threat to India's exports demand. Infact, players like Arvind Mills have already
started feeling the pinch as overseas buyers have started shifting to 'alternative sources', thus
impacting their incremental volume off-takes.
Competitive rivalry
India's logistic disadvantage due to its geographical location can give it a major thumbs-down
in global trade. The country is distant from major markets as compared to its global
competitors like Mexico, Turkey and China, which are located in relatively close vicinity to
major global markets of US, Europe and Japan. As a result, high cost of shipments and
longer lead-time coupled with lack of infrastructure facility may prove to be major hindrances.
The fragmented structure of the industry has also stood in the way of achieving true
integration between the various links in the supply chain. The sector has one of the longest
and most complex supply chains in the world, which the larger players are trying to correct by
integrating their operations and improving efficiency levels.
Textiles being a fairly regulated sector till the recent past (quota regime), another
indispensable leg of the above analysis is government regulations. Technology Upgradation
Fund Scheme (TUFS) was launched in FY99 for a period of five years (later extended upto
FY07) to promote the upgradation of the textile and jute industry. The scheme aimed at
providing loans to the sector at internationally comparable rates of interest (5% lower than the
domestic interest rates), which enabled the players to upgrade their technology at lower cost
13
of capital. Establishment of 'Apparel Export Parks' and fiscal incentives in the recent budgets
also indicate the government's resolve to aid the sector's growth and international
competitiveness.
As one can comprehend from the above analysis, the potential for the sector's growth are
ample, but the trick lies in competing effectively against rivals. Consolidation of the industry
and delivery of better quality at effective rates and minimum lead time would certainly help the
players surmount all competitive pressures
PEST analyses
14
Technological Analysis – Technological developments, new inventions,
automation, information technology Pakistan is facing serious power crises in
terms of electricity shortage and gas shortage as well. Due to this many textile
units have completely shut down and many units have to cut down production.
Since decades many incentives were given to the local industry such as tax
rebates, R&D support in 2007. The domestic companies took advantage of
such policies but were not able to add value to the textile exports due to which
Pakistan exports are falling sharply.
Quality of products •
Global textile & clothing industry is currently pegged at around US$ 440 bn.
US and European markets dominate the global textile trade accounting for
64% of clothing and 39% of textile market. With the dismantling of quotas,
global textile trade is expected to grow (as per Mc Kinsey estimates) to US$
15
650 bn by 2010 (5 year CAGR of 10%). Although China is likely to become
the 'supplier of choice', other low cost producers like India would also benefit
as the overseas importers would try to mitigate their risk of sourcing from only
one country. The two-fold increase in global textile trade is also likely to drive
India's exports growth. India's textile export (at US$ 15 bn in 2005) is
expected to grow to US$ 40 bn, capturing a market share of close to 8% by
2010. India, in particular, is likely to benefit from the rising demand in the
home textiles and apparels segment, wherein it has competitive edge against
its neighbour. Nonetheless, a rapid slowdown in the denim cycle poses risks
to fabric players.
India is the third largest producer of cotton in the world after China and US
and has the largest area under
cultivation. Cotton, a key raw
material in the textile and garment
industry, accounts for about 30% of
the fabric cost and 13% of the
garment cost. India has an abundant
supply of locally grown long staple cotton, which lends it a cost advantage in
the home textile and apparels segments. Other countries, like China and
Pakistan, have relatively lower supply of locally grown long staple cotton.
Moreover, low cotton prices due to a bumper cotton crop would enable India
to lower its production cost and sustain pricing pressure. Further, efforts on
improving the yield per hectare would ensure higher productivity and
production, thereby providing the much-needed security of raw-material
supply to textile producers.
Pricing
16
17
Government policies
However, the government changed its policies and started making frequent
upward revision of power, gas tariffs, oil prices and other inputs cost, which
affected the local industries seriously and manufacturing costs have gone up
tremendously making locally products goods uncompetitive in international as
well as local market. This has resulted in decline of sale and closure of
industries converting them in warehouses.
Former Vice President KCCI, Abdullah Zaki said that the textile sector facing
serious problems owing to increase in price of yarn in local market, its non-
availability. He claimed that over 60 lakhs dollars' export orders of towel have
been cancelled due to high prices and non -availability of yarn. He said that
Bangladesh and China are supplying fabrics at very low price in international
market owing to huge export of yarn from Pakistan as well as low cost of
production in these countries.
18
5. More dependence on cotton
6. Poor infrastructure
7. Unstable political situation
8. Obsolete technology machinery and equipment used for
manufacturing
9. Availability of raw material and inconsistent raw material prices
10. Unskilled labor (only 1% workers have certificate / diploma from
technical training institutions)
11. Absence of research and development culture
12. Lack of synergies between Govt. support institutions and
practical market.
13. Lack of standardization and quality control
14. Non-sophisticated marketing sense. (Branding & grading)
15. Unorganized vendor base
16. Limited access to information (availability of finance,
technological know-how & Govt. regulations)
17. Energy costs
18. 20% Interest on Bank Loans
19. Tariff hikes of Gas
20. Tariff hikes of Electricity
21. Frequent Interruption in supply of electricity and Gas
22. High Freight Cost
23. Demand Of drastic cut on textile products from their buyers from
US and EU
FINANCIAL ANALYSES
The fiscal year 2008-09 was a year of recession for most businesses
including textile sector worldwide. Deep recession in the US and European
markets led to lower sales at retail levels together with stiff competition for
suppliers. Pakistan's textile exports were hit hard due to intense competition
19
with regional countries in FY09. This, alongside rising interest rates and
prolonged power cuts proved to be a hindrance to earnings of the textile
industry in FY09, as depicted by a decline of 57% YoY. For textile sector in
Pakistan, the year was also one of the most volatile due to a number of
reasons.
Decelerated business volumes and electricity crisis have taken its toll and
many small and medium size production houses have shut down already or at
the verge of closure. A record increase in the prices of cotton and yarn in the
first quarter and steep rise in interest rates had impacted the sector on varying
degrees. Domestic textile units gained as well as lost in all these volatilities as
per their strengths and relative positioning in the market.
20
I. COMPANY INTRODUCTION
21
Companies Ordinance, 1984 between Dawood Cotton Mills Limited,
Dilon Limited, Burewala Textile Mills Limited, Lawrencepur Woollen and
Textile Mills Limited and members of the said companies. The shares of
the Company are listed on the Karachi and Lahore Stock Exchanges.
The Company is principally engaged in the business of manufacture and
sale of yarns and fabrics made from natural and man-made fibers and
blends thereof. The registered office of the Company is situated at 35-A,
Shahrah-e-Abdul Hameed Bin Baadees (Empress Road), Lahore. During
the year the Company, due to continuous losses of its Dawoodabad unit
located at Burewala, District Vehari, has also suspended its operations
of the said unit effective March 2008. Accordingly in line with IFRS-5 Non
current assets held for sale and Discontinued Operations, the operations
relating to the closed down plant and machinery have been classified as
discontinued operations. The assets and liabilities related to
discontinued operations have been transferred to assets held for
disposal and liabilities directly associated with the assets classified as
held for sale. Based on the above, following operations of the Company
are now classified under discontinued operations:
- Landhi Mills - Karachi
- Dilon Mills - Karachi (Landhi Synthetic)
- Dawoodabad Mills - Burewala
Vision:
Mission:
22
• To be a responsible corporate citizen with respect for the
society.
• To achieve safe & healthy business environment.
• To provide excellent working environment and growth potential
for the employees.
• To strive for excellence through commitment, integrity, honesty
and teamwork.
• To make honest and ethical behavior a way of life.
• To improve quality of life for the employees.
• Plant location
The mills of the Dawood Lawrencepur are located in the Landdhi Mills in
the Landhi Industrial Area, Karachi. The Landhi synthetic is also situated
in the Landhi Industrial Area.
23
• Capacity
The total production capacity uptil 2008 has includes the following:
The Capacity production as we can see from the above table of Polyester was
same throughout the eight year except for in 2005. The Figure for 205 is
change as due to the change in the accounting year. Yarn has had the most
capacity among the three product lines. However that of the Cloth capacity
decreased drastically from the year 2004 and reach to 5060'000 Kgs.
• Product Line
• SWOT Analysis
24
Our future generations.
STREGNTHS
Dawood Lawrencepur have decided that with technical and financial
capabilities within the company and the group, they can play an instrumental
role in an effort to the national objective of reliable, economical, sustainable
energy for sustainable economic development, creating an environment
where everyone can turn reach grow.
WEAKNESS
The weakness of the company includes the power shortages, due to the
increased cost of which the company re
THREATS
In Pakistan we face a slightly different challenge. While the world
Figures out a way to power the economic growth of the future, we at home
Are concerned with the issue of inadequate energy today. Demand has
Outgrown supply massively in the past, the resulting in prolonged power
Breakdowns and gas load shedding. Pakistan's energy scarcity is indeed
disconcerting. It is seen as the single biggest impediment to the
growth for our industrial sector. Frequent power outages render our
exports uncompetitive, as idle factories cannot deliver goods so
desperately needed to
Be produce on time. This is the issue of reliable energy.
OPPORTUNITIES
The company currently generates over 6500 MW from renewable hydel
energy, but have the capacity to generate 32000 MW more. According to
latest figures Dawood has the potential to generate up to 43,000 MW through
wind energy alone, a source already producing electricity at commercially
viable levels. The location in the tropics gives Dawood Lawrencepur an added
advantage to use the sun to power our homes, with technologies becoming
increasingly competitive with conventional methods of power generation.
25
Pakistan possesses over 180 billion tones of coal. We also have the lowest
drilling densities and highest success ratios suggesting tremendous potential
In hydrocarbon exploration. On top of that we are located in the region that
has provided much of the world with cheap energy and is forecasted to do so
for next few decades. All of these factors have coupled together for us to look
back and turn.
• PEST Analysis
Political
The factors negatively affect all businesses; including the political wars among
the parties etc. The monthly wages were increased. These steps did prove to
be a successful in motivating an already depressed and low paid labor force
but at the same time increased the threats from labor unions for meeting their
demands and cost of production for already suffering textile industry.
Economic
The inflationary pressures as noted in the year 2006 influences the company
sales. However the inflation rate is stabilizing and is at 10.26% and the SBP
has decreased interest and is expected to further cut the interest rates. The
rupee depreciation during the year has been beneficial for the exporters, as
unit prices in PKR have increased for the textile segment.
Social
In rural areas of Pakistan there are fewer opportunities to earn a living, so
many bread earners move out to find a better earning opportunities. They
mostly find jobs in different sectors including textiles and also prove to be low
cost labor. This benefits the companies in competing in terms of cost.
26
Technology
Pakistan is facing serious power crises in terms of electricity shortage and gas
shortage as well. Due to this many textile units have completely shut down
and many units have to cut down production. Since decades many incentives
were given to the local industry such as tax rebates, R&D support in 2007.
The domestic companies took advantage of such policies but were not able to
add value to the textile exports due to which Pakistan exports are falling
sharply.
The demand and supply of a Dawood textile industry depends upon few main
factors. Some of them are mentioned below.
1. Shortage of Cotton.
2. Unavailability of Skilled Labor
3. Problems of Electricity Shortage
4. Problems of Gas shortage
5. Improper law and order situations
6. Unrealistic hike in fuel prices
The textile industry can supply more then it is already supplying if the above
mentioned problems get solved.
27
Regarding past if we compare then the demands were high but the supply
was low because of hike in freight charges and also the raw material which
depends upon oil or we can say due to hike in the prices of all petrochemical
products which are necessary for a textile industry. For example:
In future if our government can provide the better fuel including power and
natural gas then much of the problems of a textile industry will get solved in
this way.
28
AHMAD HASSAN TEXTILE 209.8 659.4 101.8
MILLS LTD.
29
MILLS LTD
30
LTD
31
LTD
32
SAMIN TEXTILE MILLS 256.5 1012.9 32.1
LTD
33
III. Analysis of Director’s Report
• The textile operations and the polyester staple fiber operations
at Landhi were closed down during the year 2006-07, the operations at
Burewala had to be closed down in March 2008. Accordingly, all closed
down operations are classified under 'discontinued operations', as
required under the International Financial Reporting Standard (IFRS) 5
“Non Current Assets held for sale and Discontinued Operations'.
• In January 2008 acquired 100% shareholding in Tenaga
Generasi Limited. This company holds an LOI from the Alternate
Energy Development Board and has a Generation License from
NEPRA for setting up a 50 MW Wind Energy Farm.
• DLL Group's turnover for the year was Rs. 689.84 million
(inclusive of turnover from 'discontinued operations' of Rs.323.88
million) as against the turnover of Rs. 1,629.60 million of the previous
year.
• Earnings per share of the Group were Rs. 31.36 as compared to
Rs. 1.81 per share of the similar period last year.
• During the year, with the acquisition of 100% share holding in
TGL, DLL became a holding company of TGL.
• The company has decided to re-measure its investment
in associate at Cost. This change has been applied
retrospectively.
34
• The Company's profitability during the year was significantly
impacted by the inflationary pressures, power tariff hike and by the
need to rationalize old inventories in 2006.
• The figures for the past three years (2001-2003) represent the
period when the Merger had not taken place and those of previous
year 2005 are of nine months because of the change in accounting
year from September to June.
• In May 2004, the Company name was changed ' Dawood
Lawrencepur Limited' to so as to take advantage of the goodwill
associated with the name of Lawrencepur. This report being the first
annual report of the merged entity, demonstrates the commitment to be
better prepared in the post WTO scenario.
35
V. Vertical and Horizontal Common Sizing
Analysis
36
Issued, subscribed & paid up 26.06 17.58 5.56 7.27 7.87 9.32
Reserves 62.3 65.43 8.69 12.48 13.51 15.99
Unappropriated profit 12.83 19.51 10.2 10.26
Fair value reserve on investment 60.23 38.27 44.89 51.15
37
HORIZONTAL ANALYSES (2008-2003) In Percentage
terms
BALANCE SHEET
2008 2007 2006 2005 2004 2003
NON CURRENT
ASSETS 100
Fixed Assets 100
Property, plant and equipment 76,286,430 543,766,550 100
Operating Asset 249.5597 148.0515 152.4301 100
Capital Work in
Progress 100
Intangible assets 1,987,421 6900 100
Long Term
Investments 22.13421 29.84008 212.6152 112.5519 103.0908 100
Long term loans and advances 0 0 0 84.18373 124.7119 100
Long Term Deposits 169.0466 168.1174 221.1545 242.3281 243.1303 100
100
CURRENT ASSETS 100
Stores and spares 59.16137 124.157 136.7135 121.3025 99.94338 100
Stock-in-trade 44.81101 83.59441 165.3697 210.5154 221.2335 100
Trade debtors 20.74004 81.40362 144.7853 126.1839 129.4685 100
Short term
investments 5.337458 6.474139 6.523559 6.869506 17.99244 100
Loans and advances 565,433 3,924,264 100
Deposits, prepayments and other
receivables 68.85479 89.39726 138.0375 143.5686 152.284 100
Cash and bank
balances 23.85453 16.36852 13.24372 22.1821 39.29559 100
36.55825 66.97681 113.3741 127.8206 136.322 100
Assets of disposal group classified as
held for sale 758,363,668 376,699,002 100
Total Assets 47.60145 64.13287 184.1495 128.1817 118.372 100
100
SHARE CAPITAL AND
RESERVES 100
Issued, subscribed & paid up 133.1 121 110 100 100 100
38
Reserves 185.3668 262.29 100 100 100 100
Unappropriated profit 0 0 230.1745 243.7881 117.7376 100
Fair value reserve on investment 216.7745 95.90944 103.8914 100
Captal and Reserves 118.2123 149.6286 140.1637 141.4704 105.1158 100
100
NON CURRENT LIABILITIES 100
Liabilities against assets subject to
finance lease 0 146.9327 285.791 546.1221 762.9798 100
Deferred Liabilities 29.67091 65.04591 96.28082 94.80581 94.35947 100
CURRENT
LIABILITIES 100
Trade and other
payable 83.42893 76.06013 104.1859 86.59669 106.7407 100
Short term bank finances-secured 0 315.5751 1089.193 1521.665 1078.238 100
Current portion of lease liabilities 312.6761 298.7532 511.6346 614.7002 607.1488 100
Interest / markup on short term bank
finances 5945176 100
Provision for taxation 37.64982 55.33764 52.61793 48.08809 51.99817 100
dividend 18.22472 18.44461 94.10717 100
Total 47.96072 85.32074 200.0177 245.9525 226.2396 100
CONTINGENCIES AND
COMMITMENTS 184.1495 100
Total Liabilities and Equities 47.60145 64.13287 128.1817 118.3727 100
39
tax
Turnovers
Recievable 3.187 3.51 3.95 2.82 3.909 3.32
Inventory 0.839 1.25 1.27 0.695 1.09 0.916
Payable 1.479 4.98 7.288 4.769 5.70 4.775
Fixed Asset 4.705 2.246 2.322 1.637 3.324 4.24
Total Asset 0.206 0.506 0.269 0.253 0.362 0.359
Leverage
Debt Ratio 0.116 0.1698 0.1269 0.224 0.235 0.133
Long term 0.0232 0.050 0.027 0.052 0.066 0.041
debt to
40
Capital
Debt to
equity 0.131 0.2036 0.145 0.289 0.307 0.1526
Profitability
Ratios
CashFlow
Margin 0.732 0.258 0.051 0.028 (0.394) 0.0489
Gross profit
margin (0..242) 0.0108 0.053 0.1043 0.090 0.0636
Operating
margin (o.381) (0.0656) (0.026) 0.0198 0.0127 0.0256
Net Profit
Margin (0.535) (0.01622) (0.00868) 0.3986 0.0969 0.17786
ROA (0.11) 0.008 0.047 0.1009 0.035 0.046
Roe 12.45 0.99 5.86 13.01 4.58 5.36
EPS (4.22) 0.42 5.90 13.88 4.45 3.43
P/E (33.56) 195.24 13.03 5.12 19.33 18.66
Dividend
Yield 0.71 1.22 1.30 1.41 2.91 11.72
41
During 2008, the company achieved sales of Rs. 689.84 million (inclusive of
sales from 'discontinued operations' of Rs. 323.88 million) against the sales of
Rs. 1,629.60 million for the previous year. After taking into account the loss
from the closed down operations of Rs. 300.83 million (2007: Rs. 72.35
Million), the operating loss of the company stood at Rs. 271.64 million as
against Rs. 111.41 million for last year. The loss before taxation is Rs. 187.04
million as compared to profit of Rs. 20.11 million of the similar period last
year.
DLL Group's turnover for the year was Rs. 689.84 million (inclusive of
turnover from 'discontinued operations' of Rs. 323.88 million) as against the
turnover of Rs. 1,629.60 million of the previous year. The operating loss of the
company stood at Rs. 271.70 million as against loss of Rs. 111.41 million.
With the share of profit from associate of Rs. 1,873.60 million (2007: Rs.
223.46 million) the profit before tax was Rs. 1,646.24 million as against profit
of Rs. 136.22 million. Earnings per share of the Group were Rs. 31.36 as
compared to Rs. 1.81 per share of the similar period last year.
During 2008, the company achieved sales of Rs. 689.84 million (inclusive
of sales from 'discontinued operations' of Rs. 323.88 million) against the
sales of Rs. 1,629.60 million for the previous year OF 2008.
42
2000
1500
1000
Sales Growth
500
0
2008 2007 2006 2005 2004 2003
The sales of the company as we can conclude from the horizontal and
vertical analyses show a very fluctuating trend. From the FY 2003 the
sales increased upto 119.23% in 2004 and declined to 90.38% in FY2005,
however in 2005 it consists of computation of 9 months due to the change
in Accounting year. In 2006 ithe sales reached upto 137.79% and den
took a drastic decline to 27.26%. This declined is explained by the
discontinued operation of the company. The textile operations and the
polyester staple fiber operations at Landhi were closed down during the
year 2006-07, the operations at Burewala had to be closed down in March
2008, so this explains the drastic fluctuation in the net sales.
43
.
We can see from the above graph of 2006 that 70% of the sales value was
dues to the yarn. And the Below chart of 2004 shows that cotton yarn
consisted around 80% of the total yarn value in the sales value.
44
The sales also have a direct impact n the company's Gross profit margin
which declined to a negative 24.2%. In FY 2003 the gross profit margin
was 6.36% which increased to 9% in FY2004. In 2005 due to the change
in accounting policy the GPM was estimated to 10%, it takes into account
only nine months data. In 2006 The GPM Declined to 5.3% and further it
declined to 1.08% in FY2007 due to the discontinued operation and in
2008 it reached to negative 24.2%. The sales had a direct impact on the
Gross Profit Margin of the company. The gross profit of the company
declined to 58.88% at the year end 2008.
The operating margin of the company is the lowest in 2008 .i.e. 38.1%. As
well as the Net profit margin. The behavior of continuous decline explains
that the companies discontinued operations were a part of major sales and
growth of the company.
The company hence must increase its sales of the continuing operations
so as to secure its previous profitable position
45
COST OF GOODS SOLD
the cost of goods sold of the company throughout 2003 to 2007 remained
around 90% of the sales, however in 2008, it was 79.9% of the sales. This
can again be justified by the affect of discontinued operations. As
compared to 2003 the cost of goods sold declined to 23.98%. The textile
operations and the polyester staple fiber operations at Landhi were closed
down during the year 2006-07, the operations at Burewala had to be
closed down in March 2008. This explains the lower cost of goods sold in
the year 2008. The main components influencing the decreasing Cost of
Goods sold are stocks and spared in part, which has declined to 59.16%
and 44.14% since the year 2003.
OPERATING EXPENSES
The operating expenses of the company reached to a12.36% of the sales
in 2008, which can be referred to as the highest the company reached in
the last six years. As compared to the company initial year 2003 the
operating expense only comprised of 6.99% of the companies sales which
gradually incread throughout the years and reached to 10%.
46
This has impact on the operating loss or gain of the company. In 2008 the
Operating profit margin is (38.1%) as compared to the operating profit of
2003 which is 2.56% which is the highest the company achieved in this six
year. The operating expenses had a major impact on reducing the
operating profit margin through out the year.
OTHER EXPENSES
Other charges is minor as in the year 2006 which also includes donation to
the earthquake relief fund. Other charges are only 0.0026% and the
donation comprises of 0.66% of the total sales in the year 2006.
• The figures for the past three years (2001-2003) represent the
period when the Merger had not taken place
PROFITABLITY
47
The Company's profitability during the year was significantly impacted by the
inflationary pressures, power tariff hike and by the need to rationalize old
inventories in 2006.
The figures for the past three years (2001-2003) represent the period when
the Merger had not taken place and those of previous year 2005 are of nine
months because of the change in accounting year from September to June.
0.8
0.6
0.4
CashFlow
0.2 Margin
Gross profit
margin
Operating
0 margin
2008 2007 2006 2005 2004 2003 Net Profit Margin
-0.2
-0.4
-0.6
The Companies Profitability margins can be assessed from the graph above.
In the year 2003 that is the initial year the companies margins were all
positive, with the net profit margin as 11.8% however in the year 2005
Dawood Lawrencepurs NPM increased to 39.9%, this is due to the merger as
well as due to the change is accounting period. The Net profit margin declined
to a negative 28.5% in the year 2008 due to abandonment of the companies
few operations. The Major reasons for the decline in the Net profit are
mentioned above.
48
The Company Cashflow margin peaked to 73.2% in the last 6 years. In 2004
the company's cash flow margin declined to a negative 39.4% due to the
substantial selling of the shares.
The operating margin of dawood Lawrencepur remained weak through out the
six years of the analyses. The margin reached its negative value in 2008 to
38.1% . The operating margin remained positive for the first 3 initial years.
Which lead to the conclusion that the discontinued operations had a major
impact on the operating profit margin of the company, the operating loss
reached to 908% in 2008 and 372% in 2007 as compared to a positive
operating margin of the year 2003. The discontinued operations were the
major reason. The company needs to utilize its current operations to a
maximum.
The sales also have a direct impact n the company's Gross profit margin
which declined to a negative 24.2%. In FY 2003 the gross profit margin was
6.36% which increased to 9% in FY2004. In 2005 due to the change in
accounting policy the GPM was estimated to 10%, it takes into account only
nine months data. In 2006 The GPM Declined to 5.3% and further it declined
to 1.08% in FY2007 due to the discontinued operation and in 2008 it reached
to negative 24.2%. The sales had a direct impact on the Gross Profit Margin
of the company. The gross profit of the company declined to 58.88% at the
year end 2008.
49
14
12
10
8
6 ROA
4 Roe
2
0
-2
2008 2007 2006 2005 2004 2003
The Chart above shows that the company ROA is weak throughout the years
of our analyses and goes negative in the year 2008 of 11%. The Net income
over the total assets ratio. Which indicates that the companies net income is
not increase in pace with the increase in the total asset. Dawood Lawrencepur
needs to increase in total income. However from the analyses done, the
company's nets income suffered a major decline due to the discontinued
operations. The net income increased to 202% in the year 2005 and then
declined to 7.28% in 2006 and eventually declined to 82.05% in the year
2008. This again shows the impact of discontinued operations.
50
16
14
12
10
8
6
EPS
4
2
0
-2 2008 2007 2006 2005 2004 2003
-4
-6
The Chart above shows the EPS which confides with the earning patterns of
the company analyzed throughout. EPS in the year 2005 reached its peak
to13.88% however after that (due to the discontinued operations and the
inflationary pressure, the merger that took place) the EPS of the company
declined drastically to 5.96% in 2006 and further to a negative (4.22%) in the
year 2008. The company needs to concentrate on improving its earnings.
200
100
0 P/E
-100 P/E
2008 2007 2006 2005 2004 2003
Dawood Lawrencepur P/E shows a stable and a positive pace throughout the
6 years of analyses and peaked in the year 2007 to 195.24% and then went
negative in the year 2008 that is -33.56%. This is due to a good market share
of the company. The EPS since showed no improvements eventually the
market share of the company also declined. The earning made the investors
51
loose faith in their investment due to the declining trend of the company's
EPS.
Dividend
Yield % 0.71 1.22 1.30 1.41 2.91 11.72
12
10
6
Dividend Yield
4
0
2008 2007 2006 2005 2004 2003
Balance Sheet
• Analysis and insight on Assets
The companies Assets as we can see from the below graph were the
Highest in the year 2006. The assets in 2003 were 3762 million which
increased gradually till the year 2006, But after discontinuing certain
operation in the year 2007 and 2008 the company assets declined
drastically to 1791 million. Also the increased trend in the assets from
2004 can be explained by the company merger which resulted in the
increased assets. We can see from the analytical analyses that the
company's non current assets have been more as compared to the current
assets of the company. However in 2008 the major part of the asset of the
company were the assets of disposal held for sale .i.e. 42.34%. In 2007
52
the Non current assets ratio reached 50.23% of the total assets of the
company.
7000
6000
5000
4000
3000 Assets
2000
1000
0
2008 2007 2006 2005 2004 2003
From the Horizontal analysis of the company, the company's assets have
increased at a substantial rate till 2006 and then declined from there onwards
to 47.60% in the year 2008. The assets increased to 184.89% in the year
2006.
53
increased in 2007 to 33.34% and in 2008 declined to the rate of 24.579 of the
total assets.
The stocks and spares held a major portion of the current assets throughout
the 6 years amounting to 13.94% of the current assets in the year 2008. The
second major portion of the current assets is the trade debtors. The dash and
bank balances show a decreasing trend from 39.29559% in 2004 gradually
decreasing to 13.24% in 2006 and increasing to 23.85% in the year 2008.
The companies Liabilities and stockholders Equity has the same trend to that
of the assets of the company. From the Vertical and common size analyses
of the company it is noted that the company contains more then 70% of the
liabilities in the total liabilities and the stock holders equity sections of the
company. The Major portion of stockholders Equity is the fair value reserve on
the investment amounting to 60.23% of the total liabilities and SHE in the year
2006. In 2008 and 2007 there was no fair value of reserve on the investment..
In the total Liabilities section the company's current liability has heavy weight
as to the weight of the non current liabilities. Shows a bell shape pattern
referring to 13.244% of the total liabilities and stockholders equity in 2003,
increasing to 22.43% in the year 2005 and then declining substantially to
11.61 percent of the total liabilities and the stock holder's equity. The total
liabilities increased to 226.65% in 2004, declined to 2005 in 2006 and
eventually reached to 47% liabilities as in the year 2008 as compared to the
year 2003. The Major portion that is the trade and other payable in 2006 was
the highest 108.56% and then declined to 83.428% in the year 2008.
54
7000
6000
5000
4000 Liabilties and
3000 stockholders
Equity
2000
1000
0
2008 2006 2004
LIQUIDITY
The trend of the Dawood Lawrencepurs current and Quick ratio shows a
fluctuating or a cyclical type pattern. The company at the year end shows
that its liquidity position has increased as compared to the 1.802 and
0.508 of current and quick ratio of the year 2001 to 2.584 and 1.171 in the
year 2008. In the year 2005 and 2004 the company's liquidity position
went down to 1.762 in 2005 and following the pattern in 2006. This is due
to the change in the accounting period in the year 2005 and due to the
merger of the company. This low ratio can be understood by analyzing the
current assets and current liabilities position. The current assets during the
year 2006, 2004 and 2005 amounted to 19.36%, 39.89% and 36.99% of
the total assets whereas the current liabilities amounted to 12.69% in
2006, 22.43% and 23.47% in the year 2005 and 2004. The Company's
profitability during the year was significantly impacted by the inflationary
pressures, power tariff hike and by the need to rationalize old inventories
in 2006. The quick ratio for is showing a weak trend, it means that the
company is holding large amount of inventory and not utilizing it efficiently
to pay off its current liabilities.
55
3
2.5
2
1.5
1 Current ratio
0.5 Quick Ratio
0
2008
2007
Current ratio
2006
2005
2004
2003
2002
2001
350
300
250
200
Average collection period
Average inventory per day
150
Average payable in days
100
50
0
2008 2007 2006 2005 2004 2003
From the above chart, it can be analyzed that the companies Average
collection period has maintained a steady pace fluctuating now and then.
The company is collecting its receivables in 61.25 days in the year 2003,
which increased to 83.335% in the year 2005 and thereon declined to
46.49% in the year 2008. The receivables declined to 20.38% in this year
due to the reduced sales in the year of 27.26% which showed progress in
collecting the receivables.
56
The company's inventory per day shows a progressive impact as the
companies cost of goods sold is increasing steadily with the increase or
more to the increase in the inventory made per day which in 2003 was
152.23% and reached to 338% in the year 2005 and declined over the
next 3 years but reached 298.86% in the year 2008. The stores and
spares were the major portion of out inventory which reached to 55% and
44.81% in the year 2008.
The company is making its payable slow throughout the year in 40-50
days but in the year 2008 the payable per day increased to 169.488%
TURNOVERS
8
7
6
5
Recievable
4
Inventory
3
Payable
2
1
0
2008 2007 2006 2005 2004 2003
The firm inventory turnover is less. The firm has an efficiency of selling
0.916 times inventory in the year 2003, which remains stable through out
the coming year. The Cogs of the inventory are less as compared to the
sales made.
57
The firms payable turn over shows sensitivity over the years. It reaches
7.288 times in the year 2006 and declines to 1.479 times in 2008.
5
4.5
4
3.5
3
2.5 Fixed Asset
2 Total Asset
1.5
1
0.5
0
2008 2007 2006 2005 2004 2003
The fixed assets as noted above had a more then 75% ratio in the totals
assets, hence the fixed asset turnover is much higher and covers up to 4.7
times of the sales in the year 2008 The company needs to reduce its fixed
assets.
The total asset turnover is less. In the year 2007 it reached 0.506 times
the sales. The firm is utilizing less resources, this is due to the result of
three major things; mergers, change in the accounting period,
discontinuing operations.
58
2004, the company suffered loss in its cash flows due to the merger with
the other company. Also in 2005 due to the change in accounting period.
In 2006, due to the inflationary pressures the company suffered losses and
the cash generated was recovered in the year 2007 and 2008 as the
company discontinued some of its operations which generated cash of
about 62 million rupees.
2003
2004
2005
Net cash flow
2006
2007
2008
On the further analyses of the cash flow statement, the companies cash
generated from the financing actives are negative through out. The
dividend is paid less in the year 2008 and 2007 where as the finance lease
payment increased as compared to the preceding years.
The cash generated from investing activities is the only source which gave
positive cash flows in all years except in the year 2005. Purchasing of
shares and fixed capital expenditure was the major reason for the negative
generation of cash from the investing activities in the year 2005. In 2004
the sale of shares for the merger resulted in generating huge cash flows
for the company. Where in the year 2008 and 2007 the most cash is
generated for operation as a result of the sales of disposals and
discontinued operations which brought positive cash flows for the
59
company.
300
200
100
-500
Cashflow
from
-600 Financing
-700
2008 2007 2006 2005 2004 2003
60
VIII. Analysis of Capital Structure of The firm
The Graph above shows the capital structure of the firm, which shows that
throughout the six years the firm's capital structure consists of 75 – 89% of the
contribution to it by the equity sector and the rest percentage is financed by
the current and noncurrent liabilities of the firm. The contribution by the
liabilities reached 22% in 2005 which was the highest in the considered
analyses. The amount relates to the 9 month data due to the chance in the
accounting period.
120
100
80
Equity
60
Liabilities
40
20
0
2008 2007 2006 2005 2004 2003
We can see from the graph below that in the year 2005 and 2004 12.69%
and22.4% of the total assets are being financed by the debts of the company.
The total debt of the company increases to 245% and 226% as to change
from 2003. Where as the Liability . The firm's total liabilities and equities
decreased to 47.60% in the year 2008, after peaking to 184% in the year
2006.
61
0.25
0.2
0.15
Debt Ratio
0.1
0.05
0
2008 2007 2006 2005 2004 2003
0.07
0.06
0.05
0.04
Long term debt to
0.03 Capital
0.02
0.01
0
2008 2007 2006 2005 2004 2003
62
business is through equity hence the company's liabilities i.e. current and non
current ratios are less.
The graph below shows the capital structure of the firm. The ratio increased to
30.7% in the year 2004 and declined gradually to 13.1% in the year 2008, as
the result of discontinued operations and mergers.
0.35
0.3
0.25
0.2
0.15 Debt to equity
0.1
0.05
0
2008 2007 2006 2005 2004 2003
63
X. POSITION OF DAWOOD COMPARED WITH THE
INDUSTRIAL AVERAGE
PROFITABILITY
The gross profit margin is less as compared to the industrial average only in
the year 2004 does the companies gross profit margin reaches close to the
industrial average. The operating profit margin of the company is minimum as
compared to the industry. Not in 8 years does it reach close to the industry.
The Net profit margin of the company although shows an upward trend
through out the eight years of analyses. The return on equity shows an above
average rate of growth specifically in the year 2008 to 12.46%. The return on
assets has remained negative through out the years as compared to the
industry. The cash flow margin has also shown an upward trend mainly due to
the sale of discontinued operations. The EPS of the company has also shown
a below average trend as compared to the industry.
LIQUIDITY
The above chart shows that Dawood Lawrencepur is not competing very well
to the industrial average of the textile sector. The current ratio shows a below
average trend constantly throughout the 8 years of analyses. However the
company's quick ratio shows an upward trend as compared to the industry.
The cash flow liquidity ratio is also showing a downward trend as compared to
the industrial average of the textile sector.
64
3
2.5
2
1.5 INDUSTRY AVERAGE
1 DAWOOD
0.5
0
2008 2007 2006 2005 2004 2003 2002
The average collection period of the company is greater which means its
collecting its receivables in much more delaying period as compared to the
industrial average of the companies. The payables of the company are made
in more then hundred days which mean that the company is slow is collecting
as well as making payments as compared to the industrial average.
EFFICIENCY
The receivable turnover is below the industrial average of relievable
turnovers, much below, which means mean that the company is collecting its
receivable fewer times in a year as compared to the industry. The company's
inventory turnover also shows a below-average trend. The payable turnover of
the company is also below average although the companies fixed asset
turnover shows an above average trend. The total asset turnover also shows
a below average trend.
SOLVENCY
The company's solvency position is below average to the industrial computed
rates which shows that the company's debt financing is less and much
dependence is on the equity financing as compared to the industrial average
INVESTORS ANALYSES
Dawood lawrencepur's Earning per share has remained positive through out
the year but less then the industrial average, this is the result of the losses the
company suffered in the few years of analyses, the change in accounting
policy, closing down of some operations and discontinued operations, but the
company offers good perspective in the future.
65
XI. Analysis of Depreciation method used by the
company
The Company reviews appropriateness of the rate of depreciation on plant
and equipment, useful life and residual value used in the calculation of
depreciation. Further where applicable, an estimate of recoverable amount of
assets is made for possible impairment on an annual basis.
66
for any excess book value over estimated realizable value. The
Company reviews the carrying amount of stores and spares on a
regular basis and provision is made for obsolescence.
• Stock in trade is valued at the lower of cost and net realizable
value Cost incurred in bringing each product to its present location and
condition are accounted for as follows.
(a) Items in transit/bond are valued at cost comprising invoice values
plus other charges incurred thereon upto the balance sheet date.
(b)Net realizable value signifies the estimated selling price in the
ordinary course of business less cost necessary to be incurred to make
the sale
(c)Trading goods are accounted for on cost which is the invoice value
plus other expenses incurred to bring them to the point of sale.
• Plant and equipment: The costs of replacing part of an
item of property, plant and equipment is recognized in the
carrying amount of the item if it is probable that the future
economic benefits embodied within the part will flow to the
company and its cost can be measured reliably. The carrying
amount of the replaced part is derecognized. The costs of the
day to day servicing of property, plant and equipment are
recognized in profit or loss as they are incurred.
67
has decided to re-measure its investment in associate at Cost. This change
has been applied retrospectively.
• The company should try to reduce its equity and go for debt finance
because with high equity comes high losses and that is one reason the
company is suffering from losses
68
• They should come up with finance mix that shifts towards debt
financing
69
Lawrencepur LTD.. So, earnings per share should be improved by
focusing on the earnings growth.
Having understood the issues that the nation faces, the Dawood Lawrencepur
conceptualized on what role a traditionally textile driven company can play in
the energy sector. The more Dawood lawrencepur studied the clearer it
became that exploring opportunities in the renewable energy sector was
indeed not only possible but desirable. Therefore DAWOOD LAWRENCEPUR
focused on wind power, a global competitive and commercially viable solution
to generate power within everyone's reach.
XVI. Conclusion
70
company has taken steps over the last 18 months to close down these
operations in stages. Whereas the textile operations and the polyester staple
fiber operations at Landhi were closed down during the year 2006-07, the
operations at Burewala had to be closed down in March 2008. Accordingly, all
closed down operations are classified under 'discontinued operations', as
required under the International Financial Reporting Standard (IFRS) 5 – “Non
Current Assets held for sale and Discontinued Operations'.
Due to this the companies sales will increase as the discontinued operations
was the major reason of the difficult year the company faced. The inflationary
pressures was also one of the reason for the losses the company suffered
Having understood the issues that the nation faces, at Dawood Lawrencepur
management conceptualized on what role a traditionally textile driven
company can play in the energy sector. The more we studied the clearer it
became that exploring opportunities in the renewable energy sector was
indeed not only possible but desirable. We therefore focused on wind power,
a global competitive and commercially viable solution to generate
power within everyone's reaches.
71
REFERENCES
The Annual statements of the Dawood Lawrencepur Ltd.
http://www.dawoodlawrencepur.com/dll%20report%202008.pdf
http://www.dawoodlawrencepur.com/Annual_2006_DLL.pdf
http://www.dawoodlawrencepur.com/Annual%20Report%202004%20DLL.pdf
http://www.dawoodlawrencepur.com/
http://www.equitymaster.com/detail.asp?date=3/31/2006&story=1
http://docs.google.com/viewer?a=v&q=cache:7fWq-
78polEJ:prr.hec.gov.pk/Chapters/187-
2.pdf+demand+and+supply+textile+industry&hl=en&gl=pk&sig=AHIEtbS2wtY
vtnIgcNQ-oebVa8eKHIcXbw
72