Al-Abbas Cement Industries Limited’s placement of the Non-Compliance Segment of the Exchange on account of Default of the Listing Regulations
Karachi: This is with reference to your letter number KES/Gen-3584 dated June 7th, 2011received on June 9th 2011 by Al-Abbas Cement Industries Limited (“AACIL” )( “Company”) and our earlier letter dated July 5th 2010, in this matter. We would again like to draw your attention towards Section 249 of the Companies Ordinance, 1984, which states that “No dividend shall be paid by a company otherwise than out of profits of the company”. AACIL lastly made profits for the year ended Juhe30, 2004 and made dividend payments out of the profit.
The objective of this letter is to give you an update on the Company’s financial background, current health and Sponsor’s commitment in order to consider our request of providing an extension of a further three year period.
Since the acquisition in 2005 the sponsors of the Company are putting in all their efforts in rehabilitation of the Company and have injected significant “interest free Sponsor Loans” and incurred other huge expenses in addition to bringing in management expertise to keep the plant moving. Significant changes have also taken place within management of the Company with many new senior management people coming in to establish the organization. This has resulted in increased production, sales and market share but still far from generating positive returns. Greater focus is being placed on local sales to improve share in local market. All these expertise and efforts still need some time to realize.
As you were made aware in our last correspondence about the blast at plant site which caused some major delays in our commercial operations, we also suffered in delay of insurance claims which again hampered our commercial production activities.
In addition to the above backdrops, we would greatly appreciate if you consider the overall economic situation in the country which has still not improved. The continuous slowdown in economy especially the decline in the construction industry has greatly affected our operations. Following areas still need to be considered which remain major contributors towards the decline of cement industry as well as our Company.
Due to heavy flooding the GDP growth rate of Pakistan decreased from 3.8% per year in 2009-10 to 2.4% per year in 2010-11 resulting in decrease of development expenditure by Government resulting in reduction of construction projects. The construction sector was worst hit and witnessed an decrease of 9% in 2010-11
Due to the continuous decline in demand of cement, the industry is still operating at a capacity which is lower than its total production capacity, resulting in increase of per unit production cost and reducing profit margins
Due to the consistently deteriorating law and order situation, high rates of inflation and utility prices resulting in increased cost of production combined with decreased activities in construction industry, projected growth in construction industry could not be achieved.
The increasing interest rates have again increased the debt servicing cost and are continuously affecting the liquidity and profitability of the Company
Above factors are some major contributors to the financial crisis of the cement industry in general and our Company in particular, Currently, AACIL production is around 63% of its installed capacity in comparison to industry average of 75% in FY 2010-2011. Due to above factors, the Company was not able to earn profits from June 30, 2004 to to till date, As per Companies Ordinance 1984, the Company cannot declare dividend while incurring losses.
Subsequent to the acquisition, Arif Habib Corporation Limited (“AHCL”) has significantly increased its holding in AACIL (39% as at March 31, 2011) to reiterate its firm commitment to turn around the Company and with a goal to provide a respectable return to all investors. Furthermore, AACIL in their Annual General Meeting held on Oct 30, 2010 had proposed to offer a Right Issue to existing shareholders amounting to Rs. 914.225 million. AHCL has already injected Rs. 697.5 million as against the issue of Right Shares subscription on account of “Advance against shares” and “Loan from sponsors” convertible into ordinary shares at the time of subscription of the Right issue. AHCL also undertook to subscribe the unsubscribed general public portion of the Right issue, if the issue remains undersubscribed.
This again reiterates AHCL’s firm commitment together with their financial muscle to turn around the Company. AHCL together with AACIL management are striving to provide a respectable return to all its Investor and we are confident that the Company will generate profits in next three years time.
We ensure you that once Company earns profit; the Board of Director will recommend the dividend or Bonus as the case may be.
Considering the circumstances and reasons mentioned above, Karachi Stock Exchange (Guarantee) Limited is requested to repose the same trust that our shareholder have reposed in AACIL, so that the Company can become a profitable institution and reward its shareholders with dividends as a return for their continued support.
In view of above facts and reasons discussed hereinabove we humbly request KSE to grant us an exemption in delisting or placing AACIL on the Defaulter’s Counter and consider our request for further extension of a three year period by exercising its discretion under Regulation 30(2).
For more information, contact:
Nadeem Ahmed Mazari
Chief Finance Officer and Company Secretary
Al-Abbas Cement Industries Limited
Arif Habib Center 23, M.T. Khan
Road Nooriabad Industrial Area,