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Penden Cement Authority Limited
On behalf of the Board of Directors of the Company and on my own behalf, I extend a cordial welcome to all the shareholders of
Penden Cement Authority Ltd.to the Twenty Seventh Annual General Meeting of the Company.
In presenting the Company's 27th Annual Report to the shareholders, I am to mention that your Company's overall performance
during the year 2012 despite many operational challenges has been satisfactory.
The comparative production and despatch figures with financial highlights are outlined below:
Particulars Unit 2011 2012
Clinker production MT 244,200.00 244,130.00
Cement production MT 384,510.00 370,469.00
Cement dispatched MT 390,249.00 378,910.975
Sale of products and other income (Nu. in mill.) 1,883.205 2,036.231
Profit before depreciation, interest & tax (Nu. in mill.) 503.222 554.852
Less: Depreciation (Nu. in mill.) 73.222 53.821
Less; Interest (Nu. in mill.) 0.229
Profit before corporate tax (Nu. in mill.) 429.772 501.031
Provision for corporate tax for the year (Nu. in mill.) 138.401 150.312
Profit after tax (Nu. in mill.) 291.371 350.718
Appropriation (Nu. in mill.)
Transferred to general reserve (Nu. in mill.) - 10.717
Dividend (Nu. in mill.) 340 340
Net-worth (Nu. in mill.) 1191.852 1140.57
Gross block (Nu. in mill.) 1384.635 1417.17
Book value of shares Nu. 350.54 423.69
Earnings Per Share Nu. 85.70 103.15
The production of clinker during 2012 was at 244,130 MT (85.57%) against the budgeted target of 282,000 MT while the cement
sold was 378,910.975 MT(90.22%) against the budgeted target of 420,000 MT. Though the in-house cement production was only
370,469.00 MT the balance quantity was met from import of packed cement from India. In 2012, the Company procured 10,199.300
MT of cement which was mainly supplied to the contractors working for the hydro-power projects. The profit before corporate
tax during the year was up by Nu. 69.671 million from the previous year at Nu. 499.443 million while the profit after tax was
up by Nu. 58.027 million at Nu. 349.398 million. The dividend declared for the year is 100% on the equity capital.
The shortfall in both the clinker and cement production was attributable to the following reasons.
One reason for low volume achieved was due to failures of old machineries and equipment parts. Since most plant's equipments
and models are obsolete,effective spares and parts management is a big challenge, leading to costly down time when a break down
occurs. Nevertheless, as part of continual efforts to bring in efficiencies and attain optimal production, management is
replacing outdated machines in phase wise with higher energy efficient alternatives.
Besides, the company also suffered in dispatches in 2012 due to shortage of cement packing PP bags from our long term supplier
because of labor issue at the their end. As an emergency measure, the company had to source packing materials from different
sources to supplement the shortages. In order to avoid a repeat of such crises in the future, adequate mechanism is put in place,
including adequate stocking up of bags at least prior to peak season to tide over any eventual problem. Another reason was there
were frequent intermittent political upheavals/strikes in West Bengal and Assam regions, which also affected our dispatches.
Finally, the Indian market was generally weak in 2012 due to their economic slowdown resulting from global economic crises, thus
forcing the company to push volumes through high discount and other commissions to our stockists. Further, your company had to
grapple with severe competition from other competing brands in our key markets in West Bengal, Assam and Sikkim as many Indian
brands have now started coming in, leading to severe competition and price wars and ultimately affecting the net realizations.
Regarding the percentage of domestic dispatch compared to Indian export, despite the ongoing hydro power constructions the supply
to the domestic market was less than 60 percent in 2012, a reversal of the earlier years' trend. This is due to projects importing
their own cement into Bhutan. However, in order to maximize our sales and profits, as done earlier supply to hydro projects will
have to be relooked into and strategized, for which the company has already initiated discussion with relevant authorities in this
regard and the result is expected to be positive.
However, despite failing to meet production targets, fortunately the company achieved both the sales realization and the profitability
targets primarily due to the ability to maintain better pricing. But going forward, such operating margins may not be sustainable as
many of the major input costs such as coal, slag, and fly ash have been escalating over the years, and passing on any cost increase to
the customers may not be possible in the future as competition intensifies in the future. Further, competition is expected to become
stiff once Dungsam Cement comes on stream. Therefore, management has already put in place long term strategies and investment plans to
maintain its competitive position as well as seek growth and expansion to ensure sustainability and profitable earnings. Different
project activities, research and development initiatives and proposed diversification business are highlighted below.
1) Limestone Deposit Exploration:
As key part of ongoing efforts in finding another source of limestone for your company, as the two existing mines are expected have
residual life of less than ten years, the limestone deposit at Dudheykharka in Dorokha was explored through sub-surface investigation
and drilling work. Unfortunately, the preliminary findings reveal that the deposit has good quality but limited quantity only,
rendering the project to be economically unviable.
However, on a brighter note, productive dialogue has been initiated with the management of Bhutan Carbide and Chemicals Ltd. (BCCL)
Pasakha, as well as the Department of Geology and Mines (DGM) in exploring the possibility of taking up collaborative mining activity
of Hourikhla mines, Phuntsholing.Preliminary report indicates that up to 400,000 MT of high cement grade limestone is available,
which has the potential to extend the life of PCAL by at least another ten years. Your company is awaiting the results of BCCL's
further drilling work on the mines, which will then ascertain the true nature and size of deposits before deciding on any mutually
Further, the DGM has kindly agreed to deploy their manpower very shortly for in depth investigation work on any possible band
extension from our two mines, and beyond to augment and supplement our existing mines.
2) Research and Development : Portland Dolomite Cement (PDC)
To bring growth and profitability through new product development, PCAL has carried out research on the development of new type of
cement based on mineral dolomite, which is abundantly available locally. Strength, workability and durability related tests are
found positive and in conformity to Bureau of Indian Standards.
Since then as a practical demonstration and study of its application suitability, PCAL has been using this Dolomite Cement to meet
our in-house requirement for maintenance of infrastructure like roads, walls, etc. The road leading to your factory gate has been
concreted using PDC. The current state of the concrete reveals the demonstrable durability of the road despite the heavy vehicles
plying over it every day.
As regards costs, PDC will be cheaper than the existing Portland Pozzolana Cement (PPC) and Portland Slag Cement (PSC). However,
the greater advantage of PDC is that it is an indigenous product manufactured using local raw material while in the manufacture
of PPC and PSC, fly ash and slag as expensive raw materials are imported from India. Therefore, if PDC standard is adopted and
promoted in the market, it will help alleviate national rupee crises to a significant degree. In this regard, your company has
already initiated discussion with relevant authorities in Bhutan to promote this promising product.
3) Diversification Investment: Joint Venture Proposal with Druk Green Power Corporation (DGPC) for formation of hydro power
construction company.To broaden the business portfolio and to help achieve long term sustainable growth, it is felt necessary for
PCAL to diversify into other viable business opportunities. One such potential area for diversification is hydro power constructions.
Bhutan has embarked on the ambitious project of hydro power generation capacity of 10,000 MW by 2020. Unfortunately, the participation
of the Bhutanese private sector in growing hydro construction sector has been limited primarily due to absence of in-house capability
related to experience, technical know-how and financial capacity. Thus, PCAL sees good business opportunity to diversify into this
expanding sector. Additionally, such diversification will be related to our main area of cement business, as cement remains the main
raw material constituent for any construction works, thereby help bring synergy and value addition to the organization.
However, for PCAL alone to directly foray into such specialized areas of work would not be prudent or even possible, but in turn sees
a good opportunity for PCAL to collaborate with DGPC which has been in the hydro power business for many years, bringing the right
expertise and experience. Therefore,PCAL is seeking collaboration with DGPC, in the form of Joint Venture, so that proper competency
in terms of technical expertise,adoption of right technology, and development of HR can be built gradually through smaller projects
and eventually position itself to attempt bigger projects, both nationally and regionally. In this regard, your company already has
had discussion with DGPC and the response in this national capacity building from them has been very encouraging.
In a continuous effort to maintain the clean environment, your company is investing Nu.12.5 million for installing HOT ESP to control
the flow of dust particles into the atmosphere.
Corporate Social Responsibility
Your company along with Samtse Dzongkhag and other industries in Gomtu, on a Public Private Partnership model successfully executed
water supply project which today provide essential water supply to the communities and residents of Gomtu and adjoining villages.
Your company has contributed Nu.3.79 million for this water supply project.
Your Company operates and manages the 20-bedded Gomtu Corporate Hospital and has incurred an expenditure of Nu. 4.580 mill during
the year. Your Company has spent Nu. 1.76 mill towards the upkeep of the Ugyen Chholing Monastery during the year which is for the
spiritual benefit of all in Gomtu and the surrounding areas.
Before I conclude my report, I would like to state that the company was struck with an unfortunate incident where the Managing
Director, late Tashi Tshering expired on 24th September at Jigme Dorji Wangchuck National Referral Hospital, Thimphu. The Board
appreciates and takes note of the hard work rendered by late Tashi Tshering while on chair and the Chief Executive Officer.
Concluding my report to the shareholders at the 26th Annual General Meeting of your company, I would like to place on record my
sincere gratitude to Druk Holding and Investments and the Royal Government for the continued encouragement and the support provided
to us in navigating the course of the Company.
I also would like to thank the Government of India and the State Governments of West Bengal, Assam, Sikkim and North-eastern States
of India for the support received. Further, our thanks also go to various Departments of the Royal Government, Financial Institutions,
Auditors, Suppliers, Stockists, Agents and our valued customers for their perpetual support and patronage of the Company.
On behalf of the Board of Directors, I would like to acknowledge the outstanding services rendered by the management team, executives,
staff and workers of the company. I am confident that the management of PCAL will steer the company to yet another year of exceptional
performance in all spheres of its activities despite many challenges.
For and on behalf of the Board of Directors of
Penden Cement Authority Ltd.
Dated: 25th March 2013