Fecto Cement Limited (“the Company”) is a public limited company incorporated on February 28th, 1981 under the repealed Companies Act 1913. The shares of the Company are quoted on Pakistan Stock Exchange Limited.

After its establishment in 1981, the Company commenced its operations and production on 1st January 1990. Mr. Mohammed Yasin Fecto and Mr. Asad Fecto took over the control of the Company during the mid-nineties. Since then, they have been actively involved in the Company’s operations.

Fecto Cement Limited is engaged in the production and sale of ordinary Portland cement. The Company’s manufacturing facility is situated at Sangjani village, Islamabad. The Company has an installed capacity producing clinker of 3,000 TPD (900,000 tons per annum based on 300 operating days a year). By virtue of being located in the North, the company caters to the needs of Islamabad, Pindi, Azad Jammu & Kashmir, and Mansehra in the local market and Afghanistan in the export market. The company has recently completed BMR of its plant and expects to achieve operational efficiency through it, thus generating savings.

Fecto Group holds a majority stake (75%) in Fecto Cement through Mr. Yasin Fecto (75%), the rest is widely spread among FIs and the general public. Hence, Mr. Yasin has a controlling stake in the company and is identified as the man at the last mile.

The ownership structure is expected to remain stable in the future with Mr. Yasin as the ultimate majority shareholder.

The history of the FECTO group can be traced back to Ghulam Muhammad A. Fecto who was initially involved in trading of electrical goods, wires and appliances before partition. After partition, the group started to diversify from trading to industrial activities including Cement, Sugar, Tractors, Paper sack and medium density Fiberboard. To cope up with the complex requirements of the business and corporate sector, the founder segmented the businesses amongst his children. The responsibility of FCL was entrusted to Mr. Mohammed Yasin Fecto and Mr. Asad Fecto.

The sponsors have built a strong financial muscle through profitable business including the Company. Furthermore, being the flagship company of the group, the sponsors have a strong committment to support the Company financially. 

The overall control of the company vests in seven-member board of directors (BoD), including the CEO. The BoD comprises four independent directors and two nonexecutive directors.

Fecto's board members carry the necessary technical stature, which is required for effective decision-making.

1. Mr. Aamir Ghani is Chairman of the Board of Directors of the Fecto Cement Limited. He joined his family business in textiles in 1991, and currently he is a director at Ghani Dyings. During the period of over 25 years in his family business, he spearheaded many new initiatives, whereby turning a dying mill into a household name for school uniforms in the name of Ghani Sons.

2. Mr. Mohammad Anwar Habib is a director of M/s Tajuddin Silk Mills (Private) Limited and one of the partners of M/s Habib Traders, an association of persons. He is in the trading business of polyester filament yarn and textiles and is in a partnership business with a telecommunications/electrical equipment company.

3. Mr. Jamil Khan has been a seasoned banker, having worked for more than 38 years in senior positions at national and international banks. He oversaw various departments comprising Retail Banking Group, Credit, Islamic Banking, Agriculture, Card Administration, and Global Operations.

4. Mr. Rohail Ajmal is a highly accomplished financial and operations executive with over 33 years of experience. He has a distinguished career, notably serving in multiple senior leadership positions at Saudi Pak Industrial and Agricultural Investment Company Limited. His extensive expertise encompasses finance, accounting, auditing, treasury, compliance, procurement, corporate affairs, human resource management, and business operations.

To improve the effectiveness, the board has formed two committees, including the Audit Committee and the HR and Remuneration Committee. Furthermore, the board conducts regular meetings throughout the fiscal year to discuss matters relating to the Company. A complete record of meeting particulars is maintained by the Company. The Board complies with all the requirements set out in the Companies Act 2017, the listed companies (Code of Corporate Governance) regulations, 2019, and the Rule Book of the Pakistan Stock Exchange where the Company is listed, with respect to the composition, procedures, and meetings of the board and its committees.

Being a publicly listed company, Fecto Cement has to abide by the code of corporate governance, which includes timely preparation and dissemination of financial accounts and other material information related to the Company's operations. M/s. Rahman Sarfaraz Rahim Iqbal Chartered Accountant are the external auditors of the company. They expressed an unqualified opinion on the company’s financial statements as of June 30th, 2024.

Fecto Cement has a lean organization structure with the company’s operations grouped under eight key functions. These include 1) Procurement, 2) Production, 3) Sales & Marketing, 4) Information Technology, 5) Finance, 6) Corporate Affairs, 7) Human Resources, and 8) Internal Audit. All departments, except internal audit, are headed by Executive Directors/General Managers (GMs), who, in turn, directly report to the CEO, while Internal Audit reports to the Board Audit Committee in line with the requirements of the Code of Corporate Governance.

The CEO, Mr. Yasin Fecto, is the son of Mr. Ghulam Muhammad Fecto. He was appointed as CEO of Fecto Cement Limited in 1993, a position he holds till now. Under his able leadership, the cement plant, having an initial capacity of 1,000 MT per day, increased to 3,000 MT per day. He spearheaded many initiatives to improve the efficiency of the cement plant, which included the conversion of the plant from furnace oil to coal, the installation of a waste heat recovery power plant, and a 5 MW solar power plant. He has been instrumental in the installation of a polypropylene bag plant for the packaging of cement in one of the group companies. The remaining senior team members hold requisite experience in the industry and qualifications.

The CEO is supported by a team of experienced individuals having long association with the Company who are involved in the day to day decision making and operations. All departments, except internal audit, are headed by Executive Directors/General Managers (GMs), who, in turn, directly report to the CEO. Multiple hierarchal levels ensure close monitoring and a redundancy structure in case of need.

The Company has a core operating software. The implemented modules are integrated and include financial, purchase, inventory, sales, and payroll. Fecto Cement generates comprehensive MIS reports that include production, dispatches, power and fuel consumption (with year-to-date comparisons), and receivable and payable status on a monthly basis. Also, on a monthly basis, a division-wise sales report is generated. Variance analysis is conducted on a quarterly basis, with comparisons of corresponding quarters.

The board has set up an effective internal financial control system to ensure effective conduct of the Company's operations, safeguarding of all assets, compliance with applicable laws and regulations, and reliable and timely financial reporting. The in-house internal audit function is equipped with suitable and qualified staff to continuously review the internal control system and its effectiveness.

The overall performance of the local cement industry has remained under stress throughout FY24, majorly due to the economic challenges faced by the country in the form of high inflation, peaking interest rates, and lower developmental activity. Furthermore, political instability resulted in lower PSDP spending, leading to further challenges faced by the construction sector, which was already adversely affected due to the rise in overall costs of inputs. Despite these challenges, the cement industry in Pakistan witnessed marginal growth of ~1.6%, reaching 45.3 million MT during the year ending June 30, 2024, compared to 44.6 million MT last year. Although the local sale volumes declined by 5% (FY24: 38.2 mln MT, FY23: 40.0 mln MT), the overall surge was driven by a significant rise in export dispatches of 56%, reaching 7.1 mln MT, up from 4.6 mln MT last year. A similar trend was witnessed during 1QFY25, with the local dispatches recording a decline of ~20% (1QFY25: 8.1 mln MT, 1QFY24: 10.1 mln MT), while export dispatches grew by ~22% (1QFY25: 2.1 mln MT, 1QFY24: 1.8 mln MT). Despite the decline in sales volumes, the local cement manufacturers are witnessing a rising trend in their recorded revenues due to the higher prices reflecting the increase in the cost of production that is being passed on to the consumers. As a result, cement manufacturers have successfully maintained their margins. The industry also witnessed a rise in installed capacity, which now stands at approx. 84.5 million MT per annum. However, based on the suppressed demand, the capacity utilization remained between 50-55% during FY24. Going forward, FY25 brings some relief for the industry in the form of a consistent reduction in policy rates, declining inflation, a stable exchange rate, and a gradual increase in SBP reserves along with political stability. However, the development activity in the form of construction projects to stimulate the economy is still on hold.

Fecto Cement Limited is amongst the small players in the local cement industry. Based on FCL’s annual cement dispatches of 0.725mln MT during FY24, it occupies ~1.6% market share.

During FY24, the Company reported total volumetric sales of ~0.725 million MT (FY23: ~0.642 million MT) of cement, including local and export sales, resulting in net revenues of PKR 10,908 million (FY23: 8,682 million). Sales in value terms grew this fiscal year, driven by stable cement prices to counter the increasing cost of production due to inflation. During 1QFY25, overall sale volumes of the Company in the domestic market declined by 7.30% as compared to the same period the previous year, which have been offset by export volumes growing by 4.2 times, resulting in an overall decline of around 4%. Hence, the overall sale value during 1QFY25 was recorded at PKR 2,875mln (1QFY24: PKR 2,626mln) witnessing a 9.4% increase.

The Company's Gross Profit Margin witnessed significant improvement during FY24 standing at 13.1% from 3.6% during FY23, as a result of higher prices, efficient utilization of the plant along with cost optimization measures undertaken by the management. Similarly, during 1QFY25 the Gross Profit Margin showed further improvement, recorded at 31.9% resulting from the decline in cost of sales by 3.22%. Net Profit Margin also turned positive during FY24 recorded at 2.9% resulting from the positive profitability during the period. Similarly as a result of repayment of borrowings along with continuous decline in interest rates Net Profit Margin during 1QFY25 further improved to 19.2%.

The current outlook of the cement industry remains challenging with stressed demand in the local market due to lower construction activity. The management remains focused on efficient utilization of the plant while maintaining their market share in the industry. Furthermore, the management is committed to maintaining its margins while focusing on quality to achieve positive profitability and remain competitive in the market. Furthermore, FCL has obtained an exploration license for mining in the Khushab region for greenfield expansion. The intended capacity for expansion is 7,000 TPD. The plan has, however, been shelved due to a slowdown in the industry's demand.

The Company manages its working capital needs through a mix of internal cash generation and borrowing facilities obtained from different financial institutions. Due to stressed demand during FY24 and rise in outstanding receivables, the Company's Gross Working Capital Days slightly increased to 74 days (FY23: 70 days), which further remained stable during the 1QFY25. Furthermore, rise in trade payables days resulted in a stable Net Cash Cycle Days of 36 days at end Sep 2024 (June 2024: 38 days, June 2023: 38 days). The Company has sourced sufficient working capital facilities to bridge any financing gap. As of the end of September 2024, the Company had outstanding short-term borrowings of PKR 899mln.

Interest Coverage (EBITDA/Finance Cost) witnessed improvement during FY24 as a result of continuous decline in policy rates along with positive profitability of the Company. The ratio was recorded at 4.1x, up from 0.9x during FY23. Further improvement was witnessed in the 1QFY25, which is expected to continue in the remaining fiscal year as a result of significant decline in policy rate.

The Company has a moderately leveraged structure with its leveraging ratio recorded at 30.8% as at end Sep 2024. With timely repayment of Long term debt obtained previously for BMR along with installation of the Solar Power Plant, along with positive profitability adding to the equity, currently standing at PKR 4,112mln, the leveraging ratio is expected to improve in the future.