IQRA UNIVERSITY IU

Al Abbas Cement Ltd

A Detailed Strategic Plan By Rizwan Ahmed
Master of Business Administration (Finance) Email: [email protected]

Acknowledgement

I am heartily thankful to my supervisor, Professor Tariq Kaleem, whose encouragement, guidance and support from the initial to the final level enabled me to develop an understanding of the subject.

Lastly, I offer my regards and blessings to all of those who supported me in any respect during the completion of the project.

TABLE OF CONTENTS Back Ground Of The Company ....................................................................................................... 4 Analysis Of Current Startegic Direction ....................................................................................... 6 Analysis Of Current Performance .................................................................................................10 Analysis Of External And Internal Environment ......................................................................11 EFE Matrix .......................................................................................................................................14 CPM Matrix ......................................................................................................................................15 IFE Matirx .........................................................................................................................................16 Financial Analysis ............................................................................................................................17 Generate evaluate Strategic Options ...........................................................................................22 SWOT Matrix...................................................................................................................................22 IE Matrix ...........................................................................................................................................24 BCG Matrix .......................................................................................................................................25 QSPM Matrix....................................................................................................................................26 Recomended startegic direction ..................................................................................................28 Recomended startegies ...................................................................................................................29 Implementation Issues in startegic Options...............................................................................30 Evaluation of Startegic Options....................................................................................................31 Supported Document ......................................................................................................................30

Background of the Group Al-Abbas Cement Industries Limited is member of a group of companies called AlAbbas Group. The group has made an impression on the sugar, industrial alcohol, fiber board, ferro alloy industry as well as leaving an industry as well as leaving an indelible mark on the cement industry. The Group Includes Al-Abbas Sugar Mills Limited Al-Abbas Industries Limited Al-Abbas Cement Industries Limited Javedan Cement Company Limited About Al-Abbas Cement Industries Limited Al-Abbas Cement Industries Limited was established as Private Limited Company on 1st December, 1981 and was converted into Public Limited Company on 9th July 1987 and is listed on Karachi and Lahore Stock Exchanges. The Company's principal activity is manufacturing, sell and marketing of cement. The registered office of the Company is situated at Pardesi House, Survey No. 2/1, R.y. 16, Old Queens Road, Karachi and its undertaking is situated at Deh Kalo Kohar, Nooriabad Industrial Estate, District Dadu (Sindh). Al-Abbas Cement Industries Limited is a Pakistan-based company. The Company is engaged in the manufacturing, selling and marketing of cement. During the fiscal year ended June 30, 2010, the Company's actual production was 407,706 metric tons. Corporate Information The Group of Al-Abbas Cement Industries Limited comprised of seasoned professionals from diversified fields of business. This is reflective of the corporate policy with regard to

expansion and increasing financial strength and stability of a group on a long term basis, with a futuristic perspective. Board of Directors Syed Aijaz Ahmed Zaidi (Chairman) Momal Shunaid (Chief Executive) Asma Cochinwala (Director) Aves Cochinwala (Director)

Momina Duraid (Director) Salman Rashid (Director) Tariq Usman Bhatti (Director) Audit Committee Aves Cochinwala (Chairman) Momina Duraid (Member) Tariq Usman Bhatti (Member) Syed Muhammad Talha (Secretary) Company Secretary M. Khursheed Anwer Chief Financial Officer Zuhair Abbas Auditors M. Sikander & Co. Chartered Accountants

Current Strategic Direction Vision Statement Al-Abbas cement industries limited aims to be recognized nationally and internationally as a successful cement producer. Mission Statement To become a profitable organization and exceed the expectations of our customers and

stakeholders by producing and marketing competitive and high quality productions through concentration on quality, business values and fair play. To promote best use and development of human talent in a safe environment, as an equal

opportunity employer and use of advanced technology for efficient and cost effective operations. Core Values Always deliver best quality product to our customers. Maintain the highest level of integrity, honesty and ethics. Use technology to continuously improve our processes. Develop the capability of our workforce on an ongoing basis. Safeguard the interests of all our stakeholders. Long-term objectives The companys objective is to improve in manufacturing, selling and distribution of high quality cement in Pakistan. Provide leadership to drive new business and to position the company at the forefront of the cement industry. Oversee company operations to insure production efficiency, quality, service, and cost-effective management of resources. Strategic Objectives We strive to improve the efficiency of our operations through continuous innovation in cement production facility. We intend to grow our market share in the cement industry and to achieve customer satisfaction by way of providing our clients cost effective, quality cement. Financial Objectives Al Abbas cement limited financial objectives focus on achieving acceptable profitability in a companys pursuit of its mission/vision, long-term health, and ultimate survival. The company is looking for improvement in stock price appreciation. To provide competitive rate of return to its shareholders on their investments

Strategies In this part the strategies which are used by Al Abbas cement were discussed, 1. Corporate strategies 2. Competitive strategies Corporate strategies On the basis of current performance and size of the business Al Abbas cement corporate strategies are Market Penetration and Retrenchment strategies. Market Penetration Al Abbas cement has currently facing a declining trend in sales revenue and they continuously taking measures to increase the market share for there present product. Through market penetration the company is looking to adapt for increasing their sales and profit. Product development Al Abbas cement looking new market and new customers especially in northern Pakistan to increase the sales and profit. Retrenchment Al Abbas cement faces several losses due to declining sales revenue and increase in cost of production including selling general and administrative expenses. They continuously are working on regroup through cost and assets reduction to reverse the declining sales and profit. Competitive Strategies Source of competitive advantage The source of competitive advantage of Al Abbas cement is cost leadership. Al abbas cement limited pursue low cost strategy (Type 1) that offers product or services to wide range of customer at the lowest price available on the market. Currently, Al abbas cement limited pursues a cost-leadership strategy to outperform competitors by doing its utmost to produce cement at a cost lower than its competitors. Two advantages accrue from pursing this strategy. First, this allows Al abbas cement to make higher profits than its competitors, because of its lower costs. Second, if rivalry within the industry increases and other cement companies start to compete on price, SCC will be able to withstand competition better than the other cement companies because, again, of its lower costs. For these reasons, SCC is likely to earn above-average profits.

Competition Level The competition level in cement industry of Pakistan is always high. All the firms are competing with each other by providing better services and offering lesser prices. The competition level can be studied on the following basis: Need of customer Brand Competition Product Quality

Cement firms are putting more efforts to meet buyers requirement and provide superior quality of services. The main attribute buyer associate with cement is its durability. Competitor Forces The competitor forces analysis is done on the basis of six forces: rivalry, substitutes, threat of new entrant, buyer power, and supplier power and government interventions. Substitutes There is no threat of direct substitutes for cement. However, bitumen in road and engineering plastic in building offer some element of competition. Internal Rivalry In cement industry the Rivalry exists on the basis of increased productivity. The cement rates are set by Government and APCMA therefore all manufacturers compete on the basis of quality. Inter firm competition is so intense that major players compete with each other on marginal product differentiation. Buyers power The cement industry has very low bargaining power of buyers as it is a government regulated industry. The switching cost of buyer in cement industry is also low because cement prices offered are almost same. Prices of cement vary due to geographical location however it effects very little price changes due to 20% freight cost in the total cost of cement manufacturing. Suppliers power The cement industry has high bargaining power of suppliers. We import coal and petcoke from foreign countries.
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New Entrants Entry barriers are not too high in the cement industry. The technology is also available but the major constraint is capital requirement. Cement plant is a highly capital intensive business which requires a lot of investment. Government intervention The government is considering allowing further concessions and additional incentives for cement export, with a view to increase overall export volume.

Analysis of Current Performance Cement Sector Current Scenario: The cement Industry of Pakistan has around 25 active Players. Around 10% have less than 2% market share each. At the same time the top 4 players control more than 40% production capacity in the industry. The cement sector is divided into the north and south zones. Presently north zone accounts for around 80% of the rated capacity with 19 plants, while south zone accounts for 20% with 10 plants. Year over year, Al-Abbas Cement Industries Limited has seen revenues fall from 3.0B to 2.2B. In addition, the company has been unable to reduce the percentage of sales devoted to cost of goods sold, SGA expenses and income tax expenses. This has led to a reduction in the bottom line from a gain of 121.8M to a loss of 720.6M. Al-Abbas Cement Industries Limited may have more financial risk than other companies in the Construction Materials industry as it is one of the most highly leveraged with a Debt to Total Capital ratio of 78.57%. This ratio actually increased over the last year. Additionally, an examination of near-term assets and liabilities shows that there are not enough liquid assets to satisfy current obligations. Accounts Receivable is among the industry's worst with 8.06 days worth of sales outstanding. This implies that revenues are not being collected in an efficient manner. Last, inventories seem to be well managed as the Inventory Processing Period is typical for the industry, at 119.48 days.

1. Cement production for the year 2010 is 467.442 metric tons, decline of 6%. 2. Decrease in local cement demand. 3. Capacity utilization of the plant only 52%. 4. Declining trend of cement and clinker production net sales revenue declined by 35.6%. 5. Cement sales local and export decreased by 47,407 M.T.

This decline is attributed to the price war in the sector which caused cement companies to slash prices and sacrifice revenue in return for higher sales volume, and is being experienced by all cement companies.

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Analysis External and Internal Environment External Analysis The External analysis is done on the basis of all the factors influencing an industry which are not in the control of individual players. These include economic, political social, technological, legal and environmental factors. Economic Factor Economic factors affect the purchasing power of potential customers and the firms cost of capital. Following are the factors affecting the macro economy: Economic Growth 1. The large scale manufacturing sector growth is 4.2% in 2010, while the GDP growth rate is in 2010 is 2.00%, while growth rate in 2009 was 4.1 % respectively. 2. Growth in Pakistans exports slowed sharply in 2009. The rate for exports fell to 3.4% and export of cement is also decline by 2.2 Million Tons in 2010. 3. Pakistan has formulated economic policies that will help the Pakistani economy to grow stronger but the recent political violence and uncertainties could slow down the growth. Inflation Rate 1. Pakistan, with a population of about 16 million people has undergone a remarkable macro economic growth during last few years, but the core problems of the economy are still unsolved. Inflation is one of these core problems. 2. The inflation in year 2008 has recorded to be the highest according to the Federal Bureau of Statistics. 3. Consumer Price jumped to 13.60% in November 2010 according to the statistics given by Federal Bureau of Statistics. 4. The Pakistan inflation accelerated at its fasted speed and the inflation is still increasing. The reason behind this is that in April 2010 the fuel prices Interest Rates 1. The monetary policy of Pakistan is controlled by the state bank of Pakistan. 2. The state bank, in order to control the inflation has taken measures and tightened up the monetary policies. 3. Pakistan has raised its main interest rate by 1 percentage point to 14 % to help fight inflation.

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Exchange Rates The exchange rates of Pakistan with respect to the U.S. dollar, has declined. The Pakistani rupee has starting depreciated in 2007 to now onwards. In other words we can say that the value of the rupee has fallen as the time passed by. Social Factors Health consciousness 1. Health consciousness among the people of Pakistan has been increasing day by day. 2. The citizens of Pakistan are getting aware of their duties in order to maintain the healthy environment. 3. Government is taking several steps in order to educate, how important it is for the people to live in the healthy environment. 4. The government discourages the operation of the industries with in the city by charging these factories with environmental charges. 5. In spite of this discouragement, there are many factories that are running inside the city, discharging poisonous gases and chemicals. By the passage of time, the people as well along with the government are discouraging such activities. Political Factors Political factors include Government regulations and define both formal and informal rules under which the firms operate. The rule and regulations that the cement industries follow are as follows: Technological Factors The Pakistani cement industries not only have to compete among them selves but with the international market as well. Pakistan is steadily automating particularly its development sectors to rouse quality production and ensure skilled management, as it would ensure a good place for the country in the global competitive market. In recent years, technology has been seen to be progressing at very fast rate all over the world. It has helped to raise income and lessen poverty in the developing countries. The change in technology can be seen in the Pakistani industries as well.

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Legal Factors Tax Policies According to the tax memorandum 2008, the cement industries have to bear the following rules: 1. General sales tax is enhanced from 15 % to 16 % including sales tax on services under the Provincial Sales Tax Ordinance, etc. 2. Due to the increase in the general rates of sales tax, the rate sales tax on the natural gas has been increased from 24 % to 25 %. 3. Excise Duty on cement (that includes Portland cement, slag cement, sulphate cement and white cement) has been reduced from Rs. 900 to Rs. 700 per ton. Environmental Factor Emission of carbon dioxide and sulphur dioxide are making some of air pollution at thermal power plant and in the cement industry in Pakistan. These not only cause nausea and potential health hazards to human beings. They also damage landscape and wildlife. The Government is restricting the industries to minimize the pollution. So changes are required in plants to remove the pollution creating methods of production and introduce new technology which are user friendly. Cement industry played a vital role in the up trend of manufacturing sector during the current financial year of 200910. Main contributors to this high growth in cement industry were domestic demand and strong export demand from the neighboring countries. Presently Pakistans cement is being exported to Afghanistan, India, Africa, and Middle East. Export of cement is exempted from the Sales Tax (16%) and federal Excise Duty (FED).

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EFE Matrix Key External Factor

S. No. Factor Weight Rate Score

Opportunities
1 2 3 4 5 6 7 8 9 Strong growth of economy in the long run. Increase in infrastructure projects in the country. Increase in government spending. Huge potential of export due to rehabilitation process in Afghanistan and Iraq. 35 per cent inland freight subsidy on cement exports. Raise in huge demand in the flood affected areas. Increasing demand in the local market. Establish new plant in southern region. Focus on process establishment system by using 6 sigma methodologies. 0.08 0.07 0.06 0.07 0.03 0.06 0.07 0.06 0.02 3.00 2.00 3.00 4.00 2.00 4.00 2.00 3.00 1.00 0.24 0.14 0.18 0.28 0.06 0.24 0.14 0.18 0.02

Threats
10 11 12 13 14 15 16 17 18 Massive competition from lucky cement. Chance of takeovers/acquisitions due to continuous losses. Due to higher expansion, finance and depreciation cost is also going to rise. Increase usage of cement substitute product (Bond, Pedelo) Rising cost of energy. Political insatiability in the country. Unstable Law and order situation in sindh. Interest rate increase by 1%, reaches to 14%. The companys turnover is highly dependent on cement exports, which makes it vulnerable to changes in governments export policies. Fluctuating prices of furnace oil. 0.07 0.07 0.04 0.02 0.07 0.05 0.05 0.04 0.04 2.00 2.00 3.00 1.00 2.00 1.00 3.00 3.00 3.00 0.14 0.14 0.12 0.02 0.14 0.05 0.15 0.12 0.12

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0.03 1.000

3.00

0.09 2.57

Grand Total

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Competitive Profile Matrix The competitive profile matrix identifies firms major competitors and its particular strength and weaknesses in relation to a sample firms strategic position.

Al Abbas Cement Critical success factor Advertising Weight 0.20 1 Rating Score 0.20

Lucky Cement Rating 4 Score 0.80

Attock Cement Rating 3 Score 0.60

Product Quality

0.10

0.30

0.30

0.30

Price Competitiveness Management

0.10

0.40

0.40

0.40

0.10

0.20

0.40

0.40

Financial Position

0.15

0.15

0.60

0.45

Production capacity

0.10

0.10

0.30

0.30

Global Expansion

0.20

0.40

0.20

0.60

Market Share TOTAL

0.05 1.00

0.05 1.80

0.20 3.20

0.10 3.15

From above matrix we can see that Al Abbas has very low competitive position against its competitors lucky cement and Attock cement.

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Internal Analysis IFE Matrix Key Internal Factor

S. No. Factor Weight Rate Score

Strengths
1 2 3 4 5 6 7 8 9 Provides high quality cement to consumer. Cement Plant is near to sea port. Bulk cement transport and storage infrastructures. Huge potential of grow despite its losses on sales and profit. Raw material locally available. Strong financial supports from its sponsors. Capacity utilization increased by 5% from 2008. Lower labor cost on production of cement. 2 plants are converted into gas. 0.06 0.04 0.05 0.05 0.02 0.01 0.07 0.05 0.07 3.00 3.00 4.00 4.00 3.00 3.00 4.00 3.00 4.00 0.18 0.12 0.20 0.20 0.06 0.03 0.28 0.15 0.28

Weaknesses
10 11 12 13 14 15 16 17 18 Declining trend of cement and clinker production net sales revenue declined by 35.6%. Export prices showing a declining trend. Increasing trend in price of major raw material like power and machinery Cement and clinker production is decline by of 6% and 30% respectively. Net profit margin in FY10 is -32.7 (FY09: +4%) ROA dropping from 2% to -32.7% Not enough liquid assets to satisfy current obligations. Cost of sales increases by 26.6% from 2009. High transportation cost. 0.09 0.06 0.09 0.09 0.09 0.09 0.08 0.09 0.04 1.00 1.00 1.00 1.00 2.00 1.00 1.00 2.00 1.00 2.00 0.09 0.06 0.09 0.18 0.09 0.09 0.16 0.09 0.08 2.43

Grand Total

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Financial Analysis

Financial Ratio
Gross Profit Margin Net Profit Margin ROA ROE EPS Current Ratio Debt Ratio Quick Ratio Debt to Equity Ratio Total Asset Turnover Inventory Turnover

2010
3.06 (32.7) (13.58) (72.30) (3.94) 0.43 0.81 0.13 4.31 0.41. 4.31

2009
23.48 4.08 2.0 7.0 0.67 0.93 0.50 0.29 2.44 0.50 2.53

2008
10.0 (9.31) (2) (6.0) (0.59) 1.34 0.51 0.55 2.30 0.22 2.22

2007
62.6 (68.78) (3.1) (10.2) (1.24) 0.83 0.53 0.23 3.0 0.05 1.12

The current performance of Al Abbas cement can be measure through financial analysis.

Industry Overview The year under review has been one of the worst in the history for the local cement industry in terms of prices and profitability. The ongoing recession coupled with capacity expansions in the Pakistani cement sector have created a situation of excess supply and a free fall in prices due to a severe price war. The total cement production capacity of the industry stands at 45 million tons by end of FY10, with capacity utilization of the industry estimated at 68%. The fierce price war has drastically eroded retention prices on one hand, while on the other hand input prices have also increased in general, particularly electricity charges that have increased by 28%.

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On the backdrop of declining prices, overall cement volumetric growth registered an increase of 9.3% to stand at 34.2 million tons. The increase in the domestic dispatches of the industry is 14.63 % and the decrease in exports is 0.89%. The increase is small compared to the decline in prices, which was 27.53% in the local market and a 12.90% drop internationally. While exports increased considerably during FY09, due to expanding capacity of neighboring countries the local cement industry was unable to capitalize the market and only a marginal rise was seen during FY10. Production and sales Cement production for the year stood at 467.442 metric tons, a decline of 6% over last year (FY'09: 494,042 metric tons), mainly on account of decrease in local cement demand. Capacity utilization, was however only 52%. Due to declining trend of cement and clinker production net sales revenue declined by 35.6%, to Rs 784,243 billion. The production of clinker and cement decreased by 175,078 M.T. and 26,600 M.T. respectively as compared to the corresponding period of last year. Cement sales local and export decreased by 47,407 M.T. in addition the Company has exported 45,904 M.T. of clinker and sold 20,637 M.T. locally. This decline is attributed to the price war in the sector which caused cement companies to slash prices and sacrifice revenue in return for higher sales volume, and is being experienced by all cement companies. Profitability The cement sector is experiencing growth in cement dispatches but at the same time companies are facing declining profitability. Sales Revenue is on a decline, with cost of production on a steady rise. The decline in profitability resulted in the company experiencing a loss of Rs 720,615 million for the year 2010 (Profit FY09: Rs 121,813 million). The decline of Rs 784,243 million in net sales resulted in production costs rising above revenue, leading to an overall loss. Distribution costs increased by 5%, standing at Rs 413,667 (FY09: Rs 390,619 million), while administrative expenses declined by 19%. Finance charges declined by 19% respectively. These declining costs however were not sufficient to maintain profitability and the company witnessed a loss before tax of Rs 746.498 million. As a result of a deferred tax credit, the final figure of loss after tax stood at Rs 720,615 million.

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Profitability ratios of the company are on a decline, Gross profit margin in FY10 is on 3% (FY09: 23%) while net profit margin in FY10 also negative -32.7 (FY09: 4%). Similarly ROA and ROE have witnessed sharp declines, with ROA dropping from 2% to -32.7%; and ROE dropping from 7% to -72.2%. While profitability of the sector is on a decline as a whole, Al Abbass Cement Industries Limited (AACIL) figures stand well below the industry average. The industry average gross profit margin stands at 15.2% while the profit margin stands at 1.4%. Liquidity The liquidity position of the company has been deteriorating over the years due to substantial rise in the current liabilities. AACIL felt a liquidity crunch, like many other companies in the cement sector due to the price war and losses caused by that in FY07 and again in FY08. The current liabilities of AACIL have increased to Rs 1.619 billion during FY10 (FY09: Rs 1.454 billion), backed mainly by increased short term borrowings by the company. The current ratio of AACIL presently stands at 0.43, with a decline of 53% over FY09 (FY09: 0.93). The industry average stands at 0.67, with AACIL being the only company with a current ratio below 0.5. Thus, while the overall industry's position is not ideal, it is much better than the position of AACIL. Asset management Asset management of the company, is not different from to the other ratios analyzed, seen a declining trend during FY10. Total Asset Turnover and Sales/Equity similarly witnessed declines, albeit much smaller. Total Asset Turnover fell from 0.50 during FY09 to 0.41 during FY10. This is entirely due to the decline in sales, as total assets have remained relatively stable over the year. Sales/Equity increases from 1.73 during FY09 to 2.20 during FY10, which showing the company is more able to make use of its Total Stockholders' Equity to generate sales. Debt management Debt management of AACIL showed moderate deterioration, with rising short and longterm debt. Debt to Assets rose by 0.81 (FY09: 0.68). This is due to the huge rise in liabilities and assets. Total liabilities rose by almost 2.36%, standing at Rs 4.30 billion (FY09: Rs 4.20 billion). Debt to equity rose from 2.44 at the end of FY09 to 4.31 at the end of FY10; attributed to declining equity and rising liabilities. AACIL is seen to be highly leveraged when compared with

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the industry, which has an industry average debt to equity ratio of 1.34, which is three times less than the company's figure. During the year, AACIL took steps to restructure its debt, as a result of which the long term debt to equity position has shown improvement. The management is in process of negotiation with its lenders to reschedule its long-term and nisus to obtain the grace period and deferment in payment of markup. The Company has also strong financial support from its sponsors. During the year, the Sponsors have injected the fresh fund of Rs. 183.251 million and the Board of Directors also proposing to enhance the Company paid up share capital by issuing 100% right share at a discounted value of Rs. 5. The proceeds of right shares at discounted value (if approved by the concerned authorities) would be around 914.225 million. The proceeds will be utilized filling the gap of working capital of the Company and improving the current ratio and debt equity ratio. While finance costs of the company have increased over the period, due to the company's operating loss. Market value Market value of AACIL is seen to be declining steadily with time, with the share price dropping to Rs 3.37 per share by the end of FY10 (FY09: Rs 13.58). This also means the stock has low risk and may provide risk-averse investors with a stable investment. Earnings per Share are in negative at Rs (3.94), reflecting the loss faced by the company but in (FY09: Rs 0.16). The company's EPS stands well below the industry average which is Rs (3.94) per share. The PriceEarnings Ratio fell to 0.80 at the end of FY10, due to both the fall in market price and the fall in EPS. Book Value experienced a reasonable decline, falling from 12.03 at the end of FY09 to 9.96 at the end of FY10. This is due to the decline in equity and the increase in number of shares outstanding. Like other cement manufacturers, AACIL was unable to provide shareholders with a dividend at the end of the year. Future outlook The prospects of the local cement industry are linked to improvements in the economy, especially macro-economic indicators and the law and order situation. According to the Federal Budget 2010-11, Rs 663 billion had been allocated to public sector development program (PSDP). However, this amount may be slashed by 50% in the aftermath of the floods, as resources are limited. The increased demand however will not make an impact until the second half of FY11.
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AACIL is looking to cut costs so as to regain its profitability. The company is taking measures to bring down fuel and electricity costs and has started using alternate fuel and is planning to install waste heat recovery project for further reduction in production cost. Additionally, the management is pursuing optimum utilization of plant with cost effective measures for sustained operations. All these measures along with financial restructuring provide a promising future for the company.

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Generate and Evaluate of Strategic Options SWOT Matrix Through the following SWOT Matrix, we are suggesting Al Abbas Cement for the adoption of certain strategies, leading to the best use of their strengths in industrial opportunities and avoidance of unforeseen events happening due to the internal weaknesses, having industrial external negative impacts.
Strengths-S 1. Provides high quality cement to consumer. 2. Cement Plant is near to sea port. 3. Bulk cement transport and storage infrastructures. 4. Huge potential of grow despite its losses on sales and profit. 5. Raw material locally available. 6. Strong financial supports from its sponsors. 7. Lower labor cost on production of cement. 8. Capacity utilization increased by 5% from 2009. 9. 2 plants are converted into gas. SO strategies 1. New factory setup in northern punjab. (S1,S2,O4,O1,O8) 2. Increased exports to Gulf and Afghanistan region (S1,S2,O1,O3) 3. Improve present market position to cope up with growing demand. (S6,S7,O1,O3). Weaknesses-W 1. Declining trend of cement and clinker production net sales revenue declined by 35.6%. 2. High transportation cost. 3. Increasing general and administrative expenses 4. Cost of sales increases by 26.6% from 2009. 5. Increasing trend in price of major raw material like power and machinery. 6. Cement and clinker production is decline by of 6% and 30% respectively. 7. High transportation cost. 8. Net profit margin fell from 4% to -32.7%. 9. ROA fell from 2% to -32.7% WO strategies 1. Lower profit margin can reverse the increasing cost of production. (W4,W8,W9,O2,O3). 2. Increase Capacity utilization (W1,O4,O6,O7) 3. Increase efficiency in business process and supply chain. (W1,W5,W7,O9)

Opportunities-O 1. Strong growth of economy in the long run. 2. Increase in infrastructure projects in the country. 3. Huge potential of export due to rehabilitation process in Afghanistan and Iraq. 4. Raise in huge demand in the flood affected areas. 6. Increasing demand in the local market. 7. Increase in government spending. 8. Establish new plant in southern region.

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9. Focus on process establishment system by using 6 sigma methodologies. Threats-T 1. Massive competition from lucky cement. 2. Chance of takeovers/acquisitions due to continuous losses. 3. Due to higher expansion, finance and depreciation cost is also going to rise. 4. Rising cost of energy. 5. Unstable Law and order situation in sindh. 6. Political insatiability in the country. 8. Interest rate increase by 1%, reaches to 14%. 9. The companys turnover is highly dependent on cement exports, which makes it vulnerable to changes in governments export policies. 10. Fluctuating prices of furnace oil. ST strategies 1. Developing a partnership with other manufacturer. (S1,S2,T2) 2. Use of current market position and marketing strategies to overcome the recession. (S4,S6,S8 T3,T4,T5) WT strategies 1. Reduce general and administrative expenses to coupe with narrow competition. (W3,T3) 2. Capitalize on growing market (W1, O1,O3,O4,O6,O8,O9) 3. Generate more revenues to overcome losses. (W1,W2,T4). 4. Benchmark with strong competitors to improve financial position. (T1,W8,W9)

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IE Matrix of Al Abbas Cement

3.0 to 3.99 3.0 to 3.99 2.0 to 2.99 1.0 to 1.99 Total IFE score: 2.43 Total EFE score: 2.57 I IV VII

2.0 to 2.99 II V VIII

1.0 to 1.99 III VI IX

From IFE and EFE score we can see our point is lie on 5th cell which means that the firm position needs to be hold and maintain. Medium attractiveness Average Competitive Position The strategy advice for this cell is to selectively invest for earnings. Consider the following strategies:

segment the market to find a more attractive position Market penetration and product development. make contingency plans to protect your vulnerable position

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BCG Matrix of Al Abbas Cement

On the basis of following facts and assumption, currently cement industry is not well growing because the cement industry has gone through a hard time over the past few months as after devastating floods the industry witnessed a decline in sales during the disruptions and tepid constructional activities across the country. And from the company point of view we can see that company have a weak financial position, market share is less than 2%, sales is continuously declining no growth in profitability continuously suffering from huge losses and several rumors are circulating that company is going to liquidate. On the basis of these assumption the is standing at Dogs stage in which organization have a low relative market share position and compete in a slow- or no market growth industry. Because of their weak internal and external position, these businesses often are liquidated, divested, or trimmed down through retrenchment.

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QSPM OF Al Abbas Cement

Internal External Factor Strength Provides high quality cement to consumer. Cement Plant is near to sea port. Bulk cement transport and storage infrastructures. Huge potential of grow despite its losses. Raw material locally available. Strong financial supports from its sponsors. Capacity utilization increased by 5% from 2008. Lower labor cost on production of cement. 2 plants are converted into gas. Weakness Declining trend of cement and clinker production net sales revenue declined by 35.6%. Export prices showing a declining trend. Increase in price of major raw material like power. Cement and clinker production is decline by of 6% and 30% respectively. Net profit margin in FY10 is -32.7 (FY09: +4%) ROA dropping from 2% to -32.7% Not enough liquid assets to satisfy current obligations. Cost of sales increases by 26.6% from 2009. High transportation cost. Total Opportunities Strong growth of economy in the long run. Increase in infrastructure projects in the country. Increase in government spending. Huge potential of export due to rehabilitation process in Afghanistan and Iraq. 35 per cent inland freight subsidy on cement exports. Raise in huge demand in the flood affected areas. Increasing demand in the local market. Establish new plant in southern region. Focus on process establishment system by using 6 sigma methodologies. Threats Massive competition from competitors. Chance of takeovers/acquisitions due to continuous losses. Due to higher expansion, finance and depreciation cost is also going to rise. Rising cost of energy. Political insatiability in the country. Unstable Law and order situation in sindh. Interest rate increase by 1%, reaches to 14%. The companys turnover is highly dependent on cement exports, which makes it vulnerable to changes in governments export policies. Fluctuating prices of furnace oil. Total Weight 0.06 0.04 0.05 0.05 0.02 0.01 0.07 0.05 0.07 Merger/Acquisition with Attock Cement AS TAS 4.00 0.24 3.00 0.12 4.00 0.20 3.00 0.06 3.00 0.21 3.00 0.21 Holding strategy AS TAS 3.00 0.18 4.00 0.16 3.00 0.15 2.00 0.04 1.00 0.07 2.00 0.14

0.09 0.06 0.09 0.09 0.09 0.09 0.08 0.09 0.04 1.00 0.08 0.07 0.06 0.07 0.03 0.06 0.07 0.06 0.02 0.07 0.07 0.04 0.02 0.07 0.05 0.05

2.00 -

0.18 -

3.00 -

0.27 -

3.00 3.00 3.00 3.00 3.00 3.00 3.00 2.00 2.00 -

0.24 0.21 0.18 0.21 0.18 0.21 0.18 0.04 0.08 -

1.00 1.00 2.00 2.00 2.00 2.00 2.00 2.00 4.00 -

0.08 0.07 0.12 0.14 0.12 0.14 0.12 0.04 0.32 -

0.04 0.04 1.00

2.00 2.00

0.08 0.08 2.91

3.00 3.00

0.12 0.12 2.40

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From our Strategic Alternatives evaluation, we see that Acquisition with Attock Cement it is more attractive to holding strategy.

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Recommended Strategic Direction Improved Vision Statement To be the leading cement manufacturer in the South Asia through technology and trusted to deliver excellence in every aspect of business Improved Mission Statement To be a premier and reputable cement manufacturing company dedicated to become an industry leader by producing quality products, providing excellent services, enhancing customer satisfaction and maximizing shareholders' value through professionalism and dedicated teamwork. Recommended Long-term Objectives Al Abbas cement long-term objective should include growth in sales as well as growth in profitability.

Introduce existing products into a new market. Expand sales to existing customers.

Al Abbas cement must align their objectives at corporate level. Recommended Annual Objectives Al Abbas cement needs to increase their plant utilization capacity up to 60% at the end of 2011 and also increase their production efficiency 30% annually. Recommended Strategic Objectives Al abbas cement currently have market share of less than 2%, the market share should be increase 1.2 % yearly. Al Abbas lowers there cost relatively to key competitors. Improve there reputation in customer as compare to their rival also improve there product quality than rivals. Achieving lower overall costs than rivals, boosting the companys reputation with customers, winning a stronger foothold in international markets, exercising technological leadership, gaining a sustainable competitive advantage, and capturing attractive growth opportunities Recommended Financial Objectives Al Abbas cement limited financial objectives focuses on to; 1. Increase its sales revenue and increase up to 15% annually. 2. Improve their earning per share and turn into positive stage. 3. Higher returns on invested capital

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Recommended Strategies Corporate Strategies After analysis of all factors including External factor and Internal factors and IE matrix, SWOT matrix, BCG matrix and QSPM the company should continue the existing strategy which is market penetration, product development and retrenchment strategy. But the analysis shows that company financial position is continuously on decline they should increase their sales to generate profit and reduce their accumulated losses. They continuously working on regrouping their asset and improve the high cost of production to reverse the declining sales and profit. Additionally they should also consider and adopt the horizontal integration and Merger/acquisition strategy to improve there position in the industry. This strategy helps from threat of direct competition, Merger/acquisitions, and takeovers among competitors allow for increased economies of scale and enhance transfer of resources and competencies. This strategy is highly recommended is a growth strategy. Merging and acquisition by other domestic companies as a way to achieving national international markets especially because of expanding markets of Middle East and Afghanistan. Merging/Aquisition by other domestic companies and outsourcing some activities to have better opportunities for cost reduction. These strategies are more successful in mature industries. Competitive strategy From 5 generic strategies, the experts of the industry believed that overall low cost leadership should be followed. This strategy is a powerful strategy approach in markets with many price sensitive buyers. There are 7 situations as situations in which low-cost strategy works better: 1) Price competition among rival sellers is especially vigorous 2) The industry's product is essentially standardized 3) There are few ways to achieve product differentiation that have value to buyers. 4) Most buyers utilize the product in the same way 5) Buyers incur low switching costs in changing from one seller to another 6) Buyers are large and have significant power to bargain down prices 7) Industry newcomers use introductory low prices to attract buyer and build a customer base

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Implementation Issues in Strategic Options Resource Allocation Al Abbas cement ltd needs to reallocate their resources including financial resources and physical resources. Allocate particular resources to the desired functional area which it belongs will helpful in strategy implementation. Restructuring Al Abbas cement needs to reduce costs and organize production more efficiently. New facilities and increased capacities are being put into place in order to remove supply chain uncertainty and improve consumer confidence. Reengineering Re-engineering means taking steps to redesign and simplify business systems and processes search out best practices to develop a more competitive and core competent workforce and to explore new business methods. Marketing Issues Al Abbas cement should focus on advertisement at domestic level as well as international level through news paper and television to promote there product for newer customer. Market Segmentation Market penetration and product development require increased sales through new markets. Evaluating potential market segment and determines the characteristics and need of customer. Market segmentation help in matching supply and demand which minimize the number of severity of stock out. Finance and Accounting Issues Several finance and accounting issues arises in implementation of strategies. The major issue is to raise capital with short term debts and long term debts also increase the amount of cash that should be kept on hand. Increase the liquid assets to meet current obligations.

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Evaluation of strategic option The Rumelts method is used to evaluate a business strategy by assessing the strategy on each of these four criteria. Consistency Compare business unit and other functional or departmental strategies within the company to the overall business strategy. Compare the company's sales strategy to the overall business strategy to make sure they are aimed at achieving the same goals. Consonance The environmental and other external trends that might impact the business strategy to identify the external influences that support the strategy and those which do not support the strategy. Assess how any current or anticipated government legislation will support the business strategy. Feasibility Compare the amount of effort required to implement the business strategy with the available resources such as money, time and people to determine the likelihood of a successful implementation. Estimate the amount of financial investment needed to implement the strategy and compare that to the available financial resources of the company. Advantage Advantage of the business strategy by evaluating how the strategy will help create and maintain a long-term competitive position in the marketplace. In three years, the business strategy has been successfully implemented and compare the current competitive position of the company to what its competitive position might be in three years.

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Supported Document Income Statement

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Balance Sheet

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