History of Lafarge

Joseph-Auguste Pavin de Lafarge established the organization Lafarge in 1833in the city of Le

Teil in France with the result of limestone. Progressively the organization extended and procured

its first concrete plant in 1987. Presently it is working its business in 62 nations alongside

Bangladesh. Cement, construction aggregates, asphalt and concrete are main products of

Lafarge. Nation savvy these items fluctuate.“Anticipate needs to drive advances in construction

methods" is the mission of Lafarge Group. “Respect, Care and Rigor” are the strong estimations

of Lafarge. The workers of Lafarge all through the world additionally have faith in honesty,

morals, fearlessness, sympathy, openness, duty, execution, esteem creation, regard for

representatives and nearby societies, natural assurance, protection of regular assets and vitality.

The Group portfolio of businesses is as follows:

Cement: 63.5%,

Aggregates and concrete: 35.9%,

Other: 0.6%.

At present Bruno Lafont is the Chief Executive Officer of Lafarge gathering. From the record of

2013, Lafarge has 64000 representatives all through the globe. In 2013, its deals were 15.2

billion Euros. It has 1636 generation locales in diverse nations. Lafarge head office is presently

in Paris, France.

Lafarge assembled the first research habitat for building materials where the workers are

attempting to add to their items without hampering the earth.

Background of Lafarge Surma Cement LimitedLafarge Surma Cement Limited (LSC) is one of the largest cement manufacturers of the country

which was incorporated on 11th November 1997 as a private limited company under the

Companies Act 1994 and with a registered office in Dhaka. On January 20, 2003 Lafarge Surma

Cement Ltd. was made into a public limited company. The company is now listed in both Dhaka

and Chittagong Stock Exchange. At present, this company has more than 20,000 shareholders.

The company is fortunate to have a blend of both international and local shareholders. The

international shareholders of the company bring in technological and management expertise

while the local partners provide deep insights of the economy of Bangladesh.

Presently the company is meeting about 6.7% of the total market need for cement and 10% of

total clinker requirements of Bangladesh market whereas they continue to enjoy strong growth

rates. By supplying clinkers to other producers of the market they contribute some USD 50-60

million per annum worth of foreign currency savings for the country. They are producing world

class clinker and cement which is a demonstration of the sophisticated and state-of-the art

machineries and processes of their production plants. They are contributing around BDT 1

billion per annum as government revenue to the national exchequer Bnagladesh. The present

cement manufacturing of this company is 1.20 Million Metric Tons per year.

Vision & Commitment of LSC

LSC Vision:

To be the undisputed leader in building materials in Bangladesh through:

Incredibleness in every aspect of operations with world class measures

Outfitting their qualities as the main bond maker in Bangladesh and

Supportable development that regards nature and the group

LSC Commitments:

Offering most astounding nature of item and administrations that surpass our clients

desire

Giving their people an empowering domain that supports their abilities and chance to

give the best for the association

Add to building a superior world for their groups

Conveying the worth creation that their shareholders anticipate.

LSC Products

SUPERCRETE:

Supercrete is a premium cement brand made for multi-reason applications, in particular

establishment, bar, segment, chunk stone work, putting works, and so forth. This cement is

absolutely limestone based, free of fly slag or slag, not at all like different concretes in the

nation.

POWERCRETE:

Creative definition from Lafarge Cement's unequaled specialized assets has created cement that

is the compelling answer for the efficiency requests of substantial development ventures. One of

a kind particles size and additional wellness lessens voids in cement which shields the cement

from water contact. Powercrete is accessible in mass amount for huge development ventures.

Local Sponsors

Islam Group and Sinha Group with shareholding of 2.8% and 3% respectively are the local

sponsors. The equity partners of the project:

Name of the shareholders Nationality incorporated in

Surma Holdings BV ( Lafarge & Molins);

58.87%

The Netherlands

International Finance Corporation; 1.22% U S A

Sinha Fashions Ltd.; 3.02% Bangladesh

Islam Cement Limited;2.75% Bangladesh

Othershareholders-34.14% Bangladeshi &NRB

Main Short Term Sources of Financing Short term financing is arranging of available External funds to meet the needs of a firm for a

year or less time. Short-term financing can be used over a period of up to a year to help

corporations increase inventory orders, payrolls and daily supplies.

Why Do Firms Need Short-term Financing?:

Income from operations may not be sufficient to stay aware of development related

financing needs.

Firms may want to acquire now for their stock or other fleeting resource needs as

opposed to hold up until they have sufficiently spared.

Firms may lean toward fleeting financing rather than long haul wellsprings of financing.

Some major short term sources of financing used by Lafarge Surma Cement Limited (LSC) are

discussed below:

Trade Credit:

It is a credit that a customer gets from supplier of goods. It is the spontaneous source of

financing. Over the last five years trade credit was one of the major short sources of fund for

Lafarge Surma Cement Limited (LSC). This grants the business the time to be able to deal with

their finances, and balance their cash flows more efficiently. The amount of trade credit was

increasing year by year. In 2012, 29% of total short term financing came from trade credit.

Bank overdrafts:

Another way of short term financing for LSC is bank overdrafts. Every banking institution is

mindful that organizations don't generally get cash from deals straight away. Because of the

distinctions in its returns and its expenses the association can regularly confront issues. This

issue can be tackled by organizing an overdraft.

Throughout the last five years LSC is highly dependable on bank overdrafts. In many ways it

benefited them but in 2011 and 2012 they had to bear high interest expense because of their high

dependability on bank draft.

Short-term debt:

This account is comprised of any debt incurred by a company that is due within one year. The

debt in this account is usually made up of short-term bank loans taken out by a company. It’s the

main sources of LSC’s short term financing. From the last five years data we can see that LSC

short term debt is larger than the company's cash and cash equivalents, this suggests that the

company is in poor financial health and does not have enough cash to pay off its short-term

debts.

Changes in the CompositionLafarge Surma Cement Limited (LSC) cement did not change their sources of short term

financing. Rather they tried to change the weight of short term financing. During the 2009 and

2010 they were highly dependent on short term debt which increase their interest expense as

interest risk was high. For that reason they incurred losses. But from the year 2011, they tried to

increased short term financing through trade credit. They decrease their dependency on short

term debt.

Financing StrategyMany organizations oversee income from various distinctive financing and account sources -

from gifts, contracts, contracts and pay created from exchanging. A financial strategy empowers

an association to evaluate monetary needs and the sources of support needed to meet their goals

and satisfy the hierarchical mission, whilst likewise anticipating proceeded with development to

empower steadiness.

Lafarge Surma Cement’s financing strategy is to provide timely, cost efficient and secure

financial resources to the Group and to manage its capital structure in line with its targeted low

single A credit rating.

The Group’s policy is to borrow centrally using a mixture of long-term and short-term capital

market issues and borrowing facilities to meet anticipated funding requirements. In respect of

certain emerging markets it may elect to borrow on a non-recourse basis

Risk management is at the core of their financing policies. They use derivative instruments to

manage their currency and interest rate risk and collateral support agreements to mitigate the

credit risk of banking counterparts. Liquidity risk on long term borrowings is managed by

maintaining a disciplined maturity profile.

Although an LSC main policy was to manage its risk through effective financing strategy, they

were highly depended on short term financing. Over the last five year’s financial statement we

observed that LSC’s short-term funding requirements are met through bank overdrafts and trade

credit. It indicated that their financing strategy was aggressive and risky. By the time they

realized the facts these strategy put their business in losses respectively in 2010 and 2011. It

occurred because of their over tendency to depend on short term financing which indeed

increased their financing cost.

Investment in Marketable SecuritiesMarketable securities are securities or debts that are to be sold or redeemed within a year. These

are financial instruments that can be easily converted to cash such as government bonds,

common stock or certificates of deposit.

Lafarge Surma Cement doesn’t have any investment in marketable securities. Most of their

investment is based on long term asset. It represents their weakness in liquidity. It also showed

that they were highly depending on cash for liquidity.

Common Marketable Securities in South Asian MarketsFor companies that are financial institutions (banks), and insurance companies, Marketable

Securities are a significant portion of their income. Depending on the industry of other

companies, this line item on the Balance Sheet should be relatively small. Some marketable

securities used in Bangladesh are discussed below:

Treasury Bills:

T-bills are issued through a competitive bidding process at a discount from par, which means that

rather than paying fixed interest payments like conventional bonds, the appreciation of the bond

provides the return to the holder.

Short-term Bonds:

Short term bonds are the most common form of marketable debt security and are a useful source

of debt capital to businesses that are looking to grow. A bond is a security issued by a company

or government that allows it to borrow money from investors.

Certificates of Deposit:

A certificate of deposit is a promissory note issued by a bank. It is a period store that confines

holders from withdrawing subsidizes on interest. In spite of the fact that it is still conceivable to

withdraw the cash, this activity will regularly acquire a punishment.

Banker’s Acceptances:

It is a short-term debt instrument issued by a firm that is ensured by a commercial bank. Banker's

acceptances are issued by firms as a major aspect of a business exchange.

Preferred Shares:

Preference shares, also called preferred shares, have the benefit of a fixed dividend, much like a

bond. Unlike a bond, the shareholder's initial investment is never repaid, making it a hybrid

security.

PART-B

Liquidity RatiosThis ratio expresses a company's ability to repay short-term creditors out of its total cash. The

liquidity ratio is the result of dividing the total cash by short-term borrowings. It illustrates the

number of times short-term liabilities are covered by cash.

Three liquidity ratios are:

1. Working Capital Ratio

2. Current Ratio

3. Quick (acid-test) Ratio

Working Capital Ratio:

This ratio measures the percentage of total assets that is invested in current assets. It helps to

analyze capital intensity as well as corporate liquidity. This ratio is also a measurement of

company’s efficiency and short term financial health.

Formula Used: Working Capital Ratio = Current AssetsTotal A ssets

Table for Working Capital Ratio of Lafarge Surma Cement Ltd. from Year 2009 - 2013

Company Names

Year 2009 Year 2010 Year 2011 Year 2012 Year 2013

Lafarge Surma Cement Ltd.

0.136 0.135 0.194 0.227 0.285

The Current Ratio:

It is a financial ratio that measures whether or not a firm has enough resources to pay its debts

over the next 12 months. It compares a firm's current assets to its current liabilities. The current

ratio is an indication of a firm's market liquidity and ability to meet creditor's demands.

Formula Used: Current Ratio = Current Assets

Current Liabilities

Table for Current Ratio of Lafarge Surma Cement Ltd. from Year 2009 - 2013

Company

Names

Year2009 Year2010 Year2011 Year2012 Year2013

Lafarge Surma Cement Ltd.

0.325 0.246 0.571 0.631 1.266

Quick Ratio:

This ratio measures the ability of a company to use its near cash or quick assets to extinguish or

retire its current liabilities immediately. Quick assets include those current assets that

presumably can be quickly converted to cash at close to their book values.

Formula Used: Quick Ratio = Current Assets−Inventorries

Current Liabilities

Table for Quick Ratio of Lafarge Surma Cement Ltd. from Year 2009 – 2013

Company

Name

Year2009 Year2010 Year2011 Year2012 Year2013

Lafarge Surma

Cement Ltd.0.157 0.127 0.329 0.365 0.879

Cash Ratio:

The cash ratio or cash coverage ratio is a liquidity ratio that measures a firm's ability to pay off

its current liabilities with only cash and cash equivalents. The cash ratio is much more restrictive

than the current ratio or quick ratio because no other current assets can be used to pay off current

debt--only cash.

Formula Used: Cash Ratio = Cash∧Cash EquivalentsCurrent Liabilities

Table for Cash Ratio of Lafarge Surma Cement Ltd. from Year 2009 – 2013

Company Names

Year 2009 Year 2010 Year 2011 Year 2012 Year 2013

Lafarge Surma Cement Ltd.

0.98% 1.80% 3.99% 2.29% 28.91%

Solvency RatiosThe solvency ratio indicates whether a company’s cash flow is sufficient to meet its short-term

and long-term liabilities. The lower a company's solvency ratio is, the greater the probability that

it will default on its debt obligations.

1. Debt to equity

2. Debt to assets

3. Interest coverage ratio

Debt to Equity:

This proportion shows the level of financial leverage being utilized by the business and

incorporates both short-term and long-term obligation. A rising debt-to-equity ratio infers higher

interest costs, and past a certain point it may influence an organization's credit rating, making it

more extravagant to raise more obligations.

Formula Used: Debt to equity =Total DebtTotal Equity

Table for Debt to equity of Lafarge Surma Cement Ltd. from Year 2009 – 2013

Company

Name

Year2009 Year2010 Year2011 Year2012 Year2013

Lafarge Surma

Cement Ltd.1.677 1.906 0.477 0.141 0.213

Debt to Assets:

Another leverage measure, this ratio measures the percentage of a company’s assets that have

been financed with debt (short-term and long-term). A higher ratio indicates a greater degree of

leverage, and consequently, financial risk.

Formula Used: Debt to assets =Total DebtTotal Assets

Table for Debt to Assets of Lafarge Surma Cement Ltd. from Year 2009 – 2013

Company Names

Year 2009 Year 2010 Year 2011 Year 2012 Year 2013

Lafarge Surma Cement Ltd.

0.469 0.487 0.242 0.084 0.149

Interest coverage ratio:

This ratio measures the company’s ability to meet the interest expense on its debt with its

operating income, which is equivalent to its earnings before interest and taxes (EBIT). The

higher the ratio is, the better the company’s ability to cover its interest expense.

Formula Used: Interest coverage ratio=Operating IncomeInterest Expense

Table for Interest coverage ratioof Lafarge Surma Cement Ltd. from Year 2009 – 2013

Company Names

Year 2009 Year 2010 Year 2011 Year 2012 Year 2013

Lafarge Surma Cement Ltd.

2.546 (0.068) 0.421 8.455 17.889

Asset Management Ratios

These ratios measure how efficiently the firm is managing its assets. They are used to judge whether the company has right amount of assets against its sales or not.

Five Asset Management ratios are:

1. Inventory Turnover Ratio

2. Receivable Turnover

3. Days Sales Outstanding (DSO)

4. Total Asset Turnover (TATO)

5. Fixed Asset Turnover (FATO)

Inventory Turnover:

The ratio is considered as a test of efficiency of a company and indicates the rapidity of the

company to convert its ending inventories into sales. This ratio involves both stock and flow

values.

Formula used: Inventory Turnover = Cost of Goods sold

Inventory

Table for Inventory Turnover Ratio of Lafarge Surma Cement Ltd. from Year 2009 - 2013

Company Names Year 2009 Year 2010 Year 2011 Year 2012 Year 2013

Lafarge Surma

Cement Ltd.

4.7040× 4.6033× 3.8799× 4.307× 4.979×

Receivable Turnover:

This ratio is an accounting measure used to quantify a firm’s effectiveness in extending credits as

well as collecting debts. In fact, it is an activity ratio which reflects the amount of sales generated

by every dollar of receivables

Formula used: Receivable Turnover = Net Sales

Accounts Receivable

Table for Receivable Turnover of Lafarge Surma Cement Ltd. from Year 2009 – 2013

Company Names Year 2009 Year 2010 Year 2011 Year 2012 Year 2013

Lafarge Surma Cement Ltd.

19.4382× 42.4670× 11.4315× 14.952× 14.171×

Days Sales Outstanding (DSO):

This ratio shows both the average time it takes to turn the receivables into cash i.e. how much

time it takes to collect money from the payers and the age, in terms of days, of a company’s

accounts receivable. This ratio is of particular importance to credit and collection associates of a

company.

Formula used: Days Sales Outstanding = ReceivablesAnnual Sales

365

Table for Days Sales Outstanding of Lafarge Surma Cement Ltd. from Year 2009 – 2013

Company Names Year 2009 Year 2010 Year 2011 Year 2012 Year 2013

Lafarge Surma Cement Ltd.

18.7775 Days 8.5949 Days 31.9297 Days 24.412 Days 25.756 Days

Total Asset Turnover (TATO):

This ratio illustrates how much of sales have been generated from the total asset used. It

evaluates the efficiency of managing all the company’s assets in generating sales or revenue –

the higher the number the better. It also indicates pricing strategy: companies with low profit

margins tend to have high asset turnover, while those with high profit margins have low asset

turnover.

Formula used: Total Asset Turnover = Sales

Total Assets

Table for Total Asset Turnover of Lafarge Surma Ltd. from Year 2009 – 2013

Company Names Year 2009 Year 2010 Year 2011 Year 2013 Year 2013

Lafarge Surma Cement Ltd.

0.4434× 0.3415× 0.3500× 0.609× 0.635×

Heidelberg Cement

Bangladesh Ltd.

1.1951× 1.1586× 1.0631×

Fixed Asset Turnover (FATO):

This ratio measures how much sales have been generated by using the fixed assets – specifically

property, plant and equipment (PP&E) – net of depreciation. A higher fixed asset turnover ratio

shows that the company has been more effective in using the investment in fixed assets to

generate revenues.

Formula used: Fixed Asset Turnover = SalesNet ¿

Assets¿

Table for Fixed Asset Turnover of Lafarge Surma Ltd. from Year 2009 – 2013

Company Names Year 2009 Year 2010 Year 2011 Year 2012 Year 2013

Lafarge Surma

Cement Ltd.

0.5314× 0.3952× 0.4345× 0.788× 0.889×

Heidelberg Cement

Bangladesh Ltd.2.7202× 3.0817× 2.4530×

Days Payable Outstanding (DPO):

Day’s payable outstanding tells how long it takes a company to pay its invoices from trade

creditors, such as suppliers. DPO is typically looked at either quarterly or yearly.

Formula used: Days Payable Outstanding (DPO) =Accounts Payables

COGS365

Table for Days Payable Outstanding (DPO) of Lafarge Surma Ltd. from Year 2009 – 2013

Company Names Year 2009 Year 2010 Year 2011 Year 2012 Year 2013

Lafarge Surma

Cement Ltd.

68.007 × 96.330 × 97.814× 92.489× 95.119×

Heidelberg Cement

Bangladesh Ltd.× × ×

Days Inventory Outstanding:

Days inventory outstanding shows the number of days that it is needed for the company to sell

out stock. This ratio is similar to the inventory turnover ratio, only it provides information on

company’s stock level in days but not in times. This ratio is important for company’s owners as

it shows how effectively their assets are used in a form of inventory. In order to get a more

precise value of the ratio using average inventory, it is better instead of inventory at the end of

the period.

Formula used: Days Inventory Outstanding =InventoryCOGS

365

Table for Days Inventory Outstanding (DIO) of Lafarge Surma Ltd. from Year 2009 –

2013

Company Names Year 2009 Year 2010 Year 2011 Year 2012 Year 2013

Lafarge Surma

Cement Ltd.

85.699 × 79.290 × 94.074 × 84.755 × 73.308 ×

Heidelberg Cement

Bangladesh Ltd.× × ×