I have given much consideration to the list of topics given by oxford Brookes University and I short listed topic number 8, 10 and 15. But after having thorough understanding and detailed knowledge of all three topics and after discussion with my mentor I reached the final conclusion that best choice for my research was;
"The business and financial performance of an organization over a 3 year period".
1.2 Reasons for choosing the topics:
The principal reasons for selecting this topic are:
Business and financial analysis has been my prime interest area.
I have studied the use of PEST analysis, SWOT analysis, RATIO analysis, balanced scorecard and used it in my study material in ACCA, but never had an experience of using them in real. Hence I took this opportunity to get a grip on practical implication of these tools.
Area where I am passionate to learn about and which is relevant to what I would be interested in doing in my future.
Area that can challenge my accounting, finance and analytical skills. And which provide me an extra advantage to excel and polish my skills in my profession.
Area where I have capacity for the critical evaluation of arguments and evidence.
Area where I can apply my IT and WORD processing skills in the very best way.
1.3 Selected Organization:
The company I have selected is one of the most well known and modern company in Pakistan having a dominant market share, my search helped me to understand the way such companies operate and conduct their business.
I have selected Ghani glass limited (GHGL) as the organization for my research and analysis project.
1.4 Reasons for selecting Ghani glass LTD:
I have always been passionate to carry out analysis of large organizations such as GHGL.
GHGL has interest free operations and follows Islamic financing principles. It is truly an amazing fact for me that in these days and age, operations of GHGL are totally interest-free, especially given the magnitude of their business.
These days Islamic financing and Islamic banking flourishing at a rapid speed in our region so I want to discover the realities and opportunities in this regard.
I was willing to gain an in depth knowledge of Islamic finance.
1.5 Aims and objectives of the report:
The core objective of this report is to evaluate the effectiveness and efficiency with which Ghani glass Ltd has been performing over the past 3 years in business and financial matters. The report will include the business analysis in terms of:
Evaluation of the macro environmental factors of GGL's operational area.
Evaluation of the strategic capabilities of GGL and its future prospects.
Performance evaluation of GGL through the use of financial and non-financial performance indicators to get an understanding what has happened in immediate past and what is likely to happen in the future.
Impacts of Islamic financing upon the operations of GGL.
And the financial analysis will include:
An understanding of the financial structure of GGL as being an interest free operations organization.
The analysis of profitability, Liquidity, working capital management, long term solvency and investor's ratios and an analysis of cash flow statement as it is regarded more meaningful to investors then profit.
Determining the merits of Islamic financing system and its impacts on the business.
1.5.1 My research questions:
What is the nature of the macro environment of GGL?
What is the strategic capability of GGL and its potential opportunities and threats?
What is the financial performance of GGL over three years?
What is the business performance of GHGL over three years?
What is the capital structure of the company?
What are the sources of the finance of the company?
How effective are the interest free operations for GGL?
Did Islamic funding bring any extra advantage to GGL?
1.6 My overall research approach:
I started my research by conducting an analysis of Political and Economical factors of GHGL's macro environment. So I can get an understanding of their external environment.
PEST Analysis:
"The macro environment of an organization may be analyzed into four segments using PEST analysis"
Political
Economic
Socio-cultural
Technological
For the corporate appraisal of GGL I used:
SWOT Analysis:
A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, straightforward model that assesses what an organization can and cannot do as well as its potential opportunities and threats.
(www.Answers.com)
Getting into the financial details I conducted:
Ratio Analysis:
A tool used by individuals to conduct a quantitative analysis of information in a company's financial statements. Ratios are calculated from current year numbers and are then compared to previous years, other companies, the industry, or even the economy to judge the performance of the company. Ratio analysis is predominately used by proponents of fundamental analysis
(www.Answers.com)
These techniques served my purpose a lot and produced good answers of my research questions, but to meet my objectives completely I applied Balanced scorecard technique. This enabled me to analyze different aspects of business and financial matters in a combined approach.
The Balanced scorecard:
"A set of measures that gives top managers a fast but comprehensive view of the business. The balanced scorecard includes financial measures that tell the results of actions already taken. And it complements the financial measures with operational measures on customer satisfaction, internal processes, and the organization's innovation and improvement activities - operational measures and the drivers of future financial performance." (Robert Kaplan, Jan-Feb 1992, Harvard business review)
Islamic Banking and GHGL's operations:
At the end of my research, I presented some basic Islamic banking principles and a discussion of Islamic financing products in use of GHGL and their benefits to them.
2. Information Gathering
Sources of information to obtain relevant data:
2.1 Primary Data:
"Information collected for the specific purpose at hand"
I arrange a meeting with Mr. Aftab Ahmed Khan (Director finance and Related Services), in which I asked him about the company and business, the glass industry and Ghani Glass position in it, And about their profile, marketing & distribution activities and their capital structure. I asked him questions of Islamic financing and its impacts upon their business practice and about their general business practices, their export policies, competition strategies and also about their future prospects. After the interview I got a clear understanding of GHGL's operations. He also provided me contacts of some other personnel in GHGL that can provide me my relevant data on need basis. A meeting was also held with Mr. Amjad Bhatti (Principal RISE School of accountancy) a member of Institute of chartered Accountants of Pakistan, AS he is teaching subjects relating to Islamic financing these days. During my interview I asked him questions about IJARAH and MORAHABA financing and other Islamic financial instruments. He replied me with good detail and satisfied my all needs in a very decent manner. I also visited the plant of company GHGL-3 which is quite near to Lahore and talked with the shift Incharge (Engineers) and supervisor to explain me their work processes, the competitive advantage they have and limitations if any, and observed their working environment, health & safety conditions and procedure in place their. I also distributed a questionnaire amongst the employees over their on a sample basis and obtained a very useful information for my research.
Secondary data:
"Data that has already been collected by some one else for a different purpose to yours. (http:\ brent.ivu.ac.uk)
My secondary sources of information consisted of the following:
Annaul audited accounts of GGL for the years 2004-2007 and for Stile2007.
News paper articles, journals (GGL's monthly magazine) and books containing data regarding the glass industry and especially about Ghani glass.
Recent articles related to the company and the glass industry available on the internet edition of International "The News" and "Dawn News" as their business sections are provided a good source of knowledge and helped me to keep an eye on recent developments.
FTC/ BPP text books for ACCA and articles from student accountant, in particular the text books of P3, 3.3 (P4), F7 and F1 helped me a lot.
I also referred to many business and interpersonal skills books through out the project, which I found from the library of UMT.(university of management and technology)
The World Wide Web provided the greatest access to specific industry information specially Ghani glass website.
2.2 Methods used to collect information including on-line Access
2.2.1 Visiting stock Exchange:
I visited LAHORE stock exchange and obtained hard copies of previous annual accounts of Ghani glass Ltd and Shabbir Tiles and Ceramics Ltd (stile). Most of my research work is based on this information
2.2.2 Interview:
My interviews with Mr. Aftab Ahmed Khan and Mr. Amjad Bhatti, provided me a great deal of my required information and increased my level of motivation towards my task.
2.2.3 Questionnaire:
On my visit to the plant I prepared a questionnaire for the employees working over their to obtain their views of working facilities provided over there specially about health, safety, arrangements, satisfaction from work and reward etc as a comparison to their competitors.
2.2.4 E-Mail survey:
I conducted an e-mail survey containing questions in the e-mail to get their views about:
GGL as an interest free operations organization.
Islamic financing.
IIJARAH and MORAHABA finance.
For's and Against's of Islamic finance.
GGL as Pakistan's "Glass supermarket"
Asking the respondent to reply and return the e-mail.
I send it to my teachers, colleagues, some bankers and a list of officials of GHGL. Surprisingly I got very warm and fruitful replies which helped me in my research a lot.
2.2.5 On-line Access:
The importance of internet in information gathering can not be denied. I accessed a lot of websites specially GHGL's and stile website. SECP and other Government agencies websites to get bench mark information.
ACCA global for technical articles and other important websites which I visited time and again are:
www.Answers.com
www.brecorder.com
www.thefinancialdaily.com
www.goolge.com
www.oup.com/uk
www.marketwatch.com
www.islamic-finance.com
2.3 Limitations of information gathering:
Arranging for the interviews was a challenging job, but after a continuous struggle I managed to get there.
At stock exchange they were hesitating to hand me over the copies of previous year's record as they were less in number with them but for 2007 they hold a large number and wants to tackle me by only delivering its copy, but when I disclosed that I am an ACCA student and showed my ACCA card to them, they arranged my required copies after recording my ACCA registration number as a proof that they delivered that to a student, but all this exercise took a lot of my time.
At first I started a telephonic survey after getting the contact numbers of my required personal, but the response was sluggish.
After that I decided to go for an e-mail survey and this time results were out of my expectations, as a number of persons responded in a very decent manner and I got my purpose fulfilled.
2.4 Ethical Issue:
As I have recently passed my ACCA paper P1, Professional accountant and during preparations I have studied different articles about Ethical behavior at work. And also before starting my research and analysis project, I have attempted ACCA's Ethical Module on-line as it became a requirement for Oxford Brookes University's B.SC project as well.
So, after completing all this I was well aware of my Ethical responsibilities during my research work. And I remained very careful in my data collection and its usage. Whenever I need to re-produce a material I got permission to do so from relevant party. As I know from my audit experience, that unauthorized use of client data is a Breach of Professional Ethics.
I successfully avoided any possible ethical issue during my work for this project and keep getting permissions in advance.
2.5 Questionnaire and Sampling techniques:
I used sampling technique for collecting data from employees working at plant at the time of my visit there. I prepared a questionnaire and with the prior inspection (he studied my questionnaire) and permission of G.M plant I distributed it amongst employees on a sample basis.
I used 100% sample and systematic sampling methods.
2.5.1 100% sample and Systematic Sampling:
Systematic sampling is a sampling method which works by selecting every nth Item after a random start.
I divided the population in two groups.
1. Production managers and purchase managers
2. Supervisors (Engineers)
On the specific day and time there were 20 managers present in both purchase and production departments, and 46 supervisors were present by their attendance sheet. I decided to go with 100% sample for managers and took all the 20 managers for distribution of questionnaire.
I decided to select a sample size of 12 from supervisors, so, by following systematic sampling I selected 2nd name first and than every 4th (44/4) name in supervisors attendance list and with the co-ordination of staff I delivered them the Questionnaire.
2.5.2 Limitations of Sampling:
An un-representative sample may be selected.
Data collection may be difficult some times as selected items cover a wide area.
People sometimes don't take it seriously and provide formula answers.
Sampling technique do require a prior knowledge about population.
3. Analysis:
3.1 The Ghani Group:
Ghani Group is a Lahore based Group Established in 1963, Now the group is running a diverse range of businesses including three glass plants, an automobile plant, number of leading mining companies, and trading houses and has an annual turnover of over Rs.8 Billion. Their venture into the manufacturing field took the form of Ghani Glass, forming the first step on the road to success of Ghani Glass limited(GGL), which today own three glass plants namely GGL1 - Hattar, GGL2 - Landhi and GGL3 - Sheikhupura Road.
www.ghaniglass.com
3.2 Company Information:
Ghani Glass Limited is a public company incorporated in Pakistan in1992, and during 1994 the company was listed on stock exchanges. The Company started commercial production in 1995.
This plant was the first to facilitate the GMP requirements of pharmaceutical industries. This demand resulted from their strong focus on product quality, testament to which is the ISO 9002 certification that the plant received in October 1998. This made GGL the first ISO certified Glass Company in Pakistan. Within a short span of time, GGL became the leading manufacturer of glass products in Pakistan. (www.ghaniglass.com)
To meet the customer demand and honor the in time delivery promises, management invested more than Rs.130 million and build an entirely new plant in the same premises at GGL Hattar. At GGL Hattar there were now two separate state-of-the-art glass plants, each having a daily production capacity of 125 tons. Two mega size furnaces are controlled by auto optic fiber system, designed and installed by SORG, Germany.
(www.ghaniglass.com)
Mergers with Kaas UL Musaffa and Ghani Float Glass:
In February 2004, the merger of Ka'as ul Musaf'fa (Pvt.) Ltd. into GGL took place. This merger allowed GGL to venture vigorously into the food and beverages bottling field.
Ghani Float Glass, Pakistan's first operative float glass was merged into GGL in May 2006. After merger annual production capacity had become more than 300,000 tons, Sales revenue more than 4 billion per annum.
GGL now owns eight furnaces and working efficiently towards increasing shareholder's value, enhancing trust of customers and suppliers, increasing benefits for employees, rationalization of organization's culture and upgrading of staff quality.
Owing to the merger, GGL became the Glass Supermarket of Pakistan.
Current Operations:
The company is engaged in manufacturing and sale of glass containers and sheet glass of different types. The company's product range includes the glass products for;
Pharmaceuticals
Food & Beverages
Float glass
Current production of GGL:
Plants
Tons PA
GGL 1 &2 combined
110,000
GGL 3 (Near Lahore)
100,000
3.3 Market Share:
GGL is famous amongst the players of glass as THE LEADERS IN GLASS.
GGL's
Others
Pharmaceuticals
88%
12%
Food & Beverages
69%
31%
Float glass
75%
25%
As GGL have:
International reach over 12 countries.
All leading construction, architectural and engineering companies- Leading builders Local and multinationals are in the customer's List of GGL.
4. Political and Economical Factors of GHGL's Macro Environment:
4.1 Political factors:
Since the day Pakistan got its independence, political conditions of Pakistan are getting worse day after day and minute after minute. Governments rarely complete their tenure. This political instability has led to uncertain environment in the country, which is a threat for any business including GHGL. So the new investors are now more reluctant to invest in Pakistan. The ultimate result is less investment by the potential investors in industry.
Political environment of Pakistan displayed a little stability during previous few years and remained attractive for potential investors during the age of President Musharaf. So in years of 2002-2006 environment remained investor friendly but from 2007 conditions started getting worse again and still the political uncertainty destroying the business environment as the government is not stable so its policies regarding taxes, economy, marketing ethics and about laws are not stable.
4.2 Economic factors:
The events of Sep11th, 2001 adversely affected the Pakistan's economy. In the aftermath terrorist attack there were cancellations of export orders and obtaining new orders had become more difficult.
Pakistan could at the same time benefit from the political environment, as it has become a front-line state in the war against terrorism. The lifting of nuclear-related sanctions, increased likelihood of economic assistance, debt rescheduling and better access to US and European markets contributed to a mid-term positive side-effect on the overall economy.
The increasing inflation, imposition of new taxes, rising fuel charges and changes in government economic policies has discouraged investment in industry. If Pakistan keeps on getting better grants and loan waivers or if any other economy boosting factor such as controlled inflation rate and economic growth take place, it will benefit the entire industry along with GHGL.
5 SWOT ANALSYS:
5.1 Strengths:
Exports to more than 12 countries have given GHGL a competitive edge over other players.
Most modern and high tech plants in the country.
GHANI'S brand name.
Strong social image as being Interest free operations Business locally.
ISO certifications.
Abundance of raw material locally, Logistic support and ease.
Higher reserves.
Huge market share in all three products and business with all leading customers of glass.
Technical expertise through in-house technical training.
A major contribution to the state's output, employment and export earnings.
Large production capacity.
Concern for environment and fully compliance to corporate governance.
Continued Research and Development.
International Business Development Cell.
Loyal customer base.
5.2 WEAKNESSES:
The capacity of GHGL is still not able to sort out the ongoing increase in demand locally and internationally.
2. Small size of domestic market.
3. Low level's of investment in innovation and product differentiation.
4. Lack of industry leadership.
5. Export is nominal as compared to the potential.
5.3 OPPORTUNITIES:
Diversification of product range.
Unexplored markets.
Use of modern manufacturing techniques.
Joint ventures.
Opportunity to acquire small units during this economic recession.
Adding value through design, innovation, product differentiation branding and niche marketing.
Improving E-Commerce capabilities.
Developing greater collaboration with industry infrastructure providers.
5.4 THREATS:
Cut throat global and regional competition.
Power shortages at country level.
Law and order situation.
Increasing quality awareness amongst major buyers.
Competition from low utility cost countries internationality.
Increasing inflation and government taxes.
Political and Economic conditions.
6. Ratio Analysis:
Different ratios have been presented here in tables. Main source of calculating these ratios were the annual reports of GHGL and stile.
6.1 Sales Analysis:
Figures in Rs.000's.
Ratios
Stile FY2007
FY 2007
FY 2006
FY 2005
Sales Revenue
1699745
3124633
2745108
1389108
% Increase
7.32 %
13.8 %
97.6 %
69.8 %
Local sales
N/A
2743085
2525980
1334201
% Increase
N/A
8.5%
89%
70.2%
Exports
N/A
381549
219128
54907
% Increase
N/A
74.12%
299.1%
31.1%
% of exports in total sales
12.8%
8%
4%
During FY 2005 that merger with Kaas-ul-Musaffa helped GHGL achieving highest ever sales of Rs.1398 million showing an increase of 70% over last year. Where exports grow by 30% and local sales showed an increase of 70%.
During FY 2006 the merger with the Float Glass give a boost to the sales of GHGL of about 98% and specially a huge increase in exports of 299% is witnessed. While local sales grown by 85%.
During FY 2007 sales are higher than last year by 14% in total sales and local sales increase by 11% while exports increase by 74% which shows exports are growing at a faster rate than local sales.
The faster increasing rate of exports in total sales evidences that their products are attracting customers at international level. But still nearly 13% of sales are exports the main source of sales revenue is still local sales.
While stile achieved an increase in sales of 8%. As they are operating at a lower scale than GHGL. Stile is not exporting Glass at that moment.
6.2 Profitability:
Ratios
Stile FY2007
FY 2007
FY 2006
FY 2005
G.P Margin
25.91%
25%
28%
26%
P.B.T Margin
7.42%
15%
20%
21%
ROCE
13.54%
15.86%
22.06%
23.80%
GP Margin:
Despite the slight decline in the sales price and merger with low profit making companies G.P shows an increase of 26% &28% in FY2005 and FY2006 respectively due to the higher volume of sales specially exports.
During FY 2007 GP margin is 25% , 3% lower than the previous years increase. From investigations it is witnessed that this decline in G.P margin is due to the one-off non recurring cost of Rs.80 million relating to the damaged stock of Float Glass which has been accounted for this year.
GP ratio for both the companies are quite near to each other, where Stile shows an increase of 26% as compare to 25% of GHGL. It might be due to no exports related costs in Stile.
Profit before Tax Margin:
PBT shows an increase of 21% in 2005 but in 2006 an increase of 20% showing a decline of 1% than previous year. But in 2007 it is showing a meager decline than previous years and only an increase of 15% is achieved.
In 2006, 2007 this trend in PBT is due to the increasing cost of fuel oil in severe winter & higher packaging and transportation cost relating to bigger volume of exports which increased the cost of manufacturing.
ROCE:
ROCE is showing a declining trend, the big fall of 5% in 2007 is due to a one off cost of 80mn accounted for this year in profit and loss account and due to the higher increase in operating expanses for increased exports. Huge capital injections are also given in these years. But still ROCE of GHGL is above the industry level and still at an attractive level.
ROCE for stile is less than GHGL and at a level which is offered by this industry in current situation.
6.3 Liquidity:
Ratios
Stile FY2007
FY 2007
FY 2006
FY 2005
Current Ratio
1.30:1
1.59:1
1.96:1
1.4:1
Quick Ratio
.95
.70
.89
1.1
Current Ratios:
Current ratios of GHGL has historically remained very strong, over the minimum level of 1:1, which shows the current assets are more than sufficient to cover the current liabilities. Before the mergers the company was operating with a very high current ratios as 3:1 in FY 2004 and 5:1 in FY 2003 which shows resources are highly stuck in working capital. But after merger it started to come to reasonably good levels and shows the strong liquidity position of the company. Current ratio is higher than average.
The current ratio for Stile has been 1.30:1 it shows GGL has more assets to pay of its liabilities.
Quick Ratio:
Quick ratio for GHGL is gradually decreasing on year by year basis, which shows that the increase in current assets was mainly due to the increase in stocks. High stock levels are there to meet the additional exports need on yearly basis. Quick ratio is Getting lower than average.
Quick ratio of Stile is better for FY2007 which showed that Stile is in better position to meet its liabilities and holds lower level of stocks than GHGL.
6.4 Investor's analysis:
Ratios
stileFY2007
FY 2007
FY 2006
FY 2005
Earning Per Share (Rs.)
3.00
5.03
6.07
6.30
PE Ratio
-
15.11
13.51
12.06
Dividend per share
-
1
1.8
1.57
Market value per share (at the end of each year)
76
82
76
EPS:
In spite of the fact that sales and profits are increasing, EPS is showing a slight lower trend. This is mainly due to the increase in number of shares. As under the amalgamation scheme company has issued nearly 4mn ordinary shares to the shareholders of former kaas-ul-musaffa and about 32mn shares to the shareholders of former Ghani Float Glass Ltd. Which lower down the EPS for respective years.
EPS of Stile is lower than GHGL but on a stand alone basis it is more than good.
P.E Ratio:
Price earning ratio of GHGL is improving over the years, And at good level now indicating high confidence of investors in the company. And believe in the prospects that the profits of the company will increase in future.
Dividend per share:
Is higher for FY05 and FY06 than FY07.due to the higher profits in 06 and 05.but still in07 it depicts a good return to shareholders.
Market value per share for GHGL showed stability during last few years.
6.5 Debt and gearing ratios:
Ratios
stileFY2007
FY 2007
FY 2006
FY 2005
Debt: Equity ratio
1: 2
1: 4.6
1: 8
1: 4
Interest cover Ratio
3.6
11.35
9.93
N/A
Interest was not there before 06.
Debt/Equity Ratio:
D/E Ratio shows that GHGL is operating with a strong equity base and debt element is very low in their capital structure which is IJARAH and MORABAHA.
Stile keeps a higher portion of debt; Stile is more geared than GHGL. At stand alone Stile also shows a strong capital structure.
Interest Cover Ratio:
In 05 there were no interest payments. According to IJARAH and MORABAHA terms interest will due after 1 year. For06 and 07 there stands an interest cover ratio which is very strong to cover profit on IJARAH and MORABAHA finances which is nearly 10 times in 06 and 11 times in 07.
6.6 Cash flow ratio:
Ratios
stileFY2007
FY 2007
FY 2006
FY 2005
Cash flow ratio
21.72%
48.28%
20.17%
39%
%age of cash inflow from operating activities to debt is strong in 05 it showed a little decline in 06 but in 07 again stands at a good position of 48%.
Decline for 06 was due to the cash flow effect of obsolescence of cost of stock of 80mn.
7. Balanced Score Card:
Mission statement:
To be successful by effectively & efficiently utilizing our philoshhies, So that we achieve & maintain constantly the high standards of product quality and customer satisfaction.
Vision statement:
To indulge in honesty, integrity and self determination, to encourage excellence in performance and most of all to put our trust in Allah, so that we, eventually through our efforts and belief, become the leader amongst glass manufacturers not only in Pakistan, also in Asia.
Objectives:
Product Quality.
Customer satisfaction.
Excellence in performance.
Leader in glass manufacturers.
7.1 Customer Perspective:
GHGL offers its customers exclusivity. To ensure the supplies according to customer's schedules, GHGL now has seven furnaces and production can be shifted to another furnace in case of a breakdown. Customers also fear that the company may dictate their terms to the customers if they start controlling the market. Despite having control of the market, GHGL has never exploited it at the expense of the customers.
The innovation plans of the company will ensure that such fears in customers don't arise in the future. Number of customer's complaints is decreasing with time as GHGL working towards a TQM system. Long term relations and repetitions of customer orders evidences customer's confidence.
7.2 Internal Business Process:
GHGL has practiced a concept of maintaining high quality standards since its inception. The commitment of the management towards this objective is evident from the fact that the company achieved ISO 9002 certification in 1998 and ISO 14001 certification of being environment friendly glass plants operators of Pakistan.
GHGL is utilizing a number of state-of-the-art technologies and instruments for quality control purposes.
Moreover, the quality assurance team reports directly to the GM plant and the CEO to ensure impartial and objective reporting without any pressures from the production team.
7.3 Learning and Growth:
According to the vision given by the Chief Executive, GHGL believes in continued research and development. May it be in the form of the human resources, technical facilities, engineering break throughs or exploring of new horizons, GHGL puts a lot of interest by way of involvement of both time and money.
Technical training at the three glass plants is a continued process at GGL. Top of the line Chinese consultants reside at plants 12 months a year and European consultants are also hired on regular basis to ensure provision of quality technical training to the personnel working at plants - from top to bottom category.
Other than providing in-house training, GHGL also arranges for foreign tours of its personnel to facilitate the research and development, upgrade the professional capabilities and to augment the whiz abilities of its personnel.
7.4Financial Perspective:
Capital Structure:
GHGL is operating with a strong equity base. Debt portion which consist of interest free loans from directors and Islamic financing products Ijarah and Murabaha is only 14% in the total capital for FY2007. Analysis of previous couple of years indicates that GHGL usually operates with a combination as;
Equity - 80 to 85%
Debt - 20 to 15% (Islamic Finance)
Of total capital.
GHGL is operating with strong profitability and liquidity Ratios.
Operating income is increasing with the rapid growth in exports.
GHGL is enjoying the Monopoly with increasing market share locally.
Investor ratios represent Investor's greater confidence in GHGL.
GHGL has strong working capital position with higher operating cash inflows.
8. Islamic Banking and Interest Free Operations of
GHGL:
Islamic banking:
A banking system that is based on the principles of Islamic law (also known as Sharia, or Shariah) and guided by Islamic economics. Two basic principles behind Islamic banking are the sharing of profit and loss and, significantly, the prohibition of the collection and payment of interest. Collecting interest is not permitted under Islamic law.
In Pakistan a number of local and foreign scheduled banks have started Islamic banking windows and exclusive Islamic baking branches it is expected that Islamic banking will capture 12% of the deposit market by 2012.
Interest Free Operations of GHGL:
The group started to clean up their business from interest about six years back. The group does not take any loans from any financial institutions and has managed not only to survive, but prosper and grow exponentially. The group does not have any fear of bankruptcy and is very comfortable in its current interest-free form.
Currently GHGL is using two Islamic Banking products.
1. IJARAH:
An Islamic finance strategy that governs financial and operating leases where the lessee makes rental payments and then purchases the assets on previously agreed to terms when the payments are completed. This is one way to get the benefits of leasing without charging interest
2. MURABAHA:
A concept found in Islamic finance that governs a contract between a bank and its client, by which the bank purchases goods and then sells them to the client at a cost that includes a profit margin. The contract requires specific installment payments to the bank. This arrangement allows the bank to avoid charging interest.
8.1 Islamic Banking and conventional Banking:
MURABAHA VS Regular Loan:
With conventional banking, the borrower gets cash from the lender which, in principle, can be used for any purpose. Instances abound of individuals and nations borrowing for one purpose and using the money for other (non-productive) purposes. Not so in Murabaha; the customer gets goods, not cash.
Come time for repayment, a regular loan can be rolled over with the customer paying interest for the extended time (often at a rate higher than the initial). This is not possible in Murabaha. What the customer owes is a price agreed to in the beginning, which can not be increased because of delay in payment.
The rate of interest has become a policy-determined variable. But the rate of mark-up in Murabaha is determined by the demand and supply of goods and services like all other prices. Murabaha financing is therefore more compatible with free market economy.
At the macro level, Murabaha keeps the financing tied to real economic activity conducted through acquisition of goods and services, which is not the case with debt financing. Debt-financing contributes to higher inflation, and the availability of huge quantities of debt instruments in the market opens the door for speculative games that do not contribute to the real economy
8.2 Benefits of interest free operations to GHGL:
GHGL is under no pressure to meet its interest payments under debt financing rather they just have to pay profits on IJARAH and MORABAHA on agreed terms.
Strong social image locally.
Employee commitment and motivation as they consider they are earning Salaries from a Halal (interest free) income.
Competitive edge in getting exports order form Islamic countries.
9. Conclusion
PEST:
The survival of industry lies in the existence of long term, consistent policies of government. This provides the basis for industry to make their vision for future.
Political and economical conditions of Pakistan are not portraying a healthy picture for businesses currently. But GGL as being a resident company is not facing that much risk, as they have born and flourish in these conditions. But they must have to give extra care to their export customers during this political instability.
Economical problems have their very low impact upon GGL operations. As they are operating with 80% equity finance and for loaning, they depend upon Islamic banks and the Islamic banking system is efficient in Pakistan and all the Islamic banks facing excessive liquidity situation. Liquidity is currently not a problem.
SWOT Analysis:
Exports to more than 12 countries have given GHGL a competitive advantage over its competitors. Because of higher reserves and high tech plant GHGL is enjoying a huge market share unlike other glass manufacturers.
The back bone of GHGL are the professional and technical skills of its employees who have been trained abroad in various fields, while the work force is also highly experienced and their efforts have managed to develop its strengths over time to create a strong brand loyalty.
GHGL has started working on its weaknesses, an International Business Development Cell has been established which excels in exploring untapped markets abroad. And ensures best customer relationship.
GHGL is ready to accept all the challenges, such as WTO, stiff competition at global market as opportunities for the development of their skills. It has successfully developed a quality culture and has made a strategic development investment plan for expansion and for In-house, outside and foreign technical training to produce value -for-money products according to global customer needs. GHGL needs to develop product differentiation.
In order to improve the technical capabilities, GHGL also needs to develop greater collaboration with industry infrastructure providers.
Ratio Analysis:
Sales revenue is increasing on year by year basis; this is mainly due to the increase in demand of float glass locally and internationally. Locally GHGL is leading the market as well.
G.P ratio is increasing gradually due to the higher level of sales. A little decline in 2007 is due to a one-off cost of 80 MN related to stock obscelence. Profit before tax is showing a downward trend, due to the rising packaging, selling and distribution costs relating to exports. ROCE is showing a declining trend but it is still above average and potential for its improvement is there.
GHGL has strong liquidity represented by Current and Quick ratio. Little declining trend which s still not at an alarming level in quick ratio, shows that GHGL keeps high stock level's to meet increasing demand.
Company used to retain most of the profits to achieve expansions and mergers, from now onwards it is expected that the dividend pay out will enhance. Investors ratios are depicting investor's confidence in the company. GHGL has no long term conventional loans on which interest is payable, so it attracts investors.
GHGL is a very investor friendly company judged by stable share price and reasonable E.P.S. Current short fall in E.P.S is due to the increase in number of shares only.
Operating cash flow ratios of GHGL is strong enough to support company's liquidity position.
Balanced Scorecard:
GHGL is meeting its objective of customer satisfaction successfully, as they are keeping long term relations with the customers and offering them three years price freeze contracts and also providing them best quality products. GHGL holds a very loyal customer base locally and internationally.
GHGL has achieved its objective of Excellence in Performance and Product Quality; testament of this is the achievement of ISO9001, 14001 and other quality standards certifications. The involvements of higher level management in quality control make it every body's issue and helped to maintain a quality culture. Due to their manufacturing excellence they have achieved economies of scale.
GHGL achieved their objective of Leaders in Glass Market partially, as they are holding a huge market share in Pakistan and leading here but still not at Asia level. GHGL is investing heavily in research and development to develop next generation products. And following a niche marketing policy to grow at international level.
GHGL's strong liquidity position shows that there are no signs of cash flow problem or survival issues. Rapid sales growth results in an increase of operating Income.
Islamic banking and interest free operations of GHGL:
Islamic banking is flourishing in Pakistan these days. But the current Islamic modes of financing are not largely different form conventional system.
The technique is only to convert the money into asset and then sell the asset on a profit or give the asset on rental basis to earn profit.
GHGL has interest free operations and successfully following Islamic financing principals which brings them not only some financial benefits but a large number of cultural benefits as well.
Future Out Look:
Since the construction industry in Pakistan is growing strongly with new trends in commercial and housing building construction, the float glass consumption is expected to grow strongly.
Rising energy prices in the developed world are affecting the competitiveness of glass manufacturers there. This has increased demand for glass from developing countries and therefore GHGL have a positive outlook for their future.
2007 Rupees
2006 Rupees
2005 Rupees
Share Capital And Reserves
Share Capital
799,708,570
639,766,860
302,082,050
Reserves
1,737,291,058
1,558,830,000
15,104,100
unapropriated profit
-
-
695,220,570
2,536,999,628
2,198,596,860
1,012,406,720
Non Current Liabilities
Long term loans from banking companies
Ijarah finances
24,839,766
52,973,508
44,252,481
Morabaha finances
-
20,705,147
-
Deferred taxation
14,758,812
24,839,766
73,678,655
59,011,293
Interest free loan from directors
-
215,519,010
-
Security deposits
11,195,007
84,303,469
-
Deferred taxation
177,284,422
72,712,589
-
213,319,195
446,213,723
59,011,293
Current Liabilities
Current portion of long term liabilities
199,951,704
359,087,625
32,775,333
Short term morabaha financing
323,049,251
22,176,228
103,642,087
Trade and other payable
702,160,478
414,866,673
-
Creditors,accrued and other liabilities
-
-
132,410,471
Loan from Sponsors
-
-
674,576
Provision for taxation
-
-
539,140
1,225,161,433
796,130,526
270,041,607
3,975,480,256
1,341,459,620
Non Current Assets
Property,plant and equipment
Operating assets
1,809,540,518
1,834,371,906
518,800,646
Capital work in progress
143,854,523
58,105,013
-
1,953,395,041
1,892,476,919
518,800,646
Negative goodwill
-
-22,345,417
-40152465
Long term investments
6,592,000
-
50,000,000
Long term advances
59,328,000
-
24650000
Long term deposits
12,757,921
9,719,491
3,329,551
2,032,072,962
1,879,850,993
556627732
Current Assets
Current maturity of long term deposits
4,240,000
5,185,000
-
Stores,spares and other consumables
528,523,964
357,224,113
222773628
Stock in trade
550,752,621
491,997,911
256049906
Trade debtors
379,694,925
419,644,127
248438136
Advances,deposits,prepayments
347,016,479
254,498,352
50324634
Cash and bank balances
133,178,905
32,540,613
7245584
1,943,407,294
1,561,090,116
784831888
3,975,480,256
3,440,941,109
1341459620
2007 Rupees
2006 Rupees
2005 Rupees
Sales
3,124,633,248
2,745,107,794
1,389,107,019
Cost of Sales
-2347494327
-1,970,577,878
1,029,926,517
Gross Profit
777,138,921
774,529,916
359,180,502
Operating Expenses
General and administrative expenses
-98,069,640
-95,597,078
46,455,671
Selling and distribution expenses
-220,787,411
-168,468,250
16,470,166
Other expenses
-30,465,817
-29,389,714
-
Other income
71,394,850
122,043,010
132912
-277,928,018
-171,412,032
-62,792,925
Operating Profit
499,210,903
603,117,884
296,387,577
Finance cost
-45,938,375
-62,520,373
9,269,086
Amortization of negative goodwill
22,345,417
17,807,048
19,922,869
Contrbution to employees welfare fund
-
-
14,120,578
Profit before taxation
475,617,945
558,404,559
253,075,044
Taxation
73,238,491
73,360,779
93119656
Profit after taxation
402,379,454
485,043,780
199,801,126
Earnings per share-Basic and diluted
5.03
6.07
6.61
Sales Revenue
Analysis of Local Sales and Exports
Value addition and its distribution
Research & Analysis Project Questionnaire
Please Answer as many questions as Possible ticking the relevant boxes . All answers will be treated as anonymous?. Thank You
Very satisfied Fairly satisfied Fairly dissatisfied Very dissatisfied
1. How satisfied are you
with the level of reward?
2. How satisfied are you with
Health & Safety conditions?
3. How satisfied are you with
the training & development
programs?
4. How satisfied are you with
the environment protection
policy of your company?
5. How satisfied are you with
the implementation of Labour
laws at GHGL?
Very proud Fairly proud OK No matters
6. How do you feel about
working at an interest free
operations organization?
Excellent Good Adequate Poor
7. Over all experience of
working with GHGL?
8. How do you rate the policy
of GHGL regarding supplier
relationship?
5 - 8 years 3 - 5 years 1 - 3 years Less then 1 year
9. From how long you are
working with GHGL?
10. Your comments or suggestions for improvement or any thing you want to share about working
environment at GHGL?
Questionnaire response
Response Q.no 1 - 5
Most of the employees are satisfied with the level of reward as they consider it Halal earning.
Health and safety procedures are in palace there but most of the employees are fairly dissatisfied with them.
Most of the people consider that they are getting better training there and are fairly satisfied there.
Majority of the employees are very satisfied with the environmental policies and implementation of labour laws.
Over all the response was in favor of GHGL's policies.
Response Q.no 6
Majority of the people feel very proud on working with GHGL, as an interest free operations organization.
Response Q.no 7
Majority regarded it as an excellent experience.
Response Q.no 8
Policies are rated as Good by majority which means GHGL keeps better relations with their suppliers as well.
Response Q.no 9
Most of them are with GHGL from 3 - 5 years, which shows that GHGL is following an employee retention policy.
Response Q.no 10
Less number of people answered this question. The only suggestions were to improve health and safety conditions and about adding incentives.
