pak leather crafts limited pakistan

8/2/2019 Pak Leather Crafts Limited Pakistan

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Pak Leather Crafts Limited Pakistan

PROJECT REPORT ON THE CASE OF

PAK LEATHER CRAFTS LIMITED

GROUP MEMBERS:

Sheraz Hasan 9890

Syed Arslan Shakir 9582

Submitted To:

Mr. Salah uddin

Course:


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INTRODUCTION

We are one of the leading manufacturers and exporters of finished leather and

leather garments from Pakistan. Our company was established in 1971.

Currently our monthly production is 1.2 to 1.3 million sqft of finished leather

and of about 40,000 leather garments.

The finished leather is produced in several different articles and colors in Lamb,

Goat, Cow and Buffalo at our most modern tannery. Our leather is suitable for

garments, shoes and leather goods. We have qualified leather technicians who

can always develop new finishes as required by the customers while

maintaining high quality of production.

All products are free from PCP, AZO, Nickel, Dye Dispersion, Chrome VI and

other health hazardous materials. Our prices are highly competitive and our

deliveries are almost always on time and as per requirements of our valued

customers.


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.


CURRENT FINANCIAL POSITION:

FOR THE PERIOD ENDED SEPTEMBER 30, 2011


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CONDENSED INTERIM BALANCE SHEET (UNAUDITED)AS AT MARCH 31, 2011

UnauditedMarch 31,2011

AuditedJune 30,

2010ASSETSNon-current assets

Property, plant and equipmentLong - term deposits and loans

Current assets

(Rs. In '000')27,6531,589

29,24242,0271,61843,6451,718

258,96942,58113,055

211316,534360,179

Stores, spares parts1,050Stock - in - trade142,631Trade debts - considered good101,817Loans, advances, deposit and othr receivables 10,996Cash and bank balances265

TOTAL ASSETSEQUITY AND LIABILITIESAuthorized share capitalIssued, subscribed and paid up capitalAccumulated lossesTotal EquityNon-current liabilitiesLong term loansDeferred liabilitiesCurrent liabilitiesShort term borrowingsCurrent portion of long term liabilitiesTrade and other payablesAccrued MarkupProvision for taxation

215,03836,79362,87774,5362,043

391,287393,280

-286,001

34,000(200,914)(166,914)

59,6351,993

256,759286,001

34,000(147,503)(113,503)

71,9741,652

255,87524,45576,24941,8771,600

400,056401,708

-360,179

CONTINGENCIES AND COMMITMENTSTOTAL EQUITY AND LIABILITIESThe annexed notes from 1 to 7 form an integral part of these condensedinterim financial statements.


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CONDENSED INTERIM PROFIT AND LOSS ACCOUNT (UNAUDITED)FOR THE PERIOD ENDED MARCH 31, 2011

(Rupees in Thousand)For the Quarter endedMarch 31, March 31,

20112010Net salesCost of salesGross loss

2,12636,520

(34,394)9

1,0571,066

(35,460)5 30,442

(5,018)14,176

(19,194)-

(19,194)(5.65)

65,67277,149(11,477)

2,5482,1014,649

(16,126)1

(16,125)8,743

(24,868)460

(25,328)(7.45)

For the Nine Months endedMarch 31, March 31,

2011201090,667135,333(44,666)

3553,9304,285

(48,951)30,543(18,408)34,560(52,968)

443(53,411)(15.71)

162,328191,245(28,917)11,7898,33920,128

(49,045)67

(48,978)29,117

(78,095)1,435

(79,530)(23.39)

4PERATING EXPENSES

Distribution costdministrative expensesperating lossther operatingincome

Financial costLoss before taxation

axationNet loss after taxationEarnings/(loss)

per share (Rupees)he annexed notes from 1 to 7 form an integral part of these condensed interim

inancial statements.

MUHAMMAD SALEEM AHMEDChief Executive MUHAMMAD SHOAIB AHMEDDirector


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CONDENSED INTERIM CASH FLOW STATEMENT(UNAUDITED)FOR THE PERIOD ENDED MARCH 31, 2011

March. 312011

Cash generated from operationsLoss before taxation

djustment for non-cash charges and otheritems:Depreciation

rite down of inventoryFinancial cost

Long-term depositsGratuityGain on sale of fixed assets

perating profit before working capital changesChanges in working capital(Increase)/decrease in current assetsStores and spares partsStock in trade

rade debts - considered gooddvances, deposits, prepayments and other

receivablesIncrease/(decrease) in current liabilities

rade and other payablesCash generated from operationsFinancial cost paidGratuity paidIncome tax paid

March. 312010

(Rs. in '000')(52,968)

2,35133,16234,560

29496(30,402)40,196(12,772)

66883,176(59,236)

2,11226,720

(15,062)(1,114)

(211)(156)(53)(420)

(78,095)2,719

-29,117

285743-

32,864(45,231)(1,872)77,408(24,786)18,02368,773

(12,854)10,688(9,336)(695)

(1,612)(11,643)

(955)---

Net cash flows from operating activitiesCash flows from investing activitiesFixed capital expenditureProceed from sale of fixed assetsNet cash flows used in investing activitiesCash flows from financing activitiesShort term finances (repaid) / obtainedLong term loanPayments for assets subject to finance leaseNet cash used in financing activitiesNet increase/(decrease) in cash and cash equivalentsCash and cash equivalents at the beginning of the periodCash and cash equivalents at the end of the periodMUHAMMAD SALEEM AHMED

Chief Executive

(1,534)(75)

42,50042,425

(40,837)--

(40,837)54211265

971694(356)

1,309354

2,5152,869

he annexed notes from 1 to 7 form an integral part of these condensed interiminancial statements.

MUHAMMAD SHOAIB AHMEDDirector


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SUMMARY

Pak Leather Crafts Limited is a leather and leather garments

manufacturing company. It is in business since last 30 years and have a

good reputation in the industry. Everything was going fine and all the

stakeholders were satisfied with the growth of the company. The

decline of the company starts when the period of recession come and

the company has no strategy to survive in that particular period.

The core problems which are causing losses are as follows.

1.The company had a problem of over staffing.

2.There are huge machinery and plants which are not utilizing due

to low production.

3.The sales of the firm had declined due to recession and the

competition in the industry.

4.The management is not capable to understand the changes in the

external environment so that they are suffering losses.

There are some suggestions which can be helpful to survival of the

company.

1.Review the value chain.

2.Achieving economies of scale through utilizing idle capacity.

3.Selling off non-productive assets to generate cash or reduce debt.

4.Launch an offensive turnaround strategy.

5.Strong focus on cost reduction.

6.Expand internationally through export strategy.


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EXTERNAL ANALYSIS:

PESTE ANALYSIS

Political Factors:

There are some political factors like strikes, unavailability of utilities,

and influence of political parties for party fund which affects the

companys overall performance and productivity.

Economical Factors:

Economical factors like devaluation of currency, rise in interest rates,inflation rates, energy prices, petroleum prices, raw material prices,

chemicals prices, heavy duties on machinery and world economic

conditions which affects sales of the firm.

Social Factors:

Due to the uncertainty in the city there are many employees who were

become less productive and which effects the structure of the

organization.

Technological Factors:

The company has superior technology in Pakistan for manufacturing

leather and leather garments but at world level there is still need for

improvement because there is a lot of new technology enter in the

world market by which firms are reducing costs and increasing

revenues.

Environmental Factors:


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The company had faced difficulties to improve the environment friendly

system. The company has the membership of the plant for the

treatment of waste water which was build and run by the association of

leather tanneries named as PTA waste water treatment plant. There isa huge amount paying to the plant on monthly basis which is a

additional cost to the company.

FIVE FORCES COMPETITION ANALYSIS:


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Rivalry:

Leather industry is a mature industry and the level of rivalry is too high.There are lots of firm operating in all major cities in Pakistan which are

competing with each other. Pak Leather Crafts Limited was a leader at

one time in the history and also of Asia but now a days it has a weak

position in the industry due to financial crisis.

Substitute Products:

Substitute of leather is PVC leather which is mostly used in thegarments and it is a great substitute of genuine leather due to its low

cost and good looks. The trend of PVC leather is reducing the demand

for genuine leather which is an alarming sign for the company as well as

whole industry.

Threat of New Entrant:

The leather industry is wide open there is no barrier to enter themarket. The cost of entry is also not so high anyone can easily enter the

market and capture the market share.

Bargaining power of Supplier:

There is lesser supply of raw leather due to the exporting of livestock to

different countries. So the supplier has high bargaining power and the

prices of raw leather are increasing on weekly basis which affect theperformance of the company because we cannot set prices with buyers

on weekly basis if we do so than the buyer will shift to other side.

Bargaining Power of Buyer:


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In Pakistan the demand of leather is closed to zero because the

weather and the affordability of leather goods so the main buyers of

our products are other countries like U.S, U.K, Europe and other

countries. So the buyers are basically foreigners and there are lots ofsupplier of leather in the world like India, Bangladesh, China at very

cheapest rates than Pakistan which increase the buyers power for

bargaining. This condition is unhealthy for the firm and we have to sell

at the buyers terms not ours.

INTERNAL ANALYSIS


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SWOT Analysis:

Strengths:

The strengths of the company are as follows.

1.The advanced machinery and equipment to process leather.

2.The different colors and articles of leather and leather garment

which only they can make not competitors.

3.The good PR in the global market which they gain in their peak

time.

4.The good reputation in the market through which they can easilypurchase leather on credit.

Weaknesses:

The weaknesses of the company are as follows:

1.The idle capacity of their plants.

2.The over staffing which is a cost burden.

3.Unproductive employees.

4.Management is not taking interest to Do things better.

5.The financial position of the firm which has effect the

performance.

Opportunities:


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The opportunities for the firm can be as follows.

1.They can convert their idle capacity to utilized capacity and can

get advantage of economies of scale.

2.The company can again be market leader because they have a

large scale setup and they have contacts.

3.The company can reduce their cost by analyzing their value chain

and make some moves which can favor the company.

4.There is a huge demand of Pakistani leather in international

markets so the company can grasp this opportunity by making

quality products at cheaper prices.

Threats:

The threats for the company can be as follows:

1.The biggest threat for the company is to be bankrupt. They are

trying to turn around and get to safe position where they can

survive.

2.The threat of losing productivity due to uncertain situation ofthe country.

3.Arrival of new companies in the market is a big threat.

4.New technology in the industry will take the competitive

advantage from the company.

5.The economical crisis of the world can effect the sales of the

company directly because leather garments is not a commodity

goods it is a semi-luxury goods which has less preference when

the economic crisis occours.

VALUE CHAIN ANALYSIS:


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Procurement Process:

The raw material input for the firm is raw leather and chemicalsused for tanning and processing the leather. Quality of raw

materials are necessary for the manufacturing of leather and

leather garments. We have analyzed that this department is not

working properly. There are lots of mismanagement and under-

table money which involves in procurement so the material

quality become very low and the prices are high as compare to

industry. There should be some extraordinary changes are

necessary like find the employees who are involve in this and fire

them from their jobs. Right staff for the department will increase

productivity of the firm so that the start of value chain will be

better.

Production Process:

As we have discussed above that the major problems in the firm is

that they have enough idle capacity which is a expense burden on

the firm and the employees are unproductive and unwilling to

work. As per our research the production process should maintain

standards that are following in international market. We can

utilize our idle capacity by producing more and by making the

quality of production.

Marketing:


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The firm has good reputation in the international market but still

there is a room for improvement. A marketing team should be

made, which will develop marketing strategy for the company.The company has two divisions 1) Leather 2)Leather garments, for

both division they can develop their marketing strategy by one

team. The marketing strategy should be to manage B2B relation

with existing customers, to find out new markets and new

customers, to make advertisements in the international

magazines which aware company in the worldwide leather

industry, participate in the leather exhibitions and fairs in

different countries in order to up-to-date with the market.

Human Resource Management:

Human resource department is the one which is the main pillar of

the value chain of the firm because good employee selection

always benefit in firms profitability and improve productivity and

quality of the work. The human resource department is not

efficient and not looking at the employees productivity which is

effecting the performance of the firm. There should be HRIS

enforced to find out the production and output level of each

employee. The employees who are unproductive should be fired

in order to cut costs and keep productive ones in the firm.

Research and Development:


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Need for research is necessary in every industry. In leather

industry the trend is changing day by as consumer needs changed.

There are hundreds of articles, colors, designs, and different kindof patterns developing in the market. In this context there is a

need for the company to invest in their R&D to get competitive

advantage and make all varieties in leather and leather garments.

It is a big cost but the return of it will also be high and give

company a competitive edge over rivals. The quality of products

can also be improve through R&D and it also helps in cost cutting

by telling areas of improvement.

RESOURCE BASED MODEL:


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Resources:

The company has its plants which are very often in Pakistanleather industry which are highly productive and reduce the

overall cost of production. The company has a highly qualified

technical staff as compare to industry. They are lacking in their

working capital requirement which is a need for a leather to run

their operations in a smooth manner.

Capabilities:

The company can produce 1.2 million sqft of leather and 40000

leather garments in a month. The company can easily develop any

color, article, and design as per customer requirement.

Core Competency:

The core competency of the firm is their technical staff and the

plants and machinery. The utilization of the staff, machinery and

plant efficiently and effectively will be a competitive advantage

for the firm and firm can produce more and good quality

products.



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RECOMMENDATIONS:



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An offensive turnaround strategy:

In this strategy we will be able to survival of the firm and makes it a

profitable firm. The strategy consists of following.

Increase efforts to boost sales:

The sales of the firm should be as much as possible and the

combination of efforts should be put in to increase sales to existing

customers and to new customers through different incentives offered

to the customers like discounts on bulk quantities, cash discounts,

promotions and selective offers to existing customers by delieveringsuperior quality and colors.

Reduce extra costs:

The cost which are not paying back to the company should be cut like

right sizing of employees, reducing the interest cost through paying off

debt, minimize the overall production cost through efficiently utilizing

of staff and machinery.

Selling off assets to generate cash:

There are many assets with the company which are not productive like

extra machinery, extra land and other assets which are not benefiting

the company can be sold to generate cash or to reduce the level of

debt. This can be fulfilling the requirement of working capital of the

firm.

Review the value chain:

As we saw in value chain analysis, each department of the firm needs

improvement to work effectively and efficiently.


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The procurement department needs staff who are capable to purchase

raw materials of best quality at lowest cost and the QC department will

check each raw material in order to maintain quality standards.

The production department should have a mindset to utilize all their

capacity in order to meet experience curve effects. The maintenance

where needed should be done in order to minimize the chances of

errors and increased efficiency of production.

The marketing department should focus on to boost sales in order to

maintain the balance of buying and selling and put their efforts to

minimize the overall marketing cost and increase revenues.

The HR department should implement HRIS in order to maintain the

data of each employees and to find the employees who are less

productive.

Establishment of research and development department is the need of

the firm in order to be in the race of competition. It has not much cost

but the benefit would be more.

Revise the export strategy:

The firm should adapt a franchising strategy through which firm can be

able to open there own outlets in different countries. Government of

Pakistan is financially supporting those companies who want to

establish their outlets abroad. By establishing outlets company will

reach to the original consumer and the middle man cost will reduce.



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CONCLUSION:

The industry of leather is a mature industry where level of rivalry is too

high. In this type of industry a declining firm cannot be easily achieveturnaround. To achieve turnaround, company should focus on their

core business and making strategies which can be best fit to company

situation.

A bold strategy should be adapted to attract customers, increasing

sales, cutting costs, achieving economies of scale through heavy

productions and good management of the operations.

Improved efficiency will results in greater productivity, less costs,

increasing revenues, improving quality and refine the value chain.

The strategy to make outlets in different countries will allow firms to

have large productions in order to meet customer demands and the

company will get growth in both physically and financially.
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