Background

Pakistan and Chinese government has started work on much anticipated USD 48 billion CEPC project as a
result a high infrastructure is to be built in the country in the form new hydro power waters dams of
10,000 Megawatts, sea and dry ports gateways cities and connecting hubs. Such work will be followed
by the series of commercial development in the form of a million housing units , hotels, office and
commercial buildings etc spurring demand for cement and steel. Moreover, demand is supplemented by
fast urbanization, average 5% GDP growth rate and 3% growth rate of 200 million population. As a result
in next five years cement consumption is expected to be doubled in five years and grow at that rate of
15-20% annually.

In order to meet up the demand of market both for government projects and private sector a cement
plant is being setup in the North of the country (which constitutes more than 65% of population and
demand).

Scope and Opportunity

The sponsor is setting up a 3000 MT/day ( 90000 MT/annum) in Gumbat, Kohat city in KPK for portland
grey cement which is centrally located between North and South of the country and close to
Afghanistan which is the biggest export market for cement. The location is few km away from Kohat
Cement mill which is safely operating for past twenty years.

The barriers to entry are extremely tough as no new entrant can setup a cement plant unless they own a
raw material (limestone mine) leases for which there is no policy of federal and local governments for
issuance of lease for mining. Last lease was issued in 1990s until last month (March 2017) when KPK
government issued new provisional licenses to three new parties and rest to six old cement plants.

The advantage the sponsor has that it owns a 3000 acres lime stone lease (good for mining for 10,000
MT plant for 100 years) owns a 25 acres land at the lease site for immediate plant setup and installation.
The timing and readiness of plant provides an edge of other companies that are planning expansion.

While others plants have announced expansion plants, our site is ready for execution since soil sampling,
lease surveys have been done which makes our lease as TESTED source (limestone, clay, gypsum, iron
ore, CaO > 48% ) as raw material extremely useful and ideal for cement plant.

Second, 95% of all plants were setup more than ten years ago and recently due to technological change
any new plant setup based on Chinese technology is on average twenty percent more cost efficient in
process than old ones. Moreover, our plant will be supplemented with coal mill and new vertical
grinding mill technology and latest automation controls to create a competitive edge.

Moreover, our company plans to take advantage of its small size by exploring markets for supplying
specialized blended cements and packaging for niche markets and customized application and uses of
special industries example being (rapid forming cement) etc. older plants are not designed and efficient
to produce such specialized cements.
The cement sector is an oligopoly controlled by few companies with selling prices controlled by cement
cartel (consortium of cement manufacturers) which guarantees profitability to all cement plants by
managing prices and market factors and bring stability to the industry.

Group Profile

The sponsor is a multi million dollar established industrial conglomerate that has been in manufacturing
business of textiles and wood panels for past thirty give years since 1980s. Infact, the group is second
largest manufacturer and exporter of wood panels in the country by production volume and largest
seller of diversified wood based product line in Pakistan. It is currently undergoing multi million dollar
expansion to bring HDF (high density man-made fiber board in the country) which is based on German
Diffenbacher technology and is most advanced plant in the world and besides being second plant in
Asia. The commercial production is expected to starts in early 2018. Visit www.frontierplatinum.com for
more information.

The group’s main management is educated from United States and settled in Peshawar (capital city of
KPK) with decades of experience in manufacturing. The group enjoys excellent relationships with banks
and has an outstanding credibility in the market because of their quality of work and products. All
necessary experts of accountants, operations and logical staff, teams of lawyers and various experts are
on the panels of the company.

Financial snapshot

The industry is in its strongest strength ever in the history of the country. The capacity utilization is at
88% and sales grew by 13% in year 2015-2016 (source the news, april 8, 2017). The gross margin for
industry average is 38% for year 2015 and Net Margin of 20%. (source APCMA, JCR-VIS, sector analysis
report, April 2016). JCR-VIS is largest and number one credit agency of Pakistan.

The estimated cost of project is about Rs 5 billion (USD 50 million) . It is being setup on debt to equity
80/20 basis. The company plants to get 80% finance from banks, another 10% as bridge loan before IPO
or as strategic equity investment (upon operational start) and last 10% as sponsor’s equity.

The estimated time for completion of project is 24 months. Company has conservatively projected at
75% capacity utilization, average revenues of 10 billion (USD 100 m) per year for first three years, with
expected 30 % gross margin and conservative 15% as net profit margin while assuming cement
wholesale price to sell at 10% less than its current selling price.

It is now Rs 9,000 per ton (Rs 450 per bag), meaning (USD 85 per ton). The net margin translates into Rs
1400 per ton (Rs 70 per bag), (USD 15 per ton) with this assumption . The debt will be paid in four years
time. The company expects 20% ROI with IRR of 50%.This planning translates to earning USD 13 million
net profit after taxation yearly by fifth year making it very profitable.