Working capital final project-ii


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Working capital final project-ii

  2. 2. “THE MAJOR OBJECTIVE OF THIS STUDY IS FOR THE PROPER UNDERSTANDING OF THE WORKING CAPITAL OF ARABIANINDUSTRIES LLC AND TO SUGGEST NECESSARY MEASURES TO OVERCOME THE SHORTFALLS IF ANY IN THE INDUSTRY.”The project undertaken is on “Working Capital Management of Arabian Industries LLC.”. It describesabout how the company manages its working capital and the various steps that are required in themanagement of working capital. Cash is the lifeline of a company. If this lifeline deteriorates, so doesthe companys ability to fund operations, reinvest and meet capital requirements and payments.Understanding a companys cash flow health is essential to making investment decisions. A good wayto judge a companys cash flow prospects is to look at its Working Capital Management (WCM).Working capital refers to the cash of a business requires for day-to-day operations or, morespecifically, for financing the conversion of raw materials into finished goods, which the companysells for payment. Among the most important items of working capital are levels of inventory,accounts receivable, and accounts payable. Analysts look at these items for signs of a companysefficiency and financial strength.The working capital is an important yardstick to measure the company’s operational and financialefficiency. Any company should have a right amount of cash and lines of credit for its business needsat all times. This project describes how the management of working capital takes place at ArabianIndustries LLC..There are numerous instances in the history of business world where inadequacy of working capitalhas led to business failures when a firm finds it difficult to meetings day to day affairs. Operatingexpenses essential out lays may have to be postponed for want of funds, operating plans will go out ofgear & enterprise objectives on investment slumps the suppliers & creditors of the firm may have towait longer to raise their dues & will hesitate to extend further credit to the firm.Thus efficient management of working capital in an important prerequisite for successful working of abusiness concern it reduces the chances of business failure generates a felling of security andconfidence in the minds of personnel in the organization it assurance solvency of steady of theorganization.1.2 STATEMENT OF PROBLEM 2
  3. 3. In the management of working capital, the firm is faced with two key problems:1. First, given the level of sales and the relevant cost considerations, what are the optimal amounts ofcash, accounts receivable and inventories that a firm should choose to maintain?2. Second, given these optimal amounts, what is the most economical way to finance these workingcapital investments? To produce the best possible results, firms should keep no unproductive assetsand should finance with the cheapest available sources of funds. Why? In general, it is quiteadvantageous for the firm to invest in short term assets and to finance short-term liabilities.Besides this followings are some other problem , a firm is facing. Through this study we try to findanswer for these problems. 1. What are root causes of working capital on business? 2. What are the major effects on accounts receivable? 3. What is the nature of relationship between working capital and capital employed 4. What steps should be taken to ensure that it effect on the profit of the firm will not be negative? 5. How can working capital be managed? 6. What make up the working capital cycle? 7. How can debtors be controlled?1.3 NEED AND IMPORTANCE OF THE STUDY.1.This projects is helpful in knowing the companies position of funds maintenance and setting thestandards for working capital inventory levels, current ratio level, quick ratio, current asset turnoverlevel & size of current liability etc.2. This project is helpful to the managements for expanding the dualism & the project viability &present availability of funds.3. This project is also useful as it combines the present year data with the previous year data and thereby it show the trend analysis, i.e. increasing fund or decreasing fund.4. The project is done as a whole entirely. It will give overall view of the organization and it is usefulin further expansion decision to be taken by management.1.4 OBJECTIVES OF THE STUDY 3
  4. 4. The main objective of the study is to determine the effect of working capital on business profitabilitywhich has to do with:- 1. Maintenance of working capital at appropriate level, and 2. Availability of ample funds as and when they are neededTo accomplishment of these two objectives, the management has consider the composition of currentassets pool. The working capital position sets the various policies in the business with respect togeneral operations like purchasing, financing, expansion and dividend etc,The subsidiary Objective of Working Capital Management is to provide adequate support for thesmooth functioning of the normal business operations of a company. This Objective can be sub-divided into 2 parts:-1. Liquidity2. Profitability1) LiquidityThe quantum of Investment in Current Assets has to be made in a manner that it not only meets theneeds of the forecasted sales but also provides a built in cushion in the form of safety stocks to meetunforeseen contingencies arising out of factors such as delays in arrival of Raw Material, suddenspurts in demand etc. Consequently, the investment in current assets for a given level of forecastedsales will be higher if the management follows a conservative attitude than when it follows anaggressive attitude. Thus, a company following a conservative approach is subject to a lower degree ofrisk than the one following an aggressive approach. Further, in the former situation the high amount ofInvestment in Current Assets imparts greater liquidity to the company than under the latter situationwherein the quantum of investment in Current Asset is less. This aspect exclusively covers theliquidity dimension of Working Capital.2) ProfitabilityOnce we recognize the fact that the total amount of financial resources at the disposal of a company islimited and these can be put to alternative uses, the larger the amount of investment in current assets,the smaller will be the amount available for investment in other profitable avenues at hand with thecompany. A conservative approach in respect of Investment in Current Assets leaves fewer amountsfor other Investments than an aggressive approach does.1.5 HYPOTHESIS 4
  5. 5. Hypothesis is a conjectural statement of the relationships between two or more variables. It is testable,tentative problem explanation of the relationship between two or more variables that create a state ofaffairs or phenomenon.E,C, Osuola said hypothesis should always be in declarative sentence form, andthey should relate to them generally or specially variable to variables.Hypothesis thus:-1. Explain observed events in a systematic manner2. Predict the outcome of events and relationships3. Systematically summarized existing knowledge.In essence, there exist null hypothesis set up only to nullify the research hypothesis and the alternativehypothesis, for the purpose of the study. For the efficiency of the study, the hypothesis is as follows:H0 1. Working capital does not help the business concern in maintaining the goodwill 2. Working capital does not create an environment of security, confidence, and overall efficiency in a businessH11. Working capital helps the business concern in maintaining the goodwill.2. Working capital creates an environment of security, confidence, and overall efficiency in business.1.6 METHODOLOGYMethodology may be a description of process, or may be expanded to include a philosophicallycoherent collection of theories, concepts or ideas as they relate to a particular discipline or field ofinquiry. This project requires a detailed understanding of the concept – “Working CapitalManagement”. Therefore, firstly we need to have a clear idea of, what is working capital, how it ismanaged in Arabian Industries LLC, what are the different ways in which the financing of workingcapital is done in the organization etc.To recognize the various type of information which are necessary for the study of working capitalmanagement. 5
  6. 6.  The management of working capital involves managing inventories, accounts receivable and payable and cash. Therefore one also needs to have a sound knowledge about cash management, inventory management and receivables management.  Then comes the financing of working capital requirement, i.e. how the working capital is financed, what are the various sources through which it is done.  And, in the end, suggestions and recommendations on ways for better management and control of working capital are provided.Collection of data from various department of AILLC to analyze the working capital management ofthe firm.1.6.1 COLLECTION OF DATAThere are several ways of collecting both data-Primary and Secondary datas, which differconsiderably in context of money, cost, time and other sources at the disposable of the researcher.There are two types of data:· Primary data· Secondary data1-Primary DataDefinition:-The first handed information/Fresh data collected through various methods is known as primary data. In respect of primary data which the researchers are directly collects data that have not beenpreviously collected.The primary data was gathered through personal interaction with various functional heads and othertechnical personnel. Some information was also collected by observation.2-Secondary Data :Definition:- 6
  7. 7. The data which have been already collected & comprised for another purpose. Secondary datawas collected various reports, annual reports, documents charts, management information systems, etcin AI LLC, And also collected various magazines, books, newspapers etc.The analysis of the information gathered has been made on the basis of the clarifications sought duringthe personal discussions with the concerned people and perception during the personal visits to theimportant areas of services.In marking observations identifying problems and suggesting certain remedies such emphasis wasgiven on the basis of opinions gathered during the personal discussions and with the personalexperience gained during the academic study of M.B.A course.1.6.2 TOOLS EMPLOYEDThe data presentation tools are mainly Mathematical tools, Tables and Charts are used for this study.The most important parts of tools include; a) Table numbers b) Title of the table c) Caption d) Stub or the designation of the rows and columns e) The body of the table f) The head note or prefatory note or explanatory just before the title. g) Source note, which refers to the literally or scientific source of the table has observed that a table has the following merits over a prose information that; h) A table ensures an easy location of the required figure; i) Comparisons are easily made utilizing a table than prose information; j) Patterns or trends within the figures which cannot be visualized in the prose information can be revealed and better depicted by a table; and a table is more concise and takes up a less space than a prose formation:1.6.3 TIME SPANA period of six year i.e. 2004-2009 has been taken for the study.1.7 LIMITATIONS OF THE STUDY. 7
  8. 8. The following are the various limitations involved in the study..1. The study in limited 4 years (2004-2005) to (2005-2006) performance of the company.2. The data used in this study have been taken from published annual report only.3. This study in conducted within a short period. During the limited period the study may not be retailed, full fledged and utilization in all aspects.4. Financial accounting does not take into account the price level changes.5. We cannot do comparisons with other companies unless and until we have the data of other companies on the same subject.6. Only the printed data about the company will be available and not the back–end details.7. Future plans of the company will not be disclosed to us.8. Lastly, due to shortage of time it is not possible to cover all the factors and details regarding the subject of study.1.8 CHAPTERIZATIONThis research work is to be organized in nine chapters as follows:  Chapter – 1 - Introduction  Chapter-II - Manufacturing Industry in Oman – A profile  Chapter-III - Arabian Industries LLC-A Profile  Chapter-IV - A Theoretical Perspective of Working Capital Management  Chapter – V - Research methodology  Chapter VI - Analysis of Working Capital Level  Chapter VII - Analysis of Financial Statement  Chapter – VIII - Management of working capital and it’s Financing and Estimation  Chapter – IX - Findings, Conclusion and Recommendations 8
  9. 9. CHAPTER – II 1-Introduction 2-Present Scenario 3-Foreign Investment 4-Oman Economy 5-Major Diversification 6-Oman Industry- An over view 7-ManufacturingIndustry in Oman 8-The Scope of Oil and Gas Industry.2.1 OMAN PETROLEUM INDUSTRY - INTRODUCTION 9
  10. 10. Omans petroleum deposits were discovered in 1962, decades after most of those of its neighbours.Moreover, Omans oil fields are generally smaller, more widely scattered, less productive, and morecostly per barrel than in other Persian Gulf countries. The average well in Oman produces only around400 barrels per day (bbl/d), about one-tenth the volume per well of those in neighboring countries. Tocompensate, Oman uses a variety of enhanced oil recovery (EOR) techniques. While these raiseproduction levels, they increase the cost.According to the 2008 BP Statistical Energy Survey, Oman had proved oil reserves of 5.572 billionbarrels at the end of 2007, the bulk of which are located in the countrys northern and central regions.The largest and traditionally most reliable fields are in the north. These fields, which include Yibal(the biggest), Fahud, al-Huwaisah, and several others, are now mature and face future declines inproduction. In spite of declining production, Oman remains a significant non-OPEC oil exporter. According to the 2008 BP Statistical Energy Survey, Oman produced an averageof 717.8 thousand barrels of crude oil per day in 2007, 0.9% of the world total and a change of -4.6 %compared to 2006./P> /P>Oman exports significant amounts of liquefied natural gas and, according tothe 2008 BP Statistical Energy Survey, had 2007 proved natural gas reserves of 0.69 trillion cubicmetres and 2007 natural gas production of 24.1 billion cubic metres./P> .2.2 PETROLEUM INDUSTRY – PRESENT SCENARIO.The petroleum industry forms the backbone of Omans economy. Over the past three decades, the oilreserve has helped the Sultanate move from strength to strength economically. But can Oman dependwholly on its natural resources or it needs to diversify into other areas to sustain and bolster itseconomy is an important question mark.The oil price slump in 1998-99 forced Oman to take steps to diversify and put greater emphasis onother industries, such as tourism and liquid natural gas. Omans Basic Statute of the State expresses inArticle 11 that "The National Economy is based on justice and the principles of a free economy." 10
  11. 11. Recent official statistics reveal that the oil sectors share in the GDP has risen to 49 per cent in 2005from 42.2 per cent in 2004. According to the 2006 annual report of the Central Bank of Oman (CBO),"The fiscal position remained strong in 2005, with the fiscal recording a surplus of about 2.6 per centof GDP. As against a budgeted deficit of RO540 million in 2005, there was a net surplus of RO303million."Revenues from the petroleum sector rose 44.3 per cent in 2005. Non-oil revenues rose 9.2 per cent,driven by a strong 17.8 per cent growth in non-oil industrial activities. The average price of Omanicrude was about US $50.26 per barrel in 2005, representing a 46 per cent rise over the average price ofUS $34.42 in 2004. As a result, the share of oil and gas sector in the GDP, exports and net governmentrevenue rose to 49 per cent, 84.2 per cent and 79 per cent, respectively, in 2005. After a period ofsubdued inflation, 2004 saw signs of minor rise in prices, which persisted in 2005. Consumer priceinflation rose from 0.7 per cent in 2004 to 1.9 per cent in 2005. But the Sultanates inflation at 2.3 percent was still lower than the average inflation in advanced countries in 2005. A VIEW OF OIL DRILLING AREAA close look at the June 1995 “Vision Conference: Oman 2020” reveals that a lot of strategic planningwent into the formulation of initiatives aimed at securing Omans future prosperity and growth. Theseinclude:-  To have economic and financial stability.  To reshape the role of the government in the economy and to broaden private sector participation. 11
  12. 12.  To diversify the economic base and sources of national income.  To globalise the Omani economy.  To upgrade the skills of the Omani workforce and develop human resources.It is expected that by 2020 the economy will not be reliant on oil, but rather diversified into non oilsectors, raising higher levels of savings and investments. Studies reveal that the crude oil sectors shareof GDP is estimated to drop to 9 per cent in 2020, compared with 41 per cent in 1996. Also, the gassector is expected to contribute around 10 per cent to GDP, compared with less than 1 per cent in1996, while the non-oil industrial sectors contribution is expected to increase from 7.5 per cent to 29per cent.2.3 INCENTIVES FOR FOREIGN INVESTMENTIn a bid to reinforce the existing set-up as well as make room for further development in the petroleumsector, the government has undertaken a string of measures to provide incentives to foreign investors.These include: 1. Tax exemption for five years (sometimes renewable for a further five years) for industrial enterprises which contribute to Omans economy. 2. Foreign investors allowed to hold 49 per cent of equity, which could be increased in mitigating circumstances. 3. Concessional financing may be arranged through the Ministry of Commerce and Industry and Oman Development Bank. 4. A clear and efficient legal network which offers advice on company law, copyright law, arbitration and agency law. 5. A diverse economy which encourages privatisation of infrastructure and services. 6. Price stability, with an inflation rate of not more than 1 per cent since 1992. 7. Stable currency with full convertibility. 8. No personal income tax and no foreign exchange controls. 9. Tax and import duty exemptions. 10. Interest-free long-term loans to partly foreign-owned industrial and tourism projects.Foreign business participation in Oman is encouaged provided the company is established inaccordance with the Foreign Business and Investment Law of 1974. Foreign companies are formed asan incorporation of a local company or other commercial entity. They may also exist as a branch 12
  13. 13. office, a consultancy or by appointing a commercial agent, ensuring that the company only suppliesservices and/or goods to be imported into the Sultanate. PDO – HEAD QUARTERSAirline and shipping offices as well as companies with occasional business are not governed by theForeign Business and Investment Law. Potential businesses should supply the companys articles ofincorporation and other pertinent information when applying for authorisation to the Foreign CapitalInvestment Committee at the Ministry of Commerce and Industry.2.4 OMAN ECONOMY AND PETROLEUM INDUSTRY – A REVIEWAccording to the CBO annual report, the improved macroeconomic environment has been reflected inthe upgrading of the Sultanates rating by Moodys from Baa2 to Baa1 in October 2005. In January2006, Standard and Poors also reaffirmed their local and foreign currency sovereign credit ratings forOman at "A-/A-2" and "BBB+/A-2", respectively, with a "stable" outlook. It may be noted that thegovernment debt as a percentage of GDP continued to decline and, by the end of 2005, fell to 8.6 percent.The most striking aspect of the developments in the banking system in 2005 relates to the surge inprofits. Net profits of banks rose from RO79.4 million in 2004 to RO123.2 million in 2005 while netforeign assets of commercial banks rose by 127.9 per cent, from RO256.6 million in 2004 to RO584.9million in 2005.The current account (comprising trade, services, income and transfers) showed asurplus of RO1813 million in 2005 as against RO219 million in 2004. The trade account, reflecting theexcess of export earnings over merchandise imports, showed a high surplus of RO4100 million in2005 as against a surplus of RO2118 million in 2004.The nominal GDP, exports and government revenue are expected to benefit further from thefavourable oil price scenario in 2006. This favourable phase provides an opportune time to use thesurplus oil revenue in diversifying the economy. Greater openness to trade and foreign investment, 13
  14. 14. phased implementation of the privatisation programme of the government, and reversing the decliningtrend in oil production will help strengthen the growth impulses in the economy.In 2002, the petroleum ministry took big steps to encourage international companies to invest inabandoned concession onshore and offshore areas. Oil and Gas Minister Dr. Mohammed Bin Hamadal-Rumhi had then called on Petroleum Development Oman (PDO) and international companiesoperating in oil and gas exploration and production to continue their efforts to discover new fields andimprove extracting methods and techniques.The minister upheld his ministrys resolve to provide necessary infrastructure and the governmentconstructed three pipelines to transport gas from the central region to Sur, Sohar and Salalah forexisting industrial estates and power plants.The transported gas was to be used to operate power plants in Salalah and Barka, and petrochemical,aluminum, cement factories, oil refinery and other industries in Sohar and Raysut industrial estates.With the new infrastructure in place, the scene has improved significantly. Foreign investors are nowkeen on joint ventures in these regions.2.5 ECONOMY ON THRESHOLD OF MAJOR DIVERSIFICATIONWhen His Majesty Sultan Qaboos Bin Said assumed power in 1970, he embarked on his vision ofputting the Sultanate on a progressive path of making the country economically stable. He left thedoors open for other countries to join hands with the local government in constructing Oman into anation that would stride comfortably into the 21st century.In his zeal for economic development and modernization, he launched a programme to built andexpand the countrys almost non-existent infrastructure. As the 70s rolled on, the country achievedsubstantial progress in developing physical and social infrastructure. New roads, a new deepwaterport, an international airport, electricity-generating plants, schools, hospitals and low-cost housingwere built from money that came exclusively from oil receipts.2.6 THE MANUFACTURING INDUSTRY - AN OVERVIEW 14
  15. 15. The manufacturing sector is part of the goods-producing industries super sector group. TheManufacturing sector comprises establishments engaged in the mechanical, physical, or chemicaltransformation of materials, substances, or components into new products. Establishments in theManufacturing sector are often described as plants, factories, or mills and characteristically use power-driven machines and materials-handling equipment. However, establishments that transform materialsor substances into new products by hand or in the workers home and those engaged in selling to thegeneral public products made on the same premises from which they are sold, such as bakeries, candystores, and custom tailors, may also be included in this sector. Manufacturing establishments mayprocess materials or may contract with other establishments to process their materials for them. Bothtypes of establishments are included in manufacturing.. The manufacturing industry - the powerhouse driving many economies - has been reeling under themost challenging time in its history. Manufacturers are striving to be more innovative, competeglobally, and expand and market their products to emerging markets worldwide. Intense pressure toreduce costs and the need to effectively manage a complex supply chain have manufacturers shiftingtheir production bases and spreading out operations well beyond their home grounds. This courseprovides an overview of the manufacturing industry. It first examines the state of affairs in themanufacturing industry, including its subsectors, key players, and trends. The course then reflects onthe main issues and challenges facing the industry, and, finally, it examines strategic solutions thatsuccessful companies are employing to overcome these challenges.2.7 INFRASTRUCTURE INDUSTRY FOR CRUDE AND GAS EXPLOITATIONThe depletion of the sultanates crude oil reserves accelerated the governments bid to increase the useof gas in electric power generation and industry. In the early 1970s, the sultanate began to use gas inelectric power generation. Gas pipelines were laid, and generators were converted from diesel to gas.This was done in the Muscat metropolitan area just before the second oil price shock despite resistanceby importers of diesel. Plans were to increase gas use by extending the government gas grid linkingthe south and the east to the north. Power generation facilities north of Muscat in 1992 were using gasas a feedstock, and plans were to increase gas-fired units elsewhere. Although the government haspromoted the industrial use of gas, oil firms remain the principal consumers, using a total of 8.5million cubic meters per day of associated gas. Gas is required for re-injection, compression fuel, andpower generation to support facilities at producing fields.This is likely to continue in the short term, given the slow pace of switching industrial use frompetroleum. The governments focus in the 1990s on exploiting natural gas reserves and increasing 15
  16. 16. output to meet rising demand complements its priority in maintaining current oil output levels. It seeksto do this without depleting crude reserves by using gas produced in association with oil output forreinjection at mature fields to increase production and, by substituting gas for oil, to release greatervolumes of crude oil for export. OFFSHORE OIL RIGThe Sultanate’s industrial strategy is multi-pronged. Besides utilising locally available naturalresources such as oil, gas and minerals, it aims at diversification of products for local consumption aswell as exports. While industrial projects based on fossil fuels and their derivates provide tremendousimpetus to the economic development of a country, small and medium units play a supportive butsignificant role in the industrialization process. Mega projects like oil refineries and their downstreamindustries and steel mills require massive investments whereas medium and small units could be set upwith less capital in areas where indigenously available resources could be made use of.2.8 THE AIM OF THE MANUFACTURING INDUSTRY IN OMAN.  To achieve an average annual growth of 14,3 % in domestic product of manufacturing industry.  To increase the manufacturing industry exports at an annual average growth rate of 18, 2%.  To achieve regional equilibrium in industrial development.  To transfer and domesticate foreign and local capital in the industrial sector.  To develop educational syllabus and introduce industry subject for trade orientation with its different aspects as a basic subject in all educational stages.  To reduce cost of the industrial production and develop the competitiveness of industrial products.  To provide the infrastructure services of the industry.Despite a sharp fall in average oil prices in 2009, the Omani govt. has managed to keep it’s fiscalamount close to balance. Oman’s economy has navigated through the global economic crisis in 16
  17. 17. relatively good shape. Although country’s real non oil growth fell sharply in 2009, it remained inpositive territory. Oman’s financial sector was less affected by the global economic crisis and thecountries modest level of indebtedness has limited it’s external vulnerability.2.9 THE SCOPE OF OIL AND GAS INDUSTRY IN OMAN – AN OVERVIEWThe continued growth in demand and an industry struggling to meet this voracious demand havepushed oil prices to an all-time high. Big oil companies, even while investing heavily in exploration,technology, operational improvement, and research and development, are still left with huge surplusesin an industry so far known only as a modest return. In reality, there has never been a morechallenging time for the oil and gas industry. While oil companies face tough challenges in findingnew sources of oil and gas to replace the old ones, the emerging oil demand and supply equationrenders some of the worlds most powerful nations increasingly dependent on some of the worlds mostunstable regions.As a result, companies are applying advanced technologies and improved processes to meet growingdemand, as well as working to keep abreast of the constantly shifting geopolitical landscape so criticalto success in this sector. This course provides a high-level view of the industry environment, includingits scope and structure, and navigates learners through relevant business and regulatory issues. Alsoexamined are the forces shaping this industry, its key players, business drivers and challenges, and thestrategic solutions for these challenges? A report on the state of affairs in the oil and gas industry andanalysis based insights are also presented. The overall purpose of this course is not to make learnersindustry experts, but to help them get a feel of the industry and learn some of the winning strategiesthe key players are successfully applying. CRUDE OIL DRILLING CHAPTER - III 17
  18. 18. 1-Introduction 2-Industry Profile 3-Subsidiary and Joint Venture 4-Mission and Vision 5-Objectives and Goals 6-Product and Project Profiles 7-Financial Highlights 8-Literature Review3.1 INTRODUCTION TO ARABIAN INDUSTRIES LLCArabian Industries LLC is a leading engineering company catering to the needs of the energy sectorfor the MENA region. It has facilities and expertise to meet the varied client needs of the Oil/Gas and 18
  19. 19. other energy sectors in the production, Processing and delivery phases. Started in 1991 in TheSultanate of Oman, they have grown steadily and won many accolades and appreciations. The mostprestigious achievement is the Year 2008 “His Majesty Cup award for best five factories”. Theircommitment to the job, quality of work, earnestness to provide Total Solutions and desire to surpassclient expectations has consistently earned repeat business from their esteemed clients. These qualitiesenable them to compete in international markets and succeed. Arabian Industries LLC – Company Structure Arabian Industries LLC (Holding Company) Arabian Industries Arabian Industries Arabian Industries Arabian Industries Project LLC Manufacturing LLC Technical Support LLC Joint Venture“Arabian Industries LLC” is an Oman’s Prestigious Engineering and Manufacturing Company;established in the year 1991, is a well established engineering company. It is 100% Omani companywhich always maintained the highest international standards of excellence through quality, technologyand innovation. It has the ability to provide the best in engineering and back up services for the 19
  20. 20. petroleum and allied industries. The company has ISO 9001-2000 certification and has executedprojects in various Middle East countries. It captured the various facets of the Oman economy insectors ranging from maintenance, manufacturing, fabrication and infrastructure, etc.“Arabian Industries LLC and its subsidiaries are committed to become one of the leading companiesproviding complete solutions to the energy sector by enhancing customer satisfaction, strengtheningemployee & supplier relations and continually improving its product & services through the QualityContinuous Improvement, Enhancing Employees Safety, Providing proper resources & suitableworking environment, achieving national development and improving profitability and budget”.3.2 PROFILES OF ARABIAN INDUSTRIES LLC.Arabian Industries LLC is a leading engineering company catering to the needs of the energy sectorfor the MENA region with active participation in Oman’s Hydrocarbon, Petrochemical and EnergySector industries. .. Started in 1991 in The Sultanate of Oman, they have grown steadily and wonmany accolades and appreciations. Arabian Industries LLC clientele include all major operatingcompanies in Oman including Petroleum Development Oman /Shell, Oman Gas Company, Occidentalof Oman, Occidental Mukhaizna, Oman Refinery and other Omani Oil, Gas, Water and Process Sectorclients.The Company posted a growth of approximately 200% during the period from 1991 to 2009 and iscurrently rated one of the leading EPC Contractors in the Region. Their commitment to the job, qualityof work, earnestness to provide Total Solutions and desire to surpass client expectations hasconsistently earned repeat business from their esteemed clients. These qualities enable them tocompete in international markets and succeed. Arabian Industries LLC, is currently executing a number of major contracts in Oman foractivities, which include Greenfield and Brownfield EPC & CME&I Construction Contracts forFacilities, Pipelines and Process Plant, Long Term Maintenance Contracts for Oil & Gas facilities,Pipeline Integrity Management Services including rehabilitation and routine / planned maintenance ofcross country pipelines and Environmental Services.Arabian Industries LLC, owns one of the biggest fleet of plant and equipment amongst the oil and gassector contractors in Oman and directly employs approximately 2500 multi-disciplined experiencedstaff personnel. Apart from the Head Office located at Al Khuwair House, various site, ArabianIndustries LLC, currently have a Project Coordination office, Staff Camp, Fabrication Shop, Vehicle 20
  21. 21. Maintenance Workshop and other related facilities in Rusayl, Sultanate of Oman. These are in additionto on-site offices, accommodation, workshops and warehouses throughout its operating areas in theCountry.Arabian Industries LLC, is one of the first companies in the Sultanate of Oman to have ISO 9002Quality System Certification of Compliance for its entire scope of activities. This System was updatedto ISO 9001 in the year of 2000. The The Company’s Health, Safety, Environmental & WasteManagement standards are one of the most effective amongst the Omani contracting community witha number of major milestone achievements to its credit.3.3 SUBSIDIARY COMPANIES & JOINT VENTURES SUBSIDIARY COMPANIES1. ◙ARABIAN INDUSTRIES MANUFACTURING LLCArabian Industries Manufacturing Co. LLC (AIM) (a subsidiary of Arabian Industries LLC), is themanufacturing division providing complete solutions for engineering, procurement and fabrication ofequipments to cater to clients in the Oil & Gas, Petrochemicals, Power , Fertilizer, Chemicals, andRefinery industries..2. ◙ ARABIAN INDUSTRIES PROJECTS LLCArabian Industries Projects LLC (AIP), a subsidiary of Arabian Industries LLC, is the ProjectsDivision providing Engineering, Procurement, Construction and commissioning services, to cater toclients in the Oil & Gas, Petrochemicals, Power, Fertilizer, Chemicals and Refinery Industries. 21
  22. 22. 3. ◙ ARABIAN INDUSTRIES TECHNICAL SUPPORT LLCArabian Industries Technical Support LLC (AITS), a subsidiary of Arabian Industries LLC, is aprovider of total maintenance solutions under one roof to cater to clients in the Oil & Gas,Petrochemicals, Power, Fertilizer, Chemicals and Refinery Industries. JOINT VENTURESArabian Industries LLC has entered into a JV with two foreign companies. They are listed below.1. WORLEY PARSONS –ARABIAN INDUSTRIES J.V. (WPAI J.V.)The WPAI - J.V. was formed between Arabian Industries LLC. and Worley Parsons (Oman) duringthe middle of 2005 as a framework to cater to the Engineering, Maintenance and Construction contractfor Petroleum Development of South Oman, awarded by PDO. This is a five year contract which canbe extended to 7 years.2. NORM PROJECT J.V.This is another J.V. formed between Arabian Industries LLC. and an International institution(specializing in the treatment of radioactive contamination). NORM stands for “NaturallyOccurring Radioactive Materials” which are found in the PDO sites during production of Oil fromoil-wells.. This entails suitable investments in setting up decontaminating facilities and developing therequired infrastructure in PDO sites for the said purpose. • CREDENTIALS OF ARABIAN INDUSTRIES LLC. • ASME ‘U’, U2 ‘S’ & ‘R’ Stamps: For the manufacture and repair of Pressure Vessels at their state-of-art facilities at Rusayl & Sohar work centre. 22
  23. 23. • Society is their cradle so they need to preserve and enrich it; Customers are their Patrons so they need to honor their commitments with them; • The employees are their biggest assets, so they need to nourish and help them grow.3.4 CORPORATE PHILOSOPHYA corporate philosophy is — Creating Jobs, Adding Value to the Individual, and Contributing toSociety inspires Temp Holdings to become a company that helps people fulfill their dreams and findhappiness through work. Based on this philosophy, Arabian Industries LLC, will enter the future as atrusted and reliable company throughout Oman and the rest of the world. We will also pursue businessactivities that emphasize corporate social responsibility (CSR) in order to contribute to a bettersociety.1 Creating JobsArabian Industries LLC, creates various types of employment by examining working arrangements,working environment, job content, and conditions of employment2 Contributing to societyArabian Industries LLC, contributes to society’s betterment by creating jobs and developing effectivehuman resources3 Adding Value to the individualArabian Industries LLC, supports people who want to improve themselves through their work,regardless of age, sex, or nationality.3.4.1 CORPORATE MISSION AND VISION Overview 23
  24. 24. Arabian industry is a leading EPC Contracting Company, specialized in design, engineering, project construction, fabrication, and testing activities in Oil and Gas, Refineries, Petrochemicals and Power sectors.1 MissionTo achieve market leadership through excellence in the quality of product and services by adoptingstate of the art technologies and innovative management approaches aim towards customersatisfaction.2 VisionArabian Industries LLC is committed to providing their clients with the best possible service andresults at a competitive price, without compromising on quality, health, safety, environment, 24
  25. 25. business ethics or welfare of their staff. “As a recommended supplier, and a preferred employer, AILLC is meeting the objectives and needs of their clients & employees.”3 PolicyArabian Industries LLC and its subsidiaries are committed to become one of the leading companyproviding complete solutions to the energy sector by enhancing customer satisfaction, strengtheningemployee & supplier relations and continually improving its product & services.4 StrengthIntegrity in diversity. Though their business expands to diverse sectors they still abide by theirvision & policy and maintain integration of their Quality management system and consistency ofoperations through empowerment, motivated & dedicated peers and strong leadership 25
  26. 26. 5 Approach AILLC is a customer-focused organization nurturing the culture of internal-customers & external- customers through out the organization. They achieve this through team-building, supply chain management and continual training & development of their employees. 6-Credentials AI LLC’s quality management system established since 1996 has been certified to ISO 9001 – 2000. Their pressure equipments manufacturing facilities are accredited by ASME for U, U2, S and R 26
  27. 27. stamps. Oil & Gas field equipments manufacturing facilities are certified by API for conformance to 6A, 6D and 16A requirements.3.5 CORPORATE OBJECTIVE 1 A To be of service to the nation and to contribute effectively to its economic well being and growth through the production, supply and marketing of infrastructure facilities to Petroleum Production and it’s allied industries in Sultanate of Oman. 2 To sustain and improve its pioneering role in the development of engineering and technology in manufacturing industry through continuous research and development. 3 To improve productivity and maintain high standards of quality and adopt effective measures for controlling cost in all aspects. 4. To ensure for its customers the availability of its products and services on reasonable terms, for its shareholders a fair return on capital invested and, for itself, development of adequate internal resources for continual growth and expansion. 27
  28. 28. CORPORATE OBJECTIVE3.5.1 CORPORATE GOALS1 To achieve a net profit of OMR: One Million per year with a turnover of OMR: 100 Million by the year of 20102. To focus on cost reduction and technology up gradation in order to become competitive in each line of business.3. To constantly innovate and develop new technology and services to satisfy customer requirements.4. To invest in new business lines, where profit can be made on sustainable basis over the long te rm.5. To compete through speed, agility and flexibility in recognizing and capturing opportunities in existing markets.6. CORPORATE GOALS3.5.2 QUALITY PERFECTIVEA dedicated team of Quality Assurance and Quality Control Engineers (lead by the Company’sQA/QC Manager and Quality Systems Engineer) supports the implementation and monitoring ofQuality Management of the Company. All departments in the Company are certified to ISO 9001 andregular internal and external audits are conducted to check the compliance and renewal of certificate. 28
  29. 29. ISO 9001:2000 requires that an organization’s quality policy provide a framework for reviewing thecompany’s quality objectives. The policy should give an overall direction for the organization, and itsobjectives should flow in that direction. But because of outside forces such as customer requirementsand market environments, business conditions can change. If this happens, the alignment betweenquality policy and objectives can become off-centered. So, the standard requires that managementperiodically review changes to both the policy and objectives. An organization’s objectives must bemeasurable and its quality management system processes designed to meet those objectives.3.5.3 MAJOR CLIENTS OF ARABIAN INDUSTRIES LLCSince the company began operations in 1991, it has successfully executed numerous projects forclients within the Gulf region. It includes some of the most reputed industrial entities like:-In achieving the objectives of Centre, they promise to:  Attending clients promptly and courteously  Respond to complaints/suggestions from the clients within a reasonable time  Continuously evaluate the effectiveness of company’s programmes  Provide timely support to staff and workers of the firm. 29
  30. 30.  Generate Performance report every two weeks after launching the project works.  Provide technical advice to the clients on various issues.MAJOR CLIENTS 1. Petroleum Development Oman LLC (PDO) 2. Sohar Aluminium Company LLC (SAC) 3. Oman Refinery Company LLC (ORC) 4. Oman Gas Company LLC (OGC) 5. Occidental Oman LLC 6. Qatar Petroleum (QP) 7. Oman LNG LLC 8. Daleel Petroleum LLC 9. Enerflex Systems Pty Ltd 10. Petrofac Engineering & Construction Ltd 11. Japan Gas Corporation 12. Hanover Company ,USA Major Clients3.6 PRODUCT AND PROJECT PROFILESAI LLC offers complete engineering and maintenance management services under one roof. Byoptimizing its experience and technical know-how, the company provides complete assistance onfollowing matters 30
  31. 31. A project is a series of activities aimed at bringing about clearly specified goals within a defined time-period and with a defined budget.A project has: a primary target group and final beneficiaries, clearly defined coordination,management and financing arrangements, a monitoring and evaluation system financial and economicanalysis, showing that benefits will exceed costs.3.6.1 MAJOR PROJECTS OFFERED BY ARABIAN INDUSTRIES LLC 1. Projects and Construction (Including EPC) 2. Service Contracts 3. Civil & Building Works 4. Workshop Fabrication 5. Tank Fabrication, Construction & EPC Services 6. High Density Polyethylene Pipe Lining 7. Maintenance & Process Plant Turnaround Services 8. Aluminum Component Fabrication & Installation Services3.6.2 Major Projects & Products details 1 Project C31/0606: Engineering and Maintenance Contract (EMC 31
  32. 32. JV Partner Worley Parsons Project Value US$ 240 million 2 Name of Project DCME & I Engineering Service Contract No. C-680046, Type of Contract Main sub-contractor for complete mechanical works Approximate Value US$ 40 million (Mechanical) 3 Name of Project Fahud Steam Injection Project Type of Contract EPC Lump sum Project Value US$ 143 million 4 Project C31/1097: Hubara -Saih Rawl - 132 kv Overhead line, Type of Contract EPC , Lump sum Project Value US$ 38 million 5 Name of Project Barik Central Gathering Station Construction Type of Contract Sole Construction Contractor Project value US $ 11.3 Million 6 Name of Project Yibal Brownfiled Expansion – C-980033 Type of Contract Sole Construction Contractor Lump sum Project value US $ 16 Million 7 Name of Project Security Upgrade in Oman LNG Type of Contract Sub contractor Project value USD.1 3.51 million 8 Name of Project Additional AR Pipeline Construction work Type of Contract Main Contractor Project value US $ 1 2.5 Million3.6.3 MAJOR ACHIEVEMENTS1-Engineering capabilities  Mechanical design of process equipments like pressure vessels, heat exchangers, separators,  Design of Shop and site Storage tanks as per international standards API 650, 653, EN 14015 32
  33. 33.  Design of direct and indirect heaters, fuel gas treatment plants  Packages: PV Elite, Stadd Pro, AUTOCAD and piping software’s  Regular association with reputed international process owners and licensors in the Oil & Gas, Refinery and Petrochemical industry for the design of equipment internals.2-Welding and joining technology  Core competency and expertise in welding and joining technology of all construction metals, especially in DSS,CRA and special alloy steels  Qualified for a wide range of welding procedures up to 200 mm thickness  SMAW /SAW/GTAW/FCAW/MIG facilities  Strip cladding and special weld metal overlays  GRP piping fabrication and bonding facilities3-Testing  Hydro/pneumatic testing bays and facilities  RT/MT/UT/PT/PWHT/PMI and other NDT facilities  PWHT facilities by Internal and external firing methods  Local stress relieving facilities by electrical methods  Gas fired PWHT furnaces adjustable to equipment sizes.4-Major Services Offered  Maintenance of Static Equipments  Maintenance of Heat Exchangers including Tube Cleaning, Re-tubing and Plugging  Maintenance, Overhauling and Monitoring of Compressors, Pumps, and Turbines ..  Maintenance and Overhauling of Oilfield Equipments;  Design, fabrication, erection and commissioning of oil and petroleum storage tanks, MAJOR ACHIEVEMENTS 33
  34. 34. 34
  35. 35. 3.7 FINANCIAL HIGHLIGHTS FOR 2009 [SOURCE: COMPANY REPORT] • FINANCIAL PERFORMANCE REVIEW 2009  BUSINESS PLAN – 2010 New project inflows (excluding EMU) at RO 41.58 million for the year 2008 vis-à-vis RO 20.977 million in the year 2008 – 103.4% growth year on year. Backlog of works at RO 40.216 million as at December 2008 (of which RO 37.352 million is expected to be executed in 2009) against RO 9.98 million as at December 200 – 347.2% growth year on year. Projected Gross Sales at RO 42.70 million in 2008 vis-à-vis RO 38.14 million in the previous year – 113.44% growth year on year Forecasted Net Profit Before Tax at RO 5.33 million in 2008 as against RO 3.58 million in the previous year – 59.8% growth over 2008. 35
  36. 36. BUSINESS UNITS 1. FABRICATION BUSINESS UNIT 2. TECHNICAL SUPPORT UNIT 3. PROJECT DEVELOPMENT UNIT 4. ENGINEERING MAINTENANCE UNIT3.7.1 PERFORMANCE REVIEW FOR 2009  Fabrication Business Unit  Chart-3-1- PERFORMANCE REVIEW FOR 2009-FABRICATION BUSINESS UNIT  P e rfo rm ance R e vie w -M B U 1 00 0 6 1 00 0 4 684 1 Forecasted 1 00 0 2 574 9 Dec08 1 00 0 0 800 0 Planned 600 0 900 4 82 04 400 0 200 0 1 92 0 80 0 0 Revenue Co st M arg in Table-3-1-Performance Review-FBU Value in RO, 000 Revenue Cost Margin Planned 10084.48 9188.48 896 Forecasted Dec08 7661.920 6438.88 1223  Margins were better than the original business plan based in spite of a lower turnover as the contracts were taken at better margins.3.7.2 Performance Review for 2009  Technical Support Unit  Chart-3-2- Performance Review for 2009-Technical Support Unit  36
  37. 37. P RFORMA NCE RE IE E V W-MBU-ITS 1600 1502 1400 1200 1098 1066 Planned 1000 800 704 Forecasted 600 Dec08 435 394 400 200 0 Revenue Cos t Margin  Table-3-2-Performance Review-Technical Support Unit Values in OMR Revenue Cost Margin Planned 1727 1225 487 Forecasted Dec08 1229 810 453  Better marketing strategy and business tie-up’s have been planned for the year 2009 to have a better turnover to counter the underperformance in terms of planned revenue by this Business Unit.3.7.3 Performance Review for 2009 of Projects Development Unit Chart-3-3- Performance Review for 2009-PDU P ER FO R M AN C E R EVIEW-2 008-P B U 100% 90% 5618 4400 80% 1218 Forecasted 70% Dec08 60% 50% Planned 12489 11032 40% 1457 30% 20% 10% 0% Revenue Cost Margin  Table-3-3-Performance Review-PDU Values in OMR  Revenue Cost Margin Planned 14363 12686 1676 Forecasted Dec08 6460 5060 1400  Smaller Contracts were executed under this business with higher profit margin as the carry forward jobs from 2007 to 2008 were limited. However the firm expects a better turnover in the year 2009 based on a healthy order book for the year ended 2008.3.7.4 Performance Review for 2009 Engineering Maintenance Unit Chart-3-4- Performance Review for 2009-EMU 37
  38. 38. PERFORMA NCE REVIEW-EMC(jv) 24569 25000 22000 21287 19449 20000 Planned 15000 Forecasted 10000 Dec08 5000 2550 3282 0 Revenue Cost Margin  Table-3-4-Performance Review-EMU Values in OMR  Revenue Cost Margin Planned 25300 22366 2932 Forecasted Dec09 28254 24480 3774  Engineering Maintenance Contract has delivered results better than expected.3.7.5 Forecasted Revenue for 2009 (Figures of 2008 are based on forecast) Planned T/O RO 51.75million Anticipated Turnover for 2008 RO 44.85 million Planned Profit RO 5.55 million Anticipated Profit for 2008 RO 5.55 million Net Profit Margin target 10.45% Anticipated Net Profit Margin for 2009 14.5%.Table—3-5 Division Wise Performance Turnover Planned Forecasted-2009 Fabrication 10,354,829 7,867,448 Technical 1,727,767 1,262,931 Projects 14,362,451 6,460,212 EMU Division 25,300,000 28,254,687 Total 51,745,047 43,845,278 Cost - - Fabrication 9,434,365 6,611,701 Technical 1,226,996 809,529 Projects 12,687,019 5,059,821 EMU Division 22,367,418 24,480,246 Total 45,715,798 36,961,296 Overhead 986,375 997,875 Directors Fees 353,002 412,039 Net Profit Before Tax 4,689,873 5,474,238Business Plan 20101 Complete the construction works.2 New Office block.3 New lease land at Industrial Estate. 38
  39. 39. 4 New land acquired will use to setup facility for new projects.5 Open offices in other GCC countries.3.7.6 Financial Performance 2002 to 2009Table-3-6-Financial Performance 2002 2003 2004 2005 2006 2007 2008 2009 Turnover 4216 5455 4900 6928 11280 25000 39166 43845 Net Profit after tax 555 184 145 125 285 1695 2649 5095 Net Worth (1591) (633) 571 1501 1785 4136 5241 8555 Chart-3-5-Financial Performance FINANCIAL SUMMARY 45000 40000 35000 30000 Turnover 25000 20000 Net Profit after tax 15000 Net Worth 10000 5000 0 -5000 2002 2003 2004 2005 2006 2007 2008 2009 FINANCIAL SUMMARY ASSETS & LIABILITIES  The total Assets (Fixed and Current) as on 31st Dec.2009 RO 3.5 million  Total Liabilities (Long Term & Current) as on 31st Dec .2009 RO 2.5 million  Equity and accumulated Reserves as on 31st Dec. 2009 RO 1 million3.7.7 Future Financial Planning 1. Approval of Capital Expenditure for OMR- 3 million 2. Approval of acquisition of Proposed Land and Building at Salalah. 3. Proceed with the setup of representation Office in all GCC Countries. 39
  40. 40. 4. Raise the Share Capital to RO 5 Million in the year 2010. 5. Payment of Dividend of 75% proposed share holdersTable 3-7-Financial Summary 2005 2006 2007 2008 2009 TURNOVER 1748 2227 3163 4720 4231 NET PROFIT 6 65 111 389 445Chart-3-6 Financial Summary FINANCIAL SUMMARY 5000 4720 500 4500 4231 445 450 4000 389 400 3500 3163 350 VALUES 3000 300 TURNOVER 2500 2227 250 2000 1748 200 NET PROFIT 1500 150 1000 111 100 65 500 50 0 6 0 2005 2006 2007 2008 2009 YEARS ARABIAN INDUSTRIES HOLDING COMPANY STRUCTURE ARABIAN INDUSTRIES LLC HOLDING CO. PROJECT UNIT FABRICATION UNIT TECHNICAL UNIT ARABIAN INDUSTRIES ARABIAN INDUSTRIES ARABIANINDUSTRIES PROJECT LLC MANUFACTURING CO. LLC TECHNICAL SUPPORT LLC NORMS EMU PARSON- NORM ARABIANINDUSTRIES - JV ARABIAN INDUSTRIES JV 40
  41. 41. OBJECTIVES FOR 2010 • Executing jobs in hand in line with schedule & budgets • Secure at least 5 projects in the range of 30 Million USD under EMU. • Achieve a net profit of RO 6.5 Million (before tax and after adjustment of Management fees) • Expand client base especially for the Fabrication Shop. • Buildup strong management at various levels to meet the Company long term objectives.3.7.8 FIVE YEAR PLANNED TURNOVERTable-3-8-Future Plan Value in RO Million BUSINESS UNIT 2010 2011 2012 2013 2014 Engineering Maintenance Contract 20.000 25.000 25.000 25.000 25.000 Arabian Industries Manufacturing 10.000 13.000 15.000 18.000 20.000 Arabian Industries Technical Support 2.500 3.000 3.500 4.000 5.000 Arabian Industries Projects 30.000 35.000 40.000 45.000 50.000 Total 62.500 75.000 83.500 92.000 100.000Chart-3-7 - Cash Flow Analysis CASH FLOW 2009 600000 500000 CASH INFLOW 400000 300000 Series2 200000 100000 0 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC MONTHSTable – 3-9 Cash Flow Analysis 41
  42. 42. Jan/10 Feb/10 Mar/10 Apr/10 May/10 Jun/10 301900.3 511660.3 352984.5 289537.8 225635.8 179465.6 Jul/10 Aug/10 Sep/10 Oct/10 Nov/10 Dec/10 143654.6 90899.45 192841.2 278427.7 347378.2 571331.5 CASH FLOW ANALYSIS – 2009 CASH FLOW FORECAST FOR THE YEAR 2009 CURRENCY IN OMANI RIYAL PERT. JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DECProjects Division 920,000 920,000 920,000 920,000 920,000 1,012,000 1,012,000 1,012,000 1,012,000 1,012,000 1,012,000 1,012,000 Manufacturing 345,000 345,000 345,000 345,000 345,000 379,500 379,500 379,500 379,500 379,500 379,500 379,500 Division Maintenance 172,500 172,500 172,500 172,500 172,500 172,500 189,750 189,750 189,750 189,750 189,750 189,750 DivisionNORM Contract 540,499 405,374 270,250 #VALUE! 0 0 0 0 0 0 0 0 Engineering & Maintenance 5,060,000 5,060,000 5,060,000 5,060,000 5,060,000 5,060,000 5,060,000 5,060,000 5,692,500 5,692,500 5,692,500 6,325,000 Contract Total Inflow( collection from 7,037,999 6,902,874 6,767,750 6,497,500 6,497,500 6,624,000 6,641,250 6,641,250 7,273,750 7,273,750 7,273,750 7,906,250 contract Receivables) Salary & Wages (excluding 1,446,953 1,461,422 1,476,037 1,623,640 1,623,640 1,639,877 1,656,275 1,672,838 1,689,566 1,706,462 1,723,527 1,740,762 Gratuity) Suppliers / Sub Contractors - 4,926,599 4,832,011 4,737,425 4,548,250 4,548,250 4,636,800 4,648,875 4,648,875 5,091,625 5,091,625 5,091,625 5,534,375 Creditors LC & LTR Other Expenses(including Fuel + Vehicle 211,140 207,086 203,033 194,925 194,925 198,720 199,238 199,238 218,213 218,213 218,213 237,188 ministrative Overheads) Income Tax 25,000Bank Charges & 44,249 42,880 43,967 44,419 44,873 45,059 45,327 45,708 45,058 44,518 44,089 42,626Bank Interest Cost Total Out Flow 6,628,940 6,543,400 6,776,711 6,411,234 6,411,688 6,520,456 6,549,715 6,566,659 7,044,462 7,060,817 7,077,453 7,554,950Net Inflow / Out 409,058 359,474 -8,961 86,266 85,812 103,544 91,535 74,591 229,288 212,933 196,297 351,300 Flow MONTH 10-Jan 10-Feb 10-Mar 10-Apr 10-May 10-Jun 10-Jul 10-Aug 10-Sep 10-Oct 10-Nov 10-DecOpening Balance -107,158 152,186 361,946 203,271 139,824 75,922 52,119 16,308 -36,447 65,495 151,081 220,032 42
  43. 43. Inflow 7,037,999 6,902,874 6,767,750 6,497,500 6,497,500 6,624,000 6,641,250 6,641,250 7,273,750 7,273,750 7,273,750 7,906,250 Outflow 6,628,940 6,543,400 6,776,711 6,411,234 6,411,688 6,520,456 6,549,715 6,566,659 7,044,462 7,060,817 7,077,453 7,554,950Surplus / (deficit) 301,900 511,660 352,984 289,538 225,636 179,466 143,655 90,899 192,841 278,428 347,378 571,332BUSINESS PLAN - 2010Table-3-10-Business Plan Business Unit Planned VOWD Planned Cost Planned Margin Arabian Industries Fabrication Unit 8,945,451 7,737,077 1,208,374 Arabian Industrial Maintenance Unit 1,614,118 1,161,660 452,457 Arabian Industries Projects Unit 29,690,189 26,765,988 2,924,202 EMU 23,000,002 19,872,181 3,127,822 Total 63,249,760 55,536,905 7,712,855 Overhead 1,220,241 -1,220,241 Management Fees 454,483 -454,483 Net Profit before Tax 4,528599 6,038,1313.7.9 CAPITAL EXPENDITURETable-3-11-Capital Expenditure Business Unit Amount in RO ARABIAN INDUSTRIES MANUFACTURING UNIT 1,018,613 INVESTMENT – AIR COOLERS INTL 517,500 ARABIAN INDUSTRIES TECHNICAL SUPPORT UNIT 572,355 INVESTMENT IN NEW TECHNOLOGY 697,475 ARABIAN INDUSTRIES PROJECT DEVELOPMENNT UNIT 616,613 NEW PROJECT 2,535,893 ENGINEERING MAINTENANCE UNIT 718,520 CORPORATE 46,000 TOTAL 6,722,968FUTURE PROJECT  Investment in proposed project OMR 6 Million  Equivellant to USD#15,463,917.00FINANCING PROPOSED FOR THE CAPITAL EXPENDITURE Total Capital Expenditure planned for 2010 6,000,000 Term Loan for New Project-1 2,500,000 43
  44. 44. Term loan for New Project 2 3,000,000 Term loan for New project 3 1,500,000 Balance financed by Cash generated from operations 500,0003.7.10 FUTURE PROPOSALS Approval of Capital Expenditure RO 6,000,000 Approval of acquiring of shares in new company. Proceed with the setup of representation Office in all GCC countries Raise the Share Capital to RO 5 Million by allocating RO 500,000 from the profits of year 2010. Approval of payment of Management fees to CMD 10% of Net Profit before tax. Adjust the management fees payable to directors with the amounts receivable from sister co. Payment of Dividend of RO 5,000,000/ to the members by 31st March 2010.3.8 LITERATURE REVIEW - AN OVER VIEW “A literature review is an essay or is part of the introduction to an essay, research report, or thesis. It provides an overview and critical analysis of relevant published scholarly articles, research reports, books, theses etc on the topic or issue to be investigated. A detailed guide to the literature review is available on the Language and Learning services website. Literature search: A systematic and exhaustive search for published material on a specific topic.” 44
  45. 45.  It discusses published information in a particular subject area, and sometimes information in a particular subject area within a certain time period. It is a summary of research that has been published about a particular subject. It provides the reader with an idea about the current situation in terms of what has been done, and what we know. Sometimes it includes suggestions about what needs to be done to increase the knowledge and understanding of a particular problem. It gives an overview of what has been said, who the key writers are, what are the prevailing theories and hypotheses, what questions are being asked, and what methods and methodologies are appropriate and useful. As such, it is not in itself primary research, but rather it reports on other findings. Literature reviews can give you an overview or act as a stepping stone. It also provide a solid background for a research papers investigation.A LITERATURE REVIEW MUST DO THESE THINGS: be organized around and related directly to the thesis or research question you are developing synthesize results into a summary of what is and is not known identify areas of controversy in the literature formulate questions that need further researchStructuring a literature review It is often difficult to decide how to organize the huge amount of information you have collected. The structure of each dissertation will be different but there are some general principles and these are really the guidelines you should use for any piece of academic writing.Structuring a literature review  Introduction to the literature review  Main part  Conclusions 45
  46. 46.  A literature review is a piece of discursive prose, not a list describing or summarizing one piece of literature after another. Its usually a bad sign to see every paragraph beginning with the name of a researcher. Instead, organize the literature review into sections that present themes or identify trends, including relevant theory.3.9 ABSTRACT OF LITERATURE REVIEWThe current study contributes to the literature by examining impact of working capital management onthe operating performance and growth of new public companies. The study also sheds light on therelationship of working capital with debt level, firm risk, and industry. Using a sample of amanufacturing, the study finds a significant positive association between higher levels of accountsreceivable and operating performance. The study further finds that maintaining control (i.e. loweramounts) over levels of cash and securities, inventory, fixed assets, and accounts payables appears tobe associated with higher operating performance, as well. We find that the firms which areexperiencing unusually high growth tend not to perform as well as those with low to moderate growth.Further firms which are experiencing high growth tend to hold higher levels of cash and securities,inventory, fixed assets, and accounts payables. These findings tend to suggest that firms are willing tosacrifice performance (accept low or negative operating returns) to increase their growth levels. Thehigher level of growth is also associated with higher operating and financial risk. The findings of thisstudy suggest that perhaps the firms should stay more focused on their operating performance than onmaintaining high growth levels.3.10INTRODUCTION AND LITERATURE REVIEWWorking capital policy refers to the firms policies regarding 1) target levels for each category ofcurrent operating assets and liabilities, and 2) how current assets will be financed. Generally goodworking capital policy (i.e. under conditions of certainty) is considered to be one in which holdings ofcash, securities, inventories, fixed assets, and accounts payables are minimized. The level of accounts receivables should be used as a means of stimulating sales and otherincome. Previous literature on working capital management has found a negative association, overall,between level of working capital and operating performance as measured by operating returns andoperating margins (Peterson and Rajan, 1997). Under conditions of certainty (i.e. sales, costs, leadtimes, payment periods, and so on, are known), firms have little reason to hold more working capitalthan a minimum level. 46
  47. 47. 3.11AN ANALYSIS OF WORKING CAPITAL MANAGEMENT RESULTS ACROSS INDUSTRIES :-INTRODUCTIONThe importance of efficient working capital management (WCM) is indisputable. Working capital isthe difference between resources in cash or readily convertible into cash (Current Assets) andorganizational commitments for which cash will soon be required (Current Liabilities). The objectiveof working capital management is to maintain the optimum balance of each of the working capitalcomponents.Business viability relies on the ability to effectively manage receivables, inventory, and payables.Firms are able to reduce financing costs and/or increase the funds available for expansion byminimizing the amount of funds tied up in current assets. Much managerial effort is expended inbringing non-optimal levels of current assets and liabilities back toward optimal levels. An optimallevel would be one in which a balance is achieved between risk and efficiency. A recent example of business attempting to maximize working capital management is therecurrent attention being given to the application of Six Sigma® methodology. When used to identifyand rectify discrepancies, inefficiencies and erroneous transactions in the financial supply chain, SixSigma® reduces Days Sales Outstanding (DSO), accelerates the payment cycle, improves customersatisfaction and reduces the necessary amount and cost of working capital needs. There appear to bemany success stories, including Jennifer Towne’s (2002) report of a 15 percent decrease in days thatsales are outstanding, resulting in an increased cash flow of approximately 2 million dollars atThibodaux Regional Medical Center. Furthermore, bad debts declined from 3.4 million dollar to o600,000 dollar.Even in a business using Six Sigma® methodology, an “optimal” level of working capitalmanagement needs to be identified. Industry factors may impact firm credit policy, inventorymanagement, and bill-paying activities. Some firms may be better suited to minimize receivables andinventory, while others maximize payables. Another aspect of “optimal” is the extent to which poorfinancial results can be tied to sub-optimal performance. Fortunately, these issues are testable withdata published by CFO magazine (Mintz and Lazere 1997; Corman 1998; Mintz 1999; Myers 2000; 47
  48. 48. Fink 2001), which claims to be the source of “tools and information for the financial executive,” andare the subject of this research.The following section presents a brief literature review. Next, the research method is described,including some information about the annual Working Capital Management Survey published by CFOmagazine. Findings are then presented and conclusions are drawn. Many researchers have studied working capital from different views and in different environments. The following are some useful research:3.12RELATED LITERATUREThe importance of working capital management is not new to the finance literature. Over twenty yearsago, Largay and Stickney (1980) reported that the then-recent bankruptcy of W.T. Grant, a nationwidechain of department stores, should have been anticipated because the corporation had been running adeficit cash flow from operations for eight of the last ten years of its corporate life. As part of a studyof the Fortune 500’s financial management practices. Following are the important views of scholarsabout working capital management.1 GILBERT AND REICHERT (1995) :Find that accounts receivable management models are used in 59 percent of these firms to improveworking capital projects, while inventory management models were used in 60 percent of thecompanies. More recently, Farragher, Kleiman and Sahu (1999) find that 55 percent of firms in theS&P Industrial index complete some form of a cash flow assessment, but did not present insightsregarding accounts receivable and inventory management, or the variations of any current assetaccounts or liability accounts across industries. Thus, mixed evidence exists concerning the use ofworking capital management techniques. Theoretical determination of optimal trade credit limits arethe subject of many articles over the years (e.g., Schwartz 1974; Scherr 1996), with scant attentionpaid to actual accounts receivable management. Across a limited sample,2 WEINRAUB AND VISSCHER (1998) :Observe a tendency of firms with low levels of current ratios to also have low levels of currentliabilities. Simultaneously investigating accounts receivable and payable issues, Hill, Sartoris, andFerguson (1984) find differences in the way payment dates are defined. Payees define the date of 48
  49. 49. payment as the date payment is received, while payers view payment as the postmark date. AdditionalWCM insight across firms, industries, and time can add to this body of research. Maness and Zietlow(2002, 51, 496) presents two models of value creation that incorporate effective short-term financialmanagement activities. However, these models are generic models and do not consider unique firm orindustry influences. Maness and Zietlow discuss industry influences in a short paragraph that includesthe observation that, “An industry a company is located in may have more influence on thatcompany’s fortunes than overall GNP” (2002, 507).3 ELJELLY, 2004 :Elucidated that efficient liquidity management involves planning and controlling current assets andcurrent liabilities in such a manner that eliminates the risk of inability to meet due short-termobligations and avoids excessive investment in these assets. The relation between profitability andliquidity was examined, as measured by current ratio and cash gap (cash conversion cycle) on asample of joint stock companies in Saudi Arabia using correlation and regression analysis.The study found that the cash conversion cycle was of more importance as a measure of liquidity thanthe current ratio that affects profitability. The size variable was found to have significant effect onprofitability at the industry level. The results were stable and had important implications for liquiditymanagement in various Saudi companies. First, it was clear that there was a negative relationshipbetween profitability and liquidity indicators such as current ratio and cash gap in the Saudi sampleexamined. Second, the study also revealed that there was great variation among industries with respectto the significant measure of liquidity.4 BERGAMI ROBERT (2007) :Analysis that that international trade transactions carry inherently more risk than domestic tradetransactions, because of differences in culture, business processes, laws and regulations. It is thereforeimportant for traders to ensure that payment is received for goods dispatched and that the goodsreceived and paid for comply with the contract of sale. One effective way of managing these risks hasbeen for traders to rely on the letter of credit as a payment method. However for exporters inparticular, the letter of credit has presented difficulties in meeting the compliance requirementsnecessary for the payment to be triggered.The current rules that govern letter of credit transactions(UCP 500) have been under review for thepast three years and an updated set of rules (UCP 600) is expected to be introduced on 1July 2007.This paper focuses on the changes mooted for 2007and compares these main issues with the existingrules and other associated guidelines and regulations governing this method of payment. This paperconsiders the implication to changes of letter of credit transactions and the sharing of risk. Firstly the 49
  50. 50. paper provides some background to letters of credit, then comments on existing literature and models,and subsequently an analysis of the most important changes to the existing rules, before reaching aconclusion. The conclusion is that the UCP 600 have not paid enough consideration to traders andservice providers and are likely to engender an environment of uncertainty for exporters in particular. CHAPTER 4 1-INTRODUCTION 2-NEED OF WORKING CAPITAL 3-CONCEPT OF WORKING CAPITAL 50 4-CLASSIFICATION OF WORKING CAPITAL 5-DETERMINANTS OF WORKING CAPITAL