Contents. Annual Report

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2 Annual Report 2010 Contents Mission Statement & Corporate Strategy Company Information Notice of Annual General Meeting Directors Report Statement of Compliance with the Code of Corporate Governance Review Report Auditors Report Balance Sheet Profit & Loss Account Statement of Comprehensive Income Statement of Changes in Equity Cashflow Statement Notes to the Account Proxy Form

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4 ANNUAL REPORT 2010 Manufacturers of Quality PET Bottles and Preforms COMPANY INFORMATION BOARD OF DIRECTORS Mr. Hussain Jamil Mr. Ahsan Jamil Mr. Shahid Jamil Mrs. Deborah Jamil Mrs. Ayesha Khan Mr. Asad Ali Sheikh Syed Sohail Raza Zaidi Chairman/Chief Executive Officer AUDIT COMMITTEE Mr. Ahsan Jamil Mrs. Ayesha Khan Mr. Shahid Jamil Chairman Member Member Non-Executive Director Non-Executive Director Non-Executive Director CHIEF FINANCIAL OFFICER COMPANY SECRETARY BANKERS Mr. Muhammed Murtaza Raza Mr. Muhammed Ali Adil Askari Bank Limited Habib Bank Limited Allied Bank Limited JS Bank Limited RBS Limited AUDITORS Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants LEGAL ADVISOR M/s. Ebrahim Hosain Advocate & Corporate Council FACTORY REGISTERED & CORPORATE OFFICE , Phase V, Industrial Estate Hattar, District Haripur, Khyber Pakhtunkhwa. Tel: (0995) , Fax: (0995) Suite # 206, Second Floor, The Plaza, Kehkashan Clifton, Block 9, Karachi. Phone: (021) Fax: (021) headoffice@ecopack.com.pk Web: 01

5 Manufacturers of Quality PET Bottles and Preforms ANNUAL REPORT 2010 NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that the 19th Annual General Meeting of Ecopack Limited will be held on Tuesday 26th October 2010 at 9.00 A.M. at Carlton Hotel, Meharani Hall DC-5, off Zulfiqar Street # 5, Phase VIII, D.H.A, Karachi, to transact the following business: Ordinary Business 1. To confirm the minutes of the 18th Annual General Meeting held on October 29, To receive and adopt the Directors and Auditors report together-with Audited Accounts of the company for the year ended June 30, To appoint external auditors and fix their remuneration for the year ending June 30, The present auditors M/s. Rehman Sarfaraz Rahim Iqbal Rafiq, Chartered Accoutants being eligible offer themselves for re-appointment. 4. To elect seven directors in accordance with the provisions of Section 178 of the Companies Ordinance, 1984 for a period of three years commencing from October 30, The retiring directors who are eligible for re-election are: i Mr. Hussain Jamil ii Mr. Ahsan Jamil iii Mr. Shahid Jamil iv Mrs. Deborah Jamil v Mrs. Ayesha Khan vi Mr. Asad Ali Shaikh vii Syed Sohail Raza Zaidi Special Business 5. To approve the shifting of registered office of the company from the Province of Sindh to the Province of Khyber Pakhtunkhwa. 6. To consider any other business of the company with the permission of the chair. By order of the Board Karachi, Dated: September 21, 2010 MUHAMMED ALI ADIL (Company Secretary) Notes: 1. The share transfer books of the company will remain closed from October 13, 2010 to October 26, (both days inclusive). 2. A member eligible to attend and vote at the General Meeting is entitled to appoint another member as a proxy to attend and vote instead of him. Proxy form duly completed and signed must be deposited with the company secretary at the registered office at least 48 hours before the meeting. 3. CDC shareholder, entitled to attend and vote at this meeting, must bring with them their Computerized National Identity Cards/Passport in original along with Participants ID Numbers and their Account Numbers to prove his/her identity, and in case of Proxy, must enclose an attested copy of his/her CNIC 02

6 ANNUAL REPORT 2010 Manufacturers of Quality PET Bottles and Preforms or Passport. Representatives of corporate members should bring the usual documents required for such purpose. 4. CDC account holders will further have to follow the guidelines as laid down in Circular No. 1 dated January 26, 2000 issued by the Securities & Exchange Commission of Pakistan 5. The Board has fixed the number of directors as seven. Any person who seeks to contest election for Directorship of the Company shall file with the Company at its registered office a notice of his/her intention to offer himself/herself for election 14 days before the date of Annual General Meeting to be held on October 26, Change of address, if any, should be notified to the Company immediately. STATEMENT OF MATERIAL FACTS UNDER SECTION 160 (1)(B) OF THE COMPANIES ORDINANCE, 1984 REGARDING SPECIAL BUSINESS: 1. Change of Registered Office from Karachi (Sindh) to Hattar (Khyber Pakhtunkhwa): The manufacturing facilities of the company are situated at Plot No , Phase-5, Hattar Industrial Estate, District Haripur, Khyber Pakhtunkhwa. In order to: o o o o For effective control and centralization of operations. Cost reduction. Better liaison with customers and vendors. Active participation by management at Sarhad Chamber of Commerce & Industry and obtain maximum interface of unified platform of the Industry. The Board of Directors have decided to change the registered office from Suite # 206, The Plaza, Clifton, Block-9, KDA Scheme No. 5, Kehkashan, Karachi, Sindh to Plot # , Phase-5, Hattar Industrial Estate, District Haripur, Khyber Pakhtunkhwa and has proposed to pass the following special resolutions: Resolved that subject to the completion of the legal formalities and approval of the competent authority the registered office of the Company be shifted from the Province of Sindh to the Province of Khyber Pakhtunkhwa Further resolved that Memorandum of Association of the Company be amended accordingly and the Company Secretary be and is hereby authorized and empowered to complete the legal formalities in this respect. 2. Interest of Directors in the Special Business The Directors have no interest in special business other than the shareholders of the Company. 03

7 Manufacturers of Quality PET Bottles and Preforms ANNUAL REPORT 2010 DIRECTORS REPORT The board of directors of Ecopack Limited is pleased to present the directors report alongwith audited financial statements for the year ended 30th June 2010: Overview: has been a challenging year for Pakistan on account of various socio-economic & political reasons that seriously affected the overall business environment in the country. War against terrorism in close proximity of Khyber Pakhtunkhwa contributed to turmoil and uncertainty in the region where your company s plant and its main customers are located. 20% increase in electricity tariff, 12% erosion in value of PK Rupee against US Dollar and continuous rise in fuel prices significantly reduced the purchasing power of general public and resulted in an overall economic slowdown. The beverage industry responded to these inflationary pressures through a price increase that resulted in an additional pressure on its sale volumes. Hence this summarizes the overall landscape in which your company operated during the year. Despite the overriding difficulties posed by this scenario, your company s management took timely steps which helped remedy the situation substantially and contributed to the following results. Sales and Financial Highlights: The management is pleased to report a significant improvement in the performance of the company in the year ended June 2010 in spite of high inflation and low capacity utilization of its bottle-blowing assets. The year was closed at an after tax loss of PKR 18.3m compared to a loss of PKR 85.6m last year. This has been in line with a performance turnaround which has been witnessed throughout the fiscal year The margin led strategy adopted by your company helped mitigate the effects of rising input costs (electricity, transportation etc) resulting in the improvement of Gross Profit (GP) from 10.6% last year to 11.4% in the current year. Consolidation of the bottle-blowing operation and effective control over COGS resulted in the improvement of operating profit from 5.07% last year to 6.47% during the current year. While bottle sales dropped by 19%, the preform sales improved by 23% on the back of a healthy increase in exports. As a result, the sales turnover remained at PK Rs 1.74 billion compared to PK Rs 1.76 billion last year. On the fiscal front, your company was able to reduce financial charges by 29% through prudent inventory management and by utilizing the fiscal relief provided by the State Bank of Pakistan to rehabilitate economic life in Khyber Pakhtunkhwa province. Future Outlook: In the back drop of improving margins through better pricing and lower costs, your company looks forward to improvement in capacity utilization of its assets through a volume led strategy in bottle sales and an export driven strategy in preform sales. It also expects to reap the benefits of capital investment made in a strategic light weighting project during the first half of Consequently, your company is well positioned to close the year in profit, Inshallah. Risks: However, rampant electricity load-shedding throughout the country, rising transportation costs and an unstable socio-political environment continue to be a risk to the company s profitability which your company s management is striving to mitigate through various efforts. 04

8 ANNUAL REPORT 2010 Manufacturers of Quality PET Bottles and Preforms While the recent floods and damage to infrastructure are creating difficulties for supply-chain and logistics, which has caused a relative slow down in sales, we expect this to be of a temporary nature as life and general activity resume back to normal. Management and Industrial Relations: The senior management of the company recognizes & appreciates the extra efforts made by the staff & managers across the board in bringing down costs and head-count resulting in significant reduction in the company s COGS and financial charges, as reflected in our annual results for FY For & on Behalf of the Board of Directors Karachi, Dated: September 21, 2010 HUSSAIN JAMIL (Chief Executive Officer) 05

9 Manufacturers of Quality PET Bottles and Preforms ANNUAL REPORT 2010 ANNEXURE A TO THE DIRECTORS REPORT SIX YEARS AT A GLANCE Rupees in '000' Profit & Loss: Sales 1,742,074 1,764,852 1,763,546 1,262,124 1,162, ,188 Cost of sales 1,542,996 1,577,169 1,614,878 1,061, , ,997 Gross Profit 199, , , , , ,191 Operating expenses 100, , ,605 93,854 93,235 64,503 Other income/ (charges) 13,828 6,293 29,102 9,315 (803) (2,006) Operatig profit 112,717 89,557 71, , ,446 88,682 Financial charges 138, , , ,182 57,373 32,604 Profit / (Loss) before taxation (25,875) (105,811) (71,071) 8,558 86,519 53,275 Taxation 7,482 20,192 (8,316) 8,324 16,150 25,667 Profit / (Loss) after taxation (18,393) (85,619) (79,387) ,369 27,607 Bonus shares ,565 21,407 Balance Sheet Shareholders equity 180, , , , , ,434 Surplus on Revaluation of Fixed Assests 193, ,329 82,691 92, , ,957 Financing facilities 807, , , , , ,643 Fixed assets (net of depreciation) 1,213,425 1,259,423 1,078, , , ,995 Current Assets 443, , , , , ,387 Current Liability 830, , , , , ,210 Key Financial Ratios: Gross profit 11.43% 10.63% 8.43% 15.90% 20.86% 20.66% Operating profit 6.47% 5.07% 4.04% 8.47% 12.84% 11.81% Profit before tax to net sales -1.49% -6.00% -4.03% 0.68% 7.44% 7.09% Return on capital employed -2.2% -8.4% -5.4% 0.7% 9.7% 7.5% Inventory turnover (times) Fixed assets turnover (times) Debt equity ratio 55 : : : : : : 56 Current ratio Earnings per share (0.80) (3.72) (3.65)

10 ANNUAL REPORT 2010 Manufacturers of Quality PET Bottles and Preforms ANNEXURE B TO THE DIRECTORS REPORT COMPLIANCE WITH CODE OF CORPORATE GOVERNANCE: As required under the Code of Corporate Governance dated 28th March 2002, we are pleased to state as follows: 1. The financial statements prepared by the management present fairly its state of affairs, the results of its operations, cash-flows and changes in equity. 2. Proper books of accounts have been maintained. 3. Appropriate accounting policies have been consistently applied in preparation of the financial statements and accounting estimates are based on reasonable and prudent judgment. 4. International Accounting Standard, as applicable in Pakistan, has been followed in the preparation of financial statements and any departure there-from has been adequately disclosed. 5. The system of internal control and other such procedures which are in place, are being continuously reviewed by the Internal Audit Department. The process of review will continue and any weakness in controls will be removed. 6. There is no significant doubt on company s ability to continue as a going concern. 7. There has been no departure from the best practice of corporate governance, as detailed in the listing regulations. 8. Key operating and financial data for the last six years in summarized form has attached with the Directors report as Annexure A. 9. The Company has not declared any cash dividend (2009 NIL) or bonus shares (2009 NIL). 10. There are no outstanding statutory payments on account of taxes, levies and charges except of normal and routine nature. 11. The company maintains a funded provident fund scheme and a sum of Rs.10.8 million is invested in various schemes duly approved by Govt of Pakistan for Provident Fund investment. The Gratuity scheme is un-funded and no investment has been made for that. 12. During the year 04 board meetings were held and the attendance by each director is given below: NAME OF DIRECTORS NO. OF MEETING ATTENDED Mr. Hussain Jamil 04 Mr. Ahsan Jamil 04 Mr. Shahid Jamil 04 Mrs. Deborah Jamil 04 Mrs. Ayesha Khan 04 Mr. Asad Ali Sheikh 04 Syed Sohail Raza Zaidi 03 07

11 Manufacturers of Quality PET Bottles and Preforms ANNUAL REPORT Trading of shares by Directors, Chief Financial Officer & Secretary of the Company during the year is as under: NAME DESIGNATION NO. OF SHARES ACQUIRED/ (SOLD) Mr. Hussain Jamil Chief Executive Officer Nil Mr. Ahsan Jamil Director Nil Mr. Shahid Jamil Director Nil Mrs. Deborah Jamil Director Nil/ (26,382) Mrs. Ayesha Khan Director Nil Mr. Asad Ali Sheikh Director Nil Syed Sohail Raza Zaidi Director NIl AUDITORS: The present Auditors M/s. Rahman Sarfaraz Rahim Iqbal Rafiq, Chartered Accountants, retire and being eligible have offered themselves for re-appointment for the financial year For & on behalf of the Board of Directors Karachi, Dated: September 21, 2010 HUSSAIN JAMIL (Chief Executive Officer) 08

12 ANNUAL REPORT 2010 Manufacturers of Quality PET Bottles and Preforms Rupees in 000 Rupees in 000 Rupees in

13 Manufacturers of Quality PET Bottles and Preforms ANNUAL REPORT 2010 PATTERN OF SHAREHOLDING (Form 34) THE COMPANIES ORDINANCE 1984 Serial No No. of Shareholders From Shareholding To s As At June 30, 2010 Total Shares Held Percentage , % , % , , % ,001 5,000 1,703, % ,001 10, , % ,001 15, , % ,001 20, , % ,001 25, , % ,001 30, , % ,001 35, , % ,001 40, , % ,001 45, , % ,001 50, , % ,001 55, , % ,001 65, , % ,001 70, , % ,001 75,000 78, % ,001 80, , % ,001 85,000 87, % ,001 90, , % , , , % , , , % , , , % , , , % , , , % , , , % , , , % , , , % , , , % , , , % , , , % , , , % , ,000 1,097, % , , , % , , , % , , , % , , , % ,430,001 1,435,000 1,071, % ,970,001 1,975,000 1,402, % ,385,001 3,390,000 3,386, % ,995,001 4,000,000 4,000, % 2,753 Total Shares Held 22,976, % 10

14 ANNUAL REPORT 2010 Manufacturers of Quality PET Bottles and Preforms CATEGORIES OF SHAREHOLDERS S.No Name Number of shareholder s Total Shares Held Percentage 1 Associated Companies, undertaking and related parties NIL 0.000% 2 Banks Development Financial Institutions, Non Banking Financial Institutions. The Bank of Khyber 1 399, % Escorts Investment Bank Limited 1 22, % Samba Bank Limited 1 549, % National Development Fin. Corp. Investor 1 7, % Total: 4 979, % 3 Insurance Companies State Life Insurance Corporation of Pakistan 1 810, % Total: 1 810, % 4 Directors, Chief Executive Officer, and their Spouse and Minor Children Hussain Jamil 1 4,000, % Shahid Jamil 1 798, % Ayesha Nora Khan 1 671, % Deborah Jamil 1 243, % Ahsan Jamil 1 3,386, % Asad Ali Shaikh % Syed Sohail Raza Zaidi % Total: 7 9,101, % 5 Modarabas and Mutual Funds MC FSL TRUSTEE ALFALAH GHP PRINCIPAL PRO 1 225, % CDC - TRUSTEE KASB BALANCED FUND 1 631, % CDC - TRUSTEE KASB STOCK MARKET FUND. 1 1,071, % CDC - TRUSTEE ALFALAH GHP VALUE FUND 1 472, % CDC - TRUSTEE FIRST DAWOOD MUTUAL FUND 1 1,402, % PRUDENTIAL STOCK FUND LTD. 1 11, % MODARABA AL-MALI 1 15, % FIRST PAK MODARABA 1 5, % Total: 8 3,938, % 6 NIT and ICP National Bank of Pakistan % IDBP (ICP Units) % Investment Corporation of Pakistan % Total: 3 1, % 7 Foreign Investors Habibsons Bank Ltd - Client Account 1 110, % M/S Somers Nominee (Far East) Limited 1 6, % Total: 2 116, % 11

15 Manufacturers of Quality PET Bottles and Preforms ANNUAL REPORT 2010 S.No Name Number of shareholder s Total Shares Held Percentage 8 Others PRUDENTIAL SECURITIES LIMITED % MOOSANI SECURITIES (PVT) LTD. 1 5, % Y.S. SECURITIES & SERVICES (PVT) LTD. 1 3, % DARSON SECURITIES (PRIVATE) LIMITED 1 49, % ACE SECURITIES (PVT.) LIMITED 1 51, % HIGHLINK CAPITAL (PVT) LTD 1 2, % EXCEL SECURITIES (PRIVATE) LIMITED 1 1, % MAZHAR HUSSAIN SECURITIES (PVT) LIMITED 1 7, % CAPITAL VISION SECURITIES (PVT) LTD. 1 5, % MIAN MOHAMMED AKRAM SECURITIES (PVT) LIM % SHERMAN SECURITIES (PRIVATE) LIMITED 1 69, % TIME SECURITIES (PVT.) LTD. 1 1, % H.S.Z. SECURITIES (PRIVATE) LIMITED 1 1, % GENERAL INVEST. & SECURITIES (PVT) LTD. 1 1, % ABBASI SECURITIES (PRIVATE) LIMITED 1 56, % PACE INVESTMENT & SECURITIES (PVT) LTD % AL-ASAR SECURITIES (PRIVATE) LIMITED % UNITED CAPITAL SECURITIES PVT. LTD. 1 16, % MOHAMMAD MUNIR MOHAMMAD AHMED KHANANI 1 11, % AMER SECURITIES (PVT) LTD 1 17, % PROGRESSIVE INVESTMENT MANAGEMENT PVT. LTD % ADEEL ZAFAR SECURITIES (PVT.) LIMITED 1 2, % AWJ SECURITIES (SMC-PRIVATE) LIMITED. 1 1, % HK SECURITIES (PVT) LTD. 1 1, % MUHAMMAD AHMED NADEEM SECURITIES % MAM SECURITIES (PVT) LIMITED % DR. ARSLAN RAZAQUE SECURITIES (SMC-PVT) 1 1, % VALUE STOCK SECURITIES PRIVATE LIMITED 1 5, % MSMANIAR FINANCIALS (PVT) LTD. 1 6, % GHANI OSMAN SECURITIES (PRIVATE) LIMITED 1 2, % DURVESH SECURITIES (PVT) LTD 1 1, % COMPANY SECRETARY % M/S. FREEDOM ENTERPRISES (PVT) LTD. 1 2, % Total: , % 9 Individual ,702, % Grand Total: ,976, % Share holding 10% or more voting interest Hussain Jamil 1 4,000, % Ahsan Jamil 1 3,386, % Total 2 7,386, % 12

16 ANNUAL REPORT 2010 Manufacturers of Quality PET Bottles and Preforms STATEMENT OF COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE For the year ended June 30, 2010 This statement is being presented to comply with the Code of Corporate Governance contained in listing regulations of Karachi, Lahore and Islamabad Stock Exchange Guarantee Limited for the purpose of establishing a framework of good governance, whereby a listed company is managed in compliance with the best practices of corporate governance. The Company has applied the principles contained in the Code in the following manner: 1. The Company encourages representation of independent non-executive directors and directors representing minority interests on its Board of Directors. At present the Board includes five non-executive directors. 2. The directors have confirmed that none of them is serving as a director in more than ten listed companies, including this Company. 3. All the resident directors of the Company are registered as taxpayers and none of them has defaulted in payment of any loan to a banking company, a DFI or an NBFI or, being a member of a stock exchange, has been declared as a defaulter by that stock exchange. 4. Casual vacancies that occurred on the board during the year was filled up within 30 days. 5. The Company has prepared a Statement of Ethics and Business Practices, which has been signed by the directors and all the employees of the Company. 6. The Board has developed a vision/mission statement, overall corporate strategy and significant policies of the Company. A complete record of particulars of significant policies along with the dates on which they were approved or amended has been maintained. 7. All the powers of the Board have been duly exercised and decisions on material transactions, including appointment and determination of remuneration and terms and conditions of employment of the CEO and other executive directors, have been taken by the Board. 8. The meetings of the Board were presided over by the Chairman and, in his absence, by a director elected by the Board for this purpose and the Board met at least once in every quarter. Written notices of the Board meetings, along with agenda and working papers, were circulated at least seven days before the meetings. The minutes of the meetings were appropriately recorded and circulated. 9. The Board arranged in-house and external orientation courses for its directors during the year to apprise them of their duties and responsibilities. 10. The Board has approved appointment of Chief Financial Officer, Head of Internal Audit and Company Secretary, including their remuneration and terms and conditions of employment, as determined by the CEO. 11. The directors report for this year has been prepared in compliance with the requirements of the Code and fully describes the salient matters required to be disclosed. 12. The financial statements of the Company were duly endorsed by CEO and Chief Financial Officer before approval of the Board. 13. The directors, CEO and executives do not hold any interest in the shares of the Company other than that disclosed in the pattern of shareholding. 14. The Company has complied with all the corporate and financial reporting requirements of the Code. 13

17 Manufacturers of Quality PET Bottles and Preforms ANNUAL REPORT The Board has formed an audit committee. It comprises three members, all of them are non-executive directors. 15-A The terms of reference of audit committee has been formed and duly approved by the board and advise to the committee for compliance. 16. The meetings of the audit committee were held at least once every quarter prior to approval of interim and final results of the Company and as required by the Code. The terms of reference of the committee have been formed and advised to the committee for compliance. 17. The Board has set-up an effective internal audit department, which is considered suitably qualified and experienced for the purpose and is conversant with the policies and procedures of the Company and is involved in the internal audit function on a full time basis. 18. The statutory auditors of the Company have confirmed that they have been given a satisfactory rating under the quality control review program of the Institute of Chartered Accountants of Pakistan, that they or any of the partners of the firm, their spouses and minor children do not hold shares of the Company and that the firm and all its partners are in compliance with International Federation of Accountants (IFAC) guidelines on code of ethics as adopted by Institute of Chartered Accountants of Pakistan. 19. The statutory auditors or the persons associated with them have not been appointed to provide other services except in accordance with the listing regulations and the auditors have confirmed that they have observed IFAC guidelines in this regard. 20. We confirm that all material principles contained in the Code have been complied with. Karachi, Dated: September 21, 2010 HUSSAIN JAMIL (Chief Executive Officer) 14

18 ANNUAL REPORT 2010 Manufacturers of Quality PET Bottles and Preforms REVIEW REPORT TO THE MEMBERS ON STATEMENT OF COMPLIANCE WITH BEST PRACTICES OF CODE OF CORPORATE GOVERNANCE We have reviewed the Statement of Compliance with the best practices contained in the Code of Corporate Governance prepared by the Board of Directors of Ecopack Limited ( the Company ), to comply with the Listing Regulations No. 37 of the Karachi Stock Exchange (Guarantee) Limited, where the Company is listed. The responsibility for compliance with the Code of Corporate Governance is that of the Board of Directors of the Company. Our responsibility is to review, to the extent where such compliance can be objectively verified, whether the Statement of Compliance reflects the status of the Company s compliance with the provisions of the Code of Corporate Governance and report if it does not. A review is limited primarily to inquiries of the Company personnel and review of various documents prepared by the Company to comply with the Code. As part of the audit of financial statements we are required to obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. We are not required to consider whether the Board s statement on internal control covers all risks and controls, or to form an opinion on the effectiveness of such internal controls, the company s corporate governance procedures and risks. Further, Sub-Regulation (xiii) of Listing Regulations 37 notified by the Karachi Stock Exchange (Guarantee) Limited vide circular KSE/N-269 dated 19 January 2009 requires the company to place before the Board of Directors for their consideration and approval related party transactions distinguishing between transactions carried out on terms equivalent to those that prevail in the arm s length transactions and transactions which are not executed at arm s length price recording proper justification for using such alternate pricing mechanism. Further, all such transactions are also required to be separately placed before the audit committee. We are only required and have ensured compliance of requirement to the extent of approval of related party transactions by the board of directors and placement of such transactions before audit committee. We have not carried out any procedures to determine whether the related party transactions were undertaken at arm s length price or not. Based on our review, nothing has come to our attention, which causes us to believe that the Statement of Compliance does not appropriately reflect the Company s compliance, in all material respects, with the best practices contained in the Code of Corporate Governance as applicable to the Company for the year ended June 30, Karachi, Dated: September 21, 2010 Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants 15

19 Manufacturers of Quality PET Bottles and Preforms ANNUAL REPORT 2010 AUDITORS REPORT TO THE MEMBERS We have audited the annexed balance sheet of Ecopack Limited ( the Company ) as at June 30, 2010, and the related profit & loss account, statement of comprehensive income, statement of changes in equity and cash flow statement together with the notes forming part thereof, for the year then ended and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit. It is the responsibility of the Company s management to establish and maintain a system of internal control, and prepare and present the above said statements in conformity with the approved accounting standards and the requirements of the Companies Ordinance, Our responsibility is to express an opinion on these statements based on our audit. We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the above said statements are free of any material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the above said statements. An audit also includes assessing the accounting policies and significant estimates made by the management, as well as, evaluating the overall presentation of the above said statements. We believe that our audit provides a reasonable basis for our opinion and, after due verification, we report that: (a) in our opinion, proper books of accounts have been kept by the company as required by the Companies Ordinance, 1984; (b) in our opinion: (i) the balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity with the Companies Ordinance, 1984, and are in agreement with the books of accounts and are further in accordance with accounting policies consistently applied except for changes as stated in note 2.6 to financial statements with which we concur; (ii) the expenditure incurred during the year was for the purpose of the company s business; and (iii) the business conducted, investments made and the expenditure incurred during the year were in accordance with the objects of the Company; (c) in our opinion and to the best of our information and according to the explanations given to us, the balance sheet, profit & loss account, statement of comprehensive income, statement of changes in equity and cash flow statement together with the notes forming part thereof conform with approved accounting standards as applicable in Pakistan, and, give the information required by the Companies Ordinance, 1984, in the manner so required and respectively give a true and fair view of the state of the company s affairs as at June 30, 2010, and of the Loss, total comprehensive income, its changes in equity and cash flows for the year then ended; and (d) in our opinion, no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980). Karachi, Dated: September 21, 2010 Rahman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants Muhammad Rafiq Dossani 16

20 ANNUAL REPORT 2010 Manufacturers of Quality PET Bottles and Preforms BALANCE SHEET AS AT 30 JUNE, 2010 NOTE June 30, 2010 June 30, 2009 (Rupees in '000') NON-CURRENT ASSETS Property, plant and equipment 4 1,222,916 1,271,093 Security deposits 5 10,724 7,023 1,233,640 1,278,116 CURRENT ASSETS Stores, spares and loose tools 6 49,104 54,858 Stock in trade 7 230, ,836 Trade debts 8 114, ,211 Loans and advances 9 22,393 16,241 Short term deposits, prepayments & other receivables 10 3,908 6,107 Sales tax refundable 3,978 3,927 Taxation - net 16,490 12,955 Cash and bank balances 11 1, , ,952 TOTAL ASSETS 1,676,733 1,826,068 SHARE CAPITAL AND RESERVES Authorized Capital 50,000,000 (2009:50,000,000) ordinary shares of Rs.10 each 500, ,000 Issued, subscribed and paid-up capital , ,770 Accumulated loss (49,315) (49,645) 180, ,126 Surplus on revaluation of property, plant & equipment , ,327 NON-CURRENT LIABILITIES Long term loans , ,807 Liability against assets subject to finance lease 15 33,202 25,206 Long term payables - 5,192 Deferred liabilities , , , ,311 CURRENT LIABILITIES Trade and other payables , ,442 Accrued mark-up on loans ,591 Short term borrowings - secured , ,956 Current portion of non-current liabilities , , , ,304 TOTAL EQUITY AND LIABILITIES 1,676,733 1,826,068 CONTINGENCIES AND COMMITMENTS 21 The annexed notes 1 to 41 form an integral part of these financial statements. CHIEF EXECUTIVE OFFICER DIRECTOR CHIEF FINANCIAL OFFICER 17

21 Manufacturers of Quality PET Bottles and Preforms ANNUAL REPORT 2010 PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED JUNE 30, 2010 NOTE June 30, 2010 June 30, 2009 (Rupees in '000') Sales - net 22 1,742,074 1,764,852 Cost of sales 23 (1,542,996) (1,577,168) Gross profit 199, ,683 Distribution cost 24 (59,242) (62,762) Administrative expenses 25 (40,947) (41,657) Other operating income 26 14,270 6,092 Other operating expenses 27 (442) 201 (86,361) (98,126) Profit from operations 112,717 89,557 Finance cost 28 (138,592) (195,368) Loss before taxation (25,875) (105,811) Taxation 29 7,482 20,192 Loss after taxation (18,393) (85,619) Loss per share - basic and diluted (in Rupees) 30 (0.80) (3.72) The annexed notes 1 to 41 form an integral part of these financial statements. CHIEF EXECUTIVE OFFICER DIRECTOR CHIEF FINANCIAL OFFICER 18

22 ANNUAL REPORT 2010 Manufacturers of Quality PET Bottles and Preforms STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED JUNE 30, 2010 NOTE June 30, 2010 June 30, 2009 (Rupees in '000') Loss after taxation (18,393) (85,619) Other comprehensive income Transfer from surplus on revaluation of property, plant & 13 18,721 10,155 equipment - net of deferred tax Total comprehensive Income /(loss) for the year transferred to equity 328 (75,464) The annexed notes 1 to 41 form an integral part of these financial statements. CHIEF EXECUTIVE OFFICER DIRECTOR CHIEF FINANCIAL OFFICER 19

23 Manufacturers of Quality PET Bottles and Preforms ANNUAL REPORT 2010 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED JUNE 30, 2010 SHARE CAPITAL ACCUMULATED LOSS TOTAL (Rupees in '000') Balance as at July 01, ,770 25, ,590 Total comprehensive income /(loss) for the year - (75,464) (75,464) Balance as at June 30, ,770 (49,643) 180,126 Total comprehensive income /(loss) for the year Balance as at June 30, ,770 (49,315) 180,454 The annexed notes 1 to 41 form an integral part of these financial statements. CHIEF EXECUTIVE OFFICER DIRECTOR CHIEF FINANCIAL OFFICER 20

24 ANNUAL REPORT 2010 Manufacturers of Quality PET Bottles and Preforms CASH FLOWS FROM OPERATING ACTIVITIES CASH FLOW STATEMENT FOR THE YEAR ENDED JUNE 30, 2010 NOTE June 30, 2010 June 30, 2009 (Rupees in '000') Cash generated From operations , ,467 Finance cost paid (171,293) (187,976) Gratuity paid (2,609) (8,873) WPPF paid - (3) Taxes paid (12,531) (10,562) Net cash generated from operating activities 113, ,054 CASH FLOWS FROM INVESTING ACTIVITIES Fixed capital expenditure (30,058) (44,098) Capital work-in-progress 2,180 (3,614) Proceeds from disposal of Property, Plant & Equipment 2,222 1,552 Security deposits (3,701) (225) Net cash used in investing activities (29,357) (46,385) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of long term loans (77,597) (236,750) Repayment of finance lease liability (13,370) (13,510) Net cash used in financing activities (90,967) (250,260) Net decrease in cash and cash equivalents (7,118) (169,591) Cash and cash equivalents at the beginning of the year (333,139) (163,548) Cash and cash equivalents at the end of the year 32 (340,257) (333,139) The annexed notes 1 to 41 form an integral part of these financial statements. CHIEF EXECUTIVE OFFICER DIRECTOR CHIEF FINANCIAL OFFICER 21

25 Manufacturers of Quality PET Bottles and Preforms ANNUAL REPORT 2010 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENT FOR THE YEAR ENDED JUNE 30, STATUS AND NATURE OF BUSINESS Ecopack Limited "the Company" was incorporated on August 25, 1991 as a private limited Company under Companies Ordinance, Subsequently, it was converted into a public limited Company on April 29, 1992 and thereafter, in March 1994 converted into a public listed Company. Its shares are listed on Karachi Stock Exchange. The principal business activity of the Company is manufacture and sale of Polyethylene Terepthalat (PET) bottles and preforms for the market of Beverages and other liquid packaging industry. The Company has its manufacturing facility located at Hattar, province Khyber Pakhtunkhawa. The Company's registered office is situated at Suite No. 206, 2nd floor, The Plaza, Kehkshan, Clifton, Block-9, Karachi. Subsequent to the balance sheet date the management of the company has applied for shifting its existing registered office to Hattar, District Haripur Khyber Pakhtunkhwa. 2. BASIS OF PREPARATION 2.1 Statement of compliance These financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board as are notified under the Companies Ordinance, 1984, provisions of and directives issued under the Companies Ordinance, Wherever the requirements of the Companies Ordinance, 1984 or directives issued by the Securities and Exchange Commission of Pakistan differ with the requirements of IFRS, the requirements of the Companies Ordinance, 1984 or the requirements of the said directives prevail. 2.2 Basis of measurement These financial statements have been prepared under the historical cost convention except that certain property, plant and equipment have been included at revalued amount and for revaluation of certain employee retirement benefits at present value. 2.3 Functional and presentation currency These financial statements are presented in Pakistan Rupees which is the functional currency of the Company and figures are rounded off to the nearest thousand of rupees. 2.4 Use of estimates and judgments The preparation of financial statements in conformity with approved accounting standards, as applicable in Pakistan, requires management to make judgments, estimates and assumptions that affect the application of policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting 22

26 ANNUAL REPORT 2010 Manufacturers of Quality PET Bottles and Preforms estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and information about significant areas of estimation, uncertainty and critical judgments in applying accounting policies that have the most significant effect on amounts recognised in the financial statements are discussed below: i) Employees retirement benefits (Note 3.1 & 16.1) ii) Provision for taxation (Note 3.2 & 29) iii) Useful life and residual values of property, plant and equipment (Note 3.3 & 4) 2.5 Standards, interpretations and amendments to approved accounting standardsthat are not yet effective The following standards, interpretations and amendments of approved accounting standards are effective for accounting periods beginning on or after 1 July However, these are not relevant to the company except in few cases where these may require additional disclosures: Improvements to IFRSs IFRIC 19 - Extinguishing Financial Liabilities with Equity Instruments 1 July Amendment to IFRS 1 - First-time Adoption of International Financial Reporting Standards - Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters. 1 July 2010 Improvements to IFRSs Amendments to IFRS 3 - Business Combinations 1 July Amendments to IAS 27 - Consolidated and Separate Financial Statements 1 July IAS 24 - Related Party Disclosures (revised 2009) These amendments will result in increase in disclosures in the Fund's financial statements. 1 January Amendments to IFRIC 14 IAS 19 - The Limit on a Defined Benefit Assets, Minimum Funding Requirements and their Interaction. 1 January Amendments to IFRS 1 - First-time Adoption of IFRSs 1 January Amendments to IFRS 7 - Financial Instruments: Disclosures 1 January Amendments to IAS 1 - Presentation of Financial Statements 1 January Amendments to IAS 34 - Interim Financial Reporting 1 January Amendments to IFRIC 13 - Customer Loyalty Programmes 1 January Change in accounting policies Starting 1 July 2009, the Company has changed its accounting policies in the following areas: - "Revised IAS 1 Presentation of Financial Statements (2007)" became effective from 1 January The revised standard prohibits the presentation of items of income and expenses (that is, non-owner 23

27 Manufacturers of Quality PET Bottles and Preforms ANNUAL REPORT 2010 changes in equity ) in the statement of changes in equity, requiring non-owner changes in equity to be presented separately from owner changes in equity. All non-owner changes in equity are required to be shown in a performance statement, but entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and the statement of comprehensive income). Where entities restate or reclassify comparative information, they are required to present a restated balance sheet as at the beginning of comparative period in addition to the current requirement to present balance sheets at the end of the current period and comparative period. The Company has opted to present two statements; a profit and loss account and a statement of comprehensive income. - IFRS 8 - Operating Segments (effective from January 1, 2009). This standard requires the Company to determine and present operating segments based on the information that is provided internally to the Company s Chief Operating Decision Maker, that is, the organisation's function which allocates resources to and assesses performance of its operating segments. Management has determined that the Company has two reportable segments (details in note 3.11) and therefore the adoption of the said IFRS has resulted in segment analysis being presented as in note 35. "Comparative information has been re-presented so that it is in conformity with the revised / new standards. Since the change in accounting policies only affected presentation/ disclosures of financial statements, there is no impact on profit for the year and earnings per share." 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES The Significant accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 3.1 Employees' retirement benefits The main features of the schemes operated by the company for its employees are as follows Defined benefit plan A defined benefit plan is post employment benefit plan other than a defined contribution plan. The company's net obligation in respect of defined benefit plan is calculated by estimating the amount of future benefit that employees have earned in return for their service in current and prior periods, that benefit is discounted to determine its present value. The calculation is performed annually by a qualified actuary using the projected unit credit method. The Gratuity scheme is unfunded and covers those permanent employees & management staff of the Company who have completed prescribed qualifying period of service. Provision is made annually to cover obligations under the scheme on the basis of actuarial valuation. Past service cost is recognized immediately to the extent that the benefits are already vested. For non-vested benefits past service cost is amortized on the straight line basis over the average period until the amended benefits become vested. Actuarial gains or losses are recognized over the expected average remaining working lives of the employees participating in the plan. The following significant assumptions are used for valuation of these schemes. Discount rate 12% Per annum Expected rate of increase in salary level 12% Per annum 24

28 ANNUAL REPORT 2010 Manufacturers of Quality PET Bottles and Preforms Defined contribution plan A defined contribution plan is a post employment benefit plan under which the company pays fixed contribution into a separate entity and will have no legal and constructive obligation to pay further amounts. Obligation for contributions to defined contribution plans are recognized as an employee benefit expense in profit and loss account when they are due. The Company also operates an approved funded contributory provident fund for its permanent employees. Monthly contributions are made both by the Company and the employees at the rate of 5% per annum of the basic salary. 3.2 Taxation Income tax expense comprises of current and deferred tax. Income tax expense is recognised in profit and loss account except to the extent that it relates to item(s) recognized directly in equity, in which case it is also recognised in equity. Current Provision for current taxation is based on income streams chargeable at current rate of taxation under the normal tax regime after taking into account tax credits and tax rebates available, if any. The charge for current tax includes adjustments to charge for prior years, if any. Deferred Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates and the tax laws that have been enacted or substantively enacted by the balance sheet date. A deferred tax asset is recognised only when it is probable that future taxable profits will be available against which the deductible temporary differences can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized. 3.3 Property, plant and equipment Owned Property, plant and equipment, except for free hold land, building, plant & machinery and capital work in progress are stated at cost less accumulated depreciation and accumulated impairment loss, if any. Free hold land, building and plant & machinery are stated at revalued amounts less accumulated depreciation. Cost comprises acquisition and other directly attributable costs. Capital work in progress is stated at cost. Cost of certain property, plant and equipment comprises historical cost, exchange differences recognised in accordance with the previous forth schedule of the Companies Ordinance, cost of exchange risk of cover in respect of foreign currency loans obtained for the acquisition of plant and machinery up to the commencement of commercial production and the cost of borrowings during construction period in respect of loans taken for specific project. Disposal of assets is recognised when significant risks and rewards incidental to the ownership have been transferred to the buyers. Gains and losses on disposal of items of property, plant and equipment are recognised in profit and loss account. The related surplus on revaluation of property, plant and equipment, if any, is transferred directly to retained earnings (unappropriated profits). The cost of replacing parts of an item of property, plant and equipment is recognised in the carrying amount of the item, if it is probable that the future economic benefits embodied within the part will flow to the company and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day to day servicing of property, plant and equipment are recognised 25

29 Manufacturers of Quality PET Bottles and Preforms ANNUAL REPORT 2010 in profit and loss account as they are incurred. Depreciation is charged to profit and loss account applying either straight line method or written down value method, where the cost of an asset is written off over its estimated useful life. Depreciation on additions is charged from the month in which asset is available for use and on disposals up to the month immediately preceding that of deletion. The Company reviews the useful life and residual value of property, plant and equipment on a regular basis. Any change in estimate in future years might affect the carrying amounts of the respective items of property, plant and equipment with a corresponding effect on depreciation charge. Leased Leases in terms of which the Company assumes substantially all the risks and rewards of ownership, are classified as finance lease. Upon initial recognition, the leased asset is measured at an amount equal to lower of its fair value and present value of minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Outstanding obligations under the lease less finance cost allocated to future periods are shown as a liability. Finance costs under lease agreements are allocated to the periods during the lease term so as to produce a constant periodic rate of markup on the remaining balance of principal liability for each period. 3.4 Intangible assets Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. Software is stated at cost less accumulated amortization and accumulated impairment losses, if any. These are amortized using the straight line method over the estimated useful life of software. The estimated useful life and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Costs associated with maintaining computer software products are recognized as an expense as incurred. 3.5 Borrowing costs Borrowings costs are recognised as an expense in the period in which they are incurred except, to the extent of borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. Such borrowing costs, if any, are capitalized as part of the cost of that asset. 3.6 Stores, spares & loose tools Stores, spares and loose tools are valued at moving average cost except for items in transit, which are stated at cost incurred up to the balance sheet date. For items which are slow moving or identified as surplus to the company's requirements, adequate provision is made for any excess book value over estimated realizable value. The company reviews the carrying amounts of stores and spares on a regular basis and provision is made for the obsolescence. Net realizable value represents the estimated selling price for inventories less all estimated costs necessary to make the sale. 3.7 Stock-in-trade Stock-in-trade is valued at lower of cost and net realizable value. Cost is determined using the weighted 26