COMPANY INFORMATION Board of Directors Towfiq Habib Chinoy (Chairman) (Non-Executive Director) Syed Hyder Ali (Chief Executive & Managing Director) (E

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1 Contents Company information Directors report Condensed interim balance sheet Condensed interim profit and loss account Condensed interim statement of comprehensive income Condensed interim statement of changes in equity Condensed interim cash flow statement Notes to and forming part of the condensed interim financial information Packages Group condensed consolidated interim financial information Directors report on condensed consolidated interim financial information Condensed consolidated interim balance sheet Condensed consolidated interim profit and loss account Condensed consolidated interim statement of comprehensive income Condensed consolidated interim statement of changes in equity Condensed consolidated interim cash flow statement Notes to and forming part of the condensed consolidated interim financial information

2 COMPANY INFORMATION Board of Directors Towfiq Habib Chinoy (Chairman) (Non-Executive Director) Syed Hyder Ali (Chief Executive & Managing Director) (Executive Director) Asghar Abbas (Executive Director) Imran Khalid Niazi (Non-Executive Director) Josef Meinrad Mueller (Non-Executive Director) Muhammad Aurangzeb (Independent Director) Shamim Ahmad Khan (Non-Executive Director) Syed Aslam Mehdi (Non-Executive Director) Syed Shahid Ali (Non-Executive Director) Tariq Iqbal Khan (Non-Executive Director) Advisor Syed Babar Ali Chief Financial Officer Khurram Raza Bakhtayari Company Secretary Adi J. Cawasji Auditors A.F. Ferguson & Co. (Chartered Accountants) Legal Advisors Hassan & Hassan - Lahore Orr, Dignam & Co. - Karachi Shares Registrar FAMCO Associates (Pvt.) Ltd 8-F, Next to Hotel Faran Nursery, Block 6, P.E.C.H.S., Shahrah-e-Faisal, Karachi PABX : (021) : (021) Fax : (021) info.shares@famco.com.pk Bankers & Lenders Allied Bank Limited Askari Bank Limited Bank Alfalah Limited Bank Al-Habib Limited Deutsche Bank A.G. Dubai Islamic Bank Pakistan Limited Habib Bank Limited Habib Metropolitan Bank Limited International Finance Corporation (IFC) JS Bank Limited MCB Bank Limited Meezan Bank Limited Samba Bank Limited Soneri Bank Limited Standard Chartered Bank (Pakistan) Limited The Bank of Punjab The Bank of Tokyo - Mitsubishi UFJ, Limited United Bank Limited Rating Agency PACRA Credit Rating Long Term : AA Short Term : A1+ 2

3 Head Office & Works Shahrah-e-Roomi, P.O. Amer Sidhu, Lahore , Pakistan PABX : (042) Fax : (042) Offices Registered Office & Regional Sales office 4 th Floor, The Forum Suite No , G-20, Block 9, Khayaban-e-Jami, Clifton, Karachi-75600, Pakistan Zonal Sales Offices C-2, Hassan Arcade Nusrat Road, Multan Cantt , Pakistan Tel & Fax : (061) nd Floor Sitara Tower, Bilal chowk, Civil Lines, Faisalabad - Pakistan Tel : (041) Fax : (041) Web Presence PABX : (021) : (021) : (021) , , Fax : (021) Regional Sales Office 2 nd Floor, G.D. Arcade 73-E, Fazal-ul-Haq Road, Blue Area, Islamabad-44000, Pakistan PABX : (051) : (051) Fax : (051)

4 DIRECTORS REPORT FOR THE HALF YEAR ENDED JUNE 30, The Directors of Packages Limited are pleased to submit to its shareholders, the half yearly report along with the condensed interim un-audited financial statements of the Company for the half year ended June 30,. Financial and Operational Performance A comparison of the un-audited financial results for the half year ended as against June 30, is as follows: Net sales 4,331 4,008 8,827 8,591 EBITDA - operations ,019 1,459 Depreciation and amortisation (167) (146) (338) (294) EBIT - operations ,165 Finance costs (112) (173) (226) (282) Other (expenses) / income - net (59) (88) (160) (161) Investment income 2,039 1,748 3,550 3,127 Earnings before tax 2,141 1,938 3,844 3,849 Taxation (526) (401) (724) (720) Earnings after tax 1,615 1,537 3,120 3,129 Basic earnings per share - Rupees During the first half of, the Company has achieved net sales of Rs. 8,827 million against net sales of Rs. 8,591 million of corresponding period of last year, representing sales growth of 3%. However, the overall volume growth has been 6% which has been offset by price discounts passed onto the customers of the packaging division on the back of deflationary trends in the raw material and fuel and power costs. A brief review of the operations of the Company's business divisions is as follows: Consumer Products Division Consumer Products Division has registered sales of Rs. 2,205 million during the first half of as compared to Rs. 1,989 million of corresponding period of, representing sales growth of 11%. Operating results of the Division are higher by 12% during first half of over corresponding values of mainly on account of increased sales. Packaging Division For the second quarter Apr - June Apr - June Jan - June Cumulative Jan - June ( R u p e e s i n m i l l i o n ) Packaging Division s net sales of Rs. 6,509 million during first half of have been stagnant as compared 4

5 to corresponding period of year. This is primarily on account of lower sales to tobacco industry. The stagnant sales combined with inflationary fixed cost increases have adversely affected the operating results of the Packaging Division. The Company is focusing on revenue growth through higher volumes, better product mix and stricter controls over fixed costs to improve the operating results and is confident that its full year targets will be met. The production statistics for the period under review along with its comparison with the corresponding period are as follows: Jan - June Jan - June Consumer products produced - tons 7,384 7,778 Carton board & consumer products converted - tons 20,588 19,587 Plastics all sorts converted - tons 10,044 8,670 Proposed transaction of purchase of 35% shares held by Stora Enso in Bulleh Shah Packaging (Private) Limited The Board of Directors has resolved to purchase 35% shares held by Stora Enso in Bulleh Shah Packaging (Private) Limited ("BSPPL") at a price of upto USD 8 million equivalent to Rs. 850 million approximately subject to exchange variation on date of payment subject to certain adjustments ("Proposed Transaction"). The Board of Directors of Packages strongly believes in the future growth prospects of the Company leading to considerable benefit to the shareholders. Real estate development - Packages Mall Packages Mall was inaugurated on 20 th April, and the customer response has been very encouraging. Moving forward, the Board believes that this investment will bring considerable benefit to the shareholders in the form of dividend income and capital gains. Future Outlook As part of its diversification strategy, the Company hopes to continue exploring investment opportunities. Despite rising competition in packaging business, the Company will continue to focus on improving shareholders' value by increasing and diversifying revenue and expanding customer base, investment in new technology and production efficiencies. The joint venture with Omya Pack for production of calcium carbonate has commenced its construction activity and commercial production is targeted for Q Company's Staff and Customers We wish to record our appreciation of the commitment of our employees to the Company and continued patronage of our customers. (Towfiq Habib Chinoy) Chairman Lahore, August 21, (Syed Hyder Ali) Chief Executive & Managing Director Lahore, August 21, 5

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7 8,591 8,827 4,008 4,331 1,459 1, (294) (338) (146) (167) 1, (282) (226) (173) (112) (161) (160) (88) (59) 3,127 3,550 1,748 2,039 3,849 3,844 1,938 2,141 (720) (724) (401) (526) 3,129 3,120 1,537 1,

8 PACKAGES LIMITED CONDENSED INTERIM BALANCE SHEET (UN-AUDITED) as at EQUITY AND LIABILITIES CAPITAL AND RESERVES Authorised capital 150,000,000 (December 31, : 150,000,000) ordinary shares of Rs. 10 each 1,500,000 1,500,000 22,000,000 (December 31, : 22,000,000) 10% non-voting preference shares / convertible stock of Rs. 190 each 4,180,000 4,180,000 Issued, subscribed and paid up capital 89,379,504 (December 31, : 89,379,504) ordinary shares of Rs. 10 each 893, ,795 Reserves 52,929,493 49,550,396 Preference shares /convertible stock reserve 606, ,222 Un-appropriated profit 3,574,704 1,734,057 NON-CURRENT LIABILITIES 58,004,214 52,784,470 Long term finances 6 2,914,810 3,575,520 Liabilities against assets subject to finance lease 21,927 26,057 Deferred taxation 7 353, ,085 Retirement benefits 95,409 87,304 Deferred liabilities 342, ,996 CURRENT LIABILITIES 3,728,347 4,337,962 Current portion of long term liabilities 953, ,732 Finances under mark up arrangements - secured 1,555,482 1,377,033 Trade and other payables 3,094,373 2,847,914 Accrued finance costs 118, ,730 5,721,981 5,025,409 CONTINGENCIES AND COMMITMENTS Note Un-audited December 31, Audited 67,454,542 62,147,841 8

9 ASSETS NON-CURRENT ASSETS Note December 31, Un-audited Audited Property, plant and equipment 9 4,330,961 4,198,410 Investment properties 129, ,179 Intangible assets 10 5,550 9,866 Investments 11 54,456,879 50,077,782 Long term loans and deposits 23,412 25,958 58,946,664 54,445,195 CURRENT ASSETS Stores and spares 507, ,875 Stock-in-trade 1,980,227 1,768,706 Trade debts 2,436,009 2,171,966 Loans, advances, deposits, prepayments and other receivables 1,222,620 1,081,622 Income tax receivable 12 2,294,169 2,125,865 Cash and bank balances 66,928 90,612 8,507,878 7,702,646 67,454,542 62,147,841 The annexed notes 1 to 22 form an integral part of this condensed interim financial information. Towfiq Habib Chinoy Chairman Syed Hyder Ali Chief Executive & Managing Director Asghar Abbas Director Khurram Raza Bakhtayari Chief Financial Officer 9

10 PACKAGES LIMITED CONDENSED INTERIM PROFIT AND LOSS ACCOUNT (UN-AUDITED) for the quarter and half year ended Note Quarter ended Half year ended ( R u p e e s i n t h o u s a n d ) Local sales 5,113,168 4,674,203 10,415,989 10,038,750 Export sales 3,097 7,411 11,376 13,348 Gross sales 5,116,265 4,681,614 10,427,365 10,052,098 Less: Sales tax 784, ,171 1,600,481 1,445,996 Commission - 6,762-15, , ,933 1,600,481 1,461,159 Net sales 4,331,271 4,007,681 8,826,884 8,590,939 Cost of sales 13 (3,462,117) (3,112,958) (7,017,868) (6,496,262) Gross profit 869, ,723 1,809,016 2,094,677 Administrative expenses 13.1 (301,011) (223,524) (543,846) (450,029) Distribution and marketing costs (295,440) (220,323) (584,099) (479,308) Other operating expenses (117,230) (152,310) (266,479) (298,883) Other income 58,448 64, , ,740 Profit from operations 213, , ,778 1,004,197 Finance costs (112,063) (172,621) (226,462) (281,563) Investment income 2,039,119 1,747,611 3,549,831 3,126,705 Profit before taxation 2,140,977 1,937,926 3,844,147 3,849,339 Taxation 14 (525,767) (401,269) (724,013) (719,872) Profit for the period 1,615,210 1,536,657 3,120,134 3,129,467 Basic earnings per share Rupees Diluted earnings per share Rupees The annexed notes 1 to 22 form an integral part of this condensed interim financial information. Towfiq Habib Chinoy Chairman Syed Hyder Ali Chief Executive & Managing Director Asghar Abbas Director Khurram Raza Bakhtayari Chief Financial Officer 10

11 PACKAGES LIMITED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME (UN-AUDITED) for the quarter and half year ended Quarter ended Half year ended ( R u p e e s i n t h o u s a n d ) Profit for the period 1,615,210 1,536,657 3,120,134 3,129,467 Other comprehensive income / (loss): Items that will not be reclassified to profit or loss Remeasurement of retirement benefit obligations - (5,516) - (5,516) Tax effect - 1,655-1,655 Items that may be reclassified subsequently to profit or loss - (3,861) - (3,861) Changes in fair value of available-for-sale financial assets 4,032,419 1,115,757 4,379,097 (1,824,624) Other comprehensive income / (loss) for the period - net of tax 4,032,419 1,111,896 4,379,097 (1,828,485) Total comprehensive income for the period 5,647,629 2,648,553 7,499,231 1,300,982 The annexed notes 1 to 22 form an integral part of this condensed interim financial information. Towfiq Habib Chinoy Chairman Syed Hyder Ali Chief Executive & Managing Director Asghar Abbas Director Khurram Raza Bakhtayari Chief Financial Officer 11

12 PACKAGES LIMITED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY (UN-AUDITED) for the half year ended Appropriation of funds Transfer to general reserve ,500,000 (1,500,000) - Transaction with preference shareholders Redemption of preference shares/convertible stock (500,000 preference shares of Rs. 190 each) (37,024) 95,000 - (245,010) (187,034) Total transactions with owners, recognised directly in equity Final dividend for the year ended December 31, 2015 of Rs per share (1,340,693) (1,340,693) Conversion of preference shares/convertible stock into ordinary share capital (1,000,000 ordinary shares of Rs. 10 each) 10, ,969 - (74,049) ,920 Total comprehensive income for the period ended 10, ,969 - (74,049) - - (1,340,693) (1,226,773) Profit for the period ,129,467 3,129,467 Other comprehensive income: Changes in fair value of available-for-sale financial assets - - (1,824,624) (1,824,624) Remeasurement of retirement benefit obligations (3,861) (3,861) Total comprehensive income for the period - - (1,824,624) ,125,606 1,300,982 Balance as on (un-audited) 893,795 3,766,738 22,654,604 1,198,609 95,000 15,310,333 3,754,469 47,673,548 Balance as on January 01, (audited) 893,795 3,766,738 28,858, ,222 1,615,000 15,310,333 1,734,057 52,784,470 Appropriation of funds Transfer from general reserve (1,000,000) 1,000,000 - Transaction with preference shareholders Participating dividend on preference shares - note (45,000) (45,000) Transaction with owners, recognised directly in equity Final dividend for the year ended December 31, of Rs per share (2,234,487) (2,234,487) Total comprehensive income for the period ended Issued, subscribed and paid up capital Preference shares / Capital Share Share Fair value convertible redemption General Un-appropriated capital premium reserve stock reserve reserve reserve profits Total ( R u p e e s i n t h o u s a n d ) Balance as on January 01, (audited) 883,795 3,588,769 24,479,228 1,309,682-13,810,333 3,714,566 47,786,373 Profit for the period ,120,134 3,120,134 Other comprehensive income: Changes in fair value of available-for-sale financial assets - - 4,379, ,379,097 Total comprehensive income for the period - - 4,379, ,120,134 7,499,231 Balance as on (un-audited) 893,795 3,766,738 33,237, ,222 1,615,000 14,310,333 3,574,704 58,004,214 The annexed notes 1 to 22 form an integral part of this condensed interim financial information. Capital reserves Reserves Revenue reserves Capital and reserves Towfiq Habib Chinoy Chairman Syed Hyder Ali Chief Executive & Managing Director Asghar Abbas Director Khurram Raza Bakhtayari Chief Financial Officer 12

13 PACKAGES LIMITED CONDENSED INTERIM CASH FLOW STATEMENT (UN-AUDITED) for the half year ended Cash flow from operating activities Note Half year ended Un-audited Un-audited Cash generated from operations ,597 1,172,550 Finance cost paid (329,466) (420,481) Income tax paid (882,840) (1,320,156) Payments for accumulating compensated absences (14,567) (12,390) Retirement benefits paid (10,537) (8,439) Net cash outflow from operating activities (725,813) (588,916) Cash flow from investing activities Fixed capital expenditure (491,191) (731,249) Investments made in equity securities - (366,667) Investments made in Government securities (1,449,997) - Proceeds from disposal of Government securities 1,452,831 - Long term loans and deposits - net 2,168 (676) Proceeds from disposal of property, plant and equipment 33,985 79,533 Dividends received 3,549,831 3,126,705 Net cash inflow from investing activities 3,097,627 2,107,646 Cash flow from financing activities Repayment of long term finances - secured (285,710) (100,000) Redemption of preference shares - (297,500) Liabilities against assets subject to finance lease - net (8,544) (3,086) Participating dividend on preference shares paid (45,000) - Ordinary dividend paid (2,234,693) (1,340,933) Net cash outflow from financing activities (2,573,947) (1,741,519) Net decrease in cash and cash equivalents (202,133) (222,789) Cash and cash equivalents at the beginning of the period (1,286,421) (782,741) Cash and cash equivalents at the end of the period 18 (1,488,554) (1,005,530) The annexed notes 1 to 22 form an integral part of this condensed interim financial information. Towfiq Habib Chinoy Chairman Syed Hyder Ali Chief Executive & Managing Director Asghar Abbas Director Khurram Raza Bakhtayari Chief Financial Officer 13

14 PACKAGES LIMITED NOTES TO AND FORMING PART OF THE CONDENSED INTERIM FINANCIAL INFORMATION (UN-AUDITED) for the half year ended 1. Legal status and nature of business Packages Limited ('the Company') is a public limited company incorporated in Pakistan and is listed on Pakistan Stock Exchange Limited. It is principally engaged in the manufacture and sale of packaging materials and tissue products. The registered office of the Company is situated at 4 th Floor, the Forum, Suite No , G-20, Block 9, Khayaban-e-Jami, Clifton, Karachi, Pakistan. Head office and factory is located at Shahrah-e-Roomi, P.O. Amer Sidhu, Lahore, Pakistan. The Company also holds investment in companies engaged in the manufacture and sale of inks, flexible packaging material, paper, paperboard and corrugated boxes, biaxially oriented polypropylene ('BOPP') film and cast polypropylene ('CPP') film, production and sale of ground calcium carbonate products and companies engaged in insurance, power generation and real estate business. 2. Basis of preparation This condensed interim financial information is un-audited. During the current period, the Companies Ordinance, 1984 has been repealed after the enactment of the Companies Act,. However, as allowed by the Securities and Exchange Commission of Pakistan ('SECP') vide Circular No. CLD/CCD/PR(11)/ dated July 20, and further clarified through its press release dated July 20,, companies whose financial year, and other interim period, closes on or before, shall prepare their financial statements in accordance with the provisions of the repealed Companies Ordinance, Accordingly, this financial information has been prepared in accordance with the requirements of International Accounting Standard ('IAS') 34 - 'Interim Financial Reporting' and provisions of and directives issued under the Companies Ordinance, In case where requirements differ, the provisions of or directives issued under the Companies Ordinance, 1984 have been followed. The figures for the half year ended have, however, been subjected to limited scope review by the auditors. This condensed interim financial information does not include all the information required for annual financial statements and therefore should be read in conjunction with the company's annual financial statements for the year ended December 31,. 3. Significant accounting policies 3.1 The accounting policies adopted for the preparation of this condensed interim financial information are the same as those applied in the preparation of preceding annual published financial statements of the Company for the year ended December 31,. 3.2 Initial application of standards, amendments or an interpretation to existing standards The following amendments to existing standards have been published that are applicable to the Company's condensed interim financial information covering annual periods, beginning on or after the following dates: Standards, amendments and interpretations to approved accounting standards that are effective in the current period Certain standards, amendments and interpretations to approved accounting standards are effective for accounting periods beginning on January 01,, but are considered not to be relevant or to have any significant effect on the Company s operations (although they may affect the accounting for future transactions and events) and are, therefore, not detailed in this condensed interim financial information. 14

15 3.2.2 Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Company There are certain standards, amendments to the approved accounting standards and interpretations that are mandatory for the companies having accounting periods beginning on or after January 01, 2018 but are considered not to be relevant or to have any significant effect on the Company's operations and are, therefore, not detailed in these financial statements, except for the following: - Amendments to IAS 40, 'Investment property' related to transfer of investment property are applicable on accounting periods beginning on or after January 01, These amendments clarify that to transfer to, or from, investment properties there must be a change in use. To conclude if a property has changed use, there should be an assessment of whether the property meets the definition. This change must be supported by evidence. 4. Income tax expense is recognised based on management s best estimate of the weighted average annual income tax rate expected for the full financial year. 5. The preparation of this condensed interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. In preparing this condensed interim financial information, the significant judgements made by management in applying the Company s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the financial statements for the year ended December 31,, with the exception of changes in estimates that are required in determining the provision for income taxes as referred to in note Long term finances Local currency loans - secured 6.1 2,928,580 3,214,290 Preference shares / convertible stock - unsecured , ,650 3,861,230 4,146,940 Current portion shown under current liabilities (946,420) (571,420) 6.1 Local currency loans - secured 2,914,810 3,575,520 Opening balance 3,214,290 2,100,000 Receipts during the period / year - 3,000,000 3,214,290 5,100,000 Repayments during the period / year (285,710) (1,885,710) Closing balance 2,928,580 3,214, Preference shares / convertible stock - unsecured Note Un-audited December 31, Audited Opening balance 932,650 2,014,895 Transfer to capital and reserves [Nil shares (December 31, : 1,000,000 shares)] - for conversion into ordinary shares - (113,921) Extinguishment of liability upon redemption of preference shares [Nil shares (December 31, : 8,500,000 shares)] - (968,324) Closing balance 932, ,650 15

16 7. The Divisional Bench of Sindh High Court in an order dated May 7, 2013 in case of another company has interpreted section 113(2)(c) of the Income Tax Ordinance, 2001 ('Ordinance') in the manner that the benefit of carry forward of minimum tax paid is not available, if otherwise no tax was payable by the company due to taxable loss. Taking a prudent view on the matter, the Company has not adjusted the net deferred tax liability against aggregate tax credits of Rs million (December 31, : Rs million) available under section 113 of the Ordinance. Tax credits under section 113 of the Ordinance amounting to Rs million and Rs million are set to lapse by the end of years ending on December 31, and 2018 respectively. 8. Contingencies and commitments 8.1 Contingencies (i) (ii) (iii) Claims against the Company not acknowledged as debts aggregating Rs million (December 31, : Rs million). Post dated cheques not provided in this condensed interim financial information have been furnished by the Company in favor of the Collector of Customs against custom levies aggregating Nil (December 31, : Rs million) in respect of goods imported. Standby letter of credit issued by Habib Bank Limited - Pakistan ('HBL Pakistan') in favor of Habib Bank Limited - Bahrain ('HBL Bahrain') on behalf of the Company amounting to USD million (equivalent to PKR 1, million) [December 31, : USD million (equivalent to PKR 1, million)]. (iv) Letters of guarantees issued to various parties aggregating Rs million (December 31, : Rs million). 8.2 Commitments in respect of (i) (ii) Letters of credit and contracts for capital expenditure aggregating Rs million (December 31, : Rs million). Letters of credit and contracts other than for capital expenditure aggregating Rs million (December 31, : Rs million). 9. Property, plant and equipment Note Un-audited December 31, Audited Operating assets - at net book value Owned assets 9.1 4,070,364 4,060,129 Assets subject to finance lease 31,904 33, ,102,268 4,093,392 Capital work-in-progress , ,018 4,330,961 4,198, A portion of the land on which the Company s factory is situated is on lease from the Government of Punjab for the past 60 years. The term of this lease has expired in December 2015 and the Company has filed an application with the relevant authorities for its renewal. 16

17 9.2 Operating assets December 31, Note Un-audited Audited Opening net book value 4,093,392 3,575,260 Additions during the period / year ,003 1,133,266 Transfer from investment properties - 47, ,003 1,180,562 Disposals during the period / year at book value (28,569) (42,006) Transfer to investment properties - (14,005) Depreciation charged during the period / year (330,558) (606,419) (359,127) (662,430) Closing net book value 4,102,268 4,093, Additions during the period / year Freehold land - 22,950 Buildings on freehold land 12,097 39,533 Plant and machinery 282, ,046 Other equipment 35, ,944 Furniture and fixtures Vehicles 37,931 97, ,003 1,133, Capital work-in-progress Civil works 48,760 8,810 Plant and machinery 119,947 58,595 Other equipment 201 1,923 Advances to suppliers 59,785 35, , , Intangible assets Opening book value 9,866 20,729 Additions during the period / year - 4,963 Amortisation charged during the period / year (4,316) (15,826) Closing book value 5,550 9, Investments Opening balance 50,077,782 44,997,518 Investments made during the period / year ,167 Changes in fair value of available-for-sale financial assets 4,379,097 4,379,097 Closing balance 54,456,879 50,077, Investments made in related parties during the period / year Packages Power (Private) Limited - 25,000 OmyaPack (Private) Limited [Formerly CalciPack (Private) Limited] - 309,500 Tri-Pack Films Limited - 366, , As of, an aggregate of 775,000 shares (December 31, : 775,000 shares) of Nestle Pakistan Limited having market value Rs. 7,905 million (December 31, : Rs. 6,975 million) were pledged in favor of HBL Pakistan. Out of aggregate shares pledged, 410,000 shares (December 31, : 410,000 shares) were pledged against issuance of standby letter of credit in favor of HBL Bahrain as referred to in note 8.1 and the remaining 365,000 shares (December 31, : 365,000 shares) were pledged against the term finance loan obtained from HBL Pakistan. 17

18 12. Income tax receivable (i) In respect of tax year, the department has, against taxable income of Rs. 1, million as per return filed by the Company, assessed a taxable income of Rs. 2, million and amended the deemed order for the year raising a tax demand of Rs million. In this order, the income tax department has disallowed various expenses and deductions amounting to Rs. 1, million including disallowances on account of allocation of various expenses towards dividend income amounting to Rs. 1, million, where as minimum tax credit has been disallowed amounting to Rs million. The Company is contesting the above order before Commissioner Inland Revenue (Appeals) and has not made any provision against the above demand or disallowances as the management is confident that the ultimate outcome of the appeals would be in favor of the Company, inter alia on the basis of the advice of the tax consultant and the relevant law and the facts. (ii) In respect of tax year 2014, the department has, against taxable loss of Rs million as per return filed by the Company, assessed a taxable income of Rs billion and amended the deemed order for the year raising a tax demand of Rs million. In this order, among other issues, the income tax department has not accepted the Company s contention for non-taxation of the transfer of paper & paperboard and corrugated business segments to Bulleh Shah Packaging (Private) Limited ('BSPPL') under section 97 of the Ordinance. Such transfer has been taxed as capital gain on the value of assets transferred. The matter is currently being contested before the Commissioner Inland Revenue (Appeals). Further, certain other disallowances inter alia including on account of allocation of various expenses towards dividend and other incomes, effectively reducing the available tax losses by approximately Rs. 1.2 billion, have also been made by the department in respect of previous tax years. The Company is contesting the above orders before Commissioner Inland Revenue (Appeals) and has not made any provision against the above demand or disallowances as the management is confident that the ultimate outcome of the appeals would be in favor of the Company, inter alia on the basis of the advice of the tax consultant and the relevant law and the facts. (iii) In 1987, the then Income Tax Officer ('ITO') re-opened the Company s assessments for the accounting years ended December 31, 1983 and 1984 disallowing primarily tax credit given to the Company under section 107 of the Income Tax Ordinance, The tax credit amounting to Rs million on its capital expenditure for these years was refused on the grounds that such expenditure represented an extension of the Company s undertaking which did not qualify for tax credit under this section in view of the Company s location. The assessments for these years were revised by the ITO on these grounds and taxes reassessed were adjusted against certain sales tax refunds and the tax credits previously determined by the ITO and set off against the assessments framed for these years. The Company had filed an appeal against the revised orders of the ITO before the then Commissioner of Income Tax (Appeals) ['CIT(A)'], Karachi. CIT(A) in his order issued in 1988, held the assessments reframed by the ITO for the years 1983 and 1984 presently to be void and of no legal effect. The ITO has filed an appeal against the CIT(A) s order with the then Income Tax Appellate Tribunal ('ITAT'). The ITAT has in its order issued in 1996 maintained the order of CIT(A). The assessing officer after the receipt of the appellate order passed by CIT(A), had issued notices under section 65 of the Income Tax Ordinance, 1979 and the Company had filed a writ petition against the aforesaid notices with the High Court of Sindh, the outcome of which is still pending. The amount recoverable Rs million represents the additional taxes paid as a result of the disallowance of the tax credits on reframing of the assessments. The Company has not made any provision against the above order as the management is confident that the ultimate outcome of the writ petition would be in favor of the Company, inter alia on the basis of the advice of the tax consultant and the relevant law and the facts. 18

19 13. Cost of sales Materials consumed 2,493,950 2,132,898 4,925,335 4,477,771 Salaries, wages and amenities 354, , , ,886 Travelling 7,388 7,785 12,030 12,300 Fuel and power 163, , , ,516 Production supplies 92,371 99, , ,557 Rent, rates and taxes 8,037 7,632 16,075 16,448 Insurance 9,309 8,397 16,510 16,603 Repairs and maintenance 77,477 98, , ,800 Packing expenses 76,028 73, , ,322 Depreciation on property, plant and equipment 150, , , ,005 Amortisation of intangible assets 1,345 2,434 3,919 4,867 Technical fee and royalty 6,440 16,160 11,245 19,326 Other expenses 62,962 42, ,799 98,229 3,503,489 3,071,585 6,969,013 6,344,630 Opening work-in-process 249, , , ,945 Closing work-in-process (237,831) (151,157) (237,831) (151,157) Cost of goods manufactured 3,515,483 3,080,311 6,950,808 6,404,418 Opening stock of finished goods 444, , , ,591 Closing stock of finished goods (497,513) (446,747) (497,513) (446,747) 3,462,117 3,112,958 7,017,868 6,496, In June, Walton Cantonment Board concluded its assessment for property tax relating to June 2014 to June resulting in a one off adjustment of Rs.42 million which has been changed in the current period. Quarter ended Half year ended 14. Taxation Current Quarter ended Un-audited ( R u p e e s i n t h o u s a n d ) Un-audited Un-audited Un-audited Half year ended Un-audited Un-audited Un-audited Un-audited ( R u p e e s i n t h o u s a n d ) For the period 275, , , ,157 Prior years 205, , , , , , , ,506 Deferred 44,476 (26,634) 9, , , , , , Through the Finance Act,, an amendment has been made to section 5A of the Ordinance whereby 'tax on undistributed reserves' has been substituted by 'tax on undistributed profits'. As per the amended provision, income tax at the rate of 7.5% of accounting profit before tax for tax year and onwards is applicable where the Company does not distribute at least 40% of its after tax profits, whether in the form of cash or bonus shares, within nine months of the end of tax year, i.e. September 30,, and within six months of the end of tax year 2018 and onwards. Liability in respect of such income tax, if any, is recognised when the prescribed time period for distribution expires. The Company has already distributed 40% of its after tax profits for the tax year. 15. As per the terms of Subscription Agreement dated March 25, 2009 with International Finance Corporation ('IFC'), in addition to the preferred right of return at the rate of 10 percent per annum, either in cash or ordinary shares on a non-cumulative basis till the date of settlement of preference 19

20 shares / convertible stock, the preference shareholders also have the right to share the excess amount with the ordinary shareholders on an as-converted basis in case the amount of dividend per share paid to an ordinary shareholder exceeds that paid to a preference shareholder. Since ordinary dividend of Rs per share was approved for the year ended December 31,, which exceeded the preferred return for that year, the additional preference dividend to be paid to the preference shareholders has been distributed to the preference shareholders as participating dividend and charged directly to the equity. 16. Transactions and balances with related parties Significant transactions and balances with related parties other than those disclosed in respective notes are as follows: Half year ended Un-audited Un-audited Relationship with the Nature of transactions Company i. Subsidiaries Purchase of goods and services 530, ,724 Sale of goods and services 74,038 56,947 Dividend income 172, ,185 Rental and other income 18,434 12,157 Management and technical fee 29,226 16,473 ii. Joint ventures Purchase of goods and services 1,259,127 1,274,658 Sale of goods and services 51,474 36,122 Rental and other income 34,005 31,737 Sale of property, plant and equipment 1,168 9,781 iii. Associates Purchase of goods and services 492, ,709 Sale of goods and services 12,957 1,058 Insurance premium 82,032 69,833 Commission earned 3,544 4,231 Insurance claims received 1, Rental and other income 5, Dividend income 129, ,088 Investment in equity - 366,667 iv. Retirement benefit Expense charged in respect obligations of retirement benefit plans 61,594 46,103 v. Key management personnel Salaries and other employee benefits 58,977 55,954 vi. Other related party Donations made 45,580 12,440 All transactions with related parties have been carried out on mutually agreed terms and conditions. There are no transactions with key management personnel other than under the terms of employment. Period / year end balances December 31, Un-audited Audited Receivable from related parties Subsidiaries 88,144 60,935 Joint ventures 521, ,311 Associates 17,331 19,645 Payable to related parties Subsidiaries 91,494 94,010 Joint ventures 326, ,884 Associates 41,564 56,914 Retirement benefit obligations 18,541 15,948 These are in the normal course of business and are interest free. 20

21 17. Cash generated from operations Half year ended Un-audited Un-audited Profit before tax 3,844,147 3,849,339 Adjustments for non-cash items: Depreciation on property, plant and equipment 330, ,803 Depreciation on investment properties 3,317 2,303 Amortisation on intangible assets 4,316 8,462 Capital gain on disposal of Government securities (2,834) - Provision for accumulating compensated absences 52,210 35,952 Provision for retirement benefits 18,642 3,552 Profit on disposal of property, plant and equipment (5,416) (53,543) Exchange loss 9, Finance costs 226, ,563 Provision for doubtful debts - 21,170 Provision against pending claims (17,809) (32,357) Provisions and unclaimed balances written back (852) (9,736) Capital work-in-progress charged to profit or loss 1,172 - Provision for slow moving stores and spares 3,176 - Dividend income (3,549,831) (3,126,705) Profit before working capital changes 916,407 1,263,603 Effect on cash flow due to working capital changes (Increase) / decrease in trade debts (246,144) 43,226 (Increase) / decrease in stores and spares (47,226) 53,509 Increase in stock-in-trade (211,521) (7,546) Increase in loans, advances, deposits, prepayments and other receivables (103,725) (161,580) Increase / (decrease) in trade and other payables 203,806 (18,662) 18. Cash and cash equivalents (404,810) (91,053) 511,597 1,172,550 Cash and bank balances 66, ,246 Finances under mark up arrangements - secured (1,555,482) (1,106,776) 19. Financial risk management 19.1 Financial risk factors (1,488,554) (1,005,530) The Company's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The condensed interim financial information does not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Company's annual financial statements as at December 31,. There have been no significant changes in the risk management policies since the year end. 21

22 19.2 Fair value estimation The different levels for fair value estimation used by the Company have been explained as follows: - Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) - Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). The following table presents the Company s material financial assets and liabilities that are measured at fair value at. Un-audited Assets Level 1 Level 2 Level 3 Total Recurring fair value measurements Available-for-sale investments 37,222, ,222,330 Liabilities The following table presents the Company s material financial assets and liabilities that are measured at fair value at December 31,. Audited Assets Level 1 Level 2 Level 3 Total Recurring fair value measurements Available-for-sale investments 32,843, ,843,232 Liabilities During the period, there were no significant changes in the business or economic circumstances that affect the fair value of the Company s financial assets and financial liabilities. Furthermore, there were no reclassifications of financial assets. 20. Date of authorisation for issue This condensed interim financial information was authorised for issue on August 21, by the Board of Directors of the Company. 21. Events after the balance sheet date The Board of Directors of the Company, at its meeting held on July 26,, has resolved to purchase 35% shares held by Stora Enso in BSPPL at a price of up to USD 8 million (equivalent to Rs. 850 million approximately), subject to exchange variation on payment date and certain adjustments. Upon completion of the proposed transaction, BSPPL shall become a wholly owned subsidiary of the Company. Consummation of the proposed transaction is subject to execution of a share purchase agreement and procurement of all applicable corporate and regulatory approvals and other customary transaction related conditions including approval of shareholders through special resolution at the Extraordinary General Meeting of the Company which is scheduled to be held on August 28,. 22. Corresponding figures In order to comply with the requirements of International Accounting Standard 34 - Interim Financial Reporting, the condensed interim balance sheet has been compared with the balances of annual audited financial statements of preceding financial year, whereas, the condensed interim profit and loss account, condensed interim statement of comprehensive income, condensed interim statement of changes in equity and condensed interim cash flow statement have been compared with the balances of comparable period of immediately preceding financial year. Corresponding figures have been re-arranged and reclassified, wherever necessary, for the purposes of comparison. However, no significant reclassifications have been made. Towfiq Habib Chinoy Chairman Syed Hyder Ali Chief Executive & Managing Director Asghar Abbas Director Khurram Raza Bakhtayari Chief Financial Officer 22

23 Packages Group Condensed Consolidated Interim Financial Information

24 DIRECTORS' REPORT ON CONSOLIDATED FINANCIAL STATEMENTS FOR THE HALF YEAR ENDED JUNE 30, The Directors of Packages Limited are pleased to submit the un-audited consolidated financial statements of the Group for the half year ended. Group results A comparison of the un-audited results for the half year ended as against is as follows: Jan - June Jan - June Net sales from operations 13,215 12,285 EBIT - operations 1,300 1,615 Share of profit in associates and joint venture - net of tax Investment income 3,248 2,792 Profit after tax 3,232 3,328 During the first half of, Group has achieved net sales of Rs. 13,215 million against net sales of Rs. 12,285 million achieved during corresponding period of last year representing sales growth of 8% with an operating profit of Rs. 1,300 million compared to Rs. 1,615 million generated during the corresponding period of the year. This decrease in operating profit is primarily attributable to almost stagnant sales primarily in packaging segment combined with inflationary fixed cost increases and decline in sales volumes to organized tobacco industry. The Group is exercising stricter cost controls and is in the process of implementing various initiatives to bring down fixed costs and to increase sales volume. Investment income has increased by Rs. 456 million during the first half of over corresponding values of that is primarily due to improved performance of investee companies. A brief review of the operational performance of the Group subsidiaries is as follows: DIC Pakistan Limited DIC Pakistan Limited is a non-listed public limited subsidiary of Packages Limited. It is principally engaged in manufacturing, processing and selling of industrial inks. The Company has achieved net sales of Rs. 1,887 million during the first half of the year as compared to Rs. 1,869 million of the corresponding period of last year. The Company has generated profit before tax of Rs. 233 million during the first half of the year as against Rs. 293 million generated during corresponding period of primarily on account of stagnation in sales coupled with increase in fixed costs. Moving forward, the Company will continue its focus on improving operating results through tighter operating cost control, product diversification, price rationalization and better working capital management. Packages Lanka (Private) Limited (Rupees in million) Packages Lanka (Private) Limited is a Sri Lanka based subsidiary of Packages Limited. It is primarily engaged in production of flexible packaging solutions. During the first half of, the Company has 24

25 achieved sales of SLR 1,114 million as compared to SLR 956 million of the corresponding period of last year representing sales growth of 17%. This increase in sales growth has been partially offset by increasing raw material prices. The Company has generated profit before tax of SLR 152 million during the first half of the year as against Rs. 149 million generated during corresponding period of. Moving forward, the Company's focus will remain on improving operating results through product diversification and price rationalization. Bulleh Shah Packaging (Private) Limited Bulleh Shah Packaging (Private) Limited is private limited company. It is principally engaged in the manufacturing and conversion of paper and paperboard products. The Company has achieved sales of Rs. 9,138 million during the first half of the year as compared to Rs. 8,611 million of the corresponding period of last year representing overall sales growth of 6%. The Company has recorded loss before tax of Rs. 38 million during the first half of the year as compared to profit before tax of Rs. 59 million generated during corresponding period of primarily on account of depreciation and finance cost relating to biomass boiler which was capitalised in Q2 of. Flexible Packages Convertors (Pty) Limited Flexible Packages Convertors (Pty) Limited is private limited company based in South Africa. It is principally engaged in the manufacture of flexible packaging material. During the first half of, the company achieved net sales revenue of USD 16.4 million as compared to USD 15 million of the corresponding period of last year. Operating results of the Company are lower as compared to primarily on account of investment made in human resources to grow the business further. Moving forward, the Company will continue its focus on improving operating results through tighter operating cost control, increased sales volumes and product diversification. Packages Construction (Private) Limited Packages Mall was inaugurated on 20 th April, and the customer response has been very encouraging. Moving forward, the Board believes that this investment will bring considerable benefit to the shareholders in the form of dividend income and capital gains. Packages Power (Private) Limited Packages Power (Private) Limited is a wholly owned subsidiary of Packages Limited for the purpose of setting up a 3.1 MW hydropower project as advertised by the Punjab Power Development Board (PPDB). Accordingly, an initial equity injection of Rs. 25 million was made in December. The Company has initiated a feasibility study, after the issuance of Letter of Interest by PPDB, which is likely to be completed by fourth quarter of. (Towfiq Habib Chinoy) Chairman Lahore, August 21, (Syed Hyder Ali) Chief Executive & Managing Director Lahore, August 21, 25

26 26

27 12,285 1, ,792 3,328 13,215 1, ,248 3,232 27

28 PACKAGES GROUP CONDENSED CONSOLIDATED INTERIM BALANCE SHEET (UN-AUDITED) as at EQUITY AND LIABILITIES CAPITAL AND RESERVES Authorised capital 150,000,000 (December 31, : 150,000,000) ordinary shares of Rs. 10 each 1,500,000 1,500,000 22,000,000 (December 31, : 22,000,000) 10% non-voting preference shares / convertible stock of Rs. 190 each 4,180,000 4,180,000 Issued, subscribed and paid up capital 89,379,504 (December 31, : 89,379,504) ordinary shares of Rs. 10 each 893, ,795 Reserves 52,741,832 49,350,660 Preference shares / convertible stock reserve 606, ,222 Equity portion of short term loan from shareholder of the Parent Company 6 103,077 77,991 Un-appropriated profits 3,740,677 1,879,569 58,085,603 52,808,237 NON CONTROLLING INTEREST 1,969,311 1,950,579 60,054,913 54,758,816 NON-CURRENT LIABILITIES Long term finances 7 11,430,809 10,306,006 Liabilities against assets subject to finance lease 64,004 73,851 Deferred tax 8 820, ,529 Retirement benefits 95, ,825 Rental Security Deposits 197,536 - Deferred liabilities 406, ,437 13,015,234 11,634,648 CURRENT LIABILITIES Current portion of long term liabilities - secured 1,236, ,884 Short term loan from shareholder of the Parent Company - unsecured 9 475, ,930 Finances under mark up arrangements - secured 2,613,330 1,918,079 Trade and other payables 5,850,755 5,126,373 Accrued finance costs 260, ,512 Provision for tax 42,671 66,199 10,479,292 8,715,977 CONTINGENCIES AND COMMITMENTS Note Un-audited December 31, Audited 83,549,439 75,109,441 28