Annual Report Nishat Mills Limited

Transcription

1 N I S H A T

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4 contents Company Information 4 Mission Statement 5 Vision Statement 6 Notice of Annual General Meeting 7-0 Directors Report -8 Financial Highlights 9 Pattern of Holding of the Shares Statement of Compliance With The Code of Corporate Governance Statement of Compliance With The Best Practices on Transfer Pricing 25 Review Report to the Members on Statement of Compliance With Best Practices of Code of Corporate Governance 26 Auditors Report To The Members 27 Balance Sheet Profit and Loss Account Cash Flow Statement 3-32 Statement of Changes in Equity 33 Notes To The Financial Statements 34-7 Form of Proxy

5 company information Board of Directors: Mrs. Naz Mansha Chief Executive/Chairperson Mian Raza Mansha Mian Hassan Mansha Mr. Muhammad Nawaz Tishna (NIT) Mr. Khalid Qadeer Qureshi Chief Financial Officer Mr. Muhammad Azam Rana Muhammad Mushtaq Ms. Nabiha Shahnawaz Cheema Audit Committee: Mian Hassan Mansha Mr. Muhammad Azam Ms. Nabiha Shahnawaz Cheema Company secretary: Mr. Khalid Mahmood Chohan Auditors: Riaz Ahmad & Company Legal Advisor: Mr. M. Aurangzeb Khan, Advocate, Chamber No. 6, District Court, Faisalabad. Member Member Chairperson/Member Chartered Accountants Bankers to the Company: ABN Amro Bank Albaraka Islamic Bank B.S.C (E.C) Allied Bank of Pakistan Limited Askari Commercial Bank Limited Bank Alfalah Limited Citibank N.A. Crescent Commercial Bank Limited Deutsche Bank Faysal Bank Limited Habib Bank Limited Habib Metropolitan Bank Limited KASB Bank Limited Meezan Bank Limited National Bank of Pakistan NIB Bank Limited PICIC Commercial Bank Limited Standard Chartered Bank (Pakistan) Limited The Hong Kong & Shangai Banking Corporation Limited United Bank Limited Mills: Nishatabad, Faisalabad 2 K.M. Faisalabad Road, Sheikhupura. (Spinning and Stitching units & Power Plant) (Weaving units & Power Plant) 2 K.M. Ferozepur Road, Lahore. (Stitching unit) 5 K.M. Nishat Avenue (Weaving, Dyeing & Finishing unit, Off 22 K.M. Ferozepur Road, Lahore. Processing unit and Power Plant) 20 K.M. Sheikhupura Faisalabad Road, Feroze Watwan (Spinning unit) Registered Office & Shares Department Nishat House, 53 - A, Lawrence Road, Lahore. Tel: , Fax: Head Office: 7, Main Gulberg, Lahore. Tel: , Fax: nishat@nishatmills.com Website: Liaison Office: Ist Floor, Karachi Chambers, Hasrat Mohani Road, Karachi. Tel: Fax:

6 Mission Statement To provide quality products to customers and explore new markets to promote/ expand sales of the Company through good governance and foster a sound and dynamic team, so as to achieve optimum prices of products of the Company for sustainable and equitable growth and prosperity of the Company.

7 Vision Statement To transform the Company into a modern and dynamic yarn, cloth and processed cloth and finished product manufacturing Company with highly professionals and fully equipped to play a meaningful role on sustainable basis in the economy of Pakistan. To transform the Company into a modern and dynamic power generating Company with highly professionals and fully equipped to play a meaningful role on sustainable basis in the economy of Pakistan.

8 NOTICE OF ANNUAL GENERAL MEETING NOTICE is hereby given that Annual General Meeting of the members of Nishat Mills Limited ( the Company ) will be held on October 0, ( Monday ) at :00 a.m. at Nishat House, 53 A, Lawrence Road, Lahore, to transact the following business:. To confirm minutes of the last Meeting. 2. To receive and adopt the Audited Accounts of the Company for the year ended June 30, together with Directors and Auditors reports thereon. 3. To approve Final Cash 25% (i.e. Rs per share) as recommended by the Board of Directors. 4. To approve re-appointment of M/s Riaz Ahmad & Company, Chartered Accountants, as external auditors of the Company for the year and fix their remuneration, as recommended by the Audit Committee and Board of Directors. 5. SPECIAL BUSINESS: To approve the following Special Resolution pursuant to Section 208 of the Companies Ordinance 984, with or without modification:resolved UNANIMOUSLY: A. THAT pursuant to requirements of Section 208 of the Companies Ordinance 984, the Company be and is hereby authorized to make investment up to 5,000,000 Ordinary Shares of Adamjee Insurance Company Limited (AICL) through open stock market at the prevailing market rate. B. THAT the Chief Executive of the Company be and is hereby empowered and authorized to make the said investment in the shares of AICL from any of the recognized registered stock exchange member, as and when deemed appropriate in the best interest of the Company and its shareholders and empowered and authorized to sale out subsequently any or all of the shares purchased by the Company. C. THAT each of Mrs. Naz Mansha, Chief Executive and Mr. Khalid Mahmood Chohan, Company Secretary be and is hereby singly authorized and empowered to act on behalf of the Company in doing and performing all acts, matters, things and deeds to implement and or give effect to the above resolutions. 6. Any other matter with the permission of the chair. BY ORDER OF THE BOARD LAHORE August 20, (KHALID MAHMOOD CHOHAN) Company Secretary

9 NOTES:. BOOK CLOSURE NOTICE FOR ENTITLEMENT OF FINAL 25% CASH DIVIDEND FOR THE YEAR ENDED JUNE 30, :The Share Transfer Books of the Company will remain closed for entitlement of Cash Rupees 2.50 per share i.e. ( 25% ), from to ( both days inclusive ). Physical transfers / CDS transactions / IDs. received in order at Nishat House, 53-A, Lawrence Road, Lahore upto :00 p.m. on , will be considered in time for the entitlement of said dividend and attending of meeting. 2. A member eligible to attend and vote at this meeting may appoint another member as his/ her proxy to attend and vote instead of him/her. Proxies in order to be effective must reach the Company s Registered Office not later than 48 hours before the time for holding the meeting. Proxies of the Members through CDS shall be accompanied with attested copies of their CNIC. The shareholders through CDC are requested to bring original CNIC, Account Number and Participant Account Number to produce at the time of attending the meeting. 3. Shareholders are requested to immediately notify the change of address, if any. 4. Members who have not yet submitted photocopies of their Computerized National Identification Cards to the Company are requested to send them at the earliest. STATEMENT UNDER SECTION 60()(b) OF THE COMPANIES ORDINANCE, 984 This statement sets out the material facts pertaining to the special business to be transacted at the forthcoming Annual General Meeting of the Company to be held on October 0,. Adamjee Insurance Company Limited (AICL) was incorporated as a public limited company on September 28, 960 and is listed on Karachi and Lahore Stock Exchanges of the Country. AICL is involved in general insurance business, enjoying a competitive edge in the insurance industry due to its strong assets base, paid up capital, huge reserves, balance portfolio mix, steady growth in gross premium and one of the blue chip at the stock market. The Board of Directors of at their meeting held on August 20, have recommended and approved the special resolution as set out in the notice of AGM. The Company already has shareholding of 30,03 ordinary shares in the share capital of AICL. The Memorandum and Articles of Association of AICL has been kept at registered office of the Company which can be inspected at any time during working hours up to September 29,. Other information as required under notification NO. SRO 865()/2000 dated December 06, 2000 issued by Securities and Exchange Commission of Pakistan is given hereunder: i) Name of investee Company or : Associated undertakings: ii) Nature, amount and extent of investment : Adamjee Insurance Company Ltd, an associated Company. Not over 5,000,000 Ordinary shares, through Stock Market.

10 iii) Average market price of the shares Intended to be purchased during preceding six months in case of listed companies : Rs.246/- iv) Break-up value of shares intended to be : purchased on the basis of last published financial statements Rs (3-2-) Audited Accounts v) Price at which shares will be purchased : At the prevailing market rate. vi) Earning per share of investee company in : last three years Year Rs vii) Source of funds from where shares will be purchased : Surplus funds / reserves of the Company viii) Period for which investment will be made : Long Term Investment ix) Purpose of investment : The Company expects dividend income, which would further augment the cash flow. x) Benefits likely to accrue to the Company : and the shareholders from the proposed investment; and Price appreciation of Companies share and better profit distribution to the valued shareholders of the Company. xi) Interest of Directors and their relatives in : the investee Company Two Directors are common in both companies and they have no special interest except to the extent of their shareholding.

11 PAID UP CAPITAL OF INVESTEE COMPANY, NUMBER OF PRESENT SHAREHOLDERS AND CAPITAL HELD (%AGE WISE), (BASED ON LATEST ANNUAL AUDITED ACCOUNTS, 3-2- Paid up Capital: No of shareholders: Ordinary shares of Rs.0 each 5 32 Categories of members Shares held Percentage Directors /Chief Executive and their spouses NIT and ICP Banks, DFLs and NBFLs Insurance Companies Modaraba and Mutual Funds (on repatriable basis) Associated Companies, Undertakings & related Parties General Public: Local (Individuals) Foreign Companies / organization/individuals Others TOTAL: Financial Projections of Investee Company for the next three years. Future three years Financial Projection (Rs. in Million) Gross Premium Net Premium Underwriting Results Investment Income Profit before Tax Profit after Tax

12 DIRECTORS REPORT Your directors are pleased to present you the 59th annual report and audited accounts for the year ended June 30,. Million resulting from profit of Rs Million on sale of shares of Adamjee Insurance Company Limited. Operating financial results Highlights Sales 000 Rs. Variance 000 Rs. % Gross Profit (3.82) Operating Profit Profit Before Tax Profit After Tax EPS Our company has earned an after tax profit of Rs, Million in this year thus showing an increase of 2.53 % as compared to Rs., Million for the previous period. However, gross profit has decreased by 3.82% in spite of increase in sales. This decrease in gross profit is due to increase in local cotton rate by 6.38% (: Rs. 2,485/maund, : Rs. 2,336/maund), increase in imported cotton rate by 7.24% (: Rs. 3,450/maund, : Rs. 3,27/maund), increase in gas rates by.69% (: Rs. 83/HM3, : Rs. 744/ HM3) and increase in minimum wage rate by 25 %. Despite of decrease in gross profit and increase in finance cost by 8.50 % (Rs Million), net profit has increased due to increase in dividend income by Rs Million and gain on sale of investment by Rs The Board of Directors of the company has recommended 25 % cash dividend (: 5 % cash dividend and 0 % bonus share) and recommends transferring Rs.,244 Million (: Rs.,269 Million) to general reserve.

13 Marketing strategy & future prospects Spinning Section The financial year ended with stability for spinning section. Cotton prices kept swinging and spackled between Rs.2,400/mound to Rs.2,850/mound. The year started with rumors of not achieving target cotton crop thus resulting in raise in price. This raise gained continuity as spinners kept buying on demanded price to fulfill their export orders. By the end of fourth quarter, cotton prices remain perched to record levels for the season. of demand and prices of carded & combed both yarns. Far East remained our main selling market of cotton yarn. Development was made in Malaysian market in terms of orders & prices. Although achievements were not remarkable, we also tried to develop some new products of organic cotton & compact yarn in Far East market specially. Demand from Europe and USA kept reducing during this year. Weaving Section At Nishat, the demand of 00% grey cotton yarn remained steady and we tried to uphold the prices along with market and to keep the spinning section in profits. However, swell in cotton prices and unwillingness of buyers to pay good prices for the cotton yarn was the big restrain during this year. However, by the end of the year, Far East market showed good response in terms 2 The year was a difficult year for weaving section. This was mainly triggered by the bullish cotton market. Profit margins in weaving were difficult to sustain as increase in cotton yarn price was not absorbed by the customers end and there remained a price pressure and competition in our key markets. Moreover, extreme shortage of Lycra and Spandex fibers resulted in an increase of 20% in stretch yarn prices. Requirements of reduction in lead time by our European customers, collapse of Far

14 East grey fabric market, limited shipment options and sharp decline in volume and prices in wider width and home textiles greige fabrics were the major constraints during the year. Despite all challenges and difficulties, weaving section of Nishat ended the year on a high note as far as profits were concerned. There has been an increase in the volume of industrial plus technical fabrics mainly to Germany, U.K, Netherlands and Belgium. An increase in customer base and volume was observed in Italy, France, Spain, Denmark and Mexico. There was also an increase in high end fashion business. This was because of a wide range of customers, diversified product mix and addition of few customers in the EU. There were new developments in special fabrics for sports wear (thermolite, coolmax, cotton linen Lycra, polyamide, cotton Lycra, bamboo and cotton wool) and specialized industrial use fabrics (Bekinox, Resistate Anti-Static, Carbon Black and Cotton Filaments). As far as marketing strategy is concerned, we stressed product diversification with new fashion items, customer diversification, participation in the textile fairs and Exhibitions (Texworld & PV Paris for Fashion). We keep our customer by committing longer validity of prices, quick deliveries and keeping stocks of specialized fibers which have to be imported from USA, Belgium, South Africa and UK for better lead time for customer and giving all grey customers an option of pfd. We expect further increase of greige business for sports wear, industrial and technical fabrics in the European markets. Future prospects are mainly dependent on the cotton outlook for the coming season which seems bullish for the time being and due to this Far East market doesn t sound good in the future. Therefore, we need to explore new markets and customers. 3

15 Processing and Stitching Section The year can be said as the most challenging year for companies operating in Home Textiles Industry. There was an increase in cost of inputs that is cotton, power, utilities and labour. The power shortage was an alarming aspect that has effected directly and indirectly by halting production thus resulting in delays of final product. At international front, the competitor countries are enjoying the duty free access for big markets like US and EU, GSP qualifications, lowest interest rates offered by their governments, abundance of skilled labour pool at cheap price and subsidies for different cost inputs. The imposition of anti dumping on Pakistan products are making them uncompetitive and resulting in shift of customer base to competitors. Further the recent collapse of housing market at US has also made a hit on the home textile sales. Despite of all these adverse factors, Nishat Home Textile Section succeeded in obtaining good results. The customer base was enhanced and the new products were added successfully. Further to enhance the output and to cut the operations time and costs in sewing, the automation policy was opted in cutting department by adding new automatic Gerber Cutting equipment. Moreover, foreign experts were hired to have transfer of knowledge to achieve the maximum output. 4 For this year we have entered into the business of slip covers which has a huge growth prospect in the market. Besides this, the filled items business, bed in a bag, decorative pillows were also added by using market facilities. Company has further introduced new finishes like fragrance, easy care, cool max and nano care for which we got ourselves registered with Nanotex. The more emphasis was given to value addition, therefore for the first time double side printing was done which is a new kind of experience that company has done successfully. Company has further introduced new fiber based fabrics by using Bamboo and Organic Cotton, which is a new trend and is gaining more popularity among the US and European consumers. The Expansion and modernization phase has been completed as well as processing facilities of the division have been completely shifted from Faisalabad to the new set up at Lahore. This has brought all processing operations under one roof that will improve lead times, minimize excessive handling of fabric and shall result into lower costs

16 and hence adding into the bottom line. In pre quota period, the business was predominantly done through importers / distributors for US and European Market. Due to recent change in business model, company has focused towards direct retailers to gain more share of business and it has also helped in utilizing the capacities in optimum manner and attaining the economies of scale. Further, we opted for two pronged strategies: one for commodity items to gain production efficiencies and the other to work for branded products to fetch maximum profits. Company has further made its presence in different international textile fairs to keep informed of the market and to maintain a continuous contact with its customers. Further the customer specific visits are always undertaken to service the customers after sales. Future plans are to open own offices at major markets of US and Europe to establish direct contact with customers. Company has recently completed expansion plans of its processing by enhancing capacities in Bleaching, Dyeing and Printing by installing brand new Bleaching, Dyeing and Printing Range. Considering the market growth in the next year, company has the plans to enhance its capacities where required. Further, the plans are to have in house product manufacturing, quilting and wadding plant for complete bed in a bag product. since the inception of this plant. The year showed a record sale figures. Total plant capacity which was increased to 4 Million meters per month last year, was also quickly and consistently filled up this year. During the year, special emphasis was laid on product development. A new R&D department was set up during this time. The target was innovation in terms of weave as well as finishing range. As a result, a total of 360 new qualities, in terms of weave, were added to the existing product range. Further, new finishing techniques were added and perfected in the finishing capabilities including blotch printing as well as knife coating. Market response to these innovations has been quite positive. Although the performance of the plant remained very good, market situation changed to worse during this year. Most retailers and chain stores in US and Europe have recently restructured their sourcing models due to increased competition. New emerging shape of the market revolves around fast speed and reduced lead times for production. This poses a considerable challenge to our plant in terms of drastically reduced lead times from customers. Nishat Dyeing & Finishing (NDF) Year proved to be the most successful year 5

17 As a response to these fresh challenges, Nishat Dyeing & Finishing has responded successfully. Our customer base was increased this year. New business has been established with many new retailers and renowned labels as part of the marketing strategy of NDF. New fiscal year has started with our plant packed to the capacities in terms of production. On the outlet, prospects of next year look quite promising. Power Generation During the Year, most modern dual fuel fired generators were installed based on cogeneration and tri-generation principles i.e. beside power, waste heat is utilized to produce steam and conditioning the air. Nishat was the first private concern to introduce such modern and economical gas fired generator in the country. Power Diesel / Gas Gas Plants Furnace Engines Turbines Oil Engines Faisalabad Bhikki Lahore Ferozewatwan On shifting of processing unit, steam generated from waste heat was rendered surplus. To utilize this surplus steam,.2 MW steam turbine is being purchased and is expected to arrive in October. Information Technology During the year, our in-house developed system was improved by laying maximum emphasis on inter linking of related modules for having better internal control and using human resources more effectively. Moreover, most modern equipments were installed and developments carried out for better efficiency and data security. Earning Per Share The earning per share of the company stood at Rs 0.48 (: Rs 0.22). 6

18 Related parties The transactions between the related parties were carried out at arm s length prices determined in accordance with the comparable uncontrolled prices method. The Company has fully complied with the best practices on Transfer Pricing as contained in the Listing Regulations of Stock Exchanges in Pakistan. The Statement of Compliance with the best practice on Transfer Pricing is annexed. Corporate Governance The Statement of Compliance with the best practices of Code of Corporate Governance is annexed. Corporate and Financial Frame Work In compliance of the Code of Corporate Governance, we give below statements on Corporate and Financial Reporting frame work:. The financial statements, prepared by the management of the Company, present fairly its state of affairs, the result of its operations, cash flows and changes in equity. 2. Proper books of account of the Company have been maintained. 3. Appropriate accounting policies have been consistently applied in preparation of financial statements except for the change stated in note to the financial statements that has been duly approved and adjusted in current year. Accounting estimates are based on reasonable and prudent judgment. 4. International Accounting Standards, as applicable in Pakistan, have been followed in preparation of financial statements and any departure there from has been adequately disclosed. 5. The system of internal control is sound in design and has been effectively implemented and monitored. 6. There are no significant doubts upon the Company s ability to continue as a going concern. 7. There has been no material departure from the best practices of corporate governance, as detailed in the listing regulations. 8. Value of investments in respect of retirement benefits fund: Provident Fund: 30th June, : Rs Million Un-audited (: Rs Million-Audited) 9. During the year under review, Six Meetings were held, attendance position was as under:sr. Name of Director No. of No. Meetings Attended Mrs. Naz Mansha 2 (Chief Executive / Chairperson) Mian Raza Mansha 4 Mian Hassan Mansha 4 Mr. Muhammad Nawaz Tishna 5 (Nominee NIT) Mr. Faisal Ehsan Ellahi (Resigned) Mr. Khalid Qadeer Qureshi 5 Mr. Muhammad Azam 6 Rana Muhammad Mushtaq 3 Ms. Nabiha Shahnawaz Cheema 2 (Appointed in place of Mr. Faisal Ehsan Ellahi) Audit Committee The board of directors in compliance with the Code of Corporate Governance has established an Audit committee. The names of its members are given in the company profile. Change in Board of Directors and Audit Committee Mr. Faisal Ehsan Ellahi has resigned from the Board of Directors and Audit Committee and Ms. Nabiha Shahnawaz Cheema has been appointed in his place to fill the casual vacancy. 7

19 Auditors The present auditors M/s Riaz Ahmad & Company, Chartered Accountants, retire and being eligible, offer themselves for reappointment. Pattern of share holding and information under clause XIX (i) and (j) of the code of corporate governance The information under this head as on June 30, is annexed. Key operating and financial data The key operating and financial data for the last six years is annexed. Acknowledgement The Board is pleased for continued dedication and loyalty of the employees of the company. For and on behalf of Board of Directors Lahore: (MRS. NAZ MANSHA) August 20, Chief Executive/Chairperson 8

20 Financial Highlights (Rupees in Thousands) Profit and loss Net sales Gross Profit Profit before tax Profit after tax Cash outflows Taxes paid Financial Charges Paid Fixed capital expenditures Balance sheet Current assets Current liabilities Operating fixed assets Total assets Long term loans and finances Shareholders Equity Ratios Current ratio.04:.03:.22:.40:.38:.74: Gearing ratio 0.47: 0.38: 0.27: 0.22: 0.3: 0.06: Gross profit % Net profit % (before tax) Earning per share Proposed dividend % Bonus % 0-0 Production machines No. of Spindles No. of Sulzar Looms No. of Airjet Looms No. of Thermosole Dyeing machines No. of Rotary Printing machines

21 Pattern of Holding of the Shares Held by the Shareholders of NISHAT MILLS LIMITED As At 30/06/ NUMBER OF SHAREHOLDING TOTAL SHARES SHAREHOLDERS FROM TO HELD

22 NUMBER OF SHAREHOLDING TOTAL SHARES SHAREHOLDERS FROM TO HELD

23 NUMBER OF SHAREHOLDING TOTAL SHARES SHAREHOLDERS FROM TO HELD TOTAL Categories of Members Number Shares Held Percentage Individuals Investment Companies Insurance Companies Joint Stock Companies Financial Institutions Modaraba Companies Foreign Investors Miscellaneous Grand Total

24 INFORMATION UNDER CLAUSE XIX ( i ) OF THE CODE OF CORPORATE GOVERNANCE AS ON JUNE 30, SHARES HELD PERCENTAGE ( A ) ASSOCIATED COMPANIES, UNDERTAKINGS AND RELATED PARTIES. D. G. KHAN CEMENT CO. LTD. 2 ADAMJEE INSURANCE COMPANY LTD ( B ) NIT AND ICP. NATIONAL BANK OF PAKISTAN - TRUSTEE DEPTT INVESTMENT CORPORATION OF PAKISTAN NIL ( C ) DIRECTORS, CEO, THEIR SPOUSE AND MINOR CHILDREN. MRS. NAZ MANSHA CHIEF EXECUTIVE / CHAIRPERSON MIAN RAZA MANSHA DIRECTOR MRS. AMMIL RAZA MANSHA (SPOUSE MIAN RAZA MANSHA) MIAN HASSAN MANSHA DIRECTOR ( D ) EXECUTIVES NIL ( E ) PUBLIC SECTOR COMPANIES AND CORPORATIONS JOINT STOCK COMPANIES ( F ) BANKS, DEVELOPMENT FINANCE INSTITUTIONS, NON-BANKING FINANCE INSTITUTIONS, INSURANCE COMPANIES, MODARABAS AND MUTUAL FUNDS. INVESTMENT COMPANIES INSURANCE COMPANIES FINANCIAL INSTITUTIONS MODARABAS, MUTUAL FUNDS & LEASING COMPANIES, ETC., ( G ) SHAREHOLDERS HOLDING TEN PERCENT OR MORE VOTING INTEREST IN THE LISTED COMPANY D. G. KHAN CEMENT CO. LTD INFORMATION UNDER CLAUSE XIX ( j ) OF THE CODE OF CORPORATE GOVERNANCE NAME OF CEO/DIRECTOR/CFO/COMPANY SECRETARY AND THEIR SPOUSE AND MINOR CHILDREN Nil NO. OF SHARES DATE RATE PURCHASED (RS.) Nil

25 STATEMENT OF COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE Year Ended : June 30, This statement is being presented to comply with the Code of Corporate Governance contained in Regulation No. 37, 43 & 36 of listing regulations of Karachi, Lahore & Islamabad Stock Exchanges respectively 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: 24. The Company encourages representation of independent non-executive directors and directors representing minority interests on its Board of Directors. At present the Board includes independent 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. A casual vacancy occurred in the Board on March 27, was filled up same day by the directors. 5. The Company has prepared a Statement of Ethics and Business Practices, which has been signed by all the directors and 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 Chairperson and, in her absence, by one of the directors present 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. No new orientation course has been arranged during the year. 0. The appointment of CFO, Company Secretary and Head of Internal Audit, including their remuneration and terms and conditions of employment have been duly approved by the Board.. 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.

26 2. The financial statements of the Company were duly endorsed by CEO and CFO before approval of the Board. 3. 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. 4. The Company has complied with all the corporate and financial reporting requirements of the Code. 5. The audit committee is continued and it comprises 3 members, of whom, two are nonexecutive directors including the Chairperson of the committee. 6. 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. 7. The Board has set-up an effective internal audit function who are considered suitably qualified and experienced for the purpose and are conversant with the policies and procedures of the Company and they are involved in the internal audit function on a full time basis. 8. The statutory auditors of the Company have confirmed that they have been given a satisfactory rating under the Quality Control Review programme 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. 9. 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 other material principles contained in the Code have been substantially complied with. Lahore: August 20, ( MRS. NAZ MANSHA ) CHIEF EXECUTIVE / CHAIRPERSON NIC Number : STATEMENT OF COMPLIANCE WITH THE BEST PRACTICES ON TRANSFER PRICING FOR THE YEAR ENDED JUNE 30, The Company has fully complied with the best practices on Transfer Pricing as contained in the related Listing Regulations of the Karachi, Lahore and Islamabad Stock Exchanges. Lahore: August 20, ( MRS. NAZ MANSHA ) CHIEF EXECUTIVE / CHAIRPERSON NIC Number :

27 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 to comply with the Listing Regulations of the respective stock exchanges, 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 our 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 have not carried out any special review of the internal control system to enable us to express an opinion as to whether the Board s statement on internal control covers all controls and the effectiveness of such internal controls. 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. Faisalabad: August 20, Riaz Ahmad and Company Chartered Accountants 26

28 AUDITORS REPORT TO THE MEMBERS We have audited the annexed balance sheet of NISHAT MILLS LIMITED as at 30 June and the related profit and loss account, cash flow statement and statement of changes in equity, 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, 984. 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 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 account have been kept by the company as required by the Companies Ordinance, 984; 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, 984, and are in agreement with the books of account and are further in accordance with accounting policies consistently applied except for the change stated in Note to the 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 and loss account, cash flow statement and statement of changes in equity, 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, 984, in the manner so required and respectively give a true and fair view of the state of the company s affairs as at 30 June and of the profit, its cash flows and changes in equity for the year then ended; and d) in our opinion, Zakat deductible at source under the Zakat and Ushr Ordinance, 980 (XVIII of 980), was deducted by the company and deposited in the Central Zakat Fund established under section 7 of that Ordinance. Faisalabad: August 20, RIAZ AHMAD AND COMPANY Chartered Accountants 27

29 balance sheet as at 30 june (Rupees in Thousand) Note (Restated) equity and liabilities SHARE CAPITAL AND RESERVES Authorized share capital (: ) ordinary shares of Rupees 0 each Issued, subscribed and paid up share capital (: ) ordinary shares of Rupees 0 each 5 Reserves Total Equity NON-CURRENT LIABILITIES Long term financing Liabilities against assets subject to finance lease CURRENT LIABILITIES Trade and other payables Accrued markup Short term finances Current portion of long term liabilities Provision for taxation Total Liabilities CONTINGENCIES AND COMMITMENTS 3 TOTAL EQUITY AND LIABILITIES The annexed notes form an integral part of these financial statements. chief executive officer 28

30 (Rupees in Thousand) Note (Restated) ASSETS NON-CURRENT ASSETS Property, plant and equipment Long term investments Long term loans Long term deposits, prepayments and deferred cost CURRENT ASSETS Stores, spare parts and loose tools Stock-in-trade Trade debts Short term investments Loans and advances Short term deposits and prepayments Other receivables Cash and bank balances TOTAL ASSETS director 29

31 PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30 JUNE Note (Rupees in Thousand) SALES COST OF SALES GROSS PROFIT DISTRIBUTION AND SELLING COST ADMINISTRATIVE AND GENERAL EXPENSES OTHER OPERATING EXPENSES OTHER OPERATING INCOME OPERATING PROFIT FINANCE COST SHARE OF PROFIT IN ASSOCIATED COMPANIES PROFIT BEFORE TAXATION PROVISION FOR TAXATION PROFIT AFTER TAXATION EARNINGS PER SHARE- BASIC AND DILUTED (RUPEES) The annexed notes form an integral part of these financial statements. chief executive officer 30 director

32 CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE (Rupees in Thousand) CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxation Adjustments for non-cash charges and other items Depreciation Gain on disposal of operating fixed assets (2 08) Gain on sale of investment (55 943) (57 527) Share of profit in associated companies Amortization of deferred cost 630 Finance cost CASH FLOWS FROM OPERATING ACTIVITIES BEFORE WORKING CAPITAL CHANGES CASH FLOWS FROM WORKING CAPITAL CHANGES (Increase)/decrease in current assets Stores, spare parts and loose tools Stock-in-trade (03 262) Trade debts Loans and advances (40 837) Short term deposits and prepayments 897 Other receivables Increase/(decrease) in current liabilities Trade and other payables (32 96) Short term finances NET CASH FLOWS FROM / (USED IN) WORKING CAPITAL CHANGES CASH GENERATED FROM OPERATING ACTIVITIES Finance cost paid ( ) Income tax paid (46 75) NET CASH GENERATED FROM OPERATING ACTIVITIES (9 458) (48 824) ( ) (46 693) (05 782) (49 526) (8 549) (34 067) ( ) (96 772)

33 (Rupees in Thousand) CASH FLOWS FROM INVESTING ACTIVITIES Long term loans (3 60) Long term deposits, prepayments and deferred cost 2 39 Proceeds from disposal of operating fixed assets Proceeds from sale of investment Proceeds from redemption of preference shares Dividend from associated companies Investment made ( ) ( ) Fixed capital expenditure NET CASH USED IN INVESTING ACTIVITIES ( ) CASH FLOWS FROM FINANCING ACTIVITIES Long term financing Repayment of long term financing ( 24 58) Repayment of finance lease liabilities (28 62) Dividend paid (28 772) NET CASH (USED IN)/ FLOWS FROM FINANCING ACTIVITIES ( ) NET INCREASE/ (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR (Note 25) (3 23) (508 4) ( ) ( ) (89 643) (4 52) ( ) ( ) The annexed notes form an integral part of these financial statements. chief executive officer 32 director

34 (Rupees in thousand) chief executive officer director Balance as on 30 June restated (93 649) Rupees 2.5 per share - (363 49) (363 49) Transfer to general reserve ( ) Fair value gain adjusted on sale of investment (40 640) (40 640) Fair value gain for the year Reserves adjusted against sale of investment in associated companies ( 073) ( 073) Share of increase in reserves of associated companies under equity method (20 93) Net profit for the year Balance as on 30 June Rupees.5 per share - (27 890) (27 890) Transfer to reserve for issue of bonus shares (45 260) Bonus shares issued during the year (45 260) Transfer to general reserve ( ) Fair value gain adjusted on sale of investment ( 625) ( 625) Fair value gain for the year Share of increase in reserves of associated companies under equity method (00 257) Net profit for the year Balance as on 30 June The annexed notes form an integral part of these financial statements. Share Premium on Fair value Reserve for Hedging Capital General Unappropriated Shareholders capital issue of reserve issue of reserve redemption reserve profit equity right shares bonus shares reserve fund Balance as on 30 June (93 649) Effect of change in accounting policy (Note 4.5.2) (24 664) (24 664) Effect of error regarding investment in associates (Note 5.2) ( ) ( ) FOR THE YEAR ENDED 30 JUNE STATEMENT OF CHANGES IN EQUITY 33

35 notes to the financial statements FOR THE YEAR ENDED 30 JUNE. THE COMPANY AND ITS OPERATIONS is a public company incorporated in Pakistan under the Companies Act, 93 (Now Companies Ordinance, 984) and listed on Stock Exchanges in Pakistan. Its registered office is situated at 53-A Lawrence Road, Lahore. The company is engaged in the business of textile manufacturing and of spinning, combing, weaving, bleaching, dyeing, printing, stitching, buying, selling and otherwise dealing in yarn, linen, cloth and other goods and fabrics made from raw cotton, synthetic fibre and cloth, and to generate, accumulate, distribute and supply electricity. 2. STATEMENT OF COMPLIANCE These financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan and the requirements of The Companies Ordinance 984. Approved accounting standards comprise of such International Accounting Standards (IASs) as notified under the provisions of the Companies Ordinance, 984. Wherever, the requirements of the Companies Ordinance, 984 or directives issued by the Securities and Exchange Commission of Pakistan (SECP) differ with the requirements of these standards, the requirements of The Companies Ordinance, 984 or the requirements of the said directives take precedence. 2.2 Standards, interpretations and amendments to published approved accounting standards that are not yet effective The following standards, amendments and interpretations of approved accounting standards effective for annual periods beginning on or after 0 July are either not relevant to the Company s operations or are not expected to have significant impact on the Company s financial statements other than certain increased disclosures in certain cases: l IFRS 7 Financial Instruments: Disclosures (effective for annual periods beginning on or after 0 January ) l IAS Presentation of Financial Statements Amendments relating to Capital Disclosures (effective for annual periods beginning on or after 0 January ) l IAS 23 Borrowing Costs (effective in case of borrowing costs relating to qualifying asset for which the commencement date for capitalization is on or after 0 January 2009) l IFRIC 0 Interim Financial Reporting and Impairment (effective for annual periods beginning on or after 0 November ) l IFRIC IFRS 2: Group and Treasury Share Transactions (effective for annual periods beginning on or after 0 March ) l IFRIC 2 Service Concession Arrangements (effective for annual periods beginning on or after 0 January 2008)

36 l IFRIC 3 Customer Loyalty Programme (effective for annual periods beginning on or after 0 July 2008) l IFRIC 4 IAS 9 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (effective for annual periods beginning on or after 0 January 2008) 3. BASIS OF PREPARATION 3. These financial statements have been prepared under the historical cost convention except for the investments in associates stated under equity method and certain financial instruments carried at fair value as stated in note 4.5, 4.0 and 4.3 to the financial statements. 3.2 Critical accounting estimates and judgments The preparation of financial statements in conformity with the approved accounting standards requires the use of certain critical accounting estimates. It also requires the management to exercise its judgment in the process of applying the Company s accounting policies. Estimates and judgments are continually evaluated and are based on historical experience, including expectation of future events that are believed to be reasonable under the circumstances. The areas where various assumptions and estimates are significant to the Company s financial statements or where judgments were exercised in application of accounting policies are as follow: - Property, plant and equipment useful lives and residual value (Note 4); Provision for doubtful loans and advances (Note 22); Taxation (Note 33). 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 4. Staff retirement benefits The company operates an approved funded provident fund scheme covering all permanent employees. Equal monthly contributions are made both by the company and employees at the rate of 9.5 percent of the basic salary to the fund. 4.2 Taxation Current The company falls in the ambit of presumptive tax regime under section 69 of the Income Tax Ordinance, 200. Provision for income tax is made in the accounts accordingly. However, provision for tax on other income is based on taxable income at the current rates after considering the rebates and tax credits available, if any. Deferred Deferred tax is accounted for using the balance sheet liability method in respect of all temporary differences arising from differences between the carrying amount of the assets and liabilities in the financial statements and the corresponding tax base. 35

37 Deferred tax liabilities are recognized for all taxable temporary differences. The company recognizes deferred tax assets on all deductible temporary differences to the extent that it is probable that future taxable profits will be available against which these deductible temporary differences, unused tax losses and tax credits can be utilized. Deferred tax is calculated at the rates that are expected to apply to the period when the differences reverse, based on tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the profit and loss account, except where deferred tax arises on the items credited or charged directly to the equity, in which case it is included in equity. 4.3 Foreign currencies These financial statements are presented in Pak Rupees, which is the Company s functional currency. All monetary assets and liabilities denominated in foreign currencies are translated into Pak Rupees at the rates of exchange prevailing at the balance sheet date or at the contracted rates, while the transactions in foreign currency during the year are initially recorded in functional currency at the rates of exchange prevailing at the transaction date or at the contracted rates. Exchange risk fee is charged to profit and loss account. The company charges all the exchange differences to profit and loss account. 4.4 Property, plant, equipment and depreciation 36 Owned Property, plant and equipment except freehold land and capital work-in-progress are stated at cost less accumulated depreciation and accumulated impairment losses (if any). Cost in relation to certain property, plant and equipment signifies historical cost, applicable exchange differences on foreign currency loans (upto 30 September 2004) and directly attributable cost of bringing the assets to working condition. Borrowing cost pertaining to the construction / erection period is also capitalized as part of historical cost. Freehold land and capital work in progress are stated at cost. Subsequent costs are included in the asset s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefit associated with the item will flow to the company and the cost of the item can be measured reliably. All other repair and maintenance costs are charged to profit and loss account during the year in which they are incurred. Subject to finance lease These are stated at lower of present value of minimum lease payments under the lease agreements and the fair value of the assets acquired on lease. Aggregate amount of obligation relating to assets subject to finance lease is accounted for at net present value of liabilities. Assets so acquired are depreciated over their expected useful life at the rates mentioned in Note 4.2.

38 Depreciation Depreciation on property, plant and equipment is charged to profit and loss account applying the reducing balance method so as to write off the cost / depreciable amount of the assets over their estimated useful lives at the rates given in Note 4.. The company charges the depreciation on additions from the date when the asset is available for use and on deletions upto the date when the asset is de-recognized. The residual values and useful lives are reviewed by the management, at each financial year-end and adjusted if impact on depreciation is significant. De-recognition An item of property, plant and equipment is de-recognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset is included in the profit and loss account in the year the asset is de-recognized. 4.5 Investments 4.5. Investments in associates Associates are the entities over which the Company has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in these associates are accounted for using the equity method of accounting and are initially recognized at cost. The Company s investment in associate includes goodwill identified on acquisition, net of any accumulated impairment loss. The Company s share of its associate s post-acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in reserves is recognized in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Distributions received from an associate reduce the carrying amount of the investment Other investments Classification of an investment is made on the basis of intended purpose for holding such investment. Management determines the appropriate classification of its investments at the time of purchase. Investments other than stated in Note 4.5. are initially measured at fair value plus transaction costs directly attributable to acquisition, except for Investment at fair value through profit or loss which is measured initially at fair value. Investment at fair value through profit or loss Investment classified as held-for-trading and those designated as such are included in this category. Investments are classified as held-for-trading if these are acquired for the purpose of selling in the short term. Gains or losses on investments held-for-trading are recognized in profit and loss account. 37

39 Held-to-maturity investments Investments with fixed or determinable payments and fixed maturity are classified as held-to-maturity when the Company has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. Other long-term investments that are intended to be held to maturity are subsequently measured at amortized cost. This cost is computed as the amount initially recognized minus principal repayments, plus or minus the cumulative amortization, using the effective interest method, of any difference between the initially recognized amount and the maturity amount. For investments carried at amortized cost, gains and losses are recognized in profit and loss account when the investments are de-recognized or impaired, as well as through the amortization process. Available-for-sale Investments intended to be held for an indefinite period of time, which may be sold in response to need for liquidity, or changes to interest rates or equity prices are classified as available-for-sale. These are sub-categorized as under: Quoted After initial recognition, investments which are classified as available-for-sale are measured at fair value. Gains or losses on available-for-sale investments are recognized directly in equity until the investment is sold, de-recognized or is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in profit and loss account. For investments that are actively traded in organized financial markets, fair value is determined by reference to stock exchange quoted market bids at the close of business on the balance sheet date. Un-Quoted 38 From the current year the company has changed its accounting policy regarding the measurement of unquoted equity instruments. Now investments in equity instruments that do not have a quoted market price in an active market and whose fair value can not be reliably measured are carried at cost. Previously, these investments were measured at their break-up value considering it to be the fair value of such investments. After the recent changes in International Accounting Standard (IAS) 39 Financial Instruments: Recognition and Measurement, the management does not feel the break-up value to be reliable measure of the fair value. This change in accounting policy has been applied retrospectively and the comparative information has been restated in accordance with treatment specified in International Accounting Standard (IAS) 8 Accounting Policies, Change in Accounting Estimates and Errors. Had there been no change in this accounting policy, the carrying values of long term investments and short term investments would have been higher by Rupees million and Rupees million respectively and shareholders equity would have been higher by Rupees million.

40 4.6 Inventories Inventories, except for stock in transit and waste stock/rags are stated at lower of cost and net realizable value. Cost is determined as follows: Stores, spare parts and loose tools Useable stores, spare parts and loose tools are valued principally at moving average cost, while items considered obsolete are carried at Nil value. Items in transit are valued at cost comprising invoice value plus other charges paid thereon. Stock-in-trade Cost of raw material, work-in-process and finished goods is determined as follows: i ) For raw materials Annual average basis. ii) For work-in-process Average manufacturing cost including a and finished goods portion of production overheads. Materials in transit are valued at cost comprising invoice value plus other charges paid thereon. Waste stock/rags are valued at net realizable value. Net realizable value signifies the estimated selling price in the ordinary course of business less costs necessarily to be incurred in order to make a sale. 4.7 Deferred costs 4.8 Deferred costs already recognized are being amortized over a period of five years from the year of occurrence. From the year 2005, the company has not deferred any cost to comply with Circular No. of 2005 dated 9 January 2005 issued by SECP. Borrowing cost Interest, mark-up and other charges on long-term liabilities are capitalized up to the date of commissioning of respective fixed assets acquired out of the proceeds of such long-term liabilities. All other interest, mark-up and other charges are recognized in profit and loss account. 4.9 Revenue recognition Revenue from different sources is recognized as under: - Revenue from sales is recognized on delivery of goods to customers. - The Company s share of profits or losses of the associated companies after tax is included in the profit and loss account to recognize the post acquisition changes in the share of net assets of the investees. Dividend from associated companies is recognized as reduction in cost of investments as prescribed by International Accounting Standard (IAS)

41 - Dividend on other investments is recognized when right to receive the dividend is established. - Profit on deposits with banks is recognized on time proportion basis taking into account the amounts outstanding and rates applicable thereon. 4.0 Financial instruments Financial instruments carried on the balance sheet include investments, long-term and short-term deposits, trade debts, loans and advances, other receivables, cash and bank balances, long-term financing, liabilities against assets subject to finance lease, shortterm finances, accrued mark-up and trade and other payables etc. Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of instrument. Initial recognition is made at fair value plus transaction costs directly attributable to acquisition, except for financial instrument at fair value through profit or loss which is measured initially at fair value. Financial assets are de-recognized when the Company loses control of the contractual rights that comprise the financial asset. The Company loses such control if it realizes the rights to benefits specified in contract, the rights expire or the Company surrenders those rights. Financial liabilities are de-recognized when the obligation specified in the contract is discharged, cancelled or expired. Any gain or loss on subsequent measurement (except available for sale investments) and de-recognition is charged to the profit and loss account currently. The particular measurement methods adopted are disclosed in the following individual policy statements associated with each item and in the accounting policy stated in note Trade and other receivables Trade debts and other receivables are carried at original invoice value less an estimate made for doubtful debts based on a review of all outstanding amounts at the year end. Bad debts are written off when identified. Borrowings Borrowings are recognized initially at fair value and are subsequently stated at amortized cost. Any difference between the proceeds and the redemption value is recognized in the profit and loss account over the period of the borrowings using the effective interest method. Trade and other payables Liabilities for trade and other amounts payable are initially recognized at fair value, which is normally the transaction cost. 4. Provisions 40 Provisions are recognized when the company has a legal or constructive obligation as a result of past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligations and a reliable estimate of the amount can be made.

42 4.2 Impairment The carrying amounts of the Company s assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If such indication exists, the recoverable amount of such asset is estimated. An impairment loss is recognized wherever the carrying amount of the asset exceeds its recoverable amount. Impairment losses are recognized in profit and loss account. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit and loss account. 4.3 Derivative financial instruments Derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and subsequently re-measured at fair value. All derivative financial instruments are carried as assets when fair value is positive and liabilities when fair value is negative. Any change in the fair value of the derivative financial instruments is taken to the profit and loss account. 4.4 Off setting Financial assets and financial liabilities are set off and the net amount is reported in the financial statements when there is a legally enforceable right to set off and the company intends either to settle on a net basis, or to realize the assets and to settle the liabilities simultaneously. 4.5 Cash and cash equivalents Cash and cash equivalents comprise of cash and bank balances. 4.6 Related party transactions and transfer pricing Transactions and contracts with the related parties are carried out at an arm s length price determined in accordance with comparable uncontrolled price method. 4.7 Dividend and transfer of reserve. Dividend and transfers among reserves are treated as post balance sheet nonadjusting events hence do not qualify for provision in the financial statements as per the requirements of IAS-0 Events after the balance sheet date. These transfers are, therefore, recorded in the next year s financial statements. 4

43 5. ISSUED, SUBSCRIBED AND PAID UP SHARE CAPITAL (: ) ordinary shares of Rupees 0 each fully paid up in cash (: ) fully paid ordinary shares of Rupees 0 each issued for consideration other than cash (: ) ordinary shares of Rupees 0 each issued as fully paid bonus shares (Rupees in Thousand) Ordinary shares of the company held by associated undertakings are as follows: (Number of shares) D.G. Khan Cement Company Limited Adamjee Insurance Company Limited (Rupees in Thousand) (Restated) 6. RESERVES Composition of reserves is as follows: Capital Premium on issue of right shares Capital redemption reserve fund Fair value reserve Revenue General Un appropriated profit

44 (Rupees in Thousand) 7. LONG TERM FINANCING-SECURED Long term financing utilized under markup arrangements are as under: National Bank of Pakistan United Bank Limited (Note 7.) Habib Bank Limited Habib Bank Limited (Note 7.2) Saudi Pak Industrial and Agricultural Investment Company (Private) Limited (Note 7.3) Term Finance Certificates (Note 7.4) Citibank N.A. (Note 7.5) Standard Chartered Bank (Pakistan) Limited (Note 7.6) ABN Amro Bank (Note 7.7) United Bank Limited (Note 7.8) Allied Bank Limited (Note 7.9) Allied Bank Limited (Note 7.0) Habib Bank Limited (Note 7.) Hongkong Shangai Banking Corporation (Note 7.2) Less: Current Portion (Note 2) This is secured against first pari passu charge on all present and future fixed assets of the company, including land, building and machinery and personal guarantee of the chief executive officer. It carries 6 percent, payable quarterly. The finance is repayable in eight equal semi annual installments commenced from 3 December This is secured against first exclusive charge on fixed assets of the company. It carries 50 bps above six months KIBOR, payable on quarterly basis. The finance is repayable in sixteen equal quarterly installments commenced from 30 November This is secured against ranking hypothecation charge on plant and machinery and personal guarantee of chief executive officer. It carries mark up equal to State Bank of Pakistan discount rate with 7.50 percent floor, payable on quarterly basis. The finance is repayable in twelve equal quarterly installments commenced from 25 December These are issued to a consortium of banks and secured against first pari passu hypothecation charge on fixed assets of the company excluding land and building with 25 % margin. It carries percent above weighted average market 43

45 yield of the last three auctions of 6 months Treasury Bills, payable semi annually. The finance is redeemable in ten semi annual installments commenced from 6 March The first five installments are of Rupees million each and the remaining five installments are of Rupees million each. 7.5 This is secured against first ranking pari passu charge on all present and future fixed assets, excluding land and building, with 25 % margin on facility amount. It carries 6 percent, payable on semi annual basis. The finance is repayable in eight equal semi annual installments commenced from 25 March. 7.6 This is secured against first exclusive hypothecation charge on plant, machinery and equipments installed at Sheikhupura (Bhikki). It carries 6 percent, payable on quarterly basis. The finance is repayable in six equal semi annual installments commenced from 30 September. 7.7 This is secured against first pari passu charge on the present and future fixed assets of the company excluding land and building. It carries 7 percent, payable on quarterly basis. The finance is repayable in seventeen equal quarterly installments commenced from 5 February. 7.8 This is secured against mortgage charge or charge on the immovable property and machinery of the company. It carries 7 percent, payable at quarterly basis. The finance is repayable in eight equal semi annual installments commenced from 30 June. 7.9 This is secured against first exclusive charge on unencumbered specific machinery for Rupees 267 million. It carries bps above six months KIBOR, payable on quarterly basis. The finance is repayable in four semi annual equal installments commenced from 24 November. 7.0 This is secured against first Joint pari passu hypothecation charge on plant and machinery of the company for an amount of Rupees 800 million. Facility will be available against registered ranking charge on fixed assets of the company. It carries 7 percent, payable on quarterly basis. The finance is repayable in sixteen quarterly installments commenced from 24 January. 7. This is secured against first pari passu hypothecation charge of Rupees,067 million on plant and machinery of the company excluding specific and exclusive charges. It carries 7 percent, payable on quarterly basis. The finance is repayable in eight equal semi annual installments commencing from 07 July. 7.2 This is secured against registered ranking charge on plant and machinery of the company. It carries 7 percent, payable on semi annual basis. The finance is repayable in ten equal semi annual installments commenced from 0 December. 44

46 8. LIABILITIES AGAINST ASSETS SUBJECT TO FINANCE LEASE The rate of interest used as the discounting factor, implicit in leases is.75 percent per annum (: 8.50 to.75 percent per annum). The amount of future payments and periods during which they fall due are: YEAR ENDED ON 30 JUNE 2008 (Rupees in Thousand) Less: Un-amortized finance charges Less: Current portion (Note 2) Rentals are paid in monthly/quarterly equal installments. Taxes, repairs and insurance costs are to be borne by the company. The company shall have no right to terminate the lease agreements and if the lease agreements are terminated, the company shall pay entire amount of rentals for un-expired period of lease agreements. Lease agreements are renewable at the option of lessors on such terms as may be agreed upon. Liabilities are secured against personal guarantee of directors and demand promissory notes. 8.2 Reconciliation of minimum lease payments and their present value is given below: (rupees in thousand) Minimum Present value Minimum Present value lease of minimum lease of minimum Payments lease Payments lease Payments Payments Due within one year Due after one year but not later than five years

47 (Rupees in Thousand) 9. TRADE AND OTHER PAYABLES Creditors (Note 9.) Advances from customers Securities from contractors Interest free, repayable on completion of contracts Income tax deducted at source Workers welfare fund Other accrued liabilities Dividend payable Workers participation fund (Note 9.2) Creditors include an amount of Rupees 4.79 million (: Rupees million) payable to the related parties. 9.2 WORKERS PARTICIPATION FUND Balance as at 0 July Interest accrued thereon (Note 32) Add: Profit allocated for the year (Note 30) Less: Payments made to trust Payments made to Government The company retains workers participation fund for its business operations till the date of allocation to workers. Interest is paid at prescribed rate under the Companies Profit (Workers Participation Act, 968) on funds utilized by the company till the date of allocation to workers Provision for workers participation fund against share of profit in associated companies has been made to the extent of dividend received from these associated companies. 0. ACCRUED MARK-UP Mark-up accrued on long term financing Markup accrued on short term finances

48 . SHORT TERM FINANCES From banking companies Secured (Note.) Temporary bank overdraft (Note.2) (Rupees in Thousand) These are secured against joint pari passu hypothecation charge on all present and future current assets, all marketable securities, instruments, personal guarantees of directors and a second charge on fixed assets of the company. These form part of total credit facility of Rupees million (: Rupees 4 25 million). Mark-up is charged at the rate of Paisas 5.59 to per Rupees 000 per day (: 8.4 to per Rupees 000 per day) and mark-up/profit on export refinance at the rate of 6.90 to 7 percent (: 7.90 to 8 percent) per annum..2 This represents the unsecured overdrawn bank balances from banking companies and carries mark-up at the rate of paisas 26.2 to per Rupees 000 per day (: Paisas 2.86 to 3.34 per Rupees 000 per day). 2. CURRENT PORTION OF LONG TERM LIABILITIES Long term financing (Note 7) Liabilities against assets subject to finance lease (Note 8) CONTINGENCIES AND COMMITMENTS Contingencies i) The company is contingently liable for Rupees 6.89 million (: Rupees 6.89 million) on account of central excise duty not acknowledged as debt as the cases are pending before Court. ii) Guarantees of Rupees million (: Rupees 3.9 million) have been given by the banks of the Company to Sui Northern Gas Pipelines Company Limited against gas connections, Shell Pakistan Limited against purchase of furnace oil, Wartsila Finland for power project and collector of customs. iii) Company s share in contingencies of associated companies is Rupees million (: Rupees million). Commitments i) Contracts for capital expenditure are approximately amounting to Rupees million (: Rupees million). ii) Letters of credit other than for capital expenditure are amounting to Rupees million (: Rupees million). 47

49 (Rupees in Thousand) 4. PROPERTY, PLANT AND EQUIPMENT Operating fixed assets (Note 4.) Assets subject to finance lease (Note 4.2) Capital work in progress (Note 4.3) OPERATING FIXED ASSETS (RUPEES IN THOUSAND) Freehold Buildings on Plant and Electric Factory Furniture, Vehicles Total Land Freehold Machinery Installations Equipment Fixtures Land and Office Equipment Cost As at 0 July Additions Deletions - ( ) (580) (36) (2) (22 930) ( ) As at 30 June Additions Deletions (2 886) ( ) (784) (46) (282) (46 369) ( ) As at 30 June Accumulated Depreciation As at 0 July Charge for the year Adjustments - (8 26) (387) (3) () (4 04) (95 7) As at 30 June Charge for the year Adjustments (2 362) (242 53) (647) (385) (24) (30 4) (276 63) As at 30 June Net Book Value At 30 June At 30 June Depreciation rate (%age) Depreciation charge for the year has been allocated as follows: Cost of sales (Note 27.2) Distribution and selling cost (Note 28) Administrative and general expenses (Note 29) 48 (Rupees in Thousand)

50 4..2 DISPOSAL OF OPERATING FIXED ASSETS (Rupees in thousand) Description Qty. Cost Accumulated Book Sale Mode of Particulars of purchaser depreciation value proceeds disposal Nos. Building Building Material Lot Plant and machinery Ring frames Cards Ring frames Shearing and cropping machine Ramisch calender machine Rolling machines Zimmer rotary machine Benninger bleaching plant Mercerizing plant Lab equipments Lot Mak engine Mak engine Boiler Knotting machine Furnace oil tank Electric installation Cables (Meters) Factory equipment Cloth trolleys Vehicles Suzuki Baleno FDX Toyota Corolla LRB Mr. Muhammad Din Contractor S/O Aashiq Hussain, Faisalabad. Colony Textile Mills Ltd, Bhakkar. Arshaq Trading Corporation, Basement Shadab Plaza, Chiniot Bazar, Faisalabad. Manzoor Textile Mills Limited, Manzoor Hytes, 6-Street, Merry Park, Gulberg-III, Lahore. Arshaq Trading Corporation, Basement Shadab Plaza, Chiniot Bazar, Faisalabad. Liberty Mills Limited, A/5-A, SITE Karachi. Universal Textiles, Karachi. Millinnium Textile (Pvt) Limited, 5 K.M Off, Ferozpur Road, Near Kahna Kacha, Railway Station, Lahore. Husnain Textile House # 006, Block-D, Ghulam Muhammad Abad, Faisalabad. Gul Ahmed Textile Mills Limited, Plot #3/A, Landhi Industrial Area, Karachi. Chem Tech International, 9-Chenab Market, Susan Road, Madina Town, Faisalabad. Surya Chakra Power Corporation Limited, Plot # 5, Road # 54, Jubilee Hills, Hyderabad, India. Usha Daya Energy & Project Consultants (Pvt) Ltd, / A,G-5, Kubera Towers, Hyderabad500029, India. Gulf Nishat Apparel Limited, 7.K.M. Nishat Avenue Off 22.K.M. Ferozepur Road, Lahore. Mr. Sanaullah, Ferozwala, Sheikhupura. Hira Terry Mills Limited, 44-E/, Gulberg III, Lahore. Mr. Mohammad Amjad, Factory Area, Faisalabad. Mr. Farrukh Altaf, Bismillah Market, Samundri Road, Faisalabad. Mr. Zahid Rashid,House # P -287, Street # 9, Naseerabad Nishtaabad, Faisalabad. Argon Enterprises, House # 7-B III, Gulberg III, Lahore. 49

51 (Rupees in thousand) Description Qty. Cost Accumulated Book Sale Mode of Particulars of purchaser depreciation value proceeds disposal Nos. Suzuki Baleno LXW Suzuki Baleno FDX Toyota Hi Ace Van LXP Suzuki Alto LRA Suzuki Bolan Van LRD Suzuki Alto LXW Suzuki Alto LRB Toyota Corolla FS Suzuki Alto LRE Suzuki Baleno LRA Suzuki Baleno FDV Toyota Corolla FS Suzuki Cultus LZV Toyota Corolla LRE Honda Civic LXV Suzuki Khyber LXN Suzuki Baleno LXZ Toyota Corolla FDW Suzuki Alto LRH Toyota Corolla LZX Suzuki Baleno FS Honda Civic LRS Suzuki Baleno LRH Toyota Corolla LXZ Mr. Gul Perviz Tarrad,Kohlo Tarrad, Tehsil & Distt Hafizabad. Mr. Nauman Anwar Khan, House # 6-C,Shami Road, Civil Lines, Sheikhupura. Mr. Mohammad Qasim, House # 04, New Officer Colony, Sadar Bazar, Lahore. Mr. Mohammad Naeem, House 280-A, Street # 3, Near Munshi Quarter, Metropolitan Road, Lahore. Mr. Mohammad Imran Khan, House # 43-D, Satelite Town, Gujranwala. Mr. Azhar Munawar Khan, House # 6, Block # 4, Karim Park, Ravi Road, Lahore. Mr. Adil Butt,House # 385, Wapda Town, Block-C-2, Gujranwala. Mr. Khalid Javaid, House # P-2065, Mansoor Abad, Faisalabad. Mr. Sheraz Hussain, House # 9, Army Housing Scheme, Defence, Lahore. Mian Mohammad Hanif, House # 549-E, Punjab Housing Society, Lahore. Syed Shahid Raza Zaidi,House # 74, Mohallah Lahori Gate, Chiniot. Mr. Naeem Siddiqui, House # /H, Siddiqui Canal Road Link Society, New Campus, Lahore. Gulf Nishat Apparel Limited, 7.K.M. Nishat Avenue Off 22.K.M. Ferozepur Road, Lahore. Mr. Maqsood Ahmed, House # 44/3, Satelite Town, Block ZChiniot, Distt. Jhang. Syed Shehzada Khurram, House # 4 G -, Block B, Rehman Garden, Lahore. Mr. Zahid Ali Khan, House # 34, Main Road, Samanabad, Lahore. Mr. Khalid Chohan, House # 667, Street # 3, Mughal Pura, Haji Abad, Faisalabad. Mr. Mohammad Afzal, House # 472-A Mohallah Mehr Fiaz Mughal Pura Fateh Gar Lahore. Mr. Kamran Shafiq Hashmi, House # LDA-48, Begum Pura, Lahore. Mr. Khurram Farooq,House # 2, Ravi Park, Ravi Road, Lahore. Mr. Junaid Ihsan, House #, CBlock, Gulshane-E-Ravi, Lahore. Argosy Enterprises,House # 8 K, Gulberg, Lahore. Mr. Mushtaq Ahmed,House # 32-B, Punjab Housing Society, Lahore. Mr. Sharif Hussain, Coat Lahmal, Post Office Farook, Tehsil Sahiwal, Distt. Sargodha.

52 (Rupees in thousand) Description Qty. Cost Accumulated Book Sale Mode of Particulars of purchaser depreciation value proceeds disposal Nos. Suzuki Baleno FS Honda City LZX Suzuki Cultus LXW Suzuki Cultus LXW Suzuki Baleno LXZ Toyota Corolla LRL Suzuki Alto LRB Suzuki Bolan LRE Toyota Hi Lux LXC Suzuki Cultus LRD Toyota Corolla 2 O.D LRR Toyota Corolla LRH Suzuki Cultus LRD Suzuki Cultus LXW Suzuki Alto LRA Suzuki Alto LRA Suzuki Baleno LXV Suzuki Alto LRF Toyota Corolla FDY Suzuki Baleno LXW Suzuki Bolan LRM Suzuki Alto LXZ Toyota Corolla 2.O.D-LXW Honda City LRW Mr. Mohammad Iqbal,House 620/20, Janjua Street, Block # 4, Sahiwal, Distt. Sargodha. Mr. Attat Elahi Malik, House # 87/A, Circular Road, Lahore. Mr. Zahid Ali Khan, House # 34, Main Road Samanabad, Lahore. Mr. Saqib Wasim Jaffar, House # 90, Punjab Govt.Society, Sector AII, Lahore. Mian Muhammad Saeed, 39 Raza Block, Allama Iqbal Town, Lahore. Mr. Qader Khan, Mohallah Sokna, Khan Pur Post Office, Tehsil Tangqi, District Charsada. Syed Abid Abbas,House # 69, Jafaria Colony, Multan Road, Lahore. Mr. Javaid Hussain Bukhtiari, House # 493 X, DHA, Lahore. Mr. Arshad Muneer, House # 75, Mohala Maqam-e-Hayat, Sarghodha. Mr. Tahir Zaib, House No.240-B, Church Kahna Nao, Lahore. Syed Mustehsan Abbas, House# 20, Judiciall Colony, Block- B, Lahore. Mr Khawaja Shafaqat, House# 9, Durand Road, Allama Iqbal Road, Lahore. Mr. Ali Asghar, Chak # 06, North Post Office Sargodha, Distt. Sargodha. Mr. Zubair Ahmad Abbasi, House # 488, Amin Town, Faisalabad. Mr. Muhammad Atif,Chohan Park, Islam Pura, Lahore. Mr. Kashif Naeem, House# 56-C, Tech Society, Canal Bank, Lahore. Muhammad Najum-ulSaqib,House# 49, Mahalah Iqbal Nagar, Toba Tek singh. Mr. Muhammad Aslam, Nisaht Dyeing & Finishing, 5 K.M. Off 22 K.M., Ferozpur Road, Lahore. Sheikh Naseer Ahmad, House # 99 /7, Aziz Bhatti Road, Lahore. Mr. Akbar Ali House# 358, Block-B, Faisal Town, Lahore. Mr. Qamar Laqman, House # 22/0, Mohalah Dar-Ul-Alloom, Chanab Nagar, Chiniot. Mr. Muhammad Usman Anwar Khan, House # 6 C,Shami Road, Civil Line, Sheikhupura. Mr. Sartaz Khan, House # 786/ 2, M.B. Check Post Mangla Cantt Distt & Tehsil Jehlam. Mr. Shahid Irshad, House # 325, Karim Block, Allama Iqbal Town, Lahore. 5

53 (Rupees in thousand) Description Qty. Cost Accumulated Book Sale Mode of Particulars of purchaser depreciation value proceeds disposal Nos. Suzuki Cultus LRX Mr. Naveed Mumtaz, Garden Street # 2, Lala Zar Road, Gujranwala. Toyota Hi Lux Single Cabin LRX Toyota Hi Ace Van LXP Honda City LZV Suzuki Cultus LZX Toyota Corolla LWL Honda City EXI LRH Mr. Muhammad Faryad, House # 229, E Block, PIA Society, Lahore. Mr. Gul Akbar Khan, House # 6, Street # 7, Al Qadus Road, Badami Bagh, Lahore. Mr. Muhammad Nasir, House # / 5. Johar Town Sadiqabad Distt Rahimyar Khan. Mr. Faisal Mahmood Butt, House # 45 / G-, Johar Town, Lahore. Mr. Mudaser Ali Jaura,House # 39A3, Gulberg III, Lahore. Mr. Khalid Javaid, House # 2065, Street # 20, Mohala Monsorabad, Faisalabad Office equipment Laptop computer P Insurance Claim Security General Insurance Co. Ltd., 53-A, Lawrance Road, Lahore. This includes the disposal of only those operating fixed assets where book value was more than Rupees 50,000. (Rupees in Thousand) 4.2 ASSETS SUBJECT TO FINANCE LEASE Plant and Machinery: Cost As at 0 July Deletions (98 000) As at 30 June Deletions As at 30 June Accumulated Depreciation As at 0 July Charge for the year Adjustment (27 379) As at 30 June Charge for the year (Note 27.2) As at 30 June

54 (Rupees in Thousand) Net Book Value At 30 June 7 09 At 30 June Depreciation rate (%age) 0 (Rupees in Thousand) 4.3 CAPITAL WORK-IN-PROGRESS This comprises of: Building on freehold land Plant and machinery Electric installation Unallocated capital expenditure Letter of credit against machinery Letter of credit against building material Letter of credit against furniture and office equipment Advances against vehicles (Rupees in Thousand) (Restated) 5. LONG TERM INVESTMENTS RELATED PARTIES: ASSOCIATED COMPANIES - UNDER EQUITY METHOD QUOTED D.G. Khan Cement Company Limited (: ) fully paid ordinary shares of Rupees 0 each. Equity held 3.40% (: 3.40%) (Note 5. and Note 5.2) UN-QUOTED Nishat Shuaiba Paper Products Company Limited (: ) fully paid ordinary shares of Rupees 0 each. Equity held 25% (: 24.87%) (Note 5.) Add: Advance for purchase of shares

55 (Rupees in Thousand) (Restated) ASSOCIATED COMPANIES - AVAILABLE FOR SALE QUOTED Adamjee Insurance Company Limited (: ) fully paid ordinary shares of Rupees 0 each. Equity held 0.03% (: 0.58%) (Note 5.4) D.G. Khan Cement Company Limited Nil (: ) fully paid redeemable cumulative preference shares of Rupees 0 each (Note 5.3). Extent of investments held Nil (: 37.23%) UN-QUOTED Gulf Nishat Apparel Limited (: ) fully paid ordinary shares of Rupees 0 each. Equity held 9.05% (: 24.94%) (Note 5.4) Add: Advance for purchase of shares Security General Insurance Company Limited (: ) fully paid ordinary shares of Rupees 0 each. Equity held 5.02% (: 5.02%) (Note 5.4) Fair Value Surplus Fair value surplus realized/adjusted (3 058) OTHERS AVAILABLE FOR SALE QUOTED MCB Bank Limited (: ) fully paid ordinary shares of Rupees 0 each. Equity held 6.04% (: 6.28%) Fair Value Surplus

56 5. Reconciliation of investments in associated companies under equity method: (RUPEES IN THOUSAND) D G Khan Cement Nishat Shuaiba Paper Total Company Limited Products Company Limited Cost: As at 0 July Share of post acquisition reserves: As at 0 July (5 486) Share of profit after income tax (7 97) (5 486) Share of direct movement in equity Dividend received (08 565) (86 852) (08 565) (86 852) As at 30 June (7 97) (5 486) (22 683) (5 486) Advance for purchase of shares Net book amount: As at 30 June The company has recorded the post acquisition change in reserves as at 30 June in respect of its investment in D.G. Khan Cement Company Limited resulting in overstatement of premium on issue of shares and investment in associated company. The error has been corrected retrospectively in accordance with International Accounting Standards (IAS 8) Accounting Policies, Changes in Accounting Estimates and Errors. Consequently the premium on issue of shares and value of investment in associated company decreased by the same amount. 5.3 The company redeemed preference shares during the current year. 5.4 These are the associated companies by virtue of the Companies Ordinance, 984. The company has no significant influence over these companies as prescribed in International Accounting Standard (IAS) 28 Investments in Associates. 5.5 Aggregate market value of investment in quoted associated companies was Rupees million (: Rupees 5 2 million). 55

57 5.6 Summarized financial information of Associated Companies: (rupees in thousand) Name of associated companies Audited/ Assets Liabilities Net assets Revenues Profit/ Un-audited (loss) March D.G.Khan Cement Company Limited Un-audited Nishat Shuaiba Paper Products Company Limited Un-audited (52 882) March D.G.Khan Cement Company Limited Un-audited Nishat Shuaiba Paper Products Company Limited Un-audited (22 059) (Rupees in Thousand) 6. LONG TERM LOANS Loans to employees Considered good (Note 6. and Note 6.2) Less: Current portion These are unsecured and interest free loans to company s employees which include loan amounting to Rupees million (: Rupees million) given to executives of the company for house building. Loan is recoverable in equal monthly installments. Maximum debit balance due from executives at the end of any month during the year was Rupees 0.56 million (: Rupees million). 6.2 Reconciliation of loans given to executives is given below: Balance as at 0 July Add: Disbursements made Less: Repayments received Balance as at 30 June

58 (Rupees in Thousand) 7. LONG TERM DEPOSITS, PREPAYMENTS AND DEFERRED COST Deposits Other securities Prepayments Office and shop rent Deferred cost (Note 7.) TFC Issuance charges Less: Current portion Office and shop rent Reconciliation of deferred cost is given below: Balance as at 0 July Less: Amortized during the year (Note 30) STORES, SPARE PARTS AND LOOSE TOOLS Stores including in transit Rupees million (: Rupees 3.5 million) Spare parts Loose tools STOCK-IN-TRADE Raw materials Work-in-process Finished goods - including in transit Rupees million (: Rupees million) (Note 9.) It includes goods valued at NRV amounting to Rupees million (: Rupees million). 57

59 (Rupees in Thousand) 20. TRADE DEBTS Considered good: Unsecured Secured (Against letters of credit) Trade debts include an amount of Rupees million (: Rupees Nil) receivable from related parties. 2. SHORT TERM INVESTMENTS Available for sale RELATED PARTIES: QUOTED Nishat (Chunian) Limited (: ) fully paid ordinary shares of Rupees 0 each. Equity held 3.6% (: 3.6%) MCB Bank Limited (: ) fully paid ordinary shares of Rupees 0 each. Equity held 6.04% (: 6.28%) Adamjee Insurance Company Limited Nil (: ) fully paid ordinary shares of Rupees 0 each. Equity held 0.03% (: 0.58%) UNQUOTED Security General Insurance Company Limited (: ) fully paid ordinary shares of Rupees 0 each. Equity held 5.02% (: 5.02%)

60 (Rupees in Thousand) OTHERS: Quoted Pakistan Strategic Allocation Fund (: ) fully paid certificates of Rupees 0 each Fair value surplus Fair value surplus realized/adjusted (8 567) (40 640) LOANS AND ADVANCES Considered good: Employees Interest free Suppliers Letters of credit Employees provident fund trust Income tax Other advances Considered doubtful: Others Less: Provision for doubtful SHORT TERM DEPOSITS AND PREPAYMENTS Deposits Other securities 994 Central excise duty Short term prepayments

61 (Rupees in Thousand) 24. OTHER RECEIVABLES These are made up as under: Considered good Export rebate and claims Sales tax receivable Profit receivable on bank deposits - 33 Derivative financial instrument (Note 24.) Miscellaneous receivables Derivative financial instrument Markup gain on interest rate swap Loss on foreign currency fluctuation (333) ( 093) The Company entered into a Pak Rupees to US Dollars cross currency swap to counter its under lying Pak Rupees floating rate liability into a US Dollars floating rate liability with Standard Chartered Bank for a notional amount of US Dollars million commenced from 0 May. Under the arrangement, the company would receive/pay the difference of 6 months KIBOR and 6 month LIBOR plus one percent semi annually and the difference of US Dollar / Pak Rupee spot rate prevailing at commencement date and installment repayment date. 25. CASH AND BANK BALANCES Cash with banks in: Current accounts Fixed deposit accounts - 7 Cash in hand SALES Export Local (Note 26.) Processing income

62 (Rupees in Thousand) 26. LOCAL SALES Sales Less: Sales tax Exchange gain due to currency rate fluctuation relating to export sale amounting to Rupees million (: million) has been included in export sales. 27. COST OF SALES Raw materials consumed (Note 27.) Cloth and yarn purchased/used Processing charges Salaries, wages and other benefits Staff retirement benefits Stores, spare parts and loose tools Packing materials Repair and maintenance Fuel and power Insurance Other factory overheads Depreciation (Note 27.2) Work-in-process Opening stock Closing stock ( ) ( ) (45 899) (9 294) Cost of goods manufactured Finished goods Opening stock Closing stock ( ) ( ) (6 462) ( 069)

63 (Rupees in Thousand) 27. RAW MATERIALS CONSUMED Opening stock Add: Purchases Less: Closing stock DEPRECIATION Owned assets (Note 4..) Leased assets (Note 4.2) DISTRIBUTION AND SELLING COST Salaries, wages and other benefits Staff retirement benefits Outward freight and distribution Commission to selling agents Rent, rates and taxes Insurance Traveling and conveyance Vehicles running Entertainment Advertisement Postage, telephone and telegram Electricity and sui gas Printing and stationery Repair and maintenance Fee and subscription 520 Depreciation- owned assets (Note 4..)

64 (Rupees in Thousand) 29. ADMINISTRATIVE AND GENERAL EXPENSES Salaries, wages and other benefits Staff retirement benefits Rent, rates and taxes Legal and professional Insurance Traveling and conveyance Vehicles running Entertainment Auditors remuneration: Audit fee Half yearly review Reimbursable expenses Advertisement Postage, telephone and telegram Electricity and sui gas Printing and stationery Repair and maintenance Fee and subscription Research and development (Note 29.) Miscellaneous Depreciation owned assets (Note 4..) RESEARCH AND DEVELOPMENT SUPPORT Support on account of research and development (Note 29.2) Less: Utilization Product development Up-gradation of information technology Professional consultancy Market research Environment improvement Participation in exhibition

65 29.2 The research and development support has been given by Ministry of Commerce, Government of Pakistan vide SRO 803 ()/ dated 04 August in order to encourage and regulate the research and development in textile sector. (Rupees in Thousand) 30. OTHER OPERATING EXPENSES Workers participation fund (Note 9.2) Workers welfare fund Amortization of deferred cost (Note 7.) Donation (Note 30.) There is no interest of any director or his spouse in donees fund. 3. OTHER OPERATING INCOME Income from financial assets Dividend income (Note 3.) Gain on sale of investment Profit on deposit with banks Income from non-financial assets Gain on disposal of operating fixed assets Sale of scrap, empties and sundry receipts Rental income DIVIDEND INCOME From related parties D.G. Khan Cement Company Limited MCB Bank Limited Nishat (Chunian) Limited Adamjee Insurance Company Limited Security General Insurance Company Limited Others Pakistan Strategic Allocation Fund

66 (Rupees in Thousand) 32. FINANCE COST Interest on: Employees provident fund trust 650 Workers participation fund (Note 9.2) Mark-up on: Long term financing Short term finances Finance charges on lease liabilities Bank charges and commission PROVISION FOR TAXATION Current - for the year (Note 33.) Prior year adjustment (75 807) (75 25) The company falls under the ambit of presumptive tax regime under section 69 of the Income Tax Ordinance, 200. Provision for income tax is made accordingly. Provision on dividend income is made under section 5 of the Income Tax Ordinance, 200. However, provision is made on other income (excluding dividend income)@ 35 percent under normal law as the company has no carry forwardable tax losses. Reconciliation of tax expense and product of accounting profit multiplied by the applicable tax rate is not required in view of presumptive taxation Provision for deferred tax is not required as the company is chargeable to tax under section 69 of the Income Tax Ordinance, 200 and no temporary differences are expected to arise in the foreseeable future. 34. EARNINGS PER SHARE - BASIC AND DILUTED There is no dilutive effect on the basic earnings per share which is based on: Profit attributable to ordinary shareholders Number of ordinary shares Earnings per share Basic (Rupees in thousand) (Numbers) (Rupees)

67 35. EVENTS AFTER THE BALANCE SHEET DATE Board of Directors of the company have proposed a cash dividend for the year ended 30 June amounting to Rupees 2.50 (30 June : Rupees.50) per share and stock dividend (Bonus shares) Nil (30 June : 0 ordinary share per 0 ordinary shares of Rupees 0 each) at their meeting held on 20 August. Board of directors also proposed to transfer Rupees million (30 June : Rupees million) from un-appropriated profit to general reserve and Rupees Nil (: Rupees million) from un-appropriated profit to reserve for issue of bonus shares in the aforesaid meeting. However, these events have been considered as non-adjusting events under IAS-0 and have not been recognized in these financial statements. 36. CHIEF EXECUTIVE OFFICER S, DIRECTORS AND EXECUTIVES REMUNERATION Aggregate amount charged in these financial statements for the year for remuneration and allowances, including all benefits to Chief Executive Officer, Directors and Executives of the company is as follows: (Rupees in thousand) D E S C R I P T I O N Chief Directors Executives Chief Directors Executives Executive Executive Officer Officer Managerial remuneration Allowances Cost of living allowance Housing Conveyance Medical Utilities Special Company s contribution to Provident fund trust Leave encashment Number of Persons Chief Executive Officer, four Directors and certain Executives of the company have been provided free maintained vehicles and certain Executives are also provided free housing facility with utilities No remuneration was paid to directors as meeting fee during the current year and previous year. 66

68 37. NUMBER OF EMPLOYEES At the year end 38. TRANSACTIONS WITH RELATED PARTIES The related parties comprise associated undertakings, other related companies and key management personnel. The company in the normal course of business carries out transactions with various related parties. Amount due to related parties is disclosed in Note 9. due from related parties is disclosed in Note 20. and remuneration of the key management personnel is disclosed in Note 36. Aggregate transactions with related parties are given below: (Rupees in Thousand) Purchase of goods and services Sale of goods and services Purchase of operating fixed assets Sale of operating fixed assets Dividend income Dividend paid Company s contribution to provident fund trust 39. PLANT CAPACITY AND ACTUAL PRODUCTION Spinning 00 % plant capacity converted to 20s count based on 3 shifts per day for 095 shifts (: 095 shifts) (Kgs.) Actual production converted to 20s count based on 3 shifts per day for 095 shifts (: 095 shifts) (Kgs.) Weaving 00 % plant capacity at 50 picks based on 3 shifts per day for 095 shifts (: 095 shifts) (Sq.Mt.) Actual production converted to 50 picks based on 3 shifts per day for 095 shifts (: 095 shifts) (Sq.Mt.) Dyeing and Finishing Production capacity for 3 shifts per day for 095 shifts (: 095 shifts) (Mt.) Actual production on 3 shifts per day for 095 shifts (: 095 shifts) (Mt.) Power Plant Generation capacity (KWH) Actual generation (KWH) (figures in Thousand) Processing and Stitching The capacity of this division is indeterminable due to multi product plants involving varying processes of manufacturing and run length of order lots. 67

69 39. REASON FOR LOW PRODUCTION Under utilization of available capacity is mainly due to normal maintenance. For power plant, the capacity utilization is low because of some old engines which could not be run at rated capacity. 40. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES 40. INTEREST / MARK-UP RATE RISK Interest/mark-up rate risk and sensitivity of the company s financial liabilities and financial assets as at 30 June can be evaluated from the following: (RUPEES IN THOUSAND) Total EXPOSED TO EXPOSED TO NOT INTEREST/ INTEREST/ EXPOSED MARK-UP MARK-UP TO RATE PRICE RATE CASH INTEREST/ RISK FLOW RISK MARK-UP Within More than Within More than RATE One One year One One Year RISK Year and Upto Year and Upto Five Years Five Years LIABILITIES Long term financing Liabilities against leased assets Short term finances Trade and other payables Accrued markup A S S E T S Long term investments Long term deposits Short term investments Trade debts Short term deposits Other receivables Cash and bank balances Total interest/mark-up rate sensitivity gap ( ) ( ) ( ) Unrecognized financial instruments Contract for capital expenditure Letter of credit other than for capital expenditure

70 40.2 EFFECTIVE INTEREST / MARK-UP RATES () Financial liabilities Long term financing 6 to.32 percent per annum Liabilities against leased assets.75 percent per annum Short term running finances 5.69 to 3.4 percent per annum Export refinances 6.90 to 7 percent per annum Financial assets Cash with banks on fixed deposits 0. to 4.75 percent per annum 40.3 INTEREST / MARK-UP RATE RISK Interest/mark-up rate risk and sensitivity of the company s financial liabilities and financial assets as at 30 June can be evaluated from the following: (RUPEES IN THOUSAND) Total EXPOSED TO EXPOSED TO NOT INTEREST/ INTEREST/ EXPOSED MARK-UP MARK-UP TO RATE PRICE RATE CASH INTEREST/ RISK FLOW RISK MARK-UP Within More than Within More than RATE One One year One One Year RISK Year and Upto Year and Upto Five Years Five Years LIABILITIES Long term financing Liabilities against leased assets Short term finances Trade and other payables Accrued markup A S S E T S Long term investments Long term deposits Short term investments Trade debts Short term deposits Other receivables Cash and bank balances Total interest/mark-up rate sensitivity gap (97 27) ( ) (33 03) ( 34 59) - ( ) Unrecognized financial instruments Contract for capital expenditure Letter of credit other than for capital expenditure

71 40.4 EFFECTIVE INTEREST / MARK-UP RATES () Financial liabilities Long term financing Liabilities against leased assets Short term running finances Export refinances Financial assets Cash with banks on fixed deposits 6.35 to 3 percent per annum 8.50 to.75 percent per annum 3.07 to 9.66 percent per annum 7.90 to 8 percent per annum 0. to 2.50 percent per annum 40.5 CREDIT RISK The management of the company believes that the company is not exposed to major concentration of credit risk. Further, the company controls its credit risk by ascertainment of credit worthiness of customers, monitoring of debt on a continuous basis and providing appropriate provision for doubtful receivables where it is considered necessary FOREIGN EXCHANGE RISK Foreign currency risk on financial instruments receivable and payable in foreign currency is not material LIQUIDITY RISK Liquidity risk reflects an enterprises inability in raising funds to meet commitments. The company follows an effective cash management and planning policy to ensure availability of funds and to take appropriate measures for new requirements FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying values of financial assets and financial liabilities approximate their fair values. Investments in unquoted equity instruments are stated at cost as allowed under IAS AUTHORIZATION OF FINANCIAL STATEMENTS These financial statements were approved and authorized by the board of directors for issue on 20 August. 42. FIGURES l 70 Comparative figures of balance sheet, profit and loss account, cash flow statement and statement of changes in equity and related notes have been re-arranged, wherever necessary for the purpose of comparison. Significant reclassifications and rearrangements are as under:

72 - Long term investment in Gulf Nishat Apparel Limited has been re-categorized as available for sale instead of stating under equity method due to change in the percentage of shareholding (Note 5). - Commission to selling agents has been grouped in selling and distribution expenses instead of presenting as deduction from sales (Note 28). l Figures have been rounded off to the nearest thousand Rupees. chief executive officer director 7

73 72

74 FORM OF PROXY I/We of being a member of, hereby appoint of or failing him/her of member(s) of the Company, as my/our proxy in my/our absence to attend and vote for me/us and on my/our behalf at the Annual General Meeting of the Company to be held on Monday, 0 October, at.00 a.m. at Nishat House, 53-A, Lawrence Road, Lahore. as witness may hand this day of Signed by the said member in presence of Signature of witness Please affix revenue stamp Rs. 5 Signature(s) of Member(s) Please quote: Folio No. IMPORTANT: Shares held CDC A/C. NO This instrument appointing a proxy, duly completed, must be received at the Registered Office of the Company at 53-A, Lawrence Road, Lahore not later than 48 hours before the time to holding the annual general meeting. 73

75 AFFIX The Company Secretary CORRECT POSTAGE nishat mills limited Nishat House, 53 - A, Lawrence Road, Lahore. 74