Contents Company information Directors report Condensed interim balance sheet Condensed interim profit and loss account Condensed interim statement of comprehensive income Condensed interim statement of changes in equity Condensed interim cash flow statement Notes to and forming part of the condensed interim financial information Packages Group condensed consolidated interim financial information Directors report on condensed consolidated interim financial information Condensed consolidated interim balance sheet Condensed consolidated interim profit and loss account Condensed consolidated interim statement of comprehensive income Condensed consolidated interim statement of changes in equity Condensed consolidated interim cash flow statement Notes to and forming part of the condensed consolidated interim financial information 2 4 8 10 11 12 13 14 23 26 30 32 33 34 35 36
COMPANY INFORMATION Board of Directors Towfiq Habib Chinoy (Chairman) (Non-Executive Director) Syed Hyder Ali (Chief Executive & Managing Director) (Executive Director) Asghar Abbas (Executive Director) Imran Khalid Niazi (Non-Executive Director) Josef Meinrad Mueller (Non-Executive Director) Muhammad Aurangzeb (Independent Director) Shamim Ahmad Khan (Non-Executive Director) Syed Aslam Mehdi (Non-Executive Director) Syed Shahid Ali (Non-Executive Director) Tariq Iqbal Khan (Non-Executive Director) Advisor Syed Babar Ali Chief Financial Officer Khurram Raza Bakhtayari Company Secretary Adi J. Cawasji Auditors A.F. Ferguson & Co. (Chartered Accountants) Legal Advisors Hassan & Hassan - Lahore Orr, Dignam & Co. - Karachi Shares Registrar FAMCO Associates (Pvt.) Ltd 8-F, Next to Hotel Faran Nursery, Block 6, P.E.C.H.S., Shahrah-e-Faisal, Karachi-75400 PABX : (021) 34380101-5 : (021) 34384621-3 Fax : (021) 34380106 Email : info.shares@famco.com.pk Bankers & Lenders Allied Bank Limited Askari Bank Limited Bank Alfalah Limited Bank Al-Habib Limited Deutsche Bank A.G. Dubai Islamic Bank Pakistan Limited Habib Bank Limited Habib Metropolitan Bank Limited International Finance Corporation (IFC) JS Bank Limited MCB Bank Limited Meezan Bank Limited Samba Bank Limited Soneri Bank Limited Standard Chartered Bank (Pakistan) Limited The Bank of Punjab The Bank of Tokyo - Mitsubishi UFJ, Limited United Bank Limited Rating Agency PACRA Credit Rating Long Term : AA Short Term : A1+ 2
Head Office & Works Shahrah-e-Roomi, P.O. Amer Sidhu, Lahore - 54760, Pakistan PABX : (042) 35811541-46 Fax : (042) 35811195 Offices Registered Office & Regional Sales office 4 th Floor, The Forum Suite No. 416-422, G-20, Block 9, Khayaban-e-Jami, Clifton, Karachi-75600, Pakistan Zonal Sales Offices C-2, Hassan Arcade Nusrat Road, Multan Cantt. - 60000, Pakistan Tel & Fax : (061) 4504553 2 nd Floor Sitara Tower, Bilal chowk, Civil Lines, Faisalabad - Pakistan Tel : (041) 2602415 Fax : (041) 2629415 Web Presence www.packages.com.pk PABX : (021) 35874047-49 : (021) 35378650-51 : (021) 35831618, 35833011, 35831664 Fax : (021) 35860251 Regional Sales Office 2 nd Floor, G.D. Arcade 73-E, Fazal-ul-Haq Road, Blue Area, Islamabad-44000, Pakistan PABX : (051) 2348307-9 : (051) 2806267 Fax : (051) 2348310 3
DIRECTORS REPORT FOR THE NINE MONTHS ENDED SEPTEMBER 30, The Directors of Packages Limited are pleased to submit to its shareholders, the nine months report along with the condensed interim un-audited financial statements of the Company for the period ended September 30,. Financial and Operational Performance The comparison of the un-audited financial results for the nine months ended as against is as follows: Net sales 4,543 4,128 13,370 12,719 EBITDA - operations 555 588 1,574 2,047 Depreciation and amortisation (162) (156) (500) (450) EBIT - operations 393 432 1,074 1,597 Finance costs (117) (896) (343) (1,178) Other (expenses) / income - net 6 (43) (155) (204) Investment income 620 1,570 4,170 4,697 Earnings before tax 902 1,063 4,746 4,912 Taxation (193) (39) (917) (759) Earnings after tax 709 1,024 3,829 4,153 Basic earnings per share - Rupees 7.94 11.49 42.34 46.59 During the first nine months of, the Company has achieved net sales of Rs. 13,370 million against net sales of Rs. 12,719 million of corresponding period of last year, representing sales growth of 5%. However, the overall volume growth has been 7% which has been neutralised by price discounts passed on to the customers of the packaging division. A brief review of the operations of the Company's business divisions is as follows: Consumer Products Division Consumer Products Division has registered sales of Rs. 3,192 million during the first nine months of as compared to Rs. 2,945 million of corresponding period of, representing sales growth of 8%. Operating results of the Division are higher by 3% during first nine months of over corresponding values of mainly on account of increased sales. Packaging Division For the third quarter July - Sep July - Sep Jan - Sep Cumulative Jan - Sep ( R u p e e s i n m i l l i o n ) Packaging Division has achieved net sales of Rs. 10,050 million during first nine months of as compared to Rs. 9,613 million in corresponding period of year, representing sales growth of 5% only. 4
This marginal sales increase coupled with inflationary fixed cost and raw meterial price increases has adversely affected the operating results. The Company is focusing on revenue growth through investment in new equipment leading to higher volumes and stricter controls over fixed costs to improve the operating results. The production statistics for the period under review along with its comparison with the corresponding period are as follows: Jan - Sep Jan - Sep Consumer products produced - tons 10,074 10,464 Carton Board & Consumer Products converted - tons 33,309 28,978 Plastics all sorts converted - tons 14,974 13,498 Purchase of 35% shares held by Stora Enso in Bulleh Shah Packaging (Private) Limited The Board of Directors, at their meeting held on July 26,, resolved to purchase 35% shares held by Stora Enso in Bulleh Shah Packaging (Private) Limited ("BSPPL"). The transaction was approved by the shareholders through a special resolution at the Extraordinary General Meeting of the Company dated August 28,. Accordingly, BSPPL became a fully owned subsidiary of the Company on September 18,. The Board of Directors of Packages strongly believes in the future growth prospects of the Company and that it shall bring considerable benefit to the shareholders. Real estate development - Packages Mall Packages Mall was inaugurated on April 20, and the customer response has been very encouraging. Moving forward the Board believes that this investment will bring considerable benefit to the shareholders in the form of dividend income and capital gains. OmyaPack The joint venture with OmyaPack for production of calcium carbonate has commenced its construction activity and commercial production is targeted for Q2-2018. Future Outlook As part of its diversification strategy, the Company will continue to explore investment opportunities. In the highly competitive enviorment in packaging business, the Company will continue to strive to improve shareholders value by increasing and diversifying customer base, investment in new technology and production efficiencies. Company's Staff and Customers We wish to record our appreciation of the commitment of our employees to the Company and continued patronage of our customers. (Towfiq Habib Chinoy) Chairman Lahore, October 25, (Syed Hyder Ali) Chief Executive & Managing Director Lahore, October 25, 5
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PACKAGES LIMITED CONDENSED INTERIM BALANCE SHEET (UN-AUDITED) as at EQUITY AND LIABILITIES CAPITAL AND RESERVES Authorised capital 150,000,000 (December 31, : 150,000,000) ordinary shares of Rs. 10 each 1,500,000 1,500,000 22,000,000 (December 31, : 22,000,000) 10% non-voting preference shares / convertible stock of Rs. 190 each 4,180,000 4,180,000 Issued, subscribed and paid up capital 89,379,504 (December 31, : 89,379,504) ordinary shares of Rs. 10 each 893,795 893,795 Reserves 63,145,563 49,550,396 Preference shares / convertible stock reserve 606,222 606,222 Un-appropriated profits 4,284,192 1,734,057 NON-CURRENT LIABILITIES 68,929,772 52,784,470 Long term finances 6 2,539,810 3,575,520 Liabilities against assets subject to finance lease 19,981 26,057 Deferred taxation 7 314,764 344,085 Retirement benefits 99,332 87,304 Deferred liabilities 360,347 304,996 CURRENT LIABILITIES 3,334,234 4,337,962 Current portion of long term liabilities 1,328,022 578,732 Finances under mark up arrangements - secured 1,812,984 1,377,033 Trade and other payables 2,768,780 2,847,914 Accrued finance costs 157,532 221,730 6,067,318 5,025,409 CONTINGENCIES AND COMMITMENTS 8 - - Note Un-audited December 31, Audited 78,331,324 62,147,841 8
ASSETS NON-CURRENT ASSETS Note December 31, Un-audited Audited Property, plant and equipment 9 4,545,189 4,198,410 Investment properties 128,757 133,179 Intangible assets 10 4,413 9,866 Investments 11 65,506,527 50,077,782 Long term loans and deposits 25,961 25,958 70,210,847 54,445,195 CURRENT ASSETS Stores and spares 533,249 463,875 Stock-in-trade 1,975,423 1,768,706 Trade debts 2,385,158 2,171,966 Loans, advances, deposits, prepayments and other receivables 835,503 1,081,622 Income tax receivable 12 2,216,475 2,125,865 Cash and bank balances 174,669 90,612 8,120,477 7,702,646 78,331,324 62,147,841 The annexed notes 1 to 23 form an integral part of this condensed interim financial information. Towfiq Habib Chinoy Chairman Syed Hyder Ali Chief Executive & Managing Director Asghar Abbas Director Khurram Raza Bakhtayari Chief Financial Officer 9
PACKAGES LIMITED CONDENSED INTERIM PROFIT AND LOSS ACCOUNT (UN-AUDITED) for the quarter and nine months ended Note Quarter ended Nine months ended ( R u p e e s i n t h o u s a n d ) Local sales 5,348,520 4,872,877 15,764,509 14,911,627 Export sales 12,239 6,356 23,615 19,704 Gross Sales 5,360,759 4,879,233 15,788,124 14,931,331 Less: Sales tax 817,768 747,706 2,418,249 2,193,702 Commission - 3,954-19,117 817,768 751,660 2,418,249 2,212,819 Net sales 4,542,991 4,127,573 13,369,875 12,718,512 Cost of sales 13 (3,634,108) (3,257,188) (10,651,977) (9,753,451) Gross profit 908,883 870,385 2,717,898 2,965,061 Administrative expenses 14 (247,505) (216,463) (791,351) (666,492) Distribution and marketing costs (268,219) (222,384) (852,318) (701,692) Other operating expenses (53,218) (84,856) (319,697) (383,739) Other operating income 58,667 42,355 164,853 180,095 Profit from operations 398,608 389,037 919,385 1,393,233 Finance costs (116,972) (896,170) (343,434) (1,177,733) Investment income 620,452 1,570,190 4,170,283 4,696,895 Profit before taxation 902,088 1,063,057 4,746,234 4,912,395 Taxation 15 (192,599) (38,659) (916,612) (758,531) Profit for the period 709,489 1,024,398 3,829,622 4,153,864 Basic earnings per share Rupees 7.94 11.49 42.34 46.59 Diluted earnings per share Rupees 7.60 10.04 40.23 40.41 The annexed notes 1 to 23 form an integral part of this condensed interim financial information. Towfiq Habib Chinoy Chairman Syed Hyder Ali Chief Executive & Managing Director Asghar Abbas Director Khurram Raza Bakhtayari Chief Financial Officer 10
PACKAGES LIMITED CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME (UN-AUDITED) for the quarter and nine months ended Quarter ended Septeber 30, Nine months ended Septeber 30, ( R u p e e s i n t h o u s a n d ) Profit for the period 709,489 1,024,398 3,892,622 4,153,864 Other comprehensive income / (loss): Items that will not be reclassified to profit or loss Remeasurement of retirement benefit obligations - - - (5,516) Tax effect - - - 1,655 Items that may be reclassified subsequently to profit or loss - - - (3,861) Changes in fair value of available for-sale financial assets 10,216,070 1,094,774 14,595,167 (729,850) Other comprehensive income / (loss) for the period - net of tax 10,216,070 1,094,774 14,595,167 (733,711) Total comprehensive income for the period 10,925,559 2,119,172 18,424,789 3,420,153 The annexed notes 1 to 23 form an integral part of this condensed interim financial information. Towfiq Habib Chinoy Chairman Syed Hyder Ali Chief Executive & Managing Director Asghar Abbas Director Khurram Raza Bakhtayari Chief Financial Officer 11
PACKAGES LIMITED CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY (UN-AUDITED) for the nine months ended Appropriation of funds Transfer to general reserve - - - - - 1,500,000 (1,500,000) - Transaction with preference shareholders Redemption of preference shares/convertible stock (8,500,000 preference shares of Rs. 190 each) - - - (629,411) 1,615,000 - (4,709,181) (3,723,592) Transactions with owners, recognised directly in equity Final dividend for the year ended December 31, 2015 Rs. 15.00 per share - - - - - - (1,340,693) (1,340,693) Conversion of preference shares / convertible stock into ordinary share capital (1,000,000 ordinary shares of Rs. 10 each) 10,000 177,969 - (74,049) - - - 113,920 Total comprehensive income for the period ended 10,000 177,969 - (74,049) - - (1,340,693) (1,226,773) Profit for the period - - - - - - 4,153,864 4,153,864 Other comprehensive income: Changes in fair value of available-for- sale financial assets - - (729,850) - - - - (729,850) Remeasurement of retirement benefit obligations - - - - - - (3,861) (3,861) Total comprehensive income for the period - - (729,850) - - - 4,150,003 3,420,153 Balance as on (un-audited) 893,795 3,766,738 23,749,378 606,222 1,615,000 15,310,333 314,695 46,256,161 Balance as on January 01, (audited) 893,795 3,766,738 28,858,325 606,222 1,615,000 15,310,333 1,734,057 52,784,470 Appropriation of funds Transfer from general reserve - - - - - (1,000,000) 1,000,000 - Transaction with preference shareholders Participating dividend on preference shares - note 16 - - - - - - (45,000) (45,000) Total transactions with owners, recognised directly in equity Final dividend for the year ended December 31, Rs.25.00 per share - - - - - - (2,234,487) (2,234,487) Total comprehensive income for the period ended Issued, subscribed and paid up capital Preference shares / Capital Share Share Fair value convertible redemption General Un-appropriated capital premium reserve stock reserve reserve reserve profits Total ( R u p e e s i n t h o u s a n d ) Balance as on January 01, (audited) 883,795 3,588,769 24,479,228 1,309,682-13,810,333 3,714,566 47,786,373 Profit for the period - - - - - - 3,829,622 3,829,622 Other comprehensive income: Changes in fair value of available-for-sale financial assets - - 14,595,167 - - - - 14,595,167 Total comprehensive income for the period - - 14,595,167 - - - 3,829,622 18,424,789 Balance as on (un-audited) 893,795 3,766,738 43,453,492 606,222 1,615,000 14,310,333 4,284,192 68,929,772 The annexed notes 1 to 23 form an integral part of this condensed interim financial information. Capital reserves Reserves Revenue reserves Capital and reserves Towfiq Habib Chinoy Chairman Syed Hyder Ali Chief Executive & Managing Director Asghar Abbas Director Khurram Raza Bakhtayari Chief Financial Officer 12
PACKAGES LIMITED CONDENSED INTERIM CASH FLOW STATEMENT (UN-AUDITED) for the nine months ended Cash flow from operating activities Note Nine months ended Un-audited Un-audited Cash generated from operations 18 1,189,236 1,805,343 Finance cost paid (407,632) (453,434) Income tax paid (1,036,543) (1,027,196) Payments for accumulating compensated absences (21,076) (14,092) Retirement benefits paid (15,936) (8,439) Net cash (outflow) / inflow from operating activities (291,951) 302,182 Cash flow from investing activities Fixed capital expenditure (873,446) (867,276) Investments made in equity securities (833,578) (366,667) Investments made in Government securities (1,449,997) - Proceeds from disposal of Government securities 1,452,831 - Long term loans and deposits - net (3) (424) Proceeds from disposal of property, plant and equipment 48,940 90,982 Dividends received 4,170,283 4,696,895 Net cash inflow from investing activities 2,515,030 3,553,510 Cash flow from financing activities Redemption of preference shares - (5,601,500) Proceeds from long term loans - secured - 3,000,000 Repayment of long term finances - secured (285,710) (100,000) Liabilities against assets subject to finance lease - net (8,514) (3,702) Participating dividend on preference shares paid (45,000) - Ordinary dividend paid (2,235,749) (1,341,023) Net cash outflow from financing activities (2,574,973) (4,046,225) Net decrease in cash and cash equivalents (351,894) (190,533) Cash and cash equivalents at the beginning of the period (1,286,421) (782,741) Cash and cash equivalents at the end of the period 19 (1,638,315) (973,274) The annexed notes 1 to 23 form an integral part of this condensed interim financial information. Towfiq Habib Chinoy Chairman Syed Hyder Ali Chief Executive & Managing Director Asghar Abbas Director Khurram Raza Bakhtayari Chief Financial Officer 13
PACKAGES LIMITED NOTES TO AND FORMING PART OF THE CONDENSED INTERIM FINANCIAL INFORMATION (UN-AUDITED) for the nine months ended 1. Legal status and nature of business Packages Limited ('the Company') is a public limited company incorporated in Pakistan and is listed on Pakistan Stock Exchange Limited. It is principally engaged in the manufacture and sale of packaging materials and tissue products. The registered office of the Company is situated at 4th Floor, the Forum, Suite No. 416-422, G-20, Block 9, Khayaban-e-Jami, Clifton, Karachi, Pakistan. Head office and factory is located at Shahrah-e-Roomi, P.O. Amer Sidhu, Lahore, Pakistan. The Company also holds investment in companies engaged in the manufacture and sale of inks, flexible packaging material, paper, paperboard and corrugated boxes, biaxially oriented polypropylene ('BOPP') film and cast polypropylene ('CPP') film, production and sale of ground calcium carbonate products and companies engaged in insurance, power generation and real estate business. 2. Basis of preparation This condensed interim financial information is un-audited and has been prepared in accordance with the approved accounting standards as applicable in Pakistan. The Companies Ordinance, 1984 has been repealed after the enactment of the Companies Act,. However, as allowed by the Securities and Exchange Commission of Pakistan ('SECP') vide Circular No. CLD/CCD/PR(11)/ dated October 04,, companies whose financial year, including quarterly and other interim period, closes on or before December 31,, shall prepare financial statements in accordance with the provisions of the repealed Companies Ordinance, 1984. Accordingly, approved accounting standards comprise of International Accounting Standard ('IAS') 34 - 'Interim Financial Reporting' issued by the International Accounting Standards Board, Islamic Financial Accounting Standards ('IFASs') issued by the Institute of Chartered Accountants of Pakistan, as are notified under the Companies Ordinance, 1984, provisions of and directives issued under the Companies Ordinance, 1984 and the directives issued by the SECP. In case where requirements differ, the provisions of or directives issued under the Companies Ordinance, 1984 have been followed. This condensed interim financial information does not include all the information required for annual financial statements and therefore should be read in conjunction with the annual financial statements for the year ended December 31,. 3. Significant accounting policies 3.1 The accounting policies adopted for the preparation of this condensed interim financial information are the same as those applied in the preparation of preceding annual published financial statements of the Company for the year ended December 31,. 3.2 Initial application of standards, amendments or an interpretation to existing standards The following amendments to existing standards have been published that are applicable to the Company's condensed interim financial information covering annual periods, beginning on or after the following dates: 3.2.1Standards, amendments and interpretations to approved accounting standards that are effective in the current period Certain standards, amendments and interpretations to approved accounting standards are effective for accounting periods beginning on January 01,, but are considered not to be relevant or to have any significant effect on the Company s operations (although they may affect the accounting for future transactions and events) and are, therefore, not detailed in this condensed interim financial information. 14
3.2.2 Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Company There are certain standards, amendments to the approved accounting standards and interpretations that are mandatory for the companies having accounting periods beginning on or after January 01, 2018 but are considered not to be relevant or to have any significant effect on the Company's operations and are, therefore, not detailed in these financial statements, except for the following: - Amendments to IAS 40, 'Investment property' related to transfer of investment property are applicable on accounting periods beginning on or after January 01, 2018. These amendments clarify that to transfer to, or from, investment properties there must be a change in use. To conclude if a property has changed use, there should be an assessment of whether the property meets the definition. This change must be supported by evidence. 4. Income tax expense is recognised based on management s best estimate of the weighted average annual income tax rate expected for the full financial year. 5. The preparation of this condensed interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. In preparing this condensed interim financial information, the significant judgements made by management in applying the Company s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the financial statements for the year ended December 31,, with the exception of changes in estimates that are required in determining the provision for income taxes as referred to in note 4. 6. Long term finances Note Un-audited December 31, Audited Local currency loans - secured 6.1 2,928,580 3,214,290 Preference shares / convertible stock - unsecured 6.2 932,650 932,650 3,861,230 4,146,940 Current portion shown under current liabilities (1,321,420) (571,420) 6.1 Local currency loan - secured 2,539,810 3,575,520 Opening balance 3,214,290 2,100,000 Receipts during the period / year - 3,000,000 3,214,290 5,100,000 Repayments during the period / year (285,710) (1,885,710) Closing balance 2,928,580 3,214,290 6.2 Preference shares / convertible stock - unsecured Opening balance 932,650 2,014,895 Transfer to capital and reserve [(Nil shares (December 31, : 1,000,000 shares)] for conversion into ordinary shares - (113,921) Extinguishment of liability upon redemption of preference shares [Nil shares (December 31, : 8,500,000 shares )] - (968,324) Closing balance 932,650 932,650 15
7. The Divisional Bench of Sindh High Court in an order dated May 7, 2013 in case of another company has interpreted section 113(2)(c) of the Income Tax Ordinance, 2001 ('Ordinance') in the manner that the benefit of carry forward of minimum tax paid is not available, if otherwise no tax was payable by the company due to taxable loss. Taking a prudent view on the matter, the Company has not adjusted the net deferred tax liability against aggregate tax credits of Rs. 152.895 million (December 31, : Rs. 270.768 million) available under section 113 of the Ordinance. Tax credit under section 113 of the Ordinance amounting to Rs. 109.127 million is set to lapse by the year ending on December 31,. 8. Contingencies and commitments 8.1 Contingencies (i) (ii) (iii) Claims against the Company not acknowledged as debts aggregating Rs. 15.678 million (December 31, : Rs. 14.861 million). Post dated cheques not provided in this condensed interim financial information have been furnished by the Company in favor of the Collector of Customs against custom levies aggregating Nil (December 31, : Rs. 18.981 million) in respect of goods imported. Standby letter of credit issued by Habib Bank Limited - Pakistan ('HBL Pakistan') in favor of Habib Bank Limited - Bahrain ('HBL Bahrain') on behalf of the Company amounting to USD 10.801 million (equivalent to PKR 1,138.965 million) [December 31, : USD 11.072 million (equivalent to PKR 1,160.311 million)]. (iv) Letters of guarantees issued to various parties aggregating Rs. 188.56 million (December 31, : Rs. 246.146 million). 8.2 Commitments in respect of (i) (ii) Letters of credit and contracts for capital expenditure aggregating Rs. 410.387 million (December 31, : Rs. 191.973 million). Letters of credit and contracts other than for capital expenditure aggregating Rs. 254.729 million (December 31, : Rs. 488.757 million). 9. Property, plant and equipment Note Un-audited December 31, Audited Operating assets - at net book value Owned assets 9.1 3,945,475 4,060,129 Assets subject to finance lease 29,744 33,263 9.2 3,975,219 4,093,392 Capital work-in-progress 9.3 569,970 105,018 4,545,189 4,198,410 9.1 A portion of the land on which the Company s factory is situated is on lease from the Government of Punjab for the past 60 years. The term of this lease has expired in December 2015 and the Company has filed an application with the relevant authorities for its renewal. 16
9.2 Operating assets December 31, Note Un-audited Audited Opening net book value 4,093,392 3,575,260 Additions during the period / year 9.2.1 408,937 1,133,266 Transfer from investment properties - 47,296 408,937 1,180,562 4,502,329 4,755,822 Disposals during the period / year at book value (37,140) (42,006) Transferred to investment properties - (14,005) Depreciation charged during the period / year (489,970) (606,419) (527,110) (662,430) Closing net book value 3,975,219 4,093,392 9.2.1Additions during the period / year Freehold land - 22,950 Buildings on freehold land 12,097 39,533 Plant and machinery 282,225 864,046 Furniture and fixtures - 743 Other equipment 57,574 108,944 Vehicles 57,041 97,050 9.3 Capital work-in-progress 408,937 1,133,266 Civil works 87,103 8,810 Plant and machinery 232,423 58,595 Others 11,863 1,923 Advances to suppliers 238,581 35,690 10. Intangible assets 569,970 105,018 Opening book value 9,866 20,729 Additions during the period / year - 4,963 Amortisation charged during the period / year (5,453) (15,826) Closing book value 4,413 9,866 11. Investments Opening balance 50,077,782 44,997,518 Investments made during the period / year 11.1 833,578 701,167 Changes in fair value of available-for-sale financial assets 14,595,167 4,379,097 Closing balance 65,506,527 50,077,782 11.1 Investments made in related parties during the period / year OmyaPack (Private) Limited - 309,500 Packages Power (Private) Limited - 25,000 Bulleh Shah Packaging (Private) Limited 11.1.1 833,578 - Tri-Pack Films Limited - 366,667 833,578 701,167 11.1.1 The Board of Directors, at their meeting held on July 26,, resolved to purchase 35% shares held by Stora Enso in Bulleh Shah Packaging (Private) Limited ( BSPPL ). The transaction was 17
approved by the shareholders through a special resolution at the Extraordinary General Meeting of the Company dated August 28,. Accordingly, BSPPL became a fully owned subsidiary of the Company on September 18,. 11.2 As of, an aggregate of 775,000 shares (December 31, : 775,000 shares) of Nestle Pakistan Limited having market value Rs. 10,075 million (December 31, : Rs. 6,975 million) were pledged in favour of HBL Pakistan. Out of aggregate shares pledged, 410,000 shares (December 31, : 410,000 shares) were pledged against issuance of standby letter of credit in favor of HBL Bahrain as referred to in note 8.1 and the remaining 365,000 shares (December 31, : 365,000 shares) were pledged against the term finance loan obtained from HBL Pakistan. 12. Income tax receivable (i) In respect of tax year, the department has, against taxable income of Rs. 1,157.926 million as per return filed by the Company, assessed a taxable income of Rs. 2,437.836 million and amended the deemed order for the year raising a tax demand of Rs. 464.187 million. In this order, the income tax department has disallowed various expenses and deductions amounting to Rs. 1,279.777 million including disallowances on account of allocation of various expenses towards dividend income amounting to Rs. 1,066.360 million, where as minimum tax credit has been disallowed amounting to Rs. 360.348 million. The Company is contesting the above order before Commissioner Inland Revenue (Appeals) and has not made any provision against the above demand or disallowances as the management is confident that the ultimate outcome of the appeals would be in favour of the Company, inter alia on the basis of the advice of the tax consultant and the relevant law and the facts. (ii) In respect of tax year 2014, the department has, against taxable loss of Rs. 706.039 million as per return filed by the Company, assessed a taxable income of Rs. 2.615 billion and amended the deemed order for the year raising a tax demand of Rs. 606.325 million. In this order, among other issues, the income tax department has not accepted the Company s contention for non-taxation of the transfer of paper & paperboard and corrugated business segments to Bulleh Shah Packaging (Private) Limited ('BSPPL') under section 97 of the Ordinance. Such transfer has been taxed as capital gain on the value of assets transferred. The matter is currently being contested before the Commissioner Inland Revenue (Appeals). The Company is contesting the above orders before Commissioner Inland Revenue (Appeals) and has not made any provision against the above demand or disallowances as the management is confident that the ultimate outcome of the appeals would be in favor of the Company, inter alia on the basis of the advice of the tax consultant and the relevant law and the facts. (iii) In 1987, the then Income Tax Officer ('ITO') re-opened the Company s assessments for the accounting years ended December 31, 1983 and 1984 disallowing primarily tax credit given to the Company under section 107 of the Income Tax Ordinance, 1979. The tax credit amounting to Rs. 36.013 million on its capital expenditure for these years was refused on the grounds that such expenditure represented an extension of the Company s undertaking which did not qualify for tax credit under this section in view of the Company s location. The assessments for these years were revised by the ITO on these grounds and taxes reassessed were adjusted against certain sales tax refunds and the tax credits previously determined by the ITO and set off against the assessments framed for these years. The Company had filed an appeal against the revised orders of the ITO before the then Commissioner of Income Tax (Appeals) ['CIT(A)'], Karachi. CIT(A) in his order issued in 1988, held the assessments reframed by the ITO for the years 1983 and 1984 presently to be void and of no legal effect. The ITO has filed an appeal against the CIT(A) s order with the then Income Tax Appellate Tribunal ('ITAT'). The ITAT has in its order issued in 1996 maintained the order of CIT(A). The assessing officer after the receipt of the appellate order passed by CIT(A), had issued notices under section 65 of the Income Tax Ordinance, 1979 and the Company had filed a writ petition against the aforesaid notices with the High Court of Sindh, the outcome of which is still pending. 18
The amount recoverable Rs. 36.013 million represents the additional taxes paid as a result of the disallowance of the tax credits on reframing of the assessments. The Company has not made any provision against the above order as the management is confident that the ultimate outcome of the writ petition would be in favor of the Company, inter alia on the basis of the advice of the tax consultant and the relevant law and the facts. Quarter ended Nine months ended 13. Cost of sales Materials consumed 2,591,456 2,367,377 7,516,791 6,845,148 Salaries, wages and amenities 346,702 312,438 1,045,955 917,324 Travelling 5,452 7,385 17,482 19,685 Fuel and power 152,316 131,863 493,719 399,379 Production supplies 81,332 106,842 286,834 329,399 Rent, rates and taxes 7,821 7,682 23,896 24,130 Insurance 10,123 9,123 26,633 25,726 Repairs and maintenance 73,121 80,865 226,538 260,665 Packing expenses 75,778 71,720 229,909 232,042 Depreciation on property, plant and equipment 146,149 140,660 451,543 404,665 Amortisation of intangible assets 939 2,427 4,858 7,294 Technical fee and royalty 11,831 6,979 23,076 26,305 Other expenses 66,171 64,747 190,970 162,977 3,569,191 3,310,108 10,538,204 9,654,739 Opening work-in-process 237,831 151,157 219,626 210,945 Closing work-in-process (199,932) (231,005) (199,932) (231,005) Cost of goods produced 3,607,090 3,230,260 10,557,898 9,634,679 Opening stock of finished goods 497,513 446,747 564,573 538,591 Closing stock of finished goods (470,494) (419,819) (470,494) (419,819) 3,634,108 3,257,188 10,651,977 9,753,451 14. In June, Walton Cantonment Board concluded its assessment for property tax relating to June 2014 to June resulting in a one off adjustment of Rs. 42 million which has been charged in the current period. 15. Taxation Current Un-audited Un-audited ( R u p e e s i n t h o u s a n d ) Quarter ended Un-audited Un-audited Un-audited Un-audited Nine months ended Un-audited Un-audited ( R u p e e s i n t h o u s a n d ) For the period 231,396 238,920 740,321 737,076 Prior years - - 205,612 115,350 231,396 238,920 945,933 852,426 Deferred (38,797) (200,261) (29,321) (93,895) 192,599 38,659 916,612 758,531 15.1 Through the Finance Act,, an amendment has been made to section 5A of the Ordinance whereby 'tax on undistributed reserves' has been substituted by 'tax on undistributed profits'. As per the amended provision, income tax at the rate of 7.5% of accounting profit before tax for tax year and onwards is applicable where the Company does not distribute at least 40% of its after tax profits, whether in the form of cash or bonus shares, within nine months of the end of tax year, 19
i.e., and within six months of the end of tax year 2018 and onwards. Liability in respect of such income tax, if any, is recognised when the prescribed time period for distribution expires. The Company has already distributed 40% of its after tax profits for the tax year. 16. As per the terms of Subscription Agreement dated March 25, 2009 with International Finance Corporation ('IFC'), in addition to the preferred right of return at the rate of 10 percent per annum, either in cash or ordinary shares on a non-cumulative basis till the date of settlement of preference shares / convertible stock, the preference shareholders also have the right to share the excess amount with the ordinary shareholders on an as-converted basis in case the amount of dividend per share paid to an ordinary shareholder exceeds that paid to a preference shareholder. Since ordinary dividend of Rs. 25.00 per share was approved for the year ended December 31,, which exceeded the preferred return for that year, the additional preference dividend to be paid to the preference shareholders has been distributed to the preference shareholders as participating dividend and charged directly to the equity. 17. Transactions and balances with related parties Significant transactions and balances with related parties other than those disclosed in respective notes are as follows: Nine months ended Un-audited Un-audited Relationship with the Company Nature of transactions i. Subsidiaries Purchase of goods and services 914,444 717,028 Sale of goods and services 115,583 90,409 Dividend income 172,451 314,927 Rental and other income 36,784 17,818 Management and technical fee 42,544 28,725 ii. Joint venture Purchase of goods and services 1,861,762 1,726,519 Sale of goods and services 67,761 53,363 Rental and other income 47,897 48,573 Sales of property, plant & equipment 1,168 9,781 iii. Associates Purchase of goods and services 790,341 707,360 Sale of goods and services 16,282 1,437 Insurance premium 92,938 105,569 Commission earned 3,544 5,309 Insurance claims received 1,699 224 Rental and other income 8,567 3,222 Dividend income 129,333 102,088 Investments in equity - 366,667 iv. Retirement benefit Expense charged in respect obligations of retirement benefit plans 90,699 69,429 v. Key management personnel Salaries and other employee benefits 94,550 82,939 vi. Other related party Donations made 50,255 17,410 All transactions with related parties have been carried out on mutually agreed terms and conditions. There are no transactions with key management personnel other than under the terms of employment. 20
Period / year end balances December 31, Un-audited Audited Receivable from related parties Subsidiaries 136,877 60,935 Joint venture 4,520 492,311 Associates 39,343 19,645 Payable to related parties Subsidiaries 373,268 94,010 Joint venture - 178,884 Associates 70,886 56,914 Retirement benefit obligations 18,485 15,948 These are in the normal course of business and are interest free. 18. Cash generated from operations Nine months ended Un-audited Un-audited Profit before tax 4,746,234 4,912,395 Adjustments for non-cash items: Depreciation on property plant & equipment 489,992 434,587 Depreciation on investment property 4,421 3,450 Amortisation on intangible assets 5,452 12,687 Provision for accumulating compensated absences 76,427 47,202 Provision for retirement benefits 27,964 3,552 Capital gain on disposal of Government securities (2,834) - Net profit on disposal of property, plant and equipment (11,800) (54,765) Exchange loss 4,222 1,933 Finance costs 343,434 1,177,733 Provision for doubtful debts 7,942 21,170 Provision against pending claims 14,966 3,532 Capital work-in-progress charged to profit or loss 1,195 - Provisions and unclaimed balances written back (816) (9,529) Dividend income (4,170,283) (4,696,895) Profit before working capital changes 1,536,516 1,857,052 Effect on cash flow due to working capital changes Increase in trade debts (236,100) (493,624) (Increase) / decrease in stores and spares (69,374) 39,225 (Increase) / decrease in stock-in-trade (206,717) 103,467 Increase in loans, advances, deposits, prepayments and other receivables (167,511) (30,132) Increase in trade and other payables 332,422 329,355 (347,280) (51,709) 1,189,236 1,805,343 21
19. Cash and cash equivalents Cash and bank balances 174,669 89,721 Finances under mark up arrangements - secured (1,812,984) (1,062,995) 20. Financial risk management 20.1 Financial risk factors (1,638,315) (973,274) The Company's activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The condensed interim financial information does not include all financial risk management information and disclosures required in the annual financial statements, and should be read in conjunction with the Company's annual financial statements as at December 31,. There have been no significant changes in the risk management policies since the year end. 20.2 Fair value estimation Nine months ended Un-audited Un-audited The different levels for fair value estimation used by the Company have been explained as follows: - Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) - Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). - Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). The following table presents the Company s material financial assets and liabilities that are measured at fair value at. Un-audited Assets Level 1 Level 2 Level 3 Total Recurring fair value measurements Available-for-sale investments 47,438,399 - - 47,438,399 Liabilities - - - - The following table presents the Company s material financial assets and liabilities that are measured at fair value at December 31,. Audited Assets Level 1 Level 2 Level 3 Total Recurring fair value measurements Available-for-sale investments 32,843,232 - - 32,843,232 Liabilities - - - - During the period, there were no significant changes in the business or economic circumstances that affect the fair value of the Company s financial assets and financial liabilities. Furthermore, there were no reclassifications of financial assets. 22
21. Date of authorisation for issue This condensed interim financial information was authorised for issue on October 25, by the Board of Directors of the Company. 22. Events after the balance sheet date No material events have occurred subsequent to. 23. Corresponding figures In order to comply with the requirements of International Accounting Standard 34 - Interim Financial Reporting, the condensed interim balance sheet has been compared with the balances of annual audited financial statements of preceding financial year, whereas, the condensed interim profit and loss account, condensed interim statement of comprehensive income, condensed interim statement of changes in equity and condensed interim cash flow statement have been compared with the balances of comparable period of immediately preceding financial year. Corresponding figures have been rearranged and reclassified, wherever necessary, for the purposes of comparison. However, no significant reclassifications have been made. Towfiq Habib Chinoy Chairman Syed Hyder Ali Chief Executive & Managing Director Asghar Abbas Director Khurram Raza Bakhtayari Chief Financial Officer 23
Packages Group Condensed Consolidated Interim Financial Information 25
DIRECTORS' REPORT ON CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, The Directors of Packages Limited are pleased to submit the un-audited consolidated financial statements of the Group for the nine months ended. Group results The comparison of the un-audited results for the nine months ended as against is as follows: Jan - Sep (Rupees in million) Jan - Sep Net sales from operations 21,295 18,412 EBIT - operations 2,116 2,299 Share of profit in associates and joint venture - net of tax 273 267 Investment income 3,868 4,280 Profit after tax 6,447 4,406 During the first nine months of, Group has achieved net sales of Rs. 21,295 million against net sales of Rs. 18,412 million achieved during corresponding period of last year representing sales growth of 16% with an operating profit of Rs. 2,116 million compared to Rs. 2,299 million generated during the corresponding period of the year representing a decrease of 8%. This decrease in operating profit is primarily due to price adjustments for raw materials and inflationary fixed cost increases. The Group is focusing on revenue growth through higher volumes, better product mix and stricter controls over fixed costs to improve the operating results. Investment income has decreased by Rs. 412 million during the nine months of over corresponding values of that is due to timing difference of declaration of dividend of investee companies. The Board of Directors of the Parent Company, at their meeting held on July 26,, resolved to purchase 35% shares held by Stora Enso in Bulleh Shah Packaging (Private) Limited ( BSPPL ). The transaction was approved by the shareholders through a special resolution at the Extraordinary General Meeting of the Company dated August 28,. Accordingly, BSPPL became a fully owned subsidiary of the Company on September 18,. The consolidated financial statements include a net positive impact of Rs. 2.493 billion on the profit and loss, owing to the deemed disposal and 100% acquisition of the subsidiary, net of acquisition related costs. A brief review of the operational performance of the Group subsidiaries and joint ventures is as follows: DIC Pakistan Limited DIC Pakistan Limited is a non-listed public limited subsidiary of Packages Limited. It is principally engaged in manufacturing, processing and selling of industrial inks. The Company has achieved net sales of Rs. 2,851 million during the nine months of the year as compared to Rs. 2,769 million of the corresponding period of last year representing sales growth of 3%. The Company has generated profit before tax of Rs. 344 million during the first nine months of the year as against Rs. 419 million generated during corresponding period of primarily on account of stagnation in sales coupled with increase in fixed costs. Moving forward, the Company will focus on improving operating results through increase in sale volumes, tighter operating cost control, product diversification, price rationalization and better working capital management. 26
Packages Lanka (Private) Limited Packages Lanka (Private) Limited is a Sri Lanka based subsidiary of Packages Limited. It is primarily engaged in production of flexible packaging solutions. During the first nine months of, the Company has achieved sales of SLR 1,662 million as compared to SLR 1,474 million of the corresponding period of last year representing sales growth of 13%. This increase in sales growth has been partially offset by increasing raw material prices. The Company has generated profit before tax of SLR 187 million during the first nine months of the year as against SLR 232 million generated during corresponding period of. Moving forward, the Company's focus will remain on improving operating results through product diversification and price rationalization. Bulleh Shah Packaging (Private) Limited Bulleh Shah Packaging (Private) Limited is private limited company. It is principally engaged in the manufacturing and conversion of paper and paperboard products. The Company has achieved sales of Rs. 13,723 million during the first nine months of the year as compared to Rs. 12,434 million of the corresponding period of last year representing sales growth of 10%. The Company has incurred loss before tax of Rs. 168 million during the first nine months of the year as against loss of Rs. 109 million during corresponding period of primarily on account of depreciation and finance cost relating to biomass boiler which was capitalised in Q2 of. Flexible Packages Convertors (Pty) Limited Flexible Packages Convertors (Pty) Limited is private limited company based in South Africa. It is principally engaged in the manufacture of flexible packaging material. During the first nine months of, the company achieved net sales revenue of USD 26.4 million as compared to USD 24.1 million of the corresponding period of last year. Operating results of the Company are lower as compared to primarily on account of investment made in human resources to grow the business further. Moving forward, the Company will continue its focus on improving operating results through tighter operating cost control, increased sales volumes and product diversification. Packages Construction (Private) Limited Packages Mall was inaugurated on 20th April, and the customer response has been encouraging. Moving forward the Board believes that this investment will bring considerable benefit to the shareholders in the form of dividend income and capital gains. Packages Power (Private) Limited Packages Power (Private) Limited is a wholly owned subsidiary of Packages Limited for the purpose of setting up a 3.1 MW hydropower project as advertised by the Punjab Power Development Board (PPDB). Accordingly, an initial equity injection of Rs. 25 million was made in December. The Company has initiated a feasibility study, after the issuance of letter of interest by PPDB, which is likely to be completed by fourth quarter of. OmyaPack (Private) Limited The joint venture with OmyaPack for production of calcium carbonate has commenced its construction activity and commercial production is targeted for Q2-2018. (Towfiq Habib Chinoy) Chairman Lahore, October 25, (Syed Hyder Ali) Chief Executive & Managing Director Lahore, October 25, 27
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PACKAGES GROUP CONDENSED CONSOLIDATED INTERIM BALANCE SHEET (UN-AUDITED) as at EQUITY AND LIABILITIES CAPITAL AND RESERVES Authorised capital 150,000,000 (December 31, : 150,000,000) ordinary shares of Rs.10 each 1,500,000 1,500,000 22,000,000 (December 31, : 22,000,000) 10% non-voting preference shares / convertible stock of Rs.190 each 4,180,000 4,180,000 Issued, subscribed and paid up capital 89,379,504 (December 31, : 89,379,504) ordinary shares of Rs.10 each 893,795 893,795 Reserves 62,930,536 49,350,660 Preference shares / convertible stock reserve 606,222 606,222 Equity portion of short term loan from shareholder of the Parent Company 6 103,077 77,991 Un-appropriated profits 6,894,951 1,879,569 71,428,581 52,808,237 NON CONTROLLING INTEREST 2,026,000 1,950,579 73,454,581 54,758,816 NON-CURRENT LIABILITIES Long term finances 7 15,060,639 10,306,006 Liabilities against assets subject to finance lease 56,399 73,851 Deferred tax 8 1,144,845 802,529 Retirement benefits 235,026 102,825 Rental security deposits 377,876 - Deferred liabilities 571,488 349,437 17,446,273 11,634,648 CURRENT LIABILITIES Current portion of long term liabilities - secured 3,257,787 828,884 Short term loan from shareholder of the Parent Company - unsecured 9 475,212 462,930 Finances under mark up arrangements - secured 6,764,438 1,918,079 Trade and other payables 7,989,518 5,126,373 Accrued finance costs 270,532 313,512 Provision for tax - 66,199 18,757,487 8,715,977 CONTINGENCIES AND COMMITMENTS 10 - - Note Un-audited December 31, Audited 109,658,341 75,109,441 30