CONTENTS Company Information Directors Report Condensed Interim Balance Sheet Condensed Interim Profit and Loss Account Condensed Interim Statement of Comprehensive Income Condensed Interim Cash Flow Statement Condensed Interim Statement of Changes in Equity Notes to and Forming Part of the Condensed Interim Unaudited Financial Information 1 2 3 4 5 6 7 8
Company Information Board of Directors Share Registrar Abdul Razak Dawood Chairman Taimur Saeed Chief Executive Officer Dr. Salman Zakaria Farooq Nazir Chief Financial Officer Syed Zamanat Abbas Taimur Dawood Muhammad Sadiq Faisal Dawood M/s Corplink (Pvt.) Limited Wings Arcade, 1K Commercial Area Model Town, Lahore 53000 Tel : 92 42 35887262, 35839182 Fax : 92 42 35869037 Registered Office Descon Headquarters 18KM Ferozepur Road Lahore 53000 Pakistan. Tel : 92 42 359237219 Fax : 92 42 35923749 Company Secretary Plant Site Abdul Sohail M/s A.F Ferguson & Co. Chartered Accountants 18KM Lahore Sheikhupura Road, Lahore, Pakistan. Tel : 92 42 3797 1822243 Fax : 92 42 3797 1831 Internal Auditors Karachi Office M/s KPMG Taseer Hadi & Co. Chartered Accountants Legal Advisors Business Avenue, 26/A, 9th Floor, Block 6, PECHS, ShahraeFaisal, Karachi, Pakistan Tel : 92 21 345444856 Fax : 92 21 34382674 Hassan & Hassan Advocates Web Presence Auditors Updated Company's Information together with the latest Annual Report can be accessed at Descon's website, www.descon.com www.desconoxychem.com Bankers Allied Bank Limited Bank Al Habib Limited Habib Metropolitan Bank Limited Habib Bank Limited KASB Bank Limited Summit Bank Limited Soneri Bank Limited Askari Bank Limited 1
DIRECTORS REPORT TO THE SHAREHOLDERS FOR THE QUARTER ENDED SEPTEMBER 30, Ladies and Gentlemen: Inspite of the challenging economic conditions in the country and the region, your company has been able to report a profit of PKR 3.5mln for the quarter ended on a turnaround of PKR 46mln compared to the last year. Relentless electricity and gas shortages have continually affected our customers resulting in lower demand for our products. However, it has not impacted DOL as we had already developed export markets that help us develop surplus production to neighboring countries. Load shedding of electricity and gas effects the company negatively, however it is being managed to minimize the impact of disruption. Financial Highlights Sales Gross profit /(loss) Operating Profit / (loss) Profit / (loss) for the period Earnings / (loss) per share (PKR) Rupees 000 338,188 294,502 117,284 73,584 96,476 46,628 (41,870) 0.03 (0.41) Sales for the quarter are 15% more than the same period, which has supported by stable international prices. The margin has improved by 10 percentage points to 35%, resulting in the gross margin of PKR 117mln in the quarter PKR 43mln more than the last year. This was in spite of the increases in the natural gas and electricity has had an adverse impact on margins. The cash generated from operations have increased to PKR 106mln, as compared to PKR 26mln last year, mainly brought about by increased profitability and efficient use of working capital. Future Outlook The significant increase in the electricity rates and the planned increase for natural gas in the coming quarters will further erode margins. The recent reduction in KIBOR shall impact positively on the bottom line, however, effect would be seen in third and fourth quarters, when our interest rate is repriced by the lenders. The external environment in the country will continue to remain challenging. Nevertheless, the company is confident that the prices of the product globally would remain stable, ensuring that we continue to generate the same level of growth and profitability. We once again thank all our stakeholders and ask them for their continued support on our way to prosperity. For and on behalf of the Board Taimur Saeed Chief Executive Officer Lahore October 21, 2
CONDENSED INTERIM BALANCE SHEET AS AT SEPTEMBER 20, (UNAUDITED) EQUITY AND LIABILITIES Note Unaudited Rupees '000 Audited June 30, Rupees '000 SHARE CAPITAL AND RESERVES Authorized capital 110,000,000 (June : 110,000,000) ordinary shares of Rs 10 each 1,100,000 1,100,000 Issued, subscribed and paid up capital 102,000,000 (June : 102,000,000) ordinary shares of Rs 10 each Reserves Accumulated loss 1,020,000 3,094 (281,789) 1,020,000 2,115 (285,285) 741,305 736,830 1,383,711 408,785 107,537 70,955 1,476,764 408,785 115,039 54,520 1,970,988 2,055,108 211,033 124,592 95,688 36,820 113,906 114,188 142,964 102,594 468,133 473,652 NONCURRENT LIABILITIES Long term finances secured unsecured Liabilities against assets subject to finance lease Accrued finance cost 5 6 CURRENT LIABILITIES Current portion of long term liabilities Finances under markup arrangement secured Trade and other payables Accrued finance cost CONTINGENCIES AND COMMITMENTS 7 3,180,426 3,265,590 2,164,721 125,903 43,152 79,551 188,442 2,202,585 128,125 47,616 79,551 188,442 2,601,769 2,646,319 146,628 114,750 98,439 83,739 104,921 30,180 165,016 128,052 93,475 110,347 84,714 37,667 578,657 619,271 3,180,426 3,265,590 ASSETS NONCURRENT ASSETS Property, plant and equipment Assets subject to finance lease Intangible asset Long term deposits Deferred taxation 8 CURRENT ASSETS Stores and spares Stockintrade Trade debts unsecured Investment available for sale Advances, deposits, prepayments and other receivables Cash and bank balances 9 The annexed notes 1 to 15 form an integral part of this condensed interim financial information. CHIEF EXECUTIVE DIRECTOR 3
CONDENSED INTERIM PROFIT AND LOSS ACCOUNT FOR THE QUARTER ENDED SEPTEMBER 30, (UNAUDITED) Note Rupees '000 Sales 10 338,188 294,502 Cost of goods sold 11 (220,904) (220,918) 117,284 73,584 Gross profit/(loss) Administrative expenses (10,248) (9,023) Distribution and selling cost (14,142) (18,890) Other operating income 3,582 957 96,476 46,628 (89,529) (85,525) 6,947 (38,897) Taxation (3,451) (2,973) Profit / (loss) for the period (41,870) 0.03 (0.41) Profit / (loss) from operations Finance cost Profit / (loss) before taxation Profit / (loss) per share basic and diluted 12 The annexed notes 1 to 15 form an integral part of this condensed interim financial information. CHIEF EXECUTIVE DIRECTOR 4
CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME FOR THE QUARTER ENDED SEPTEMBER 30, (UNAUDITED) Rupees '000 Income / (Loss) for the period Other comprehensive income (41,870) 979 Total comprehensive income / 297 4,475 (loss) for the period (41,573) The annexed notes 1 to 15 form an integral part of this condensed interim financial information. CHIEF EXECUTIVE DIRECTOR 5
CONDENSED INTERIM CASH FLOW STATEMENT FOR THE QUARTER ENDED SEPTEMBER 30, (UNAUDITED) Note Rupees '000 Cash flow from operating activities Profit / (Loss) before taxation 6,947 (38,897) 37,864 2,222 4,464 89,529 (440) (138) (2,413) 37,403 2,222 4,464 85,525 Adjustments for: Depreciation on property, plant and equipment Depreciation on assets subject to finance lease Amortization of intangible assets Finance cost Interest from bank deposits Net exchange gain Gain on sale of investment Operating Profit before working capital changes 131,088 129,614 138,035 90,717 Effect on cash flow due to working capital changes (Increase)/Decrease in stores and spares (Increase)/Decrease in stockintrade (Increase)/Decrease in trade debts (Increase) /Decrease in advances, deposits, prepayments and other receivables Increase/(Decrease) in trade and other payables Cash generated from operations 18,388 13,302 (4,826) 23,340 (63,702) (78,568) (11,309) (47,276) (819) 55,461 (31,721) (64,288) 106,314 26,429 Finance cost paid Profit on deposits received Income tax paid (138,868) 440 (12,349) (18,551) (2,973) Net cash generated from / (used in) operating activities (44,463) 4,905 Cash flows from investing activities Fixed capital expenditure Long term security deposits net Proceeds from sale of available for sale investments Investment in short term investments 70,000 (40,000) 54 (9,714) 1,225 Net cash generated from / (used in) investing activities 30,000 (8,435) Cash flows from financing activities Finance lease liabilities net Net increase / (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at the end of the period 15 (3,428) (13) (17,891) (76,521) (3,543) (226,305) (94,412) (229,848) The annexed notes 1 to 15 form an integral part of this condensed interim financial information. CHIEF EXECUTIVE DIRECTOR 6
7 1,020,000 3,094 979 979 2,115 734 297 437 CHIEF EXECUTIVE DIRECTOR (281,789) (285,285) (507,126) (41,870) (465,256) Fair value Accumulated reserve loss Rupees '000 The annexed notes 1 to 15 form an integral part of this condensed interim financial information. Balance as on Unrealized gain on available for sale investment Total comprehensive income for the period Other comprehensive income for the year 1,020,000 Balance as on June 30, Total comprehensive income for the period Profit after tax for the period 1,020,000 1,020,000 Balance as on Other comprehensive income for the year Unrealized gain on available for sale Loss after tax for the period Balance as on July 01, Share capital CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY FOR THE QUARTER ENDED SEPTEMBER 30, (UNAUDITED) 741,305 979 4,475 736,830 513,608 297 (41,870) 555,181 Total
NOTES TO AND FORMING PART OF THE CONDENSED INTERIM FINANCIAL INFORMATION FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, (UNAUDITED) 1. The Company and its operations The company was incorporated in Pakistan as a private limited company on November 12, 2004 under the Companies Ordinance, 1984 and was converted into a public limited company with effect from February 28, 2008. Subsequently, on September 15, 2008, it was listed on Karachi Stock Exchange. The registered office of the company is situated at 18KM Ferozepur Road, Lahore and the factory is situated at 18KM LahoreSheikhupura Road, Lahore. It is principally engaged in the manufacture, procurement and sale of hydrogen peroxide and allied products. The company commenced its commercial production on March 1, 2009. 2. Basis of preparation This condensed interim financial information is unaudited and has been prepared and is being submitted to the shareholders in accordance with section 245 of the Companies Ordinance, 1984 and International Accounting Standard (IAS) 34 'Interim Financial Reporting'. 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 June 30,. 3. Significant accounting policies 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 June 30,. 4. Taxation The provision for taxation for the quarter ended has been made using the tax rate that would be applicable to expected total annual earnings. June 30, Rupees '000 5. Long term loans secured Add: Opening balance Disbursement/restructuring during the period Less: Current portion shown under current liabilities note 5.1 note 5.2 1,569,818 1,569,818 1,469,818 100,000 1,569,818 186,107 1,383,711 93,054 1,476,764 5.1 This loan has been obtained from a consortium of financial institutions led by Allied Bank Limited to finance the capital expenditure in relation to the hydrogen peroxide plant installation, construction and fabrication project. It is secured by way of hypothecation charge over all present and future fixed assets, wherever situated other than the immovable property and first pari passu mortgage charge over immovable property. It carries markup at six month KIBOR plus 2.75% per annum and is payable semi annually. Out of the aggregate facility of Rs 1,470 million (June : Rs 1,470 million) the amount availed as at is Rs 1,470 million (June : Rs 1,470 million). The loan is repayable in 12 six monthly installments commencing on February 24, 2012. 5.2 This represents the loan obtained from KASB Bank, and is secured by a pari passu charge over present and future fixed assets (including land, building, plant and machinery) of the company for Rs. 134 million. It carries markup at six month KIBOR plus 2.50% per annum and is payable semi annually. The loan is repayable in 10 equal semi annual installments commencing on December 01, 2012. 8
June 30, Rupees '000 6. Subordinated loans from associated companies unsecured Descon Engineering Limited Loan 1 Descon Engineering Limited Loan 2 Interworld Travels (Private) Limited Loan 3 note 6.2 note 6.3 note 6.4 276,785 112,000 20,000 276,785 112,000 20,000 408,785 408,785 7. Contingencies and commitments 7.1 Contingencies (i) Guarantee issued to Sui Northern Gas Pipeline Limited against the performance of a contract amounting to Rs 48.64 million (June : Rs 48.64 million). 7.2 Commitments The company has the following commitments in respect of: (i) Letters of credit other than capital expenditure Rs 35.111 million (June : Rs 40.273 million). June 30, Rupees '000 8. Property, plant and equipment Add: Opening book value Additions during the period Less: Less: note 8.1 Disposals during the period (at cost) Depreciation charged during the period Closing book value 8.1 2,307,064 46,497 2,202,585 2,353,561 37,864 37,864 961 150,015 150,976 2,164,721 2,202,585 Additions during the period Buildings on freehold land Plant, machinery and equipment Lab equipment Material Handling 9. 2,202,585 44,558 1,402 467 70 46,497 80,645 3,094 83,739 108,232 2,115 110,347 Investment available for sale Available for sale at cost Add : cumulative fair value gain 9
Rupees '000 10. Sales Gross sales: Local Export Less: Commission on sales 11 264,379 80,290 344,669 (6,481) 338,188 192,658 104,073 296,731 (2,229) 294,502 114,817 11,904 8,830 39,048 109 10,455 89 127 106,118 11,489 7,311 39,315 125 12,201 82 142 37,617 37,244 2,222 4,464 1,561 41 1,144 232,428 2,222 4,464 1,361 55 487 222,616 Cost of goods sold Raw materials consumed Salaries, wages and other benefits Repair and maintenance Fuel and power Printing and stationery Services through contractors Traveling Communication Depreciation on property, plant and equipment Depreciation on assets subject to finance lease Amortization on intangible assets Insurance Safety items consumed Miscellaneous Add: Opening work in process Less: Closing work in process 2,548 2,548 3,125 (347) 2,778 Cost of goods produced 234,976 225,394 Add: Opening finished goods Less: Closing finished goods 30,633 (44,705) (14,072) 14,160 (18,636) (4,476) 220,904 220,918 12. Earnings / (Loss) per share 12.1 Basic earnings / (loss) per share Earnings / (Loss) for the period (Rupees 000) 12.2 Weighted average number of ordinary shares in issue during the period 102,000,000 Earnings / (Loss) per share (Rupees) 0.03 (41,870) 102,000,000 (0.41) Diluted earnings per share Diluted earnings per share has not been presented as the company doesn't have any convertible instrument in issue as at and which would have any effect on the earnings per share if the option to convert is exercised. 10
13. Transactions with related parties Rupees '000 Relationship with the company Nature of transaction i. Associated undertakings Purchase of goods and services Purchases in respect of fixed capital expenditure Sale of goods/scrap Share of common expenses charged from associated companies Share of common expenses charged to associated companies Markup expense Expense charged in respect of retirement benefit plans ii. Post employment benefit plans 536 7,392 195 290 6,482 8,207 1,230 16,436 1,745 16,024 363 473 June 30, Rupees '000 14 Cash and cash equivalents Cash and bank balances Finances under markup arrangement secured 15. 30,180 37,667 (124,592) (114,188) (94,412) (76,521) Date of authorization for issue This condensed interim financial information was authorised for issue on October 21, by the Board of Directors of the Company. CHIEF EXECUTIVE DIRECTOR 11