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Dhan Fibres Limited

(3rd Annual Report 1996)

COMPANY INFORMATION

CHAIRMAN & CHIEF EXECUTIVE

Khawaja Mohammad Jawed

BOARD OF DIRECTORS

Khawaja Mohammad Kaleera

Khawaja Mohammad Hanif

Khawaja Mohammad Jahangir

Khawaja Mohammad Tanveer

Khawaja Mohammad Nadeem

Khawaja Mohammad Naveed

CORPORATE SECRETARY

Muhammad Anwar Sheikh

BANKERS

Allied Bank of Pakistan Limited

Citibank, N.A.

Muslim Commercial Bank Limited

Prime Commercial Bank Limited

Platinum Commercial Bank Limited

Standard Chartered Bank

LEGAL ADVISOR

Cornelius Lane & Mufti

Advocates and Solicitors

AUDITORS

M. Hussain Chaudhury & Co.

Chartered Accountants

REGISTERED OFFICE

7/1, E-3, Main Boulevard,

Gulberg-III, Lahore, Pakistan

Tele # (92-042) 575-7108

CORPORATE &

SHARE DEPARTMENT

31 - F, Main Market, Gulberg II,

Lahore, Pakistan

Tele # (92-042) 575-5774

FACTORY

Hattar, District Haripur, Pakistan

NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the 3rd Annum General Meeting of the shareholders of Dhan Fibres Limited

will be held on December 31, 1996 at 02:30 p.m. at 7-Happy Homes, 38-A Main Gulberg, Lahore to transact

the following business:-

1. To confirm the minutes of 2rid Annum General Meeting held on December 31, 1995.

2. To receive and adopt the audited accounts together with Directors' and Auditors' reports for the

year June 30, 1996.

3. To appoint auditors for the year ended June 30, 1997 and fix their remuneration. The retiring

auditors Messrs. M. Hussain Chaudhury & Company, Chartered Accountants, being eligible,

offer themselves for re-appointment.

SPECIAL BUSINESS

4. To consider and if thought fit, to approve the remuneration payable to the Chief Executive and

whole time working directors of the Company.

5. To transact any other business with the permission of the Chair.

A Statement under Section 160 of the Companies Ordinance, 1984 pertaining to special business is

attached with this notice.

BY ORDER OF THE BOARD

Lahore

MUHAMMAD ANWAR SHEIKH

December 09, 1996.

CORPORATE SECRETARY

NOTES:

1) A member entitled to attend and vote at the meeting may appoint another member as his/her proxy to

attend and vote instead of him/her at the meeting. Proxies must be deposited at the Company's Registered

Office not less than 48 hours before the time for holding the meeting.

2) Members are requested to immediately notify the change of their address, if any.

3) Share Transfer Books of the Company shall remain closed from Sunday, December 29, 1996 to Sunday,

January 12, 1997 (both days inclusive).

STATEMENT UNDER SECTION 160 OF

THE COMPANIES ORDINANCE 1984.

This statement sets out the material facts concerning the special businesses to be transacted

at the 3rd Annual General Meeting of Dhan Fibres Limited to be held on December 31, 1996.

No remuneration or meeting fee has been paid to the Chief Executive and other whole time

working directors since the incorporation of the Company. The Company has successfully

started commercial operations since September 1996 and therefore, approval of the

shareholders will be sought for the remuneration payable to Chief Executive and other

whole time working Directors. For this purpose, it is intended to propose that the following

resolution be passed as an Ordinary Resolution.

"RESOLVED THAT the Company hereby authorizes the payment as

remuneration to the Chief Executive and whole time working Directors

not exceeding in the aggregate Rupees 3.00 million per annum

inclusive of house rent allowance and exclusive of utilities and other

perquisites to which they are entitled under their terms of employment ".

The Chief Executive and the whole time working Directors are interested in this special

business to the extent of remuneration payable to them.

DIRECTORS' REPORT

On behalf of Board of directors of your company, I take the honour to place before you the manual report

alongwith audited accounts for the year ended June 30, 1996.

We are pleased to report that by the grace of Almighty Allah, your company has successfully started

commercial production in September 1996. The production was abnormally delayed owing to reasons

which have been discussed in detail in the Directors' report for the six months ended December 31,

1995. The plant is presently being operated at over 50 percent capacity level and the product is

receiving encouraging acceptance in the market. We are pleased to report that in this short period,

we have been able to capture a sizeable market share and are presently placed at second position in

terms of market share. The efficiency level is being increased gradually with the increase in the market

share of our product. We understand that the quality assurance is must for developing brand name in

the market. Therefore, at Dhan, each batch undergoes rigorous testing to ensure quality and that is

the reason, some of the most quality conscious spinners have started using Dhan's polyester staple fibre.

In the current fiscal budget, sales tax has been levied on the sale of domestically produced textile

products including yarn. Resultantly our customers required sales tax paid invoice in order to claim

input tax on their purchases. Sales tax Act has also been amended in the manner that purchasers can

no longer claim sale tax adjustment against an invoice issued as "Exempt Supply", thus putting the

industries located in sales tax free area at a disadvantage in comparison with industries located at other

areas. We had no other option but to register overselves for sale tax purposes.

Pakistani PSF manufacturers are suffering tremendously due to dumping by global PSF producers.

The price of PSF in the international markets has been consistently higher than the prices being offered

in Pakistan by such global producers. This disparity in prices clearly reflects that the international

manufactures are selling their output at a significant discount to global prices. Due to unchecked

dumping of their products, domestic producers are under a lot of pressure particularly since the existing

tariff structure does not offer any protection to the local industry. We request the relevant authorities

to take cognizance of the matter and save the industry from such practices. This is particularly

important because of the fact that in a country with high cost dynamics, domestic industry must be

allowed a certain amount of compensation in the form of duty protection.

Re-verification of Shares

During September 1996, our share department, detected some fake share certificates. Detail inquiry

was made and the matter was immediately reported to all the stock exchanges of Pakistan. With mutual

consultation, we decided to re-verily all the share certificates alongwith transfer deeds in the larger

interest of our valued shareholders. Special arrangements have been made for the convenience of

Shareholders which also include the receipt/delivery of Karachi based Shareholder's shares in Karachi

in order to eliminate the possibility of loss of Scrips in transit. The re-verification work has been started

from October 07, 1996. You will appreciate that Dhan Fibres Limited is a large issue and

re-verification job will take some time to complete. Meanwhile the trading of shares of Dhan is

continued and we are further requesting the stock exchanges to continue the trading as parallel clearing

with verified and re-verified shares & transfer deeds till such time the major portion of re-verification

is completed.

Auditors

Messrs. M. Hussain Chaudhury & Co., Chartered Accountants, retire and being eligible offer

themselves for appointment as the auditors of the Company for the fiscal year 1996-97.

Pattern of Shareholding

The pattern of Shareholding is annexed.

Acknowledgment

The Company places on record the support of its local and foreign shareholders, bankers, employees

and all individuals who have extended their cooperation for the implementation of the project.

ON BEHALF OF THE BOARD

Lahore

KHAWAJA MOHAMMAD JAWED

December 8, 1996.

CHIEF EXECUTIVE

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of DHAN FIBRES LIMITED as at 30th June, 1996 and

statement of changes in financial position (cash flow statement) together with the notes forming part thereof,

for the year then ended and we state that we have obtained all the information and explanations which to

the best of our knowledge and belief were necessary for the purposes of our audit and, after due verification

thereof, we report that:

(a) in our opinion, proper books of account have been kept by the Company as required by the

Companies Ordinance, 1984;

(b) in our opinion:

i) the balance sheet together with the notes thereon have been drawn up in conformity with

the Companies Ordinance, 1984, and are in agreement with the books of account and

are further in accordance with accounting policies consistently applied;

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;

the balance sheet and statement of changes in financial position (cash flow statement) together

with the notes forming part thereof, give the information required by the Companies Ordinance,

1984 in the manner so required and respectively give a true and fair view of the state of the

company's affairs as at 30th June, 1996 and of the changes in financial position (cash flow) for

the year then ended;

(d) the company has not started any commercial production, hence no profit and loss account; and

(e) in our opinion, no zakat was deductible at source under the Zakat and Ushr Ordinance, 1980.

Lahore

M. HUSSAIN CHAUDHURY & CO.

December 08, 1996.

CHARTERED ACCOUNTANTS

BALANCE SHEET AS AT 30TH JUNE, 1996

Note

1996

1995

Rupees

CAPITAL AND LIABILITIES

SHARE CAPITAL

Authorised:

301,000,000 Ordinary Shares

of Rs. 10/- each

3,010,000,000

Issued, Subscribed and Paid up Capital:

296,767,400 Ordinary Shares

of Rs. 10/- each

2,967,674,000

DEFERRED LIABILITIES

Gratuity

339,300

109,870

CURRENT LIABILITIES

Short term borrowing

75,269,951

Creditors, accrued and other liabilities

824,421,958

907,256,166

------------

899,691,909

907,256,166

CONTINGENCIES AND COMMITMENTS

------------

3,867,705,209

3,875,040,036

=============

The annexed notes form an integral part of these accounts.

PROPERTY AND ASSETS

FIXED ASSETS - TANGIBLE

Operating fixed assets

59,610,142

48,840,693

Capital work-in-progress

2,879,198,155

2,143,879,010

------------

2,938,808,297

2,192,719,703

DEFERRED COSTS

88,616,153

88,586,790

CURRENT ASSETS

Stores, spares & loose tools

121,844,895

Stock-in-trade

546,979,240

Trade Debts

3,928,429

Loans, advances, deposits, prepayments

& other receivables

57,661,377

27,577,308

Cash and bank balances

109,866,818

1,566,156,235

------------

840,280,750

1,593,733,543

------------

3,867,705,209

3,875,040,036

=============

STATEMENT OF CHANGES IN FINANCIAL POSITION

(CASH FLOW STATEMENT)

FOR THE YEAR ENDED 30TH JUNE, 1996

1996

1995

Rupees

CASH FLOW FROM INVESTING ACTIVITIES

Addition to operating fixed assets

(13,969,993)

-40,136,298

Capital work4n-progress

(751,133,581)

(1,453,056,899)

Proceed from sale of fixed assets

760,000

Interest/mark-up received

21,264,424

80,062,400

Deferred costs

(29,363)

(16,505,109)

------------

Net cash outflow from investing activities

(743,108,513)

(1,429,635,906)

=============

CASH FLOW FROM FINANCING ACTIVITIES

Increase in share capital

534,817,000

Short term financing

75,269,951

Financial charges paid

(411,914)

(68,404)

Net cash inflow from financing activities

74,858,037

534,748,596

------------

(668,250,476)

-894,887,310

Effect on cash How due to working capital changes

(Increase)/decrease in current assets:

Loans, advance, deposits, prepayments

and other receivables

(703,688,267)

(8,606,685)

(Decrease)/Increase in current liabilities:

Creditors, accrued and other liabilities

(84,350,674)

904,990,426

------------

NET INCREASE/(DECREASE) IN CASH

AND CASH EQUIVALENTS

(1,456,289,417

1,496,431

Cash and cash equivalents at the beginning of the year

1,566,156,235

1,564,659,804

------------

Cash and cash equivalents at the end of the year

109,866,818

1,566,156,235

=============

NOTES TO THE ACCOUNTS

FOR THE YEAR ENDED 30TH JUNE, 1996

1. THE COMPANY AND ITS OPERATIONS

1.1 Dhan Fibres Limited was incorporated on 8th March 1994 as a public limited company in Pakistan under the

Companies Ordinance, 1984 and is quoted on all the Stock Exchanges of Pakistan,

The primary object of the Company is to manufacture and sale of man-made fibre (polyester Staple Fibre) and

Polyester Chips.

1.2 Profit and Loss account for the year ended 30th June, 1996 has not been drawn up as the Company has not

commenced commercial production.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 Accounting convention

These accounts have been prepared under the historical cost convention without any adjustment for the effect of

inflation or current values.

2.2 Staff retirement benefits

The Company operates an unfunded gratuity scheme for all the employees who have completed the prescribed

qualifying service period under the company's rules. Annual provision is made to cover the obligation under the

scheme.

2.3 Fixed assets and depreciation

Fixed assets are stated at cost less accumulated depreciation except free-hold land/lease-hold land and capital

work in progress which are stated at cost.

Cost of operating fixed assets consists of historical cost and attributable expenses in bringing the assets to their

working condition.

Depreciation is charged applying reducing balance method so as to write off the cost of operating fixed assets over

their useful lives.

No depreciation is charged on the assets deleted during the year whereas full year's depreciation is charged on

additions during the year.

Gain or loss on disposal of fixed assets is reflected in the income. Normal repairs and maintenance is charged

to income as and when incurred. Major renewals and improvements are capitalized.

2.4 Stores, spares and loose tools

These are valued at moving average cost

2.5 Stock in Trade

The basis of valuation has been specified against each:

Finished goods

at lower of cost or net realisable value

Raw & packing material

at moving average cost

Goods in transit

at invoice value and other charges relevant thereto

Work in process

at average cost

Cost signifies prime cost and appropriate portion of production overheads

2.6 Taxation

The company has not yet commenced commercial production and as such the provision for current taxation or

deferred taxation is neither required nor provided for in these accounts.

2.7 Deferred costs

Deferred cost shall be amortized during the period not exceeding five years commencing from the year of

commercial production.

2.8 Foreign currency translation

Transactions in foreign currency are recorded in the books at the rate of exchange ruling on the date of transaction

except for transactions which are covered under forward exchange contracts, are translated at the contractual

rates.

Deposits in foreign currencies are translated into Pak Rupee at the rate of exchange ruling at the balance sheet

date.

2.9 Revenue Recognition

Revenue from sales is recognized on despatch of goods to the customers, interest income is recognized on accrual

basis.

2.10 General

a) Figures have been rounded off to the nearest rupee; and

b) Previous year figures have been re-arranged wherever necessary to facilitate comparison.

1996

1995

Rupees

ISSUED, SUBSCRIBED AND PAID-UP CAPITAL

296,767,400 ( 1995: 296,767,400) Ordinary shares

of Rs. 10/- each fully paid in cash

2,967,674,000

-----------

2,967,674,000

===========

4. SHORT TERM BORROWING

-----------

Short term running finance - secured

4.1

75,269,951

===========

4.1 This represents short term finance utilized under Mark-up arrangements against the total limit of Rs. 90 million

(1995: Rs. Nil). These arrangements are normally for a period of twelve months and mark-up on the above

facilities ranges between 18% to 20% per annum. These arrangements are secured by means of charge/mortgage

on the entire assets of the company ranking pari passu with other lending banks.

5. CREDITORS, ACCRUED AND OTHER LIABILITIES

Payable to machinery supplier

62,086,994

881,979,000

Creditors

5.1

467,602,822

13,366,657

Payable to contractors

19,079,600

6,807,650

Retention money

5.2

7,283,001

3,621,956

Accrued interest

1,516,466

Expenses payable

4,782,480

1,480,903

Others

262,070,595

-----------

824,421,958

907,256,166

===========

5.1 This includes amount payable to suppliers for material imported against usance letters of credit.

5.2 This represents amount retained from contractors/suppliers and is payable upon completion of time period

specified in the agreements.

6. CONTINGENCIES & COMMITMENTS

6.1 Contingencies

Guarantee issued in favour of Ministry of Commerce for Rs. 7.533 million (1995:75.333 million) to cover 4% import

license fee as per SRO 1317 (1)90 dated December 22,1990. Against the total amount of guarantee for Rs. 75.333

million, during the year Rs. 67.80 million (1995 Rs. Nil) has been released on production of certificate from the

Provincial Industries Department to the effect that the machinery has been installed in the area specified for the

purpose.

The guarantee has been issued by the bankers of the company which is secured against first equitable mortgage

of the property of the company.

6.2 Commitments

Commitments in respect of capital expenditure contracted but not incurred amounting to Rs. Nil

(1995: Rs. 0.500 billion).

7. OPERATING FIXED ASSETS

C O S T

DEPRECIATION

BOOK VALUE

AS ON

ADDITIONS

AS ON

RATE

UPTO

FOR

TOTAL

AS ON

PARTICULARS

7/1/1995

(DELETIONS)

6/30/1996

7/1/1995

THE YEAR

30-06-1996

Rupees

1. Land - freehold

41,275,997

396,750

41,672,747

2. Land - leasehold

2,994,282

3. Furniture & Fixtures

1,347,633

3,198,645

4,546,278

134,763

441,152

575,915

3,970,363

4. Factory Equipment

13,829

2,642,028

2,655,857

1,383

265,447

266,830

2,389,027

5. Office Equipment

1,354,600

3,290,605

4,645,205

135,460

450,975

586,435

4,058,770

6. Vehicles

2,657,448

4,441,965

6,187,681

531,490

1,131,238

1,662,728

4,524,953

-911,732

----------

1996

49,643,789

13,969,993

62,702,050

803,096

2,288,812

3,091,908

59,610,142

Total

-911,732

==========

1995

9,507,491

40,136,298

49,643,789

803,096

48,840,693

==========

Note: The depreciation charge has been transferred to unallocated capital expenditure - (Note 8.1)

7.1 Disposal of fixed assets

ACCUMULATED

BOOK

SALE

GAIN/

MODE OF

PARTICULARS

COST

DEPRECIATION

VALUE

PROCEEDS

(LOSS)

DISPOSAL

OF PURCHASER

Vehicles

911,732

760,000

(151,732)

Insurance

M/s Premier