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Dhan Fibres limited

(Annual Report 1997)

CONTENTS

COMPANY INFORMATION

Board of Directors

Khawaja Mohammad Jawed

(Chairman & Chief Executive)

Khawaja Mohammad Jahangir

Khawaja Mohammad Tanveer

Khawaja Mohammad Kaleem

Khawaja Mohammad Nadeem

Khawaja Mohammad Naveed

Mst Zubaida Khatoon

CORPORATE SECRETARY

Muhammad Anwar Sheikh

BANKERS

Allied bank of Pakistan Limited

Askari Commercial Bank Limited

Citibank N.A.

Muslim Commercial Bank Limited

National Bank of Pakistan

Platinum Commercial Bank Limited

Prime Commercial bank Limited

Standard Chartered Bank

LEGAL ADVISORS

Cornelius Lane & Mafti

Advocates and Solicitors

AUDITORS

M. Hussain Chaudhury & Co.

Chartered Accountants

REGISTERED OFFICE

7/1, E-3, Main Boulevard

Gulberg-III, Lahore, Pakistan

Tel No. (92-042) 575-7108

CORPORATE AND

SHARE DEPARTMENT

31-F, Main market, Gulberg-III

Lahore, Pakistan

Tele No. (92-042) 575-5774

FACTORY

Hattar, District Hairpur, Pakistan.

Notice of Annual General Meeting

Notice of hereby given that 4th Annual General Meeting of the Shareholders of Dhan Fibres Limited will be

held on Wednesday December, 31, 1997 at 10.00 at 7-Happy Homes, 38-A, Main Gulberg, Lahore to

transact the following business:

1. To confirm the minutes of 3rd Annual General Meeting held on December 31, 1996.

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

ended June 30, 1997.

3. To appoint auditors for the year ended June 30, 1998 and fix their remuneration. The retiring auditors Messrs. M. Hussain Chaudhury & Co. Chartered Accountants, being eligible, after themselves for

re-appointment.

4. To elect seven Directors as fixed by the board under section 178(1) of the Companies Ordinance,

1984 for a period of three years commencing form December 31, 1997. The names of retiring

Directors are as under:

1. Khawaja Mohammad Jawed

2. Khawaja Mohammad Jahangir

3. Khawaja Mohammad Tanveer

4. Khawaja Mohammad Kaleem

5. Khawaja Mohammad Nadeem

6. Khawaja Mohammad Naveed

7. Mst Zubaida Khatoon

The retiring Directors, being eligible, have offered themselves for re-election.

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

BY ORDER OF THE BOARD

Lahore:

(MUHAMMAD ANWAR SHEIKH)

December 8, 1997.

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 of holding the meeting.

2) Any person who seeks to contest the election to the Office of Directors, shall file at the Registered

Office of the company, not later than 14 days before the day of meeting, a notice of his/her intention

to offer himself/herself for election as Director in terms of Section 178(3) of the Companies

Ordinance, 1984.

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

4) 'Share Transfer Books of the Company shall remain closed from December 30, 1997 to January 06,

1998 (both days inclusive).

Directors' Report to the Shareholder

The Directors of your company take pleasure in presenting their report together with the Audited Accounts for

the year ended June 30, 1997.

With the grace and blessing of Almighty Allah the commercial production of the company has been started since

October 01, 1996. Although, the project took off with certain problems but it is a matter of great pride and

satisfaction that the product has reinforced its image as a premium product and is assuring customers

satisfaction. We shall continue to build on this momentum.

Inspite of a difficult business climate, the operational results which covers nine months of commercial operations

are quite satisfactory. The total sales reached Rs. 2,080.663 million for the nine months period from October 01,

1996 to June 30, 1997. The company earned pre - tax profit of Rs. 105.549 million which exhibits an encouraging

beginning.

The Polyester Staple Fiber (PSF) industry is in the throes of severe recession. Dumping of PSF by overseas

suppliers at cheaper rates, excess indigenous capacity compounded by rapid fall in prices and high cost of key

inputs coupled with frequent devaluation of Pak Rupee have put the industry in a difficult situation. In a country

like Pakistan, with its high cost dynamics, domestic industries must be afforded certain amount of protection.

Lack of any protective regime and anti-dumping statutes is resulting in unchecked and reckless dumping of PSF

by global players. The local PSF industry can not compete the global manufacturers who are enjoying

economies of scale due to huge production volumes with depreciated plants. In order to protect local industry

from being wiped out completely by such global producers the Government of Pakistan should take remedial

actions by formulating anti-dumping law and imposition of duties as being considered by India and Indonesia.

The potential threat and consequences of persistent increase in production capacities is alarming for the local

industry. The growth in demand is slow due to slow or even negative growth in textile industry. The situation of

cut throat competition between the local players have further deteriorated the market. The unhealthy competition

have forced to reduce price at very narrow margin. In order to stimulate demand of PSF in the local market, the

Government should give a comprehensive package of incentive to the ailing industry to encourage PSF exports

from the country. This could include export rebates and export financing at concessional rates.

The major cost component for the production of PSF are basic raw materials i.e. PTA and MEG which are

imported. The prices of these materials are not stable and are fixed internationally on quarterly basis and

significantly affect the profitability. The devaluation of currency directly affects the cost of these inputs and

shrinks the margins without any corresponding increase in the sale price. In the absence of any anti-dumping

legislation the Government should waive off the import duties on these raw materials in order to make the local

product more competitive. The fixation of import trade price (ITP) is not justified and needs to be rationalized

keeping in view the change of prices in the international market.

The company has started to march towards the milestone of ISO 9000 certification. We expect that this

cherished goal will be obtained in 1998.

Board of Directors

With profound sorrow, grief and regret, we inform you of the sad demise of our beloved Khawaja Mohammad

Hanif, Director. Let us pray that God Almighty, bless his soul with eternal peace. The Board wishes to record its

appreciation of the valuable services rendered by late Khawaja Mohammad Hanif. The vacancy created in the

Board of Directors due to his sudden demise was filled by alternate Director, Mst. Zubaida Khatoon. However,

the term of the existing Board of Directors is expiring on December 31, 1997, election of directors for another

term of three years will be held in the forthcoming Annual General Meeting. The numbers of directors fixed by the

Board is seven (7).

Auditors

M/s M. Hussain Chaudhury & Co., Chartered Accountants retire and being eligible, offer themselves for re-

appointment.

Pattern of shareholding

The pattern of Shareholding is annexed.

Vote of thanks

The relations between the management and the workers remained cordial throughout the year. The directors are

pleased to place on record their appreciation for the continued zeal, efforts, valuable services and loyalty

rendered by the executives, staff members and workers of the company. Our special thanks to worthy

shareholders. We also put on record our gratitude to our bankers and Government functionaries for their

cooperation and continued support.

ON BEHALF OF THE BOARD

Lahore:

(KHAWAJA MOHAMMAD JAWED)

December 08, 1997.

CHIEF EXECUTIVE

Auditors' Report to the Members

We have audited the annexed balance sheet of "DHAN FIBRES LIMITED" as at June 30, 1997 and the related

profit and loss account for the period 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 and profit and loss account 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;

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 and the 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 June 30, 1997 and of the profit for the period and the changes

in financial position (cash flows) for the year then ended;

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

Lahore:

(M. Hussain Chaudhury & Co.)

December 08, 1997

CHARTERED ACCOUNTANTS

Balance Sheet as at June 30, 1997

Note

1997

1996

CAPITAL AND LIABILITIES

Rupees

SHARE CAPITAL AND RESERVES

Authorized capital:

301 million (1996: 301 million) ordinary

shares of Rs. 10/- each

3,010,000,000

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

Issued subscribed and paid up

2,967,674,000

capital Un-appropriated profit

95,145,386

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

3,062,819,386

2,967,674,000

DEFERRED LIABILITY

Gratuity payable

397,903

339,300

CURRENT LIABILITIES

Short term running finance utilized under

markup arrangements

88,743,526

75,269,951

Creditors, accrued and other

1,475,688,345

824,421,958

liabilities

1,564,431,871

899,691,909

CONTINGENCIES AND COMMITMENTS

4,627,649,160

3,867,705,209

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

PROPERTY AND ASSETS

FIXED ASSETS

Operating fixed assets

3,226,852,006

56,615,860

Capital work in progress

6,803,718

2,882,192,437

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

3,233,655,724

2,938,808,297

Deferred costs

75,323,731

88,616,153

CURRENT ASSETS

Stores, spares and loose tools

129,131,678

121,844,895

Stock in trade

636,665,328

546,979,240

Trade debtors

103,113,160

3,928,429

Advances, deposits,

prepayments and other receivables

363,680,367

57,66t ,377

Cash and bank balances

86,079,172

109,866,818

1,318,669,705

840,280,759

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

4,627,649,160

3,867,705,209

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

Note: The annexed notes form an integral part of these accounts.

Profit and loss Account for the period ended June 30, 1997

October 01, 1996 to

Note

June 30, 1997

Rupees

Sales

2,080,663,082

Cost of sales

1,930,540,345

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

Gross profit

150,122,737

Administrative, selling and general expenses

45,409,742

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

Operating profit

104,712,995

Other income

39,489,423

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

144,202,418

Financial and other charges

33,097,451

Workers' (profit) participation fund

5,556,266

38,653,717

Profit before tax

105,548,701

Provision for taxation

10,403,315

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

Profit after tax- carried to balance sheet

95,145,386

Note: The annexed notes form an integral part of these accounts.

Statement of Changes in Financial Position

(Cash Flow Statement) for the ended June 30, 1997

1997

1996

Rupees

CASH FLOW FROM OPERATING ACTIVITIES

Profit for the period before tax

105,548,701

Adjustments for:

Depreciation

249,189,492

Amortization of deferred costs

13,292,422

Provision for gratuity

318,569

Loss on disposal of fixed assets

20,361

Interest income

(48,926,036)

Financial charges

59,595,199

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

273,490,007

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

Operating profit before working capital changes

379,038,708

(Increase)/decrease in current assets

Stores, spares and loose tools

(7,286,783)

(121,844,895)

Stock in trade

(89,686,088)

(546,979,240)

Trade debtors

(99,184,731 )

(3,928,429)

Advances, deposits, prepayments and other

(269,579,525)

(24,514,166)

receivables

Increase/(decrease) in current liabilities

Creditors, accrued and other liabilities

632,081,767

(84,350,674)

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

166,344,640

(781,617,404)

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

Cash generated from/(used in) operation

545,383,348

(781,617,404)

Gratuity paid

(259,966)

(41,614)

Financial charges paid

(00,385,802)

(411,914)

Income tax paid

(18,217,778)

(6,421,537)

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

Net cash from/(used in) operating activities

466,519,802

(788,492,469)

CASH FLOW FROM INVESTING ACTIVITIES

Additions in operating fixed assets

(3,420,936,445)

(13,969,993)

Capital work in progress

2,883,899,041

(751,091,967)

Deferred costs

(29,363)

Interest/mark-up received

32,976,381

21,264,424

Proceeds from sale of fixed assets

280,000

760,000

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

Net cash used in investing activities

(503,781,023)

(743,066,899)

CASH FLOW FROM FINANCING ACTIVITIES

Short term running finance utilized under

markup arrangements

13,473,575

75,269,951

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

Net cash from financing activities

13,473,575

75,269,951

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

Net increase/(decrease) in cash and cash

(23,787,646)

(1,456,289,417)

equivalents

Cash and cash equivalents at the beginning

of year

109,866,818

1,566,156,235

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

Cash and cash equivalents at the end of year

86,079,172

109,866,818

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

Notes to the Accounts for year ended June 30, 1997

1. The company and its operations

1.1 Dhan Fibres Limited was incorporated on March 08, 1994 as a Public Limited Company in Pakistan under

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

The primary object of the company is manufacturing and sale of man-made fibre (Polyester Staple Fibre)

and Polyester Chips.

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 its employees who have completed the

prescribed qualifying service period under the company's rules. Provision is made annually 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 and capital work in

progress which are stated at cost.

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

their working condition.

Depreciation is charged applying reducing balance method at the rates specified in Note 7.

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

charged on additions during the year.

Profit and loss on disposal of fixed assets is reflected in the income. Normal repairs and maintenance are

charged to income as and when incurred. Major renewals and improvement are capitalized.

2.4 Stores, spares and loose tools

These are valued at moving average cost. Stores in transit are valued at cost comprising invoice value and

other incidental costs relevant thereto.

2.5 Stock-in-trade

The basis of valuation is as follows:

Finished goods

- at lower of cost or net realizable value

Raw and packing materials

- at moving average cost

Stock-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

Current

Provision for current taxation is based on taxable income at current tax rates after taking into account tax

rebates and tax credits available, if any.

Deferred

The company accounts for deferred taxation on material timing differences using the liability method.

However, deferred tax is not provided, if it can be established with reasonable probability that these

differences will not reverse in the foreseeable future.

2.7 Deferred costs

Deferred costs are amortized during the period not exceeding five years commencing from the year of

commercial production.

2.8 Foreign currency translation

Assets and liabilities in foreign currencies are translated at the rates of exchange prevailing at the balance

sheet date. Foreign currency transactions during the year are recorded at the spot rates except those

covered under forward exchange contracts which are translated at the cover rate. Exchange differences in

respect of foreign currency transactions relating to fixed assets are incorporated in the cost of relevant

assets, other exchange differences are taken into the profit and loss account.

2.9 Revenue recognition

Revenue from sales is recognized on dispatch of goods to customers. Profit on bank deposits is accounted

for on accrual basis.

3. Issued, subscribed and paid up capital

1997

1996

1997

1996

NO of shares No of shares

Rupees

296,767,400

Ordinary shares of Rs. 10/-

2,967,674,000

each fully paid in cash

----------

296,767,400 296,767,400

2,967,674,000

==========

4. Short term running finance utilized

under markup arrangements

Shod term running finance-secured

4.1

88,743,526

75,269,951

----------

88,743,526

75,269,951

==========

4.1 The shod term running finance with a sanctioned limit of Rs. 90 million (1996 · Rs. 90 million) has

been arranged from a commercial bank and carries markup @ Rs. 0.5069 per Rs. 1000 per day

calculated on daily product basis on the outstanding balance, and is payable on quarterly basis.

The unutilized credit facilities for opening letters of credit as at June 30, 1997 amounted to Rs.

174.284 million (1996' Nil).

The aggregate facilities are secured by way of mortgage/charge on the entire assets of the company