| DAWOOD HERCULES CHEMICALS LIMITED |
|
|
|
|
|
|
|
|
|
| Pakistan
First ISO 9002 Certified Fertilizer Company |
|
| ANNUAL
REPORT 1997 |
|
|
|
| CONTENTS |
|
| Company
Information |
|
| Notice
of Annual General Meeting |
|
| Directors' Report |
|
|
| Auditors'
Report to the Members |
|
| Profit
and Loss Account |
|
| Balance Sheet |
|
|
| Cash
Flow Statement |
|
| Notes
to the Accounts |
|
| Pattern
of Share Holdings |
|
|
| COMPANY
INFORMATION |
|
|
| DIRECTORS |
|
| Ahmed Dawood |
|
|
|
| Chairman |
|
|
| M
Hussain Dawood |
|
|
| Managing
Director |
|
|
| Shahzada
Dawood |
|
| Khawaja
Amanullah |
|
| Mahmood
Ahmad |
|
| Abdul
Ghafoor Gohar |
|
| M Ajmal Tareen |
|
| Iftikhar
Ahmad Dar |
|
|
| SECRETARY |
|
| M Ajmal Tareen |
|
|
| AUDITORS |
|
| Taseer
Hadi Khalid & Co |
|
| Chartered
Accountants |
|
|
| LEGAL
ADVISORS |
|
| Hassan
& Hassan |
|
|
| REGISTERED
OFFICE |
|
| 35-A,
Shahrah e Abdul Hameed Bin |
|
| Baadees, Lahore |
|
|
| PLANT |
|
| Chichoki Mallian |
|
| Sheikhupura |
|
|
|
| NOTICE
OF MEETING |
|
| Notice
is hereby given that the Thirtieth Annual General Meeting of Dawood Hercules
Chemicals Limited will be held at |
|
| the
Company's Registered Office at 35-A, Shahrah e Abdul Hameed Bin Baadees,
Lahore at 10:30 a.m. on Friday, 26 |
|
| June,
1998, for the purpose of transacting the following ORDINARY BUSINESS: |
|
|
| 1.
To confirm the Minutes of the Twenty-ninth Annual General Meeting held on 30
June, 1997. |
|
|
| 2.
To receive, consider and adopt the audited accounts of the Company for the
year ended |
|
| 31
December, 1997. |
|
|
| 3.
To consider and approve payment of final cash dividend at the rate of Rs.
10.00 per share in addition to |
|
| interim
declarations of cash dividend of Rs.2.50 per share and issuance of bonus
shares in the ratio of I: l |
|
| for
the year ended 31 December, 1997. |
|
|
| 4.
To appoint auditors and to fix their remuneration. |
|
|
|
By order of the Board |
|
|
M Ajmal Tareen |
|
| Lahore:
19 May, 1998 |
|
Secretary |
|
|
|
| Notes: |
|
|
| 1.
The share transfer books of the Company will be closed from 16 June to 26
June, 1998, both days inclusive. |
|
|
| 2.
A member of the Company who is entitled to attend and vote, may appoint
another member as his/her agent |
|
| duly authorized under a power of attorney
or by proxy to attend the meeting and vote instead of him/her. |
|
| The proxy shall have the right to attend,
speak, and vote in place of the member appointing him/her at the |
|
| meeting. A corporation, being a member, may
appoint as representative any person whether a member of |
|
| the Company or not. Proxies must be
received at the registered office of the Company not less than forty |
|
| eight hours before the meeting. The form of
proxy is attached herewith. |
|
|
| 3.
Shareholders are requested to notify the change of address, if any,
immediately. |
|
|
| DIRECTORS'
REPORT |
|
| The
Directors have pleasure in presenting their Annual Report with the audited
accounts of the Company for the |
|
| year
ended 31 December, 1997. |
|
|
| The
financial results of the Company for the year under review are as under: |
|
|
|
Rupees |
|
| During
the year the Company made a profit of |
|
745,894,073 |
|
|
| Adding
thereto the un-appropriated profit brought forward |
|
| from
the previous year |
|
1,172,845,331 |
|
|
------------ |
|
| Making
available for appropriation a sum of |
|
1,918,739,404 |
|
|
| Of
the above, the Directors during 1997 have declared interim |
|
| cash
dividend of Rs. 2.50 per share |
|
41,700,000 |
|
| bonus
issue in the ratio of 1: 1 |
|
166,800 000 |
|
|
| And
recommend final cash dividend at Rs. 10.00 per share |
|
333,600,000 |
|
|
------------ |
|
| Making
a total amount for appropriation of |
|
542,100,000 |
|
|
|
|
|
------------ |
|
| And
propose to carry forward to the next year the balance of |
|
1,376,639,404 |
|
|
========== |
|
| The
earning per share after tax based on enhanced capital is Rs.22.36 |
|
|
| During
the period under review the production was 365,734 M. Tons of Urea being 82%
of capacity utilization. |
|
| The
production in 1997 below 100% capacity of 445,500 M.Tons, was occasioned by
the following: |
|
|
| --
extended annual turnaround of approximately 35 days forced by gas stoppage by
the gas company |
|
| during
January and first week of February, 1997. |
|
|
| --
Load restriction imposed by the gas company during the second quarter of 1997
and December, |
|
| 1997. |
|
|
| --
certain technical difficulties experienced in the plant operations. |
|
|
| Since
the Company operates on a gas network which is primarily domestic consumer
oriented, any increase in |
|
| demand
for gas or reduced gas availability due to fault in the system immediately
results in diversion of gas |
|
| supply
to domestic consumers particularly in winter months. This year the plant has
been subjected to an |
|
| unprecedented
and long load cuts in summer months which has significantly reduced capacity
utilization. The |
|
| gas
company has indicated that the supply situation will ease soon on completion
of its pipeline extension |
|
| project. |
|
|
| As
per the directive of the Federal Government, the gas companies increased the
price of gas for the fertilizer |
|
| industry
again this year effective 01 January, 1997. Last year, in May 1996 the gas
price was increased by about |
|
| 6%
and this year the price has been further revised upwards by 15%. These price
increases have significantly |
|
| enhanced
the production costs. As stated in the last year's report, the quality of gas
supplied to the Company is |
|
| continuously
deteriorating for the last several years in terms of calorific value. Apart
from its adverse effect on |
|
| production
this is causing significant financial loss to the Company. The Company has
asked the Government |
|
| that
the price of gas be linked with BTU value of the gas supplied. |
|
|
| The
Company achieved in a record time of just over twelve month ISO 9002
certification on 03 December, |
|
| 1997.
The Company decided to get this certification in view of its commitment to
excellence in organisation |
|
| specially
in the field of product quality and customer service. It is a matter of great
pride for us that ours is |
|
| Pakistan's
first ISO 9002 certified fertilizer Company. |
|
|
| During
the calendar year 1997 the Company sold its entire production in the market
and carried a small |
|
| inventory
at the year end. Company's sales in 1997 showed a growth rate of 9% over the
corresponding period |
|
| last
year despite the fact that national offtake slumped by 10% during the year
under review. The growth |
|
| achieved
by the Company in the face of sagging demand was due to better marketing
strategy adopted by the |
|
| Company.
However in 1998, there is likelihood of tough competition and special efforts
will be required to |
|
| market
our product. |
|
|
| The
retiring auditors, Messrs. Taseer Hadi Khalid & Co, Chartered
Accountants, being eligible, offer |
|
| themselves
for reappointment. |
|
|
| The
relationship between all employees continued to remain cordial. |
|
|
| By
Order of the Board |
|
|
| M
Hussain Dawood |
|
Khawaja Amanullah |
|
| Managing
Director |
|
Director |
|
| &
Chief Executive |
|
|
| Lahore:
19 May, 1998 |
|
|
|
|
| AUDITORS'
REPORT TO THE MEMBERS |
|
| We
have audited the annexed balance sheet of DAWOOD HERCULES CHEMICALS LIMITED
as at December 31, |
|
| 1997
and the related profit and loss account and 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 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 December 31, 1997
and of the profit and the cash |
|
| flow
for the year then ended. |
|
|
| d)
Without qualifying our opinion, we draw attention to Note-7. The Board of
Directors in their meeting held on |
|
| December 31, 1997, authorised to issue one
bonus share for each share, which were issued subsequent to |
|
| balance sheet date. |
|
|
| e)
in our opinion Zakat deductible at source under the Zakat and Ushr Ordinance,
1980 was deducted by the |
|
| Company
and deposited in the Central Zakat Fund established under section 7 of that
Ordinance. |
|
|
| LAHORE |
|
TASEER HADI KHALID &
CO |
|
| 19 May, 1998 |
|
Chartered Accountants |
|
|
|
| PROFIT
& LOSS ACCOUNT |
|
| FOR
THE YEAR ENDED 31 DECEMBER 1997 |
|
|
Note |
1997 |
1996 |
|
|
|
|
|
| Sales |
|
2,391,537,854 |
1,725,578,624 |
|
|
| Cost
of goods sold |
|
3 |
1,352,307,480 |
1,058,492,656 |
|
|
|
----------- |
----------- |
|
|
| Gross profit |
|
1,039,230,374 |
667,085,968 |
|
|
| Selling,
administrative and financial expenses |
4 |
90,488,531 |
84,267,506 |
|
|
|
----------- |
----------- |
|
|
| Operating profit |
|
948,741,843 |
582,818,462 |
|
|
| Other income |
|
5 |
176,452,086 |
153,664,807 |
|
|
|
----------- |
----------- |
|
|
| Profit for the year |
|
1 125,193,929 |
736,483,269 |
|
|
|
|
|
| Provision
for contribution to: |
|
|
|
| Workers
profits participation fund |
|
47,599,856 |
28,574,062 |
|
|
| Workers
welfare fund |
|
20,700,000 |
14,700,000 |
|
|
|
----------- |
----------- |
|
|
|
68,299,856 |
43,274,062 |
|
|
|
----------- |
----------- |
|
|
| Profit
before taxation |
|
1,056,894,073 |
693,209,207 |
|
|
| Provision
for taxation |
|
6 |
311,000,000 |
227,400,000 |
|
|
|
----------- |
----------- |
|
|
| Profit
after taxation |
|
745,894,073 |
465,809,207 |
|
|
| Unappropriated
profit brought forward |
|
1,172,845,331 |
873,836,124 |
|
|
|
----------- |
----------- |
|
|
| Profit
available for appropriation |
|
1,918,739,404 |
1,339,645,331 |
|
|
|
|
|
| Appropriation: |
|
|
|
| Interim
dividend @ Rs.2.50 (1996: Rs.8.00) per share |
41,700,000 |
133,440,000 |
|
|
| Bonus
shares in the ratio of 1 for 1 |
|
166,800,000 |
-- |
|
|
| Proposed
dividend @ Rs. 10.00 (1996: Rs.2.00) per share |
333,600,000 |
33,360,000 |
|
|
|
----------- |
----------- |
|
|
|
542,100,000 |
166,800,000 |
|
|
|
----------- |
----------- |
|
|
| Unappropriated
profit carried forward |
Rupees |
1,376,639,404 |
1,172,845,331 |
|
|
|
========== |
========== |
|
|
|
| The
annexed notes form an integral part of these accounts |
|
|
|
| BALANCE
SHEET |
|
| AS
AT 31 DECEMBER 1997 |
|
|
Note |
1997 |
1996 |
|
|
| CAPITAL
AND RESERVES |
|
|
|
| Authorized
capital |
|
|
|
| 100,000,000
ordinary shares of Rs. 10 each |
|
1,000,000,000 |
1,000,000,000 |
|
|
|
========== |
========== |
|
|
|
|
|
|
| Issued,
subscribed and paid up capital |
7 |
333,600,000 |
166,800,000 |
|
|
|
|
|
| General reserve |
|
500,000,000 |
500,000,000 |
|
|
| Unappropriated
profit |
|
1,376,639,404 |
1,172,845,331 |
|
|
|
----------- |
----------- |
|
|
|
2,210,239,404 |
1,839,645,331 |
|
|
|
|
|
| DEFERRED
LIABILITIES |
|
|
|
| Deferred taxation |
|
8 |
45,000,000 |
47,600,000 |
|
|
| Provision
for gratuity |
|
9 |
46,192,215 |
37,854,121 |
|
|
|
----------- |
----------- |
|
|
|
91,192,215 |
85,454,121 |
|
|
| CURRENT
LIABILITIES |
|
|
|
| Current
maturity of long term loans |
|
10 |
-- |
2,243,907 |
|
|
| Creditors
and accrued expenses |
|
11 |
232,320,521 |
249,460,175 |
|
|
| Provision
for taxation |
|
190,456,788 |
160,426,755 |
|
|
| Provision
for contribution to: |
|
|
|
| workers
profits participation & |
|
|
|
| workers
welfare funds |
|
168,452,344 |
112,984,664 |
|
|
| Unpaid dividends |
|
1,920,716 |
9,466,871 |
|
|
| Proposed
dividend |
|
333,600,000 |
33,360,000 |
|
|
|
----------- |
----------- |
|
|
|
926,750,369 |
567,942,372 |
|
|
| CONTINGENT
LIABILITIES AND |
|
|
|
| COMMITMENTS |
|
12 |
-- |
-- |
|
|
|
----------- |
----------- |
|
|
|
Rupees |
3,228,181,988 |
2,493,041,824 |
|
|
|
========== |
========== |
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
| Auditors'
report to the Members is annexed. |
|
|
|
|
|
|
|
|
|
| FIXED ASSETS |
|
|
|
| At
cost less accumulated depreciation |
13 |
634,525,869 |
688,099,317 |
|
|
| Capital
work in progress |
|
14 |
-- |
30,216,000 |
|
|
|
|
----------- |
----------- |
|
|
|
|
634,525,869 |
718,315,317 |
|
|
| DEFERRED
COSTS |
|
15 |
47,413,240 |
41,482,827 |
|
|
| LONG
TERM LOANS AND ADVANCES |
16 |
579,905 |
4,329,227 |
|
|
| LONG
TERM DEPOSIT |
|
17 |
86,691,800 |
-- |
|
|
|
|
|
| CURRENT
ASSETS |
|
|
|
| Stores
and spares |
|
18 |
319,251,454 |
288,215,173 |
|
|
| Stocks |
|
19 |
108,305,911 |
161,383,466 |
|
|
| Sundry debtors |
|
20 |
84,960,773 |
16,126,078 |
|
|
| Loans,
advances, short term investments, |
|
|
|
|
| prepayments
and other receivables |
|
21 |
576,883,052 |
500,766,807 |
|
|
|
|
|
|
|
| Cash
and bank balances |
|
22 |
1,369,569,984 |
762,422,929 |
|
|
|
|
----------- |
----------- |
|
|
|
2,458,971,174 |
1,728,914,453 |
|
|
|
----------- |
----------- |
|
|
|
Rupees |
3,228,181,988 |
2,493,041,824 |
|
|
|
========== |
========== |
|
|
|
|
|
|
|
|
| CASH
FLOW STATEMENT |
|
|
|
| FOR
THE YEAR ENDED 31 DECEMBER 1997 |
|
|
|
|
1997 |
1996 |
|
|
|
|
|
| CASH
FLOW FROM OPERATING ACTIVITIES |
|
|
|
|
|
|
| Cash
generated from operations |
|
'A' |
997,670,224 |
996,015,295 |
|
|
| Financial
charges paid |
|
(122,863) |
(4,061,331 ) |
|
|
| Taxes paid |
|
(283,569,967) |
(368,310,657) |
|
|
| Gratuity paid |
|
(2,675,104) |
(4,966,566) |
|
|
| Deferred costs |
|
(20,010,542) |
(20,887,863) |
|
|
| Decrease/(increase)
in long term loans and advances |
|
3,749,322 |
(3,444,435) |
|
|
|
----------- |
----------- |
|
|
| Net
cash inflow from operating activities |
|
695,041,070 |
594,344,443 |
|
|
|
|
|
|
| CASH
FLOW-FROM INVESTING ACTIVITIES |
|
|
|
| Fixed
capital expenditure |
|
(8,240,747 |
(95,619,814) |
|
|
| Sale
process of fixed assets |
|
1,773,370 |
262,533 |
|
|
| Long
term deposit |
|
(86,691,800) |
-- |
|
|
| Profits
on time deposits |
|
150,270,511 |
156,641,879 |
|
|
|
----------- |
----------- |
|
|
| Net
cash inflow from investing activities |
|
57,111,334 |
61,284,598 |
|
|
|
|
|
|
| CASH
FLOW FROM FINANCING ACTIVITIES |
|
|
|
| Repayment
of long term loans |
|
(2,243,907) |
(64,595,850) |
|
|
| Dividends paid |
|
(82,606,155) |
(215,392,389) |
|
|
|
----------- |
----------- |
|
|
| Net
cash outflow from financing activities |
|
(84,850,062) |
(279,988,239) |
|
|
|
----------- |
----------- |
|
|
| Net
increase in cash and cash equivalents |
|
667,302,342 |
375,640,802 |
|
|
|
|
|
|
| CASH
& CASH EQUIVALENTS AT THE BEGINNING |
|
|
|
| OF THE YEAR |
|
1,232,180,658 |
856,539,856 |
|
|
|
----------- |
----------- |
|
|
| CASH
& CASH EQUIVALENTS AT THE END |
|
|
|
| OF THE YEAR |
|
B' Rupees |
1,899,483,000 |
1,232,180,658 |
|
|
|
=========== |
=========== |
|
|
|
|
|
| A.
CASH GENERATED FROM OPERATIONS |
|
|
|
| Profit
before taxation for the year |
|
1,056,894,073 |
693,209,207 |
|
|
| Adjustment
of items not involving movement of cash |
|
|
|
|
|
|
| Depreciation
charged to profit & loss account |
|
90,978,825 |
84,575,691 |
|
|
| Amortization
of deferred costs |
|
14,080,129 |
8,816,799 |
|
|
| Provision
for gratuity |
|
11,013,198 |
9,218,164 |
|
|
| Financial charges |
|
17,960 |
2,552,616 |
|
|
| Interest income |
|
(15,270,511) |
(156,641,879) |
|
|
| Profit
on sale of fixed assets |
|
(722,000) |
(180,867) |
|
|
|
----------- |
----------- |
|
|
|
(34,902,399) |
(51,659,476) |
|
|
|
----------- |
----------- |
|
|
| Profit
before working capital changes |
|
1,021,991,674 |
641,549,731 |
|
|
|
|
|
| EFFECT ON CASH FLOW DUE TO |
|
|
|
| WORKING
CAPITAL CHANGES |
|
|
|
|
|
|
| (Increase)/decrease
in current assets |
|
|
|
| Stocks,
stores and spares |
|
22,041,274 |
(110,925,359) |
|
|
| Sundry debtors |
|
(68,834,695) |
(6,892,004) |
|
|
| Loans,
advances, short term investments, prepayments and |
|
|
|
| other receivables |
|
(15,960,9580 |
387,821,178 |
|
|
| Increase/(decrease)
in current liabilities |
|
|
|
|
| Creditors
and accrued expenses |
|
(17,034,7510 |
59,892,020 |
|
|
| Workers
profits participation & workers welfare funds |
55,467,680 |
24,569,729 |
|
|
|
----------- |
----------- |
|
|
|
(24,321,450 |
354,465,564 |
|
|
|
----------- |
----------- |
|
|
| CASH
GENERATED FROM OPERATIONS |
Rupees |
997,670,224 |
996,015,295 |
|
|
|
========== |
========== |
|
|
|
|
|
| B.
CASH AND CASH EQUIVALENTS |
|
|
|
| Cash
and bank balances |
- (Note 22 ) |
|
1,369,569,984 |
762,422,929 |
|
|
| Short
term investments |
- (Note 21.2) |
|
529,913,016 |
469,757,729 |
|
|
|
----------- |
----------- |
|
|
|
Rupees |
1,899,483,000 |
1,232,180,658 |
|
|
|
========== |
========== |
|
|
|
|
|
| NOTES
TO THE ACCOUNTS |
|
| FOR
THE YEAR ENDED 31 DECEMBER 1997 |
|
|
| 1.
LEGAL STATUS AND NATURE OF BUSINESS |
|
| Dawood
Hercules Chemicals Limited is a public limited company. It was incorporated
in Pakistan in 1968 |
|
| under
the Companies Act 1913 (now Companies Ordinance 1984) and is listed on
Karachi and Lahore Stock |
|
| Exchanges.
The principal activity of the Company is production of urea fertilizer. |
|
|
|
|
| 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|
|
|
|
|
| a)
Accounting convention |
|
| These
accounts have been prepared under the historical cost convention, without any
adjustment for the |
|
| effects
of inflation or current value. |
|
|
| b)
Revenue recognition |
|
| Sales
of products and services are recorded on despatch of goods/products to
customers or performance |
|
| of services. |
|
|
| c) Fixed assets |
|
| Land
and Capital work in progress are stated at cost. The Company provides
depreciation under the |
|
| "straight
line method" for its all other fixed assets using the following rates: |
|
|
|
Rate as percentage of cost |
|
| Buildings
on freehold land |
|
5 |
|
|
| Railway siding |
|
5 |
|
|
| Plant
and machinery |
|
7.50 |
|
|
| Furniture |
|
10 |
|
|
| Fittings
and equipment |
|
12.50 |
|
|
| Motor vehicles |
|
20 |
|
|
| Data
processing equipment |
|
33.33 |
|
|
|
| Depreciation
is provided at the above rates subject to 1% retention value of the original
cost. |
|
|
| Depreciation
is charged on prorata basis on additions from the following month in which
the asset is put |
|
| to
use and on disposals up to the month preceding the month of disposal. |
|
|
| Maintenance
and normal repairs are charged to income as and when incurred. |
|
|
| Profit/loss
on disposal of fixed assets is included in income currently. |
|
|
| d)
Deferred costs |
|
| The
deferred costs are amortized over the period estimated to be benefited. |
|
|
| e)
Stocks, stores and spares |
|
| The
basis of valuation of stocks, stores and spares are as follows: |
|
|
| Stocks |
|
|
| Raw materials |
|
at moving average cost |
