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IBRAHIM FIBRES LIMITED

ANNUAL REPORT 1997

Contents

Company Information

Board of Directors

Sheikh Mukhtar Ahmed

(Chairman/Chief Executive)

Sheikh Mohammad Yaseen

Mr. Mohammad Naeem Mukhtar

Mr. Mohammad Waseem Mukhtar

Mr. Asim Yaseen

Mst. Iqbal Begum

Mrs. Ghazala Naeem

Secretary

S.M. Hashain Rizvi

Auditors

M. Yousuf Adil & Co.

Chartered Accountants, Karachi.

Tax Consultants

F.R. Merchant & Co.,

Chartered Accountants,

Karachi.

Information Technology

Consultants

KPMG Peat Marwick

Associates (Pvt.) Ltd.

Karachi.

Bankers

DEG-Deutsche Investitions-und

Entwicklungsgesellschaft mbH,

Faysal Bank Limited

National Bank of Pakistan

Allied Bank of Pakistan Limited

Emirates Bank International pJsc

Habib Bank Limited

American Express Bank Limited

Registered Office

Ibrahim Centre l-A, Ahmed Block

New Garden Town,

Lahore. PAKISTAN

Head Office

Ibrahim Centre 15, Club Road,

Faisalabad. PAKISTAN

Shares Registration Office

Ibrahim Centre

GK-7/59,Bagh-e-Zehra Street,

Kharadar, Karachi. PAKISTAN

Location of plant

38- Kilometer,

Faisalabad-Sheikhupura Road,

Tehsil Jaranwala,

District Faisalabad. PAKISTAN

Project Profile of Ibrahim Fibres Limited

Ibrahim Fibres Limited is a project of

IBRAHIM GROUP, involved in the

manufacturing and trading of cotton and

specialized blended yarns. The Group started

its business in 1948 and after developing ~

market expertise and distribution channels

moved into manufacturing and established

its first textile spinning mill in 1980. At

present the Group operates three textile

spinning units namely Ibrahim Textile Mills

Limited, A.A. Textiles Limited and Zainab

Textile Mills Limited having an aggregate

installed capacity of 126,048 spindles. The

Group also operates Power Generation

Company, Ibrahim Energy Limited with

generating capacity of 31.8 MW. The Group

entered into the Financial Sector by floating

First Ibrahim Modaraba and then

established a Leasing Company, Ibrahim

Leasing Limited.

Ibrahim Fibres Limited was incorporated

with the principal object to setup and

operate a Polyester Staple Fibre

manufacturing plant, having capacity to

produce 200 tons per day of Polyester Staple

Fibre or alternatively Polyester Chips. The

installed annual capacity of the plant is

70,000 tons based on 350 working days

per annum. The total cost of the Project is

Rupees 4075 Million and has a debt/equity

ratio of 26:74.

Zimmer AG Germany, one of the world's

largest engineering companies of Polyester

technology, has designed and supplied the

plant and machinery alongwith complete

technology transfer including supervision

for the purpose of erection, mechanical

completion, commissioning, start-up and

performance of the plant. A performance

bond issued by American Express Bank

Frankfurt has been provided by Zimmer

AG to guarantee the mechanical

performance of the plant, quality of the

product, consumption of raw materials and

utilities and capacity of the plant. In addition

to this our technical staff has been trained

by Zimmer AG and technical assistance is

available for five years after the acceptance

and transfer of the plant.

Ibrahim Fibres is situated at the integrated

site of Ibrahim Group close to Faisalabad,

where nearly 50% of Pakistan's spinning

capacity is located. The site orientation

allows for saving in freight cost as the

company will be selling around 80% of its

capacity in this area, out of which 30% will

be consumed by the Group companies. The

integrated site of the Group will allow the

energy intensive polyester plant the benefit

of optimization of energy cost supported

by captive power due to availability of energy

at lower cost.

Installation of world class plant at

competitive cost and simple principle of

'No Compromise on Quality' is the basic

philosophy. The capital cost of completed

project is significantly lower despite the

import duties on capital goods. Better.

productivity improved efficiency and lesser

financial charge has made Ibrahim Fibres

one of the most competitive producer in

terms of operating cost.

Ibrahim Fibres has built a highly skilled and

experienced team of qualified engineers and

professionals with vast experience in their

respective fields. Great strength is derived

from strong belief in the potential of every

individual and employees involvement in

the affairs of the company is ensure. In order

to make intensive use of latest technology

every activity has been computerized and

system updating is a continuous process.

That's why Ibrahim Fibres is amongst those

few who have taken computerization down

to the grass root level of the corporate

management and have also gone into large

scale networking as well.

Looking on from here, volume growth will

be the key to the expansion of Ibrahim

Fibres. The company will continue to

remain focused on domestic market which

is also growing rapidly. Cost competitiveness

and deep understanding of domestic market

will give Ibrahim Fibres a significant edge

over other local producers and allow it to

retain its foothold over the local market

despite the competition from imports.

Ibrahim Group at a Glance

Ibrahim Fibre Limited

Installed Capacity

70,000 tons

Ibrahim Textile Mills

Installed Capacity

Limited

49248 spindles

A.A Textile Limited

Installed Capacity

38400 spindles

Zainab Textile Mills Ltd

Installed Capacity

38400 spindles

Ibrahim Energy Limited

Installed Capacity

31.8 MW

Ibrahim Agencies (Pvt) Ltd

Trading Activities

Ibrahim Leasing Limited

Lease Operations

First Ibrahim Modaraba

Modaraba/Musharaka

Activities

Chairman's Review

I take pleasure to present before you the

audited accounts for the year ended

September 30, 1997 and the annual report

on the performance of the company.

Implementation Of Project

First of all I would like to pay my humble

gratitude to Almighty Allah as only His

blessings made it possible for us to start

the operations of the plant on December

25, 1996, the Holy Day of Shab-e-Barat.

I would also like to congratulate the highly

dedicated and competent team of Directors,

Managers and Engineers who

enthusiastically committed themselves for

months to setup this plant. I am also

thankful to Zimmer AG, their erection

team, our Consultants and erection team

for implementing the project within a short

span of two years.

Production Operations

Its due to the well conceived contract that

the production started very smoothly and

even the very first day production was

saleable and was used in our own spinning

units. The quality of product was so excellent

that orders started pouring in from the very

first day of production and the product was

well accepted by our customers. The

excellent quality of the product made it

possible to operate the plant at 86% of

capacity during the period which was more

than originally forecasted utilization of

capacity of 80% during the first year of

operation.

To maintain the high quality of Polyester

Staple Fibre the basic raw materials, PTA

and MEG are being purchased from top of

the line international suppliers against long

term contracts.

Marketing/Sales

In 1997, inspite of impressive demand

growth of PSF of around 45% which was

mainly due to the increase in use of Poly

cotton fabrics and conversion of textile

spinning units from cotton to polyester

];0000

blended yarn, the domestic supply sources

! 200

still outstrip the local demand. With capacity

! ~00

lagging demand the producers attempted

· 0

to built market share and the prices of PSF

MA, 98

became highly volatile and were ranging

between Rupees 59 - 65 per kg (inclusive

of 12.5% sales tax ) during the commercial

period of sales under review. This was also

due to the sharp increase in the global

capacity of PSF and South East Asian

recession which has resulted in dumping by

South Korean manufacturers in Pakistan.

In this situation the company adopted a

well knit marketing strategy to penetrate

and made its strong foothold in the market.

Due to the strategic location of the project,

quality of the product and the marketing

techniques adopted by the company, 77%

of sales were made to customers located

within a radius of 100 Kilometers, including

26 % of the sales to the group companies.

Financial

During the year end September 30, 1997

the profit has been drawn up for the

commercial period of six months. The

company has recorded a gross sales of

Rupees 1,733 Million, resulting in a gross

profit of Rupees 253 Million, 16.4% of

sales, inspite of the fact that during this

period the prices of MEG had an increasing

trend and PTA prices were at their peak.

After adjustment of operating and financial

expenses the company has achieved profit

before tax of Rupees 161 Million. After

providing for current taxation the company

has been able to achieve profit after tax of

Rupees 154 Million due to low conversion

costs and financial charges.

Future Outlook

The rapid growth in demand has been

complemented by a reduction in supply

side pressures and it is likely that in 1998

demand will outstrip supply by a narrow

margin. The prices of imported Polyester

Fibre are already bottoming out and there

is an indication that prices of PSF will have

an upward trend. The prices of basic raw

materials also have a downward trend. This

is an encouraging development for the future

profitability of the local Polyester Fibre

industry.

Acknowledgment

The management would also like to place

on record its deep appreciation for banks

and financial institutions, the Executives

and Employees of the company involved

in the implementation of the project.

Notice of Meeting

Notice is hereby given that the 11th Annual General Meeting of the shareholders of the Company will be held

on 31-03-1998 at 10.00 A.M. at Avari Hotel, Lahore to transact the following business:

1. To confirm the minutes of the preceding meeting of the shareholders of the Company.

2. To consider, approve and adopt the Annual Audited Accounts of the Company for the year ending

30-09-1997.

3. To appoint Auditors for the year 1997-98 and to fix their remuneration. The present auditors

M/s M. Yousuf Adil & Co., Chartered Accountants, being eligible for appointment, offer themselves for

reappointment.

4. SPECIAL BUSINESS:

To approve the following special business.

To fix/increase remuneration of working Directors.

"Resolved that keeping in view of inflationary trend, the remuneration of each of Mr. Mohammad

Waseem Mukhtar and Mr. Asim Yaseen, Directors of the Company be and is hereby fixed/increased

w.e.f. 01-04-1998 as follows.

1. Basic Salary

Rs. 100,000/- per month

2. House Rent Allowance

Rs. 45,000/- per month

3. Utilities

Rs. 10,000/- per month

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

Notes:

I. The share transfer books of the Company shall remain closed from 24-03-1998 to 31-03-1998 (both

days inclusive) to determine the names of members entitled to attend the meeting. Transfers received

in order at the Registered Office of the Company at the close of business on 23-03-1998 will be

treated in time.

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

attend and vote on his/her behalf.

III. The proxies, in order to be effective, must be received by the Company at least 48 hours before the

time for holding the meeting.

Directors' Report to the Shareholders

Your Directors have great pleasure in presenting before you the audited Annual Report 1997 for the period

ended on September 30, 1997.

OPERATING RESULTS

It is a matter of great pride for the Director of your company to inform that by the Grace of AI-Mighty Allah the

Fibre Plant has successfully started commercial operation from April 1997.

The plant has obtained production efficiency @ 86% over its forecasted efficiency @ 80% in the 1st year of

commercial operation. The plant remained in commercial operation for 183 days during the year. It will gradually

achieve its installed capacity after the completion of running in time of machinery and equipment.

The company has adopted best procurement policy of PTA and MEG which is the basic raw material for the

manufacture of polyester fibre.

You will be happy to note that the polyester fibre being manufactured by your plant is of a good quality and

have general acceptability in the market.

FINANCIAL RESULTS

The financial results of your company for the period of 1st six months from April 1997 to September 1997 is

very good if compared with other identical units in the initial period of their operation.

The credit of successful performance goes to the collective efforts of all the persons directly or indirectly

involved in managing the operational and financial affairs of the company. It is also due to a well calculated and

consistent marketing policy adopted by the company which helped in achieving the best financial results.

You will observe that in this arena of tough competition it is the quality which sells and earn good name for the

product. The management of your company is making all out efforts to give quality staple fibre to the spinning

units producing blended yarn and to have an edge over the similar available product in the market.

The summarized position of financial results is being furnished for your ready reference.

Period from

01-04-97 to

30-09-1997

Gross Sales

1,733,227,866

Sales Tax

192,580,998

Net Sales

1,540,646,868

Cost of goods sold

1,287,770,235

Gross Profit

252,876,633

Other Income

4,696,286

257,572,919

Operating expenses

16,762,037

Operating profit

240,810,882

Other charges

79,509,457

Profit before taxation

161,301,425

Taxation - Current

7,726,716

----------

Profit after taxation carried forward

153,574,709

==========

The profit for the period of six months from April 1997 to September 1997 have been carried forward for

appropriation in the next financial year.

INTERIM DIVIDEND

Your Directors in their Board meeting held on 27-02-1998 have declared Interim Cash Dividend @ 10%, out of

the unappropriated profit as on 30-09-1997 and the expected profit for the next financial year from October

1997 to September 1998.

CHAIRMAN'S REVIEW

We the Directors of the company fully endorse the Chairman's review on the performance of the company

during the period ended on September 30, 1997.

AUDITORS

The present auditors M/S M. Yousuf Adil Saleem & Co., Chartered Accountants, Karachi retire and are being

eligible, offer themselves for reappointment for the next financial year 1997-98.

PATTERN OF SHAREHOLDING

Pattern of shareholding of the company is annexed.

ACKNOWLEDGMENT

We would like to thank our machinery supplier M/s Zimmer AG and their technician involved in the erection and

installation work of plant and machinery.

We would also like to thank our valued Customers, Bankers, Financial Institutions, Shareholders and Employees

for their whole hearted supports and hope to have the same cooperation in future.

Auditors' Report to the Members

We have audited the annexed balance sheet of Ibrahim Fibres Limited as at September 30. 1997 and the

related profit and loss account 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;

balance sheet and 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 September 30, 1997 and of the profit and the changes n

financial position for the year then ended;

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

Place: Faisalabad

M. Yousf Adil & Co.

Date: 27-02-1998

Chartered Accountants

Balance Sheet

as at September 30, 1997

1997

1996

Note

Rupees

FIXED CAPITAL EXPENDITURE

Operating assets

3,121,843,177

18,941,734

Capital work in progress

2,300,577

3,019,266,948

Unallocated capital expenditure

44,782,711

-----------

3,124,143,754

3,082,991,393

LONG TERM DEPOSITS AND

DEFERRED COSTS

26,716,511

26,342,741

CURRENT ASSETS

Stores. spares and loose tools

9,481,605

Stock in trade

729,532,681

Trade debts

248,515,223

Advances. de posits and other receivables

79,372,240

5,056,105

Cash and bank balances

370,537,598

720,612,177

-----------

1,437,439,347

725,668,282

CURRENT LIABILITIES

Current portion of long term liabilities

107,492,077

41,643,921

Creditors, accrued and other liabilities

698,907,966

43,712,182

Taxation

9,673,367

-----------

816,073,410

85,356,103

-----------

WORKING CAPITAL

621,365,937

640,312,179

-----------

TOTAL CAPITAL EMPLOYED

3,772,226,202