| MOHAMMAD FAROOQ TEXTILE MILLS LTD |
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| Annual
Report 1997 |
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| CONTENTS |
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| Board
of Directors |
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| Notice
of Meeting |
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| Directors'
Report |
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| Chief
Executive's Review |
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| Pattern
of Shareholding |
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| Auditors'
Report |
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| Balance
Sheet |
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| Profit
& Loss Account |
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| Statement
of Changes in Financial Position |
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| (Cash
Flow Statement) |
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| Notes
to the Accounts |
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| BOARD
OF DIRECTORS |
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| CHAIRPERSON |
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Mrs. Mariam A. K. Sumar |
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| CHIEF
EXECUTIVE |
Mr. Mohammad Farooq Sumar |
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| DIRECTORS |
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Mr. Mohammad Mukhtar
Sumar |
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Mr. Razi-Ur-Rahman Khan
(NIT Nominee) |
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Ms. Sabiha Sumar |
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Mr. Munir Ahmed Ansari |
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Mr. Shahid Nazir Ahmed |
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Mr. Mahmood Chhapra |
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Mr. Yacoobali G. Zamindar |
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| COMPANY
SECRETARY |
Mr. Yacoobali G. Zamindar |
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| LEGAL
ADVISERS |
S.H. Pirzada & Co. |
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| AUDITORS |
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M. Yousuf Adil & Co. |
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Chartered Accountants |
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| BANKERS |
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Habib Bank Limited |
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Muslim Commercial Bank
Limited |
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| REGISTERED
OFFICE |
First Floor, Finlay House |
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I.I. Chundrigar Road,
Karachi-74000 |
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| MILLS |
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Plot Nos. 6 & 7,
Sector 21 |
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Korangi Industrial Area |
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Karachi |
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| CABLE |
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FAROOQTEX |
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| E-mail |
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mftml@paknet 3.ptc.pk |
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| TELEFAX |
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2416518 |
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| TELEPHONE |
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2412941/5 Lines |
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| NOTICE
OF THE MEMBERS' |
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| THIRTY-SECOND
ANNUAL GENERAL MEETING |
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| NOTICE
IS HEREBY GIVEN that the Thirty-second Annual General Meeting of Mohammad
Farooq Textile |
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| Mills
Limited will be held at the Company's Mills Premises, Plot Nos. 6 & 7,
Sector 21, Korangi Industrial Area, |
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| Karachi
on Monday, 30th March 1998 at 12.00 Noon to transact the following business. |
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| 1.
To receive, consider and adopt the Balance Sheet and Profit & Loss
Account for the year ended 30th September, |
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| 1997 together with the Directors' and
Auditors' Reports thereon. |
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| 2.
To appoint Auditors and fix their remuneration. |
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BY THE ORDER OF THE BOARD |
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| Karachi:
28th February 1998 |
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Yacoobali G. Zamindar |
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Director/Secretary |
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| NOTES: |
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| 1.
The Shares Transfer Books of the Company will remain closed from 24th March,
1998 to 30th March, 1998 |
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| (both
dates inclusive). |
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| 2.
A member entitled to attend and vote at the Annual General Meeting is
entitled to appoint another member |
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| as
a proxy to attend and vote on his/her behalf. Proxies, in order to be valid,
must be deposited at the |
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| Registered
Office of the Company not less than 48 hours before the time of meeting. |
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| 3.
Shareholders are requested to promptly notify the Company of any change in
their addresses to ensure |
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| delivery
of mail. |
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| DIRECTORS'
REPORT TO THE SHAREHOLDERS |
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| 1.
Your Directors are presenting their report and the Statement of Account for
the year ended 30th September, |
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| 1997
as under: |
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(Rupees'000) |
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| Loss
for the year amounted to |
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56,138 |
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| To
which we must add provision |
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| for
minimum tax for the year |
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4,242 |
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60,380 |
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| To
this must be added |
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| minimum
tax payable for prior years and |
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24,799 |
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| loss
brought forward |
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133,293 |
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| Leaving
accumulated loss |
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-------- |
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| carried
forward to next year |
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218,472 |
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======== |
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| 2.
The accompanying Chief Executive's Report deals with the year's activities
and the Directors of the Company |
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| endorse
the contents of that Report. |
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| 3.
The pattern of shareholding is attached. |
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| 4.
Your present Auditors M/s. M. Yousuf Adil & Co., Chartered Accountants,
retire and offer themselves |
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| for
reappointment. |
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For and onbehalf of |
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| Karachi:
28th February, 1998 |
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the Board of Directors |
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|
MOHAMMAD FAROOQ SUMAR |
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Chief Executive |
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| CHIEF
EXECUTIVE'S REVIEW |
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| IN
THE NAME OF ALLAH |
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| THE
BENEFICENT |
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| THE
MERCIFUL |
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| Al-Hamdolillah,
I am pleased to welcome you to the |
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| 32nd
Annual General Meeting of the Company to |
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| consider
the results for the year ending 30th |
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| September,
1997. |
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| The
Directors' report with the audited accounts for |
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| the
period under review are already placed before you. |
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| In
keeping with our policy to provide maximum |
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| information
to the shareholders, I will review all the |
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| major
events of the financial year. |
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| OUR
PERFORMANCE THIS YEAR |
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| The
textile industry as a whole has had a mixed year, |
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| starting
off optimistically as markets improved inter- |
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| nationally
and the political changes in the country |
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| were
viewed favourably. However, the market recov- |
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| ery
was not sustained as the lack of a convincing eco- |
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| nomic
policy at home could not provide the impetus |
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| needed
for a revival in the economy at large and in |
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| textiles
in particular. Moreover the international eco- |
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| nomic
scene was disturbed by a continuously rising |
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| dollar. |
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| By
the grace of God your Company has been able to |
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| substantially
pull back from the position it found |
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| itself
in during the financial year 1995-96, when a |
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| very
large loss of Rs. 145.45 million was reported. |
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| Our
loss for the year under review has come down to |
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| Rs.
56.13 million. During the first half of the year the |
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| Company
reported a loss of Rs. 38.29 million there- |
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| fore
it can be seen that in the second half losses were |
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| reduced
by as much as half thereby establishing a |
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| trend
of continuous improvements. I am hopeful that |
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| this
trend will continue and Inshaallah soon prof- |
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| itability
will be restored. As reported in the 1997 |
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| half-yearly
results your management decided to close |
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| down
the older Spinning Unit consisting of 12,500 |
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| spindles
on account of high operating costs and low |
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| levels
of efficiency, while the second unit of 12,500 |
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| spindles
was partially operated in the first quarter of |
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| the
year and was made fully operational from January |
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| 1997.
This policy has meant that our own needs of |
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| yarn
are largely met, while no significant yarn sales |
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| are
made which otherwise would be sold at a loss; as a |
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| result
of this strategy yarn production was cut by |
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| 56%.
The same strategy was pursued in the older |
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| Weaving
Section and production was restricted to |
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| meet
in-house requirements as grey exports were |
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| proving
to be uneconomical. Since in-house require- |
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| ments
showed a major increase the drop in weaving |
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| production
was only 4%. |
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| After
a steep fall in the sale of printed and dyed goods |
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| during
the previous year, there has been a significant |
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| recovery
during the year under review when sales have |
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| gone
up by 43%. This also shows that capacity uti- |
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| lization
in the processing section was higher. It is |
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| these
factors which have significantly reduced our |
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| losses
and Inshallah their continuance will also lead us |
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| back
into profitability. |
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| In
the current year too, our sales of printed and dyed |
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| goods
are increasing both in quantity and value terms |
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| along
with continuous efforts at reducing costs by all |
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| possible
means. A 10% cut in personnel has already |
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| been
carried out during the current year by rationaliz- |
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| ing
work loads and procedures. Therefore I am confi- |
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| dent
that Inshaallah we will soon be able to put our |
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| troubles
behind us. As a matter of fact the results of |
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| October'97
to January '98 give me hope that |
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| Inshaallah
the worst of our troubles are over. |
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| Due
to the closures in Spinning and some in Weaving, |
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| surplus
yarn and grey cloth were not available for sale. |
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| As
a result of which the net sales of the Company fell |
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| by
3.6% and amounted to Rs. 845 million as com- |
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| pared
to Rs. 877 million in the previous year. This is |
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| indeed
a small fall as yarn and grey cloth sales during |
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| the
year under review fell by around Rs. 230 million |
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| (80.6%),
while the overall sales revenue fell only by |
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| Rs.
32 million. |
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| The
operating profit for the year under review is Rs. |
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| 27.39
million and after accounting for non-operating |
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| income
and financial and other charges the loss for the |
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| years
is Rs. 56.14 million. After accounting for mini- |
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| mum
tax for current and prior years of Rs. 29.04 mil- |
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| lion
the loss after taxation amounts to Rs. 85.18 mil- |
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| lion.
After accounting for loss brought forward of Rs. |
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| 133.29
million the accumulated loss amounts to Rs. |
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| 218.47
million. |
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| EXPORTS |
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| Your
Company's exports on the whole increased by |
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| 15.35%
to reach Rs. 404 million. It is interesting to |
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| have
a deeper look at what really happened, yarn |
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| which
accounted for 20% of the exports in the previ- |
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| ous
year fell to 5%, while dyed, printed and made-up |
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| exports
increased by 92% over the previous year, this |
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| shows
that we have been successful in recapturing our |
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| market
share which is what I indicated to you in my |
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| last
annual review. |
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| Our
competitive ability was constantly challenged |
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| during
the year under review due to high inflation in |
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| the
country and constant currency adjustments or |
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| devaluation,
resorted to by countries who compete |
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| with
us internationally. Our exchange rate policy of |
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| inaction
for months and then a sudden devaluation of |
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| a
few percent is not in the interest of exports. In order |
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| to
flourish, trade requires to flow smoothly and con- |
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| tinuously,
such fits and starts only hamper exports as |
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| they
break the momentum and scare away buyers. We |
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| need
to come to a policy of continuous adjustments in |
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| currency
rates on a daily basis based on a practical and |
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| realistic
set of guidelines and parameters. If not our |
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| exports
will continue to suffer. I am not advocating a |
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| continuous
devaluation, but only a continuous adjust- |
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| ment
both upwards and downwards based on the eco- |
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| nomic
parameters and guidelines set out for this pur- |
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| pose. |
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| Another
major challenge to our exports of bed linen |
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| was
the charge of Dumping by the European Union |
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| on
Pakistani Exports. Although we were completely |
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| exonerated
of the anti-dumping charge, but it had a |
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| negative
impact on our business as a lot of buyers |
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| became
apprehensive and they either stopped or |
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| reduced
buying from Pakistan for the period July to |
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| December'97
fearing the imposition of anti-dumping |
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| duties.
This disruption has not only caused us but also |
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| the
country a sizable loss of business. |
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| You
will be happy to note that the current year move- |
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| ments
in exports are also very promising. I am confi- |
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| dent
that Inshaallah our export growth during the |
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| present
year will be good. This will lead to fuller uti- |
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| lization
of processing capacity and consequently |
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| improve
the financial results of the Company. |
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| As
we come nearer to the implementation of the |
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| Uruguay
Round decisions regarding dismantling of |
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| protectionist
barriers and the lifting of quotas on the |
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| exports
of Third World countries to the West, there is |
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| increasing
evidence of the creation of other serious |
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| impediments
and hurdles on our exports. Never |
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| before
were anti-dumping charges so frequently lev- |
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| elled
nor so relentlessly pursued as they are today. |
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| Those
who are largely responsible for the severe dam- |
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| age
to the world's environment are today using envi- |
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| ronment
as an excuse to impede and deter trade. |
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| Unsubstantiated
charges of child labour are thrown |
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| around
without understanding social and economic |
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| realities
merely to slow down trade. Trade alone can |
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| lead
to the level of economic prosperity in third world |
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| countries
which in turn puts a child in school rather |
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| than
at work or on the streets. |
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| We
have received some assistance from the govern- |
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| ment
on the issue of anti-dumping in the recent past, |
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| but
there is no concerted work, no specialist cell and |
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| no
creation of experts to deal with these issues and |
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| there
is no effort on the part of our government to get |
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| together
with other affected countries in order to deal |
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| with
these very serious threats to Third World trade. |
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| The
present attitude of neglect is already costing us, |
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| its
continuance can only spell disaster. |
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| Your
own Company was directly involved in anti- |
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| dumping
investigation on bed linen exports to the |
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| European
Union. I am happy to report that by the |
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| grace
of God we are one of only three companies on |
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| whom
there is no finding of dumping, and therefore |
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| we
are exempt from anti-dumping duty. This provides |
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| us
with a definite edge over our competitors and will |
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| help
us greatly in enhancing our market share. |
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| I
am glad that the government has finally agreed with |
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| the
Industry to accept "Zero Duty and Zero Rebate" |
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| regime
which the Industry was demanding primarily |
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| to
do away with the inequities in the system and to |
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| close
the door on corruption. Unfortunately govern- |
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| ment
has once again in its wisdom acted partially and |
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| left
the whole polyester and polyester blend area in |
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| the
rotten old rebate system, it is exactly in the poly- |
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| ester
rebate that the government is losing out the |
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| most
as the collection on account of polyester meant |
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| for
exports is insignificant as compared to rebate paid. |
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| The
logic behind this government policy does not |
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| make
sense. It is necessary that the government |
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| reviews
its earlier decision and frees a very large sector |
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| of
the textile industry from the rebate regime. |
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| You
might recall that in my annual review of a few |
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| years
ago, I had criticized the formation of Textile |
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| Quota
Management Directorate and highlighted its |
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| corrupt
practices. I am glad that government has done |
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| away
with this Directorate and handed this task over |
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| to
Export Promotion Bureau again. The EPB has tried |
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| recently
to bring about some major changes in the |
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| administration
of quotas by involving the textile asso- |
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| ciations.
Certainly a very good idea, but I am sorry to |
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| say
that the manner in which it has been implement- |
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| ed
has robbed the scheme of its spirit and intent. The |
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| very
people, with some exceptions of course, who have |
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| collaborated
with corrupt officers and are beneficiaries |
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| of
corrupt practices and who have as a result of which |
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| amassed
quota and monopolies on certain quotas are |
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| sitting
as adjudicators and authorities in the newly |
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| made
regime. |
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| How
is it possible that these father and son |
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| Association
wallas (most of these associations having |
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| been
made for the sole purpose of quota gathering) |
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| will
provide transparent policy or ensure its transpar- |
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| ent
implementation ? Let me make it very clear that I |
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| am
not making these comments because my name is |
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| not
amongst its members, as I was offered member- |
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| ship
but refused on these very grounds. The EPB |
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| should
ensure that the council and the committees |
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| consist
of clean and reputable people who can be |
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| relied
upon to provide correct policies regardless of |
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| personal
interests, and principled decisions without |
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| fear
or favour. If this is not done the present arrange- |
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| ment
will soon be maligned and the same saga of |
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| scandals
will continue. |
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| The
last few months have witnessed unprecedented |
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| turmoil
in the Far East, which presents both a serious |
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| challenge
as well as an opportunity for our exports of |
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| textiles.
The serious challenges are posed foremost for |
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| the
Spinning and Weaving sectors, who find that sud- |
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| denly
a lucrative and permanent set of customers have |
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| almost
disappeared overnight as the affected Far |
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| Eastern
countries are in no real position to import |
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| yarn
and grey cloth due to foreign exchange shortages |
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| and
closures. Secondly the value added sector fears the |
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| competitive
edge gained by these countries as a result |
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| of
massive devaluation. No doubt, these are serious |
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| challenges
but if the industry takes a lead in putting |
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| up
to the government a well thought out paper rec- |
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| ommending
policy changes, the challenge can be met |
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| at
least partially, which would help to soften the |
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| blow
considerably. The opportunities lie in filling |
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| the
vacuum that has been created as many of our corn- |
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| petitors
in these countries are finding it difficult to |
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| operate,
while some have even closed down and the |
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| uncertainty
thus created in the minds of the buyers |
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| should
be made to work in our favour. All this will |
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| depend
on the government and the industry's leader- |
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| ship
being able to chalk out a set of suitable policies |
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| to
meet these challenges and grab these opportunities. |
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| LOCAL SALES |
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| Domestic
sales have fallen by 17% during the year |
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| under
review as compared to the previous year and |
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| were
of the order of Rs. 415 million. The major rea- |
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| son
for this fall was the large drop in yarn sale due to |
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| the
closure of Spinning capacity explained earlier. |
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| Yarn
sales accounted for 22% of domestic turnover in |
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|
| the
previous year, while it was only around 1% during |
|
|
|
| the
year under review. There is an actual increase in |
|
|
|
| other
product segments. Our 'Faroqua' brand sales |
|
|
|
| have
gone up by 45% over the previous year and by |
|
|
|
| the
Grace of God we are hopeful that with the present |
|
|
|
| market
strategies we shall continue to gain market |
|
|
|
| share. |
|
|
|
|
|
|
|
|
|
| The
government of the day needs to be lauded for its |
|
|
|
| efforts
in bringing down the cost of finance, which has |
|
|
|
| made
a positive impact on the cost of production for |
|
|
|
| domestic
as well as export business. |
|
|
|
|
|
|
|
|
| There
are lot of problems being faced by the industry |
|
|
|
| in
the payments of refunds of General Sales Tax (GST) |
|
|
|
| and
it seems that GST refunds are going the same way |
|
|
|
| as
duty drawback rebates. The government must |
|
|
|
| ensure
immediate payment of refunds as it is |
|
|
|
| impossible
for the industry to carry on normal |
|
|
|
| business
with huge outstanding amounts which are |
|
|
|
| affecting
their ability to operate. While on the subject |
|
|
|
| of
GST, I am constrained to say that the dilly dallying |
|
|
|
| witnessed
for the last one year regarding the |
|
|
|
| imposition
of GST at the retail level does not make |
|
|
|
| the
government look good, the matter should be |
|
|
|
| decided
one way or the other and closed. This drama |
|
|
|
|
| has
gone on for too long. It is both embarrassing and |
|
|
| a
waste of energies which otherwise can be utilized in |
|
|
| more
productive ways. |
|
|
| COST
STRUCTURE |
|
|
|
| (Figures
in thousand) |
|
|
|
|
|
|
1992-93 |
|
1993-94 |
|
1994-95 |
|
1995-96 |
|
1996-97 |
|
|
|
Amount |
% |
Amount |
% |
Amount |
% |
Amount |
% |
Amount |
% |
|
| Raw
Materials |
283,680 |
41.92 |
305,845 |
40.04 |
562,228 |
53.02 |
449,O51 |
47.78 |
445,457 |
49.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Raw
Cotton & Fibre |
142,422 |
21.04 |
152,218 |
19.93 |
311,391 |
29.36 |
283,006 |
30.11 |
128,875 |
14.37 |
|
| (Quantity
in Kgs) |
|
(4,173) |
|
(4,174) |
|
(4,806) |
|
(4,821) |
|
(1,707) |
|
| Other
Raw Material |
141,258 |
20.88 |
153,627 |
20.11 |
250,837 |
23.66 |
166,045 |
17.67 |
316,582 |
35.29 |
|
|
|
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
---------- |
|
| Conversion
Cost |
365,906 |
54.06 |
432,361 |
56.61 |
460,597 |
43.44 |
456,992 |
48.63 |
425,584 |
47.45 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
