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Sandoz (Pakistan) Limited
Annual Report 1997
Contents
Corporate Information
Notice of Meeting
Report of the Directors
Managing Director's Review
Pattern of Holding of the Shares
Auditors' Report to the Members
Balance Sheet
Profit and Loss Account
Cash Flow Statement
Notes to the Accounts
Corporate Information
CHAIRMAN & MANAGING DIRECTOR
W. D. Paris - Chairman (Alternate Dr. Farid Khan)
A. E. Dapp - Vice Chairman & Managing Director
DIRECTORS
K. Arnoldi
Razi-ur-Rahman Khan
E. A. Nomani
A.M. Notta
W. S. Zerr
SECRETARY
A.M. Notta
BANKERS
Allied Bank of Pakistan Limited
ANZ Grindlays Bank Limited
Bank of America NT & SA
Deutsche Bank
Habib Bank Limited
Mashreq Bank psc
Standard Chartered Bank
Societe Generale - The French and International Bank
AUDITORS
A.F. Ferguson & Co., Chartered Accountants
REGISTERED OFFICE
6th Floor, Bahria Complex,
24, M.T. Khan Road,
Karachi.
SHARE REGISTRAR
Ferguson Associates (Pvt) Ltd.,
State Life Building l-A,
I.I. Chundrigar Road, Karachi.
FACTORY
Sandoznagar,
Petaro Road, Jamshoro.
SALES DEPOTS
Off New Queens Road,
Karachi.
Sector 1 - 10/3,
Islamabad.
Gulberg III,
Lahore.
Saddar,
Hyderabad.
Bunder Road,
Sukkur.
Khanewal Road,
Multan.
Satyana Road,
Faisalabad.
Charsadda Road,
Peshawar.
Azizbhatti Road,
D.I. Khan.
Jinnah Road,
Quetta.
Notice Of Meeting
Notice is hereby given that the thirty-fifth Annual General Meeting of Sandoz (Pakistan) Limited will
be held on Wednesday, 17th June, 1998 at 11.30 A.M. in the Council Hall of the Overseas Investors
Chamber of Commerce & Industry Building, Talpur Road, Karachi, to transact the following ordinary
business:
1. To receive, consider and adopt the Balance Sheet and Profit & Loss Account together with the
Directors' and Auditors' Reports for the year ended 31st December, 1997.
2. To appoint auditors for the year ending 31st December, 1998 and to fix their remuneration.
3. To elect seven Directors of the Company as fixed by the Board of Directors for a period of three
years in accordance with the provisions of section 178 of the Companies Ordinance, 1984. The
retiring Directors W.D. Paris, K. Arnoldi, S. Ludtke, Razi-ur-Rahman Khan, E.A. Nomani, A.M.
Notta and W.S. Zerr are eligible for re-election as Directors. The term of new Board of Directors
will commence from 30th June, 1998.
NOTES:
a. The Share Transfer Books of the Company will remain closed from 10th June, 1998 to 17th June,
1998 (both days inclusive).
b. A member entitled to attend, speak and vote at the Annual General Meeting may appoint a proxy
to attend, speak and vote instead of him/her. A proxy need not be a member of the Company.
Proxies must be deposited at the Company's Registered Office not less than 48 hours before
the time for holding the meeting.
Report of the Directors
The Directors of the Company submit their report together with the Audited Accounts for the year
ended 31st December, 1997.
					Rupees in thousands
FINANCIAL RESULTS
Loss before taxation						(42,696)
Taxation						8,000
						-----------
Loss after taxation						(50,696)
Unappropriated profit brought forward						4,486
						-----------
Loss carried forward						(46,210)
						=========
EARNING PER SHARE
The net earning per share is negative.
MANAGING DIRECTOR'S REVIEW
The review on page 5 deals with business activities of the Company during the year, future outlook
and subsequent events that have taken place between the end of the financial year and the date of
this Report. The Directors of the Company endorse the contents of the review.
DIRECTORS
Dr. A. Zuercher resigned and in his place Mr. K. Arnoldi was appointed as Director of the Company.
The members of the Board of Directors wish to place on record the valuable contribution made by
Dr. A. Zuercher.
The mandate of the present Board of Directors will expire and the new Board will be elected at the
forthcoming thirty-fifth Annual General Meeting of the Company to be held on 17th June, 1998.
PATTERN OF HOLDING OF SHARES
The pattern of holding is provided on page 6. The Company's holding company is Novartis AG,
Basle, Switzerland, which is incorporated in Switzerland.
AUDITORS
The present Auditors M/s. A. F. Ferguson & Co., retire and being eligible, offer themselves for re-
appointment.
Managing Director's Review
The year 1997 which saw a change of Government and considerable political turmoil was not an
easy one to do business in.
The economy's overall growth was lower than expected whereby our business was not an exception.
The inflationary trend has continued to negatively affect our result and the same applies to exchange
rates. In spite of industry's efforts, no price increases were granted to us.
The depressed economy left lesser money available to the consumers. This was felt even in the field
of pharmaceuticals. The sales tax issue between wholesalers and retailers on the one hand and
Government on the other hand did not help our business either. Extensive sales and promotional
training hopefully bearing fruits in the future was rendered to our staff. We therefore neither reached
the budgeted target nor previous year's sales.
In a nutshell: nil price increases, substantial inflation and very unfavourable exchange rates and on
the other hand constant rising costs at all fronts have continued to play havoc with our bottom line,
this in spite of restructuring and re-engineering as well as strictest control of our expenses.
It is therefore rather unfortunate although not surprising that the Company's result for 1997 is a loss
of Rs. 50.7 mio. Therefore, the Board of Directors regrets not being able to propose the payment of a
dividend for the year under review.
As to the Future: unless price increases are granted by Government on pharmaceuticals, the outlook
in this sector will remain gloomy.
It is foreseen that towards the end of 1998 the name of this company will change into Novartis Pharma
(Pakistan) Ltd. which is likewise the case with Ciba changing its name into Novartis (Pakistan) Ltd.
Both companies will however for the time being continue to operate separately.
The agreement with the union of Jamshoro Factory expires end of March 1998. The relations between
Union and Management have remained amicable.
Finally let me say that I will retire from active service after having been abroad almost 35 years includ-
ing 19 years in Pakistan. This is due to health reasons and I will have left this country when you will
be reading this report. I would like to place on record my sincere thanks to you, our shareholders,
the management and staff for their trust and confidence reposed in me. My thanks go also to all our
staff members for their untiring devotion to duty. I extend herewith to all of you my best wishes.
Pakistan Zindabad.
Pattern of Holding of the Shares
as at December 31, 1997
Number of		Shareholding		Total Shares
Shareholders		From	To	held
384		1	100	12,158
222		101	500	49,101
38		501	1000	24,904
26		1001	5000	61,252
1		5001	10000	5,277
2		10001	15000	24,589
1		15001	20000	15,757
1		20001	25000	20,668
1		30001	35000	30,734
1		45001	50000	46,887
1		325001	330000	328,809
1		1860001	1865000	1,860,408
----------				----------
679				2,480,544
=========				=========
Categories of		Number of	Shares held	Percentage
Shareholders		Shareholders
Individuals		661	168,749	6.80
Insurance Companies		3	62,100	2.50
Modaraba Companies		2	44	0.00
Joint Stock Companies		6	1,860,605	75.01
Financial Institutions		6	383,769	15.48
Others		1	5,277	0.21
		-----------	-----------	-----------
TOTAL:		679	2,480,544	100.00
		=========	=========	=========
Auditors' Report to the Members
We have audited the annexed Balance Sheet of Sandoz (Pakistan) Limited as at December 31, 1997
and the related Profit and Loss Account and the Cash Flow Statement, together with the notes form-
ing 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 busi-
ness; 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 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 loss and cash flows for the year then
ended; and
(d) 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.
				A.F. Ferguson & Co.
Karachi: 17th March, 1998				Chartered Accountants
Balance Sheet as at December 31, 1997
				Note	1997	1996
					(Rupees'000)
SHARE CAPITAL AND RESERVES
Authorised capital
10,000,000 (1996: 10,000,000)
ordinary shares of Rs 10 each					100,000	100,000
					=========	=========
Issued, subscribed and paid-up capital				3	24,805	24,805
Capital reserve				4	8,270	8,270
Revenue reserve				5	37,500	37,500
(Accumulated loss)/unappropriated profit					(46,210)	4,486
					-----------	-----------
					24,365	75,061
DEFERRED LIABILITY
Provision for staff gratuity					28,582	22,418
CURRENT LIABILITIES
Short-term loans				6	178,560	161,443
Short-term running finance utilised under
mark-up arrangements				7	43,443	--
Creditors, accrued and other liabilities				8	410,868	382,134
Proposed dividend					--	930
					-----------	-----------
					632,871	544,507
CONTINGENCIES AND COMMITMENTS				9
					-----------	-----------
					685,818	641,986
					=========	=========
				Note	1997	1996
					(Rupees'000)
TANGIBLE FIXED ASSETS
Operating assets				10	48,217	31,946
Capital work-in-progress				11	40,775	13,430
					-----------	-----------
					88,992	45,376
LONG-TERM LOANS AND ADVANCES				12	3,443	6,365
LONG-TERM DEPOSITS AND PREPAYMENTS				13	1,036	1,278
CURRENT ASSETS
Stores and spares				14	14,022	12,513
Stock-in-trade				15	390,347	414,092
Trade debts				16	44,872	61,882
Loans and advances				17	7,504	7,988
Trade deposits and short-term
prepayments				18	9,959	10,501
Taxation recoverable					88,476	60,088
Other receivables				19	13,555	16,306
Cash and bank balances				20	23,612	5,597
					----------	----------
					592,347	588,967
					----------	----------
					685,818	641,986
					=========	=========
The annexed notes form an integral part of these accounts.
Profit and Loss Account
For the Year Ended December 31, 1997
				Note	1997	1996
					(Rupees'000)
Net sales				21	1,043,376	1,088,082
Cost of sales:
Cost of goods sold				22	820,904	850,127
Administration and marketing expenses				23	235,217	203,239
					-----------	-----------
					1,056,121	1,053,366
					-----------	-----------
Operating (1oss)/profit					(12,745)	34,716
Other income				24	20,864	22,606
					8,119	57,322
Financial charges				25	49,718	31,623
Other charges				26	1,097	3,687
					-----------	-----------
					50,815	35,310
(Loss)/profit before taxation					(42,696)	22,012
Taxation	27				8,000	17,500
					-----------	-----------
(Loss)/profit after taxation					(50,696)	4,512
Unappropriated profit brought forward					4,486	3,614
Transfer to Clariant Pakistan Limited		-			--	2,710
					-----------	-----------
					4,486	904
					-----------	-----------
(Loss)/profit before appropriation					(46,210)	5,416
Appropriation:
Proposed dividend @ Rs Nil ( 1996: Rs 1.5 per share on
620,136 shares held by shareholders other than
Sandoz Limited - Basle)					--	930
					-----------	-----------
(Accumulated loss)/Unappropriated profit carried forward					(46,210)	4,486
					=========	=========
The annexed notes form an integral part of these accounts.
Cash Flow Statement
For the Year Ended December 31, 1997
				Note	1997	1996
					(Rupees'000)
Cash flow from operating activities
Cash generated from operations				31	53,281	388,750
Staff gratuity paid					(3,087)	(2,663)
Mark-up/interest paid					(5,353)	(29,416)
Taxes paid					(36,388)	(45,498)
Long-term loans and advances (net)					2,922	(1,404)
Long-term deposits and prepayments (net)					242	6,422
					------------	------------
Net cash inflow from operating activities					11,617	316,191
Cash flow from investing activities
Fixed capital expenditure					(53,802)	(18,829)
Sale proceeds of fixed assets					547	515
					------------	------------
Net cash outflow from investing activities					(53,255)	(18,314)
Cash flow from financing activities
Short-term loans less repayments					17,117	125,630
Dividends paid					(907)	--
Net cash inflow from financing activities					16,210	125,630
					------------	------------
Net (decrease)/increase in cash and cash equivalents					(25,428)	423,507
Cash and cash equivalents at beginning
of the year					5,597	(417,910)
					------------	------------
Cash and cash equivalents at end of the year				32	(19,831)	5,597
					=========	=========
The annexed notes form an integral part of these accounts.
Notes to the Accounts
For the Year Ended December 31, 1997
1. THE COMPANY AND ITS OPERATIONS
Sandoz (Pakistan) Limited is incorporated in Pakistan and is listed on the Karachi Stock
Exchange. The company is engaged in the business of manufacturing and selling of pharma-
ceutical products.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
2.1 Accounting convention
These accounts have been prepared under the historical cost convention.
2.2 Staff retirement benefits
Staff retirement benefits include:
a)    an approved contributory provident fund for all employees; and
b) an approved gratuity fund for all employees except expatriates, which is adminis-
tered by trustees and is funded on the basis of actuarial advice. While the annual
contributions to the gratuity fund are limited in accordance with the Income Tax
Rules, 1982, provision is maintained in the accounts to cover the actuarial liability.
The latest actuarial valuation of the scheme was carried out as at December 31,
1997. The fair value of the scheme's assets and the liability for the past services at
the latest valuation date were Rs 20.68 million and Rs 49.26 million respectively.
The Entry Age Normal Method, using the following significant assumptions, is
used for valuation of this scheme:
- Expected rate of increase in salary level 13 percent and 10.5 percent per annum
for management and non-management staff respectively.
- Expected rate of interest 13 percent per annum compound.
Gratuity is payable to staff on completion of prescribed qualifying period of ser-
vice under the scheme.
2.3 Taxation
Provision for current taxation is based on taxable income at the current rates of taxation
after taking into account tax credits available, if any.
The company accounts for deferred taxation using the liability method on all significant
timing differences. However, as a matter of prudence, the company does not recognize
net deferred tax debit balance in the accounts which at December 31, 1997 amounted to
approximately Rs 6.7 million (1996: Rs 4.9 million).
2.4 Tangible f'Lxed assets and depreciation
These are stated at cost less accumulated depreciation except capital work-in-progress
which is stated at cost. Cost in relation to fixed assets signifies historical cost.
Depreciation is charged to income applying the straight line method, whereby the cos