| Mohammad Farooq Textile Mills Limited |
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| Annual
Report 1998 |
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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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| 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. Yacoobali G. Zamindar |
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| COMPANY
SECRETARY |
Mr. Yacoobali G. Zamindar |
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| LEGAL
ADVISERS |
Mohsin Tayebali & Co. |
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| AUDITORS |
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M. Yousuf Adil Saleem
& 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, |
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Karachi-74000 |
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| HEAD
OFFICE AND MILLS |
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@paknet3.ptc.pk |
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| TELEFAX |
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(92-21) 5011607 |
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(92-21) 2416518 |
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| TELEPHONE |
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5011571/5 Lines |
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2412941/5 Lines |
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| NOTICE
OF THE MEMBERS' |
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| THIRTY-THIRD
ANNUAL GENERAL MEETING |
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| NOTICE
IS HEREBY GIVEN that the Thirty-third Annual General Meeting of Mohammad
Farooq Textile Mills |
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| Limited
will be held at Company's Mills Premises, Plot Nos. 6 & 7, Sector 21,
Korangi Industrial Area, Karachi |
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| on
Wednesday, 31st March 1999 at 11:00 a.m. 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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| 1998
together with the Directors' and Auditors' Reports thereon. |
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| 2.
To appoint Auditors and fix their remuneration. |
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| 3.
To elect seven Directors as fixed by the Board in accordance with the
provision of Section 178 of the Companies |
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| Ordinance,
1984, in place of retiring Directors, namely Mrs. Mariam A. K. Sumar, Mr.
Mohammad Farooq |
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| Sumar,
Mr. Mohammad Mukhtar Sumar, Mr. Razi-Ur-Rahman Khan, Ms. Sabiha Sumar, Mr.
Munir Ahmed |
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| Ansari
and Mr. Yacoobali G. Zamindar. |
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BY THE ORDER OF THE BOARD |
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Yacoobali G. Zamindar |
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Director/Secretary |
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| Karachi:
15th February, 1999 |
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| NOTES: |
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| 1.
The Shares Transfer Books of the Company will remain closed from 25th March,
1999 to 31st March, 1999 |
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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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| 1998
as under: |
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(Rupees '000) |
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| Loss
for the year amounted to |
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21,371 |
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| To
which we must add provision |
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| for
minimum tax for the year |
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4,203 |
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25,574 |
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| To
this must be added |
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| loss
brought forward |
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218,472 |
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| Leaving
accumulated loss |
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| carried
forward to next year |
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244,046 |
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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.
You are requested to elect seven Directors for a period of 3 years in
accordance with the provision of the |
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| Companies
Ordinance, 1984 as term of the existing Board expires on 26th March, 1999. |
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| 4.
The pattern of shareholding is attached. |
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| 5.
The management of your Company is aware of year 2000 problem which can affect
the working of computers |
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| and
systems, if not addressed. Necessary software/hardware equipments have been
acquired to face the mille- |
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| nium
challenge. For in house designed softwares, work is in process to make them
compatible with Y2K. |
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| Inshallah
we shall be Y2K compliant in time. |
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| 6.
Your present Auditors M/s. M. Yousuf Adil Saleem & Co., Chartered
Accountants, retire and offer themselves |
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| for
reappointment. |
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For and on behalf of |
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the Board of Directors |
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| Karachi:
15th February, 1999 |
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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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| 33rd
Annual General Meeting of the Company to |
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| consider
the results for the year ending 30th |
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| September
1998. |
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| The
Directors' report along with the audited |
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| accounts
for the period under review are already |
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| placed
before you. |
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| In
keeping with our tradition to provide maximum |
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| disclosure
for the benefit of shareholders, I shall |
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| review
the major events of the financial year. |
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| OUR
PERFORMANCE THIS YEAR |
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| The
Country's economy operated under the dark |
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| clouds
of uncertainty, insecurity and chaos, particu- |
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| larly
since May '98 due to India's nuclear explosions |
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| and
Pakistan's decision to follow suit. In these high- |
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| ly
disturbed conditions the lack of cohesive policies, |
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| unified
approach and clear thinking on part of the |
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| government
led to panic and despair which to a large |
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| extent
still continue. |
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| In
this setting of sanctions and defaults the Country's |
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| largest
industry - textile - also suffered considerably; |
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| Already
reeling under the continuing Asian debacle |
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| of
the year before, these new conditions really dealt a |
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| severe
blow to the textile Industry. |
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| I
am thankful to God that under these conditions |
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| your
Company has done well and there is a big |
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| improvement
all-round as compared to the previous |
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| couple
of years. From a loss ofrs.56.13 million last |
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| year,
our loss for the year under review came down by |
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| over
60% to Rs.21.37 million, and the first few |
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| months
of the current year 1998-99 show a promis- |
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| ing
trend for the future. Therefore the strategy |
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| adopted
in the last couple of years to cut uneconom- |
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| ical
production lines, reduce costs and concentrate on |
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| value
added processed goods is paying off. Yarn pro- |
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| duction
increased by a robust 33% while cloth pro- |
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| duction
went up by more than 10% thus reducing |
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| purchases
of yarn and cloth and contributing towards |
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| reduction
of overheads. |
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| The
large increase of 43% made in the sale of print- |
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| ed
and dyed goods last year has been fully main- |
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| tained
during the year under review and it is hoped |
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| that
in the current year Inshallah further gains in |
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| processing
capacity utilization will be achieved. |
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| Our
efforts at cutting costs are working as can be |
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| seen
by the fact that overall costs are down by 4.3% |
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| as
compared to last year which must be seen as a |
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| major
achievement in view of the inflationary condi- |
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| tions. |
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| Our
overall sales are Rs.838 million as compared to |
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| Rs.845
million in the previous year, this represents a |
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| slight
drop of less than 1%, the reason for this fall is |
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| that
yarn and grey cloth sale which in the previous |
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| year
accounted for 6.6% of overall sales fell to 1.8% |
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| in
1997-98 and therefore resulted in a slight overall |
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| decrease. |
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| The
operating profit for the year under review is |
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| Rs.67.87
million and after accounting for non-oper- |
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| ating
income and financial and other charges the loss |
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| for
the year is Rs.21.37 million. After accounting for |
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| minimum
tax for current year of Rs.4.2 million the |
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| loss
after taxation amounts to Rs. 25.57 million. |
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| After
accounting for loss brought forward of Rs. |
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| 218.47
million the accumulated loss amounts to |
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| Rs.244.05
million. |
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| EXPORTS |
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| The
Company's exports amounted to Rs.390 million |
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| as
compared to Rs.404 million in the previous year, |
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| this
was as a result of reduced grey cloth and yarn |
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| sale,
while finished goods sale actually increased. In |
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| accordance
with our strategy we sold insignificant |
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| amounts
of yarn and grey cloth and reduced the pur- |
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| chase
of these items from market also so as to utilize |
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| more
and more of our own production. |
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| During
the last couple of years new strategies have |
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| been
evolved for increasing our market share in fin- |
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| ished
products which have started to pay dividends |
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| by
way of increased customer interest, successful |
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| product
launches and a better order book, the com- |
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| ing
months and years will Inshallah provide the ben- |
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| efits
from these initiatives. |
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| Pakistan's
exports are continuously falling for the |
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| last
year or so, neither have we learnt how to grapple |
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| with
the challenges nor how to seize the opportuni- |
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| ties,
the result is a continuous erosion of our market |
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| share
and competitive ability. Whilst the govern- |
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| ment
is to blame for a lot of our woes inasmuch as |
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| there
is no sane and lasting Export Policy framework, |
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| but
the industry too has to accept that a large part of |
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| the
blame lies on it also. Our policies are generally |
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| short
sighted, short term and unrealistic. We built |
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| power
projects by the dozens without developing a |
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| distribution
system, the result is the Country is sur- |
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| plus
in power generation but agriculture and indus- |
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| try
and the people still go without power almost |
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| daily.
Motorways are built at great costs but there is |
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| hardly
any economic activity to support these roads, |
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| the
Rupee is supported and defended by diktats and |
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| administrative
measures once to lower and then to |
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| strengthen
it, swinging like a pendulum, without |
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| anybody
realizing the impact it has on trade. The |
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| examples
are multifarious and unfortunately the |
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| result
is that each successive government further |
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| damages
and harms its own credibility so much so |
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| that
people become impervious and start to discount |
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| its
measures from the start. |
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| Industry
on the other hand has concentrated on com- |
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| modity
exports of yarn and grey cloth and too little |
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| on
organized value added items of high quality. Our |
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| failure
in the value added sector to produce quality |
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| goods,
to develop marketing and distribution strate- |
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| gies,
to innovate and develop the skill of our work |
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| force
and our staff, is to my mind largely responsible |
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| for
our miseries. |
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| But
the area of greatest neglect which has been and |
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| will
be the largest contributor in our failure to |
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| become
a major force in textile exports is the lack of |
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| education
and technical skills at all levels. We can |
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| have
the best of machines we like, and we can have |
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| all
the ISO certification that we want but who will |
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| manage
this? We have one of the youngest textile |
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| industry
in terms of machine age but other than in |
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| basic
spinning and organized weaving everywhere |
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| else
our productivity levels are below 50% and our |
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| quality
levels are largely mediocre. |
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| It
is quite amusing that lip service is usually paid, |
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| whenever
policies are made, to the fact that this is "A |
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| Three
Years Policy", "A Long Term Policy" but then |
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| everybody
forgets since they do not really believe in |
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| what
they are saying. A glaring example is the |
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| recently
announced Quota policy, the government is |
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| the
same which last year announced the policy in |
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| January'98
that export quotas would be given on |
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| 35%
value performance and 65% quantity perfor- |
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| mance
and this policy was supposed to increase the |
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| percentage
of value performance and take it to 50% |
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| in
1999. Instead the same government has for the |
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| year
1999 completely changed the policy and |
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| announced
that in its wisdom 100% quota will now |
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| be
given on quantity performance basis only! To add |
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| insult
to injury the tragedy does not end here, vari- |
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| ous
textile associations gave huge advertisements in |
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| the
daily press welcoming the sagacity of the gov- |
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| ernment
decision! |
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| On
the one hand the government claims that it |
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| wants
our abysmal level of Export prices to increase |
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| as
they are one of the lowest in the world and on the |
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| other
hand it says that quota will go to those who |
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| export
at the lowest price. Do you see logic here? I |
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| don't.
As far as the Associations are concerned who |
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| lobbied
for this change and welcomed the decision, |
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| may
I point out that these are mostly those father and |
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| son
Association set-ups which were formed in 70's |
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| and
80's for the sole purpose of gathering Quota and |
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| are
a vested interest. Most of them have been |
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| involved
in the scandals of yesteryears and will sure- |
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| ly
contribute to the scandals of today and tomorrow. |
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| I
must again say that this policy needs to be reviewed |
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| as
it is detrimental to exports of quality goods, it is |
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| against
the recommendations of International |
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| experts,
it is a failed policy which needs to be |
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| changed
once and for all. |
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| During
the current year the country's exports of tex- |
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| tile
goods particularly yarn and grey cloth are suffer- |
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| ing
heavily due to the continuing Far East crisis |
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| resulting
in both shrinking demand and reducing |
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| competitive
ability as a result of much higher levels |
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| of
devaluation carried out in the Far East as well as |
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| by
other textile exporting countries. |
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| The
fact that our cotton crop again has failed both |
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| quantitatively
and qualitatively has deprived the |
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| Industry
of purchasing cotton at international price |
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| levels
and also resorting to imports of cotton. |
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| Therefore
the Industry faced a situation of double |
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| jeopardy
- sinking demand and rising input costs, |
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| this
situation continues in the current year as well as |
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| the
crop has again failed and is even lower than last |
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| year.
Prevailing cotton prices are more than the inter- |
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| national
market. As a result the Country's yarn |
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| exports
have already fallen by 35% during the cur- |
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| rent
financial year commencing from July 1, 1998. |
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| Made-ups
may be faring better but not by a great |
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| margin
as there is hardly any room for growth in |
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| such
circumstances. |
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| Your
Company as you know is not an exporter of |
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| yarns
and greys, therefore there are no adverse affects |
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| during
the current year on account of these products. |
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| Even
on the value added side the Company's position |
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| is
by the grace of God satisfactory and our order book |
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| for
the current year looks healthy. |
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| LOCAL SALES |
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| Domestic
sales registered a small increase of 1.8% |
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| over
the previous year and were of the order of |
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| Rs.422
million. A closer look at the product mix |
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| shows
a further sharp decline in yarn and grey cloth |
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| sales,
which have now become quite insignificant, |
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| while
branded fabrics which had increased by 45% |
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| last
year have again shown a 21% increase in 1997- |
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| 98,
this is really a heartening development as great |
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| efforts
were made to regain market share. On the |
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| other
hand cloth processing income fell as activity of |
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| commercial
exporters declined due to conditions |
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| described
under Exports. |
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| A
word about the current year (1998-99) domestic |
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| sales
is necessary. Since the middle of 1998 condi- |
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| tions
of the domestic market have been quite severe |
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| as
consumer confidence has suffered heavily on |
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| account
of poor government policies regarding for- |
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| eign
currency accounts, foreign exchange controls, |
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| negotiations
with IMF etc. As a result consumer |
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| spending
has fallen off sharply, these conditions of |
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| the
market have not changed much as yet, therefore |
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| domestic
sales of branded goods are affected in the |
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| current
year, however, efforts are being made to min- |
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| imize
the damage by diversifying product range and |
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| increasing
institutional sales. |
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| The
government's failure to enforce the General Sales |
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| Tax
system on retail trade has led to increase in the |
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| burden
of general sales tax on those who are already |
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| paying
more by the increase in the rate of GST by |
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| 2.5%.
I am certain that this burden will be again |
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| increased
for the same reasons. Like always we failed |
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| to
broaden the base of our taxes both direct and indi- |
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| rect
and it is always the few whose back is broken by |
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| carrying
the burden of the many. The result of such a |
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| situation
is usually that many amongst the few who |
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| pay
are then tempted to find ways and means of |
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| avoiding
the taxes for survival. As a result a host of |
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| distortions
are created which cannot be termed |
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| healthy
for the economy nor for the country. |
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| COST
STRUCTURE |
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| Your
management concentrated its efforts towards |
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| cutting
costs in a very organized manner and I am |
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| happy
to report that it has been successful in many |
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| areas.
On the raw material side as productivity in |
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| Spinning
and Weaving increased purchases of yarn |
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| and
cloth fell by 32%, thus resulting in a Rs.106 |
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| million
drop in other raw material purchases, while |
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| only
an additional Rs.47 million was spent on raw |
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| cotton
and fibre to achieve almost the same volume |
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| of
sale with just a Rs.20 million increase in conver- |
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| sion
cost. The overall cost situation was therefore |
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| 4.29%
lower than the previous year. |
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| COST
STRUCTURE |
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| (Figures
in thousand) |
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|
1993 - 94 |
1994-95 |
1995 - 96 |
1996-97 |
1997 - 98 |
|
Amount |
% |
Amount |
% |
Amount |
% |
Amount |
% |
Amount |
% |
|
| Raw
Materials |
|
305,845 |
40.04 |
562,228 |
533.02 |
449,051 |
47.78 |
461,196 |
51.42 |
402,155 |
46.84 |
| Raw
Cotton & Fibre |
|
152,218 |
19.93 |
311,391 |
29.36 |
283,006 |
30.11 |
128,875 |
14.37 |
175,308 |
20.42 |
| (Quantity
in Kgs) |
|
|
(4,174) |
|
(4,806) |
|
(4,821) |
|
(1,707) |
|
(2,550) |
| Other
Raw Material |
|
153,627 |
20.11 |
250,837 |
23.66 |
166,045 |
17.67 |
332,321 |
37.05 |
226,847 |
26.42 |
|
--------------------------------------------------------------------------------------------------------------------- |
| Conversion
Cost |
|
432,361 |
56.61 |
460,597 |
43.44 |
456,992 |
48.63 |
409,845 |
45.69 |
429,730 |
50.05 |
|
|
|
|
|
|
|
|
|
|
|
|
| Wages
& Salaries |
|
122,684 |
16.06 |
125,550 |
11.84 |
119,373 |
12.70 |
109,103 |
12.17 |
108,253 |
12.61 |
| Store
Consumption |
|
51,776 |
6.78 |
55,518 |
5.24 |
55,946 |
5.95 |
33,055 |
3.68 |
44,711 |
5.21 |
| Depreciation |
|
50,748 |
6.65 |
47,052 |
4.44 |
42,798 |
4.56 |
49,994 |
5.57 |
45,025 |
5.24 |
| Fuel & Power |
|
65,394 |
8.56 |
82,975 |
7.83 |
80,282 |
8.54 |
90,409 |
10.08 |
95,710 |
11.15 |
| Other
Manufacturing Expenses |
19,013 |
2.49 |
16,666 |
1.57 |
16,274 |
1.73 |
17,690 |
1.97 |
21,628 |
2.52 |
| Financial
Expenses |
|
91,626 |
12.00 |
104,997 |
9.90 |
117,156 |
12.47 |
84,943 |
9.47 |
91,791 |
10.69 |
| Administration
Expenses |
|
22,695 |
2.97 |
26,223 |
2.47 |
24,844 |
2.65 |
23,990 |
2.68 |
22,474 |
2.62 |
| Other
Charges |
|
8,425 |
1.10 |
1,616 |
0.15 |
319 |
0.03 |
661 |
0.07 |
138 |
0.01 |
|
--------------------------------------------------------------------------------------------------------------------- |
| Selling/Distributi0n
Expenses |
25,580 |
3.35 |
37,566 |
3.54 |
33,747 |
3.59 |
25,963 |
2.89 |
26,658 |
3.11 |
|
|
|
|
|
|
|
|
|
|
|
|
| (a) Freight |
|
14,954 |
1.96 |
10,555 |
1.00 |
10,370 |
1.10 |
8,283 |
0.92 |
6,781 |
0.79 |
| (b) Others |
|
10,626 |
1.39 |
27,011 |
2.54 |
23,377 |
2.49 |
17,680 |
1.97 |
19,877 |
2.32 |
|
|
--------------------------------------------------------------------------------------------------------------------- |
| Total Rs. |
|
763,786 |
100.00 |
1,060,391 |
100.00 |
939,790 |
100.00 |
897,004 |
100.00 |
858,543 |
100.00 |
|
|
|
===================================================================================================================== |
|
|
|
|
|
|
| Looking
at some other individual heads in the accom- |
|
|
| panying
cost structure chart, it can be seen that |
|
|
| wages
and salaries were slightly lower than last year |
|
|
| inspite
of the fact that machine deployment actually |
|
|
| increased
such as in Spinning and yearly increments |
|
|
