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Gatron (Industries) Limited

Annual Report 1998

CONTENTS

COMPANY INFORMATION

BOARD OF DIRECTORS

Peer Mohammad Diwan

Chief Executive

Haji Sharif Tayub

Haji Haroon Tayub

Abdul Razak Diwan

Zakaria Bilwani

Usman Habib

Iqbal Abdul Shakoor

Shabbir Diwan

Muhammad Afzalullah Siddiqui

Z.I. Saifi - BEL Nominee

COMPANY SECRETARY

Mohammad Yasin Bilwani

BANKERS

ABN" AMRO Bank N.V.

Allied Bank of Pakistan Limited

American Express Bank Limited

Bank of America NT & SA

Citibank N.A.

Credit Agricole Indosuez

Deutsche Bank

Faysal Bank Limited

Habib Bank AG Zurich

Habib Bank Limited

Metropolitan Bank Limited

Muslim Commercial Bank Limited

National Bank of Pakistan

Societe Generale, The French and International Bank

Standard Chartered Bank

The HongKong and Shanghai Banking Corporation Limited

United Bank Limited

AUDITORS

Hyder Bhimji & Co.

Chartered Accountants

Karachi.

PLANT

Plot No. M-2, Sec. M, H.I.T.E.

Main R.C.D. High Way

Hub Chowki, Lasbela Distt.

Balochistan- Pakistan

REGISTERED OFFICE

Room No. 7, 1st Floor

Saleem Plaza, Jinnah Road

Quetta - Pakistan.

LIAISON OFFICE

8th Floor, Textile Plaza

M.A. Jinnah / Dunolly Road

Karachi - 74000 - Pakistan

FINANCIAL HIGHLIGHTS

(Rupees in Thousands)

1998

1997

YEAR AT A GLANCE

Turnover

3,006,362

2,750,615

Profit before tax

320,619

294,474

Profit after tax

247,421

194,247

Taxation

73,198

100,227

Gross assets employed (excluding capital work-in-progress)

3,167,403

2,767.44

Issued share capital

383,645

348,768

Net shareholders equity

1,513,898

1,199,561

Earning per share before tax - Rupees

8.36

8.44

DIRECTORS' REPORT TO THE SHAREHOLDERS

The directors of your Company feel pleasure in

presenting report on the performance of the

Company for the year ended June 30, 1998.

YEAR UNDER REVIEW

By the Grace of Allah, the overall performance of

the Company remained good. Profit before tax

stood at Rs. 320.619 million as compared to

Rs. 294.474 million of the previous year, showing

an improvement of 8.88%. Similarly net sales

reflected 13.17% growth over the previous year.

The rates of basic inputs i.e. Pure Terephthalic

Acid (PTA) and Mono Ethylene Glycol (MEG) in

international markets continued a downward trend

but since the presentation of last Directors' Report

in February 1998, the fall in PTA/MEG prices have

been marginal. The benefits of lower prices were

negated by continued depreciation in the value of

Pak Rupee increasing the actual cost of all

imported material. However prices of polyester

chips being purchased locally decreased

significantly until October 1998 despite continuous

depreciation of the rupee.

The local filament yarn market reflected the usual

pattern of being good in the months of October

to January. Overall, during the financial year the

market was healthy. However in the end of the

financial year, the market became very weak and

continues to remain weak at this point of time,

whereas normally these months are considered

to be good seasonal months. The major reason

being that the Far East economic crisis has finally

affected the international polyester filament yarn

prices and in turn has affected the local market.

The local market is further dragged down by the

uncertain economic situation which has affected

the economic activity in the country.

With the blessings of Almighty Allah, the Bottle

Grade Polyester Chips (PET Resin) project started

production in February 1998. Majority of local

bottle producers have started consuming our PET

Resin. Vigorous efforts for the export of the same

are continuously being made. As indicated in the

previous Directors' Report since PET Resin is

being produced for the first time in Pakistan (and

also being exported for the first time) some

inventory build up was expected. As such at the

end of the current financial year on June 30, 1998

sales were low and inventory of PET Resin had

accumulated. With the depreciation and interest

expenses being charged fully for the first 5 months

of operation upto June 1998 against corresponding

low volume, the financial effects of this project

were not positive. Unluckily at this juncture the

cold summer in Europe and the Russain crisis

(also affecting East Europe) resulted in a sharp

decline of the international market and prices of

PET Resin to an abnormal low level. This not only

depleted the value of the PET Resin inventory but

significantly affected the export efforts. The

continuous polycondensation plant converted to

produce bottle grade polymer faced some

mechanical difficulties resulting in an unusual

number of shutdowns and consequently affecting

the output of bottle grade polyester chips (PET

Resin). However the same is now running

smoothly.

The project for production of 5000 tons per year

filament yarn also went into production as

scheduled in August 1998 smoothly and is running

satisfactorily.

FUTURE OUTLOOK

As stated above the rates of PTA and MEG

continued a downward trend in international

market and at present both of them are being

quoted at around US$ 370. Since these prices

have reached at bottom level, now it appears that

these rates would take an upward trend. Moreover

the affect of further rupee devaluation may

compound the cost increase.

Pakistan was forced to test its nuclear device,

which brought in unjust economic sanctions. To

conserve the precious foreign exchange, the

Government introduced composite rate of

exchange from July 1998 and also enforced 30%

margin for opening of Letter of Credits. The

composite rate mechanism has resulted in the cost

of US$ for import rising from Rs. 46.46 to a figure

above Rs. 51/-. These measures coupled with

persisting economic recessionary trend prevailing

in the country and adverse political situations in

the province of Sindh are major negative factors

likely to affect the profitability of the Company. The

key factor in the future outlook remains the market

situation. As mentioned above the Far East

economic crises and local economic activity (being

affected by the country's economic scenario) has

kept the market of filament yarn depressed even

in the current winter months. Hopefully the

inventories in the Far East being depleted (since

the countries like Korea and Thailand are now

improving from their adverse economic situation

which surfaced in end 1997) and the economic

activity in the country likely to pick up (after

positive and successful conclusion of IMF-

Pakistan talks) the situation would improve. This

would lead to a recovery of the market (since local

filament yarn production capacity in 1998 is only

10% higher than what it was in 1994 of which basic

demand is to set to increase). However the effects

of this possible recovery may be seen in the year

1999-2000 and not in the year 1998-99.

In the light of the above mentioned facts and news

of possible increase in sales tax rate to 15%, it is

necessary that the Government eliminate the

Rs. 2.50 kg. excise duty on filament yarn, since

the importers of filament yarn are not liable to pay

excise duty and particularly when there in no

excise duty on all types of yarn (i.e. synthetic,

blended, acetate) as well as polyester staple fibre

since 1996. Moreover in July 1998 Government

also removed the excise duty on other man made

fibres citing the dual impact of sales tax and excise

duty on these items as an anomaly.

As discussed above, the international market of

Bottle Grade Polyester Chips (PET Resin) remains

in a terrible shape affecting the prices as well as

the efforts of the Company to export volumes of

this product. Hopefully with the advent of the

summer demand (generated by Beverage and

Fluids Packing demand) the market may improve

by February 1999.

The Company, to promote the growth of PET

packaging in Pakistan will go into the state of the

art production of PET performs (made from PET

Resin) used for blowing PET bottles to enable

users to blow quality PET bottles. The total cost

of this project is estimated at Rs. 86 million. The

company is also promoting advent of state of the

art PET blowing facility, which can consequently

be done in an economical set up by the users/

producers of PET bottles.

The other major capital expenditure in the next

months include purchase of generators to replace

15 years old furnace oil generators whose cost of

operation is becoming high.

RESULTS, DIVIDEND AND FINANCE

The financial results of your Company in the year

under review were an improvement over last year.

The appropriation of profits is proposed as under:

(Rupees in Thousands)

Profit before taxation

320,619

Taxation

73,198

----------

Profit after taxation

247,421

Unappropriated profit brought forward

2,025

----------

Profit available for appropriation

249,446

Appropriation:

Proposed cash dividend @ 20%

76,729

Transfer to general reserve

150,000

----------

226,729

----------

Unappropriated profit carried forward

22,717

==========

CONTRIBUTION TO NATIONAL EXCHEQUER

During the year, the Company's contribution to the

national exchequer amounted to Rs. 757.648 million

(1997 - Rs. 664.322 million) in respect of payments

towards sales tax, income tax, excise duty, import

duties and other statutory levies. This does not

include the withholding tax deducted by the Company

from employees, suppliers and contractors and

deposited with the Government Treasury.

INFORMATION TECHNOLOGY

The Company is in the process of upgrading its

computer hardware and software applications to

enhance its information management capabilities.

The company is taking necessary measures to

ensure that all its computer applications and

hardware systems are free of millennium bug and

year 2000 complaint before the turn of the century.

SUBSIDIARY COMPANY

The audited accounts of the wholly owned

subsidiary, Gatro Power (Pvt)Limited for the year

ended June 30, 1998 are attached.

BOARD CHANGES

During the year Mr. Muhammad Murtaza (elected

nominee of NIT) has resigned from the

Directorship of the Company, Mr. Muhammad

Murtaza was elected in the 16th Annual General

Meeting of the Company held on December 14,

1996 for the term of 3 years commencing from

December 24, 1996. The Board of Directors has

co-opted Mr. Muhammad Afzalullah Siddiqui

nominated by NIT in place of Mr. Muhammad

Murtaza for the remainder term of the office of

the Director.

The Board acknowledges with appreciation the

valuable submissions made by Mr. Muhammad

Murtaza during his tenure as a Director of the

Company.

AUDITORS

The present Auditors, M/s. Hyder Bhimji &

Company, Chartered Accountants retire and being

eligible offer themselves for reappointment.

PATTERN OF SHAREHOLDING

Pattern of shareholding as on dune 30, 1998 is

annexed to this report.

MANAGEMENT-EMPLOYEES RELATIONS

The Management-Employees relations remained

cordial throughout the year. The Board wishes to

express its gratitude for the valuable services

rendered by the employees of the Company.

GENERAL

The Company has applied for the remittances of

the recently due installments of foreign currency

loans. However, still these could not be remitted

for the want of permissions from State Bank of

Pakistan who is closely monitoring the exchange

control restrictions and remittances as a result of

the economic sanctions imposed on Pakistan.

The Board wishes to place on record the

appreciation and confidence reposed by the TFC

subscribers which not only resulted the successful

financial close of the TFC despite very weak stock

market conditions, but also enabled the Company

to exercise green shoe option which by the Grace

of Almighty Allah is a compliment/achievement

for your Company.

ACKNOWLEDGEMENTS

Before concluding, the Board wishes to place on

record the appreciation to all banks, financial

institutions and the Government functionaries in

general for continued support to the Company with

zeal and dedication.

On behalf of the Board

PEER MOHAMMAD DIWAN

November 19, 1998

Chief Executive

NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the Eighteenth Annual General Meeting of Gatron (Industries) Limited will

be held on Friday, December 18, 1998 at 10:30 a.m. at Serena Hotel, Quetta to transact the following

business:

ORDINARY BUSINESS

1. To confirm the minutes of the Seventeenth Annual General Meeting held on December 22, 1997.

2. To receive, consider and adopt the audited accounts of the Company for the year ended June 30,

1998 together with the Auditors' report thereon and Directors' report for the year then ended.

3. To approve, as recommended by the Directors for payment of cash dividend at Rs. 2/= per share

(20%) for the year ended June 30, 1998.

4. To appoint Auditors for the next financial year and to fix their remuneration.

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

By Order of the Board

Mohammad Yasin Bilwani

Company Secretary

November 19, 1998

Notes:

1. The Share Transfer Books of the Company will remain closed from December 12, 1998 to December

18, 1998 (both days inclusive). The shareholders are advised to notify to the company of any

change in their addresses.

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

to attend, speak and vote on his/her behalf. Proxies in order to be effective must be received at the

office of the Company not less than 48 hours before the time of holding the meeting. Proxy form is

enclosed.

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed Balance Sheet of GATRON (INDUSTRIES) LIMITED as at June 30,

1998 and the related Profit and Loss Account and Cash Flow Statement, together with the notes

forming part thereof, for the year then ended and we state that we have obtained all the information and

explanations which to the best of our knowledge and belief were necessary for the purposes of our

audit and, after due verification thereof, we report that:

(a) in our opinion, proper books of account have been kept by the Company as required by the

Companies Ordinance, 1984;

(b) in our opinion:

(i) The Balance Sheet and Profit and Loss Account together with the notes thereon have been

drawn up in conformity with the Companies Ordinance, 1984 and are in agreement with the

books of account and are further in accordance with accounting policies consistently applied;

(ii) the expenditure incurred during the year was for the purpose of the Company's business; and

(iii) the business conducted, investments made and the expenditure incurred during the year were

in accordance with the objects of the Company;

Balance Sheet, Profit and Loss Account and Cash Flow Statement, together with the notes forming

part thereof, give the information required by the Companies Ordinance, 1984 in the manner so

required and respectively give a true and fair view of the state of the Company's affairs as at

June 30, 1998 and of the profit and the changes in cash position 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.

HYDER BHIMJI & CO.

November 19, 1998

Chartered Accountants

BALANCE SHEET AS AT JUNE 30, 1998

(Rupees in Thousands)

Note

1998

1997

SHARE CAPITAL AND RESERVES

Authorised capital

44,000,000 Ordinary shares of Rs. 10/- each

440,000

==========

Issued, subscribed and paid up capital

383,645

348,768

Capital reserve

457,536

348,768

General reserve

650,000

500,000

Unappropriated profit

22,717

2,025

----------

1,513,898

1,199,561

REDEEMABLE CAPITAL

288,668

40,204

LONG TERM LOANS

151,679

282,972

LIABILITIES AGAINST ASSETS

SUBJECT TO FINANCE LEASE

288,821

26,756

DEFERRED LIABILITIES

290,143

234,743

CURRENT LIABILITIES AND PROVISIONS

Current maturity of redeemable capital

9,759

16,081

Current maturity of long term loans

131,293

164,337

Current maturity of liabilities against

assets subject to finance lease

61,136

77,342