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Kashmir Edible Oils Limited

Annual Report 1998

CONTENTS

COMPANY INFORMATION

BOARD OF DIRECTORS

Mian Haroun Rashid

Chief Executive

Mian Samiuddin

Mian Muzaffar Rashid

Asif Hyat

M. Azam Saigol

Saadia S. Rashid

Safina Samiuddin

COMPANY SECRETARY

Mr. Anjum Pervez

AUDITORS

Hameed Chaudhri & Company

Chartered Accountants

BANKERS

The Bank of Punjab

Agricultural Development Bank of Pakistan

Union Bank Limited

Muslim Commercial Bank Limited

Habib Bank Limited

LEGAL ADVISORS

Cornelius, Lane & Mufti

Advocates & Solicitors

REGISTERED OFFICE

165- Shadman-II,

Lahore.

NOTICE OF MEETING

Notice is hereby given that the 9th Annual General Meeting of the Company will be held on Saturday 27th

February, 1999 at the Registered Office, 165 Shadman-II, Lahore, at 12.00 Noon to transact the

following business:

1. To confirm the minutes of the last meeting.

2. To receive and adopt the audited accounts of the company for the year ended August 31, 1998

along with the Auditors' and Directors' Reports thereon.

3. To appoint Auditors for the year 1997-98 and fix their remuneration. Messrs Hameed Chaudhri &

Co., Chartered Accountants, being eligible offer themselves for re-appointment.

4. To transact any other ordinary business with the permission of the Chairman.

BY ORDER OF THE BOARD

ANJUM PERVEZ

Lahore: 04.02,1999

Corporate Secretary

NOTE:

1. The Share Transfer Books of the Company will remain closed from February 17, 1999 to

February 27, 1999 (both days inclusive).

2. A member entitled to attend and vote at the General Meeting is entitled to appoint another

member not less than 48 hours before time for the meeting.

3. Shareholders are requested to promptly notify the Company of any change in their addresses.

DIRECTORS' REPORT

The Directors take great pleasure in welcoming you to our Ninth Annual General Meeting to review and

approve the Company's accounts for the year ended 31st August, 1998.

This year we are particularly delighted by the fact that the Company earned an overall net profit for the

first time since commercial operations commenced in January, 1994. Sales increased by 18%-whereas

Gross Profit increased by some 62% showing a marked improvement in crushing margins. The

turnaround in net profit is Rs. 49 million, recovering from a loss of Rs. 22.8 million in 1997 to a profit of

Rs. 26.3 million this year. The Balance Sheet of the Company shows a very healthy current ratio and the

accumulated loss has been brought down to Rs. 66 million, thus restoring our capital to a positive net

worth position. As forecast in our 1997 review, this year has proved to be a major turning point for the

company and established the base for continuing and improving profitability.

The year also witnessed the entry. of Pakistan into the Nuclear Club and unfortunately, the economic

sanctions and resultant financial crisis that followed. The major impact on us was firstly the freezing of our

U.S. Dollar deposits by the State Bank of Pakistan and the consequent exchange loss of Rs. 733,557,

necessitated by the terms of the freezing. The second significant impact has been the vastly increased

costs of confirmation of letters of credit established by Pakistani banks. This has affected raw material

costs in the latter half of the year and is, to a large extent, continuing into the next financial year.

Nevertheless, the company's management continued to strive hard to overcome these problems and

have managed to surmount them without any significant loss of production.

The Directors have reviewed the company's computer systems and are satisfied that they are adequate

in terms of any possible impact of the "Millenium Bug". We do not expect any problems on this score.

Our company is one of the very few solvent extraction plant's operating profitability and is widely

considered as an industry leader. We are grateful for the confidence placed in us by both our bankers and

customers alike and we greatly value the high reputation for quality and integrity that the company enjoys.

Once again the Board of Directors would like to record their appreciation of the dedicated efforts of all its

employees in making these results possible. Shareholders too can draw satisfaction from the significantly

improved position of the company.

On behalf of the

Board of Directors

Lahore:

Mian Haroun Rashid

25 January, 1999

Chief Executive

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed Balance Sheet of KASHMIR EDIBLE OILS LIMITED as at 31 August, 1998

end the related Profit and Loss Account and Cash Flow Statement, together with the notes forming part

thereof, for the year ended and we state that, except for the contents of note 4.7, 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;

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 31 August, 1998 and of the profit and cash flows for the year then ended; and

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

LAHORE:

HAMEED CHAUDHRI & CO.

25 January, 1999.

CHARTERED ACCOUNTANTS

BALANCE SHEET AS AT 31, AUGUST, 1998

Note

1998

1997

Rupees

SHARE CAPITAL

Authorised

8,000,000 ordinary shares of Rs. 10 each

80,000,000

==========

Issued, subscribed and paid-up

8,000,000 ordinary shares of Rs. 10 each

issued for cash

80,000,000

ACCUMULATED LOSS

(66,119,962)

(92,423,653)

----------

13,880,038

(12,423,653)

SURPLUS ON REVALUATION OF

FIXED ASSETS

52,233,851

LONG TERM LOAN

203,911,585

209,911,585

DEFERRED LIABILITY FOR GRATUITY

879,620

836,675

CURRENT LIABILITIES

Short term finances

28,244,183

14,874,008

Short term loan from director

10,000,000

16,000,000

Creditors, accruals and other payables

96,703,593

110,766,768

----------

234,947,776

141,640,776

CONTINGENCIES AND COMMITMENTS

----------

505,852,870

392,199,234

==========

FIXED CAPITAL EXPENDITURE

Operating fixed assets

229,155,401

232,712,719

Capital work-in-progress

910,207

1,710,526

----------

230,065,608

234,423,245

LONG TERM DEPOSITS AND

DEFERRED COSTS

84,685

673,263

CURRENT ASSETS

Stores, spares and tools

5,039,563

3,158,360

Stock-in-trade

114,642,601

17,976,698

Trade debtors

2,058,694

2,204,273

Advances, deposits, prepayments

and other receivables

23,700,936

25,604,030

Cash and bank balances

130,260,783

8,159,365

----------

275,702,577

157,102,726

----------

505,852,870

392,199,234

==========

The annexed notes form an inte9ral part of these accounts.

PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 31 AUGUST, 1998

Note

1998

1997

Rupees

SALES - Net

470,480,973

397,992,358

COST OF SALES

430,106,262

373,076,334

----------

GROSS PROFIT

40,374,711

24,916,024

ADMINISTRATIVE EXPENSES

8,225,575

6,750,150

----------

32,149,136

18,165,874

OTHER INCOME

95,745

627,394

----------

32,244,881

18,793,268

OTHER CHARGES

Financial - Net

4,177,517

23,907,241

Miscellaneous

1,763,673

833,244

----------

5,941,190

24,740,485

PROFIT/(LOSS) BEFORE

EXTRAORDINARY ITEM

26,303,691

(5,947,217)

EXTRAORDINARY ITEM

9.2

(19,436,958)

----------

PROFIT/(LOSS) BEFORE TAXATION

26,303,691

(25,384,175)

PROVISION FOR TAXATION-Written-back

23.3

2,564,981

----------

PROFIT/(LOSS) AFTER TAXATION

26,303,691

(22,819,194)

ACCUMULATED LOSS- Brought forward

(92,423,653)

(69,604,459

ACCUMULATED LOSS

----------

- Carried to Balance Sheet

(66,119,962)

(92,423,653)

==========

The annexed notes form an integral part of these accounts.

CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 AUGUST, 1998

1998

1997

Rupees

CASH INFLOW FROM OPERATING ACTIVITIES (Note 'A')

29,553,816

99,547,013

CASH FLOW FROM INVESTING ACTIVITIES

Fixed capital expenditure

(3,139,524)

(2,927,693)

Sale proceed of fixed assets

32,100

160,000

----------

NET CASH (OUTFLOW) FROM INVESTING ACTIVITIES

(3,107,424)

(2,767,693)

CASH FLOW FROM FINANCING ACTIVITIES

Long term loan repaid

(6,000,000)

Shod term finances - net

13,370,175

(2,566,195)

Shod term loan from Director(repaid)/obtained

(6,000,000)

16,000,000

Financial charges paid

(5,715,149)

(5,939,794)

----------

NET CASH (OUTFLOW)/INFLOW FROM FINANCING ACTIVITIES

(4,344,974)

7,494,011

----------

NET INCREASE IN CASH AND CASH EQUIVALENTS

22,101,418

104,273,331

CASH AND CASH EQUIVALENTS

-At the beginning of the year

108,159,365

3,886,034

CASH AND CASH EQUIVALENTS

----------

-At the end of the year

130,260,783

108,159,365

==========

The annexed note 'A' forms an integral part of this Statement.

NOTE 'A'

CASH FLOW FROM OPERATING ACTIVITIES

Profit/(Loss) for the year

- Before extraordinary item

26,303,691

(5,947,217)

Adjustments for:

Depreciation

7,478,548

7,817,647

Deferred costs amortised

588,578

588,577

Provision for gratuity - net

42,945

261,486

(Gain) on sale of fixed assets

(13,487)

(20,000)

----------

Financial charges

3,771,327

23,474,357

CASH INFLOW FROM OPERATING ACTIVITIES

- Before working capital changes

38,171,602

26,174,850

(Increase)/Decrease in current assets

Stores, spares and tools

(1,881,203)1

731,664

Stock-in-trade

(96,665,903)

(4,777,948)

Trade Debtors

145,579

(1,897,765)

Advances, deposits, prepayments and

other receivables (excluding taxes paid)

2,306,093

(19,564,354)

Increase in creditors, accruals and other payables

87,880,647

###########

----------

(8,214,787)

76,760,719

CASH INFLOW FROM OPERATING ACTIVITIES

- Before taxation

29,956,815

102,935,569

Taxes paid

(402,999)

(3,388,556)

NET CASH INFLOW FROM OPERATING ACTIVITIES

----------

- After taxation

29,553,816

99,547,013

==========

NOTES TO THE ACCOUNTS

FOR THE YEAR ENDED 31 AUGUST, 1998

1. THE COMPANY AND ITS OPERATIONS

The Company was incorporated on 10 April, 1990 as a Public Company and its shares are

quoted on Karachi and Lahore Stock Exchanges. The Company is principally engaged in sale of

edible oil after extraction through the solvent extraction process.

2. SIGNIFICANT ACCOUNTING POLICIES

2.1 Accounting convention

These accounts have been prepared under the historical cost convention except that

certain fixed assets have been included at revaluation.

2.2 Staff retirement benefits

The Company operates an un-funded Gratuity Scheme for its employees. Provision is

made annually to cover obligations under the Scheme.

2.3 Fixed assets and depreciation

Freehold land is stated at revalued amount Buildings on freehold land, plant &

machinery, generators and electric installations are stated at revalued amounts less

accumulated depreciation. Other operating fixed assets are stated at cost less

accumulated depreciation. Capital work-in-progress is stated at cost.

Depreciation on operating fixed assets is charged to income applying reducing balance

method to write-off the cost and revaluation adjustments over estimated remaining useful

life of assets. Rates of depreciation are stated in note 9. No depreciation is provided on

assets in the year of disposal whereas full year's depreciation is provided on assets in

the year of purchase.

Gains/losses on disposal of fixed assets are taken to Profit and Loss Account. Normal

maintenance and repairs are also taken to Profit and Loss Account as and when

incurred. Major renewals and replacements are capitalised and assets replaced, if any,

other than those kept as stand-by, are retired.

2.4 Deferred costs

Expenses, the benefit of which is expected to spread over several years, are deferred

and amortised over a period of not more than five years.

2.5 Stores and spares

These are valued at moving average cost except Gunny Bags which are written-off over

a period of four years on straight line method.

2.6 Stock-in-trade

Basis of valuation are as follows:

Particulars

Mode of valuation

Raw materials

- At annual average cost

Work-in-process

- At estimated cost

Finished goods

- At lower of cost and net realisable value

Waste/By-products

- At net realisable value

- Cost in relation to finished goods represents annual average cost which includes

prime cost and appropriate manufacturing overheads.

- Net realisable value signifies the selling price in the ordinary course of business

less cost of completion and cost necessary to be incurred to effect such sale.

2.7 Revenue recognition

Sales are recorded on despatch of goods to customers.

3. SURPLUS ON REVALUATION OF FIXED ASSETS

The Company revalued freehold land, buildings on freehold land, plant & machinery, generators

and electric installations as at 31 August, 1996.The revaluation exercise was carried-out by

Independent Valuers - M/s. Hameed Mukhtar & Co., Valuation Consultants and Surveyors,

Lahore to replace the carrying values of assets with the market values/depreciated market

values. The said revaluation exercise resulted in a surplus of Rs. 52,233,851 which was credited

to this account.

1998

1997

Rupees

4. LOAN TERM LOAN - Secured

Re-constituted loan

203,911,585

Principal portion

125,603,302

Add: Interest accrued

84,308,283

----------

203,911,585

209,911,585

==========

4.1 This loan has been obtained from Agricultural Development Bank of Pakistan (ADBP)

against credit line of Rs. 117.230 million including Rs. 79.880 million for imported

machinery (equivalent to U.S.$3.634 million). However, due to fluctuations in foreign

currency rates, relative to different dates of disbursements, the liability against the

imported machinery loan has risen by Rs. 8.630 million. The loan carries interest @ 14%

per annum.

4.2 As per the original agreement terms, the loan was repayable in monthly installments. First

installment was due after a graced period of three years or after six months of

commencement of commercial operations whichever was earlier.

However, ADBP vide its letter No. PCD-2(941)/96/1178 dated 15 July, 1996 approved

deferment of loan installments upto 31 December, 1997 without extending the total

recovery period subject to the following conditions:

- The Company was required to pay 10% of the each deferred monthly installments

upto May, 1997. The Company paid these installments as required by ADBP upto

February, 1997.

- From June, 1997, the Company was required to pay 25% of the deferred monthly

installments upto December, 1997. Thereafter, the regular Repayment Scheme

was to commence. The Company, however, did not pay any of these

installments.

4.3 ADBP vide his letter No. LHR/MB/PLD-MISC/98/2308 dated 08 May, 1998 conveyed the

following decision, as approved by ADBP's Board of Directors, regarding restructuring of

Company's existing loans:

(a) All outstanding principal and interest on local and foreign currency loans

outstanding as on 30 June, 1997 may be merged together and converted into

fresh new loan carrying interest at the same rates as at present.

(b) A moratorium of 2 years on repayment of the aforementioned re-constituted loan

and freezing of interest accrual thereon during the said period of moratorium

shall be allowed by ADBP.

thereon from the expiry date of the said moratorium period shall be completed

within 6 years in 12 half-yearly installments. The first such installment shall

become due on 31 December, 1999.

(d) The Company is required to make a lump sum down payment to ADBP in the

sum of Rs. 6.0 million immediately upon sanction of the above terms by ADBP.

This lump sum payment will be adjusted against the outstanding re-constituted

loan. The Company has made this lump sum down payment to ADBP during the

year.

(e) The facility of restructuring arrangement will be withdrawn by ADBP if the

Company defaults in two consecutive installments and the position of re-

constituted loan account will revert to its original position.

4.4 The Company during the year, on the basis of ADBP's letter stated in note 4.3, created a

re-constituted loan by merging the outstanding principal balance of loan and accrued

interest thereon. Further, the lump sum down payment of Rs.6.0 million made to ADBP

during the year has been adjusted against the outstanding balance of re-constituted loan.

4.5 The loan is secured by deposit of title deeds of freehold land, charge on present and

future assets of the Company, joint registration of vehicles and additional security of Rs.

11.723 million arranged by the Directors from their own sources.

4.6 As per ADBP's year-end balance confirmation certificate No. LHR/MB/PLD-

MISC/98/6999 dated 31 October, 1998, received by the Company, the total quantum of

Company's liabilities on account of loan from ADBP and accrued interest thereon

aggregated Rs. 265,863,982. As per the Company's books of account, these liabilities

aggregated Rs. 203,911,585 as a 31 August, 1998. The Company's management is