| Legler-Nafees Danim Mills Limited |
|
|
|
|
|
|
|
|
| Annual
Report 1998 |
|
|
|
| CONTENTS |
|
|
| Company
Profile |
|
| Notice
of Annual General Meeting |
|
| Directors'
Report |
|
| Auditors'
Report to the Members |
|
| Balance
Sheet |
|
| Profit
and Loss Account |
|
| Cash
Flow Statement |
|
| Notes
to the Accounts |
|
| Pattern
of Shareholding |
|
|
|
| COMPANY
PROFILE |
|
|
| BOARD
OF DIRECTORS |
Mr. Humayun Naseer Shaikh
(Chairman/Chief Executive) |
|
|
|
Pir Munawar Shah |
|
|
|
Ms. Bushra Naz Malik |
|
|
|
Khawaja Amir Rafiq |
|
|
|
Mr. Khalid AH. Al-Sagar |
|
|
|
Mr. Agostino Parati |
|
|
|
(Nominee Legler S.p.A) |
|
|
|
|
Mr. Giuliano Buzzetti |
|
|
(Nominee Legler S.P.A) |
|
|
| BANKERS |
|
Muslim Commercial Bank
Limited |
|
|
|
Standard Chartered Bank |
|
|
|
Credit Agricole Indosuez
The Global French Bank |
|
|
|
Union Bank Limited |
|
|
|
The Hongkong and Shanghai
Banking Corporation |
|
|
|
Citibank N. A. |
|
|
|
Askari Commercial Bank
Limited |
|
|
|
Habib Bank Limited |
|
|
|
Islamic Investment Bank
Limited |
|
|
|
Pakistan Industrial
Credit & Investment Corporation Limited |
|
|
|
National Bank of Pakistan |
|
|
| LEGAL
ADVISORS |
Hamid Law Associates |
|
|
|
Advocates |
|
|
|
|
|
|
|
| AUDITORS |
|
A.F. Ferguson and Company |
|
|
|
Chartered Accountants |
|
|
|
|
|
|
| REGISTERED
OFFICE |
Ismail Aiwan-i-Science, |
|
|
|
Shahrah-i-Roomi, |
|
|
|
Lahore - 54600 |
|
|
|
Pakistan |
|
|
|
Fax: 92 42 576 1791 |
|
|
|
Ph: 92 42 576 1792 - 5 |
|
|
|
|
| WORKS |
|
2.5 km off Manga -
Raiwind Road, |
|
|
|
Lahore - Pakistan |
|
|
|
Fax: 92 4951 383 591 |
|
|
|
|
|
|
|
| NOTICE
OF ANNUAL GENERAL MEETING |
|
|
| Notice
is hereby given that 6th Annual General Meeting of the Members of the Company
will be held on |
|
| Wednesday,
March 31, 1999 at 10:00 a.m. at the Registered Office at Ismail
Aiwan-i-Science, Shahrah-i-Roomi, |
|
| Lahore-54600
to transact the following business: |
|
|
| 1.
To confirm minutes of the 5th Annual General Meeting. |
|
|
|
|
| 2.
To receive, consider and adopt the directors report and the audited accounts
for the year ended |
|
| September
30, 1998, together with the auditors report thereon - annexed. |
|
|
|
|
| 3.
To appoint Auditors for 1998-99 and to fix their remuneration. The retiring
Auditors M/s. A.F. Ferguson |
|
| &
Company, Chartered Accountants, Lahore, being eligible have offered
themselves for re-appointment. |
|
|
|
|
| 4.
Any other business with the permission of the chairman. |
|
|
| A
member entitled to attend and vote at this meeting may appoint another member
as his proxy to attend |
|
| and
vote. The form of proxy is annexed, which, duly completed, should reach the
Registered Office of the |
|
| Company
at least 48 hours before the time of the meeting. |
|
|
| Shareholders
are requested to promptly notify the Company of any change in their address
to ensure delivery |
|
| of mail. |
|
|
|
|
By order of the Board of Directors |
|
|
|
|
|
|
| Lahore; |
|
|
BUSHRA NAZ MALIK |
|
| March
8, 1999 |
|
Director/Secretary |
|
|
|
|
|
|
|
|
|
|
|
| DIRECTORS'
REPORT |
|
|
| The
directors of your company take pleasure in submitting their report with
audited financial statements |
|
| together
with auditors thereon, for the year ended September 30, 1998. |
|
|
| THE PAST |
|
| The
Country's macro-economics scenario was the worst in 1997-98. The developments
in May 1998 spiraled |
|
| the
negative view of the Pakistans' economy. The nuclear blast shook the
confidence of the international |
|
| business
community and the company witnessed turmoil in the export markets. The
foreign currency account |
|
| debacle
added to the down turn in the overall economy. Because of this the export
market declined |
|
| tremendously. |
|
|
| The
local markets were also very tough because of global denim over supply.
Furthermore cotton and yarn |
|
| rates
also played havoc which resulted in heavy losses. |
|
|
| As
informed in the last report during the year full technical and financial
support was provided by the joint |
|
| venture
partner Legler S.p.A which will start yielding results from the current year. |
|
|
| THE FUTURE |
|
| Subsequently
the management has tried hard to turnaround the company with the support of
Legler S.p.A by |
|
| doing
the following: |
|
|
| Restructuring
of long term debts |
|
| Injection
of equity |
|
| Production
of more value added goods |
|
|
| Legler
S.p.A has already given technical guidance for making these value added goods
and marketing the |
|
| same.
The market continues to be tough but we aspect better changes in the results
due to these measures. |
|
|
| The
year 2000 implication for computer software, hardware and the manufacturing
machinery was already |
|
| identified
and complied with at the time of setting up of the plant. |
|
|
| APPOINTMENT
OF AUDITORS |
|
| The
present auditors M/s A.F. Ferguson and Company, Chartered Accountants retire
and being eligible offer |
|
| themselves
for re-appointment. |
|
|
| PATTERN
OF SHAREHOLDING |
|
| The
pattern of shareholding as required by section 236 of the Companies
Ordinance, 1984 is given on page 23. |
|
|
| ACKNOWLEDGEMENT |
|
| The
directors place on record their deep appreciation of dedication of our staff
members. We are also thankful |
|
| for
the support provided by our joint venture partners Legler of Italy in helping
us achieve world class standards |
|
| and
marketing of our products. |
|
|
|
|
For and on behalf of the Board |
|
|
|
|
|
|
| Lahore:
March 09,1999 |
|
Humayun N. Shaikh |
|
|
|
|
Chairman |
|
|
|
|
|
|
|
| AUDITORS'
REPORT TO THE MEMBERS |
|
|
| We
have audited the annexed balance sheet of Legler-Nafees Denim Mills Limited
as at September 30, 1998 |
|
| and
the related profit and loss account and cash flow statement for the year then
ended, together with the |
|
| notes
forming part thereof, 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
except for |
|
| changes
in accounting policy referred to in note 2.8 and 2.9 to the accounts, with
which we |
|
| concur; |
|
|
|
|
| (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; |
|
|
|
| (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 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 September 30, 1998 |
|
| and
of the loss for the year and of cash flow for the year then ended; and |
|
|
| (d)
in our opinion no zakat was deductible at source under the Zakat and Ushr
Ordinance, 1980. |
|
|
|
|
A. F. FERGUSON & CO. |
|
| Lahore:
March 9, 1999 |
|
Chartered Accountants |
|
|
|
|
| BALANCE
SHEET AS AT SEPTEMBER 30, 1998 |
|
|
|
|
|
|
|
1998 |
1997 |
|
|
|
Note |
Rupees |
Rupees |
|
|
|
|
|
| SHARE
CAPITAL AND RESERVES |
|
|
| Authorised
capital |
|
|
|
| 28,000,000
(1997: 24,000,000) |
|
|
| Ordinary
shares of Rs.10 each |
|
|
280,000,000 |
240,000,000 |
|
|
|
|
========== |
========== |
|
| Issued,
subscribed and paid-up capital |
|
|
|
| 24,000,000
ordinary shares of Rs 10 each |
3 |
240,000,000 |
240,000,000 |
|
| Share
deposit money |
|
4 |
30,266,785 |
- |
|
| Capital
reserve - share premium |
|
|
130,904,620 |
130,904,620 |
|
| Accumulated
loss |
|
|
(215,471,119) |
(52,965,720) |
|
|
|
|
---------- |
---------- |
|
|
|
|
185,700,286 |
317,938,900 |
|
|
|
|
| NON-PARTICIPATORY
REDEEMABLE CAPITAL-SECURED |
5 |
8,395,311 |
9,017,189 |
|
|
|
|
|
| LONG
TERM LIABILITIES |
|
|
|
| Long
term loans - secured |
|
6 |
368,115,568 |
337,683,101 |
|
| Liabilities
against assets subject to finance lease |
7 |
26,053,689 |
26,082,275 |
|
|
|
|
|
|
| Other
long term payables - unsecured |
|
8 |
37,545,913 |
21,496,802 |
|
|
|
|
---------- |
---------- |
|
|
|
|
431,715,170 |
385,262,178 |
|
|
|
|
|
| DEFERRED
LIABILITIES |
|
|
|
| Gratuity |
|
|
5,964,007 |
2,009,291 |
|
|
|
|
|
| CURRENT
LIABILITIES |
|
|
|
| Current
portion of: |
|
|
|
| Non
- participatory redeemable capital - secured |
5 |
1,243,750 |
932,811 |
|
| Long
term loans - secured |
|
6 |
81,549,000 |
2,588,000 |
|
| Liabilities
against assets subject to finance lease |
7 |
3,647,076 |
10,756,421 |
|
| Finances
under mark up arrangements and |
|
| other
credit facilities - secured |
|
9 |
216,864,383 |
197,341,888 |
|
| Creditors,
accrued and other liabilities |
10 |
105,915,885 |
98,122,081 |
|
|
|
|
---------- |
---------- |
|
|
|
|
409,220,094 |
309,741,201 |
|
| CONTINGENCIES
AND COMMITMENTS |
|
11 |
|
|
|
|
---------- |
---------- |
|
|
|
|
1,040,994,868 |
1,023,968,759 |
|
|
|
|
========== |
========== |
|
|
|
|
HUMAYUN N. SHAIKH |
|
|
|
Chief Executive |
|
|
|
|
|
|
1998 |
1997 |
|
|
Note |
Rupees |
Rupees |
|
|
|
|
| FIXED
CAPITAL EXPENDITURE |
|
|
|
| Operating
fixed assets - tangible |
|
12 |
669,443,037 |
736,488,529 |
|
| Assets
subject to finance lease |
|
13 |
38,733,320 |
43,196,919 |
|
|
|
|
---------- |
---------- |
|
|
|
|
708,176,357 |
779,685,448 |
|
|
|
|
| LONG
TERM DEPOSITS AND DEFERRED COSTS |
|
15 |
18,721,648 |
21,730,314 |
|
|
|
|
|
| CURRENT
ASSETS |
|
|
|
| Stores
and spares |
|
16 |
18,519,006 |
2,755,882 |
|
| Stock
in trade |
|
17 |
128,634,070 |
139,761,093 |
|
| Trade debts |
|
18 |
82,527,514 |
50,079,475 |
|
| Advances,
deposits, prepayments and |
|
19 |
37,896,521 |
26,470,618 |
|
| other receivables |
|
|
|
|
| Cash
and bank balances |
|
20 |
46,519,752 |
3,485,929 |
|
|
|
|
---------- |
---------- |
|
|
|
|
314,096,863 |
222,552,997 |
|
|
|
|
---------- |
---------- |
|
|
|
|
1,040,994,868 |
1,023,968,759 |
|
|
|
|
|
========== |
========== |
|
|
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
|
|
BUSHRA NAZ MALIK |
|
|
|
|
Director |
|
|
|
|
|
Year ended |
April 1, to |
|
|
|
September |
September |
|
|
|
30, 1998 |
30, 1997 |
|
|
Note |
Rupees |
Rupees |
|
|
|
|
| Sales |
|
21 |
618,287,784 |
361,351,780 |
|
| Cost
of goods sold |
|
22 |
642,794,078 |
347,860,112 |
|
|
|
|
---------- |
---------- |
|
| Gross
(Loss)/Profit |
|
|
(24,506,294) |
13,491,668 |
|
| Administrative
and selling expenses |
|
23 |
51,051,416 |
21,529,326 |
|
|
|
|
---------- |
---------- |
|
| Operating
loss |
|
|
(75,557,710) |
(8,037,658) |
|
| Other income |
|
24 |
11,992,485 |
840,647 |
|
|
|
|
---------- |
---------- |
|
|
|
|
(63,565,225) |
(7,197,011) |
|
| Financial
charges |
|
25 |
97,894,645 |
45,768,709 |
|
|
|
|
---------- |
---------- |
|
| Loss
for the year before tax |
|
|
(161,459,870) |
(52,965,720) |
|
| Provision
for taxation |
|
27 |
1,045,529 |
- |
|
|
|
|
---------- |
---------- |
|
| Loss
for the year after tax |
|
|
(162,505,399) |
(52,965,720) |
|
| Accumulated
loss brought forward |
|
|
(52,965,720) |
- |
|
|
|
|
---------- |
---------- |
|
| Accumulated
loss carried forward |
|
(215,471,119) |
(52,965,720) |
|
|
|
========== |
========== |
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
HUMAYUN N. SHAIKH |
|
BUSHRA NAZ MALIK |
|
|
Chief Executive |
|
Director |
|
|
|
|
|
|
|
| CASH
FLOW STATEMENT |
|
|
| FOR
THE YEAR ENDED SEPTEMBER 30, 1998 |
|
|
|
1998 |
1997 |
|
|
Note |
Rupees |
Rupees |
|
|
|
|
| Cash
flow from operating activities |
|
|
| Cash
flow from operating activities |
|
30 |
5,181,417 |
99,893,956 |
|
| Interest
and mark-up paid |
|
|
(47,045,631) |
(78,273,483) |
|
| Taxes paid |
|
|
(1,532,026) |
(1,926,251) |
|
| Interest
received |
|
|
448,002 |
143,215 |
|
| Long
term security deposits and deferred |
|
| costs
- export quota purchased |
|
(2,890,602) |
(8,338,296) |
|
| Other
long term security deposits and deferred costs |
20,000 |
(372,857) |
|
| Gratuity
paid |
|
(639,731) |
- |
|
| Other
long term payables |
|
16,049,111 |
21,496,802 |
|
|
|
---------- |
---------- |
|
| Net
cash (outflow)/inflow from operating activities |
(30,409,460) |
32,623,086 |
|
|
|
|
|
| Cash
flow from investing activities |
|
|
| Fixed
capital expenditure |
|
|
(3,903,690) |
(21,905,103) |
|
| Sale
proceeds of fixed assets |
|
|
125,000 |
6,500 |
|
| Sale
proceeds of assets subject to finance lease |
|
292,980 |
369,580 |
|
| Sale
proceeds of export quota |
|
|
156,800 |
6,190,661 |
|
|
|
|
---------- |
---------- |
|
| Net
cash outflow from investing activities |
|
(3,328,910) |
(15,338,362) |
|
|
|
|
|
| Cash
flow from financing activities |
|
|
| Share
deposit money |
|
|
30,266,785 |
- |
|
| Repayment
of redeemable capital |
|
|
(310,939) |
- |
|
| Net
proceeds from long term loans |
|
|
34,431,783 |
(49,449,813) |
|
| Payment
of finance lease liabilities |
|
|
(7,137,931) |
3,135,880 |
|
|
|
|
---------- |
---------- |
|
| Net
cash inflow/(outflow) from financing activities |
57,249,698 |
(46,313,933) |
|
|
|
|
---------- |
---------- |
|
| Net
increase/(decrease) in cash and cash equivalents |
23,511,328 |
(29,029,209) |
|
| Cash
and cash equivalents at beginning of the year |
|
(193,855,959) |
(164,826,750) |
|
|
|
|
---------- |
---------- |
|
| Cash
and cash equivalents at end of the year |
31 |
(170,344,631) |
(193,855,959) |
|
|
|
|
|
|
========== |
========== |
|
|
|
HUMAYUN N. SHAIKH |
|
BUSHRA NAZ MALIK |
|
|
|
Chief Executive |
|
Director |
|
|
|
|
|
|
|
| NOTES
TO THE ACCOUNTS |
|
|
| FOR
THE YEAR ENDED SEPTEMBER 30, 1998 |
|
|
|
| 1.
The company and its operations |
|
| The
company incorporated in Pakistan is listed on the Karachi Stock Exchange. The
company is a composite |
|
| spinning,
weaving, dyeing and stitching Unit engaged in manufacturing denim and denim
product. |
|
|
| The
company has incurred losses since commencement of its commercial production
and has also incurred |
|
| a
loss of Rs. 163 million during the year ended September 30, 1998. In order to
improve the financial |
|
| position
of the company the management has drawn up a plan which involves injection of
equity, |
|
| restructuring
of long term debts and moving to more value added products. |
|
|
| Subsequent
to year end, as more fully explained in note 6 to these accounts, long term
loans have been |
|
| rescheduled
as part of the above mentioned plan. |
|
|
| Additionally,
further equity has also been injected as referred to in note 4 to these
accounts. |
|
|
| 2.
Significant accounting policies |
|
|
| 2.1
Accounting convention |
|
|
|
| These
accounts have been prepared under the historical cost convention modified by
the |
|
| capitalization
of exchange differences referred to in note 2.4. |
|
|
| 2.2
Employee retirement benefits |
|
| The
company operates an unfunded gratuity scheme for all its employees. Under the
scheme, gratuity |
|
| is
payable on the basis of last drawn salary for each completed year of service.
Contributions required |
|
| under
the scheme to meet the liability are charged to income. |
|
|
| 2.3 Taxation |
|
| Profit
and gains of the company are exempt from tax for five years commencing April
1, 1996 under |
|
| clause
118(D) of the Second Schedule of the income Tax Ordinance, 1979. |
|
|
| The
charge for taxation is based on taxable income at the current rates of tax
after taking into account |
|
| available
tax credits and rebates, if any. |
|
|
|
|
|
|
| The
company accounts for deferred taxation using the liability method on all
major timing differences |
|
| which
are expected to reverse in the foreseeable future. However, provision for
deferred taxation is |
|
| not
considered necessary for the year. |
|
|
|
|
| 2.4
Foreign currency transactions |
|
|
|
| Transactions
in foreign currencies are translated into Rupees at the approximate rates
prevailing on |
|
| the
transaction dates or the contracted rates where applicable. |
|
|
|
|
|
| All
assets and liabilities in foreign currencies are translated into Rupees at
rates of exchange prevailing |
|
| on
the balance sheet date except in the case of forward exchange contracts where
balances are |
|
| converted
at the contracted rates. |
|
|
|
|
| Exchange
differences arising from translation and repayment of foreign currency are
capitalized as |
|
| part
of cost of the fixed assets acquired out of the proceeds of such loans. Other
exchange differences |
|
| are
included in income for the year. |
|
|
| 2.5
Fixed capital expenditure and depreciation |
|
| Fixed
assets, except freehold land and capital work in progress, are stated at cost
less accumulated |
|
| depreciation.
Freehold land and capital work in progress are stated at cost. Cost in
relation to certain |
|
| plant
and machinery signifies historical cost and exchange differences referred to
in note 2.4 and |
|
| financial
charges referred to in note 2.10. |
|
|
| Depreciation
on operating fixed assets is charged to income on the reducing balance method
so as |
|
| to
write off the historical cost of an asset over its estimated useful life at
the rates given in note 12. |
|
| The
full annual rate of depreciation is applied on cost of additions, except
major additions or |
|
| extension
to production facilities, while no depreciation is charged on assets deleted
during the |
|
| year.
Major additions or extensions to production facilities are depreciated on a
pro-rata basis for |
|
| the
period of use during the year. The net exchange difference is amortised in
equal installments |
|
| over
the useful life of the related asset. Major renewals and improvements are
capitalized. Gains or |
|
| losses
on disposal of assets are recognised as income or expense respectively. |
|
|
| 2.6
Assets subject to finance lease |
|
|
|
| Assets
subject to finance lease are stated at the lower of the present value of
minimum lease payments |
|
| under
the lease agreement and the fair value of the assets. The related obligations
of the lease are |
|
| accounted
for as liabilities. Assets acquired under the finance leases are depreciated
over the useful |
|
| life
of the assets on the reducing balance method at the rates given in note 13. |
|
|
| 2.7
Deferred costs |
|
|
|
| Costs,
the benefit of which is expected to be spread over several years, are
amortized over a period |
|
| not
exceeding five years commencing from the date of commercial operations. |
|
|
| 2.8
Stores and spares |
|
| These
are valued at the lower of cost determined using First in First out (FIFO)
method and net |
|
| realizable
value except items in transit which are valued at cost comprising invoice
value plus |
|
| other
charges paid thereon. During the year the company changed its policy of
determining cost |
|
| from
moving average method to First in First out method. This change in policy has
been accounted |
|
| for
prospectively, since the effect on prior periods cannot be reasonably
determined. Had there |
|
| been
no change, the current year's loss would have been lower by Rs.649,944. |
|
|
| 2.9
Stock in trade |
|
| Stock
of raw material except for those in transit, work-in-process and finished
goods are valued at |
|
| the
lower of cost and net realizable value. Cost in relation to raw materials is
determined using the |
|
| First
in First out (FIFO) method. Cost in relation to work-in-process and finished
goods includes an |
|
| appropriate
portion of production overheads. Materials in transit are valued at cost
comprising |
|
| invoice
values plus other charges paid thereon. During the year the company changed
its policy of |
|
| determining
cost of chemicals, dyes and garment accessories from moving average method to
First |
|
| in
First out method. This change in policy has been accounted for prospectively,
since the effect on |
|
| prior
periods cannot be reasonably determined. Had there been no change, the
current year's loss |
|
| would
have been lower by Rs.295,617. |
|
|
|
|
|
|
| Net
realizable value signifies the estimated selling price in the ordinary course
of business less cost |
|
| of
completion and less cost necessary to be incurred in order to make the sale. |
|
|
|
|
| 2.10
Financial charges |
|
|
|
| Mark
up, interest and other charges on long term liabilities are capitalized upto
the date of |
|
| commissioning
of the respective fixed assets acquired out of the proceeds of such long term
liabilities. |
|
| All
other mark up, interest and other charges are charged to income. |
|
|
|
|
| 2.11
Revenue recognition |
|
|
|
| Revenue
from sales is recognized on shipment or acceptance of the products depending
on the |
|
| terms
of supply. |
|
|
|
|
|
|
|
|
|
|
1998 |
1997 |
|
|
|
|
|
Rupees |
Rupees |
|
|
|
|
|
| 3.
Issued, subscribed and paid-up capital |
|
|
| 17,880,000
(1997: 17,880,000) ordinary shares of Rs 10 each |
|
| fully
paid in cash |
|
|
|
178,800,000 |
178,800,000 |
|
| 6,120,000
(1997: 6,120,000) ordinary shares of Rs 10 each issued |
|
|
| as
fully paid for consideration other than cash |
|
61,200,000 |
61,200,000 |
|
|
|
|
|
---------- |
---------- |
|
|
