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RUPALI POLYESTER LIMITED

ANNUAL REPORT 1998

CONTENTS

Financial Highlights

Directors' Report to the Shareholders

Notice of Meeting

Auditors' Report to the Members

Balance Sheet

Profit & Loss Account

Cash Flow Statement

Notes to the Accounts

Pattern of Shareholding

Form of Proxy

PROFILE

Rupali Polyester Limited was incorporated at Karachi in May 1980 as a Public Limited Company. It owns and

operates composite facilities for manufacture Of polyester fiber and filament yarn. The Company has the privilege

of possessing the pioneer status in Pakistan for staple fiber manufacture. Since its inception, the Company has

grown steadily through expansion and diversified operation and the assets now employed have increased to

Rs. 2,292 million from the initial capital outlay of Rs. 150 million with which the Company installed its first

plant at the inception stage.

The Company has polyester filament yarn making capacity of 30 M. tons per day, a polymerization unit with

a capacity of 105 M. tons per day and polyester staple fiber capacity of 65 M. tons per day. Most recently

additional twisting facility has been added with a capacity to produce 1,122 M. tons twisted yarn annually.

The various products of Rupali are in fact import substitution as these were previously imported from Japan,

Taiwan and Korea, but the Company through its in-house expertise and innovative research had developed

techniques for producing them indigenously.

As a step towards modernization and capacity augmentation, the Company has recently expanded its

existing manufacturing facilities by installing twisters and winders for product diversification, the commercial

production of which has been successfully started from April 1998 as per original schedule. The plant and

machinery required was imported from Italy. The total project cost worked out to be around Pak Rupees 144 million.

The philosophy of the Company is to grow on the strength of quality and reliability. With this prime objective it is

maintaining a full-fledged and well-established Research and Development Centre for standard maintenance

and innovative improvements in its products. Products and services offered by the Company are acknowledged

by the customers to be of the highest quality and the Company is considered to be the most reliable and prestigious

one. The end products are, therefore, the results of extensively high quality processes for the sake of upkeeping

the image of the Company developed in the minds of customers. That is why the Rupali products are the first

preference of customers. Rupali filament yarn is exclusively liked by local weavers while its finest quality fiber

is excellently processed under local conditions.

The Company gives high priority to customer satisfaction and provides after sales services to attend their

problems at their work sites.

AL HAMDOLILLAH, the Company enjoys a prestige and reputation among the industrial sector. It is quoted on

all the three Stock Exchanges of the country and in the present depleted stock market, the Rupali share still holds

a premium status. It also stands amongst major national exchequer contributors for stabilization of national

economy.

FINANCIAL HIGHLIGHTS

(Rupees million)

1994

1995

1996

1997

1998

Sales (Net)

1,738,501

2,669,622

2,803,930

2,317,947

2,075,672

Profit before Tax

235,813

552,738

235,367

206,705

128,750

Profit after Tax

147,715

354,388

148,187

135,170

92,001

Income Tax

88,098

198,350

87,180

71,535

36,749

Sales Tax & Excise Duty

243,641

380,143

412,726

435,668

279,566

Gross assets employed

1,889,898

2,318,420

2,758,752

2,464,095

2,270,872

(excluding capital work in progress)

Shareholders equity

1,066,976

1,319,158

1,365,139

1,398,103

1,404,933

Long term loan

33,745

4,216

0.000

Debt/Equity ratio

3:97

0:100

Earning per share before tax (R

7.96

16.22

6.91

6.07

3.78

Dividend/Bonus (percentage)

(Bonus)

Production volume (M. Tons)

29,720

33,068

31,043

30,532

29,807

Number of employees

1,347

1,380

1,375

1,216

1,185

DIRECTORS' REPORT TO

THE SHAREHOLDERS

It gives me immense pleasure to welcome you, on behalf of the Board of Directors to the eighteenth annual

general meeting and present the annual report and audited accounts of the Company for the year ended

30 June 1998.

Financial Results

Rs. in '000

Net profit before taxation

198,750

Provision for taxation

36,749

---------------

Profit after taxation

92,001

Unappropriated profit

brought forward

2,928

Profit available for

---------------

appropriation

94,929

Appropriations:

Proposed final cash

dividend @ 25% (1997 @ 30%)

85,171

Transfer to general reserve

5,000

---------------

90,171

---------------

Balance carried forward

4,758

Earning per share before

==========

taxation

Rs. 3.78

==========

Overview

The polyester fiber and filament yarn industry in the year 1997-98 could not recover from the difficulties it has

been suffering since the past few years. It was brought to the ,attention of the Government on several forums that

the massive dumping of imported polyester fiber and filament yarn from the Far-East has had a crippling effect

on the local industry. If it is allowed to continue, the local manufacturers would not be able to survive and

ultimately have to close down their plants. This situation would cause heavy losses to national exchequer as the

local polyester staple fiber industry plays an important role in the country's economy by paying large amount of

taxes. In order to survive, the local producers are forced to make downward adjustments in selling prices of their

products, at times even below the break-even point. Substantial increase in the indigenous production capacity

has created an imbalance in the supply-demand of polyester staple fiber. Because of the reduced demand from

consumers, the overall industry capacity is being under-utilized which is not only retarding the industry

growth but also cutting into the Government revenues.

The operating results for the year under review show a decline

in profits as compared to the previous year. Pre-tax profit of

Rs. 128.750 million is lower by 38% over the preceding year's

profit of Rs. 206.705 million. After making provision for taxation,

net profit amounts to Rs. 92.001 million as compared to

Rs. 135.170 million in the previous year. The fall in profitability

is attributable primarily to the decrease in sales volume and

downward revision in the sale prices of staple fiber and filament

yarn to the extent of 16% and 4% respectively over the last year

because of over-supply situation in the market. Operating

expenses, however, remained under control due to management

efficiency at Rs. 119.285 million, which compare favourably

with Rs. 168.293 million in 1997.

The Company earned other income of Rs. 83.398 million as compared to Rs. 48.874 million in the previous year

mainly on account of mark-up on long term investments in Rupafab Limited, an associated undertaking.

Expansion

Your Directors have pleasure to report that as indicated in 1997 review, twisting machines have been installed

and successfully commissioned in April 1998 in accordance with the original schedule. This enhanced the

Company's yarn making capacity to produce high twisted yarn. The total project cost, which worked out to

Rs. 143.905 million is well within the budgetary limits.

Board of Directors

During the year under review, there was no change in

composition of the Board of Directors of the Company.

Future Outlook

As stated earlier the creation of new capacity and dumping

of polyester fiber and filament yarn by Far Eastern suppliers

exerted heavy pressure on product prices. The discriminatory

treatment with PSF Industry in the proposed No Duty

Drawback Scheme further weakened the position of Pakistani

producers of polyester fiber and filament yarn to match the economies of scale of the producers in Far Eastern

countries. It is imperative that the Government in order to correct the situation should take deterrent measures

against dumping expeditiously to save the local PSF industry from permanent closure. In this connection, it is

proposed that the condition of 30% cash margin imposed by State Bank of Pakistan for opening of import L/Cs

for import of the raw materials for PSF Industry should be withdrawn.

The IC1 has recently started PTA production. The Government of Pakistan has given heavy protection to their

project by allowing Zero rated import of its raw material, that is, Paraxylene. On the same analogy, we strongly

recommend that polyester staple fiber should also be given protection by allowing import of MEG on Zero rate.

Although the import prices of PTA and MEG are low at present, the impact of inflation on various production

costs including fuel and the effect of rupee devaluation as also the pressure on product prices in the face of

competition, may erode future profitability.

The Company believes in diversification and expansion of its

product lines in response to changed consumer behaviour;

According to the market research undertaken by the Company's

in-house research and development centre, it was revealed that

the consumer behaviour has created additional supply-demand

gap for the value added products of polyester yarn. We have,

therefore, decided to expand our activities within the existing

production facilities and have already installed twisting

machines which were successfully put on stream in April this

year. We are also examining the viability of expanding our Air-Textured Yarn facilities. With this diversification

in our products, for which the demand already exists, we hope to increase our sales revenues and profitability.

Investments

As a long term investment, your Board

has approved the purchase of 100%

equity of the Company's associated

undertaking namely Rupafab Limited,

which owns and operates an export

oriented project in order to make it a

wholly owned subsidiary company.

The details of the proposal have already

been circulated to our valued

shareholders along with the proposed

resolutions for their approval in the

eighteenth Annual General Meeting.

Dividend

Your Directors are pleased to propose a dividend @ 25% i.e.

Rs. 2.50 per share of Rs. 10/- each for the year ended

30 June 1998,

Year 2000 compliance of computer system

Following the directions of the Corporate Law Authority to

address the "Millennium Bug", the Company has examined

its automated systems and visualises absolutely no problem

because of the fact that the database in use is Y2K compliant.

However, the computer programs being used by our Share

Registrar are in the process of being made year 2000 compliant

and work will be accomplished by this year end.

Auditors

M/s. Qavi & Co. Chartered Accountants retire and being eligible offer themselves for re-appointment.

Pattern of Shareholding

A statement showing the pattern of shareholding in the Company as at 30 June 1998 as required under Section

236 of the Companies Ordinance, 1984 appears on page 29.

Labor Management Relations

Like previous years, usual cordial relations between the management and labor were maintained during this

year and we wish to place on record our appreciation of the dedication and hard work demonstrated by

employees at every level for the progress and growth of the Company.

A Note of Gratitude

The Directors also wish to place on record their appreciation for the cooperation extended by the Ministries of

Finance, Industries, Commerce and Communication. We also owe our thanks to the Departments of Customs,

Central Excise and Government of the Punjab for their cooperation. We appreciate the patronage and confidence

placed in the Company by the Development Financial Institutions and Commercial Banks. We are also thankful

to our valued customers and expect more pleasant business relationship with them. To our shareholders we are

grateful for their faith in the Company. We greatly value their trust.

On behalf of the Board

Karachi

Jafferali M. Feerasta

21 November 1998

Chairman

NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the 18th Annual General Meeting of the Company will be held at Karachi Sheraton

Hotel, Karachi on Saturday 19 December 1998 at 9:30 a.m. to transact the following business:

Ordinary Business:

1. To confirm the minutes of the last Annual General Meeting held on 29 November 1997.

2. To receive, consider and adopt audited accounts together with the Directors' and Auditors'

Reports thereon for the year ended 30 June 1998.

3. To approve payment of final dividend @ 25% i.e. Rs. 2.50 per share for the year ended 30 June 1998 as

recommended by the Board of Directors.

4. To appoint Auditors of the Company and to fix their remuneration.

5. To transact such other ordinary business as may be placed before the meeting with the permission of the Chair.

Special Business:

6. To consider and, if deemed fit, pass with or without modification following resolution as a Special Resolution

in terms of the provisions of Section 208 of the Companies Ordinance, 1984;

"RESOLVED THAT the 100% share capital of Rupafab Limited, an unquoted Public Limited Company

consisting of 37.697 million ordinary shares of Rs. 10/- each be purchased for making it a wholly owned

subsidiary company of Rupali Polyester Limited and transferred in the name of the Company at the rate of

Re. 0.77 per share.

FURTHER RESOLVED THAT the Board of Directors shall take all steps necessary to reduce the present

cost of Rupafab Limited.

FURTHER RESOLVED THAT the amount of Rs. 300 million together with accrued mark-up now

outstanding in the books of the company may be converted into ordinary shares of Rupafab Limited.

FURTHER RESOLVED THAT the company in order to reduce the debts of Rupafab Limited may restructure

the debt and/or pay off expensive debts. For this purpose a sum not exceeding Rs. 500 million shall be

advanced to Rupafab Limited free of interest for a period of 18 months.

FURTHER RESOLVED THAT Mr. Badruddin J. Feerasta, Managing Director, Rupali Polyester Limited,

be and is hereby authorized to complete all the necessary statutory formalities to affect this resolution."

Statement under Section 160 of the Companies Ordinance, 1984, pertaining to the Special Business alongwith

the resolution proposed to be passed is being sent to the shareholders with the notice.

By order of the Board

Karachi:

FATEH MOHAMMAD KHERA

21 November 1998

Company Secretary

Notes:

1. Share transfer books of the Company will remain closed from 11 December 1998 to 19 December 1998 (both

days inclusive) for determining the entitlement of Dividend. The members whose names appear in the

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

attend and vote. Proxies in order to be effective must be received at the Registered Office of the Company not

less than 48 hours before the time of holding the meeting. Proxy form is enclosed herewith.

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

STATEMENT UNDER SECTION 160 OF THE COMPANIES ORDINANCE 1984

This Statement is annexed to the notice of the 18th Annual General Meeting of the Company to be held on

19 December 1998 and sets out the material facts concerning the Special Business to be transacted at the

Meeting.

Rupafab Limited is a vertically integrated textile dyeing/printing/finishing project which has been set up at

Raiwind Road, Lahore for producing high quality fabrics for local and export market. The Authorized Capital

of Rupafab Limited is Rs. 500,000,000 (Rupees Five hundred million only). Sponsors have already invested

Rs. 376,972,000 (Rupees Three hundred seventy six million nine hundred seventy two thousand only) as equity.

Owing to the perpetual production losses, the capital of Rupafab Limited has eroded. Rupali Polyester Limited

with the approval of its shareholders given by them in their general meeting held on 21 December 1996 had

paid a loan of Rs. 300 million to Rupafab Limited and this company due to its deteriorated financial position is

unable even to pay the mark-up on its borrowings. The principal reasons for the Rupafab Limited's economic

malaise can be attributed to two major factors, namely the devaluation of Pak rupee which resulted in a loss of

Rs. 176 million on account of foreign currency loan for which, the State Bank of Pakistan did not give foreign

exchange cover and wrongful withholding of sales tax refund on plant and machinery amounting to Rs. 30

million. The Rupafab Limited has won the case in a writ petition from the Lahore High Court, however, the

Government has now gone in appeal in Supreme Court.

The Company under the prevailing circumstances had two options, either to wind up Rupafab Limited or buy

out it and turn it into a fully owned subsidiary.

The above two options were discussed in the meeting of Board of Directors of the Company. It was felt that in

case of going for winding up the chances for recovery of Company's loan are very slim. However, if a buy out is

done then Rupafab Limited has excellent potential to become a good export oriented project of the Company.

Since it is the most modern plant employing latest textile technology with potentiality to export, Rupali Polyester

Limited finds it quite feasible to make it a profitable unit by injecting fresh blood and economizing certain

expense heads. By this way, not only the loan given will be secured, but also a running plant shall be acquired

at a very nominal cost investment. At the time the Rupafab Limited imported plant and machinery for its project

the US$ rate was fluctuating between Rs. 30-35 per US$ which now has escalated to officially quoted rate of

over Rs. 46/-, thus correspondingly increasing the import price of similar plant manifold.

Following pertinent details about Rupafab Limited are given for information of the shareholders:

Location of the plant

30.5 KM, Pajian-Raiwind Road, Lahore.

Nature of the Business

The Company is undertaking the business of dyeing,

printing, finishing of export quality made-ups and

fabrics.

Installed capacity

33.6 million meters per annum

Total boundary walled area

105 acres

Built-in area

31,430 sq. meters which includes 21,425 sq. meters main

plant.

Imported Machinery cost

US$ 17.716 million Eq

Rs. 575.539 Million

Local Machinery cost

Rs. 96.778 Million

In rupee term the total machinery cost is -

Rs. 672.317 Million

All the machinery installed is most modern employing latest technology and mainly includes:

Rotary machines

(2)

Dyeing machine

(1)

Stentors

(3)

Mercerizer

(1)

Singeing/desizing machine

(1)

Scouring and bleaching range

(1)

The unaudited financial data of Rupafab Limited as of 30 June 1998 is given below:

- Total Current & Fixed Assets net of depreciation

Rs. 1,663.210 Million

- Depreciated value of Fixed Assets

Rs. 1,173.876 Million

- Accumulated Depreciation upto 30.06.1998

Rs. 143.077 Million

- Accumulated Loss of the Company

Rs. 347.704 Million

- Actual Cash Loss after deducting accumulated depreciation.

Rs. 204.627 Million

- Net Shareholders Equity.

Rs. 29.268 Million

Rupafab Limited is an export oriented company with heavy investment. Its project is financed by the

International Finance Corporation (IFC) which has already invested US$ 11 million in the form of loan.

The above financial data reveals that if the shareholders approve, Rupali Polyester Limited will get a most

modern state-of-the-art plant at a share value of Re. 0.77 against face value of Rs. 10/- each which is

extremely cheap as compared to the heavy cost investment involved if a new plant of similar technology

and ancillary facilities is set up. Although the accumulated loss of Rupafab Limited is of Rs. 347.704

million, however, the actual cash loss after taking into account the accumulated depreciation works out to

Rs. 204.627 million.

The following Directors of Rupali Polyester Limited are also the Directors of Rupafab Limited:

1. Mr. Jafferali M. Feerasta

2. Mr. Badruddin J. Feerasta

3. Mr. Amiruddin J. Feerasta

4. Mr. Nooruddin B. Feerasta (Sr.)

The Memorandum and Articles of Association of both the above Companies are kept at their registered

office at 7th Floor, Gul Tower, I.I. Chundrigar Road, Karachi and can be inspected from 9:30 a.m. to

11:30 a.m on all working days upto 10 December 1998.

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of RUPALI POLYESTER 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 purpose 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 the accounting policies consis-

tently 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;

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 June 30,1998 and of the profit and cash flow 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.

21 November 1998

Qavi & Co.

Karachi

Chartered Accountants

BALANCE SHEET AS AT JUNE 30, 1998

Amount in Rs. '000

Note

1998

1997

SHARE CAPITAL AND RESERVES

Authorised Capital

35,000,000 Ordinary Shares of Rs. 10 each

350,000

==========

Issued, Subscribed & Paid-up Capital

340,685

Reserves

1,059,490

1,054,490

Unappropriated Profit

4,758

2,928

---------------

1,404,933

1,398,103

DEFERRED LIABILITIES

Provision For Staff Gratuity

20,152

19,791

CURRENT LIABILITIES

Short Term Finances

530,252

574,199

Advances, Deposits, Retentions

& Other Payables

99,873

107,944

Creditors & Accrued Expenses

117,701

207,486

Provision For Taxation