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Shahtaj Sugar Mills Limited
Annual Report 1998
CONTENTS
Board of Directors & Company Information
Five Years' Financial Review at a Glance
Notice of Annual General Meeting
Directors' Report
Auditors' Report
Balance Sheet
Schedule of Operating Fixed Assets
Profit and Loss Account
Statement of Sources and application of funds
Notes to the Accounts
Pattern of Share Holdings
Board of Directors
		Mr. Muneer Nawaz (Chief Executive)
		Begum Majeeda Shahnawaz
		Mr. Cowasjee R.F. Cowasjee
		Mr. Ardeshir Cowasjee
		Mr. C. M. Khalid
		Mr. M. Naeerh
		Mr. Ijaz Ahmad
		Mr. Behram Hasan (I.C.P.)
		Mr. Sk. Jahangir (N.I.T.)
Company Secretary		Mr. Jamil Ahmad Butt
Auditors		Messrs, Ford, Rhodes, Robson, Morrow,
		Chartered Accountants
		1st Floor, The Syed, 11 Civic Centre, New Garden Town,
		Lahore.
Bankers		United Bank Limited
		Habib Bank Limited
		Citibank, N.A.
		Faysal Bank Limited
		ABN Amro Bank N.V.
Legal Advisors		Messrs, Zafar Law Associates
		Zafar Chamber, 7/B-1, Aziz Avenue, Canal Bank,
		Lahore.
Head Office		39/A, Zafar All Road,
		Gulberg- V, Lahore.
Registered Office		19, Dockyard Road, West Wharf, Karachi- 74000.
Mills		Mandi Bahauddin.
FIVE YEARS FINANCIAL REVIEW AT A GLANCE
				(Rupees in thousands)
YEAR			1994	1995	1996	1997	1998
Cane Crushed (M.Tons)			603,884	678,548	724,071	668,210	1,012,234
Recovery (%)			8.38	8.65	8.28	8.01	8.32
.Sugar Produced (M. Tons)			50,613	58,667	59,991	53,503	84,229
Paid up Capital			80,883	97,060	109,193	109,193	120,111
Reserves and surplus			100,500	100,500	115,000	86,345	51,525
Shareholders equity			239,732	248,499	264,308	233,991	199,170
Fixed Assets
(at cost less depreciation)			139,269	542,064	499,337	458,565	416,358
Sales			605,379	785,848	1,100,335	1,075,118	1,270,533
Cost of Sales			563,375	709,175	952,743	999,761	1,224,266
Gross Profit			42,004	76,673	147,592	75,357	46,267
Profit/(loss) before tax			22,936	17,980	50,188	(16,942)	(20,448)
Profit/(loss) after tax			24,322	9,980	32,188	(30,317)	(34,820)
DIVIDEND
Cash (%)			-	-	15	-	-
Bonus (%)			20	12.50	-	10	-
Break up value of shares of
Rs 10/- each (Rs.)			29.64	25.60	24.21	21.43	16.58
NOTICE OF MEETING
To,
All the Shareholders,
NOTICE is hereby given to all the shareholders of SHAHTAJ SUGAR MILLS LIMITED
that the 33rd Annual General Meeting of the Company will be held on Wednesday the 31 st
March, 1999 at 11.00 a.m. at its Registered Office, Shahnawaz Building 19-Dockyard Road,
West Wharf, Karachi-74000, to transact the following business:-
1) To confirm the minutes of 32nd Annual General Meeting held on 28th March,
1998.
2) To receive, consider and adopt the audited accounts of the Company for the
year ended September 30, 1998 together with Auditors' and Directors'
Reports thereon.
3) To appoint Auditors for the year 1998-99 and to fix their remuneration. The
present Auditors M/s. Ford, Rhodes, Robson, Morrow, Chartered Accountants,
being eligible, have offered themselves for reappointment.
4) To elect Directors of the Company for a period of 3 years in accordance with
the provisions of the Companies Ordinance, 1984. The Directors have fixed
the number of elected Directors as 10. The retiring Directors are:
Mr. Mahmood Nawaz, Mr. Muneer Nawaz, Begum Majeeda Shahnawaz,
Mr. Cowasjee R.F. Cowasjee, Mr. Ardeshir Cowasjee, Mr. C.M. Khalid,
Mr. M. Naeem, Mr. Behram Hasan, Ms. Aaliya K. Dossa and
Mr. Ijaz Ahmad.
5) To approve the remuneration of the Chief Executive for next term of three
years commencing from 1 st April, 1999.
6) To transact any other ordinary business with the permission of the Chair.
		BY ORDER OF THE BOARD
		JAMIL AHMAD BUTT
		Company Secretary
Karachi: March 01, 1999
NOTES:
1) The share transfer books of the company will remain closed from 22nd
March, 1999 to 4th April, 1999 (both days inclusive).
2) A member entitled to attend-and vote at this meeting may appoint another
member as his/her proxy to attend and vote. Proxies in order to be effective
must be received at the Company's Registered Office not less than 48 hours
before the meeting and must be duly stamped, signed and witnessed.
3) Holders of Accounts and Sub-Accounts for Company's Shares in Central
Depository Company of Pakistan Limited, who wish to attend this Annual
General Meeting may do so by identifying themselves through original I.D.
Card and providing a copy thereof duly attested by their bankers
STATEMENT UNDER SECTION 160 OF THE COMPANIES ORDINANCE 1984
The Chief Executive devotes his time to the business of the company and
therefore is to be remunerated for these services. His remuneration was last
fixed on 28th March, 1996 and is now due for review and refixation for
next term commencing from 1st April, 1999. His present monthly gross
emoluments are Rs. 75,000/- plus benefits commensurate to his office. For
the next term Directors have proposed to increase his monthly emoluments
to Rs. 125,000/- plus other benefits to which he is currenty entitled. This
increase will be for a period of three years. The Chief Executive being
Director of the Company is interested in this matter to the extent of the
remuneration payable to him.
DIRECTORS' REPORT TO THE SHAREHOLDERS
Dear Shareholders,
We the Directors of your Company, hereby present the 33re'Annual General Report and audited
accounts together with the Directors' Report for the year ended 30th September, 1998.
OPERATIONAL PERFORMANCE
By the Grace of Allah, we had a record crushing and production of Sugar during the current
year. We crushed 1,012,234 tonnes cane and produced 84,229 tonnes of sugar. This is 40 percent
more than the highest production which we have ever achieved in the past. This was the first
year when we were able to take full advantage of our enhanced capacity. The cane crop of our
area was better than last year but still not sufficient for our requirement and we supplemented
it from neighbouring areas to maximize sugar production. The government has substantially
increased the sugarcane price from Rs. 24/- per 40 kgs. to Rs. 35/- per 40 kgs. But, since we
had to purchase cane from outside our area also, our average cane price for the year was
Rs. 39.22 per 40 kgs.
During the beginning of the season the sugar and molasses prices were favourable but afterwards
they became depressed due to the record production of sugar in the country, including the
Punjab. For example, in the Punjab alone, sugar production was 788,000 tonnes in excess of
previous year. On the operational side, we got better efficiency and our average recovery was
8.32% as compared to 8.01% in the previous year. We once again are sorry to report a loss for
the second year running, which is primarily due to the low price of both sugar and molasses.
Our shareholders will appreciate that on a comparative basis the performance of the mill has
been highly satisfactory but since the whole sugar scenario was depressed, nothing could be
done other than to minimize the losses.
The financial charges remained high due to long-term debt and the carrying cost of sugar in a                    ~
depressed market.
This was the first year that we entered in the export market and during the year under reference
we exported 6,592 tonnes of sugar. All this quantity went to India. We could have exported a
much larger quantity but the limiting factor was the availability of railway-wagons. Our sugar
was well received in Indian rnarket due to its quality and buyers were asking for it but,
unfortunately, due to transport problems, additional quantity could not be exported.
The season under review commenced on 19th November, 1997 and continued till 17th April,
1998. This season, we crushed 1,012,234 tonnes of cane and produced 84,229 tonnes of sugar
at an average recovery of 8.32 percent as compared to 668,210 tonnes of cane and 53,503 tonnes
sugar and recovery of 8.01 percent last year.
FINANCIAL RESULTS
As you will observe from Balance Sheet and Profit & Loss accounts, our financial results are
as under:-
				(Rupees in thousand)
Loss before taxation:				20,448
Add: Provision for taxation				14,372
				-----------
Loss after taxation:				34,820
Unappropriated loss brought forward				28,655
				-----------
Unappropriated loss carried forward				63,475
				===========
It is unfortunate that, as already mentioned, once again, the company has suffered a loss; but
our performance is in line with most of the mills in the country. We are confident that this is a
temporary phenomenon and the situation would improve in the near future, possibly in the next
season.
Keeping in view the loss, the Directors propose to omit the dividend this year. We wish to point
out that this is the first time we propose to pass over the dividend after 18 years.
PROSPECTS FOR THE YEAR 1998-99
Your mills started crushing on 26th November, 1998 and until 28th February, 1999 have crushed
210,254 tonnes of cane and produced 55,837 tonnes of sugar at an average recovery of 7.98
percent.
Sugarcane crop is about the same as last year. However, the recovery is less due to poor Indian
variety in most of the Punjab. Due to our enhanced capacity, once again, we have to supplement
the cane, supply from nearby areas. So far there is no price war, only additional cost of
transportation is to be paid.
In order to discourage the poor Indian variety, the government has allowed 5 percent price
reduction w.e.f. 13.1.1999, on this variety. We feel that this is a wise step by the government
as in the current sowing season, it will discourage farmers to sow Indian variety; although it
will take at least two years before the variety is totally wiped out.
Our crushing and operational performance is highly satisfactory, but since the recovery is lower
than last year, we expect somewhat lower production as compared to last year. The situation
is similar all over the Punjab.
So far, sugar market is depressed but we are trying to export a reasonable quantity, the objective
being that in the long run the domestic market is stabilized. Till the writing of this report we
had exported 3672 tonnes of sugar to India and 3000 tonnes to Indonesia while at present firm
orders 2500 tonnes are in hand. The price to India is obviously better than Indonesia but the
limiting factor is transport, because of which we cannot export more to India.
It is unfortunate that the molasses prices have really crashed during the current year. Last year
average sale price of molasses was Rs. 980.66 per m/ton whereas this year contracts so far are
around Rs. 400.00 per tonnes.
The sugar industry this year also is under maximum financial pressure but there is hope round
the corner that due to the anticipated less production of sugar in the country as compared to
last year and also due to enhanced exports, it is expected that the sugar price would improve
in April, 1999 allowing the industry to obtain a fair return on investment.
We are aware of the problems of the 'millennium bug' and are taking necessary steps to ensure
that our electronic and accounting systems are adapted in time.
M/s. Ford, Rhodes, Robson, Morrow, Auditors of the Company have conveyed their willingness
to be appointed for the ensuing year.
Your directors place on record their appreciation of the diligence and devotion of duty of the
Officers and Members of staff and workers of all categories.
					FOR AND ON BEHALF OF THE BOARD
					MUNEER NAWAZ
Karachi: March 01, 1999					Chief Executive
AUDITORS' REPORT TO THE MEMBERS
We have audited the annexed Balance Sheet of Shahtaj Sugar Mills Limited as at                   ~i:
30th September, 1998 and the related Profit and Loss Account and Statement of Source and
Application of Funds, 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;
(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 the
statement of source and application of funds, 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 and the changes in source and application of funds for the year then
ended; and
(d) in our opinion, no Zakat was deductible at source under the Zakat and Ushr
Ordinance, 1980.
			FORD, RHODES, ROBSON, MORROW
Lahore: March 01, 1999			Chartered Accountants
BALANCE SHEET AS AT 30TH SEPTEMBER, 1998
			Notes	1998	1997
				(Rupees in thousands)
TANGIBLE FIXED ASSETS
Operating assets as per schedule attached				416,358	458,565
Capital work-in-progress			4	943	669
				----------	----------
				417,301	459,234
LONG TERM INVESTMENTS			5	15,000	15,000
LONG TERM LOANS AND ADVANCES			6	1,365	750
LONG TERM DEPOSITS			7	5,104	5,656
CURRENT ASSETS
Stores, spares and loose tools			8	78,275	82,262
Stock-in-trade			9	83,677	1,269
Trade debts			10	8,751	34
Loans and advances			11	5,641	5,221
Deposits, prepayments and
other receivables			12	50,040	16,721
Cash and bank balances			13	3,465	6,230
				----------	----------
				229,849	111,737
LESS: CURRENT LIABILITIES
Short term running finances			14	169,707	50,000
Current maturity of:
Long term finances			18	34,730	42,095
Liabilities against assets subject
to finance lease payable			19	14,675	14,637
Sugar cane development cess			20	5,800	-
Creditors and accrued liabilities			15	84,926	65,716
Provisions			16	9,500	7,317
Dividends			17	129	131
				----------	----------
				319,467	179,896
				----------	----------
WORKING CAPITAL				(89,618)	(68,159)
				----------	----------
TOTAL CAPITAL EMPLOYED				349,152	412,481
Less: Long term finances			18	62,880	97,610
Liabilities against assets subject
to finance lease			19	3,572	16,761
Other long term liabilities			20	83,530	64,119
				----------	----------
				149,982	178,490
				----------	----------
NET CAPITAL EMPLOYED				199,170	233,991
				==========	==========
REPRESENTED BY
SHARE CAPITAL AND RESERVES
Share capital			21	120,111	109,193
Capital reserve - Share premium			22	27,534	27,534
Reserve for issue of bonus shares				-	10,919
Revenue reserve and unappropriated
profit			23	51,525	86,345
				----------	----------
				199,170	233,991
CONTINGENCIES AND COMMITMENTS			34	-	-
				----------	----------
				199,170	233,991
				==========	==========
The attached notes form an integral part of these accounts
MUNEER NAWAZ				MAHMOOD NAWAZ
Chief Executive				Chairman
SCHEDULE OF OPERATING FIXED ASSETS
AS AT 30TH SEPTEMBER, 1998.
				(Rupees in thousands)
----------------------------------------------------------------------------------------------------------------------------
					Accumulated	Book value	Annual
		Cost to 30th	Additions/	Cost to 30th	Depreciation	as at	rate of	Depreciation
Particulars		September,	(Disposals)	September,	to September	September	Depreciation	Charger or
		1997		1998	30, 1998	30, 1998	%	the year
Land - free hold		318	-	318	-	318	-	-
Building and roads on
freehold land		51,216	-	51,216	31,234	19,982	5 to 10	2,116
Plant and machinery		*665,188	3,205	668,393	330,966	337,427	10 ot 50	38,419
Tubewells		544	-	544	440	104	10	12
Electrical installations		* 17,574	-	17,574	8,299	9,275	10	1,030
Motor vehicle and
Bicycles		15,975	1,314	16,612	10,473	6,139	20	1,535
			(677)
Furniture, fixtures and
office equipment		8,548	421	8,955	6,394	2,561	10 to 25	542
			(14)
Telephone exchange		919	-	919	489	430	10	48
Stone Crusher		39	-	39	39	-	20	-
		-----------	-----------	-----------	-----------	-----------	-----------	-----------
		760,321	4,940	764,570	388,334	376,236		43,702
			(691)
ASSETS SUBJECT
TO FINANCE LEASE
Plant & Machinery		56,201	-	56,201	19,327	36,874	10	4,097
Motor vehicles		2,920	1,724	4,644	1,396	3,248	20	8 l 2
		-----------	-----------	-----------	-----------	-----------	-----------	-----------
Total Rupees 1998		819,442	6,664	825,415	409,057	416,358		48,611
			(691)
		===========	===========	===========	===========	===========	===========	===========
Total Rupees 1997		807,833	13,629	819,442	360,877	458,565		53,495
			(2,020)
		===========	===========	===========	===========	===========	===========	===========
* Includes leased assets transferred upon maturity of respective leases.
The depreciation charge for the year has been allocated as follows:
				1998	1997
				(Rupees in thousands)
Cost of goods sold				47,143	51,880
Administrative expenses				1,468	1,615
				-----------	-----------
				48,611	53,495
				===========	===========
As referred to in the Balance Sheet as at 30th September, 1998.
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30TH SEPTEMBER, 1998
			Notes	1998	1997
				(Rupees in thousands)
Sales			24	1,270,533	1,075,118
Cost of sales			25	1,224,266	999,761
				-----------	-----------
Gross Profit				46,267	75,357