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CRESCENT STEEL & ALLIED PRODUCTS Ltd.

ANNUAL REPORT 2003

Products

Steel Division

Manufacturer of DSAW steel line pipes in diameters ranging from 8"

to 90" and applicator of multi-layer polyolefin coating conforming to

international standards.

Cotton Division

Manufacturer of quality cotton yarn of various counts of 10s to 30s.

Annual Meeting

Nineteenth Annual General Meeting of Crescent Steel and Allied

Products Limited will be held on Friday, October 31, 2003 at 10:30 a.m.

at Pearl Continental Hotel Lahore.

Legal Advisor

Hassan & Hassan Advocates, Lahore

Bankers

• Union Bank Limited • Meezan Bank Limited

• PICIC Commercial Bank Limited • National Bank of Pakistan

2003

2002

Operating Results ( Rupees in million)

Net Sales

1,738.90

1,291.10

Cost of Sales

1,398.00

1,055.20

Selling and Administrative expenses

91.2

61.5

Financial expenses

16.8

23.7

Other charges

26.1

20.3

Other income, Net

182.5

68.4

Fair value adj. on available-for-sale investment

-7.9

-

Pre tax profit/(loss)

381.4

198.7

Income tax

97.2

60.5

Net income

284.2

138.2

Per Share Results and Returns

Earning per share (Rupees)

14.2

6.9

Net income to sales (%)

16.3

10.7

Return on average assets (%)

27.5

17

Return on capital employed (%)

23.2

15.5

Return on equity (%)

24.5

17.5

Dividend per share (%)

50

30

Bonus Shares (%)

10

-

Stock price range

90-30

32-14

2001

2000

1999

1998

1997

Financial Position (Rupees in million)

Current Assets

966.9

1,034.70

820.9

121.2

32.9

1,184.20

991.6

Current liability

260.3

584.4

741.1

150

105

913.9

693.1

Operating fixed assets

410.5

355.3

42.4

36.7

44.7

74.5

64.2

Total assets

1,460.90

1,439.10

23

2.7

5.2

17.6

26.7

Long-term debt (excluding current maturity)

38

59.2

28.9

35.2

40.9

30.3

41.5

Short-term debt (including current maturity

87.6

170

83.6

89.7

5.3

of long-term debt)

100.6

80.2

-

Shareholders' equity

1,162.10

789.7

73.1

66.6

-79.3

237.6

171.5

Break-up value per share (Rupees)

57.9

39.3

18.3

-23.4

-103.1

-1.3

39.5

Financial Ratios

54.8

90

23.8

238.8

131.9

Current assets to current liabilities

3.7

1.8

Long term debt to equity (%)

3.3

7.5

2.7

4.5

1.2

11.9

6.6

Total debt to total assets (%)

20.4

44.7

6.7

74.3

72.1

20.2

13.3

Interest coverage (times)

23.7

9.4

9.3

8.4

-9.4

26.9

22.5

Average collection period (days)

8.7

39.5

6.7

11.6

3.5

35.9

26.6

Inventory turnover (times)

4.4

3.7

7.6

13

3.7

38.2

30.2

Fixed assets turnover (times)

4.2

3.6

5

18

5

25

20

Total assets turnover (times)

1.19

0.9

-

15

Other Data (Rupees in million)

24-12

26-12

20-12

25-20

44-25

Depreciation/Amortisation

82.9

63.6

Capital expenditure (including leased assets)

130

101.6

776.5

474.9

473.9

520

797.2

Common Shares (million)

20.1

382.3

136.8

105.8

166.2

575.6

366.7

382.1

202.7

230.4

240.2

decisions on material transactions, including appointment and

1,181.30

894.6

756.8

832.4

1,085.90

determination of remuneration and terms and conditions of

68.5

64.7

11.7

21.7

40.3

employment of the Chief executive Officer (CEO) and an

executive director have been taken by the Board.

151.7

41.4

20.8

18.3

24.2

• The meetings of the Board were presided over by the Chairman

717.7

693.1

639.2

625.4

436.9

and, in his absence, by a director elected by the Board for this

35.7

34.5

31.8

31.1

25

purpose and the Board met once in every quarter during the year

ended June 30, 2003. Written notices of the Board meetings,

2

3.5

4.5

3.1

1.4

alongwith agenda and working papers, were circulated at least

9.6

9.3

1.8

3.5

9.2

seven days before the meetings. The minutes of the meetings were

38.2

22.5

15.5

22.6

56.7

appropriately recorded and circulated.

4.2

25.6

-14.3

14.5

7.4

• The Board has arranged an orientation course for its directors

49.7

3.9

129.3

34.6

49.3

during the year to apprise them of their duties and responsibilities.

8.1

3.6

2

4.5

2.7

• The Board has approved appointment of CFO/Company Secretary

2.2

0.3

0.2

5.1

4.1

and the Head of Internal Audit, including their remuneration and

0.7

0.1

1.5

0.9

terms and conditions of employment, as recommended by CEO.

• The Directors' Report for the year ended June 30, 2003 has been

52.7

32.4

33.9

35.9

35.3

prepared in compliance with the requirements of the Code and it

8.4

211.9

11.8

29.5

38.6

fully describes the salient matters required to be disclosed.

20.1

17.5

• The financial statements of the company were duly endorsed by

the CEO and CFO before approval by the Board.

• The directors, CEO and executives do not hold any interest in the

shares of the company, other than that disclosed in the pattern of

shareholding.

• The company has complied with all the corporate and financial

reporting requirements of the Code.

• The Board has formed an audit committee. It comprises of three

members, all of whom are non-executive directors including the

Chairman of the Committee. The Audit Charter of the company

requires that atleast two members of the Audit Committee must be

financially literate.

• The meetings of the audit committee were held at least once every

This statement is being presented to comply with the Code of Corporate

Governance as contained in Regulation No. 37 of the Listing

Regulations of the Karachi Stock Exchange and Chapter XIII of Listing

Regulations of Lahore Stock exchange and Chapter XI of Listing

Regulations of Islamabad Stock Exchange for the purpose of

establishing a framework of good governance, whereby a listed company

is managed in compliance with the best practices of corporate

governance.

The company has applied the principles contained in the Code in the

following manner:

• The company encourages representation of independent non-

executive directors. At present the Board has one independent

non-executive director.

• The directors have confirmed that none of them is serving as a

director in more than ten listed companies, including this

company.

• All the resident directors of the company are registered as

taxpayers and none of them has defaulted in payment of any loan

to a banking company, a DEI or an NBFI. None of them is a

member of a stock exchange.

• No casual vacancy occurred during the year ended June 30, 2003.

• The company has prepared a 'Statement of Ethics and Business

Practices', which has been signed by all the directors and

employees of the company.

• The Board has developed a vision/ mission statement, overall

corporate strategy, and significant policies of the company. A

complete record of particulars of significant policies alongwith the

dates on which they were approved or amended has been

maintained.

• The company is in process of getting significant policies formally

approved by the Board

• All the powers of the Board have been duly exercised and

EQUITY AND LIABILITIES

Share capital and reserves

Authorised capital

30,000,000 (2002: 30,000,000) ordinary shares

ofRs 10 each

Issued, subscribed and paid-up capital

Reserves

Unappropriated profit

Deferred income

Non-current liabilities

Long-term loans

Liabilities against assets subject to finance leases

Deferred taxation

Current liabilities

Current maturity of long-term loans

Current maturity of liabilities against assets subject to finance leases

Short-term finances

Taxation

Note

2003

2002

Creditors, accrued expenses and other liabilities

Rupees in thousand

Proposed dividend

Contingencies and commitments

300,000

— 2003 ----

4

200,849

Steel

Cotton

5

956,973

583,278

Note

division

4,257

5,611

1,162,079

789,738

Sales

30

1,215,567

523,381

6

450

715

Cost of sales

31

901,060

496,980

Gross profit

314,507

26,401

7

-

13,893

Selling expenses

32

6,224

2,701

8

38,015

45,330

Administration exp

33

69,196

13,073

9

-

5,100

75,420

15,774

Operating profit

239,087

10,627

7

_

26,127

Other income

34

181,174

1,292

8

27,087

17,852

420,261

11,919

10

73,485

36,174

Financial Charges

35

1,114

15,714

28

4,236

-

Other Charges

36

23,189

2,905

11

115,364

443,952

Fair valuation gain on revalution

40,170

60,255

of available-for-sale investments

7,883

-

260,342

584,360

32,186

18,619

12

Profit / (loss) before taxation

388,075

-6,700

1,460,886

1,439,136

Taxation

37

Profit after taxation

— 2002 -----

Earning per share

38

Total

Steel

Cotton

Total

Dividend per share

division

----- Rupees in thousand —

1,738,948

806,708

484,351

1,291,059

1,398,040

588,808

466,392

1,055,200

ASSETS

340,908

217,900

17,959

235,859

Non-current assets

8,925

6,262

1,365

7,627

Tangible fixed assets

82,269

51,218

2,689

53,907

Operating fixed assets

91,194

57,480

4,054

61,534

Assets subject to finance leases

249,714

160,420

13,905

174,325

Capital work-in-progress

182,466

64,738

3,669

68,407

432,180

225,158

17,574

242,732

Intangible assets

16,828

-

23,748

Long-term investments

26,094

19,426

861

20,287

Long-term deposits

Staff retirement benefits

7,883

-

Deferred taxation

50,805

19,426

24,609

44,035

Current assets

381,375

205,732

-7,035

198,697

Stores, spares and loose tools

97,219

60,464

Stock-in-trade

284,156

138,233

Trade debts

Rs. 14.15

Rs. 6.88

Short-term advances

Rs. 5.00

Rs. 3.00

Short-term deposits and prepayments

Current maturity of long-term investments

Note

2003

2002

Investments

Rupees in thousand

Other receivables

Taxation

Cash and bank balances

13

318,056

280,864

14

75,036

65,044

15

17,397

9,382

410,489

355,290

16

415

760

Cash flow from operating activities

17

70,329

39,374

Cash generated from operations

18

5,289

7,649

Taxes paid

19

6,368

1,345

Financial charges paid

9

1,078

-

Contributions to pension and gratuity fund

Payment for the Workers' Welfare Fund

20

21,303

40,451

Long-term deposits and prepayments

21

205,021

432,904

Net cash inflow from operating activities

22

26,023

56,692

Cash flow from investing activities

23

7,248

2,203

Fixed capital expenditure

24

5,598

2,017

Purchase of intangible assets

25

3,332

5,844

Sale proceeds of fixed assets

26

626,692

307,400

Investments made

27

18,187

78,755

Dividends received

28

-

6,613

Interest income received

29

53,154

101,839

Net cash outflow from investing activities

966,918

1,034,718

Cash flow from financing activities

1,460,886

1,439,136

Short-term loans

Repayments of:

Note

2003

2002

- long term loans

Rupees in thousand

- liabilities against assets subject to finance leases

Dividends paid

39

349,470

369,959

Net cash outflow from financing activities

-93,321

-4,526

Net (decrease) / increase in cash and cash equivalents

-17,480

-26,399

Cash and cash equivalents at the beginning of the year

-12,169

-3,329

Cash and cash equivalents at the end of the year

-3,638

-

2,360

-2,255

Issued,

General

225,222

333,450

subscribed

reserve

and paid-up

-139,281

-33,799

capital

-53

-1,140

1,502

22,371

-61,747

-146,986

Balance as at July 1, 2001

37,751

28,618

- as previously reported

200,849

471,000

21,042

17,802

- effect of adopting International

-140,786

-113,134

Acccounting Standard 39

-

200,849

471,000

-20,000

-46,000

Profit for the year

-

Transfer to general reserve

-

110,000

-40,020

-23,557

Proposed dividend (30%)

-

-18,080

-12,426

Balance as at June 30,2002

200,849

581,000

-111,972

-26,641

Balance as at July 1, 2002

200,849

581,000

-190,072

-108,624

Profit for the year

-

-105,636

111,692

Fair value gain on available-

85,665

-26,027

for-sale investments

40

-19,971

85,665

- for the year ended June 30,2003

-

- for the year ended June 30,2002

-

Reserve

Fair value

Unappropr-

Total

First interim dividend (10%)

-

for issue

reserve on

iated profit

Second interim dividend (10%)

-

of bonus

available-

Third interim dividend (10%)

-

shares

for-sale

Proposed final dividend (20%)

-

investments

Transfer to general reserve

-

165,000

— Rupees in thousand —

Transfer to reserve for issue of bonus si

lares

-

Balane as at June 30, 2003

200,849

746,000

2,278

-

43,566

717,693

2.4 Employee benefits

-

-5,933

2.4. 1 Compensated absences

2,278

-

37,633

711,760

Compensated absences (leave) of employees are accounted for in the perio

.

-

138,233

2.4.2 Post retirement benefits

-

-110,000

-

2.4.2. 1 Defined contribution plan

-

-60,255

Provident fund

2,278

-

5,611

789,738

The company operates a provident fund scheme for its permanent employee

2,278

-

5,611

789,738

by the company and its employees.

-

284,156

Steel division

Contributions are made at the rate of 8.33 percent of basic pay for those employees who have served the company

for a period less than five years. For employees who have completed five ye

-

180,727

-

180,727

made at the rate of 10 percent.

-

7,883

-

7,883

Cotton division

-

-20,085

The company makes a provision at the rate of 6.25 percent of the basic pay

-

-20,085

shall eventually be transferred to a provident fund, which is yet to be establis

-

-20,085

2.4.2.2 Defined benefit plans

-

-40,170

Pension and gratuity fund

-

-165,000

-

The company has also established pension and gratuity fund schemes for it

20,085

-

-20,085

-

The pension scheme provides lifetime pension to retired employees or to the

22,363

188,610

4,257

1,162,079

pension and gratuity funds on the basis of actuarial recommendations. The cost of providing benefits is determined

using the projected unit credit method, with actuarial valuations being carried out at each balance sheet date.

Actuarial gains and losses which exceed 10 percent of the greater of the present value of the company's pension

obligations and the fair value of plan assets are amortised over the expected average remaining working lives of the

eligible employees. Past service cost is recognised immediately to the extent that the benefits are already vested.

For non- vested benefits past service cost is amortised on a straight line basis over the average period until the

amended benefits become vested.

Amounts recognised in the balance sheet represent the present value of the defined benefit obligation as adjusted for

unrecognised actuarial gains and losses and unrecognised past service cost and as reduced by the fair value of plan

Legal status and operations

The company was incorporated on August 1, 1983 as a public limited company and is quoted on the stock

exchanges in Karachi, Lahore and Islamabad. It is one of the downstream industries of Pakistan Steel Mills

manufacturing large diameter spiral arc welded steel line pipes at Nooriabad (District Dadu). The company has a

coating facility capable of applying three layer high density polyethylene coating on steel line pipes. The coating

plant commenced commercial production from November 1 6, 1 992.

The company acquired a running spinning unit of 14,400 spindles at Jaranwala (District Faisalabad) on June 30,

2000 from Crescent Jute Products Limited (CJPL). The cotton spinning activity is carried out by the company under

the name and title of "Crescent Cotton Products a division of Crescent Steel and Allied Products Limited" (the

cotton division). A basic sale and purchase agreement has been entered into, however, the transfer of legal title is in

the process of being completed.

The activities of the company have been grouped into two segments of related products. The steel division

comprises manufacturing and coating of steel pipes whereas the cotton division is involved in yarn manufacturing

activity. The steel division charges certain percentage of the common administrative expenditure to the cotton

division. In addition, the funds utilised by inter division are charged a mark-up of 7.5 percent (2002: 10 percent)

subject to financial charges incurred by the steel division.

Significant accounting policies

Accounting convention

These financial statements have been prepared under the historical cost convention, except certain investments