Rupali Polyesters Limited. Annual Reports 2003

RUPALI POLYESTERS LIMITED

Annual Reports 2003

Contents

Financial Highlights

Directors' Report to the Shareholders

Notice of Meeting

Statement of Compliance with Best Practices of Corporate Governance

Auditors' Review Report to the Members on Statement of

Compliance with Best Practices of Code of Corporate Governance

Auditors' Report to the Members

Balance Sheet

Profit and Loss Account

Cash Flow Statement

Statement of Changes in Equity

Notes to the Financial Statements

Pattern of Shareholding

Board of Directors

Jafferali M. Feerasta

Chairman

Badruddin J. Feerasta

Chief Executive

Muhammad Rashid Zahir

Nooruddin Feerasta (Sr.)

Mrs. Malek Sultan J. Feerasta

Amin A. Feerasta

Abdul Hayee

Secretary

S. Ghulam Shabbir Gilani

Audit Committee

Jafferali M. Feerasta

Muhammad Rashid Zahir

Chairman

Member

Nooruddin Feerasta (Sr.)

Member/Secretary

Bankers

ABN AMRO Bank N.V.

American Express Bank

Citibank, N.A.

Credit Agricole Indosuez

Habib Bank Ltd.

MashreqBank Pakistan Ltd.

Meezan Bank Limited

Metropolitan Bank Ltd.

Muslim Commercial Bank Limited

Soneri Bank Limited

Standard Chartered Grindlays

Union Bank Limited

Auditors

Qavi & Co.

Chartered Accountants

Registered Office

Plant

4th Floor, IEP Building

30.2 Kilometer

97-B/D-1,Gulberg-lll

Lahore - Sheikhupura Road

Lahore - 54660

Sheikhupura - 39350

PAKISTAN

Corporate Data

RUPALI POLYESTER LIMITED was incorporated at Karachi

in May 1980 as a Public Limited Company and is listed

on all stock exchanges of Pakistan. It owns and operates

composite facilities to manufacture polyester fiber and

filament yarn. It produces quality products by using

latest technology and best quality of raw materials. The

Company has the privilege of being one of the pioneers

in Pakistan for manufacture of staple fiber of highest

quality. Since its inception, the Company has been

growing steadily through expansion and diversified

operations. The assets of the Company have increased

to over Rs. 2,199 million from the initial capital outlay

of Rs. 150 million.

The Company has a polymerization unit with a capacity of 105 metric tons per day, polyester filament yarn capacity of

30 metric tons per day and a polyester staple fiber capacity of 65 metric tons per day. The various products of Rupali are

in fact import substitution as these were previously imported from Japan, Indonesia, Taiwan and Korea. Now the Company

is importing the basic raw materials only and through value addition is producing the highest quality products locally.

Since inception, the philosophy of the Company's management is to grow on the strength of quality and reliability. To achieve

this objective, it is maintaining a well equipped Research & Development Centre for standard maintenance, innovative

improvements in its products and achieving economies in production techniques without compromising on standard and

quality of products. Products and services offered by the Company are acknowledged by the customers as quality and

reliable products and are the first preference of customers.

The Company gives high priority to customers' satisfaction, tries to maintain uninterrupted supply of its products and

provides after sales services, technical support for trouble shooting.

AL HAMDO LILLAH, the Company enjoys high prestige and reputation in the business community, banks, financial institutions

and customers. It is also amongst major contributors to the national exchequer.

Profile

(Rupees in million)

1998

1999

2000

2001

2002

2003

Sales (Net)

2,075.67

1,812.28

2,175.16

2,666.46

2,448.09

2,584.91

Profit before Tax

128.75

135.307

257.777

678.018

215.001

134.643

Profit after Tax

92.001

67.243

140.409

528.575

134.951

50.659

Income Tax - Current

36.749

45.644

90.616

128.22

77.117

55.192

- Prior years

4.38

0.612

-2.422

-1.213

- Deferred

22.42

22.372

20.611

5.355

30.005

Sales Tax

261.372

252.283

326.354

403.214

447.957

464.177

Excise Duty

18.194

17.539

19.943

20.161

17.546

Gross assets employed

2,249.31

2,231.18

2,120.67

2,626.04

2,680.12

2,179.47

(excluding capital work-in-progress)

Shareholders equity

1,404.93

1,369.97

1,374.11

1,732.34

1 ,805.449

1,787.97

Long term loan

Debt/ Equity ratio

00:100

0:100

Earning per share before tax-Rs.

3.78

3.97

7.57

19.9

6.31

3.95

Dividend (percentage)

Production volume (M. tons)

29,807

30,068

29,049

31,719

31,066

30,362

Number of employees

1185

1266

1281

1356

1348

1442

It gives me immense pleasure to welcome you on behalf

of the Board of Directors to the twenty third annual

general meeting and present the report on the

performance of the Company and audited accounts of

the Company for the year ended 30 June 2003 along

with auditors' report thereon.

Financial Results:

Rs. in '000

Net profit before taxation

134,643

Provision for taxation

83,984

Profit after taxation

50,659

Un-appropriated profit brought forward

82,380

Effect of change in accounting policy

and fundamental error

78,632

161,012

Profit available for appropriation

211,671

Appropriations:

Proposed final cash dividend

@ 20% (2002: @ 20%)

68,137

Transferred to general reserve

131,863

200,000

Un-appropriated profit carried forward

11,671

Earnings per share after tax

Rs. 1.49

Overview

The financial results for the year under review in

comparison with previous year are not reflecting a very

' optimistic scenario. These results visualize an alarming

situation for a dreaded downfall of Polyester Yarn and

Staple Fiber industry of the country in coming year.

Primary consumer of Polyester Yarn and Staple Fiber

is textile sector. Depressed situation in textile rebounds

towards Polyester industry as a chain reaction pushing

its infrastructure into idle state and upsetting its economy.

At present the country's polyester fiber and filament

yarn industry is also passing through stagnation phase

mainly because of influx of imported yarn and smuggled

fabrics from China and other Far Eastern countries.

Sales although increased by 5.59% to Rs. 2,585 million

from Rs. 2,448 million in the previous year, but this

increase is only the result of higher volume otherwise

the products prices remained under intense pressure.

At one point, during the year our finished goods inventory

reached a very high level. To reduce the stocks and

generate the cash, the Company had to export its chips

to China, Europe and USA. The exports had to be made

at lower prices, which caused the decrease in gross

profit.

Profitability during the year has remained under pressure

due to higher input cost and lower sale price. The

international prices of imported raw materials sharply

Directors' Report to the Shareholders

increased during the year. Due to this, our gross profit declined by 29% from Rs. 349.504 million to Rs. 247.800 million during

the year.

There is no significant change in operating expenses. Net profit for the year registered a decline of 37%, from

Rs. 215.001 million in the year 2002 to Rs. 134.643 million. The tax assessments for our last two income years i.e.

2000-01 & 2001-02 were recently finalized. By virtue of these assessments, certain adjustments have been made in current

year financial results which also caused net profit decline. Resultantly the after tax profit remained Rs. 50.659 million as compared

to last year profit of Rs. 134.951 million.

Future Outlook

Under the prevailing situation, future of the industry in next year does not look very bright. The pressure on prices and profitability

will prolong because of the weakening of local market due to imbalanced demand-supply of Polyester Staple Fiber and Yarn.

Price escalations of PTA, MEG and other petroleum products which constitute major components of the total production cost

will also react negatively on our profitability.

Soon after the Budget of 2002, import duty on polyester yarn was abruptly reduced from 25% to 20% thus creating an anomaly

because the duty structure on raw materials (PTA 15% and MEG 10%) remain unchanged. Due to the reduction in duty, there

is tremendous increase in import of filament yarn i.e. from 7,000 tons to 45,000 tons i.e. more than 6 times.

This is all being done at the expense of local industry. Presently domestic production has come down to 75,000 tons against

available capacity of 110,000 tons reflecting a huge unabated under-utilization. Unless the import duty on polyester yarn is

restored to 25% and usance of smuggled fabric is curbed, the anomaly in industry will continue. Several representations were

made at the highest level but so far failed to achieve any results.

Again for high cost of infrastructure and other reasons stated above, our prices are not compatible with imported products. The

difference in prices, help importer to improve their share in local market by increasing imports at dumping prices.

The above mentioned adverse economic and market factors are expected to influence the future outlook of the Company.

In the above scenario, a further squeeze in margin is expected irrespective of how the wider political, social and economic

developments move forward.

Directors' Report to the Shareholders

Board of Directors

The term of existing directors is expiring and election of

directors for next term of three years will be held in forthcoming

annual general meeting. The number of the directors fixed

by the Board is seven (7).

Dividend

Your directors are pleased to propose a dividend @ 20%

i.e. Rs. 2.00 per share of Rs.10/- each for the year ended

30 June 2003.

Auditors

The present auditors M/s Qavi & Co. Chartered Accountants

retire and being eligible offer themselves for re-appointment.

The Board has received recommendations from its Audit

Committee for reappointment of M/s Qavi & Co. Chartered

Accountants as Auditors of the Company for the ensuing year.

Pattern of Shareholding

A statement showing the pattern of shareholding in the Company as at 30 June 2003 as required under Section 236 of the

Companies Ordinance, 1984 and the Code of Corporate Governance appears on page 34.

Disclosure Requirements as per Stock Exchanges Regulations of Corporate Governance

Good Corporate Governance has always been the focal point of the Board of Directors of your Company. I am happy to report

that your Company, by the grace of Allah, meets the standard set in the guidelines for Good Corporate Governance. The Company

has maintained its books of accounts as per statutory requirements of the country. Your Company's Financial Statements fully

meet the disclosure standards and fairly represent the state of the affairs of the Company, its results of operations, cash flow