Gatron Industries Limited - Annual Reports

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Gatron Industries Limited

Annual Report 2000

CONTENTS

Gatron (Industries) Limited

COMPANY INFORMATION

BOARD OF DIRECTORS

Peer Mohammad Diwan

Chief Executive

Haji Sharif Tayub

Haji Haroon Tayub

Abdul Razak Diwan

Zakaria Bilwani

Usman Habib

Iqbal Abdul Shakoor

Shabbir Diwan

COMPANY SECRETARY

Mohammad Yasin Bilwani

BANKERS

ABN- AMRO Bank N V

American Express Bank Limited

Bank Alfalah Limited

Bank AI Habib Limited

Citibank N.A.

Credit Agricole Indosuez

Faysal Bank Limited

Habib Bank Limited

Metropolitan Bank Limited

National Bank of Pakistan

Societe Generale, The French and International Bank

Standard Chartered Bank

The HongKong and Shanghai Banking Corporation Limited

Union Bank Limited (Formerly Bank of America NT & SA)

AUDITORS

M/ s. Hyder Bhimji & Co.

Chartered Accountants,

Karachi.

PLANT

Plot No. M-2, Sec. M, H.I.T.E.

Main R.C.D. Highway

Hub Chowki, Lasbela Distt.

Balochistan - Pakistan.

REGISTERED

Room No. 32, 1st Floor,

Ahmed Complex,

Jinnah Road,

Quetta - Pakistan.

LIAISON OFFICE

8th Floor, Textile Plaza

M.A. Jinnah/Dunolly Road

Karachi- 74000 Pakistan.

FINANCIAL HIGHLIGHTS

(Rupees in '000)

2000

1999

Turnover

3,091,555

4,201,912

Profit before tax

153,255

117,892

Profit after tax

93,995

65,387

Taxation

59,260

52,505

Gross assets employed

3,741,165

3,577,024

(excluding capital work-in-progress)

Issued share capital

383,645

Net shareholders' equity

1,570,795

1,534,347

Earning per share before tax - Rupees

4.00

3.07

DIRECTORS' REPORT

The Directors of your Company feel pleasure in presenting the report on the performance

of the Company for the year ended June 30, 2000.

SUMMARY OF FINANCIAL RESULTS

The financial results for the year under review are as follows:

( Rupees in '000 )

Gross Sales

4,201,912

Net sales

3,735,076

Operating profit

348,858

Profit before taxation

153,255

Profit after taxation

93,995

OVERVIEW

By the Grace of Allah, the net sales of your Company increased by Rs. 1,022 million

over last year, allowing the Company to cross a figure of Rs.4 billion gross sales mark

for the first time in its history. The increase is partly due to increase in export sales of

Polyester Chips Bottle Grade (PET Resin) and consequently better capacity utilization of the plant.

For the last 3 years the Polyester Chips Bottle Grade (PET Resin)industry has had an over

supply situation on the international level and was consequently a loss making

business. This had repercussions both on the financial side as well as on the marketing

side. Due to the extra ordinary marketing efforts and improvement of margins to

break-even level by the end of the year under review, the results of PET Resin were better

than the last financial year. However the fact remains that your Company with a plant

capacity of 21,000 tons has to compete with world scale economical size plants of 4 times

higher capacity. The company is presently trying to de-bottleneck the existing 21,000

tons capacity of the plant but the maximum it can possibly reach is 24,500 tons. Insha

Allah this is expected to be achieved in the maintenance shutdown in January, 2001.

With the rising raw material prices expected in the coming years, the duty drawback on

export of PET Resin in rupees per kilo is going to be continuously outdated. Your

company is reviewing various options to tackle this situation.

The Company has established itself as a reliable Quality, local and export Supplier

of PET Preforms (made from PET Resin). These PET Performs are sold for converting

into Carbonated Soft Drink PET bottles. However in the coming year, efforts are

being directed towards new applications for packaging purposes. These efforts will

increase the consumption of PET Resin/PET Preforms in the country.

The whole chain of materials in the polyester industry, including the raw materials are

showing an upward price trend, most of which is cost push. For e.g. Paraxylene (base

raw material of PTA) rose from $310 to $510 in one year pushing the whole upstream

chain. This cost push factor has also contributed to the increased sales figure of

this year.

Due to the continued international pressure (dumping product prices in relation to raw

material costs) on the Polyester Filament Yarn, current year's profitability in filament

yarn did not show a remarkable improvement over last year. However by the Grace

of Allah, your Company, manufacturing Filament Yarn from Polyester Chips did

better than most of the other Chip-based Polyester Filament Yarn units. This was

made possible by lower and efficient utilities and administrative costs. This was also

possible since the product versatility and marketing strengths (developed by the

Company over the years) enabled the Company to achieve Filament Yarn

production far above rated capacity and near to maximum possible plant utilization.

However the overall profitability of the Company was noticeably better than last

year due to reduction of losses in the Polyester Chips Bottle Grade (PET Resin)

business.

Some support during the year was given by the 10% excise duty imposed on import of

Polyester Filament Yarn effective July 02, 1999 (making a total import duty 45%).

However on January 15, 2000 while total import duty on raw material was decreased

by 10% (from 35% to 25%), giving an impact of around Rs.3.60 per kg, whereas the total

import duty on finished product i.e., Polyester Filament Yarn was reduced by

15% (from 45% to 30%) resulting an adverse impact of Rs.10/- per kg. The Government

could and should have brought down the duty on Polyester Filament Yarn to 35%

instead of as low as 30%.

At the same time the excise duty of Rs. 2.50 per kg. on local production (an anomaly)

was not removed by Government - supposedly due to revenue consideration.

Therefore the net protection level for the Polyester Filament Yarn industry was

reduced drastically in rupee terms by around Rs.6.40 per kg. It is logical and necessary

that the Government remove the excise duty on local production as even the reduced 5%

differential between the import duty of Polyester Chips (raw material)and Polyester

Filament Yarn (finished product) is being wiped out by the incidence of excise duty

on local production of finished goods.

Due to very low net operating margin from operations (for reasons already explained)

the "other income" portion formed a major chunk of the total income like the previous

year - though it was lower than last year's figure of "other income."

Since there is very little water in Hub Dam, extra ordinary expenses were incurred this

year for pumping and transporting over 2 lacs gallon/day of well water within and

from 5 km range of the factory. Further expenses were incurred in treating this water

through the R.O. unit. The water shortfall and resultant expenses expected to continue

until sufficient rainfall is received, something which is eluding Karachi and Hub District

Lasbela (Balochistan) since last 3 years.

The repairs and maintenance charges of the year reflected the major maintenance on the

utilities equipment required in view of their age and running hours. They also reflect the

minor improvements made in the various existing assets. Increase in the sales volume

of PET Resin meant a higher level of material handling charges.

The other costs as well as Administrative expenses were kept on strict control through

effective management process and actions and the increase only reflect the Usual

inflationary trend. The working capital requirements, compared to previous year,

increased due to increased turnover and due to escalating cost of raw materials. While

stocks of PET Resin were brought down, stocks of Polyester filament yarn were high

due to a very depressed yarn market in June 2000. The physical level of raw material stock

was also raised to normal levels compared to the extra ordinary low levels of the

previous year ending. The increase in sales volume of PET Resin also meant an increase

in Receivables of Cash L/C proceeds as well as usance L/Cs in transit and consequent

increase in trade debts.

A second injection moulding machine with an investment of Rs. 70 million ordered in

the year under review and was installed and commissioned during the on going year.

Capital expenditure for debottlenecking the Polyester Chips Bottle Grade (PET Resin)

plant will also be incurred in the on going year. The company has plans to incur capital

expenditure to replace the 15 years' old power generators or to arrange additional

power from Gatro Power (wholly owned subsidiary) to meet the power requirements

and to increase standby equipment in texturising, compressors and chillers sections.

FUTURE OUTLOOK

As discussed above the local Polyester Filament industry has remained under

pressure for the last few years and the import duty changes of January 2000 added

further pressure. The under invoicing of imported yarn and fabric continuing

unabated also adds to this pressure. The high stocks of yarn in June 2000 reflected

this situation. Six units of Polyester Filament Yarn have closed down this year - four of

them, it seems for a longer term. Gatron and a couple of other plants have

transformed some of their production to new varieties. All this has reduced supply

of normal variety. It is therefore expected that seasonal months of October to December

(unlike last year)will see an improvement of margins - aided also by the depreciation

of the rupee by over 10% in September 2000. However the impending liberal imports of

filament yarn (on under-invoiced value and lower duty) to fill in this gap of seasonal

months - may put pressure on the prices and margins in the following months. The

Government should check and curb the under invoicing of filament yarn with the

help of FYMA (Filament Yarn Manufacturers Association). A member of FYMA can be

nominated on a valuation vigilance committee to provide free of charge professional

assistance to prevent extreme under invoicing.

This would not only increase Government revenue but allow the Filament Yarn

Industry to earn adequate and proportionate margins on the turnover and on

the huge investment made in their respective plants and would also allow the revival of

closed units.

The sharp weakening of Pak Rupee against major world currencies and significant

upsurge in fuel prices is going to add to the inflationary pressure on direct and indirect

costs. The Polyester Chips Bottle Grade (PET Resin) project after 2 years of losses is Insha

Allah expected to generate profit next year

APPROPRIATION

Your Directors are pleased to report after tax profits of Rs. 93.995 million for the year

ended June 30, 2000 and proposed that profit be appropriated as follows:

(Rupees in'000)

Profit after taxation

93,995

Unappropriated profit

brought forward

13,166

-----------

Profit available

for appropriation

107,161

Appropriations:

Proposed cash dividend @15%

57,547

Transfer to general reserve

30,000

-----------

87,547

-----------

Unappropriated profit

carried forward

19,614

==========

CONTRIBUTION TO NATIONAL EXCHEQUER

During the year, the Company's contribution to the national exchequre amounted to

Rs. 654 million (June 1999: Rs. 630 million) in respect of payments towards sales tax,

in come tax, excise duties, import duties and other statutory levies. This does not include

the income tax paid by the employees of the Company in their individual capacities.

GENERAL

The Company by the Grace of Allan, achieved ISO-9002 certification for its

Production and Marketing of Polyester Chips - Bottle Grade (PET Resin).

The Company has also fully provided for its deferred tax liability of Rs. 317.230 million

which will mature in the next years.

SUBSIDIARY COMPANY

The Audited Accounts of the wholly owned subsidiary, Gatro Power (Pvt.) Limited

for the year ended June 30, 2000 are annexed.

BOARD CHANGES

Mr. Muhammad Afzalullah Siddiqui, Director representing National Investment

Trust (NIT) retired on the expiry of his term on December 23, 1999.

Mr. Z.I. Saifi, Nominee Director of Bankers Equity Limited ceased to hold Office of the

Director under Section 188(b) of the Companies Ordinance, 1984 and Article 93(b)

of the Articles of Association of the Company.

The Board of Directors would like to place on record its appreciation for the valuable

services rendered to the Company by the outgoing Directors.

AUDITORS

The retiring auditors M/s. Hyder Bhimji & Company, Chartered Accountants being

eligible, offer themselves for reappointment.

PATTERN OF SHAREHOLDING

A statement reflecting the pattern of shareholding is attached to the Annual

Report.

ACKNOWLEDGEMENT

We offer our sincere thanks to our valued clients, bankers, financial institutions and

the Government agencies for the cooperation extended by them during the course of

business activities. We equally appreciate the hard work and commitment demon-

strated by all our dedicated employees and team members in contributing towards

achieving the objectives of the Company.

On behalf of the Board

PEER MOHAMMAD DIWAN

November 08, 2000

Chief Executive

NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the Twentieth Annual General Meeting of Gatron (Industries)

Limited will be held on Monday, January 01, 2001 at 11:30 a.m. at Serena Hotel, Quetta

to transact the following business:

ORDINARY BUSINESS

1. To confirm the minutes of the Nineteenth Annual General Meeting held on December

06, 1999.

2. To receive, consider and adopt the Audited Accounts of the Company for the year

ended June 30, 2000 together with the Auditors' and Directors' Reports thereon.

3. To approve as recommended by the Board of Directors the payment of cash dividend

at Rs. 1.50 per share (15%) for the year ended June 30, 2000.

4. To appoint Auditors for the next financial year and to fix their remuneration.

5. To transact any other ordinary business with the permission of the Chair.

SPECIAL BUSINESS

To consider and if thought fit to pass the following resolution as a Special Resolution:

"Resolved as Special Resolution that existing Article 95(22) of the Articles of Association

of the Company be and is hereby deleted and be substituted with the following:

"Article 95(22)

To Subscribe or contribute or otherwise assist or to grant money to charitable, benevolent,

religious, educational, scientific, to individuals or institutions for objects or purposes

referred to herein."

By Order of the Board

Mohammad Yasin Bilwani

December 01, 2000

Company Secretary

Notes:

1) The Share Transfer Books of the Company will remain closed from December 19, 2000

to January 01, 2001 (both days inclusive). The shareholders are advised to notify to the

Company of any change in their addresses.

2) A member entitled to attend and vote at the meeting may appoint another member as

his/her proxy to attend, speak and vote on his/her behalf. Proxies in order to be effective

must be received at the office of the Company not less than 48 hours before the time

of holding the meeting.

3) Account holders and sub account holders and/or the persons whose shares are in group

account and holding book entry of shares of the Company in Central Depository System

of Central Depository Company of Pakistan Limited, who wish to attend the Annual

General Meeting are requested to please bring original National Identity Card (NIC)

with copy thereof duly attested or the original passport for identification purpose. In

case of proxy, he/she must also produce attested copy of his/her NIC or original

passport at the time of meeting.

4) In of case corporate entity, the Board of Directors' resolution/power of attorney with

specimen signature shall be submitted along with proxy form to the Company.

Statement Under Section 160 of the Companies Ordinance, 1984

This statement sets out the material facts concerning the Special Business to be transacted

at the Twentieth Annual General Meeting of the Company to be held on January, 01, 2001.

Gatron being one of the largest industrial concern in the Province of Balochistan it had to

contribute donations in other backward areas of Balochistan. Moreover, sometimes

circumstances compel for donations to other deserving sectors. At present there is no such

clause in the Articles of Association of the Company authorizing it to make such charitable

contributions. In the absence of such clause, the Company is unable to contribute any sum

for the relief of the deserving people of the country. To empower Directors to comply such

obligations, existing sub Article of Articles of Association of the Company needs substitution.

The Directors of the Company do not have any interest directly or indirectly, in relation to

the proposed amendment of the Articles of Association.

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed Balance Sheet of GATRON (INDUSTRIES) LIMITED as at

June 30, 2000 and the related Profit and Loss Account, Cash Flow Statement and Statement

of Changes in Equity 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.

It is the responsibility of the Company's management to establish and maintain a system

of internal control, and prepare and present the above said statements in conformity with

the approved accounting standards and the requirements of the Companies Ordinance,

1984. Our responsibility is to express an opinion on these statements based on our audit.

We conducted our audit in accordance with the auditing standards as applicable in Pakistan.

These standards require that we plan and perform the audit to obtain reasonable assurance

about whether the above said statements are free of any material misstatement. An audit

includes examining, on a test basis, evidence supporting the amounts and disclosures in

the above said statements. An audit also includes assessing the accounting policies and

significant estimates made by management, as well as, evaluating the overall presentation

of the above said statements. We believe that our audit provides a reasonable basis for our

opinion and, after due verification, we report that:

(a) in our opinion, proper books of accounts 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 accounts 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;

given to us, the Balance Sheet, Profit and Loss Account, Cash Flow Statement and

Statement of Changes in Equity together with the notes forming part thereof confirm

with approved accounting standards as applicable in Pakistan, and, 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, 2000 and of the profit, its cash flows and the changes in equity for the

year then ended; and

(d) in our opinion Zakat deductible at source under the Zakat and Ushr Ordinance,

1980 (XVIII of 1980) was deducted by the Company and deposited in the Central

Zakat Fund established under Section 7 of that Ordinance.

HYDER BHIMJI & CO.

Karachi: November 08, 2000

Chartered Accountants

BALANCE SHEET

As at June 30, 2000

( Rupees in '000 )

Note

2000

1999

SHARE CAPITAL AND RESERVES

Authorised capital

44,000,000 Ordinary shares of Rs. 10/- each

440,000

==========

Issued, subscribed and paid-up capital

383,645

Capital reserve

457,536

General reserve

710,000

680,000

Unappropriated profit

19,614

13,166

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