Al-Qaim Textile Mills Limited - Annual Reports 2004

AL-QAIM TEXTILE MILLS LIMITED

ANNUAL REPORT 2004

FUTURE OUT LOOK

After a long period of depression and losses, the company has a year of relief. The management has

decided to invest in the future in order to cut down its expenses so that the company may also enjoy the

same position in the future. Addition and modernization will result in the decrease of costs Further

regular repayment of loans to all banks especially to Habib Bank Ltd. will result in future reduction in the

financial charges and thus helps us to achieve even better results in future. Future out look of raw cotton

is also very charming and therefore management has decided to produce cotton yarn instead of PC yarn.

CORPORATE AND FINANCIAL REPORTING

In compliance with the provisions of the Code, the Board Members are pleased to place the following

statements on record:

• The financial statements for the year ended September 30, 2004 present fairly its state of affairs,

the results of its operations, cash flows and changes in equity;

• Proper books of account of the company have been maintained;

• Appropriate accounting policies have been consistently applied in preparation of financial

statements and accounting estimates are based on reasonable and prudent judgment;

• International Accounting Standards as applicable in Pakistan have been followed in preparation

of financial statements and departure, if any, has been adequately disclosed;

• The system of internal control is sound in design. The process of monitoring will continue and

control strengthened where ever considered necessary;

• There has been no material departure from the best practices of corporate governance as

detailed in listing regulations;

• The key financial data of last six years is annexed;

• There have been six Board meetings during the year and the attendance of each Director is

stated below:

NAME OF DIRECTORS

NO OF BOARD MEETING ATTENDED

Haji Ashiq Hussain - Chairman

1

Muhammad Ali Awan- Chief Executive

6

Haji Ghulam Hussain

6

Naeem Mustafa

6

Haji Shaukat Mehmood Awan

6

Hassan Ali Awan

4

Mst. Anayat Begum

4

Mst. Naseem Begum

4

Mst. Bhag Bhari

3

DIRECTORS' REPORT

The Directors take pleasure in presenting to you the Eighteenths Annual Report of the Company together

with the Audited Accounts for the year ended September 30, 2004.

OPERATING AND FINANCIAL RESULTS

The current year ending on September 30, 2004 witnessed marked improvement in your company's

performance in comparison with the previous years. The significant improvement in operating results of

the company was mainly due to higher capacity utilization, improved performance of the P.C yarn and

reduction in financial charges.

FINANCIAL OBLIGATIONS

The management of your company was successful in restructuring the financial liabilities of Habib Bank

Limited which were renegotiated on favorable terms thereby reducing the financial cost from Rs. 6.812

million in the year 2003 to Rs. 5.306 million in the year 2004. We are confident to further bring down

financial cost in the next financial year.

MANAGEMENT'S COMMITTMENT

The Directors of your company have surrendered their loans as subordinated loan till the company earns

profit and accumulated losses are wiped off. The above loan is interest free and the Directors of your

company will not demand this amount till that time and are repayable at the convenience of the company.

KEY FINANCIAL DATA FOR LAST SIX YEARS

Rupees in '000

2004

2003

2002

2001

2000

1999

Net Sales (Rs.)

306,120

230,981

214,715

249,339

239,070

182,659

Profitability (Rs.)

Gross Profit

17.433

-9,935

11,248

22,273

18,697

6,760

ProfiV(Loss) before taxation

2.601

-6,208

-5,318

4,149

3,967

-12,094

Income tax

-1,533

1,355

-1,074

-1,247

-1,195

-913

Profit/(Loss) after taxation

1,068

-4,853

-6,392

2,902

2,772

-13,007

Financial Position (Rs.)

Tangible fixed assets-net

493,274

230,882

241,487

252,565

264,379

337,842

Other Assets

-

320

580

840

300

597

493,274

231,202

242,067

253,405

264,679

338,439

Current assets

20,094

19,895

21,682

15,598

26,349

27,197

Current Liabilities

35,741

56,004

80,015

69,123

72,925

70,234

Net Working Capital

-15,647

-36,109

-58,333

-53,525

-46,576

-43,037

Capital Employed

74,530

Less:Long term loans & other Liabiliti

117,309

202,073

134,564

140,592

163,581

173,455

Shareholders Equity

Represented by:

Share capital

74,530

Surplus on revaluation of fixed assets

418,896

103,523

250,061

Reserve on redemption of loan

-

4,248

Accumulated Profit/(Loss)

-101,106

-109,399

-275,421

-269,029

-270,069

-206,893

392,320

68,654

49,170

55,562

54,522

121,946 |

Ratios:

Gross Profit to Sales (%age)

5.69

-4.3

5.24

8.93

7.82

3.7

Net Profit/(Loss) to sales (%age)

0.35

-2.1

-2.98

1.16

-7.12

Debt : Equity Ratio

30

294

274

2.53

300

1.42

Current Ratio

56

0.36

27

23

0.36

0.39

Quantitative Data

Yarn (Kgs)

Production (Count. Into 20/s)

4,247

4,197

4,706

4,703

4,601

4,768

STATEMENT OF COMPLIANCE

WITH THE CODE OF CORPORATE GOVERNANCE

FOR THE YEAR ENDED SEPTEMBER 30, 2004

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

contained in the Listing regulations of Karachi & Lahore Stock Exchanges 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:

1. The Company encourages representation of independent non-executive directors

and directors representing minority interests on its Board of Directors.

2. The directors have confirmed that none of them is serving as director in more than

ten listed companies, including this Company.

3. 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 DPI or an NBFI

or, being a member of a stock exchange, has been declared as a defaulter by that

stock exchange.

4. The Company has prepared a 'Statement of Ethics and Business Practices' which

has been signed by all the directors and employees of the Company.

5. The Board has developed a Mission Statement, overall corporate strategy and

significant policies of the Company. A complete record of particulars of significant

policies along with the dates on which they were approved or amended has been

maintained.

6. All the powers of the Board had been duly exercised and decisions on material

transactions, including appointment and determination of remuneration and terms

and conditions of employment of the CEO and other executive directors, have been

taken by the Board.

7. The meetings of the Board were presided over by the Chairman and, in his absence,

by a director elected by the Board for this purpose and the Board met at least once in

every quarter. Written notices of the Board meetings, along with agenda and working

papers, were circulated at least seven days before the meetings. The minutes of the

meetings were appropriately recorded and circulated.

8. The Board arranged an orientation course for its directors during the year to apprise

them of their duties and responsibilities.

9. The Board has approved appointment of CFO, Company Secretary and Head of

Internal Audit, including their remuneration and terms and conditions of employment,

as determined by the CEO.

10. The Directors Report for this year has been prepared in compliance with the

requirements of the Code and fully describes the silent matters required to be

disclosed.

AUDITOR'S REPORT TO THE MEMBERS

We have audited the annexed balance sheet of AL-QAIM TEXTILE MILLS LIMITED as at September 30,

2004 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:

The previous audit of the Company has been conducted by another auditors namely M/s S. Zafar Shah

Naveed Imran & Co. Chartered Accountants Islamabad, who have issued qualified report on the accounts

for the year ended September 30, 2003 regarding the following matters;

1. The provision for gratuity has not been based on actuarial valuation to determine the present

value of gratuity obligation in accordance with International Accounting Standare-19

2. Non-confirmation of written back liabilities amounting to Rs. 17.903 million.

In addition to above points, we report that;

3. Deferred taxation in respect of surplus on revaluation of fixed assets has not been accounted

for in the books of accounts in contrary to the requirements of IAS-12.

4. The Company during the year has transferred creditors balances amounting to Rs 25 292

million to deferred liabilities as the creditors have deferred the repayments from company as

a result of negotiations. However, no direct confirmation from creditors in this regard has

been received.

a) In our opinion, proper books of accounts have been kept by the Company as required by the

Companies Ordinance, 1984

REVIEW REPORT TO THE MEMBERS ON STATEMENT OF COMPLIANCE WITH

THE BEST PRACTICES OF CODE OF CORPORATE GOVERNANCE

We have reviewed the Statement of Compliance with the best practices contained in the Code of

Corporate Governance prepared by the Board of Directors of AL-QAIM TEXTILE MILLS LIMITED to

comply with the Listing Regulation No 37 of the Karachi Stock Exchange (Guarantee) Limited and

Chapter XIII of Listing Regulation of Lahore Stock Exchange (Guarantee) Limited where the Company is

listed.

The responsibility for compliance with the Code of Corporate Governance is that of the Board of Directors

of the Company. Our responsibility is to review, to the extent where such compliance can be objectively

verified, whether the Statement of Compliance reflects the status of the Company's compliance with the

provisions of the Code of Corporate Governance and report if it does not. A review is limited primarily to

inquiries of the Company personnel and review of various documents prepared by the Company to

comply with the Code.

As part of our audit of financial statements we are required to obtain an understanding of the accounting

and internal control systems sufficient to plan the audit and develop an effective audit approach. We have

not carried out any special review of the internal control system to enable us to express an opinion as to

whether the Board's statement on internal control covers all controls and the effectiveness of such

internal controls.

Based on our review, except for our reservations detailed in our report on the Company's financial

statements for the year ended 30 September, 2004 nothing has come to our attention which causes us to

believe that the statement of compliance does not appropriately reflect the status of the Company's

compliance, in all material respect, with the best practices contained in the Code of Corporate

Governance as applicable to the Company for the year ended 30 September, 2004.

BALANCE SHEET

Note

2004

2003

(Rupees)

CAPITAL AND LIABILITIES

Share Capital and Reserves

Share Capital

3

74,530,000

Accumulated loss

-175,636,053

-183,928,740

-101,106,053

-109,398,740

SURPLUS ON REVALUATION OF FIXED ASSETS

4

418,895,874

103,522,652

SUBORDINATED LOAD

5

42,529,096

47,120,634

LONG TERM LOANS AND DEFERRED LIABILITIES

Long term loans - banks

6

80,693,988

95,408,311

Deferred tax

-

47,683,433

Deferred liabilities

7

36,615,252

36,772,235

117,309,240

179,863,979

CURRENT LIABILITIES

Current portion of long term liabilities

8

15,817,793

11,611,773

Creditors, accrued and other liabilities

9

15,181,631

14,152,693

Provision for taxation

4,066,828

3,550,361

Unclaimed Dividend

674,364

35,740,616

29,989,191

CONTINGENCIES AND COMMITMENTS

10

-

513,368,773

251,097,716

Note

2004

2003

(Rupees)

PROPERTY AND ASSETS

OPERATING FIXED ASSETS

11

493,274,334

230,882,924

DEFERRED COST

320,000

CURRENT ASSETS

Stores and spares

12

3,991,650

3,323,893

Stock in trade

13

5,561,790

8,522,629

Trade debts

14

4,494,977

3,573,018

Advances, deposits, prepayments

15

2,754,138

4,327,258

Cash and bank balances

16

3,291,884

147,994

20,094,439

19,894,792

513,368,773

251,097,716

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED SEPTEMBER 30, 2004

Share Capital

Profit/(Loss)

Total

Rupees

Balance as at September 30, 2002

74,530,000

-275,420,950

-200,890,950

Net Profit/(Loss) for the Period

-4,853,038

Transfer of incremental depreciation

96,345,248

Balance as at September 30, 2003

74,530,000

-183,928,740

-109,398,740

Net Profit/(Loss) for the Period

1,067,925

Transfer of incremental depreciation

7,224,762

Balance as at September 30, 2004

74,530,000

-175,636,053

-101,106,053

CASH FLOW STATEMENT

FOR THE YEAR ENDED SEPTEMBER 30, 2004

2004

2003

Rupees

CASH FLOW FROM OPERATING ACTIVITIES

Net profit/floss) before taxation

2,601,316

-6,207,786

Adjustment for non cash charges

Depreciation

11,139,336

11,831,857

Deferred cost written off

320,000

260,000

Loss on Sale of Fixed Assets

1,750,637

-

15,811,289

5.884,071

Income tax paid

-1,016,924

-3,123,081

Cash flow from operating activities

before working capital changes

14,794,365

2,760,990

Changes in working capital

(Increase)/Decrease in current assets

Stores and spares

-667,757

-962.109

Stock in trade

2,960,839

7.166,449

Trade debts

-921,959

-3.541776

Advances, deposits, prepayment

and other receivables

1,573,120

-1,528,839

2,944,241

1,133,725

lncrease/(Decrease) in current liabilities

Short term borrowings from directors

.

276,000

Short term borrowings - others

-

-12,142,500

Creditors, accrued and other liabilities

1,028,951

2,718,382

1,028,951

-9,148,118

Net cash generated from operations

18,767,557

-5,253,403

CASH FLOW FROM INVESTING ACTIVITIES

Fixed Capital expenditure

-966,843

-1,227,920

Sale proceeds of fixed assets sold

600,000

-

Net cash used in investing activities

-366,843

-1,227,920

CASH FLOW FROM FINANCING ACTIVITIES

Subordinated Loan

-4,591,538

-

Long term loans - Banks

-10,508,303

10,004.64

Long term loans - Others

-

11,204,953

Directors Loan

-

-621,000

Deferred liabilities

-156,983

-14,780,071

Dividend Paid

-

-4,200

Net cash used in financing activities

-15,256,824

5,804,317

Net lncrease/(0ecrease) in cash and cash

equivalent

3,143,890

-677,006

Cash and cash equivalent at the beginning

of the year

147,994

825,000

Cash and cash equivalent at the end

of the year

3.291884

147,994

Foreign Currency Translations

Transactions in foreign currency are translated in Pak Rupees at the rate of exchange ruling at

the date of transaction. Monetary assets and liabilities in foreign currencies are translated in Pak

Rupees at the rate of exchange ruling on the balance sheet date. The resultant gain or loss on

translation of monetary foreign currency liabilities are capitalized against the cost of respective

tangible operating assets acquired from the proceeds of such liabilities. All other exchange gains

or losses are included in income currently.

Taxation

Current

Charge for the current taxation is based on taxable income at the current rate of taxation after

considering the tax credits and rebates or minimum tax liability under section 113 of Income Tax

Ordinance, 2001, whichever is applicable

Deferred

The company accounts for deferred taxation, if any, by using the liability method on all timing

differences between the carrying amounts of assets and liabilities in the financial statements and

their tax base. The company recognizes deferred tax assets on all deductible temporary

differences to the extent it is probable that taxable profits will be available in the foreseeable

future against which these deductible temporary differences can be utilized. Deferred Tax is

calculated at the tax rates that are expected to apply to the period when the asset is realized or

the liability is settled.

Store and Spares

These are valued at moving average cost basis.

Stock in Trade

a) Valuation basis are as follows:-

Raw Material at lower of annual average cost or NRV

Work-in-Process at the average manufacturing cost including a proportion

of related overheads.

Finished Goods at lower of average manufacturing cost including a

proportion of related overheads or NRV

Waste at NRV

Net realizable value

b) It is determined on the basis of selling prices prevailing at the balance sheet date less

estimated cost of completion and selling expenses incidental to sales.

Trade Debtors & Receivables

Bad debts considered irrecoverable, are written off and provision is made for debts and

receivables considered doubtful, based on review of outstanding amount at the end of the year.

Financial Instruments

Financial instruments carried on the balance sheet including Trade Debtors, Advances &

Receivables, Cash & Bank Balances and Creditors, Accrued and Other Liabilities. The particular

recognition method adopted is disclosed in the individuals policy statements associated with each

item.