Chaudhry Textile Mills Limited - Annual Reports 2004

CHAUDHARY TEXTILE MILLS LIMITED

ANNUAL REPORT 2004

Vision Statement:

To strive for Excellence through commitment, integrity, honesty and team work

Mission Statement:

producing high quality carded and combed, cotton, core spun and blended, yarn for

knitting and weaving.

The company will conduct its operations prudently assuring customer satisfaction

and will provide profits and growth to its shareholders through:

Providing quality products and services to our customers mainly engaged in

the manufacturing of textile products

Manufacturing of cotton, core spun and blended yarn as per the customers'

requirements and market demand

Exploring the global market with special emphasis on Europe and USA

Keeping pace with the rapidly changing technology by continuously

balancing, modernization and replacement (BMR).of plant and machinery

Enhancing the profitability by improved efficiency and cost controls

Recruiting, developing, motivating and retaining the personnel "having

exceptional ability and dedication by providing them good working

conditions, performance based compensation, attractive benefit program

and opportunity for growth

Protecting the environment and contributing towards the economic strength

of the country and function as a good corporate citizen

Presentation of Financial Statements

The financial statements, prepared by the management of the company, fairly present its state of affairs, the results

of its operations, cash flows and changes in equity. .

Proper Books of Account

The company has maintained proper books of account.

Accounting Policies

Appropriate accounting policies have been consistently applied in preparation of financial statements and

accounting estimates are based on reasonable and prudent judgment, state of affair, the results of its operations,

cash flow and changes in equity.

Application of International Accounting Standards

International Accounting Standards, as applicable in Pakistan, have been followed in preparation of financial

statements.

The system' of internal control, which was in place, is being continuously reviewed and the process of review and

monitoring will continue with the object to improve it further.

Going Concern

There is no doubt about the company's ability to continue as a going concern. The directors are of the view that

the company has potential of growth and should INSHAHALL AH achieve satisfactory profitability in the coming

years with continued financial support from the sponsors and associated undertakings.

Best Practices of Corporate Governance

There has been no material departure from the best practices of corporate governance, as detailed in listing

regulations.

There has been no departure from the best practices of transfer pricing.

Profit per share is Rs. 25.26

Audit Committee

The Board in compliance to the Code of Corporate Governance has established an Audit Committee and the

following .directors are its members:

Mr. Saqib AH {Chairman)

Mr. Muhammad Imran Amjad

Mian Aamer Mahmood

Operating And Financial Data

Operating and financial data and key ratios of last six years are annexed.

Dividend

S^nce the company suffered loss after taxation for the year and also has accumulated losses of previous years

therefore directors are unable to declare any dividend.

Gratuity Scheme

DIRECTORS' REPORT

Your directors present their 38^th Annual Report together with the Audited Accounts of the company for the year ended

The company during the year incurred a loss of Rs.3.042 million after taxation as against loss of Rs. 1.934 last year.

However, after taking into account the extraordinary item of Rs. 41.110 million, arisen due to net gain on disposal of

freehold land, the company has earned a profit of Rs. 38.069 million for the year . The accumulated loss brought

forward from last year was Rs.72.357 million and the accumulated loss of Rs.34.288 million is being carried forward

for adjustment against future profits.

Mills Operation of Ring Spinning unit remained closed" since May, 1993, but the Open-end unit operated for the whole

year. The textile industry remained under pressure because of the unfavourable international condition, world wide

recession and the effect of Iraq war. Moreover, declining trend in the demand of yarn coupled with fierce competition

among open-end units, has further aggravated the business conditions.

The production converted into 20/1 average count was 0.634 million kgs. during the year tender review as comparedio

0.527 million kgs. last year. Third party conversion of yarn was reduced from Rs. 11.910 million to Rs. 1.942 million

. which contributed toward further loss. Mills operations had to stop intermittently due to non availability of raw material

and shortage of working labour. However, with the maximum capacity utilization for the remaining period, the

production of yarn was 20% higher than the last year. Sales prices were not reciprocated by the input cost, thus

resulting decrearse in G.P. rate over last year. Hundreds of old Open End machines have sprung all around Punjab

utilizing waste from spinning and ginning mills. If the Government wants to keep the Open-End units alive in the

organised sector, then they will have to make them competitive by removing sales tax on all the Open-End. units of old

machines, which are providing employment to thousands of workers in this sector. The end users of Open-End yarn are

mostly manufacturers of Daris,Nowars and poor quality rags etc. used by low income group.

Further to above, your company has been able to dispose off the surplus agricultural land during the year. The funds so

realised, have been utilized for debt retirement, which were outstanding since long. However, the management is

striving to prepare for more competitive environment and capacity utilization. The quality of yarn is being increased by

upgrading machinery with necessary back process, which will improve product quality and manufacturing efficiencies.

We fervently hope a better growth in the year under progress as indigenous cotton crop is of good quality and prices of

cotton are competitive. With the removal of export quota on yarn from January 2005, the coming period seems to be

very encouraging:

Change of Financial Year

The Central Board of Revenue has directed the change of financial year end from September to June for textile

industry. Consequently upon above direction and Circular NO. 29 of 2004, issued by the Securities &Exchange

Commission of Pakistan (SECP), next financial year will be of nine months and will close on 30^th June, 2005 unless

there is amendment by CBR/SECP in this respect.

Placement of Quarterly Financial Statements on Website

Pursuant to (SECP) Circular No. 19 dated 14 April, 2004 director? have proposed .subject to the permission of SECP,

to place the quarterly financial statements on company website instead of sending the same by post to shareholders.

Corporate Governance

The Directors are pleased to report that your company has taken necessary steps to comply with the provisions of the

Code of Corporate Governance as incorporated in the listing regulation of stock exchange.

Statement of Directors' Responsibilities

In the light of the cpmpany's overall objectives, the Board of Directors regularly reviews the company's strategic

direction; Annual plans and performance targets set for the business. The Board is committed to maintain the high

standards of good corporate governance. We give below statements on Corporate and Financial Reporting Frame

STATEMENT OF COMPLIANCE WITH THE

CODE OF CORPORATE GOVERNANCE

This statement is being presented to comply with the code of corporate governance contained in

listing regulations of Karachi and 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 the representation of independent non-executive directors and

directors representing minority interests on its board of directors. At present there are six

non executive directors on the Board.

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

listed companies, including this company.

3. No casual vacancy occurred in the Board during the year.

4. The business of the Company is conducted in accordance with the 'Statement of Ethics

and Business Practices' signed by all the directors and employees.

5. The business operations of the Company are carried out in accordance with the

Company's vision/mission statement, overall corporate strategy and significant policies. 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 have 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. No specific orientation course was held during the year. However, the management

continue to apprise and familiarize with changes in law to discharge- their duties and

responsibilities.

9. The CFO, Company Secretary and Head of Internal Audit have executed their

responsibilities pursuant to the approved appointment by the Board 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 salient matters required to be disclosed.

11. The financial statements of the Company were duly endorsed by CEO and CFO before

approval of the Board.

- 12. 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.

Operating and Financial Data and Key Ratios

Particulars

Year ended

30-09-2004

30-09-2003

30-09-2002

30-09-2001

30-09-2000

30-09-1999

Sales-net

88,907,473

69,911,836

85,903,451

126,362,070

Gross Profit

1,569,763

3,953,435

104,918

16,223,320

-

Net Profit /(Loss)

-

. -

-

before taxation

-2,758,510

-1,544,067

-4,371,044

5,892,928

-505,494

1,190,250

Net Profit /(Loss) after

taxation

-3,041,510

-1,879,359

-4,499,763

1,817,315

-664,630

1,049,715

Net Profit after extraordinary item

38,068,947

-

Total Assets

56,203,239

36,187,319

34,245,791

41,033,770

21,513,531

20,644,329

Dividend

-

10% to minority

-

Long Term Liabilities

-

8,867,974

6,840,229

Ratios

Gross Profit (%)

1.76

5.65

0.12

12.84

.

_

Net Profit (%)

42.82

-2.69

-5.24

1.44

-

.

Current

0.5

0.14

0.12

0.16

0.07

0.08

Earning/(Loss) Per Share

. -25.26

-1.25

-2.99

1.21

-0.44

0.69

Return on total assets

0.69

-0.05

-0.13

0.04

-0.03

0.04

The Company has complied with all the corporate and financial reporting requirements of

the Code.

The audit committee as formed by the Board is fully functional. The committee comprises

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

committee.

The meetings of the audit committee were held at least once every quarter prior to

approval of interim and final results of the Company and as required by the Code. The

terms of reference of the committee have been formed and advised to the committee for

compliance.

The Board has set up an effective internal audit function.

The statutory auditors of the Company have confirmed that they have been given a

satisfactory rating under the Quality Control Review program of the Institute of Chartered

Accountants of Pakistan, that they or any of the partners of the firm, their spouses and

minor children do not hold shares of the Company and that the firm and all its partners

are in compliance with International Federation of Accountants (IFAC) guidelines on code

of ethics as adopted by Institute of Chartered Accountants of Pakistan.

The statutory auditors or the persons associated with them have not been appointed to

provide other services except in accordance with the listing regulations and the auditors

have confirmed that they have observed IFAC guidelines in this regard.

We confirm that all other material principles contained in the Code have been complied

with.

Review report to the members on statement of compliance

with 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 CHAUDHRY TEXTILE MILLS LIMITED to

Comply with the Listing Regulation No. 37 of the Karachi Stock Exchange (Guarantee) Limited and Clause

Limited and Chapter XIII of the Listing Regulations of the 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 Boards statement on internal control covers all controls and the effectiveness of such

internal controls. .

Based on our review, nothing has come to our attention which causes us to believe that the Statement of

Compliance does not appropriately reflect the Company's compliance, in all material respects, with the

best practices contained in the Code of Corporate Governance as applicable to the Company for the year

ended 30th September, 2004.

Pattern of Shareholding as at 30th September, 2004

No. of

No. of Shares

Shareholder's Category

Shareholders

held

Percentage

Associated Companies

NIT & ICP

National Bank.of Pakistan Trustee' Dept.

1

100

Investment Corporation of Pakistan

1

1,233

0.08

Directors

Mr. llyas M. Chaudhry

1

328,352

21.79

Ch. Muhammad Nawaz

1

7,535

0.5

Mr. Muhammad Imran Amjad

1

2,464

0.16

Mr. SaqibAli

1

1,000

0.07

Mian Aamar Mahmud

1

3,014.00

0.2

Mian Yasir Mahmood

1

3,014

0.2

Chief Executive Officer

Mian Muhammad Amjad

1

9,712

0.64

Directors / CEO's Spouse

Mrs. Nasreen llyas

1

495,059

32.85

Mrs. Naseem Amjad

1

37,695

2.51

Executive

-

Banks, development Financial Institutions,

Non-Banking Financial Institutions, insurance

Companies, Modaraba and Modaraba Funds

-

Pakistan Industrial Credit and Investment Corp

1

50

-

State Life Insurance Corporation of Pakistan

1

80,942

5.38

Shareholder's holding 10% or more voting interest

Mr. llyas M. Chaudhry

1

328,352

21.79.

Mrs. Nasreen llyas

1

495,059

32.85

Ch. Muhammad Younus

1

152,974

10.15

BALANCE SHEET AS AT 30 SEPTEMBER 2004

2004

2003

2004

2003

Note

Rupees

Note

Rupees

FIXED CAPITAL

%

CAPITAL AND RESERVE

EXPENDITURE

Authorised capital

Operating

10

7,394,714

8,587,938

2,000,000 ordinary

shares of Rs.10 each

20,000,000

Non-operating

11

15,669,277

Issued, subscribed

23,063,991

24,257,215

and paid-up capital

4

15,070,000

DEFERRED TAXATION

12

2,357,000

2,195,000

General reserve .

3,680,000

LONG TERM DEPOSITS

548,691

60,481

Accumulated loss

-34,287,735

-73,028,170

-15,537,735

-54,278,170

LONG TERM LOANS

13

211,000

368,500

STAFF RETIREMENT

CURRENT ASSETS

BENEFITS.- Gratuity

3.3

11,204,171

11,172,002

Stores, spares and

loose tools

14

3,195,604

3,148,828

CURRENT LIABILITIES

Short term loans

5

37,485,000

Stock-in-trade

15

2,015,220

905,000

Temporary bank

Trade debtors - unsecured

overdraft

6

0

309,868

- considered good

5,902,550

4,161,928

Creditors, accruals

Advances, deposits

and other payables

7

18,829,509

39,911,243

and other receivables

16

4,058,890

3,241,932

Provision for taxation

8

3,193,014

2,748,014

Cash and bank balances

17

14,850,293

43,435

Dividends

1,029,280

1,034,362

30,022,557

11,501,123

60,536,803

81,488,487.00

CONTINGENCIES AND

COMMITMENTS

9

56,203,239

38,382,319

56,203,239

38,382,319

AUDITORS' REPORT

We have audited the annexed balance sheet of CHAUDHRY TEXTILE MILLS LIMITED as at 30

September, 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:

(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 except for

the change stated in note 3.3, with which we concur;

(II) the expenditure incurred during the year was for the purpose of the Company's business; and

(ill) 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, cash flow statement and statement of changes in equity

together with the notes forming part thereof conform 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 30 September, 2004 and of the profit, its cash flows and changes in equity for the year

then ended; and

(d) in our opinion, no zakat was deductible at source under the Zakat and Ushr Ordinance, 1980.

Without further qualifying our opinion, we draw attention to note 2 to the financial statements which

states factors that raise doubt regarding the Company's ability to continue as a 'going concern¹. The

validity of the 'going concern basis' is dependent on the Company's ability to achieve satisfactory

levels of profitability in foreseeable future and continued financial support from the Company's lenders.

CASH FLOW STATEMENT

FOR THE YEAR ENDED 30 SEPTEMBER. 2004

' CASH FLOW FROM OPERATING ACTIVITIES

2004

2003

Rupees

Loss before taxation, and extraordinary item

-2,758,510

(1 ,544,067)

Adjustments for:

Depreciation

813,246

908,709

Gain on disposal of operating fixed assets

-185,002

(10O.091)

Staff retirement benefits - net

703,657

916,383

Unpaid wages written-back

-192,345

-512,043

Balances written-back - net

-1,972,865

0

CASH OUTFLOW FROM OPERATING ACTIVITIES

- Before working capital changes

-3,591,819

-331,109

(Increase) / decrease in current assets

Stores, spares and loose tools

-46,776

62,305

Stock-in-trade

-1,110,220

-212,492

Trade debtors

-1,740,622

-3,233,968

Advances, deposits and other receivables (excluding current

portion of long term loans and tax deposited/deducted at source)

(201 ,088)

4,892

(Decrease) / increase in creditors, accruals and other payables

-18,916,524

2.985,831

.

-22,015,230

-393,432

CASH OUTFLOW FROM OPERATING ACTIVITIES

- After working capital changes

-25,607,049

-724,541

Taxes paid

-597,370

-412,847

CASH OUTFLOW FROM OPERATING ACTIVITIES - After taxation

-26,204,419

-1,137,388

Long term deposits

-488,210

0

Long term loans - net

139,000

1O5.OOC)