Dadex Eternit Limited- Annual Reports 2004

DADEX ETERNIT LIMITED

ANNUAL REPORT 2004

Board of Directors

Chief Executive

MAQBOOL H.H. RAH1MTOOLA - Chairman

Chief Financial Officer

ABDUR RAZZAK DADA

& Company Secretary

Board Audit Committee

ABU TALIB H.K. DADA

ZAHID ZAHEER

DR. MAHMOOD AHMED

QAZI SAJID ALI

RASHEED Y, CHINOY

Strategic Management Committee

MUHAMMAD NAJAM ALI

MOHAMMAD ALI JAMEEL

SAAD S, FARUQUI

SIKANDER DADA

MUHAMMAD HANIF IDREES

ZAHID ZAHEER - Chairman

ABU TALiB H.K. DADA

QAZI SAJID All

SIKANDER DADA

Auditors

A.F. FERGUSON & CO.

Chartered Accountants

Bankers

CITIBANK N.A.

HABiB BANK LIMITED

KASB BANK LIMITED

METROPOLITAN BANK LIMITED

MUSLIM COMMERCIAL BANK LIMITED

OMAN INTERNATIONAL BANK S.A.O.G.

PICIC COMMERCIAL BANK LIMITED

PRIME BANK LIMITED

STANDARD CHARTERED BANK

THE HONG KONG & SHANGHAI BANKING

CORPORATION LIMITED

UNION BANK LIMITED

Registered Office

DADEX HOUSE, 34-A/1, BLOCK 6, P.E.C.H.S,

SHAHRAH-E-FAISAL, KARACHI - 75400

Website

www.dadex.com

Report of the Board of Directors

The Board of Directors of Dadex Eternit Limited is very pleased to present forty-fifth Annual Report and Audited Financial Statements of the Company for the year ended

June 30,2004.

I. ECONOMIC OVERVIEW

The economic reforms initiated by the Government have improved the business environment. Resources becoming available to the Government from reduced debt servicing are

being diverted to development of infrastructure including water and sewerage projects. However, public spending on the infrastructure projects needs to be further enhanced if

the goal of poverty alleviation has to be achieved.

II. BUSINESS OVERVIEW & FINANCIAL RESULTS

The Government has identified housing and construction as one of major drivers of growth and has taken measures to boost this sector. Responding to such measures, construction

sector has registered a growth rate of 7.9% against previous year's growth of 3.1%. Increased sales and marketing efforts by your company has achieved net sales of Rs. 947

million as compared to Rs. 711 million in the previous year, which is approximately 33% higher than the previous year.

The share of Thermoplastic Division in the total soles of the company continued to grow, which supports your company's strategy to invest in this Division. In pursuance of this

and taking advantage of low interest rate scenario, during the year, new stote-of-the-ort Polyethylene (PE) extruder was installed to increase the capacity to manufacture plastic

pipes.

Substantial losses have occurred due to interruptions in power supply during manufacturing in plastics. Therefore, to prevent this, your company has installed another power

generation unit.

Over last few years, the Thermoplastic Division, a growing segment of the Company's business was facing severe competition from influx of imported finished goods encouraged

by a very low difference in custom duties on imported finished products and raw materials used for manufacturing, thereby putting local manufacturers at a disadvantage. This

issue has been partially addressed in the last fiscal budget.

We urge the Government to initiate measures to check dumping of cheap imports info the country and to ensure adherence to standards.

Local sales of Chrysotile Cement Division registered a growth of 17% over last year and export sales of the division registered 131 % growth over last year. This division continued

to have a major share in total exports due to which total exports, especially to North America registered a growth of 72% over last year.

Financial costs during the year under review was approx 42% lower as compared to last year despite the average utilisation of borrowed funds being higher during the year as

compared to previous year. This has been possible, in view of the low interest rate scenario and by prudent treasury management.

The profit after tax of Rs. 37.57 million is by the grace of Allah 32% more than last year and translates into an earning per share of Rs. 3.49.

Report of the Board of Directors

APPROPRIATIONS

Together with the unappropriated profit of Rs. 3.998 million brought forward from the previous year, a total of Rs. 41.575 million is available for appropriation. The Directors

are pleased to propose a final cash dividend of 30%. The proposed appropriations of profit of the company are as under:

Net profit before taxation

(Rupees '000)

Less: Provision for taxation

69,803

Net profit after taxation

32,226

Add: Unappropriated profit brought forward

37,577

Profit available for appropriation

3,998

41,575

Your Directors have decided to appropriate as under:

Transferred to Revenue Reserve - General

Final dividend proposed Rs. 3.00 (2003: Rs. 2.00) per share

5,666

Unappropriated profit carried forward

32,292

3,617

Break-up value per share as at June 30, 2004 is Rs. 40.53 (2003: Rs. 40.00)

BOARD OF DIRECTORS

Since the last report, Mr. Towfiq H. Chinoy, Mr, Riaz T. Chinoy, Mr. Kemal Shoaib and Mr. Zafar Iqboi resigned. We appreciate the valuable contribution of the outgoing Directors,

while on the Board of Directors of the Company. We welcome to the Board Mr. Rasheed Y. Chinoy, Mr. Muhammad Najam Ali, Mr. Mohammad Ali Jameel and Mr. Saad S. Faruqui,

who joined the Board in place of the resigning Directors, with effect from April 8,2004, for the remainder of the term. The term of office of the present Directors will expire on

July 12,2005.

During the year, eight (8) meetings of the Board of Directors were held. Attendance by Chief Executive and each director is annexed with this report,

OUR SHARE IN THE NATIONAL ECONOMY

During the year under review, we have contributed over Rs. 210 million, as payment of duties, taxes and levies to the Government exchequer. We believe that if the Government

supports the initiatives for the growth of manufacturing sector, and curtails dumping, our share in the market will also grow and reduce dependence on imports resulting in saving

of foreign exchange for the country.

HUMAN RESOURCES

During the year, Company arranged various external and in-house trainings including programmes for team building and increasing motivation, for the development of its

employees. Trainings were imparted keeping in view the organisational requirements with the objective of developing people.

Industrial relations remained cordial and satisfactory throughout the year. A satisfactory agreement with CBA of Karachi Factory was signed and negotiations with CBA, Hyderabad

Factory are in progress. Our employees and unions have always remained our partner and have always shored with us the pains as well as gains of the risks and rewards associated

with the challenges and opportunities related to the business, and we expect the same environment to continue.

Report of the Board of Directors

VII. INFORMATION TECHNOLOGY / BUSINESS PROCESSES

VIII. SAFETY, HEALTH & ENVIRONMENT (SHE)

IX. COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE AND BEST PRACTICES OF TRANSFER PRICING

A) Your Board of Directors is pleased fo confirm:

4) The following statements which Auditors have also certified in their report to the members:

i) The financial statements, prepared by the management of the company, present fairly its state of affairs, the result of its operations, cash flows end changes in equity,

ii) Proper hooks of account of the company have been maintained.

iii) Appropriate accounting policies have been consistently applied in preparation of financial statements arid accounting estimates are based on reasonable and prudent judgment,

iv) International Accounting Standards, as applicable in Pakistan, have been followed in preparation of financial statements.

vi) There are no significant doubts upon the company's ability to continue as going concern.

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

B) Following is the further information in accordance with Corporate and Financial Reporting Framework laid down in Code of Corporate Governance.

1) The summary of key operating and financial data of the Company of last six years is annexed with tbis report.

2) Taxes and levies are as disclosed in me notes to the accounts.

3) The following is the value of investments held by Provident Fund based on the latest audited accounts as at June 30:

Report of the Board of Directors

5) The directors, CEO, CFO & Company Secretary and their spouses and minor children carried out no trades in the shares of the listed company, except for disposal of shores by the

out going Directors and transfer on execution of succession certificate.

X. AUDITORS

The present auditors M/s A.F, Ferguson & Co., Chartered Accountants, retire at the conclusion of the forty-fifth Annual General Meeting. According to douse xli of the Code of

Corporate Governance and Regulation No.37 of the Listing Regulations of The Karachi Stock Exchange, al listed companies ore required to change their auditors every five years.

Therefore, in compliance of !he requirements of the Code of Corporate Governance, the Audit Committee has recommended the appointment of M/s Ford Rhodes Sidot Fiyder &

Co., Chartered Accountants, as auditors of the company for the year ending June 30,2005, by the Company's shareholders. Auditors recommended for appointment hold satisfactory

rating under the "Quality Control Review Programme" of the Institute of Chartered Accountants of Pakistan.

XI. MATERIAL CHANGES AND COMMITMENTS

XII. GOING FORWARD

XIII. ACKNOWLEDGEMENTS

We thank our suppliers for their cooperation; our honks and financial institutions for their reposing trust on us and providing us timely, competitive and qualify financial services;

and our shareholders for reposing confidence on us.

Our employees are the rea! force behind the team and their dedication, commitment and hard work has made achieving these results possible. We would like to extend our

appreciation for their performance throughout the year and expect that their continued zeal and enthusiasm will enable the Company to achieve its vision of becoming the most

valued company for al! its stakeholders.

On behalf of the Board of Directors

Attendance at Board Meeting

for the Year Ended June 30, 2004

Name Of Director

Total No. Of Board Meetings

Total No. Of Meetings Attended

MAQBOOL H.H. RAHIMTOOLA

8

ABDUR RAZZAK DADA

8

2

(Alternate: TARIQ All JAFRi)

5

7

ABU TALIB H.K. DADA

8

ZAHID ZAHEER

8

DR. MAHMOOD AHMED

8

5

(Alternate: MUHAMMAD HANIF IDREES)

2

7

QAZI SAJID All

8

6

RAY HEMSTOCK (Outgoing)

1

0

RIYAZ T. CHINOY (Incoming / Outgoing)

6

4

RASHEED Y. CHiNOY (Incoming)

1

]

8

5

PHILIPPE COENS (Outgoing)

]

0

TOWFIQ H. CHiNOY (Incoming / Outgoing)

6

4

MUHAMMAD NAJAM All (Incoming)

1

8

5

TARIQ All JAFRI (Outgoing)

1

0

ZAFAR IQBAL (Incoming / Outgoing)

6

2

MOHAMMAD All JAMEEL (Incoming)

1

8

3

M. IRSHAD UDDIN (Outgoing)

1

0

KEMAL SHOAIB (Incoming / Outgoing)

6

3

SAAD S. FARUQUI (Incoming)

1

8

4

SIKANDER DADA - CHIEF EXECUTIVE

8

Statement of Compliance with the Code of Corporate

Governance for the Year Ended June 30, 2004

This statement is being presented to comply with the Code of Corporate Governance as contained in the listing regulations of Karachi 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:

1. The Company encourages representation of independent non-executive directors and directors representing minority interests on its Board of Directors. At present there is no executive

director in the Company's Board of Directors, other than the CEO.

2. The directors have confirmed that none of them is serving as a director in more than ten listed companies, including this Company.

3. All the resident directors of the Company have confirmed that they are registered taxpayers.

4. All the resident directors have confirmed that none of them has defaulted in payment of any loan to a banking company, o DFI or an NBFI or, being a member of a stock exchange,

has been declared as a defaulter by that stock exchange.

5. All the casual vacancies occurring during the year in the Board were filled up by the directors within 30 days.

6. The Company has prepared a "Statement of Ethics and Business Practices", which has been signed by all the directors and senior management employees of the Company.

7. The Board of Directors has adopted a vision/mission statement. Any amendments in significant policies are approved by the Board and a complete record of amendments in significant

policies along with the dates on which they were approved has been maintained.

8. 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 have been taken by the Board.

9. The meetings of the Board were presided over by the Chairman. The Board met at least once in every quartet. Written notices of the Board meetings, along with agenda were

circulated at least seven days before the meeting, unless an urgency warranted otherwise. The minutes of the meeting were appropriately recorded and circulated.

10. Directors ore well conversant with the listing regulations and legal requirements and as such are fully aware of their duties and responsibilities.

11. 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.

12. The CFO and the Company Secretary is a fellow member of the institute of Chartered Accountants of Pakistan and the Institute of Cost & Management Accountants of Pakistan.

13. The Company Secretary & CFO attends Board Meetings of the Company.

14. The director's 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.

15. The financial statements of the Company were duly endorsed by CEO and CFO before approval of the Board.

16. 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.

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

Statement of Compliance with the Code of Corporate

Governance for the Year Ended June 30, 2004

18. The Board has formed an audit committee, it comprises four members, of whom three tire non-executive directors including the chairman of the committee.

19. 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.

20. The Board has set-up an effective internal audit function.

21. The statutory auditors of the Company have confirmed that:

a) they hove been given a satisfactory rating under the Quality Control Review programme of the Institute of Chartered Accountants of Pakistan;

b) they or any of the partners of the firm, their spouses and minor children do not hold shares of the Company; and

c) 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.

22. 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.

23. We confirm that all other material principles contained in the Code hove been complied with.

Auditors' Review Report on Statement of Compliance

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 Dadex Eternit Limited to comply with the Listing Regulation No.37 of the Karachi 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 the various documents prepared by the Company to comply with the Code.

As part of our audit of the 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 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 June 30,2004.

Auditors' Report to the Members

We have audited the annexed balance sheet of Dadex Eternit Limited as at June 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 reguire 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 account 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;

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 June 30,2004 and of the profit, its cash flows and changes in equity for the year then ended; and

d) in our opinion Zakat deductible a? source under the Zakat and Ushr Ordinance, 1980 (XVIil of 1980), was deducted by the company and deposited

in the Central Zakaf Fund established under Section 7 of that Ordinance.

Balance Sheet as at June 30, 2004

Note

2004

2003

(Rupees '000)

Fixed assets

Operating fixed assets

3

252,253

205,663

Capita! work-in-progress

4

15,864

976

268,117

206,639

Investments - held to maturity

5

295

- others

6

5,000

Long-term loans and advances

7

675

712

Long-term deposits

8

6,131

3,559

Deferred taxation

9

7,743

-

287,961

216,205

Current assets

Stores and spares

10

46,427

48,141

Stock-in-trade

11

361,217

287,832

Trade debts

12

87,273

59,413

Loons and advances

13

18,828

13,345

Trade deposits and short-term prepayments

14

9,644

9,636

Other receivables

15

3,208

376

Taxation recoverable

-

39,615

Cash and bank balances

16

368,734

36,477

895,331

494,835

Current liabilities and provisions

Short-term finances

17

420,000

94,048

Creditors, accrued and other liabilities

18

250,334

136,577

Current portion of iiabiiifies against assets subject to finance lease

19

31,143

26,012

Taxation payable

917

-

Proposed dividend

32,292

21,528

734,686

278,165

Net current assets

160,645

216,670

Liabilities against assets subject to finance lease

19

12,349

357

Deferred taxation

9

-

1,880

Commitments

20

Net assets

436,257

430,638

Financed by:

Issued, subscribed and paid-up capital

22

107,640

Reserves

23

325,000

319,000

Unappropriated profit

3,617

3,998

Shareholders' equity

436,257

430,638

Profit and Loss Account

for the Year June 30, 2004

Note

2004

2003

(Rupees '000)

Net sales

24

946,854

710,644

Cost of goods sold

25

701,393

502,583

Gross profit

245,461

208,061

Administration, seiiirig and distribution expenses

26

173,517

144,055

Operating profit

71,944

64,006

Other income

27

8,624

6,908

80,568

70,914

Financial charges