Fateh Industries Limited - Annual Reports 2004

FATEH INDUSTRIES LIMITED

ANNUAL REPORT 2004

MANAGING DIRECTOR &

CHIEF EXECUTIVE

Mr. Saeed Alam

DIRECTORS

Mr. Rauf Alam

Mr. Aftiab Alam

Mr. Muhammad ;Mohsin

Mr. Muharnmad Naveed

Mrs. Jamila Alam

Mrs. Najma Roshan

SECRETARY

Mr. Ghous MuNMnpad iian

CHIEF FINANCIAL OFFICER

Mr. Muhammad Ishaque Essani

AUDIT COMMITTEE

Mr. Rauf Alam (Chairraa.n]M

Mr. Muhammad Mohsin (Merpber)

Mr. Muhammad Naveed (Member)

AUDIT COMMITTEE

M/s. Hafizullah & Co.

Chartered Accquntants,

Hyderabad.

BANKERS

United Bank Limited.

REGISTERED OFFICE

Mirpurkhas Road,

Hyderabad.

BRANCH OFFICE

7th Floor, Suit*. 706,

Business & Finance Centre,

I.I. Chundrigar Road,

Karachi.

PLANT

Mirpukhas Road,

Hyderabad.

• No trading of shares have been carried out by the Chief Executive, Direc

Company Secretary, their spouses and minor children;

• During the year four (04) meetings pf the Board of Directors were held. The

is as follows:

S.NO. NAME OF DIRECTOR MEETING ATTENDED

1. Mr. RaufAlam 04

2. Mr.AftabAlam 04

Auditors'Observation

1. During the years from 1998-99 to 2002-03 depreciation was not charged on fixed assts due to

suspension of the production activities. However, from the current year depreciation is computed; and

charged to administration expenses considering it as a period cost. The management is of the view that

carrying amount of fixed assets depends on #\e useful life of the assets which is subject to its usage .and,

not the age, provided the asset become obsolete.

2. No provision has been made in the accounts for receivables amounting to Rs.33.312 milttonnslnce this

amount is recoverable, soon after, realization of outstanding debts.

Auditors

The retiring Auditors M/s. Hafizullah & Company, Chartered Accountants, being eligible offer themselves

for reappointment.

Your Directors welcome you on the 19^th Annual General Meeting of your Company and present before you

the audited financial statements and auditors' report for the year ended June 30, 2004.

The management of your Company is continuously making efforts for recovery of the stuck up funds from

abroad thereby to come out of the financial constraints and start production activities. As soon as the funds

are realized the company intends to start its business anew. It is expected that the effbrts of the

management will be materialized shortly.

Financial Results

During the year under review there were no operational activities of the Company for want of working

capital. The Company incurred loss of Rs.7.985 million mainly due to financial expenses and charge of

depreciation. The accumulated loss carried to balance sheet amounts to Rs.139,.66 million.

The accounts of the Company are prepared on going concern basis as the management intends to revive its

production activities after realization of the stuck up funds from abroad. The management will support the

company financially till the recovery of outstanding debts and for revival of its operational activities.

Compliance with the Code of Corporate Governance:

The requirements of Code of Corporate Governance set out by Karachi Stock Exchange in their listing rules,

relevant for the year ended June 30, 2004, have been duly complied with. The Directors confirm the

compliance of Corporate Governance, statement to this effect is annexed.

Corporate and Financial Reporting Framework

• The financial statements, prepared by the management of the Company, presents fairly its state of

affairs, cash flows and changes in equity;

• Proper books of accounts have been maintained by the Company;

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

accounting estimates are based on reasonable and prudent judgment;

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

financial statements and any departure therefrom has been adequately disclosed;

• The System on internal control is sound in design and has been effectively implemented and monitored;

• There are no significant doubts upon the company's ability to continue as a going concern;

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

the listing regulations;

Operating and financial data for the last six years is as under;

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

Sales

22,685

23,086

0

Gross Profit / (Loss)

-7,126

7,553

0

Selling & Administration Expenses

11,240

5,680

34,553

31,966

146

9,319

9,641

Profit / (loss) before Taxation

-26,892

-11,213

-41,047

-31,980

-160

-756

-7,035

Profit/(Loss) after Taxation

-28,719

-11,354

-41,190

-31,980

1,456

-609

-7,985

Authorized Capital

100,000

Paid up Capital

20,000

Shareholder equity

-27,997

-39,351

-80,542

-112,522

-11,066

-11,675

-119,660

Fixed Assets

97,949

98,153

98,398

88,876

Total Assets

318,079

304,987

263,630

226,213

227,034

215,091

208,023

11. The financial statements of the company were duly endorsed by GEO and CFO before

approval of the Board. .

12. The directors, CEO and executive do not hold any interest in the shares of the company

other than that disclosed in the pattern of shareholding.

13. The company has complied with all the corporate and financial reporting requirements of

the Code.

14. The Board has already formed an Audit Committee which comprises three members of

, whom two (02) are non-executive directors.

15. The meeting 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 references of the committee have been formed and advised to the committee

for compliance.

16. The Board has set up an effective internal audit, function manned by suitably qualified

and experienced personnel who are conversant with the policies and procedures of the

company and are involved in the internal audit function on a full time basis.

17. The statutory auditors of the company have confirmed that they have been given a

satisfactory rating under the Quality Control Review Programme of the Institute of

Chartered Accountant 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 Accountant (IFAC)

guidelines on Code of Ethics as adopted by the Institute of Chartered Accountants of

Pakistan.

18. 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.

19. We confirm that all other material principles contained in the Code have been compiled

with.

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

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

directors representing minority interests on its Board of Directors. However there is no

representation of non-executive independent directors and minority shareholders 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. 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 stock exchange, has been declared as a defaulter by that stock exchange.

4. No casual vacancy occurred in the Board till June 30, 2004.

5. The company has prepared a 'Statement of Ethics and Business Practices' which has

been signed by all the directors.

6. The Board has developed a vision / mission statement, overall corporate strategy and

significant policies of the company.

7. All the power 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 Chief Executive Officer (CEO) and other executive

directors, have been taken by the Board.

8. The meeting of the Board were presided over by the Chairman and the Board met at

least once in every quarter. Written notices of the Board Meeting, alognwith agenda and

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

the meetings were appropriately recorded and circulated.

9. Officers having position of Chief Financial Officer (CFO), Company Secretary and Head of

Internal Audit were appointed prior to the implementation of the Code of Corporate

Governance.

10. The Directors' Report for the period ended June 30, 2004 has prepared in compliance

with the requirements of the Code and fully describes the salient matters required to be

disclosed.

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, except for charge of depreciation at full

rate during the year;*

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;

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 statements and statements

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, except for paras 2 & 3 above and

the adjustments that may be required, these respectively give a true and fair view of the

state of the Company's affairs as at 30^th June, 2004 and of the Loss, its cash flow and

changes in equity for the year then ended; and

in our opinion, no zakat was deductible at source under the Zakat and Ushr Ordinance,

1980 (XVIII of 1980).

We have audited the annexed balance sheet . of Fateh Industries Limited as at 30^th

June, 2004 and the related profit and loss account, cash flow statement and statement of changes

in equity together with 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 purpose 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 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;

1. Without qualifying our report we draw your attention to the fact that the company has incurred

toss at Rs. 7.985 million mainly due to depreciation and interest expenses incurred. The

accumulated loss upto June 30, 2004 is Rs. 139.66 million. The current liabilities exceeded

current assets by Rs. 201.483 million. The accounts have been prepared this year also on a

going concern basis validity of which depends on the support from directors of the company

towards providing working capital and other finance in absence of which the basis would not be

valid and adjustment would have to be made for any gain or loss arising on realisation of

company's assets.

2. The written down value of fixed assets of the company is in excess and the loss is understated

by Rs.39.044 million as the Company has not charged the depreciation from 1998-99 through

2002-03 as mentioned in note 10 to the accounts.

3. That the company has not made provision for doubtful balances in other receivables, amounting

to Rs.33.312 million as mentioned in note 9.1 to the accounts. Had this provision been made,

loss for the year would have increased by Rs.33. 312 million.

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

companies Ordinance, 1984:

NOTE

30-06-2004

30-06-2003

RUPEES

Sales

Cost of Sales

17

0

Gross Loss

-

Administration Expenses

18

9,641,049

9,318,732

Operating Loss

-9,641,049

-9,318,732

Other Income

19

16,563

43,993,146

Exchange Gain

5,180,440

-4,444,046

34,674,414

Financial Expenses

20

3,512,073

35,401,328

Other Charges

21

29,000

3,541,073

35,430,328

Loss before Taxation

-7,985,119

-755,914

Taxation

Current

-

0

Prior - reversal

-

-146,852

*

-146,852

Loss after Taxation

-7,985,119

-609,062

Accumulated Loss Carried forward

-131,674,733

-131,065,671

Accumulated Loss brought forward

to Balance Sheet

-139,659,852

-131,674,733

Loss per share basic and diluted.

-3.99

-0.3

NOTE

30-06-2004

30-06-2003

PROPERTY & ASSETS

RUPEES

TANGIBLE FIXED ASSETS

Operating fixed assets

10

88,875,356

98,398,115

LONG TERM INVESTMENTS

11

17,566

17;566

CURRENT ASSETS

Stores/ spare parts and loose tools

12

8,158,130

Trade debts

!3

73,319,296

64,062,676

Advances, deposits and prepayments

14

145,000

835,486

Other receivables

15

37,489,694

43,533,027

Cash and bank balances

16

20,113

85,891

119,132,233

116,675,210

Share

Accumulated

Capita!

(Loss) / Profit

Total

Balance as at June/ 30 2002

20,000,000

-131,065,671

-111,065,671

Loss for the year

-609,062

Balance as at June 30, 2003

20,000,000

(131,674,733) -

-111,674,733

Loss for the year

-7,985,119

Balance as at June 30, 2004

20,000,000

-139,659,852

-119,659,852

Cash Flow Statement

NOTE

30-06-2004

30-06-2Q03

RUPEES

Cash generated from operating activities

A.

24,586,053

8,621,108

Markup / interest paid

-20,515,265

-15,674,307

Markup received from .associated company

487,199

12,512,423

Exchange gain

5,180,440

0

Taxes refunded

0

2,789,827

-14,847,626

-372,057

Net Cash Flow from .operating activities

9,738,427

8,249,051

Cash flow from investing activities

Dividend received

746

1,592

Fixed Capital Expenditure

0

Net Cash Flow from investing activities

746

1,592

Cash flow from financing activities

Repayment of long term loans

-9,804,951

-8,251,000

Net cash flow from financing activities

-9,804,951

-8,251,000

Increase / (decrease) in cash & cash equivalent

B.

-65.778

-357

NOTE: A

Cash Generated from operating activities :

Net (loss) before taxation

-7,985,119

-755,914

Stock Written off

0

9,172,038

Mark-up charged from associated companies

-15,817

-12,999,622

Depreciation

9,522,759

0

Mark-up / interest expenses

3,512,073

35,399,178

Dividend received

-746

-1,592

Exchange gain

-5,180,440

0

Gain due to rescheduling of loan

0

-30,991,932

7,837,829

578,070

Operating loss before working capital changes

-147,290

-177,844

(Increase) / Decrease in current assets

Trade debtors

-9,256,619

387,635

Advances, deposits & pre-payments

690,486

226,832

Other receivables

5,571,951

0

(Decrease) / Increase in current liabilities

Creditors, accrued & other liabilities

27,727,525

8,184,485

24,733,343

8,798,952

Cash (used in) / generated from operations

24,586,053

8,621,108

NOTE:B

Analysis of changes in cash and cash equivalent

during the year :

Cash and bank balances as at June 30, 2003

85,891

86,248

Increase/(Decrease) in cash and cash equivalents

-65,778

-357

Cash and bank balances as at June 30, 2004

20,113

85,891

Trade Debts

Bad debts are written off against the profit of the Company during the year iru which these

are incurred.

Foreign Currency Transaction

Transactions in foreign currencies are accounted for in Pak Rupee at exchange rate.

approximating those prevailing on the date 'of transactions, Mdnetary assets and liabilities

denominated in foreign currencies are translated into Pak Rupee at the rates of exchange

which approximate those prevalent at the balance sheet date except for liabilities obvefed

' under forward exchange contract which are translated at the contracted rates.

Borrowing- Cost

Borrowing cost that are directly attributable to the acquisition, construction or production

" of a qualifying asset are capitalized as a part of the cost of that asset.All other borrowing

costs are charged to income.

Provision for Gratuity

The Company operates an unfunded gratuity scheme for its all eligible employees and

provision is made annually to cover the obligations under the scheme. Provision for

gratuity has not been made in the accounts as there was no staff employed in the

company to whom gratuity is to be paid.

Revenue Recognition

Sales are recorded on dispatch of goods. Income other than sales are recorded on accrual

basis.

Sales •

Sales include rebates ort exptirt sales.

Offsetting of Financial Assets and Financial Liabilities

A financial asset and a financial liability is offset and the net amount is reported: in the

balance sheet if the company has the legal enforceable right to set off the transaction and

also tends either to settle on a net basis or to realize the asset and .settle the liability

simultaneously.

-

Impairment of Assets

The Company assesses at each balance sheet date whether there is any indication that an

asset has been impaired. If any such indication exists, the company estimates the

recoverable amount of the asset. If, and only if, the recoverable amount of an asset Is less

than its carrying amount, the carrying amount of the assets is reduced to its recoverable

amount and is recognized as an expense in the income statement.

1. THE COMPANY AND ITS OPERATIONS

Fateh industries Limited is incorporated in Pakistan as a public limited company and is listed on

the Karachi Stock Exchange.

The Company is engaged mainly in the manufacturing and sale of footwear of all kinds, however,

manufacturing is suspended since 1999 - 2000.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2.1 Accounting Convention