| GADOON TEXTILE MILLS LIMITED |
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| ANNUAL
REPORT 2004 |
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| Board
of Directors |
A. Razzak A. Aziz Tabba |
(Chairman/Chief
Executive) |
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|
M. Yunus A. Aziz Tabba |
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|
M. Sohail M. Yunus Tabba |
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|
Muhammad Ali A. Razzak
Tabba |
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|
M. Javed M. Yunus Tabba |
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|
llyas Ismail Moten |
|
|
Asif Jameel |
(NIT Nominee) |
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| Company
Secretary |
Asif Amanullah |
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| &
Sr. Manager Finance |
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| Audit
Committee |
M. Sohail M. Yunus Tabba |
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|
M. Javed M. Yunus Tabba |
|
|
llyas Ismail Moten |
|
|
| Auditors |
|
Hameed Chaudhri & Co. |
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|
Chartered Accountants |
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| Registered
Office |
APTMA House, |
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|
Tehkal Payan, Jamarud
Road, |
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|
Peshawar. |
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Phone No. : 5701496 |
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Fax No. : 091-840273 |
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| Factory |
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Gadoon Amazai Industrial
Estate, |
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|
Gadoon, Distt. Swabi. |
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E-mail Address : gtml@brain.net.pk |
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| Karachi Office & |
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6-A, Muhammad Ali Housing
Society, |
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| Shares Deptt. |
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Abdul Aziz Haji Hashim
Tabba Street, |
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Karachi-75350. |
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Phone No. : 111-786-555 |
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Fax No. : (021)-4382436 |
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E-mail Address : gadoon@cyber.net.pk |
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| Bankers |
|
Metropolitan Bank Ltd. |
|
|
Bank Al Habib |
|
|
Habib Bank Ltd. |
|
|
Habib A. G. Zurich |
|
|
United Bank Ltd. |
|
|
Citibank N.A. |
|
|
ABN Amro Bank |
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|
Muslim Cummercial Bank
Ltd. |
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|
Standard Charted Bank
Ltd. |
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Union Bank Ltd. |
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| DIRECTORS'
REPORT |
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| The
Directors of your Company are pleased to present before you the 1 7lh Annual Report together
with the |
|
| Company's
audited Accounts for the year ended 30lh September 2004. |
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| Financial
Highlights: |
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| The
financial results for the year under review are as follows: |
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|
2004 |
2003 |
|
|
|
Rs. in Thousand |
|
|
| Profit
before taxation |
|
262,067 |
250,285 |
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| Provision
for taxation Current |
|
50,126 |
22,897 |
|
| -Deferred |
|
-33,000 |
95,000 |
|
|
17,126 |
117,897 |
|
| Profit after tax |
|
244,941 |
132,388 |
|
| Un-appropriated
profit |
|
1,396,551 |
1,293,460 |
|
| Profit
available for appropriation |
|
1,641,492 |
1,425,848 |
|
| Appropriation: |
|
|
|
| Cash
dividend @ 25% (2003: 12.50%) |
|
58,594 |
29,297 |
|
| Transfer
to General Reserve |
|
1 ,000,000 |
- |
|
|
1,058,594 |
29,297 |
|
| Un-appropriated
profit carried forward |
|
582,898 |
1,396,551 |
|
|
| The
sales increased from Rs.4.511 million in 2003 to Rs.5.955 million in 2004,
showing an increase of 32% |
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| over last year. |
|
|
| Profit
after taxation rose from Rs.132.39 million to Rs.244.94 million. But, as you
will observe, the bottom- |
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| line
did not rise proportionately. This is due to squeezing gross profit margin as
a result of higher cost of |
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| cotton,
as compared to current market. Considering the tight supply situation and
increase in prices of lint |
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| cotton
at the beginning of the year, your Company had built up stocks enough for the
whole year by |
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| purchasing/importing
the material available at prices which were substantially higher. This scheme
worked |
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| well
as long as the yarn fetched good prices, but resulted in lowering of
profitability as the lint market |
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| crashed,
triggering the yarn market decline. |
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|
| There
is a considerable saving in financial charges amounting to Rs. 39.1 7
million, i.e. 40% over last year. |
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| This
is the result of favourable money market and the Management's efforts to
secure the cheapest |
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| borrowing,
aided by effective financial planning. |
|
|
| Expansion
and Modernization Projects: |
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| As
you know, your Company's plant expansion and renovation programme, initiated
in 2003, aimed at |
|
| meeting
the challenges of the post-quota era commencing from January 2005, is now
nearing completion. |
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| During
the current year, the Company incurred further capital expenditure of Rs.455
million approximately. |
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| Asa
result, the Company has state-of-the art machinery capable of producing
higher-count yarn to meet the |
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| market
requirements at home and abroad. |
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| With
the addition during year, the total number of spindles rose to 190,000 and,
with the culmination of the |
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| on-going
projects, the number of spindles will be 2 lacs. You will be pleased to know
that your Company is |
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| now
the largest spinning unit in the country. |
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| STATEMENT
OF COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE BEST |
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| PRACTICES
ON TRANSFER PRICING FOR THE YEAR ENDED SEPTEMBER 30, 2004 |
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| A.
Statement of Compliance with the Code of Corporate Governance |
|
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| This
statement is being presented to comply with the Code of Corporate Governance
contained in the listing |
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| regulations
of Karachi, Lahore and Islamabad Stock Exchanges for the purpose of
establishing a frame work of |
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| good
governance, whereby a listed company is managed in compliance with the best
practices of corporate |
|
| governance. |
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| The
Company has applied the principles contained in the code in the following
manner: |
|
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| 1. The board comprises seven directors,
including the CEO. The number of executive director on the board is one. |
|
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| 2. The directors have confirmed that none of
them is serving as a director in more than ten listed companies, |
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| including
this company. |
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| 3. All the resident directors of the Company
are registered as tax payers and none of them has defaulted in |
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| payment
ofany loan to a banking company, a DPI or an NBFI or, being a member of a
stock exchange has been |
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| declared as |
|
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| defaulter
by the stock exchange. |
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| 4. No casual vacancy
occurred in the Board during the current year. |
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| 5. The Company has prepared a "Statement
of Ethics and Business Practices', which has been signed by all the |
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| directors
and employees of the Company. |
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| 6. The Board has adopted a vision/mission
statement, overall corporate strategy and significant policies of the |
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| Company. |
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| 7. All the powers of the Board have been duly
exercised and decision on material transactions including |
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| appointment
and determination of remuneration and terms and conditions of employment of
the CEO have |
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| been
taken by the Board. |
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| 8. The meetings of the Board were presided
over by the Chairman. The Board met at least once in every quarter. |
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| Written
notice of the Board meetings, alongwith agenda and working papers, were
circulated at least seven |
|
| days
before the meetings. The minutes of the meetings were appropriately recorded
and circulated. |
|
|
| 9. The Directors of the Company have given a
declaration that they are aware of their duties, powers and |
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| responsibilities
underthe Companies Ordinance, 1984 and the listing regulations of the Stock
Exchanges. |
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| 10.
The Board of Directors has approved the appointment of CFO, Company Secretary
and Head of Internal Audit |
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| including
their remuneration and terms and conditions of employment, as determined
by CEO. The |
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| Management.is
in the process of hiring suitably qualified person to fill the vacancy of
CFO. |
|
|
| 11.
The Directors' Report has been prepared in compliance with the requirements
of the Code and fully describes |
|
| the
salient matters required to be disclosed. |
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| 12.
The financial statements of the Company were duly endorsed by the CEO and CFO
before approval of the |
|
| Board. |
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| Earnings
Per Share: |
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| Earnings
per share during the year under report worked out to Rs.10.45 (2003:
Rs.5.65). |
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|
| Dividend: |
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| The
Board of Directors have pleasure in recommending cash dividend @ 25% for the
year under review. |
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| Contribution
to the National Exchequer: |
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| During
the year, the Company contributed to the national exchequer Rs.640 million in
respect of payments |
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| towards
sales tax, income tax, import duties and other statutory levies. |
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| Future Outlook: |
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| The
availability of cotton at reasonable prices augurs well for the textile
industry. Cotton being the major |
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| portion
of cost of production, the industry should be assured of a reasonable
profitability in the next year, |
|
| notwithstanding
the rise in furnace oil and other components of cost of production. |
|
|
| If
all goes well with the export market from January onwards, we look forward to
a favourable operating |
|
| environment
which will enable your Company to produce better financial results in 2005. |
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|
| Change
in Financial Year End: |
|
| The
Central Board of Revenue has changed the financial year of Cotton Textile
Industry from September to |
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| June.
Therefore, your Company has also changed its closing date of financial year
from 30lh September to |
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| 30lh June. Hence, the next
annual audited Accounts will be for nine months ended June 30, 2005. |
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| Accordingly,
the 1st and 2nd interim accounts ended on
31.12.2004 and 31.3.2005 will be prepared in |
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| routine.
Interim accounts subsequent to the year 30.6.2005 will be prepared as first,
second and third |
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| quarterly
accounts for the period ended 30.9.2005,31.12.2005 and 31.3.2006,
respectively. |
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|
| Code
of Corporate Governance: |
|
| The
Directors of your Company are aware of their responsibilities under the Code
of Corporate Governance, |
|
| incorporated
in the Listing Regulations of the Stock Exchanges in the country under
instructions from Security |
|
| &
Exchange Commission of Pakistan. We are taking all the necessary steps to
ensure Good Corporate |
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| Governance
in your company as required by the Code. |
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| As
a part of the compliance of the Code, we confirm the following: |
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| a) The financial statements, prepared by
the management of the Company, present fairly its state of |
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| affairs,
the result of its operations, cash flows and changes in equity. |
|
|
| b) Proper books of account of the Company
have been maintained. |
|
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| c) Appropriate accounting policies have
been consistently applied in preparation of financial statements |
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| and
accounting estimates are based on reasonable and prudent judgment. |
|
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| d) International Accounting Standards, as
applicable in Pakistan, have been followed in preparation of |
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| financial
statements and any departure there from has been adequately disclosed. |
|
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| e) The system of internal control is sound
in design and is being effectively implemented and monitored. |
|
|
| f) The Company has a very sound balance
sheet with excellent debt:equity ratio and therefore there is no |
|
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| REVIEW
REPORT TO THE MEMBERS ON STATEMENT OF COMPLIANCE |
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| WITH
BEST PRACTICES OF CODE OF CORPORATE GOVERNANCE |
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| 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 GADOON TEXTILE MILLS LIMITED to comply
with the |
|
| Listing
Regulation No.37 (Chapter XI) of the Karachi Stock Exchange, and the Listing
Reulation No. 36 (Chapter |
|
| XI)
of the Islamabad Stock Exchange 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 veri- |
|
| fied,
whether the statement of Compliance reflects the status of the Company's
compliance with the provi- |
|
| sions
of the Code of Corporate Governance and report if it does not. A review is
limited primarily to inquir- |
|
| ies
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, 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
30 September, 2004. |
|
|
| GADOON
TEXTILE MILLS LIMITED |
|
| YEARWISE
STATISTICAL SUMMARY |
|
|
|
|
(Rs. '000') |
|
|
|
1999 |
2000 |
2001 |
2002 |
2003 |
2004 |
|
| ASSETS
EMPLOYED |
|
|
| Fixed Assets |
|
1,563,887 |
1,863,237 |
1,808,317 |
2,024,058 |
2,935,674 |
2,950,274 |
|
| Long
Term Loans, Deposits |
|
|
| & Deferred Costs |
|
2,571 |
2,301 |
2,238 |
3,416 |
4,176 |
4,558 |
|
| Current Assets |
|
1,213,610 |
921,908 |
1,159,307 |
1,788,770 |
1,747,374 |
1,640,541 |
|
| Total
Assets Employed |
2,780,069 |
2,787,445 |
2,969,862 |
3,816,244 |
4,687,224 |
4,595,372 |
|
| FINANCED BY |
|
|
|
| Shareholders'
Equity |
1,041,683 |
1,332,525 |
1,459,613 |
1,630,980 |
1,734,051 |
1,920,399 |
|
| Long Term Loans |
|
129,062 |
400,000 |
299,900 |
200,000 |
860,000 |
680,000 |
|
| Current
Portion of Long |
|
|
| Term Loans |
|
105,647 |
19,469 |
122,588 |
- |
-1 |
1 430,000 |
|
|
|
234,708 |
419,469 |
422,488 |
200,000 |
860,000 |
1,1 10,000 |
|
| Obligation
under Finance Leas |
115,795 |
97,465 |
74,933 |
• |
- |
- |
|
| Deferred
Liabilities |
159,699 |
163,410 |
219,093 |
223,057 |
329,984 |
303,286 |
|
| Current Liabilities |
|
1,333,830 |
794,044 |
916,323 |
1,762,228 |
1,763,189 |
1,691,688 |
|
| Current
portion of Loans & Lease |
-105,647 |
-19,469 |
-122,588 |
- |
- |
-430,000 |
|
|
|
1,228,183 |
774,575 |
793,735 |
1,762,228 |
1,763,189 |
1,261,688 |
|
| Total
Funds Invested |
2,780,069 |
2,787,445 |
2,969,862 |
3,816,244 |
4,687,224 |
4,595,372 |
|
| TURNOVER
AND PROFIT |
|
|
| Turnover |
|
3,014,229 |
3,438,586 |
4,249,447 |
4,021,480 |
4,510,525 |
5,954,839 |
|
| Gross Profit |
|
358,618 |
736,245 |
661,825 |
460,128 |
441,347 |
519,614 |
|
| Operating Profit |
|
300,075 |
631,681 |
526,527 |
322,333 |
292,912 |
349,455 |
|
| Profit/(loss)
before taxation |
175,217 |
507,062 |
313,988 |
250,317 |
250,285 |
262,067 |
|
| Profit/(loss)
after taxation |
159,076 |
485,373 |
244,275 |
229,940 |
132,388 |
244,941 |
|
| Cash Dividend |
|
84,609 |
194,531 |
117,188 |
58,594 |
29,297 |
58,594 |
|
| Profit/(loss)
carried forward |
704,183 |
995,025 |
1,122,113 |
1,293,460 |
1,396,551 |
582,899 |
|
| Earning
per share (Rupees) |
6.79 |
20.71 |
10.42 |
9.81 |
5.65 |
10.45 |
|
| Break
up value per share (Rupe |
44.45 |
56.85 |
62.28 |
69.59 |
73.99 |
81.94 |
|
|
| BALANCE
SHEET AS AT 30 SEPTEMBER, 2004 |
|
|
|
|
Note |
2004 |
2003 |
|
|
|
|
Rupees |
Rupees |
|
| NON
CURRENT ASSETS |
|
|
|
| Fixed Assets |
|
5 |
2,771,682,517 |
2,617,189,448 |
|
| Capital
work-in-progress |
|
6 |
178,591,432 |
318,484,312 |
|
| Long
Term Loans & Deposits |
|
7 |
4,557,837 |
4,175,840 |
|
| CURRENT
ASSETS |
|
|
|
| Stores,
Spares & Loose Tools |
|
8 |
(98,500,90} |
79,443,272 |
|
| Inventories |
|
9 |
738,609,411 |
898,233,144 |
|
| Trade Receivables |
|
10 |
314,129,606 |
379,598,949 |
|
| Advances,
Deposits, Prepayments & |
|
|
|
| Other Receivable |
|
11 |
283,264,564 |
196,434,519 |
|
| Investments
available for sale - Associates |
12 |
- |
103,250,000 |
|
| Cash
& Bank Balances |
|
13 |
206,036,093 |
90,414,419 |
|
|
|
1,640,540,575 |
1,747,374,303 |
|
| TOTAL ASSETS |
|
|
4,595,372,361 |
4,687,223,903 |
|
| EQUITY
AND LIABILITIES |
|
|
|
| Capital
& Reserves |
|
|
|
| Share Capital |
|
14 |
234,373,000 |
234,375,000 |
|
| Reserves |
|
15 |
1,103,125,000 |
103,125,000 |
|
| Unappropriated
profit |
|
|
582,898,549 |
1,396,551,005 |
|
| Shareholders'
Equity |
|
|
1,920,398,549 |
1,734,051,005 |
|
| NON
CURRENT LIABILITIES |
|
|
|
| Long
term financing |
|
16 |
680,000,000 |
860,000,000 |
|
| Deferred
Liabilities |
|
17 |
363,285,887 |
329,983,599 |
|
| CURRENT
LIABILITIES |
|
|
|
| Short
Term Finances |
|
18 |
772,217,207 |
1,155,191,678 |
|
| Current
maturity of long term financing |
19 |
430,006,000 |
- |
|
| Trade
and other payables |
|
20 |
311,123,000 |
487,244,598 |
|
| Provision
for Taxation |
|
21 |
114,431,238 |
86,249,787 |
|
| Dividends |
|
22 |
63,916,480 |
34,503,236 |
|
|
|
1,691,687,925 |
1,763,189,299 |
|
| CONTINGENT
LIABILITIES & |
|
|
|
| COMMITMENTS |
|
23 |
|
|
|
|
|
4,595,372,361 |
4,687,223,903 |
|
|
| 13.
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. |
|
|
| 14.
The Company has complied with all the corporate and financial reporting
requirements of the Code. |
|
|
| 15.
The Board has formed an Audit Committee, comprising three members, all of
whom are non-executive |
|
| directors. |
|
|
| 16.
The meetings of the audit committee were held at least once every quarter
prior to approval of interim and final |
|
| results
of the Company as required by the Code. |
|
|
| 17.
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. They are
involved in the |
|
| internal
audit function on full time basis. |
|
|
| 18.
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 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 the Institute of Chartered Accountants of Pakistan. |
|
|
| 19.
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. |
|
|
| 20.
We confirm that all other material principles contained in the Code have been
complied with. |
|
| B.
Statement of Compliance with the Best Practices on Transfer Pricing |
|
|
| The
Company has fully complied with the Best Practices on Transfer Pricing as
contained in the Listing |
|
| Regulation
of the Karachi Stock Exchange. |
|
|
|
|
Note |
2004 |
2003 |
|
|
|
Rupees |
Rupees |
|
| PROFIT
AVAILABLE FOR APPROPRIATION |
|
1,641,492,299 |
1,425,847,880 |
|
| APPROPRIATION |
|
|
|
|
| Transfer
to General Reserve |
|
1,000,000,000 |
- |
|
| Proposed
Dividend - 25 % (2003:12.50%) |
|
58,393,750 |
29,296,875 |
|
|
|
|
1,058,593,750 |
29,296,875 |
|
| UNAPPROPRIATED
PROFIT CARRIED FORWARD |
|
582,898,549 |
1,396,551,005 |
|
| BASIC
EARNINGS PER SHARE |
|
31 |
10.45 |
5.65 |
|
| PROPOSED
DIVIDEND PER SHARE |
|
2,50 |
1.25 |
|
|
| Employees'
Compensated Absences |
|
|
| The
Company makes provision for absences accumulated by its employees in |
|
| accordance
with International Accounting Standard (IAS 19), 'Employees |
|
| Benefits'
(revised 2002). |
|
|
| 4.02 Taxation |
|
|
| Income
tax expense represents the sum of current tax payable, adjustments,if |
|
| any,
the provision for tax made in previous years arising from assessments |
|
| framed
during the year for such years and deferred tax. |
|
|
|
| Deferred
tax is provided using the liability method on all temporary differences |
|
| at
the balance sheet date between the tax bases of assets and liabilities and |
|
| their
carrying amount for financial statements reporting purposes. |
|
|
|
| Deferred
tax liabilities are generally recognized for all taxable temporary |
|
| differences. |
|
|
|
| Deferred
tax assets are recognised for all deductible temporary differences to |
|
| the
extent that it is probable that taxable profit will be available against
which |
|
| the
deductible temporary differences, unused tax losses and tax credits can be |
|
| utilised. |
|
|
|
| Deferred
tax assets and liabilities are measured at the tax rates that are |
|
| expected
to apply when the asset is realized or the liability is settled, based on |
|
| the
tax rates that have been enacted or substantially enacted at the balance |
|
| sheet date. |
|
|
| 4.03
Fixed Assets and Depreciation |
|
|
| Fixed
Assets are stated at cost less accumulated depreciation except freehold |
|
| land
and capital work-in-progress which are stated at cost. Cost of plant and |
|
| machinery
consists of historical cost and net exchange differences on foreign |
|
| currency
loans utilized for the acquisition of those assets. Borrowing costs |
|
| pertaining
to erection / construction period of an asset are capitalized as part |
|
| of historical cost. |
|
|
|
| Leasehold
land is amortized on straight line method whereby the cost is written |
|
| off
over the remaining lease period. Depreciation on all other depreciable |
|
| assets
is charged by applying reducing balance method to write off the |
|
| historical
cost and capitalized exchange fluctuations over remaining useful life |
|
| of
the assets at the rates stated in note 5. No depreciation is provided in the |
|
| year
of disposal / retirement whereas full year's depreciation is charged in the |
|
| year
of purchase / commercial operations. Gain / Loss on disposal of fixed |
|
| asset
is included in the income currently. |
|
|
| PROFIT
AND LOSS ACCOUNT |
|
|
