Kashmir Polytex Limited - Annual Reports 2004

KASHMIR POLYTEX LIMITED

ANNUAL REPORT 2004

COMPANY PROFILE

Board of Directors

Mr. Mohammad Ashraf Khan

Chief Executive / Director

Mr. Mushtaq Ahmed

Director

Dr. Mrs. Yasmin Ashraf

Director

Mr. Mohammad Younus Khan

Director

Mrs. Hareem Ara Hashmi

Director

Mr. Mohammad Akram

Director

Mr. Shahid Mahmood

Director (I.C.P. Nominee)

Company Secretary / CFO:

Mr. Shoaib Abdullah

Audit Committee:

Mr. Younus Khan

Chairman

Dr. Mrs. Yasmeen Ashraf

Director

Mr. Mushtaq Ahmed

Director

Registered Office:

Plot A/8-11, Industrial Estate, Mirpur, A.K.

Liaison Office:

501, Fifth Floor, Business Avenue, Main Shahrah-e-Faisal, Karachi.

Factories:

i) Plot* A/8-11, Industrial Estate, Mirpur, A.K.

ii) Plot* 190, Phase-Ill, Industrial Estate,

Gadoon Amazai, N.W.F.P.

Auditors:

M/s. Khalid Majid Rehman Sarfraz Rahim Iqbal Rafiq

Legal Advisor:

Yousuf Ali Advocate

Bankers:

National Bank of Pakistan.

Bank AI-Habib Limited.

PICIC Commercial Bank.

CHAIRMAN / DIRECTOR REPORT

The Directors take pleasure in presenting the 21st Annual Report together with the Company's Financial Statement for

the year ended June 30, 2004 and the Auditor's Report thereon.

Financial Review

The Company registered sales of Rs. 188.753 million as compared to Rs. 143.545 million in the preceding year. The

Company suffered operational profit of Rs. 85,028 after accounting for all the charges including depreciation of Rs.12.717

million, After tax loss stands at Rs. 858,736. However after accounting for incremental depreciation on revaluation of

fixed assets to the tune of Rs.44.088 million the accumulated losses of the company lowered to Rs.201.798 million

(2003:245.028 millions - restated)

During the year Company exports were increased to US$ 2.346 million, as compared to last year export of US$ 2.175

million. Similarly local sale has been increased to Rs, 56.156 million as compared to last year local sale of Rs.20.875

million (increased by 169%). Major share in-the local sale was supply of bags to Pakistan PTA (ICI Pakistan). The

Company has successfully followed the requirements of the new local customers and orders from them are in pipeline.

During the year Company obtained the ISO certification. Your company has been achieved Quality Award 9001:2000.

This is a big award for the company and in the present circumstances. During the year the company has been awarded

Export Trophy award by Sarhad Chamber Of Commerce and Industry. All this happen due to the continues and dedicated

efforts of the management and employees of the Company.

The increase in cost of imported and local material put the extra burden on the manufacturing cost lowering the gross

profit. Your management has been able to cut the administrative expenses by 5.13 %, but increase the ocean freight

by 5% on account of war risk surcharge and GRI. diluted the cut in administrative expenses resulting the operational

loss.

Operating Results

Restated

2004

2003

Rupees

Operational Profit/(Loss) before tax

85,028

6,209,672

Provision for Taxation

943,764

—

Accumulated Loss brought Forward

201,798,408

245,027,672

Payments to the Banks

During the year the company has paid to the financial Institutions as follows:-

PICIC

Rs.3.600

million

ICP

Rs.3.800

million

Bank Al Habib

Rs. 3.116

million

Loss per share

The loss per share for the period under review is 0.12 as compared to loss of Rs.0.87 in the preceding year.

Significant Plans and Decisions

During the period under review the management has tried to attract the foreign and local investors, which was not

materialized and generate the interest due to the high-accumulated debt of banking sector.

The management is negotiating the Banks and financial institutions for settlement of liabilities under circular 29 of SEP.

The other impediment is the limited production capacity constraint, which remains dependent on the availability of long

term financing, BMP and working capital facility. The financing from the banking and non banking sources was again

not available due to heavy debt burden, otherwise the Company would have been able to achieve better results with the

marketing collaboration of M/s Storsack UK as the demand of FIBCS is substantially growing and company faces no

problem in marketing of its products..

The management has chalked out an expansion plan of Gadoon unit and for this purpose negotiations with banks and

investors are in progress.

Auditors' report to the members

Our Auditors' M/s. Khalid Majid Rehman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants, have highlighted certain

matters in their report to the members on the financial statement for the year under review, The respective explanations

are as under:

1 .The Auditors have made emphasis of matters on the indicators as shown in the Note 1 .2 to the financial

statement which raising doubt that the company will be able to continue as going concern. However, the

management is confident that the company will be able to continue as going concern since the process of

settlement of long term loans with NBP under SBP circular 29 and IDBP under CRSIU recommendations is in

progress and settlement is expected in the current financial year. The management is confident that the

settled liabilities shall be paid out of company's cash flow through operational activities.

The management also negotiating with foreign and local investors for the expansion of Gadoon unit resulting

optimum capacity utilization, which enable the management to generate addition cash flow for which the

company have substantial export orders available with the support of M/s. Storsack UK Limited. Hence, these

financial statement have been prepared on the basis of going concern assumptions.

2. As pointed out by the Auditors' in respect of fresh revaluation of fixed assets of Mirpur Plant, the management

will consider the same in the current financial year to account for any impairment arise from the closure of the

Mirpur plant and to adjust the relevant amount of surplus on revaluation of fixed assets, which was credited in

the year 1 999 on the basis of revaluation.

3. The actuarial valuation of Employees gratuity has not been carried out due to financial constraints however,

this will be carried out during the current financial year.

Auditors

The present Auditors M/s Khalid Majid Rehman Sarfaraz Rahim Iqbal Rafiq Chartered Accountants as Auditors retire

and being eligible have offered themselves as Auditors of the Company for the Financial year 2004-2005.

Statement of Corporate Financial Reporting Frame work

a. The financial statement prepared by the management of the Company, presents fairly its state of affairs, the

results of its operations, cash flows and change in equity.

b. Proper books of accounts of the Company have been maintained.

c. Appropriate accounting policies have been consistently applied in the preparation of financial statement except

as disclosed in Note 2.7 to the financial statement. Accounting estimates are based on reasonable and prudent

judgment.

d. International accounting standard, as applicable in Pakistan have been followed in preparation of financial

statement and any departure there from if any, has been disclosed adequately.

e. The management is in process to strengthen the accounting and internal control system by establishment an

adequate Internal Audit department which will continuously review the existing system for improving any

weakness found in it.

f . The going concern assumption is discussed and has been disclosed in the Notes 1 .2 of the financial statements.

g. Theretias been no material departure from the best practices of corporate governance as detailed in the listed

regulations except as disclosed in the statement of compliance with the code of corporate governance.

h. Key operating and financial data for the last six years'in summarized form is annexed.

i. In view of the accumulated losses sustained up to the date of balance sheet and loss for the current year, the

Company not declared the dividend during the year.

j. Outstanding taxes and levies:

Please refer to Note - 9 to the annexed financial statement.

k. Meetings of the Board Of Directors:

Five meeting of the Board of Directors Of the Company were held during the year.Mr.Mushtaq Ahmed was

appointed as Director in place of Mr.Farooq Khan whose post was vacated under section 188 (b) of the

company Ordinance 1984.

Attendance of the Directors are given hereunder:

Name of Directors:

No. of Meetina attended

Mr.Mohammad Ashraf Khan

5/5

Mr.Farooq Khan

0/5

Dr. Yasmin Ashraf

5/5

Mr.Mohammad Younus Khan

4/5

Mr.Mohammad Akram

0/5

Mst Hareem Ara Hashmi

4/5

Mr.Shahzad Akram

3/5

Mr.Mushtaq Ahmed

2/5

Mr.Shahid Mahmood (ICP Nominee)

3/5

a.The pattern of share holding is enclosed with financial statement

b. During the year under review no trading in shares of the Company held by the Directors and their spouses has

been made.

The Market & Future Prospects

The company exports has shown significant increase over the last year figures. In addition to existing exports, the

company has explored new markets in Europe and Africa and exports to these countries shall be started in the current

financial year. At present company has substantial exports orders in hand and huge export orders are in pipeline.

Local market is also full of potentials and company has successfully completed quality trial of renowned industrial group

and regular supply shall be started during October 2004. To achieve the export and local sale targets, Company is

working on expansion plan for optimum utilization of its production capacity.

Audit Committee

In compliance with the Code of Corporate Governance, the Board of Directors has reconstituted the Audit Committee

and following are the Audit Committee members.

Mr.Mohammad Younus Khan Chairman

Mrs.Dr Yasmin Ashraf Member

Mr.Mushtaq Ahmed Member

Mr.Shoaib Abdullah Secretary

Acknowledgements

I would like to express our gratitude for the support and cooperation of Company's employees, M/s. Storsack UK

limited, our customers, shareholders, suppliers and financial institutions.

VISION STATEMENT

To expand our market in the area where PP FIBC bags are not available and fill the gaps in those areas.

Increase awareness of our Company among the local and international markets by producing and supplying

the quality products and furthure improve quality standards.

Mission Statement

Our mission is to exceed the expectations of our customers, producing quality PP products with efficiency,

employing international best practices and applying an integrated approach to product research and

development, manufacturing technology, operations management, material procurement, financial

management and information systems."

Strategic Goals:

a. Achieving customer satisfaction by manufacturing quality products, timely management of deliveries

and after sales support.

b. Ensuring Quality manufacturing by producing international quality standard plastic products at

competitive prices.

c. Expanding customer base by exploring new national and international markets and undertaking

product research and development in plastic products as well as our own market requirement.

d. Ensuring efficient resource management by managing human, financial, technical and

infrastructure! resources to support the above strategic goals and to ensure highest possible value

addition to stakeholders.

Core Values:

1 .Striving for continuous improvement and innovation with commitment and responsibility;

2. Treating stakeholders with respect, courtesy and competence;

3. Practicing highest personal and professional integrity;

4. Maintaining teamwork, trust and support, with open and candid communication;

5. Ensuring cost consciousness in all decision and operations.

STATEMENT OF COMPLIANCE WITH

THE CODE OF CORPORATE GOVERNANCE

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

regulation 37 of Karachi and 43 of 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. Company encourages representation of independent non-executive directors and directors

representing minority interests on its Board of Directors. At present the Board includes all

independent non-executive directors except for the Chief Executive.

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

companies, including this Company.

3. All the residents directors of the Company are registered as taxpayer and none of them has defaulted

in payment of any loan to a banking company, a DPI or an NBFL or, being a member of a stock

exchange, has been declared as a defaulter by the stock exchange.

4. A casual vacancy occurring in the Board on April 29, 2004, was filled up by the directors, within one

day thereof.

5. The Company is in the development phase of "Statement of Ethics and Business Practices", which

would be assigned by all the Directors and employees of the Company.

6. The Board has a vision / mission statement. Overall strategy is at work and significant policies of the

Company are being followed in letter and spirit. However, the same are being formalized in the form

of policy manuals.

7. All the powers of the Board have been duly exercised and decision on material transactions, including

appointment and determination of remuneration and terms and conditions of employment of the

CEO.

8. All the five meetings of the Board held during the year were presided over by the Chairman.

Written notices of the Board meetings including the four quarterly meetings, alongwith agenda and

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

were appropriately recorded and circulated.

9. The directors have been provided with copies of the Listing Regulations of the Karachi and Lahore

Stock Exchanges Company's Memorandum and Articles of Association and the Code of Corporate

Governance and they are well conversant with their duties and responsibilities.

10. During the year there was no new appointment of Company Secretary and CF.O. However, the

appointment of head of internal audit including its remuneration and terms and conditions shall be

approved by the Board of Directors in the new year.

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.

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

of the Board.

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 reconstituted an audit committee, It comprises three members, Including the

chairman, of the committee and all are non executive directors.

16. Four quarterly meetings of the audit committee were held during the year prior to approval of

Interim and final results of the company as required by the Code. The terms of reference of the

committee have been formed and advised to the committee for compliance.

17. The Board is In the process to setup an effective Internal audit function by appointing a competent

head of Internal audit who will be a suitably qualified and experienced for the purpose and are

conversant with the policies and procedures of the company and they are Involved In the Internal

audit function on a 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 program of the Institute of Chartered Accountants of

Pakistan, that they or any of the partners of the firms, 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 guide lines In this regard.

20. We confirm that all other material principles contained in the Code have been complied with except

as explained above.

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed Balance Sheet of Kashmir Polytex Limited as at June 30, 2004 and the related Profit

& 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: -

1 . The company's financial statements reflect loss of Rs.0.859 million (2003:Rs.6.210 million) for the year, and

as at the date of balance sheet its accumulated losses amounted to Rs.201.798 million (2003: Rs. 245.028

million) which has resulted in net capital deficiency of Rs.123.698 million (2003: Rs.166.928 million). Its

other manufacturing facility at Mirpur Azad Jammu & Kashmir is closed since 1999. Included in long-term

loan liabilities an amount of Rs.1 13.009 million due to NBP and IDBP which is overdue and pending for

rescheduling/restructuring with the financial institutions. These conditions alongwith those referred in note 1

to the financial statements indicate the existence of a material uncertainty, which cast doubt on the Company's

ability to continue as a going concern. No adjustments have been made in the financial statements that may

be required should the company be unable to continue as a going concern.

2. As referred to in note 1 and 11 to the financial statements, the plant at Mirpur is shutdown since the year

1999. The fixed assets of the company includes revalued amount of the plant as determined by a valuer in

the year 1 999 before it was shutdown. As such the fair value of the said plant requires determination through

fresh valuation. Pending such determination the existing value and the amount of surplus on revaluation

relating to the said plant have not been adjusted in the annexed financial statements to reflect these at their

fair values (refer note 4).

3. The actuarial valuation for Employees' Gratuity has not been carried out in accordance with

IAS-1 9. This standard requires that an enterprise should carry out an actuarial valuation for adequate provision

in its books in respect of ah un-funded gratuity scheme.

(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 referred to in note 2.7 to the financial statements;

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

business conducted, investment 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, except

for the effect of the matters stated in para 1 to 3 above and in notes 2.7 and 10 to the financial

statements and to the extent to which these may affect the financial results of the company, the Balance

Sheet, Profit & 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 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

loss, 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.

The financial statements for the year ended June 30, 2003 were audited by another firm of Chartered Accountants,

who expressed an unqualified opinion in their report dated September 20, 2003.

REVIEW REPORT TO THE MEMBERS ON STATEMENT OF COMPLIANCE

WITH BEST PRACTICES OF CODE OF CORPORATION 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 KASHMIR POLYTEX LIMITED comply with the Listing

Regulation of the respective Stock Exchanges 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 understandings 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 the deviations appearing against serial No. 5 10 & 17 of the statement of

compliance with the Code of Corporate Governance nothing has come to our attention which cause us to

believe that the Statement of Compliance does not appropriately reflect 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 June 30, 2004.

BALANCE SHEET

EQUITY AND LIABILITIES Note

2004

2003

Rupees

Restated

SHARE CAPITAL AND RESERVES

CAPITAL AUTHORIZED

7,500,000 Ordinary Shares of Rs. 10/- each

3

75,000,000

Issued, Subscribed & Paid up

71,000,000

GENERAL RESERVE

7,100,000

ACCUMULATED (LOSS)

-201,798,408

-245,027,672

-123,698,408

-166,927,672

SURPLUS ON REVALUATION OF FIXED ASSETS

4

52,332,000

96,420,000

SUBORDINATED LOANS UNSECURED

5