Pakistan Paper Products Limited - Annual Reports 2004

PAKISTAN PAPER PRODUCTS LIMITED

ANNUAL REPORT 2004

DIRECTORS' REPORT

The Directors of your Company take pleasure in presenting their report together with the

Audited Accounts and Auditors' Report thereon for the year ended 30^th June, 2004.

Operating Results

During the year under review your Company showed good progress with Net Sales growing by

7.32% to Rs. 136.29 million compared to Rs. 126.99 million in the previous year. All sections of

the Company showed good growth levels with the Pro Label section growing by 16.87%, and the

Sensitised and Plain Paper Copier Section growing by 19.07%. This was achieved by gearing up

our marketing and production resources to meet the increased demand. The sales of the Exercise

Book Section declined slightly due to the loss of a few major orders, but these have now been

captured again so it is hoped that sales next year will again grow by a satisfactory level.

Financial Results

By the grace of Allah, your Company was able to earn a Net Profit after tax of Rs. 18.71 million

compared to Rs. 16.42 million in the previous year. This increase was made possible through

proper resource management, production efficiency, and cost economy. The total profit available

for appropriation is Rs. 18.71 million. Your Directors recommend a final dividend of 40%, which

amounts to Rs. 10 million, while Rs. 4 million will be transferred to general reserve, and Rs. 4.71

million will be carried forward as un-appropriated profit. The summary of the accounts for the

year ended 30^th June 2004 is given below:

June. 2004

June. 2003

Profit before taxation

26,723,630

25,268,949

Taxation

-8,015,926

-8,844,132

Profit after taxation

18,707,704

16,424,817

Un-appropriated profit brought forward

8,684

267,277

Transfer from surplus on Revaluation of Fixed Assets

-

316,590

Available for appropriation

18,716,388

17,008,684

Appropriation

Proposed Cash Dividend

-10,000,000

Transfer to General Reserve

-4,000,000

-7,000,000

Un-appropriated Profit Carried forward

4,716,388

8,684

Board of Directors

The Board comprises of two executive and five non-executive Directors including one

independent Director. All the Directors keenly take interest in the proper stewardship of the

company's affair. The non-executive Directors are independent of management.

Statement of Business Ethics & Practices

The Board has adopted the statement of Business Ethics and Practices. All employees are

informed of this statement.

Audit Committee

Comprises of three members from the Board, including two non-executive directors. The Board

of Directors has set out terms of reference for the audit committee. The audit committee reviews

the annual and quarterly financial statements, internal audit reports and holds its meeting prior to

the Board meeting. The committee manages adequately the system of internal control through

Internal audit department and review effectiveness of operational and financial control.

Material Changes

There have been no material changes and the company has not entered into any commitment

that will affect its financial position.

Earning Per Share

Earning per share comes to Rs.7.48 per share (2003:Rs. 6.57 per share)

Dividend

Directors propose cash dividend at the rate of Rs.4.00 per share i.e. 40%.

Operating and Financial Data

Operating and Financial data and key ratios of the Company for last six years are annexed.

Code of Business Principles

As a leading Paper Converting Company, reputation for high ethical standards is central to

business success. Code of Business Principles has been developed and is now being

communicated and acknowledged by each Director and employee of the Company.

Communication

Communication with the shareholders is given a high priority. Annual and Quarterly Reports are

distributed to them within the time specified in the Code. There is also an opportunity for

individual shareholders to attend and ask questions at the Annual General Meeting.

SUMMARIZED STATEMENT OF KEY OPERATING AND FINANCIAL DATA OF SIX YEARS Years at a Glance

Rupees in Thousand

2004

2003

2002

2001

2000

1999

Sales-Net

136,295

126,994

111,918

83,980

72,104

69,469

Other Income/ (Loss)

287

-7

382

201

88

43

Profit before Taxation

26,724

25,269

17,293

11,650

6,540

4,691

Taxation

-8.016

-8.844

-4.065

-5.102

-2.165

-1.559

Profit after Taxation

18,708

16,425

13,228

6,547

4,375

3,132

Cash Dividend (%)

40%

25%

20%

Bonus Shares (%)

-

• 25%

33.33%

-

50%

Earning per Share(Rs.)

7.48

6.57

5.29

4.36

2.93

3.14

Paid up Capital

25,000

20,000

15,000

10,000

Shareholder Equity

66,116

57,409

50,667

42,439

39,642

34,017

Total Assets

98,043

95,586

78,067

66,846

55,542

54,885

Working Capital

39,009

32,647

29,723

24,867

27,172

22,759

Number of Employees

82

84

88

96

99

94

Production

Exercise Books (Gross)

40,432

41,006

47,761

36,641

38,199

34,096

Ammonia Paper (Rolls 10 yds)

99,177

90,204

89,127

103,982

119,926

109,981

Pro-Labels (Sq. Meters)

966,409

772,382

516,134

242,000

125,200

158,538

STATEMENT OF COMPLIANCE WITH THE CODE OF CORPORATE

GOVERNANCE FOR THE YEAR ENDED JUNE 30, 2004

1) The Company encourages representation of independent non-executive directors. At present

the board includes five independent non-executive directors including one director

nominated by the N.I.T.

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 any NBFI or, being a

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

4) No casual vacancy had occurred in the Board during the period under review.

5) The company has prepared a "Statement of Ethics and Business Practices" which has been

signed by all the directors and employees of the company.

6) The Board has developed a Vision & Mission Statements, overall corporate strategy and

significant policies of the company. A complete record of particulars of significant policies

along with the date on which they were approved or amended has been maintained.

7) 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 Chief Executive Officer (CEO) and other executive directors, have been

taken by the Board.

8) The meetings of the Board were presided over by the Chairman and the Board met at least

once in every quarter. Written notices of the Board meetings, along with agenda and working

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

were appropriately recorded and circulated.

9) The Board arranged an orientation course for its directors during the year to apprise them of

their duties and responsibilities.

10) No new appointments of CFO, Company Secretary or Head of Internal Audit have been

made after the application of the Code of Corporate Governance and up to June 30, 2004.

However in case of new appointment in future their remuneration and terms and conditions

of employment, will be approved by the Board.

11) The directors' report for the period ended June 30, 2004 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 the CFO

before approval of the Board

Statements of Directors' Responsibilities

The Board regularly reviews the Company's strategic direction. Annual plans and performance

targets for business are set by the Chief Executive and are reviewed in total by the Board in the

light of the Company's overall objectives. The Board is committed to maintain the high standards

of good corporate governance.

Corporate Governance

•We are pleased to report that your company has taken necessary steps to comply with the

provisions of the Code of Corporate Governance as incorporated in the listing

regulations of the Karachi Stock Exchange.

•We give below statements on corporate and financial reporting framework.

•The financial statements, prepared by the management of the company, present fairly its

state of affairs, the result of its operations, cash flows and changes in equity.

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

concern.

•The system of internal control, which was in place, is being continuously reviewed bv

internal audit and other such procedures. The process of review will continue with the

objective to further improve.

•Proper books of account of the company have been maintained.

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

statements and accounting estimates are based on reasonable and prudent judgments.

•During the year five (5) meetings of the Board of Directors were held. Attendance by

each Director was as follows:

Name of Directors

Meetings Attended

Mr. Hashim B.Saveed

5

Mr. Abbas Sayeed

2

Dr. Asadullah Sayeed

5

Mr. Abid Sayeed

5

Mrs. Muleika Sayeed

4

Mr. Mohammed Ali Sayeed

2

Mr. Mansoor Mukhtar Shah

3

REVIEW REPORT TO THE MEMBERS ON STATEMENT OF

COMPLIANCE WITH BEST PRACTICES OF CODE OF CORPORATE

GOVERNANCE

We have reviewed the Statement of Compliance with the best practices contained in the Code of

Corporate Governance prepared by the Board of Directors of Pakistan Paper Products 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 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 Jun 30, 2004 .

Safety & Environment

The Company strictly complies with the standard and follows the safety rules & regulations. The

Company has held various sessions on safety awareness and no accident occurred.

Auditors

The present Auditors M/s Haider Shamsi & Co., retire and being eligible, offer themselves for

reappointment and as required by the code, the Audit Committee has recommended

appointment of M/s. Haider Shamsi & Co., Chartered Accountants, as auditors of the company

for the financial year 2004-2005.

Pattern of Shareholding

A statement of the pattern of shareholding of certain class of shareholders as at June 30, 2004

whose disclosure is required under the reporting framework is included in the report.

The Directors, CEO, CFO, Company Secretary and their spouse and minor children have made

no transactions of Company's shares during the year. However, Mr. Hashim B.Sayeed and Mrs.

Muleika Sayeed have made a gift of 100,000 shares each to Mr. Abid Sayeed. None of the other

Directors have made any transactions of the Company's shares.

Future outlook

We are fully geared up with the economic scenario of this country and the expected shape of

things in future in spite of impending pressures on business. Initiatives of the Government to

improve the tax collection system based on the principles of equity and reasonableness are

essential to bring improvement in investors' confidence.

Acknowledgments

The Directors would like to thank the staff and workers for their hard work and cooperation

during the year. We assure the shareholders that the management would do its best to maintain

the progress and keep them well informed with the developments.

BALANCE SHEET

Notes

2004

2003

Rupees

SHARE CAPITAL AND RESERVES

Share Capital

Authorised 4,000,000 (2003: 4,000,000)

Ordinary Shares of Rs.10 each

40,000,000

Issued, Subscribed and Paid-up capital

3

25,000,000

Revenue Reserves

4

36,400,000

32,400,000

Un-Appropriated Profit

4,716,388

8,684

66,116,388

57,408,684

Surplus on Revaluation of Fixed Assets

5

-

Obligation under Finance Lease

6

3,444,712

6,434,980

Deferred gain under sales & lease back arrangement

7

451,219

697,339

DEFERRED LIABILITIES

Deferred Taxation

8

3,387,274

2,976,735

Provision for Gratuity

9

969,525

800,172

4,356,799

3,776,907

CURRENT LIABILITIES

Current maturity of Finance Lease

2,990,268

6,286,725

Creditors, Accrued and Other Liabilities

10

10,683,878

10,981,471

Proposed Dividend

34

10,000,000

23,674,146

27,268,196

CONTINGENCIES & COMMITMENTS

11

-

98,043,264

95,586,106

13) The Directors, the CEO and the Executive 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. It comprises three members, of whom two are

non-executive directors including the Chairman of the Audit Committee.

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 and as required by the Code. The terms of

references of the committee have already been formed and advised to the committee for

compliance.

17) The Board has set up an effective internal audit function and our head of internal audit is well

conversant with the policies and procedures of the company and is 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 satisfactory

rating under the quality control review program of the Institute of Chartered Accounts of

Pakistan, that they or any of the partners of the firm, their spouses and minor children do not

hold shares of the Company and that the firm and all its partners are in compliance with

International Federation of Accountants (IFAC) guidelines on code of ethics as adopted by

Institute of Chartered Accountants of Pakistan.

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.

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 30™ JUNE, 2004

2004

2003

NOTE

Rupees

TURNOVER

158,422,881

147,717,676

Sales Tax, Discounts, commission & sales return

-22,127,960

-20,723,407

SALES

20

136,294,921

126,994,269

Cost of Goods Sold

21

-97,412,698

-90,120,135

GROSS PROFIT

38,882,223

36,874,134

OPERATING EXPENSES

Administrative

22

7,159,135

6,968,727

Selling and Distribution

23

2,143,478

1,709,739

Financial

24

1,240,210

1,057,932

Workers' Profit Participation Fund

1,416,970

1,356,887

Workers' Welfare Fund

485,396

505,379

-12,445,189

-11,598,664

OPERATING PROFIT

26,437,034

25,275,470

Other Income/ (Loss)

25

286,596

-6,521

NET PROFIT BEFORE TAXATION

26,723,630

25,268,949

Taxation

26

-8,015,926

-8,844,132

NET PROFIT AFTER TAXATION

18,707,704

16,424,817

Unappropriated Profit Brought Forward

8,684

267,277

PROFIT AVAILABLE FOR APPROPRIATION

18,716,388

16,692,094

APPROPRIATIONS

Transferred to Revenue Reserve

-4,000,000

-7,000,000

Proposed Dividend @ 40 % ( 2003: 40% )

-10,000,000

-10,000.00

Transferred from revaluation surplus

-

316.59

-14,000,000

-16,683,410

Unappropriated profit carried forward

4,716,388

8,684

EARNING PER SHARE

- Basic

31

7.48

6.57

- Diluted

31

7.48

6.57

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of PAKISTAN PAPER PRODUCTS LIMITED as at JUNE 30, 2004

and the related profit and loss account, cash flow statement and statement of changes in equity togedier 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 statement 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 die 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 |une 30, 2004 and of the

profit, its cash flows and changes in equity for the vear then ended; and

d) In our opinion, zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XYIII of 1980), was

deducted by the company and deposited in the Central Zakat Fund established under section 7 of the

Ordinance.

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30™ JUNE, 2004

Share

Reserve for

Revenue

Unappropr-

Total

Capital

Issue of

Reserve

iated profit

Bonus shares

( Rupees )

Balance as at June 30, 2002

20,000,000

5,000,000

25,400,000

267,277

50,667,277

Transfer to share capital

5,000,000

-5,000,000

.

Transferred from surplus on

Revaluation of fixed assets

-

316,590

Net profit for the year

Ended June 30, 2003

-

16,424,817

25,000,000

-

25,400,000

17,008,684

67,408,684

Appropriation:

Transfer to revenue reserve

-

7,000,000

-7,000,000

-

Proposed final dividend @ 40%

-

-10,000,000

-

7,000,000

-17,000,000

-10,000,000

Balance as at June 30, 2003

25,000,000

-

32,400,000

8,684

57,408,684

Net profit for the year ended

June 30, 2003

-

18,707,704

25,000,000

32,400,000

18,716,388

76,116,388

Appropriation:

Transfer to revenue reserve

-

4,000,000

-4,000,000

-

Proposed final dividend @ 40%

-

-10,000,000

-

4,000,000

-14,000,000

-10,000,000

Balance as at June' 30, 2004

25,000,000

-

36,400,000

4,716,388

66,116,388

Notes

2004

2003

PROPERTY AND ASSETS

Rupees

TANGIBLE FIXED ASSETS

12

34,297,063

34,671,341

LONG TERM DEPOSITS (LEASES)

13

1,062,772

CURRENT ASSETS

Store and Spares

14

1,068,405

1,187,118

Stock-in-Trade

15

30,307,751

29,136,559

Trade Debtors (Unsecured but considered good)

16

15,730,983

16,802,724

Advances and Others Receivables

17

629,647

1,423,561

Deposits and Prepayments

18

1,059,660

1,579,363

Cash and Bank Balances

19

13,886,983

9,722,668

62,683,429

59,851,993

computation of taxable profit. Deferred tax liabilities are generally recognized for all

taxable temporary differences and deferred tax assets are recognized to the extent that it

is probable that taxable profits will be available against which the deductible temporary

differences, unused tax losses and tax credits can be utilized.

Deferred tax is calculated at the rates that are expected to apply to the period when the

differences reverse based on tax rates that have been enacted or substantively enacted by

the balance sheet date. Deferred tax is charged or credited in the income statement,

except in the case of items credited or charged to equity in which case it is included in

equity.

2.4 Staff retirement benefits

a) The company operates an approved Provident Fund (defined contribution) scheme

applicable to all employees. Monthly contributions are made by the company and the

employees equally in accordance with the fund's rules. During the year Rs. 333,801

(2003: Rs. 328,486) has been recognized as an expense by the company.

b) The company also operates an unfunded gratuity scheme covering all eligible

employees which provides for benefits dependent on the length of service of the

employee on terminal date, subject to a minimum qualifying period of service.

Gratuity is also based on last drawn salary. Provisions are made to cover

obligation in accordance with the terms of the scheme.

2.5 Provisions

Provisions are recognized when the Company has a present legal or constructive

obligation as a result of past events and it is probable that an outflow of resources

embodying economic benefits will be required to settle the obligation and a reliable

estimate of the obligation can be made.

2.6 Tangible fixed assets and depreciation

a) Operating assets

Operating fixed assets except leasehold land and capital work-in-process are stated at

cost or revalued amount (as appropriate) less accumulated depreciation and

impairment losses (if any). Leasehold land and capital work-in-process are stated at

cost. Depreciation is charged to income applying the reducing balance method, using

the rates specified in Note 12. The depreciation for assets acquired or disposed of

during the year is charged from the date of acquisition or upto the date of disposal of

such assets respectively.

CASH FLOW STATEMENT

FOR THE YEAR ENDED 30™ JUNE, 2004

Notes

2004

2003

Rupees

CASH FLOW FROM OPERATING ACTIVITIES

Cash generated from operations

27

35,424,575

22,593,399

Income taxes paid

-11,079,520

-7,347,637

Gain under sale and lease back arrangement

-

738,359

Gratuity paid

-44,278

-96,377

Financial charges paid

-352,891

-114,542

Net cash from operating activities

23,947,886

15,773,202

CASH FLOW FROM INVESTING ACTIVITIES

Acquisition of fixed assets

-3,933,840

-2,405,442

Disposal of fixed assets

87,870

1,458,461

Income from investment & deposit account

59,084

155,020

Lease deposit

-

-1,000,000

Net cash used in investing activities

-3,786,886

-1,791,961

CASH FLOW FROM FINANCING ACTIVITIES

Finance lease

-6,223,735

-5,305,448

Dividend paid

-9,772,950

-4,866,872

Net cash used in financing activities

-15,996,685

-10,172,320

Net increase/ (decrease) in cash

4,164,315

3,808,921

Cash and cash equivalent-beginning of year

9,722,668

5,913,747

Cash and cash equivalent-end of year

13,886,983

9,722,668

Net realizable value signifies the estimated selling price in the ordinary course of business

less cost of completion and cost necessary to be incurred in order to make it sale.

2.11 Revenue recognition

Revenue from sales is recognized upon passage of title to the customers which generally

coincides with physical delivery.

2.12 Impairment of assets

In accordance with IAS 36, assets are reviewed for impairment whenever want or changes

in circumstances indicate that the carrying amount of these assets may not be recoverable.

Whenever, the carrying amount of these assets exceed their recoverable amount an

impairment loss is recognized in the statement of profit and loss.

2004

2003

Rupees

3. ISSUED, SUBSCRIBED AND PAID-UP

578,000 Ordinary shares of Rs. 10/- each

Fully paid in cash

5,780,000

1 72,000 Ordinary shares of Rs. 1 0/- each

issued for consideration other than cash

1,720,000

1 ,750,000 Ordinary shares of Rs. 1 0/- each

issued as fully paid bonus shares

17,500,000

2,500,000

25,000,000

4. RESERVES

Reserve for Issue of Bonus Shares:

Opening balance

-

5,000,000

Transfer from profit and loss account

-

Utilized during the year

-

-5,000,000

Revenue Reserve:

Opening balance

32,400,000

25,400,000

Transferred from/ (to) Profit and loss account

4,000,000

7,000,000

36,400,000

32,400,000

36,400,000

32,400,000

NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 30™ JUNE, 2004

1. THE COMPANY AND ITS OPERATIONS

The Pakistan Paper Products Limited was incorporated in Pakistan as a private limited

company in July 1962. It was converted into public company and listed on the Karachi Stock

Exchange in July 1964. The registered office of the company is situated at D-58, SITE,

Estate Avenue, Karachi 75700. The main business activity of the Company is the production

and sale of sensitized papers, pro-labels and exercise books.

2. SIGNIFICANT ACCOUNTING POLICIES

2.1 Basis for preparation of the financial statements

These financial statements have been prepared in accordance with approved accounting

standards as applicable in Pakistan and the requirements of Companies Ordinance, 1984.

Approved accounting standards comprise of such International Accounting Standards as

notified under the provisions of the Companies Ordinance, 1984. Wherever, the

requirements of the Companies Ordinance, 1984 or directives issued by the Securities and

Exchange Commission of Pakistan differ with the requirements of these standards, the

requirements of Companies Ordinance, 1984 or the requirements of the said directives

take precedence.

2.2 Overall valuation policy

These financial statements have been prepared under the historical cost convention as

modified by the revaluation of certain fixed assets in 1964 and for financial assets and

financial liabilities, if any, in accordance with the recognition and measurement criteria as

laid down in IAS-39 (Financial Instruments: Recognition and measurement).

2.3 Taxation

Current

Provision for current tax is based on the taxable income for the year determined in

accordance with the prevailing law for taxation of income. The charge for current tax is

calculated using prevailing tax rates or tax rates expected to apply to the profit for the

year if enacted. The charge for current tax also includes adjustments where considered

necessary, to provision for tax made in previous years arising from assessments framed

during the year for such years.

Deferred

Deferred tax is accounted for using the balance sheet liability method in respect of all

temporary differences arising from differences between the carrying amount of assets and

liabilities in the financial statements and the corresponding tax bases used in the

NOTE

2004

2003

Rupees

7. DEFERRED GAIN UNDER SALE

AND LEASE BACK ARRANGEMENT

Deferred gain at start of the year

697,339

Sale Proceeds

10,000,000

Cost of Assets

-

-9,261,641

Accumulated Depreciation

-

Written Down Value

-

-9,261,641

Deferred gain on Disposal of Fixed Assets

-

738,359

Less: Amortization of gain on Disposal of fixed assets

Under Sale & Leaseback arrangements

25

-246,120

-41,020

451,219

697,339

DEFERRED TAXATION

These comprise of temporary differences due to:

Accelerated depreciation

3,993,630

3,616,524

Employees retirement benefits

-339,334

-280,060

Others

-267,022

-359,729

3,387,274

2,976,735

PROVISION FOR GRATUITY

Opening balance

800,172

713,860

Expense recognized

213,631

182,689

1,013,803

896,549

Less: Payments during the year

-44,278

-96,377

969,525

800,172

The company has accounted for the gratuity on liability method. However as required by

IAS-19 the liability has not been determined on actuarial valuation basis as the management

feels that the existing provision is adequate to cover the obligation.

Maintenance and normal repairs are charged to income as and when incurred. Profits

or losses on disposal of assets are included in current income.

b) Assets subject to finance lease

Leases of property, plant and equipment where the company has substantially all the

risks and rewards of ownership are classified as finance leases. Finance leases are

capitalized at the inception of the lease at the lower of the fair value of the leased

property or the present value of the minimum lease payments. Each lease payment is

allocated between the liability and finance charges so as to achieve a constant rate on

the finance balance outstanding. The interest element of the finance cost is charged to

the income statement over the lease period. Assets acquired under finance lease are

depreciated over the useful life of the assets by applying reducing balance method on

time proportionate basis considering the economic benefits derived from the use of

such fixed assets during the period.

2.7 Financial assets

Financial assets are trade debts, advances, deposits, other receivables and cash and bank

balances, which have been stated in accordance with the requirements of IAS 39

(Financial Instruments: Recognition and measurement). Financial assets are initially

recognized at its cost which is the fair value of the consideration given for it and

subsequent to initial recognition financial assets are carried at fair value.

2.8 Financial liabilities

Financial liabilities are classified according to the substance of the contractual agreements

entered into. Significant financial liabilities are finance lease obligations, short term

running finance under mark-up arrangement, creditors, accrued and other liabilities and

unclaimed dividend,

All financial liabilities are initially recognized at cost, which is the fair value of the

consideration received at initial recognition. After initial recognition financial liabilities

held for trading are carried at fair value and all other financial liabilities are measured at

amortized cost, except for liabilities against asset subject to finance lease which are valued

under IAS 17 as described above.

2.9 Stores and spares

These are valued at lower of average cost and estimated net realizable value.

2.10 Stock in trade

Stock in trade is valued at the lower of cost and estimated net realizable value. Cost

signifies the weighted average cost.

5. SURPLUS ON REVALUATION OF FIXED ASSETS

Building on leasehold land and plant and machinery were revalued by J. B. Stevenson, ACII

in June 1964 resulting an increase over book value of Rs. 99,690 and 216,900 respectively.

No further revaluation have taken place since that date. The incremental depreciation

charged on these assets has been transferred to accumulated profit in accordance with

section 235 of the Companies Ordinance 1984.

2004

2003

Rupees

Surplus on revaluation of fixed assets as at July 01

-

316,590

Surplus relating to incremental depreciation charged on related

-

-316,590

assets in prior years — transferred to accumulated profit

Surplus on revaluation of fixed assets as at June 30

-

6. LIABILITIES AGAINST ASSETS SUBJECT TO FINANCE LEASE

12,721,705

Opening balance

-

7,530,597

Assets acquired during the year

12,721,705

10,000,000

5,286,725

17,530,597

Payments

1,000,000

4,497,792

Deposit adjusted

6,286,725

311,100

6,434,980

4,808,892

2,990,268

12,721,705

Transferred to current maturity

3,444,712

6,286,725

6,434,980

Lease rentals are payable in quarterly installments under the lease agreements. Overdue rental

payments are subject to an additional charge of 3% per month. Taxes, repairs, replacement and

insurance cost are to be borne by the company (lessee). Financing rates of approximately 10% per

annum have been used as discounting factor. Purchase option can be exercised by the lessee, paying

10% of the assets amount. These are secured by demand promissory notes and security deposits.

2004

2003

Minimum lease

Finance

Present

Payment

Charge

Value

Year ended 2004

_

6,286,725

Year ended 2005

3,423,940

433,672

2,990,268

Year ended 2006

3,567,955

123,243

3,444,712

6,991,895

556,915

6,434,980

12,721,705

2004

2003

Rupees

14. STORES AND SPARES

Stores

1,068,405

1,187,118

1,068,405

1,187,118

15. STOCK IN TRADE

Raw Materials

17,636,936

18,659,708

Work in Process

15.1

5,509,026

5,014,149

Finished Product

7,161,789

5,462,702

15.2

30.307,751

29.136.559

15.1 These include material valued at their net realizable value Rs. 97,538 (2003: 107,177). The

management considers that the cost assigned to the raw material and work in process

inventories approximate their market value.

15.2 Finished goods include slow moving items which have been valued at their net realizable

value Rs. 357,392 (2003: Rs. 510,560).

16. TRADE DEBTS (Unsecured but considered good)

Due from Customers

15,140,742

16,050,930

Due from Associated Concerns

16.1

589,023

751,768

Due from Staff

1,218

26

15,730,983

16,802,724

16.1 The amounts due from associated concerns are as follows:

580,050

287,592

H.B. Sayeed (Pvt) Ltd.

5,524

462,413

Sayeed Graphics

3,449

1,763

Sayeed International

589,023

751,768

ADVANCES AND OTHER RECEIVABLES

60,905

85,160

Advances to Suppliers

-

821,300

Advances against Letter of Credit

80,319

43,701

Advance against Expenses

466,834

-

Advance Income Tax (Net of Tax Liability)

21,589

473,400

Others

629,647

1,423,561

2004

2003

Rupees

CREDITORS, ACCRUED AND OTHER LIABILITIES

Income Tax Payable

(Tax Liability Minus Advance Tax)

-

3,007,299

Trade Creditors

426,372

1,370,182

Import Bill Payable

3,516,338

-

Debtors Credit Balance

2,112,421

1,785,064

Accrued Expenses

1,306,818

1,528,365

Due to Associated

10.1

-

708,630

Workers' Profit Par

10.2

1,044,871

1,399,700

Workers' Welfare Fund

533,510

505,379

Unclaimed Dividend

903,561

676,511

Sales Tax Payable

839,646

-

Others

341

10,683,878

10,981,471

10.2 Workers' Profit Participation Fund

1,399,700

1,009,714

Balance at the beginning of the year

35,901

24,813

Interest on Fund utilized in company's business

1,435,601

1,034,527

846,000

433,342

Amount paid to the Fund Trustees

961,700

558,372

Amount deposited with Government

1,807,700

991,714

-372,099

42,813

1,416,970

1,356,887

Allocation for the Year

1,044,871

1,399,700

NOTE

2004

2003

Rupees

21. COST OF SALES

Raw Material Consumed

18,659,708

17,802,447

Opening Stock

77,535,863

73,627,912

Purchases

-17,636,936

-18,659,708

Closing Stock

78,558,635

72,770,651

11,172,844

9,866,900

Salaries, Wages and Other Benefits

1,742,433

1,709,018

Fuel and Power

1,892,900

1,658,469

Spares and Stores Consumed

21.1

256,916

320,372

Insurance

1,469,827

2,600,075

Repairs and Maintenance

122,565

146,526

Rent, Rates and Taxes

162,757

197,650

Telephone and Trunk Calls

1,096,851

309,657

Other Manufacturing Expenses

3,130,934

2,285,687

Depreciation

99,606,662

91,865,005

Cost of Production

5,014,149

4,292,789

Work in Process — Opening

-5,509,026

-5,014,149

Work in Process — Closing

-494,877

-721,360

99,111,785

91,143,645

Cost of Goods Manufactured

5,462,702

4,439,192

Finished Goods — Opening

-7,161,789

-5,462,702

Finished Goods — Closing

-1,699,087

-1,023,510

97,412,698

90,120,135

21.1 Stores and Spares Consumed

1,187,118

1,299,864

Opening Balance

1,774,187

1,545,723

Purchases

-1,068,405

-1,187,118

Closing Balance

1,892,900

1,658,469

REVALUATION OF FIXED ASSETS

During June 1964, company's properties comprising building on leasehold land and plant

and machinery were revalued by J.B. Stevenson. ACII (an independent valuer). These

revaluations had resulted in surplus of Rs. 99,690 and 216,900 which was included in the

book value of building on leasehold land and plant and machinery respectively and

credited to a surplus on revaluation account. Consequent upon change in section 235 of

the Companies Ordinance, 1984 the surplus on revaluation was transferred by the

company during the year 2003 to the accumulated profit to the extent of incremental

depreciation. Had the revaluation not been carried out, gross value of building on

leasehold land and plant and machinery would have been Rs. 912,931 and Rs. 2,287,816

'(2003: 912,931 and 21,089,392) respectively.

Cost

Accumulated

Book

Sale

Particulars of Buyer

Depreciation

Value

Proceeds

Rupees

Plant and machinery

85,000

58,326

26,674

M/s H.B. Sayeed (Pvt) Ltd.

By negotiation

Plant and machinery

78,000

47,782

30,218

21,196

M/s Moin Workshop. Klii.

By negotiation

Factory and other

Equipment

88,485

11,838

76,647

40,000

M/s Qadri Electronic Works

By negotiation

Total 2004

251,485

117,946

133,539

87,870

Total 2003

2,216,050

519,287

1,696,763

1,458,461

2004

2003

Rupees

LONG TERM DEPOSITS

Long term deposits against leases

1,000,000

Utility deposits

62,772

1,062,772

13.1 Long Term Deposits against Leases

Opening Balance

2,000,000

1,311,100

Addition

-

1,000,000

Adjustment

-1,000,000

-311,100

-1,000,000

2,000,000

Current portion

18

-1,000,000

1,000,000

2004

2003

Rupees

24. FINANCIAL EXPENSES

Interest on Workers' Profit Participation Fund

35,901

24,813

Mark-up on Short Term Running Finance

143,479

34,506

Bank and Other Charges

184,232

55,223

Interest on Finance Lease

876,598

943,390

1,240,210

1,057,932

25. OTHER INCOME

Interest on Deposit Account

59,084

155,020

Gain/ (Loss) on Disposal of Assets

25.1

-45,669

-238,302

Amortization of Deferred Gain under Sale

and Lease Back Arrangement

7

246,120

41,020

Other Income

27,061

35,741

286,596

-6,521

2004

2003

Rupees

25.1 Gain/ (Loss) on Disposal of Assets

Sale Proceeds

87,870

1,458,461

Cost of Assets

251,485

2,216,050

Less: Accumulated Depreciation

-117,946

-519,287

Net Book Value

133,539

1,696,763

-45,669

-238,302

26. TAXATION

Current Year

7,762,964

7,999,666

Prior Year

-157,577

-

Deferred

410,539

844,466

8,015,926

8,844,132

26.1 Tax Charge Reconciliation

%

Applicable tax rate as per Income tax laws

35

Tax effect of expenses that are not deductible for tax purpose

4

-

Tax effect of lease rentals that are deductible for tax purpose

-8

-

Effect of change in prior years' tax

-1

-

30

35

2004

2003

Rupees

DEPOSITS AND PREPAYMENTS

Current Portion of Lease Deposit

13

-

1,000,000

Other Deposit

623,807

547,915

Prepayments

435,853

31,448

1,059,660

1,579,363

CASH AND BANK BALANCES

Cash at Banks (in Current Accounts)

692,002

1,244,951

Cash at Banks (in Deposit Accounts)

13,149,567

8,435,717

Factor)' Imprest

30,000

Cash in Hand

15,414

12,000

13,886,983

9,722,668

The company enjoys short term finance facilities from Habib Bank Limited comprising

running finance up to Rs. 11.50 million (2003: 7.00 million), Letter of Guarantee for Rs.

1.350 million (2003: 1.350 million) at 10% cash margin and Letter of Credit for Rs. 4.3

million (2003: 5.0 million) at Nil margin. The finance is secured against hypothecation of

stocks and account receivables of the company. The finance is further secured by

personal securities and guarantees of the directors. The facility carries markup of 8% per

annum. However, balance at the close of year under this account was Debit Rs. 494,945

(2003: Rs. 1,126,883) which is shown under cash and bank balances.

SALES

Exercise Books

59,084,756

60,134,891

Ammonia Paper

14,303,405

12,654,077

Prolabels

61,615,402

52,587,076

Plain Paper

1,009,741

1,131,117

Printing Charges

26,404

59,335

Waste Paper

662,102

672,810

136,701,810

127,239,306

Commission and Rebate

-406,889

-245,037

136,294,921

126,994,269

Chief Executive of the company is provided with company maintained car.

The Company has borne the telephone and utility charges of the Chief Executive's residence.

Remuneration of Chief Executive does not include amounts paid or provided for, if any, by associated

undertakings.

TRANSACTIONS WITH ASSOCIATED UNDERTAKINGS

The related parties and associated undertakings comprise local associated companies, staff

retirement funds, directors and key management personnel. Transactions with related parties

and associated undertakings, other than remuneration and benefits to key management

personnel under the term of their employment are as follows:

2004

2003

Sales

Rupees

Purchases

10,024,682

9,755,559

Adjustment of expenses

854,078

1,313,727

Rent Paid

69,965

153,072

Fixed Assets sold

Fixed Assets purchased

2004

2003

Rupees

ADMINISTRATIVE EXPENSES

Directors' Fees

16,000

13,000

Directors' Remuneration

2,233,648

2,242,464

Staff Salaries and Benefits

2,500,589

2,541,740

Rent, Rates and Taxes

53,598

100,768

Insurance

139,747

36,402

Traveling and Conveyance

240,657

332,770

Postage and Telegrams

62,839

67,957

Telephone

57,736

68,365

Electric Charges

366,274

83,023

Stationery and Periodicals

74,744

63,108

Repairs and Renewals

248,491

308,914

Trade Subscriptions

68,720

117,917

Legal and Professional Fees

96,950

135,593

Auditors' Remuneration

90,000

80,500

General

157,718

166,689

Depreciation

751,424

609,517

7,159,135

6,968,727

22.1 Auditors' Remuneration

Audit Fee

84,500

75,000

Provident Fund Audit Fee

3,000

Workers' Profit Participation Fund Audit

2,500

90,000

80,500

SELLING AND DISTRIBUTION EXPENSES

Staff Salaries and Benefits

983,939

744,985

Advertisement and Publicity

33,050

75,267

Cartage and Forwarding

151,770

248,213

Vehicle Expenses

403,693

188,202

Tender Fees

1,305

3,826

Sales Promotion

70,011

55,303

Insurance

97,453

73,194

Depreciation

292,221

152,379

Others

110,036

168,370

2,143,478

1,709,739

CAPACITY AND PRODUCTION

Capacity

Production

2004

2003

2004

2003

a) Exercise Books (Gross)

58,632

40,432

41,006

b) Sensitised Paper (Rolls)

216,000

99,177

90,204

c) Pro-Labels (Sqr. Meter)

750,000

966,409

772,382

2004

2003

Rupees

CASH GENERATED FROM OPERATION

Profit before Taxation

26,723,630

25,268,949

Adjustment for non cash items and other

adjustments:

Depreciation

4,174,579

3,047,583

Gratuity Provision

213,631

182,689

Valuation of Inventory at Net Realizable Value

-

234,818

Provision for baddebts

-

146,468

Income from Investment

-59,084

-155,020

Amortization of Deferred Gain

-246,120

-41,020

Financial Expenses

1,240,210

1,057,932

Gain/ (Loss) on Disposal of Assets

45,669

238,302

5,368,885

4,711,752

(Increase)/Decrease in Current Assets

Store and Spares

118,713

112,746

Stock in Trade

-1,171,192

-2,836,949

Trade Debts

1,071,741

-2,672,786

Advances and Other Receivables

1,260,748

-99,275

Deposits and Prepayments

-480,297

-245,672

799,713

-5,741,936

Increase/ (Decrease) in Current Liabilities

Creditors, Accrued, and Other Liabilities

2,532,347

-1,645,366

35,424,575

22,593,399

REMUNERATION OF CHIEF EXECUTIVE AND DIRECTOR 2004

Chief

Executive

Directors

Executives

Executive

Directors

Executives

Rs.

Fees

-

16,000

-

13,000

-

1

6

3

1

6

3

Managerial Remuneration

& Allowances

600,000

480,000

381,949

600,000

480,000

371,268

Provident Fund

50,000

39,996

22,493

50,000

39,996

29,500

Medical Expenses

4,664

2,542

26,886

8,726

7,096

35,325

House Rent

270,000

216,000

138,357

270,000

216,000

141,599

Reimbursable Expenses

372,607

238,150

-

388,199

182,447

-

1,297,271

976,688

569,685

1,316,925

925,539

577,692

Number of persons

1

3

1

3

DETAILS OF PATTERN OF SHAREHOLDING AS OF 30-06-2004

(AS PER REQUREMENTS OF CODE OF CORPORATE GOVERNANCE)

ASSOCIATED COMPANIES

SHARES HELD

M/s. Management & Enterprises (Pvt.) Limited

282,082

NIT & ICP

National Bank of Pakistan, Trustee Wing (NIT)

392,941

Investment Corporation of Pakistan

9,122

DIRECTORS, CEO THEIR SPOUSE AND MINOR CHILDREN

Mr. Hashim B.Sayeed Chairman & Chief Executive

201,201

Mrs. Muleika Sayeed Director

221,071

Mr. Muhammad Ali Sayeed Director

3,550

Mr. Abbas Sayeed Director

96,091

Mr. Asadullah Sayeed Director

140,011

Mr. Abid Sayeed Director

350,767

Mr. Abbas Sayeed & Mrs. Nusser Abbas Sayeed

4,000

Mrs. Nusser Abbas Sayeed W/o Mr. Abbas Sayeed

28,781

Mrs. Faiza Haswary W/o Asadullah Sayeed

43,000

Mrs. Nadia Sayeed W/o Abid Sayeed

12,679

Mrs. Nusser Abbas Sayeed A/c (Usman) — Minor

331

Mr. Khawaja Mansoor Mukhtar Shah - Nominee Director

-

EXECUTIVE

NIL

INDIVIDUALS

491,796

PUBLIC SECTOR COMPANIES AND CORPORATIONS

NIL

OTHER BANKS, DEVELOPMENT FINANCE INSTITUTIONS,

NON-BANKING FINANCE INSTITUTIONS, INSURANCE

COMPANIES, MODARABAS AND MUTUAL FUNDS ETC.

222,577

TOTAL NUMBER OF SHARES

2,500,000

SHAREHOLDERS HOLDING 10% OR MORE

Management & Enterprises (Pvt) Limited.

282,082

National Bank of Pakistan, Trustee Wing (NIT)

392,941

Mr. Abid Sayeed

350,767

30.2 Credit Risk Exposure

Credit risk represents the accounting loss that would be recognized at the reporting

date if parties failed completely to perform as contracted. The company controls its

credit risk by ascertainment of credit worthiness of its customers, monitoring of debi

on a continuous basis applying credit limits to its customers. The company does noi

believe that it is exposed to major concentration of credit risk.

30.3 Interest Rate Risk

t

Interest rate risk arises from the possibility that changes in interest rate will affect value

of financial instruments. The company is not exposed to interest rate risk.

30.4 Fair Value of Financial Instruments

The carrying value of all financial assets and liabilities reflected in the financial

statement annroximate their fair value.

2004

2003

Rupees

31. EARNING PER SHARE

Net Profit a-fter Taxation

18,707,704

16,424,817

Number of ordinary shares issued and

Subscribed at start of the year

2,500,000

Basic earning per share

7.48

6.57

Diluted earning per share

7.48

6.57

NUMBER OF EMPLOYEES

Number of employees as at year end 82 (2003: 84)

DATE OF AUTHORIZATION FOR ISSUE

These financial statements were authorized for issue on September 04, 2004 by the Board of

Directors of the Company.

PROPOSED DIVIDEND

In the current year the directors propose that a dividend at 40% per share will be paid to the

shareholders. This dividend is subject to approval by the shareholders at the Annual General

Meeting. The dividend has been included as a liability in these financial statements as required

by the Companies Ordinance 1984.