Safa Textiles Limited - Annual Reports 2004

SAFA TEXTILES LIMITED
ANNUAL REPORT 2004

BOARD OF DIRECTORS
Executive Director
MR. S. IQBA '. HUSAIN			CHAIRMAN & CHIEF EXECUTIVE
MR. S. ADNAN HUSAIN			DIRECTOR MARKETING
MR. S. TARIQUE HUSAIN			DIRECTOR PRODUCTION
Non-Executive Director
MRS. SEEMA ADNAN			NON-EXECUTIVE DIRECTOR
MRS. SABEEN TARIQUE			NON-EXECUTIVE DIRECTOR
MR. BASIR AHMAD			NON-EXECUTIVE DIRECTOR
MR. S. ABDUL KHALIQ			NON-EXECUTIVE DIRECTOR
BOARD OF AUDIT COMMITTEE
MR. S. IQBAL HUSSAIN Chief Executive			CHAIRMAN
MRS. SEEMA ADNAN Director			MEMBER
MRS. SABEEN TARIQUE Director			MEMBER
AGHA YOUSUF ALI KHAN Internal Auditor			SECRETARY
COMPANY SECRETARY			AGHA YOUSUF ALI KHAN
LEGAL ADVISOR			KHALID DAUD POTA (ADVOCATE)
AUDITORS			M/S. KHALID MAUD RAHMAN SARFARAZ
			RAHIM IQBAL RAFIQ, CHARTERED ACCOUNTANTS
			180-A, S.M.C.H.S., KARACHI-74400
BANKERS			HABIB BANK A.G. ZURICH
			BANK ALFALAH LTD.
			PICIC COMMERCIAL BANK LIMITED
			STANDARD CHARTERED BANK LTD.
SHARES REGISTRAR			TRADE TOWER, ABDULLAH HAROON ROAD, KARACHI.
REGISTERED OFFICE			PLOT NO. 26 & 26/1
			SECTOR 12-D, NORTH KARACHI
			INDUSTRIAL AREA, KARACHI.
FACTORY			PLOT NO. 26 & 26/1
			SECTOR 12-D, NORTH KARACHI
			INDUSTRIAL AREA, KARACHI.
TELEFAX			(92-21)6995931
TELEPHONE			(92-21)6980947

DIRECTOR'S REPORT
		2004	2003
		Rupees	Rupees
		30.06.2004	30.06.2003
Sales		158,506,914	132,621,678
Cost of Goods Sold		-138,320,079	-111,582,220
Gross Profit		20,186,835	21,039,458
Operating Expenses		-14,711,550	-13,060,358
Net Profit		2,576,674	604,767
Accumulated (loss) Brought Forward		-11,437,372	-12,042,139
Accumulated (loss) Carried Forward		-8,860,698	-11,437,372
Earning Per Share		0.64	0.15

Operating results
The operating results of the Company remained quite satisfactory in-spite of difficult economic conditions
during the period, which has affected the whole industry. The operating results of the company during the
last seven years period between 1998 to 2004 have been given in annexure-1 for your review.

Sales
The Company's export sales for the year amounted to Rs. 158,507 million as compared with Rs. 132,622
million last year. Export sales register an increase of 20.17% as a result of value additions achieved with
the help of new machinery and improved quality.
Production
Your Company's main business is manufacture and export of textiles madeups. Due to close supervision,
better enforcement of good governance and replacement of some of the old machinery, the production
volume increased by 26.08% as compared with that of last year.

Cost of production
The cost of production has increased nominally as compared with that of previous year, mainly due to
higher prices of the cotton yarn, fabric, raw material, utilities, accessories and labor cost.
Profit before Tax
The operating profit before tax for the year ended June 30, 2004 is Rs.3.746 million as compared to Rs. 1 .587
million in the last year. Which is the result of dedication, hard work, and economical operations.

Dividends
The board of directors regretfully inform that the Company is not in a position to declare any dividend
because of accumulated losses.
Earning Per Share
Earning Per Share at the year end improved to Rs.0.64 as compared to Rs.0.15 for the last year.

Fixed Assets
The board of directors being aware of challenges and competition that would arise in January 2005, with
the phasing out of export quota, have focused attention to compete in the international markets for price,
quality and production by way of research & development, modernization of plant and machinery.
During the year, we have made additions of Rs.6.4 million in fixed assets and also last year we had added
Rs.5.1 million. For the coming year we have placed confirm orders for new machines amounting to
Rs.3 million. These investments in fixed assets are expected to bring in efficiency, improvement in quality
and production.

Financial Charges
The financial charges have increased from Rs. 882,805 to Rs. 1,229,020 due to increase in the export
development surcharge by the Government of Pakistan and collection charges by the banks which are
beyond our control. Staff provident fund
The staff provident fund has been introduced from July 2003 .

Auditors
The present auditors M/s Khalid Majid Rehman Sarfaraz Rahim Iqbal Rafiq, Chartered Accountants, have
retired and being eligible offered themselves for re-appointment. The audit committee has recommended
the appointment of M/s Khalid Majid Rehman Sarfaraz Rahim Iqbal Rafiq, Chartered Accountants, as
auditors of the Company for the year ending June 30, 2005.

Code of Corporate Governance
Safa Textiles Limited is a public limited company listed on Karachi Stock Exchange and the management
is committed to observe the Code of Corporate Governance prescribed for the listed companies. In
compliance with the provision of the code, the Board Members are pleased to place the following statement
on record.
1. The management of the company prepares the financial statement, presents fairly its state of affairs,
the result of its operations, cash flows and changes in the equity.

2. Proper books of accounts of the company have been maintained.

3. Appropriate accounting policies have been consistently applied in preparation of the financial
statements and accounting estimates are based on reasonable and prudent judgment.

4. International accounting standards, as applicable in Pakistan, have been followed in preparation of
financial statements and any departure there has been adequately disclosed.

5. The system of internal control is sound and has been effectively implemented and monitored.

6. There are no significant doubts about the company's ability to continue as a going concern.

7. There has been no material departure from the best practices of the corporate governance as detailed
in the listing regulation.

8. Key operating and financial data for (7) seven years is summarized in annexure-1.

9. All Outstanding Taxes & levies have been paid.

10. Director's meetings

1 1 . Pattern of shareholders is printed on last page of the Annual Report in accordance with the Code
of Corporate Governance.

12. There are no changes in share holdings of directors as compared with the previous year.

13. There is no trading in the company's shares by the Directors, Chief Executive, Chief Financial
Officer, Company Secretary and their spouses and minor children.

Future Prospects
The economic conditions prevailing internationally do not seem to be encouraging in the near future. The
economy of our country worsen after the event of 9/1 1 . The textile industry is facing difficulties in obtaining
orders from their foreign buyers. However, we hope this difficult time has to be faced with a conscious
approach and sustained efforts. Moreover, the abolishment of quota from January 1, 2005 makes the
situation unpredictable. Our management has taken effective measures to enhance sales, production and
profitability of the company.

Labour Management Relations
Cordial relations were maintained between the management and the labour during the year. We wish to
record our appreciation for the dedication and hard work demonstrated by the employees and suppliers
at every level for the progress and growth of the Company.

Statement of Compliance with the Code of Corporate Governance
This statement is being presented to comply with the Code of Corporate Governance contained in Regulation
No. 37 of listing regulations of Karachi Stock Exchange for the purpose of establishing a framework of
good governance, whereby a listed company is managed in compliance with the best practices of Corporate
Governance.
The Company has applied the principles contained in the Code in the following manner:

1 ) The Company encourages representation of independent non-executive directors and directors
representing minority interests on its Board of Directors. At present the Board includes 3
(three) independent non-executive Directors and one director representing minority shareholders.

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 tax payers and none of them has
defaulted in payment of any loan to a banking company, a DPI or NBFI or, being a member
of a Stock Exchange has been declared as a defaulter by that stock exchange.

4) No casual vacancy occurred in Board during the year.

5) The Company has prepared a "Statement of Ethics and Business Practices", which has been
signed by all Directors and Employees of the Company.

6) The Board has developed a vision / mission statement, overall corporate strategy and significant
policies of the Company. A complete record of particulars of significant policies along with
the dates on which they were approved or amended has been maintained.

7) All the powers of Board have been duly exercised and decisions on material transactions,
appointment and determination of remuneration and terms and conditions of employment of
the CEO and other executive directors, have been taken by Board.

8) The meetings of Board were presided over by the chairman and, in his absence, by a Director
elected by the Board for this purpose and Board met at least once in every quarter. Written
notices of Board meetings, along with agenda and working papers, were circulated at least
seven days before the meeting. The minutes of the meeting were appropriately recorded and
circulated.

9) The Board arranged one orientation course for its directors during the year to apprise them
of their duties and responsibilities.

1 0) The Board has approved appointment of CFO, Company Secretary and Head of Internal Audit,
including their remuneration and terms and conditions of employment as determined by the
CEO.

The Directors' Report for this year has been prepared in compliance with the requirements
of the Code and fully describes the salient matters required to be disclosed.
The financial statements of the Company were duly endorsed by the CEO and CFO before
the approval of Board.
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.
The Company has complied with all the corporate and financial reporting requirements of the
Code.
The Board has formed an audit committee. It comprises three members, two of whom are
Non-Executive Directors.
The meetings of the audit committee were held at least once in every quarter 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.
The Board has set-up.an effective internal audit function with employees who are considered
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.
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 (ICAP), 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 ICAP.
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.
We confirm that all other material principles contained in the Code have been complied with.

COMPARATIVE STATEMENT OF OPERATING RESULTS
FROM JUNE 1998 TO JUNE 2004 (7 YEARS)

PARTICULAR	JUNE 1998	JUNE 1999	JUNE 2000	JUNE 2001	JUNE 2002	JUNE 2003	JUNE 2004
SALES	9,064	4,919	44,664	87,219	109,137	132,621	158,507
COST OF GOODS SOLD	8,171	4,439	39,844	70,139	92,450	111,582	138,320
GROSS PROFIT	893	480	4,820	17,080	16,687	21,039	20,187
OPERATING EXPENSES	4,011	3,821	14,298	14,648	12,435	13,060	14,712
OPERATING PROFIT /(LOSS) (3,118)		-3,341	-9,478	2,432	4,252	7,979	5,475
FINANCIAL / OTHER CHARGES				-845	-1,925	-2,196	-1,948
OTHER INCOME /(LOSS)	-5,080	-102	1,019	204	363	-4,196	214
REMISSION OF MARK-UP	-	•	10,940	-	-	-	-
GENERAL RESERVE	-	-	-	-2,000	-	-	-
PROVISION FOR TAXATION	-45	-24	-	-608	-780	-982	-1,165
NET PROFIT /(LOSS)	-8,243	-3,467	2,481	-817	1,910	605	2,576
ACCUMULATED PROFIT/ (LOSS) B/F	-4,474	-12,717	-16,184	-13,703	-13,952	-12,042	-11,437
PRIOR YEAR ADJUSTMENTS	-	-	-	568	-	-	-
ACCUMULATED PROFIT / (LOSS) C/F	-12,717	-16,184	-13,703	-13,952	-12,042	-11,437	-8,861

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 Safa Textiles 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 the 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 June 30, 2004.

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of Safa Textiles 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 the 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 accounts 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;