| SURTAJ COTTON MILLS LIMITED |
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| ANNUAL
REPORT 2004 |
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| Board of Directors |
|
Khalid
Bashir
|
(Chairman) |
|
|
Nadeem Maqbool |
(Chief Executive) |
|
|
Ahsan Bashir |
|
|
Ahsan M. Saleem |
|
|
Amjad Mahmood |
|
|
Asif Bashir |
|
|
Humayun Maqbool |
|
|
Muhammad Nawaz Tishna |
(Nominee: NIT) |
|
|
| Company
Secretary/CFO |
|
Farooq Ahmad |
|
|
| Audit Committee |
|
Khalid Bashir |
(Chairman) |
|
|
Asif
Bashir
|
(Member) |
|
|
Humayun Maqbool |
(Member) |
|
|
Khaleeque Ahmad |
(Secretary) |
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|
| Auditors |
|
Ebrahim & Company,
BDO |
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|
Chartered Accountants |
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|
| Bankers |
|
National Bank of Pakistan |
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|
Prime Commercial Bank
Limited |
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United Bank Limited |
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Muslim Commercial Bank
Limited |
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Pakistan Industrial
Credit & Investment Corporation Limited |
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PICIC Commercial Bank
Limited |
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The Bank of Punjab |
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Union Bank Limited |
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Allied Bank of Pakistan
Limited |
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| Registered Office |
|
7-B-III, Aziz Avenue,
Gulberg-V |
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|
Lahore |
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Ph: +92 (42) 111 726 786 |
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Fax: +92 (42) 5760376 |
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Email: info@suraj.com |
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| Project Locations |
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Nooriabad, District Dadu,
Sindh. |
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Kotla Kahloon, District
Sheikhupura, Punjab. |
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| Operating
Results |
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| During
the financial year ended 30 September 2004, the Company's sales were Rs.
3.013 billion, an increase of |
|
| over
41% from the previous year. This is largely due to increased capacity in the
form of additional looms which |
|
| have
now brought our installed loom capacity to 216. Our spinning capacity remains
largely based on the |
|
| production
of fine count, high value yarns and the balance capacity produces coarse to
medium counts for |
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| export
and the domestic ancillary industry. Your Company has been successful in
developing a strategic |
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| relationship
with its customers by working closely with them in development of raw
materials for their products |
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| ranges. |
|
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| Our
weaving division continues to perform well and an additional 72 looms were
installed during the period |
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| under
review. This has completed the expansion of our weaving capacity as proposed
to the Board of Directors 2 |
|
| years
ago. Keeping in view the increasing competitiveness in the textile industry,
I am happy to report that these |
|
| investments
have been completed in record time so as to bring the necessary cost
advantage and revenue |
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| generation
for the benefit of ourshareholders. |
|
|
| I
had advised in my last review that the Company has decided to upgrade/expand
our older spinning facilities to |
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| bring
about cost advantages and obtain benefits of economies of scale. I am happy
to report that we have |
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| successfully
added 8256 new spindles with related back process machinery in our facility
at Nooriabad. This |
|
| expansion
of the latest machinery will enhance our capacity to produce value added
yarns in our old facilities |
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| resulting
in cost benefits and better profitability. The installation of this unit was
completed and trial production |
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| commenced
in August 2004. The commercial operations have subsequently started on 01
October 2004. |
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| During
the year under review, cost of goods sold as a percentage of sales was 4%
higher than last year, |
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| administrative
expenses increased by a nominal 4% due to normal inflation and expansion in
weaving. Selling |
|
| and
distribution expenses increased by 5% which is primarily due to higher export
related expenses. Financial |
|
| and
other charges for the year were Rs. 53.66 million as compared to Rs. 59.42
million during the corresponding |
|
| period,
a decline of approximately 10%. This decline is a result of good financial
management and has come |
|
| about
even though the Company has increased its long term borrowings to fund the
additional spinning and |
|
| weaving
capacities. The financial environment remained largely favorable for the
borrowers but a note of |
|
| caution
for the future, borrowing rates are starting to show an upward trend ! The
State Bank of Pakistan has |
|
| steadily
started to increase the yields on Treasury Bills to counter inflation and we
feel that borrowings cost for |
|
| the
next year should increase in line with the higher yields. |
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|
| Corporate
Governance |
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| The
Company is complying with the Corporate Governance and Financial Reporting
System and is meeting all its |
|
| covenants.
The Company maintains sound internal control policies which are being
monitored by the internal |
|
| auditors
in detail. I am grateful to the Board of Directors for their role in advising
the management to get |
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| material
benefits from these covenants. |
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|
| Future Outlook |
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| The
present year has started on an extremely positive note with regard to
domestic and international cotton |
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| production.
It is projected that all major cotton producing countries in the world will
have record output and the |
|
| prices
are expected to remain lower than the previous year. We feel that an abundant
supply of raw material |
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| always
leads to better margins for all stakeholders in the value chain. The spinning
industry in Pakistan is |
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| continuously
modernizing and expanding which has led to a strengthening of domestic demand
and the |
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|
| Our Business |
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| We
are a manufacturing organization operating integrated spinning and weaving
facilities in textile industry and |
|
| our
end products are sold to international and national customers. |
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| Vision
of Future Business |
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| We
are committed to becoming the premier manufacturing organization in the
textile industry maintaining |
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| market
leadership in the present business and diversifying into value added projects
with the object of |
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| maximizing
returns for all the stakeholders. |
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| Our Strengths |
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| We
have made pioneering efforts in development of new products, which has
enabled us to emerge as a market |
|
| leader.
This together with an innovative and professional management style has helped
us to build a strong and |
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| financially
sound base. |
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| Our Strategy |
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| We
are determined to convert our vision into reality by using innovation to
create a market niche for our products |
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| and
by investing in facilities, people, systems and new technology,
diversification into value addition and |
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| improvements
in productivity and service to customers. |
|
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| We
shall aggressively exploit new markets by drawing strength from our corporate
image and by promoting a |
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| culture
that encourages initiatives at all levels of decision-making. |
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| OurValues |
|
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| • We take pride in adhering to ethical
business practices and in being a good corporate citizen. |
|
|
| • We respect our people and endeavor to
provide them opportunities to realize their full potential. |
|
|
| • We recognize our responsibility to our
stakeholders and society. |
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|
| FINANCIAL
SUMMARY |
|
|
| Rs 000 |
|
2004 |
2003 |
2002 |
2001 |
2000 |
1999 |
|
| Net Sales |
|
3,013,966 |
2,131,485 |
2,013,852 |
1,996,424 |
1,566,256 |
1,410,874 |
|
| Cost of sales |
|
2,778,080 |
1,884,375 |
1,726,055 |
1,749,942 |
1,218,811 |
1,192,523 |
|
| Gross Profit |
|
235,886 |
247,110 |
287,797 |
246,482 |
347,445 |
218,351 |
|
| Administration |
|
33,834 |
32,579 |
26,435 |
25,082 |
21,492 |
17,382 |
|
| Selling |
|
13,791 |
13,123 |
19,116 |
21,868 |
33,827 |
32,855 |
|
| Operating
Expenses |
47,625 |
45,956 |
45,551 |
46,950 |
55,319 |
50,237 |
|
| Operating Profit |
|
188,261 |
201,408 |
242,246 |
199,532 |
292,126 |
168,114 |
|
| Other income |
|
10,426 |
12,579 |
25,548 |
21,214 |
13,281 |
6,734 |
|
|
|
198,687 |
213,987 |
267,794 |
220,746 |
305,407 |
174,848 |
|
| Financial
and other charges |
53,664 |
59,429 |
72,705 |
85,687 |
109,598 |
104,812 |
|
| Profit
before taxation |
145,023 |
154,558 |
195,089 |
135,059 |
195,809 |
70,036 |
|
| Provision
for taxation |
13,761 |
11,678 |
28,421 |
19,120 |
57,589 |
7,269 |
|
| Profit
after taxation |
131,262 |
142,880 |
166,668 |
115,939 |
138,220 |
62,767 |
|
| Financial Position |
|
|
| Current Assets |
|
855,490 |
746,841 |
472,777 |
686,520 |
516,742 |
573,007 |
|
| Current Liabilities |
|
838,779 |
644,674 |
429,563 |
634,176 |
443,164 |
447,408 |
|
| Operating
Fixed Assets |
1,504,064 |
1,162,406 |
862,993 |
786,934 |
761,992 |
531,168 |
|
| Total Assets |
|
2,518,552 |
1,973,500 |
1,371,408 |
1,493,153 |
1,303,349 |
1,126,238 |
|
| Long Term Debts |
|
653,530 |
471,603 |
255,573 |
319,859 |
395,807 |
434,528 |
|
| Share
holders' Equity |
906,782 |
733,164 |
528,550 |
397,882 |
329,896 |
148,223 |
|
| Break-up
value per share ( Rupees ) |
50.38 |
40.73 |
29.36 |
22.1 |
18.49 |
16.47 |
|
| Financial Ratios |
|
|
| Current Ratio |
|
1.02% |
1.1 |
1.1 |
1.08 |
1.17 |
1.28 |
|
| Total
Debts to Total Assets |
25.95% |
23.9 |
18.64 |
21.42 |
30.37 |
38.58 |
|
| Debt Equity |
|
% 41:59 |
39:61 |
33:67 |
45:55 |
55:45 |
74:26 |
|
| Average
Collection Period |
Days 21 |
25 |
21 |
31 |
42 |
52 |
|
| Inventory Turnover |
|
Times 5.80 |
5.68 |
7.8 |
8.42 |
7.1 |
7.73 |
|
| Fixed
Assets Turnover |
Times 2.00 |
1.83 |
2.33 |
2.54 |
2.06 |
2.66 |
|
| Total
Assets Turnover |
Times 1.20 |
1.08 |
1.47 |
1.34 |
1.2 |
1.25 |
|
| Per
Share Results and Returns |
|
|
| Earning per share |
|
Rupees 7.29 |
7.94 |
9.26 |
6.44 |
10.71 |
6.97 |
|
| Return
on capital employed - net |
Rupees 14.48 |
19.49 |
31.53 |
29.14 |
41.9 |
42.35 |
|
| Net
Income to Sales |
4.36% |
6.7 |
8.28 |
5.81 |
8.82 |
4.45 |
|
| Return
on average Equity |
16.01% |
22.65 |
35.98 |
31.86 |
57.82 |
71.6 |
|
| Return
on average Assets |
5.84% |
8.54 |
11.64 |
8.29 |
11.38 |
6.09 |
|
|
| CHIEF
EXECUTIVE'S REVIEW |
|
| projected
crop of 13 million will just barely meet the domestic demand. The local
prices of raw cotton have |
|
| remained
fairly stable due to intervention by the Government procurement agency,
Trading Corporation of |
|
| Pakistan.
This intervention is designed to ensure a better price to the farmer and
although we do agree that the |
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| farmer
should get a fair return, the cotton procured by TCP should not be exported
to our competitors at low |
|
| prices
but instead should be kept in the country to meet the requirements of the
local industry. |
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|
| On
January 01,2005, the phase out of the Multi Fiber Agreement will be complete
and quotas will be eliminated. |
|
| This
poses a great challenge to all the textile producing countries and in our
opinion; Pakistan will not be an |
|
| exception.
However, in my opinion, Pakistan's textile industry has invested a huge
amount in modernization of |
|
| its
basic textile industry and will therefore be in a good position to compete
and increase its market share. The |
|
| downstream
industry is also modernizing and although in the short run they may face some
difficulties, I think |
|
| we
will be able to compete with other suppliers on the basis of better quality
and competitiveness. |
|
|
| Our
policy of modernization has served us well in the past and we hope that we
will be able to maintain our |
|
| profitability
in the coming years. We have diversified and forged strong relationships with
our suppliers which |
|
| will
help us in performing better. |
|
|
| Acknowledgements |
|
| The
Management is grateful to the Board of Directors for their support and
guidance and to all the employees for |
|
| their
dedicated services and loyalty. We would also take the opportunity to thank
our shareholders, bankers, |
|
| suppliers
and all the Company's partners for their support. |
|
|
| DIRECTORS'
REPORT |
|
| It
is my pleasure to present the 20th Annual Report of the company and place
before you Audited Financial |
|
| Statements
for the year ended September 30, 2004, along with the Auditors' report
thereon. |
|
|
| Appropriations |
|
(Rs. In '000) |
|
|
| Profit
before taxation |
|
145,023 |
|
| Provision
for taxation |
|
13,761 |
|
| Profit
after taxation |
|
131,262 |
|
| Un-appropriated
profit/(loss) brought forward |
|
2,615 |
|
| Profit
available for appropriation |
|
133,877 |
|
| Appropriations: |
|
|
|
| Transferred
to general reserve |
|
95,000 |
|
| Un-appropriated
profit carried forward |
|
38,877 |
|
|
| DIRECTORS'
REPORT |
|
|
| Name
of Director |
|
No. Of Meetings Attended |
|
| Mr. Ahsan Bashir |
|
4 |
|
| Mr.
Ahsan M. Saleem |
|
1 |
|
| Mr.
Amjad Mahmood |
|
3 |
|
| Mr. Asif Bashir |
|
3 |
|
| Mr.
Humayun Maqbool |
|
2 |
|
| Mr. Khalid Bashir |
|
4 |
|
| Mr.
Nadeem Maqbool |
|
3 |
|
| Mr.
Muhammad Nawaz Tishna |
|
3 |
|
|
| Auditors |
|
| The
audit committee and Board of Director's have recommended the present auditors
M/s Ebrahim & Company, |
|
| EDO,
Chartered Accountants, retire and being eligible, offer themselves for
re-appointment. |
|
|
| Earning
Per Share |
|
| Earning
per share of the Company for the year under review is Rs. 7.29 (Last year:
Rs. 7.94). |
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|
| Pattern
of Shareholding |
|
| The
pattern of shareholding, as required by section 236 of the Companies
Ordinance 1984 and Code of |
|
| Corporate
Governance, is enclosed. |
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|
| Change
in Accounting Year |
|
| As
per directions of Central Board of Revenue, the close of accounting year of
Cotton Textile is changed to June |
|
| from
September. Our company will prepare its first annual accounts, after the
change, for nine months ending |
|
| on
June 30, 2005. First and Second interim accounts will be prepared and
circulated in routine for the periods |
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| ended
on 31-12-2004 & 31-03-2005, respectively. |
|
|
| The
interim accounts, subsequent to the year end 30-06-2005, the cycle will start
from annual accounts ending |
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| 30-06-2005
and 1st, 2nd and 3 quarterly accounts shall be prepared and circulated for
the period ended 30-09- |
|
| 2005,31-1-2005
and 31-03-2006, respectively. |
|
|
| Key
Operating and Financial Data |
|
| The
key operating and financial data for the last six years is annexed. |
|
|
| Acknowledgements |
|
| The
Management is grateful to the Board of Directors for their support and
guidance and to all the employees |
|
| for
their dedicated services and loyalty. We would also take the opportunity to
thank our shareholders, bankers, |
|
| suppliers
and all the Company's partners for their support. |
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|
| Ordinary
Business: |
|
|
| 1. To receive, consider and adopt the
Audited Accounts of the Company for the year ended September 30,2004 together |
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| with
the Directors' and Auditors' Reports thereon. |
|
|
| 2. To approve as recommended by Directors,
the payment of Cash Dividend @ 20% i.e. Rs. 2.00 per share for the year |
|
| ended
September 30,2004. |
|
|
| 3. To appoint Auditors and fix their
remuneration. The present Auditors M/s. Ebrahim & Company, BDO Chartered |
|
| Accountants,
retires and offer themselves for re-appointment. |
|
|
| 4. To consider the recommendation of the
Board of Directors to up-load of financial results on web site of the
Company, |
|
| in
compliance with section 245 of the Companies Ordinance, 1984 instead of
circulating the same by post to the |
|
| shareholders,
subject to compliance of the Securities and Exchange Commission of Pakistan's
Circular 19 Dated April |
|
| 14,2004. |
|
|
| 5. To consider and approve the change in
the close of accounting year of the Company from September to June, as per |
|
| the
Securities and Exchange Commission of Pakistan's Circular 29 of 2004. |
|
|
| Special
Business: |
|
|
| 6. To consider and if thought fit pass
with or without modification the following resolution as special resolution
:- |
|
|
| "Resolved
that Mr. Khalid Bashir, Chairman, Mr. Nadeem Maqbool, Chief
Executive, Mr. Ahsan Bashir, Mr. Asif Bashir, |
|
| Directors
and Mr. Adil Bashir, Authorized Signatory, be and is singly authorized to
make a long term investment, in |
|
| accordance,
with Section 208 of the Companies Ordinance, 1984, in the share capital of
Suraj Fabrics Limited up to Rs. |
|
| 50.0
Million, from the surplus funds of the company. |
|
|
| 7. To consider and approve the advances
to associated concerns:- |
|
|
| "Resolved
that Mr. Khalid Bashir, Chairman, Mr. Nadeem Maqbool, Chief Executive, Mr.
Ahsan Bashir, Mr. Asif Bashir, |
|
| Directors
and Mr. Adil Bashir, Mr. Farooq Ahmad, Authorized Signatories, be and are
jointly authorized to make |
|
| advances,,
in accordance, with Section 208 of the Companies Ordinance, 1984, up to Rs.
50.0 Million to associated |
|
| concerns
i-e M/s Suraj Fabrics Limited, M/s Shams Textile Mills Limited and M/s
Crescent Powertec Limited, for their |
|
| any
urgent financial requirements, from the surplus funds of the company. |
|
|
| 8. To transact any other business with the
permission of the Chair. |
|
|
| STATEMENT
OF COMPLIANCE WITH CODE OF CORPORATE GOVERNANCE |
|
|
| This
statement is being presented to comply with the Code of Corporate Governance
as contained in |
|
| regulation
no. 37 of the Listing Regulations of the Karachi Stock Exchange and Chapter
XIII of listing |
|
| Regulations
of Lahore Stock Exchange and Chapter XI of Listing Regulations of Islamabad
Stock Exchange |
|
| for
the purpose of establishing a framework of good governance, where by 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
manners: |
|
|
| • The Company encourages representation of
independent non-executive directors. At present the |
|
| Board
has one independent non-executive director. |
|
|
| • The directors have confirmed that none of
them is serving as a director in more than ten listed |
|
| companies,
including this Company. |
|
|
| • All the resident directors of the
company are registered as taxpayers and none of them has |
|
| defaulted
in payment of any loan to a banking company, a DPI or an NBFI. None of them
is an active |
|
| member
of a stock exchange. |
|
|
| • No casual vacancy occurred during the
year ended September 30,2004. |
|
|
| • The company has prepared a
"Statement of Ethics and Business Practices", which has been signed |
|
| by
all the directors and employees of the company. |
|
|
| • 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. |
|
|
| • The Company is in process of getting
significant policies formally approved by the Board. |
|
|
| • All the powers of the Board have been
duly exercised and decisions on material transactions, |
|
| including
appointment and determination of remunerations and terms and conditions of |
|
| employment
of the Chief executive Officer (CEO) and an executive director have been
taken by the |
|
| Board. |
|
|
| • The meetings of the Board were presided
over by the Chairman and, in his absence, by a director |
|
| elected
by the Board for this purpose and the Board met once in every quarter during
the year |
|
| ended
September 30, 2004. 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. |
|
|
| • The Board has arranged an orientation
course for its directors to apprise them of their duties and |
|
| responsibilities. |
|
|
| • The Board has approved appointment of
CFO/Company Secretary and the Head of Internal Audit, |
|
| including
their remuneration and terms and conditions of employment, as recommended by
CEO. |
|
|
| • The Directors' Report for the year ended
September 30, 2004 has been prepared in compliance |
|
| with
the requirements of the Code and it fully describes the salient matters
required to be |
|
| disclosed. |
|
|
| • The financial statements of the Company
were duly endorsed by the CEO and CFO before approval |
|
| by the Board. |
|
|
| • The Directors, CEO and executives do not
hold any interest in the shares of the company, other |
|
|
| STATEMENT
OF COMPLIANCE WITH CODE OF CORPORATE GOVERNANCE |
|
|
| 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 of three members, all of whom are non- |
|
| executive
directors including the Chairman of the Committee. The Audit Charter of the
company |
|
| requires
that at least two members of the Audit Committee must be financially
literate. |
|
|
| • 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
reference of |
|
| the
committee have been formed and advised to the committee for compliance. |
|
|
| • The Board has set-up an effective Internal
Audit function by appointing a full-time Head of |
|
| Internal
Audit. The day-to-day operations of this function have been outsourced to M/S
Riaz |
|
| Ahmad
& Company (Chartered Accountants), who are considered suitably qualified
and |
|
| experienced
for the purpose and are conversant with the policies and procedures of the |
|
| company. |
|
|
| • 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 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 Accounts (IFAC) guidelines on code of ethics as adopted by the |
|
| Institute
of Chartered Accountants of Pakistan. |
|
|
| • The statutory auditors of 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. |
|
|
| REVIEW
REPORT TO THE MEMBERS ON STATEMENTS OF COMPLIANCE WITH |
|
| THE
BEST PRACTICES OF THE 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 Suraj Cotton Mills
Limited to comply with the Listing |
|
| Regulation
N o. 37 of the Karachi Stock Exchange (Guarantee) Limited and Chapter XIII of
the Lahore Stock |
|
| Exchange
(Guarantee) Limited where the Company is Listed. |
|
|
| The
responsibility for compliance with the Code of Corporate Goverance 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 systems to enable us to
express an opinion as to whether |
|
| the
Board's statement on internal controls and the effectiveness of such internal
controls. |
|
|
| Based
on our review nothing has come to our attention, which causes us to be
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 |
|
| September
30,2004. |
|
|
| AUDITORS'
REPORT TO THE MEMBERS |
|
| We
h |
