| SALEEM DENIM INDUSTRIES LIMITED |
|
|
|
|
|
| ANNUAL
REPORT 2004 |
|
|
| BOARD
OF DIRECTORS |
|
|
MR. TAHIR SALEEM CHAUDHRY |
|
|
MR. SHAHID SALEEM
CHAUDHRY |
|
|
MRS. SOBIA SALEEM |
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|
MR. ABDUL HAQ CHAUDHRY |
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|
MRS. NOSHEEN SHAHID |
|
|
MR. ABDUL AZIZ CHUDHRY |
|
|
MR. GHULAM FARID |
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| AUDITORS |
|
|
M. ATHER & COMPANY |
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|
Chartered Accountants |
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|
| BANKERS |
|
|
Muslim Commercial Bank
Limited |
|
|
Allied Bank of Pakistan
Ltd. |
|
|
| REGISTERED
OFFICE |
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|
33-K.M., SHEIKHUPURAROAD, |
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|
FAISALABAD. |
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|
| MILLS |
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|
33-K.M., SHEIKHUPURAROAD, |
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|
FAISALABAD. |
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|
| DIRECTOR'S
REPORT TO THE SHARE HOLDERS |
|
| Dear Members, |
|
|
| Th'e
directors are pleased to present the annual report for the year ended 30th
September, 2004 at this |
|
| occasion
of the 18th annual general meeting of the company. |
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|
| GENERAL |
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| Because
of unforceable market conditions, non availability of additional working
capital, we were having no |
|
| option
but to close the operations. The project remained closed during the whole
year. Inspite of our best |
|
| efforts
and vigorous persuations, we have not succeeded in getting the long term
liabilities rescheduled by |
|
| M/s
Bankers Equity Limited. The case became more complicated because of the
liquidation of BEL itself. |
|
| However
the matter is under active consideration of the authorities and we have
provisionally deposited |
|
| Rs.
2,094,439/- as down payment, the precondition for rescheduling of long term
loans. However from our |
|
| discussions
with the concerned authorities, we do hope that the company will get
substantial relief under |
|
| circular
No. 29 of SBP. Which will be a decisive factor in the viability of the
project. |
|
|
| FINANCIAL
RESULTS |
|
|
|
Rs. In Million |
Rs. In Million |
Variance |
|
|
2004 |
2003 |
Favou rable |
|
| Sales |
|
- |
10.583 |
-10.583 |
|
| Cost of Sales |
|
- |
15.389 |
-15.389 |
|
| Gross
Profit /(Loss) |
- |
-4.806 |
-4.806 |
|
| OPERATING
EXPENSES |
|
|
| Administrative |
|
5.988 |
1.755 |
-4.233 |
|
| Selling |
|
- |
0.084 |
-0.084 |
|
|
|
5.988 |
1.839 |
-4.149 |
|
| Operating
profit / (loss) |
-5.988 |
-6.645 |
-0.657 |
|
| Other Income |
|
- |
0.044 |
0.044 |
|
| OTHER
CHARGES |
|
|
| Financial |
|
13.11 |
13.12 |
0.01 |
|
| Net
Profit / (loss) for the year |
|
|
| before taxation |
|
-19.098 |
-19.722 |
-0.623 |
|
| Taxation |
|
' |
0.288 |
-0.288 |
|
| Net
Profit / (loss) for the year |
|
|
| after taxation |
|
-19.098 |
-20.009 |
-0.911 |
|
|
| 6. There has been no material departure
from the best practices of Corporate Governance, as detailed |
|
| in
Listing Regulations. |
|
|
| 7. The company strictly complies with
standards of the safety rules and regulations. It also follows |
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| environmental
friendly policies. |
|
|
| 8. We have formed an audit committee from
amongst the members of the Board of Directors. |
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| Following
are its members. |
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|
| 1. Mr. Shahid Saleem |
|
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| 2. Mrs. Sobia Saleem |
|
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| 3. Mr.
Ghulam Farid
' |
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| 9. To ensure implementation of Management
System, internal audit and management review is |
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| planned. |
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| 10. We observe the following ethics and
business practices. |
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| a) Commitment to excellent quality. |
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| b) Profit maximization |
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| c) Transparency in financial practices |
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| d) Continuous betterment of employees. |
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| AUDITOR'S
OBSERVATIONS |
|
|
| 1. The balance confirmation letter were
sent to M/s Banker's Equity Ltd. as well as M/s National Bank |
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| of
Pakistan but no response has been received. The matter being in litigation,
the balances |
|
| remained
unconfirmed. |
|
|
| 2. The stock pledged with M/s National
Bank of Pakistan has been taken over by them for adjustment |
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| against
over dues and disposed of at a very low price inspite of the higher bidders
available. Hence |
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| the
disposal has been disputed by the company and the matter is in litigation. |
|
|
| 3. The confirmation letters were
circulated but the response is still awaited and we hope to receive the |
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| same
in due course of time. |
|
|
| 4. Since we have for the time being closed
the operations. So the carrying out of such assessment of |
|
| recoverable
amount of assets was not possible. In view of expected favourable settlement
of |
|
| liabilities
with Banks/ Financial Institution and resumption of operation in near future,
we do not see |
|
| any
impairment losses. However this exercise will be carried in future, and the
necessary |
|
| adjustments
if any will be made. |
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| DIVIDEND |
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| Due
to accumulated losses incurred by the company the declaration of dividend is
not possible. |
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| OUTSTANDING
STATUTORY DUES |
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| Details
of outstanding statutory dues are given in Note No. 11 to the accounts. The
dues could not be paid in |
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| time
because of shortage of funds with the company. |
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|
| BOARD
MEETINGS |
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| During
the year under review six board meetings were held. The attendance of the
directors was as under: |
|
|
| NAME
OF DIRECTORS |
NO. OF MEETINGS |
|
| Mr.
Tahir Saleem Chaudhry |
6 |
|
| Mr.
Shahid Saleem Chaudhry |
6 |
|
| Mrs.
Sobia Saleem |
6 |
|
| Mr.
Abdul Haq Chaudhry |
5 |
|
| Mrs.
Nosheen Shahid |
4 |
|
| Mr.
Abdul Aziz Chaudhry |
5 |
|
| Mr. Ghulam Farid |
|
5 |
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|
| STATEMENT
ON CORPORATE AND FINANCIAL REPORTING FRAME WORK |
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| The
directors would like to confirm in relation to the financial statements and
controls, the following: |
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|
| 1. The financial statements, prepared by
the management of the company, present fairly its state of |
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| affairs,
the result of its operations, cash flows and changes in equity. |
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|
| 2. Proper books of accounts of the company
have been maintained. |
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|
| 3. Appropriate accounting policies have
been consistently applied in preparation of financial |
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| statements
and accounting estimates are on reasonable and prudent judgment. |
|
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| 4. International Accounting Standards, as
applicable in Pakistan, have been followed in preparation of |
|
| financial
statements and any departure there from has been adequately disclosed. |
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|
| 5. The system of internal control is sound
in design and is being effectively implemented and |
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| monitored. |
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| CORPORATE
GOVERNANCE |
|
| Compliance
of corporate governance is annexed. |
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| PATTERN
OF SHAREHOLDING |
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| Pattern
of shareholding is annexed. |
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| CHANGE
IN ACCOUNTING YEAR |
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| As
required by the CBR SRO No. 684(1 )/2004 dated August 10,2004 and SECP
Circular No. 29 of 2004. |
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| The
Company will change its financial yearfrom 30th September to 30th June. |
|
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| Consequently
the next accounting period will be closed on 30th June 2005 and will consist
of nine months |
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| and
thereafter will close on 30th June every year. |
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| GOING
CONCERN |
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| We
are of the opinion that by the favourable settlement of liabilities under
circular 29 of the SBP, we will get |
|
| substantial
relief in debt servicing and will also be able to get new short terms
financing limits.Thus the |
|
| company
is expected to resume profitable operation very soon. |
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|
| PAYMENT
OF TAXES |
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| The
company has been regular in payment of taxes except in Income Tax cases where
appeals are |
|
| pending
decisions or the recent demands which could not be cleared because of
shortage of funds. We |
|
| are
trying to clearthe dues sooner possible. |
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|
| FUTURE
PROSPECTS |
|
| Due
to unexpected increases in the prices of cotton, cotton yarn and polyesterthe
manufacturing of denim |
|
| became
unviable. The company has been working on manufacturing for outsiders- basis,
but the |
|
| continuous
losses incu rred by the company aggravated the situation and it was
considered appropriate to |
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| close
the operation forthe time being. |
|
|
| We
have applied forthe restructuring of our long terms as well as short terms
liabilities with the Bankers / |
|
| Financial
Institutions under the State Bank of Pakistan circular 29 and the case is
being processed. We |
|
| hope
the liabilities will be restructured with substantial relief which will
enable the project to qualify |
|
| prudential
regulations and get the working capital renewed. On resolution of financial
problems we hope |
|
| the
project will be able to resume operation. We also plan to carry out the BMR
and improve the quantity as |
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| well
as quality of the products which will also enhance profitability. |
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|
| LABOUR
MANAGEMENT RELATIONS |
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| These
relations remained normal. |
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| AUDITORS |
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| In
compliance of the Code of Corporate Governance, the existing auditors M/s M.
Ather & Co. who have |
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| been
auditors of the Company for more than five years, will require to be changed
at the annual General |
|
| Meeting.
They have given their consent to continue as auditors until the next annual
General Meeting, if |
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| legallyeligible. |
|
|
| A
notice Under Section 253 of the Companies Ordinance 1984, has been received
for the appointment of |
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| M/s
Amin Muddassar & Co. Chartered Accountants as auditors for the period
ending June 30,2005. Their |
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| consentto
act has also been received. |
|
|
| The
board recommends the appointment of M/s Amin Muddassar & Co. Chartered
Accountants |
|
| Faisalabad,
as auditors forthe period ending June 30,2005. |
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|
| 12. The company has complied with almost all
possible corporate and financial reporting requirements |
|
| of the Code. |
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|
| 13. The .Board formed an audit committee
which comprises of three members, all of them are non- |
|
| executive
directors. |
|
|
| 14. The meetings of the audit committee 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. |
|
|
| 15. The Board has to set-up an effective
internal audit function. |
|
|
| 16. The statutory auditors of the company had
confirmed-thatthey have been given a satisfactory rating |
|
| under
the quality review program of the Institute of Chartered Accountants of
Pakistan, that they or |
|
| any
of he 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 the compliance with International
Federation of |
|
| Accountants
(IFAC) guidelines on code of ethics as adopted by Institute of Chartered
Accountants |
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| of Pakistan. |
|
|
| 17. The statutory auditors or persons
associated with them have not been appointed to provide |
|
| other
services except in accordance with the listing regulations and auditors have
confirmed |
|
| that
they have observed IFAC guidelines in this regard. |
|
|
| 18. We confirm that material principles
contained in the code have been complied with, to the |
|
| possible extent. |
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| STATEMENT
OF COMPLIANCE WiTH THE CODE OF |
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| CORPORATE
GOVERNANCE |
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| The
Directors of Saleem Denim Industries Ltd., and its management is fully aware
of their responsibilities |
|
| under
the Code of Corporate Governance as incorporated in the listing regulations
of Stock Exchanges in |
|
| the
country under instructions from Securities & Exchange Commission of
Pakistan. We are taking all |
|
| necessary
steps to ensure Good Corporate Governance as required by the Code. |
|
|
| 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 director |
|
| representing
minority interests on its Board of Directors. However, at present the Board
includes |
|
| one
executive and six non-executive directorand no directors 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. Only three directors of the company are
registered as tax payers and none of them has defaulted in |
|
| payment
of any loan to banking company, a DPI or and NBFC or being a member of Stock
Exchange, |
|
| has
been declared as a defaulter by that Stock Exchange. |
|
|
| 4. If a casual vacancy occurs in the Board
that will be filled up by th directors within 15 days thereof. |
|
|
| 5. All the powers of the Board have been
duly exercised and decision on material transactions |
|
| including
appointment and determination of remuneration and terms and conditions of
employment |
|
| of
the CEO has been taken by the Board. |
|
|
| 6. The meetings of the Board were presided
over by the CEO, written notices of the Board meetings |
|
| along
with agenda were circulated at least seven days before the meetings. The
minutes of the |
|
| meetings
were appropriately recorded and circulated. |
|
|
| 7. The Board arranged an orientation
course for its directors to apprise them of their duties and |
|
| responsibilities. |
|
|
| 8. The Board has approved apppihtment of
CEO, including his remuneration and terms and conditions |
|
| of employment. |
|
|
| 9. The director's report for this year has
been prepared in compliance with the requirements of the |
|
| Code
and fully described the salient matters required to be disclosed. |
|
|
| 10. The financial statements of the company
were duly endorsed by CEO before approval of the board. |
|
|
| 11. The directors, CEO and Executives do not
hold any interest in shares of the company otherthan that |
|
| disclosed
in the pattern of shareholding. |
|
|
| 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 Saleem Denim Industries Ltd. to comply
with the Listing |
|
| Regulation
No. 37 and Chapter No. XIII Section No. 36 of the Karachi and Lahore Stock
Exchanges |
|
| respectively
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
compaliance with the |
|
| provision
of the Code of Corporate Governance and report if it does not. A review is
limited primarily to |
|
| inquiries
of the Company personnel and review of various documents prepared by the
Company to comply |
|
| with the Code. |
|
|
| As
part of our audit of financial statements we are required to obtain an
understanding of the accounting and |
|
| internal
control system 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 effectiveness
of such internal controls. |
|
|
| Based
on our review we report that: |
|
|
| The
company is yet to appoint internal auditors and start internal audit
function. |
|
|
| The
financial statements have not been endorsed by the CFO. |
|
|
| The
company has formed an audit committee but the same could not function
properly. |
|
|
| Except
for the matter noted in the previous paragraphs 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. |
|
|
| FINANCIAL
PERFORMANCE AT A GLANCE |
|
|
| Operating
Results (Rupees '000') |
2004 |
2003 |
2002 |
2001 |
2000 |
1999 |
1998 |
| Sales |
|
„ |
10,583 |
11,360 |
10,334 |
8,866 |
11, -226 |
31,736 |
| Gross
Profit / (Loss) |
- |
-4,806 |
-3,868 |
-5,212 |
-6,109 |
-9,067 |
-8,215 |
| Operating
(profit / (Loss) |
-5,988 |
-6,646 |
-6,059 |
-7,438 |
-8,197 |
-11,239 |
-25,442 |
| Profit
/ (Loss) before tax |
-19,098 |
-19,722 |
-19,140 |
-20,964 |
-27,263 |
-25,556 |
-25,376 |
| Earning
/ (Loss) and dividend |
|
| (Per
share of Rs. 10 each) |
|
| Earning / (Loss) |
|
-4.89 |
-5.13 |
-5.22 |
-5.39 |
-7 |
-6.56 |
-6.5 |
| Percentage
of profit / (Loss) |
|
| Gross
profit / (Loss) |
. |
-45.419 |
-34.05 |
-49.47 |
-68.9 |
-80.55 |
-25.88 |
| Operating
profit / (Loss) |
- |
-62.797 |
-55.34 |
-71.98 |
-92.46 |
-99 |
-80.17 |
| Profit
/ (Loss) before tax |
- |
-186.356 |
-168.49 |
-202.86 |
-307.52 |
-227.04 |
-79.96 |
| Assets
employed (Rupees '000') |
|
| Fixed assets |
|
98,548 |
103,769 |
109,313 |
115,204 |
121,464 |
128,145 |
135,235 |
| Long
term investments |
497 |
497 |
497 |
644 |
644 |
644 |
644 |
| Current assets |
|
8,717 |
8,729 |
10,974 |
11,812 |
16,034 |
24,216 |
22,992 |
| Current liabilities |
|
-248,506 |
-216,451 |
-186,115 |
-154,544 |
-125,900 |
-95,374 |
-60,732 |
| Total:- |
|
-140,744 |
-103,456 |
-65,331 |
-26,884 |
12,242 |
57,631 |
98,139 |
| Financed by |
|
|
| Ordinary capital |
|
39,018 |
39,018 |
39,018 |
39,018 |
39,018 |
39,018 |
39,018 |
| Accumulated
profit / (loss) |
-258,629 |
-242,808 |
-247,164 |
-226,813 |
-205,769 |
-178,453 |
-156,150 |
| Shareholders'
equity |
-219,611 |
-203,790 |
-208,146 |
-187,795 |
-166,751 |
-139,435 |
-117,132 |
| Surplus
on revaluation |
60,813 |
64,090 |
88,455 |
88,455 |
88,455 |
88,455 |
88,455 |
| Long
term and deferred liabilities |
18,054 |
36,244 |
54,360 |
72,456 |
90,538 |
108,611 |
126,816 |
| Total:- |
|
-140,744 |
-103,456 |
-65,331 |
-26,884 |
12,242 |
57,631 |
98,139 |
|
| its
tangible fixed assets amounting to Rs. 98,548,182/- as referred to in Note 14
to the accounts as of |
|
| balance
sheet date inspite of the presence of indications of material impairment to
these assets; |
|
|
| e) The'company incurred net loss of Rs.
19,098,4537-during the year ended September 30,2004 and, as |
|
| of
that date, accumulated loss amounting to Rs. 258,629,2697- and company's-
current liabilities |
|
| exceeded
its current assets by Rs. 239,789,7807- and its total liabilities exceeded
its total assets by |
|
| Rs.
158,798,6107-. The operations of the company remained closed during the year.
The matter of |
|
| recovery
of loans by M/S Banker's Equity Ltd. and M/S National Bank of Pakistan is in
litigation, the |
|
| final
outcome of which is still unconfirmed. The said factors indicate a material
uncertainty which may |
|
| cast
significant doubt on the company's ability to continue as a going concern and
therefore it may be |
|
| unable
to realize its assets and discharge its liabilities in the normal course of
business. The financial |
|
| statements,
however, do not disclose this fact and any adjustment to that effect. |
|
|
| f) In our opinion, proper books of
accounts have been kept by the company as required by the |
|
| Companies
Ordinance, 1984. |
|
| g) 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 oif |
|
| account
and are, except as discussed in paragraph (d) above, further in accordance
with |
|
| accounting
policies consistently applied; |
|
|
| (ii) the expenditure incurred during the
year was forthe 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; |
|
|
| h)
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, except as discussed in paragraph (d) above and give the
information required |
|
| by
the Companies Ordinance, 1984, in the manner so required and respectively, in
view of paragraphs |
|
| (a)
to (e) above, do not give a true and fair view of the state of the company's
affairs as at September |
|
| 30,2004
and of the loss, its cash flows and changes in equity f or the year then
ended; and |
|
|
| i) in our opinion no Zakat was deductible
at source undertheZakat and Ushr Ordinance, 1980. |
|
|
| AUDITORS'
REPORT TO THE MEMBERS |
|
| We
have audited the annexed balance sheet of SALEEM DENIM INDUSTRIES LIMITED as
at September |
|
|
| 30,2004
and the related profit and 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, except for the matters |
|
| referred
to in paragraph (a) to (c) below, we have obtained all the information and
explanations which, to the |
|
| best
of ou r knowledge and belief, were necessary for the pu rposes of ou r 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. |
|
|
| Expect
as discussed in paragraphs (a) to (c) below, 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 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) Balances of long term loans from M/S
Banker's Equity Limited amounting to Rs. 58,784,579/- and |
|
| short
term loan from M/S National Bank of Pakistan amounting to Rs. 5.974.902/- as
referred to in Note |
|
| 6
and 9 to the accounts respectively remained unconfirmed in the absence of
statement of accounts |
|
| and
balance confirmation certificates; |
|
|
| b) Trade creditors amounting to Rs.
13,076,975/- and advances from customers amounting to |
|
| Rs.
20,052,674/- as referred to in Note 11 to the accounts remained unconfirmed
in the absence of |
|
| direct
balance confirmations; |
|
|
| c) The Stocks of Raw materials and
finished goods amounting to Rs. 6,714,375/- pledged with M/S |
|
| National
Bank of Pakistan as referred to in Note 16 to the accounts could not be
physically verified; |
|
|
| d)
The company has a policy to review, at each balance sheet date, the carrying
amounts of its tangible |
|
| fixed
assets to determine whether there is indication that those assets have
suffered an impairment |
|
| loss
and if any such indication exists, the recoverable amount of the assets is
estimated in order to |
|
| determine
the extent of impairment loss if any, as referred to in Note 4.9 to the
accounts. However, the |
|
| company
has not carried out such review and consequently, the estimation of
recoverable amount of |
|
|
|
|
|
Note |
2004 |
2003 |
|
|
|
RUPEES |
RUPEES |
|
| FIXED CAPITAL |
|
|
|
| EXPENDITURE |
|
14 |
98,548,182 |
103,769,085 |
|
| Operating
fixed assets |
|
|
497,169 |
497,169 |
|
| SECURITY
DEPOSITS |
|
|
|
| CURRENT
ASSETS |
|
15 |
2,215,913 |
2,215,913 |
