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Kohinoor Industries Limited

Annual Report 1999

CONTENTS

COMPANY INFORMATION

BOARD OF DIRECTORS

Mr. M. Naseem Saigol

Chairman

Mr. M. Azam Saigol

Chief Executive

Mrs. Sehyr Saigol

Mrs. Razia Begum

Mr. Shahid Sethi

Mr. Imran Iqbal

Mr. Shahid Nasim (ICP Nominee)

COMPANY SECRETARY

Sheikh Muhammad Shakeel, ACA

AUDITORS

M/s Manzoor Hussain Mir & Co.

Chartered Accountants

BANKERS

Allied Bank of Pakistan Limited

Askari Commercial Bank Limited

Emirates Bank International Limited

Faysal Bank of Pakistan

Habib Bank Limited

National Bank of Pakistan

Standard Chartered Bank

Union Bank Limited

United Bank Limited

REGISTERED OFFICE

06-Egerton Road, Lahore

Tel: 6306131 (5 Lines)

MILLS

Kohinoor Nagar,

Faisalabad

NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the Fiftieth Annual General Meeting of Shareholders of Kohinoor Industries

Limited will be held on 29 April 2000 (Saturday) at 11:00 A.M. at 06-Egerton Road, Lahore the Registered

officer of the company to transact the following business:-

ORDINARY BUSINESS:

1. To confirm the minutes of Forty-Ninth Annual General Meeting of the Company held on 30 April 1999.

2. To receive and adopt the Annual Audited Accounts for the year ended 30 September 1999 alongwith

Directors' and Auditors' Reports thereon.

3. To appoint Auditors to hold office till the conclusion of the next Annual General Meeting and to fix their

remuneration

4. Any other business with the permission of the Chair.

SPECIAL BUSINESS:

To consider and pass the following Resolutions pursuant to Section 196(3) of the Companies Ordinance, 1984.

"RESOLVED that the Company be and is hereby authorised to sell plant and machinery pertaining to its out-

dated spinning units and also surplus land measuring 50 acres approximately situated in the premises of the

Company at Faisalabad subject to approval from concerned financial institutions and other departments, if required.

FURTHER RESOLVED that the Chief Executive of the Company be and is hereby authorised to sell the said

plant and machinery and take necessary measures to develop and sell the said surplus land, to negotiate

with interested parties, settle the terms and conditions of sale with them and transfer the said plant and

machinery and land to the purchaser(s)".

STATEMENT UNDER SECTION 160(1)(b) OF THE COMPANIES ORDINANCE, 1984.

Material Information: During the year financial charges exceeding Rs 475. Million have been incurred by

the Company and in order to reduce these the Company intends to generate liquidity by sale of above

assets and repay expensive borrowings. This will not only reduce the financial costs to the Company for

perpetuity, but will also generate substantial capital gains to the Company.

Directors' Interest: The buyer for above assets has not yet been finalized, however these assets will not be

sold to any of the directors or to a private company in which directors are interested.

Book Closure: The Share Transfer Books of the Company will remain closed from 29 April 2000 to 05 May

2000 (both days inclusive).

By Order of the Board

Lahore: April 07, 2000

Sheikh Muhammad Shakeel

Company Secretary

Notes:

1. A member entitled to attend and vote at this Meeting may appoint another member as proxy. Proxies

in order to be effective, must be received at the Registered Office of the Company not later than

forty-eight hours before the time of the meeting and must be duly stamped, signed and witnessed.

2. Member of all recognized Fiqahs may file with the company their declaration (if any) for non-deduction

of Zakat.

3. Member are requested to notify the Company change in their addresses, if any.

DIRECTORS' REPORT TO THE SHAREHOLDERS

The directors of your Company welcome you to the 50th Annual General Meeting of the Company and

present the audited accounts and auditors' report thereon for the year ended 30 September, 1999.

During the year under review the management took comprehensive study of available machinery set up and

its ability to produce quality yarn at a competitive cost. Your company consists of five spinning units. Details

are as under:

Unit

No. Of Spindles

Year of Installation

Unit No.1

30560

1951

Unit No.2

28160

1951

Unit No.3

57720

1963

Unit No.4

14400

1984

Unit No.5

19600

1992

In the recent past, lot of developments has made in the machinery of spinning industries in the world. High

speeds card, auto doffing ring frames, short terms auto leveler and chute feed system has been introduced.

The management of your company reached to a conclusion that in the presence of these latest machines,

unit No 1 & 2 installed in 1951 become completely outdated.

Due to outdated machinery, quality yarn can't be produced from these units, which even can't cater the

quality requirements of shuttle less looms. In the light of above facts and to improve the financial results and

future outlook of the company the management had to take drastic steps. They ultimately closed down unit

No. I & 2 in August 1999, which of course was very unpleasant event in the 50 years history of the company.

The year under review company suffered loss of Rs. 408 million. There are some external factors of this

huge total i.e. raw cotton crises and sluggish yarn market at home and abroad though out the year. The

internal factor that contributed towards huge loss is running 50 years old uneconomical spinning unit No. 1

& 2. The production per spindle is on very lower side due to slow speed machines and yield per lbs is low by

4% to 5% due to outdated machinery. The direct cost to produce yarn on these units is higher than its sale

revenue (Gross loss).

The financial burden of the company has increased tremendously due to persistent cash losses to the

company in the last couple of years. These two factors i.e.huge financial burden and running old units are

the main cause of the losses to the company.

The management is very well aware of these facts and trying relentlessly to address them. They devised

revival plan of the company, which is as follow;

- Retirement of debts of approx. Rs 1.5 billion from sale of land

- Saving in financial cost of Rs 240 million approximately

- Scrape of outdated units No. 1 & 2 (58720 spindles)

- Sale of precious land of these units

- Sale of non-operational valuable land

To achieve this, the management, had to go long way with the creditors of your company and by the grace

of God, your company has entered into an agreement with all the creditors 1st charge holders and other for

repayment of approx. Rs 1.5 billion debt through sale of land within shortest period.

The requisite development work is in progress and hope that it will be completed within time.

Upon completion of revival plan your company will save Rs 240 million approximately from financial cost

which along with saving in loss of unit No. 1 & 2 will turn your company into profitable venture.

The future of the spinning industry especially your company seems to be bright with the news of bumper

cotton crop after eight years, which resulted availability of raw cotton at international prices. Your company

has procured cotton till September 2000 at competitive rates. Availability of raw cotton at competitive prices,

reduction in financial cost by 50% and balance machinery mix of 91000 spindies available to produce all

type of yarn counts i.e. course to fine will put the company on right path and your company will earn reasonable

profits in future.

The following comments are offered on the auditors' observations as contained in their report:

1. The interest expenditure mentioned at Note No. 27.1 is not provided in the accounts as these loans

are going to be retired within one year time from sale of land and management is expected reasonable

relief from the financial institutions.

2. Loss on investments mentioned at Note No. 19.3 determined on the. basis of stock exchange

quotations, we feel, is not proper because these investments are not intended to be sold in stock

market. The management feels that strategic value of theses investments is higher than the cost.

The investee company is making reasonable profits and break up value of shares is much higher

than the rate quoted on Stock Exchanges. During the year the company also disinvest it's holding in

Union Bank Ltd, at much higher rate than the rates quoted on stock exchanges.

3. In our opinion local debtors of Rs. 9.169 million are good for recovery and management is expecting

its recovery in the current year. Advances of Rs. 15.115 million to Kohinoor Textile Mills Limited and

Kohinoor Cotton Mills Limited are good for recovery because company has filed a suit for recovery

and matter is still pending. Advances to employees are of routine nature and recoverable / deductible

from their salaries.

4. The company started its operations in 1948 and it's a very difficult job to update its records from that

date. However, management is trying hard to accomplish this job (preparation of fixed assets register)

in the current year.

5. The claims of the company against Government taken over concerns are pending with Lahore High

Court, and matter is still subjudice.

6. The company has entered into an agreement with its creditors for retirement of debts of approx.

Rs. 1.5 billion through sale of land within shortest time. This will not only improve its liability position

but it will help in improving its profitability. The company has sufficient working capital lines and raw

material stock till September 2000, at competitive rates. The company has closed down its outdated

non-viable units No. 1 & 2 which will also improve its operational profitability.

We are pleased to report that all the computer systems of your company are fully Y2K compliant.

The auditors M/s. Manzoor Hussain Mir & Co. Chartered Accountants retire and being eligible, offer themselves

for reappointment.

Statement showing the pattern of holding of shares held by the shareholders of Kohinoor Industries Ltd, as

on September 30,1999 in attached.

We are pleased to mention here that the banks and financial institutions have very kindly accepted the

company debts retirement plan which would help in strengthen the footing of your company and place on

record our thanks to them for their valued support and co-operation ever extended to us.

The workers and management relations remained very cordial during the year and your directors appreciate

the sincere efforts and hard work done by the workers, Staff and officers of the company.

For and on behalf of the Board

Lahore

M. AZAM SAIGOL

07 April 2000

Chief Executive

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of Kohinoor Industries Limited as at 30 September, 1999

and the related profit and loss account and statement of changes in financial position (cash flow statement),

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 and, after due verification thereof, and subject to the observations expressed in the

annexure to this report and the extent to which the notes referred to may affect, we report that:

a) In our opinion, proper books of account have been kept by the company as required by the Companies

Ordinance, 1984;

b) In our opinion:

1. 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;

2. the expenditure incurred during the year was for the purpose of the company's business;

and

3. 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 and the statement of changes in financial position (cash flow

statement), together with the notes forming part thereof, 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 30 September, 1999 and of the loss and the cash flow for the

year then ended; and

d) In our opinion, no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980.

Lahore

(MANZOOR HUSSAIN MIR & co.)

07 April, 2000

Chartered Accountants

ANNEXURE TO AUDITORS' REPORT

1. Interest expenditure amounting to Rs 43.705 million relating to year under report charged by the

financial institutions indicated at Note No. 27.1 is not accounted for and it has reduced the losses for

the year to that extent. Unprovided markup liability relating to prior year indicated at note No. 11.1 is

Rs. 105.569 Million.

2. Persisting loss on investment in shares indicated at Note No. 19.3 amounting to Rs. 76.635 million

is not accounted for. Attention is also invited to Note No. 19.4

3. Provision for doubtful trade debts and advances as indicated at note No.s 18.1,20.1,20.2, and 20.3

aggregating to Rs. 33.766 million is not made in these accounts. Attention is also invited to Note No.

20(5)ii.

4. As reported last year the fixed assets registers are yet under preparation and this year also there is

no change in the said position. In the absence of complete record, the cost of fixed assets and

depreciation provided thereon relating to units No. 1 & 2 closed down during the year are not

ascertainable with much accuracy. Entries incorporated in the final accounts are based on

Memorandum Data not open to reconciliation with the Company's financial record.

5. The Legal Advisor has stated that writ filed against the Federal Govt. of Pakistan for affecting recovery

of Company's dues (Note-15) from state Run Units has not come up for final hearing, therefore, the

matter remained unresolved.

6. It is stated, without qualifying our report that this year too the Company has sustained heavy losses

and shareholder's equity has converted into deficit balance. Current liabilities have exceeded the

current assets by Rs. 1,335.686 Million, which increases to Rs 1,595.361 Million when the

unrecognized liabilities and losses indicated at para-1,2 and 3 of annexure to the Auditors' Report

are considered. The Company has closed down two spinning units comprising of 58,720 spindles

and has agreed with banks to dispose of non-operating land and some of fixed assets for liquidation

of their loans. The remaining business will be viable if after making payment of bank loans from sale

proceeds of assets, sufficient funds are left over for meeting working capital requirements or further

funds are inducted for this purposes and productive activities are improved for increasing future

profitability.

BALANCE SHEET AS AT 30 SEPTEMBER, 1999

NOTE

1999

1998

(Rupees in thousand)

SHARE CAPITAL AND RESERVES

Authorised capital

30,000,000 ordinary shares of

Rs. 10/- each

300,000

==========

Issued, subscribed and paid up capital

(3)

288,596

Reserves

(4)

360,825

Unappropriated loss

(1,384,254)

(964,262)

-----------

(734,833)

(314,841)

SURPLUS ON REVALUATION OF

FIXED ASSETS

(5)

2,220,586

665,504

LONG TERM LOANS

(6)

609,496

673,267

LIABILITIES AGAINST ASSETS

SUBJECT TO FINANCE LEASE

(7)

112,962

143,833

DEFERRED LIABILITY

(8)

82,497'

83,963

CURRENT LIABILITIES

Short term loans

(9)

1,116,317

1,326,393

Current portion of long term liabilities

(10)

270,612

198,770

Creditors, provisions and accrued charges

(11)

1,045,441

662,493

Unclaimed dividend

611

-----------

2,432,981

2,188,267

CONTINGENCIES & COMMITMENTS

(12)

-----------

4,723,689

3,439,993

==========

LAND - Freehold (Non Operating)

(13)

1,350,829

3,374

OPERATING ASSETS

(14)

2,232,966

2,091,709

GOVERNMENT TAKEN OVER CONCERNS

(15)

28,921

30,553

LONG TERM DEPOSITS

13,678

16,002

CURRENT ASSETS

Stores, spares and loose tools

(16)

80,244

43,578

Stock in trade

(17)

362,547

306,087

Trade debts

(18)

280,914

201,875

Short term investments

(19)

90,000

146,250

Advances, deposits

prepayments and other receivables

(20)

275,635

507,751

Cash and bank balances

(21)

7,955

12,014

----------

1,097,295

1,217,555

----------

4,723,689

3,439,993

==========

The annexed notes (1) to (35) form an integral part of these financial statements.

(M. AZAM SAIGOL)

(M. NASEEM SAIGOL)

Auditors' Report

(MANZOOR HUSSAIN MIR & co.)

Chief Executive

Director

(AS ANNEXED)

Chattered Accountants

PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 30 SEPTEMBER, 1999

NOTE

1999

1998

(Rupees in thousand)

SALES

(22)

2,387,515

3,035,117

COST OF SALES

(23)

2,294,157

2,733,296

GROSS PROFIT

93,358

301,821

OPERATING EXPENSES

Administrative

(24)

57,603

63,527

Selling

(25)

101,232

127,053

158,835

190,580

----------

OPERATING PROFIT/(LOSS)

(65,477)

111,241

OTHER INCOME

(26)

132,777

53,323

----------

67,300

164,564

FINANCIAL EXPENSES

(27)

475,354

429,124

-----------

LOSS BEFORE TAXATION

(408,054)

(264,560)

PROVISION FOR TAXATION

Current

11,938

17,158

Prior year's

-----------

11,938

17,158

-----------

LOSS AFTER TAXATION

(419,992)

(281,718)

UNAPPROPRIATED LOSS BROUGHT FORWARD

(964,262)

(682,544)

-----------

UNAPPROPRIATED LOSS CARRIED TO

BALANCE SHEET

(1,384,254)

(964,262)

==========

EARNINGS PER SHARE

(28)

(14.71)

(9.86)

==========

(M. AZAM SAIGOL)

(M. NASEEM SAIGOL)

(MANZOOR HUSSAIN MIR & Co..)

Chief Executive

Director

Chartered Accountants

Auditors' Report

(AS ANNEXED)

CASH FLOW STATEMENT

FOR THE YEAR ENDED 30 SEPTEMBER, 1999

NOTE

1999

1998

(Rupees in thousand)

CASH FLOW FROM OPERATING ACTIVITIES

Net loss before taxation

(408,054)

(264,560)

adjustments for;

Depreciation

97,520

100,738

Provision for claims and obsolete stores

5,911

Bad debts written off

1,116

Profit on sale of assets

(115,713)

(51,053)

Profit on sale of shares

(7,493)

Profit on sale of stores

(703)

Financial charges

475,354

429,124

----------

450,081

484,720

----------

Operating profit before working capital changes

42,027

220,160

Changes in working capital;

(Increase)/decrease in stores and spares

19,444

(25)

(Increase)/decrease in stock in trade

(56,460)

46,312

(Increase)/decrease in trade debts

(79,039)

(21,1 50)

(Increase)/decrease in advances deposits & Prepayment

232,217

(140,738)

Increase/(decrease) in creditors, accrued and other liabilities

267,672

122,899

----------

383,834

7,298

----------

Cash generated from operations

425,861

227,458

Payments for;

Financial charges

(334,915)

(435,029)

Income tax

(8,856