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Mohammad Farooq Textile Mills Limited
Annual Report 1999
C 0 N T E N T S
Board of Directors
Notice of Meeting
Directors' Report
Chief Executive's Review
Pattern of Shareholding
Auditors' Report
Balance Sheet
Profit & Loss Account
Statement of Changes in Financial Position (Cash Flow Statement)
Notes to the Accounts
BOARD OF DIRECTORS
CHAIRPERSON	Mrs. Mariam A. K. Sumar
CHIEF EXECUTIVE	Mr. Mohammad Farooq Sumar
DIRECTORS	Mr. Mohammad Mukhtar Sumar
	Mr. Shamim Ahmed (Representing NIT)
	Ms. Sabiha Sumar
	Mr. Munir Ahmed Ansari
	Mr. Yacoobali G. Zamindar
COMPANY SECRETARY	Mr. Yacoobali G. Zamindar
LEGAL ADVISERS	Mohsin Tayebali & Co.
AUDITORS	M. Yousuf Adil Saleem & Co.
	Chartered Accountants
BANKERS	Habib Bank Limited
	Muslim Commercial Bank Limited
REGISTERED OFFICE	First Floor, Finlay House,
	I.I. Chundrigar Road,
	Karachi-74000
HEAD OFFICE AND MILLS	Plot Nos. 6 & 7, Sector 21,
	Korangi Industrial Area,
	Karachi
CABLE	FAROOQTEX
E-mail	mftml@paknet3.ptc.pk
TELEFAX	(92-21) 5011607
	(92-21) 2416518
TELEPHONE	5011571/5 Lines
	2412941/5 Lines
NOTICE OF THE MEMBERS'
THIRTY-FOURTH ANNUAL GENERAL MEETING
NOTICE IS HEREBY GIVEN that the Thirtyfourth Annual General Meeting of Mohammad Farooq Textile Mills
Limited will be held at Company's Mills premises, Plot Nos. 6 & 7, Sector 21, Korangi Industrial Area, Karachi
on Wednesday, 29th March 2000 at 12:00 noon to transact the following business:
1. To receive, consider and adopt the Balance Sheet and Profit & Loss Account for the year ended 30th September,
1999 together with the Directors' and Auditors' Reports thereon.
2. To appoint Auditors and fix their remuneration.
			BY THE ORDER OF THE BOARD
			Yacoobali G. Zamindar
Karachi: 25th February, 2000			Director/Secretary
NOTES:
1. The Shares Transfer Books of the Company will remain closed from 23rd March, 2000 to 29th March, 2000
(both dates inclusive).
2. A member entitled to attend and vote at the Annual General Meeting is entitled to appoint another member
as a proxy to attend and vote on his/her behalf. Proxies, in order to be valid, must be deposited at the
Registered Office of the Company not less than 48 hours before the time of meeting.
3. Shareholders are requested to promptly notify the Company of any change in their addresses to ensure
delivery of mail.
4. CDC shareholders desiring to attend the meeting are requested to bring their original National Identity Card,
Account and Participant's ID number, for identification purpose, and in case of proxy, to enclose an attested
copy of his/her National Identity Card.
DIRECTORS' REPORT TO THE SHAREHOLDERS
1. Your Directors are presenting their Report and the Statement of Account for the year ended 30th September,
1999 as under:
		(Rupees in '000)
Loss for the year amounted to		16,406
To which we must add provision
for minimum tax for the year		4, 240
		-----------------------
		20,646
To this must be added
Loss brought forward		244, 046
Leaving accumulated loss
carried forward to next year		-----------------------
		264, 692
		=============
2. The accompanying Chief Executive's Report deals with the year's activities and the Directors of the Company
endorse the contents of that Report. The pattern of shareholding is attached.
3. At the last Annual General Meeting held on 31st March 1999 Mrs. Mariam A. K. Sumar, Mr. Mohammad
Farooq Sumar, Mr. Mohammad Mukhtar Sumar, Mr. Tariq Kirmani, Ms. Sabiha Sumar, Mr. Munir Ahmed
Ansari and Mr. Yacoobali G. Zamindar were elected Directors of the Company for a period of 3 years. Since
then Mr. Shamim Ahmed has replaced Mr. Tariq Kirmani as a Director of the Company. We welcome Mr.
Shamim Ahmed on the Board.
4. Our scripts are now eligible for deposit into the Central Depository System with effect from 2nd December
1999. As a result it is now possible for Members to join the system and benefit from the facility of electronic
transfer of shares without any physical movement of certificates or necessity for execution of transfer deeds.
5. Your Company received ISO-9002 Quality Management Certificate in December !999 which will enhance the
Company's competitive position in the Local and International Market.
6. All computer hardware and software in use are Y2K compliant.
7. Your present Auditors M/s. M. Yousuf Adil Saleem & Co., Chartered Accountants, retire and offer themselves
for reappointment.
		For and on behalf of
		the Board of Directors
Karachi: 25th February, 2000		MOHAMMAD FAROOQ SUMAR
		Chief Executive
CHIEF EXECUTIVE'S REVIEW
IN THE NAME OF ALLAH
THE BENEFICENT
THE MERCIFUL
Al-Hamdolillah, I am pleased to welcome
you to the 34th Annual General Meeting of the
Company to consider the results for the year
ending 30th September 1999.
The Directors' Report along with the audited
accounts for the period under review are already
placed before you.
For the benefit of the shareholders, I shall
now review major events of the financial year
which impacted the Company's performance.
OUR PERFORMANCE THIS YEAR
Throughout the year under review the country's
economy remained seriously derailed as a
result of gross mismanagement and ill conceived
policies due to which consumer confidence was
shattered and domestic markets crashed. The
Nawaz Government through its callous and
thoughtless approach had led the country and its
economy into the intensive care unit.
The textile industry besides this also had to
face another year of cotton crop failure, as a
result of which our cotton prices remained higher
than world market rates thereby eroding
industry's competitiveness.
I was very hopeful that our run of losses
would be over this year, especially since the half
year results showed almost a break even position.
Due to a massive fall in domestic sales this was
not to be, and the year has ended with a loss of
Rs.16.4 million as compared to Rs.21.37 million
in the previous year.
Improvements in productivity were achieved
in Spinning and Weaving of 8.3% and 4.4%
respectively in spite of increased rate of power
failures - 14.13 days were lost due to power failures
as compared to 9.9 days in the previous year.
As a result of a steep fall of over 30% in the
sale of branded products in the domestic market
the overall processing capacity utilization fell by
7% for the year. A factor which played an important
part in affecting the financial results.
I am happy to report that restructuring
arrangements have been agreed with your
Bankers as a result of which a BMR programme
is being implemented in Spinning and Weaving
departments. This programme will lead to
increase in productivity and improvement in
quality of our products.
You will be glad to know that your Company
has by the Grace of God been certified under
ISO 9002. This is a certification for the entire
production, purchase and marketing operations
of the Company. I am confident that it will
prove to be beneficial in quality assurance and
improved production.
The Company's turnover for the year was Rs.
848 million as compared to Rs. 837 million in
the previous year which is a slight gain of 1.2 %.
I am grateful to God that we were able to
achieve this turnover in spite of the major set-
back in the domestic market by increasing our
export sales by over 35%. Today exports form
around 65% of our turnover.
The operating profit for the year under
review is Rs. 77.5 million and after accounting
for non-operating income and financial and
other charges the loss for the year is Rs. 16.4
million. After accounting for minimum tax for
current year of Rs. 4.2 million the loss after tax-
ation amounts to Rs. 20.64 million. After
accounting for loss brought forward of Rs.
244.04 million the accumulated loss amounts to
Rs. 264.69 million.
EXPORTS
Your Company's exports posted an impressive
increase of over 35% to reach Rs. 527 million as
compared to Rs. 390 million in the previous
year. Al-Hamdolillah, this is a big achievement
which shows that our marketing strategies for
the sale of made-up goods are correct as they
have resulted in continuous growth of this sector
for the last three years. This trend continues in
the current year as well and Inshallah a healthy
growth in exports is expected.
It is disappointing to see that although the
new regime's economic management team is a
competent one but decisions coming out which
directly affect exports are sometimes shockingly
outrageous. I am referring now to the new rex-
tile export quota policy adopted for the year
2000. I am informed that a bureaucrat along
with vested interests who control most of the
sham associations - responsible for the scandals
and corruptions of yesteryears - formulated this
abominable document and rammed it through
without much or any opposition. And now it is
being said by some that this policy although it
is wrong but it cannot be changed. Why? Is it
sacrosanct? Let me explain what has been done.
In spite of falling exports and falling unit prices
of goods sold, the Government has announced:
1) that the previous year's policy of allocating
quota on the basis of quantitative performance
regardless of how low the prices obtained will be
continued;
2) the previous year's policy whose only silver
lining was that it provided additional quota to
those companies who obtained the highest prices
in their product categories has been done away
with and;
3) a convoluted methodology has been adopted
which amounts to giving a few crumbs to
those who obtained higher prices starting from
the year 2001 and nothing during 2000!
Never even under the worst of regimes have I
seen such a skewed quota policy. Everybody talks
about the need to increase export earnings. In
countries where there are quotas limiting the
quantity that you can export to them how do
you achieve increased earnings if you discourage
those very companies whose earnings are higher
than others?
The short term and the long term strategies
must be in line if they are to provide the right
signals to industry and trade. On the one hand
with a quota policy so lacking in vision and on
the other to talk of formulating vision 2005 for
the textile industry. The contradiction robs this
serious exercise of the credibility it deserves.
Every successive Government, including the
present one, refrains from making adjustments
to the exchange rate of the Rupee against the
Dollar. Since August 1998 there has been no
change in the parity while during this period the
Dollar has climbed steadily against all the major
currencies. Against the European currencies,
who happen to be major trading partners of ours,
and form a significant part of our exports the
increase has been around 20%. The result is that
we have become incompetitive in the European
market. Our competitors in textile made-ups
and finished fabrics such as Turkey and Portugal,
due to a flexible exchange rate policy, are mak-
ing life difficult for us as they also enjoy import
duty exemptions within the European Union. I
am aware of some of the constraints that our policy
makers face in this regard due to the debt
burden that we carry. We must however recog-
nize that exports are our lifeline and we cannot
afford to damage them. I am not calling for a full
adjustment but only for some flexibility on a
regular basis so that our exchange rate is somewhat
realistic.
Over the years I have been commenting on
our exports and the need for major changes in
export policy. Going through some of these old
reviews I have to painfully say that the situation
has not changed much as our exports still lan-
guish and our policies remain more or less the
same. Therefore, I think it may be useful if I
place before you some excerpts from my review
of the financial year ended September 1994:
"We need to seriously analyse the reasons for
Pakistan's continued failure to increase its world
market share from the presently paltry level of
less than 2% of world trade of textiles. This is
largely due to its failure to make a breakthrough
in dyed, printed and made-up textile products
whose world trade increases by leaps and bounds
annually, and is the real area of growth enjoyed
by our competitors, while we keep being left
behind.
I keep thinking as to why in every recession
and in every crisis it is Pakistan which loses mar-
ket penetration and market share, while our
competitors have the better of us. During the
recession of 1974-75 Pakistan's industry shrunk
and its spinning and weaving sectors were
destroyed by the recession, while in the same
year South Korea, Taiwan and Hongkong
increased their share of the world market in rex-
tiles. Then again in the 1992-93 recession one
noticed that India was able to increase its textile
exports by 24% while ours decreased. The conclusion
that I have come to is that the fault is
"not in our stars" but is a result of our own
weaknesses, our own intransigence, our own
policies and our own complacency. The fault
really lies in both governmental 'policies and
entrepreneurial attitudes within the industry.
Let us take Government policies first. Is it not
true, that time and again export duty has been
slapped on exports ostensibly to mop up profits
or provide subsidies to an incompetent ancillary
sector? And when a crisis comes, time and again
government has failed to take corrective mea-
sures to support the industry and plough back
the money that they mopped up. Is it not true,
that for instance in the 1993-94 cotton debacle,
government refused to accept right until
January, that the cotton crop had failed, and
therefore did not allow the textile industry to
import cotton at a time when cotton was available
at reasonable prices? Is it not true that the
Government contributes and encourages exports
at the cheapest rates and of the worst quality, by
reversing the progressive policy of distributing
export quotas on the basis of more to those
exporters who get better prices than to those
who sell at the lowest prices? Is it not true that
political considerations have been paramount in
the government policy of encouraging powerloom
loom sector exports where antiquated machinery
is used to produce sub-standard cloth? It is only
possible to sell such poor quality cloth at throw
away prices, thereby good cotton and cotton
yarn are wasted to make poor quality basic fabrics
which then, are peddled by the quota barons
without any consideration of design, style and
market needs, to the lowest bidder.
.......... By and large the kind of people who
have entered the textile industry over the last ten
to fifteen years, the level of unreliability both in
contractual obligations and consistency of quality,
the erosion of business ethics and morals have
reduced a good part of business and industry, to
a fly by night operation. Living on crutches so
gleefully obtained from government and government
functionaries who have no idea or expertise
of policy making or the vision required to build
real industrial strength, the industry has neither
invested in scientific management nor in
Research and Development required to analyse
what the markets need, what quality standards
mean, what styling and design is about and that
price is not the only consideration for success in
world markets. Therefore, most of the time our
industrialists are out of tune with world require-
ments and have to dump an unwanted or a substandard
product on the world market, at any
price. Therefore when a recession comes, and
there are many in the world of textiles, our customers
easily abandon us, since they can buy
better quality at an acceptable price and don't
want headaches. Therefore Pakistan loses the
business and Pakistan's miseries are compounded.
This is why we lose market share and our loss
is what translates into our competitors' gain. We
do not believe in improving ourselves. We want
to sell the same basic bread and butter variety of
fabrics and we want to print on the cheapest
powerloom fabrics year after year and decade
after decade without opening our eyes to the fact
that the world around us is progressing by leaps
and bounds and going to the higher segments of
the market while we are still content on the bottom
rung of the ladder. Our behaviour both in
the government and the industry is aptly
described by the following couplet:
(With limited vision, limited enquiry, limited
hope, why wouldn't the ocean appear as just a
few drops of dew)
Our feudal attitude nurtured by our bureaucratic
structure has been all pervasive and has
become the equivalent of an opiate which has
permeated the thinking of our policy makers and
businessmen. This opiate is destroying the very
economic fabric of this country and nobody
seems to realize that with the destruction, God
forbid, of the economy, comes the disintegration
of the socio-political structure which ultimately
creates anarchy and chaos.
Trading in the world market is a serious busi-
ness requiring careful policy making, long term
planning, consistency of policy, serious management,
excellent research and development, consistency
of product, and keeping abreast of market
requirements as well as opportunities.
Pakistan will remain in the backwaters of world
trade until such time as it does not mend its
ways. The unfortunate thing in life is that nothing
remains stagnant. If you don't move up, you
move down, and we are certainly sliding down at
a precarious rate. It is unfortunate that the slide
of our textile exports goes unnoticed and
unremedied. Vested interests advise on policy
making, coveting their personal gains, to policy
makers who possess less than adequate knowledge
and we continue to hobble along, feeling
overjoyed at our false achievements.
In order to find a long term solution to
Pakistan's poor image in terms of quality, the
powerloom sector needs to be reorganized completely.
In 1985-86 1 had initiated a government
policy change which took cognizance of the fact
that the powerloom sector needs to be organized
into larger units with new machines and scrapping
of the antiquated equipment it presently
possesses coupled with massive training. A soft
loan scheme had been set up by the government
but the usual dithering of bureaucrats led to its
being stillborn. In order to solve the problems of
the powerloom sector we need to urgently
upgrade its equipment and thereby its quality
and introduce R&D so that sophisticated types of
fabrics can be manufactured. In the absence of
such measures our image of a producer of poor
quality basic fabrics will not only continue to
dog us, but also keep affecting those who try to
produce better quality as it is the overall country
image which pulls the better companies down."
Time has run out for us and exporting our
way through trouble seems to be our only hope.
However this requires major path breaking
initiatives and policies. No amount of tinkering
and window dressing can solve the problem. A
good attempt has been made for instance in the
Export Promotion Bureau (EPB) by choosing an
able professional to head it, but again we have
not gone all the way. You need to disconnect the
EPB from the Commerce Ministry. It should
report directly to the Chief Executive who
should treat exports as priority number one just
as the Korean President did during the 60's and
the 70's and converted South Korea from an
annual export level of $180 million in 1961 to a
juggernaut exporting billions by the end of the
70's. Moreover more professionals from the private
sector should be introduced at various levels
in the EPB to create dynamism and vitality into
the export drive. This is the time to come up
with such changes. By doing so you risk nothing
as you have nothing to lose and if it works there
is everything to gain.
Textile industry has been fortunate that after
five consecutive failures the country has at last
had a bumper cotton crop in the current year and
prices of cotton finally came down to international
levels. It must be said that the present
government took the right decision to reverse
the previous government's support price levels
and reduce them to a realistic level of Rs. 1500
per maund. As a result the industry was able to
purchase cotton at reasonable prices. The biggest
beneficiary of this has been the spinning sector
who have gained not only by lower input prices
but also higher selling prices. As a result the
downstream sectors have not benefited much
from the lower cotton prices but then market
forces must be allowed to prevail and no government
intervention should be forthcoming.
LOCAL SALES
I have already informed you of the steep fall of
32% in domestic sales which fell to Rs. 286 million