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Regal Ceramics Limited

Annual Report 1999

CONTENTS

COMPANY INFORMATION

BOARD OF DIRECTORS

MR. J. ALI SHAMSI

Chairman

MR. MALIK SALEEM ISMAlL

Chief Executive

MR. MUHAMMAD AMIN HASANALI

MR. M. AMIN ISMAlL

MR. AZIZ-UD-DIN HASANALI

MRS. S. ALl

MR. AHMED MUHAMMAD HUSSAIN

MR. RAHIM PERVAIZ ISMAlL

MR. MEHMOOD MUHAMMAD HUSAAIN

MR. MUHAMMAD ASIF

(NIT Nominee)

COMPANY SECRETARY

Lt. Col. (R) M. TUFAIL

AUDITORS

M/s A. Aziz Chaudhury & Co.

Chartered Accountants

38-The Mall Lahore - 54000

LEGAL ADVISOR

Khawaja Muhammad Akram (Advocate)

1 - Begum Road, Mozang Lahore - 54000

BANKERS

Muslim Commercial Bank Limited

Bank Square Branch, Gujranwala

REGISTERED OFFICE

4th Floor, Salam Chambers,

22-Link McLeod Road, Lahore - 54000

Post Box No. 1779, Cable: Regmics Lahore

Telephone: 042 - 7227085 - 7243417 Fax No: 0092 - 42 - 7354450

ZONAL OFFICE

5/51, AI-Yousuf Chambers,

Shahrah-e-Liaquat, New Chali, Karachi

Telephone: 021 - 2627891 - 2624059 Fax No: 0092 - 21 - 2621184

FACTORY

G.T. Road, Gujranwala

Post Box No. 137,

(10 Km From Gujranwala Town, Towards Lahore Side)

Phones: 0431 - 284762, 284765 Fax: 0092- 431 - 284766

Telex: 45374 REGAL PK.

Cable: Regmics Gujranwala

NOTICE OF ANNUAL GENERAL MEETING

NOTICE is hereby given that the 24th Annual General Meeting of the Company will be held on

Wednesday the 8th December, 1999 at 10:30 A.M. at Avari Hotel 87-Shahrah-e-Quaid-e-Azam,

Lahore to transact the following business:-

1. To confirm the minutes of the 23rd Annual General Meeting held on the 19th December,

1998.

2. To receive, consider and adopt the Annual Audited Accounts of the Company for the year

ended 30th June, 1999 together with the Directors and Auditors Reports.

3. To Appoint Auditors and fix their remuneration. The retiring Auditors M/s A. Aziz Chaudhury

& Co Chartered Accountants, Lahore, being eligible offer themselves for reappointment.

4. To transact such other business which may be placed before the meeting with the permission

of the Chair.

ON BEHALF OF THE BOARD

MALIK SALEEM ISMAlL

LAHORE: 17TH November, 1999

CHIEF EXECUTIVE

NOTES:

1. The Share transfer Book of the Company will remain closed from 1st December, 1999 to

8th December, 1999 (both days inclusive) and no transfer will be accepted for registration

during this period.

2. A member entitled to attend and vote at this meeting may appoint another member as

his/her proxy to attend and vote instead of him/her. Proxies in order to be effective must

be received at the Registered Office of the Company not later than 48 hours before the

time fixed for the meeting.

3. Shareholders are requested to notify change in their address immediately.

DIRECTORS REPORT TO SHARE HOLDERS

General

Dear Share Holders

1. I on my own behalf and on behalf of the Board of Directors welcome you all to the 24th

Annual General Meeting of the Company. I hereby present the Annual Report of the

Company for the year 1998-99. The state of the Company financial exposure is far from

being satisfactory as reflected in the Balance Sheet for the year 1998-99. The sales have

fallen to rock bottom level and the accumulated loss, this year, amounting to Rs. 79.02

million have resulted in our Minus Equity. The following factors contributed to this state of

our sales:-

a. Continuance of recessionary business trends the World Over.

b. The increased cost of living has reduced the purchasing power of the common man,

c. More particularly the ITP of finished crockery from abroad has been fixed

unrealistically, at very much lower rates than actually prevailing in the country of

their origin - Tea Set at 4 dollars and Dinner Set at 18 dollars. This has reduced our

competitiveness with imported crockery. Reduction of Custom Duty and Free Import

of Porcelain crockery has forced some of the concerns to stop production. Parray

China and IDL being the latest two concerns to close down.

d. Smuggling of crockery through Transit Trade Facility to Afghanistan still continues

unchecked.

e. Due to ever increasing US Dollar rate and Foreign Currency Regulations the

imported Raw Material, Process Material and Spare parts prices have increased

many folds.

f. Due to flooding of our markets with smuggled and claudestinely imported crockery

there is no cushion for local manufacturers to increase prices of their products

correspondingly. We were forced to increase the prices of Tea Sets and Dinner Sets

by 10% in Oct 1998 to defray the cost increase of these items

The sponsors could not inject more funds in the concern. The production is still at 45

to 50% of Plant Capacity. Navy Contracts were received towards the end of June 1998. More than

35% of the supplies have been made as of Last month. Picic loans are being paid regularly and

present balances as on 30th June 1999 are:-

PICIC Loan ADB-878/879 Principal

Rs. 63866186.00

PICIC Capitalized Amount Frozen

Rs. 33500000.00

FINANCIAL RESULTS

2. The financial results for the year ended 30th June 1999 are:-

a. The sales are down by about 30% as of year 1997-98. The cost of sales is 28.48% less

than last year.

b. Admin and General Expenses as also Financial Expenses have been less as compared

to last year.

c. Details are as under:-

1998-99

1997-98

Gross Profit

18,658,195

28,945,649

Less Operating Expenses

29,261,092

36,456,772

------------------

Operating Loss

(10,602,897)

(7,511,123)

Other Income

608,185

1,777,784

------------------

Loss before Taxation

(9,994,712)

(5,733,339)

Provision for Taxation

(465,160)

(664,724)

------------------

Loss after Taxation

(10,459,872)

(6,398,063)

Unappropriated Loss brought forward

(68,563,359)

(62,165,296)

------------------

Balance Carried over to Balance Sheet

(79,023,231)

(68,563,359)

==========

MARKETING

3. In the face of continued recession and lack of cash generation the concern had to agitate

the market. Requirement of Low Cost Tea Mugs increased in the local markets. This

Concern readily switched over about 75% of its present production to low cost mugs of

Six Designs with ever changing Decorations. By reducing the over heads through a

number of measures i.e. cutting down the man hours, use of Daily wages workers,

reshaping the mugs to avoid their rattling and reshaping the packing material, the cost of

Tea Mugs was brought 'down. This enabled the Concern to lower the sale price of Tea

Mugs and grab major share of market sales towards the last weeks of accounting year

1998-99. It will increase our Cash Generation to a satisfactory level during this year as is

evident from a comparison of sales. The sales during Qtr ending Sap, 1999 are Rs. 34.56

mil as compared to sales of Rs. 17.43 mil for the corresponding period of year 1998, an

increase of 100%. We hope to keep this upward trend going INSHAH ALLAH.

We have taken in hand a study for the export of our ware. As intimated last year the trend

of LC opening by Foreign Buyers is out. Availability of Ready Stocks in countries of export are

desired these days, which requires an initial Capital Layout to the tune of approx. Rs. 9.0 rail.

We are looking for customers abroad who shall be given our ware at upto 120 days "Deferred

Payment" basis thus reducing own Capital Layout. MD plans to visit Middle East countries,

England and European Union Countries in the near future. We have also taken in hand a deal

with a Korean Transfer Picture manufacturer who will market our ware decorated with Korean TP

with reciprocal purchase basis in USA and Canada.

SELF SUFFICIENCY IN PROCESS MATERIAL

4. In order to attain self sufficiency for Process Material we had got the Manufacturing of

Packing Material started in the factory last year. In order to put Expansion Project Kilns in

operation we need .almost Rs.20 mil for Kiln Furniture. This amount is not coming forth from any

source. We therefore, have taken in hand the. production of Kiln Furniture here. During the year

under report we had started the production of our own Saggers. Our saggers production now has

increased due to purchase of a new Press. Almost 400 different Saggers are being manufactured

a, day. This. capacity will be increased during the current year. We have started experiments of

making of Sic Slabs too. A study in the viability of production of decal is also under way.

HUMAN RESOURCES MANAGEMENT

5. Even during the year of this report the Company was not in a position to pay, 5% Worker

Profit Participation, Bonus and to send Workers on Hajj due to losses. No provision of these has

therefore been made in the accounts for the year ended 30th June 1999.

The construction of Factory Mosque is going on and it is expected to be completed within

next six months or so.

PATTERN OF SHARE HOLDINGS

6. The Pattern of Share Holdings is provided in the Balance Sheet.

CONCLUSION

7. There has been a record decrease in our sales during the period of this report.

Strict measures had to be taken to over come the lack of sufficient Cash Generation.

There has been a revival of our sales of Tea Mugs as already mentioned in this report, but

we are persistently keeping the austerity measures even now to achieve an increase in Cash

Generation. Some of these measures are:-

a. Decrease of workers. 33% decrease has been effected so far.

b. Cut in office, General & Admin Expenses.

c. Liquidation of Financial Expenses.

In order to over come periodic Shortages of Cash Generation and to improve the Equity

of the Company we will put the Expansion Project in operation. This will require about Rs. 10.0 mil.

To arrange this required amount our Paid Up Capital has got to be increased to the limit of our

Authorised Capital of Rs. 100 mil. For this Security Exchange Commission will be contacted to

allow 2nd Right Issue of Shares. For this Issue of Right Shares the Directors are being requested

to Underwrite the Issue. MD will contribute Rs. 10 mil as Share Deposit Money to cover the

Underwriting of the issue. The Board has approved of this Long Term measure to over come the

problems of Shortage of Cash Generation and unfavourable Equity.

THANKING YOU

CHIEF EXECUTIVE

AUDITORS REPORT TO THE SHAREHOLDERS

We have audited the annexed Balance Sheet of REGAL CERAMICS LIMITED as at 30th

June, 1999 and the related Profit and Loss account and 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 are

necessary for the purposes of our audit and after due verification thereof, 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;

i) the Balance Sheet and Profit and Loss Account together with the notes thereon, have

been drawn up in conformity with the Companies Ordinance, 1984, and are in agreement

with the books of account and are further in accordance with accounting policies

consistently applied;

ii) the expenditure incurred during the year was for the purpose of the Company's business; and

iii) the business conducted, investments made and the expenditure incurred during the year

were in accordance with the objects of the Company;

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 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 30th June, 1999 and of the Loss and the Cash

Flow for the year then ended; and

d) in our opinion no Zakat was deductable at source under the Zakat and Usher Ordinance, 1980.

38-Shahrah-e-Quaid-e-Azam

LAHORE:

(A. Aziz Chaudhry & Co.,)

Dated: 03 November 1999

CHARTERED ACCOUNTANTS

BALANCE SHEET AS AT 30TH JUNE, 1999

CAPITAL AND LIABILITIES.

NOTE NO.

1998-99

1997-98

RUPEES

SHARE CAPITAL RESERVES.

AUTHORISED CAPITAL.

10,000,000 Ordy., Shares of

Rs. 10/- each.

100,000,000

ISSUED, SUBSCRIBED

& PAID UP CAPITAL.

7,300,000 Ordy., Shares of

Rs. 10/- each fully paid up.

73,000,000

Un-appropriated (Loss).

(79,023,231)

(68,563,359)

------------------

(6,023,231)

4,436,641

LONG TERM LOANS.

Pakistan Industrial Credit and

Investment Corporation Limited.

91,134,643

106,047,643

Loans from Directors (Un-Secured).

12,000,000

7,500,000

------------------

103,134,643

113,547,643

DEFERRED LIABILITIES.

20,247,425

6,721,432

CURRENT LIABILITIES & PROVISIONS.

Current Maturity of Long Term

Loans.

16,984,006

6,400,000

Shod Term Finance (Secured).

33,345,174

31,441,814

Creditors and Accrued Expenses.

29,165,557

34,344,725

Provision for Taxation

465,160

664,724

------------------

79,959,897

72,851,263

------------------

197,318,734

197,556,979

==========

PROPERTY AND ASSETS

TANGIBLE FIXED ASSETS.

Operating Fixed Assets.

154,522,013

162,618,579

CURRENT ASSETS.

Stores and Spares.

2,965,227

1,582,912

Stock in Trade.

17,862,516

21,463,629

Trade Debtors (Un-Secured).

8,789,976

5,727,405

Advances, Deposits, Prepayments

and Other Receivables.

12,756,215

5,921,561

Cash and Bank Balances.

422,787

242,893

------------------

42,796,721

34,938,400

------------------

197,318,734

197,556,979

==========

NOTE: The annexed notes form an integral pad of these accounts.

Auditor's report of even date is attached herewith.

38-Shahrah-e-Quaid-e-Azam

LAHORE:

Dated: 3rd November, 1999

CHIEF EXECUTIVE

DIRECTOR

(A. Aziz Chaudhry & Co.,)

CHARTERED ACCOUNTANTS

PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 30TH JUNE, 1999

PARTICULARS

NOTE NO.

1998-99

1997-98

RUPEES

Net Sales

93,032,078

132,944,760

Cost of Sales

74,373,883

103,999,111

------------------

GROSS PROFIT

18,658,195

28,945,649

OPERATING EXPENSES

Administrative and General Expenses.

12,052,478

13,122,190

Selling and Distribution Expenses.

1,156,971

1,537,409

Financial Expenses

16,051,643

21,797,173

------------------

29,261,092

36,456,772

------------------

OPERATING LOSS

(10,602,897)

(7,511,123)

Other Income.

608,185

1,777,784

------------------

Loss Before Taxation.

(9,994,712)

(5,733,339)

Provision for Taxation.

(465,160)

(664,724)

------------------

Loss after Taxation

(10,459,872)

(6,398,063)

Un-appropriated Loss brought forward.

(68,563,359)

(62,165,296)

------------------

Balance Carried over to Balance Sheet.

(79,023,231)

(68,563,359)

==========

CHIEF EXECUTIVE

DIRECTOR

38-Shahrah-e-Quaid-e-Azam

LAHORE:

(A. Aziz Chaudhry & Co.,)

Dated: 03 November 1999

CHARTERED ACCOUNTANTS

CASH FLOW STATEMENT FOR THE YEAR ENDED 30TH JUNE, 1999

PARTICULARS

1998-99

1997-98

RUPEES

CASH FLOW FROM OPERATING ACTIVITIES

Net (Loss) before taxation

(9,994,712)

(5,733,339)

ADJUSTMENT OF ITEMS NOT

INVOLVING MOVEMENT OF CASH

Depreciation

8,178,053

8,642,321

Gratuity

751,493

1,021,975

Income from sale of fixed assets.

(61,977)

(412,254)

------------------

Operating Profit/(Loss) before working

capital changes

(1,127,143)

3,518,703

(Increase) / Decrease in Inventories

2,218,798

6,834,444

(Increase) / Decrease in Trade Receivables

(3,062,571)

3,477,850

(Increase) / Decrease in Advances,

Deposits and prepayments

(6,834,654)

1,278,060

Increase / Decrease in Short Term Finance

1,903,360

(21,265,966)

Increase / Decrease in Creditors, Accrued

expenses and current maturity

18,179,338

(69,315)

CASH GENERATED FROM OPERATION

11,277,128

(6,226,224)

Income Tax paid

(664,724)

(660,335)

------------------

Net Cash from Operating Activities

10,612,404

(6,886,559)

CASH FLOW FROM INVESTING ACTIVITIES

Purchase of Fixed assets

(89,510)

(436,168)

Sale of fixed assets

70,000

4,666,500

------------------

Net Cash used in investing Activities

(19,510)

4,230,332

CASH FLOW FROM FINANCING ACTIVITIES

Proceed from long term borrowing

(10,413,000)

1,966,217

------------------

NET CASH FROM FINANCING ACTIVITIES

(10,413,000)

1,966,217

Net increase / (Decrease) in cash and

cash equivalent.

179,894

(690,010)

Cash & cash equivalent at the

beginning of the year

242,893

932,903

Cash and Cash equivalent at the end

------------------

of the year

422,787

242,893

==========

CHIEF EXECUTIVE

DIRECTOR

SCHEDULE OF FIXED ASSETS AS AT 30.6.1999

S. NO.

PARTICULARS

COST

RATE

DEPRECIATION

W.D.V. AS AT

AS AT

ADDITION/

AS AT

ADJUSTMENT

FOR THE

AS AT

01-07-1998

DELETION

30-06-1999

01-07-1998

YEAR

30-06-1999

LAND FREE HOLD

3,246,712