| Service Fabrics Limited |
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|
| Annual
Report 1999 |
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| COMPANY
INFORMATION |
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| CHIEF
EXECUTIVE |
Mr. Farooq Hameed |
|
|
|
| DIRECTORS |
|
Mr. Ijaz Hameed |
|
|
|
Mr. Aamer Hameed |
|
|
|
Mr. Muhammad Hameed |
|
|
|
Mr. Muhammad Salim |
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|
Mr. Sajid Salim Minhas |
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|
|
Mrs. Nasreen Aftab Ahmed
Khan. |
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| SECRETARY |
|
Mr. Ralph Nazirullah |
|
|
|
| BANKERS |
|
Habib Bank Limited |
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|
Habib Bank A.G. Zurich |
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|
Bank of America |
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|
| AUDITORS |
|
Taseer Hadi Khalid &
Company |
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|
|
Chartered Accountants |
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|
|
| LEGAL
ADVISORS |
Cornelius, Lane &
Mufti |
|
|
|
Advocates &
Solicitors |
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|
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| REGISTERED
OFFICE |
38-Empress Road, Lahore. |
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|
Telephones: 6304561-3,
6367862-3 |
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|
Telegram: PRIMEPAK |
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|
Telex: 44577 PRIME PK |
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|
Telefax: (92-42) 6367861 |
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|
E-mail:
primsoft@lhr.comsats.net.pk |
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|
| MILLS |
|
Manga-Raiwind Road, |
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|
Manga Mandi, Lahore. |
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|
Telephones: (04951)
383707-8 |
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|
Telefax: (92-4951) 383710 |
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| NOTICE
OF MEETING |
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| Notice
is hereby given that the 12th Annual General Meeting of the members |
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| of
the Company will be held on Friday 31 March, 2000 at 1030 hours at Branch |
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| Office,
Atari Saroba, Atta Baksh Road, bank stop, Ferozepur Road, Lahore to |
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| transact
the following business: |
|
|
| 1.
To confirm the minutes of the 11th Annual General Meeting. |
|
|
| 2.
To receive and adopt the audited accounts together with the Directors and |
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| Auditors
reports for the year ended September 30, 1999. |
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|
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| 3.
To appoint auditors and to fix their remuneration. |
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| 4.
Any other business with the permission of the chair. |
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|
BY ORDER OF THE BOARD |
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| Lahore |
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|
Ralph Nazirullah |
|
| 10 March, 2000 |
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|
SECRETARY |
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|
| 1.
A member entitled to attend and vote at the meeting may appointed another |
|
|
| member
as his/her proxy to attend and vote. Votes may be given either |
|
|
| personally
or by proxy or by attorney, and in case of a corporation by a |
|
|
| representative
duly authorised. |
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|
|
| 2.
The instrument of proxy duly executed in accordance with the articles of |
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|
| Association
of the Company should be deposited at the registered office of |
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|
| the
Company at least 48 hours before the time of the meeting. |
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|
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| 3.
Transfers received in order upto the close of business on 22nd March, 2000 |
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| will
be considered in time to effect the voting rights. |
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| 4.
The share transfer books of the Company will remain closed from 23rd March |
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| to
31st March, 2000 (both days inclusive). |
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|
| CHIEF
EXECUTIVE REVIEW |
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|
| On
behalf of the board of directors, I present annual report and financial
statements |
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| for
the year ended 30 September 1999. The results of the year are discouraging
mainly |
|
| due
to under-utilization of the installed capacity. We were almost 100 percent
relying on |
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| Far
Eastern markets for last many years in order to achieve maximum advantage
from the |
|
| machinery
installed at our project. Suddenly, these markets crashed to all time low.
This |
|
| resulted
in cancellation of many orders, build up of stocks and off loading of these
stocks |
|
| at
much reduced prices. Liquidity crunch that followed led to a lot of stoppages
of looms |
|
| which
made matters more worse. Although we managed to divert some of our exports to |
|
| other
markets, but the transitory period cost us heavily. |
|
|
| Another
set back for country's textile industry was sharp hike in the cost of
production |
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| due
to increase in raw material cost. Our cost of power and the cost of finance
was already |
|
| highest
in the world. On the other hand our competitors flooded the market with their |
|
| products
at very low prices due to their lower cost of production. Under such
circumstances |
|
| favourable
Government policies for the export-earning industry can save the country's |
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| textile
industry from crises situation. |
|
|
| However,
after the arrival of bumper cotton crop in the current year and its
availability |
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| at
economical rates Pakistan textile sector became competative for the first
time in the |
|
| recent
history in international market. The favourable effects of this situation
will be reflected |
|
| in
the financial statements relating to the current year. |
|
|
| Due
to continued losses during last 4-5 years, the company could not meet its |
|
| repayment
commitments to Habib Bank Limited. Despite difficult situation and a very bad |
|
| year
for the company, we were able to successfully negotiate with Habib Bank
Limited for |
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| restructuring
of our financial liabilities. This was only possible due to sponsor directors
total |
|
| commitment
to project and their arrangement of a heavy down payment required for the re- |
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| structuring.
Now the company is no more in default and all the commitments for the |
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| repayment
are being met while other formalities of the bank are being finalized. |
|
|
| If
the Government's policies and financial institutions role remained supportive
for |
|
| the
textile industry the results will be satisfactory during the current year.
The much awaited |
|
| better
times for the textile industry have arrived, although at the moment the
spinning |
|
| industry
is the main benefectory, but InshAIlah the benefits of this will pass on to
the other |
|
| sectors
of the textile industry and we will be able to show better results to our
shareholders. |
|
|
| I
take this opportunity to record my thanks to our Bankers for their valued
support |
|
| and
note of appreciation for the employees and workers of the-company. |
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|
| LAHORE |
|
|
FAROOQ HAMEED |
|
| 10 March, 2000 |
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|
|
Chief Executive |
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| DIRECTORS'
REPORT TO THE MEMBERS |
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| The
directors present herewith their 12th Annual Report together with the Audited
Accounts |
|
| for
the year ended 30 September 1999 |
|
|
| ACCOUNTS: |
|
|
(Rupees) |
|
|
|
|
| Loss
for the year |
|
155,345,744 |
|
| Add: Taxation |
|
|
3,725,244 |
|
|
|
|
------------------ |
|
| Loss
after taxation |
|
159,070,988 |
|
| Add:
Accumulated loss brought forward |
|
479,638,111 |
|
|
|
|
------------------ |
|
| Loss
carried forward to the next year |
|
638,709,099 |
|
|
========== |
|
|
|
| AUDITORS: |
|
| Company's
auditors, Messrs Taseer Hadi Khalid & Co., retire and being eligible,
offer |
|
| themselves
for re-appointment. |
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|
|
|
ON BEHALF OF THE BOARD |
|
|
| LAHORE |
|
FAROOQ HAMEED |
|
AAMER HAMEED |
|
| 10 March 2000 |
|
Chief Executive |
|
Director |
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|
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|
|
| AUDITORS'
REPORT TO THE MEMBERS |
|
|
| We
have audited the annexed balance sheet of Service Fabrics Limited as at 30
September 1999 and |
|
| the
related profit and loss account and cash flow statement, together with the
notes forming part thereof, |
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| for
the year then ended and we state that we have obtained all the information
and explanations which |
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| to
the best of our knowledge and belief were necessary for the purposes of our
audit and, after due |
|
| verification
thereof, we report that: |
|
|
| a)
In view of the adverse financial position of Service Industries Textiles
Limited, the recoverability |
|
| of
the amounts due from the company appears to be dependent on its ability to
continue |
|
| operations
and support of the financial institutions (see note 16, 17.2 & 17.3). The
company |
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| currently
has not made any provision against these receivables; |
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|
|
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| b)
in our opinion, proper books of account have been kept by the Company as
required |
|
| by
the Companies Ordinance, 1984; |
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|
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| c)
in our opinion: |
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|
|
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| 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 |
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|
|
|
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| iii)
the business conducted, investments made and the expenditure incurred |
|
|
| during
the year were in accordance with the objects of the Company; |
|
|
|
| d)
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 except for the effect on the financial statements of the
matter referred |
|
| to
in paragraph (a) above, 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 |
|
|
| e)
Without qualifying our opinion: |
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|
|
|
|
|
| We
draw your attention to Note 2 to the financial statements. The present
financial position |
|
| and
operating results of the company indicate that the company may not be able to
continue |
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| as
a going concern without the financial support from the banks. However, in the
said note |
|
| the
company has explained the basis for preparing the financial statements on a
going |
|
| concern
basis and the steps being taken by it to circumvent this situation. |
|
|
|
|
| The
restructuring of long term loans from Habib Bank Limited aggregating to Rs.
598,284,000 |
|
| is
yet to be finalized. In the absence of the agreement and balance
confirmation, we have |
|
| remained
unable to confirm the total indebtedness of the company to the bank as well
as the |
|
| treatment
accorded to various items under the proposed restructuring agreement
including the |
|
| wavier
of Rs. 33 million included in the profit and loss account as an extra
ordinary item. |
|
|
| The
bank has also filed a suit in the Lahore High Court. Pending outcome of the
court case and |
|
| proposals
for further restructuring of outstanding loans, which are presently
classified as long |
|
| term
liabilities, the company has prepared its accounts under the going concern
assumption |
|
| without
any adjustments to the recorded assets and liabilities which may be necessary
if the |
|
| company
was not a going concern. |
|
|
|
|
| in
our opinion, no zakat was deductible at source under the Zakat and Ushr
Ordinance, 1980. |
|
|
|
| LAHORE |
|
|
TASEER HADI KHALID & CO. |
|
| 10 March, 2000 |
|
|
Chartered Accountants |
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|
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|
|
| BALANCE
SHEET AS AT 30 SEPTEMBER 1999 |
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|
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|
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|
Note |
1999 |
1998 |
|
|
|
|
(Rupees) |
(Rupees) |
|
| SHARE
CAPITAL AND RESERVES |
|
|
| Share Capital |
|
|
|
| Authorised
capital: |
|
|
|
| 16,000,000
ordinary shares of Rs. 10/- each |
|
|
160,000,000 |
160,000,000 |
|
|
|
|
========== |
========== |
|
| Issued,
subscribed and paid up capital: |
|
4 |
157,548,000 |
157,548,000 |
|
|
|
|
| Accumulated
loss |
|
|
(638,709,099) |
(479,638,111) |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
(481,161,099) |
(322,090,111) |
|
|
|
|
|
|
| SURPLUS
ON REVALUATION OF FIXED ASSETS |
|
303,203,101 |
303,203,101 |
|
|
|
|
|
| LONG
TERM LIABILITIES |
|
|
|
| Long
term loans-Secured |
|
5 |
538,284,000 |
312,519,151 |
|
|
|
|
|
| Sponsors'
bridge loan - Unsecured |
|
6 |
7,359,982 |
7,359,982 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
545,643,982 |
319,879,133 |
|
|
|
|
|
| DEFERRED
LIABILITIES |
|
7 |
1,574,604 |
109,369,290 |
|
|
|
|
|
| CURRENT
LIABILITIES |
|
|
|
| Short
term borrowings - Secured |
|
8 |
238,826,465 |
272,466,341 |
|
| Current
maturity of long term loans |
|
9 |
60,000,000 |
7,573,000 |
|
| Creditors,
accrued and other liabilities |
|
10 |
33,718,330 |
39,237,786 |
|
| Provision
for taxation |
|
|
8,292,951 |
10,174,625 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
340,837,746 |
329,451,752 |
|
| CONTINGENCIES
AND COMMITMENTS |
|
11 |
0 |
0 |
|
|
|
|
|
------------------ |
------------------ |
|
|
|
|
7,100,981,334 |
739,813,165 |
|
|
|
|
========== |
========== |
|
|
|
|
| OPERATING
FIXED ASSETS - At cost |
|
|
| less
accumulated depreciation |
|
12 |
506,208,444 |
562,473,460 |
|
| PRELIMINARY
EXPENSES |
|
|
0 |
160,193 |
|
| DEFERRED
COST |
|
13 |
10,180,371 |
14,551,288 |
|
| LONG
TERM DEPOSITS |
|
|
1,747,293 |
1,747,293 |
|
|
|
|
|
|
| CURRENT
ASSETS |
|
|
|
|
| Stores
and spares |
|
14 |
6,969,209 |
12,189,664 |
|
| Stock in trade |
|
|
15 |
27,925,083 |
29,023,041 |
|
| Trade debts |
|
|
16 |
43,743,627 |
58,226,235 |
|
| Advances,
deposits, prepayments |
|
|
|
| and
other receivables |
|
17 |
55,293,068 |
53,767,698 |
|
| Cash
and bank balances |
|
18 |
58,031,239 |
7,674,293 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
191,962,226 |
160,880,931 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
|
710,098,334 |
739,813,165 |
|
|
|
|
========== |
========== |
|
|
|
|
|
|
| These
accounts should be read in conjunction with the annexed notes. |
|
|
|
|
|
FAROOQ HAMEED |
|
AAMER HAMEED |
|
|
Chief Executive |
|
Director |
|
|
|
|
|
| LAHORE |
|
|
|
|
| 10 March, 2000 |
|
|
|
| PROFIT
AND LOSS ACCOUNT |
|
| FOR
THE YEAR ENDED 30 SEPTEMBER 1999 |
|
|
|
Note |
1999 |
1998 |
|
|
|
(Rupees) |
(Rupees) |
|
|
|
|
| SALES |
|
19 |
496,201,772 |
728,791,113 |
|
| COST
OF SALES |
|
20 |
(524,739,174) |
(692,641,683) |
|
|
|
|
------------------ |
------------------ |
|
| GROSS
(LOSS) PROFIT |
|
|
(28,537,402) |
36,149,430 |
|
|
|
|
|
| OPERATING
EXPENSES |
|
|
|
|
| Administrative |
|
21 |
(14,113,047) |
(16,144,355) |
|
| Selling |
|
22 |
(24,289,254) |
(35,089,468) |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
(38,402,301) |
(51,233,823) |
|
|
|
|
------------------ |
------------------ |
|
| OPERATING
LOSS |
|
|
(66,939,703) |
(15,084,393) |
|
| Financial
expenses |
|
23 |
(122,198,223) |
(86,755,982) |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
(189,137,926) |
(101,840,375) |
|
|
|
|
|
|
| Extra
ordinary item |
|
24 |
33,128,125 |
11,871,874 |
|
| Other charges |
|
25 |
(3,553,649) |
(7,158,083) |
|
| Other income |
|
26 |
4,217,706 |
4,293,115 |
|
|
|
|
------------------ |
------------------ |
|
| LOSS
BEFORE TAXATION |
|
|
(155,345,744) |
(92,833,469) |
|
|
|
|
|
|
| TAXATION |
|
|
|
| - Current year |
|
27 |
(3,725,244) |
(10,021,862) |
|
| - Prior year |
|
|
0 |
(152,763) |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
(3,725,244) |
(10,174,625) |
|
|
|
|
------------------ |
------------------ |
|
| LOSS
AFTER TAXATION |
|
|
(159,070,988) |
(103,008,094) |
|
|
|
|
|
|
| ACCUMULATED
LOSS BROUGHT FORWARD |
|
|
(479,638,111) |
(376,630,017) |
|
|
|
|
------------------ |
------------------ |
|
| ACCUMULATED
LOSS CARRIED FORWARD |
|
|
(638,709,099) |
(479,638,111) |
|
|
|
|
========== |
========== |
|
| LOSS
PER SHARE-BASIC |
|
28 |
(10.09) |
(6.54) |
|
|
|
|
========== |
========== |
|
|
| These
accounts should be read in conjunction with the annexed notes. |
|
|
| LAHORE |
|
FAROOQ HAMEED |
|
AAMER HAMEED |
|
| 10 March, 2000 |
|
Chief Executive |
|
Director |
|
|
|
|
|
|
| CASH
FLOW STATEMENT |
|
| FOR
THE YEAR ENDED 30 SEPTE.MBER 1999 |
|
|
|
Note |
1999 |
1998 |
|
|
|
(Rupees) |
(Rupees) |
|
|
|
|
| CASH
FLOWS FROM OPERATING ACTIVITIES |
|
|
| LOSS
BEFORE TAX |
|
|
(155,345,744) |
(92,833,469) |
|
|
|
|
|
|
| ADJUSTMENT
OF ITEMS NOT INVOLVING |
|
|
| MOVEMENT
OF CASH: |
|
|
|
|
|
|
|
|
| Gain
on disposal of fixed assets |
|
|
(512,027) |
(31,010) |
|
| Gratuity
provision |
|
|
241,365 |
549,680 |
|
| Depreciation |
|
|
56,199,016 |
58,600,796 |
|
| Amortization
of deferred cost and preliminary expenses |
|
3,553,649 |
7,358,083 |
|
| Extra
ordinary item |
|
|
(33,128,125) |
(11,871,874) |
|
| Tax
adjustment during the year |
|
|
(5,606,918) |
(18,368,516) |
|
| Financial
expenses |
|
|
122,198,223 |
86,755,982 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
142,945,183 |
122,993,141 |
|
|
|
|
------------------ |
------------------ |
|
| CASH
GENERATED FROM OPERATIONS |
|
|
(12,400,561) |
30,159,672 |
|
|
|
|
| Decrease
in trade debts and advances |
|
|
6,031,665 |
42,252,531 |
|
| Decrease
in balance due from associated companies |
|
6,842,350 |
17,417,111 |
|
| Decrease
in stock, stores and spares |
|
|
6,318,413 |
12,936,993 |
|
| Increase
(Decrease)in creditors, accrued and other liabilities |
|
7,766,167 |
(13,643,782) |
|
| Financial
expenses paid |
|
|
(31,553,318) |
(37,131,982) |
|
| Gratuity paid |
|
|
(516,051) |
(350,070) |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
(5,110,774) |
21,480,801 |
|
|
|
|
------------------ |
------------------ |
|
| NET
CASH GENERATED FROM OPERATING ACTIVITIES |
|
(17,511,335) |
51,640,473 |
|
|
|
|
|
|
|
| CASH
FLOWS FROM INVESTING ACTIVITIES: |
|
|
| Additions
to fixed assets |
|
|
(321,973) |
(38,479,601) |
|
| Sale
proceeds of fixed assets |
|
|
900,000 |
1,699,125 |
|
| Deferred
cost - Quota sold/(purchased) |
|
|
977,460 |
(14,149,552) |
|
|
|
|
------------------ |
------------------ |
|
| NET
CASH USED IN INVESTING ACTIVITIES |
|
|
1,555,487 |
(50,930,028) |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
(15,955,848) |
710,445 |
|
|
|
|
|
|
| CASH
FLOWS FROM FINANCING ACTIVITIES: |
|
|
| Increase
in long term loan |
|
100,000,000 |
(732,688) |
|
| Repayment
of lease |
|
(47,330) |
0 |
|
|
|
------------------ |
------------------ |
|
| NET
CASH USED IN FINANCING ACTIVITIES |
|
99,952,670 |
(732,688) |
|
|
|
------------------ |
------------------ |
|
| Net
increase/(decrease) in cash and cash equivalents |
|
83,996,822 |
(22,243) |
|
| Cash
and cash equivalents at the beginning of year |
|
(264,792,048) |
(264,769,805) |
|
|
|
------------------ |
------------------ |
|
| CASH
AND CASH EQUIVALENTS AT END OF THE YEAR |
29 |
(180,795,226) |
(264,792,048) |
|
|
|
|
========== |
========== |
|
|
| These
accounts should be read in conjunction with the annexed notes. |
|
|
| LAHORE |
|
FAROOQ HAMEED |
|
AAMER HAMEED |
|
| 10 March, 2000 |
|
Chief Executive |
|
Director |
|
|
|
|
|
|
| STATEMENT
OF CHANGES IN SHAREHOLDER'S EQUITY |
|
| FOR
THE YEAR ENDED 30 SEPTEMBER 1999 |
|
|
|
Share |
Accumulated |
Total |
|
|
Capital |
Loss |
|
|
|
|
|
| Balance
as at 30 September 1997 |
|
157,548,000 |
(376,630,017) |
(219,082,017) |
|
| Net
(loss) for the year |
|
-- |
(103,008,094) |
(103,008,094) |
|
|
|
------------------ |
------------------ |
------------------ |
|
| Balance
as at 30 September 1998 |
|
157,548,000 |
(479,638,111) |
(322,090,111) |
|
| Net
(loss) for the year |
|
-- |
(159,070,988) |
(159,070,988) |
|
|
|
------------------ |
------------------ |
------------------ |
|
| Balance
as at 30 September 1999 |
|
157,548,000 |
(638,709,099) |
(481,161,099) |
|
|
|
|
========== |
========== |
========== |
|
|
| These
accounts should be read in conjunction with the annexed notes. |
|
|
| LAHORE |
|
FAROOQ HAMEED |
|
AAMER HAMEED |
|
| 10 March, 2000 |
|
Chief Executive |
|
Director |
|
|
|
| NOTES
TO THE ACCOUNTS |
|
| FOR
THE YEAR ENDED 30 SEPTEMBER 1999 |
|
|
| 1.
NATURE AND STATUS OF THE COMPANY |
|
|
|
| Service
Fabrics Limited was incorporated in Pakistan on 01 December, 1987 as |
|
| a
Public Limited Company under the Companies Ordinance, 1984. The shares of |
|
| the
Company are quoted on the Karachi and Lahore Stock Exchange. Principal |
|
| business
of the company is manufacturing and sale of fabrics. |
|
|
|
| 2.
GOING CONCERN ASSUMPTION |
|
| These
financial statements are prepared under the going concern assumption. This |
|
| is
subject to the continued support of the financial institutions and favourable |
|
| economic
conditions for the textile sector in the near future. Specific steps include: |
|
