20000222

Brief recordings

BY SCANNER

Paper & Board

Abson Industries Limited

Year Ended 30th June, 1999

Overview

This Gadoon Amazai project seems to be coming out of its difficulties despite mounting capital deficiency and decline in selling prices due to competition. The Company in the past was adversely affected due to belated commissioning of Kraft paper sacks and the lamination plant. The company has commendably managed to improve PP bags and KP sacks output as well as succeeded in making its first delivery of the laminated product in November 1999. The directors have pleaded for further 5 to 10 years development support for Gadoon Area for which they referred to the Honourable Supreme Court of Pakistan judgement on 11-5-1998. The Company suffered gross loss despite rise in sales due to decline in selling price, rise in sales tax in addition to 5% CED up to 11-6-99. The Company suffered after tax loss at Rs 19 million.

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The Company was incorporated in the province of Sindh in March '91 with registered office in Karachi. The shares in the Company were listed at Karachi Stock Exchange in 1993.

At present the share is quoted at Re one per 10 rupee share at massive discount. The lowest price of the share was quoted at Rs 0.45 in 1996 while the 6-year highest price was recorded at Rs 17 in 1994.

The company has not been able to declare dividend so far.

The company manufactures and markets "multi-wall polypropylene Kraft paper bags."

During the financial year 1998-99, the year under review, the Company's overall production increased. The Company manufactured 13.32 million woven polypropylene bags so the company's annual production capacity utilisation reached 88.8% as compared to 83.4% because the output was 6.5% higher over previous year's output of 12.51 million woven polypropylene bags.

Production capacities of HDPE Liners and Kraft paper bags remained grossly underutilised. HDPE liners output was recorded at 62.81 thousand kgs (1997-98: 74.83 thousand kgs) and reflected 16.1% decline over preceding year's. In this product the capacity utilisation further declined to 10.5% from 12.5% as compared to preceding year's.

The production of Kraft paper bags increased by 29.2% to 793.5 thousand bags over previous year's output of 614 thousand bags. So capacity utilisation also marginally improved by 1.2 percentage points to 5.29% from 4.09% worked out for the preceding year.

The manufacturing facilities of Abson Industries are located in NWFP in Gadoon Amazai Industrial Estate Distt. Swabi.

The first note annexed to the accounts under review shows the resolve of the management to overcome difficulties despite numerous odds it stated:

"The company has not only managed to improve its PP bags and KP sacks production volume but also have succeeded in making its first delivery of the laminated products in November 1999. It is therefore, confidently hoped that having overcome numerous problems, these products will provide diversified volume growth for a better survival next year. Gadoon Area still deserves 5 to 10 years development support as pronounced by the Honourable Supreme Court in a judgement (11-5-1998) last year as such these accounts have been prepared on going concern basis."

The external auditors have made some serious observations about its growing capital deficiency and large excess of current liabilities over current assets. They further observed,

"---in view of continued operating losses the Company may not be in a position to continue as a going concern in the foreseeable future unless financial support from the lending agencies and sponsors are available and continued. The financial statements have been prepared on going concern basis and no adjustment has been made to record assets at realisable value and classification of its liabilities.

During the year under review sales, in terms of value registered 21.5% growth to Rs 98.98 million over preceding year's Rs 81.46 million. In spite of rise in the sales turnover, the operation suffered gross loss of Rs 6.08 million which replaced the preceding year's gross profit of Rs 9.0 million. Operating loss zoomed to Rs 15.6 million which was 5.7 times of the previous year's operating loss of Rs 2.75 million.

Last year, the operation had shown positive pre-tax results despite operating loss because of mark-up reversal which was posted to the credit of income account.

Hence the company had showed pre-tax profit at Rs 1.34 million last year. But for the year under review the company's after tax losses sharply increased to Rs 19.10 million as compared to the previous year's profit after taxation at Rs 0.81 million. The brought forwarded losses of previous year's Rs 38.75 million sharply increased the accumulated loss to Rs 57.85 million.

The auditors pointed out that had the depreciation charges were booked "on the basis of generally accepted accounting principles instead of "on the basis of the capacity utilisation on plant and machinery," then the loss for the year would have been Rs 22.72 million. In other words, the loss for the year according to auditors reflects understatement by Rs 3.6 million.

The response to this observation by the directors, in their report to shareholders is genuine as they stated, "you are well aware about the setbacks to your company during the last six years which adversely affected the growth of PP bags production and belated commissioning of Kraft paper sacks and the lamination plants. Your directors accordingly decided to charge machinery depreciation on capacity utilisation basis to avoid excessive cost on productive machinery which is considered fair and sufficient presently."

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Performance Statistics (Million Rupees)

June 30 1999 1998

Capital & LiabilitiesÉÉÉ

Paid-up Capital: 31.00 31.00

Accumulated (Loss): (57.85) 38.75

Equity Negative: (26.85) (7.75)

Surplus on Revaluation F/A: 49.92 49.92

L.T. Debts: 9.06 3.30

Other Non Current Liabilities: 38.17 48.01

Current Liabilities: 101.23 93.80

AssetsÉÉÉ

Fixed Capital Expenditure: 142.58 147.81

L.T. Deposits: 0.67 0.67

Current Assets: 28.28 38.80

Total Assets: 171.53 187.28

Sales, Profit & PayoutÉÉÉ

Sales: 98.98 81.46

Gross (Loss)/Profit: (6.08) 9.00

Operating (Loss): (15.60) (2.75)

Other Income: 0.22 0.20

Depreciation: 7.41 7.35

Mark-up Reversed: Ñ 7.62

Financial Charges: 3.23 3.73

(Loss)/Profit Before Taxation: (18.61) 1.34

(Loss)/Profit After Taxation: (19.10) 0.81

Accumulated (Loss) B/F: (38.75) (39.56)

Financial RatiosÉÉÉ

Share Price (Rs) 16/2/2000: 1.00 Ñ

Book Value Per Share (Rs): (8.66) (2.50)

Price/Book Value Ratio: (Ñ) Ñ

Debt/Equity Ratio: 17:83 0:100

Current Ratio: 0.28 0.41

Asset Turnover Ratio: 0.58 0.43

Days Receivables: 28 43

Days Inventory: 49 99

Gross Profit Margin (%): (6.14) 11.05

Operating Margin (%): (15.76) (3.38)

Net Profit Margin (%): (19.30) 0.98

(LPS)/EPS (Rs): (6.16) 0.26

Price/Earning Ratio: (Ñ) Ñ

R.O.E. (%): (Ñ) Ñ

R.O.A. (%): (Ñ) 0.43

R.O.C.E. (%): (Ñ) 0.87

Capacity & Actual ProductionÉÉÉ

A) Woven Polypropylene Bags (Numbers Million)

Capacity: 15.00 15.00

Production: 13.32 12.51

Capacity Utilisation (%): 88.80% 83.40%

B) Production HDPE Liners ('000 kgs): 62.81 74.83

Capacity Utilisation (%): 10.46 12.47

C) Kraft Paper Bags ('000 Bags) Production: 793.50 614.00

Capacity Utilisation (%): 5.29 4.09

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Company information: Chairman & Chief Executive: Saifullah A. Paracha. Director: Shamsul Haq. Company Secretary: S.A. Mahasin. Registered Office: Amna Estate, 8th Floor, Opp. Duty Free Shop, 49-Darul Aman Society, Shahrah-e-Faisal, Karachi-75350. Phone: 4313012-5. Fax: 4313016. Factory: Gadoon Amazai Industrial Estate, Swabi, NWFP. Phone: 70267-68/70320. Fax: 70128