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CPC Rafhan Limited

Formerly Rafhan Maize Products Co. Ltd.

(Annual Report 1996)

CONTENTS

COMPANY INFORMATION

Chairman

F.J. Kocun

Chief Executive &

Managing Director

Rashid Ali

Directors

D. Bevilacqua

Sh. Gulzar Hussain

Mian Nisar Ahmed Mannoo

E. A. Nomani

Mian Mohammad Adil Mannoo

Mian Zulfikar Mannoo

S. Q. A. Zaidi

Secretary

S. Yousuf Hashmi

Bankers

ANZ Grindlays Bank

American Express Bank

Bank of America NT & SA

Citibank, N. A.

Faysal. Bank Ltd.

Habib Bank Ltd.

Muslim Commercial Bank Ltd.

National Bank of Pakistan

Standard Chartered Bank

Auditors

Ford, Rhodes, Robson, Morrow

Chartered Accountants,

Lahore - Karachi

Legal Advisors

Surridge & Beecheno,

Karachi- Lahore

Registered Office

Finlay House, 1st Floor,

I. I. Chundrigar Road,

Karachi.

Head Office and

Rakh Canal East Road,

Shares Department

Faisalabad

Rafhan Consumer

Pakland House,

Products Division

200-Ferozepur Road,

Lahore

NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the 98th General Meeting (Ordinary Annual) of the shareholders of

CPC Rafhan Ltd (formerly Rafhan Maize Products Co. Ltd.) will be held on Tuesday, December 31,

1996 at 11:00 a.m. at the Overseas Investors Chamber of Commerce and Industry's Hall, Talpur

Road, Karachi to transact the following business:-

1. To confirm minutes of the 97th General Meeting (Extraordinary) of the shareholders of the

Company held on Sunday, August 18, 1996 at Karachi.

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

September 30, 1996 together with the Directors' and Auditors' Reports thereon.

3. To consider and approve dividend payment.

4. To appoint auditors and fix their remuneration for the current year. The present auditors Messrs

Ford, Rhodes, Robson, Morrow, Chartered Accountants, retire and, being eligible, offer

themselves for re-appointment.

By Order of the Board of Directors

Karachi

S. YOUSUF HASHMI

December 6, 1996

Company Secretary

NOTES:

1. The Share Transfer books of the Company will remain closed from December 23, 1996 to

December 31, 1996 (both days inclusive) and no transfer will be accepted for registration

during this period.

2. A member entitled to attend, speak and vote at the Meeting shall be entitled to appoint another

person as his/her proxy to attend, speak and vote instead of him/her, and a proxy so appointed

shall have such rights with respect to attending, speaking and voting at the Meeting as are

available to a Member. Proxies must be received by the Company not less than 48 hours

before the Meeting. A proxy need not be a member of the Company. Proxy Form is enclosed.

3. Shareholders are requested to communicate to the Company any change in their addresses

immediately.

DIRECTORS' REPORT

The Directors have pleasure in placing their Report and Audited Accounts for the year ended

September 30, 1996 before the 98th General Meeting (Ordinary Annual) of the Shareholders to be

held on December 31, 1996.

Year ended September 30

1996 1995

(Rupees in thousands)

Profit after Taxation

182,683

157,336

Unappropriated Profit Brought Forward

454,913

374,547

--------

637,596

531,883

Appropriations

Interim Dividend @ 20% (1995: @ 20%)

30,788

Proposed Final Dividend @ 35% (1995: 30%)

53,879

46,182

--------

84,667

76,970

Unappropriated Profit Carried forward

552,929

454,913

========

Earnings per Share

Rs. 11.87

Rs. 10.22

Profit after tax improved by 16% over the previous year. The improvement in earnings is mainly due

to higher volume of sales.

The Directors having declared an interim dividend of 20% now propose a final dividend @ 35%

making the total of 55% for the year.

The majority shares of the Company are held by CPC Knorr Holding AG which is incorporated in

Switzerland. CPC Knorr Holding AG is a wholly owned subsidiary of CPC International Inc., a U.S.A.

public corporation.

The pattern of shareholding of shares as at September 30, 1996 appears on page 34.

The present auditors Messrs Ford, Rhodes, Robson, Morrow retire and, being eligible, offer

themselves for re-appointment.

BY ORDER OF THE BOARD

RASHID ALl

November 16, 1996

Chief Executive & Managing Director

CHIEF EXECUTIVE AND MANAGING DIRECTOR'S REVIEW

It is my pleasure to welcome you to the 98th General Meeting (Annual Ordinary) of the Company.

BUSINESS ENVIRONMENT

In many ways 1996 was a difficult year for business growth

in the country. A year characterized

by poor performance of manufacturing sector, high inflation

and ,frequent exchange rate adjustments. While economy

registered GDP growth of 6.1 percent, primarily due to

agriculture sector, the manufacturing sector growth was

miserable. Increase in the rate of GST from 15% to 18% and

withdrawal of most of the tax exemptions resulting into

application of GST on wide range of products pushed

production cost of manufacturing sector, fueled inflation and

weakened purchasing power of common man. Inspite of

adverse business environment, Al-Hamdu lillah, our company

achieved solid growth in 1996. While net sales increased by

23%, profit after tax had an impressive growth of 16%.

INDUSTRIAL PRODUCTS BUSINESS

Despite host of crisis faced by major consuming industries of confectionery and paper, industrial

products division registered an impressive growth of 23% in net sales. Volume sales of major

products were up by 15% over last year. All our manufacturing units operated at higher levels

than last year in order to maintain our position as supplier of choice and reliability. Increase in

capacity utilization of 5% was achieved during the year.

After three years of recession, textile

manufacturing sector showed signs of

recovery due to better cotton crop. This

reflected favourably on volumes of starches -~

which have major share in sales growth. Our ~

efforts to diversify starches for various

consuming industries also resulted into

higher sales volume. Penetrose modified

starches for specialty textiles recorded

excellent performance in volume growth by

25% over last year. Q-Tac cationic starch is

yet another product which was developed

and introduced in the paper industry with

good growth potential.

Sweeteners led by liquid glucose suffered slight volume loss as high price of sugar forced

many confectionery units to reduce production level of candy. However overall volume was on

goal as dextrose high volume sale had compensatory effect. Our co-products consisting of

gluten meal and feed are used as ingredients by poultry feed manufacturers. Imposition of 18%

GST not only reduced production of poultry feed but priced out our gluten from feed formulation

as substitutes like soybean and cottonseed meals are cheaper than gluten. Several poultry

farmers have switched to home mixing and we hope sale will pick up in winter when demand

for eggs increases.

The price of maize rose to a record high level until arrival of

the spring crop. On the average, the price of maize

registered an increase of 14% over last year and depressed

gross margins. High prices of maize last year attracted

farmers to increase acreage for planting. High yielding

varieties of seed were sown and favourable weather helped

produce a bumper crop in spring 1996. This had favourable

effect on prices. The company purchased enough volumes

to build sufficient maize inventory in view of expected

shortage next year. We continue to promote maize

cultivation by supporting contract farming in order to fill the

gap between the market availability of maize and our current

and future requirements.

CONSUMER FOODS BUSINESS

The inflationary pressure on the economy as a whole has also affected our consumer foods

business. Relaxation of tariff barriers have helped availability of imported oil, cubes and soups

in the country and we have to face new competition. Despite these difficulties and law and

order situation in Karachi, the major market for consumer products, consumer foods business

registered impressive growth by 23% of which 14% was shared by volumes. Major contribution

in the growth came from Rafhan Corn Oil, Knorr soups and cubes and Rafhan desserts. Energile

suffered a shortfall in volumes primarily due to mild summer. All key players in beverage industry

could not achieve volume targets due to heavy rains and short span of summer.

Consistent with the policy to expand Knorr

range of products, two new products namely

Knorr Yakhni and Knorr Instant Haleem were

launched. Knorr Yakhni is suiting to the local

taste and is well received in the market

which is evident from encouraging consumer

off-take. Knorr Instant Haleem is in

introductory stage and has good prospects

for future growth. Two new varieties of Knorr

soup -- Chicken Corn and Cream of

Tomato -- were added during the year

increasing soup range to six flavours. Demi

Glace Sauce and Cream Soup base were

also added to Caterplan range. After major

improvement, Rafhan Kheer Mix was re-

launched. Our successful experience to sell

Best Foods Real Mayonnaise in catering prompted us to go for launching Best Foods Real

Mayonnaise in retail during June '96. The initial consumer response is favourable.

Our goal is to maintain our position as market leader for all our brands. In order to achieve this goal, we

are pursuing the policy of aggressive marketing, continuous quality improvement

and product innovation. The advertising and

market research expenses during the year

amounted to Rs. 56 million against Rs. 48

million of last year.

FINANCIAL RESULTS

Year ended

September 30

1996

1995

Net Sales

(Rs. Million)

2123

1722

Profit after Tax

183

157

Paid up capital

154

Earning per share

(Rupees)

11.87

10.22

INVESTMENTS

Project to expand and modernize capacity of industrial plant at Faisalabad has been completed.

Further investment, in keeping with future demand for diversified products, is in hand. Production

capacity of sweeteners was increased by 17% in a record time of five months to meet peak

demand in winter. In order to improve recovery of oil more efficient expellers are in final stage

of installation. Second phase of warehousing facility at Makkoana has been completed and

spring maize has been stored at new site. Consistent with company's policy of modernization,

installation of computerized control instrumentation of wet-mill in Faisalabad has been completed

and it is planned to extend it to other production facilities. Production capacities are also being

rationalized in consumer foods plant at Pernawan.

The capital expenditure for the year

amounted to Rs. 151 million. It is our

goal to continue investment

programme in accordance with our

policy of modernization, improvement

in efficiency and productivity,

environment and pollution controls in

both industrial and consumer plants.

FUTURE OUTLOOK

As last year, agriculture will hopefully

make a positive contribution towards

economic growth. On the other side,

high inflation, increase in cost of

inputs and law and order situation are

hampering business activities.

Reduction in import tariffs may give further rise to already increasing competition for local industries.

To meet these challenges your company will continue to make efforts for

maintaining growth in sales and earnings by diversification of products and

induction of new technologies acquired from our worldwide partner, CPC Internat

of Afghanistan is

One the geopolitical side, normalisation of peace in neighbouring country of

Afghanistan is expected to open gateway to markets of Central Asian States.

These markets will provide impetus for growth to all business sectors including ours. We have

made some headway this year in export of industrial and consumer products to Middle East and

Central Asian States and are exploring new opportunities for further expansion. Our efforts will be

focused to acquire status of market leadership in food and. allied business.

GENERAL

I am pleased to inform that your company has been

awarded Karachi Stock Exchange Award

for being one of the top 25 performers in 1995. To

leverage our global partnership with CPC International

Inc. USA, in expanding and diversifying our business

activities, your company name has been changed to

CPC Rafhan Ltd with effect from October 29, 1996.

I wish to record my sincere appreciation for the

dedicated efforts and hard work by all employees of the

company at all levels in achieving excellent results for

the year. I also express gratitude to our customers,

suppliers and shareholders for their continuous support.

We remain committed to best utilization of our

shareholders investment in 1997 and onward.

Rashid Ali

Chief Executive and

November 16, 1996

Managing Director

FINANCIAL HIGHLIGHTS

1996

1995

1994

1993

1992

Net Sales

Rs. Million

2123

1722

1399

1288

1064

Cost of Sales

1623

1301

1014

928

790

Gross Profit

500

422

385

360

274

%age of Sales

Profit After Tax

183

157

138

125

Capital Expenditure

151

173

204

Dividend Amount

Percentage

Earning pershare

Rupees

11.87

10.22

8.97

8.11

7.00

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed Balance Sheet of CPC Rafhan Limited (Formerly Rafhan Maize

Products Company Limited), Faisalabad, as at September 30, 1996 and the related Profit and

Loss Account and Statement of Changes in Financial Position, 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, 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 the 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;

the balance sheet, profit and loss account and the statement of changes in financial position,

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 September 30, 1996 and of the profit and the changes in

financial position for the year then ended; and

(d) in our opinion Zakat deductible at source under the Zakat and Ushr Ordinance 1980, was

deducted by the company and deposited in the Central Zakat Fund established under Section

7 of that Ordinance.

Lahore

Ford, Rhodes, Robson, Morrow

November 16, 1996

Chartered Accountants

BALANCE SHEET AS AT SEPTEMBER 30, 1996

Notes

1996

1995

(Rupees in thousands)

TANGIBLE FIXED ASSETS

Operating fixed assets

558,969

564,672

Capital work-in-progress

108,519

27,606

665,488

592,278

LONG TERM LOANS

1,207

1,409

CURRENT ASSETS

Stores and spares

141,264

99,160

Stock in trade

713,777

251,482

Trade debtors

99,501

90,005

Advances, deposits, prepayments &

other receivables

25,547

21,546

Cash and bank balances

14,016

16,607

--------

994,105

478,800

LESS: CURRENT LIABILITIES

Short term finances

513,358

67,945

Current portion of long term loan

3,333

Current liability of obligation under finance leave

12,978

15,686

Deposits, creditors & accrued liabilities

175,651

125,420

Provision for taxation

70,365

61,039

Other provisions

5,197

11,590

Dividends

54,165

46,398

--------

831,714

331,411

--------

WORKING CAPITAL

162,391

147,389

--------

TOTAL CAPITAL EMPLOYED

829,086

741,076

LESS: LONG TERM AND DEFERRED LIABILITIES

Deferred taxation

48,185

45,193

Obligations under finance lease

10,562

23,540

Long term loans - secured

--------

58,727

68,733

--------

NET CAPITAL EMPLOYED

770,359

672,343

========

REPRESENTED BY:

SHARE CAPITAL AND RESERVES

Share Capital

153,940

Reserves

616419

518403

CONTINGENCIES & COMMITMENTS

--------

770,359

672,343

========

The annexed notes form an integral part of these accounts.

PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED SEPTEMBER 30, 1996

Notes

1996

1995

(Rupees in thousands)

Sales

2,123,203

1,722,456

Less: Cost of sales

1,623,157

1,300,743

--------

Gross profit

500,046

421,713

Less: Selling and marketing expenses

97,687

78,879

General & administrative expenses

68,134

57,243

Financial expenses

54,569

35,982

Other charges

15,512

16,329

--------

235,902

188,433