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CRESCENT JUTE PRODUCTS LTD.

ANNUAL REPORT 1997

CONTENTS

COMPANY INFORMATION

BOARD OF DIRECTORS

Azhar I. Jaffery

(Chairman)

Mazhar Karim

(Chief Executive)

(In alphabetic order)

A.H. Zaidi

A. Rashid M. Hanif

Anjum M. Saleem

Khalid Bashir

Razi-ur-Rahman Khan

(Nominee NIT)

Riaz Masood

Sail Ullah Khan

(Nominee PICIC)

Shaukat Shaft

CORPORATE SECRETARIES

Zaheer A. Shaikh

Rashid Sadiq

AUDITORS

A. F. Ferguson & Co.

Chartered Accountants

REGISTERED OFFICE:

83-Babar Block,

New Garden Town, Lahore

Tel: (042) 5881974-75

Fax: (042) 5881976

WORKS:

Jute Unit, Jaranwala

Cotton Spinning Unit, Jaranwala

DIRECTORS' REPORT TO THE SHAREHOLDERS

Your Directors have the pleasure in presenting their 33rd Annual Report together with the Audited Accounts of the Company for

the year ended June 30, 1997.

Your company's operations for the year resulted in a loss of Rs. 185,498,369.

REASONS FOR INCURRING OPERATIONAL LOSS

Abnormal increase in cotton price, frequent and phenomenal increases in input costs, continued depletion in the value of Rupees,

extra depreciation on revalued assets, spirling inflation and acute shortage of working capital necessary for uninterrupted operations

are the major reasons for incurring loss for the year.

DEFAULT IN DEBTS, IF ANY

Overdues of Habib Bank Limited, Circular Road, Faisalabad Rs. 2 million and United Bank Limited, Dayal Singh Mansion,

Lahore Rs. I Million are reported in Credit Information Bureau Report as on June 30, 1997. Both the dues have been cleared and

certificate obtained from the Banks.

AUDITOR

The present Auditors Messors A.F. Ferguson & Company, Chartered Accountants retire and being eligible offer themselves for

reappointment.

REVIEW OF OPERATIONS

The Directors of the Company endorse the contents of the Chief Executive's Review of operations on the next pages which deals

with the Company's activities, its performance and future prospects.

The Directors thank the Shareholders, Bankers and Customers who are co-operating with us in the days of crisis.

CHIEF EXECUTIVE'S REVIEW

Severe economic conditions prevailed in the country throughout the year under review. Long and anxiously awaited upturn in the

economy has still not materialized. In these circumstances the best possible action bas been to tighten our belts and rifle oul this

extremely long period of recession in the country.

The management has been constantly focused in making sure that manufacturing units keep operating despite acute shortage o1'

working capital. Seasonal nature of raw material for both cotton and jute units and sales of jute products means that the company

needs to keep a veryhigh inventory to run efficiently. The acute paucity of short term funding forced the company to operate at less

than ideal capacity and efficiency.

PRODUCTION AND SALES

Total sales marginally reduced by Rupees 3.367 million that is about 0.48% or' last year sales.

Production of Jute Unit decreased from 11,656 tons in 1996 to 11,025 tons in 1997. Jute unit sales decrea~4ed by Rupees 7.06

million. Because of regular demand el' sacking from Government Agencies there has been significant change in the sale mix during

the year. Sacking sales that is comparatively cheaper than Hessian increased from 49.7% of total sales in 1996 to 84.9% ol' ~o~al

sales in 1997 whereas sale of Hessian which constituted 27.4% of sales in 1996 was only 7~3% of total sales in 1997. Similarly Sale

of twine also decreased from 22.9% of total sales in 1996 to 7.8% in 1997. There has been increase in Sale price of all the products.

Sales increased by Rupees 53.406 million due to increase in prices. This increase was, however, offset by decrease h~ quantity from

11,355 tons in 1996 to 10,129 tons in 1997.

Production of cotton unit converted into count of 20's decreased from 3711.7 tons in 1996 to 3664.7 tons in 1997. Although our

total quantity sold decreased by 280 tons we were in a position to fetch higher price for our products. Sales analysis shows

favourable price variance of Rupees 29.222 million which is pardy off' set by unfavourable quantify variance of Rupees 22.645

million. Total sales increased by Rupees 6.577 million during the year.

Sales of Rupees I. 1 million were also made from existing stocks of Garment Factory, which is now closed.

COST OF SALES

Cost of sales of Jute Unit decreased by 1.26'7o from 86.48% of sales in 1996 to 85.22% of sales in 1997. This is after absorbing extra

depreciation of Rupees 14.6 million arising due to revaluation of assets on 30th June 1996.

Cost of sales of Cotton units excluding depreciation dccreascd by 2.95% from 90.74% of sales in 1996, to 87.79% o1' sales in 1997.

This decrease was negated by charge of extra depreciation Rupees 13 million resulted due to revaluation of assets on June 30, ! 997

and net increase of 1% was recorded in the total cost of sales that increased from 96.96% of sales in 1996 to 97.96% of sales in

1997.

Cotton purchase price increased from Rupees 54.49 per Kg in 1996 to Rupees 61.70 per Kg in 1997. Electricity charges increased

by Rupees 5.8 million. That includes increase of Rupees 1.4 mill?on in electricity surcharge and increase of Rupees 3.5 million iu

the cost of Diesel Oil used for generation of own electricity -- all increases due to government action. Other costs remained under

control.

GROSS PROFIT

Consolidated Gross profit of existing units increased by 0.6`7o from Rupees 56.2i4 million in 1996 to Rupees 59.417 million in

1997.

OPERATING EXPENSES

Management is exercising strict control over administrative expenses. Despite annual increase in the staff salaries and other increases

due to inflationary trend in the country there has been increase of Rupees 1.37 million only in the administrative expenses.

However, as a result of provision of Rupees 4.2 million made I'm' pensJim payable to ol'l'icers on retirement, total administrative

expenses increased by Rupees 5.57 million during the year. On thc other hand selling expenses decreased by Rupees 1.19 million

during the year.

OTHER INCOME

Other income decreascd from Rupees 52.836 million in 1996 to Rupees 8.664 million during the year. This is mainly because

income for 1996 included Rupees 11.9 million on account of exchange claim recovered previously charged off and profit of Rupees

31.1 n~lIlion on sale el~ invcstment. Dividend income also decreased by Rupees 1.47 million during the year.

FINANCIAL CHARGES

In view of the continued losses company is very much short of working capital. It has to resort to short term borrowings fi'om'Banks

and other financial institutions. Long term loan froth PICIC was rescheduled during the year. Charge Rupees 2.7 million on

processing of various loans were also paid during the year. Management plans to generate additional working capital through sale

'of its short-term investment. The plan could not be implemented for the reason that price of shares held by the company are

understated on stock exchange compared to their inherent strength. Some other steps have, however, been taken in July 1997 that

will have positive impact in recluction o1' the financial charges.

OTHER CHARGES

This includes provision of Rupees 24.59 million to cover the diminution in the breakup value of long term investment and in

market value of short-term investment at the close of business as on 30th June 1997.

GARMENT UNIT

Garment unit is closed tbr the last 2 years. Eflbrts to sell out the project did not materialize. There is no buyer in the market. In the

process o1' winding up of the project Machinery has been sold on written down value and part of the stocks valued at Rupees 3

million lying in depleted conditions have been sold for 1.1 million. A provision of Rupees 1.5 million has also been made for

diminution in the value of quota held on 30th June 1997. Loss of the project l'or the year under review amounted to Rupees 8.704

million.

THE WAY FORWARD

The effect of a prolonged down turn in the economic conditions has taken a serious tell on the health el~ the company. A number of

measures have been taken to ensure that the company is able to get out of these difficult conditions. As with any long term policy

changes. the ell'cots o1' these measures would start reflecting in the accounts gradually.

The company as a whole is experi.encing a considerable change in its working environment changes in role and responsibilities

the employees. The management is putting its best efforts to manage the crisis faced by the company. The mainstay of these efforts

is the elaborate restructuring plan approved by the Board of Directors last year.

Implementation of this plan is underway but the progress in this regard was somewhat hampered by the economic and pollrickel

uncertainties prevailing in the country. The speed by which the company can be brought back to its past performance is directly

linked with the speed el' economic recovery in the country.

We have started seeing the effects of our plans and policies in the operations of the company. I must, however, point out that this

is going to be a long-term process. We should start noticing a gradual improvement in overall results of the company in future year.

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT the 33rd Annual General Meeting of the shareholders t)f CRESCENT JUTE PRODUCTS

LIMITED will be held on Wednesday, the December 31, 1997 at 11:00 a.m. at Registered Office, 83-Babar Block. New Garden

Town, Lahore to transact the following business>

1. To receive and adopt the Audited Accounts of the Company for the year ended June 30, 1997 together with the Directors'

and Auditors' reports thereon.

2. To appoint Auditors and fix their remuneration. The retiring Auditors M/S A.E Ferguson & Company, Chartered Accountants,

being eligible have offered themselves for reappointment.

The share transfer books of the company shall remain closed from December 29, 1997 to January 05, 1998 (both days inclusive).

Registered Office:

83-Babar Block, New Garden Town,

LAHORE.

Phone No. 5881974-75

Fax No. 5881976

Dated: December 08, 1997

NOTES:

1. A member eligible 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 by the Company at the Registered Office not later than

48 hours before the time for holding the Meeting,

2. Shareholders are requested to immediately notify the change in address, if any.

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of Crescent Jute Products Limited as at June 30, 1997 and the

related profit and loss account and the 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 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 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 expenditure incurred during the year were in

accordance with the objects of the company;

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 June 30, 1997 and

of the loss and cash flows for the year then ended; and

(d) in our opinion no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980.

Without qualifying our opinion, we draw attention to note 2.1 to the accounts which states that these accounLs

have beenprepared assuming that the company will continue as a going concern. As explained in note 2.1 to

the accounts the company has suffered a loss of Rs 185.5 million during the year and has accumulated losses of

Rs 372.8 million as at June 30, 1997. As of that date the company's current liabilities exceeded its current

assets by Rs 143.74 million and its long term debt to equity ratio further deteriorated during the yean These

factors raise doubt that the company may be able to continue as a going concern. Management's plan in regard

to this matter are also discussed in note 2.1 to the accounts. These accounts do not include any adjustments that

might result from the outcome of this uncertainty.

Without qualifying our opinion, we draw attention to note 20 to the accounts which includes an amount receivable

from an associated company aggregating Rs 252.3 million. The recoverability of this amount is dependent on

certain factors more fully explained in note 11.1 to the accounts. Pending the outcome of the matters referred

to note 11.1, no provision that might result from the outcome of this uncertainty has been made in the accounts

in respect of the balance due.

A.F. Ferguson & Co.

Lahore: December 8, 1997

Chartered Accountants

BALANCE SHEET AS AT 30 JUNE 1997

1997

1996

Note

Rupees

CAPITAL AND RESERVES

Authorized capital

20,000,000 ol-dinary shares of Rs. 10 each

200,000,000

==========

Issued, subscribed and paid up capital

150,634,680

150,634.68

Reserves

138,767,584

138,767.58

Accumulated (loss)

(372,839,071)

(187,340,702)

----------

(83,436,807)

102,061,562

SURPLUS ON REVALUATION

OF FIXED ASSETS

348,568,550

REDEEMABLE CAPITAL

Long-term running finances-secured

LIABILITIES AGAINST ASSETS SUBJECT

TO FINANCE LEASE

5,439,700

12,839,211

DEBENTURES AND LONG TERM LOANS

101,041.60

102.640.883

CURRENT LIABILITIES

Current portion of

Long-term running finances

17.203,176

17,203,176

Liabilities against assets subject to finance lease

7,758,964

9,970,959

Debentures and long-term loans

20,537,199

6,247,363

Short-ter~n running finances

601,287,100

551,071,479

Creditol's~ accrued and other liabilities

253.827,382

242,922,314

Provision for taxation

1,410,109

902,023,930

827,415,291

CONTINGENCIES AND COMMITMENTS

----------

1,273,636,973

1,393,525,497

==========

The annexed notes form an integral part of these accounts.

FIXED CAPITAL EXPENDITURE

Operating fixed assets

501,813,361

556,013,357

Assets subject to finance lease

4,468,265

6,580,954

----------

506,281,626

562,594,311

LONG-TERM INVESTMENTS

5,050,000

7,250,000

LONG-TERM SECURITY DEI'OSITS

AND I)EFERRED COSTS

4,021,835

7,006,079

CURRENT ASSETS

Stores and spares

31,505.24

30,299,508

Stock-in-tracle

111,709,748

97,764,399

Short term investmcnts

306,186,122

330,589,995

Trade debts

23,222,753

17,104,563

Advances, deposits, propayments and othcr receivable

283,337,428

332,618,679

Cash and bank balances

2,322,221

8,297,963

758,283,512

816,675,107

----------

1,273,636,973

1,393,525,497

==========

PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED JUNE 30, 1997

1997

1996

Note

Rupees

Sales

699,605,921

1,041,512,226

Cost of Sales

640,189,360

961,790,693

----------

Gross profit

59,416,561

79,721,533

Administration expenses

41,468,821

42,285,314

Selling and distribution expenses

17,767,918

18,693,969

----------

59,236,739

60,979,283

----------

Operating profit

179,822

18,742,250

Other income

8,664,632

52,836,163

----------

8,844,454

71,578,413

Financial charges

166,733,880

161,748,152

Other charges

24,825,467

73,327

----------

191,559,347

161,821,479

(Loss) before taxation

(182,714,893)

(90,243,066)

Gain on sale of cotton unit at Jhang

164,616,602

----------

(Loss)/profit before taxation

(182,714,893)

74,373,536

Taxation

2,783,476

6,298,164

----------

(Loss)/profit after taxation

(185,498,369)

68,075,372

----------

Accumulated (loss) brought forward

(187,340,702)

(251,000,261)

Less: Adjustment to deferred costs on account

of change in accounting policy

4,415,813

----------

(187,340,702)

(255,416,074)

----------

Accumulated (loss) carried forward

(372,839,071)

(187,340,702)

==========

The annexed notes form an integral part of these accounts.

CASH FLOW STATEMENT

FOR THE YEAR ENDED JUNE 30, 1997

1997

1996

Note

Rupees

Cash inflow/(outflow) from operating activities

Cash generated from operations

79,407,652

61,854,055

Financial charges paid

(150,983,842)

(155,747,646)

Income taxes paid

(1,183,995)

(275,348)

Proceed on sale of export quotas

356,352

397,393

Long term security deposits and deferred costs

1,127,892

786,936

----------

Net cash (outflow) from operating activities

(71,275,941)

(92,984,610)

Cash inflow/(outflow) from investing activities

Fixed capital expenditure

(1,685,363)

(11,507,716)

Proceeds on sale of fixed assets

7,959,697

1,689,578

Proceeds on sale of investments

2,955,874

55,910,730

Dividends received

2,775,323

4,264,680

Interest received

4,242

----------

Net cash inflow from investing activities

12,005,531

60,398,514

Cash inflow/(outflow) from financing activities

Long term borrowings

12690,553

4,599,357

Repayments of finance leases

(9,611,506)

(10,856,207)

----------

Net cash inflow/(outflow) from financing activities

3,079,047

(6,256 850)

Net (decrease) in cash and cash equivalents

(56,191,363)

(38,842,946)

Cash and cash equivalents at the beginning of year

(542,773,516)

(503,930,570)

----------

Cash and cash equivalents at the end of year

(598,964,879)

(542,773,516)

==========

NOTES TO THE ACCOUNTS FOR THE YEAR ENDED JUNE 30, 1997

1. The company was incorporated in Pakistan and is listed on the Karachi, Islamabad and Lahore Slock Exchanges and is

currently engaged in manufacture and sale of jute bags, cotton yarn and export of garn~ents.

2. SUMMARY OF SIGNIFICANT POLICIES

2.1 BASIS OF ACCOUNTING

The company has incurred a net loss of Rs 185,498,369 for the year ended June 30, 1997 and has accumulated losses of'Rs

372,839,071 as of that date. The company's current liabilities exceeded its current assets by Rs 143,740,418. These factors raise

doubts that the company will be able to continue as a going concern. In order for the company to continue as a going concern the

management approved a plan for restructuring the company which involved:

* sale of certain assets

* arrangements of additional financing facilities

* conversion of short term debt to long term debt.

As part of the plan, during the year the long term loan payable to PICIC was restructured and the balance is now payable over a

period upto 2003. In addition, the management of lhe company intends to dispose off its shareholding in Crescent Ujala/_,imited, a

wholly owned subsidiary, to various group companies by June 30, 1998. As such the investment has been included in short term

investments. Additionally, to further improve the liquidity position of the company, the management also intends to sell its investn~enls

in quoted shares by June 30, 1998. As a result, these accounts have beeu prepared on the asstm~ption that based on the managemcnt's

plan for restructuring, the company will continue as a going concern and consequently do not include any adjustments that might

result should the company not be able to continue as a going concern.

2.2 ACCOUNTING CONVENTION

The accounts have been prepared under the historical cost convention, as modified by the rcv~tluati(~n of certain fixed assets

referred to in note 2.5.

2.3 TAXATION

The provision for current taxation is based on taxable income at the current rates of taxation after taking into account ~ivailable tax

rebates and credits.

The company accounts for deferred taxation, using the liability method, on all major timing differences.

2.4 STAFF RETIREMENT BENEFIT

The c(m~pany operates an approved funded pen