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CPC RAFHAN LIMITED
(Formerly Rafhan Maize Products Co. Ltd)
ANNUAL REPORT 1997
IN THE NAME OF ALLAH THE MERCIFUL THE COMPASSIONATE
CONTENTS
Company Information
Notice of Meeting
Directors' Report
Chief Executives' Review
Auditors' Report
Balance Sheet
Profit and Loss Account
Statement of Changes in Financial Position
Notes to the Accounts
Pattern of Shareholdings
COMPANY INFORMATION
CHAIRMAN
EJ. Kocun
CHIEF EXECUTIVE & MANAGING DIRECTOR
Rashid Ali
DIRECTORS
D. Bevilacqua
Sh. Gulzar Hussain
Suleman Daud
Mian Nisar Ahmed Mannoo
E.A. Nomani
Mian Mohammad Adil Mannoo
Mian Zulfikar Mannoo
S.Q.A. Zaidi
REGISTERED
OFFICE
Finlay House, 1st Floor
I.I. Chundrigar Road,
Karachi.
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
SECRETARY
S. Yousuf Hashmi
LEGAL
ADVISORS
Surridge & Beecheno
Karachi - Lahore
AUDITORS
Ford, Rhodes, Robson, Morrow
Chartered Accountants
Lahore- Karachi
HEAD
OFFICE AND
SHARES
DEPARTMENT
Rakh Canal East Road
Faisalabad
RAFHAN
CONSUMER
PRODUCTS
DIVISION
Pakland House, 200-Ferozepur
Road, Lahore
NOTICE OF
MEETING
Notice is hereby given that the 100th General Meeting
(Ordinary Annual) of the shareholders of CPC Rafhan
Ltd will be held on Friday, December 26, 1997 at
10:00 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 99th General
Meeting (Extraordinary) of the shareholders
of the Company held on Monday, September
8, 1997 at Karachi.
2. To receive, consider and adopt the Audited
Accounts of the Company for the year ended
September 30, 1997 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 reappointment.
NOTES:
1. The Share Transfer Books of the Company
will remain closed from December 18, 1997
to December 26, 1997 (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, in order to be effective, must be
received by the Company not less than 48
hours before the meeting. A proxy need
not be a member of the Company.
Form of proxy is enclosed.
3. Shareholders are requested to notify change
of address, if any, immediately.
DIRECTORS' REPORT
The Directors have pleasure in placing their Report and Audited Accounts for the year ended September 30, 1997 before
the 100th General Meeting (Ordinary Annual) of the Shareholders to be held on December 26, 1997.
						Year ended September 30
						1997	1996
						(Rupees in thousands)
Profit after Taxation						201,777	182,683
Unappropriated Profit Brought Forward						552,929	454,913
						----------	----------
						754,706	637,596
						----------	----------
Appropriations
Interim Dividend @ 25% (1996: @20%)						38,485	30,788
Proposed Final Dividend @40% (1996:35%)						61,576	53,879
						----------	----------
						100,061	84,667
Unappropriated Profit Carried Forward						654,645	552,929
						----------	----------
Earnings per Share						Rs. 13.11	Rs. 11.87
						==========	==========
Profit after tax improved by 10% over the previous year. The improvement in earnings is mainly due to higher volume of
sales.
The Directors having declared an interim dividend of 25% now propose a final dividend @40% making the total of 65% for
the year.
The majority shares of the Company were acquired by CPC International Inc. New Jersey, USA in April, 1997 from their
subsidiary CPC Knorr Holding AG.
The pattern of shareholding of shares as at September 30, 1997 appears on page 37.
The present auditors Messrs Ford, Rhodes, Robson, Morrow retire and, being eligible, offer themselves for re-appointment.
CHIEF EXECUTIVES' REVIEW
I am most pleased to welcome you to the 100th
General Meeting (Annual Ordinary) of the company.
BUSINESS ENVIRONMENT
Against the overall sluggishness of Pakistan
economy, 1997 was yet another good year
for CPC Rafhan in many respects, reflected in
net sales impressive growth of 17%, after tax
profit gain of 10% and earning per share increase
of 10.5%. This was certainly an impressive financial
achievement despite country's dismal economic
scenario. Economic performance was much below
targets. There was decline in GDP growth
and per capita income showed meager
increase. While the agriculture sector
showed negligible growth of 0.7%, the
manufacturing sector experienced decline
due to adverse market conditions.
However, despite economic problems and,
difficult business environment, I am glad
to report that, by the grace of Almighty
Allah, your company maintained the momentum
of growth and achieved progress in all areas.
This is indeed a reflection of the trust our customers
continue to repose in the quality and values we
offer in the form of our products.
CORN REFINING INDUSTRIAL BUSINESS
CPC Rafhan's corn refining industrial business
marked solid progress in 1997 overcoming
persistent inflationary pressure on cost of
production and the effect of devaluation. The
industrial products maintained the leading market
share and the net sales recorded an impressive
increase of 17%.
Modified starches remained main
engine of growth led by
PENETROSE starches for
specialty textiles and AMISOL
brand oxidised starches for paper
industry. Working of textile industry,
which remained under depression for the last
3 years, picked up as a result of economic reforms
and textile package announced by the government.
The improved working of textile industry is reflected
in 17% higher sales of PENETROSE modified
starches. The successful line of AMISOL and
TEX-O-FILM starches was further
expanded in paper and textile denim
industries to achieve 20% higher sales
than last year. The introduction of
SNOWFLAKE starches for food
applications, CORATEX for textile finishing
and CORAGUM as corrugating adhesive
helped in achieving diversified market base.
We have lately conducted market research studies
to monitor our customers' needs and to identify
new business opportunities. We will diversify and
expand modified starches range to reach new
market segments in textiles, paper, chemicals,
food and non-food industries.
Liquid Glucose, the leading product of sweeteners
line, showed moderate growth of 3% over last
year. Fluctuating demand of confectionery products
affected the productivity of candy industry, the
largest segment of liquid glucose business.
Aggressive marketing strategies were adopted
to contain competition and maintain our position
as market leader. Dextrose, another product of
sweeteners category, showed better performance
and registered respectable volume growth over
last year due to expanded product applications
in food and pharmaceutical industries.
Co-products consist of gluten meal, feeds and
oil cake. Imposition of 18% sales tax on feeds
and ban on serving meals at marriage feasts
affected the poultry industry in particular and other
livestock's farming in general. With
the withdrawal of sales tax on
poultry feed and its ingredients in
June, 1997, the situation improved
but the poultry farming is still below
normal due to decreased demand. Exploration
of new markets of cattle feed helped us to
increase sales volume. Short availability of grains
for poultry feed further pushed the demand of
our co-products in feed formula resulting in 13%
higher sales volume than last year.
Although exports account for a modest part of
our business, yet an impressive growth of 88%
in export volume is remarkable. Whereas your
Company continues to explore in the global markets
of Middle East, South Asia and Africa, we have
lately entered into Central Asian markets to seize
enormous opportunities of the region's emerging
markets. Our vision for Rafhan, to be the best
in corn refining business in the region, continues
to guide us in exploring new frontiers.
On-going Quality Assurance Programme for
certification of ISO-9000 Quality Management
Systems, continue to yield improved customer
satisfaction ratings. Quality driven performance
is earning the corn refining
business the chance to partner
with customer on future
business opportunities. The
TQE programme also includes
employees training and team
building.
Corn refining plant capacity was further increased
by 7% during the year and full plant capacity
utilization was maintained in order to protect our
position as least cost producer.
Our persistent efforts in
motivating farmers to grow
more corn (maize) were
successful and spring crop
was exceptionally good. This
had a favourable impact on
availability of our basic raw material.
The high yielding seeds introduced by Rafhan
and other multinational seed companies were
instrumental in higher yield per acre and better
income to the farmers. We availed this opportunity
in building adequate inventory of maize in view
of expected short availability from winter crop.
The prices of maize continue to remain under
pressure due to overall shortage of grains in the
country and increase in procurement prices of
competitive grains. Low availability with high
prices of wheat shifted demand of poultry feed
compounders and the food sector to maize. We
are further strengthening our contract farming
and widening the scope of market purchase to
ensure adequate supply of maize at reasonable
prices in keeping with capacity expansions in
the future.
CONSUMER FOODS BUSINESS
During 1997, consumer foods business registered
a healthy growth of 16% in sales. We achieved
these results inspite of difficult economic
environment, which resulted in reduction
of disposable income of our target
consumers. Furthermore, there was a
significant reduction in liquidity for trade due
to high interest rates and stringent credit terms.
In addition, our dextrose category which represents
a major portion of our total business, suffered
due to unprecedented rains during summer.
Our impressive performance was
primarily due to exceptional
volume growth in KNORR and
dessert categories as a result
of effective marketing initiatives
and expansion in retail coverage.
We also registered a significant increase in sales
for oil category by successfully tapping new sources
of oil supply. In addition, we made a successful
entry into Bread Spread market by introducing
premium quality Jam.
We will continue our efforts to jumpshift KNORR
and BEST FOODS businesses and grow our
established product categories under RAFHAN
and ENERGILE brands.
INVESTMENT
The company continues to pursue its programme
of innovation and improvement of its products
and services to customers. The Company
has financed capital expenditures of Rs.
185 million. The expenditure includes
project for capacity increase and erection
of maize storage facilities at Makuana.
First phase of the capacity increase project
at Faisalabad plant has been completed
and the second phase will Inshallah be
completed by September, 1998.
Capital expenditure programmes relating
to improvement in productivity, plant
efficiency, environmental and pollution
controls are also under implementation.
FUTURE OUTLOOK
Pakistan's economy is still passing through a
crucial transition phase. Recent devaluation of
currency and resultant high inflation will reduce
the purchasing power of the consumer. Cost of
maize will further rise due to upswing in the
prices of grains and increased demand for food
usage. There is also threat of cheaper imports
from the neighbouring countries due to reduced
tariffs. However, with the emphasis of the present
government to encourage industrial growth, the
Company remains optimistic on higher demand
of our products by consuming
industries.
We believe that CPC Rafhan's
great market-leading products
and brands, will continue to
meet the challenge of all
competitors, through unrelenting
focus on quality, innovation and
value. Your Company's hallmark, which gives it
an edge over other competitors, is providing best
possible services and product application support
to its customers. We are on the alert to take
advantage of new opportunities and meet future
challenges and plan to launch new products in
both business segments.
DEMERGER
As informed in last March half-yearly report, the
board of directors of your parent company, CPC
International, has announced decision to globally
demerge its company into Bestfoods and Corn
Products International. CPC Rafhan Ltd demerger
scheme has been prepared and approved by
your board of directors. We expect that demerger
of the company will
be accomplished by
early 1998 with the
creation of Rafhan
Bestfoods Ltd., as a
new independent
publicly-owned
company. While your existing company CPC
Rafhan Ltd will focus on corn (maize) derived
products for industrial applications in food, non-
food and feed industries, Rafhan
Bestfoods will concentrate on retail
food business. We firmly believe that
demerger of corn refining and
consumer foods will give both
companies the focus, flexibility and
resources they need for faster growth
of sales, volumes and profits.
CPC Rafhan's progress comes most of all from
the performance and commitment of our people.
I take this opportunity to thank and honour them
for their dedicated service in 1997. I also want
to thank our customers and suppliers for their
consistent support, and our shareholders for their
confidence in the CPC Rafhan enterprise and
in its drive to become the best company in
Pakistan. I wish to assure that we remain committed
to the best utilization of shareholder's investment.
May Allah bless us in our efforts -- Amin!
AUDITORS' REPORT
We have audited the annexed Balance Sheet of CPC
Rafhan Limited (Formerly Rahfan Maize Products
Company Limited, Faisalabad), as at September 30,
1997 and the related Profit and Loss Account and
Statement of Changes in Financial Position, together
with the notes forming pad 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;
(c) in our opinion and to the best of our
information and according to the explanations<