| EMCO INDUSTRIES LIMITED |
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|
| ANNUAL
REPORT 1997 |
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| Contents |
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| Company
Information |
|
| Business
Items |
|
| Notice
of Meeting |
|
| Directors'
Report to the Members |
|
| Financial
Highlights |
|
| Ten
Years at a Glance |
|
| Chairman's
Review |
|
| Auditors'
Report |
|
| Balance
Sheet |
|
| Profit
and Loss Account |
|
| Cash
Flow Statement |
|
| Notes
to the Accounts |
|
| Pattern
of Shareholdings |
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|
|
|
|
| Company
Information |
|
|
| Board
of Directors |
|
|
| Mr.
S. A. Mannan, Chairman |
|
| Mr.
Tariq Rehman, Chief Executive |
|
| Mr.
A. Rehman |
|
| Mr.
Shafiq A. Siddiqi |
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| Mr.
T.M. Sheikh |
|
| Mr.
Haris Noorani |
|
| Mr.
Suhail Mannan |
|
| Mr.
Tahir Rehman |
|
| Mr.
Iqbal Shafiq |
|
| Mr.
Usman Haq |
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|
| Auditors |
|
| S.A.
Salam & Co. |
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| Chartered
Accountants, |
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| Lahore |
|
|
| Bankers |
|
| American
Express Bank Ltd. |
|
| Bank
of America. |
|
| Citibank
N.A. |
|
| Deutsche
Bank A.G. |
|
| Emirates
Bank International |
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| Standard
Chartered Bank |
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|
| Registered
Office |
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| 2nd
Floor, Emirates Bank Building, |
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| 14-Kashmir-Egerton
Road, |
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| Lahore-54000 |
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| Factory |
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| 19-Kilometre,
Lahore-Sheikhupura Road, |
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| Lahore. |
|
|
| Business
Items |
|
|
| Porcelain
Insulators |
|
|
| ·
Suspension Insulator |
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| ·
Pin Insulator |
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| ·
Line Post Insulator |
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| ·
Cap and Pin Type Support Insulator |
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| ·
Station Post Insulator |
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| ·
Indoor Switch and Bus Insulator |
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| ·
Apparatus Insulator |
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| ·
Insulator for Railway Electrification |
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| ·
Telephone Insulator |
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| ·
Low Voltage Insulator |
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| ·
Dropout Cutout Insulator |
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| · Bushings |
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|
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| Switchgear |
|
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| ·
Disconnect Switches upto 145 kV |
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| ·
Metal Oxide Surge Arresters upto 430 kV |
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| (Under
Licence from Siemens, Germany) |
|
|
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| Chemical
Porcelain |
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|
|
| ·
Acid Proof Wares and Bricks |
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| ·
Raschig Rings and Saddles |
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| ·
Acid Proof Porcelain Pipes and Fittings |
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| ·
Acid Proof Cement |
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| Special
Porcelain |
|
|
| ·
Special Refractories |
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| ·
High Alumina Porcelain |
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| ·
Lining & Grinding Media |
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|
| Ceramic
Glazed Wall Tiles |
|
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| ·
Coloured & Decorative Glazed Wall Tiles |
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| 15
cmx 15 cmx6mm |
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|
|
| Ceramic
Glazed Floor Tiles |
|
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| ·
Vitreous & Semi Vitreous Decorative Glazed |
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| Floor Tiles |
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| 30cmx30cmx
8 mm |
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| ·
Semi Vitreous Glazed Floor Tiles |
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| 40cmx40cmx
8mm |
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|
| Floor
and Facing Tiles |
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|
| Notice
of Meeting |
|
|
| NOTICE
IS HEREBY GIVEN that the 42nd Annual General Meeting of the Members of |
|
| EMCO
INDUSTRIES LIMITED, will be held on 8th December, 1997 at 11.00 A.M. at the
Regis- |
|
| tered
Office of the Company, 2nd Floor, Emirates Bank Building, 14-Kashmir/Egerton
Road, Lahore, |
|
| to
transact the following business> |
|
|
| 1.
To confirm the minutes of the last Annual General Meeting held on 12th
December, 1996. |
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|
|
|
| 2.
To consider and adopt the Audited Accounts of the Company for the year ended
30th June, 1997 |
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| and
report of the Auditors and Directors thereon. |
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| 3.
To appoint Auditors and fix their remuneration. |
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| NOTES: |
|
|
| i)
The Shares Transfer Books of the Company will remain closed and no transfer
of Shares will |
|
| be
accepted for registration from 1st December, 1997 to 8th December, 1997 (both
days inclu- |
|
| sive).
The members whose names appear in the Register at the close of the business
on Novem- |
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| ber
30, 1997 will qualify for entitlement to Bonus shares @ 15% of paid up
Capital out of its |
|
| Capital
reserve as declared by the Board of Directors in their meeting held on
November 10, |
|
| 1997. |
|
|
|
| ii)
A Member entitled to attend and vote at the General Meeting may appoint
another member as |
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| his/her
proxy to attend and vote instead of him/her at the meeting. Proxies must be
deposited |
|
| at
the Company's Registered Office not less than forty eight hours before the
time of holding |
|
| the
meeting. Form of Proxy is enclosed. |
|
|
| iii)
Members are requested to notify immediately the change of address, if any. |
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|
| Directors'
Report |
|
|
| The
Board of Directors is pleased to present the 42nd Annual Report of EMCO
Industries Limited |
|
| for
the year ended June 30, 1997.
~ |
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|
| Financial
Results and Appropriations |
|
|
|
|
Rupees |
|
| Net
profit/(loss) for the year after taxation |
|
(22,545,214) |
|
|
|
|
| Unappropriated
profit brought forward |
|
| from
prior year |
|
28,483,975 |
|
|
|
|
---------- |
|
| Unappropriated
profit carried forward |
|
5,938,761 |
|
|
========== |
|
|
|
|
| The
Board of Directors has declared bonus shares @15% of paid up capital out of
the capital |
|
| reserves
for the year ended June 30, 1997. |
|
|
| Pattern
of Holding of Shares |
|
| A
statement showing the pattern of holding of shares in the Company as on June
30, 1997 appears |
|
| on page 34. |
|
|
| Auditors |
|
| The
retiring auditors, Messrs. S.A. Salam & Co., being eligible, offer
themselves for re-appointment. |
|
|
| Chairman's
Review |
|
| The
accompanying Chairman's review deals with the performance of the Company
during the year and |
|
| the
future outlook. The Directors endorse the contents of the review. |
|
|
| FINANCIAL
HIGHLIGHTS |
|
|
|
|
12 Months to |
18 Months to |
|
|
|
June 30, 1997 |
June 30, 1996 |
|
|
| Net Sales |
|
Rs. in Million |
490.00 |
791.00 |
|
|
|
|
|
| Profit/(Loss)
before Tax |
Rs. in Million |
(20.00) |
38.00 |
|
|
|
|
|
| Income Tax |
|
Rs. in Million |
2.50 |
4.00 |
|
|
|
|
|
| Profit/(Loss)
after Tax |
Rs. in Million |
(22.50) |
54.00 |
|
|
|
|
|
| Earnings
per Share |
|
Rs. / Share |
(2.25) |
8.97 |
|
|
|
|
| Cash
Dividend per Share |
Rs. / Share |
-- |
2.00 |
|
|
|
|
| Stock
Dividend |
|
% |
15 |
-- |
|
|
|
|
| No.
of Shares Outstanding |
(000's) |
10,000 |
6,000 |
|
|
|
|
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|
| Taxes
and Duties |
|
Rs. in Million |
158* |
226* |
|
|
| *
For details see Note 31 to the Accounts |
|
|
| APPLICATION
OF REVENUE |
|
|
|
|
Rupees |
|
|
|
|
in Million |
% |
|
|
|
|
| Materials,
Services |
|
|
|
| & Utilities |
|
298 |
47.91 |
|
| Depreciation |
|
35 |
5.63 |
|
| Taxes
& Duties |
|
158 |
25.40 |
|
| Salaries |
|
131 |
21.06 |
|
|
|
---------- |
---------- |
|
|
|
622 |
100.00 |
|
|
|
========== |
========== |
|
| TEN
YEARS AT A GLANCE |
|
|
|
1997 |
1996 |
1994 |
1993 |
1992 |
1991 |
1990 |
1989 |
1988 |
1987 |
|
18 Months |
|
|
| (Rupees
in Million) |
|
|
|
| Net
Total Sales |
|
490 |
791 |
462 |
348 |
417 |
296 |
238 |
192 |
180 |
154 |
| Exports |
|
|
50 |
44 |
31 |
20 |
8 |
17 |
23 |
16 |
16 |
3 |
| Employees
Costs |
|
126 |
183 |
103 |
85 |
81 |
65 |
53 |
46 |
37 |
32 |
|
|
|
| Profit/(Loss)
before tax |
(20) |
38 |
23 |
15 |
25 |
17 |
26 |
16 |
14 |
16 |
| Profit/(Loss)
after tax |
(22.5) |
54 |
21 |
23 |
15 |
14 |
23 |
9 |
6 |
3 |
| Earning
per share |
|
(2.25) |
8.97 |
3.45 |
5.83 |
3.78 |
3.54 |
5.74 |
2.17 |
1.46 |
0.76 |
| Capital
Expenditure |
|
29 |
102 |
28 |
15 |
61 |
84 |
84 |
15 |
13 |
13 |
| Cash
Dividend Rate |
|
- |
20.00% |
17.50% |
17.50% |
15.00% |
15.00% |
20.00% |
17.50% |
17.50% |
15.00% |
| Stock
Dividend Rate |
|
15% |
- |
- |
- |
- |
- |
- |
- |
- |
- |
| Shareholders'
Equity |
|
251 |
213 |
172 |
159 |
99 |
89 |
81 |
66 |
65 |
66 |
|
| CHAIRMAN'S
REVIEW |
|
|
| On
behalf of the Board of Directors it gives me great pleasure to welcome you to
the 42nd Annual |
|
| General
Meeting of the Company and to present before you the Annual Report and
financial statements |
|
| for
the year ended June 30, 1997. |
|
|
| Even
during this year the over all business environment in the country remained
sluggish and succumbed |
|
| to
persistent recession. Cutbacks in Government developmental budget followed by
frequent currency |
|
| devaluation
has resulted in slowing down the business activities in the country. This
state of affairs has |
|
| affected
all industrial sectors, especially those whose major portion of product cost
consist of imported |
|
| raw
materials. To off-set the effect of devaluation it was impossible to achieve
corresponding increase |
|
| in
selling prices of the products owing to competition with imported products
which were cheaper |
|
| because
of lower import duties. |
|
|
| After
24 years your Company this year has sustained a loss after tax amounting to
Rs. 22.500 million |
|
| which
primarily was due to the reasons .stated below: |
|
|
| *
With the continuing financial crisis of WAPDA the company did not have
sufficient orders in hand |
|
| for
operating the insulator Plant even at breakeven capacity. During the year the
insulator Plant |
|
| was
operated at 51% of its rated capacity which was much below the breakeven
level. EMCO |
|
| commenced
its business with the insulator Plant and over the years its fixed cost had
increased |
|
| substantially
which cannot be recovered unless the plant operates at 70% of its rated
capacity. |
|
|
|
|
| *
As compared to corresponding period there has been Rs. 15.189 million
decrease in the sale of |
|
| Wall
Tile. The main reason for this reduction was that this division was producing
only one size |
|
| i.e.
6"x6" ever-since it was commissioned in 1985 which is gradually
going out of fashion. Imported |
|
| Wall
Tiles of different sizes were available in the market which has resulted in
considerably |
|
| reduced
market share of 6"x6" size. |
|
|
| *
Increase in the local and imported raw materials, owing to Rupee devaluation
and rising trend of |
|
| inflation
with no corresponding increase in the selling prices. |
|
|
| *
Substantial increase in the prices of other inputs especially gas during the
year. |
|
|
| *
Approximately 2% increase in the mark up rate by the banks on working
capitals during the year |
|
| which
resulted in increasing the financial cost. |
|
|
| A
brief performance evaluation of each division of the Company is as follows: |
|
|
| INSULATOR
DIVISION |
|
|
| As
stated above the plant was operated at 51% of its rated capacity during the
year under review because |
|
| of
inadequate orders from WAPDA. During the year concerted efforts were made in
exploring the export |
|
| market
of insulators which has resulted in increasing the export sales from Rs.
28.400 million to Rs. |
|
| 49.200
million i.e. 73%. The management is determined to continue its efforts to
bring the export sales |
|
| at
level where dependence on WAPDA can be reduced substantially. During October,
1997, however, |
|
| your
Company has received orders from WAPDA against international Tenders
amounting to |
|
| Rs.
70 million and more orders for local supplies are in the pipeline which are
expected to be materialized |
|
| by
January, 1998. With continued efforts to increase export sales, execution of
orders already in hand |
|
| and
expected orders from WAPDA, it is expected that Insulator Division will come
out of its first-ever |
|
| crisis
and start playing the role of major profit earning division of the Company. |
|
|
| WALL
TILE DIVISION |
|
|
| There
has been decrease in the sales of Wall Tile Division as compared to
corresponding period which |
|
| as
mentioned above was mainly due to one size of product available for sale. As
you are aware your |
|
| Company
last year decided to expand the capacity of Wall Tile Division with a total
investment of Rs. |
|
| 255.027
million which is at its final stages of completion and will inshallah start
commercial production |
|
| by
the end of November, 1997. The capacity for this division is being enhanced
from present capacity |
|
| of
700,000 M2 to 1,500,000 M2 per annum. Now the plant shall be able to produce
larger sizes and |
|
| Superior
Quality Tile as per market demand. Expansion of Wall Tile Plant has been
carried out such |
|
| that
considerable automation has been incorporated and therefore, it will help in
achieving the economy |
|
| of
scale and would result in improving the profitability of the division and its
ability to compete with |
|
| the
local and imported Tiles. |
|
|
| FLOOR
TILE-DIVISION |
|
|
| Despite
continued recession and other negative factors this is the only division of
the Company which |
|
| has
shown an upward trend in the sales and profitability. This became possible by
the concerted efforts |
|
| of
the Production Team to bring manufacturing cost down, efforts put in by the
Marketing Department |
|
| in
creating awareness in the market of the advantages of using ceramic tiles on
floors. Keeping in view |
|
| the
rising demand of Floor Tile your Company last year decided to increase its
production capacity by |
|
| adding
one more glazing line and automatic sorting line with the total cost of Rs.
32 million which has |
|
| already
been completed and commissioned on November 10, 1997. The production capacity
of this plant |
|
| has
been increased from 500,000 M2 to 900,000 M2 per annum with no increased in
fixed overheads. |
|
| This
increase in capacity shall result in achieving higher levels of economy of
scale which will improve |
|
| the
profitability of the division and Company as a whole. |
|
|
| Owing
to WAPDA's financial crisis and huge investments made in Tile Division for
automation and |
|
| increase
in capacity, the management during the year reviewed all areas of operation
of the Company. |
|
| The
management offered an early retirement scheme to its employees after
negotiation with Labour Union |
|
| during
the month of September, 1997, which has been successfully implemented. The
total cost incurred |
|
| on
this scheme was Rs. 30 million which is estimated to be recovered within a
period of one year. Under |
|
| this
scheme the employees strength of the Company has been reduced from 1280 to
910 (i.e. 370 employees) |
|
| out
of which 2/3rd has been reduced in the Insulator Division only. This
reduction in staff shall result |
|
| in
improving the break-even production level of insulator Division. The Company
is in the process of |
|
| restructuring
the salaries and benefits of its remaining employees with an objective to
encourage them |
|
| so
that they can increase their efficiency and productivity. |
|
|
| The
management has taken many other cost saving measures wherever it was
possible. You will observe |
|
| decrease
in various expenses when the financial statement of 1997-98 will be sent to
you next year. |
|
|
| Since
the new business friendly Government has come into power number of incentives
have been given |
|
| to
the business community which include fixation of custom duties at 10% for all
plant and machinery |
|
| imported
for BMR or expansion, withdrawal of regulatory duty ~ 10%, termination of
services of |
|
| COTECNA,
reduction in Sales Tax rates from 18% to 12.5%, withdrawal of 1% Central
Excise Duty |
|
| on
all types of loans, reduction in the Income Tax rates, reduction of mark up
rates on export refinance |
|
| from
13% to 11%, reduction in the duties of certain imported raw materials used
for manufacturing of |
|
| ceramic
tiles and insulators. Banks are also reducing mark up rates on working
capitals. The financial |
|
| impact
of all these benefits shall be available during 1997-98 and will certainly
help in improving the |
|
| profitability
of the Company. |
|
|
| Keeping
in view the tradition of declaring dividend every year the Board of Directors
has decided to |
|
| pay
stock dividend ~ 15% in order to keep the track record of the Company
consistent and friendly |
|
| towards
shareholders. |
|
|
| EMPLOYEES
RELATIONS |
|
|
| The
management would like to place on record the positive attitude of the Labour
Union during the year |
|
| under
review and we will Inshallah look forward to resolving all issues mutually
and with the active |
|
| co-operation
of the Labour Union. |
|
|
| FUTURE
OUTLOOK |
|
|
| After
the successful expansion of Wall Tile and BMR of Floor Tile the management is
now considering |
|
| the
possibility of doubling the capacity of Floor Tile Division from 900,000 M2
to 1,800,000 M2 per |
|
| annum
in a year's time. All spade work in this regard has already been done and
modes of financing |
|
| for
this expansion are being looked into. The estimated cost of this expansion
shall be approximately |
|
| Rs.
300 million. |
|
|
| The
work on ISO 9001 is still in progress and it is expected that the
certification should be available |
|
| by
the middle of next year. |
|
|
| ACKNOWLEDGMENT |
|
|
| 1
take this opportunity to place on record the appreciation to the employees
and staff for their co-operation |
|
| and
contribution towards the progress of the Company. I would also like to thank
our customers, dealers, |
|
| bankers
and particularly WAPDA who have reposed confidence in the products supplied
to them and |
|
| would
like to re-affirm the Company's pledge to continue" To Provide Quality
Products and Services |
|
| to
the Satisfaction of Customers". I would also like to thank our bankers
namely American Express Bank, |
|
| Deutsche
Bank, Standard Chartered Bank, First International Investment Bank Limited
and Saudi Pak |
|
| Industrial
& Agricultural Investment Company Limited who participated in the
consortium for a medium |
|
| term
loan of Rs. 175 million for the expansion of the Wall Tile project. |
|
|
| Auditors'
Report to the Members |
|
|
| We
have audited the annexed Balance Sheet of EMCO Industries Limited as at June
30, 1997 and |
|
| the
related Profit and Loss Account and 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 ~e further in accordance with accounting policies
consistently |
|
| applied; |
|
|
|
|
| ii)
the expenditure incurred during the period 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 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 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 flow 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. |
|
|
|
| BALANCE
SHEET AS AT |
|
|
|
Note |
June 30, |
June 30, |
|
|
|
1997 |
1996 |
|
|
|
Rupees |
Rupees |
|
|
|
|
| SHARE
CAPITAL AND RESERVES |
|
|
|
|
|
| Authorized
capital |
|
|
|
| 25,000,000
ordinary shares of Rs. 10 each |
|
250,000,000 |
250,000,000 |
|
|
|
|
========== |
========== |
|
| Issued,
subscribed & paid up capital |
3 |
100,000,000 |
60,000,000 |
|
| Reserves
& unappropriated profit |
|
4 |
135,837,287 |
153,382,501 |
|
| Reserves
for issue of bonus shares |
|
4 |
15,000,000 |
- |
|
|
|
|
---------- |
---------- |
|
|
|
|
250,837,287 |
213,382,501 |
|
| SURPLUS
ON REVALUATION OF LAND |
|
5 |
18,830,530 |
18,830,530 |
|
| LONG
TERM AND DEFERRED LIABILITIES |
|
|
---------- |
---------- |
|
| Long
term loans |
|
6 |
190,506,848 |
28,951,196 |
|
| Liabilities
against assets subject to finance lease |
7 |
48,903,334 |
47,345,985 |
|
| Deferred
liabilities |
|
8 |
12,407,517 |
15,419,538 |
|
|
|
|
---------- |
---------- |
|
|
|
251,817,699 |
91,716,719 |
|
| CURRENT
LIABILITIES |
|
|
|
|
|
|
|
| Short
term finances-secured |
|
9 |
256,297,775 |
252,584,672 |
|
| Short
term finances from Associated |
|
|
| Companies-unsecured |
|
|
5,600,000 |
27,965,218 |
|
| Current
maturity of long term loans |
6 |
9,212,899 |
10,007,507 |
|
| Current
maturity of liabilities against |
|
|
| assets
subject to finance lease |
|
7 |
13,971,715 |
13,791,109 |
|
| Current
Maturity of deferred import levies |
|
2,392,469 |
2,392,469 |
|
| Creditors,
accrued and other liabilities |
10 |
97,053,076 |
93,856,710 |
|
| Dividend
payable |
|
- |
12,000,000 |
|
|
|
---------- |
---------- |
|
|
|
384,527,934 |
412,597,685 |
|
| CONTINGENCIES
& COMMITMENTS |
|
11 |
- |
- |
|
|
|
|
|
|
---------- |
---------- |
|
|
|
906,013,450 |
736,527,435 |
|
|
|
========== |
========== |
|
|
| Auditors'
report to the members of even date annexed hereto. |
|
|
| JUNE 30, 1997 |
|
|
Note |
June 30, |
June 30, |
|
|
|
1997 |
1996 |
|
|
|
Rupees |
Rupees |
|
|
|
|
| TANGIBLE
FIXED ASSETS |
|
|
|
|
|
|
| Operating
assets |
|
12 |
238,481,929 |
242,756,108 |
|
| Assets
subject to finance lease |
|
13 |
66,772,071 |
71,021,131 |
|
| Capital
work-in-progress |
|
14 |
163,919,232 |
751,976 |
|
|
|
|
---------- |
---------- |
|
|
|
|
469,173,232 |
314,529,215 |
|
|
|
|
|
|
| LONG
TERM LOANS AND DEPOSITS |
|
15 |
2,661,631 |
1,759,170 |
|
|
|
|
| CURRENT
ASSETS |
|
|
|
|
|
|
| Stores, spares and loose |
tools |
|
16 |
52,327,013 |
45,939,123 |
|
| Stock-in-trade |
|
17 |
200,199,899 |
146,719,481 |
|
| Trade debts |
|
|
18 |
116,186,376 |
142,928,225 |
|
| Advances,
deposits, prepayments |
|
|
| and
other receivables |
|
19 |
60,035,361 |
71,782,807 |
|
| Cash
and bank balances |
|
20 |
5,429,938 |
12,869,414 |
|
|
|
|
---------- |
---------- |
|
|
|
|
434,178,587 |
420,239,050 |
|
|
|
|
---------- |
---------- |
|
|
|
|
906,013,450 |
736,527,435 |
|
|
|
|
========== |
========== |
|
|
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
| PROFIT
AND LOSS ACCOUNT |
