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FAUJI CEMENT COMPANY LIMITED

ANNUAL REPORT 1997

CONTENTS

Company Information

Notice of the Fifth Annual General Meeting

Report of the Directors

Auditors' Report

Balance Sheet

Cash Flow Statement

Notes to the Accounts

The Pattern of Shareholdings as on 30 June 1997

COMPANY INFORMATION AT A GLANCE

Board of Directors

Lt General Khalid Latif Moghal, HI (M), S Bt

Chairman&

Chief Executive

Lt General Nazar Hussain, HI (M), T Bt

Additional Managing

Director

Mr. Iltifat Rasul Khan

Director

Brig Muneeb Ur Rehman Farooqui, SI (M) (Retd)

Director

Brig Riaz Ahmed Qureshi, SI(M) (Retd)

Director

Brig Ashfaq Ahmad, SI(M) (Retd)

Director

Brig Muhammad Saeed Baig, SI(M) (Retd)

Director

Company Secretary:

Brig Bashir Hussain Tareen (Retd)

Registered Office:

70-Harley Street, Rawalpindi Cantt.

Plant Site:

Near Village Jhang, Tehsil Fateh Jhang,

District Attock

Auditors:

A.F. Ferguson & Co.

Chartered Accountants

Legal Advisors:

Orr, Dignam & Co. Advocates.

NOTICE OF FIFTH ANNUAL GENERAL MEETING

Notice is hereby given that the Fifth Annual General Meeting of the Company will

be held at 10 A.M. on Wednesday, 24 December 1997, at Hotel Pearl Continental,

The Mall, Rawalpindi to transact the following business:-

a. To consider, approve and adopt the Audited Accounts of the Company

for the period commencing from 01 July 1996 ending on 30th June

1997.

b. To consider and approve the Directors' Report for the period ending

on 30th June 1997.

c. To appoint Auditors of the Company in place of present auditors M/S

A. F. Ferguson & Company who retire and offer themselves for re-

appointment and to fix their remuneration.

d. To transact any other business with the permission of the Chair.

Place: Rawalpindi

Brig Bashir Hussain Tareen (Retd)

Date: 26th November 1997

Company Secretary

NOTE:

The Member entitled to attend and vote at the Annual General Meeting may

appoint a person/representative as proxy to attend and vote in place of the

Member at the Meeting. Proxies in order to be effective must be received at

the Company's Registered Office not later than 10 A.M. on December 22,

1997. Proxy form is attached.

REPORT OF THE DIRECTORS

1. General

The Directors take pleasure in presenting their Fifth Annual Report together

with the Company's Audited Accounts for the year ended 30 June 1997, and

the Audit6rs' Report thereon. During the year under review, the Company

achieved a remarkable progress in that the Company has been able to over-

come many obstacles. As per the revised schedule, we were able to commis-

sion the Plant which is a great achievement because of the problems we faced

in the beginning.

2. Trial Runs and Commissioning of the Plant

Trial runs started in June 1997 which, unlike other plants, were very success-

ful leading to smooth commissioning of the Project. The honorable members

must have read in the press that our Plant was inaugurated on 11 November

1997 by Chaudhary Nisar Ali Khan, the Federal Minister for Petroleum and

Natural Resources. The Plant is being managed by Messrs F L Smidth & Co,

a highly reputable firm who have helped us produce a very high quality of

cement meeting the international standards.

3. Project Completion

The Directors take pride in informing our shareholders that the Project is now

complete and has begun commercial production.

4. Marketing

Although the cement market is faced with an over supply situation, we have

been fortunate to enter the market with good reputation of Fauji Foundation.

We are successfully competing with other cement producers in the Country.

Our Marketing Division has done very well. They formulated a very sound

marketing strategy which has proved to be very useful. Hopefully when the

development activity in the Country picks-up, our marketing situation will fur-

ther improve.

5. The Pattern of Share-holdings as on 30-06-1997.

Annex 'A'.

6. Personnel

Relationship between Management and the workers remained cordial.

7. Directors

a. The following changes occurred in the composition of the Board since

the last Annual General Meeting held in December 1996:-

(1) On resignation of Lt General M. Arif Bangash, Lt General

Khalid Latif Moghal, HI(M), S Bt, was appointed as the new

Chairman of the Board of Directors and Managing Director and

Chief Executive of the Company.

(2) On resignation of Brigadier Muhammad Ahsan Bhatti (Retd),

Brigadier Ashfaq Ahmad (Retd) was appointed as Director of

the Company.

(3) On resignation of Brigadier Mushtaq Ali Khan (Retd), Brig

Muhammad Saeed Baig (Retd) was appointed as Director of

the Company.

b. The Board places on record its appreciation for the valuable advice and

services rendered by the retiring Directors and welcomes the new

Directors on the Board.

8. Auditors

M/s A. F. Ferguson & Company, Chartered Accountants, retire at the conclu-

sion of the Fifth Annual General Meeting and, being eligible, have offered

themselves for re-appointment.

9. Dividend

Since the Company has commenced production .only recently, it has not made

any profit during the year ended 30 June 1997. We are therefore not in a posi-

tion to pay any dividends, nor carry any amount to Reserve Fund, General

Reserve Fund or Reserve Account.

10. Financial Position

Further there are no material changes affecting business or the financial posi-

tion of the Company, which have occurred between the end of the Financial

Period of the Company to which the Balance Sheet relates and the date of the

Report.

11. Acknowledgments

The Directors also express their appreciation for the continued support and

contributions by the employees, suppliers, shareholders, the Government and

various other agencies throughout the year.

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of Fauji Cement Company Limited as at June 30,

1997 and cash flow statement for the year ended June 30, 1997 together with the notes form-

ing part thereof, 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 together with the notes thereon has been drawn up in

conformity with the Companies Ordinance, 1984, and is in agreement with

the books of account and is further in accordance with the Company's

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;

tions given to us, the balance sheet 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 give a true and fair view of the

state of the Company's affairs as at June 30, 1997 and of 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.

Islamabad

A.F. Ferguson & Co.

November 25, 1997

Chartered Accountants

BALANCE SHEET AS AT JUNE 30, 1997

1997

1996

Note

Rupees

SHAREHOLDERS EQUITY

Share capital

Authorised capital

250,000,000 ordinary shares of Rs. 10 each

2,500,000,000

===========

Issued, subscribed and paid-up capital

171,310,499 (1996:150,857,499) ordinary

shares of Rs 10 each

1,713,104,990

1,508,574,990

LONG TERM LOANS

3,554,224,462

3,315,351,898

CURRENT LIABILITIES

Current portion of long term loans

338,861,104

137,560,500

Creditors, accrued and other liabilities

337,056,397

263,651,497

-----------

675,917,501

401,211,997

CONTINGENCIES AND COMMITMENTS

-----------

5,943,246,953

5,225,138,885

===========

The annexed notes form an integral part of these accounts.

FIXED CAPITAL EXPENDITURE

Fixed assets

162,735,975

144,856,659

Capital work in progress

5,167,323,730

3,788,045,733

Stores held for capital expenditure

2,145,331

-----------

5,332,205,036

3,932,902,392

LONG TERM SECURITY DEPOSITS

48,772,234

21,609,310

AND RECEIVABLE

DEFERRED COST

18,412,138

8,941,421

CURRENT ASSETS

Stores and stocks

14,325,755

Advances, prepayments and other receivables

94,241,931

180,195,911

Cash and bank balances

435,289,859

1,081,489,851

-----------

543,857,545

1,261,685,762

-----------

5,943,246,953

5,225,138,885

===========

CASH FLOW STATEMENT

FOR THE YEAR ENDED JUNE 30, 1997

1997

1996

Rupees

INVESTING ACTIVITIES

Fixed capital expenditure

(594,115,555)

(1,215,044,358)

Long term security deposits

(54,300)

(21,609,310)

Deferred cost

(9,470,717)

(6,425,971)

Income received on bank deposits

76,986,093

39,500,520

-----------

Net cash inflow/(outflow) from investing activities

(526,654,479)

(1,203,579,119)

FINANCING ACTIVITIES

Proceeds from issue of shares

204,530,000

501,281,873

Long term loans received

184,841,405

1,901,988,210

Repayment of short term loan/finance

(208,284,400)

Financial charges paid

(508,916,918)

(395,400,354)

-----------

Net cash inflow/(outflow) from financing activities

(119,545,513)

1,799,585,329

-----------

NET INCREASE/(DECREASE)

IN CASH AND CASH EQUIVALENTS

(646,199,992)

596,006,210

CASH AND CASH EQUIVALENTS

AT THE BEGINNING OF THE YEAR

1,081,489,851

485,483,641

-----------

CASH AND CASH EQUIVALENTS

AT THE END OF THE YEAR

435,289,859

1,081,489,851

===========

NOTES TO THE ACCOUNTS

FOR THE YEAR ENDED JUNE 30, 1997

1. LEGAL STATUS AND OPERATIONS

The Company was incorporated in Pakistan on November 23,1992 as a public

limited company for the establishment and operation of a cement plant at Fateh

Jang, District Attock, Punjab. Its shares are quoted on the stock exchanges in

Pakistan.

2. SIGNIFICANT ACCOUNTING POLICIES

2.1 Accounting convention

The accounts have been prepared under the historical cost convention.

2.2 Fixed capital expenditure

Fixed assets except freehold land are stated at cost less accumulated depreciation.

Freehold land and capital work in progress are stated at cost. i

Depreciation is provided on straight line method to write off the cost of an asset

over its estimated useful life. Full year's depreciation is provided on additions dur-

ing the first six months of the year whereas hall' year's depreciation is provided on

additions during the last six months of the year. No depreciation is provided on

assets deleted during the year.

2.3 Deferred cost

Costs related to Company's incorporation and issue of shares have been deferred

to be amortised after commencement of commercial production.

2.4 Foreign currency transactions

Transactions in foreign currencies are converted into rupees at the rates of .

exchange ruling on the date of the transaction. All assets and liabilities in foreign

currencies are translated at exchange rates prevailing at the balance sheet date,

except for foreign currency loans in respect of which exchange risk coverage has

been obtained; such loans are translated at the rate of exchange ruling on the date

of disbursement or conversion of foreign currency into rupees, as applicable. All

exchange differences are included in unallocated preproduction expenditure.

2.5 Stores and stocks

These are stated at cost

3. LONG TERM LOANS- SECURED

Balance outstanding

Repayment terms

--------------------------

1997

1996

Interest/net

Exchange risk

Half yearly

Commencing

mark up rate

coverage fee

equal

from

Rupees

per annum

installments

(Note 3.3)

1. Commonwealth Development

Corporation - (CDC)

(Pound Sterling 13,250,000; 1996: 9,937,000)

684,613,227

499,771,822

5.9

December 23,

1997

2. Nederlandse Financierings -

Maatschappijvoor Ontwikkelingslanden

N.V. (FMO) (Netherland Guilders 15,000,000)

288,116,250

11.30

April 15,

1998

3. International Finance Corporation (Loan A)

(US Dollars 24,000,000)

941,556,480

787,820,400

8.9375

8.26

April 15,

1998

4. International Finance Corporation (Loan B)

(US Dollars 10,000,000)

392,315,200

329,213,500

LIBOR + 2.50

8.26

April 15,

1998

5. International Finance Corporation (Loan C)

(US Dollars 10,000,000)

329,566,000

L1BOR + 3.00

9.38

April 15,

1998

6. Deutsche Investitions - und

Entwicklungsgesellschaft mbH (DEG)

(DM 15,000,000)

360,633,000

11.75

8.24

November 30,

1998

7. AI Faysal Investment Bank Limited

130,000,000

June 21,1998

8. ANZ Grindlays Bank plc

150,000,000

Note 3.1

November 30,

1997

9. The Bank of Punjab

316,285,409

277,791,426

September 19,

1997

10. Askari Commercial Bank Limited

100,000,000

June 30, 1998

11. Faysal Bank Limited

70,000,000

October 27,

1998

12. Saudi Pak Industrial and Agricultural

Investment Company (Private) Limited

50,000,000

September 30,

1998

13. Pakistan Kuwait Investment Company

80,000,000

Note 3.2

July 01, 1998

(Private) Limited

-----------

3,893,085,566

3,452,912,398

Less: Current portion of long term loans

(338,861,104)

(137,560,500)

-----------

3,554,224,462

3,315,351,898

==========

3.1 The mark up on ANZ Grindlays Bank loan is payable at State Bank of Pakistan Treasury Bills rate plus 4% per annum (minimum 17.5% per annum), subject to a

prompt payment bonus of Rs. 13,089,041 on repayment of the loan on due dates.

3.2 The loan from Pakistan Kuwait Investment Company (Private) Limited is under sale and repurchase arrangement carrying a repurchase price of Rs. 218,654,248

subject to a prompt payment bonus of Rs. 50,419,726 on repayment of the loan on due dates.

3.3 Exchange risk coverage has been obtained in respect of foreign currency loans 1 to 6 above. The loans are repayable in equivalent Pakistan rupees converted at

the exchange rate ruling on the date of disbursement or conversion of foreign currency into rupees, as applicable.

The above loans are secured by first ranking equitable mortgage and floating charge on all present and future assets of the Company.

4. CREDITORS, ACCRUED AND OTHER LIABILITIES

1997

1996

Rupees

Retention money

26,217,059

25,936,719

Accrued fees and charges on long term loans

746,904

513,431

Accrued interest/mark up on loans

71,040,505

56,141,408

Accrued exchange risk coverage fee on

foreign currency loans

193,566,627

127,915,142

Amount due to an associated undertaking

3,452,500

17,108,070

42,032,802

36,036,727

----------

337,056,397

263,651,497

==========

5. CONTINGENCIES AND COMMITMENTS

5.1 Contingencies

The customs authorities allowed release of plant and machinery imported by the

Company at concessionary rates of duty in terms of SRO 484(1)/92 dated May 14,

1992 against an undertaking provided by the Company. Subsequent to the release

of plant and machinery the customs authorities have raised a custom duty and

sales tax demand of Rs 347 million in respect of items which are considered by

the Central Board of Revenue as not qualifying for the concessionary rate of duty.

Claims on similar basis have also been raised on two other cement manufacturing

companies. The Company has filed a writ petition against the demand which is

currently pending. The Company's legal advisors are of the opinion that the

Company's petition will succeed.

5.2 Commitments outstanding

Capital expenditure commitments outstanding at June 30, 1997 amounted to

Rs 187 million (1996: Rs 519 million).

6. FIXED ASSETS

C O S T

------------------------------------------

Additions

July 1, 1996

during the

June 30, 1997

year

Freehold land

137,539,315

3,923,248

141,462,563

Office equipment

789,605

572,256

1,361,861

Electrical equipment

603,911

6,784,704

7,388,615

Furniture and fixtures

639,683

2,799,084

3,438,767

Motor vehicles

7,948,450

8,353,583

16,302,033

----------

Total Rupees

147,520,964

22,432,875

169,953,839

==========

1996 Rupees

140,448,686

7,072,278

147,520,964