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Lucky Cement Limited

(Annual Report 1997)

Concrete Progress

CONTENTS

COMPANY INFORMATION

BOARD OF DIRECTORS

Abdul Razzak Tabba (Chairman/Chief Executive)

Muhammad Yunus Tabba

Razi-ur-Rahman Khan (Nominee - NIT)

Haji Abdul Razzak

Martyn S. Wells

Muhammad Sohail Tabba

Muhammad Ali Tabba

Imran Yunus Tabba

EXECUTIVE DIRECTOR

Abdur Razzaq Thaplawala

COMPANY SECRETARY & SR. MANAGER FINANCE

Muhammad Abid Ganatra

ACA, ACMA, ACIS

AUDITORS

M. Yousuf Adil Saleem & Co.,

Chartered Accountants

BANKERS

Citibank N.A.

Metropolitan Bank Limited

Muslim Commercial Bank Limited

Soneri Bank Limited

REGISTERED OFFICE/FACTORY

Pezu, District Lakki Marwat

N.W.F.P.

HEAD OFFICE

6-A Muhammad Ali Housing Society,

A. Aziz Hashim Tabba Street,

Karachi -75350. (021) 111-786-555

SALES OFFICES

211 Latif Plaza, 2nd Floor,

Aptma House,

Ferozpur Road, Ichhra, Lahore.

Jamrud Road, Peshawar.

UAN (042) I 11-786-555

UAN (091) 111-786-555

106, Metro Plaza,

Saddar Bazar, Bannu Road,

Qasim Road, Multan.

Near Main Flying Coach Adda,

UAN (061 ) 111-786-555

D.I. Khan.

UAN (096 I) 111-786-555

3rd Floor, Kulsum Plaza,

42 Blue Area, Islamabad.

UAN (051 ) 111-786-555

SHARES DEPARTMENT

404, 4th Floor, Trade Tower

Abdullah Haroon Road, Karachi.

Tel. No. 5685930-5687839

NOTICE OF 4TH ANNUAL GENERAL MEETING

Notice is hereby given that the 4th Annual General Meeting of the members of Lucky Cement

Limited will be held on Monday, the 2nd February, 1998 at 12:30 p.m. at the registered office

of the Company at factory premises Pezu, District Lakki Marwat, N.W.F.P. to transact the

following business:

1. To confirm the minutes of last Extraordinary General Meeting held on 21 st August, 1997.

2. To receive, consider and adopt the audited accounts for the year ended June 30, 1997

together with the Directors' and Auditors' report thereon.

3. To appoint Auditors and fix their remuneration for the year 1997-98. The present Auditors,

Messrs M. Yousuf Adil Saleem & Co., Chartered Accountants, retire and being eligible,

offer themselves for reappointment.

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

Notes:

1. The Share Transfer Books of the Company will be closed from 20th January, 1998 to 27th

January, 1998 (both days inclusive) for the purpose of 4th Annual General Meeting.

2. A member entitled to attend and vote may appoint another member as his/her proxy to

attend and vote instead of him/her. Proxies must be received at the Registered Office of

the Company not less than 48 hours before the time of holding the meeting.

3. The members are requested to notify change in their address, if any, to the Company's

shares department at 404, 4th Floor, Trade Tower, Abdullah Haroon Road, Karachi.

DIRECTORS' REPORT

Your directors are pleased to present their Fourth Annual Report together with the annual accounts

and auditor's report thereon for the financial year ended on 30th June, 1997

PRODUCTION

You will be pleased to know that your company's line 'B' started production on commercial scale

from January, 1997 and has remained in continues operation thereafter. The line had teething problems

usual to a project of this size, therefore it could not achieve the full rated capacity. During the six

months ending on 30th June, 1997, the line was able to achieve the following production.

Clinker

208,680

Tons

Cement

197,959

Tons

Earlier during the trial production of line 'A' in July and August, 1996 and that of line 'B' in November

and December, the company had produced 41,719 tons of clinker and 36,719 tons of cement.

The remedial measures on the civil foundation of kiln and cooler of line 'A' were completed in July,

1997 followed by mechanical adjustment and alignment of equipments in August, 1997. The production

of clinker started in the following month. Although the line is yet to achieve the rated capacity

because of usual teething problems, it is a matter of satisfaction that both the lines of production are

now in operation.

MARKET SITUATION

The cement industry in Pakistan is passing through the worst period of its history. Due to various

economic and political factors the demand has failed to grow at the traditional growth rate of 8% per

annum. It had remained stagnant at the level of previous year. On the other hand the supplies have

increased substantially because of new projects and expansions which have come into production

recently. This demand and supply position had its impact on selling prices of cement throughout the

country in general and in the northern region in particular.

In addition to the reduction in selling prices, the profitability of the industry has been adversely

affected by increased cost of inputs like furnace oil paper bags etc., and high incidence of direct

taxes.

PROFITABILITY

Inspite of lower selling prices, higher input costs and lower production, your company was able to

close its first six months of commercial production with an operating profit of Rs. 45.691 million.

After providing for financial charges of Rs. 71.290 million, the figure has turned into a net loss of Rs.

24.580 million only.

Your company is striving hard to make its operations viable and profitable. The cement produced by

the company is of very high quality and the users have shown their preference for it in all parts of

the country. Recently the company has successfully launched its cement in the southern region of

the country and has maintained a steady flow of supplies to Karachi, Sindh and Baluchistan. Although,

at present these supplies are on a small scale, we hope that the quantity of our supplies to the

southern region will increase with the passage of time.

SALES TAX EXEMPTION

In Federal Budget for 1997-98, the Federal Government withdrew the exemption of sales tax available

to new cement plants in NWFP under SRO 580(I)/91 dated 27th June, 1996 and SRO 561(I)/94

dated 9th June, 1994 by applying the exemption to all the cement plants, old and new, in the country

and increasing the excise duty from 35% to 40% advelorum. Earlier in March 1997, the government

had reduced sales tax from 18% to 12.5%. The reduction of sales tax from 18% to 12.5% in March,

1997 and complete withdrawal of sales tax and subsequent increase in excise duty on cement has

resulted in a reduction of Rs. 349.00 in per ton of tax liability of well establish plants in developed

areas with all the advantage of infrastructure and transportation cost. On the other hand, the tax

liability of the new plants who have to incure higher distribution costs because of distance from

market and higher operational costs due to remote location, increased by Rs. 170.00 per ton. Thus

the new units set-up in remote areas of NWFP have been placed in a disadvantageous position by

Rs. 519.00 per ton.

The present Government has taken a number of steps to revitalize the economy and to attract local

and foreign investment in the country. To attract fresh local and foreign investment, it is essential

that the prospective investors have confidence in the stability and continuity of government's policy.

Your company had established the plant in one of the remotest area of the country and attracted

foreign equity investment of over USS 33 million in the project on the basis of the fact that the

project enjoyed sales tax exemption. The withdrawal of this exemption is sending negative message

to prospective investors both local and foreign. Besides it is contrary to the provisions of section 6 of

the Economic Reforms Act, 1992 which reads:-

"The fiscal incentives for investment provided by the government

through statutory orders listed in the schedule OR OTHERWISE

NOTIFIED shall continue in force for the terms specified therein

and SHALL NOT BE ALTERED TO THE DISADVANTAGE

OF THE INVESTORS"

Your directors hope that in the larger interest of the country's economy, this ill advised withdrawal of

benefit to the units in NWFP will be restored.

EXPORTS

In order to meet the oversupply situation of the cement in the country, the government has permitted

the export of cement and has notified a draw back of 12.5 % subject to a maximum of Rs. 250.00 for

clinker' and Rs. 300.00 for cement for export by sea. In the context of present situation in international

market the amount of rebate is inadequate. Moreover the rebate is available for export by sea only

and therefore it will benefit only the units in southern area of the county. It is suggested that the

rebate be made available for export by land as well.

AUDITORS

The auditors, M. Yusuf Adil & Co., Chartered Accounts retire and being eligible offer themselves

for reappointment.

PATTERN OF SHAREHOLDING

The pattern of Share Holding as on 30th June, 1997 is annexed to this report.

SUBSIDIARY

The audited accounts of the Lucky Powertech Limited, the company's wholly owned subsidiary, for

the year ended 30th June, 1997 are annexed to this report.

ACKNOWLEDGMENT

Your directors appreciate the untiring efforts made by the team of the company's managers, technicians

and workers as well as support extended by our stockiest and dealers. We hope that they will

continue to work with the same zeal in future.

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of Lucky Cement Limited as at June 30, 1997 and

related profit and loss account and the statement of changes in financial position (cash flow statement)

together with the notes forming part thereof, for the period 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 the expenditure incensed 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 and profit and loss account and the statement of changes in financial position

(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 the

changes in financial position for the year then ended; and

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

BALANCE SHEET AS AT JUNE 30, 1997

Note

1997

1996

Amount in "000"

SHARE CAPITAL AND RESERVE

Authorised capital

300,000,000 ordinary shares

of Rs. 10/= each

3,000,000

==========

Issued, subscribed and paid-up capital

245,000,000 ordinary share of Rs. 10 each

fully paid in cash

2,450,000

Capital reserve

Share premium

990,000

Loss for the period

(26,580)

-----------

3,413,420

3,440,000

LONG TERM LOANS

603,000

521,323

LIABILITIES AGAINST ASSETS SUBJECT

TO FINANCE LEASE

101,139

DEFERRED LIABILITIES

68,707

88.35

LONG TERM DEPOSITS

24,817

31,525

CURRENT LIABILITIES

Short term finance

135,127

Current portion of long term liab.

12,946

Creditors, accrued and other liab.

260,825

75,328

Provision for taxation

2,000

-----------

410,898

75,328

CONTINGENCIES AND COMMITMENTS

-----------

4,621,981

4,156,521

============

The Annexed notes from 1 to 29 form an integral part of these accounts.

Note

1997

1996

Amount in "000"

FIXED ASSETS - TANGIBLE

Operating assets

13,674,541

3,600,464

Capital work-in-progress

317,766

117,454

-----------

3,992,307

3,717,918

LONG TERM INVESTMENT

200,000

172,500

LONG TERM DEPOSITS AND

DEFERRED COSTS

63,427

54,352

CURRENT ASSETS

Stores and spares

131,815

43,696

Stock in trade

34,278

5,303

Trade debtors

1,902

Advances, deposits, prepayments and

other receivable

155,127

102,249

Cash and bank balances

44,990

58,601

-----------

366,247

211,751

----------

4,621,981

4,156,521

==========

PROFIT AND LOSS ACCOUNT

FOR THE PERIODFROM JANUARY 01, 1997 TO JUNE 30, 1997

Note

1997

Amount in "000"

Sales

393,002

Cost of sales

311,366

----------

Gross profit

81,636

Operating expenses

Administrative

31,338

Selling and distribution

4,607

----------

(35,945)

Operating profit

45,691

Other income

1,019

----------

46,710

Financial charges

(71,290)

----------

Loss before taxation

(24,580)

Provision for taxation

(2,000)

----------

Loss after taxation carried to balance sheet

(26,580)

==========

The annexed notes from 1 to 29 form an integral part of these accounts

STATEMENT OF CHANGES IN FINANCIAL POSITION (CASH

FLOW STATEMENT) FOR THE YEAR ENDED JUNE 30, 1997

1997

1996

Amount in "000"

A. CASH FROM OPERATING ACTIVITIES

Loss before taxation

(24,580)

Adjustment for:

Depreciation

43,710

Amortization of deferred cost

5,806

(Gain) / Loss on disposal of fixed assets

(315)

Gratuity

2,220

Financial charges

71,290

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

Profit before working capital changes

98,131

Working capital changes

(Increase) / Decrease in current assets

Sores and spares

(88,119)

(43,696)

Stock in trade

(28,975)

(5,303)

Trade debtors

1,865

(1,902)

Advances, deposit, prepaymerits

and other receivable

(52,878)

(37,956)

(Increase) / Decrease in current liabilities

Creditors, accrued and other liabilities

119,540

277,684)

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

Cash generated from operation

49,564

366,519)

Financial charges paid

(55,099)

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

Net cash used in operating activities

(5,535)

(366,519)

===========

B. CASH FROM INVESTING ACTIVITIES

Fixed capital expenditure

(373,078)

(1,059,972)

Sales proceed of fixed assets

105,060

480

Long term investment

(27,500)

(72,500)

Long term deposits

(11,174)

Deferred costs

(3,707)

(10,799)

----------

Net cash used in investing activities

(310,399)

(1,142,791)

==========

1997

1996

Amount in "000"

C. CASH FROM FINANCING ACTIVITIES

Long term loan obtained

95,000

521,323

Long term loan paid

(823)

Finance lease obtained

101,742

Lease finance paid

(157)

Deferred liabilities

(21,858)

Long term deposits

(6,708)

31,525

Short term finance

135,127

----------

Net cash from investing activities

302,323

552,848

==========

Net decrease in cash and cash equivalents (A+B+C)

(13,611)

(956,462)

Cash and cash equivalents at the beginning of the year

58,601

1,015,063

----------

Cash and cash equivalents at the end of the year

44,990

58,601

==========

NOTES TO THE ACCOUNTS FOR THE YEAR ENDED,

JUNE 30, 1997

1. THE COMPANY AND ITS OPERATION

The Lucky Cement Limited was incorporated in Pakistan on September 18, 1993 under the

Companies Ordinance, 1984. The shares of the Company are quoted on the Stock Exchanges

of Pakistan. The principal activity of the Company is manufacture and sale of Cement. The

project is located at District Lakki Marwat in North West Frontier Province. The Company

commenced commercial operation from January 01, 1997.

2. SIGNIFICANT ACCOUNTING POLICIES

2.1 Accounting convention

These accounts have been prepared under the 'historical cost convention'.

2.2 Staff retirement benefits

The Company operates an unfunded gratuity scheme for all its employees. Annual provisions

are made in the accounts to cover this liability.

2.3 Taxation

Current

Provision for current taxation is based on current rates of tax after taking into account tax

rebates and credits available, if any.

Deferred

The Company accounts for deferred tax on all material timing differences using the liability

method. However, deferred tax is not provided if it can be established with reasonable

certainty that these timing differences will not reverse in the foreseeable future.

2.4 Fixed assets and depreciation

Operating assets

These are stated at cost less accumulated depreciation except capital-work-in-progress

which are stated at cost.

Depreciation is charged to income applying the straight line method at the rates mentioned

in the relevant note except on plant and machinery on which depreciation is charged on

units of production method based on higher of estimated life and production. Full year's

depreciation is charged on additions while no depreciation is charged on assets deleted.

However, capitalization of project cost is depreciated proportionally for the period of use.

Maintenance and normal repairs are charged to income as and when incurred. Major

renewals and improvements are capitalized.

Gains and losses on disposal of assets are allocated to preproduction expenses till commercial

production commences and thereafter to profit and loss account.

Assets subject to finance lease

Assets subject to finance lease are stated at the lower of present value of minimum lease

payments under the lease agreements and fair value of the assets. The related obligations

of the lease are accounted for as liabilities. Assets acquired under the finance leases are

depreciated at rate specified in relevant note.

2.5 Capital work in progress

All cost/expenditure directly related to specific assets incurred during project implementation

period are carried under this head. These are transferred to specific assets as and when

assets are available for use.

2.6 Deferred Costs

Deferred cost is to be amortized over a maximum period of five years beginning from the

year of deferment.

2.7 Investments

Investments are stated at cost. Provision is made for permanent diminutes in value.

2.8 Stores and spares

These are valued at moving average cost. Items in transit are stated at cost accumulated

upto the balance sheet date.

2.9 Stock in trade

These are valued at lower of cost or net realizable value. Cost signifies in relation to raw

and packing material at average cost, in case of work in process and finished goods at

average cost comprising prime cost and appropriate manufacturing overheads.