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Crescent Jute Products Limited

Annual Report 1998

CONTENTS

COMPANY INFORMATION

BOARD OF DIRECTORS

Mr. Zahid Hussain

(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

Saif Ullah Khan

(Nominee PICIC)

Shaukat Shafi

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

E-mail: rashid.sadiq@cressoft.com. pk

WORKS:

Jute Unit, Jaranwala

Cotton Spinning Unit, Jaranwala

DIRECTORS' REPORT TO THE SHARE HOLDERS

Your Directors have the pleasure in presenting their 34th Annual Report together with the

Audited Accounts of the Company for the year ended June 30, 1998.

Your company's operations for the year resulted in a loss of Rs. 98,880,079.

REASONS FOR INCURRING OPERATIONAL LOSS

Higher cotton prices, 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 resulting in excessive borrowing and financial charges thereon are the major

reasons for incurring loss for the year.

DEFAULT IN DEBTS, IF ANY

Overdues of Habib Bank A.G. Zurich, Karachi Rs. 5.794 Million are reported in Credit Information

Bureau Report as on June 30, 1998. Account with the bank has been re-scheduled and Certificate

obtained from the Bank.

THE MILLENNIUM BUG:

The Company has addressed the year 2000 compliance issue in relation to the computer

hardware and software. Necessary steps have been taken to ensure that hardware and

software in use are year 2000 compliant by June 30, 1999,

AUDITORS

The present Auditors Messrs A.F. Ferguson & Company, Chartered Accountants retire and being

eligible offer themselves for re-appointment.

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 thanks the Share holders, Bankers and customers who are co-operating with us

in the days of Crisis.

For and on behalf of the Board

Lahore.

(Mazhar Karim)

January 07, 1999

Chief Executive

CHIEF EXECUTIVE'S REVIEW

After the atomic explosion of May 28, 1998 the fragile economic situation of the country has

further deteriorated due to imposition of sanctions. Long and anxiously awaited upturn in the

economy specially that in Textile Sector appears far-flung. Compulsory restriction of 30% cash

margin against import of letter of credit has caused severe liquidity crunch, particularly in case

of jute industry that uses 100% imported raw material. The government taking positive steps for

the survival of industry should waive the condition of cash margin against import letter of credit.

JUTE UNIT

Year 1997-98 has been favorable for the Jute Unit. Production increased by 21%. Sales increased

in terms of quantity by 34% and in terms of value by 42%. Operating Expenses reduced from

12.68% in 1997 to 1©.59% in 1998. Unit earned profit before financial charges Rs 120.539 million

in 1998 compared to the figure of 16.6 million in 1997.

COTTON UNIT

Production in Cotton Unit is converted into 20's increased by 9.2% from 3664 tons in 1997 to 4003

tons in 1998. Sales in terms of value increased by 18,7% On the other hand cost of sales increased

by 26.3%. This resulted in gross loss of Rs. 15.8 million compared to profit of Rs. 6.5 million in 1997.

CONSOLIDATED

Profit before financial charges earned by the Jute Unit is off-set by losses of other units leaving

a balance of 87 million to meet financial and other charges of Rs. 178 million. Resultant is loss

before taxation of Rs. 91 million compared to the figure of Rs. 183 million in 1997.

THE WAY FORWARD

As reported last year, a number of measures have been taken to ensure that the company is

able to get out of the difficult conditions. The Board of Directors has approved a reconstruction

plan. Implementation of the plan is underway. Progress is, however, hampered by the economic

uncertainties. Results are expected gradual and slow.

Lahore,

(Mazhar Karim)

January, 7, 1999.

Chief Executive

NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the 34th Annual General Meeting of the Shareholders

of CRESCENT JUTE PRODUCTS LIMITED will be held on Saturday January 30, 1999

at 10.30 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, 1998 together with the Directors' and Auditors'

Reports thereon.

2. To appoint Auditors and fix their remuneration. The present Auditors M/S

A.F. Ferguson & Company, Chartered Accountants being eligible have

offered themselves for re-appointment.

3. To elect seven Directors of the Company, as fixed by the Board for the period

of three years commencing from March 26, 1999 in accordance with the provisions

of the Companies Ordinance, 1984 in place of retiring Directors namely:

1. Mr. A.H. Zaidi

2. Mr. A. Rashid M. Hanif

3. Mr. Anjum M. Saleem

4. Mr. Khalid Bashir

5. Mr. Shaukat Shafi

6. Mr. Riaz Masood

7. Mr. Razi-ur-Rahman Khan

All retiring directors shall be eligible to offer themselves for re-election.

In addition to 'above one Director each nominated by Pakistan Industrial

Development Corporation (PVT) Limited and Pakistan Industrial Credit &

Investment Corporation Limited are not liable to retirement as provided under

section 183 of the Companies Ordinance, 1984

BOOK CLOSURE:

The share transfer books of the company will remain closed from January 29,1999 to

February 04, 1999 (both days inclusive).

By order of the Board

Registered office:

83-Babar Block,

Zaheer A. Shaikh

New Garden Town,

Corporate Secretary

Lahore.

Phone No. 5881974-75

Fax: No. 5881976

EMail:Rashid.sadiq@cressoft.com.pk

Dated: January 07,1999.

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. Any person who seeks to contest election to the Office of Directors, whether he is

a retiring Director or Otherwise file with the company at its Registered Office not

later than fourteen days before the date of the meeting, a notice of his intention

to offer himself for election as a Director, together with his consent to act as a

director.

3. 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, 1998 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;

explanation 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, 1998, 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 accounts have been prepared 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. 95.89 million during the year and has accumulated losses of

Rs. 468.73 million as at June 30,1998. As of that date the company's current liabilities

exceeded its current assets by Rs. 96.61 million and its long term debt to equity ratio

further deteriorated during the year. 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. ,250.9

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.

Lahore.

A.F. Ferguson & Co.

December 08, 1998.

Chartered Accountants

BALANCE SHEET AS AT 30 JUNE 1998

1998

1997

Note

Rupees

CAPITAL AND RESERVES

Authorized Capital

20,000,000 Ordinary Shares Of Rs. 10 each

200,000,000

issued, subscribed and paid up capital

150,634,680

Reserves

138,767,584

Accumulated (loss)

(468,728,150)

(372,839,071)

----------

(179,325,886)

(83,436,807)

SURPLUS ON REVALUATION

OF FIXED ASSETS

348,568,550

REDEEMABLE CAPITAL

Long-term running finances

132,951,628

LIABILITIES AGAINST ASSETS SUBJECT

TO FINANCE LEASE

118,851

5,439,700

DEBENTURES AND LONG TERM LOANS

70,205,715

101,041,600

CURRENT LIABILITIES

Current portion of

26,069,374

17,203,176

Long-term running finances

5,320,848

7,758,964

Liabilities against assets subject to finance

29,347,277

20,537,199

Debentures and long-term loans

473,734,529

601,287,100

Short-term running finances

320,017,619

253,827,382

Creditors, accrued and other liabilities

1,410,109

Provision for taxation

----------

854,489,647

902,023,930

CONTINGENCIES AND COMMITMENTS

----------

1,227,008,505

1,273,636,973

==========

FIXED CAPITAL EXPENDITURE

Operating fixed assets

457,069,738

501,813,361

Assets subject to finance lease

3,989,358

4,468,265

----------

461,059,096

506,281,626

LONG-TERM INVESTMENTS

4,624,804

5,050,000

LONG-TERM SECURITY DEPOSITS

AND DEFERRED COSTS

3,448,819

4,021,835

CURRENT ASSETS

Stores and spares

27,038,014

31,505,240

Stock-in-trade

102,982,142

111,709,748

Short term investments

288,688,348

306,186,122

Trade debts

7,999,750

23,222,753

Advances, deposits, prepayments and other rece

325,821,005

283,337,428

Cash and bank balances

5,346,527

2,322,221

----------

757,875,786

758,283,512

----------

1,227,008,505

1,273,636,973

==========

The annexed notes form an integral part of these accounts.

Mazhar Karim

Shaukat Shafi

Chief Executive

Director

PROFIT & LOSS ACCOUNT

FOR THE YEAR ENDED JUNE 30, 1998

1998

1997

Note

Rupees

Sales

917,759,364

699,605,921

Cost of goods sold

761,166,090

640,189,360

----------

Gross profit

59,416,561

156,593,274

Administration expenses

42,029,890

41,468,821

Selling & distribution expenses

30,880,155

17,767,918

----------

72,910,045

59,236,739

----------

Operating profit

83,683,229

179,822

Other income

6,134,620

8,664,632

----------

89,817,849

8,844,454

----------

Financial charges

169,643,458

166,733,880

Other charges

11,463,470

24,825,467

----------

181,106,928

191,559,347

----------

(Loss) before taxation

(91,289,079)

(182,714,893)

Taxation

4,600,000

2,783,476

----------

(Loss)/after taxation

(95,889,079)

(185,498,369)

Accumulated (loss) brought forward

(372,839,071)

(187,340,702)

----------

Accumulated (loss) carried forward

(468,728,150)

(372,839,071)

==========

The annexed notes form an integral part of these accounts.

Mazhar Karim

Shaukat Shafi

Chief Executive

Director

CASH FLOW STATEMENT

FOR THE YEAR ENDED JUNE 30, 1998

1998

1997

Note

Rupees

Cash flow from operating activities

Cash generated from operations

152,155,321

79,407,652

Financial charges paid

(133,160,872)

(150,983,842)

Income taxes paid

(7,955,658)

(1,183,995)

Proceed on sale of export quota's

356,352

Long term security deposits and deferred costs

120,812

1,127,892

----------

Net cash inflow/(outflow) from operating activities

11,159,603

(71,275,941)

Cash flow from investing activities

Fixed capital expenditure

(3,288,617)

(1,685,363)

Proceeds on sale of fixed assets

830,000

7,959,697

Proceeds on sale of investments

6,745,000

2,955,874

Dividends received

3,097,837

2,775,323

----------

Net cash inflow from investing activities

7,384,220

12,005,531

Cash flow from financing activities

Long term b

119,792,019

12,690,553

Repayments of finance leases

(7,758,965)

(9,611,505)

----------

Net cash inflow from financing activities

112,033,054

3,079,047

----------

Net increase/(decrease) in cash and cash equivalents

130,576,877

56,191,363

Cash and cash equivalents at the beginning of year

(598,964,879)

(542,773,516)

----------

Cash and cash equivalents at the end of year

(468,388,002)

(598,964,879)

==========

Mazhar Karim

Shaukat Shafi

Chief Executive

Director

NOTES TO THE ACCOUNTS

FOR THE YEAR ENDED JUNE 30, 1998

1. The Company and its status

The company was incorporated in Pakistan and is listed on the Karachi, Islamabad and Lahore

Stock Exchanges and is currently engaged in manufacture and sale of jute bags and cotton

yarn.

2. Summary of significant policies

2.1 Basis of accounting

The company has incurred a net loss of Rs. 95,889,079 for the year ended June 30, 1998 and has

accumulated losses of Rs. 468,728,150 as of that date, The company's current liabilities exceeded

its current assets by Rs. 96,613,861. 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 previous 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 the

company intends to dispose off its shareholding in Crescent Ujala Limited, a wholly owned

subsidiary, to various group companies by June 30, 1999. 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 investments in quoted shares by June 30,1999,

As a result, these accounts have been prepared on the assumption that based on the

management'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 going concern.

2.2 Accounting convention

The accounts have been prepared under the historical cost convention, as modified by the

revaluation 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 available 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 company operates an approved funded pension scheme for all officers of its jute unit. The

actuarial valuation of the scheme is carried out once in every two years with the most recent

valuation being carried