PakSearch.com - Pakistan's Best Business site with Annual Reports, Laws and Articles

For business information, annual reports, laws, ordinances, regulations and articles.

CPC Rafhan Limited

Annual Report 1998

CONTENTS

COMPANY INFORMATION

Chairman

F.J. Kocun

Chief Executive &

Rashid Ali

Managing Director

Directors

W.F. Otto

Anis Ahmad Khan

Mian Nisar Ahmad Mannoo

Mian Zulfikar Mannoo

Mian Mohammad Adil Mannoo

Sh. Gulzar Hussain

E.A. Nomani

Zahid Ali H. Jamall

Secretary

S. Yousuf Hashmi

Bankers

ANZ Grindlays Bank

American Express Bank

Bank of America NT&SA

Citibank N.A.

Emirates Bank International

Habib Bank Ltd.

Muslim Commercial Bank Ltd.

National Bank of Pakistan

Standard Chartered Bank

Auditors

Ford, Rhodes, Robson, Morrow,

Chartered Accountants,

Lahore- Karachi.

Legal Advisor

Surridge & Beecheno,

Karachi- Lahore.

Registered Office

Finaly House, 1st Floor,

I.I. Chundrigar Road,

Karachi.

Head Office and

Rakh Canal East Road,

Shares Department

Faisalabad.

BUSINESS PARTNERS...

WITH A PROUD HISTORY

Corn Products International, Inc., USA established on January 1, 1998

as a new independent company, arises from old and established roots. Until

recently, Corn Products operations were managed as a division of CPC

International, a worldwide food company. In fact, corn refining was the

original business of CPC, dating back to 1906. Early in 1997, a decision

was made to spin off CPC's corn refining operations, recognizing that it

was in the interest of shareholders to create a separate company focusing

exclusively on the challenges and opportunities of the corn refining industry.

Corn Products begins new, independent life as one of the largest corn refiners

in the world. They are the world's leading producer of dextrose and have

strong regional leadership in corn starch. Since its early history, Corn Products has pursued business

in international markets. Today, Corn Products international operations span 5 continents to include

21 countries and 38 plants.

CPC Rafhan Ltd, the No. 1 producer of corn refining products

in Pakistan, is an affiliate of Corn Products International, Inc.,

USA. CPC Rafhan produces unmodified, modified, oxidised

and cationic starches, dextrins, glucose syrups high maltose

syrup, dextrose, caramel colour, corn oil, corn gluten feeds/meal

and germ cake. All these products have leading market positions

and are being used in more than 50 type of industries in Pakistan

and export markets in the region.

CPC Rafhan products are manufactured under strict quality

controls to match the international standards. CPC Rafhan has won the preferred supplier status among

customers by focusing on quality, customer service and team approach. The Technical Center at CPC

Rafhan holds one of the most sophisticated laboratories in Pakistan. The Center is responsible to develop

new products and modify the existing range to cope with the changing requirements of customers and

overcome the functional problems connected with application of products in different industries.

CPC Rafhan has a regular inflow of highly skilled "circuit riders" from Corn Products to enhance

manufacturing efficiencies, the timely sharing of plant technology and product application information.

NOTICE OF MEETING

Notice is hereby given that the Annual General Meeting of the shareholders of CPC Rafhan Ltd will be held

on Monday, December 28, 1998 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 last General Meetings (Annual and Extraordinary) of the shareholders

of the Company held on Friday, December 26, 1997 at Karachi.

2. To receive, consider and adopt the Audited Accounts of the Company for the year ended September

30, 1998 together with the Directors' and Auditors' Reports thereon.

3. To consider and approve dividend payments.

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.

SPECIAL BUSINESS

5. To consider and if thought fit to approve remuneration payable to employee Director.

A statement U/S 160 of the Companies Ordinance, 1984 pertaining to the special business is as

given below.

By order of the Board

S. Yousuf Hashmi

Company Secretary

Karachi, December 6, 1998

NOTES

1. The Share Transfer Books of the Company will remain closed from December 21, 1998

to December 28, 1998 (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.

STATEMENT UNDER SECTION 160

OF THE COMPANIES ORDINANCE, 1984

This statement sets out material facts concerning the Special Business to be transacted at the meeting.

The shareholders approval will be sought for the payment of remuneration and the provision of certain

facilities to the full time employee director namely Mr. Anis Ahmad Khan, Chief Financial Officer, in accordance

with his terms and conditions of service with the Company.

For this purpose the following Ordinary Resolution which sets out the terms of appointment of the employee

director will be moved at the meeting.

"RESOLVED that the Company hereby approves and authorises the payment as remuneration to

Mr. Anis Ahmad Khan, Director a sum not exceeding Rs. 1,100,000/- per annum for the year ended August

31, 1998 and for subsequent years a sum per annum not exceeding the said amount with an increase of

upto 25% per annum, the specific amount to be determined by the Chief Executive and Managing Director

and also approves and authorises the provision to him of transport, leave encashment, bonus and medical

for himself, his wife and dependent children, and retirement and other benefits in accordance with his terms

and conditions of service with the Company."

DIRECTORS' REPORT

The Directors have pleasure in placing their Report and Audited Accounts for the year ended September

30, 1998 before the Annual General Meeting of the Shareholders to be held on December 28, 1998.

FINANCIAL RESULTS

Year ended September 30

1998

1997

Rupees

(000)

Profit after taxation

213,728

201,778

Unappropriated profit brought forward

654,645

552,928

Less - Transfer to Rafhan Best Foods Ltd.

(261,858)

----------

606,515

754,706

----------

Appropriations

Interim Dividend @ 30% (1996 @ 25%)

27,709

38,485

Proposed Final Dividend @ 60% (1997 @ 40%)

55,419

61,576

----------

83,128

100,061

----------

Unappropriated Profit carried forward

523,387

654,645

==========

Results for 1997 represent pre-demerger business which included industrial and consumer business segments

while figures for 1998 represent industrial products, which is now the core business of CPC Rafhan Ltd after

demerger.

EARNINGS PER SHARE

1998

1997

Rupees

23.14

13.11

Earnings per share improved by 77% over the previous year. The improvement in earnings is mainly due

to higher volumes of specialty products and optimum utilization of plant capacities.

DIVIDEND

The directors having declared an interim dividend of 30%, now propose a final dividend @ 60°/,, making the

total of 90% for the year.

DIRECTORS

During the year, Mr. S.Q.A. Zaidi, nominee director of National Investment Trust, resigned and in his place

Mr. Zahid Ali H. Jamall of NIT was appointed. Mr. W.F. Otto and Mr. Anis Ahmad Khan were appointed

directors in place of Mr. D. Bevilacqua and Mr. Suleman Daud who resigned after demerger.

The present Board of Directors was elected for a period of three years at the Extra-ordinary General Meeting

of the Company held on September 8, 1997.

PATTERN OF SHARE HOLDING

Majority shareholder, CPC International was demerged into Corn Products International and Bestfoods.

Consequently, majority shares of CPC Rafhan are now owned by Corn Products International, Inc., USA

as of September, 1998.

The pattern of shareholding of shares as at September 30, 1998 appears on page 34.

COMPLIANCE WITH YEAR 2000

The Company uses IBM AS 400 computer and has 16 applications which required compliance with year 2000.

Out of 16 applications, 11 have already been converted to comply with the requirements and the remaining

are in the process of conversion which will be completed by June, 1999. Furthermore, testing of all the

applications is being done simultaneously, therefore, no further period will be required for testing.

AUDITORS

The present auditors Messrs Ford, Rhodes, Robson, Morrow retire and, being eligible, offer themselves for

re-appointment.

By order of the Board

RASHID ALl

Chief Executive and Managing Director

November 07, 1998

CHIEF EXECUTIVE'S REVIEW

It gives me pleasure to welcome you to the Annual General Meeting of the company.

BUSINESS ENVIRONMENT

1998 was a very challenging and landmark year for Pakistan and your company.

While government announced some fundamental economic reforms to place Pakistan

on a more sustainable macro-economic footing, Pakistan's security was put at risk

by Indian nuclear explosions. After Pakistan followed Indian nuclear tests in May,

the economic sanctions imposed by the developed countries and donor agencies

continue to hit our economy. On the external front, economic melt down in South

East Asia effected many countries in the region resulting in massive devaluation and

drastic fall in stock prices. The combined effect of deteriorating international and

domestic economic conditions eroded business confidence and consequently industrial

production and investment declined.

1998 was also the first year when your company operated as a separate entity from its consumer business

segment following approval of the scheme of bifurcation (division of CPC Rafhan Ltd) by the Honourable High

Court of Sind.

BUSINESS OVERVIEW

Your company has the largest corn (maize) processing facilities of Pakistan. Its technological leadership, strong

management resources and 45 years of experience continue to strengthen and reinforce the company's leading

position. CPC Rafhan's products are used as basic ingredients by more than 50 type of industries. Among its

major customers are textile, paper, corrugation, confectionery, baking, chemicals, pharmaceuticals, food and

poultry/animal feed industries.

Despite difficult economic and trading environment, by the grace of Almighty Allah,

your company not only maintained its growth momentum but also achieved a record

increase of 53% in net income inspite of spinning off of its Consumer Food Business.

The sales at Rs. 2.223 billion registered 16% growth over the last year. All major

products recorded strong volume growth. These results were achieved through timely

measures to control costs, enhanced productivity and product portfolio rationalization

to mitigate adverse effects of high raw material and energy costs on our margins.

STARCHES AND DERIVATIVES

The main product of corn refining process is starch - a highly versatile

complex carbohydrate. CPC Rafhan native starch and its chemically modified

derivatives are used in different industrial and consumer products. Your

company has recently expanded and modernized its chemically modified

starch derivatives plant to produce wide range of products branded as

Rafhan, Penetrose, Globe, Snowflake, Amisol, Tex-o-Film, Q-Tac and Coratex

for multiple applications.

Export driven expansion in high speed textile weaving and modern processing

has led to growth in demand of modified starches despite various problems

faced by woven textile industry. As a result, the sale of Penetrose starches achieved a significant volume

growth over last year. The successful line of Amisol starches and Tex-o-Film starches was further expanded

in textile industry to size fine counts of yarn and denim warp.

Operation of paper industry was hard hit due to high cost of imported fiber and increased

competition from imports due to reduced tariffs. The specialized Q-Tac cationic starch

was introduced to increase productivity, conserve energy, improve quality and allow

for more effective use of recycled fibres in paper making. We hope this product has

good potential for growth in paper application.

With entry of multinational fast food chains, demand of starches

for food applications is growing. Introduction of SNOWFLAKE

and GLOBE brand starches for food applications helped in achieving diversified

market base.

Your company continues to identify new growth opportunities and fully leverage its

Corn Products International world team partnership to enhance manufacturing

efficiencies, the timely sharing of plant technology and product application information.

With focused sales efforts, overall market share in textile, paper and food industries will further be increased

with the expanded line of modified starches.

SWEETENERS - LIQUID AND POWDERED

Sweeteners, which include various types of liquid glucose and dextrose are highly refined

natural sweeteners and constitute one of our major business segments.

Confectionery industry is the largest consumer of glucose syrups in

Pakistan; followed by pharmaceutical industry. Reflecting a growing

tendency for 'snacking', demand for snack foods, biscuits, chocolates and sugar

confectionery has increased. Large confectioners are bringing modernization and product ~i~!~!

diversification to differentiate their products from unorganized sector. This trend has "'

positive impact on demand of liquid glucose resulting in higher volume sale.

Dextrose, second product of sweeteners category, showed better

performance and registered significant volume growth over last year due to expanded

applications in food and pharmaceutical industries.

Despite increase in sales, gross margins on sweeteners remained under pressure as

rising raw material costs could not be passed on to selling prices due to abundant and

cheaper supply of sugar for substitution in candy.

In order to expand value-added product line, your company introduced High Maltose

Corn Syrup under the brand names of NU-BRU and MOR-SWEET. High Maltose Syrups are used as a source

of fermentable sugars and in the production of confections, canning and other food processing applications.

CO-PRODUCTS

Corn Oil, Corn Gluten Feed and Corn Gluten Meal are the third major business segment.

Through corn wet milling process, oil bearing germ is separated from corn kernel and

expelled to obtain crude corn oil.

Corn Oil is the prime co-product of corn wet milling process. As a result of demerger,

oil refinery and consumer products packing building is the property of your company.

However, under 2 years service contract ending on September 30, 1999, Rafhan Best

Foods continues to use these facilities for refining oil and packing of their major dessert

lines. Rafhan Best Foods remains one of our important customers of starches for

dessert line, dextrose for energy drinks and crude oil for refined corn oil.

Rafhan Maize Gluten Feeds and Prairie Gold Maize Gluten Meal are

nutritious, high protein products which are used by feed formulators for

livestock and poultry feeds. For the first time in the history of Pakistan's

commercial poultry industry, negative growth rates were reported by all

poultry sectors. Ban on serving food at marriage parties had a negative

impact upon chicken meat consumption. Poultry farms dropped by 25%

while the number of grandparent stock farms was halved. Due to adverse

market conditions, poultry feed production declined by 30%.

Indian Soyabean Meal is being dumped in Pakistan market at highly

subsidised rates which drastically effected demand of indigenous feed ingredients including Maize Gluten

Feeds and Meal. Huge imports of soyabean meal from USA under PL-480 further aggravated supply of

cheap feed ingredient. Due to intense imported substitute competition

and consequent increase in gluten feed/meal inventories, this business

sector suffered a substantial erosion of prices particularly in second half

of the year.

To overcome volume losses in poultry feed market, we introduced BUFFALO Maize

Bran cattle feed ingredient which helped to maintain sales volume with positive results.

EXPORTS

While Middle East remains our traditional export market, we continue to explore

region's emerging markets, particularly of Central Asian Countries to seize new

business opportunities. Our export strategy is based on full plant capacity utilization

to cover domestic market fluctuations. Our major customers of textile, paper and food

manufacture continue to prefer our products inspite of severe competition from

European and Asian suppliers. We foresee long term growth in this potential sector.

RAW MATERIAL

Over the last 3 years, due to good weather and high yielding

maize seed varieties pioneered by your company and further

expanded by renowned multinational seed companies, per

acre yield of maize planted in spring (March - June)

substantially increased in Punjab. This had a favourable effect

on availability of maize and helped us in building adequate

inventories. However, this year highly abnormal global weather

conditions badly effected yields and pushed prices of maize

grain. Government also enhanced procurement price of wheat

by 30% which increased demand of maize from food and

feed segments. Due to imbalance in demand and supply and

higher prices of substitute grains, we foresee increase in

price of maize. Your company is further strengthening contract

farming programme and widening the scope of market

purchases to ensure sufficient supply of maize at reasonable

prices to meet our future requirements.

INVESTMENT

Your company continues to pursue its programme of innovation of products

and improvement in quality to meet new technological needs of our customers.

By the grace of Almighty Allah, we have successfully completed our projects

to increase plant capacity by 10%. Work on next phase of expansion of plant

capacity by another 25% has already started and will, Inshallah, be completed

by the year 2000.

FUTURE OUTLOOK

There has been technical currency devaluation after introduction of dual

exchange rate system. Further devaluation of currency, escalation in the

cost of energy and rise in sales tax rate is anticipated under IMF pressure.

The worldwide economic crisis is likely to slow down operation of our

consuming industries with consequent reduced demand for our products.

Reduced tariffs on imported substitutes will further provide tough competition ~:

to our products.

Despite these adverse factors, your company is confident

in the ability of its team to face challenges. We are entering

into a more competitive era. Our diversified product portfolio

presents good prospects for future progress. Your company

continues the strategy of expanding capacity ahead of

demand to support our growth initiative vital to our long term

prosperity. We continue tracking customer and consumer

trends to bring changes in our process and employees'

skills. The company is working for ISO-9002 certification

which will further reinforce its quality image and reputation.

GENERAL

I am pleased to inform you that your company has been adjudged as one of the Best Top 25 Companies listed

in Karachi Stock Exchange for the year 1997.

CPC Rafhan's success has been built around the efforts made by our colleagues at

all levels who are strongly committed to their work. I express my sincere thanks for

their dedicated efforts and devotion. We thank our customers and suppliers for their

continuous support and trust in the quality of our products. We also thank our shareholders

for their confidence in our enterprise and assure them that we are committed to do

the best to ensure that their investment in CPC Rafhan is well rewarded in the coming

years. May Allah bless us in our efforts. A'meen.

Sd/-

Rashid Ali

Chief Executive and

November 7, 1998

Managing Director

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed Balance Sheet of CPC Rafhan Limited, as at September 30, 1998 and the

related Profit and Loss Account and Statement of Changes in Financial Position, 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-