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

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

Emco Industries Limited

Annual Report 1998

Contents

Company Information

Board of Directors

Mr. S. A. Mannan, Chairman

Mr. Tariq Rehman, Chief Executive

Mr. A. Rehman

Mr. Shafiq A. Siddiqi

Mr. T.M. Sheikh

Mr. Haris Noorani

Mr. Suhail Mannan

Mr. Tahir Rehman

Mr. Iqbal Shafiq

Mr. Usman Haq

Auditors

S.A. Salam & Co.

Chartered Accountants,

Lahore

Bankers

Habib Bank Ltd.

Standard Chartered Bank

Emirates Bank International

Citibank N.A.

Deutsche Bank A.G.

American Express Bank Ltd.

Registered Office

2nd Floor, Emirates Bank Building,

14-Kashmir-Egerton Road,

Lahore-54000

Factory

19-Kilometre, Lahore-Sheikhupura Road,

Lahore.

Business Items

Porcelain Insulators

· Suspension Insulator

· Pin Insulator

· Line Post Insulator

· Cap and Pin Type Support Insulator

· Station Post Insulator

· Indoor Switch and Bus Insulator

· Apparatus Insulator

· Insulator for Railway Electrification

· Telephone Insulator

· Low Voltage Insulator

· Dropout Cutout Insulator

· Bushings

Switchgear

· Disconnect Switches upto 145 kV

· Metal Oxide Surge Arresters upto 430 kV

(Under Licence from Siemens, Germany)

Chemical Porcelain

· Acid Proof Wares and Bricks

· Raschig Rings and Saddles

· Acid Proof Porcelain Pipes and Fittings

· Acid Proof Cement

Special Porcelain

· Special Refractories

· High Alumina Porcelain

· Lining & Grinding Media

Ceramic Glazed Wall Tiles

· Coloured & Decorative Glazed Wall Tiles

15 cmx 15 cm x 6 mm

20 cm x 25 cm x 6mm

Ceramic Glazed Floor Tiles

· Vitreous & Semi Vitreous Decorative Glazed

Floor Tiles

30 cmx 30 cm x 8 mm

· Semi Vitreous Glazed Floor Tiles

40 cm x40 cm x 8 mm

· Floor and Facing Tiles

10 cmx 30 cm x 8 mm

Notice of Meeting

NOTICE IS HEREBY GIVEN that the 43rd Annual General Meeting of the Members of

EMCO INDUSTRIES LIMITED, will be held on 30th December, 1998 at 11.00 A.M. at the Registered

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 8th December, 1997.

2. To consider and adopt the Audited Accounts of the Company for the year ended 30th June, 1998 and

reports of the Auditors and Directors thereon.

3. To appoint Auditors and fix their remuneration.

By order of the Board

(HARIS NOORANI)

Lahore: December 1, 1998

DIRECTOR CORPORATE AFFAIRS

NOTES:

i) The Shares Transfer Books of the Company will remain closed and no transfer of Shares will be

accepted for registration from 24th December, 1998 to 30th December, 1998 (both days inclusive).

ii) A member entitled to attend and vote at the General Meeting may appoint another member as 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.

Directors' Report

The Board of Directors is pleased to present the 43rd Annual Report of EMCO Industries Limited for the

year ended June 30, 1998

Financial Results

Rupees

Net (loss) for the year after taxation

(64,196,598)

Unappropriated profit brought forward

From prior year

5,938,761

----------

Unappropriated (loss) carried forward

(58,257,837)

==========

Pattern of Holding of Shares

A statement showing the pattern of holding of shares in the Company as on June 30, 1998 appears

Auditors

The retiring auditors, Messrs. S.A. Salam & Go, 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.

On behalf of the Board of Directors

Lahore: December 1, 1998

TARIQ REHMAN

(Chief Executive)

FINANCIAL HIGHLIGHTS

June 30,

1998

1997

Net Sales

Rs. in Million

307

490

Profit/(Loss) before tax

Rs. in Million

(62.7)

(20.0)

Income Tax

Rs. in Million

1.5

2.5

Profit/(Loss) after tax

Rs. in Million

(64.2)

(2.25)

Earning per Share

Rs./Share

(5.58)

(2.25)

Stock Dividend

No. of Shares Outstanding

(000's)

11,500

10,000

Taxes & Duties

Rs. in Million

83*

158*

* For details see Note 33 to the Account

TEN YEARS AT A GLANCE

1998

1997

1996

1994

1993

1992

1991

1990

1989

1988

18 Months

(Rupees in Million)

Net Total Sales

307

490

791

462

348

417

296

238

192

180

Exports

Employees Costs

126

183

103

Profit/(Loss) before tax

(63)

(20)

Profit/(Loss) after tax

(64)

(23)

Earning per share

(5.58)

(2.25)

8.97

3.45

5.83

3.78

3.54

5.74

2.17

1.46

Capital Expenditure

255

102

Cash Dividend Rate

20.00%

17.5%

15.0%

20.0%

17.5%

Stock Dividend Rate

15%

Shareholders' Equity

187

251

213

172

159

CHAIRMAN'S REVIEW

On behalf of the Board of Directors it gives me great pleasure to welcome you to the 43rd Annual General

Meeting of the Company and to present before you the Annual Report and Financial Statements for the

year ended 30th June, 1998.

This year your Company has sustained a loss of Rs. 64.197 million as compared to a loss of Rs. 22.545

million last year which has resulted in serious cash flow problems. This loss is attributable to the following

reasons:

1. Owing to the continued financial crisis of WAPDA, the Company did not have sufficient orders to

run its Insulator Plant at Profitable level. The plant operated only at 17 percent of the rated capacity

which is an unsustainable level. However, most of the orders executed during the year were value

added products and in terms of sales volume the total sales for the year was Rs. 121 million which

was 66% of the last year's sales. In order to adjust the labour cost with volume of business of

Insulator Division an early retirement scheme was launched during the year and 50% of the staff

strength was reduced. This process of restructuring resulted into production slow down for a period

of 3-4 months during the year.

2. In order to increase the production capacity of Wall Tile Plant from 500,000 M2 to 1,500,000 M2 per

annum an investment of Rs. 255.027 million was made in this plant. Due to number of technical

problems faced during the trial runs which were mainly relating to synchronizing of old and new

plant and machinery, the Wall Tile Plant could not be commissioned according to planned schedule.

The plant was shut down for the expansion work on September 16, 1997 and after installation of

plant and machinery and completion of civil work the plant was to be commissioned within two

months, which was considerably delayed because of technical problems and was eventually

commercially commissioned on June 01, 1998. This abnormal delay in commissioning resulted into

unabsorbed fixed overheads and burden of financial charges.

3. In order to increase the production capacity of Floor Tile Plant from 500,000 M2 to 900,000 M2 p.a.

an investment of Rs. 32 million was made. The plant was shut down on September 16, 1997 and

after completion of expansion work the trial production was started on November 01, 1997. After

successful trial run the commercial production commenced on January 01, 1998. Because of

multiple reasons production results could not be achieved as per desired targets.

4. Price increase in the local as well as imported raw materials, increase in the price of power and

rising trend of inflation also contributed in increasing the product cost. Due to tough competition in

the market the corresponding increase in the selling price was not possible.

5. In later part of the year the Company faced problems in establishing Letters of Credit for imported

raw materials as foreign banks were reluctant to take cross border exposure owing to uncertainty

prevailing in the country after nuclear explosion.

During last three years substantial capital investment of approximately Rs. 385 million had been made in

all the three plants of the company, but unfortunately when the time for matching revenue came the down-

turn in the economy with world-wide recession played a vital role in disturbing the financial position of the

company. However, after going through such a bad time the turn around of the company has now started

which is evident from the following:

* All cash losses of the company have been financed by the Directors by arranging loans against their

personal securities. Out of these loans an amount of Rs. 67.00 million has been subordinated to

AMEX bank led consortium which will be repaid after the company's cash flow position improves.

* The Company has declared right issue for Rs. 38.333 million at par in the ratio of one share for three

shares already held. The entire issue has been underwritten by the sponsoring Directors. The

sponsoring directors intend to take all the shares they are entitled to and all the shares which will

remain unsubscribed. The last date of payment/renunciation is fixed as December 09, 1998.

* As compared to corresponding period the operating results of the company during the period from

July to November, 1998 are encouraging which are summarized below:-

Corresponding period

Sales

Production

Rs. Million

Production

Rs. Million

Insulator

658 tons

72.00

331 tons

49.00

Wall Tile

202,000 M(2)

71.00

150,000 M(2)

68.00

Floor Tile

268,000 M(2)

78.00

151,000 M(2)

62.00

In the remaining period the operating results are expected to improve further. Due to inadequate

working capital facilities available the company faced number of problems during above period to

arrange local and imported raw materials which resulted in low production as compared to the

estimates.

* There has been a very encouraging response for export of Insulators to Saudi Arabia, Iran, Turkey,

Middle East and the United Kingdom. During 1998-99 we are expecting a total sales volume of

Insulators between Rs. 200 to Rs. 240 million out of which export sales will be approx. 70%. We

have also started receiving orders from WAPDA's Area Electricity Boards recently established by

the Government of Pakistan. In future we expect to receive more orders from Area Electricity

Boards.

* Now the technical problems of the Wall Tile Plant have been resolved and we expect to run this

plant at maximum capacity which will result in improving the financial position of the company.

* The company has also added during the year 3rd firing and tile cutting facilities by virtue of which

we are producing an excellent value added products which are getting very good market response.

* During 1998-99 numbers of cost saving measures were taken which include, adjustment of labour

strength in Insulator Plant with business volume, shifting of Lahore Warehouse to Factory,

privatization of despatches of tiles from warehouse/factory to the dealers, reduction in daily wages

and overtime costs and better inventory management.

* A portion of savings in salaries and allowances owing to early retirement scheme was passed on to

the existing employees by re-structuring their salaries upward. Effective October 01,1998 the

company has implemented a "Quarterly Bonus Scheme" for its employees. Bonus will be paid on

achieving certain production and sales targets and other key efficiency parameters relating to product

mix and recovery percentage.

* Based on very genuine grounds your company requested the long term lenders and leasing

companies for re-scheduling of loans for a period of one year. This was the first ever re-scheduling

your company had requested to financial institutions. In view of the good track record of the

company almost all the long term lenders and leasing companies have shown their willingness to

support the company.

* United Bank Limited has recently sanctioned funded and non-funded working capital facilities

amounting to Rs. 100 million.

* During August 1998 your company was awarded ISO-9001 Certification for both its Insulator and

Tile Plants by the International Standards Organization, U.K. This is the first ever certificate issued

to any company in the sub-continent which is engaged in ceramic products. This certification will

play a major role in improving the efficiency and working environment in the company.

* Computer problem relating to Year 2000 called as "Millennium Bug" is a major issue being faced by

most of the organizations all over the world. In order to get this problem resolved, your company

had entered into an agreement with Software Consultants and we are pleased to inform you that 80%

of the work has already been completed and we will be able to get year-2000 certificate by

December 31, 1998.

In view of the above positive factors we expect that the company will come out of its cash flow problems

very soon.

EMPLOYEES RELATIONS

The Management would like to place on record the positive attitude and co-operation of the Labour Union

during the difficult phase the company is passing through.

FUTURE LOOK

Next two years are going to be bit difficult during which company is likely to tide over its cashflows to

honour its financial obligations and re-enter in the bright-era previously enjoyed by the company. The

company is now confident of successfully being able to come over its technical problems and issues with

financial institutions.

ACKNOWLEDGMENT

I take this opportunity to place on record the dedication of the employees and staff during the difficult

period. I would also like to thank our customers, dealers, and bankers 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."

S. A. MANNAN

Lahore: December 1, 1998.

(Chairman)

Auditors' Report to the Members

We have audited the annexed Balance Sheet of EMCO Industries Limited as at June 30, 1998 and the

related Profit and Loss Account and Statement of Change 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:

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

except for the changes as stated in note number 2.8 and 2.9 with which we concur;

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;

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 Statement of Changes in financial position, 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 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.

S.A. SALAM & CO.,

Lahore: December 1, 1998.

Chartered Accountants.

BALANCE SHEET AS AT JUNE 30, 1998

Note

June 30,

1998

1997

Rupees

SHARE CAPITAL AND RESERVES

Authorised capital

25,000,000 ordinary shares of Rs. 10 each.

250,000,000

==========

Issued, subscribed and paid up capital

115,000,000

100,000,000

Reserves and unappropriated profit

71,640,689

135,837,287

Reserves for issue of Bonus Shares

15,000,000

----------

186,640,689

250,837,287

SURPLUS ON REVALUATION OF LAND

18,830,530

SUBORDINATED LOAN

67,000,000

LONG TERM AND DEFERRED LIABILITIES

Long term loans

137,543,948

190,506,848

Liabilities against assets subject to finance lea

48,885,973

48,903,334

Deferred liabilities

25,128,657

12,407,517

----------

211,558,578

251,817,699

CURRENT LIABILITIES

Short term finances-secured

344,502,606

256,297,775

Short term finances from Associated

Companies - unsecured

5,600,000

Current maturity of long term loans

52,962,899

9,212,899

Current maturity of liabilities against

assets subject to finance lease

26,057,086

13,971,715

Current maturity of deferred import levies

2,392,469

Creditors, accrued and other liabilities

114,830,102

97,053,076

----------

540,745,162

384,527,934

CONTINGENCIES & COMMITMENTS

----------

1,024,774,959

906,013,450

==========

TANGIBLE FIXED ASSETS

Operating assets

440,129,756

238,481,929

Assets subject to finance lease

82,694,207

66,772,071

Capital work in progress

163,919,232

522,823,963

469,173,232

----------

DEFERRED EXPENSES

110,947,274

LONG TERM LOANS AND DEPOSITS

977,274

2,661,631

CURRENT ASSETS

Stores, spares and loose tools

52,921,864

52,327,013

Stock-in-trade

178,340,967

200,199,899

Trade debts

112,188,409

116,186,376

Advances, deposits, prepayments

and other receivables

44,831,969

60,035,361

Cash and bank balances

1,743,239

5,429,938

----------

390,026,448

434,178,587

----------

1,024,774,959

906,013,450

==========

Auditors' report to the members of even date annexed hereto.

The annexed notes form an integral part of these accounts.

For S.A. Salam & Co.

S.A. Mannan

Tariq Rehman

(Chartered Accountants)

(Chairman)

(Chief Executive)

Lahore: December 1, 1998.

PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED JUNE 30, 1998

Note

June 30,

1998

1997

Rupees

Gross Sales

368,165,018

599,729,208

Less: excise duty & sales tax

60,911,668

109,442,023