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Highnoon Laboratories Limited

Annual Report 1998

CONTENTS

COMPANY INFORMATION

Board of Directors

Mr. Jawaid Tariq Khan

(Chairman)

Mr. Tausif Ahmad Khan

(Chief Executive)

Mr. Ghulam Hussain Khan

Mr. Anees Ahmad Khan

Dr. Shamim Ahmad

Mrs. Zainub Abbas

Mst. Farhat Jabeen

Company Secretary

Mian Ahson Farooq

Auditors

Sidat Hyder Qamar Maqbool & Company

Chartered Accountants

Legal Advisors

Sardar Iqbal & Company

Attorneys at Law

Raja Mohammed Akram & Co.

Advocates & Legal Consultants

Registered Office & Share Department

Mr. Khadim Hussain Mirza

Group Corporate Secretary

17.5 Kilometer, Multan Road, Lahore-53700 (Pakistan)

Phones: 7510023-27 (5 lines) TIx: 47681 HINON PK.

Fax: 92-42-7510037

Head Office & Plant

17.5 Kilometer, Multan Road, Lahore-53700 (Pakistan)

Phones: 7510023-27 (5 lines) TIx. 47681 HINON PK.

Fax: 92-42-7510037

e-Mail: info@hignoon.com.pk

Web: http://www.highnoon-labs.com

Bankers

Habib Bank Ltd.

Prime Commercial Bank Ltd.

Muslim Commercial Bank Ltd.

National Development Finance Corporation.

National Bank of Pakistan

Habib Bank A.G. Zurich

Allied Bank of Pakistan Ltd.

Bank AI Habib Ltd.

NOTICE OF ANNUAL GENERAL MEETING

NOTICE is hereby given that 16th ANNUAL GENERAL MEETING of HIGHNOON LABORATORIES LIMITED

will be held on Tuesday, June 29, 1999 at 10.00 a.m. at Registered Office, 17.5 Kilometer, Multan Road,

Lahore to transact the following business:

1. To confirm the minutes of last Annual General Meeting held on June 30, 1998.

2. To receive, consider and adopt the Audited Accounts of the Company together with Directors' and

Auditors' Reports thereon for the year ended December 31 1998.

3. To approve payment of cash dividend @ 5% and issue of bonus shares @ 10% to the shareholders

as recommended by the Board of Directors.

4. To appoint Auditors and fix their remuneration for the year ending December 31, 1999. The present

Auditors, M/s. Sidat Hyder Qamar Maqbool & Company, Chartered Accountants retire and being

eligible offer themselves for re-appointment.

5. To discuss any other business with the permission of the Chair.

BY ORDER OF THE BOARD

Lahore

(MIAN AHSON FAROOQ)

June 01, 1999.

Company Secretary

NOTES:

I. Share transfer books of the Company will remain closed from June 22, 1999 to June 30, 1999 (both

days inclusive).

II. A member entitled to attend and vote at this meeting may appoint another member as proxy to

attend and vote instead of him.

III. The instrument of proxy must be received at the Registered Office of the Company not less than 48

hours before the time of holding the meeting.

IV. The shareholders are requested to immediately notify the change in address, if any.

V. CDC shareholders are requested to bring with them their National Identity Cards alongwith the

participant's ID number and his account number at the time of attending the Annual General Meeting

n order to facilitate identification.

DIRECTORS' REPORT

Your Directors have pleasure in presenting the Sixteenth Annual Report of your Company together with

Audited Accounts for the year ended December 31, 1998.

1. FINANCIAL HIGHLIGHTS

The profit and appropriations for the year are as follows:

Rs. in million

Net profit before tax for the year

20.858

Taxation

12.614

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

Profit after tax

8.244

Unappropriated profit brought forward

0.424

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

8.668

Appropriations:-

Transferred to general reserve

4.600

Proposed dividend @ 5%

3.992

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

8.592

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

Unappropriated profit carried forward

0.076

==========

2. CHAIRMAN'S REVIEW

Chairman's Review on page 5 deals with the activities during the year. The Directors endorse the

contents of the Review.

3. DIVIDEND AND BONUS SHARES

The Directors recommend that cash dividend @ 5% be paid and bonus shares @ 10% i.e. in the

ratio of 1 bonus share for every 10 ordinary shares held by the shareholders be issued for the year

ended 31 December 1998. The said bonus shares will not be eligible for the dividend declared for

the year ended 31 December 1998.

4. EARNINGS PER SHARE

The after tax earnings per ordinary share of Rs. 10 was Rs. 1.03 (December 31, 1997: Rs. 0.50).

5. PATTERN OF SHAREHOLDING

The pattern of shareholding is detailed on page 30.

6. YEAR 2000 BUG

Your Company is well aware of Y2K bug and has already taken care of this problem. The Company

deploys softwares that ensure error free processing of date data in connection with the date change

from 31 December, 1999 to 01 January, 2000. In case of any unforeseen problem arising from the

millennium Bug, your Company's Automation Cell is capable and qualified to manage it without

causing any significant risk to the business.

7. AUDITORS

The present Auditors, Messrs. Sidat Hyder Qamar Maqbool and Company, Chartered Accountants,

retire and, being eligible, offer themselves for re-appointment.

ON BEHALF OF THE BOARD

Lahore

ANEES AI-IMAD KHAN

May 25, 1999.

Director

CHAIRMAN'S REVIEW

It gives me great pleasure to welcome you to the Sixteenth Annual General Meeting of your Company.

BUSINESS REVIEW

The total net sales of your Company for the year 1998 are Rs. 844 million which included export sales

of Rs. 372 million as compared to the total net sales of Rs. 518 million of the last year including Rs. 79

million of export sales on annualized basis.

Despite the deteriorating economic and trading environment that persisted during the year, your

Company was able to maintain a strong growth in its turnover. The net profit after tax for the year

under review is Rs. 8.244 million as compared to Rs. 3.971 million for the six months ended on

December 31, 1997. Although the growth in sales has been most satisfactory but was not sufficient

to improve the bottom line due to the reasons explained below.

The adverse economic conditions prevailing in the country during the year under review created

a liquidity crunch which is mainly responsible for the substantial increase in the financial charges.

As a result of imposition of sanctions on the country, the Government removed the pharmaceutical

raw material from the list of essential items which were allowed to be imported on official exchange

rate while the finished products remained on that list. The import of finished pharma products

was subsidised against locally manufactured pharma products to the tune of 10% to 13% (difference

of official rate and composite rate). To worsen the situation further when the industry protested

against this decision, Government instead of putting the raw material back on the list, immediately

removed the finished medicines from the list of essential importables as well. Besides, the

continuous depreciation of Pak Rupee against major currencies and increase in import cost and

other inputs adversely affected the profitability of the Pharma Industry. The Pharma Industry cannot

react at its own against the said factors, on the contrary, it remains dependent on the Government

decision regarding increase in the sale price of its products. Lopsided and irrational policies

adopted by the Government particularly in case of Pharma Industry not only continued rather

worsened to the extent that instead of allowing committed, notified and assured increase in

Maximum Retail Prices (M.R.P.) of medicines, denied since last four years, the Government has

embarked upon a plan of reducing prices of medicines.

The industry is hit by two sides. On the one hand the Pharma Industry cannot stop manufacturing

and selling the medicines once registered even if these were causing loss and on the other hand

increase in M.R.P. is not being allowed since 1996. Increase in cost of inputs during past three

years has been around 65% whereas no increase in M.R.P. has been allowed during the said

period. On the contrary M.R.P. of important and life saving drugs is being reduced. The issue of

prices of medicines is being treated on political basis than to be treated as an economic issue

which it factually is.

Near future does not carry much hope. The Pharma Industry may have to face greater challenges

in the years ahead as compared to the year under review. The sluggishness in the general market

and perpetual stagnation and continuous depreciation/devaluation of Pak rupee present a gloomy

picture, unless the Government realises that this vital and essential industry is given, if not

special, at least better treatment than it is meted out presently.

Your Company is, however, trying its utmost to improve profitability and reduce costs as best

as it can without compromising on quality, efficacy and Current Good Manufacturing

Practices (CGMP) as laid down by W.H.O.

MARKETING & SALES

Highnoon kept its position amongst the top 20 companies. The restructuring of the department

had become necessary leading to the formation of two business units comprising of 2-3 teams.

This was done due to the addition of new products from a new franchise / licensee-ship agreement

signed with yet another world renowned research oriented company from France "Synthelabo"

and high total sales volume needing individualized supervision.

The ex-factory sales within Pakistan for the year 1998 showed a growth of 6.47% over 1997.

Marketing and sales actively participated in the major conferences of the year 1998, like the

Cardiology, Psychiatry, Dermatology, Surgical and Gastroenterology Conferences. Besides

that we also took part in the smaller divisional and district level symposia arranged by local

chapters. Not only did we have the opportunity of exposing our products but also helped by

sponsoring eminent speakers at these conferences and promoted further medical

education.

A new antiplatelet aggregating agent Teolid, (Ticlopidine HCI) became part of the Cardiovascular

team. The Cardiovascular product portfolio not only maintained its position but improved it within

this therapeutic category, so did our Gastroenterology range and other speciality research

molecules. Dr. P. J. R. Shah, Consultant Urologist, Professor at the Institute of Urology, London

and one of the top ten names in the world in the respective field was invited to deliver lectures.

These were well attended by his ex-students, Urologists, Physicians and General Practitioners

alike.

Having launched two medicines of Synthelabo that is an alpha blocker "Xatral" for the use in enlarged prostate and

FDA approved hypnotic "Stilnox" more products from the said company are in process of being launched to

increase portfolio of high profile products from this leading French Pharmaceutical Company. We are also actively

working on the prospect of introducing a full range of quality Oncology products at a competitive rate which will

provide relief to cancer patients from low income group of the society. We plan to expand our OTC division by introducing the full range of Fluocaril oral

products which would include besides the high fluoride content toothpaste, other brands of toothpastes (to cover all ranges), mouth wash/dental floss,

fluoride gum. More children usable oral forms of toothpastes are also expected.

Having attained the ISO 9002 certification the company is now seriously pursuing the ISO 14000.

EXPORT

Our efforts to export our products were vigorously pursued throughout the year under review. Your

Company executed the export orders for the amount of Rs. 372 million during the year 1998. Now the

Company is concentrating to penetrate in the continent of Africa and Middle East. We have already

obtained some export orders and expecting handsome business in the years to come despite a

set back in export to Iraq due to the situation prevailing in the region well known to all. The

phenomenal success of conducting business in the export markets in the countries of Africa,

Middle East and Central Asia has added another feather in the operational cap of the Company.

PRODUCTION

The 1998 year has witnessed as the dynamic year for successful implementation of the first

Master Plan for overall improvement of manufacturing facilities. The identified focal points were

"Quality Assurance and Service Level to the Customers" with respect to their requirements. The

emphasis has been on the development of systems in each area of plant operations and training

of employees by employees. The concept of training of employees by employees has proved to

be more effective training tool. This concept necessitates identification of in-house trainers who are

trained to train the other categories of employees. Further the information technology has been initiated

with the objective of improved communication leading to the better checks and control of the operations.

The completion of present expansion plan of the facilities has added a number of operational benefits

especially for further improvement in the Current Good Manufacturing Practices as laid down by W.H.O.

Another Master plan is in preparation to go further in depth for achieving a world class manufacturing position

with pharmaceutical manufacturing activities.

ACKNOWLEDGMENT

The relationship between management and the employees continues to be cordial and your

Chairman wishes avail of this opportunity to thank all the members of the Highnoon family, on

behalf of the Board, for their loyal, dedicated services and excellent performance for the year

1998.

Lahore

JAWAID TARIQ KHAN

May 25, 1999.

Chairman

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of HIGHNOON LABORATORIES LIMITED as at 31 December

1998 and the related profit and loss account and the statement of sources and application of funds (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 the 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 and profit and loss account and statement of sources and application of funds (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 31 December 1998 and of the profit and the changes in

sources and application of funds (cash flow statement) for the year then ended; and

d) in our opinion, Zakat deductible at source under the Zakat and Ushr Ordinance, 1980, was deducted

by the Company and deposited in the Central Zakat Fund established under Section 7 of that

Ordinance.

(SlDAT HYDER QAMAR

Lahore:

MAQBOOL & COMPANY)

May 26, 1999.

CHARTERED ACCOUNTANTS

BALANCE SHEET AS AT 31 DECEMBER 1998

Note

1998

1997

Rupees

SHARE CAPITAL

79,842,210

RESERVES

40,273,569

43,657,790

RESERVE FOR ISSUANCE OF BONUS SHARES

7,984,221

UNAPPROPRIATED PROFIT

76,102

424,336

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

128,176,102

123,924,336

SURPLUS ON REVALUATION OF FIXED ASSETS

67,532,938

LONG TERM LOANS

1,976,910

LIABILITIES AGAINST ASSETS SUBJECT

TO FINANCE LEASE

3,173,821

10,419,519

DEFERRED LIABILITIES

16,714,567

14,783,020

LONG TERM ADVANCES

5,293,436

4,908,321

CURRENT LIABILITIES

Short term bank borrowings

204,316,635

166,898,482

Current portion of long term liabilities

9,428,667

12,943,857

Creditors, advances, accrued

and other liabilities

48,734,031

39,220,550

Proposed dividend

3,992,111

3,629,192

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

266,471,444

222,692,081

CONTINGENCIES AND COMMITMENTS

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

487,362,308

446,237,125

==========

The Auditors' Report to the members is annexed hereto.

The annexed notes from 1 to 36 form an integral part of these accounts.

Pursuant to Section 241 (2) of the Companies Ordinance, 1984, these financial statements

have been signed by two directors as the Chief Executive of the Company is abroad.

Note

1998

1997

Rupees

OPERATING FIXED ASSETS

207,159,329

213,398,773

CAPITAL WORK IN PROGRESS

4,122,574

13,143,272

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

211,281,903

226,542,045

LONG TERM INVESTMENTS

15,000

4,410,600

LONG TERM DEPOSITS

108,765

DEFERRED COST

553,768

CURRENT ASSETS

Stores, spares and loose tools

2,870,406

4,913,984

Stock in trade

142,943,949

129,639,363

Investments

4,605,000

Trade debtors

10,395,234

6,017,385

Advances, deposits and prepayments

65,321,579

37,530,145

Other receivables

23,981,483

32,658,686

Cash and bank balances

25,838,989

3,862,384

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

275,956,640

214,621,947

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

487,362,308

446,237,125

==========

ANEES AHMAD KHAN

JAWAID TARIQ KHAN

Director

Chairman/Director

PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 31 DECEMBER 1998

12 MONTHS

06 MONTHS

ENDED

31 DECEMBER

Note

1998

1997

Rupees

SALES

844,036,004

231,894,842

COST OF SALES

647,851,032

145,895,625

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

GROSS PROFIT

196,184,972

85,999,217

OPERATING EXPENSES

Administrative and general

47,176,752

24,275,360

Selling and promotional

90,835,177

34,187,161

Research and development

9,817,457

2,398,736

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

Total operating expenses

147,829,386

60,861,257

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

OPERATING PROFIT

48,355,586

25,137,960

OTHER INCOME

5,394,057

1,324,760

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

53,749,643

26,462,720

FINANCIAL AND OTHER CHARGES

32,891,849

20,475,977

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

PROFIT BEFORE TAXATION

20,857,794

5,986,743

TAXATION

12,613,917

2,015,000

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

PROFIT AFTER TAXATION

8,243,877

3,971,743

UNAPPROPRIATED PROFIT BROUGHT FORWARD

424,336

452,593

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

PROFIT AVAILABLE FOR APPROPRIATIONS

8,668,213

4,424,336

APPROPRIATIONS:

Transferred to general reserves

4,600,000

4,000,000

Proposed dividend @ 5%

3,992,111

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

8,592,111

4,000,000

UNAPPROPRIATED PROFIT CARRIED

TO BALANCE SHEET

76,102

424,336