| Pioneer Cement Limited |
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| Annual
Report 1998 |
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| CONTENTS |
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| Company
information |
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| Notice
of Meeting |
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| Chairman's
Review and Directors' Report |
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| Auditors'
Report to the Members |
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| Balance Sheet |
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| Profit
& Loss Account |
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| Statement
of Changes in Financial Position |
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| Notes
to the Accounts |
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| Pattern
of Holding of Shares |
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| COMPANY
INFORMATION |
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| BOARD
OF DIRECTORS |
Malik Manzoor Hayat Noon |
(Chairman) |
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|
Javed Ali Khan |
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(Chief Executive) |
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K. Iqbal Talib |
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|
Muhammad Anwar Mir |
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|
Dr. Parvez Hassan |
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|
Lt. Col. (R) M. Bashir
Ahmed |
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|
Soren Iversen (FLS) |
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|
G. M. Z. Khan (ADD) |
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|
Rauf Baksh Kadri (BE) |
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Muhammad All Shaikh
(NDFC) |
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| MANAGEMENT |
|
Javed Ali Khan |
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Chief Executive |
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Usman Masud Khan |
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Director Coordination |
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Badruddin Fakhri |
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Director Finance &
Admin. |
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I.H. Shamsi |
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Financial Advisor |
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Talat Saeed Khan |
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General Manager Marketing |
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Javed Elahi |
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General Manager Works |
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Nurul Ibad |
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Deputy General Manager |
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| SECRETARY |
|
Syed Anwar All |
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| AUDITORS |
|
Anjum Asim Shahid &
Company, Chartered Accountants |
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| LEGAL ADVISERS |
|
Hassan & Hassan
(Advocates) |
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| BANKERS |
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Bank Al-Habib |
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Habib Bank Limited |
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National Bank of Pakistan |
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National Development
Finance Corporation |
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Crescent Investment Bank
Ltd |
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| REGISTERED
OFFICE |
1st Floor, Alfalah Bldg.,
Shahrah-e-Quaid-e-Azam, Lahore. |
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| SHARES
DEPARTMENT |
Registrar |
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Ford, Rhodes, Robson,
Morrow, |
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|
12-A, First Floor,
Writers Chamber, |
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Mumtaz Hassan Road,
Karachi. |
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Ph: 2427497 |
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| HEAD OFFICE |
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7th Floor, Lakson Square
Building No. 3, |
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Sarwar Shaheed Road,
Karachi. |
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Ph: 5685052-55 Fax ·
5685051 |
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| FACTORY |
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Chenki, District Khushab.
Ph · 0454-720832 |
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| SALES OFFICES |
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Lahore Office: |
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30-Baber Block, New
Garden Town. |
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Ph: 5867270-71 |
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Faisalabad Office: |
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103-C, Peoples Colony, |
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Ph: 724003 |
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| NOTICE
OF ANNUAL GENERAL MEETING |
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| Notice
is hereby given that the 12th Annual General Meeting of the Members of
Pioneer Cement Limited will be |
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| held
at 66-67 Garden Block, New Garden Town, Lahore on Wednesday the 31st March,
1999 at 11:30 a.m. to |
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| transact
the following business. |
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| 1.
To confirm the minutes of the last annual general meeting held on 31 st
December, 1997. |
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| 2.
To receive, consider and adopt the audited accounts for the year ended 30th
June, 1998 and reports of the |
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| directors
and the auditors' thereon. |
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| 3.
To appoint auditors for the ensuing period and fix their remuneration. |
|
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| 4.
To transact any other business as may be placed before the meeting with
permission of the Chairman. |
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By order of the Board |
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SYED ANWAR ALl |
|
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| 1st
March, 1999 |
|
Company Secretary |
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| Notes: |
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| i)
The share transfer books of the Company shall remain closed from 24th March,
1999 to 31 st March, 1999. |
|
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| ii)
A member entitled to attend, speak and vote at this meeting may appoint
another member as proxy to |
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| attend,
speak and vote on his/her behalf. Proxies in order to be effective must be
received at the registered |
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| office
of the company not later than 48 hours before the meeting. |
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| iii)
The members are requested to notify change in their address, if any, to the
Company's Registrars, |
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| M/s.
Ford, Rhodes, Robson, Morrow, 12-A, 1st Floor, Writers Chambers, Mumtaz
Hassan Road, Karachi. |
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| CHAIRMAN'S
REVIEW AND DIRECTORS' REPORT |
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| It
gives me great pleasure to present the annual report and the audited accounts
of the Company for the financial |
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| year
ended 30th June, 1998 on behalf of the Board of Directors. |
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|
| GENERAL |
|
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| The
investment activity and the general level of business confidence in the
economy remained depressed |
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| during
the year under review inspite of a GDP growth of 5.4% as against 1.3% in the
preceding year. The |
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| government
adopted a number of measures to restore macroeconomic stability and business
confidence in the |
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| country
but incentive packages did not bring out the required revival and growth in
major sectors of the economy. |
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| The
cement industry continued to be the victim of falling demand of cement and
rising cost of inputs. The |
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| situation
was further aggravated when the existing installed capacity further increased
by 4.3 million tons due |
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| to
commissioning of two new cement plants and three expansion projects of the
existing units. The total installed |
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| capacity
of the cement sector increased to 16.3 million tons in 1997-98. As against
this, the demand of cement |
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| recorded
a negative growth of 3% over the preceding year and amounted to 9 million
tons. PCL remained under |
|
| constant
competitive pressure to retain its market share and had to change its
marketing strategy and discount |
|
| policy. |
|
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| PRODUCTION
& PLANT'S EFFICIENCY |
|
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| Due
to market restraints, the Company could only operate at a capacity of 78.6%
as against 108.2% in |
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| the
preceding year. The clinker production declined by 27% and amounted to
471,999 tons as against 649,354 |
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| tons
produced in 1996-97. Consequently, the cement production also decreased by
22.8% and amounted to |
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| 530,942
tons as against 688,109 tons in the preceding year. However, the overall
level of efficiency of kiln |
|
| remained
satisfactory and except for the planned frequent shutdowns due to market
conditions, the |
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| actual
output of clinker per day showed an increase of 6.3% to 2126 TPD over the
rated output of 2000 TPD. |
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| MARKETING |
|
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| The
cement prices remained under pressure during most of the year due to excess
supply and slow down of |
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| economic
activity in the private and public sectors. The price of the cement came down
to its lowest level of |
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| Rs.
2,940/- per ton in December, 1997 from Rs. 3,140/- per ton in June, 1997. The
average selling price of |
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| cement
declined to Rs. 3,483/- per ton from Rs. 3,538/- per ton in the preceding
year. The Company could not |
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| maintain
it's previous levels of sales due to aggravation of oversupply caused by five
new plants having capacity |
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| of
4.3 million tons and could sell not more than 535,575 tons as against 678,524
tons in 1996-97 registering |
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| a
decline of 21% in the sales volume. |
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| PROFITABILITY |
|
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| The
profitability of your company is being squeezed between the rising cost of
inputs like high electricity charges, |
|
| higher
furnace oil prices, high incidence of taxes and lower cement prices caused by
depressed demand of |
|
| cement.
As a result the net sales revenue declined to Rs. 1,030/- million from Rs.
1,213/- million in 1996-97. |
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| Due
to stringent controls and cost reduction methods, the Company was able to
generate a nominal gross profit |
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| of
Rs. 76.7 million which could have been more if the Company had operated at
full capacity as in the previous |
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| year.
The Company was also able to reduce its administrative and selling expenses
besides reducing factory |
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| overhead
expenses. Even at the reduced operations and sales volumes, the Company was
able to earn an |
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| operating
profit of Rs. 10 million as against operating loss of Rs. 2.8 million in the
preceding year. After accounting |
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| for
financial expenses of Rs. 231 million, the loss for the current year amounted
to Rs. 225.9 million. This |
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| compares
favourably with the loss of Rs. 293.5 million incurred in the preceding year. |
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| FINANCIAL
RESTRUCTURING |
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| Inspite
of severe cash flow problems, the Company continued to make payments to the
DFI's and paid |
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| Rs.
119 million during 1997-98. The Company has all along maintained that cement
projects require longer |
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| repayments
periods and any repayment in a short period of seven to eight years puts
heavy burden on |
|
| their
cash flows. The short repayment periods have also no relevance to the useful
life of a cement plant |
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| which
is to last for 30 to 40 years. Your Company had requested the DFI's to
restructure our loans according |
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| to
our cash flows and the current crisis in the cement sector. Industrial
Development Bank of Pakistan and |
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| Saudi
Pak Argicultural & Investment Co. (Pvt) Ltd. had rescheduled their loans.
The Board of National Development |
|
| Finance
Corporation has approved rescheduling of loans in its meeting held on 17th
December, 1999. Asian |
|
| Development
Bank and Asian Finance & Investment Corp. Ltd. who had earlier
rescheduled the loans are |
|
| inclined
to again reschedule the same as soon as conditions in the cement sector are
conducive for implementing |
|
| a
sustainable repayment schedule. |
|
|
| Bankers
Equity Ltd. (BEL) have, however, initiated legal proceedings for recovery of
their investments. The |
|
| company
has also filed a suit against BEL amounting to Rs. 1,215 million representing
damages which inter- |
|
| alia
include huge cost overruns of the project caused due to delay in the release
of investment by BEL and loss |
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| of
profit due to delay in completion of the project. |
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| AUDITORS'
QUALIFICATIONS |
|
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| Going Concern |
|
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| The
auditors have in their report indicated that there exists significant
uncertainty that the company will be able |
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| to
continue as a going concern on the basis of losses incurred, declining
current ratio and non rescheduling of |
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| loans
by the Development Financial Institutions (DFIs). Similar apprehensions were
expressed in the last audit |
|
| report,
but you will appreciate that losses are showing a declining trend and current
ratio has also improved |
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| subsequent
to the rescheduling of loans by NDFC. |
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| In
view of the above the Company is confident that the operations of the Company
will continue inspite of |
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| temporary
difficulties, and the rescheduling of loans by other DFIs expected shortly,
will significantly improve
~ |
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| the
financial health of the Company.
:~:~:~: |
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|
| Exchange
Risk Fee |
|
|
| The
auditors are of the opinion in the light of a technical release issued by the
Institute of Chartered Accountants |
|
| of
Pakistan, the exchange risk fee should be charged to profit and loss account.
However, as per the legal |
|
| opinion
sought by your Company with reference to the International Accounting
Standard No. 23, the Company |
|
| can
continue to capitalise foreign exchange cover fee payable to State Bank of
Pakistan against foreign cur- |
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| rency loans. |
|
|
| Additional
Mark-Up |
|
|
| The
auditors are of the opinion that since financial restructuring with the DFIs
is still in process and the original |
|
| schedules
of loans have not been revised, additional mark up (penal interest) provided
in the loan agreements |
|
| with
the DFIs for late payment of installments should be charged to the accounts.
The contention of the man- |
|
| agement
is that since it was in principle agreed with all the DFIs that no penal
interest / additional mark-up will |
|
| be
charged on restructuring of loans, the same has not been charged in the
accounts. The contention of the |
|
| management
is further strengthened by the fact that no penal interest has been charged
by the DFIs who have |
|
| so
far rescheduled their loans. |
|
|
| Confirmation
of Loan Balances |
|
|
| Auditors
have stated in their report that the loan balances as on 30.6.1998 have not
been confirmed by the local |
|
| DFIs.
We feel that since rescheduling of loans was in progress, the DFIs did not
confirm the loan balances on |
|
| the
standard balance confirmation letters issued by the auditors. They however
agree that except for penal |
|
| interest
other accrual have been made in the accounts on the basis of original loan
agreements. |
|
|
| FUTURE OUTLOOK |
|
|
| The
present crisis in the cement industry is a temporary phenomenon mainly due to
depressed demand of |
|
| cement
and high incidence of taxation. Excise Duty which is the largest single
component of the price of cement |
|
| is
levied at the highest rate of 40% as compared to any country in South Asia.
The per capita consumption of |
|
| cement
in Pakistan has remained stagnant at 70Kg for the last many years whereas in
neighbouring India, it |
|
| has
gone up to 82 Kg. There has been a negative growth of 3% in the demand of
cement in Pakistan during |
|
| 1997-98
as compared to a growth of 9.5% achieved in India. Unless the government
accelerates the infrastructure |
|
| projects
and promotes low cost housing schemes alongwith development of concrete
roads, the demand of |
|
| cement
will continue to be depressed. It is, however heartening to note that the
revised public sector development |
|
| programme
envisages a total outlay of Rs. 110 billion for the next year. The committee
appointed by the State |
|
| Bank
of Pakistan has also taken cognizance of the financial problem of the cement
sector and is reported to |
|
| have
recommended financial restructuring on a massive scale. The gradual reviva of
business confidence and |
|
| the
recent lifting of economic sanctions by aid donor countries will certainly
pave the way for increasing eco- |
|
| nomic
activity in the country and boost the demand of cement in the country. |
|
|
| YEAR
2000 PROBLEM |
|
|
|
|
| PCL
had already anticipated the year 2000 problem at the time of purchasing
hardware and development of |
|
| softwares.
However, in some of the equipment of the factory the problem is being
attended and is expected |
|
| to
be solved shortly. As such we do not anticipate to face any year 2000
problem. |
|
|
| ACKNOWLEDGMENT |
|
|
| The
Directors would like to express the heartiest thanks to the Directors and
Officials of Asian Development Bank, |
|
| Asian
Finance and Investment corporation, National Development Finance Corporation,
National Bank of Pakistan, |
|
| Industrial
Development Bank of Pakistan and Saudi Pak Industrial and Agricultural
Investment Co., for their continued |
|
| support
to the Company. |
|
|
| Thanks
are also due to Nissho Iwai Corporation, Crescent Investment Bank Limited and
Pak Libya Holding Co. |
|
| for
their cooperation with the Company. |
|
|
| The
Directors also appreciate the strenuous efforts made by the distributors and
the employees of the Company |
|
| for
producing the best possible results remaining within the crisis situation
prevailing in the cement sector. It is |
|
| hoped
that they will continue to work with the same zeal and spirit. |
|
|
| for
and on behalf of the Board of Directors |
|
| MALIK
MANZOOR HAYAT NOON |
|
| Chairman |
|
|
|
| AUDITORS'
REPORT TO THE MEMBERS |
|
|
| We
have audited the annexed balance sheet of Pioneer cement Limited as at June
30, 1998 and the related |
|
| profit
and loss account and the statement of changes in financial position, together
with the notes forming |
|
| part
thereof, for the year then ended and we state that: |
|
|
| 1.
The company has recorded a loss of Rs. 225,936,972 for the year before
taxation and prior year adjust- |
|
| ments.
As at the balance sheet date, the company's current liabilities exceed its
current assets by Rs. |
|
| 1,865,028,047
and its debt equity ratio has further deteriorated during the year. The funds
generated from |
|
| operations
are not even sufficient to cover the financial charges for the year. Further,
the company has |
|
| been
unable to comply with the covenants of financial restructuring agreed with
the Asian Development |
|
| Bank,
which has resulted in the cancellation of the earlier restructuring
arrangements. In addition, Bankers |
|
| Equity
Limited has also filed a legal suit for recovery of their dues. The company
requires finances both |
|
| for
working capital and rescheduling of existing financial obligations. Without
such financial support being |
|
| available
to the company, there is significant uncertainty that the company will be
able to continue as a |
|
| going
concern. These accounts do not include any adjustments that might be
necessary should the company |
|
| not
be able to continue as a going concern. |
|
|
| 2.
The company has capitalized exchange risk fee amounting to Rs. 65,870,174
(1997: Rs. 79,466,162) as |
|
| detailed
in note 11.1 to the accounts. However, Technical Release No. 24 of the
Institute of Chartered |
|
| Accountants
of Pakistan read with the provisions of International Accounting Standard No.
23 requires |
|
| such
fee to be charged to the profit and loss account after the commencement of
commercial production. |
|
| Had
the fee been recognized as an expense, the loss for the year would had been
higher by Rs. 63,807,490 |
|
| after
taking into account depreciation of Rs.. 2,062,684 (1997: Rs. 70,836,995) and
accumulated losses |
|
| would
have increased by Rs. 265,745,163 (1997: Rs. 201,937,673). |
|
|
| 3.
The company has incorporated financial charges without taking into account
additional mark-up / penal in- |
|
| terest
and liquidated damages on overdue installments of long term loans and
redeemable capital aggregating |
|
| Rs.
288,013,895 (1997: Rs. 250,989,198) as per the loan covenants. We are of the
opinion that the company |
|
| should
have accounted for additional mark-up / penal interest amounting to Rs.
288,013,895 as per the loan |
|
| agreements,
which if provided would have the effect of increasing the accumulated loss
for the year by |
|
| Rs. 288,013,895. |
|
|
| 4.
Statement of accounts and balance confirmation certificates from financial
institutions in respect of long |
|
| term
(local currency) loans have not been received by us for our verification.
Interest has however been |
|
| provided
on such loans on the basis of original loan agreement except penal interest
as discussed in para |
|
| 3
above. Balances aggregating Rs. 989,311,152 therefore, remained unconfirmed
to us. |
|
|
| Except
for the financial effects of the foregoing paras 1 to 4 above, and to the
extent to which these may affect |
|
| the
financial results of the company, we report 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, profit & loss account and the statement of changes in
financial position 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
the 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, profit & 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
companies affairs as at |
|
| June
30,1998 and of the loss and the changes in financial statement for the year
then ended; and |
|
|
| d)
In our opinion no Zakat was deductible at source under the Zakat and Ushr
Ordinance, 1980. |
|
|
| Place: Karachi |
|
Anjum Asim Shahid &
Co. |
|
| Date:
March 05, 1999 |
|
Chartered Accountants |
|
|
|
| Balance
Sheet as at June 30, 1998 |
|
|
|
|
1998 |
1997 |
|
|
Note |
Rupees |
Rupees |
|
|
| CAPITAL
AND LIABILITIES |
|
|
| Share Capital |
|
2 |
954,371,000 |
954,371,000 |
|
|
| Accumulated
loss |
|
(469,809,169) |
(239,095,701) |
|
|
---------- |
---------- |
|
|
|
484,561,831 |
715,275,299 |
|
|
| Redeemable
capital |
|
3 |
101,835,528 |
136,736,507 |
|
|
|
|
| Long
term loans |
|
4 |
990,446,641 |
1,324,083,732 |
|
|
|
|
| Liabilities
against assets |
|
|
|
| subject
to finance lease |
|
5 |
5,871,996 |
15,333,901 |
|
|
|
|
| Deferred
liabilities |
|
6 |
102,316,877 |
120,497,551 |
|
|
| Long
term deposits |
|
565,364 |
423,000 |
|
|
| CURRENT
LIABILITIES |
|
|
| Short
term loans |
|
7 |
240,602,379 |
42,553,138 |
|
| Current maturities of
redeemable |
|
|
| capital, long term loans
and obligations |
|
|
| under
finance lease |
|
8 |
874,619,100 |
526,958,936 |
|
| Creditors,
accrued & other liabilities |
9 |
1,034,083,107 |
1,087,092,564 |
|
|
|
|
|
|
2,149,304,586 |
1,656,604,638 |
|
| Contingencies
and commitments |
|
10 |
|
|
---------- |
---------- |
|
|
3,834,902,823 |
3,968,954,628 |
|
|
========== |
========== |
|
| FIXED
ASSETS - TANGIBLE |
|
|
| Operating
fixed assets |
|
11 |
3,446,851,283 |
3,517,605,498 |
|
| Assets
subject to finance lease |
12 |
31,666,667 |
36,666,667 |
|
| Capital
work-in-progress |
|
13 |
399,707 |
39,222,334 |
|
|
|
3,478,917,657 |
3,593,494,499 |
|
| Long
term deposits, prepayments |
|
|
| and
deferred cost |
|
14 |
71,708,627 |
47,637,439 |
|
|
|
|
| CURRENT ASSETS |
|
|
|
|
|
|
| Stores,
spares and loose tools |
15 |
135,857,343 |
135,218,077 |
|
| Stock in trade |
|
16 |
42,860,070 |
86,677,778 |
|
| Trade debtors |
|
17 |
26,309,208 |
55,982,552 |
|
| Advances,
deposits, prepayments |
|
|
| and
other receivables |
|
18 |
37,704,184 |
31,960,846 |
|
| Cash
and bank balances |
|
19 |
41,545,734 |
17,983,437 |
|
|
---------- |
---------- |
|
|
284,276,539 |
327,822,690 |
|
|
---------- |
---------- |
|
|
3,834,902,823 |
3,968,954,628 |
|
|
========== |
========== |
|
| The
annexed notes form an integral part of these accounts |
|
|
| Javed Ali Khan |
|
Malik Manzoor Hayat Noon |
|
| Chief
Executive |
|
Chairman |
|
|
|
| Profit
& loss account |
|
| for
the year ended June 30, 1998 |
|
|
|
|
1998 |
1997 |
|
|
Note |
Rupees |
Rupees |
|
|
| Sales |
|
20 |
1,029,987,719 |
1,212,826,384 |
|
| Cost
of goods sold |
|
21 |
953,230,162 |
1,141,884,558 |
|
|
|
---------- |
---------- |
|
| Gross profit |
|
|
76,757,557 |
70,941,826 |
|
| Selling
and administration expenses |
22 |
66,543,472 |
73,791,001 |
|
|
|
---------- |
---------- |
|
| Operating
profit / (loss) |
|
|
10,214,085 |
(2,849,175) |
|
| Other income |
|
23 |
1,745,980 |
2,054,754 |
|
|
|
---------- |
---------- |
|
|
|
11,960,065 |
(794,421) |
|
|
|
|
| Financial
charges |
|
24 |
231,940,879 |
260,349,936 |
|
| Other charges |
|
25 |
5,956,158 |
32,398,013 |
|
|
|
---------- |
---------- |
|
| Loss
for the year |
|
|
(225,936,972) |
(293,542,370) |
|
| Prior
years' adjustments |
|
26 |
(4,776,496) |
(10,751,401) |
|
| Taxation |
|
27 |
- |
10,358,027 |
|
|
---------- |
---------- |
|
|
| Loss
after taxation |
|
(230,713,468) |
(293,935,744) |
|
| Accumulated
loss brought forward |
|
(239,095,701) |
54,840,043 |
|
|
---------- |
---------- |
|
| Accumulated
loss carried forward |
|
(469,809,169) |
(239,095,701) |
|
|
========== |
========== |
|
| The
annexed notes form an intergal part of these accounts. |
|
|
| Javed Ali Khan |
|
Malik Manzoor Hayat Noon |
|
| Chief
Executive |
|
Chairman |
|
|
|
| Statement
of changes in financial position |
|
| for
the year ended June 30, 1998 |
|
|
|
1998 |
1997 |
|
|
Rupees |
Rupees |
|
|
| Cash
flow from operating activities |
|
|
| Loss
after taxation |
|
(225,936,972) |
(293,542,370) |
|
| Add
/ (less) adjustments for non cash charges |
|
|
|
| Depreciation |
|
148,063,664 |
175,321,146 |
|
| Amortisation
of deferred costs |
|
16,744,467 |
8,497,410 |
|
| Adjustments
/ loss on sale of fixed assets |
|
4,735,818 |
(36,746) |
|
| Provision
for gratuity |
|
4,202,560 |
1,090,873 |
|
| Deferred
mark-up |
|
(27,160,330) |
(80,496,325) |
|
|
---------- |
---------- |
|
| Loss
before working capital changes |
|
(79,350,793) |
(189,166,012) |
|
| Movement
in working capital |
|
| (Increase)
/ decrease in current assets: |
|
| Stores,
spares and loose tools |
|
(639,266) |
7,837,125 |
|
| Stock in trade |
|
43,817,708 |
(30,641,586) |
|
| Trade debtors |
|
29,673,344 |
64,052,329 |
|
| Advances,
deposits, prepayments and other receivables (Net) |
(5,743,338) |
21,565,666 |
|
|
---------- |
---------- |
|
|
67,108,448 |
62,813,534 |
|
|
| Increase
/ (decrease) in creditors, accrued |
|
| and
other liabilit |
