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MIRZA SUGAR MILLS Ltd.

ANNUAL REPORT 2003

COMPANY PROFILE

DR.( MRS.) FEHMIDA MIRZA

Chairperson & Chief Executive

MIR GHULAMULLAH TALPUR

Chairman

MR. ARSH AD ABID ABBASI

MS FAREHA ABID KAZI

AUDITORS :

MIR FURQAN ALI TALPUR

MIRZA SAUL AT RAZA

MR. ALI JAWAD JABIR ANSARI

MR. ALI JAWAD JABIR ANSARI -

MIR GHULAMULLAH TALPUR -

MIRZA SAUL AT RAZA

Member

MR. UMER B ASHIR

SECRETARY&C.F.O :

M/s.KHALIDMAJID RAHMAN SARFARAZ

Auditors

RAHIM IQBAL RAFIQ & CO.

(CHARTERED ACCOUNTANTS)

BANKERS TO THE COMPANY

MUSLIM COMMERCIAL BANK LTD.

ALLIED BANK OF PAKISTAN LTD.

NATIONAL BANK OF PAKISTAN

PICIC COMMERCIAL BANK LTD.

DEHCHHAROTAPPO,LOWARISHARIFF

MILLS

DISTRICT BADIN

SINDH

DIRECTORS' REPORT

Dear Shareholders,

Your directors are pleased to present the Company's Annual Audited Financial Statements with Auditors' Report

thereon for the year ended September 30, 2003.

GENERAL

Periodic Quarterly Directors Reports with Unaudited Accounts of the Company have already covered a signifi-

cant portion of the present report and major aspects of the operational and financial activities of the Company.

Sugar Industry, the vital economic organ of the economy after Textile Industry is passing through a critical phase.

Once a milching cow and a golden egg laying industry has been made to carry so much burden, that at present,

only a handful of the Mills are generating profit, while the majority of the mills are suffering losses, some are

incurring huge unbearable losses, which would choke their existence.

Your mill is also one of such mill which is very strongly fighting the odds.

Presently there are factors, which are affecting the Industry, borne out of Provincial considerations. In Punjab the

Industry has been able to keep up with the crisis, as there is ample sugarcane crop due to water availability,

higher sugar price by about Re. I/- per kg. compared to Sindh and lower sugarcane price fixed by the Punjab

Government. The shortage of sugar in Punjab has almost diminished. Previously, Sindh was a net exporter of

sugar, this has not changed but the export of sugar has been limited to new Punjab areas and buying by TCP and

direct/indirect exports to Afghanistan. Government of Sindh has positively responded to the problems of Sindh

Sugar Industry. There were certain concessions announced by the Government during the reporting Season 2002-

2003, wherein sugarcane price was fixed at Rs. 43/- with split of payment in two parts i.e. Rs. 40/- to be paid at the

time of delivery of sugarcane and Rs. 3/- to be paid after the season was over. There were also firm commitments

that mills would not be forced to pay Quality Premium; however, government had to back out on this issue due

to extensive agriculture lobby out cry. The issue of Quality Premium is under litigation at Supreme Court, the

Industry contending Q.P. being not payable.

The Company is also facing resistance from Banks/DFIs for recovery of their dues. All the Banks/DFIs except for

ZTBL and SPCB, are in courts. However, the company has applied to the Committee for Revival of Sick Industrial

Units for restructuring and also applied to all the Banks/DFIs for availing the benefits offered under SBP Circular

BPD 29 of October 15, 2002. Company management is hopeful for a favourable outcome from the above formus,

which would give the company substantial leverage to overcome its financial difficulties and to become a viable

unit.

The District Badin has become prone to calamities. In last four years Badin has experienced floods, draughts,

earthquake and cyclone. There was unprecedented floods in Badin during end July beginning August 2003. The

flood was men made as Punjab had diverted its rain water and canal water into Left Bank Outfal Drain (LBOD)

resulting in the banks of the rivers and canals giving way causing heavy losses to lives and properties. Your mill

also suffered, however, due to adequate insurance coverage any major loss was averted.

The company has fought all odds against its existence and valiantly being able to survive. Company has arranged

financial resources to operate the mills from unconventional sources and kept itself as a going concern.

PERFORMANCE REVIEW

The operating results of your company for the season are as under :-

2002-2003

2001-2002

Season started

20-12-2002

12-11-2001

Season closed

08-04-2003

24-03-2002

Days worked

110

133

Sugarcane crushing

(Tons)

288,080

208,628

(Maunds)

7,718,295

5,589,605

Sugar recovery

(%)

9.841

10.01

Sugar production

(Tons)

28,350

20,885

Molasses recovery

(%)

5.458

5.314

Molasses production

(Tons)

15,726

11,089

You will note that the company has been able to produce and crush more sugar and sugarcane due to availability

factor. Due to flood aftermath, the ensuing season seems to be less productive.

FINANCIAL RESULTS

2002-2003

2001-2002

Loss for the year

-84,256,531

-102,122,290

Provision for taxation

231,930

-1,676,578

-84,024,601

-103,798,868

Accumulated loss

forward

-579,388,561

-475,589,693

Accumulated loss

forward

-663,413,162

-579,388,561

Financial results are better than previous year, however, loss to the entire industry emanates from the higher

fixation of sugarcane support price and provision of Quality Premium (QP) at unreasonable lower Bench mark

recovery factor of 8.7%. Your company is contesting the QP matter of the last season in the Supreme Court,

however, provision for the Q.P. has been incorporated in the accounts.

SEASON 2003-2004

The next season is expected to commence from beginning of December 2003. There were extensive crop damages

due to flood in July-August-2003. Sugarcane crop has also suffered losses, however, we are hopeful for about the

matching crushing of last year, as upper Sindh areas have benefitted from the rains.

There is also another positive factor, that of, sugar cane price which has been reduced by Rs. 2/- per maund

compared to last year's Rs. 43/-. Government has also avoided to notify Q.P. which means there is realisation of

the looming crisis in the Sugar Industry. Both the above factors would benefit the industry to overcome losses.

TCP has also been given authorisation to procure excess quantity of sugar to facilitate in the financial difficulties

of the sugar mills. These steps would prove well for the Industry.

HEALTH, SAFETY AND ENVIRONMENT

Appropriate facilities existed for safeguarding the health of employees in accordance with the Factories Act 1948

and National Environment Quality Standard (N.E.Q.S.) for Sugar Industry.

INFORMATION TECHNOLOGY

Improvement and up-gradation of the existing instruments are being continuously made to coupe with the

requirements of technological advancement in this field.

AUDIT REPORT

The Audit Report for the year under review contains certain qualifications, which are being addressed as follows

1. The management of the Company has initiated a program to avail the scheme under SBP Circular No. 29

of October 15, 2002 for settlement of Banks/DFIs dues. For this purpose, the company is pursuing all

Banks and DFIs for making arrangements to include our company for availing the benefits. Further the

management is endeavouring to mitigate the present unfavourable financial condition by arranging Rs.

30.00 million for the ensuing crushing season. The Company's ability to continue as a going concern is

being watched carefully, all events affecting the going concern basis are under constant review.

2. Sugar Industry in Sindh is facing acute financial crises due to paucity of sugarcane. Furthermore, the

company is operating seasonally for about 130 to 150 days in a year, depending on the availability of

sugarcane and as such the plant is operating at about 50% capacity. Therefore, employees are requested

to avail their accumulated absence during off season. Nevertheless, employees are laid off during off

season to save employees cost. In the opinion of management, the matter as mentioned in the audit

report, is not material to warrant the disclosure under IAS-19.

3. The Instirute of Chartered Accountants of Pakistan and Banks/DFIs have an understanding in the matter

of direct confirmation by Banks and DFIs, we cannot influence the Banks and DFIs for confirmation.

BOARD OF DIRECTORS

There has been no change so far in the Board of Directors since after its constitution through Election of Directors

on February 27, 2003.

AUDITORS

The present auditors - M/s. Khalid Majid Rahman Sarfaraz Rahim Iqbal Rafiq & Co., Chartered Accountants,

retire and offer their services for the ensuing year.

The Board's Audit Committee has recommended their appointment for the ensuing year.

CODE OF CORPORATE GOVERNANCE

The Company has adopted the Code of Corporate Governance promulgated by the Securities Exchange Commis-

sion of Pakistan. We have implemented the major mandatory provisions and welcome the government step to

more fully disclose and monitor the corporate sector. We hope it will go a long way in confidence building of

small investors and will boost corporate investment.

STATEMENT OF CORPORATE AND FINANCIAL REPORTING FRAME WORK

a. The financial statements, prepared by the management of the Company, present fairly its state of affairs,

the result of its operations, cash flows and changes in equity.

b. Proper books of accounts of the company have been maintained.

c. Appropriate accounting policies have been consistently applied in preparation of financial statements

and accounting estimates are based on reasonable and prudent judgement.

d. International Accounting Standards, as applicable in Pakistan have been followed in preparation of

financial statements and any departure therefrom has been adequatley disclosed.

e. The system of internal control, which was in place, is sound in design and has been effectively imple-

mented and monitored. However, it is being continuously reviewed by internal audit and other officers

handling such procedures. The process of review will continue and any weaknesses in controls will be

removed. The function of Internal Audit has been implemented and operating successfully.

f. The Company's ability to continue as a going concern is being watched carefully, all events affecting the

going concern basis are under constant review.

g. There has been no material departure from the best practices of corporate governance, as detailed in the

listing regulations.

h. Key operating and financial data for last six (6) years in summarized form is annexed.

i. Outstanding taxes and levies are being accrued and paid as per law.

j. Value of investments based on audited accounts of Provident Fund is Rs. 2.180 million.

k. During the year 5 (five) meetings of the Board of Directors were held. Attendance by each Director is as

follows :

Name of Director

No. of Meetings Attended

Dr. (Mrs) Fehmihda Mirza

3

Mir Ghulamulla Talpur

6

Mr. Arshad Abid Abbasi

-

Ms Fareha Abid Kazi

-

Mir Furqan Ali Talpur

5

Mirza Saulat Raza

6

Mr. Ali Jawad Jabir Ansari

4

Mr. Gul Nawaz N.I.T. (Retired)

1

1. The pattern of shareholding is annexed.

m. Because of the loss sustained by the Company during the year under review, the Company has not

declared any dividend or issued bonus shares for the year.

n. There was no trading in shares of MSML held by its directors, CEO, their spouses and minor children.

o. The operating results as compared to last year are showing an improvement in turnover by 27.80% and

the operating loss of Rs. 36.493 million has been reduced to Rs. 5.922 million. The main reason for which

is increase in turnover and lower cost of sugar cane. Price of sugar was adverse.

FUTURE PROSPECTS

There are positive developments in the Government and Financial Circles.

Government has realised the burden on the sugar mills and has taken the bold decision of lowering the sugarcane

support price and doing away with QP for the first time since Pakistan coming into being. This is a very big boost

to the Industry. This step may make most of the mills viable.

The other step of allowing TCP to procure sugar for establishing a buffer would also go a long way in helping the

industry from zig zag trends in sugar price.

PATTERN OF SHAREHOLDINGS

AS AT 30TH SEPTEMBER 2003

Number of

Shareholding

Total Shares

Percentage

Share Holders

From

To

Held

321

1

100

32,100

0.23

1,127

101

500

561,530

3.98

55

501

1000

54,700

0.39

95

1001

5000

286,400

2.03

39

5001

10000

326,000

2.31

12

10001

15000

160,100

1.14

32

15001

20000

615,700

4.37

12

20001

25000

288,500

2.05

3

25001

30000

88,000

0.62

3

30001

35000

96,900

0.69

3

35001

40000

116,200

0.82

1

40001

45000

45,000

0.32

10

45001

55000

502,500

3.56

5

55001

60000

300,000

2.13

3

65001

70000

210,000

1.49

2

75001

80000

160,000

1.13

1

90001

95000

90,900

0.64

14

95001

100000

1,400,000

9.93

2

135001

140000

275,600

1.95

5

145001

150000

746,000

5.29

1

195001

200000

200,000

1.42

1

230001

235000

233,500

1.66

1

245001

250000

250,000

1.77

1

260001

265000

262,090

1.86

1

265001

270000

269,800

1.91

1

295001

300000

300,000

2.13

3

375001

380000

1,439,400

10.21

1

495001

500000

499,220

3.54

1

745001

750000

748,800

5.31

1

895001

900000

900,000

6.38

1

1260001

1265000

1,261,060

8.94

1

1375001

1380000

1,380,000

9.79

1759

14,100,000

100

Categories of Shareholders

Share Held

Directors, CEO and their Spouses and minor

Children.

Dr. (Mrs.) Fehmida Mirza (Chief Executive)

1,380,000

Mir. Ghulamullah Jaipur (Director)

200,000

Mr. Arshad Abid Abbasi (Director)

100,000

Ms. Fareha Abid Kazi (Director)

100,000

Mir Furqan Ali Jaipur (Director)

9,000

Mirza Saulat Raza (Director)

8,500

Mr. Ali Jawad Jabir Ansari

5,000

Dr. Zulfiqar Ali Mirza (Husband Dr. (Mrs.) Fehmida Mirza)

380,000

Executives

-

Public sector companies and corporations

-

Banks, Development Finance Institutions,

Non-Banking Finance Institutions, Insurance

Companies, Modarabas and mutual funds.

Muslim Commercial Bank Ltd.

146,000

National Bank of Pakistan (Former NDFC)

900,000

The Bank of Punjab

17,500

State Life Insurance Corp. of Pakistan

150,000

National Insurance Company Limited

100,000

EFU General Insurance Limited

15,500

Shareholders holding ten percent or more voting

-

interest in the listed company

Joint Stock Companies

Asonix Ind. (Pvt) Ltd.

233,500

Sarfaraz Mahmood (Pvt) Ltd.

500

Moosa, Noor Mohd, Shahzad Co. (Pvt) Ltd.

52,500

Salman Services (Pvt) Ltd.

22,000

Javed Omer Vohra & Company Ltd.

5,500

First Capital Equities Limited

500

Aziz Fida Husain & Company (Pvt) Ltd.

2,000

Y.S. Securities & Services (Pvt) Ltd.

1,000

Zahid Latif Khan Securities (Pvt) Ltd.

5,000

Continental Capital Management (Pvt) Ltd.

2,000

Darson Securities (Pvt) Ltd.

14,500

Ace Securities (Pvt) Ltd.

9,500

Salim Chamdia Securities (Pvt) Ltd.

14,500

Munaf Sattar Securities (Pvt) Ltd.

2,000

M.S. Securities (Pvt) Ltd.

15,000

M.R.A. Securities (Pvt) Ltd.

12,500

Bawa Securities (Pvt) Ltd.

500

Zillion Capital Securities (Pvt) Ltd.

20,000

A.H.K.D. Securities (Pvt) Ltd.

5,000

Time Securities (Pvt) Ltd.

1,000

Jahangir Siddiqui Capital Mkts (Pvt) Ltd.

2,000

Others

The Karachi Stock Exchange (G) Ltd.

30,500

Invest & Finance Securities (Pvt) Ltd.

6,000

Individual

3,462,230

TOTAL

14,100,000

SIX YEARS DATA AT A GLANCE

Rupees in Thousand

PARTICULARS

2003

2002

2001

2000

1999

1998

FINANCIAL DATA

1 Financial Position

Paid up Capital

141,000

Accumulated(Loss)/Profit

-663,413

-579,389

-475,590

-479,161

-279,011

-226,920

Long term Loan

653,733

663,888

678,492

690,948

124,651

183,108

Liabilities Against Assets

subject to Finance

.

120

252

508

-

Fixed Assets (At

.

689,013

725,219

727,055

700,841

678,222

668,360

Accumulated Depreciation

336,439

313,955

270,284

222,068

169,342

144,200

Long term Advance/Deposits

1,622

1,478

1,493

1,701

1,679

2,937

Current Assets

58,273

44,976

45,180

58,574

134,651

149,646

Current Liabilities

281,208

232,142

159,032

191,167

661,126

581,539

2 Income

Sales

426,298

333,546

578,710

358,882

600,130

703,543

Gross Profit/(Loss)

-5,923

-36,494

85,785

-46,675

55,286

50,000

Other Income

-

18,443

3,922

13

15

-

Pre-Tax (Loss)/Profit

-84,257

('102,122)

3,952

-204,317

-47,020

-106,388

Taxation

231

1,677

3,548

-4,168

5,071

-

3 Statistics and Ratios

Gross Profit/(Loss)

%

-1.39

-10.94

14.82

-13.01

9.21

7.11

Pre-tax Profit/(Los

%

-19.76

-30.62

0.68

-56.93

-7.83

-15.12

Pre-Tax Profit/(Los

%

-59.76

-72.43

2.8

-144.91

-33.35

-75.45

Current Ratio

1:4.83

1:5.16

1:3.52

1:3.26

1:4.91

1:3.89

Paid-up Value per Share

10

Earnings after Tax per Share

-5.96

-7.36

0.61

-14.19

. (2.13)

-7.55

Cash Dividend

-

5,000

-

_

Market Value per Share

2.5

1.7

1.5

1.4

2

1.5

OPERATING DATA

Season Started

20-12-2002

12.11.2001

08.11.2000

29.10.1999

19.11.98

07.11.97

Season Closed

08-04-2003

24.03.2002

19.03.2001

29.02.2000

10.04.99

10.04.98

Days Worked

110

133

132

124

143

155

Sugarcane Crushed

288,080

208,628

276,103

252,626

399,953

414,156

Sugarcane Crushed

7,718,295

5,589,605

7,397,402

6,768,398

10,715,621

11,096,152

Sugar Recovery

%

9.841

10.01

9.826

9.512

9.722

10.9

Sugar Production

28,350

20,885

27,122

24,033

38,919

45,045

Molasses Recover

%

5.458

5.314

5.316

4.789

5

4.86

Molasses Production

15,726

11,089

14,675

12,102

20,012

20,080

REVIEW REPORT TO THE MEMBERS ON STATEMENT

OF COMPLIANCE WITH BEST PRACTICES OF

CODE OF CORPORATE GOVERNANCE

We have reviewed the Statement of Compliance with the best practices contained in the Code of Corporate

Governance prepared by the Board of Directors of Mirza Sugar Mills Limited to comply with the Listing

Regulations No. 37 and Chapter XIII of the Karachi and Lahore Stock Exchanges where the Company is listed.

The responsibility for compliance with the Code of Corporate Governance is that of the Board of Directors of the

Company. Our responsibility is to review, to the extent where such compliance can be objectively verified,

whether the Statement of Compliance reflects the status of the Company's compliance with the provisions of the

Code of Corporate Governance and report if it does not. A review is limited primarily to inquiries of the

Company personnel and review of various documents prepared by the Company to comply with the Code.

As part of our audit of financial statements we are required to obtain an understanding of the accounting and

internal control systems sufficient to plan the audit and develop an effective audit approach. We have not carried

out any special review of the internal control system to enable us to express an opinion as to whether the Board's

statement on internal control covers all controls and the effectiveness of such internal controls.

Based on our review nothing has come to our attention which causes us to believe that the Statement of Compli-

ance does not appropriately reflect the Company's compliance, in all material respects, with the best practices

contained in the Code of Corporate Governance as applicable for the year ended on September 30, 2003.

16. The meetings of the audit committee were held at least once every quarter prior to approval of interim and

final results of the Company and as required by the Code. The terms of reference of the committee have been

formed and advised to the committee for compliance.

17. The Board has set-up effective internal audit function.

18. The statutory auditors of the Company have confirmed that they have been given a satisfactory rating under

the quality control review programme of the Institute of Chartered Accountants of Pakistan, that they or any

of the partners of the firm, their spouses and minor children do not hold shares of the Company and that the

firm and all its partners are in compliance with International Federation of Accountants (IF AC) guidelines on

code of ethics as adopted by Institute of Chartered Accountants of Pakistan.

19. The statutory auditors or the persons associated with them have not been appointed to provide other services

except in accordance with the listing regulations and the auditors have confirmed that they have observed

IF AC guidelines in this regard.

20^ As there is no related party transaction, the statement regarding Transfer Pricing, in pursuance of SECP

directive as communicated by Karachi Stock Exchange (Guarantee) Ltd. vide its Notice No. KSE/N-5260

dated November 5, 2003, is not applicable to our Company.

21. We confirm that all other material principles contained in the Code have been complied with.

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of MIRZA SUGAR MILLS LIMITED as at September 30, 2003 and the

related profit and loss account, cash flow statement and statement of changes in equity together with the notes

forming part thereof, for the year then ended and we state that we have obtained all the information and explana-

tions which, to the best of our knowledge and belief, were necessary for the purposes of our audit.

It is the responsibility of the Company's management to establish and maintain a system of internal control, and

prepare and present the above said statements in conformity with the approved accounting standards and the

requirements of the Companies Ordinance, 1984. Our responsibility is to express an opinion on these statements

based on our audit.

We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards