Knoll Pharmaceuticals Limited Pakistan - Annual Reports

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Knoll Pharmaceuticals Limited Pakistan

Annual Report 2000

Contents

Notice of meeting

Chairman's statement

Company information

Board of Directors

Juergen Koenig

(Ceased Managing Director on March 9, 2001)

Kamran Y. Mirza

Chairman and Managing Director

Pir All Gohar

(Alternate A. Gohar)

Samir Ahmed

Mohammed Amin

Muhammad Ahmad Khan

Farhat Qadeer Dar

Saleem Riaz

Secretary

Mohammad Ibadullah

Auditors

A. E Ferguson & Co

Chartered Accountants

Solicitors

Orr, Dignam & Co

Bankers

Standard Chartered Grindlays Bank Limited

Emirates Bank International

Standard Chartered Bank

The Hongkong and Shanghai Banking Corporation Limited

Muslim Commercial Bank Limited

Registered Office & Factory

Plot No. 13, Sector No. 20,

Korangi Industrial Area,

Karachi

Registrars and Share Transfer Office

Ferguson Associates (Pvt) Ltd.

l-A, State Life Building,

I.I. Chundrigar Road,

Karachi

Results at a glance

2000

1999

(Rupees '000)

Sales

810,439

719,492

Profit before tax

169,912

123,011

Profit after tax

116,815

85,699

Dividend

115,243

153,657

Shareholders' equity

454,921

453,349

Earnings per share after tax

5.07

3.72

Number of employees

430

Report of the Directors

Your Directors are pleased to present their report

together with the accounts of the Company for the

year ended December 31,2000.

Financial Highlights

(Rs '000)

Profit before taxation

169,912

Less: Taxation

53,097

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

Profit after taxation

116,815

Appropriation

Proposed dividend at Rs 5

(1999: Rs 20) per share

115,243

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

Unappropriated profit

1,572

==========

Earnings per share

The after-tax earnings per ordinary share of Rs 10 was

Rs 5.07 (1999: Rs 3.72).

Business Review

Sales of your Company at Rs 810 million for the year

ended December 31,2000 have grown by 13% over

previous year. The Company has maintained its position

during the last 2 years by increasing sales at a rate twice

than the average market growth rate.

The above growth reflects improved performance of all

major brands and launch of Froben Gel (a line extension

of Froben), Gopten and Isoptin original research products

of BASF Pharma for cardiovascular diseases.

Operating profit at Rs 136 million for the year 2000 has

increased by 73% reflecting healthy sales growth,

element of price adjustment and significant reduction in

cost of goods. The reduction in cost of goods reflects the

continued efforts of the management to control the cost

of material and improvement in the production processes

without compromising on the product quality. The savings

have also absorbed the negative impact due to

devaluation of the rupee.

Profit before tax has increased by Rs 31 million over the

previous year.

Intention to sell BASF Pharma to Abbott Laboratories

On 15th December 2000, BASF AG entered into an

agreement with Abbott Laboratories, USA for the sale of

the global pharmaceutical business of BASF, which

includes the global operations of Knoll at US$ 6.9 billion.

The transaction is expected to be completed in March

2001, subject to approval by regulatory agencies and

customary closing conditions.

Employees

The Directors would like to thank all the employees for

their continuing support and hard work during the year.

Good union/management relations will help to ensure

achievement of our common Company objectives.

Dividends

The Directors have recommended a dividend at the rate

of Rs 5 per share for the year ended December 31,2000,

as against Rs 20 per share paid in the previous year.

The proposed dividend pay out ratio is almost 100%. This

recommendation by the Directors in today's Board

Meeting is in line with the Company's strategy to offer to

the shareholders a fair return on their investment under

the current conditions.

Prospects

The long awaited price adjustment of medicines i.e. 8%

and 10% on "controlled" and "decontrolled" category of

drugs allowed by the Government in June 2000 has

provided some relief to the Pharmaceutical industry. This

adjustment was given after 3 1/2 years from the last

adjustment.

Your Company hopes that the government would seriously

look into the Pharmaceutical industry problems especially

for price adjustments, new product pricing and

registration, as well as, consistent and transparent

polices. Other major issues are the reduction of the

number of "controlled" products and the real deregulation

of "decontrolled" products.

Due to delayed registration, the country is deprived of

hi-tech products of Knoll including Reductil (Obesity),

Ganaton (Gastroentrology) and Tarka (Cardiovascular).

Consequently, it leads to smuggling, loss to government

exchequer and burden of higher cost on local consumers.

The Directors and all employees of your Company are

committed to create value for the shareholders by

providing the customers with advance health care

solutions.

Directors

During the year, Mr. Arshad Rahim Khan resigned as

Director in October 2000 and he has been replaced by

Ms. Mutasma Yasmeen, Director Technical Operations.

Subsequent Events

No other material changes or commitments, which could

affect the financial position of the Company, have

occurred between the end of the financial year and the

date of this review.

Parent Company

The Company is a subsidiary of Lupharma GmbH, which

is a wholly owned subsidiary of Knoll AG (a BASF group

Company); these companies are incorporated in

Germany.

Auditors

The present Auditors, A. F. Ferguson & Co, Chartered

Accountants, retire and, being eligible, offer themselves

for reappointment.

Shareholding

The pattern of shareholdings is detailed on page 36.

By Order of the Directors

Juergen Koenig

Karachi: February 27, 2001

Managing Director

Abstract of the Terms of Appointment under

Section 218(2) of the Companies Ordinance 1984

The Board of Directors have appointed Mr. Kamran Y.

Mirza as the Chief Executive and Managing Director of

the Company upto next election of Directors from March

9, 2001. However, his terms of appointment were fixed

at the Board Meeting held on April 12, 2001. As you may

be aware Mr. Mirza is presently the Chief Executive of

Abbott Laboratories (Pakistan) Limited ("Abbott").

As Chief Executive of Abbott, Mr. Mirza is presently

being remunerated by Abbott. Accordingly, the Company

will reimburse to Abbott a proportionate amount of the

remuneration payable to Mr. Mirza by Abbott, which

includes a managerial remuneration and certain

allowances, perquisites and other benefits payable or

provided to Mr. Mirza (inclusive of contributions to the

provident and pension funds maintained by Abbott) for

its employees, reimbursement of actual medical

expenses for his family, leave fare assistance, house

rent allowance, utility allowance and transport facilities.

Mr. Miza will also be paid such allowances and other

perquisites and be provided such benefits as are

payable or provided to the senior management staff of

Abbott.

As at the date hereof the Company's proportionate share

of the remuneration package for Mr. Mirza, which is

payable by Abbott, and which includes all allowances,

perquisites and benefits, is not expected to exceed Rs.

3.5 million per annum. The remuneration, allowances,

perquisites, benefits and other entitlements of Mr. Mirza

are subject to such increments/adjustments as per

Abbott policy.

Mr. Kamran Y. Mirza is interested in this business to the

extent of his remuneration.

Yours faithfully,

Mohammad Ibadullah

Company Secretary

Karachi: April 26, 2001

Auditors' Report to the Members

We have audited the annexed Balance Sheet of Knoll Pharmaceuticals Limited as at December 31,2000 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 explanations which, to the best of our knowledge and belief, where 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

require that we plan and perform the audit to obtain reasonable assurance about whether the above said

statements are free of any material misstatement. An audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in the above said statements. An audit also includes assessing the

accounting policies and significant estimates made by management, as well as, evaluating the overall

presentation of the above said statements. We believe that our audit provides a reasonable basis for our opinion

and, after due verification, we report that:

(a) in our opinion, proper books of account have been kept by the Company as requir

the Company;

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 change as explained in note 2.3(d) 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 the expenditure incurred during the

year were in accordance with the objects of

the Balance Sheet, Profit and Loss Account, Cash Flow Statement and Statement of Changes

in Equity together with the notes forming part thereof conform with approved accounting

standards as applicable in Pakistan, and 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 December 31, 2000 and of the profit, its cash flows and

changes in equity for the year then ended; and

(d) in our opinion Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of

1980), was deducted by the Company and deposited in the Central Zakat Fund established

under Section 7 of that Ordinance.

A.F. Ferguson & Co

Chartered Accountants

Karachi: February 28, 2001

Balance Sheet

As at December 31,2000

Note

2000

1999

(Rupees '000)

SHARE CAPITAL AND RESERVES

Authorised capital

50,000,000 (1999: 10,000,000) ordinary

shares of Rs 10 each

500,000

100,000

==========

Issued, subscribed and paid-up capital

230,485

76,828

Reserves

222,864

376,521

Unappropriated profit

1,572

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

454,921

453,349

DEFERRED LIABILITIES

16,797

9,306

CURRENT LIABILITIES AND PROVISIONS

Short-term running finances utilised

under mark-up arrangements

11,795

15,445

Creditors, accrued and other liabilities

77,143

77,251

Taxation

42,712

38,383

Proposed dividend

115,243

153,657

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

246,893

284,736

COMMITMENTS

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

718,611

747,391

==========

FIXED ASSETS

Operating assets

134,046

139,590

Capital work-in-progress

1,467

1,103

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

135,513

140,693

LONG-TERM LOANS

4,123

2,839

LONG-TERM DEPOSITS AND PREPAYMENTS

2,178

3,220

CURRENT ASSETS

Spares

6,869

5,157

Stock-in-trade

193,629

183,437

Trade debts

7,219

4,399

Loans and advances

5,354

4,795

Deposits and prepayments

9,991

12,497

Other receivables

6,748

2,414

Investments

263,792

367,818

Cash and bank balances

83,195

20,122

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

576,797

600,639

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

718,611

747,391

==========