Balochistan Particle Board Limited - Annual Reports 2004

BALOCHISTAN PARTICLE BOARD LIMITED

ANNUAL REPORT 2004

Audit Committee

The Company has established an Audit Committtee comprising of the following members:

Mr. Murtaza Habib Chairman

Mr. Imran A. Habib Member

Mr. Ali A. Rahim Member

Auditors

Present auditors Messrs. Hyder Bhimji & Company, Chartered Accountants, retire and are not eligible for

re-appointment in view of the changes brought about by the Securities & Exchange Commission of Pakistan

in the Code of Corporate Governance requiring all listed companies to change their external auditors after

every five years.

In view of the above, the Audit Committee has recommended the appointment of Messrs. Gardezi & Co.,

Chartered Accountants, as auditors of the Company for the ensuing year.

Statement on Corporate and Financial Reporting Framework

1 . The financial statements, prepared by the Company, present fairly its state of affairs, the result of its

operations, cash flows and changes in equity.

2. Proper books of account of the Company have been maintained.

3. Appropriate accounting policies have been consistently applied in preparation of the financial statements,

changes if any have been adequately disclosed and accounting estimates are based on reasonable

and prudent judgement.

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

financial statements and departure therefrom if any, has been adequately disclosed.

5. The system of internal control is sound in design and has been effectively implemented and monitored.

6. The statement in respect of Company's ability to continue as a going concern has been fully explained

in Note No. 18 (i) of the Notes to the Accounts.

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

in the listing regulations.

8. Key operating and financial data for last six years in summarized form is given on page 11 .

9. In view of the loss during the year and accumulated losses, the Company has not declared any dividend

or bonus shares.

Directors' Report

Dear Members - Assalam-o-Alekum

On behalf of my colleagues on the Board, 1 welcome you to the Twenty-fourth Annual General

Meeting of the Company and present before you the annual report, alongwith the audited accounts

of the Company, for the year ended June 30, 2004.

The manufacturing operations of the Company continued to remain closed on account of the prevailing

adverse conditions. However, the Company continues to provide storage facilities to third parties at the

factory premises. The loss after tax for the year amounted to Rs. 1 .01 6 million as shown in the accompanying

accounts.

The latest status of the pending court cases in respect of vend fee, permit fee and provincial excise duty

are summarized below :

Vend fee and permit fee demand of Rs. 57.4 million :

On March 26, 2003 the Hon'ble High Court of Sindh decided the case in favour of the Company by

maintaining that methanol does not fall within the ambit and purveiw of Sindh Abkari Act, 1878 and

as such vend fee and permit fee cannot be levied on methanol.

The Government of Sindh against the decision of Hon'ble High Court of Sindh in favour of the Company

filed a civil petition which was admitted on June 12, 2003 and the operation of the judgement of Hon'ble

High Court of Sindh has been suspended. The matter is pending before the Hon'ble Supreme Court

of Pakistan for final disposal.

Excise duty demand of Rs. 14. 1 million on inter province transportation of methanol :

The case pending before the Hon'ble High Court of Sindh against the demand of excise duty on

transportation of methanol from Karachi to Hub for Rs. 14.1 million by the Sindh Government with

interest at rates applicable on Khas Deposit Certificates was decided on August 20, 2004 in favour

of the Company by maintaining that methanol does not fall within the purview of Sindh Abkari Act 1878

and as such excise duty on transportation of methanol cannot be levied.

On August 30, 2004, Company received a notice from Advocate on Record of Hon'ble Supreme Court

of Pakistan on behalf of Government of Sindh informing that the Government of Sindh is filing a civil

petition for leave of appeal in the Hon'ble Supreme Court of Pakistan against the judgement of the

Hon'ble High Court of Sindh at Karachi.

The Board of Directors considered the prevailing adverse conditions of Formaldehyde industry and concluded

that future course of action will be decided upon the finality of the pending cases as referred to above.

Auditors' Reservation on Going Concern

The auditors in their report to the members have expressed reservation about the Company's ability to

continue as a going concern. The company maintains that since there has not been any material change

from previous year, the accounts for the year under review have also been prepared on "going concern

basis" and the reasons thereof have been more fully explained in Note No. 18(i) of the Notes to the Accounts.

Statement of Compliance with the Code of Corporate Governance

Year Ended June 30, 2004

This statement is being presented to comply with the Code of Corporate Governance contained

in Regulation No. 37 of listing regulations of the Karachi Stock Exchange (Guarantee) Limited for the

purpose of establishing a framework of good governance, whereby a listed company is managed in

compliance with the best practices of corporate governance.

The Company has applied the principles contained in the Code in the following manner:

1. The Company encourages representation of independent and non-executive directors on its

Board of Directors. At present the Board includes seven non-executive directors of which five

are independent directors.

2. The directors have confirmed that none of them is serving as director in more than ten listed

companies, including this Company.

3. All the directors of the Company are registered as taxpayers and none of them has defaulted

in payment of any loan to a banking company, DPI / NBFI or, being a member of a stock

exchange, has been declared as a defaulter by that stock exchange.

4. Casual vacancy occurring on the Board on January 26, 2004 was filled up by the directors

on February 21 , 2004.

5. All the powers of the Board have been duly exercised and decisions on material transactions,

including the terms and conditions of appointment of CEO have been taken by the Board.

6. The meetings of the Board were presided over by the Chairman. During the year Board

meetings were held in each quarter and notices along with the working papers, were circulated

at least seven days before the meetings. The minutes of the meetings were appropriately

recorded and circulated.

7. The Board has approved the appointment of CFO, Company Secretary and Head of Internal

Audit, on the terms and conditions of employment, as determined by the CEO.

8. The Directors' report has been prepared in compliance with the requirements of the Code and

describes the salient matters required to be disclosed.

9. The financial statements of the Company were duly endorsed by CEO and CFO before approval

of the Board.

10. The directors, CEO and executives do not hold any interest in the shares of the Company

other than that disclosed in the pattern of shareholding.

11. The Company has complied with all the corporate and financial reporting requirements of the

Code.

10. During the year five board meetings were held and the attendance of the concerned Director during

his tenure on the Board was as follows:

Name of Director

Total Number of

Number of meetings

Board meetings attended

Mr. Muslim R. Habib

5

Murtaza H. Habib

5

Imran A. Habib

5

AI-Malik Khoja

3

-

Raza Abbas Jaffery

5

4

Ghulam Abbas Karjatwala

5

1

AH A. Rahim

5

Ali Niaz Akhtar

5

4

Muhammad Shafi

2

11. The pattern of shareholding and additional information regarding pattern of shareholding is given on

page 26.

12. No trades in the shares of the Company were carried out by the Directors, CEO, CFO, Company

Secretary and thei

children.

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 Balochistan Particle Board Limited, to

comply with the Listing Regulation No. 37 of the Karachi Stock Exchange (Guarantee) Limited, 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.

With the exception of non-compliance of matters as more fully explained in paragraph No. 17 of the

Statement of Compliance with the Code of Corporate Governance, nothing has come to our attention

which causes us to believe that the Statement of Compliance 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 to the Company for the year ended June 30, 2004.

12. The Board has formed an audit committee comprising of three members, who are non-executive

directors including the chairman of the committee.

13. The meetings of the audit committee were held every quarter prior to approval of the interim

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

committee have been formed and advised to the committee for compliance.

14. The Board has set-up an effective internal audit function.

15. 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 (IFAC) guidelines on code of ethics as adopted by

Institute of Chartered Accountants of Pakistan.

1 6. 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 IFAC guidelines in this regard.

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

except for the following, implementation of the same has been deferred as business plan to

recommence its operation has not yet been envisaged in view of the pending court cases:

i) Statement of Ethics and Business Practices,

ii) Vision / Mission Statement

iii) Orientation Courses for Directors.

Auditors' Report to the Members

We have audited the annexed balance sheet of Balochistan Particle Board Limited as at June 30, 2004 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, 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

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 :

The annexed accounts have been prepared on a going concern basis, keeping in view of the continued

financing from affiliated company arranged as loan by sponsor directors in order to meet financial obligations

and the maintenance and upkeep of plant and machinery, as explained in Note No. 1 8(i) to the accounts.

The management has not yet envisaged any business plan to recommence its operations and presently the

company is deriving storage income by providing storage facilities to third parties at the factory premises.

The Board of Directors deliberated over the prevailing adverse conditions and concluded that further course

of action will be decided upon the disposal of the pending court cases, the details whereof are fully disclosed

in Note No. 6 to the Accounts.

In view of the prevailing conditions there is significant doubt about the company's ability to continue as a

going concern. Consequently adjustments may be required to the recorded asset amounts and classification

of liabilities.

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

Ordinance, 1984.

b) Except for the effects of above reservation, in our opinion;

i) the balance sheet, profit and loss account together with the notes thereon have been drawn

up in conformity with the Companies Ordinance, 1 984, 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 ;

Six years' review at a glance

2004

2003

2002

2001

2000

1999

(Rupees in thousands)

Operating results

Other income

680

2,036

3,044

1,445

-

Factory, administration and

financial charges

1,693

1,868

2,827

8,699

8,103

10,126

Pre tax Profit / (Loss)

-1,013

168

217

-7,254

-8,103

-10,126

Profit / (Loss) after taxation

-1,016

143

217

-7,254

-8,103

-10,126

Shareholders' equity

Paid up capital

30,000

Reserves & surplus

(44,,705)

-43,689

-43,832

-44,049

-36,795

-28,692

Shareholders' equity

-14,705

-13,689

-13,832

-14,049

-6,795

1,308

Financial position

Tangible fixed assets

6,922

7,612

8,473

34,633

33,784

34,084

Long - term investments

-

341

8,031

Long - term loans and deposits

-

1,152

1,160

Current assets

6,399

6,683

7,136

15,013

17,013

21,639

Total assets

13,321

14,295

15,609

49,646

52,290

64,914

Long - term finances

27,487

28,806

54,370

47,346

51,449

Current liabilities

539

497

635

9,325

11,739

12,157

Total liabilities

28,026

27,984

29,441

63,695

59,085

63,606

Balance Sheet as at June 30, 2004

Note

2004

2003

(Rupees in thousands)

Capital

Authorised

10,000,000 ordinary shares

of Rs. 5 each

50,000

Issued, subscribed and paid-up capital

3

30,000

Accumulated (Loss)

-44,705

-43,689

-14,705

-13,689

Long-term Finances

4

27,487

Current Liabilities

Creditors, accrued and other liabilities

5

539

497

Contingencies

6

13,321

14,295

Profit and Loss Account

for the year ended June 30, 2004

Note

2004

2003

(Rupees in thousands)

Factory, administration and financial charges

Salaries and allowances

284

Rent, rates and taxes

57

Communication, printing and stationery

153

133

Repair and maintenance

3

9

Travelling and conveyance

99

147

Directors' fee

13

10

Security guards expenses

144

Stock exchange listing fee

25

Depreciation

690

767

Legal and professional charges

34

76

Insurance

38

57

Audit fee

25

Other expenses

12

21

Financial charges

116

113

1,693

1,868

Other income

11

-680

-2,036

Profit / (loss) before taxation

-1,013

168

Taxation

12

3

25

Profit / (loss) after taxation

-1,016

143

Add: Accumulated (Loss) brought forward

-43,689

-43,832

Accumulated (Loss) carried forward

-44,705

-43,689

Earnings per share

13

Rs. (0.17)

Rs. 0.02

Note

2004

2003

(Rupees in thousands)

Tangible Fixed Assets

Operating fixed assets

7

6,922

7,612

Current Assets

3,805

Stores and spare parts

8

1,388

1,352

Advances, deposits and other

1,206

1,526

receivables - unsecured considered good

9

6,399

6,683

Cash and bank balances

10

13,321

14,295

Cash Flow Statement

for the year ended June 30, 2004

Note

2004

2003

(Rupees in thousands)

Cash flow from operating activities

Cash generated from operations

14

-145

453

Financial charges paid

-116

-128

Income tax (paid) / refund

-58

207

Net cash inflow / (outflow) from operating activities

-319

532

Cash flow from investing activities

Sale proceeds of fixed assets

-

1,075

Net cash inflow / (outflow) from investing activities

—

1,075

Cash flow from financing activities

Finance from / (repayment to) affiliated company

-

-1,319

Dividend paid

0)

-

Net cash inflow / (outflow) from financing activities

-1

-1,319

Net increase / (decrease) in cash and bank

-320

288

Cash and bank balance at the beginning of the year

1,526

1,238

Cash and bank balance at the end of the year

1,206

1,526

Statement of Changes in Equity

for the year ended June 30, 2004

Share

Accumulated

Capital

(Loss)

Total

(Rupees in thousands)

Balance as on June 30, 2002

30,000

-43,832

-13,832

Profit for the year

-

143

Balance as on June 30, 2003

30,000

-43,689

-13,689

(Loss) for the year

-

-1,016

Balance as on June 30, 2004

30,000

-44,705

-14,705

Transactions with related parties / associated undertakings are carried out at an arm's length using

Comparable Uncontrolled Price method, except for long-term finance from affiliated company which

is non-interest bearing.

Reitrement benefits

Retirement benefits are not payable to the contract employees.

Revenue recognition

Storage income is recorded on accrual basis.

2004

2003

(Rupees in thousands)

Issued, subscribed and paid-up capital

Ordinary shares of Rs. 5 each

2004 2003

Number of Shares

4,000,000 4,000,000 Shares fully paid in cash

20,000

Shares issued as fully paid

2,000,000 2,000,000 bonus shares

10,000

6,000,000 6,000,000

30,000

Long-term finances

From affiliated company - unsecured

27,487

This represents finance from affiliated company arranged by sponsor directors in order to meet

financial obligations and the maintenance of plant and machinery. The finance bears no mark-up

and is repayable when the liquidity of the company permits.

Creditors, accrued and other liabilities

152

105

Creditors

67

71

Accrued expenses

320

321

Unclaimed dividends

539

497

Notes to the Accounts

for the year ended June 30, 2004

1 . The Company and its operations

Balochistan Particle Board Limited is a public listed company formerly engaged in the manufacture

of particle board, formaldehyde and formaldehyde based resin (Glue). The manufacturing

operations of Urea Formaldehyde Division continued to remain closed on account of prevailing

adverse conditions. Company is providing storage facilities to third parties at the factory

premises.

2. Summary of significant accounting policies

2.1 Basis of preparation of accounts

These accounts have been prepared in accordance with the requirements of the Companies

Ordinance, 1984 and International Accounting Standards (IAS) as applicable in Pakistan.

2.2 Accounting convention

These accounts have been prepared under the historical cost convention.

2.3 Taxation

Provision for current taxation is computed in accordance with the provisions of the applicable

Income Tax laws.

The Company accounts for deferred taxation on all timing differences using liability

method.

2.4 Fixed assets

These are stated at cost less accumulated depreciation except freehold land which is stated

at cost.

Depreciation is charged to income applying the reducing balance method. Full year's depreciation