| CHERAT PAPER SACK LIMITED |
|
|
|
|
|
|
| ANNUAL
REPORT 2004 |
|
|
| Board of Directors |
|
Mr. Mohammed Faruque |
Chairman |
|
|
|
Mr. Zahid Faruque |
|
Chief Executive /
Managing Director |
|
|
|
Mr. Iqbal Faruque |
|
Director |
|
|
|
Mr. Ahmad Faruque |
Director |
|
|
|
Mr. Mahmood Faruque |
Director |
|
|
|
Mr. Akbarali Pesnani |
Director |
|
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|
Mr. Shehryar Faruque |
Director |
|
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|
Mr. Amer Faruque |
|
Director |
|
|
|
Mr. Omar Faruque |
Director |
|
|
|
Chairman |
|
|
|
Member |
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|
|
Member |
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| Company
Secretary |
Mr. Abid A. Vazir |
|
|
|
| Audit Committee |
|
Mr. Mohammed Faruque |
|
|
|
Mr. Zahid Faruque |
|
|
|
Mr. Iqbal Faruque |
|
|
|
| Auditors |
|
Ford Rhodes Sidat Hyder
& Co. |
|
|
|
Chartered Accountants |
|
|
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| Legal Advisors |
|
K.M.S. Law Associates |
|
|
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| Bankers |
|
ABN Amro Bank |
|
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|
Allied Bank Ltd. |
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|
Habib Bank Ltd. |
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|
Muslim Commercial Bank
Ltd. |
|
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National Bank of Pakistan |
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|
PICIC Commercial Bank
Ltd. |
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|
Soneri Bank Ltd. |
|
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|
Standard Chartered Bank
Ltd. |
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| Registered Office |
|
1st Floor, Betani Arcade, |
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|
|
Jamrud Road, |
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|
Peshawar. |
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| Factory |
|
Plot No. 26, |
|
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|
Gadoon Amazai Industrial
Estate |
|
|
|
Distt. Swabi, |
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|
N.W.F.P. |
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| Regional Office |
|
3, Sunder Das Road, |
|
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|
Lahore. |
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| Head Office |
|
Modern Motors House, |
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|
Beaumont Road, |
|
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|
Karachi-75530. |
|
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| Islamabad Office |
|
Mezzanine Floor, |
|
|
|
Razia Sharif Plaza,
91-Blue Area |
|
|
Islamabad. |
|
|
| DIRECTORS'
REPORT TO THE MEMBERS |
|
| FOR
THE YEAR ENDED JUNE 30, 2004 |
|
| The
Board of Directors has pleasure in reporting the performance of your company
for the financial year |
|
| ended
June 30, 2004. |
|
|
| OVERVIEW |
|
| In
presenting this report, the Board must record, with considerable satisfaction
that the economy of Pakistan |
|
| continued
to flourish with most of the prominent sectors of business recording
continued growth and economic |
|
| indicators
remaining positive. |
|
|
| PERFORMANCE
OF THE COMPANY |
|
| The
revival of construction activities in Pakistan and Afghanistan, with the
consequential increased demand |
|
| for
cement, has benefited the company with marginally improved sales of cement
bags as evident from the |
|
| financial
report. The Government must be congratulated for their bold initiatives and
policies towards assisting |
|
| the
commercial and industrial sectors. |
|
|
| Production
and dispatches |
|
| Output
for the financial year, under review, was satisfactory reflecting an increase
to 57.73 million bags as |
|
| against
55.48 million bags in the year 2002/03, an improvement of 2.25 million bags.
Quantity of bags |
|
| dispatched
also increased by 2.31 million bags i.e. 4% as compared to last year. The
increased dispatches, |
|
| however,
is not reflected in an improvement in the net sales due to a drop in the
average selling price of |
|
| cement bags. |
|
|
| The
results indicate a more vigorous marketing strategy adopted to retain your
company's position in the |
|
| market
against competitors but at a cost of reduced revenue. |
|
|
| The
comparative figures of production and dispatches are as follows: |
|
|
|
2003/04 |
2002/03 |
Variance |
|
|
(bags in million) |
(bags in million) |
(in % age) |
|
| Production |
57.73 |
55.48 |
4% |
|
| Dispatches |
57.82 |
55.51 |
4% |
|
|
|
|
| Marketing |
|
| In
spite of increase by 4% in the quantity of bags dispatched during the year,
sales in financial terms did |
|
| not
increase in the same proportion due to drop in the average selling price. By
pursuing an aggressive |
|
| marketing
policy, the company was able to counter the threat posed by the influx of
imported bags in the |
|
| country.
Sale of bags, during the year, realized Rs. 571 million as against Rs. 594
million in the previous |
|
| year.
The company is actively exploring new regional markets for its bags and has
achieved some success |
|
| in this respect. |
|
|
| Financial
performance |
|
| The
drop in the average selling price resulted from the heavy influx of imported
bags into the country and |
|
| as
indicated earlier, our having to meet intense competition from other
manufacturers of the same product. |
|
| It
will be noted from the accompanying financial statements that the average per
bag rate for the year |
|
| 2003/04
dropped to Rs. 9.90 against the 2002/03 figure of Rs. 10.70 per bag. There is
a reduction in the |
|
| selling
price of Rs. 0.80 per bag, which figure if reflected into the year 2003/04
dispatches, will show a |
|
| loss
in revenue of Rs. 46.26 million, which is a substantial figure. |
|
|
| The
Company has been declaring regular dividends to its shareholders. |
|
|
| There
is nothing outstanding against your company on account of taxes, duties,
levies and other |
|
| charges
except for those which are being made in the normal course of business. |
|
|
| The
Company maintains Provident and Gratuity Fund accounts for its employees.
Stated below are |
|
| the
values of the investment of the funds as on 30th June 2004. |
|
|
| -
Provident Fund
Rs. 7.21 million |
|
|
| -
Gratuity Fund
Rs. 6.75 million |
|
|
| In the year 2003/04, the
Board of Directors of the Company held four (4) meetings. The attendance |
|
| record of each director is as
follows: |
|
|
|
| Name of Director |
|
Meetings Attended |
|
| Mr. Mohammed Faruque |
|
4/4 |
|
| Mr. Zahid Faruque |
|
4/4 |
|
| Mr. Iqbal Faruque |
|
3/4 |
|
| Mr. Ahmad Faruque* |
|
1/4 |
|
| Mr. Mahmood Faruque |
|
2/4 |
|
| Mr. Akbarali Pesnani |
|
3/4 |
|
| Mr. Shehryar Faruque |
|
4/4 |
|
| Mr. Amer Faruque |
|
4/4 |
|
| Mr. Omar Faruque** |
|
4/4 |
|
| Mr. AI-Malik Khoja (NIT)** |
|
1/1 |
|
|
| EXPANSION
OF PRODUCTION FACILITIES |
|
| In
order to cope with the increased demand for paper bags from the cement
industry, the Board of Directors |
|
| of
the Company has decided to procure another tuber and bottomer for the plant.
This will enhance our |
|
| existing
production capacity, which would enable us to meet the demand for paper bags
not only in |
|
| Pakistan
but also abroad. |
|
|
| FUTURE
PROSPECTS |
|
| With
the revival of developmental activities in the country, the cement industry
is poised for robust growth |
|
| in
demand. The company is fully geared to meet the enhanced demand for paper
bags from the cement |
|
| industry.
Further, the company is also exploring new regional markets for its paper
bags actively. |
|
|
| AUDITORS |
|
| The
present auditors M/s. Ford Rhodes Sidat Hyder & Co., Chartered
Accountants, retire and offer |
|
| themselves
for reappointment. |
|
|
| STATEMENT
OF COMPLIANCE WITH THE CODE OF |
|
| CORPORATE
GOVERNANCE |
|
|
| This
statement is being presented to comply with the Code of Corporate Governance
contained in the |
|
| listing
regulations of the Karachi and Lahore Stock Exchanges 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 non-executive directors and directors |
|
| representing
minority interest on its Board of Directors. However, at present there is no
independent |
|
| non-executive
director on the Board. |
|
|
| 2. The directors have confirmed that
none of them is serving as a director in more than ten listed |
|
| companies,
including this Company. |
|
|
| 3. All the resident directors of the
Company are registered as taxpayers and none of them has |
|
| defaulted
in payment of any loan to a banking company, a DPI or an NBFI or, being a
member |
|
| of
a stock exchange, has been declared as a defaulter by that stock exchange. |
|
|
| 4. A casual vacancy occurring in the
Board on October 16, 2003 was filled up within fourteen days |
|
| thereof. |
|
|
| 5. The Company has prepared a
'Statement of Ethics and Business Practices', which has been |
|
| approved
by the Board of Directors and signed by the employees of the Company. |
|
|
| 6. The Board has developed a
vision/mission statement, overall corporate strategy and significant |
|
| policies
of the Company. A complete record of particulars of significant policies
along with the |
|
| dates
on which they were approved or amended has been maintained. |
|
|
| 7. All the powers of the Board have
been duly exercised and decisions on material transactions, |
|
| including
appointment and determination of remuneration and terms and conditions of
employment |
|
| of
the executive director, have been taken by the Board. |
|
|
| 8. The meetings of the Board were
presided over by the Chairman and, in his absence, by a director |
|
| elected
by the Board for this purpose and the Board met at least once in every
quarter. Written |
|
| notices
of the Board meetings, along with agenda and working papers, were circulated
at least |
|
| seven
days before the meetings. The minutes of the meetings were appropriately
recorded and |
|
| circulated. |
|
|
| 9. The Board comprises of senior
corporate executives and professionals who are fully aware of |
|
| their
duties and responsibilities and hence need was not felt by the directors for
any orientation |
|
| course
in this regard. |
|
|
| 10. The Board has approved the
appointment of CFO and Company Secretary including their |
|
| remuneration
and terms and conditions of employment, as determined by the CEO. The Head |
|
| of
Internal Audit was appointed prior to enforcement of the Code of Corporate
Governance. |
|
| However,
in future whenever new appointment takes place, remuneration and other terms |
|
| of
employment will be referred to the Board of Directors for approval. |
|
|
| 11. The directors' report for this year
has been prepared in compliance with the requirements of the |
|
| Code
and fully describes the salient matters required to be disclosed. |
|
|
| 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 for the year ended June 30, 2004 prepared by the Board
of Directors |
|
| of
Cherat Papersack Limited to comply with the Listing Regulations 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 Compliance does not appropriately reflect the Company's
compliance, in all |
|
| material
respects, with the best practices contained in the Code of Corporate
Governance, for |
|
| the
year under review. |
|
|
| YEARWISE
STATISTICAL SUMMARY |
|
|
|
2004 |
2003 |
2002 |
2001 |
2000 |
1999 |
1998 |
|
|
(Bags in million) |
|
| Production |
|
57.73 |
55.48 |
46.62 |
51.91 |
59.87 |
54.42 |
50.84 |
| Dispatches |
|
57.82 |
55.51 |
47.55 |
51.08 |
60.02 |
54.28 |
51.25 |
| ASSETS
EMPLOYED |
|
(Rs. in '000 ) |
|
| Fixed Assets |
|
54,189 |
54,563 |
41,718 |
45,950 |
49,666 |
55,050 |
58,758 |
| Investments
and Long-term |
|
| advances
& Deposits |
27,657 |
24,055 |
27,469 |
21,445 |
18,480 |
7,624 |
11,238 |
| Current Assets |
|
320,948 |
254,645 |
199,073 |
344,057 |
272,251 |
270,801 |
265,976 |
| Total
Assets Employed |
402,794 |
333,263 |
268,260 |
411,452 |
340,397 |
333,475 |
335,972 |
| FINANCED BY |
|
|
| Shareholders'
Equity |
274,000 |
256,003 |
225,659 |
227,763 |
227,955 |
216,014 |
188,579 |
| Long-term
Liabilities |
114 |
265 |
395 |
- |
- |
10,051 |
16,781 |
| Deferred
Liabilities |
6,136 |
2,448 |
6,968 |
3,044 |
1,805 |
1,482 |
1,018 |
| Current Liabilities |
|
122,544 |
74,547 |
35,238 |
180,645 |
110,637 |
105,928 |
129,594 |
| Total
Funds Invested |
402,794 |
333,263 |
268,260 |
411,452 |
340,397 |
333,475 |
335,972 |
| TURNOVER
& PROFIT |
|
| Turn over (net) |
|
571,255 |
594,163 |
484,825 |
534,354 |
615,559 |
590,173 |
535,542 |
| Operating
Profit/(Loss) |
59,378 |
112,666 |
19,767 |
-5,230 |
75,867 |
91,410 |
100,356 |
| Profit
before taxation |
62,544 |
115,424 |
18,487 |
19,862 |
74,179 |
85,300 |
91,494 |
| Profit
after taxation |
42,477 |
75,224 |
10,136 |
16,128 |
71,101 |
82,515 |
88,817 |
| Cash dividend |
|
24,480 |
44,880 |
12,240 |
16,320 |
59,160 |
55,080 |
40,800 |
| Issue
of Bonus Shares |
8,160 |
|
| Transfer
to Reserves |
- |
30,000 |
- |
10,000 |
15,000 |
25,000 |
40,000 |
| Profit
carried forward |
38,240 |
28,403 |
28,059 |
30,163 |
40,355 |
43,414 |
40,979 |
|
| STATEMENT
OF ETHICS & BUSINESS PRACTICES |
|
| The
business policy of the company is based on the principles of honesty,
integrity and professionalism |
|
| at every stage. |
|
|
| Product Quality |
|
| Regularly
update ourselves with technological advancements and emerging trends to
produce bags/sacks |
|
| under
highest standards and maintain all relevant technical and professional
standards. |
|
|
| Dealing
with Employees |
|
| Provide
congenial work atmosphere where all employees are treated with respect and
dignity. Recognize |
|
| and
reward employees based on their performance and their ability to meet goals
and objectives. |
|
|
| Responsibility
to interested parties |
|
| To
be objective, fair and transparent in our dealings with people who have
reposed their confidence in us. |
|
|
| Financial
Reporting & Internal Controls |
|
| To
implement an effective and transparent system of financial reporting and
internal controls to |
|
| safeguard
the interest of our shareholders and fulfill the regulatory requirements. |
|
|
| Procurement
of Goods & Services |
|
| Only
purchase goods and services that are tailored to our requirement and are
priced appropriately. |
|
| Before
taking decision about procurement of any good or service, obtain quotations
from various sources. |
|
|
| Conflict
of Interest |
|
| All
the acts and decisions of the management be motivated by the interest of the
company and activities |
|
| and
involvements of the directors and employees in no way conflict with the
interest of the company. |
|
|
| Adherence
to laws of the land |
|
| To
fulfill all statutory requirements of the Government and its regulatory
bodies and follow relevant and |
|
| applicable
laws of the country. |
|
|
| We
recognize the need for working with optimum efficiency to attain desired
levels of performance. We |
|
| endeavor
to conduct our business with honesty and integrity and produce and supply
paper bags/sacks |
|
| with
care and competence, so that our clients receive the quality they truly
deserve. |
|
|
| BALANCE
SHEET AS AT JUNE 30, 2004 |
|
|
|
|
Note |
2004 |
2003 |
|
|
|
|
------- (Rupees '000)
------- |
|
| ASSETS |
|
|
|
| NON-CURRENT
ASSETS |
|
|
|
| Fixed
Assets - Tangible |
|
|
|
| Operating
assets - at book value |
|
3 |
53,570 |
54,194 |
|
| Asset
subject to finance lease |
|
4 |
295 |
369 |
|
| Capital
work-in-progress - civil works |
|
|
324 |
- |
|
|
|
54,189 |
54,563 |
|
| Long-term
investments |
|
5 |
27,010 |
23,509 |
|
| Long-term
loans and deposits |
|
6 |
647 |
546 |
|
|
|
81,846 |
78,618 |
|
| CURRENT
ASSETS |
|
|
|
| Stores,
spares and loose tools |
|
7 |
10,583 |
10,516 |
|
| Stock-in-trade |
|
8 |
172,986 |
105,400 |
|
| Trade debts |
|
9 |
56,030 |
31,821 |
|
| Loans,
advances, deposits, prepayments and other receivables |
10 |
5,411 |
10,221 |
|
| Investments |
|
|
- |
9,762 |
|
| Taxation - net |
|
|
4,509 |
- |
|
| Cash
and bank balances |
|
11 |
71,429 |
86,925 |
|
|
|
320,948 |
254,645 |
|
| TOTAL ASSETS |
|
|
402,794 |
333,263 |
|
| EQUITY
AND LIABILITIES |
|
|
|
| Share
Capital and Reserves |
|
|
|
| Authorised capital |
|
|
|
| 5,000,000
(2003: 5,000,000) ordinary shares of Rs.10/- each |
50,000 |
50,000 |
|
| Issued,
subscribed and paid-up capital |
12 |
40,800 |
40,800 |
|
| Reserve
for issue of bonus shares |
|
|
8,160 |
- |
|
| Share
premium reserve |
|
|
6,800 |
6,800 |
|
| General reserve |
|
|
180,000 |
180,000 |
|
| Accumulated
profit |
|
|
38,240 |
28,403 |
|
|
|
274,000 |
256,003 |
|
| NON-CURRENT
LIABILITIES |
|
|
|
| Liability
against asset subject to finance lease |
13 |
114 |
265 |
|
| Deferred taxation |
|
14 |
6,136 |
2,448 |
|
|
|
6,250 |
2,713 |
|
| CURRENT
LIABILITIES |
|
|
|
| Current
maturity of liability against asset subject to finance lease |
13 |
151 |
130 |
|
| Creditors,
accrued and other liabilities |
15 |
108,806 |
24,779 |
|
| Taxation - net |
|
|
- |
23,866 |
|
| Unclaimed
dividend |
|
|
1,347 |
1,292 |
|
| Proposed dividend |
|
|
12,240 |
24,480 |
|
|
|
122,544 |
74,547 |
|
| CONTINGENCIES
AND COMMITMENTS |
16 |
|
|
| TOTAL
EQUITY AND LIABILITIES |
|
|
402,794 |
333,263 |
|
|
| AUDITORS'
REPORT TO THE MEMBERS |
|
| We
have audited the annexed balance sheet of Cherat Papersack 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: |
|
|
| 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, 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 June 30, 2004 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. |
|
|
| CASH
FLOW STATEMENT FOR THE YEAR |
|
| ENDED
JUNE 30, 2004 |
|
|
|
NOTE |
2004 |
2003 |
|
|
|
------- (Rupees '000)
------- |
|
| CASH
FLOWS FROM OPERATING ACTIVITIES |
|
|
| Net
profit before taxation |
|
|
62,544 |
115,424 |
|
| Adjustment for: |
|
|
|
| Depreciation |
|
3.2 & 4 |
6,167 |
6,188 |
|
| Gain
on disposal of fixed assets |
|
|
. |
-163 |
|
| Financial charges |
|
22 |
526 |
397 |
|
| Return
on investment |
|
|
-4,932 |
-5, |
