| CHEERAT CEMENT COMPANY LIMITED |
|
|
|
|
|
|
|
| ANNUAL
REPORT 2004 |
|
|
| Board of Directors |
|
Mr. Mohammed Faruque |
Chairman |
|
|
Mr. Zahid Faruque |
|
Chief Executive /
Managing Director |
|
|
Mr. Iqbal Faruque |
|
Director |
|
|
Mr. Akbarali Pesnani |
Director |
|
|
Mr. Azam Faruque |
Director |
|
|
Mr. Muhammad Nawaz Tishna
(NIT) |
Director |
|
|
Mr. Anis Wahab Zuberi
(NIT) |
Director |
|
|
Mr. Iftikhar Ahmad
Bashir(NIT) |
Director |
|
|
| Company
Secretary |
Mr. Abid A. Vazir |
|
|
| Audit Committee |
|
Mr. Mohammed Faruque |
Chairman |
|
|
Mr. Iqbal Faruque |
|
Member |
|
|
Mr. Akbarali Pesnani |
Member |
|
|
| Auditors |
|
Ford Rhodes Sidat Hyder
& Co. |
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|
Chartered Accountants |
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| Legal Advisors |
|
K.M.S. Law Associates |
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| Bankers |
|
ABN Amro Bank |
|
|
Allied Bank of Pakistan
Ltd. |
|
|
Bank AI-Habib 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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|
NIB-NDLC IFIC Bank Ltd. |
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|
Standard Chartered Bank
Ltd. |
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|
Soneri Bank Ltd. |
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|
Union Bank Ltd. |
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| Registered Office |
|
Modern Motors House, |
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|
Beaumont Road, |
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|
Karachi-75530 |
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| Sales Office |
|
1sl Floor, Betani Arcade |
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|
Jamrud Road |
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|
Peshawar. |
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| Islamabad Office |
|
Mezzanine Floor, |
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|
Razia Sharif Plaza,
91-Blue Area |
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|
Islamabad. |
|
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| Factory |
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Village Lakrai, |
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|
P.O. Box 28 |
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|
Nowshera. |
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| Regional Office |
|
3, Sunder Das Road, |
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|
Lahore. |
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| NOTES: |
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| 1. The register of members of the
Company will be closed from Wednesday, October 13, 2004 to |
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| Wednesday,
October 27, 2004 inclusive and no transfers will be registered during that
time. |
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| Shares
received in order at the registered office of the Company at the close of
business on |
|
| Tuesday,
October 12, 2004 will be treated in time for the entitlement of 40% cash
dividend and |
|
| 25%
bonus shares. The payment of dividend will be made on the existing paid-up
capital of |
|
| Rs.
531,923,5207-. |
|
|
| 2. A member of the Company eligible to
attend and vote at the Annual General Meeting may appoint |
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| another
member as his/her proxy to attend and vote in his/her stead. Proxies to be
effective must |
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| be
in writing and must be received by the Company 48 hours before the Meeting. |
|
|
| 3. Shareholders of the Company whose
shares are registered in their account/sub-account/group |
|
| account
with Central Depository System (CDS) are requested to bring original National
Identity |
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| Card
along with their account number in CDS and participant's ID number for
verification. In case |
|
| of
appointment of proxy by such account holders and sub-account holders the
guidelines as |
|
| contained
in the SECP's circular of 26th January 2000 (as reproduced on the reverse side of the |
|
| enclosed
proxy form) to be followed. |
|
|
| 4. The shareholders of the Company are
requested to immediately notify the Company of any change |
|
| in
their addresses. |
|
|
| 5. To comply with the requirements of
the S.E.C.P. in respect of the filing of Form A (Annual Return), |
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| all
shareholders of the Company are requested to send us copy of their
computerized National |
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| Identity
Cards along with their folio numbers at the registered office of the Company. |
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|
| Ordinary
Business - Item no. 3 |
|
|
| It
is proposed that the following resolution be passed with regard to the
issuance of bonus shares: |
|
|
| • Resolved that a sum of Rs.
132,980,880 be capitalized out of the un-appropriated profits of the |
|
| company
for the year 2003/04 to issue at par 13,298,088 ordinary shares of Rs. 10
each. Such |
|
| shares
shall be distributed as bonus shares to those members whose names appear in
the |
|
| register
of members of the Company on October 13, 2004 @ 25% (1 share for every
existing |
|
| four shares held); |
|
|
| • that the new shares shall rank
pari passu with the existing shares of the Company for all purposes; |
|
|
| • that any fraction shares arising
thereof shall be disregarded and the whole shares representing |
|
| such
fractions shall be disposed off in such manner as the Directors of the
Company think fit and |
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| the
proceeds shall be distributed in due proportion among the members of the
Company entitled |
|
| thereto
in accordance with their respective rights; |
|
|
| • that the Chairman of the Company
- Mr. Mohammed Faruque, Chief Executive - Mr. Zahid Faruque, |
|
| and
Directors - Mr. Iqbal Faruque, Mr. Akbarali Pesnani and Mr. Azam Faruque be
and are hereby |
|
| authorized
to sign the new share certificates and the common seal of the Company may be |
|
| affixed
in the presence of any two of the said Directors; |
|
|
| • that the above Directors be and
are hereby authorized to give effect to this resolution and to do |
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| all
such acts, deeds and things that may be necessary or required for the issue,
allotment or |
|
| distribution
of ordinary shares. |
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|
| DIRECTORS'
REPORT TO THE MEMBERS |
|
| FOR
THE YEAR ENDED JUNE 30, 2004 |
|
|
| The
directors are pleased to place before you the financial results of the
company along with the audited |
|
| accounts
for the year ended June 30, 2004. |
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|
| OVERVIEW |
|
|
| There
continues to be significant improvement in the macro economic climate of the
country. The national |
|
| economy,
which has gone through a transition period, can now be termed as stable.
Various measures |
|
| initiated
by the government for the revival of the industrial and agricultural sectors
of the country, have |
|
| shown
positive results and growth has been recorded in almost all key areas of the
economy. |
|
|
| The
year 2003/04 was significantly a better year for the cement sector with
government's focus on the |
|
| construction
industry. The aggregate quantity of cement sold, both locally and
internationally, during the |
|
| year
rose by 20% to 13.63 million tons. |
|
|
| PERFORMANCE
OF THE COMPANY |
|
|
| The
year 2003/04 proved to be an exceptional year for the company. The company
not only |
|
| established
a new cement production record of 801,563 tons but also achieved sales volume
of 789,437 |
|
| tons
during the year. There was also an outstanding improvement in the after tax
profitability of the |
|
| company,
which increased to Rs. 425.69 million for the current year. |
|
|
| Production |
|
| In
order to meet both the domestic and international demand, the company
increased the production |
|
| of
clinker and cement by 18% and 16% respectively, during the current year.
Capacity utilization exceeded |
|
| 100%
as compared to 88% last year. |
|
|
| The
comparative production figures of clinker and cement are stated under: |
|
|
|
2003/04 |
2002/03 |
Variance |
|
|
(in tons) |
(in tons) |
(in %age) |
|
| • Clinker |
774,000 |
656,416 |
18% |
|
| • Cement |
801,563 |
692,788 |
16% |
|
|
| Sales
and dispatches |
|
| Stable
economic climate, increased government spending on infrastructure projects,
and availability of |
|
| cheap
credit, led to an increased demand for cement in the country. Domestic and
international demand |
|
| rose
by 8% and 24% respectively for the company during the year under review. We
continue to be the |
|
| premium
brand in Afghanistan. |
|
|
|
2003/04 |
2002/03 |
Variance |
|
|
(in tons) |
(in tons) |
(in %age) |
|
| • Local sales |
598,054 |
552,188 |
8% |
|
| • Export sales |
191,383 |
154,231 |
24% |
|
|
789,437 |
706,419 |
12% |
|
|
| Operating
performance |
|
| The
operating performance of the company remained impressive during the year
under review. The |
|
| company
earned an after tax profit of Rs. 425.69 million during the current year as
against Rs. 9.74 million |
|
| last
year. This improvement in profitability is mainly attributable to increased
sales volume and higher |
|
| selling
price compared to last year. Sales in financial terms increased by 38% i.e.
Rs. 577 million from |
|
| the
previous year. However, the company was also successful in controlling costs,
with cost of sales |
|
| remaining
almost the same as last year despite the increased production. The company
made constant |
|
| efforts
during the year to monitor and effectively control its expenses and in this
respect, made forward |
|
| bookings
of coal to offset the effect of increased international prices. |
|
|
| The
summarized operating performance of the company for the current year and that
of the corresponding |
|
| period
last year is as follows: |
|
|
|
2003/04 |
2002/03 |
Variance |
|
|
(Rs. in million) |
(Rs. in million) |
(in % age) |
|
| Net sales |
2,084.96 |
1,507.66 |
38% |
|
| Cost of sales |
1,369.79 |
1,357.52 |
1% |
|
| Gross Profit |
715.17 |
150.14 |
376% |
|
| Expenses & taxes |
289.48 |
140.4 |
106% |
|
| Net Profit |
425.69 |
9.74 |
4271% |
|
|
| APPROPRIATION
OF PROFIT |
|
| The
after tax profit for the current year amounts to Rs. 425.69 million, which
together with un-appropriated |
|
| profit
of Rs. 3.90 million from last year, gives Rs. 429.59 million to be
appropriated. The directors propose |
|
| the
following appropriation of the available profit. |
|
|
|
(PKR in million) |
|
| Net
profit for the year |
|
425.69 |
|
| Add: Un-appropriated profit brought forward |
3.9 |
|
| Total
available for appropriation |
|
429.59 |
|
| Appropriations: |
|
|
|
| Proposed
cash dividend @ 40% (2003: 12.5%) |
212.77 |
|
| Proposed
issue of bonus shares @ 25% (2003: Nil) |
132.98 |
|
| Balance
carried forward |
|
83.84 |
|
|
| EXPANSION
OF PRODUCTION CAPACITY |
|
| As
informed during the previous quarter, the company has entered into an
agreement with M/s. F. L. |
|
| Smidth
A/S and L.V. Technology with an intention of increasing the production
capacity of the plant |
|
| by
800 tons per day. The enhancement of capacity would benefit the company in
overcoming the capacity |
|
| constraints
it is facing at present. Moreover, it would also help the company in meeting
the expected |
|
| increase
in the demand for cement both within the country and in Afghanistan in
future. Financing for the |
|
| project
has been arranged and letters of credit for the import of equipment have
already been established. |
|
| The
expansion is likely to be completed by the second half of the year 2005. |
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|
| STATEMENT
ON CORPORATE AND FINANCIAL REPORTING FRAMEWORK |
|
| • The financial statements prepared by the
company fairly present its state of affairs, the result of |
|
| operations,
cash flows and changes in equity. |
|
|
| • Proper books of account have been
maintained by the company. |
|
|
| • Appropriate accounting policies have been
consistently applied in the preparation of financial statements |
|
| and
accounting estimates are based on reasonable and prudent judgment. |
|
|
| • Applicable International Accounting
Standards have been followed in preparation of financial |
|
| statements
and there has been no departure therefrom. |
|
|
| • The system of internal control has been
effectively implemented and is continuously reviewed and |
|
| monitored. |
|
|
| • The company is a going concern and there
are no doubts about its ability to continue. |
|
|
| • There has been no material departure from
the best practices of corporate governance, as detailed |
|
| in
the listing regulations. |
|
|
| • The key operating and financial data for
last six (6) years is annexed. |
|
|
| • 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 investments of the fund as on 30th June 2004. |
|
|
| -
Provident Fund Rs. 90.85
million |
|
|
| -
Gratuity Fund Rs. 76.55
million |
|
|
| • In the year 2003/04, the Board of
Directors of the company held five (5) meetings. The attendance |
|
| record
of each director is as follows: |
|
|
| Name
of Director |
Meetings Attended |
|
| Mr.
Mohammed Faruque |
5/5 |
|
| Mr. Zahid Faruque |
|
5/5 |
|
| Mr. Iqbal Faruque |
|
4/5 |
|
| Mr.
Akbarali Pesnani |
5/5 |
|
| Mr.
Azam Faruque |
5/5 |
|
| Mr.
Muhammed Nawaz Tishna (NIT) |
3/5 |
|
| Mr.
K.M. Aminullah (NIT)* |
1/1 |
|
| Mr.
Anis Wahab Zuberi (NIT) |
2/5 |
|
| Mr.
Iftikhar Ahmad Bashir (NIT)* |
2/4 |
|
|
| 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, Lahore and Islamabad 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. At present the Board includes
five |
|
| non-executive
directors, of whom three are independent. |
|
|
| 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 13, 2003 was filled up by the directors 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 CEO and other executive directors, 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
Cement |
|
| Company
Limited to comply with the Listing Regulations of the Karachi, Lahore and
Islamabad 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. |
|
|
| 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 in the field of cement
production to produce |
|
| cement
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. |
|
|
| Environmental
Protection |
|
| To
protect environment and ensure health and safety of the work force and
well-being of the people |
|
| living
in the adjoining areas of our plant. |
|
|
| 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
cement with care |
|
| and
competence, so that customers receive the quality they truly deserve. |
|
|
| RATIO
ANALYSIS ON ACCOUNTS |
|
| FOR
THE YEAR ENDED JUNE 30, 2004 |
|
|
|
2004 |
2003 |
|
| Profitability: |
|
|
|
| 1 Gross Profit (percentage) |
|
34.3 |
9.96 |
|
| 2
Operating Profit (percentage) |
|
29.78 |
3.91 |
|
| 3 Profit Before Tax (percentage) |
|
27.51 |
1.67 |
|
| 4
Net Profit After Tax (percentage) |
|
20.42 |
0.65 |
|
| 5
Net Profit to Share Holder's Equity (Average after tax) (percentage) |
38.24 |
0.94 |
|
| 6
E.P.S (Before Tax) |
|
10.78 |
0.47 |
|
| 7
E.P.S (After Tax) |
|
8 |
0.18 |
|
| 8
Net Profit to Total Assets (Average after tax) (percentage) |
9.98 |
3.88 |
|
| 9
Increase in Sales (Net percentage) |
|
38.29 |
5.95 |
|
| 1
0 Material % of Net Sales |
|
12.32 |
14.32 |
|
| 11 Labour % of Net Sales |
|
5.84 |
111 |
|
| 12
Other Cost of Sales Expenses % of Net Sales |
|
47.53 |
67.95 |
|
| 1
3 Raw & Packing Material as % of Cost of Sales |
|
18.76 |
15.91 |
|
| 14
Administrative Expenses % of Net Sales |
|
2.75 |
3.79 |
|
| 15
Selling Expenses % of Net Sales |
|
1.77 |
2.26 |
|
| 16
Income Tax % of Net Sales |
|
7.1 |
1.03 |
|
| 17
Financial, other charges, (other income) % of Net Sales |
0.4 |
1.26 |
|
| Short
Term Solvency: |
|
|
|
| 1 Working Capital Ratio |
|
1.56:1 |
1.48:1 |
|
| 2 Acid Test Ratio |
|
1.43:1 |
1.36:1 |
|
| 3
Working Capital Turnover (Net Sales) times |
|
6.35 |
111 |
|
| 4
Inventory Turnover / Times |
|
21.26 |
21.39 |
|
| Overall
Valuation and Assessment: |
|
|
|
| 1 Number of Times Interest Cover (before tax
profit) |
|
31.07 |
1.85 |
|
| 2
Return on Equity after tax (Average in percentage) |
|
38.24 |
0.94 |
|
| 3
Book Value Per Share |
|
22.93 |
18.92 |
|
| 4
Long Term Debts to Equity Ratio (in percentage) |
|
14.66 |
23.65 |
|
|
| AUDITORS'
REPORT TO THE MEMBERS |
|
| We
have audited the annexed balance sheet of CHERAT CEMENT COMPANY 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: |
|
