Shahtaj Sugar Mills Limited- Annual Reports 2004

SHAHTAJ SUGAR MILLS LIMITED

ANNUAL REPORT 2004

Board of Directors

Mr. Mahmood Nawaz

Chief Executive

Mr. Muneer Nawaz

Chairman

Mr. Cowasjee R.F. Cowasjee

Mr. Ardeshir Cowasjee

Mr. C. M. Khalid

Mr. M. Naeem

Mr. Ijaz Ahmad

Mrs. Samia Shahnawaz Idris

Mr. Ansar Hussain

Mr. Zahid Zaheer

Company Secretary

Mr. Jamil Ahmad Butt

Chief Financial Officer

Mr. Muhammad Asghar

Audit Committee

Mr. C.M. Khalid

Chairman

Mr. M. Naeem

Member

Mr. Ijaz Ahmad

Member

Mr. M. A. Nasir Chaudhari

Secretary

Head Office

72/C-l,M.M. AlamRoad,

Gulberg III, Lahore - 54660.

Auditors

Messrs, Ford Rhodes Sidat Hyder & Co..

Chartered Accountants,

Mall View Building,

4-Bank Square,

Lahore.

Legal Advisors

Mr. Ras Tariq Chowdhary,

30 - Mall Mansion,

The Mall, Lahore.

Registered Office

19, Dockyard Road,

West Wharf, Karachi - 74000.

Mills

Mandi Bahauddin-50400

Bankers

United Bank Limited

Habib Bank Limited

ABN Amro Bank N.V.

Union Bank Limited

FINANCIAL RESULTS

As you will observe from financial statements, our financial results are as under:

(Rupees in thousands

Profit before taxation

122,944

Less : Provision for taxation

45,200

Profit after taxation

77,744

Un-appropriated profit brought forward

3,887

Profit available for appropriation

81,631

Our shareholders will appreciate that as per continuous dividend payment policy, the Directors

have recommended cash dividend @45%.

OUTSTANDING STATUTORY PAYMENTS

All outstanding payments are of normal and routine nature.

CODE OF CORPORATE GOVERNANCE

The Securities & Exchange Commission of Pakistan has established the Code of Corporate

Governance for listed companies. We support this code, which is being enforced in our company as

required by the listing regulations of the Karachi and Lahore Stock Exchanges.

The Board of Directors in its meeting held on October 25,2002, has set forth its Code of Ethics and

Business Practices and also adopted a Vision and Mission Statement.

The Board of Directors consists of a Chairman, two Executive Directors, seven non-Executive

Directors. All the Directors take keen interest in the company's affairs.

During the year under review four board meetings were held and were attended by the following Directors

Mr. Mahmood Nawaz

Three

Mr. MuneerNawaz

Four

Mr. CowasjeeR.F. Cowasjee

Nil

Mr. Ardeshir Cowasjee

Three

Mr.C.M.Khalid

Two

Mr. M. Naeem

One

Mr. Ijaz Ahmad

Nil

Mrs. Samia Shahnawaz Idris

Three

Mr. AnsarHussain

Four

Mr. Zahid Zaheer

Three

The Audit Committee has been constituted by the Board of Directors in its meeting held on

October 25, 2002 to assist the Board in discharging its responsibilities for good corporate

governance, financial reporting and corporate control. The committee comprises three members

including the Chairman of the Committee. The committee regularly meets as per requirements of

the code.

In compliance with the Listing Regulations of the Karachi Stock Exchange (Guarantee) Limited

and Lahore Stock Exchange (Guarantee) Limited, the board of directors hereby declare that:

DIRECTORS' REPORT TO THE MEMBERS

We the Directors of your Company, hereby present the 39th Annual Report and Audited Accounts

together with the Directors' Report for the year ended September 3 0,2004.

OPERATIONAL PERFORMANCE

By the grace of Allah, this was a good year for the company in terms of cane crushing, production

and recovery. During the current year we crushed 981,923 M. Tons of cane and produced 91,723

M. Tons of sugar from cane at an average recovery of 9.34%.

The season under review commenced December 01, 2003 and continued till April 06, 2004. As

mentioned above, this season we crushed 981,923 M. Tons of cane and produced 91,723 M. Tons

sugar at an average recovery of 9.34% as compared to 1,088,652 M. Tons of cane and 103,618

M. Tons sugar at a recovery of 9.52% last year. Our average cane price this year has been Rs. 1,058

PMT as compared to Rs. 1,075 PMT in the previous year.

As our shareholders will observe the cane development efforts of the company have once again

borne fruit resulting in good production and further more a good recovery percentage of sugar,

which is most important for the financial results of the Company. We are regularly continuing our

cane development efforts with the objective to educate farmers with modern farming techniques to

improve both the yield of cane and sucrose content of the cane so that the results are mutually

beneficial for the farmers and our company. Our area is a cane deficit area due to our cane crushing

capacity and capacity of our neighbouring mills. Because of this we have to supplement our supply

by buying substantial quantity of cane from the adjoining areas. This year also 35% of the cane, we

crushed, was from outside our area, resulting in increased cost of transportation, which we had to

make for the cane, which we buy from outside our area. However, the objective is always to

maximize the production which in turn has positive effect on the profitability of the company.

This year was a year of surplus sugar production in the country. Throughout the year, the sugar

prices remained under pressure due to glut of sugar. The Pakistan Sugar Mills Association (PSMA)

from the beginning of the year urged the government to intervene through The Trading Corporation

of Pakistan (TCP) to buy surplus sugar in order to stabilize the market. On the urging of the

Association, the TCP did take action although a bit late, in order to stabilize the prices. Because of

this intervention the sugar market which was depressed finally stabilized in the months of August /

September 2004; this provided some relief to the industry.

The price of molasses during the year was also much less as compared to last year. The average

price of molasses during the year under review was Rs. 1,170 PMT as compared to Rs. 1,228 PMT

during the last season.

Our shareholders would appreciate that in spite of the depressed sugar market as well as the

depressed molasses market, our financial results are excellent. This has primarily been due to good

recovery, high level of production, and decrease in financial charges.

NO. OF SHAREHOLDERS

SHAREHOLDINGS

TOTAL SHARES HELD

205

From

1 To

100 Shares

5,775

98

From

101 To

500 Shares

26,799

31

From

501 To

1,000 Shares

20,903

34

From

1,001 To

5,000 Shares

70,544

5

From

5,001 To

1 0,000 Shares

33,335

8

From

10,001 To

15,000 Shares

90,358

1

From

15,001 To

20,000 Shares

19,500

2

From

20,001 To

25,000 Shares

41,419

1

From

25,001 To

30,000 Shares

30,000

3

From

40,001 To

45,000 Shares

124,475

3

From

45,001 To

50,000 Shares

144,800

1

From

50,001 To

55,000 Shares

53,817

1

From

60,001 To

65,000 Shares

63,044

2

From

75,001 To

80,000 Shares

155,123

2

From

90,001 To

95,000 Shares

189,013

1

From

100,001 To

105,000 Share

101,178

1

From

130,001 To

135,000 Share

133,505

1

From

170,001 To

175,000 Share

170,627

2

From

175,001 To

1 80,000 Share

352,963

2

From

180,001 To

185,000 Share

364,435

3

From

185,001 To

190,000 Share

374,393

1

From

220,001 To

225,000 Share

220,456

1

From

230,001 To

235,000 Share

230,516

1

From

260,001 To

265,000 Share

263,142

1

From

265,001 To

270,000 Share

268,383

1

From

275,001 To

280,000 Share

279,185

1

From

295,001 To

300,000 Share

298,237

2

From

335,001 To

340,000 Shares

676,664

1

From

345,001 To

350,000 Share

345,547

1

From

430,001 To

435,000 Share

430,646

3

From

525,001 To

530,000 Share

1,583,867

From

600,001 To

605,000 Share

601,351

From

850,001 To

860,000 Share

858,306

From

860,001 To

865,001 Share

860,533

From

900,001 To

905,000 Share

900,749

From

1,625,001 To

1,650,000 Shar

1,627,508

425

12,011,096

SIX YEARS REVIEW AT A GLANCE

(Rupees in thousands)

EAR

1999

2000

2001

2002

2003

2004

Season Started

26-11-1998

15-11-1999

22-11-2000

30-11-2001

21-11-2002

01-12-2003

Season Closed

21-04-1999

13-03-2000

24-03-2001

20-04-2002

13-04-2003

06-04-2004

Days worked

146

119

123

142

144

128 -

Cane crushed (M. Tons)

1,042,384

659,847

698,987

1,037,415

1,088,652

981,923

Recovery (%)

8.23

7.87

8.5

8.74

9.52

9.34

Sugar produced (M. Tons)

85,773

51,922

66,942

90,702

103,618

91,723

Paid up capital

120,111

Reserves and surplus

96,108

98,447

96,666

140,126

216,925

252,631

shareholders equity

243,753

246,092

244,3 1 1

287,771

364,570

400,276

Fixed assets

(at cost less depreciation)

385,799

362,388

334,106

315,075

300,894

299,851

Sales

1,407,742

1,072,098

1,243,120

1,686,139

1,597,096

1,571,465

Lost of sales

1,204,100

923,053

1,119,541

1,364,112

1,330,841

1,373,647

Gross profit

203,642

149,045

123,579

322,027

266,255

197,818

Profit before tax

101,611

70,372

20,230

206,345

183,827

122,944

Profit after tax

74,611

38,372

10,230

115,526

106,827

77,744

Dividend - Cash (%)

25

30

10

60

45

laming per share (Rs.)

6.21

3.19

0.85

9.62

8.89

6.47

Break up value of share of

R/s. 10 each (Rs.)

20.29

20.49

20.34

23.96

30.35

33.33

No. of Shares held

Percentage

5.6 Modarabas and Mutual Funds

Trustee ABAMCO Stock Market Fund

298,237

Trustee ABAMCO Capital Fund (CDC)

339,649

Trustee PICIC Investment Fund (CDC)

900,749

1,538,635

12.81%

5.7 General Public

a. Local

1,527,066

Local (CDC)

793,800

b. Foreign

-

2,320,866

19.32%

5.8 Other (to be specified):

Administrator Abandoned Property

1,588

CLA

1

1,589

0.01%

12,011,096

1 00%

5.9 Share holders holding 10%

National Bank of Pakistan, Trustee Wing, H.O.

1,627,508

13.55%

Mr. Muneer Nawaz

1,459,657

12.15%

Categories of Shareholders

No. of Shares hel

Percentage

5.1 Directors, CEO and their spouses and

minor Children

1 . Mr. Mahmood Nawaz

860,533

2. Mrs. Bushra Mahmood Nawaz

279,185

3 . Mr. Muneer Nawaz

1,459,657

4. Mrs. Abida Muneer Nawaz

529,456

5. Mr. C. M. Khalid

176,687

6. Mrs. Amtul Hai Khalid

180,074

7. Mr. M. Naeem

176,276

8. Mrs. Amtul Bari Naeem

345,547

9. Mrs. Samia Shahnawaz Idris

337,015

10. Mr. Ijaz Ahmad

20,919

1 1 . Mr. & Mrs. Cowasjee R.F. Cowasjee

92,198

12. Mr. Ardeshir Cowasjee and family

612,655

5,070,202

42.21%

5.2 Associated Companies, undertakings and related parties

Shahnawaz Corporation (Pvt) Ltd.

13,876

0.11%

5.3 NIT and ICP

National Bank of Pakistan, Trustee Wing, H.O.

1,627,508

National Investment Trust

4,893

National Investment Trust (CDC)

48,937

Investment Corporation of Pakistan

100

Investment Corporation of Pakistan (CDC)

2,219

1,683,657

14.02%

5.4 Banks, DFI's NBFI's

PICIC

430,646

3.59%

5.5 Insurance Companies

State Life Insurance Corporation of Pakistan

526,468

State Life Insurance Corporation of Pakistan (CDC)

230,516

Pakistan Insurance Corporation

2,217

Adamjee Insurance Company Limited

63,044

Adamjee Insurance Company Limited (CDC)

50,000

EFU General Insurance Company Limited (CDC)

79,380

951,625

7.93%

15. The Board has formed an Audit Committee. It comprises three members, of whom

two are non-Executives Directors including the Chairman of the Committee.

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 as required by

the Code. The terms of references of the Committee have been formed and advised

to Committee for compliance.

17. The Board has set up an effective internal audit function manned by suitably

qualified and experienced personnel who is conversant with the policies and

procedures of the Company and is involved in the internal audit function.

18. The statutory auditors of the Company have confirmed that they have

been given satisfactory rating under the quality control review program 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.

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 IFAC

guidelines in thisregard.

20. We confirm that all other material principles contained in the Code have been

complied with.

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 Shahtaj Sugar Mills Limited to

comply with the Listing regulations No. 37 (Chapter XI) and No. 43 (Chapter XIII) of the Karachi

and the 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 as applicable to the

Company for the year ended September 30,2004.

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of Shahtaj Sugar Mills Limited as at September 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 accounts 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 accounts and are

further in accordance with accounting policies consistently applied except

for change in accounting policy as stated in note 3.18 to the financial

statements to 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

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 September 30, 2004 and of the profit, its cash flow 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.