Up Leather Limited - Annual Reports 2004

UP LEATHER LIMITED

ANNUAL REPORT 2004

COMPANY PROFILE

BOARD OF DIRECTORS

S.Khalid H. Shah Chief Executive/ Director

MAShah Director

Shahjahan Shah Director

R.AIiShah Director

G.K.Shah Director

RAShah Director

Aasim Shah Director

BOARD AUDIT COMMITTEE

S. Khalid H. Shah Chairman

Shahjahan Shah Member

Reza A. Shah Member

CHIEF FINANCIAL OFFICER / COMPANY SECRETARY

Shafqat Mahmood Khokhar .

AUDITORS

Khalid Majid Rahman Sarfaraz Rahim Iqbal Rafiq

Chartered Accountants

LEGAL ADVISOR

Abdul Halim Pirzada & Company

Advocate

BANKERS

Muslim Commercial Bank Ltd.

United Bank Ltd.

Faysal Bank Ltd.

REGISTERED OFFICE/FACTORY

Plot # 23/C, 15th Commercial Street Phase II Extension

Defence Housing Authority, Karachi.

Plot # 21/E, 15th Commercial Street Phase II Extension

Defence Housing Authority, Karachi.

DIRECTORS' REPORT

The Directors of your company are pleased to present you herewith-1 3th Annual Report together with the Audited

Accounts of the Company and the Auditor's Report thereon:

30-06-2004

30-06-2003

Rupees

Loss before taxation

-7,107,743

-13,566,933

Provision for taxation

-806,430

584,974

Loss after tax

-7,914,173

-14,151,907

Un-appropriated profit

'

brought forward from last year

10,083,783

28,735,690

Available for appropriation

2,169,610

14,583,783

Transferred from General Reserves

830,390

Un- appropriated profit

3,000,000

'14,583,783

Proposed cash dividend @ 5.00% (2003-7.50%)

-3,000,000

-4,500,000

Un-appropriated profit

10,083,783

Earning per share after tax

-1.32

-2.3587

Company Performance

Export performance of the leather garment industry was not satisfactory during the period under review. However;

the forecast for the future appears to be optimistic which is also indicated by the increase in exports registered

during the quarter ending September 30, 2004. It is hoped that the adverse trend experienced by the leather

garment industry should take a turnaround during 2004/2005.

Dividend

In such difficult times the board of directors of your company keeping in line with our traditions and safe guarding

the interest of shareholders, recommends a fair share of 5% as full and final cash dividend for the year 2003-

2004 based on the principles and policies of the management. We hope to do better in the coming years and

share better profits with our shareholders.

It is worthwhile to mention here that the company has declared dividend every year (9th year) continuously since

going public.

Future Prospects:

The present global situation is not very congenial at the moment; however we are optimistic and hope the

international situation changes towards harmony and improvement in the western economies, facilitating improved

trades^and imports from Pakistan in the leather garment sector.

Keeping the global leather garment situation in focus, as well as the domestic leather, raw material situation in

sight, new strategies need to be formed and pursued. In this context, the management is exploring possibilities

of diversification in terms of product & services as per the new market conditions (WTO), and the possibilities

of expansion in this direction as regards the status of expansion program disclosed in note 1.2 to the financial

statement. In any case, we shall take our shareholders in confidence and seek their

guidance and mandate for changed strategies and objectives in the near future.

5- Members are requested to notify immediately changes, if any, in their registered address.

A. For Attending the Meeting

i) In case of individuals, the account holders or sub-account holder and/ or the person whose securities are

in group account and their registration details are uploaded as per the Regulation, shall authenticate his

identity by showing his original National Identity Card (NIC) or original passport at the time of attending

the meeting.

ii) In case of corporate entity, the Board of Directors' resolution/ power of attorney with specimen signature

of the nominee shall be produced ( if it has not been provided earlier) at the time of the meeting.

B. For Appointing Proxies:

i) In case of individuals, the account holder or sub-account holders and / or the person whose

securities are in group account and their registration details are uploaded as per the Regulation,

shall submit the proxy form as per the above requirement.

ii) The proxy form shall be witnessed by two persons whose names, addresses and NIC numbers

shall be mentioned on the form.

iii) Attested copies of NIC or the passport of the beneficial owners and the proxy shall be furnished

with the proxy form.

iv) The proxy shall produce his / her original NIC or original passport at the time of the meeting.

v) In case of corporate entity, the Board of Directors' resolution / power of attorney with specimen

signature shall be submitted (if it has not been provided earlier) along with proxy form to the

company.

PATTERN OF SHAREHOLDING

As at June 30, 2004

No. of

Gate

jories

No. of Shares

Shareholder

951

From 1

to

100

95,500

765

From 101

to

500

372,400

36

From 501

to

1000

34,800

39

From 1001

to

5000

91,400

4

From 5001

to

10000

24,500

2

From 15001

to

20000

35,000

1

From 50001

to

55000

53,500

3

From 55001

to

60000

169,900

1

From 70001

to

75000

73,700

1

From 75001

to

80000

80,000

1

From 80001

to

85000

81,100

1

From 85001

to

90000

89,000

1

From 90001

to

95000

92,000

3

From 95001

to

100000

296,300

1

From 145001

to

150000

150,000

1

From 235001

to

240000

240,000

1

From 245001

to

250000

250,000

2

From 295001

to

300000

600,000

1

From 385001

to

390000

389,800

1

From 400001

to

405000

404,800

1

From 460001

to

465000

464,900

1

From 500001

to

505000

500,500

1

From 1410001

to

1415000

1,410,900

1819

6,000,000

Categories of Shareholders

Number of

Shares Held

Holding

Share Holder

Percentage

INDIVIDUALS

2362

5,809,800

96.83

FINANCIAL INSTITUTIONS

3

46,000

0.77

JOINT STOCK COMPANIES

32

142,200

2.37

OTHERS

1

2,000

0.03

2398

6,000,000

100

.Workers Management Relation:

The management will like to put on the record valued contribution of all members of the staff, workers towards

achieving results in general and we wish to place on record our gratitude to the shareholders for their continued

support in difficult times and hope to continue the same in the coming years. The worker management relation

remained excellent throughout the year, which resulted in the smooth operation of your company. This is team

work and we hope it shall continue in the same spirit during the coming years.

Appointment of Auditors:

The present auditors Khalid Majid Rahman Sarfaraz Rahim Iqbal Rafiq, Chartered Accountants retiring at the

Annual General Meeting and being eligible, have. offered themselves for reappointment.

Statement on Corporate and Financial Reporting Framework

In compliance with the applicable listing regulations of Stock Exchanges, the directors of the company do hereby

declare the fallowings:

The financial statements, prepared by the management of the company for the year ended June 30,

2004, present fairly its state of affairs, the results of its operations, cash flows and changes in equity.

Proper books of account have been maintained.

Appropriate accounting policies have been consistently applied in preparation of financial statements

and accounting estimates are based on reasonable and prudent judgment.

International Accounting Standards (IAS), as applicable in Pakistan, have been followed in preparation

of financial statements and any departure there from has been adequately disclosed.

The system of internal control and other such procedures, which are in place, are being continuously

reviewed by the internal audit function. The process will continue and any weakness in controls will be

removed.

There are no doubts upon the company's ability to continue as a going concern.

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

the listing regulations.

Detail of significant deviations in the company's operations during the current year are stated in the

Chief Executive's Review.

Key operation and final data for last six years in summarized form is annexed.

Information about taxes and levies is given in the notes to the financial statements.

The share holdings of the sponsor directors have been shown on individual basis.

The number of employees at the end of the year was 44 (2003: 61 ).

During the year 4 board meetings were held and the attendance by each director is given below:

Name of Directors

No. of meetings Attended

S.Khalid H.Shah

4

MAShah

3

Shahjahan Shah

4

R.AIiShah

4

G.K.Shah

3

RAShah

4

Aasim Shah

3

STATEMENT OF COMPLIANCE WITH

THE CODE OF CORPORATE GOVERNANCE

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

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 interests on its Board of Directors. At present the Board comprises only of executive

directors. Independent director representing institutional equity or representing minority interest has not

yet opted for directorship. In case it is difficult to do so the Company shall seek relaxation from SECP

in this respect, if required.

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. No casual vacancy occurred in the Board during the year.

5. The Company has prepared a 'Statement of Ethics and Business Practices', which has been signed by

all the directors and employees of the Company.

6. The Board has developed vision/mission statements and 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 or 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 has not yet arranged orientation course for its directors during the year to apprise them of

their duties and responsibilities. The directors have kept themselves abreast of the duties and

responsibilities as per the amended Companies Ordinance, 1984 and the Company has arranged to

hold orientation program in the year 2004- 2005.

10. The Board has approved the appoint of CFO, Company Secretary and Head of Internal Audit,

including their remuneration and terms and conditions of employment, as determined by the CEO.

11. The director's 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.

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

Board.

ADDITIONAL INFORMATION

Number of

Shareholde

Share Held

Associated Companies (name wise details)

NIT & ICP (name wise details)

-

Investment Corporation of Pakistan National Bank of Pakistan, Trustee Deptt.

1 1

3,500 10,000

Directors, CEO and their spouse and minor children

(name wise details)

Mr. Khalid H.Shah

1

404,800

Mr. Syed Reza Shah

1

300,000

Mr. Shajahan Shah

1

150,000

Mr: Asim Shah

1

250,000

Mrs. Mumtaz A Shah

1

389,800

Mrs.Gulnaz Khursheed A.Shah

1

240,000

Mrs. Rashida Shah

1

464,900

Mr. Nazeer H.Shah

1

500,500

Mr. ZainShah

1

300,000

Executives

Public sector companies & corporation

-

Finance Institution,

1

32,500

Modarabas & Mutual Funds

Insurance Companies

Joint Stock Companies

32

142,200

Shareholders holding 10% or more

voting interest (name wise details)

Common Directors' shareholdings in

Associated Companies

General Public

2353

2,809,800

Others

1

2,000

REVIEW REPORT TO THE MEMBERS ON STATEMENT OF COMPLIANCE

WITHBEST 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 Leather Up 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 the 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, except for the deviations appearing against serial No. 1, 9 & 15 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.

13. 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.

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

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

directors including the chairman of the committee. The board shall induct non-executive directors during

the ensuing year to comply with the listing regulations requirements.

1 6. The meetings of the Audit Committee were held at least once every quarter prior to approval of interim

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

have been formed and advised to the Committee for compliance. ,

17. The Board has set-up and effective internal audit function that are considered suitably qualified and

experienced for the purpose and are conversant with the policies and procedures of the Company and

they or their representative are involved in the internal audit function on a full time basis.

18. The statutory auditors of the Company have confirmed that they have been given a 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 this regard.

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of Leather Up Limited as at June 30, 2004, and the related profit & 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 the 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;

(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 & 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 loss, 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, (XVII of 1980), was

deducted by the company and deposited in the Central Zakat Fund established under section 7 of that Ordinance;

Note

2004

Rupees

CASH FLOW FROM INVESTING ACTIVITIES

Purchase of fixed assets

-1,253,052

Sale of fixed assets

1.045.000

NET CASH FROM INVESTING ACTIVITIES

-208,052

CASH FLOW FROM FINANCING ACTIVITIES

Decrease in short term finances

-11,796,000

Dividend paid

-1,769,281

Payment of lease rentals

-220,370

NET CAW (USED IN) FINANCING ACTIVITIES

-13,785,651

(DECEASE)/INCREASE IN CASH AND BANK BALANCES

-19,239,441

Cash and bank balances at the beginning of the year (Note: 12)

44,685,938

Cash and bank balances at the end of the year (Note:12)

25,446,497

STATEMENT OF CHANGES IN EQUITY

Share

General

Accumulated

Total

Capital

Reserve

Loss/Profit

-------- ------ Rupees — — -----

Balance as at June 30, 2002

60,000,000

2,200,000

28,735,690

90,935,690

(Loss) for the year

-

-14,151,907

Appropriation for dividend

-

-4,500,000

Balance as at June 30, 2003

60,000,000

2,200,000

10,083,783

72,283,783

(Loss) for the year

-

-7,914,173

Transfer from general reserve

-

-830,390

830,390

-

Appropriation for dividend

-

' (3,000,000)

-3,000,000

Balance as at June 30, 2004

60,000,000

1,369,610

-

61,369,610

CASH FLOW STATEMENT

FOR THE YEAR ENDED JUNE 30, 2004

2004

,

Note

Rupees

CASH FLOW FROM OPERATING ACTIVITIES

Loss before taxation

-7,107,743

Adjustments for:

Depreciation

736,790

Financial charges

1,032,318

. Reversal of provision on doubtful debts

-1,980,501

Gratuity

94,367

Gain on disposal of fixed assets

-704,616

-821,642

Operating (loss)/profit before working capital changes

-7,929,385

CHANGES IN WORKING CAPITAL

(Increase) /decrease in current assets