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Biafo Industries Limited

Annual Report 1999

CONTENTS

Board of Directors

COMPANY INFORMATION

AUDITORS:

ANJUM ASIM SHAHID & CO. CHARTERED ACCOUNTANTS

SOLICITORS:

CHIMA, & IBRAHIM

REGISTERED OFFICE:

# 26, STREET 52,SECTOR F-6/4, ISLAMABAD.

SHARES DEPARTMENT:

# 26, STREET 52,SECTOR F-6/4, ISLAMABAD.

TELE # (92 51) 277358-59/829532-33 FAX # 274744

FACTORY:

# 70, PHASE III, INDUSTRIAL ESTATE, HATTAR,

DISTRICT HARIPUR, N.W.F.P.

NOTICE OF 11TH ANNUAL GENERAL

MEETING OF SHAREHOLDERS

Notice is hereby given that the 11th Annual General Meeting of Biafo Industries Limited

will be held on December 02,1999 at 11:30 a.m. at # 26, Street # 52, F-6/4, Islamabad to

transact the following business:

SPECIAL BUSINESS

ITEM NO 1

To pass the following Resolution:

RESOLVED THAT

a) the Authorized Capital of the Company be and is hereby increased from

Rs. 200,000,000 (Rs. Two Hundred Million) divided in to 20,000,000 ordinary

shares of Rs.10 each to Rs. 250,000,000 (Rupees Two Hundred & Fifty Million)

divided into 25,000,000 ordinary shares of Rs.10 each.

b) the figures and words "Rs. 200,000,000 divided into 20,000,000 ordinary shares of

Rs. 10 each" appearing in Clause V of the Memorandum of Association of the

Company be and is hereby substituted by the figures and words "Rs. 250,000,000

divided into 25,000,000 shares of Rs. 10 each"; and

c) the figures and words" Rs. 200,000,000 divided into 20,000,000 ordinary shares of

Rs. 10 each" appearing in Clause 3 of the Articles of Association of the Company be

and is hereby substituted by the figures and words "Rs. 250,000,000 divided into

25,000,000 shares of Rs. 10 each"; and

ITEM NO2

To ratify the agreement entered into by the Company with Habib Bank Limited and

Crescent Properties Limited of Jersey Channel Islands on, August 26, 1999.

ORDINARY BUSINESS

1. To confirm the minutes of the 10TH Annual General Meeting held on December

28, 1998.

2. To receive and adopt the Audited Accounts of the Company for the year ended

June 30,1999 together with Auditors' report and Directors' report thereon.

3. To appoint Auditors for the year 1999-2000 and to fix their remuneration Retiring

Auditors M/s Anjum Asim Shahid & Co. Chartered Accountants being eligible

have offered themselves for re-appointment.

4. To transact such other business as may be placed before the meeting with the

permission of the Chairman.

By order of the Board

(M. Afzal Khan )

Islamabad: November 04,1999.

CHAIRMAN

NOTES:

1. Share Transfer Books of the Company will remain closed from November 25, 1999 to

December 02,1999 both days inclusive.

2. A member entitled to attend and vote at the meeting is entitled to appoint another

member as proxy.

3. Proxies in order to be effective must be received at the Registered Office of the

Company not less than 48 hours before the meeting and must be duly stamped,

signed and witnessed.

4. Shareholders are requested to promptly notify in writing the Company of any change

in their address.

DIRECTORS REPORT

Your Directors present the 11th Annual Report of the company for the year ended June 30,1999.

PRODUCTION

Production for the year with comparative figures of the previous year are given below:-

1998-99

1997-98

TOVEX & POWDER EXPLOSIVE

834.33 M.TON

878.4 M.TON

DETONATORS

1.883 MILLION

1.363 MILLION

DETONATING CORD

0.896 MILLION

0.716 MILLION

MARKETING

The country faced severe economic problems during the year under review especially the

government sector and the major cut in the development budget, which was reduced from

approximately 7.2% to 2.7%.

The serious funding problem faced by Government affected infrastructure projects which resulted

in substantial and deep cut in production in cement industry and construction industry which are

two main sources of business for our industry. The cement industry was working at below fifty

percent of its capacity and various units like A.C. Rohri, Mustehkam Cement and Zealpak were

shut down and other cement factories were shut for prolonged periods of time. The IPP situation

affected the oil and gas sector and the intra corporate debt affected the oil and gas sector seismic

activities.

The Company managed to maintain its sales in the stagnant and declining market for explosives.

The gross sales revenues were Rs. 79.317 m for the period under review in comparison to

Rs.80.558 m in the year 1997-98. The company continued to increase its penetration in the

available market and in difficult conditions added new customers like Bayinder for Islamabad -

Peshawar Motorway, J&P for the new terminal at the Lahore International Airport and for

supplies to the Faisalabad - Pindi Bhattian Motorway Project.

The Company received a small trial order from Central Africa for which money has been

received in advance but shipment could not be made in this period due to unwillingness of

shipping line to carry the explosive material to its destination.

FINANCIAL

The cost of raw materials due to devaluation and inflationary pressure continue to affect the

financial position of the company. The cost increase could not be fully reflected in the increased

sales price due to the market conditions. The overhead costs of the company was maintained at

the same level as the previous year, but the financial costs along with the cost of Raw material

added additional burden on the company.

The Company was able to complete the restructuring arrangements of its loans with Habib Bank

Limited with the involvement of a new foreign investor 'Crescent Properties Limited' of Jersey

Channel Islands, agreement of which was signed on 26/8/1999 which is covered in the post

balance sheet events.

POST BALANCE SHEET RESTRUCTURING OF THE COMPANY'S FINANCES

Members were advised vide notice dated 16/9/1999 of the salient features of the restructured

agreement signed on 26/8/1999 between Habib Bank Limited, Crescent Properties Limited and

Biafo Industries Limited after due approval of your Board.

HBL had demanded conversion of 20% of its outstanding liability of Rs. 358.563 m as on 30.6.99

under Section 87 of the Companies Ordinance, 1984 into 6.0 million shares of Biafo Industries

Ltd. of par value of Rs. 10/- each amounting to Rs.60.0 million. Biafo Industries Ltd has issued

6.0 million ordinary shares of par value Rs. 10/- each in favour of HBL in adjustment of HBL's

outstanding liability.

HBL has sold 6 million shares of Biafo to Crescent Properties Limited of Jersey Channel Islands

(new foreign investor) for Rs. 25.0 million as part of the restructured agreement with HBL in US

Dollars.

Crescent Properties Limited has arranged a loan secured by its US Dollars guarantee, enabling

Biafo Industries Ltd to pay HBL Rs. 25.0 million in adjustment of its outstanding liability. This

payment has been made by Biafo Industries Ltd to HBL.

HBL has received full payment of Rs. 50.0 million as per terms of the restructuring agreement of

26.8.99.

Against adjusted balance outstanding of HBL of Rs. 273.563 m HBL has agreed to the

repayment in 16 installments commencing from July 1, 2000 totaling Rs. 144,485,290/- (inclusive

of mark up) of which the principal amount is Rs. 95.0 m (of which Rs.25.0 m will be mark up

free) and mark up of Rs. 49,485,290/-. As in all such loans the prompt payment rebate can be

forfeited in the event of default.

MAIN EFFECTS OF THE RESTRUCTURED AGREEMENT

Biafo's paid up capital has increased by the issuance of 6.0 million ordinary shares in favour of

Habib Bank Limited under Clause 87 of the Companies Ordinance, 1984 to Rs.200.0 million.

There will be a reversal and write back of mark up of Rs. 120.729 m resulting in reduction of the

accumulated losses carried forward.

The restructuring with HBL will provide significant relief to the company over the repayment

period due to the reduced amounts of mark up, which will be at 14.235% p.a. as opposed to

21.9% with Rs.25.0 million being mark up free.

The current ratio of the company alongwith debt equity ratio will be well within the Prudential

Regulations of the State Bank of Pakistan.

UNAUDITED BALANCE SHEET AS AT SEPTEMBER 30, 1999

WITH OPENING BALANCES AS OF 1.7.1999 INCORPORATING

THE EFFECT OF RESTRUCTURING AGREEMENT OF 26-8-99

WITH HABIB BANK LTD.

1999

1998

Rupees

SHARE CAPITAL

200,000,000

140,000,000

ACCUMULATED LOSS

(223,906,976)

(180,837,724)

------------------

(23,906,976)

(40,837,724)

EXTRA ORDINARY GAIN DUE TO

REVERSAL OF MARK-UP

120,728,930

------------------

96,821,954

(40,837,724)

SURPLUS ON REVALUATION OF

FIXED ASSETS

96,471,000

------------------

193,292,954

55,633,276

REDEEMABLE CAPITAL

2,499,918

4,166,663

LONG TERM LOANS

135,064,078

153,786,499

DEFERRED LIABILITIES

633,950

CURRENT LIABILITIES

Short term finance on mark up basis

12,986,961

35,877,743

Current maturity/over due installments

of long term liabilities

4,395,831

60,925,059

Creditors, accrued and other

liabilities

9,587,800

63,269,685

------------------

26,970,592

160,072,487

CONTINGENCIES AND COMMITMENTS

------------------

358,461,492

373,658,925

==========

OPERATING ASSETS

317,024,826

333,320,192

LONG TERM DEPOSITS

886,094

440,999

DEFERRED COST

839,207

CURRENT ASSETS

Stores, spares and loose tools

6,314,308

6,397,106

Stock in trade

13,496,559

12,163,594

Trade debts

9,427,992

12,849,333

Advances, deposits, prepayments

and other receivables

5,572,134

4,244,894

Cash and bank balances

5,739,579

3,403,600

------------------

40,550,572

39,058,527

------------------

358,461,492

373,658,925

==========

FUTURE PROSPECTS

Despite the difficult economic scenario of the country the Board is of the opinion that future

prospects of the company look much healthier. In the four months uptil 31/10/99 Net sales of the

company have increased by over 45% in comparison with the same period in the previous year.

The company has recently signed an agreement with Teisei Corporation of Japan for the supply

of explosives and accessories for the Kohat Tunnel Access Road Project, which is to commence

from December, 1999. Furthermore Islamabad-Peshawar motorway project of Bayindir is now in

full operation alongwith J&P's project for the new terminal at Lahore International Airport and

the Faisalabad-Pindi Bhattian Motorway project has also commenced. Oil and Gas Development

Corporation has started significant purchases of seismic explosives from the company. Recovery

in the cement industries is reflected in enhanced sales to the sector by the company.

The company has finally been able to arrange shipment of its trial consignment of explosives and

accessories to Central Africa where prospects for significant export may be encouraging. The

company continues its efforts for export to countries in the Far East, South Asia, Africa and the

Middle East.

Your Board would like to take this opportunity to express its appreciation to all the employees of

the company for their continuing commitment and hard work. We also acknowledge the support

and cooperation of our Bankers in these difficult economic times specially Habib Bank Limited,

Bank of Khyber, NDFC, Paklibya and Citibank.

PATTERN OF SHARE HOLDING

The pattern of share holding is enclosed.

On behalf of the Board

(M. AFZAL KHAN)

Dated: NOVEMBER 4, 1999

CHAIRMAN

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of BIAFO INDUSTRIES LIMITED as at

June 30, 1999 and the related profit and loss account and cash flow statement, 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 and, after due verification thereof, 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 the 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 and the cash flow statement,

together with the notes forming part thereof, 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, 1999 and of

the loss and the changes in financial position for the year then ended; and

d) in our opinion, no Zakat was deductible at source under the Zakat & Usher

Ordinance, 1980.

Islamabad.

ANJUM ASIM SHAHID & CO.

Dated: November 5, 1999

CHARTERED ACCOUNTANTS

BALANCE SHEET AS AT JUNE 30, 1999

NOTES

1999

1998

Rupees

SHARE CAPITAL

140,000,000

ACCUMULATED LOSS

(223,906,976)

(180,837,724)

------------------

(83,906,976)

(40,837,724)

SURPLUS ON REVALUATION OF

OPERATING ASSETS

96,471,000

REDEEMABLE CAPITAL

2,499,918

4,166,663

LONG TERM LOANS

129,567,093

153,786,499

DEFERRED LIABILITIES

633,950

CURRENT LIABILITIES

Short term finance on mark up basis

32,972,947

35,877,743

Current maturity/Over due installments

of long term liabilities

86,012,816

60,925,059

Creditors, accrued and other liabilities

94,210,744

63,269,685

------------------

213,196,507

160,072,487

CONTINGENCIES AND COMMITMENTS

------------------

358,461,492

373,658,925

==========

OPERATING ASSETS

317,024,826

333,320,192

LONG TERM DEPOSITS

886,094

440,999

DEFERRED COST

839,207

CURRENT ASSETS

Stores, spares and loose tools

6,314,308

6,397,106

Stock in trade

13496559

12,557,075

Trade debts

9,427,992

12,849,333

Advances, deposits, prepayments

and other receivables

5,572,134

4,244,894

Cash and bank balances

5,739,579

3,010,119

------------------

40,550,572

39,058,527

------------------

358,461,492

373,658,925

==========

The annexed notes form an integral part of these accounts.

M. Afzal Khan

Khawaja Amanullah Askari

Maj. Gen. (Retd.) S.Z.M. Askree

CHAIRMAN

CHIEF EXECUTIVE

DIRECTOR

PROFIT & LOSS ACCOUNT

FOR THE YEAR ENDED JUNE 30, 1999

NOTES

1999

1998

Rupees

Sales - Net

68,373,732

67,572,826

Cost of sales

65,415,084

65,636,677

------------------

Gross Profit

2,958,648

1,936,149

Administrative expenses

6,509,238

6,240,664

Selling & distribution expenses

2,347,266

2,967,688

Financial charges

38,097,420

36,412,959

------------------

46,953,924

45,621,311

------------------

Operating loss

(43,995,276)

(43,685,162)

Other Income

926,024

277,748

------------------

Loss before taxation

(43,069,252)

(43,407,4 I4)

Provision for taxation

------------------

Loss after taxation

(43,069,252)

(43,407,414)

Accumulated losses brought forward

(180,837,724)

(137,430,310)

------------------

Accumulated losses carried to balance sheet

(223,906,976)

(180,837,724)

==========

The annexed notes form an integral part of these accounts.

M. Afzal Khan

Khawaja Amanullah Askari

Maj. Gen. (Retd.) S.Z.M. Askree

CHAIRMAN

CHIEF EXECUTIVE

DIRECTOR

CASH FLOW STATEMENT

FOR THE YEAR ENDED JUNE 30, 1999

1999

1998

Rupees

CASH FLOW FROM OPERATING ACTIVITIES

Loss for the year before taxation

(43,069,252)

(43,407,414)

Adjustment for non-cash items

- Depreciation on fixed assets

16,428,087

17,349,256

- Markup expense

37,697,316

36,102,166

- Amortization of deferred cost

839,206

839,205

- Provision for bad and doubtful debts

322,575

- Provision for gratuity

633,950

- Loss on theft of assets

70,291

------------------

55,991,425

54,290,627