| Philips Electrical Industries of Pakistan
Limited |
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| Annual Report 1999 |
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| Contents |
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| Company
Information |
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| Directors' Report |
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| Auditors'
Report to the Members |
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| Balance Sheet |
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| Profit
and Loss Account |
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| Cash
Flow Statement |
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| Notes
to the Accounts |
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| Ten-Year Review |
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| Pattern
of Shareholding |
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| Notice of Meeting |
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| COMPANY
INFORMATION |
|
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| Board of Directors |
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| Javed Iqbal |
|
| Rafiq M. Habib |
|
| Nizam A. Shah |
|
| Muhammad
All Khoja |
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| Sayed
Muzafar Ali Shah |
|
| Ludo Mees |
|
| Gerben de Jong |
|
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| Management Team |
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| Javed Iqbal |
|
| Jalees A. Siddiqi |
|
| Shahid Zaki |
|
| Arif Kably |
|
| Sohail Swaleh |
|
|
| Bankers |
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| ABN Amro Bank |
|
| American
Express Bank |
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| ANZ
Grindlays Bank |
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| Bank of America |
|
| Emirates
Bank International Ltd. |
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| Hongkong
& Shanghai Banking Corporation |
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| Muslim
Commercial Bank |
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| National
Bank of Pakistan |
|
| Standard
Chartered Bank |
|
|
| Auditors |
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| Taseer
Hadi Khalid & Co. |
|
| Chartered
Accountants |
|
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| Registered Office |
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| F-54, S.I.T.E. |
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| Karachi-75730 |
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| DIRECTORS'
REPORT - YEAR ENDED DECEMBER 31, 1999 |
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| During
the year under review, economic conditions continued to remain unstable and
market |
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| generally
depressed. Total net sales amounted to Rs.2,588 million compared to Rs.2,690
million |
|
| in
1998 showing a 4% reduction. The Company suffered operating loss of Rs.273
million against |
|
| profit
of Rs.216 million for the year .1998. The loss resulted mainly due to lower
sales in the |
|
| Lighting
Division, closure of Lighting factories in the second half of the year,
payment to officers |
|
| and
workers under Voluntary Separation Scheme to reduce cost of employment, and
finally, |
|
| increased
financial charges owing to higher inventories and receivables. |
|
|
| Business Trends |
|
|
| As
mentioned in our report for the six months ended 30th June 1999, in the
Lighting Sector, which, |
|
| in
the past, has contributed major share of sales and profits for the Company in
the previous years, |
|
| the
trend could not be maintained, due to influx of grey channel goods and
availability of low |
|
| quality
and counterfeit products being sold in the market at lower prices. Net sales
recorded were |
|
| Rs.1,116
million against Rs.1,583 million last year (-30%). The Division ended up with
operating |
|
| loss
of Rs.274 million compared to profit of Rs.189 million in 1998. |
|
|
| In
terms of turnover, the Consumer Electronics Division showed significant
improvement due to |
|
| higher
sales of color television sets and monitors. Sales amounted to Rs.1,127
million against |
|
| Rs.812
million last year (+39%). However, operating profit amounted to Rs.12 million
compared to |
|
| Rs.14
million last year, due to tough competition from other brands and general
price erosion in |
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| the market. |
|
|
| In
other activities which cover Projects involving Professional Products,
Domestic Appliances and |
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| Personal
Care and 'After Sale Service', sales amounted to Rs.345 million against
Rs.295 million |
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| last
year (+ 17%). However, the Division ended up with operating loss of Rs.11
million against a |
|
| profit
of Rs.13'million last year mainly due to provisions for, expected losses on
contracts, |
|
| receivables
from Government agencies and obsolescence of inventories. The Domestic |
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| Appliances
Division continues to face severe competition against low cost products
available in |
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| the
market through grey channels. |
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|
| Profit & Loss |
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| The
loss shown in the accounts is recorded as follows: - |
|
|
|
Rs. in '000 |
|
|
| Loss
before taxation |
|
(424,159) |
|
|
|
|
| Provision
for taxation |
|
(14,725) |
|
|
----------- |
|
| Loss after tax |
|
(438,884) |
|
| Unappropriated
profit |
|
| brought forward |
|
1,431 |
|
|
----------- |
|
| Loss
carried forward |
|
(437,453) |
|
|
========== |
|
| Earning per share |
|
(43.62) |
|
|
|
|
| Directors |
|
| During
the year, Mr. Razi-ur-Rehman Khan, Dr. Amjad Waheed and Mr. Kamil Shahbazkar |
|
| resigned
from the Board and were replaced by Sayed Muzafar All Shah (Nominee of NIT)
and |
|
| Mr.
Gerben de Jong, Chief Financial Officer, Philips Asia Pacific Region. The
Board would like to |
|
| place
on record the appreciation for the contribution made by the outgoing
Directors. |
|
|
| Auditors |
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| The
retiring auditors Taseer Hadi Khalid & Co., being eligible, offer
themselves for re-appointment. |
|
|
| Pattern
of Shareholding |
|
| A
statement of the pattern of shareholding as at December 31, 1999 is shown on
page 41 of this |
|
| report.
Koninklijke Philips Electronics N.V. (Royal Philips Electronics), The
Netherlands, continues |
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| to
hold 60% of the Company's share. |
|
|
| Future Outlook |
|
| The
Lighting factories, which remained closed for the major period during the
second half of the |
|
| year
1999, are now operating normally and all efforts are being made to regain our
market |
|
| position.
Senior level changes including re-organization of commercial department in
Lighting, |
|
| outsourcing
of several activities and right sizing of the workforce have been effected.
Through |
|
| implementation
of strict financial discipline, receivables and stocks are being controlled
in order to |
|
| reduce
financial charges, and costs in general are being rationalized to enable us
to compete |
|
| effectively
against other brands available in the market. The Consumer Electronics and
Domestic |
|
| Appliances
Divisions are also making efforts to improve sales and profitability.
However, our |
|
| company
will no longer have the technical support to participate in turn-key projects
that have in |
|
| the
past contributed to sales and profits. |
|
|
| Inspite
of the remedial measures put in place todate to put the Company on profitable
lines once |
|
| again,
a complete turnaround in a short period is not expected. It is envisaged that
it will be |
|
| unlikely
that the Company will be in a position to pay dividends for the next three to
four years. |
|
|
| However,
our efforts to further augment the business will continue and the management
hopes |
|
| that
the general economic conditions of the country will improve to supplement
those endeavors. |
|
|
| On
behalf of the Board: |
|
|
| Javed Iqbal |
|
| Chairman
& Chief Executive Officer |
|
| April 27, 2000 |
|
|
|
| AUDITOR'S
REPORT TO THE MEMBERS |
|
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| We
have audited the annexed balance sheet of Philips Electrical Industries of
Pakistan Limited as |
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| at
31 December 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 |
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| 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 except for the change referred to in note 2.6, with
which |
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| we concur; |
|
|
| ii)
the expenditure incurred during the year was for the purpose of the Company's |
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| business; and |
|
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| iii)
the business conducted, investments made and the expenditure incurred during
the |
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| 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 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 31 December 1999 and of the loss and cash flows for the year
then |
|
| ended; and |
|
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| d)
in our opinion, Zakat deductible at source under the Zakat and Ushr
ordinance, 1980 was |
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| deducted
by the Company and deposited in the Central Zakat Fund established under |
|
| section
7 of that ordinance. |
|
|
| The
accounts for the year ended 31 December 1998 were audited by another firm of
auditors. |
|
|
| Karachi:
April 27, 2000 |
|
Taseer Hadi Khalid &
Co. |
|
|
Chartered Accountants |
|
|
|
| BALANCE
SHEET AS AT DECEMBER 31, 1999 |
|
|
|
Note |
1999 |
1998 |
|
|
|
(Rupees in '000) |
|
|
| SHARE
CAPITAL AND RESERVES |
|
|
| Authorised capital |
|
| 16,000,000
ordinary shares of Rs.10 each |
|
160,000 |
160,000 |
|
|
========== |
========== |
|
| Issued,
subscribed and fully paid-up capital |
|
3 |
100,617 |
100,617 |
|
| Reserves |
|
4 |
233,469 |
233,469 |
|
| (Accumulated
Ioss)/Unappropriated profit |
|
(437,453) |
1,431 |
|
|
--------- |
--------- |
|
|
(203,984) |
234,900 |
|
|
--------- |
--------- |
|
|
5 |
(103,367) |
335,517 |
|
| SURPLUS
ON REVALUATION OF FIXED ASSETS |
6 |
236,707 |
65,935 |
|
| REDEEMABLE
CAPITAL |
|
7 |
-- |
73,000 |
|
| DEFERRED
LIABILITIES |
|
| Provision
for staff retirement benefits |
|
22,128 |
14,985 |
|
| CURRENT
LIABILITIES |
|
| Short-term loans |
|
8 |
50,000 |
-- |
|
| Current
maturity of redeemable capital |
|
7 |
73,000 |
24,000 |
|
| Short-term
finances under mark-up arrangements |
|
9 |
1,123,727 |
805,476 |
|
| Creditors,
accrued expenses and other liabilities |
|
10 |
367,583 |
337,119 |
|
| Provision
for turnaround expenses |
|
11 |
-- |
48,600 |
|
| Proposed dividend |
|
-- |
25,154 |
|
|
--------- |
--------- |
|
|
1,614,310 |
1,240,349 |
|
| COMMITMENTS |
|
12 |
|
|
--------- |
--------- |
|
|
1,769,778 |
1,729,786 |
|
|
========== |
========== |
|
|
| TANGIBLE
FIXED ASSETS |
|
|
| Operating assets |
|
13 |
353,790 |
159,081 |
|
| Capital
work-in-progress |
|
14 |
5,364 |
3,395 |
|
| Stores
held for capital expenditure |
|
|
18,482 |
-- |
|
|
|
--------- |
--------- |
|
|
|
377,636 |
162,476 |
|
| LONG-TERM
INVESTMENTS |
|
15 |
9,020 |
9,680 |
|
| LONG-TERM
LOANS AND ADVANCES |
|
16 |
23,846 |
15,222 |
|
| LONG-TERM
DEPOSITS |
|
|
6,702 |
6,051 |
|
| DEFERRED
TAXATION |
|
17 |
119,074 |
9,499 |
|
| DEFERRED COSTS |
|
18 |
-- |
37,218 |
|
|
|
|
|
|
| CURRENT
ASSETS |
|
|
|
| Stores and spares |
|
19 |
29,196 |
25,899 |
|
| Stock-in-trade |
|
20 |
496,091 |
601,150 |
|
| Contract
work-in-progress |
|
21 |
114,370 |
32,590 |
|
| Trade debts |
|
22 |
300,122 |
331,632 |
|
| Deposits,
prepayments and other receivables |
|
23 |
129,882 |
215,697 |
|
| Advance
income tax |
|
|
122,281 |
159,953 |
|
| Cash
and bank balances |
|
24 |
41,558 |
122,719 |
|
|
|
--------- |
--------- |
|
|
|
1,233,500 |
1,489,640 |
|
|
--------- |
--------- |
|
|
1,769,778 |
1,729,786 |
|
|
========== |
========== |
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
Javed Iqbal |
|
Sayed Muzafar Ali Shah |
|
|
Chief Executive |
|
Director |
|
|
|
| PROFIT
AND LOSS ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 19999 |
|
|
|
|
|
Note |
1999 |
1998 |
|
|
|
(Rupees in '000) |
|
|
| Net sales |
|
25 |
2,587,817 |
2,689,871 |
|
| Cost of sales |
|
26 |
2,238,902 |
1,991,245 |
|
|
----------- |
----------- |
|
| Gross profit |
|
348,915 |
698,626 |
|
| Selling
and administrative expenses |
|
27 |
622,090 |
482,615 |
|
|
|
----------- |
----------- |
|
| Operating
(Ioss)/profit |
|
|
(273,175) |
216,011 |
|
| Other income |
|
29 |
3,919 |
8,352 |
|
|
|
----------- |
----------- |
|
|
|
(269,256) |
224,363 |
|
| Financial charges |
|
30 |
160,062 |
106,080 |
|
| Other charges |
|
31 |
(5,159) |
13,395 |
|
|
|
----------- |
----------- |
|
|
|
154,903 |
119,475 |
|
|
|
----------- |
----------- |
|
| (Loss)/Profit
before tax |
|
|
(424,159) |
104,888 |
|
| Taxation |
|
32 |
14,725 |
35,228 |
|
|
|
----------- |
----------- |
|
| (Loss)/Profit
after tax |
|
(438,884) |
69,660) |
|
| Unappropriated
profit brought forward |
|
1,431 |
1,018 |
|
|
----------- |
----------- |
|
| Available
for appropriation |
|
(437,453) |
70,678 |
|
| Appropriations: |
|
|
|
| Interim
dividend Rs. Nil (1998: Rs. 1.50) per share |
|
-- |
15,093 |
|
| Proposed
final dividend Rs. Nil (1998: Rs. 2.50) per share |
|
-- |
25,154 |
|
| Transfer
to general reserve |
|
-- |
29,000 |
|
|
----------- |
----------- |
|
|
-- |
69,247 |
|
|
----------- |
----------- |
|
| (Accumulated
loss)/unappropriated profit |
|
| carried forward |
|
(437,453) |
1,431 |
|
|
========== |
========== |
|
| (Loss)/earnings
per share - basic and diluted |
|
33 |
(43.62) |
6.90 |
|
|
========== |
========== |
|
|
| Cash
flow from operating activities |
|
|
| Cash
(used for)/generated from operations |
|
34 |
(88,483) |
29,638 |
|
| Staff
retirement benefits paid |
|
|
(5,221) |
(10,426) |
|
| Financial
charges paid |
|
|
(144,850) |
(101,489 |
|
| Amortisation
of deferred cost |
|
|
37,218 |
(37,218) |
|
| Taxes paid |
|
|
(86,628) |
(109,811 ) |
|
| Long
term deposits - net |
|
|
(651) |
952 |
|
| Long
term loans and advances - net |
|
|
(8,624) |
(1,285) |
|
|
|
---------- |
---------- |
|
| Net
cash flows from operating activities |
|
|
(297,039) |
(229,639) |
|
| Cash
flow from investing activities |
|
|
|
|
| Fixed
capital expenditure |
|
|
(82,436) |
(47,472) |
|
| Sale proceeds of fixed assets
sold |
|
|
2,414 |
1,414 |
|
|
|
---------- |
---------- |
|
| Net
cash flows from investing activities |
|
|
(80,022) |
(46,058) |
|
| Cash
flow from financing activities |
|
|
|
|
| Repayment
of redeemable capital |
|
(24,000) |
(5,799) |
|
| Dividends paid |
|
(48,351) |
(14,471) |
|
|
|
---------- |
---------- |
|
| Net
cash flows from financing activities |
|
|
(72,351) |
(20,270) |
|
|
|
---------- |
---------- |
|
| Net
(decrease) in cash and cash equivalents |
|
|
(449,412) |
(295,967) |
|
| Cash
and cash equivalents at beginning of the year |
|
|
(682,757) |
(386,790) |
|
|
|
---------- |
---------- |
|
| Cash
and cash equivalents at the end of year |
|
35 |
(1,132,169) |
(682,757) |
|
|
========== |
========== |
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
Javed Iqbal |
|
Sayed Muzafar Ali Shah |
|
|
Chief Executive |
|
Director |
|
|
|
| NOTES
TO THE ACCOUNT |
|
|
| 1.
LEGAL STATUS AND ACTIVITIES |
|
|
| The
Company is incorporated in Pakistan under the Companies Act, 1913 (now
Companies |
|
| Ordinance,
1984) as a public limited company. Its shares are quoted on the Karachi and |
|
| Islamabad
Stock Exchanges. The Company is principally engaged in the production and |
|
| sale
of electrical and electronic goods and also executes projects under
contracts. The |
|
| Royal
Philips Electronics, Eindhoven, The Netherlands is currently negotiating with
a third |
|
| party
for the divestment of its world wide business of projects. |
|
|
| These
financial statements have been prepared on a going concern basis as the
holding |
|
| company
has assured that it will make its resources available to assist the company
to |
|
| regain
profits and market share within the shortest possible time frame. |
|
|
| 2.
SIGNIFICANT ACCOUNTING POLICIES |
|
|
| 2.1
Statement of Compliance |
|
|
| These
accounts have been prepared in accordance with accounting standards issued |
|
| by
the International Accounting Standards Committee (IASC), interpretations
issued |
|
| by
the Standing Interpretations Committee of the IASC as applicable in Pakistan
and |
|
| the
requirements of the Companies Ordinance, 1984. |
|
|
| 2.2
Accounting Convention |
|
|
| These
accounts have been prepared under the historical cost convention as modified |
|
| by
the revaluation of certain fixed assets. |
|
|
| 2.3
Staff Retirement Benefits |
|
|
|
|
| Defined
benefit plans |
|
| The
Company operates defined benefit funded pension scheme for its management |
|
| employees
and gratuity scheme for its employees who have completed their minimum |
|
| qualifying
period of service. The pension scheme provides life pension to employees |
|
| and
thereafter to their spouse or dependent children. Contributions are made
annually |
|
| to
these schemes on the basis of actuarial valuation. Last actuarial valuation
was |
|
| carried
out as at 31 December 1998 and contributions are being made at the rate of |
|
| 28.28%
of basic salary for pension and at the rate of 8.33% of basic salary for
gratuity |
|
| scheme.
Further, an additional provision at the rate of 11.59% of basic salary is
also |
|
| being
made in respect of gratuity. The fair value of the pension fund's assets and |
|
| liabilities
at 31 December 1998 was Rs.72.201 million and Rs.108.504 million |
|
| whereas
the fair value of the gratuity fund's assets and liabilities was Rs.47.623 |
|
| million
and Rs.71.312 million. |
|
|
| The
Company also operates an unfunded supplemental gratuity scheme for unionized |
|
| staff.
Provisions are made in the accounts to cover obligations on the basis of |
|
| actuarial
recommendations. |
|
|
| The
projected unit credit method, using the following significant assumptions, is
used |
|
| for
the valuation of the above mentioned schemes: |
|
|
| *
Discount rate is 12% per annum compound. |
|
| *
Expected rate of increase in salaries 12% per annum. |
|
| *
Expected rate of return on investment 14% per annum. |
|
|
| Defined
Contribution Plan |
|
|
| The
Company also operates a defined contribution provident fund for its
employees. |
|
| Equal
monthly contributions are made, both by the Company and the employees, to |
|
| the
fund at the rate of 10% of basic pay. |
|
|
| 2.4
Warranty Obligations |
|
|
| A
provision for warranties is recognised when the underlying products are sold
and |
|
| this
provision is based on historical warranty data. |
|
|
| 2.5 Taxation |
|
|
| Current |
|
|
| The
charge for current taxation is based on taxable income at the current rate of |
|
| taxation
after taking into account tax credits and tax rebates available, if any. |
|
|
| Deferred |
|
|
| Deferred
tax is provided using the balance sheet liability method, providing for |
|
| temporary
difference between the carrying amounts of assets and liabilities for |
|
| financial
reporting purposes and the amounts used for taxation purposes. The |
|
| amount
of deferred tax provided is based on the expected manner of realization or |
|
| settlement
of the carrying amount of assets and liabilities, using tax rates enacted at |
|
| the
balance sheet date. |
|
|
| A
deferred tax asset is recognised only to the extent that it is probable that
future |
|
| taxable
profits will be available against which the unused tax losses and credits can |
|
| be
utilised. Deferred tax assets are reduced to the extent that it is no longer
probable |
|
| that
the related tax benefit will be realised. |
|
|
| 2.6
Tangible Fixed Assets and Depreciation |
|
|
| Operating
fixed assets are stated at cost less accumulated 'depreciation except |
|
| leasehold
land and buildings thereon which are stated at revalued amounts. Capital |
|
| work-in-progress
is stated at cost. |
|
|
| Items
of fixed assets costing Rs.10,000 or less individually are not capitalised
and are |
|
| charged
off in the year of purchase. |
|
|
| Depreciation
is charged to income applying the straight-line method whereby the |
|
| asset
is written off over its estimated service life. Depreciation on additions is
charged |
|
| from
the month in which they are put to use and on deletions upto the month of |
|
| deletion. |
|
|
| Gains
and losses on disposals are taken to income currently. |
|
|
| Maintenance
and repairs are charged to income as and when incurred. Upto last year, |
|
| the
cost of renewal, overhaul and replacement of parts of furnace used for glass |
|
| production
was being accrued over the period from one renewal to another renewal |
|
| (two
and a half years). However, in order to comply with the requirements of |
|
| International
Accounting Standard 37 "Provisions, Contingent Liabilities and |
|
| Contingent
Assets", from current year the company has decided to capitalise these |
|
| costs
and depreciate them over a period of two and half years (also refer note 11). |
|
| Consequently,
the provision existing in the accounts as at 31 December 1998 |
|
| amounting
to Rs.48.6 million has been written back. Had there been no change in the |
|
| accounting
policy the loss for the year would have been higher by Rs.54 million. |
|
|
| 2.7
Long Term Investments |
|
|
| These
are stated at cost except where a permanent diminution in value is deemed to |
|
| have
occurred in which case the carrying value is appropriately reduced. |
|
|
| 2.8
Stores and spares |
|
|
| These
are valued at weighted average cost with the exception of stores relating to |
|
| consumer
electronics activities which are valued on first-in-first-out basis.
Provision is |
|
| made
against the cost of items which are slow moving or are likely to become |
|
| obsolete. |
|
|
| 2.9 Stock-in-trade |
|
|
|
| Stock-in-trade
is valued at |
