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Rafhan Maize Products Company Limited

Annual Report 1999

A Glimpse of

Ten Years Performance

1990

1991

1992

1993

1994

1995

1996

1997

1998

Net Sales

683

853

1065

1288

1399

1722

2123

2479

2223

2692

Rs. Million

Cost of Sales

508

641

790

928

1014

1301

1623

1856

1755

2111

Rs. Million

Gross Profit

175

212

274

360

385

422

500

622

468

581

Rs. Million

%age of Sales

Profit After Tax

125

138

157

183

202

214

271

Rs. Million

Capital Expenditure

104

204

173

151

185

247

Rs. Million

Dividend Amount

100

111

Rs. Million

Percentage

100

120

10 BONUS

Earnings per share

5.43

6.03

7.00

8.11

8.97

10.22

11.87

13.11

23.14

29.34

Rupees

CONTENTS

COMPANY INFORMATION

Rafhan Maize Products Co. Ltd.

(Formerly: CPC Rafhan Ltd)

Chairman

F.J.. Kocun

Chief Executive &

Rashid Ali

Managing Director

Directors

W.F. Otto

Anis Ahmad Khan

Mian Nisar Ahmad Mannoo

Mian Zulfikar Mannoo

Mian Mohammad Adil Mannoo

Sh. Gulzar Hussain

E.A. Nomani

Secretary

S. Yousuf Hashmi

Bankers

ANZ Grindlays Bank

American Express Bank

Bank of America NT&SA

Citibank N.A.

Emirates Bank International

Habib Bank Ltd.

Muslim Commercial Bank Ltd.

National Bank of Pakistan

Standard Chartered Bank

Auditors

Ford, Rhodes, Robson, Morrow,

Chartered Accountants,

Lahore - Karachi.

Legal Advisor

Surridge & Beecheno.,

Karachi - Lahore.

Registered Office:

Finlay House, 1st Floor,

I.I. Chundrigar Road,

Karachi.

Head Office and

Rakh Canal East Road,

Shares Department

Faisalabad.

Tel: 40121-22-23

(Formerly CPC Rafhan Ltd)

An Affiliate of Corn Products International, Inc. USA

CORN REFINING PIONEERS

Rafhan Maize Products Co. Ltd., started its operations in 1953 as a pioneer maize processing industry

in Pakistan. From relatively modest start, the operations of Rafhan Maize have now grown into

one of the largest agro-based industry in Pakistan.

A CORN REFINER WITH GLOBAL REACH

Rafhan Maize Products Co. Ltd., the No. 1 producer of Corn refining products in Pakistan, is an affiliate of

Corn Products International, Inc., USA. Corn Products International, founded in 1906, is one of the largest

corn refiners in the world and its operations span 5 continents to comprise 41 plants in 22 countries with

subsidiaries, joint ventures and alliances. The geographical diversity of operations is a unique strength of Corn

Products International in addition to technical experiences and know-how. Corn Products plants are

among the most modern in the corn refining industries and are strategically located to provide a strong base of

expansion into newly accessible markets around the world.

Rafhan's affiliation with a global company enables to guarantee quality products, consistent supply and

unequaled service. Our structure allows us to listen and respond to our customers - regardless of location

or size. Our people care about our customers. Our sales force does more than sell. They are part of your

team. Our manufacturing personnel do more than make and package product. They improve process for

consistent results. Our distribution net-work does more than deliver product.

PRODUCER OF HIGH QUALITY PRODUCTS

Rafhan Maize produces high quality food ingredients and industrial products. All these products

have leading market position and are being used in more than 50 types of industries in Pakistan and

export markets in the region.

Rafhan Maize native starch and its chemically modified derivatives are used in different industrial and consumer

products. The company has expanded and modernized modified starch plant to produce wide range of products

branded as Rafhan, Penetrose, Globe, Snowflake, Amisol, Tex-o-Film, Q-Tac and Coratex for multiple applications.

Sweeteners line includes various types of Rafhan Liquid Glucose, Cerelose Dextrose Monohydrate, Mor-Sweet

and Nu-Bru high maltose syrup, Enzose Hydrol and Caramel Colour and Karo Golden Syrup.

Rafhan Maize Gluten Feeds, Corn Germ Cake and Prairie Gold Maize Gluten meal are nutritious, high protein

products which are used by feed formulators for livestock and poultry feeds.

Rafhan Maize products are being supplied as essential raw material to the textile, paper, corrugation, confectionery,

bakery, pharmaceuticals, chemicals, tobacco, foundry, beverages, syrups and squashes, processed foods,

poultry/cattle feeds and other Food and non-Food industries.

Rafhan Maize products are manufactured under strict quality control to match the international standards.

Rafhan Maize has won the preferred supplier status among customers by focusing on quality, customer

service and team approach. The Technical Center at Rafhan Maize holds one of the most sophisticated

laboratories in Pakistan. The Center is responsible to develop new products and modify the existing range

to cope with the changing requirements of customers and overcome the functional problems connected with

application of products in different industries.

CONTRIBUTION TO AGRICULTURAL DEVELOPMENT

The development of spring maize crop (March-June) as a second crop of maize (corn) by Rafhan Maize is a

great contribution in the agricultural growth. Rafhan Maize plans to further strengthen Contract

Maize Farming Programme to give boost to the local farmers to produce high yielding varieties of maize and

enhance their earnings.

PRESTIGIOUS AWARDS

Rafhan Maize ranks as one of the top 25 companies listed on Karachi Stock Exchange and has won prestigious

award for 1995 and 1997 as one of the top performers. Rafhan Maize has also won CORPORATE

EXCELLENCE AWARD From Management Association of Pakistan.

ISO-9002 CERTIFIED COMPANY

Rafhan Maize becomes the first Corn Refiner in Pakistan to achieve ISO-9002 certification (Mod. Starch Div.)

from one of the world's most reputable and strict bodies. With the new millennium on the horizon, ISO-9002

certification is a milestone in our journey towards Total Quality Excellence.

DIRECTORS' REPORT

Rafhan Maize Products Co. Ltd.

The Directors have pleasure in placing their Report and Audited Accounts for the year ended September 30, 1999

before the Annual General Meeting of the Shareholders to be held on December 27, 1999.

FINANCIAL RESULTS

Year ended September 30

1999

1998

(Rupees in thousands)

Profit after taxation

270,964

213,728

Unappropriated profit brought forward

523,387

654,645

Less - Transfer to Rafhan Best Foods Ltd.

(261,858)

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

794,351

606,515

Appropriations

Interim Dividend @ 35%

32,327

27,709

Interim Dividend @ 10% 1998 @ 30%)

9,236

Proposed Final Dividend @ 85% (1998 @ 60%)

78,509

55,419

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

120,072

83,128

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

Unappropriated Profit carried forward

674,279

523,387

==========

EARNINGS PER SHARE

1999

1998

Rupees

29.34

23.14

YEAR ENDED SEPTEMBER 30

FINANCIAL RESULTS

1999

1998

NET SALES

2692

2223

(Rs. Million)

PROFIT AFTER TAX

271

214

(Rs. Million)

PAID-UP CAPITAL

(Rs. Million)

EARNINGS PER SHARE

29.34

23.14

(Rupees

Earnings per share improved by 27% over the previous year. The

improvement in earnings is mainly due to higher volumes of

speciality products and optimum utilization of plant capacity.

DIVIDEND

The directors having declared an interim dividend of 35%, now

propose a final dividend @ 85% making the total of 120% for

the year. The Directors also declared an interim dividend of 10%

for the year 1998 so as to increase the distribution rate for that

year to 43.22% of profit after tax to save the Company from

payment of 10% tax on reserves.

PARENT COMPANY

The majority shares of the Company are held by Corn Products

International Inc., USA.

COMPLIANCE WITH YEAR

The Company uses IBM AS 400 computer and all 16 applications as reported last year have been converted and

tested for year 2000 compliance.

PATTERN OF SHARE HOLDING

The pattern of shareholding as at September 30, 1999 appears on page 33.

AUDITORS

The present auditors M/s Ford, Rhodes, Robson, Morrow retire and being eligible offer themselves for re-appointment.

By order of the Board

RASHID ALI

November 08, 1999

Chief Executive and Managing Director

CHIEF EXECUTIVE'S REVIEW

It gives me pleasure to welcome you to the Annual General Meeting of the company.

BUSINESS ENVIRONMENT

The year under review was a difficult year for Pakistan. Economic sanctions following the nuclear tests, depletion

of foreign currency reserves and imbalances in economic and fiscal policies of the government eroded

confidence of the investors and the business community. Slowdown in economic activities put strain on the

buying power of the consumers and witnessed market resistance. Due to shrinkage of the disposable income

of the masses in lower and middle class of the society, major consuming industries of our products found it

highly challenging to maintain a stable growth pattern. Reduced tariffs on imports and international recession

also kept selling prices under pressure. Depreciating Asian currencies and cash flow pressure on Far Eastern

producers led to tough competition in the export markets and country's exports declined due to high

cost of inputs.

BUSINESS OVERVIEW

Inspite of adverse economic conditions and depressed business activities, I am pleased to report that, by the

grace of Almighty Allah, your company managed to perform reasonably well and maintained its momentum of

growth. The net sales of your company increased from Rs. 2,223 Million last year to Rs. 2,692 Million during the year

under review. This reflects a growth of 21% over last year.

The sales increased primarily due to volume growth by following customers focused and well-thought

marketing strategies. All manufacturing divisions of your company operated at higher levels than last

year and an increase in capacity utilization of 8% was achieved during the year.

Your company was successful in generating profit after tax of Rs. 271 Million; reflecting an increase of 27% over 1998. This

could be possible due to improved manufacturing efficiencies, effective cost control, consistent quality

control and better business relations with the customers. This performance is really commendable considering

economic recession and volatile trading activities prevailing in the country throughout the year.

STARCHES AND DERIVATIVES

Your company manufactures a wide variety of starches which find multiple applications in different industries.

The textile industry uses starch to reduce friction in the weaving process and to improve fabrics feel and

appearance. Starches are also used as strengthening and finishing components in paper production and in the

production of adhesives for corrugated shipping cases and paper sacks. In the food industries, starches are

used primarily as a thickener and binder in a range of processed foods. In the non-food industries, industrial

starches are used in the production of chemicals, adhesives, pharmaceuticals, resins and cosmetics.

The newly built modified starches channel successfully started its operations in 1999 to produce diversified

range of chemically modified starches. With improved working efficiencies and increased production,

Penetrose brand modified starches registered 10% increase in sales over last year. The use of Amisol, Tex-

o-Film and Coratex brand starches was further expanded in textile sizing and finishing to produce

qualities matching to international textile standards.

The paper industry worked below installed capacity due to high cost of inputs and increased

competition from dumping imports. Through technical sales support, the use of Q-Tac brand cationic starches

and Amisol brand oxidized starches was expanded to produce better quality paper with increased productivity.

The marketing of Snowflake and Globe brand Modified Starches for food applications helped in

achieving diversified market base. The demand of food grade starches is prospering due to change in dinning

and eating habits. Significant demand growth is being generated from soups, desserts, corn flour, puddings

and other food, mixes. The entry of multi-national food chains is also playing a pivotal role in promoting the

Sale of food grade starches.

Your Company plans to further expand its capacity to produce hi-tech modified starches and develop new

markets by leveraging its Corn Products world team partnership and expertise. We will continue to imple-

ment programmes to protect and grow our position as market leader in starch business in Pakistan as well as

in regional export markets.

CHIEF EXECUTIVE'S REVIEW

SWEETENERS - LIQUID AND POWDER

Today Rafhan Maize produces three types of sweeteners. Glucose Syrups or liquid glucose are fundamental

ingredients in main industrial products and are widely used in food products such as confectionery,

baked goods, snack foods, beverages, dairy products, ice cream, sweets, jams and jellies,

prepared mixes and medicinal syrups. Confectionery industry is the largest consumer of glucose syrups in

Pakistan; followed by pharmaceutical and other food industries. Keeping in line with our strategy to always

move ahead of customers' demand, your company increased capacity of its glucose refinery to meet the

growing need of confectionery industry and as such increased demand of liquid glucose from this segment

was fully capitalized by achieving significant increase in sale of liquid glucose over last year.

Cerelose Dextrose Monohydrate, second product of sweeteners category, is used across various food industries

in many products that also use glucose syrups; especially in the confectionery, baking, pharmaceuticals and

powder energy drinks.

Due to reduced tariffs on import of dextrose, we suffered slight volume loss in case of dextrose sales to

packers selling dextrose as flavoured and fortified energy drink. However, the impact on sales on account of

cheaper imports in this segment was lessened by expanding sale of dextrose in other food and pharmaceutical

applications.

High Maltose Corn Syrup, under the brand names of Nu-Bru and Mor-Sweet, is yet another product in

sweeteners category with a unique carbohydrate profile, making it ideal as a source of fermentable sugars and

for use in the production of confections, canning, biscuits, and other food processing applications.

Despite significant increase in volume sale of sweeteners led by liquid glucose, our gross margins remained under

pressure as rising cost of raw material could not be passed on to selling prices due to high availability of

sugar - the major competitive ingredient for substitution in candy and other food applications.

CO-PRODUCTS

The third segment of our product mix consists of corn oil, maize gluten meal/feeds, maize germ cake and

Hydrol.

In the corn refining process, oil bearing germ is separated from maize kernel and expelled to obtain crude corn

oil which is further refined for use as edible corn oil and in the production of margarine, salad dressings,

shortening, mayonnaise and other foods. During the year under review, we sold total production of Crude

Corn Oil to Rafhan Best Foods as per Master Supply Agreement between the two companies as a part of

demerger plan.

Increase in sale volume and market share leadership of Prairie Gold Maize Gluten Meal, a rich source of protein

and nutrition, was maintained in poultry feed market despite tough competition with imported Soyabean

Meal, mainly from India.

The sale of Rafhan Maize Gluten Feeds remained depressed due to high availability of other substitute

oilseeds meals at low prices and slackened demand from poultry feed compounders due to restrictions on

serving meals in the marriage feasts. The poultry farming is still below normal due to decreased demand.

In addition to reduction in prices of gluten feeds to be more competitive, we expanded sale of Buffalo Maize

Bran as cattle feed ingredient. The feeding of Buffalo Maize Bran alongwith Rafhan Maize Oil Cake im-

proved milk yield when fed to the dairy cattle and as such helped us to maintain sales volume oleo-products.

EXPORTS

Our export strategy is based on full plant capacity utilization to cover domestic market fluctuations. We

faced severe price competition from Europe, India and South East Asian countries in our traditional export

markets in the Middle East. We have lately entered into Central Asian markets to seize new business

opportunities. Our vision for Rafhan Maize; TO Be The Best in Corn Refining Business in The

Region, continues to guide us in exploring new frontiers.

I am pleased to inform you that your Company has been selected for award of Merit Export Trophy on

corn based products by Federation of Pakistan Chambers of Commerce and Industry (FPCCI) for the year

1998-99.

RAW MATERIAL

Due to favourable weather conditions and increased sowing of hybrid seeds, per acre yield of maize planted

in spring (March-June) increased in Punjab and production of maize was 10% higher than 1998 crop. This

had a favourable effect on availability of maize and helped us in building adequate inventories

to meet our increased demand due to capacity expansions. Government has recently enhanced

procurement price of wheat by 25% which has resulted in increased demand of maize from food and

feed segments. We foresee further increase in price of maize due to higher prices of substitute grains and

increased demand from food and feed sectors. Your company is further strengthening Maize Contract

Farming Programme to produce high yielding varieties of maize and to expand areas under maize crop

cultivation. We are also widening the scope of market purchases to ensure sufficient supply of

maize from domestic sources to meet our future growing requirements.

CHIEF EXECUTIVE'S REVIEW

INVESTMENT

In order to meet the growing demand of consuming industries for corn based products from local resources,

your company continues to pursue the policy of plant capacity expansion, modernization, and innovation of

products. A new modified starches channel has been erected to produce high technology starches with con-

sistent quality. By the grace of Almighty Allah, we have completed the first phase of capacity expansion project

well on-time. Work on next phase of plant capacity expansion by another 20% is in progress and will,

Inshallah, be completed by mid 2000. During the year, under review, company has financed capital expenditure

of Rs. 247.3 Million. Capital expenditure programme also includes programmes relating to improvement in

quality, plant efficiency, environmental and pollution controls.

ISO 9002 CERTIFICATION

Total Quality Excellence is the core of Rafhan's Business Strategy. I am pleased to inform you that, A1-

hamadolillah, your company has acquired ISO-9002 Quality Management Certificate for the manufac-

turing of modified starches from world renowned Certification Agency, AOQC Moody International.

The process of getting ISO-9002 Certification for each Production Division of the Company is on-going.

Preparatory work for Sweeteners Division by a competent professional team has almost been completed to get

Sweeteners Division certified by mid 2000. With ISO-9002 certification, your Company is in a better position

to meet the growing needs of our valuable customers with respect to quality as well as quantity.

Y2K COMPLIANCE

Your company is well aware of the Y2K related issues and we have reviewed all our IT systems and devices with regard to year

2000 programming problem. The exercises and audits conducted so far have confirmed that company's

systems are millennium compliant.

The company has also drawn up contingency plans for all departments to ensure that

the business keeps on functioning smoothly in an event of any discrepancy or disruption in the next millennium.

SAFETY AND ENVIRONMENT

Your company is committed to protection of the environment and safety of its employees and we strive for

continuous improvement in these areas. The continuous training programmes to meet the safety

standards have resulted in maintaining a safe working environment and there were no reportable safety

incidents during the year under review. We are making concerted efforts to improve the environmental

performance of the plant.

EMPLOYEES RELATIONS AND MANAGEMENT DEVELOPMENT

Our employees are our most valuable resource. Your company is managed by highly skilled and dedicated

personnel in all departments. As a part of company's policy to develop human resources, continuous ef-

forts are made to enhance the skills of employees by way of on-job training as well as courses. Manage-

ment development programmes to improve employees professional skills and knowledge continued

at all levels of the management; inside and outside Pakistan. Management and employees relations

continue to remain cordial.

I take this opportunity to record my deep sense of appreciation for the continued dedication and efforts

put in by the employees at all levels to achieve growth in business and increase in productivity.

FUTURE OUTLOOK

Pakistan's economy is still passing through a crucial phase. Your company is fully aware of this difficult

situation and the challenges to remain financially viable in the competitive era without compromising on quality

and company's image as all-time reliable supplier of standard quality products. There is a threat of cheaper

imports due to reduced tariffs. Cost of maize will further rise due to upswing in the prices of competitive grains

and increased d