Fazal Cloth Ltd No comments: Company Profile Products/Services We Offer: Yarns for Towels, Home Textiles, Knitting& Hosiery

Business Type: Manufacturer

Industry Focus: Yarn , Geographic Markets: Worldwide

No. of Employees: Above 1000 People

Annual Sales Range (USD): Above US$100 Million

Certificates: Supima, Du Pont Lycra and Lenzing certify

Year Established: 1936 Legal Representative/CEO: MIAN REHMAN NASEEM

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Contact Information Company Name: Fazal Cloth Mills Ltd Contact Person: Mr Tasswur Hassnain

Address: 102,103 International Plaza, Bohra Street, Multan Cantt, Multan, Pakistan, Pakistan Telephone: 92 061 4782796 Fax: 92 061 4541832 Mobile Phone: 92 -333 -6119534

Introduction

We introduce ourselves as Fazal Group based in Pakistan. We are manufactuer's of Ring Spun Yarns and Greige Woven Fabrics.

Our Spinning Division comprises 150,000 spindles with 3,100 tons of Ring Spun Yarn production per month. We produce Yarns for Towels(Two For One Twisted Plied, Modal/Cotton, Zero Twist, Supima, Giza Yarns), Yarns for Home Textiles(Fine Counts upto Ne 120/1, Compact), Yarns for Denim(Core Spun with Lycra, Slub), Knitting& Hosiery Yarns. Supima, Du Pont Lycra and Lenzing certify us for using their products and issuing certificates based on which our customers can put respective labels on their products.

Our Weaving Division comprises 224 Air Jet Looms with 3.5 Million meters of fabric production per month. We produce Twills, Drills, Canvases, Stretch Twills, Slubs, Bull Denims& Sheeting fabrics.

Our Company has been in Textile business since 1936 and enjoys excellent reputation.70% of our $125 Million in sales per annum is generated from exports.

We would like to work with your Company to supply our Yarns& Fabrics. Please advise how to proceed to start this relationship.

For business information, annual reports, laws, ordinances, regulations and articles.

Web Paksearch.com

FAZAL CLOTH MILLS LIMITED Annual Report 2003

CONTENTS

Company Information Vision and Mission Statement Statement of Ethics Notice of Annual General Meeting Directors'Report Statement of compliance with best practices of Code of Corporate Governance Review report to the members on statement of Compliance with best practices of Code of Corporate Governance Auditors'Report to the Mambers Balance Sheet Profit and Loss Account Cash Flow Statement Statement of Changes in Equity Notes to the Financial Statements Pattern of Shareholding as per requirements of Code of Corporate Governance

COMPANY INFORMATION

Board of Directors Sh. Naseem Ahmad Chairman & Chief Executive Sh. Amir Naseem Mr. Rehman Naseem Mr. Fazal Ahmad Sheikh Mr. Faisal Mukhtar Mrs. Farrukh Mukhtar Mr Shamsuddin Khan Nominee NIT Ltd.

Audit Commitee Sh. Naseem Ahmad Chairman Mr. Rehman Naseem Member Mr. Fisal Mukhtar Member

Company Secretary Mr. M.D. Kanwar

Chief Financial Officer Mr. Faizan-ul-Haq

Auditors M/s Yousuf, Adil, Saleem & Co., Chartered Accountants

Bankers Habib Bank Limited Askan Commercial Bank Limited Sonen Bank Limited

Bank AI-Falah Limited National Bank of Pakistan Faysal Bank Limited ABN-AMRO Bank. N.V. Meezan Bank Limited Pakistan Industrial Credit & Investment Corporation Limited Pakistan kuwait Investment Company (Pvt) Limited

Offices : Head/Registered Office 1st Floor, International Plaza, Bohra Street, Multan Cantt Pakistan Ph.: 061-587632, 588733, 581422, Fax . 0092-61-541832 e-mail : fazalgrp@brain.net.pk

Account Office 2nd Floor, Trust Plaza, Multan - Pakistan Ph. 061-549713. 512031 Fax 0092-61-511677

Mills: i) Fazal Nagar. Jhang Road, Muzaffargarh - Pakistan Ph. 0661-422216-18 Fax : 0092-661-422217 e-mail exports@fazalcloth.com ii) Qadirpur Rawan Bypass, Khanewal Road, Multan - Pakistan Ph. 061-578022-23, 578097 Fax : 0092-61-578098

Corporate Vision / Mission Statement

Vision

The Company aims at becoming a Complete Textile unit, which can explore local and international market of very high value products. The Company would keep its emphasis on product and market diversification, value addition and cost effectiveness. We want to fully equip the company to play a meaningful role on the sustainable basis in the economic development of the Country.

Mission

The Company should provide a secure and rewarding investment to its shareholders and investors, quality products to its customers, a secure place of work to its employees and an ethical partner to all its business associates.

STATEMENT OF ETHICS

INTRODUCTION

The Company's policy is to conduct business with honesty and integrity and be ethical in all its dealing, showing respect for the interest of those with whom it has relationships.

EMPLOYEES

1. This Code of Ethics is established on the basis that unless a limitation is specifically stated the objectives and fundamental principles are equally valid for ail employees, whether they are at mills or at head office.

2. An employee is distinguished by certain characteristics including :

2.1 Master of particular intellectual skill, acquired by training and education.

2.2 Acceptance of duty to society as a whole in addition to duties to the organization and employer.

2.3 Rendering personal services to a high standard of conduct and performance.

3. The specialized knowledge, skills, training and experience required to be a proficient employee.

4 The efforts of the services of superiors to train those working directly and indirectly under them would be appreciated.

THE PUBLIC INTEREST

5. A distinguishing mark of a profession is acceptance of its responsibility to the organization. The organization is responsible towards customer, credit grantors, governments, employees, investors, the business and financial community and others who rely on the objectivity and integrity of the organization to maintain the orderly functioning of commerce and industry. This reliance imposes a public interest responsibility on the organization. The public interest is defined as the collective well being of the community of people and institution served by the organization.

6. An organization's responsibility is not exclusively to satisfy the needs of an individual customer or

director. The standards of service are heavily determined by the public interest for example :

6. / Transparent dealings help to maintain the integrity and efficiency of the Organization presented to the shareholders, financial institutions, customers, employees, government regulations and tax authorities. The transparent dealings would help to secure loans and to obtain capital from share holders.

6.2 Financial planning serves in efficient and effective use of the organization's resources.

6.3 Internal auditors provide assurance about a sound internal control system, which enhances the reliability of the external financial information of the organization.

6.4 Directors help to establish confidence and efficiency for fair resolution Organization's affairs.

6.5 Management has responsibility toward the organization in advocating sound management decision making.

7. The organization has an important role towards society, shareholders, creditors, employees and other sectors of the business community, as well as the government and the public at large for sound financial accounting, reporting effective financial management and variety of business and taxation matters. Sound business practices of the organization has an impact on the economic well being of the country.

8. It is in the best interest of the organization that services are provided at the highest level of performance and in accordance with ethical standards to ensure continued good performance.

9. In formulating this code of ethics, the Board of Directors has considered the public service and employees expectations of the ethical standards of the organization.

OBJECTIVES OF THE ORGANIZATION

10. The code recognizes that the objectives of the organization are to work to highest standards of professionalism, to attain the highest levels of performance and generally to meet the interested group requirements set out above. These objectives require four basic needs to be met:

10.1 Credibility

In the whole of society there is a need for credibility in information and information systems.

10.2 Professionalism

The customers, employees and other interested parties can rely on the professionalism of the organization.

10.3 Quality of Services

There is a need for assurance that all services provided are carried out to the highest standards of performance.

10.4 Confidence

Interested groups should be able to feel confident that there exists a framework of professional ethics, which governs the provision of services provided by the organization to the community and the country.

FUNDAMENTAL PRINCIPLES

11. In order to achieve the objectives of the organization, employer and employees have to observe a number of prerequisites or fundamental principles.

12. The fundamental principles are:

12.1 Integrity

An interested group connected with the organization should be straight forward and honest in performing professionals services.

12.2 Objectivity

The organization should be fair and should not allow prejudice or bias or influence of other to override objectivity.

12.3 Professional Competence, Due Care and Timeliness

An organization should perform and provide goods and services with due care, competence

and diligence and has a continuing duty to maintain a level required to ensure that a customer or employee receives goods and service based on up to date product line. Further all industrial obligations should be adhered to for timely compliance.

12.4 Confidentiality

The organization should respect the confidentiality of information acquired during the course of providing goods and services and should not use or disclose any such information without proper and specific authority or unless there is a legal or professional right or duty to disclose.

12.5 Organizational Behavior

The organization should act in a manner consistent with the good reputation of the industry and refrain from any conduct, which might bring discredit to the company.

12.6 Technical Standards

The organization should provide goods and services in accordance with the relevant technical ond professional standards The organization has a duty to carry out with care and skill, the instructions of the customers insofar as they are compatible with the requirements of commercial trade practice. In addition they should conform with the technical and professional standards promulgated by:

PCSIR (Pakistan Council for Scientific & Industrial Research)

 international Standards

Relevant Legislation

13. In addition to observing the fundamental principles listed above; the organization should be and appear to be free of any interest, which might be, regarded, whatever its actual effect, as being incompatible with integrity, objectivity and independence.

14. The objectives as well as the fundamental principles are of a general nature and are not intended to be used to solve the organization's ethical problems in a specific case. However, the code provides some guidance as to the application in practice of the objectives and the fundamental principles with regard to a number of typical situations occurring in the industrial process and company procedure.

NOTICE OF MEETING

Notice is hereby given that the 38th Annual General Meeting of the Shareholders of the Company FAZAL CLOTH MILLS LIMITED will be hied on Friday, the 30th day of January, 2004 at 11:00 a.m. at Room No. 102/103,1st Floor, International Plaza, Bohra Street. Multan Cantt. to transact the following business:

ORDINARY BUSINESS :

1. To confirm the minutes of the last Annual General Meeting of the Company dated 31.03.2003.

2. To receive, consider and adopt the Audited Accounts of the Company for the year ended 30th September, 2003, together with the Auditors' and Directors' Reports thereon.

3. To approve the payment of Cash Dividend at the rate of Re. 1/- (Rupee One Only) per ordinary share of Rs. 10/-each (10%) as recommended by the Board of Directors.

4. To appoint M/s. M. Yousuf Adil Saleem & Co. Chartered Accountants as External Auditors of the Company for the financial year 2003-04 and fix their remuneration in place of M/s. Hameed Chaudhri & Co. Chartered Accountants, Lahore who have retired in pursuance of Corporate Governance.

5. Any other business with the permission of the Chairman.

BY ORDER OF THE BOARD

Sd/MULTAN (M.D. KANWAR)

Dated : January 06, 2004 Company Secretary

NOTES :-

I. The Share Transfer Books of the Company will remain closed from 21st January, 2004 to 03rd February, 2004 (both days inclusive)

li. A member entitled to attend and vote at the meeting may appoint another member as his/her

proxy to attend and vote instead of him/her. A Corporate Body being a member of the Company may appoint its proxy either under its Seal or under the hand of any officer or attorney duly authorized. The instrument of appointing proxy must be deposited at the Company's Registered Office at Room No. 102/103,1st Floor, International Plaza, Bohra Street, Multan Cantt. not later than 48 hours before the time of meeting.

III. Shareholders are requested to promptly notify the Company of any change in their addresses.

DIRECTOR'S REPORT

Dear Shareholder, Assalam-o-Alaikum,

I feel pleasure to welcome you to 38th Annual General Meeting of the Company and place before you the Audited Financial Statement of the Company for the year ended September 30, 2003.

FINANCIAL AND OPERATING RESULTS:

During the year under review, the installed capacity of the Company increased from 74,756 spindles to 91,892 spindles. As a result of this fixed cost per spindle reduced significantly. Sales increased by 19.31% from Rs.2.363 Billion to Rs. 2.820 Billion. The result of this was an increase in after tax profit from Rs.40.499 Million to Rs.92.439 Million after charging depreciation of Rs.126.601 Million (previous year Depreciation charged Rs. 105.312 Million) and contribution to Workers Profit Participation Fund of Rs.8.159 Million (previous

year WPPF contribution Rs.2.822).

The Tax provision for the year under review includes provision for Deferred Taxation amounting to Rs.43.726 Million in compliance with IAS - 12 "Income Taxes". Profit for the year would have been Rs. 136.320 Million if this change in accounting policy was not adhered to. This provision is a non cash expense. The Company does not expect to pay this amount in the near future.

Earnings Per Share (EPS) increased to Rs 7 48 (last year EPS Rb.3.96). Earnings Per Share Before Interest & Tax (EBIT/Share) increased to Rs.21.70 (last year Rs.18.33). Earning Per Share Before Interest, Tax and Depreciation (EBITDA/Share) increased to Rs.31.96 (last year Rs.25.87).

The improved resuits of the Co.npany are due to reduction in cost occuring due to:

a) Economies of Scale

b) Reduction in Short & Long Term Interest Expense

I would like to take this opportunity to thank the State Bank of Pakistan and all the Bankers of our Company for the correct decision taken by them which has resulted in a significant decrease in interest rates prevalent in the country. The decrease is in line with reduction in interest rates across the globe. Inshallah, this will result in increased investment in Pakistan giving a much needed fillip to the Country's Economy.

DIRECTORS:

The Directors, Chief Executive Officer, Chief financial Officer, Company Secretary, their spouses and minor children have made no transactions in Company's shares.

During the year 2002-2003, four board meetings were held which were attended as follows :

Sh. Naseem Ahmad Chairman/Chief Executive 3 Mr Shamsuddin Khan Nominee of NIT Ltd. 3 Sh. Amir Naseem 4 Mr. Rehman Naseem 3 Mr. Fazal Ahmad Sheikh 2 Mr. Faisal Mukhtar 1 Mis. Farrukh Mukhtar 1

COMPARISON OF LAST SIX YEARS OF OPERATIONS:

Salient features of the financial performance of the company for last six years are reproduced below :

2003 2002 2001 2000 1999 1998

Production in Kgs (000) 21,924 20,047 15,170 13,237 12,311 12,127 Sales net (Rs in million) 2,820.26 2,363.75 1,903.90 1,553.00 1,353.20 1,419.64 Gross Profit (Rs. in million) 318.853 263.004 259.345 297.648 144.373 146.094

Net profit before tax (Rs in million) 154.868 52.612 52.068 154.31 31.335 12.574 Provision for taxation Including deferred tax (Rs. in million) 62.428 12.113 12.757 47.149 16.335 12.388 Profit after taxation (Rs. in million) 92.439 40.499 39.311 107.161 15 0.186 Un-appropriated profit brought forward (Rs. in million) 244.984 216.84 194.161 130.243 124.747 124.561 Profit available for Appropriation (Rs. in million) 337.424 257.339 233.472 237.404 139.747 124.747 Dividend per share 1 1 1.75 4.55 1.5 Nil Gross profit ratio 11.31% 11.30% 13.62% 19.17% 10.67% 10.29% Net profit ratio 5.49% 1.74% 2.06% 6.90% 1.11% 0.01% Earnings before interest, tax and depreciation allowance (BBITDA) (Rs. in million) 394.749 331.826 329.335 292.316 154.379 129.269

CORPORATE GOVERNANCE:

In compliance with the code of corporate governance the board of directors hereby declare that:

 The financial statements for the year ended September 30, 2003 present fairly the state of affairs, the result 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 except for changes, as mentioned in note 2.5(b) to the financial statement for the year ended September 30, 2003,

International Accounting Standard (IAS) as applicable in Pakistan, have been followed in preparation of financial statements;

The system of internal control is sound in design and has been effectively implemented and monitored;

There is no doubt aoout the company to continue as going concern;

There has been no material departure from best practices of corporate governance as detailed in listing regulations.

PATTERN OF SHAREHOLDING:

The pattern of share holding as on September 30, 2003 is annexed.

DIVIDEND:

Your Directors are pleased to propose a dividend of Re. 1.00 per share (10%) out of the profit of the Company for the year ended September 30, 2003.

FUTURE OUTLOOK:

The Raw Cotton Crop during the current year, both in Pakistan and in the International Market, has been effected by pest attack and inclement weather conditions. Due to this prices of the main raw materials of the Company have increased substantially. Yarn prices have also increased but not proportionately. The Company expects its sales to register a sharp rise. However, this will be on account of an increase in selling price per unit rather than an increase in production. Cost of Sales will also register a sharp increase. Based on the operating results of the Company during the first quarter of this financial year (Oct-Dec 03), I remain cautiously optimistic about the financial performance of the Company during the current year.

Quotas on import of textile products by Europe and USA are expected to be phased out by end of 2004. Although, I believe that the Quota free world will be generally beneficial for the Textile Industry in Pakistan, it will also unleash a fierce competition between players in this industry. Only those Companies will be able to survive which are able to produce high quality goods at a globally competitive cost. To meet the challenges posed and to capitalize on the increased market access provided by this change, your Company intends to

continue the process of Balancing, Modernization and Expansion of its plants and equipment. LCs for import of Machinery for modernization and expansion of Mills No. 1 of the Company have already been opened. Work has also started on enhancement in capacity of the Captive Gas Fired power project of the Company located at Muzaffargarh from 5 MW to 7 MW and setting up of a new 3 MW Captive Gas Fired power project for supply of electricity to Mills No. 3 of the Company located in Multan.

100% electricity requirements of the Company will be met by the Captive Power Projects of the Company resulting in a reduction in power cost. The Company also intends to install 7,056 spindles with allied back process and winding machinery in Mills No.3 of the Company to reduce fixed costs per spindle. The Company also plans to install a new Spinning Unit in multan at a cost of Rs.600 Million. These investments will result in reduction in fixed costs per spindles, improve quality and diversify the Company's product base making it more resilient to ups and downs in the textile business.

AUDITORS:

M/s. Hameed Chaudhri & Co., Chartered Accountants, Lahore, auditors of the company retire and in compliance with the clause xli of the code of Corporate governance M/s. Yousaf, Adil, Saleem & Co., Chartered Accountants being eligible offers themselves for appointment for the year 2003-2004.

MANAGEMENT/LABOUR RELATIONS:

The management/labour relations remained warm and cordial throughout the year under review. We place great importance on our employees. We continue to invest in the professional development and improvement of skills of our human resource, since we believe that by investing in our people we invest in our future. Company's human resource policy is based on the underlying values of fairness, merit, equal opportunity and social responsibility. Complying with our human resource policies we do not hire any child labour.

The employees and management of the company continued to make joint efforts to keep up high standards of productivity. By the grace of Allah the Almighty, relationship of management and employees continued to remain in total harmony.

The board wishes to place on record its deep appreciation to all of them for their hard work and dedication to achieve these results.

STATEMENT OF COMPLIANCE WITH BEST PRACTICES OF CODE OF CORPORATE GOVERNANCE

The statement is being presented to comply with the Code of Corporate Governance contained in Listing Regulation No.37 of Karachi Stock Exchange (Guarantee) Limited and Chapter XIII of the Lahore Stock Exchange (Guarantee) Limited for the purpose of establishing a framework of good governance, whereby a listed company is managed in compliance with the best practices of Corporate

Governance.

The Company has applied the principles contained in the Code in the following manner:

1. The Company encourages representation of independent non-executive directors; at present the Board includes three independent non-executive directors.

2. The Directors have confirmed that none of them is serving as a director in more than ten listed companies, including this Company.

3. To the best of our knowledge 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 a 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 current year.

5. The Company has prepared a 'Statement of Ethics and Business Practices', which has been signed by all the directors and key employees of the Company.

6. The Board has developed a vission/mission statement, overall corporate strategy and significant policies of the Company. A complete record of praticulars 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 of 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 Chief Executive and, in his absence, 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 were circulated at least seven days before the meetings. The minutes of the meeting were appropriately recorded and circulated.

9. Directors are well conversant with the Listing Regulations and legal requirements and as such are fully aware of their duties and responsibilities.

10. There were no new appointments of CFO, Company Secretary or head of internal audit department during the year.

11. The directors' report for this year has been prepared in compliance with the requirements of the Code and it fully describes the salient matters required to be disclosed.

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

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 which comrises of three members of whom two are nonexecutive directors.

16. The meetings of the audit committee were held at least once every quarter prior to approval of quarterly, interim and final results of the Company and as required by the Code. The terms of reference of the committee have been formulated and advised to the committee for compliance.

17. The Board has set-up an effective internal audit function.

18. The statutory auditors of the Company have confirmed that they have been given a satisfactory rating under the quality control review programme of the Institute of Chartered Accountants of Pakistan (ICAP) and 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 cf 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.

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 FAZAL CLOTH MILLS LIMITED to comply with the Listing Regulation No. 37 (Chapter XI) of the Karachi Stock Exchange (Guarantee) Limited and Chapter XIII of the Lahore 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 oersonnel 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 status of compliance, in all material respects, with the best practices contained in the Code of Corporate Governanace as applicable to the company for the year ended 30 September, 2003.

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of Fazal Cloth Mills Limited as at 30th September, 2003 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 Ihe 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 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 accounting policies consistently applied, except for the changes as stated in note 2.5(b) with 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 30 September, 2003 and of the profit, its cash flows and changes in equity for the year then ended, and

(d) in our opinion zakat duductible 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.

HAMEED CHAUDHRI & CO.,

LAHORE: 07 JANUARY, 2004 CHARTERED ACCOUNTANTS

BALANCE SHEET

2003 2002 Note Rupees Rupees CAPITAL & RESERVES Authorised Capital 25,000,000(2002: 25, 000,000) ordinary shares of Rs. 10/- each 250,000,000 250,000,000 Issued, subscribed and paid-up capital 3 123,552,000 123,552,000 Capital reserve 4 77,617,419 77,616,000 Unappropriated profit 325,069,160 244,984,433 526,238,579 446,152,433 LONG TERM FINANCES 5 362,920,161 390,349,912 DEMAND FINANCE 6 129,475,452 27,642,400 LIABILITIES AGAINST ASSETS SUBJECT TO FINANCE LEASE 7 1,011,129 13,728,367 CUSTOMS DUTIES 8 27,231,214 27,231,214 DUE TO ASSOCIATED UNDERTAKING 9 7,133,528 7,133,528 DEFERRED INCOME 10 22,061 44,122

DEFERRED LIABILITIES Deferred taxation 11 65,500,000 21,774,000 Gratuity 2.4 16,706,796 13,780,569 82,206,796 35,554,569 CURRENT LIABILITIES Current portion of long term liabilities 12 129,440,787 145,468,136 Short term finances 13 668,225,666 660,415,260 Creditors, accruals and other liabilities 14 156,163,867 126,855,187 Provision for taxation 15 51,847,374 34,447,374 Dividends 16 13,699,966 13,650,355 1,019,377,660 980,836,312 CONTINGENCIES AND COMMITMENTS 17 2,155,616,580 1,928,672,857

The annexed notes form an integral part of these financial statements.

2003 2002 Note Rupees Rupees TANGIBLE FIXED ASSETS Operating fixed assets 18 1,169,552,247 979,213,287 Capital work-in-progress 19 48,961,415 96,338,815 1,218,513,662 1,075,552,102

LONG TERM INVESTMENTS 20 2,337 918 LONG TERM LOANS 21 648,721 647,994 LONG TERM DEPOSITS 4,194,125 4,089,125 CURRENT ASSETS Stores, spares and I loose tools 22 39,030,821 33,783,119 Stock-in-trade 23 624,268,259 549,136,025 Trade debtors 24 139,338,132 191,749,996 Advances, deposits, prepayments and other receivables 25 120,426,435 68,987,615 Cash and bank balances 26 9,194,088 4,725,963 932,257,735 848,382,718

PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED 30 SEPTEMBER, 2003

2003 2002 Note Rupees Rupees SALES - Net 27 2,820,256,650 2,363,745,162 COST OF SALES 28 2,501,402,651 2,100,741,143 GROSS PROFIT 318,853,999 263,004,019

ADMINISTRATIVE EXPENSES 29 39,919,216 34,865,287 OPERATING PROFIT 278,934,783 228,138,732 OTHER INCOME 30 575,191 3,069,883 279,509,974 231,208,615 OTHER CHARGES Financial - Net 31 113,280,538 173,903,315 Miscellaneous 32 30,419,531 871,415 Corporate asset tax 0 1,000,000 Workers' welfare fund 160,000 0 Workers' (profit) participation fund 14.1 8,159,000 2,822,000 124,641,491 178,596,730 PROFIT BEFORE TAXATION 154,868,483 52,611,885 PROVISION FOR TAXATION Current and prior years -net 15 18,702,556 12,112,517 Deferred 11 43,726,000 i 62,428,556 12,112,517 PROFIT AFTER TAXATION 92,439,927 40,499,368 UNAPPROPRIATED PROFIT Brought forward 244,984,433 216,840,265 PROFIT AVAILABLE FOR APPROPRIATION 337,424,360 257,339,633 APPROPRIATION: Proposed dividend - Re. 1.00 per share (2002: Re. 1 00 per share) 12,355,200 12,355,200 UNAPPROPRIATED PROFIT Carried to Balance Sheet 325,069,160 244,984,433

EARNINGS PER SHARE 34 7.48 3.96

The annexed notes form an integral part of these financial statements.

CASH FLOW STATEMENT

FOR THE YEAR ENDED 30 SEPTEMBER, 2003

2003 2002 Rupees Rupees NET CASH INFLOW FROM OPERATING ACTIVITIES (Note 'A') 359,960,790 53,906,227 CASH FLOW FROM INVESTING ACTIVITES Fixed capital expenditure -270,539,875 -205,154,433 Proceeds from disposal of fixed assets 1,530,350 102,300 NET CASH OUTFLOW FROM INVESTING ACTIVITIES -269,009,525 -205,052,133 CASH FLOW FROM FINANCING ACTIVITIES Right shares issued 0 28,512,000 Share premium received 0 14,256,000 Long term finances obtained 176,869,374 127,155,712 Long term finances paid -237,051,639 -55,317,356 Demand finances obtained 184,964,931 34,553,000 Demand finance paid -53,049,493 -6,560,150 Lease finances repaid -26,074,459 -25,044,894 Short term finances - net 7,810,406 231,574,120

Financial charges paid -127,646,671 -187,163,002 Dividend paid -12,305,589 -16,409,455 NET CASH (OUTFLOW)/INFLOW FROM FINANCING ACTIVITIES -86,483,140 145,555,975 NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 4,468,125 -5,589,931 CASH AND CASH EQUIVALENTS At the beginning of the year 4,725,963 10,315,894 CASH AND CASH EQUIVALENTS At the end of the vear 9.194.088 4.725.963

The annexed note ;A' forms an integral part of these financial statements.

NOTE 'A' 2003 2002 Rupees Rupees CASH FLOW FROM OPERATING ACTIVITIES Profit for the year - Before taxation 154,868,483 52,611,885 Adjustments for: Depreciation 126,601,095 105,247,664 Provision for gratuity - net 2,926,227 193,983 Deferred income -22,061 -565,461 Gain on disposal of fixed assets - net -553,130 -22,319 Financial charges 113,280,538 173,903,315 Corporate asset tax 0 1,000,000 Balances (written back)/written off- net 0 -2,382,699

Workers welfare fund 160,000 0 Provision for slow moving items 1,770,316 0 CASH INFLOW FROM OPERATING ACTIVITIES Before working capital changes 399,031,468 329,986,368 Decrease/(lncrease) in current assets 1 I I Stores, spares and loose tools -7,018,018 16,158,974 Stock-in-trade -75,132,234 -157,795,025 Trade debtors 52,411,864 -57,299,549 Advances, deposits, prepayments and other receivables (excluding taxes paid and current portion of long term loans to employees) -9,515,094 -26,483,651 lncrease/(Decrease) in creditors, accruals and other liabilities (excluding taxes paid and accrued financial charges) 43,514,813 [ (24,937,342) 4,261,331 -250,356,593 CASH INFLOW FROM OPERATING ACTIVITIES Before taxation 403,292,799 79,629,775 Income tax paid -42,834,281 -24,801,284 Corporate asset tax paid 0 -1,000,000 CASH INFLOW FROM OPERATING ACTIVITIES After taxation 360,458,518 53,828,491 Long term loans to employees - net -392,728 234,436 Long term deposits -105,000 -156,700 NET CASH INFLOW FROM OPERATING ACTIVITIES 359,960,790 53,906,227

The annexed notes form an integral part of the financial statements.

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 SEPTEMBER, 2003

Unrealised Share Capital Share Premium Reserve gain on remeasure-ment of Unappropriated Profit Total investments Rupees Balance as at 30 September, 2001 95,040,000 63,360,000 0 216,840,265 375,240,265 Right shares issued 28,512,000 0 0 0 28,512,000 Premium on right shares 0 14,256,000 0 0 14,256,000 Profit for the year ended 30 September, 2002 0 0 0 40,499,368 40,499,368 Proposed dividend 0 0 0 -12,355,200 -12,355,200 Balance as at 30 September, 2002 123,552,000 77,616,000 0 244,984,433 446,152,433 Surplus on remeasurement of investments 0 0 1,419 0 1,419 Profit for the year ended 30 September 2003 0 0 0 92,439,927 92,439,927 Proposed dividend 0 0 0 -12,355,200 -12,355,200 Balance as at 30 September, 2003 123,552,000 77.616,000 1,419 325,069,160 526,238,579

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 30 SEPTEMBER. 2003

1. THE COMPANY AND ITS OPERATIONS

The Company was incorporated in Pakistan in 1966 as a Public Company and its shares are quoted on Karachi and Lahore Stock Exchanges. The Company is engaged in manufacture and sale of yarn.

2. SIGNIFICANT ACCOUNTING POLICIES

2.1 Statement of Compliance

These financial statements have been prepared in accordance with the approved accounting standards as applicable in Pakistan and the requirements of the Companies Ordinance, 1984. Approved accounting standards comprise of such International Accounting Standards (IAS) as notified under the provisions of the Companies Ordinance, 1984. Wherever the requirements of the Companies Ordinance, 1984 or directives issued by the Securities and Exchange Commission of Pakistan differ with the requirements of these standards, the requirements of the Companies Ordinance, 1984 or the requirements of the said directives take precedence.

2.2 Accounting convention

These financial statements have been prepared under the historical cost convention, except for:

modification of foreign currency translation adjustments as stated in note 2.3; and

recognition of employee retirement benefits at present value.

2.3 Foreign currency translations

Transactions in foreign currencies are accounted for in Pak Rupees at the exchange rates prevailing on the date of transactions. Assets and liabilities in foreign currencies are translated into Pak Rupees at the exchange rates prevailing on the balance sheet date except where forward exchange rates are booked, which are translated at the contracted rates.

Exchange fluctuations on principal loans were transferred to the cost of respective assets acquired out of the proceeds of such loans. All other exchange fluctuations are taken to profit and loss account.

2.4 Staff retirement benefits

The Company operates an un-funded Gratuity Scheme covering all eligible employees completing the minimum qualifying period of service as specified by the Scheme. Provision for gratuity is made annually to cover obligation under the Scheme in accordance with

actuarial recommendations.

Actuarial valuation was conducted as on 30 September, 2003 on the basis of projected unit credit method by an independent Actuary. The projected unit credit method is based on following assumptions:

2003 2002 Discount rate 8% per annum 10% per annum Expected rate of increase in salary 7% per annum 9% per annum Average expected remaining working life time of employees 10 years 11 years Amount recognised in the balance sheet is as folllows: 2003 2002 Rupees Rupees Present value of defined benefit obligation as at 30 September, 19,299,170 14,348,010 Unrecognised actuarial loss -2,592,374 -567,441 Liability recognised as at 30 September, 16,706,796 13,780,569 Movement in liability recognised : Liability as at 30 September, 13,780,569 13,586,586 Amounts recognised during the year 6,890,565 3,406,397 Benefits paid during the year -3,964,338 -3,212,414 Liability as at 30 September, 16,706,796 13,780,569 Amounts recognised during the year : Current service cost 5,455,764 2,944,030 Interest cost 1,434,801 1,277,178

Transitional provision 0 -814,811 6,890,565 3,406,397

The Company's policy with regard to actuarial gams / losses is to follow minimum recommended approach under IAS-19 (Revised 2000) 'Employee Benefits'.

2.5 Taxation

(a) Current

Provision for current taxation is based on taxable income at the current rates of taxation after taking into account tax credits and tax rebates available, if any, or minimum tax at the rate of 0.5% of turnover, whichever is higher.

(b) Deferred

During the current year, the Company has changed its accounting policy in respect of deferred taxation. The change has been made to comply with the requirements of the revised IAS 12 (Income Taxes) which became applicable for financial periods beginning on or after 01 January, 2002. Accordingly, deferred tax is now recognised using the balance sheet liability method in respect of all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax assets are recognised

to the extent that it is probable that taxable profit will be available against which

the deductible temporary differences, unused tax losses and tax credits can be utilised. Deferred tax liabilities are generally recognised for all taxable temporary differences. Derferred tax assets and liabilities are based on the expected tax rates applicable at the time of reversal.

Had the policy not been changed, profit after taxation for the year would have been higher by Rs. 43,726,000.

The effect of change in accounting policy, as per the allowed alternative treatment under IAS 8 "Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies" has been charged to profit and loss account and additional pro-forma comparative information has been disclosed in note 11.1.

2.6 Tangible fixed assets and depreciation

Fixed assets except freehold land are stated at cost less accumulated depreciation and identified impairment losses, if any. Freehold land and capital work-in-progress are stated at cost. Cost of some plant and machinery consists of historical cost and exchange rate fluctuations on foreign currency loans utilised for acquisition thereof.

Depreciation is charged to income applying reducing balance method to write-off the cost and capitalised exchange differences over estimated remaining useful life of assets. The useful life and depreciation method are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items of fixed assets Rates of depreciation are stated in note 18.

No depreciation is provided on assets in the year of disposal whereas full year's depreciation is charged in the year of purchase/operations.

Gain/loss on disposal of fixed assets is taken to Profit and Loss Account.

Major improvements and modifications are capitalised and assets replaced, if not kept as stand-by, are retired. Minor repairs and replacements are taken to Profit and Loss Account.

Leased

These are stated at the lower of present value of minimum lease payments under the lease agreements and the fair value of the assets. The related obligation of leases is accounted for as liability. Financial charges are allocated to accounting periods in a manner so as to provide a constant periodic rate of financial cost on the remaining balance of principal liability for each period.

Depreciation is charged to income at the same rates and basis as applicable to the Company's owned assets. Outstanding obligation under lease less finance charges allocated to future periods is shown as liability. The finance charge is calculated at the rate implicit in the lease and is charged to income.

2.7 Impairment of assets

Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised in income for items of assets.

2.8 Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are charged to income in the period of incurrence.

2.9 Long term investments

Associated Companies

Investments are initially measured at cost. At subsequent reporting dates, the Company reviews the carrying amount of the investment to assess whether there is any indication that such investments have suffered an impairment loss. If any such indication exists the recoverable amount is estimated in order to determine the extent of the impairment loss, if any. Impairment losses are recognised as expense.

Where an impairment loss subsequently reverses, the carrying amount of the investment is increased to the revised recoverable amount but limited to the extent of the initial

cost of the investment. A reversal of the impairment loss is recognised in income.

Available for sale

Ail purchase and sales are recognised on the trade dates. Changes in carrying values are recognised in equity until investment is sold or determined to be impaired at which time the cumulative gain or loss previously recognised in equity is included in profit and loss account for the year.

2.10 Stores, spares and loose tools

These are valued at moving average cost except items-in-transit which are stated at cost accumulated to the Balance Sheet date.

2.11 Stock-in-Trade

Basis of valuation are as follows :

Particulars Raw materials Mode of Valuation

- At mills - At lower of annual average cost of both local and imported purchases and net realisable value. - In transit - At cost accumulated to the balance sheet. Work-in-process - At raw materials cost.

Finished goods - At lower of cost and net realisable value. Waste - At net realisable value.

Cost of finished goods represents annual average manufacturing cost which consists of prime cost and appropriate production overheads.

Net realisable value signifies the selling price in the ordinary course of business less cost of completion and cost necessary to be incurred to effect such sale.

2.12 Revenue recognition

- Sales are recorded on despatch of goods to customers.

- Return on investments and deposits is accounted for on time proportion basis.

- Dividend income is accounted for when the right to receive Is established.

- Gain on 'sale and lease-back' transactions is deferred and is credited to Profit and Loss Account over the lease term i.e. 5 years.

2.13 Provisions

Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made.

2.14 Cash and cash equivalents

Cash and cash equivalents consist of cash-in-hand and balances with banks.

2.15 Financial instruments

Financial assets

The Company's principal financial assets are cash & bank balances, trade debtors and deposits.

Financial liabilities

Financial liabilities are classified according to the substance of the contractual arrangements entered into. Significant financial liabilities include long term finances, liabilities against assets subject to finance lease, short term loans, creditors & other liabilities and dividend payable. These are stated at nominal value.

2.16 Offsetting of financial instruments

Financial assets and liabilities are off-set and the net amount reported in the balance sheet when there is a legally enforceable right to set-off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

2.17 Related party transactions

Sales, purchases and other transactions with related parties are made at arm's length prices determined in accordance with the comparable uncontrolled price method except for the allocation of expenses relating to combined offices shared with the Associated Companies which are on the actual basis.

3. ISSUED, SUBSCRIBED AND PAID-UP CAPITAL

2002 2003 2003 2002 (Number of shares) Rupees Rupees 1,000,000 1,000,000 ordinary shares of Rs. 1 0/- each 10,000,000 10,000,000 9,187,200 9,187,200 ordinary shares of Rs. 10/- each issued as right 91,872,000 91,872,000 2,168,000 2,168,000 ordinary shares of Rs. 1 0/- each issued as bonus shares 21,680,000 21,680,000 12.355,200 12,355,200 123,552,000 123,552,000

3.1 As at the year-end shares held by the associated companies are as follows:

No. of Shares held Fatima Trading Company (Pvt.) Limited 620,907 620,907 Reliance Commoditeis (Pvt.) Limited 453,514 453,514 Rashid Brothers Associates (Pvt.) Limited 423,716 423,716

Mukhtar Trading Company (Pvt.) Limited 617,976 617,976 Amir Fine Exports (Pvt.) Limited 2,248,442 2,248,442

4. RESERVES 2003 2002 Share premium Rupees Rupees @ Rs. 20/- per share on issue of 3,168,000 ordinary shares of Rs. 10/- each issued during 2001 63,360,000 63,360,000 @ Rs. 51- per share on issue of 2,851 ,200 ordinary shares of Rs. 1 01- each issued during 2002 14,256,000 14.256,000 77,616,000 77,616,000 Fair value Unrecognised gain on remeasurement of investment 1,419 0 77,617,419 77,616,000

5. LONG TERM FINANCES - Secured

2003 2002 Note Rupees Rupees Habib Bank Limited (HBL) - LMM finance 5.1 0 855,000 Askari Commercial Bank Limited (ACBL) - Term finance - 1 5.2(a) 0 14,130,367 - Term finance -II 5.2(a) 0 8,749,140 - Term finance -III 5.2(b) 220,116,056 245,100,000

- Term finance - IV 5.2(c) 95,642,367 0 Soneri Bank Limited (SBL) - Term finance 5.3 0 56,000,000 Pakistan Industrial Credits Investment Corporation (PICIC; 5.4 - BMR-I 26,362,259 32,013,197 - BMR-II 71,250,026 77,087,153 - BMR-II! 26,165,908 31,284,024 ABN AMRO Bank - Customer term loan 5.5 0 34,500,000 439,536,616 499,718,881 Less : Current portion grouped under current liabilities Overdue instalment 0 1,177,750 Instalments due within following twelve months 76,616,455 108,191,219

76,616,455 109,368,969 362,920,161 390,349,912

5.1 This finance was obtained from HBL under the State Bank of Pakistan's Locally Manufactured Machinery Scheme It carried mark-up @ 14% per annum and was repayable in 14 equal half-yearly instalments by 30 June, 2006. However, this has been fully repaid during the year. It was secured against first registered charge on fixed assets of the Company and personal guarantees of the directors of the Company.

5.2 (a) These finances were obtained for repayment of cost of imported plant and machinery.

Originally, term finance-l and term finance-ll carried mark-up @ 18% and 16% per annum respectively. Subsequently, ACBL reduced the mark-up rates and during the year, charged mark-up on both the finances at the rates ranging from 9.5% to 13% per annum. These finances were due for repayment during the current year and have been fully repaid.

(b) This finance has been obtained for repayment of cost of imported plant and machinery to establish a new unit. As per original terms and conditions, this finance carried mark-up @ (SBP discount + 2%) with floor of 15% per annum and it was repayable in equal quarterly instalments in five years. The Company paid an instalment of Rs. 12.90 million as per original terms and conditions during the preceding year and remaining amount of Rs. 245.10 million is to be paid in 24 unequal quarterly instalments commencing 18 February, 2003. This finance carries mark-up Tenure of Treasury Bills with floor of 5% per annum. The bank, during the year, charged mark-up at the rates ranging from 5% to 13% per annum.

Subsequent to the balance sheet date, ACBL has reduced the mark-up rates to 6 months1 Treasury Bills + 2% with a floor of 4.25% per annum.

(c) This finance has been obtained for repayment of cost of imported plant and machinery. As per original terms and conditions, this finance carried mark-up @ (SBP discount + 3%) with floor of 12% and cap of 16% per annum. However,

during the year, ACBL reduced the interest rates to Treasury bills + 3% with floor of 5% per annum The bank, during the year, charged mark up at the rates ranging from 5% to 12% per annum It is repayable in 20 un-equal instalments and first instalment will become due on 31 January, 2.004.

Subsequent to the balance sheet date, ACBL has reduced the mark-up rates to 6 months' Treasury Bills + 2% with a floor of 4.25% per annum.

(d) These term finance facilities are secured against first charge ranking pan-passu on all fixed assets, land, building & machinery of the Company upto Rs. 100.00 million, first exclusive charge on all present and future fixed assets, first charge on all present and future current assets for Rs. 525 million, second hypothecation charge on plants machinery and other fixed assets of the Company for Rs 35.00 million and personal guarantees of the sponsoring directors of the Company

5.3 This finance was obtained for repayment of cost of imported plant and machinery. It was repayable in ten equal half yearly instalments by 10 May, 2006. However, this has been fully repaid during the year. The bank during the year, charged mark-up at the rates ranging from 10.58% to 15% per annum. This was secured against registered charge on all fixed assets of the Company on the basis of pari-passu with the existing first charge holder fellow banks.

5.4 These loans have been obtained out of sanctioned limit of Rs. 150.00 million for balancing, moderinization and replacement programme of the spinning facilities. As per original terms and conditions, these finances carried mark-up @ 15% per annum. These loans

are repayable in twenty un-equal quarterly instalments; repayment of BMR-I, BMR-II and BMR-III commencing from 19 June, 2002, 11 June, 2003 and 05 September, 2002 respectively. PICIC, during the year, reduced mark-up rate from 15% to 9.5% per annum. Mark-up rate has been reduced to 7.5% per annum subsequent to the balance sheet date. These loans are secured by first pari-passu charge on fixed assets and personal guarantees of the sponsoring directors of the Company.

5.5 This loan was obtained from ABN-AMRO Bank for permanent working capital financing. This loan was repayable on demand or on expiry of 13 months from date of drawdown, whichever was earlier. It has been fully repaid during the year. It was secured against subordinate charge over stocks and receivables of the Company, pledge over government securities of directors and promissory note.

5.6 The Company, during the year, obtained other long term fund based facilities amounting Rs. 520 million from various banks. Unfunded facilities have been obtained from Soneri Bank Limited for opening letters of credit for 1090 days upto a maximum limit of Rs. 49.725 million. These facilities remained un-utilised at the year-end.

6. DEMAND FINANCE - Secured 2003 2002 Note Rupees Rupees Habib Bank Limited (HBL) - Demand finance- 1 6.1 0 34,553,000 - Demand finance- II 6.2 166,468,438 0 166,468,438 34,553,000

Less : Current portion grouped under current liabilites 36,992,986 6,910,600 129,475,452 27,642,400

6.1 This finance was created by HBL for repayment of letters of credit for Rs. 35.00 million. it was repayable within a period of three years in five equal half yearly instalments commencing from June, 2003. However, it has been fully repaid during the year. The bank, during the year, charged mark-up at the rates ranging from 9.5% to 13% per annum. It was secured against first equitable mortgage charge on fixed assets of the Company for Rs. 440 million and personal guarantees of all directors of the Company.

6.2 This finance has been obtained for repayment of cost of imported plant and machinery and lona term finances from other financial instutijtinns It carries mark-up (SBP discount + 2%) and is repayable in ten equal half yearly instalments commencing 30 September 2003 The bank, during the year, charged mark-up at the rates ranging from 6.35% to 9.5% per annum. It is secured against first equitable mortgage charge on fixed assets of the Company for Rs. 440 million and personal guarantees of all directors of the Company.

Subsequent to the balance sheet date, HBL has reduced the mark-up rate to 6 months' Treasury Bills + 3% with a floor of 5% per annum.

7. LIABILITIES AGAINST ASSETS SUBJECT TO FINANCE LEASE

Upto From one

one to five 2003 2002 year years

Minimum lease payments 24,777,279 1,746,020 26,523,299 58,568,444 Less: Finance charges: - Allocated to future periods 779,032 34,891 813,923 7,223,127 - Accrued during the year 516,901 0 516,901 78,383 1,295,933 34,891 1,330,824 7,301,510 23,481,346 1,711,129 25,192,475 51,266,934 Less: Security deposits adjustable on expiry of lease terms 7,650,000 700,000 8,350,000 8,350,000 Present value of minimum lease payments 15,831,346 1,011,129 16,842,475 42,916,934

Less: Current portion grouped undercurrent liablities: -overdue installments 3,236,210 0 - installments due within following twelve months 12,595,136 29,188,567 15,831,346 29,188,567 1,011,129 13,728,367

7.1 The Company has executed lease agreements with Orix Leasing Pakistan Ltd., Atlas Investment Bank Ltd, (Formerly Atlas Lease Ltd.), Crescent Leasing Corporation Ltd., Askari Leasing Ltd. and Pacific Leasing Ltd. to acquire plant and machinery. The liabilities

under the lease agreements are payable by January, 2005 and were originally subject to finance charge at the rates ranging from 11 % to 22% per annum. However, the finance charge rates at the year end were ranging from 9% to 12% per annum. The Company intends to exercise its option to purchase the leased plant and machinery upon completion of the respective lease terms. The lease liabilities are secured against charge on the assets of the Company and personal guarantees of the Company's Directors.

7.2 The Company, during the year, obtained ijrah (lease finance) facility from Meezan Bank Limited for Balancing Modernization and Replacement (BMR). The facility is for five years upto a maximum limit of Rs. 100 million. The facility remained unutilised at the year end.

8. CUSTOMS DUTIES - Secured 2003 2002 Note Rupees Rupees Surcharge 8.1 2,185,200 2,185,200 Customs duties 8.2 25,046,014 25,046,014 27,231,214 27,231,214

8.1 It represents surcharge on plant and machinery imported by the Company. The said plant and machinery was released against furnishing of bank guarantees. The Company has applied to the Customs Authorities for release of bank guarantees and exemption of this levy.

8.2 Custom duties represent customs duties and sales tax on plant and machinery imported

under S.R.Os. 554(l)/98, 27(l)/98, 369(l)/2000 and 439(l)/2001 of Government of Pakistan, which specify that customs duties and sales tax on imported plant and machinery shall be exempt provided that the export sales of the Company shall not fall below 50% of the additional capacity due to expansion, in first five and ten years respectively. In case the conditions of above-mentioned S.R.Os are violated, the amount of customs duties and sales tax exempted shall be recovered alongwith penalties imposed in this regard under section 202 of the Customs Act, 1969. Kr-sping in view the un-expected decline in the export sales in the said future periods, the Company has made the provision of those plant and machinery which do not fulfill the conditions of above-mentioned S.R.Os.

9. DUE TO AN ASSOCIATED UNDERTAKING - Unsecured

9.1 This balance has arisen due to purchase of land and building from Rehan Amir Fabrics Limited (an Associated Undertaking). No interest has been charged by the associated undertaking on the outstanding balance as per agreement.

9.2 Land and building purchased from associated undertaking having cost of Rs. 7.134 million is not in the name of Company as at balance sheet date. Transfer of title of the said land and building in the name of the Company is under process.

10. DEFERRED INCOME Opening Balance 44,122 609,583 Less: Credited to Profit and Loss Account during the year. 22,061 565;461 22,061 44,122

10.1 Deferred income represents gain arisen on 'sale and lease-back'of plant and machinery. This gain has been deferred and is being credited to Profit and Loss Account over the lease terms of plant and machinery i.e., 5 years.

11. DEFERRED TAXATION 2003 2002 Note Rupees Rupees The deferred taxation liability comprises of temporary differences relating to : Credit balances arising in respect of : - accelerated tax depreciation allowances 55,855,000 18,400,000 - lease finances 10,020,000 3,374,000 Debit balance arising due to provision for slow-moving store inventory -375,000 0 65,500,000 21,774,000

11.1 Additional proforma comparative information

Had the Company followed the benchmark treatment as per IAS 8, the adjustment to the profit and loss account and unappropriated profit would have been as follows :

Unappropriated profit as reported 01 October, 2002/2001 244,984,433 216,840,265 Effect of change in accounting policy due to

adoption of IAS 1 2 (Revised 2000) 1 Total -36,375,000 -28,500,000 Already recognised 21,774,000 21,774,000

-14,601,000 -6,726,000 Balance as at 01 October, 2002/2001 as restated 230,383,433 210,114,265 Profit for the year before taxation 154,868,483 52,611,885 Provision for taxation Current 17,400,000 15,063,492 Prior 1,302,556 -2,950,975 Deferred 291,250,001 7,875,000 47,827,556 19,987,517 Profit for the year after taxation 107,040,927 32,624,368 Profit available for appropriation 337,424,360 242,738,633 Appropriation: Proposed dividend Re.1 .00 per share (2002: Re.1 .00 per share) 12,355,200 12,355,200 Unappropriated profit as at 30 September, 2003/2002 325,069,160 230,383,433

12. CURRENT PORTION OF LONG TERM LIABILITIES

2003 2002 Note Rupees Rupees Long term finances 5 76,616,455 109,368,969 Demand Finance 6 36,992,986 6,910,600 Liabilities against assets subject to

finance lease 7 15,831,346 29,188,567 129,440,787 145,468,136 1 3. SHORT TERM FINANCES Secured 13.1 667,883,537 660,415,260 Un-secured 13.2 342,129 0 668,225,666 660,415,260

13.1 Shortterm finance facilities available from commercial banks under mark-up arrangements aggregate Rs.2,805 million (2002: Rs.2,165.80 million). These include facilities available in terms of foreign currency aggregate U.S. $36.542 million (2002:11.S. $16.60 million). The mark-up charged by banks at various rates ranging from Re. 0.0685 to Re. 0.3562 per thousand Rupees calculated on daily product basis; mark-up is payable on quarterly basis. The aggregate facilities are secured against pledge/hypothecation of stock-intrade, hypothecation charge of stores and spares, lien over import / export documents, charge on fixed assets and current assets and personal guarantees of all the directors except nominee director.

Facilities available for opening of letters of credit and guarantee aggregate Rs.315.60 million (2002:Rs.350.90 million) of which the amount remained unutilised at the year end was Rs.128 million (2002:Rs.121.87 million).

These facilities are expiring on various dates by 30 September, 2004.

These include foreign currency balances aggregate U.S.$5,552,253 (2002: U.S.$5,451,099) and Euro 127,000 (2002: Nil) which have been converted into Pak Rupees

at the exchange rate prevailing on the balance sheet date i.e. U.S.$1 = Rs.58.05 and Euro 1 = Rs.67.48.

13.2 These have arisen due to issuance of cheques for amounts in excess of balances at bank accounts

14. CREDITORS, ACCRUALS AND OTHER LIABILITIES

2003 2002 Note Rupees Rupees Due to Associated Undertakings 678,341 0 Due to Directors 158,000 256,000 Creditors 52,965,777 41,903,474 Bills payable 15,930,000 0 Advance payments 3,612,601 3,284,577 Mark-up accrued on: - Long term finances 7,122,437 14,225,744 - Demand finance 2,893,748 1,190,067 -Short term finances 6,667,748 16,072,773 Finance charges accrued on lease finances 516,901 78,383 Accrued expenses 54,941,700 45,857,127 Tax deducted at source 1,899,589 743,155 Workers' (profit) participation fund 14.1 8,159,000 2,822,000 Workers' welfare fund 160,000 0 Others 458,025 421,887

156,163,867 126,855,187 14.1 Workers' (Profit) Participation Fund Opening Balance 2,822,000 2,740,000 Add: Interest on amounts utilised by the Company 189,422 178,403 3,011,422 2,918,403 Less: Payments made during the year 3,010,512 2,918,361 Deposited in the Government Treasury 910 42 3,011,422 2,918,403 00 Add: Contribution for the year 8,159,000 2,822,000 8,159,000 2,822,000

15. PROVISION FOR TAXATION

2003 2002 Note Rupees Rupees Opening Balance 34,447,374 41,156,262 Add: Provision made during the year 1 -Current year 17,400,000 15,063,492 - Prior years 1,302,556 -2,950,975 18,702,556 12,112,517 53,149,930 53,268,779 Less: Adjustments/payments against completed assessments 1,302,556 18,821,405 51,847,374 34,447,374

15.1 Income tax assessments of the Company have been finalised upto the Income Year ended 30 September, 2000 (Assessment Year 2001-2002).

16. DIVIDENDS Unclaimed 1,344,766 1,295,155 Proposed 12,355,200 12,355,200 13,699,966 13,650,355

17. CONTINGENCIES AND COMMITMENTS

17.1 The Collector of Customs, Sales Tax and Central Excise detprmineri and raided sales tax alongwith additional tax demand aggregating Rs. 899,967 on sale of bailing hoops. The Company did not accept the said demand and filed an appeal before Lahore High Court (LHC), Multan Bench. The LHC vide its judgement dated 28 January, 2002 dismissed the said appeal The Company has filed appeal before Supreme Court of Pakistan against the said judgement. The matter is pending adjudication. No provision against the said demand is made in these financial statements as the Company expects a favourable decision of the case.

17.2 Market Committee, Muzaffargarh, during 1985, raised demands of market committee fee of eleven years and panalty due to non-payment. The Company did not accept the said demands and filed appeal with the Lahore High Court (Multan Bench). The appeal is pending for decision. Quantum of unprovided market committee fee has not been workedout whereas penalty till the balance sheet date @ Rs.100 per day worked-out Rs.

1,059,200 (2002:Rs.1,022,700).

17.3 The Company, imported textile machinery availing exemption of customs duty and sales tax on importation thereof under S.R.Os 554(l)/98, 987(l)/99 and 439(l)/2001. In case, the conditions of above-mentioned S.R.Os are violated, the amount of customs duty and sales tax exempted aggregating Rs.24.711 million shall be recovered alongwith penalties.

17.4 Counter guarantees given by the Company to its bankers outstanding as at 30 September, 2003 were for Rs.21.989 million (2002: Rs.19.088 million).

2003 2002 (Rupees in million) 17.5 Commitments for irrevocable letters of credit: -Capital expenditure 118.08 135.542 -Revenue 47.105 73.598 165.185 209.14

17.6 Refer contents of note 25.3.

18. OPERATING FIXED ASSETS - Tangible

COST DEPRECIATION Net Book PARTICULARS As at 30 September, 2002 Additions Disposals/ adjustment As at 30 September, 2003 Rate % To 30 September, 2002 For the year On Disposals/ adjustment To 30 September, 2003 Value as at 30 September. 2003 Owned :

Land - Freehold 12,421,292 534,500 0 12,955,792 0 0 0 0 12,955,792 Buildings on freehold land - Factory 139,388,735 29,011,640 0 168,400,375 10 48,072,366 12,032,801 0 60,105,167 108,295,208 - Non-factory 64,277,256 1,653,173 0 65,930,429 5 13,172,462 2,637,898 0 15,810,360 50,120,069 203,665,991 30,664,813 0 234,330,804 61,244,828 14,670,699 0 75,915,527 158,415,277 Plant and Machinery 1,162,493,996 275,881,383 0 1,438,375,379 10 470,198,303 96,817,708 0 567,016,011 871.359 368 Electric Fttings and installations 48,663,734 5,337,053 0 54,000,787 10 17,836,998 3,616,379 0 21,453,377 32,547,410 Sui-gas installations 1,357,147 325,649 0 1,682,796 10 402,834 127,996 0 530,830 1,151,966 Tools, laboratory equipment and arms 20,170,560 162,227 0 20,332,787 10 6,345,837 1,398,696 0 7 744,533 12,588 254 Office equipment 5,438.38 813,590 107,350 6,144,617 10 2,207 436 394,921 12,030 2,590,327 3,554.29 Fire extinguishing equipment and weighing scales 5,732,858 171,540 0 5,904,398 10 1,879,014 402,538 0 2,281,552 3622846 Furniture and fixtures 3,230,211 288,247 0 3,518,458 10 1,441,949 207,651 0 1,649,600 1 368.858 Vehicles 13,303,896 3,738,273 1,774,145 15,268,024 20 6,967,894 1,838,475 892,245 7,914.12 7,353,900 Leased:

Plant and machinery 111,507,135 0 0 111,507,135 10 40,246,817 7,126.03 0 47,372,849 64,134,286 Rupees 1 587985,197 317,917,275 1,881,495 1,904,020,977 608,771,910 126,601,095 904.275 734,468,730 1,169,552,247 2002 Rupees 1,445,782,309 143,003,061 800,173 1,587,985,197 503,593,575 105,312,750 134,415 608,771.91 979,213,287

18.1 Disposal of operating fixed assets

Particulars Cost Accumulated depreciation Book Value Sale proceeds Gain/ (Loss) Sold through negotiation to:/ insurance claim received from Office Equipment : Photocopier 53,000 10,070 42,930 39,000 -3,930 Office equipment & service, Multan Computer 20,000 0 20,000 15,000 -5,000 Adamjee Insurance Company Ltd. Mobile Phone 19,600 1,960 17,640 16,650 -990 Adamjee Insurance Company Ltd. IVlGbiiB FnOM6 14,750 0 14,750 10 700 -4,050 Adamjee insurance Company Ltd 107,350 12,030 95,320 81,350 -13,970 Vehicles : Toyota cresida 195,200 169,001 26,199 185,000 158,801 Muhammad Tanvir, Multan. Toyota corolla 1,230,000 442,800 787,200 1,100,000 312,800 Adamjee Insurance Company Ltd. Honda civic 270,943 264,844 6,101 90,000 83,899 Muhammad Asghar, Multan Motor cycle 78,000 15,600 62,400 74,000 11,600 Adamjee Insurance Company Ltd. 1,774,145 892,245 881,900 1,449,000 567,100 Rupees 1,881,495 904,275 977,220 1,530,350 553,130

18.2 (a) Depreciation for the year has been apportioned as under:

2003 2002 Note Rupees Rupees Cost of sales 123,698,811 102,694,246 Less: Depreciation on customs duty capitalised in prior year - written-back 0 65,086 123,698,811 102,629,160 Administrative expenses 2,870,309 2,582,975 Lease loss of Carpet Yarn Unit 18.2(b) 31,975 35,529 2,902,284 2,618,504 126,601,095 105,247,664

(b) The lease agreement was not renewed during the current and preceding years.

18.3 The Company's land having book value of Rs. 54,695 is not yet registered in the name of the Company in the Revenue Records because of dispute over the proprietary rights of sellers' share of land. The Company had deposited the cost of land with the Government Treasury and the land is already in the Company's possession. The case is pending for decision before the Supreme Court of Pakistan.

18.4 Refer contents of note 9.2.

19. CAPITAL WORK-IN-PROGRESS Factory buildings Materials and expenses 2,809,831 12,773,859

Advance payments 7,457,966 8,568,811 10,267,797 21,342,670 Non-factory buildings Materials and expenses 967,436 0 Plant and machinery Cost and expenses 25,621,487 71,747,657 Letters of credit 523,895 820,488 Advance payments 1,315,100 i 2,428,000 27,460,482 74,996,145 Vehicle Advance payments 1,265,700 0 Gas pipeline 9,000,000 0 48,961,415 96,338,815

20. LONG TERM INVESTMENTS

2003 2002 Note Rupees Rupees Associated Company - Un-quoted Fazal Industries (Pvt) Ltd. 1 04,500 ordinary shares of Rs. 1 07- each Net worth per share was nil, based on audited financial statements for the year ended 30 June, 2001 475,000 475,000 Less: Provision for diminution in value 475,000 475,000 00

Available for sale - quoted Quetta Textile Mills Ltd. 57 ordinary shares (2002: 57) of Rs. 1 0/- each 918 918 Market value Rs.2,337 (2002:Rs.2,280) Add: Surplus on remeasurement of investments 1,419 0

2,337 918 2,337 918

20.1 Equity percentages held by the Company as at 30 September, 2003 in the Investee Companies were les than 10%.

21 . LONG TERM LOANS - Considered good Executives 520,474 565,574 Other employees 1,368,197 930,369 1,888,671 1,495,943 Less: Current portion grouped under current assets 1,239,950 847.949 648,721 647,994

21.1 These interest free unsecured loans have been advanced for various purposes and are recoverable in instalments which vary from case to case. No balance is outstanding for more than three years.

21.2 The fair value adjustment required by IAS-39 arising in respect of staff loans is not considered material and hence not recognised.

22. STORES; SPARES AND LOOSE TOOLS

2003 2002 Note Rupees Rupees Stores [including in-transit Rs. 1.649 million (2002: Rs. 0.058 million)] . 22.1 11,279,418 6,463,456 Spares 29,482,272 27,274,486 Loose tools 39,447 45,177 40,801,137 33,783,119 Less: Provision for slow moving items 1,770,316 0 39,030,821 33,783,119

22.1 The Company does not hold any stores and spares for specific capitalisation (2002: Stores held for capitalisation amounting Rs. Nil).

23. STOCK-IN-TRADE Raw materials (including in-transit Rs 60.389 million (2002: Rs. 36.049)} 533,898,259 433,461,025 Work-in-process 14,496,000 12,087,000 Finished goods Yarn 69,154,000 98,803,000 Waste 6,720,000 4,785,000 75,874,000 103,588,000

624,268,259 549,136,025

23.1 Finished goods inventory includes stock valuing Rs. 2.812 million (2002: Nil) and Rs. 1.004 million lying with an associated company and third party respectively for doubling process.

24. TRADE DEBTORS Secured - Export bills 71,869,415 140,875,695 Unsecured - Considered good 67,468,717 50,874,301 139,338,132 191,749,996

25. ADVANCES, DEPOSITS, REPAYMENTS AND OTHER RECEIVABLES

2003 2002 Note Rupees Rupees Due from Associated Undertakings 25.1 3,459,022 8,777,084 Advance payments - Considered good : - Suppliers and contractors 6,578,542 12,982,082 - Executives 25.2 182,494 148,007 - Other employees 1,186,529 823,784 Letters of credit 279,597 534,807 Deposits 4,249,417 2,399,221 Prepayments 8,569,289 601,814 Workers' welfare demands deposited under protest 38,820 38,820

Advance income tax/tax deducted at source 66,302,334 24,770,609 Income tax refundable 5,324,684 5,324,684 Sales tax refundable 22,554,831 12,273,948 Weight shortage claims receivable 7,619 7,619 Sales tax deposited under protest 25.3 443,386 0 Others 1,249,871 305,136 120,426,435 68,987,615 25.1 Due from Associated Undertakings : Reliance Weaving Mills Limited 0 5,771,992 Ahmad Fine Textile Mills Limited 3,458,257 3,005,092 Amir Fine Exports (Pvt) Limited 765 0 3,459,022 8,777,084

25.2 Maximum aggregate amount due from executives at any month-end during the year was Rs. 0.705 million (2002: Rs. 0.725 million).

25.3 The Collector of Customs, Sales Tax and Central Excise has raised a demand of sales tax amounting Rs. 1.335 million relating to input tax claim of sales tax paid by the Company on courier bills, telephone bills, and bills of natural gas and electricity. In addition to the above the Collector has also raised demand of sales tax on insurance claim received by the Company against burnt cotton amounting Rs. 0 439 million. The Company has filed an appeal with Sales Tax Appellate Tribunal against the above mentioned impugned orders which is still pending adjudication with the Tribunal. The Company has deposited 25% of the disputed amount of Sales tax under the directons of the Tribunal.

26. CASH AND BANK BALANCES 2003 2002 Note Rupees Rupees Cash-in-hand 724,633 201,297 Cash at banks on: Current accounts 7,849,028 3,937,262 Escrow account 926 787 Dividend accounts 496,435 502,458 Saving account 123,066 84,159 8,469,455 4,524,666 9,194,088 4,725,963 27. SALES -Net Local : Yarn 1,946,733,815 1,368,071,394 Comber noil 9,042,271 0 Waste 37,393,071 30,391,210 Raw materials sold 13,337,963 36,534,471 2,006,507,120 1,434,997,075 Less : Sales return 26,390,277 9,900,127 Commission/brokerage 5,622,345 3,905,477 Sales rax 250,620,816 180,620,105 Freight and handling charges 3,772,214 5,706,631 Insurance 178,164 202,487

286,583,816 200,334,827 Net local sales 1,719,923,304 1,234,662,248 Export : Yarn {including exchange gain of Rs. 0.658 million (2002: Rs. 3. 105 million)} 1,100,496,673 1,153,014,588 Fabric 3,379,801 0 Comber noil 60,694,140 52,064,764 Hard waste 5,858,263 0 1,170,428,877 1,205,079,352 Less : Commission 17,356,638 14,215,460 Export development surcharge 2,469,037 2,778,848 Freight, shipment and handling charges 50,263,367 58,880,538 Insurance 6,489 121,592 70,095,531 75,996,438 Net export sales 1,100,333,346 1,129,082,914 2,820,256,650 2,363,745,162

28. COST OF SALES 2003 2002 Note Rupees Rupees Raw materials consumed 28.1 1,763,028,723 1,488,862,153 Packing materials consumed 40,177,421 40,473,879 Salaries, wages and benefits 28.2 139,949,353 120,312,144 Travelling and conveyance 739,148 0

Power and fuel 246,165,765 203,440,704 Stores consumed 44,983,178 47,882,522 Processing charges 6,565,731 8,284,380 Repair and maintenance 6,612,491 5,184,957 Insurance 5,331,238 4,128,965 Depreciation 123,698,811 102,629,160 Rates and taxes 1,387,756 1,467,559 Others 69,889 21,404 2,378,709,504 2,022,687,827 Adjustment of work-in-process Opening 12,087,000 14,782,000 Closing -14,496,000 -12,087,000 -2,409,000 2,695,000 Cost of goods manufactured 2,376,300,504 2,025,382,827 Adjustment of finished goods Opening stock 103,588,000 79,262,000 Purchases 83,881,267 60,407,364 Closing stock -75,874,000 -103,588,000 111,595,267 36,081,364 Cost of goods sold - own manufactured 2,487,895,771 2,061,464,191 Cost of raw materials sold 13,506,880 39,276,952 2,501,402,651 2,100,741,143 28.1 Raw materials consumed Opening stock 433,461,025 297,297,000 Add : Purchases and expenses 1,868,640,161 1,629,976,885

2,302,101,186 1,927,273,885 Less : Insurance claim 5,174,204 4,950,707 Closing stock 533,898,259 433,461,025 539,072,463 438,411,732 1,763,028,723 1,488,862,153

(a) Sale of salvage aggregating Rs. 1,188,343 (2002: Rs.880,576) has been netted-off against the cost of raw materials purchases.

28.2 These include Rs. 5,249,728 (2002: Rs. 2,202,973) in respect of staff retirement benefits.

29. ADMINISTRATIVE EXPENSES

2003 2002 Note Rupees Rupees Directors' meeting fee 5,000 500 Salaries and benefits 29.1 17,979,501 15,801,605 Travelling and conveyance Including directors' travelling Rs. 988, 305 (2002: Rs. 555,087) 2,219,407 1,282,131 Vehicles' running and maintenance 3,157,181 2,783,321 Rent, rates, taxes and fees 1,200,706 1,133,995 Electricity, gas and water 979,973 477,743 Entertainment/guest house expenses 715,850 755,442

Communication 6,331,087 5,721,410 Printing and stationery 1,557,683 1,087,616 Insurance 665,592 515,255 Repair and maintenance 737,522 539,010 Subscription/advertisement 293,052 557,350 Auditors' remuneration : Hameed Chaudhri & Co. Audit fee 150,000 150,000 Certification charges 10,000 21,000 Interim review fee 70,000 0 Code of corporate governance review fee 25,000 0 Out-of-pocket expenses 0 10,000 255,000 181,000 Ahmad Mushir& Co. Workers '(profit) participation fund's audit fee 20,000 0 275,000 181,000 Legal and professional charges (other than Auditors) 566,445 993,175 Depreciation 2,902,284 2,618,504 Others 332,933 417,230 39,919,216 34,865,287

29.1 These include Rs. 1,640,837 (2002:Rs. 1,203,424) in respect of staff retirement benefits.

30. OTHER INCOME

2003 2002 Note Rupees Rupees Deferred income 10 22,061 565,461 Unclaimed balances written-back 0 2,482,103 Gain on disposal of fixed assets - net 553,130 22,319 575,191 3,069,883 31. FINANCIAL CHARGES Interest on : Lease finances 4,797,644 11,313,942 Workers' (profit) participation fund 14.1 189,422 178,403 Mark-up en : Long term finances 54,789,739 63,526,445 Demand finances 8,160,643 2,260,806 Short term finances - net 31,797,164 85,904,220 Bank charges 13,545,926 10,719,499 113,280,538 173,903,315

31.1 Exchange gain on foreign currency finances amounting Rs.13.383 million (2002: Rs.4.229 million) has been netted against the mark-up on short term finances.

32. MISCELLANEOUS CHARGES Donations 32.1 1,271,637 772,011 Bad debts written-off 0 99,404 Provision for obsolete store items 1,770,316 0 3,041,953 871,415

32.1 Donations include Rs. 300,000 paid to Fazal-ur-Rehman Foundation, 487-A, Mumtazabad, Vehari Road, Multan. Sheikh Naseem Ahmad (Chairman/Chief Executive) is amongst the trustees of the Foundation.

33. RECONCILIATION BETWEEN TAX EXPENSES AND ACCOUNTING PROFIT

2003 2002 Rupees Rupees Accounting Profit before tax 154,868,483 Tax at the applicable rate @ 35% 54,203,969 Tax adjustment of prior years -1,302,556 Deferred tax of prior years 14,601,000 Tax liability under presumptive tax regime 14,630,361 Tax effect of profit attributable to presumptive tax regime -19,704,218 62,428,556 Major components of tax expense : Current tax expense 17,400,000 15,063,492 Current tax expense - prior years 1,302,556 -2,950,975 Deferred tax expense 29,125,000 0 Deferred tax expense - prior years 14,601,000 0 62,428,556 12,112,517 34. EARNINGS PER SHARE - Basic Profit after taxation attributable to ordinary shareholders 92,439,927 40,499,368

Number of Shares Weighted average number of ordinary shares 12,355,200 10,229,169

Rupees

Earnings per share - Basic 7.48 3.96

35. FINANCIAL INSTRUMENTS

35.1 Financial assets Interest / mark-up bearing Non Interest/ mark-up bearing and liabilities Interest/ mark-up Maturity Maturity Maturity Maturity Total rates upto one after one Sub-Total upto one after one Sub-Total range year year year year % per annum Rupees Financial assets : Long term investments 0 0 0 0 2,337 2,337 2,337 Long term deposits 0 0 0 0 4,194,125 4,194,125 4,194,125 Trade debtors 0 0 0 139,338,132 0 139,338,132 139,338,132 Advances, deposits and other receivables 0 0 0 5,506,907 0 5,506,907 5,506,907 Cash and bank 2 35% to balances 6.50% 123,992 0 123,992 9,070,096 0 9,070,096 9,194,088 2003 123,992 0 123,992 153,915,135 4,196,462 158,111,597 158,235,589

2002 84,946 0 84,946 199,102,989 4,090,043 203,193,032 203,277,978 Financial liabilities : Long term 5.00% to finances 15.00% 76,616,455 362,920,161 439,536,616 0 0 0 439,536,616 Demand 6.35% to finance 1300% 36,992,986 129,475,452 166,468,438 0 0 0 166,468,438 Liabilities against assets subject 9.00% to to finance lease 22.00% 15,831,346 1,011,129 16,842,475 0 0 0 16,842,475 Due to an Associated UndertaKing 0 0 0 0 7,133,528 7,133,528 7,133.53 Short term 2.50% to finances 13.00% 668,225,666 0 668,225,666 0 0 0 668,225,666 Creditors, accruals and other liabilities 0 0 0 141,654,336 0 141,654,336 141,654,336 Unclaimed dividends 0 0 0 1,344,766 0 1,344,766 1,344,766 Proposed dividend 0 0 0 12,355,200 0 12,355,200 12,355,200 2003 797,666,453 493,406,742 1,291,073,195 155,354,302 7,133,528 162,487,830 1,453,561,025 2002 805^883,396 431,720,679 1,237.604,075 133,655,810 7,133,528 140,789,338 1,378,393,413 Off balance sheet items : Commitments 0 0 0 165,184,607 0 165,184,607 165,184,607 Guarantee 0 0 0 8,788,605 13,200,000 21,988,605 21.988,605 2003 0 0 0 173,973,212 13,200,000 187,173,212 187,173,212 2002 0 0 0 209,140,526 19,083,605 228,229,131 228.229,131

35.2 Foreign exchange risk management

Foreign exchange risk arises when receivables and payables exist due to transactions with foreign undertakings. The management takes out forward exchange contracts, where appropriate, to mitigate the risk. No forward foreign exchange contracts were outstanding at the year-end.

35.3 Concentration of credit risk

Credit risk represents the accounting loss that would be recognised at the reporting date if counter parties fail completely to perform as contracted. All of the Ccmpany's financial assets, except for cash-in-hand amounting Rs. 0.725 million (2002: Rs. 0.201 million), are subject to credit risk.

35.4 Interest rate risk management

Interest rate risk represents the value of a financial instrument which will fluctuate due to changes in market interest rate. Since the company borrows most of the funds at fixed interest rate, exposure to interest rate risk is minimal.

35.5 Fair value of financial assets and liabilities

The carrying values of all financial assets and liabilities reflected in the financial statements approximate to their fair values.

36. REMUNERATION OF CHIEF EXECUTIVE, DIRECTORS AND EXECUTIVES

Chief Executive Working Directors Executives Particulars 2003 2002 2003 2002 2003 2002 R u p e es Managerial remuneration 780,000 480,000 1,440,000 1,440,000 3,802,934 2,577,931 Medical 0 0 0 0 239,756 173,781 Rent and utilities 675,727 1,026,990 648,000 648,000 748,755 330,527 Conveyance 0 0 0 0 45,484 25,200 Insurance 18,419 17,600 2,579 944 22,644 12,700 1,474,146 1,524,590 2,090,579 2,088,944 4,859,573 3,120,139 Number of persons 1 1 3 3 20 12

36.1 In addition to above, meeting fee of Rs. 5,000 (2002: Rs. 500) was paid to one (2002:one) non-working director.

36.2 Chief Executive, Working Directors and some of the Executives are also provided with free use of the Company maintained cars and telephones at their residences. One of the Executives is also provided with residence at the Mills' colony.

36.3 The above payments do not include amounts paid or provided for, if any, by the Associated Companies.

37. NUMBER OF EMPLOYEES 2003 2002 (Number)

Total number of employees at year-end 1,937 1,759

38. TRANSACTIONS WITH RELATED PARTIES

38.1 Related parties comprise of Associated Undertakings, directors and executives. The Company in the normal course of business carries-out transactions with various related parties. Amounts due from and to related parties are shown under receivables and payables. Remunerations of director and executive are disclosed in note 36. Significant transactions with related parties are as follows :

2003 2002 Rupees Rupees Sale of goods 298,255,071 252,688,172 Purchase of goods 74,337,874 93,174,669 Services received 5,114,460 6,947,265 Purchase of fixed assets 4,313,616 13,901,212

38.2 Maximum aggregate debit balance of the related parties, accrued due to trading activities, at any month-end during the year was Rs.25.135 million (2002:Rs.47.210 million)

38.3 Sales, purchase and other transactions with the related parties are carried out on commercial terms and conditions.

39. CAPACITY AND PRODUCTION 2003 2002

Number of spindles installed 91,892 74,756 Number of shifts worked Unit I & II 1,093 1,093 Unitlll 1,094 1,094 Number of spindles - Shifts worked 97,384,436 81,462,356 Capacity at 20's count kgs. 20,289,058 16,769,241 Actual production of yarn all counts Kgs. 21,924,679 20,046,947 Actual production converted into 20's count Kgs. 27,365,196 21,899,456

It is difficult to describe precisely the production capacity in spinning mills since it fluctuates widely depending on various factors such as count of yarn spun, spindles speed, twist and raw materials used, etc. It also varies according to the pattern of production adopted in a particular year.

40. DATE OF AUTHORISATION FOR ISSUE

These financial statements have been authorised for issue by the Board of Directors of the Company in its meeting held on January, 06, 2004.

41. FIGURES

in the financial statements have been rounded-off to the nearest rupee;

of the corresponding year have been rearranged for the purpose of comparison, however no material re-arrangement has been made in these financial statements.

FORM - 34

PATTERN OF SHAREHOLDING OF SHAREHOLDERS AS AT SEPTEMBER 30,2003

NUMBER OF SHAREHOLDING TOTAL SHAREHOLDERS FROM TO SHARES HELD 742 1 100 Shares 18,734 371 101 500 - 91,260 72 501 1,000 - 52,478 84 1,001 5,000 - 177,071 10 5,001 10,000 - 80,349 1 10,001 15,000 - 10,449 3 20,001 25,000 - 70,968 2 25,001 30,000 - 57,142 1 35,001 40,000 - 38,953 1 120,001 125,000 - 122,031 1 185,001 190,000 - 185,328 1 230,001 235,000 - 234,686 1 420,001 425,000 - 423,716 1 430,001 435,000 - 432,245 2 450,001 455,000 - 905,428 1 530,001 535,000 - 533,935 1 610,001 615,000 - 613,568 2 615,001 620,000 - 1,237,505

1 620,001 625,000 - 620,907 1 700,001 705,000 - 701,655 1 1,015,001 1,020,000 - 1,017,608 1 1,030,001 1,035,000 - 1,030,541 1 1,450,001 1,455,000 - 1,450,201 1 2,245,001 2,250,000 - 2,248,442 1,303 12,355,200

PATTERN OF SHARE HOLDING AS PER REQUIREMENTS OF CODE OF CORPORATE GOVERNANCE

CATEGORIES OF NUMBER OF TOTAL SHARE HOLDERS SHAREHOLDERS SHARES HELD PERCENTAGE ASSOCIATED COMPANIES Fatima Trading Co. (Pvt.) Ltd. 1 620,907 5.03 Mukhtar Trading Co. (Pvt.) Ltd. 1 617,976 5 Reliance Commodities (Pvt.) Ltd. 1 453,514 3.67 Amir Fine Export (Pvt.) Ltd. 1 2,248,442 18.2 Rashid Bro. Asso. (Pvt.) Ltd. 1 423,716 3.43 CEO & DIRECTORS Sh. Naseem Ahmad (CEO & Director) 1 3.634 0.03 Mrs. Nighat Naseem (Spouse CEO) 1 122,031 0.99 Sh. Amir Naseem 1 1,017,608 8.24 Mr Rehman Naseem 1 1,030,541 8.34 Mr Fazal Ahmad Sheikh 1 619,529 5.01

Mr. Faisal Mukhtar 1 613,568 4.97 Mrs. Farrukh Mukhtar 1 234,686 1.9 EXECUTIVES Nil HOLDERS OF TEN OR MORE PERCENT Amir Fine Exports (Pvt.) Ltd. Included in associated Companies. National Bank of Pakistan. Included in Banks, DFI/NBFIs & Ins. BANKS, DPI, NBFI & INSURANCE CO. Adamjee Insurance Company Ltd. 1 451,914 366 United Insurance Company Ltd. 1 485 0 State Life Insurance Corp. Ltd. 1 185,328 1.5 United Bank Ltd. 1 325 0 NIT&ICP NBP 2 1,478,581 111,997 ICP 1 8,807 0.07 PUBLIC SECTOR COMPANIES Nil JOINT STOCK COMPANIES Sarfraz Mahmood (Pvt ) Ltd. 1 31 0 Fazal Vegetable Ghee Mills Ltd. 1 3,168 0.03 Fateh Textile Mills Ltd. 1 316 0 Shakoo Ltd. 1 8,236 0 07 Molasses Trading & Export Co. Ltd. 1 52 0 Farrukh Trading Co. (Pvt.) Ltd. 1 533,935 4.32 Taurus Securities Ltd. 1 52 0

HM Investment (Pvt) Ltd. 1 169 0 Naeems' Securities Ltd 1 316 0 INDIVIDUALS (Otherthan above) 1274 1,655,206 13.4 OTHERS Govt. of Pakistan Abandoned Properties 1 22,121 0.18 (Holding of Ex-East Pakistanis) TOTAL 1,303 12,355,200 100