Nazir Shams

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ANNUAL REPORT 2010


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CONTENTS

Pages

1. Company Information 2

2. Profile 3

3. Mission / Vision Statement 4

4. Statement of Ethics and Business Practices 5-6

5. Statement of Compliance withCode of Corporate Governance 7-8

6. Directors Report 9-11

7. Financial Summary 12

8. Notice of Annual General Meeting 13

9. Auditors Review Report on statement of Compliance 14

10. Auditors Report to the Members 15

11. Balance Sheet 16-17

12. Profit and Loss Account 18

13. Statement of Comprehensive Income 19

14. Cash Flow Statement 20

15. Statement of Changes in Equity 21

16. Notes to the Accounts 22-44

17. Pattern of Share Holding 45

18. Information required as per Code of Corporate Governance 46

19. Form of Proxy 47


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Board of Directors

Adil BashirAmjad MahmoodAsif Bashir

Bashir Ahmad (Nominee: NIT)Khalid Bashir (Chief Executive)Muhammad Anwar (Chairman)Muhammad Asif (Nominee: NIT)Nadeem Maqbool

Chief Financial Officer

Farooq Ahmad

Audit Committee

Muhammad Anwar (Chairman)Asif Bashir (Member)Adil Bashir (Member)

Khaleeque Ahmad (Secretary)

Auditors

Riaz Ahmad & CompanyChartered Accountants

BankersAllied Bank LimitedFirst National Bank ModarbaHabib Bank LimitedMCB Bank LimitedNational Bank of PakistanRoyal Bank of Scotland

The Bank of Punjab

Registered Office

7-B-III, Aziz Avenue, Gulberg-V, Lahore

Ph: +92-42-3576 0379, 3576 0381Fax: +92-42-3576 0376Email: [email protected]

Project LocationsKotla Kahloon, District Nankana, Punjab

3-KM, Faisalabad Road, Chiniot, Punjab

COMPANY INFORMATION

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Shams Textile Mills Limited is a public limited company incorporated on January 10, 1968. The company isprimarily engaged in the manufacturing and trading of high quality Yarn.

The Company initially setup up its composite project consisting of spinning, weaving, dyeing and finishing at

Chiniot in 1968. The plant today comprises of 24,960 spindles having capacity of producing 400,000 Kg/month(approx.) of yarn. During the initial years of operations the management successfully marketed the cotton yarn,grey and finished fabrics produced from these facilities, generating substantial export business. These operationsresulted in the manufacturing of premium quality products leading to higher profitability for the company.

The company successfully built enough reserves over time inducing the management to think about theexpansion of its existing facilities. The Management therefore decided to increase its spindle age capacity to46,320 by installing another spinning unit at Sheikhupura Road near Shahkot. The facility started its commercialproduction in August 01, 1994 and ever since has contributed positively to the results of the company.

Our 21,360 spindle-spinning unit located at Shahkot has the capacity of producing 425,000 Kg (approx.) of thefinest Knitting and weaving yarns monthly. Our strength is our commitment to customer satisfaction. Everyproduct passes stringent quality control tests conducted on highly sophisticated machinery before it is dispatched

to a customer.

The Company has grown steadily and has distinction of being associated with several prestigious local and foreignfirms. The modern yet conservative policies of the company helped in attracting investment in the form of equityparticipation and loans. The weaving, dyeing and finishing facilities have been shut down with the passage of timedue to lower profitability and the management's decision to primarily focus on the spinning business which hasalways been the company's strength.

The specialized yarn based new spinning unit of 12,096 spindles has been added to existing facilities of theCompany at Shahkot to cater the demand of coarse count Slub, Multi and Lycra yarns. The plant started itscommercial production in January 2006.

Shams Textile Mills Limited is managed by people who have had vast experiences in the textile sector. Themanagement is constantly looking to avail opportunities in the field of textiles and to grow on its strengths. It has a

low cost and growth driven approach to its businesses and is looking to grow further on the same policies.

PROFILE


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Our Business

We are a manufacturing organization operating integrated spinning and weaving facilities in textile industry andour end products are sold to international and national customers.

Vision of Future Business

We are committed to becoming the premier manufacturing organization in the textile industry maintaining marketleadership in the present business and diversifying into value added projects with the object of maximizing returnsfor all the stakeholders.

Our Strengths

We have made pioneering efforts in development of new products, which has enabled us to emerge as a marketleader. This together with an innovative and professional management style has helped us to build a strong andfinancially sound base.

Our Strategy

We are determined to convert our vision into reality by using innovation to create a market niche for our productsand by investing in facilities, people, systems and new technology, diversification into value addition andimprovements in productivity and service to customers.

We shall aggressively exploit new markets by drawing strength from our corporate image and by promoting aculture that encourages initiatives at all levels of decision-making.

Our Values

We take pride in adhering to ethical business practices and in being a good corporate citizen.

We respect our people and endeavor to provide them opportunities to realize their full potential.

We recognize our responsibility to our stakeholders and society.

MISSION / VISION STATEMENT


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1. Introduction to the Statement

This Statement of Ethics and Business Practices has been formulated to ensure that Directors andemployees of the Company operate within acceptable standards of conduct.

As evidence of acceptance this Statement is to be signed by every Director and employee.

2. Contents of the Statement

This Statement identifies the acceptable standards under the following headings:

Core values

Business culture

Responsibilities

3. Core values

All Directors and employees are expected to practice the following core values:

Honesty Honesty in dealings with persons within the organization and outside

Integrity Conduct of affairs in an upright manner at all times including avoidance of any type ofconflict of interest

Loyalty Demonstrate loyalty towards the Company, the customers and all stakeholders

4. Business

The business culture to which the Company subscribes requires all persons to adhere to the followingsstandards:

Ethical business practices The Company believes in free and fair practices in all their dealingswith their business partners. The Company does not believe in anti-trust activities such as, price fixing, monopolization, formation ofcartels, etc. The Company prohibits all other unethical businesspractices including giving benefits for unlawful acts.

Transparency The Company believes in practicing full transparency in all theirfinancial dealings.

Economic Principles The Company recognizes that profitability is a measure for theefficiency of the organization and the value that customers placeon the Company's products. Investment decisions, however, arenot based solely on economic criteria and the Company takes intoaccount social and environmental conditions.

Communications The Company promotes an open communication policy underwhich all persons are able to communicate freely and openly,subject to overriding considerations of business confidentiality andcosts.

STATEMENT OF ETHICS AND BUSINESS PRACTICES


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This statement is being presented to comply with the best practices of the Code of Corporate Governance ascontained in the Listing Regulation of Karachi and Lahore Stock Exchanges for the purpose of establishing aframework of good governance, whereby a listed company is managed in compliance with the best practices ofcorporate 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 and directorsrepresenting minority interests on its Board of Directors. At present the Board included twoindependent directors representing Financial Institution, two executive directors and four non-executive directors.

2. The directors have confirmed that none of them is serving as a director in more than ten listedcompanies including this Company.

3. All the resident directors of the Company are registered as taxpayers and none of them hasdefaulted in payment of any loan to a banking company, a DFI or an NBFI or, being a member of a

stock exchange, has been declared as a defaulter by that stock exchange.

4. No Causal vacancy occurred during the financial year 2009-2010.

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

6. The Board has developed a vision/mission statement, overall corporate strategy and significantpolicies of the Company. A complete record of particulars of significant policies along with dateson 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 ofemployment of the CEO and other executive directors, have been taken by the Board.

8. The meetings of the Board were presided over by the Chairman and, in his absence, by a directorelected by the Board for this purpose and the Board met at least once in every quarter. Writtennotices of the Board meetings, along with agenda and working papers, were circulated at leastseven days before the meetings. The minutes of the meeting were appropriately recorded andcirculated.

9. The Board arranged an orientation course for its directors during the year to apprise them of theirduties and responsibilities.

10. The Board has approved appointment of CFO, Company Secretary and Head of Internal Audit,including their remuneration and terms and conditions of employment, as determined by theCEO.

11. The Directors' report for this year has been prepared in compliance with the requirements of theCode and 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 ofthe Board.

13. The Directors, CEO and executives do not hold any interest in the shares of the Company otherthan that disclosed in the pattern of shareholding.

STATEMENT OF COMPLIANCE WITH THE BESTPRACTICES OF CORPORATE GOVERNANCE


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

15. The Board has formed an audit committee. It comprises of 3 (three) members, Two of them arenon-executive directors.

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

17. The Board has set-up effective internal audit function by appointing a full-time Head of InternalAudit. The day to day operations of this function are being performed and supervised by the Headof Internal Audit, who is suitably qualified and experienced for the purpose and is conversant withthe policies and procedures of the Company

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 ofPakistan, that they or any of the partners of the firm, their spouses and minor children do not holdshares of the Company and that the firm and all its partners are in compliance with InternationalFederation of Accountants (IFAC) guidelines on code of ethics as adopted by Institute ofChartered Accountants of Pakistan.

19. The statutory auditors or the persons associated with them have not been appointed to provideother services except in accordance with the listing regulations and the auditors have confirmedthat they have observed IFAC guidelines in this regard.

20. All related party transactions of the Company are executed in accordance with the policy of theCompany. The related party transactions have been placed before the audit committee andapproved by the Board of Directors to comply with the requirements of listing regulation number35 of the Karachi Stock Exchange (Guarantee) Limited.

We confirm that all other material principles contained in the Code have been complied with.

Khalid BashirChief Executive

October 05, 2010

Lahore


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On behalf of the Board of Directors, I am pleased topresent the operating and financial performance of thecompany for the year ended 30 June 2010. TheCompany's operations for the period under review

showed an excellent growth in sales and profitability.Profit after tax is Rs. 131 million and earnings pershare of Rs. 15.14 (2009: Rs. -9.65).

Operating Results

After an exceptionally tough 2009, the year underreview was a boom for Pakistan's textile industry andthe Company performed exceptionally well withmanifold growth in sales and profitability. TheCompany's sales grew by approximately 24.09% andcosts remained largely within control. This equation

contributed to better margins and increasedprofitability. The year under review saw the worldeconomies starting to recover from the recessionarytrends of the previous years and this led to an increasein demand with higher prices for our products. Thisdemand initially started in the Far East markets,especially China which led to an overall improvementfor all sectors.

Administration costs increased by approximately17.38% due to normal inflationary factors. Distributionexpenses increased by about 57.07% due to increasein export sales and normal increase in freight andforwarding expenses. Towards the latter part of the

year the Company started to refocus its efforts onexport sales but before significant results could beseen, the government started to regulate yarn exportsthrough imposition of quota and eventually imposed aprohibitive export duty bringing yarn exports almost toa halt. This resulted in loss of market share and we areendeavouring to rebuild the same. We strongly urgethe government not to interfere in the free marketmechanism as it has worked very well for the past

many years and in fact has made our industryinternationally competitive.

Our cost management focus resulted in a reduction offinancial charges by approximately 10.41% althoughborrowing costs remained largely the same as lastyear. The company is making continuous efforts toreduce the financial charges through bettermanagement of its resources. Raw material prices,after starting on a lower note at the beginning of theyear continued to rise and touched an all time hightowards the tail end of the cotton season. These priceswere largely reflective of the rising trend of worldprices and the futures markets. However, since theprices of finished goods kept pace with the increase inraw material prices we were able to achieve good

margins.The energy crises in the country deepened further andwe continue to suffer on account of electric and gasload shedding. The increasing incidence of loadshedding forced us to resort to alternative energywhich is an extremely expensive option. Interruptionof gas supply to textiles is now being carried out evenduring the summer months. We urge the governmentto exempt the textile industry from gas shut downs sothat this critical industry can operate smoothly.

DIRECTORS REPORT

Earning Per Share (Rupees)

2006 2007 2008 2009 2010

-4.69

-9.65

4.76

15.14

21.83


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The Key financial results are as under;(Rs. In Million)

2010 2009

Sales 3,351 2,701

Gross profit 409 137

Finance Cost (115) (128)

Administrative & General Expenses (37) (31)

(Loss)/Profit before Taxation 165 (117)

Provision for taxation (35) 33

(Loss)/Profit After Taxation 131 (83)

Statements on Corporate and FinancialReporting Frame Work

a) The financial statements, prepared by themanagement of the Company, present fairlyits state of affairs, the result of its operations,cash flows and changes in equity.

b) Proper books of account of the Company havebeen maintained.

c) Appropriate accounting policies have beenconsistently applied except for changes asdescribed in note 2.1(d)(i) to the financialstatements in preparation of financialstatements and accounting estimates arebased on reasonable and prudent judgment.

d) International Accounting Standards, asapplicable in Pakistan, have been followed inpreparation of financial statements and anydeparture there from has been adequatelydisclosed.

e) The System of Internal Control is sound indesign and has been effectively implementedand monitored Internal Auditor.

f) There is no significant doubt upon thecompany's ability to continue as a goingconcern.

g) There has been no material departure from the

best practices of corporate governance, asdetailed in the listing regulations.

h) Key operating and financial data of last sixyears in a summarized form is annexed.

i) The following is the value of investment inrespect of retirement benefit funds: ProvidentFund: Rs. 44.828 Million (2009:Rs. 49.917Million).

j) Four meetings of the Board of Directors wereheld during the year 2009-10. Attendance byeach director was as under:

Sr. Name of Director No. Of No. MeetingsAttended

1 Mr. Adil Bashir 1

2 Mr. Amjad Mahmood 4

3 Mr. Asif Bashir 3

4 Mr. Bashir Ahmad (NIT) 2

5 Mr. Khalid Bashir 4

6 Mr. Muhammad Anwar 2

7 Mr. Muhammad Asif (NIT) 2

8 Mr. Nadeem Maqbool 3

(However, leave of absence was granted to the

Directors who could not attend the Board Meetingsdue to preoccupations)

Corporate Governance

Your Company has been complying with the rules ofSecurities and Exchange Commission of Pakistan andhas implemented better internal control policies withmore rigorous checks and balances.

Audit Committee

The Board of Directors in compliance to the Code ofCorporate Governance has established an AuditCommittee and the following non-executive directors

are its members:Mr. Muhammad AnwarMr. Asif BashirMr. Adil Bashir

Auditors

As recommended by the Audit Committee, the presentauditors M/s Riaz Ahmad & Co., Chartered

Accountants, retire and being eligible, offerthemselves for re-appointment.

Pattern of Shareholding

The pattern of shareholding, as required by section

236 of the Companies Ordinance 1984 and Code ofCorporate Governance, is enclosed.

Key Operating and Financial Data

The key operating and financial data for the last sixyears is annexed.

Future Outlook

The world cotton prices have surged to record levels


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and New York futures breached the $1 mark after along time. It appears that the textile industry all overthe world does not have enough stocks and the millsare buying cotton to fill this gap. However, we feel that

these prices are not sustainable and the market willhave to stabilize at some lower level but definitely notat previous levels. But higher raw material prices havealso resulted in an increase in end product prices andwe feel that the current year will be one of stability andconsolidation for the textile industry. Pakistan will stillhave to import a substantial quantity of cotton to meetits requirements and the high world prices will increaseour costs. We do not expect that last years levels ofgrowth and profitability can be achieved again thisyear. China continues to be a very important buyerespecially in view of the bilateral trade agreement butfor the recovery to sustain, it is also imperative that the

Western economies continue to gain strength. The management continues to maintain its effortstowards cost controls, efficiency and higherproductivity. We hope that these efforts will continueto bear fruits and that we will be able to maximize ourreturn to the shareholders. The management alsointends to study the feasibility of new ventures as wellas expansion of its existing operations. We hope thatthis diversification will help us to counter any negativetrends in future. These trends may arise due to theflood devastation in he country and the resultantinflationary and other economic pressures.

Acknowledgements

On behalf of the Board of Directors, I would take thisopportunity to than all our partners for their continuedsupport and especially thank the employees who haveworked with dedication zeal throughout the year.

For & On behalf of Board of Directors

Khalid BashirChief Executive

October 05, 2010Lahore


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FINANCIAL SUMMARYFor the year ended June 30, 2010

rupees in '000's 2010 2009 2008 2007 2006 2005

Net Sales 3,351,493 2,700,814 2,316,456 2,182,834 1,547,297 973,996

Cost of sales 2,942,753 2,563,658 2,186,145 2,071,801 1,399,372 843,291

Gross Profit 408,740 137,156 130,311 111,033 147,925 130,705

Selling and distribution expenses 68,192 43,416 45,464 37,529 17,775 13,387

Administration and general expenses 36,674 31,245 26,708 24,622 24,735 16,277

Other operating expenses 29,816 57,177 31,267 6,089 5,235 7,007

134,682 131,838 103,439 68,240 47,745 36,671

Operating Profit 274,058 5,318 26,872 42,793 100,180 94,034

Other operating income 5,947 5,787 36,755 278,127 15,105 6,819

280,005 11,105 63,627 320,920 115,285 100,853

Financial and other charges 114,709 128,044 91,643 117,682 65,294 24,802

Profit / Profit before taxation 165,296 (116,939) (28,016) 203,238 49,991 76,051

Provision for taxation (34,519) 33,567 (12,501) 14,655 8,835 5,924

Profit / (Loss) after taxation 130,777 (83,372) (40,517) 188,583 41,156 70,127

Performance Ratio

Gross Profit Margin (%) 12.20 5.08 5.63 5.09 9.56 13.42

Fixed Assets Turnover 3.65 2.84 2.25 2.00 1.83 1.91

Return on capital employed (%) 20.78 (12.92) (5.06) 17.46 3.99 9.79

Return on equity (%) 24.70 (19.50) (6.99) 27.86 7.69 19.60

Operating Profit Margin (%) 8.18 0.20 1.16 1.96 6.47 9.65

Net Profit Margin (%) 3.90 (3.09) (1.75) 8.64 2.66 7.20

Earning / (Loss) per share (Rupees) 15.14 (9.65) (4.69) 21.83 4.76 8.12

Working Capital Ratios

Debtors Turn Over Ratio 13.93 11.24 12.71 15.59 16.40 12.83

Debtors in no of Days 26.20 32.46 28.71 23.41 22.25 28.46

Stock Turn Over Ratio 9.98 8.07 7.83 11.68 11.15 8.20

Stock in no of Days 36.57 45.23 46.59 31.24 32.73 44.50

Liquidity Ratio

Current Ratio 0.77 0.73 0.84 1.06 0.92 1.49

Quick Ratio 0.35 0.40 0.41 0.75 0.66 1.13

Interest Cover Ratio 0.69 (1.09) (3.27) 0.58 1.31 0.33

Financial Performance Ratio

Gearing Ratio 15:85 38:62 36:64 40:60 51:49 28:72

Break-up value per share ( Rupees ) 63.05 46.13 59.13 74.29 58.26 58.90

Dividend per share 2.00 - - 2.50 1.75 1.75

Price to Book Value 0.19 0.07 0.27 0.60 0.28 0.44

Total Assets 1,529,557 1,635,974 1,736,696 1,874,522 1,660,019 1,098,722

Current Assets 679,471 719,620 750,010 801,901 546,815 518,667

Current Liabilities 886,559 990,746 897,859 757,330 594,446 348,826

Operating Fixed Assets 850,086 916,354 986,686 1,071,050 1,111,633 578,519

Long Term Debts 84,633 246,642 290,237 438,470 528,696 207,710

Share holders' Equity 544,734 398,586 510,907 641,881 503,362 508,914


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rdNOTICE IS HEREBY GIVEN THAT the 43 Annual General Meeting of the shareholders of Shams Textile MillsLimited will be held on Friday, October 29, 2010 at 09:30 a.m.at the Registered Office, 7-B III, Aziz Avenue,Gulberg V, Lahore to transact the following business:

Ordinary Business:

1. To receive, consider and adopt the Audited Accounts together with the Directors' and Auditors' reportsthereon for the year ended June 30, 2010.

2. To approve as recommended by Directors, the payment of Cash Dividend @ 20% i.e. Rs. 2/- per share forthe year ended June 30, 2010

3. To appoint auditors of the Company and fix their remuneration. The present auditor M/s Riaz Ahmad &Company, Chartered Accountants retires and offers themselves for re-appointment.

4. To transact any other business with the permission of the ChairBy order of the Board

LahoreOctober 08, 2010 Company Secretary

BOOK CLOSURE:

The Members' Register will remain closed from October 23, 2010 to October 30, 2010 (both day inclusive)

Notes:

1. Transfer received in order at the Registered Office by the close of business hours on Friday, October 22,2010 will be treated in time.

2. A member eligible to attend and vote at this Meeting may appoint another member as his/her proxy toattend and vote instead of him/her. Proxy in order to be effective must be received by the Company at the

Registered Office not later than 48 hours before the time for holding the Meeting.

3. CDC account holders will further have to follow the under mentioned guidelines as laid down in circular no.1 dated January 26, 2000 of the Securities & Exchange Commission of Pakistan for attending the meeting:

i. In case of individuals, the account holder or sub-account holder and /or the person whosesecurities are in group account, and their registration details are uploaded as per the Regulations,shall authenticate his/her identity by showing his/her original National Identity Card (NIC) orpassport at the time of attending the meeting. The shareholders registered on CDS are alsorequested to bring their Participant ID numbers and account numbers in CDS.

ii. In case of corporate entity, the Board of Directors' resolution/power of attorney with specimensignature of the nominee shall be produced (unless it has been provided earlier) at the time of

meeting.

4. Shareholders are requested to immediately notify the change in their address, if any.

NOTICE OF ANNUAL GENERAL MEETING


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We have reviewed the Statement of Compliance with the best practices contained in the Code of CorporateGovernance prepared by the Board of Directors of SHAMS TEXTILE MILLS LIMITED (the Company) for the yearended 30 June 2010, to comply with the Listing Regulations of the respective Stock Exchanges, where theCompany is listed.

The responsibility for compliance with the Code of Corporate Governance is that of the Board of Directors of theCompany. Our responsibility is to review, to the extent where such compliance can be objectively verified, whetherthe statement of compliance reflects the status of the Company's compliance with the provisions of the Code ofCorporate Governance and report if it does not. A review is limited primarily to inquiries of the Company personneland 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 andinternal control systems sufficient to plan the audit and develop an effective audit approach. We are not requiredto consider whether the Board's statement on internal control covers all risks and controls, or to form an opinionon the effectiveness of such internal controls, the Company's corporate governance procedures and risks.

Further, Listing Regulations of the Karachi and Lahore Stock Exchanges require the Company to place before the

Board of Directors for their consideration and approval related party transactions distinguishing betweentransactions carried out on terms equivalent to those that prevail in arm's length transactions and transactionswhich are not executed at arm's length price recording proper justification for using such alternate pricingmechanism. Further, all such transactions are also required to be separately placed before the audit committee.We are only required and have ensured compliance of requirement to the extent of approval of related partytransactions by the Board of Directors and placement of such transactions before the audit committee. We havenot carried out any procedures to determine whether the related party transactions were undertaken at arm'slength price or not.

Based on our review, nothing has come to our attention, which causes us to believe that the Statement ofCompliance does not appropriately reflect the Company's compliance, in all material respects, with the bestpractices contained in the Code of Corporate Governance as applicable to the Company for the year ended 30 June2010.

RIAZ AHMAD & COMPANY

Chartered Accountants

Name of engagement partner:

Syed Mustafa Ali

DATE: October 05, 2010

LAHORE

REVIEW REPORT TO THE MEMBERS ON STATEMENT OF COMPLIANCEWITH BEST PRACTICES OF CODE OF CORPORATE GOVERNANCE


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We have audited the annexed balance sheet of SHAMS TEXTILE MILLS LIMITED as at 30 June 2010 and therelated profit and loss account, statement of comprehensive income, cash flow statement and statement ofchanges in equity together with the notes forming part thereof, for the year then ended and we state that we haveobtained 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, andprepare and present the above said statements in conformity with the approved accounting standards and therequirements of the Companies Ordinance, 1984. Our responsibility is to express an opinion on these statementsbased on our audit.

We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the above saidstatements are free of any material misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the above said statements. An audit also includes assessing theaccounting policies and significant estimates made by management, as well as, evaluating the overallpresentation of the above said statements. We believe that our audit provides a reasonable basis for our opinionand, after due verification, we report that:

(a) in our opinion, proper books of account have been kept by the company as required by theCompanies Ordinance, 1984;

(b) in our opinion:

i) the balance sheet and profit and loss account together with the notes thereon have been drawnup in conformity with the Companies Ordinance, 1984, and are in agreement with the books ofaccount and are further in accordance with accounting policies consistently applied except forthe changes as stated in Note 2.1(d)(i) 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 werein 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, statement of comprehensive income, cash flow statement andstatement of changes in equity together with the notes forming part thereof conform with approvedaccounting standards as applicable in Pakistan, and, give the information required by the CompaniesOrdinance, 1984, in the manner so required and respectively give a true and fair view of the state ofthe company's affairs as at 30 June 2010 and of the profit, its comprehensive income, its cash flowsand changes in equity for the year then ended; and

(d) in our opinion, no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of1980).

RIAZ AHMAD & COMPANY

Chartered Accountants

Name of engagement partner:

Syed Mustafa Ali

DATE: October 05, 2010

LAHORE

AUDITORS REPORT TO THE MEMBERS


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2010 2009Note (Rupees in thousands)

EQUITY AND LIABILITIES

SHARE CAPITAL AND RESERVES

Authorised share capital

25,000,000 (2009: 25,000,000) ordinaryshares of Rupees 10 each 250,000 250,000

Issued, subscribed and paid up share capital 3 86,400 86,400

Reserves 4 458,334 312,186

Total equity 544,734 398,586

NON-CURRENT LIABILITIES

Long term financing 5 84,633 201,377Long term supplier's credit 6 - 39,709

Liabilities against assets subject to finance lease 7 - 5,556Deferred taxation 8 13,631 -

98,264 246,642

CURRENT LIABILITIES

Trade and other payables 9 205,441 215,285Accrued mark-up 10 25,967 29,906Short term borrowings 11 493,146 660,404Current portion of non-current liabilities 12 162,005 85,151

886,559 990,746

TOTAL LIABILITIES 984,823 1,237,388

CONTINGENCIES AND COMMITMENTS 13 - -

TOTAL EQUITY AND LIABILITIES 1,529,557 1,635,974

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

Chief Executive

BALANCE SHEETAS AT JUNE 30, 2010


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ASSETS

NON-CURRENT ASSETSProperty, plant and equipment 14 848,475 914,743Long term deposits 15 1,611 1,611

850,086 916,354

CURRENT ASSETS

Stores, spare parts and loose tools 16 71,504 36,364Stock in trade 17 300,483 289,186

Trade debts 18 204,002 277,081Loans and advances 19 9,378 24,220Short term prepayments 901 -Other receivables 20 2,610 3,608Short term investments 21 27,278 29,236Refunds due from the Government 22 25,823 27,282

Taxation - Net 23 23,757 18,305Cash and bank balances 24 13,735 14,338

679,471 719,620

TOTAL ASSETS 1,529,557 1,635,974

Director


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A N N U A L R E P O R T 2 0 1 018

PROFIT & LOSS ACCOUNTFOR THE YEAR ENDED JUNE 30, 2010


SALES 25 3,351,493 2,700,814

COST OF SALES 26 (2,942,753) (2,563,658)

GROSS PROFIT 408,740 137,156

DISTRIBUTION COST 27 (68,192) (43,416)

ADMINISTRATIVE EXPENSES 28 (36,674) (31,245)

OTHER OPERATING EXPENSES 29 (29,816) (57,177)

(134,682) (131,838)

274,058 5,318

OTHER OPERATING INCOME 30 5,947 5,787

PROFIT FROM OPERATIONS 280,005 11,105

FINANCE COST 31 (114,709) (128,044)

PROFIT / (LOSS) BEFORE TAXATION 165,296 (116,939)

TAXATION 32 (34,519) 33,567

PROFIT / (LOSS) AFTER TAXATION 130,777 (83,372)

EARNINGS / (LOSS) PER SHARE - BASIC AND DILUTED(Rupees) 33 15.14 (9.65)


Chief Executive Director


20/49

STATEMENT OF COMPREHENSIVE INCOMEFor The Year Ended JUNE 30, 2010


PROFIT AFTER TAXATION 130,777 (83,372)

OTHER COMPREHENSIVE INCOME

Deficit transferred to profit and loss account due to impairment 13,208 -

Surplus / (deficit) on remeasurement of available for sale investments 2,163 (28,949)

Other comprehensive income / (loss) for the year - net of tax 15,371 (28,949)

TOTAL COMPREHENSIVE INCOME / (LOSS) FOR THE YEAR 146,148 (112,321)



A N N U A L R E P O R T 2 0 1 0


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CASH FLOW STATEMENTFor The Year Ended JUNE 30, 2010


CASH FLOWS FROM OPERATING ACTIVITIES

Cash from operations 34 411,628 189,244Finance cost paid (118,649) (128,915)Income tax paid (26,339) (14,390)

Net cash from operating activities 266,640 45,939

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of property, plant and equipment 1,000 983Proceeds from sale of investment - 1,035Dividends received 1,177 1,033Capital expenditure on property, plant and equipment (17,007) (20,091)

Net cash used in investing activities (14,830) (17,040)

CASH FLOWS FROM FINANCING ACTIVITIES

Repayment of long term financing (75,241) (75,241)Payment of finance lease liabilities (9,914) (8,341)Short term borrowings - Net (167,258) 55,061Dividend paid - (2)

Net cash used in financing activities (252,413) (28,523)

Net increase / (decrease) in cash and cash equivalents (603) 376Cash and cash equivalents at the beginning of the year 14,338 13,962

Cash and cash equivalents at the end of the year 24 13,735 14,338



A N N U A L R E P O R T 2 0 1 020


22/49

A N N U A L R E P O R T 2 0 1 0

STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED JUNE 30, 2010

Reserves

Capitalreserves

Revenuereserves

Premium

Unappropri-

Share

onissueof

Fairvalue

Gene

ralatedprofit/

Total

capital

righ

tshares

reserve

SubTotal

reserve(accumulatedSubtotal

Total

equity

loss)

(Rupeesinthousands)

Balanceasat30June2

008

86,4

00

86,4

00

15,7

41

102,1

41

345,0

00

(22,6

34)

322,3

66

424,5

07

510,9

07

Totalcomprehensivelossf

orthe

yearended30June2009

-

-

(28,9

49)

(28,9

49)

-

(83,3

72)

(83,3

72)

(112,3

21)

(112,3

21)

Balanceasat30June2

009

86,4

00

86,4

00

(13,2

08)

73,1

92

345,0

00

(106,0

06)

238,9

94

312,1

86

398,5

86

Totalcomprehensiveincom

eforthe

yearended30June2010

-

-

15,3

71

15,3

71

-

130,7

77

130,7

77

146,1

48

146,1

48

Balanceasat30June2

010

86,400

86,400

2,163

88,563

345,000

24,771

369,771

458,334

544,734

Theannexednotesforma

nintegralpartofthesefinancialstateme

nts.

ChiefExecutive

Director


23/49

1. THE COMPANY AND ITS OPERATIONS

Shams Textile Mills Limited is a public limited Company incorporated in Pakistan under the Companies Act, 1913 (Now CompaniesOrdinance, 1984) and is listed on Karachi and Lahore Stock Exchanges in Pakistan. Its registered office is situated at 7-B-III, Aziz Avenue,Gulberg V, Lahore. The Company is engaged in the business of manufacturing, sale and trading of yarn and cloth.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe significant accounting policies applied in the preparation of these financial statements are set out below. These policies have beenconsistently applied to all years presented, unless otherwise stated.

2.1 Basis of preparation

a) Statement of compliance

These financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRS) issued by theInternational Accounting Standards Board as are notified under the Companies Ordinance, 1984, provisions of and directivesissued under the Companies Ordinance, 1984. In case requirements differ, the provisions or directives of the CompaniesOrdinance, 1984 shall prevail.

b) Accounting convention

These financial statements have been prepared under the historical cost convention except for the certain financialinstruments carried at fair value.

c) Critical accounting estimates and judgements

The preparation of financial statements in conformity with the approved accounting standards requires the use of certaincritical accounting estimates. It also requires the management to exercise its judgement in the process of applying theCompany's accounting policies. Estimates and judgements are continually evaluated and are based on historical experienceand other factors, including expectations of future events that are believed to be reasonable under the circumstances. Theareas where various assumptions and estimates are significant to the Company's financial statements or where judgementswere exercised in application of accounting policies are as follows:

Useful lives, patterns of economic benefits and impairments

Estimates with respect to useful lives and pattern of flow of economic benefits are based on the analysis of the management ofthe Company. Further, the Company reviews the value of assets for possible impairment on an annual basis. Any change in theestimates in the future might affect the carrying amount of respective item of property, plant and equipment with acorresponding effect on the depreciation charge and impairment.

Taxation

In making the estimates for income tax currently payable by the Company, the management takes into account the currentincome tax law and the decisions of appellate authorities on certain issues in the past.

Provision for doubtful debts

The Company reviews its receivables against any provision required for any doubtful balances on an ongoing basis. Theprovision is made while taking into consideration expected recoveries, if any.

d) Amendments to published approved accounting standards that are effective in current year

i) Changes in accounting policies and disclosures arising from amendments to published approvedaccounting standards that are effective in the current year

IAS 1 (Revised) 'Presentation of Financial Statements' (effective for annual periods beginning on or after 01 January2009).The revised standard prohibits the presentation of items of income and expenses (that is non-owner changes inequity) in the statement of changes in equity, requiring non-owner changes in equity to be presented separately fromowner changes in equity in a statement of comprehensive income. As a result the Company presents in the statement ofchanges in equity all owner changes in equity, whereas all non-owner changes in equity are presented in the statementof comprehensive income. Comparative information has been re-presented so that it also is in conformity with therevised standard. As the change in accounting policy only impacts presentation aspects, there is no impact on earningsper share.

IFRS 7 (Amendment) Financial instruments: Disclosures (effective for annual periods beginning on or after 01 January2009). This amendment requires enhanced disclosures about fair value measurement and liquidity risk. In particular,the amendment requires disclosure of fair value measurements by level of a fair value measurements hierarchy. As the

change in accounting policy only results in additional disclosures, there is no impact on earnings per share.ii) Other amendment to published approved accounting standard that is effective in the current year

IAS 23 (Amendment) 'Borrowing Costs' (effective for annual periods beginning on or after 01 January 2009). It requiresan entity to capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifyingasset (one that necessarily takes a substantial period of time to get ready for intended use or sale) as part of the cost ofthat asset. On adoption the option of immediately expensing those borrowing costs will be withdrawn. This change willnot effect the financial statements as the Company already has the policy to capitalize its borrowing cost.

e) Standards, interpretations and amendments to published approved accounting standards that are effective incurrent year but not relevant

There are other new standards, interpretations and amendments to the published approved accounting standards that are

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED JUNE 30, 2010

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mandatory for accounting periods beginning on or before 01 July 2009 but are considered not to be relevant or do not haveany significant impact on the Company's financial statements and are therefore not detailed in these financial statements.

f) Standards and amendments to published approved accounting standards that are not yet effective butrelevant

Following standards and amendments to existing standards have been published and are mandatory for the Company'saccounting periods beginning on or after 01 July 2010 or later periods:

IFRS 9 'Financial Instruments' (effective for annual periods beginning on or after 01 January 2013). IFRS 9 has superseded theIAS 39 'Financial Instruments: Recognition and Measurement'. It requires that all equity investments are to be measured atfair value while eliminating the cost model for unquoted equity investments. Certain categories of financial instrumentsavailable under IAS 39 will be eliminated. Moreover, it also amends certain disclosure requirements relating to financialinstruments under IFRS 7. The management of the Company is in the process of evaluating impacts of the aforesaid standardon the Company's financial statements.

There are other amendments resulting from annual improvements projects initiated by International Accounting StandardsBoard in April 2009 and May 2010, specifically in IFRS 7 'Financial Instruments: Disclosures', IAS 1 'Presentation of FinancialStatements', IAS 7 'Statement of Cash Flows', IAS 24 'Related Party Disclosures' and IAS 36 'Impairment of Assets' that areconsidered relevant to the Company's financial statements. These amendments are unlikely to have a significant impact onthe Company's financial statements and have therefore not been analyzed in detail.

g) Standards, interpretations and amendments to published approved accounting standards that are noteffective in current year and not considered relevant

There are other accounting standards, amendments to published approved accounting standards and new interpretations

that are mandatory for accounting periods beginning on or after 01 July 2010 but are considered not to be relevant or do nothave any significant impact on the Company's financial statements and are, therefore, not detailed in these financialstatements.

2.2 Property, plant and equipment

Owned

These are stated at cost less accumulated depreciation and any identified impairment loss, except freehold land and capital work-in-progress. Freehold land and capital work in progress are stated at cost less any identified impairment loss. Cost of operating fixedassets comprises historical cost, borrowing cost and other expenditure pertaining to the acquisition, construction, erection andinstallation of these assets.

Subsequent costs are included in the assets carrying amount or recognized as a separate asset, as appropriate, only when it isprobable that future economic benefit associated with the item will flow to the Company and the cost of the item can be measuredreliably. All other repair and maintenance costs are charged to profit and loss account during the period in which they are incurred.

Depreciation is charged to income applying reducing balance method to write off the cost over estimated remaining useful life of theasset at the rates given in note 14.1 to the financial statements. Depreciation on additions to fixed assets is charged from the month inwhich the asset is put to use, while for disposals depreciation is charged upto the month of disposal.

Useful life of assets are reviewed at each financial year end and if expectations differ from previous estimates the change is accountedfor as change in accounting estimate in accordance with IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors' .

An item of property, plant and equipment is de-recognized upon disposal or when no future economic benefits are expected from itsuse or disposal. Any gain or loss arising on de-recognition of the asset is included in the profit and loss account in the year the asset isde-recognized.

Leased

Leases where the Company has substantially all the risk and rewards of ownership are classified as finance lease. Assets subject tofinance lease are capitalized at the commencement of the lease term at the lower of present value of minimum lease payments underthe lease agreements and the fair value of the leased assets, each determined at the inception of the lease.

The related rental obligation net of finance cost, is included in liabilities against assets subject to finance lease. The liabilities areclassified as current and long term depending upon the timing of payments.

Each lease payment is allocated between the liability and finance cost so as to achieve a constant rate on the balance outstanding.The finance cost is charged to income over the lease term.

Depreciation of assets subject to finance lease is recognized in the same manner as for owned assets. Depreciation of the leasedassets is charged to income.

2.3 Impairment

a) Financial assets

A financial asset is considered to be impaired if objective evidence indicate that one or more events had a negative effect onthe estimated future cash flow of that asset.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as a difference between its carryingamount and the present value of estimated future cash flows discounted at the original effective interest rate. An impairmentloss in respect of available for sale financial asset is calculated with reference to its current fair value.

Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets areassessed collectively in groups that share similar credit risk characteristics.


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b) Non financial assets

The Company assesses at each balance sheet date whether there is any indication that assets may be impaired. If suchindication exists, the carrying amounts of such assets are reviewed to assess whether they are recorded in excess of theirrecoverable amounts. Where the carrying value exceeds the recoverable amount, assets are written down to the recoverableamount and the difference is charged to the profit and loss account. A previously recognized impairment loss is reversed only if

there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss wasrecognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amountcannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss beenrecognized for the asset in prior years. Such reversal is recognized in profit and loss account.

2.4 Investments

Classification of an investment is made on the basis of intended purpose for holding such investment. Management determines theappropriate classification of its investments at the time of purchase and re-evaluates such designation on regular basis.

Investments are initially measured at fair value plus transaction costs directly attributable to acquisition, except for Investment atfair value through profit or loss which is measured initially at fair value.

The Company assess at the end of each reporting period whether there is any objective evidence that investments are impaired. Ifany such evidence exists, the Company applies the provisions of IAS 39 'Financial Instruments: Recognition and Measurement' to allinvestments, except investments in associates (with significant influence), which are tested for impairment in accordance with theprovisions of IAS 36 'Impairment of Assets'.

Investments in associates - (with significant influences)

Investment in associates where the Company holds 20% or more of the voting power of the investee companies and where

significant influence can be established are accounted for using the equity method. In case of investments accounted for under theequity method, the method is applied from the date when significant influence is established until the date when that significantinfluence ceases.

Available for sale

Investments intended to be held for an indefinite period of time, which may be sold in response to need for liquidity, or changes tointerest rates or equity prices are classified as available-for-sale. After initial recognition, investments which are classified asavailable-for-sale are measured at fair value. Gains or losses on available-for-sale investments are recognized directly in statement ofother comprehensive income until the investment is sold, de-recognized or is determined to be impaired, at which time thecumulative gain or loss previously reported in statement of other comprehensive income is included in profit and loss account. Theseare sub-categorized as under:

Quoted

For investments that are actively traded in organized capital markets, fair value is determined by reference to stock exchange quotedmarket bids at the close of business on the balance sheet date.

Un-quoted

Investments in unquoted equity instruments are stated at cost less any identified impairment loss.

2.5 Inventories

Inventories, except for stock in transit and waste stock are stated at lower of cost and net realizable value. Cost is determined asfollows:

Stores, spare parts and loose tools

These are valued at moving average cost except for items in transit, which are valued at cost comprising invoice value plus othercharges paid thereon. Provision is made against slow moving and obsolete items.

Stock in trade

Cost of raw material, work-in-process and finished goods is determined as follows:

(i) For raw materials: At weighted average cost

(ii) For work-in-process and finished goods: At average manufacturing cost including a proportion of productionoverheads.

Materials in transit are valued at cost comprising invoice value plus other charges paid thereon. Waste stock is valued at net realizablevalue.

Net realizable value signifies the estimated selling price in the ordinary course of business less the estimated costs of completion andthe estimated costs necessarily to make a sale.

2.6 Trade debts and other receivables

Trade debts and other receivables are carried at original invoice amount being the fair value. Provision is made against debtsconsidered doubtful on review of outstanding amount at the year end. Bad debts are written off when considered irrecoverable.

2.7 Taxation

Current

Provision for current tax is based on the taxable income for the year determined in accordance with the prevailing law for taxation ofincome. The charge for current tax is calculated using prevailing tax rates or tax rates expected to apply to the profit for the year if


A N N U A L R E P O R T 2 0 1 024


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enacted. The charge for current tax also includes adjustments, where considered necessary, to provision for tax made in previousyears arising from assessments framed during the year for such years.

Deferred

Deferred tax is accounted for using the balance sheet liability method in respect of all temporary differences arising from differencesbetween the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in thecomputation of the taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferredtax assets to the extent that it is probable that taxable profits will be available against which the deductible temporary differences,unused tax losses and tax credits can be utilized.

Deferred tax is calculated at the rates that are expected to apply to the period when the differences reverse based on tax rates thathave been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the profit and lossaccount, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case thetax is also recognised in other comprehensive income or directly in equity, respectively.

2.8 Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, cash at banks on current, saving and deposit accounts and other short term highlyliquid instruments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes invalues.

2.9 Borrowing cost

Interest, mark-up and other charges on long-term finances are capitalized up to the date of commissioning of respective qualifyingassets acquired out of the proceeds of such long-term finances. All other interest, mark-up and other charges are recognized in profitand loss account.

2.10 Share Capital

Ordinary shares are classified as share capital.

2.11 Trade and other payables

Liabilities for trade and other amounts payable are initially recognized at fair value, which is normally the transaction cost.

2.12 Provisions

A provision is recognized in balance sheet when the Company has a present legal or constructive obligation as a result of past event, itis probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimatecan be made of the amount of obligation.

2.13 Financial instruments

Financial instruments carried on the balance sheet include investments, deposits, trade debts, loans and advances, other receivables,cash and bank balances, long-term financing, liabilit ies against assets subject to finance lease, long term supplier's credit, short-termborrowings, accrued mark-up and trade and other payables etc. Financial assets and liabilities are recognized when the Companybecomes a party to the contractual provisions of instrument. Initial recognition is made at fair value plus transaction costs directlyattributable to acquisition, except for financial instrument at fair value through profit or loss which is measured initially at fair value.

Financial assets are de-recognized when the Company loses control of the contractual rights that comprise the financial asset. TheCompany loses such control if it realizes the rights to benefits specified in contract, the rights expire or the Company surrenders thoserights. Financial liabilities are de-recognized when the obligation specified in the contract is discharged, cancelled or expired. Any gainor loss on subsequent measurement (except available for sale investments) and de-recognition is charged to the profit or losscurrently. The particular measurement methods adopted are disclosed in the individual policy statements associated with each itemand in the accounting policy of investments.

2.14 Offsetting of financial assets and financial liabilities

Financial assets and financial liabilities are set off and the net amount is reported in the financial statements when there is a legalenforceable right to set off and the Company intends either to settle on a net basis, or to realize the assets and to settle the liabilitiessimultaneously.

2.15 Derivative financial instruments

Derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into andsubsequently remeasured at fair value. All derivative financial instruments are carried as assets when fair value is positive andliabilities when fair value is negative. Any change in the fair value of the derivative financial instruments is taken to the profit and lossaccount.

2.16 Foreign currencies

These financial statements are presented in Pak Rupees, which is the Companys functional currency. All monetary assets andliabilities denominated in foreign currencies are translated into Pak Rupees at the rates of exchange prevailing at the balance sheetdate, while the transactions in foreign currencies during the year are initially recorded in functional currency at the rates of exchangeprevailing at the transaction date. All non-monetary items are translated into Pak Rupees at exchange rates prevailing on the date oftransaction or on the date when fair values are determined. Exchange gains and losses are included in the income currently.

2.17 Employee benefits

Defined contribution plan

The Company operates a funded employees provident fund scheme for its permanent employees. Equal monthly contributions at therate of six percent of basic pay are made both by the Company and employees to the fund.


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Compensated absences

Compensated absences are accounted for in the period in which the absences are earned.

2.18 Related party transaction and transfer pricing

Transactions and contracts with the related parties are based on the policy that all transactions between the Company and related

parties are carried out at an arms length.2.19 Borrowings

Borrowings are recognized initially at fair value and are subsequently stated at amortized cost. Any difference between the proceedsand the redemption value is recognized in the profit and loss account over the period of the borrowings using the effective interestmethod.

2.20 Revenue recognition

Revenue from different sources is recognized as under:

- Revenue from sale of goods is recognized on dispatch of goods to customers.

- Revenue on sale of electricity is recognized at the time of transmission.

- Profit on deposits with banks is recognized on time proportion basis taking into account the amounts outstanding and ratesapplicable thereon.

2.21 Dividend and other appropriations

Dividend distribution to the Company's shareholders is recognized as a liability in the Company's financial statements in the period inwhich the dividends are declared and other appropriations are recognized in the period in which these are approved by the Board of

Directors.

3. ISSUED, SUBSCRIBED AND PAID UP SHARE CAPITAL

2010 2009 2010 2009(NUMBER OF SHARES) (RUPEES IN THOUSAND)

7,510,000 7,510,000 Ordinary shares of Rupees 10 each fullypaid in cash 75,100 75,100

1,130,000 1,130,000 Ordinary shares of Rupees 10 each issuedas fully paid bonus shares 11,300 11,300

8,640,000 8,640,000 86,400 86,400

2010 2009(NUMBER OF SHARES)

3.1 Ordinary shares of the Company held by associated companies:

Premier Insurance Limited 399,000 400,000The Crescent Textile Mills Limited 812,160 812,160Crescent Powertec Limited 1,624,608 1,460,000

Mohammad Amin Mohammad Bashir Limited - 210

2,835,768 2,672,370

2010 2009(Rupees in thousand)

4. RESERVES

Composition of reserves is as follows:

Capital

Premium on issue of shares (Note 4.1) 86,400 86,400Fair value reserve (Note 4.2) 2,163 (13,208)

88,563 73,192

Revenue

General reserve 345,000 345,000Unappropriated profit/(Accumulated loss) 24,771 (106,006)

369,771 238,994

458,334 312,186


28/49


4.1 This reserve can be utilised by the Company only for the purposes specified in section 83(2) of the CompaniesOrdinance, 1984.

4.2 This represents unrealized (loss) / gain on remeasurement of available for sale investments at fair value and is notavailable for distribution. This will be transferred to profit and loss account on realization.


5. LONG TERM FINANCINGSecuredFinancing from banking companies (Note 5.1) 201,377 276,618Less: Current portion shown under current liabilities (Note 12) 116,744 75,241

84,633 201,377

5.1 Financing from banking companies

RATEOFINTEREST

LENDER 2010 2009 PER NUMBER OF INTEREST INTERESTANNUM INSTALLMENTS REPRICING PAYABLE SECURITY

(Rupees in thousands)

Allied Bank Limited 104,087 127,218 SBP rate for Twenty equal - Quarterly First pari passu chargeLTF - EOP quarterly installments over fixed assets+ 2% commenced on 16 (excluding Land and

December 2006 and building) of Surajending on 15 Cotton Mills Limited, anSeptember 2012. associated company.

Allied BankLimited 42,174 75,913 6 month Nineteen equal Half Yearly Quarterly First Pari passu ChargeKIBOR + quarterly over fixed assets1.35% installments (excluding Land and

commenced on building) of Suraj16 March 2007 Cotton Mills Limitedand ending on 15 Mills Limited, anSeptember 2011. Associated company.

The Bank of Punjab 30,000 40,000 SBP rate for Sixteen equal - Quarterly First pari passu chargeLTF - EOP quarterly on fixed assets of the+ 2% installments Company.

Commenced on 31March 2007 andending on 31December 2011.

The Bank of Punjab 25,116 33,487 SBP rate for Sixteen equal - Quarterly First pari passu chargeLTF - EOP quarterly on fixed assets of the+ 2% installments Company.

commenced on 28February 2007 andending on 30November 2011.

201,377 276,618

6. LONG TERM SUPPLIER'S CREDIT

Unsecured

This represents interest free long term credit availed from machinery supplier and the amount is payable after fouryears of delivery on 30 October 2010. The fair value adjustment in accordance with the requirements of IAS 39'Financial Instruments: Recognition and Measurement' is not considered material and hence not recognized.

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A N N U A L R E P O R T 2 0 1 028



7. LIABILITIES AGAINST ASSETS SUBJECT TO FINANCE LEASE

Minimum lease payments 5,783 17,310Less: Un-amortized finance charge 231 1,844

Present value of minimum lease payments 5,552 15,466Less: Current portion shown under current liabilities (Note 12) 5,552 9,910

- 5,556

7.1 This represents lease facility obtained from First National Bank Modaraba under sale and lease back arrangement.Value of minimum lease payments is discounted using implicit interest rate of 6 month KIBOR plus 1.85% (2009: 6month KIBOR plus 1.85%). Rentals are payable in monthly installments. All taxes, repairs and insurance costs areto be borne by the Company. The facility is secured against leased assets and deposit of Rupees 0.035 million(2009: Rupees 0.035 million).

7.2 Minimum lease payments and their present values are regrouped as under:

2010 2009

Later than Later thanNot later one year but Not later one year butthan one not later than than one not later than

year five years year five years

(Rupees in thousands)

Minimum lease payments 5,783 - 11,517 5,793Present value of minimum lease payments 5,552 - 9,910 5,556


8. DEFERRED TAXATIONThe (asset) / liability for deferred taxation originated due to timing differences relating to:Taxable temporary differences

Accelerated tax depreciation116,244

154,267Finance lease 3,978 2,800

120,222 157,067Deductible temporary differences

Available tax losses (93,762) (132,998)Turn over tax carried forward (12,829) (35,425)

(106,591) (168,423)

13,631 (11,356)

8.1 The net deferred income tax asset of Rupees 11.356 million as at 30 June 2009 was not recognized in the financialstatements.

9. TRADE AND OTHER PAYABLESCreditors (Note 9.1) 61,814 77,530

Advances from customers 5,713 5,205

Accrued liabilities (Note 9.2) 113,913 114,364Payable to contractor 2,892 8,897Retention money - Interest free 16 854Excise duty payable (Note 9.3) 5,184 5,184Income tax deducted at source 374 474Employees' provident fund 827 319Workers profit participation fund 8,877 -Workers welfare fund 3,373 -Dividend payable 2,458 2,458

205,441 215,285


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9.1 This includes Rupees 3.143 million (2009: Rupees 0.546 million) due to associated undertakings.

9.2 This includes Rupees 25.963 million (2009: Rupees42.167 million) due to related parties.

9.3 This represents provision made on account of central excise duty on loans in respect of which decision of the case

is pending before the Honourable Supreme Court of Pakistan.2010 2009

(Rupees in thousand)

10. ACCRUED MARK-UPLong term financing 6,808 8,390Short term borrowings 19,159 21,516

25,967 29,906

11. SHORT TERM BORROWINGSFrom banking companies - Secured

Running finance arrangements:MCB Bank Limited (Note 11.1 and 11.2) 76,949 138,104

The Bank of Punjab (Note 11.1 and 11.3) 189,107 194,480

Allied Bank Limited (Note 11.1 and 11.4) 108,674 119,029

Cash finance arrangements:MCB Bank Limited (Note 11.1 and 11.5) 63,000 140,962

From related party - Unsecured (Note 11.6) 55,416 67,829

493,146 660,404

11.1 These finances are obtained from banking companies under mark up arrangements and are secured against firstjoint pari passu hypothecation charge on all current assets of the Company and pledge of stocks. These form partof total credit facility of Rupees 900 million (2009: Rupees 900 million).

11.2 The rate of mark-up ranges from 14.03% to 14.79% (2009: 13.53% to 17.12%) per annum on the balanceoutstanding.




11.6 This represents finance obtained from Crescent Powertec Limited, an associated company. The rate of mark upranges from 13.78% to 14.54% (2009: 13.64% to 16.87%) per annum.

12. CURRENT PORTION OF NON-CURRENT LIABILITIESLong term financing (Note 5) 116,744 75,241Long term suppliers credit (Note 6) 39,709 -Liabilities against assets subject to finance lease (Note 7) 5,552 9,910

162,005 85,151

13. CONTINGENCIES AND COMMITMENTS

Contingencies

Bank guarantee of Rupees 37.813 million (2009: Rupees 37.813 million) is given by the bank of the Company in favourof Sui Northern Gas Pipelines Limited against gas connections.

Commitments

Contracts for capital expenditure amounted to Rupees Nil (2009: Rupees 2.892 million).

Letters of credit for other than capital expenditures amounted to Rupees 127.654 million (2009: Rupees 85.433 million).

A N N U A L R E P O R T 2 0 1 0


31/49

A N N U A L R E P O R T 2 0 1 030


2010

2009

(Rupeesinthousands)

14.PROPERTY,PLANTAND

EQUIPMENT

Operatingfixedassets

Owned(Note14.1

)

786,651

852,20

7

Leased(Note14.1

)

22,389

24,87

7

809,040

877,08

4

Capitalworkinprogress(Note14.2

)

39,435

37,65

9

848,475

914,74

3

14.1OPERATINGFIXEDASSETS

Owned

Leased

Freehold

Factory

Residential

Electric&

Furniture,

land

buildingon

andother

Plantand

suigas

Factory

fixturesand

office

Vehicles

Subtotal

Plantand

Total

Description

freehold

buildingon

machinery

Installations

equipment

fittings

equipments

machinery

Land

freeholdland

(Rupeesinthousands)

At01July2008

Cost

3,1

92

148,7

78

43,4

78

1

,245,3

59

31,0

69

5,1

38

2,7

91

3,6

83

12,7

54

1,4

96,2

42

35,0

00

1,5

31,2

42

Accumulateddepreciation

-

(39,0

53)

(10,4

85)

(487,8

59)

(13,7

90)

(3,5

79)

(1,2

17)

(2,4

69)

(7,1

86)

(565,6

38)

(7,3

59)

(572,9

97)

Netbookvalue

3,1

92

109,7

25

32,9

93

757,5

00

17,2

79

1,5

59

1,5

74

1,2

14

5,5

68

930,6

04

27,6

41

958,2

45

Yearended30June2009

Openingnetbookvalue

3,1

92

109,7

25

32,9

93

757,5

00

17,2

79

1,5

59

1,5

74

1,2

14

5,5

68

930,6

04

27,6

41

958,2

45

Additions

-

-

-

2,5

90

-

-

-

-

6,6

72

9,2

62

-

9,2

62

Disposals:

Cost

-

-

-

(275)

-

(564)

(47)

-

(1,5

79)

(2,4

65)

-

(2,4

65)


-

-

-

261

-

525

46

-

1,3

53

2,1

85

-

2,1

85

-

-

-

(14)

-

(39)

(1)

-

(226)

(280)

-

(280)

Depreciationcharge

-

(5,4

87)

(1,6

50)

(76,0

08)

(1,7

28)

(153)

(157)

(121)

(2,0

75)

(87,3

79)

(2,7

64)

(90,1

43)

Closingnetbookvalue

3,1

92

104,2

38

31,3

43

684,0

68

15,5

51

1,3

67

1,4

16

1,0

93

9,9

39

852,2

07

24,8

77

877,0

84

At01July2009

Cost

3,1

92

148,7

78

43,4

78

1

,247,6

74

31,0

69

4,5

74

2,7

44

3,6

83

17,8

47

1,5

03,0

39

35,0

00

1,5

38,0

39


-

(44,5

40)

(12,1

35)

(563,6

06)

(15,5

18)

(3,2

07)

(1,3

28)

(2,5

90)

(7,9

08)

(650,8

32)

(10,1

23)

(660,9

55)

Netbookvalue

3,1

92

104,2

38

31,3

43

684,0

68

15,5

51

1,3

67

1,4

16

1,0

93

9,9

39

852,2

07

24,8

77

877,0

84

Yearended30June2010

Openingnetbookvalue

3,1

92

104,2

38

31,3

43

684,0

68

15,5

51

1,3

67

1,4

16

1,0

93

9,9

39

852,2

07

24,8

77

877,0

84

Additions

-

-

-

10,1

16

-

-

-

-

5,1

15

15,2

31

-

15,2

31

Disposals:

Cost

-

-

-

(1,4

31)

-

-

-

-

(1,2

94)

(2,7

25)

-

(2,7

25)


-

-

-

1,3

09

-

-

-

-

904

2,2

13

-

2,2

13

-

-

-

(122)

-

-

-

-

(390)

(512)

-

(512)

Depreciationcharge

(5,2

12)

(1,5

67)

(68,9

71)

(1,5

55)

(137)

(142)

(109)

(2,5

82)

(80,2

75)

(2,4

88)

(82,7

63)

Closingnetbookvalue

3,1

92

99,0

26

29,7

76

625,0

91

13,9

96

1,2

30

1,2

74

984

12,0

82

786,6

51

22,3

89

809,0

40

At30June2010

Cost

3,1

92

148,7

78

43,4

78

1

,256,3

59

31,0

69

4,5

74

2,7

44

3,6

83

21,6

68

1,5

15,5

45

35,0

00

1,5

50,5

45


-

(49,7

52)

(13,7

02)

(631,2

68)

(17,0

73)

(3,3

44)

(1,4

70)

(2,6

99)

(9,5

86)

(728,8

94)

(12,6

11)

(741,5

05)

Netbookvalue

3,1

92

99,0

26

29,7

76

625,0

91

13,9

96

1,2

30

1,2

74

984

12,0

82

786,6

51

22,3

89

809,0

40

Annualrateofdepreciation(%

)

-

5

5

10

10

10

10

10

20

10


32/49


14.1.1 Detail of operating fixed assets, disposed of during the year is as follows:

NetAccumulated book Sale Mode of Particulars of

Description Qty Cost depreciation value proceeds Gain disposal purchaser

(Rupees in thousand)

VehicleLZQ-4000 1 1,294 904 390 500 110 Negotiation Mr. Mohsin,

Lahore

Plant and MachineryWarpping Machine 1 1,431 1,309 122 500 378 Negotiation Ch. Abdul

Kareem,Faisalabad.

2,725 2,213 512 1,000 488


14.1.2 Depreciation charge for the year has been allocated as follows:OwnedCost of sales (Note 26.3) 77,586 85,026

Administrative expenses (Note 28) 2,689 2,353

80,275 87,379

Leased

Cost of sales (Note 26.3) 2,488 2,764

82,763 90,143

14.2 Capital work in progress

Building 1,047 -Advance for purchase of plant and machinery - 1,700Advance for purchase of vehicle - 1,411Advance against office premises 38,388 34,548

39,435 37,659

15. LONG TERM DEPOSITS

Security deposits for utilities 1,576 1,576Security deposit against finance lease 35 35

1,611 1,611

16. STORES, SPARE PARTS AND LOOSE TOOLS

Stores 14,238 10,121Spare parts 64,923 33,899Loose tools 232 233

79,393 44,253

Less: Provision for slow moving and obsolete items

As at 01 July 7,889 7,889Add: Provision for the year - -

As at 30 June 7,889 7,889

71,504 36,364

A N N U A L R E P O R T 2 0 1 0


33/49



17. STOCK IN TRADE

Raw materials 38,672 136,750Work in process 17,528 10,872Finished goods (Note 17.1, 17.2 and 17.3) 238,294 130,352Waste stock 5,989 11,212

300,483 289,186

18. TRADE DEBTS

Considered good:

Secured (against letters of credit) 2,734 15,323Unsecured 201,268 261,758

204,002 277,081

Considered doubtful:

Unsecured 16,981 16,981Less: Provision for doubtful debts

As at 01 July 16,981 16,981Add: Provision for the year - -

As at 30 June (16,981) (16,981)

- -

204,002 277,081

18.1 As at 30 June 2010, trade debts of Rupees 91.276 million (2009: Rupees 106.549 million) were past due butnot impaired. These relate to a number of independent customers from whom there is no recent history ofdefault. The age analysis of these trade debts is as follows:

Upto 1 month 21,253 61,5731 to 6 months 42,433 28,063More than 6 months 27,590 16,913

91,276 106,549

18.2 As at 30 June 2010, trade debts of Rupees 16.981 million (2009: Rupees 16.981 million) were impaired andprovided for. The ageing of these trade debts was more than 3 years.

19. LOANS AND ADVANCES

Considered good:

Advance to employees - Interest free 1,660 1,645Advances to suppliers 3,310 11,288Letters of credit 4,408 11,287

9,378 24,220

17.1 Finished goods include inventory of Rupees 49.297 million (2009: Rupees 107.847 million) valued at netrealizable value.

17.2 Finished goods include stocks held with third parties of Rupees 13.120 million (2009: Rupees 22.037 million) inthe ordinary course of business.

17.3 Finished goods include stock in transit of Rupees 3.136 million (2009: Rupees 0.520 million).

17.4 The carrying value of stock in trade pledged with banking companies against short term borrowings is Rupees 63million (2009: Rupees 168.650 million). Detail of the corresponding borrowings are disclosed in note 11 to the

financial statements.

A N N U A L R E P O R T 2 0 1 032


34/49



20. OTHER RECEIVABLES

Considered good:Cotton claim receivable 2,610 1,512Insurance claim receivable (Note 20.1) - 2,096

2,610 3,608

20.1 This represents insurance claim receivable from Premier Insurance Limited, an associated company.

21. SHORT TERM INVESTMENTS

Available for sale

Associated companies - quoted (Note 21.1)

Crescent Sugar Mills and Distillery Limited166,784 (2009: 166,784) fully paid ordinary shares ofRupees 10 each. Equity held 0.78% (2009: 0.78%) 1,105 1,105

Crescent Fibres Limited31,920 (2009: 31,920) fully paid ordinary shares ofRupees 10 each. Equity held 0.26% (2009: 0.26%) 316 316

Crescent Jute Products Limited12,476 (2009:12,476) fully paid ordinary shares ofRupees 10 each. Equity held 0.053% (2009: 0.053 %) 117 117

Premier Insurance Limited885,221 (2009: 769,758) fully paid ordinary shares ofRupees 5 each. Equity held 1.46% (2009: 1.46%) 8,179 8,179

Others - quoted

Jubilee Spinning and Weaving Mills Limited7,788 (2009: 7,788) fully paid ordinary shares of Rupees 10 each. 32 32

Crescent Spinning Mills Limited (Note 21.2 and 21.3)

208,800 (2009: 208,800) fully paid ordinary shares of Rupees 10 each. 2,088 2,088Samba Bank Limited4,902,368 (2009: 4,902,368) fully paid ordinary shares of Rupees 10 each. 44,017 44,017

EFU Life Assurance Limited83,980 (2009: 74,100) fully paid ordinary shares of Rupees 10 each. 32,493 32,493

Other - unquoted

Crescent Modaraba Management Company (Private) Limited (Note 21.3)

193,000 (2009: 193,000) fully paid ordinary shares of Rupees 10 each. 1,930 1,930

90,277 90,277Less: Accumulated impairment loss (65,162) (47,833)

Add / (Less): Fair value adjustment 2,163 (13,208)

27,278 29,236

21.1 These companies are associated due to common directorship.

21.2 The official liquidator has submitted the statement in the Lahore High Court for final liquidation of the Companyand the final decision is still awaited.

21.3 Full amount of impairment has been provided against investment in Crescent Spinning Mills Limited andCrescent Modaraba Management Company (Private) Limited.

A N N U A L R E P O R T 2 0 1 0


35/49



22. REFUNDS DUE FROM THE GOVERNMENT

Sales tax refundable 25,823 27,205Export rebate claims - 77

25,823 27,282

23. TAXATION - NET

Advance income tax 44,645 22,431Less: Provision for taxation (Note 32) (20,888) (4,126)

23,757 18,305

24. CASH AND BANK BALANCESWith banks:On PLS saving accounts (Note 24.1 and 24.2) 1,976 751

On current accounts 11,357 13,439

13,333 14,190Cash in hand 402 148

13,735 14,338

24.1 Rate of profit on bank deposits ranges from 5% to 15% (2009: 4.5% to 14%) per annum.

24.2 This includes Rupees 0.500 million (2009: Rupees 0.500 million) deposited with IGI Investment Bank Limitedon account of central excise duty. The Company cannot encash the amount deposited till the decision of theCourt.

25. SALESExport 789,590 416,040Local 2,561,902 2,284,764Export rebate 1 10

3,351,493 2,700,814

26. COST OF SALES

Raw material consumed (Note 26.1) 2,403,229 1,946,360Salaries, wages and other benefits (Note 26.2) 178,867 154,869Stores, spare parts and loose tools 80,232 56,328Packing materials consumed 50,396 43,773Repair and maintenance 17,027 17,022Fuel and power 229,769 179,258Insurance 6,682 5,524Other factory overheads 5,852 4,595Depreciation (Note 26.3) 80,074 87,790

3,052,128 2,495,519Work-in-processOpening stock 10,872 12,991Closing stock (17,528) (10,872)

(6,656) 2,119

Cost of goods manufactured 3,045,472 2,497,638

Finished goodsOpening stock 141,564 207,584Closing stock (244,283) (141,564)

(102,719) 66,020

Cost of sales 2,942,753 2,563,658

A N N U A L R E P O R T 2 0 1 034


36/49



26.1 Raw material consumed

Opening stock 136,750 126,168Add: Purchased during the year 2,305,151 1,956,942

2,441,901 2,083,110Less: Closing stock 38,672 136,750

2,403,229 1,946,360

26.2 Salaries, wages and other benefits include provident fund contribution of Rupees 2.608 million (2009: Rupees2.201 million) by the Company.

26.3 DepreciationOperating fixed assets- Owned (Note 14.1.2) 77,586 85,026- Leased (Note 14.1.2) 2,488 2,764

80,074 87,790

27. DISTRIBUTION COST

Salaries and other benefits (Note 27.1) 1,081 777Freight and forwarding - Export 40,621 19,18

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