RCSML AR 2011 - Sapphire · Profit available for appropriation: 983,779 527,831 Appropriations:...

COMPANY PROFILE 03

VISION/ MISSION 04

NOTICE OF

ANNUAL

GENERAL

MEETING 05

DIRECTORS’

REPORT 06

SIX

YEARS’

KEY

OPERATING

AND

FINANCIAL

DATA 09

REVIEW

REPORT TO THE MEMBERS 10

STATEMENT

OF

COMPLIANCE 11

AUDITORS’

REPORT TO THE MEMBERS 13

BALANCE SHEET 14

PROFIT AND LOSS ACCOUNT

15

STATEMENT

OF

COMPREHENSIVE

INCOME 16

CASH

FLOW

STATEMENT

17

STATEMENT

OF

CHANGES

IN

EQUITY 18

NOTES

TO

THE

FINANCIAL

STATEMENTS 19

PATTERN

OF

SHARE

HOLDING 46

FORMPROXY

Contents

Annual Report 2011

Reliance Cotton Spinning Mills Limited

Company Profile

CHAIRMAN : MR.

MOHAMMAD

ABDULLAH

CHIEF

EXECUTIVE : MR.

SHAYAN

ABDULLAH

DIRECTOR : MR.

AMER

ABDULLAH

MR.

YOUSUF

ABDULLAH

MR.

NABEEL

ABDULLAH

MR.

MOHAMMAD

YOUNUS

MR.

MOHAMMAD

YAMIN

AUDIT

COMMITTEE

CHAIRMAN : MR.

AMER

ABDULLAH

MEMBER : MR.

YOUSUF

ABDULLAH

: MR.

NABEEL

ABDULLAH

CHIEF

FINANCIAL

OFFICER : MR.

NAVEED-UL-ISLAM

SECRETARY : MR.

UMAR

RAHI

AUDITORS :

M.

YOUSUF

ADIL

SALEEM

&

COMPANY

CHARTERED

ACCOUNTANTS

MANAGEMENT

CONSULTANT :

M.

YOUSUF

ADIL

SALEEM

&

COMPANY

CHARTERED

ACCOUNTANTS

TAX

CONSULTANTS : M.

YOUSUF

ADIL

SALEEM

&

COMPANY

CHARTERED

ACCOUNTANTS

LEGAL

ADVISOR : HASSAN

&

HASSAN

ADVOCATES

SHARE

REGISTRAR : HAMEED

MAJEED

ASSOCIATES

(PVT)

LTD

5TH

FLOOR,

KARACHI

CHAMBERS,

HASRAT

MOHANI

ROAD,

KARACHI

BANKERS :

HABIB

BANK

LIMITED

MCB BANK

LIMITED

HABIB

METROPOLITAN

BANK

LIMITED

REGISTERED OFFICE : 312, COTTON EXCHANGE BUILDING,

I.I.CHUNDRIGAR ROAD, KARACHI

MILLS : FEROZE WATWAN TEHSIL AND DISTRICT

SHEIKHUPURA

BOARD OF DIRECTORS

03

Annual Report 2011


Vision / Mission

To be one of the premier textile company recognized for leadership in technology, flexibility, responsiveness and quality.

Our customers will share in our success through innovative manufacturing, certifiable quality, exceptional services and creative alliances. Structured to maintain in depth competence and knowledge about our business, our customers and worldwide markets.

Our workforce will be the most efficient in industry through multiple skill learning, the fostering of learning and the fostering of teamwork and the security of the safest work enviorment possible recognised as excellent citizen in the local and regional community throught our financial and human resources support and our sensitivity to the enviorment.

Vision

Our mission is to be recognised as premier supplier to the markets we serve by providing quality yarns, fabrics and other textile products to satisfy the needs of our customers.

Our mission will be accomplished through excellence in customer service, sales and manufacturing supported by teamwork of all associates.

We will continue our tradition of honesty, fairness and integrity in relationship with our customers, associates, shareholders, community and stakeholders.

Mission

04

Annual Report 2011


Notice of Annual General Meeting

NOTICE IS HEREBY GIVEN THAT 22nd Annual General Meeting of RELIANCE COTTON SPINNINGMILLS LIMITED will be held on Friday the 28th day of October, 2011 at 04:30 p.m. at Trading Hall, CottonExchange Building, I.I.Chundrigar Road, Karachi to transact the following business:

1. To confirm the minutes of last General Meeting.

2. To receive, consider and adopt the report of the Directors and Auditors and Audited Accounts ofthe Company for the year ended 30th June, 2011.

3. To approve the final cash dividend of Rs.2.50 per share i.e. 25% for the year ended June 30, 2011as recommended by the Board of Directors.

4. To appoint auditors for the year ending 30th June, 2012 and fix their remuneration. The presentauditors M. Yousuf Adil Saleem & Company, Chartered Accountants, retire and being eligible offerthemselves for reappointment.

5. To transact any other business with the permission of the Chair.

By order of the Board

(UMAR RAHI)Karachi. SecretaryDated : 05th October, 2011

NOTE:

1. The share transfer books of the Company shall remain closed for entitlement of Dividend from22nd October, 2011 to 28th October, 2011 (both days inclusive). Transfers received in order, by theHameed Majeed Associates (Private) Limited, 5th Floor, Karachi Chambers, Hasrat Mohani Road,Karachi, up to 21st October, 2011, will be considered in time for the payment of dividend.

2. A member

entitled

to

attend

and

vote

at

this

meeting

may

appoint

another

member

as

his/her

proxy to

attend

and

vote

on

his/her

behalf.

Proxies

in

order,

to

be

valid

must

be

deposited

at

the Registered

Office

of

the

Company

not

less

than

48

hours

before

the

time

of

the

meeting.

3. CDC shareholders

desiring

to

attend

the

meeting

are

requested

to

bring

their

original

National

Identity Cards,

Account/Sub

Account

and

particular

of

participants

I.D.

numbers

and

account

numbers

in CDS,

for

identification

purpose,

and

in

case

of

proxy,

to

enclose

an

attested

copy

of

his/her

National Identity

Card.

4. Shareholders are

requested

to

notify

the

Company

of

any

change

in

their

addresses.

5. Members who

have

not

yet

submitted

photocopy

of

their

Computerized

Identity

Cards

(CNIC)

are

requested to

send

the

same

to

our

Share

Registrars

at

the

earliest.

05

Annual Report 2011


Directors’ Report

The Directors’ of your Company are pleased to present before you 22nd annual report with audited financialstatements of the Company for the year ended June 30, 2011.

PERFORMANCE OF THE COMPANY

The overall performance of the Company remained satisfactory. The salient features of the operationalresults are as under:

2011 2010(Rupees in ‘000’)

Sales 2,613,864 1,753,876

Gross profit 737,760 394,982

Profit before tax 503,156 162,560

Profit after tax 476,532 137,703

Earnings per share (Rupees) 46.30 13.38

The company has registered increase in sales by Rs. 859.987 million which is 49.03% high comparing lastyear. Increase in gross profit for the year comparing last year comes to 86.78% which is very encouraging.

Operational profit before tax of the Company is higher by 303.403 million i.e. 235.17% higher comparingcorresponding period.

APPROPRIATION OF PROFITS

Your directors are pleased to propose the following appropriations for the period under review:

2011 2010(Rupees in ‘000’)

Net profit after taxation 476,532 137,703Un-appropriated profit brought forward 507,247 261,697

Profit available for appropriation: 983,779 527,831

Appropriations:

Proposed cash dividend @ 25% (2010: 20%) 25,730 20,584

Un-appropriated profit carried forward 958,049 507,247`

DIVEDEND

The Board of Directors are pleased to recommend final cash dividend of 25% i.e. Rs. 2.50 (Rupees twoand fifty paisas only) per share to be paid to the shareholders.

EARNING PER SHARE

The earning per share on June 30, 2011 was Rs. 46.30

FUTURE OUTLOOK

Performance of your company remained satisfactory for the year under review and the management isputting hard for achieving good results in coming year by controlling production cost and better working

06

Annual Report 2011


Directors’ Report

efficiencies. However, your management has concerns about recession spell prevailing world wide, shortagesin supply and increase of energy cost and of volatility in raw material prices.

STATEMENT ON CORPORATE AND FINANCIAL REPORTING FRAME WORK

The Board of Directors periodically reviews the Company’s strategic direction. Business plans and targetsare set by the Chief Executive and reviewed by the Board. The Board is committed to maintain a highstandard of corporate governance. The Board has reviewed the Code of Corporate Governance and confirmthat:

1. The financial statements, prepared by the management of the Company, present fairly its state ofaffairs, the result of its operations, comprehensive income, cash flows and changes in equity.

2. The company has maintained proper books of account.

3. Appropriate accounting policies have been consistently applied in preparation of financial statementsand account ing est imates are based on reasonable and prudent judgment.

4. International Accounting Standards, as applicable in Pakistan, have been followed in preparationof financial statements.

5.

The system

of

internal

control,

which

was

in

place,

is

being

continuously

reviewed

by

the

internal

audit and

other

such

procedures.

The

process

of

review

and

monitoring

will

continue

with

the

object

to improve

it further.

6.

All liabilities

in

regard

to

the

payment

on

account

of

taxes,

duties,

levies

and

charges

have

been

fully provided

and

will

be

paid

in

due

course

or

where

claim

was

not

acknowledged

as

debt

the

same is

disclosed

as

contingent

liabilities

in

the

notes

to

the

financial

statements.

7.

There

is

no

doubt

about

the

company’s

ability

to

continue

as

a

going

concern.

8.

There has

been

no

material

departure

from

the

best

practices

of

corporate

governance,

as

detailed

in listing

regulations.

9.

The Board

in

compliance

to

the

Code

of

Corporate

Governance

has

established

an

Audit

Committee

and

the

following

directors

are

its

members:

Mr. Amer

Abdullah Chairman

Mr. Yousuf

Abdullah Member

Mr.

Nabeel

Abdullah Member

10.

Operating

and

financial

data

and

key

ratios

of

six

years

are

annexed.

11.

The

company

operates

an

un-funded

gratuity

scheme

for

its

employees

and

provision

has been

made

in

the

financial

statements

accordingly.

12.

No

trades

in

the

shares

of

the

Company

were

carried

out

by

the

Directors,

Chief

Executive

Officer, Financial

Officer,

Company

Secretary

and

their

spouses

and

minor

chi ldren.

13.

During

the

year

=14=

meetings

of

the

Board

of

Directors

were

held.

Attendance

by

each

Director is

as

follows:

Mr.

Mohammad

Abdullah =11=

Mr.

Amer

Abdullah =10=Mr.

Yousuf

Abdullah

=8=Mr.

Shayan

Abdullah

=11=Mr.

Nabeel

Abdullah

=9=Mr.

Mohammad

Younus

=8=Mr.

Mohammad

Yamin

=8=

Chief

07

Annual Report 2011


Directors’ Report

14. Code of Ethics and Business Practices has been developed and are communicated and acknowledgedby each Director and employee of the company.

PATTERN OF SHAREHOLDING:

The pattern of share holding of the company as at June 30, 2011 is annexed. This statement is preparedin accordance with the Code of Corporate Governance and the Companies Ordinance, 1984.

AUDITORS:

The present Auditors, M. Yousuf Adil Saleem & Company, Chartered Accountants retire and being eligibleoffer themselves for re-appointment for the year 2011-2012. Audit Committee and Board of Directors havealso recommended their appointment as Auditor for the year ending June 30, 2012.

ACKNOWLEDGEMENTS:

The Management would like to place on record its appreciation for the support of the Board of Directors,Shareholders, Bankers, Suppliers and the dedication and hard work of the Staff and Workers.

For and on behalf of the Board of Directors

Karachi Dated: October 05, 2011

Yousuf AbdullahDirector

Nabeel AbdullahDirector

08

Annual Report 2011


Six Years Key Operating And Financial Data

09

2011 2010 2009 2008 2007 2006

Sales 2,613.864 1,753.876 1,544.923 1,252.956 1,312.895 1,065.793

Gross Profit 737.760 394.982 312.516 249.853 211.501 111.604

Profit Before Tax 503.164 162.560 164.967 85.094 75.210 36.182

Profit After Tax 476.540 137.703 143.869 71.560 65.739 27.304

Share Capital 102.920 102.920 102.920 102.920 102.920 102.920

Shareholder's Equity 1,214.390 786.809 635.409 504.908 448.787 394.517

Fixed Assets 751.621 589.377 470.702 493.470 495.141 521.868

Total Assets 2,400.897 1,741.224 1,495.111 1,202.107 1,054.141 1,056.313

DIVIDEND

Cash % 25.00 20.00 15.00 10.00 15.00 10.00

RATIOS:

Profitability %

Gross Profit 28.22

22.52 20.23 19.94 16.11 10.47

Profit Before Tax 19.25

9.27 10.68 6.79 5.73 3.39

Profit After Tax 18.23

7.85 9.31 5.71 5.01 2.56

Return To Shareholders

R.O.E-Before Tax 41.43 20.66 25.96 16.85

16.76 9.17

R.O.E-After Tax 39.24 17.50 22.64 14.17 14.65 6.92

EPS Rupees 46.30 13.38

13.98 6.95

6.39 2.65

Activity Times

Sales To Total Assets 1.09 1.01 1.04 1.04 1.25 1.01

Sales To Fixed Assets 3.48 2.98 3.28 2.54 2.66 2.04

Liquidity / Leverage

Current Ratio 1.23 1.14 1.09 1.04

1.08 1.10

Debt Equity Ratio 0.08 0.10

0.01 0.16

0.15 0.29

Total Liabilities To Equity 0.98 1.21

1.33 1.38

1.35 1.68

Break up Value of Shares Rupees 117.99 76.45

61.74 49.06

43.61

Rupees

38.34

in YEARS

million

Annual Report 2011


Review Report to the MembersOn Statement of compliance with best practices of code cf corporate governance

Chartered Accountants

M. Yosuf Adil Saleem & Co.

We have reviewed the Statement of Compliance with the best practices contained in the Code of CorporateGovernance prepared by the Board of Directors of RELIANCE COTTON SPINNING MILLS LIMITED(“the Company”) to comply with the relevant Listing Regulations of the Karachi Stock Exchange (Guarantee)Limited and 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 Directorsof the Company. Our responsibility is to review, to the extent where such compliance can be objectivelyverified, whether the Statement of Compliance reflects the status of the Company’s compliance with theprovisions of the Code of Corporate Governance and report, if it does not. A review is limited primarily toinquiries of the Company’s personnel and review of various documents prepared by the Company to complywith the Code.

As part of our audit of financial statements we are required to obtain an understanding of the accountingand internal control systems sufficient to plan the audit and develop an effective audit approach. We arenot required to consider whether the Board’s statement on internal controls covers all risks and controls,or to form an opinion on the effectiveness of such controls, the Company’s corporate governance proceduresand risks.

Further, Sub-Regulation (xiiia) of Listing Regulation 35 notified by the Karachi Stock Exchange (Guarantee)Limited vide circular KSE/N-269 dated January 19, 2009 requires the Company to place before the Boardof Directors for their consideration and approval related party transactions distinguishing between transactionscarried out on terms equivalent to those that prevail at arm’s length transactions and transactions whichare not executed at arm’s length price recording proper justification for using such alternate pricing mechanism.Further, all such transactions are also required to be separately placed before the audit committee. We areonly required and have ensured compliance of requirement to the extent of approval of related part transactionby the Board of Directors and placement of such transactions before the audit committee.

We have not carried out any procedures to determine whether the related party transactions were undertakenat arm’s length 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 endedJune 30, 2011.

LahoreOctober 05, 2011

Engagement Partner:

Talat Javed

10

Annual Report 2011


Statement of Compliancewith the code of corporate governance

This statement is being presented to comply with the Code of Corporate Governance contained in ListingRegulations of the Stock Exchanges 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 and directorsrepresenting minority interests on its Board of Directors. At present the Board includes six 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. The Directors have declared that all the resident Directors of the Company are registered as taxpayersand none of them has defaulted in payment of any loan to a banking company, a DFI or a NBFI. Noneof the Directors is a member of a stock exchange.

4. During the year election of Directors was held and all the existing Directors were re-elected. No casualvacancies occurred in the Board of Directors.

5. The Board have developed and adopted a ‘Statement of Ethics and Business Practice’, which hasbeen signed 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 polices along with the dateson which they were approved or amended has been maintained.

7. All the power of Board have been duly exercised and decisions on material transactions, includingappointment and determination of remuneration and terms and conditions of employment of the CEOhave been taken by the Board.

8. The meetings of the Board, which were held during the year were presided by the Chairman and inhis absence, by a director elected by the Board for this purpose and Board met at least once in everyQuarter. Written notice of the Board meetings, along with agenda and working papers, were circulatedat least seven days before the meetings. The minutes of the meetings were appropriately recordedand circulated in time.

9. There was no new appointment of CFO/Company Secretary during the year.

10. 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.

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

12. The Directors, CEO and executives do not hold any interest in the shares of the Company other thanthat disclosed in the pattern of shareholding.

13. The Company has complied with all the corporate and financial reporting requirements of the Code.

14. The Board has formed an Audit Committee. It comprises of three members, all are non executiveDirectors.

11

Annual Report 2011


Statement of Compliancewith the code of corporate governance

15. The meetings of the Audit Committee were held at least once every quarter prior to approval of interimand final results of the Company and as required by the Code. The terms of reference of the committeehave been prepared in the light of the Code of Corporate Governance and advised to the Committeefor compliance.

16. The Board has set up an effective Internal Audit Function.

17. The related party transactions have been placed before the Audit Committee and approved by theBoard of Directors.

18. The statutory auditors of the Company have confirmed that they have given a satisfactory ratingunder the quality control review program of the Institute of Chartered Accountants of Pakistan, thatthey or any of the partners of the firm, their spouses and minor children do not hold shares of theCompany and that the firm and all its partners are in compliance with International Federation ofAccountants (IFAC) guidelines on Code of Ethics as adopted by Institute of Chartered Accountantsof Pakistan.

19. The statutory auditors or the persons associated with them have not been appointed to provide otherservices except in accordance with the Listing Regulations and the auditors have confirmed that theyhave observed IFAC guidelines in this regard.

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

For and on behalf of the Board


12



Annual Report 2011


Balance Sheet

The annexed notes from 1 to 40 form an integral part of these financial statements.

2011 2010

Note

ASSETS

NON-CURRENT ASSETS

Property, plant and equipment 4 751,621,013 589,376,993

Long term investments 5 242,707,531

192,573,359

Long term loans 6 164,000

260,000

Long term deposits 3,792,230

3,792,230

998,284,774

786,002,582

CURRENT ASSETS

Stores, spare parts and loose tools 7 14,681,742

11,931,082

Stock-in-trade 8 995,349,917

728,213,474

Trade debts 9 206,649,529

142,486,639

Loans and advances 10 9,590,804

9,336,786

Deposits and short term prepayments 11 294,235

105,642

Other receivables 12 4,498,784

7,715,801

Advance income tax 34,478,344

23,732,429

Tax refunds due from the Government 13 27,869,399

28,584,926

Cash and bank balances 14 109,191,367

3,114,790

1,402,604,121

955,221,569

2,400,888,895

1,741,224,151

EQUITY AND LIABILITIES

SHARE CAPITAL AND RESERVES

Authorized capital

120,000,000

120,000,000

Issued, subscribed and paid up capital 15 102,920,000

102,920,000

General reserve 130,000,000

130,000,000

Un-appropriated profit 981,462,431

553,889,235

1,214,382,431

786,809,235

NON-CURRENT LIABILITIES

Long term financing 16 -

75,000,000

Deferred liabilities

- employee benefits - unfunded 17 30,166,390

24,405,843

- deferred tax liability 18 17,246,036

13,409,261

47,412,426

112,815,104

CURRENT LIABILITIES

Trade and other payables 19 143,300,061

109,015,469

Mark-up accrued 20 20,599,639

23,460,540

Short term borrowings 21 852,488,289

690,811,592

Current portion of long term financing 16 100,000,000

-

Provision for taxation 22,706,049 18,312,211

1,139,094,038 841,599,812 CONTINGENCIES AND COMMITMENTS 22

………………… Rupees …………………

12,000,000 (2010: 12,000,000) ordinary shares of Rs.10 each

2,400,888,895

1,741,224,151

Statement under section 241(2) of the Companies Ordinance, 1984The Chief Executive is for the time being not in Pakistan, therefore, these financial statements have been signed by

two directors of the Company.




14

as at June 30, 2011

Annual Report 2011


2011 2010

Note

Sales 23 2,613,863,539

1,753,876,366

Cost of sales 24 1,876,103,475

1,358,894,611

Gross profit 737,760,064 394,981,755

Other operating income 25 4,544,383

7,584,786

742,304,447

402,566,541

Distribution cost 26 110,285,400

105,372,722

Administrative expenses 27 40,808,320

32,990,920

Other operating expenses 28 37,818,585

20,993,291

Finance cost 29 120,973,178

114,194,114

309,885,483

273,551,047

432,418,964

129,015,494

Share of profit of associates 70,737,096

33,544,528

Profit before taxation 503,156,060

162,560,022

Provision for taxation 30 26,623,869

24,856,840

Profit for the year 476,532,191

137,703,182

31 46.30 13.38


Earnings per share - basic and diluted

…………………… Rupees ……………………

for the year ended June 30, 2011

Profit and Loss Account

15






Annual Report 2011



Statement of Comprehensive Income

2011 2010


137,703,182

Other comprehensive income:

11,062,865

14,834,020

Share in associate's unrealized gain on hedging instruments 19,646

56,705

Other comprehensive income for the year 11,082,511

14,890,725

Total comprehensive income for the year 487,614,702

152,593,907


……………Rupees……………

Share in associates' unrealized gain on available for sale investments - net

16






Annual Report 2011



Cash Flow Statement

2011 2010

Note

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before taxation 503,156,060

162,560,022

Adjustments for:

Depreciation of property, plant and equipment 57,926,763

45,990,105

Provision for employee benefits 10,591,855

9,447,235

Provision for doubtful debts 5,000,000

10,700,000

Gain on disposal of property, plant and equipment (426,759)

(2,089,983)

Finance cost 120,973,178

114,194,114

Share of profit of associates (70,737,096)

(33,544,528)

626,484,001

307,256,965

Working capital changes

(Increase)/decrease in stores, spare parts and loose tools (2,750,660)

6,262,981

Increase in stock-in-trade (267,136,443)

(133,722,154)

(Increase)/decrease in trade debts (69,162,890)

87,433,369

Increase in loans and advances (254,018)

(6,895,784)

Increase in deposits and short term prepayments (188,593)

(81,833)

Decrease/(increase) in other receivables 3,217,017

(4,370,390)

Increase in trade and other payables 34,258,226

27,434,118

(302,017,361)

(23,939,693)

Cash generated from operations 324,466,640

283,317,272

Dividends paid (20,557,633)

(15,426,067)

Employee benefits paid (4,831,308)

(4,743,887)

Finance cost paid (123,834,079)

(116,884,860)

Sales tax refunded/(paid) 2,057,974

(9,870,661)

Income taxes paid (30,481,618)

(21,688,079)

(177,646,664)

(168,613,554)

Net cash generated from operating activities 146,819,976

114,703,718

…………….. Rupees ……………..

CASH FLOWS FROM INVESTING ACTIVITIES

Capital expenditure on property, plant and equipment (221,112,024)

(166,094,817)

Proceeds from disposal of property, plant and equipment 1,368,000

3,520,000

Long term investments (8,863,733)

(12,142,187)

Decrease in long term loans 96,000

300,000

Increase in long term deposits -

(1,343,750)

Dividend received 1,091,661

77,010

Net cash used in investing activities (227,420,096)

(175,683,744)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from long term financing 25,000,000

75,000,000

Repayment of long term financing -

(6,120,000)

Short term borrowings - net 161,676,697

(13,631,660)

Net cash from financing activities 186,676,697

55,248,340

Net increase / (decrease) in cash and cash equivalents 106,076,577 (5,731,686)

Cash and cash equivalents at beginning of year 3,114,790 8,846,476

Cash and cash equivalents at end of year 14 109,191,367 3,114,790


17






Annual Report 2011



Statement of Changes in Equity

Balance as at June 30, 2009 102,920,000 130,000,000 402,489,147 635,409,147

Total comprehensive income for the year:

Profit for the year ended June 30, 2010 -

-

137,703,182 137,703,182

Other comprehensive income -

-

14,890,725 14,890,725

- - 152,593,907 152,593,907

- -

14,244,181 14,244,181

Distribution to owners:

- -

(15,438,000) (15,438,000)

Balance as at June 30, 2010 102,920,000 130,000,000 553,889,235 786,809,235

Total comprehensive income for the year:

Profit for the year ended June 30, 2011 -

-

476,532,191 476,532,191

Other comprehensive income -

-

11,082,511 11,082,511

- - 487,614,702 487,614,702

- -

(39,457,506) (39,457,506)

Distribution to owners:

- - (20,584,000) (20,584,000)

Balance as at June 30, 2011 102,920,000 130,000,000 981,462,431 1,214,382,431


……...……………………………… Rupees ………...……………..........………

Final dividend for the year ended June 30,

2009 @ Rs. 1.50 per share

TotalShare capital Un-appropriated

profitGeneral reserve

Revenue reserves

Final dividend for the year ended June 30,

2010 @ Rs. 2.00 per share

Effects of items directly recognized in equity

by associates

Effects of items directly recognized in equity

by associates

18






Annual Report 2011



1 LEGAL STATUS AND OPERATIONS

1.1 Reliance Cotton Spinning Mills Limited ("the Company") was incorporated in Pakistan on June 13,1990 as a public limited company under the Companies Ordinance, 1984. The registered office ofthe Company is situated at 312, Cotton Exchange Building, Karachi. The Company is currently listedon Karachi Stock Exchange (Guarantee) Limited and Lahore Stock Exchange (Guarantee) Limited.The principal activity of the Company is manufacturing and sale of yarn. The mill is located at DistrictSheikhupura in the Province of Punjab.

1.2 These financial statements are presented in Pak Rupees, which is the Company's functional andpresentation currency.

2 STATEMENT OF COMPLIANCE AND SIGNIFICANT ESTIMATES

2.1 Statement of compliance

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

2.2 New accounting standards, amendments, and interpretations

The following amendments to existing standards have been published that are applicable to theCompany's financial statements covering annual periods, beginning on or after the following dates:

2.2.1 Standards, amendments to published standards and interpretations that are effective in current yearand are relevant to the Company's operations

Following are the amendments that are applicable for accounting periods beginning on or after July1, 2010:

- IAS 1 (amendment), ‘Presentation of financial statements’. The amendment provides clarificationthat the potential settlement of a liability by the issue of equity is not relevant to its classification ascurrent or non current. By amending the definition of current liability, the amendment permits a liabilityto be classified as non-current (provided that the entity has an unconditional right to defer settlementby transfer of cash or other assets for at least 12 months after the accounting period) notwithstandingthe fact that the entity could be required by the counterparty to settle in shares at any time. It doesnot have a material impact on the company’s financial statements.

- IAS 7 (amendment), ‘Statement of cash flows’. The guidance has been amended to clarify that onlyexpenditure that results in a recognized asset in the balance sheet can be classified as a cash flowfrom investing activities. This amendment results in an improvement in the alignment of the classificationof cash flows from investing activities in the statement of cash flows and the presentation of recognizedassets in the balance sheet. It does not have a material impact on the company's financial statements.

2.2.2 Standards, amendments to published standards and interpretations that are effective in current yearbut not relevant to the Company's operations

The other new standards, amendments and interpretations that are mandatory for accounting periodbeginning on or after July 01,2010 are considered not to be relevant or to have any significant impacton company's financial reporting and operations.

2.2.3 Standards, amendments to published standards and interpretations that are not yet effective andhave not been early adopted by the Company

The following IFRSs, amendments and interpretations are effective for accounting periods beginningon or after the date mentioned against each of them:

Notes to the Financial Statements

19

Annual Report 2011




Effective for periodbeginning from

- IAS 1 (amendment) Presentation of financial statements January 1, 2011

- IAS 24 (revised) Related party disclosures January 1, 2011

- IAS 34 (amendment) Interim financial reporting January 1, 2011

- IFRS 1 (amendment) First-time adoption of International Financial Reporting Standards - severe hyperinflation and removal of fixed dates for first-time adopters and other amendments January 1, 2011

- IFRS 7 (amendment) Financial instruments: Disclosures January 1, 2011

- IFRS 9 Financial instruments January 1, 2013

- IFRS 10 Consolidated financial statements January 1, 2013

- IFRS 11 Joint arrangements January 1, 2013

- IFRS 12 Disclosure of interests in other entities January 1, 2013

- IFRS 13 Fair value measurement January 1, 2013

- IFRIC 13 (amendment) Customer loyalty programmes January 1, 2011

- IFRIC 14 (amendment) Prepayment of a minimum funding requirement January 1, 2011

The management believes that these accounting standards and interpretations do not have anyimpact on the present transactions of the Company. The Company would comply with these standards,interpretations and amendments when applicable.

2.3 Significant Estimates

The preparation of financial statements in conformity with IFRS requires management to makejudgments, estimates and assumptions that affect the application of policies and reported amountsof assets, liabilities, income and expenses. The estimates and associated assumptions are basedon historical experience and various other factors that are believed to be reasonable undercircumstances, and the results of which form the basis for making judgment about carrying value ofassets and liabilities that are not readily apparent from other sources. Actual results may differ fromthese estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accountingestimates are recognized in the period in which estimates are revised if the revision affects only thatperiod, or in the period of revision and future periods if the revision affects both current and futureperiods.

Judgments made by management in the application of IFRSs that have significant effect on thefinancial statements and estimates with a significant risk of material adjustment in the next year arediscussed in the ensuing paragraphs.

Employee benefits

The Company operates an unfunded gratuity scheme (defined benefit plan) for all its permanentemployees who have completed minimum qualifying period of service as defined under the respectivescheme. Provisions are made annually to cover the obligation under the scheme on the basis ofactuarial valuation and are charged to income. The calculation require assumptions to be made offuture outcomes, the principal ones being in respect of increases in remuneration and discount rateused to derive present value of defined benefit obligation. The assumptions are determined byindependent actuaries on annual basis.

20

Annual Report 2011




Property, plant and equipment

The Company reviews the useful lives of property, plant and equipment on regular basis. Any change in theestimates in future years might affect the carrying amounts of the respective items of property, plant andequipment with a corresponding effect on the depreciation charge and impairment, if any.

Taxation

The Company takes into account the current income tax law and decisions taken by appellate authorities.Instances where the Company's view differs from the view taken by the income tax department at the assessmentstage and the Company considers that its view on items of material nature is in accordance with law, theamounts are shown as contingent liabilities.

3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Convention

These financial statements have been prepared under the historical cost convention modified by:

- financial instruments at fair value

- recognition of certain employee benefits at present value

- investments in associates at equity method

PRINCIPAL ACCOUNTING POLICIES ADOPTED ARE AS FOLLOWS

3.1 Property, plant and equipment

Property, plant and equipment except freehold land and capital work-in-progress are stated at costless accumulated depreciation and accumulated impairment loss, if any. Freehold land, capital work-in-progress and stores held for capital expenditure are stated at cost less accumulated impairmentloss, if any. Cost includes borrowing cost as referred in accounting policy for borrowing cost.

Assets' residual values, if significant, and useful lives are reviewed and adjusted, if appropriate, ateach balance sheet date.

When parts of an item of property, plant and equipment have different useful lives, they are recognizedas separate items of property, plant and equipment.

Subsequent costs are recognized as separate asset only when it is probable that future economicbenefits 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 income during the period in which theyare incurred.

Depreciation is charged to income applying the reducing balance method over estimated useful lifeat the rates specified in relevant Note to these financial statements. In respect of additions anddisposals during the year, depreciation is charged from the month of acquisition and upto the monthpreceding the disposal respectively.

Gains or losses on disposal of assets, if any, are included in the profit and loss account.

Capital work-in-progress is stated at cost accumulated upto the balance sheet date. All expenditureconnected with specific assets incurred during installation and construction period are carried undercapital work-in-progress. These are transferred to specific assets as and when these assets areavailable for use.

3.2 Investments in associates

Associates are entities over which the Company has significant influence, but not control. Investmentin associate is accounted for using equity method of accounting. Under the equity method, theinvestment in associate is initially recognized at cost and the carrying amount is increased or decreased

21

Annual Report 2011




to recognize the Company's share of profit or loss of the associate after the date of acquisition. TheCompany's share of the profit or loss of the associate is recognized in the Company's profit or lossaccount. The carrying amount of the investment in associate is reduced by the amount of distributionsreceived from the associate. The carrying amount is also adjusted by the amount of changes in theCompany's proportionate interest in the associate arising from changes in associate's equity that isrecognized directly in equity of the Company.

The carrying amount of investment is tested for impairment by comparing its recoverable amount(higher of value in use and fair value less costs to sell) with its carrying amount and loss, if any, isrecognized in profit or loss. When impairment losses subsequently reverse, the carrying amountsof the investment is increased to the revised recoverable amounts but limited to the extent of initialcost of investments. A reversal of impairment loss is recognized in the profit and loss account.

3.3 Stores, spare parts and loose tools

These are valued at lower of cost and net realizable value, except items in transit. Cost is determinedon a moving average less allowances for obsolete and slow moving items. Items in transit are valuedat invoice values plus other charges incurred thereon up to the balance sheet date.

3.4 Stock-in-trade

These are valued at the lower of average cost and net realizable value, except items in transit andwaste stock. Cost is computed applying the following bases:

Raw material - weighted average cost.

Work-in-process - average manufacturing cost.

Finished goods - average manufacturing cost.

Stock in transit are valued at invoice value plus other charges incurred thereon upto the balancesheet date.

Waste stock are valued at net realizable value.

Average manufacturing cost in relation to work-in-process and finished goods includes cost of directmaterial, direct labour and a proportion of manufacturing overheads based on normal capacity.

Net realizable value signifies the estimated selling price in the ordinary course of business lessestimated costs of completion and estimated costs necessary to make the sale.

3.5 Impairment

The Company assesses at each balance sheet date whether there is any indication that assets maybe impaired. If such indication exists, the carrying amounts of such assets are reviewed to assesswhether they are recorded in excess of their recoverable amount. Where carrying values exceed therespective recoverable amount, assets are written down to their recoverable amounts and the resultingimpairment loss is recognized in profit and loss account.

The recoverable amount is the higher of an asset's fair value less costs to sell and value in use.

Where impairment loss subsequently reverses, the carrying amount of the asset is increased to therevised recoverable amount but limited to the extent of carrying amount that would have beendetermined had no impairment loss been recognized for that asset. Reversal of impairment loss isrecognized as income.

3.6 Financial instruments

Financial assets and financial liabilities are recognized when the Company becomes a party to thecontractual provisions of the instrument and de-recognized when the Company loses control of thecontractual rights that comprise the financial asset and in case of financial liability when the obligationspecified in the contract is discharged, cancelled or expired.

22

Annual Report 2011




Financial instruments are initially recorded at fair value on the date a derivative contract is enteredinto and are re-measured to fair value at subsequent reporting dates.

The gain or loss relating to financial instruments is recognized immediately in the profit and lossaccount.

Particular recognition methods adopted by the Company are disclosed in the individual policystatements associated with each item of financial instruments.

3.7 Off setting of financial assets and financial liabilities

A financial asset and a financial liability is offset and the net amount reported in the balance sheet,if the Company has a legal enforceable right to set off the transaction and also intends either to settleon a net basis or to realize the asset and settle the liability simultaneously.

3.8 Trade debts and other receivables

Trade debts and other receivables are carried at original invoice amount less an estimate made fordoubtful receivables based on review of outstanding amounts at the period end. Balances consideredbad and irrecoverable are written off when identified.

3.9 Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purpose of cash flowstatement, cash and cash equivalents consist of cash in hand and balances with banks.

3.10 Trade and other payables

Liability for trade and other payables are measured at the fair value of the consideration to be paidin the future for goods and services received.

3.11 Financial instruments - hedge arrangements

In certain cases, the Company uses forward foreign exchange contracts (cash flow hedge arrangements)to hedge its risk associated primarily with foreign currency fluctuations.

These contracts (except those having immaterial financial impact) are included in the balance sheetat fair value and any resultant unrealized gain or loss is recognized in the statement of changes inequity, on realization of same is transferred to profit and loss account. The fair value of forward foreignexchange contracts are included in "Other receivables" in case of favorable contracts and "Trade andother payables" in case of unfavorable contracts. The fair values of forward foreign exchange contractsare calculated by reference to current forward foreign exchange rates with similar maturity profiles.

3.12 Employee benefits

Defined benefit plan

The Company operates un-funded gratuity scheme for all its employees who have completed minimumqualifying period of service as defined under the respective scheme. Provisions are made to coverthe obligations under the schemes on the basis of actuarial valuation and are charged to income.

The amount recognized in the balance sheet represents the present value of defined benefit obligationsas adjusted for unrecognized actuarial gains and losses.

The most recent valuation was carried out as at June 30, 2011 using the "Projected Unit CreditMethod". Actuarial gains / losses are recognized in accordance with the limits set-out by IAS - 19("Employee Benefits").

Cumulative net unrecognized actuarial gains and losses at the end of previous period which exceeds10% of the present value of the Company's gratuity is amortized over the average expected remainingworking lives of the employees.

23

Annual Report 2011




Details of the scheme are given in relevant Note to the financial statements.

Compensated absences

The Company provides for compensated absences of its employees on unavailed balance of leavesin the period in which the leaves are earned.

3.13 Provisions

Provisions are recognized in the balance sheet when the Company has a present, legal or constructiveobligation as a result of past events, it is probable that an outflow of resources embodying economicbenefits will be required to settle the obligation, and a reliable estimate of the amount of obligationcan be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the currentbest estimate.

3.14 Borrowings

Loans and borrowings are recorded at the proceeds received. In subsequent periods, borrowingsare stated at amortized cost using the effective yield method. Finance cost is accounted for on anaccrual basis and is included in current liabilities to the extent of amount remaining unpaid, if any.

3.15 Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and representsamounts receivable for goods and services provided in the normal course of business.

Revenue from local sales is recognized when goods are dispatched to customers, export sales arerecognized on shipment of goods.

Export rebate is recognized on accrual basis at the time of making the export sales.

Dividend income from investment is recognized when the Company's right to receive dividend isestablished.

3.16 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 useor sale, are added to the cost of those assets, until such time as the assets are substantially readyfor their intended use or sale. Investment income earned on the temporary investment of specificborrowings pending their expenditure on qualifying assets is deducted from the borrowing costseligible for capitalization.

All other borrowing costs are recognized in profit or loss account for the year.

3.17 Taxation

Current

The charge for current taxation is based on taxable income at the current rate of taxation after takinginto account applicable tax credits, rebates and exemptions available, if any. However, for incomecovered under final tax regime, taxation is based on applicable tax rates under such regime.

Deferred

Deferred tax is provided using the balance sheet liability method for all temporary differences at thebalance sheet date between tax bases of assets and liabilities and their carrying amount for financialreporting purposes. In this regard, the effects on deferred taxation of the portion of income subjectto final tax regime is also considered in accordance with the requirement of "Technical Release -27" and "Technical Release 30" of the Institute of Chartered Accountants of Pakistan.

24

Annual Report 2011




Deferred tax liability is recognized for all taxable temporary differences while deferred tax asset isrecognized for all deductible temporary differences and carry forward of unused tax losses, if any,to the extent that it is probable that taxable profits will be available against which such temporarydifferences and tax losses can be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to theperiod when the asset is realized or the liability is settled, based on the tax rates that have beenenacted or substantively enacted at the balance sheet date.

3.18 Foreign currencies

Transactions in currencies other than Pakistani rupee are recorded at the rates of exchange prevailingon the dates of the transactions. At each balance sheet date, monetary assets and liabilities that aredenominated in foreign currencies are translated at the rates prevailing on the balance sheet dateexcept where forward exchange contracts have been entered into for repayment of liabilities in thatcase, the rates contracted for are used.

Gains and losses arising on retranslation are included in profit or loss for the year.

3.19 Dividend distribution

Dividend distribution to the Company’s shareholders is recognized as a liability in the financialstatements in the period in which the dividends are approved by the Company’s shareholders.

3.20 Related party transactions

Transactions with related parties are priced on arm's length basis. Prices for these transactions aredetermined on commercial terms and conditions.

25

Annual Report 2011




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26

Annual Report 2011




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Annual Report 2011




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Annual Report 2011




2011 2010

5 LONG TERM INVESTMENTS Note

Investments in associates - at equity method:

Quoted:

Sapphire Fibres Limited 5.2 175,067,953

127,849,257

Sapphire Textile Mills Limited 5.3 38,244,061

41,285,173

Un quoted:

Sapphire Finishing Mills Limited 5.4 26,438,925

23,438,929

SFL Limited 5.5 2,433,501

-

Sapphire Holding Limited 5.6 523,091

-

242,707,531

192,573,359

5.1

5.2

393,697 (2010: 319,728) ordinary shares of Rs. 10 each - cost 41,956,482 35,532,224

133,702,017 92,317,033

Dividend received (590,546) -

175,067,953 127,849,257

Total assets 32,887,534,063 11,927,070,658

Total liabilities 20,868,304,516 5,263,422,764

Net assets 12,019,229,547 6,663,647,894

Sales 21,602,234,763 9,235,883,847

Profit for the year 2,474,684,489 723,768,481

Market value per share 118.00 102.41

Percentage of ownership 2.00% 1.62%

5.3

100,223 (2010: 100,223) ordinary shares of Rs. 10 each - cost 8,114,578 8,639,528

30,630,598 32,722,655

Dividend received (501,115) (77,010)

38,244,061 41,285,173

Total assets 14,523,099,921

11,575,097,854

Total liabilities 6,875,711,808

5,582,505,402

Net assets 7,647,388,113

5,992,592,452

Sales 23,037,623,287

14,435,179,612

Profit for the year 2,359,538,072

1,015,671,419

Market value per share 119.00 108.99


Investment in Sapphire Fibres Limited

Investment in Sapphire Textile Mills Limited

The financial year of Sapphire Fibres Limited ends on June 30. The latest un-audited consolidated financial results ofSapphire Fibres Limited as of June 30, 2011 have been used for the purpose of application of equity method.Summarized financial information of Sapphire Fibres Limited is set out below:

------------- Rupees -------------

The existence of significant influence by the Company is evidenced by the representation on the board of directors ofassociated companies.

The financial year of Sapphire Textile Mills Limited ends on June 30. The latest un-audited consolidated financial resultsof Sapphire Textile Mills Limited as of June 30, 2011 have been used for the purpose of application of equity method.Summarized financial information of Sapphire Textile Mills Limited is set out below:

Share of post acquisition profit and unrealized gain on available for sale of investments

Share of post acquisition profit and unrealized gain on available for sale of investments

29

Annual Report 2011




2011 2010

5.4

1,556,000 (2010: 1,556,000) ordinary shares of Rs. 10 each - cost 16,509,160

16,509,160

Share of post acquisition profit 9,929,765

6,929,769

26,438,925

23,438,929

Total assets 5,766,280,781

4,314,635,360

Total liabilities 4,203,377,911

2,924,660,078

Net assets 1,562,902,870

1,389,975,282

Sales 10,838,263,079

7,497,650,475


237,560,145

Breakup value per share 16.99 15.11


5.5

393,697 (2010: Nil) ordinary shares of Rs. 10 each - cost 2,439,475

-

Share of post acquisition loss (5,974)

-

2,433,501

-

Total assets 366,165,966

-

Total liabilities 1,691,600

-

Net assets 364,474,366

-

Sales -

-

Loss for the year 1,730,554

-

Breakup value per share 18.50 -

Percentage of ownership 2.00% -

5.6

100,223 (2010: Nil) ordinary shares of Rs. 10 each - cost 524,950 - Share of post acquisition loss (1,859)

-

523,091

-

Total assets 364,104,263

- Total liabilities 2,132,000

-

Net assets 361,972,263

-

Sales -

-

Loss for the year 2,154,580

-

Breakup value per share 18.01 -

Percentage of ownership 0.50% -

Pursuant to a scheme of arrangement of de-merger of Sapphire Textile Mills Limited (STML) duly approved by theHonorable Sindh High Court certain investments of STML were transferred to Sapphire Holding Limited (SHL) againstissuance of same number of shares of SHL to the shareholders of STML as they held in STML.

Investment in Sapphire Finishing Mills Limited

Investment in SFL Limited

The financial year of SFL Limited ends on June 30. The latest audited financial results of SFL Limited as of June 30,2011 have been used for the purpose of application of equity method. Summarized financial information of SFL Limitedis set out below:

Investment in Sapphire Holding Limited

The financial year of Sapphire Holding Limited ends on June 30. The latest audited financial results of Sapphire HoldingLimited as of June 30, 2011 have been used for the purpose of application of equity method. Summarized financialinformation of Sapphire Holding Limited is set out below:

The financial year of Sapphire Finishing Mills Limited ends on June 30. Financial results of Sapphire Finishing MillsLimited as of June 30, 2011 are used for the purpose of application of equity method, which are based on the un-audited management accounts. Summarized financial information of Sapphire Finishing Mills Limited is set out below:

Pursuant to a scheme of arrangement of de-merger of Sapphire Fibres Limited (SFL) duly approved by the HonorableSindh High Court certain investments of SFL were transferred to SFL Limited (SFLL)against issuance of same numberof shares of SFLL to the shareholders of SFL as they held in SFL.

------------- Rupees -------------

5.5.1

5.6.1

30

Annual Report 2011




2011 2010

6 LONG TERM LOANS Note

Considered good:

Executive - secured 6.1 260,000 560,000

Other employees - secured 260,000 -

520,000 560,000

Less: Current Portion

Executive 260,000 300,000

Other employees 96,000

-

356,000

300,000

164,000

260,000

6.1 Reconciliation of carrying amount of loan to executive

At the beginning of year 560,000

860,000

Less: Repayment made by executives 300,000

300,000

At the end of year 260,000

560,000

6.1.1

7 STORES, SPARE PARTS AND LOOSE TOOLS

Stores 7.1 7,533,583

6,854,425

Spare parts 7,119,463

5,069,510

Loose tools 28,696

7,147

14,681,742

11,931,082

7.1

8 STOCK-IN-TRADE

Raw material 8.1 770,630,592

608,450,950

Work-in-process 8.2 66,872,889

48,857,562

Finished goods

Manufactured yarn 135,890,705

64,548,124

Purchased yarn 16,577,039

944,218

152,467,744

65,492,342

Waste 5,378,692

5,412,620

995,349,917

728,213,474

8.1

8.2

------------- Rupees -------------

This represents interest free loan to an executive employee for purchase of residential plot and secured against postemployment benefits. This loan is payable in sixty one monthly installments and will be adjusted against salary. Themaximum balance outstanding at the end of any month during the year was Rs. 0.535 million (2010: Rs. 0.835 million).

These include stores in transit amounting to Rs.0.283 million (2010: Rs.0.989 million).

Raw material include stock in transit of Rs. 51.556 million (2010: Rs. 59.764 million). It also include stock of Rs. 239.050million (2010: Nil) being carried at net realizable value. The amount charged to cost of sales in respect of written downof inventories is Rs. 47.057 million.

It includes stock of Rs. 55.872 million (2010: Nil) being carried at net realizable value. The amount charged to the costof sales in respect of written down of inventories is Rs. 13.276 million.

31

Annual Report 2011




9 TRADE DEBTS 2011 2010

Considered good: Note

Foreign

Secured 9.1 29,560,933 42,038,742

Unsecured 55,727,837 12,201,481

85,288,770 54,240,223

Local

Secured 1,357,199 10,784,472

Unsecured 9.2 120,003,560 77,461,944

9.3 121,360,759 88,246,416

206,649,529 142,486,639

Considered doubtful:

Local - others, unsecured 15,700,000 10,700,000

Less: Provision for doubtful debts (15,700,000) (10,700,000)

- -

206,649,529 142,486,639

9.1 These are secured against letters of credit.

9.2 These includes amount due from following associated companies:

Sapphire Textile Mills Limited 10,870,750 711,200

Sapphire Fibres Limited 19,410,303 24,837,792

Diamond Fabrics Limited 43,549,750 6,039,884

73,830,803 31,588,876

9.3 Local trade debts includes Rs. 90.203 million (2010: Rs 50.745 million) receivable against indirect export sales.

10 LOANS AND ADVANCES

Considered good:

Current portion of loan to executives 6 356,000 300,000

Loan to executive 10.1 250,000 -

Loans to employees 10.1 483,000 518,700

Advances to suppliers 8,501,804 8,483,709

Letters of credit - 34,377

9,590,804 9,336,786

10.1

11 DEPOSITS AND SHORT TERM PREPAYMENTS

Bank guarantee margin 23,809

23,809

Prepaid guarantee commission 270,426

81,833

294,235

105,642

12 OTHER RECEIVABLES

Export rebate receivable 4,356,190

5,643,945

Sundry receivables 12.1

142,594

2,071,856

4,498,784

7,715,801

12.1

13 TAX REFUNDS DUE FROM THE GOVERNMENT

Sales tax refundable 19,192,534

21,250,508

Income tax refundable 8,676,865

7,334,418

27,869,399

28,584,926

14 CASH AND BANK BALANCES

Cash-in-hand 75,000

117,511

Cash at banks on current accounts 109,116,367

2,997,279

109,191,367

3,114,790

This include Nil (2010: Rs. 1.929 million) due from Sapphire Electric Company Limited, an associated company, onaccount of common expenses.

------------- Rupees -------------

These are interest free loans and are secured against post employment benefits.

32

Annual Report 2011




2011 2010

15 ISSUED, SUBSCRIBED AND PAID UP CAPITAL Note

102,920,000 102,920,000

15.1

2011 2010

Reliance Textiles Limited 1,098,118 1,098,118

Diamond Fabrics Limited 1,662,000 1,662,000

Neelum Textile Mills (Private) Limited 365,515 365,515

Sapphire Textile Mills Limited 318,691

318,780

Sapphire Fibres Limited 160,901

217,112

Sapphire Agencies (Private) Limited 2,265,339

1,839,823

Amer Cotton Mills (Private) Limited 1,584,800

1,584,800

Galaxy Agencies (Private) Limited 108,217

108,217

Sapphire Power Generation Limited 20,539

20,539

Nadeem Enterprises (Private) Limited 87,104

87,104

Crystal Enterprises (Private) Limited 27,696

27,696

Salman Ismail (SMC Private) Limited 1,500

1,500

Yousuf Agencies (Private) Limited 3,223

3,223

7,703,643

7,334,427

15.2

2011 2010

16 LONG TERM FINANCING

From banking companies - secured

Long term musharika 16.1 100,000,000

75,000,000

Less: current portion 100,000,000

-

-

75,000,000

16.1

17 EMPLOYEE BENEFITS - UNFUNDED 30,166,390 24,405,843

17.1

At the beginning of year 24,405,843

19,702,495

Add: cost for the year 17.3 10,591,855

9,447,235

Less: payments during the year (4,831,308)

(4,743,887)

At the end of year 30,166,390

24,405,843

17.2 The amount recognised in the balance sheet

Present value of defined benefit obligations 30,420,434

25,613,095

Less: unrecognized actuarial losses (254,044)

(1,207,252)

Liability recognized in the balance sheet 30,166,390

24,405,843

17.3

Current service cost 7,518,284

6,803,639

Interest cost 3,073,571

2,616,908

Actuarial loss charged -

26,688

Expense recognized in the profit and loss account 10,591,855

9,447,235

The most recent valuation was carried out as at June 30, 2011 using the "Projected Unit Credit Method".

The Company has one class of ordinary shares which carry no right to fixed income. Shareholders are entitled toreceive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. Allshares rank equally with regard to the Company's residual assets.

This facility has been obtained from Meezan Bank Limited and carries mark up at the rate of 3 month Kibor+1.10 %payable on quarterly basis. The facility is secured against exclusive charge of Rs.123.208 million on Specific Plant andMachinery. It is repayable in sixteen equal quarterly installment commencing from September 2011 to June 2015.However, this long term musharika is subsequently paid in full on July 02, 2011.

10,292,000 (2010: 10,292,000) ordinary shares of Rs. 10 each fully paid in cash.

…………...Number of shares…………..

Charge for the year

Ordinary shares of the Company held by associates as at the balance sheet date:

------------- Rupees -------------

Movement in net liability recognized in the balance sheet

------------- Rupees -------------

33

Annual Report 2011




17.4 Principal actuarial assumptions: 2011 2010

Principal actuarial assumptions used are as follows: -

Discount rate - per annum 14% 12%

Expected rate of growth per annum in future salaries 13% 11%

Average expected remaining working life time of employees 6 years 6 years

17.5 History of present value of deferred employee benefits

2007 11,818,838 65,634

2008 16,246,563 739,926

2009 22,016,690 55,000

2010 25,613,095 980,255

2011 30,420,434 (1,053,208)

17.6 Estimated contribution for the year ending June 30, 2012 is Rs. 11.907 million.

18 DEFERRED TAX LIABILITY

19 TRADE AND OTHER PAYABLES

Creditors 19.1 19,502,048

9,579,190

Advances from customers 3,352,047

1,924,086

Bills payable 19,472,382

23,555,246

Accrued liabilities 19.2 51,590,494

45,478,779

Workers' profit participation fund 19.3 23,223,360

6,928,867

Workers' welfare fund 8,824,877

2,643,335

Infrastructure fee 16,480,414

18,463,231

Unclaimed dividend 181,102

154,735

Others 673,337

288,000

143,300,061 109,015,469

19.1

19.2 Accrued liabilities includes Rs. 4.229 million (2010: Rs. 2.289 million) due to associated company.

19.3 Workers' profit participation fund

At the beginning of the year 6,928,867

4,963,589

19.4 464,709

263,478

23,223,360

6,928,867

30,616,936

1 2,155,934

Payments made during the year (7,393,576)

(5,227,067)

At the end of the year 23,223,360

6,928,867

19.4 Interest on workers' profit participation fund has been provided at the rate of 16% (2010: 15.50%) per annum.

20 MARK-UP ACCRUED

Mark-up accrued on:

Long term financing 3,685,041

111,015

Short term borrowings 16,914,598

23,349,525

20,599,639

23,460,540

Interest on funds utilized in the Company's business

Provision for the year

2011 2010

Note ------------- Rupees -------------

Experience adjustment

arising on plan liabilities losses

Deferred tax provision has been recognized only in respect of share of profit of associates considering that othertemporary differences will not have any tax impact in foreseeable future, as the income of the Company is beingassessed under the final tax regime and the management is confident that the Company will continue to be taxed underfinal tax regime in foreseeable future.

Present value of defined

obligations at the end of the year

Creditors include Rs.2.144 million (2010: Rs.1.030 million) due to associated companies.

34

Annual Report 2011




2011 2010

21 SHORT TERM BORROWINGS

From banking companies-secured

Running finance 332,673,081 690,811,592

Foreign currency import finance 209,815,208 -

Other short term finance 310,000,000 -

852,488,289 690,811,592

21.1 The aggregate unavailed short term borrowings facilities amounting to Rs. 1,058 million (2010: Rs. 939 million ).

21.2

21.3

These facilities have been obtained from various banks under mark-up arrangements against aggregate sanctionedlimit of Rs. 1,910 million (2010: Rs. 1,630 million). These facilities carry mark-up at the rates ranging from 1.460% to17.00% (2010: 1.785% to 17.40%) per annum payable quarterly. The aggregate short term borrowings facilities aresecured against hypothecation charge on current assets of the Company and promissory notes.

Facilities available for opening letters of credit and guarantees aggregate to Rs. 1,622 million (2010: Rs. 1,415 million )of which facilities amounting to Rs. 1,365 million (2010: Rs. 1,266 million ) were un-utilized at the year end. Thesefacilities are secured against lien on shipping documents, current assets and cash margins.

------------- Rupees -------------

22 CONTINGENCIES AND COMMITMENTS

CONTINGENCIES

37,076,637 17,593,819

The Company has issued post dated cheques in favour of Commissioner Inland Revenue. 91,999,141 67,549,735

129,075,778 85,143,554

Refer to Note 30.3 to the financial statements for contingencies relating to income tax matters.

COMMITMENTS

Letters of credit for import of:

- stores and spare parts 10,941,779 1,587,880

- raw material 32,010,600 29,336,571

- plant and machinery 85,487,995 32,831,356

Contract for capital expenditure 93,258,143 -

128,440,374 63,755,807

Guarantees have been issued by banks in favour of Government departments on behalf of the Company

in the normal course of business.

23 SALES

Yarn

Yarn (under SPO)

Waste

Processing fee

Export rebate

23.1 Export sales includes foreign currency exchange gain amounting to Rs.1.416 million (2010: Rs.1.144 million) realized on export proceeds.

Export Local Total Export Local Total

1,400,745,535 377,757,863 1 ,778,503,398 1,120,928,925 209,983,930 1,330,912,855

739,995,712 - 739,995,712 366,083,440 - 366,083,440

15,522,539 75,691,466 91,214,005 23,317,354 24,812,554 48,129,908

2,156,263,786 453,449,329 2,609,713,115 1,510,329,719 234,796,484 1,745,126,203

- 918,356 918,356 - 4,492,151 4,492,151

3,232,068 - 3,232,068 4,258,012 - 4,258,012

2,159,495,854 454,367,685 2 ,613,863,539 1,514,587,731 239,288,635 1,753,876,366

………………………………………………………..….. Rupees …………………………………………………………...

2011 2010

35

Annual Report 2011




2011 2010

24 COST OF SALES Note

Raw material consumed 24.1 1,445,250,666 948,811,312

Packing material consumed 29,495,881 22,408,983

Store and spare parts consumed 37,906,532 35,592,755

Salaries, wages and other benefits 24.2 130,803,757 108,367,459

Fuel and power 147,204,766

114,589,865

Insurance 7,639,678

7,562,107

Repair and maintenance 15,229,647

10,032,445

Processing charges 9,416,761

9,457,234

Other manufacturing overheads 6,510,123

6,990,258

Depreciation 4.1.1 57,926,763

45,990,105

1,887,384,574

1,309,802,523

Work-in-process

At beginning of year 48,857,562

24,061,495

At end of year (66,872,889)

(48,857,562)

(18,015,327)

(24,796,067)

Cost of goods manufactured 1,869,369,247

1,285,006,456

Finished goods


105,577,400

Yarn purchased 93,675,702

39,215,717

At end of year (157,846,436)

(70,904,962)

6,734,228

73,888,155

Cost of goods sold 1,876,103,475

1,358,894,611

24.1 Raw material consumed


427,187,696

Add: Purchases - net 24.1.1 1,615,638,115

1,070,310,444

2,164,324,943

1,497,498,140

Less: At end of year (719,074,277)

(548,686,828)

1,445,250,666

948,811,312

24.1.1 Purchases are adjusted by Rs. 18.376 million (2010: Rs. 8.387 million) on account of raw material sold.

24.2

25 OTHER OPERATING INCOME

Income from financial assets

Foreign exchange gain 2,549,351

4,547,402

Income from assets other than financial assets

Gain on disposal of property, plant and equipment 4.1.3 426,759

2,089,983

Scrap sales - net off sales tax 25.1 1,568,273

947,401

4,544,383

7,584,786

25.1 Scrap sales inclusive of sales tax amounts to Rs. 1.837 million (2010: Rs. 1.111 million ).

------------- Rupees -------------

Salaries, wages and other benefits include Rs. 7.029 million (2010: Rs. 6.458 million) in respect of employee benefits -gratuity.

36

Annual Report 2011




2011 2010

26 DISTRIBUTION COST Note

Salaries and other benefits 26.1 8,727,366 8,299,968

Postage and telephone 196,720 221,521

Traveling and conveyance 5,062,507 4,009,928

Printing, stationery and others 390,590 1,065,306

Entertainment 1,076,439 -

Commission

- Local 2,805,801

1,705,425

- Export 44,590,796

37,625,687

Freight and forwarding

- Local -

4,150

- Export 43,146,144

48,729,993

Export development surcharge 3,434,717

3,017,812

Insurance charges - export 854,320

692,932

110,285,400

105,372,722

26.1

27 ADMINISTRATIVE EXPENSES

Salaries and other benefits 27.1 23,179,745

16,987,722

Postage and telephone 1,216,563

1,115,503

Fees and subscription 364,157

239,650

Printing and stationery 426,894

623,209

Traveling and conveyance 1,408,207

2,157,088

Repair and maintenance 2,469,663

3,266,058

Legal and professional charges 1,635,080

2,685,775

Advertisement 131,000

67,150

Entertainment 546,583

604,404

Others 1,116,535

1,696,392

Donation 27.2 7,935,000

3,120,000

Utility charges 378,893

427,969

40,808,320

32,990,920

27.1

27.2

28 OTHER OPERATING EXPENSES

Auditors' remuneration 28.1 770,348

731,455

Provision for doubtful debts 5,000,000

10,700,000

Workers' profit participation fund 23,223,360

6,928,867

Workers' welfare fund 8,824,877

2,632,969

37,818,585

20,993,291

28.1 Auditors' remuneration

Annual audit 500,000

500,000

Half-yearly review 125,000

100,000

Compliance report on Code of Corporate Governance 50,000

50,000

Other certification 25,000

-

Out-of-pocket expenses 70,348

81,455

770,348

731,455

Donations of Rs. 4.570 million (2010: Rs.3.000 million ) is paid to Abdullah Foundation, 212 Cotton Exchange Building,I.I. Chundrigar Road, Karachi, a Trust. Mr. Muhammad Abdullah, Mr. Amer Abdullah, Mr. Yousuf Abdullah and Mr.Mohammad Yamin, directors of the Company, are trustees of this trust.

------------- Rupees -------------

Salaries and other benefits include Rs. 2.029 million (2010 : Rs.1.695 million) in respect of employee benefits - gratuity.

Salaries and other benefits include Rs. 1.533 million (2010: Rs. 1.294 million) in respect of employee benefits - gratuity.

37

Annual Report 2011




2011 2010

29 FINANCE COST Note

Mark-up on:

Long term financing 13,190,337 385,663

Short term borrowings 102,726,521 105,436,921

Interest on workers' profit participation fund 464,709 263,478

Bank charges and commission 6,623,817 8,108,052

123,005,384

114,194,114

Less: Borrowing cost capitalized 4.1.4 2,032,206

-

120,973,178

114,194,114

30 PROVISION FOR TAXATION

Current

-for the year 30.1 22,706,049

18,312,211

-for prior year 81,045

(228,466)

22,787,094

18,083,745

Deferred - for the year 3,836,775

6,773,095

26,623,869

24,856,840

30.1

30.2

30.3

31 EARNINGS PER SHARE - BASIC AND DILUTED 2011 2010

Profit after taxation for the year (Rupees) 476,532,191

137,703,182

10,292,000

10,292,000

Earnings per share - (Rupees) 46.30 13.38

There is no dilutive effect on the basic earning per share which is based on:

The second one is against the Order passed under section 122(5A) of the Ordinance for the same years whereby thetax department has framed amendment of assessment disallowing the eligibility of tax rate adopted by the Company inthe tax returns filed. Appeals on this matter at Commissioner Inland Revenue (Appeals) were decided against theCompany. The Company is in appeals before the Inland Revenue Appellate Tribunal.

Reconciliation of tax expense and product of accounting profit multiplied by the applicable tax rate is not required in viewof presumptive taxation.

The Company falls under the ambit of final tax regime under the Income Tax Ordinance, 2001, provision for income taxis made accordingly. Assessments for the tax year 2010 is deemed to have been finalized under section 120 of theIncome Tax Ordinance, 2001.

Appeals are pending for hearing, therefore, no corresponding adjustments have been incorporated in these financialstatements.

Weighted average number of ordinary shares outstanding during the

year (Numbers)

First one is on refusal of the tax department to pass refund order under section 170(4) as claimed by the Company as aresult of application of aforementioned difference in tax rates. Appeals on this matter at Commissioner Inland Revenue(Appeals) were decided against tax department. However, both the Company and tax department are in appeals beforethe Inland Revenue Appellate Tribunal.

------------- Rupees -------------

There is a dispute between the Company and tax department on applicability of tax rate on export sales in the tax years2003, 2004 and 2005. The Company contends that the rate applicable is 1% on export proceeds whereas the taxdepartment takes it at 1.25% in the tax year 2003 and 2004 whereas for tax year 2005 it was taken at 1.5%. For theseyears there are two set of appeals on two different angles.

38

Annual Report 2011




32 REMUNERATION TO CHIEF EXECUTIVE OFFICER AND EXECUTIVES

2011 2010 2010

Managerial remuneration 2,914,500 11,662,405 402,000 10,824,597

House rent 1,311,525 5,294,076 180,900 4,653,804

Utilities 123,975 482,436 17,100 421,913

Conveyance - 18,000 - 18,000

Medical expenses - 179,896 8,037 157,247

Bonus/Leave encashment - 4,329,353 - 1,953,026

Others - 816,000 - 684,000

4,350,000 22,782,166 608,037 18,712,587

Number of persons 11 1 11

32.1 The executives are also provided with cars maintained by the Company.

32.2 No meeting fee was paid to the directors and chief executive officer of the Company.

32.3 No remuneration was paid to the directors of the Company.

33 TRANSACTIONS WITH RELATED PARTIES

2011 2010

Nature of transaction

Associated companies

Sales:

492,690,367

263,618,033

Purchase:

Yarn / raw material / stores, spare parts 32,798,567

21,109,617

Machinery 11,170,000

-

Electricity 35,489,130

49,968,442

Services:

Rendered 918,356

4,378,751

Obtained 1,141,565 1,655,220

Dividend:

Paid 14,840,312

10,975,441

Received 1,091,661

77,010

Shared expenses paid 1,348,735

1,581,723

Employee benefits plan Contribution for the year 10,591,855

9,447,235

Associated Company Bonus share received -

30,828

33.1 All transactions with related parties have been carried out on commercial terms and conditions.

1

Relationship

The related parties comprise associated companies, directors, key management personnel and post employment benefitplans. The Company in the normal course of business carries out transactions with various related parties. Amounts duefrom and due to related parties are shown under receivables and payables. Detail of transactions with related parties, otherthan those which have been specifically disclosed elsewhere in these financial statements are as follows:-

ExecutivesChief Executive

Officer

------------- Rupees -------------

ExecutivesChief Executive

Officer

------------- Rupees -------------

------------- Rupees -------------

Yarn / raw material / stores, spare parts

………………. Numbers ……………….

2011

39

Annual Report 2011



FINANCIAL RISK MANAGEMENT

Credit risk

Liquidity risk

Market risk

34.1 Credit risk and concentration of credit risk

The Company does not hold collateral as security.

The Company’s credit risk exposures are categorized under the following headings:

Counterparties

The Company conducts the following major types of transactions with counterparties:

Trade debts

Trade debts are essentially due from local and foreign customers against supply of yarn. The majority of sales to theCompany’s customers are made on specific terms. Customer credit risk is managed by each business unit subject tothe Company’s established policy, procedures and controls relating to customer credit risk management. Credit limitsare established for all customers based on internal rating criteria. Credit quality of the customer is assessed based onan extensive credit rating. Outstanding customer receivables are regularly monitored and any shipments to majorcustomers are generally covered by letters of credit or other form of credit insurance.

The Company is exposed to credit risk from its operating activities primarily for local trade debts, sundry receivablesand other financial assets.

The Company has exposure to the following risks from its use of financial instruments:

This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives,policies and processes for measuring and managing risk, and the Company’s management of capital. Further,quantitative disclosures are included throughout these financial statements.

The Board of Directors has overall responsibility for the establishment and oversight of the Company’s riskmanagement framework. The Board is responsible for developing and monitoring the Company’s risk managementpolicies.

The Company’s risk management policies are established to identify and analyze the risks faced by the Company, toset appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies andsystems are reviewed regularly to reflect changes in market conditions and the Company's activities. The Company,through its training and management standards and procedures, aims to develop a disciplined and constructive controlenvironment in which all employees understand their roles and obligations. All derivative activities for risk managementpurposes are carried out by specialist teams that have the appropriate skills, experience and supervision. It is theCompany’s policy that no trading in derivatives for speculative purposes shall be undertaken. The Board of Directorsreviews and agrees policies for managing each of these risks.

The Company's Audit Committee oversees how management monitors compliance with the Company’s riskmanagement policies and procedures and reviews the adequacy of the risk management framework in relation to therisks faced by the Company. The Audit Committee is assisted in its oversight role by Internal Audit. Internal Auditundertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which arereported to the Audit Committee.

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails tomeet its contractual obligations. To manage credit risk the Company maintains procedures covering the application forcredit approvals, granting and renewal of counterparty limits and monitoring of exposures against these limits. As partof these processes the financial viability of all counterparties is regularly monitored and assessed.

40


34

Annual Report 2011




Bank and investments

34.1.1 Exposure to credit risk

2011 2010

Long term loans 520,000 560,000

Long term deposits 3,792,230 3,792,230

Trade debts 206,649,529 142,486,639

Loans and advances 733,000 518,700

Deposits 23,809 23,809

Other receivables 142,594 2,071,856

Bank balances 109,116,367 2,997,279

320,977,529 152,450,513

Geographically there is no concentration of credit risk.

Past due

Upto 1 month 23,282,678 -

1 month to 6 months 239,542 -

Over 6 months 4,397,947 10,833,022

27,920,167 10,833,022

Trade debts past due are not impaired.

34.2 Liquidity risk management

The Company limits its exposure to credit risk by only investing in highly liquid securities and only with counterpartiesthat have a satisfactory credit rating. Given these satisfactory credit ratings, management does not expect anycounterparty to fail to meet its obligations.

The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit riskat the reporting date was:

----------- Rupees -----------

Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriateliquidity risk management framework for the management of the Company’s short, medium and long-term funding andliquidity management requirements. The Company manages liquidity risk by maintaining adequate reserves, bankingfacilities and reserve borrowing facilities, by continuously monitoring forecast and actual cash flows and matching thematurity profiles of financial assets and liabilities. Included in note 21.1 to these financial statements is a listing ofadditional undrawn facilities that the Company has at its disposal to further reduce liquidity risk.

Liquidity risk reflects the Company’s inability in raising funds to meet commitments. Management closely monitors theCompany’s liquidity and cash flow position. This includes maintenance of balance sheet liquidity ratios, debtors andcreditors concentration both in terms of the overall funding mix and avoidance of undue reliance on large individualcustomer.

An analysis of the age of trade debts that are past due as of the reporting date but not impaired is as follows:

41

Annual Report 2011




34

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42

Annual Report 2011




34.3 Market risk

34.3.1 Foreign currency risk management

- Transactional exposure in respect of non functional currency monetary items.

- Transactional exposure in respect of non functional currency expenditure and revenues.

The potential currency exposures are discussed below;

Transactional exposure in respect of non functional currency monetary items

Transactional exposure in respect of non functional currency expenditure and revenues

Exposure to currency risk

The Company’s exposure to foreign currency risk was as follows based on notional amounts:

USD EURO USD EURO

Trade debts 992,989 - 593,755 33,869

Short term borrowings (2,438,294) - (874,300) -

(1,445,305) - (280,545) 33,869

The following significant exchange rates applied during the year:

2011 2010 2011 2010

85.63 83.91 85.95

85.50

117.58 120.24 124.75 104.46

Sensitivity analysis

------------- Rupees ------------- ------------- Rupees -------------

A 5 percent strengthening of the Pak Rupee against the USD & EURO at June 30, 2011 would have decreased profitor loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remainconstant. The analysis is performed on the same basis for June 30, 2010.

Pak Rupee (PKR) is the functional currency of the Company and as a result currency exposure arise from transactionsand balances in currencies other than PKR. The Company's potential currency exposure comprise;

USD 1

Monetary items, including financial assets and liabilities, denominated in currencies other than the functional currencyof the Company are periodically restated to PKR equivalent, and the associated gain or loss is taken to the profit andloss account. The foreign currency risk related to monetary items is managed as part of the risk management strategy.

Certain operating and capital expenditure is incurred by the Company in currencies other than the functional currency.Certain sales revenue is earned in currencies other than the functional currency of the Company. These currency risksare managed as a part of overall risk management strategy.

Commitments outstanding at year end amounted to Rs. 128.440 million (2010: Rs. 63.75 million) relating to letter ofcredits for import of stores, spare parts and raw material.

2011 2010

EURO 1

Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity priceswill affect the Company’s income or the value of its holdings of financial instruments. The objective of market riskmanagement is to manage and control market risk exposures within acceptable parameters, while optimizing the returnon risk.

Average rate Reporting date mid spot rate

43

Annual Report 2011




2011 2010

(Increase)/ Decrease in profit and loss account 5,841,222 (984,171)

34.4 Interest rate risk

Profile

At the reporting date the interest rate profile of the Company's interest bearing financial instruments was:

2011 2010 2011 2010

Financial liabilities

Long term financing 13.39 to 14.62 13.39 100,000,000 75,000,000

Short term borrowings 1.460 to 17.00 1.785 to 17.4 852,488,286 690,811,592

952,488,286 765,811,592

Fair value sensitivity analysis for floating rate instruments

2011 % Rupees

Long term financing 931,000


8,867,666

2010

Long term financing 698,250


7,129,770

34.5 Equity Price Risk Management

34.6 Determination of fair values

Fair value of financial instruments

The interest rate risk is the risk that the value of the financial instrument will fluctuate due to changes in the marketinterest rates. Sensitivity to interest rate risk arises from mismatches of financial assets and liabilities that mature in agiven period.

A 5 percent weakening of the Pak Rupee against the USD & EURO at June 30, 2011 would have equal but oppositeeffect on profit or loss by the amount shown above on the basis that all other variables remain constant.

------------- Rupees -------------

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable willingparties in an arms length transaction other than in a forced or liquidation sale.

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

The following table demonstrates the sensitivity to a reasonably possible change in floating interest rates, with all othervariables held constant, on the Company’s profit before tax. There is only an immaterial impact on the Company’sequity.

1.00%

1.00%

The Company is exposed to equity price risks arising from equity investments. Equity investments are held for strategicrather than trading purposes. The Company does not actively trade these investments

Effect on profit

before tax

Increase / (Decrease)

in basis points

The Company’s listed and unlisted equity securities are susceptible to market price risk arising from uncertainties aboutfuture values of the investment securities. The Company manages the equity price risk through diversification andplacing limits on individual and total equity instruments. The Company’s Board of Directors reviews and approves allequity investment decisions.

……………….. % ………………... ------------- Rupees -------------

44

Annual Report 2011




35 PLANT CAPACITY AND ACTUAL PRODUCTION

Production Capacity 2011 2010

Total number of spindles installed 29,088

26,976

Number of MVS units installed (in equivalent number of spindles) 920

920

Installed capacity after conversion into 20's count (Lbs.) 24,447,042

21,894,873

Actual production

Number of spindles / MVS worked 28,276

26,965

Number of shifts per day 3

3

Total days worked 364 364 Actual production of yarn after conversion into 20's count (Lbs.) 19,889,198 20,684,731

36 CAPITAL DISCLOSURE

2011 2010

Borrowings (Rupees) 852,488,289 690,811,592

Total equity (Rupees) 1,214,382,431 786,809,235

Total capital employed (Rupees) 2,066,870,720 1,477,620,827

Gearing ratio (Percentage) 41.25% 46.75%

37 EVENT AFTER BALANCE SHEET DATE

38 DATE OF AUTHORIZATION FOR ISSUE

39 RE-CLASSIFICATION AND RE-ARRANGEMENTS

40 GENERAL

Figures have been rounded off to the nearest Rupee.

The Board of Directors in its meeting held on October 05, 2011 has proposed to pay cash dividend for theyear ended June 30, 2011 of Rs. 25,730,000 @ Rs. 2.50 (2010: Rs. 20,584,000 @ Rs.2.00) ( per ordinary shareof Rs. 10 each. This dividend is subject to approval by the shareholders at the forthcoming Annual General Meeting andhas not been recognised in these financial statements).

In order to maintain or adjust the capital structure, the Company may adjust the amount of dividend paid toshareholders, appropriation of amounts to reserve or/and issue new shares.

It is difficult to describe precisely the production capacity in textile industry since it fluctuates widely depending onvarious factors such as count of yarn spun, spindles speed, twist per inch and raw materials used, etc. It also variesaccording to the pattern of production adopted. Difference of actual production with installed capacity is in normalcourse of business.

Corresponding figures have been re-arranged wherever necessary to reflect more appropriate presentation of eventsand transactions for the purpose of comparison. However, no significant re-arrangement has been made.

Consistent with others in industry, the Company monitors the capital structure on the basis of gearing ratio. This ratio is

calculated as borrowing divided by total capital employed. Borrowing comprises of long term finances and short term

borrowings obtained by Company. Total capital employed includes share capital and reserves (total equity) plus

borrowings:-

The Company's objective when managing capital is to safeguard the Company's ability to continue as a going concernso that it can continue to provide returns for shareholders and benefits for other stakeholder and to maintain an optimalcapital structure to reduce the cost of capital.

These financial statements were authorized for issue on October 05, 2011 by the Board of Directors of the Company.

45






Annual Report 2011


Number of Total Shares Shareholders From To Held

469 1 100 7,041

79 101 500 31,864

32 501 1000 28,671

25 1001 5000 67,223

8 5001 10000 63,739

4 10001 15000 48,773

5 15001 20000 83,164

1 20001 25000 20,539

4 25001 30000 108,932

2 30001 35000 64,542

1 35001 40000 38,350

2 45001 50000 95,867 2 60001 65000 128,298 1 65001 70000 68,988 1 70001 75000 72,350 1 85001 90000 87,104 1 105001 110000 108,217 1 130001 135000 134,890 1 160001 165000 160,901 1 220001 225000 224,428 1 275001 280000 275,699

1 300001 305000 302,630

1 310001 315000 310,697

1 315001 320000 318,691

1 365001 370000 365,515 1 465001 470000 465,638 1 565001 570000 566,700 1 825001 830000 829,200 1 830001 835000 832,800 1 930001 935000 934,026 1 1015001 1020000 1,018,100 1 1095001 1100000 1,097,110

1 1330001 1335000 1,331,313

654

Shareholding

Total 10,292,000

CATEGORY OF SHAREHOLDERS

Shares Held Percentage

Directors, CEO, spouses and Minor Children 823,585 8.0022

Associated Companies, undertakings, related parties 7,703,643 74.8508

NIT & ICP 476,014 4.6251

Banks, DFI & NBFI 91,893 0.8929

Insurance Companies 16,940 0.1646

Modaraba Companies and Mutual Funds 500 0.0049

Individuals Local 1,144,424 11.1195

Joint Stock Companies 35,001 0.3401

10,292,000 100.0000

Pattern of Shareholdingas at June 30, 2011

46

Annual Report 2011


A) ASSOCIATED COMPANIES, UNDERTAKINGS AND RELATED PARTIES

Reliance Textiles Limited 1,098,118

Diamond Fabrics Limited 1,662,000

Neelum Textile Mills (Private) Limited. 365,515

Sapphire Textile Mills Limited. 318,691

Sapphire Fibres Limited 160,901

Sapphire Agencies (Private) Ltd. 2,265,339


Galaxy Agencies (Private) Limited 108,217

Sapphire Power Generation Limited 20,539

Nadeem Enterprises (Private) Limited 87,104

Crystal Enterprises (Private) Limited 27,696

Salman Ismail (SMC-Private) Limited 1,500

Yousuf Agencies (Private) Limited 3,223

B) NIT & ICP

National Bank of Pakistan Trustee Department 465,638

National Investment Trust Limited 10,376

C) DIRECTORS, CHIEF EXECUTIVE OFFICER, THEIR SPOUSESAND MINOR CHILDREN

DIRECTORS & THEIR SPOUSES

Mr. Mohammad Abdullah. 45,927

Mr. Mohammad Younus 3,652

Mr. Yousuf Abdullah. 315,197

Mr. Mohammad Yamin. 610

Mr. Amer Abdullah. 275,699

Mrs. Ambareen Amer 80,350

Mrs. Shamshad Begum 75,747

Mrs. Usma Yousuf 25,403

Mr. Nabeel Abdullah 500

CHIEF EXECUTIVE OFFICER & HIS SPOUSE

Mr. Shayan Abdullah 500


47

Annual Report 2011


INSURANCE COMPANIES

State Life Insurance Company of Pakistan 16,940

MODARABA COMPANIES AND MUTUAL FUNDFirst Punjab Modaraba 500

E) SHAREHOLDERS HOLDING 10% OR MORE

Diamond Fabrics Limited 1,662,000

Reliance Textiles Limited 1,098,118


Sapphire Agencies (Private) Limited 2,265,339

F) TRADING IN THE SHARES OF COMPANY DURING THE YEAR BY THE DIRECTORS, CHIEF EXECUTIVE OFFICER, CHIEFFINANCIAL OFFICER, COMPANY SECRETARY AND THEI RSPOUSES AND MINOR CHILDREN. NIL

D) BANKS, DEVELOPMENT FINANCIAL INSTITUTIONS, NONBANKING FINANCIAL INSTITUTIONS, INSURANCECOMPANIES, MODARABAS & MUTUAL FUNDS

BANKSFaysal Bank Limited 49,940

National Bank of Pakistan 38,350

National Bank of Pakistan 3

DEVELOPMENT FINANCIAL INSTITUTIONSBankers Equity Limited 3,500

National Development Finance Corporation 100


48

Annual Report 2011


Proxy Form

I/we_______________________________________________________________________________

of_________________________________________________________________________________

a member(s) of Reliance Cotton Spinning Mills Limited and a holder of_______________Ordinary Shares,

do hereby appoint____________________________________________________________________

of________________________________________________________________________________

or failing

him/her____________________________________________________________________

of________________________________________________________________________________

a member

of

Reliance

Cotton

Spinning

Mills

Limited,

vide

Registered

Folio

No.________________

as

my/ourProxy to act

on

my/our

behalf

at

the

22nd

Annual

General

Meeting

of

the

Company

to

be

held

on

Friday

the28th day of

October,

2011

at

04:30

p.m.

at

Trading

Hall,

Cotton

Exchange

Building,

I.I.Chundrigar

Road,

Karachiand/or any

adjournment

thereof.

Signed this________

day

of

_____________,

2011

Signature __________________________________

(Signature

should

agree

with

the

specimen

signature

registered

with

the

Company)

NOTICE

1. No proxy

shall

be

valid

unless

it

is

duly

stamped

with

a

revenue

stamp

of

Rs.5/-

2. In the

case

of

Bank

or

Company,

the

proxy

form

must

be

executed

under

its

Common

seal

and

signed

by

its

authorizedperson.

3. Power

of

attorney

or

other

authority

(if

any)

under

which

this

proxy

form

is

signed

then

a

certified

copy

of

that

power

ofattorney

must

be

deposited

along

with

this

proxy

form.

4. This form

of

proxy

duly

completed

must

be

deposited

at

the

Registered

Office

of

the

Company

atleast

48

hoursbefore

the

time

of

holding

the

meeting.

5. In case

of

CDC

account

holder

:

i) The

proxy

form

shall

be

witnessed

by

two

persons

whose

names,

addresses

and

NIC

numbers

shall

be

mentionedon

the

form.

ii) Attested

copies

of

NIC

or

passport

of

the

beneficial

owners

and

the

proxy

shall

be

furnished

with

the

proxy

form.

iii) The

proxy

shall

produce

his

original

NIC

or

original

passport

at

the

time

of

meeting.

iv) In

case

of

corporate

entity,

the

board

of

directors’

resolution/power

of

attorney

with

specimen

signature

of

the

proxyholder

shall

be

submitted

(unless

it

has

been

provided

earlier)

along

with

proxy

form

to

the

company.

Witness :

Name Name

Address

Address

NIC No.

NIC

No.

REVENUESTAMP

OFRS.5/-

49

RCSML AR 2011 - Sapphire · Profit available for appropriation: 983,779 527,831 Appropriations:...

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Transcript of RCSML AR 2011 - Sapphire · Profit available for appropriation: 983,779 527,831 Appropriations:...