Shams Textile annual report

ANNUAL REPORT 2009

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CONTENTS

Pages

1. Company Information 2

2. Profile 3

3. Mission / Vision Statement 4

4. Statement of Ethics and Business Practices 5-6

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

6. Directors’ Report 9-11

7. Financial Summary 12

8. Notice of Annual General Meeting 13

9. Auditors Review Report on statement of Compliance 14

10. Auditors Report to the Members 15

11. Balance Sheet 16-17

12. Profit and Loss Account 18

13. Cash Flow Statement 19

14. Statement of Changes in Equity 20

15. Notes to the Accounts 21-43

16. Pattern of Share Holding 44

17. Information required as per Code of Corporate Governance 45

18. Form of Proxy 47

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Board of DirectorsAdil BashirAmjad MahmoodAsif BashirBashir Ahmad (Nominee: NIT)Khalid Bashir (Chief Executive)Muhammad Anwar (Chairman)Muhammad Asif (Nominee: NIT)Nadeem Maqbool

Chief Financial OfficerFarooq Ahmad

Audit CommitteeMuhammad Anwar (Chairman)Asif Bashir (Member)Adil Bashir (Member)Khaleeque Ahmad (Secretary)

AuditorsRiaz Ahmad & CompanyChartered Accountants

BankersAllied Bank LimitedFirst National Bank ModarbaHabib Bank LimitedMCB Bank LimitedNational Bank of PakistanRoyal Bank of ScotlandThe Bank of PunjabStandard Chartered Bank (Pakistan) Limited

Registered Office7-B-III, Aziz Avenue, Gulberg-V, Lahore

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

Project LocationsKotla Kahloon, District Nankana, Punjab

3-KM, Faisalabad Road, Chiniot, Punjab

COMPANY INFORMATION

02

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

The Company initially setup up its composite project consisting of spinning, weaving, dyeing and finishing at Chiniot in 1968. The plant today comprises of 24,960 spindles having capacity of producing 400,000 Kg/month (approx.) of yarn. During the initial years of operations the management successfully marketed the cotton yarn, grey and finished fabrics produced from these facilities, generating substantial export business. These operations resulted in the manufacturing of premium quality products leading to higher profitability for the company.

The company successfully built enough reserves over time inducing the management to think about the expansion of its existing facilities. The Management therefore decided to increase its spindle age capacity to 46,320 by installing another spinning unit at Sheikhupura Road near Shahkot. The facility started its commercial production in August 01, 1994 and ever since has contributed positively to the results of the company.

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

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

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

Shams Textile Mills Limited is managed by people who have had vast experiences in the textile sector. The management is constantly looking to avail opportunities in the field of textiles and to grow on its strengths. It has a low cost and growth driven approach to its businesses and is looking to grow further on the same policies.

PROFILE

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Our Business

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

Vision of Future Business

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

Our Strengths

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

Our Strategy

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

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

Our Values

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

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

§We recognize our responsibility to our stakeholders and society.

MISSION / VISION STATEMENT

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1. Introduction to the Statement

This Statement of Ethics and Business Practices has been formulated to ensure that Directors and employees of the Company operate within acceptable standards of conduct.As evidence of acceptance this Statement is to be signed by every Director and employee.

2. Contents of the Statement

This Statement identifies the acceptable standards under the following headings:

§Core values

§Business culture

§Responsibilities

3. Core values

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

Honesty Honesty in dealings with persons within the organization and outside

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

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

4. Business

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

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

Transparency The Company believes in practicing full transparency in all their financial dealings.

Economic Principles The Company recognizes that profitability is a measure for the efficiency of the organization and the value that customers place on the Company's products. Investment decisions, however, are not based solely on economic criteria and the Company takes into account social and environmental conditions.

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

STATEMENT OF ETHICS AND BUSINESS PRACTICES

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Health, safety and environment The Company recognizes health, safety and environmental protection as being fundamentally important to the well being of its employees in particular and the public at large generally and to that end policies are laid out that provide for continuous improvements.

5. Responsibilities

The Company recognizes its responsibility towards:

Shareholders Protection of shareholders' investment, and providing acceptable return on investment.

Customers Winning and retaining customers by developing and supplying products and services which offer value in terms of price, quality, safety and environmental impact, which are supported by the requisites technological, environmental and commercial expertise.

Employees Respecting the rights and obligations for the employees:

§Good and safe conditions at work

§Competitive terms and conditions of services

§Development and best use of human resource

§Equal opportunity employment regardless of cast, creed, color or sex

Business associates Seeking mutually beneficial relationships with customers and suppliers

Society Conducting business as a responsible corporate citizen.

State Complying with all requirements of laws and regulations.

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This statement is being presented to comply with the Code of Corporate Governance contained in Regulation No. 37 (Chapter Xl) of the Karachi Stock Exchange (Guarantee) Limited and Listing Regulation No. 40 (Chapter XIII) of the Lahore Stock Exchange (Guarantee) Limited for the purpose of establishing a framework of good governance, whereby a listed company is managed in compliance with the best practices of corporate governance.

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

1. The Company encourages representation of independent non-executive Directors and Directors representing minority interests on its Board of Directors. At present the Board included two independent Directors representing Financial Institution, two executive Directors and 4 non-executive Directors.

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

3. All the resident Directors of the Company are registered as taxpayers and none of them has defaulted in payment of any loan to a banking company, a DFI or an NBFI or, being a member of a stock exchange, has been declared as a defaulter by that stock exchange.

4. Causal vacancy had occurred during the financial year 2008-2009 and has been filled as per prevailing laws.

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

6. The Board has developed a vision/mission statement, overall corporate strategy and significant policies of the Company. A complete record of particulars of significant policies along with dates on which they were approved or amended has been maintained.

7. All the powers of the Board have been duly exercised and decisions on material transactions, including appointment and determination of remuneration and terms and conditions of employment of the CEO and other executive Directors, have been taken by the Board.

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

9. The Board has arranged an orientation course for its Directors during the year to apprise them of their duties and responsibilities.

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

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

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

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

STATEMENT OF COMPLIANCE WITH THE BESTPRACTICES OF CORPORATE GOVERNANCE

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

15. The Board has formed an audit committee. It comprises of 3 (three) members, two of them are non-executive Directors.

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

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

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

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

20. All related party transactions of the Company are executed in accordance with the policy of the Company. The related party transactions have been placed before the audit committee and approved by the Board of Directors to comply with the requirements of listing regulation number 35 of the Karachi Stock Exchange (Guarantee) Limited.

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

Khalid BashirChief Executive

October 05, 2009Lahore

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Directors' Report

On behalf of the Directors, I am pleased to present the audited financial statements of the Company for the year ending 30 June 2009.

Operating Results

The year under review witnessed an extreme economic and financial crises, and unfavorable prices of cotton. During this period the cotton cost was 8% to 10% higher than last year compared to only 2% to 3% increase in selling rates of yarn. Other costs also increased and the company was faced with a severe negative impact on its operating profit. In addition to all the above factors, the gas utility carried out a prolonged phase of gas load shedding which resulted in our operations being curtailed and we had to resort to alternative energy sources which were extremely expensive and strained our limited resources further. Financial charges were also higher during the year by approximately 40% over the corresponding period due to higher interest rates.

During the financial year under review, Company's sales were Rs. 2.7 billion as compared to Rs. 2.3 billion in the corresponding period.

The Company suffered a loss of Rs. 83.372 million as compared to Rs. 40.517 million. Last years figure also reflected a one time gain of Rs. 26.68 million which the company earned as a financial gain due to settlement of long term loan. The present year figure also reflects an impairment loss of Rs. 43.82 million due to valuation of the company equity portfolio.

Long term liabilities of the Company have decreased by 33.74 million while the current ratio and the debt equity ratio were 0.73 and 38:62 respectively for the period under review. Loss per share is (9.65) as compared to (4.69) for the corresponding period last year.

The Key financial results are as under;

(Rs. In Million)

2009 2008

Sales 2,701 2,316

Gross profit 137 130

Finance Cost (128) (92)

Administrative & General Expenses (31) (27)

(Loss)/Profit before Taxation (117) (28)

Provision for taxation 33 (13)

(Loss)/Profit After Taxation (83) (41)

Statements on Corporate and Financial Reporting Frame Work

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

b) Proper books of account of the Company have been maintained.

c) Appropriate accounting policies have been consistently applied in preparation of financial

DIRECTORS’ REPORT

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statements and accounting estimates are based on reasonable and prudent judgment.

d) International Accounting Standards, as applicable in Pakistan, have been followed in preparation of financial statements and any departure there from has been adequately disclosed.

e) The System of Internal Control is sound in design and has been effectively implemented and monitored Internal Auditor.

f) There is no significant doubt upon the company's ability to continue as a going concern.

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

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

i) The following is the value of investment in respect of retirement benefit funds: Provident Fund: Rs. 49.917 Million (2008:Rs. 45.995 Million)

j) Four meetings of the Board of Directors were held during the year 2008-09. Attendance by each director was as under:

Sr. Name of Director No. of MeetingsAttended

1 Mr. Adil Bashir 4

2 Mr. Amjad Mahmood 2

3 Mr. Asif Bashir 4

4 Mr. Bashir Ahmad(Nominee NIT) 1

5 Mr. Gul Nawaz 1

6 Mr. Khalid Bashir 4

7 Mr. Muhammad Anwar 3

8 Mr. Muhammad Asif(Nominee NIT) 2

9 Mr. Nadeem Maqbool 4

(However, leave of absence was granted to the Directors who could not attend the Board Meetings due to preoccupations)

Corporate Governance

Your Company has been complying with the rules of Securities and Exchange Commission of Pakistan and

has implemented better internal control policies with more rigorous checks and balances.

Audit Committee

The Board of Directors in compliance to the Code of Corporate Governance has established an Audit Committee and the following non-executive directors are its members:

Mr. Muhammad Anwar

Mr. Asif Bashir

Mr. Adil Bashir

Auditors

As recommended by the Audit Committee, the present auditors M/s Riaz Ahmad & Co., Chartered Accountants, retire and being eligible, offer themselves for re-appointment.

Pattern of Shareholding

The pattern of shareholding, as required by section 236 of the Companies Ordinance 1984 and Code of Corporate Governance, is enclosed.

Key Operating and Financial Data

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

Future Outlook

The year under review remained extremely difficult for the entire industrial sector in Pakistan and the textile industry suffered heavily because of their dependence on export markets. Slack demand and low prices exerted great pressure on the profitability of the textile sector and a majority of them suffered heavy losses. The industry operations did not even cover the costs and as a result losses have remained very high. The start of this year has been on a positive note as we see the demand of textile products becoming buoyant and prices have also started to rise. The cotton season has opened on a firm note as the industry is short and needs to build up its stocks. World prices remain higher than domestic prices and it is expected that the local prices will remain at opening levels. We remain confident that with the improvement in the international economic situation demand for finished products will rise and the textile sector will be able to take advantage of this. However we must caution that the cost factor remains very significant and the industry is still only just able to meet its expenses. For increased profitability there is a need to address the costs issues and also there is a need to reduce financial

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charges.

We are hopeful that this year we will be able to obtain better results but it will take time for the industry to fully recover and that too only if demand levels remain high and the prices start to improve further.

Acknowledgements

I wish to thank the shareholders, bankers, suppliers and management for their cooperation and efforts.

For & On behalf of Board of Directors

Khalid BashirChief Executive

October 05, 2009Lahore

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FINANCIAL SUMMARYFor the year ended June 30, 2009

rupees in '000's 2009 2008 2007 2006 2005 2004

Net Sales 2,700,814 2,316,456 2,182,834 1,547,297 973,996 1,314,888

Cost of sales 2,563,658 2,186,145 2,071,801 1,399,372 843,291 1,209,077

Gross Profit 137,156 130,311 111,033 147,925 130,705 105,811

Selling and distribution expenses 43,416 45,464 37,529 17,775 13,387 17,653

Administration and general expenses 31,245 26,708 24,622 24,735 16,277 18,510

Other operating expenses 57,177 31,267 6,089 5,235 7,007 5,943

131,838 103,439 68,240 47,745 36,671 42,106

Operating Profit 5,318 26,872 42,793 100,180 94,034 63,705

Other operating income 5,787 36,755 278,127 15,105 6,819 7,547

11,105 63,627 320,920 115,285 100,853 71,252

Financial and other charges 128,044 91,643 117,682 65,294 24,802 12,631

(Loss) / Profit before taxation (116,939) (28,016) 203,238 49,991 76,051 58,621

Provision for taxation 33,567 (12,501) 14,655 8,835 5,924 7,630

(Loss) / Profit after taxation (83,372) (40,517) 188,583 41,156 70,127 50,991

Performance Ratio

Gross Profit Margin (%) 5.08 5.63 5.09 9.56 13.42 8.05

Fixed Assets Turnover 2.84 2.25 2.00 1.83 1.91 3.28

Return on capital employed (%) (12.92) (5.06) 17.46 3.99 9.79 8.14

Return on equity (%) (19.50) (6.99) 27.86 7.69 19.60 16.94

Operating Profit Margin (%) 0.20 1.16 1.96 6.47 9.65 4.84

Net Profit Margin (%) (3.09) (1.75) 8.64 2.66 7.20 3.88

Earning / (Loss) per share (Rupees) (9.65) (4.69) 21.83 4.76 8.12 10.32

Working Capital Ratios

Debtors Turn Over Ratio 11.24 12.71 15.59 16.40 12.83 18.24

Debtors in no of Days 32.46 28.71 23.41 22.25 28.46 20.01

Stock Turn Over Ratio 8.07 7.83 11.68 11.15 8.20 12.70

Stock in no of Days 45.23 46.59 31.24 32.73 44.50 28.75

Liquidity Ratio

Current Ratio 0.73 0.84 1.06 0.92 1.49 1.74

Quick Ratio 0.40 0.41 0.75 0.66 1.13 1.36

Interest Cover Ratio (1.09) (3.27) 0.58 1.31 0.33 0.22

Financial Performance Ratio

Gearing Ratio 38:62 36:64 40:60 51:49 28:72 32:68

Break-up value per share ( Rupees ) 46.13 59.13 74.29 58.26 58.90 48.89

Price to Book Value 0.07 0.27 0.60 0.28 0.44 0.36

Total Assets 1,635,974 1,736,696 1,874,522 1,660,019 1,098,722 952,919

Current Assets 719,620 750,010 801,901 546,815 518,667 508,944

Current Liabilities 990,746 897,859 757,330 594,446 348,826 293,258

Operating Fixed Assets 916,354 986,686 1,071,050 1,111,633 578,519 442,396

Long Term Debts 246,642 290,237 438,470 528,696 207,710 204,288

Share holders' Equity 398,586 510,907 641,881 503,362 508,914 422,398

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ndNOTICE IS HEREBY GIVEN THAT the 42 Annual General Meeting of the shareholders of Shams Textile Mills Limited will be held on Thursday October 29, 2009 at 09:00 a.m. at the Registered Office, 7-B III, Aziz Avenue, Gulberg V, Lahore to transact the following business:

Ordinary Business:

1. To receive, consider and adopt the Audited Accounts of the Company for the Year ended June 30, 2009 together with the Directors' and Auditors' Reports thereon.

2. To appoint Auditors and fix their remuneration. The present auditors M/s Riaz Ahmad & Company, Chartered Accountants retire and offer themselves for re-appointment.

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

By order of the BoardLahore October 08, 2009 Company Secretary

BOOK CLOSURE:

The Members' Register will remain closed from October 26, 2009 to November 01, 2009 (both days inclusive).

Notes:

1. Transfer received in order at the Registered Office by the close of business hours on Saturday, October 24, 2009 will be treated in time.

2. A member eligible to attend and vote at this Meeting may appoint another member as his/her proxy to attend and vote instead of him/her. Proxy in order to be effective must be received by the Company at the Registered Office not later than 48 hours before the time for holding the Meeting.

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

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

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

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

NOTICE OF ANNUAL GENERAL MEETING

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We have reviewed the Statement of Compliance with the best practices contained in the Code of Corporate Governance prepared by the Board of Directors of Shams Textile Mills Limited (”the company”) for the year ended 30 June 2009, to comply with the Listing Regulations of the respective Stock Exchanges, where the company is listed.

The responsibility for compliance with the Code of Corporate Governance is that of the Board of Directors of the Company. Our responsibility is to review, to the extent where such compliance can be objectively verified, whether the Statement of Compliance reflects the status of the Company’s compliance with the provisions of the Code of Corporate Governance and report if it does not. A review is limited primarily to inquiries of the Company personnel and review of various documents prepared by the Company to comply with the Code.

As part of our audit of financial statements, we are required to obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. We are not required to consider whether the Board’s statement on internal controls covers all the risks and controls, or to form an opinion on the effectiveness of such internal controls, the company’s corporate governance procedures and risks.

Further, sub-regulation (xiii a) of Listing Regulations 35 (Previously Regulation No.37) notified by the Karachi Stock Exchange (Guarantee) Limited vide circular KSE/N-269 dated 19 January 2009, requires the Company to place before the Board of Directors for their consideration and approval related party transactions distinguishing between transactions carried out on terms equivalent to those that prevail in arm’s length transactions and transactions which are 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 are only required and have ensured compliance of requirement to the extent of approval of related party transactions by the board of directors and placement of such transactions before audit committee. We have not carried out any procedures to determine whether the related party transactions were undertaken at arm’s length price or not.

Based on our review, nothing has come to our attention, which causes us to believe that the statement of Compliance does not appropriately reflect the Company’s compliance, in all material respects, with the best practices contained in the Code of Corporate Governance as applicable to the Company for the year ended 30 June 2009.

LAHORE RIAZ AHMAD & COMPANYDATED: 05 OCTOBER 2009 CHARTERED ACCOUNTANTS

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

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We have audited the annexed balance sheet of SHAMS TEXTILE MILLS LIMTED as at 30 June 2009, and the related profit and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof, for the year then ended and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit.

It is the responsibility of the Company's management to establish and maintain a system of internal control, and prepare and present the above said statements in conformity with the approved accounting standards and the requirements of the Companies Ordinance, 1984. Our responsibility is to express an opinion on these statements based on our audit.

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

a) in our opinion, proper books of accounts have been kept by the Company as required by the Companies Ordinance, 1984;

b) in our opinion:

i) the balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity with the Companies Ordinance, 1984, and are in agreement with the books of accounts and are further in accordance with accounting policies consistently applied except for the change as stated in note 2.4 to the financial statements with which we concur;

ii) the expenditure incurred during the year was for the purpose of the Company's business; and

iii) the business conducted, investments made and the expenditure incurred during the year were in accordance with the objects of the Company;

c) in our opinion and to the best of our information and according to the explanations given to us, the balance sheet, profit and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof conform with approved accounting standards as applicable in Pakistan, and, give the information required by the Companies Ordinance, 1984, in the manner so required and respectively give a true and fair view of the state of the Company's affairs as at 30 June, 2009 and of the loss, its cash flows and changes in equity for the year then ended; and

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

The financial statements of the company for the year ended 30 June 2008 were audited by another firm of chartered accountants who had expressed an unqualified opinion on those financial statements vide their report dated 06 October 2008.

LAHORE RIAZ AHMAD & COMPANYDATED: 05 OCTOBER 2009 CHARTERED ACCOUNTANTS

SYED MUSTAFA ALI

AUDITORS’ REPORT TO THE MEMBERS

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2009 2008Note (Rupees in thousands)

EQUITY AND LIABILITIESSHARE CAPITAL AND RESERVES

Authorised share capital25,000,000 (2008: 25,000,000) ordinaryshares of Rupees 10 each 250,000 250,000

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

Reserves 4 312,186 424,507

Total equity 398,586 510,907

NON-CURRENT LIABILITIESLong term financing 5 201,377 235,115Long term supplier's credit 6 39,709 39,709Liabilities against assets subject to finance lease 7 5,556 15,413Deferred taxation 8 - 37,693

246,642 327,930

CURRENT LIABILITIESTrade and other payables 9 215,285 136,601Accrued mark-up 10 29,906 30,777Short term borrowings 11 660,404 605,343Current portion of non-current liabilities 12 85,151 125,138

990,746 897,859

TOTAL LIABILITIES 1,237,388 1,225,789

CONTINGENCIES AND COMMITMENTS 13 - -

TOTAL EQUITY AND LIABILITIES 1,635,974 1,736,696

The Company has opted for the accounting treatment of the impairment loss in respect of its available for sale investments in accordance with SRO 150(I) / 2009 issued by the SECP on 13 February 2009 and recognized fifty percent of the impairment as at 31 December 2008 including any adjustment / effect for price movements arising during the six months ended 30 June 2009 in the profit and loss account. Had the impairment loss been transferred to profit and loss account, the fair value reserve on remeasurement of available for sale securities would have been higher by Rupees 13.043 million with consequential effect on 'revenue reserve'. For the purpose of dividend distribution, such impairment loss is to be treated as a charge to the profit and loss account. Detail is given in note 21.4.

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

Chief Executive

BALANCE SHEETAS AT JUNE 30, 2009

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ASSETSNON-CURRENT ASSETS

Property, plant and equipment 14 914,743 985,075Long term deposits 15 1,611 1,611

916,354 986,686

CURRENT ASSETSStores, spare parts and loose tools 16 36,364 38,639Stock in trade 17 289,186 346,223Trade debts 18 277,081 203,324Loans and advances 19 24,220 9,965Short term prepayments - 870Other receivables 20 3,608 214Short term investments 21 29,236 103,271Refunds due from the Government 22 27,282 25,501Taxation - Net 23 18,305 8,041Cash and bank balances 24 14,338 13,962

719,620 750,010

TOTAL ASSETS 1,635,974 1,736,696Chief

Director

PROFIT & LOSS ACCOUNTFOR THE YEAR ENDED JUNE 30, 2009


SALES 25 2,700,814 2,316,456

COST OF SALES 26 2,563,658 2,186,145

GROSS PROFIT 137,156 130,311

DISTRIBUTION COST 27 43,416 45,464

ADMINISTRATIVE EXPENSES 28 31,245 26,708

OTHER OPERATING EXPENSES 29 57,177 31,267

131,838 103,439

5,318 26,872

OTHER OPERATING INCOME 30 5,787 36,755

PROFIT FROM OPERATIONS 11,105 63,627

FINANCE COST 31 128,044 91,643

LOSS BEFORE TAXATION (116,939) (28,016)

PROVISION FOR TAXATION 32 33,567 (12,501)

LOSS AFTER TAXATION (83,372) (40,517)

EARNINGS PER SHARE - BASIC AND DILUTED (Rupees) 33 (9.65) (4.69)

The Company has opted for the accounting treatment of the impairment loss in respect of its available for sale investments in accordance with SRO 150(I) / 2009 issued by the SECP on 13 February 2009 and recognized fifty percent of the impairment as at 31 December 2008 including any adjustment / effect for price movements arising during the six months ended 30 June 2009 in the profit and loss account. Had the impairment loss been transferred to profit and loss account, the fair value reserve on remeasurement of available for sale securities would have been higher by Rupees 13.043 million with consequential effect on 'revenue reserve'. Consequentially loss for the year would have been higher by Rupees 13.043 million and loss per share would have been higher by Rupee 1.51. For the purpose of dividend distribution, such impairment loss is to be treated as a charge to the profit and loss account. Detail is given in note 21.4.


Chief Executive Director

A N N U A L R E P O R T 2 0 0 918

CASH FLOW STATEMENTFor The Year Ended JUNE 30, 2009


CASH FLOWS FROM OPERATING ACTIVITIES

Cash from operations 34 189,244 (48,420)Finance cost paid (128,915) (84,353)Income tax paid (14,390) (11,285)

Net cash from operating activities 45,939 (144,058)

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sale of property, plant and equipment 983 7,329Proceeds from sale of investment 1,035 -Dividends received 1,033 703Investments made - (33,835)Capital expenditure on property, plant and equipment (20,091) (17,217)

Net cash used in investing activities (17,040) (43,020)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from long term financing - 4,376Repayment of long term financing (75,241) (138,605)Payment of finance lease liabilities (8,341) (7,713)Short term borrowings - Net 55,061 146,519Dividend paid (2) (21,373)

Net cash used in financing activities (28,523) (16,796)

Net increase / (decrease) in cash and cash equivalents 376 (203,874)Cash and cash equivalents at the beginning of the year 13,962 217,836

Cash and cash equivalents at the end of the year 14,338 13,962



A N N U A L R E P O R T 2 0 0 919

A N N U A L R E P O R T 2 0 0 920

STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED JUNE 30, 2009

Re

se

rve

s

Ca

pit

al

rese

rve

sR

eve

nu

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ese

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lca

pit

al

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rve

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rve

Su

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ota

lre

se

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pro

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(lo

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b t

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lT

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le

qu

ity

(R

up

ee

s i

n t

ho

usa

nd

s)

Ba

lan

ce

as a

t 3

0 J

un

e 2

00

786,4

00

86,4

00

84,5

98

170,9

98

195,0

00

189,4

83

384,4

83

555,4

81

641,8

81

Fin

al div

idend for

the y

ear

ended 3

0 J

une 2

007

@ R

upees

2.5

per

share

--

--

-(2

1,6

00)

(21,6

00)

(21,6

00)

(21,6

00)

Transf

er

to g

enera

l re

serv

e-

--

-150,0

00

(150,0

00)

--

-

Fair v

alu

e a

dju

stm

ent

on inve

stm

ents

--

(68,8

57)

(68,8

57)

--

-(6

8,8

57)

(68,8

57)

Loss

for

the y

ear

ended 3

0 J

une 2

008

--

--

-(4

0,5

17)

(40,5

17)

(40,5

17)

(40,5

17)

Ba

lan

ce

as a

t 3

0 J

un

e 2

00

886,4

00

86,4

00

15,7

41

102,1

41

345,0

00

(22,6

34)

322,3

66

424,5

07

510,9

07

Fair v

alu

e a

dju

stm

ent

on inve

stm

ents

--

(28,9

49)

(28,9

49)

--

-(2

8,9

49)

(28,9

49)

Loss

for

the y

ear

ended 3

0 J

une 2

009

--

--

-(8

3,3

72)

(83,3

72)

(83,3

72)

(83,3

72)

Ba

lan

ce

as a

t 3

0 J

un

e 2

00

986,4

00

86,4

00

(13,2

08)

73,1

92

345,0

00

(106,0

06)

238,9

94

312,1

86

398,5

86

The a

nnexe

d n

ote

s fo

rm a

n inte

gra

l part

of

these

fin

anci

al st

ate

ments

.

Ch

ief

Ex

ecu

tive

Dir

ecto

r

1. THE COMPANY AND ITS OPERATIONS

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, except for the change as stated in note 2.4 to these financial statements.

2.1 Basis of preparation

a) Statement of compliance

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

b) Accounting convention

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

c) Critical accounting estimates and judgements

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

Useful lives, patterns of economic benefits and impairments

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

Taxation

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

Provision for doubtful debts

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

d) Standard that is effective in current year

IFRS 7 'Financial Instruments: Disclosures'. The Securities and Exchange Commission of Pakistan (SECP) vide S.R.O 411(I) / 2008 dated 28 April 2008 notified the adoption of IFRS 7. IFRS 7 is mandatory for Company's accounting period beginning on or after the date of notification i.e 28 April 2008. IFRS 7 has superseded IAS 30 and disclosure requirements of IAS 32. Adoption of IFRS 7 has only impacted the format and extent of disclosures presented in the financial statements.

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

There are other new standards, interpretations and amendments to the published approved accounting standards that are mandatory for accounting periods beginning on or before 01 July 2008 but are considered not to be relevant or do not have any significant impact on the Company's financial statements and are therefore not detailed in these financial statements.

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

Following standards and amendments to existing standards have been published and are mandatory for the Company's accounting periods beginning on or after 01 July 2009 or later periods:

IAS 1 'Presentation of Financial Statements' (effective for annual periods beginning on or after 01 January 2009), issued in September 2007 revises the existing IAS 1 and requires apart from changing the names of certain financial statements, presentation of transactions with owners in statement of changes in equity and with non-owners in the comprehensive income statement. Adoption of the aforesaid standard will only impact the presentation of the financial statements.

IAS 23 (Amendment) 'Borrowing Costs' (effective for annual periods beginning on or after 01 January 2009). It requires an

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED JUNE 30, 2009

A N N U A L R E P O R T 2 0 0 921

entity to capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that necessarily takes a substantial period of time to get ready for intended use or sale) as part of the cost of that asset. On adoption the option of immediately expensing those borrowing costs will be withdrawn. This change will not effect the financial statements as the Company already has the policy to capitalize its borrowing cost.

IFRS 7 (Amendment) 'Financial Instruments: Disclosures' (effective for annual periods beginning on or after 01 January 2009). This amendment has expanded the disclosures required in respect of fair value measurements recognized in the statement of financial position. Moreover, amendments have also been made to the liquidity risk disclosures. Such amendments are not expected to have any significant impact on the Company's financial statements other than increase in disclosures.

There are other amendments resulting from May 2008 and April 2009 annual improvements to IFRS, specifically in IAS 1 'Presentation of Financial Statements', IAS 7 'Statement of Cash Flows', IAS 23 'Borrowing Costs', IAS 36 'Impairment of Assets' and IAS 39 'Financial Instruments: Recognition and Measurement' that are considered relevant to the Company's financial statements. These amendments are unlikely to have a significant impact on the Company's financial statements and have therefore not been analyzed in detail.

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

There are other accounting standards, amendments to published approved accounting standards and new interpretations that are mandatory for accounting periods beginning on or after 01 July 2009 but are considered not to be relevant or do not have any significant impact on the Company's financial statements and are, therefore, not detailed in these financial statements.

2.2 Property, plant and equipment

Owned

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

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

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

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

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

Leased

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

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

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

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

2.3 Impairment

The Company assesses at each balance sheet date whether there is any indication that assets may be impaired. If such indication exists, the carrying amounts of such assets are reviewed to assess whether they are recorded in excess of their recoverable amounts. Where the carrying value exceeds the recoverable amount, assets are written down to the recoverable amount and the difference is charged to the profit and loss account. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit and loss account.


A N N U A L R E P O R T 2 0 0 922

2.4 Investments

Classification of an investment is made on the basis of intended purpose for holding such investment. Management determines the appropriate classification of its investments at the time of purchase.

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

Investments in associates

Investment in associates where the Company holds 20% or more of the voting power of the investee companies and where significant influence can be established are accounted for using the equity method. In case of investments accounted for under the equity method, the method is applied from the date when significant influence is established until the date when that significant influence ceases.

Available for sale

Investments intended to be held for an indefinite period of time, which may be sold in response to need for liquidity, or changes to interest rates or equity prices are classified as available-for-sale. These are initially measured at fair value plus transaction costs directly attributable to acquisition. At subsequent reporting dates, these investments are re-measured at fair value.

Quoted

For quoted securities, fair value is determined on the basis of period end bid prices obtained from stock exchange quotations. Changes in carrying value are recognized in equity until the investment is sold or determined to be impaired at which time the cumulative gain or loss previously recognized in equity is included in profit and loss account for the year.

Un-quoted

During the year the Company has changed its accounting policy to value the investments in equity instruments that do not have a quoted market price in an active market and whose fair value can not be reliably measured at cost less impairment loss, if any. Previously, unquoted investments were measured at break-up value. This change in accounting policy has no impact on these financial statements as the provision against diminution in value of unquoted investment has been fully provided in books of account.

2.5 Inventories

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

Stores, spare parts and loose tools

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

Stock in trade

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

(i) For raw materials: At weighted average cost

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

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

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

2.6 Trade debts and other receivables

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

2.7 Taxation

Current

Provision for current tax is based on the taxable income for the year determined in accordance with the prevailing law for taxation of income. The charge for current tax is calculated using prevailing tax rates or tax rates expected to apply to the profit for the year if enacted. The charge for current tax also includes adjustments, where considered necessary, to provision for tax made in previous years arising from assessments framed during the year for such years.

Deferred

Deferred tax is accounted for using the balance sheet liability method in respect of all temporary differences arising from


A N N U A L R E P O R T 2 0 0 923

differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of the taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, unused tax losses and tax credits can be utilized.

Deferred tax is calculated at the rates that are expected to apply to the period when the differences reverse based on tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the profit and loss account, except in the case of items credited or charged to equity in which case it is included in equity.

2.8 Cash and cash equivalents

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

2.9 Borrowing cost

Borrowing costs relating to qualifying assets are capitalized upto the date of commissioning of such assets. Other borrowing costs are recognized as an expense as and when incurred.

2.10 Trade and other payables

Liabilities for trade and other amounts payable are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received.

2.11 Provisions

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

2.12 Financial instruments

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

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

2.13 Offsetting of financial assets and financial liabilities

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

2.14 Derivative financial instruments

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

2.15 Foreign currencies

These financial statements are presented in Pak Rupees, which is the Company’s functional currency. All monetary assets and liabilities denominated in foreign currencies are translated into Pak Rupees at the rates of exchange prevailing at the balance sheet date, while the transactions in foreign currency during the year are initially recorded in functional currency at the rates of exchange prevailing at the transaction date. All non monetary items are translated into Pak Rupees at exchange rates prevailing on the date of transaction or on the date when fair values are determined. The Company charges all the exchange differences to profit and loss account.

2.16 Employee benefits

Defined contribution plan

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


A N N U A L R E P O R T 2 0 0 924


Compensated absences

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

2.17 Related party transaction and transfer pricing

Transactions and contracts with the related parties are based on the policy that all transactions between the Company and related parties are carried out at an arm’s length. These prices are determined in accordance with the methods prescribed in the Companies Ordinance, 1984.

2.18 Borrowings

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

2.19 Revenue recognition

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

l Dividend income is recognized when the right to receive dividend is established.

l Profit on bank deposits is recognized on time proportion basis taking into account the principal outstanding and rates of profit applicable thereon.

2.20 Dividend and other appropriations

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

3. ISSUED, SUBSCRIBED AND PAID UP SHARE CAPITAL

2009 2008 2009 2008(NUMBER OF SHARES) (RUPEES IN THOUSAND)

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

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

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

2009 2008(NUMBER OF SHARES)

3.1 Ordinary shares of the Company held by associated companies:Premier Insurance Limited 400,000 -The Crescent Textile Mills Limited 812,160 812,160Mohammad Amin Mohammad Bashir Limited 210 210Crescent Powertec Limited 1,460,000 1,459,950

2,672,370 2,272,320

2009 2008(Rupees in thousand)

4. RESERVESComposition of reserves is as follows:CapitalPremium on issue of shares (Note 4.1) 86,400 86,400Fair value reserve (Note 4.2) (13,208) 15,741

73,192 102,141

RevenueGeneral reserve 345,000 345,000Accumulated loss (106,006) (22,634)

238,994 322,366

312,186 424,507

A N N U A L R E P O R T 2 0 0 925


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

4.2 This represents unrealized (loss) / gain on remeasurement of available for sale investments at fair value and is not available for distribution. This will be transferred to profit and loss account on realization.


5. LONG TERM FINANCINGSecuredFinancing from banking companies (Note 5.1) 276,618 351,859Less: Current portion shown under current liabilities (Note 12) 75,241 116,744

201,377 235,115

5.1 Financing from banking companies

RATE OFINTEREST

LENDER 2009 2008 PER NUMBER OF INTEREST INTERESTANNUM INSTALLMENTS REPRICING PAYABLE SECURITY

(Rupees in thousands)

Allied Bank Limited 127,218 150,348 SBP rate for Twenty equal - Quarterly First pari passu chargeLTF - EOP quarterly installments over fixed assets+ 2% commenced on 16 (excluding Land and

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

Allied BankLimited 75,913 109,652 6 month Nineteen equal Half Yearly Quarterly First Pari passu ChargeKIBOR + quarterly over fixed assets1.35% installments (excluding Land and

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

The Bank of Punjab 40,000 50,000 SBP rate for Sixteen equal - Quarterly First pari passu chargeLTF - EOP quarterly on fixed assets of the+ 2% installments Company.

Commenced on 31March 2007 andending on 31December 2011.

The Bank of Punjab 33,487 41,859 SBP rate for Sixteen equal - Quarterly First pari passu chargeLTF - EOP quarterly on fixed assets of the+ 2% installments Company.

commenced on 28February 2007 andending on 30November 2011.

276,618 351,859

6. LONG TERM SUPPLIER'S CREDIT

Unsecured

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

A N N U A L R E P O R T 2 0 0 926



7. LIABILITIES AGAINST ASSETS SUBJECT TO FINANCE LEASEMinimum lease payments 17,310 28,998Less: Un-amortized finance charge 1,844 5,191

Present value of minimum lease payments 15,466 23,807Less: Current portion shown under current liabilities (Note 12) 9,910 8,394

5,556 15,413

7.1 This represents lease facility obtained from First National Bank Modaraba under sale and lease back arrangement. Value of minimum lease payments is discounted using implicit interest rate of 6 month KIBOR plus 1.85% (2008: 6 month KIBOR plus 1.85%). Rentals are payable in monthly installments. All taxes, repairs and insurance costs are to be borne by the Company. The facility is secured against leased assets and deposit of Rupees 0.035 million (2008: Rupees 0.035 million).

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

2009 2008

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

year five years year five years

(Rupees in thousands)

Minimum lease payments 11,517 5,793 11,599 17,399Present value of minimum lease payments 9,910 5,556 8,394 15,413


8. DEFERRED TAXATIONThe (asset) / liability for deferred taxation originated due to timing differences relating to:Taxable temporary differencesAccelerated tax depreciation 154,267 171,323Finance lease 2,800 -

157,067 171,323Deductible temporary differencesFinance lease - (9,674)Available tax losses (132,998) (123,956)Turn over tax available for carried forward (35,425) -

(168,423) (133,630)

(11,356) 37,693

8.1 The net deferred income tax asset of Rupees 11.356 million has not been recognized in these financial statements.

9. TRADE AND OTHER PAYABLESCreditors (Note 9.1) 77,530 55,648Advances from customers 5,205 3,911Accrued liabilities (Note 9.2) 114,364 63,103Payable to contractor 8,897 3,850Retention money - Interest free 854 1,754Employees' provident fund 319 270Excise duty payable (Note 9.3) 5,184 5,184Income tax deducted at source 474 421Dividend payable 2,458 2,460

215,285 136,601

A N N U A L R E P O R T 2 0 0 927


9.1 This includes Rupees 0.546 million (2008: Rupees 1.719 million) due to associated undertakings.

9.2 This includes Rupees 42.167 million (2008: 3.111 million) due to related parties.

9.3 This represents provision made on account of central excise duty on loans in respect of which decision of the case is pending before the Honourable Supreme Court of Pakistan.


10. ACCRUED MARK-UPLong term financing 8,390 10,145Short term borrowings 21,516 20,632

29,906 30,777

11. SHORT TERM BORROWINGSFrom banking companies - Secured

Running finance arrangements:MCB Bank Limited (Note 11.1 and 11.2) 138,104 29,740The Bank of Punjab (Note 11.1 and 11.3) 194,480 194,737Allied Bank Limited (Note 11.1 and 11.4) 119,029 182,883

Cash finance arrangements:MCB Bank Limited - CF (Note 11.1 and 11.5) 140,962 -MCB Bank Limited - FCIF - 197,983

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

660,404 605,343

11.1 These finances are obtained from banking companies under mark up arrangements and are secured against first joint pari passu hypothecation charge on all current assets of the company and pledge of stocks. These form part of total credit facility of Rupees 1,300 million (2008: Rupees 1,533 million).

11.2 The rate of mark-up ranges from 13.53% to 17.12% (2008: 10.14% to 15.14%) per annum on the balance outstanding.




11.6 This represents finance obtained from Crescent Powertec Limited, an associated Company. The rate of mark up ranges from 13.64% to 16.87%.(2008: Nil) per annum.

12. CURRENT PORTION OF NON-CURRENT LIABILITIESLong term financing (Note 5) 75,241 116,744Liabilities against assets subject to finance lease (Note 7) 9,910 8,394

85,151 125,138

13. CONTINGENCIES AND COMMITMENTS

Contingencies

Bank guarantees of Rupees 35.9 million (2008: Rupees 35.9 million) are given by the banks of the Company in favour of Sui Northern Gas Pipelines Limited against gas connections.

Commitments

Contract for capital expenditure are approximately of Rupees 2.892 million (2008: Rupees 14.460 million).

Letters of credit other then capital expenditures are Rupees 85.433 million (2008: 38.747 million).

A N N U A L R E P O R T 2 0 0 928

A N N U A L R E P O R T 2 0 0 929


20

09

2008

(Ru

pe

es i

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14

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Note

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4,8

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27,

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87

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958,2

45

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ork

in p

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ss (

Note

14.2

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7,6

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26,8

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3,6

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14,8

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-(3

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(9,0

34)

(417,

350)

(13,1

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(3,4

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(1,0

42)

(2,3

34)

(7,4

80)

(487,

153)

(4,2

88)

(491,4

41)

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book

valu

e3,1

92

112,5

68

28,5

19

844,7

18

19,2

56

1,7

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1,7

49

1,3

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1,7

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20,4

36

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51,1

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-2,8

50

5,9

25

1,4

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--

--

52

10,2

89

-10,2

89

Dis

posa

ls:

Cost

--

-(1

8,1

71)

(1,3

34)

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-(2

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(21,6

36)

-(2

1,6

36)

Acc

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--

-13,5

95

1,2

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--

-1,6

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16,5

57

-16,5

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(58)

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-(4

45)

(5,0

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-(5

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Depre

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(5,6

93)

(1,4

51)

(84,1

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(1,9

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(173)

(175)

(135)

(1,3

92)

(95,0

42)

(3,0

71)

(98,1

13)

Clo

sing n

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book

valu

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92

109,7

25

32,9

93

757,

500

17,

279

1,5

59

1,5

74

1,2

14

5,5

68

930,6

04

27,

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958,2

45

At

30

Ju

ne

20

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Cost

3,1

92

148,7

78

43,4

78

1,2

45,3

59

31,0

69

5,1

38

2,7

91

3,6

83

12,7

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1,4

96,2

42

35,0

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1,5

31,2

42

Acc

um

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-(3

9,0

53)

(10,4

85)

(487,

859)

(13,7

90)

(3,5

79)

(1,2

17)

(2,4

69)

(7,1

86)

(565,6

38)

(7,3

59)

(572,9

97)

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book

valu

e3,1

92

109,7

25

32,9

93

757,

500

17,

279

1,5

59

1,5

74

1,2

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68

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27,

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6,6

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Cost

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(275)

-(5

64)

(47)

-(1

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(2,4

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-(2

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-1,3

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2,1

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(90,1

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104,2

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9,9

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24,8

77

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30

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3,1

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148,7

78

43,4

78

1,2

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4,5

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2,7

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3,6

83

17,

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1,5

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35,0

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1,5

38,0

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-(4

4,5

40)

(12,1

35)

(563,6

06)

(15,5

18)

(3,2

07)

(1,3

28)

(2,5

90)

(7,9

08)

(650,8

32)

(10,1

23)

(660,9

55)

Net

book

valu

e3,1

92

104,2

38

31,3

43

684,0

68

15,5

51

1,3

67

1,4

16

1,0

93

9,9

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24,8

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877,

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-5

5

10

10

10

10

10

20

-10


14.1.1 Detail of operating fixed assets, exceeding the book value of Rupees 50,000 disposed of during the year is as follows:

NetAccumulated book Sale Mode of Particulars of

Description Qty Cost depreciation value proceeds Gain disposal purchaser

(Rupees in thousand)

VehiclePG-3376 1 1,579 1,353 226 570 344 Negotiation Choudry

Rizwan

Aggregate of otheritems of property, plant and equipment with individual book values not exceeding Rupees 50,000 886 832 54 413 359

2,465 2,185 280 983 703


14.1.2 Depreciation charge for the year has been allocated as follows:

OwnedCost of sales (Note 26.3) 85,026 93,340Administrative expenses (Note 28) 2,353 1,702

87,379 95,042

LeasedCost of sales (Note 26.3) 2,764 3,071

90,143 98,113

14.2 Capital work in progress

Advance against plant and machinery 1,700 -Advance against vehicle 1,411 -Advance against office premises 34,548 26,830

37,659 26,830

15. LONG TERM DEPOSITSSecurity deposits for utilities 1,576 1,576Security deposit against finance lease 35 35

1,611 1,611

16. STORES, SPARE PARTS AND LOOSE TOOLS

Stores 10,121 11,202Spare parts (Note 16.1) 33,899 34,954Loose tools 233 372

44,253 46,528

Less: Provision for slow moving and obsolete itemsAs at 01 July 7,889 7,699Add: Provision for the year - 190

As at 30 June 7,889 7,889

36,364 38,639

16.1 This includes spare parts in transit of Rupees Nil (2008: Rupees 8.209 million).

A N N U A L R E P O R T 2 0 0 930



17. STOCK IN TRADERaw materials (Note 17.1) 136,750 126,168Work in process (Note 17.2) 10,872 12,991Finished goods (Note 17.2, 17.3 and 17.4) 130,352 196,015 Waste stock 11,212 11,049

289,186 346,223

17.1 Raw materials include stock in transit of Rupees Nil (2008: Rupees 0.521 million)

17.2 Work in process and finished goods include inventory of Rupees 10.872 million and Rupees 107.847 million (2008: Rupees Nil) respectively valued at net realizable value.

17.3 Finished goods include stocks held with third parties of Rupees 22.037 million (2008: Rupees 1.425 million) in the ordinary course of business.

17.4 Finished goods include stock in transit of Rupees 0.520 million (2008: Rupees Nil).

17.5 The carrying value of stock in trade pledged with banking companies against short term borrowings is Rupees 168.650 million (2008: Rupees Nil). Detail of the corresponding borrowings are disclosed in note 11 to the financial statements.

18. TRADE DEBTS

Considered good:

Secured (against letters of credit) 15,323 -Unsecured 261,758 203,324

277,081 203,324

Considered doubtful:

Unsecured 16,981 16,981Less: Provision for doubtful debtsAs at 01 July 16,981 14,601Add: Provision for the year - 2,380

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

- -

277,081 203,324

18.1 As at 30 June 2009, trade debts of Rupees 106.549 million (2008: Rupees 88.145 million) were past due but not impaired. These relate to a number of independent customers from whom there is no recent history of default. The age analysis of these trade debts is as follows:

Upto 1 month 61,573 49,6211 to 6 months 28,063 26,413More than 6 months 16,913 12,111

106,549 88,145

18.2 As at 30 June 2009, trade debts of Rupees 16.981 million (2008: Rupees 16.981 million) were impaired and provided for. The ageing of these trade debts was more than 3 years.

19. LOANS AND ADVANCES

Considered good:

Advance to employees - Interest free 1,645 927Advances to suppliers 11,288 7,114Letters of credit 11,287 1,924

24,220 9,965

A N N U A L R E P O R T 2 0 0 931



20. OTHER RECEIVABLES

Considered good:

Cotton claim receivable 1,512 -Insurance claim receivable (Note 20.1) 2,096 -Miscellaneous - 214

3,608 214

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

21. SHORT TERM INVESTMENTS

Available for sale

Associated companies - quoted (Note 21.1)

Crescent Sugar Mills and Distillery Limited166,784 (2008: 166,784) fully paid ordinary shares of Rupees 10 each. Equity held 0.78% (2008: 0.78%) 1,105 1,105

Crescent Fibres Limited 31,920 (2008: 31,920) fully paid ordinary shares of Rupees 10 each. Equity held 0.26% (2008: 0.26%) 316 316

Crescent Jute Products Limited 12,476 (2008:12,476) fully paid ordinary shares of Rupees 10 each. Equity held 0.083% (2008: 0.083 %) 117 117

Premier Insurance Limited 769,758 (2008: 699,780) fully paid ordinary shares of Rupees 5 each. Equity held 1.46% (2008: 1.46%) 8,179 8,179

Others - quoted

Jubilee Spinning and Weaving Mills Limited7,788 (2008: 7,788) fully paid ordinary shares of Rupees 10 each. 32 32

Crescent Spinning Mills Limited (Note 21.2 and 21.3)208,800 (2008: 208,800) fully paid ordinary shares of Rupees 10 each. 2,088 2,088

Samba Bank Limited4,902,368 (2008: 4,902,368) fully paid ordinary shares of Rupees 10 each. 44,017 44,017

EFU Life Assurance Limited74,100 (2008: 77,000) fully paid ordinary shares of Rupees 10 each. 32,493 33,764

Other - unquoted

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

193,000 (2008: 193,000) fully paid ordinary shares of Rupees 10 each. 1,930 1,930

90,277 91,548Less: Impairment loss (47,833) (4,018)Add / (Less): Fair value adjustment (13,208) 15,741

29,236 103,271

21.1 These companies are associated due to common directorship.

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

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

21.4 The Karachi Stock Exchange (Guarantee) Limited ("KSE") placed a 'Floor Mechanism' on the market value of securities based on the closing price of securities prevailing as at 27 August 2008. Under the 'Floor Mechanism',

A N N U A L R E P O R T 2 0 0 932


the individual security price of equity securities could vary within normal circuit breaker limit, but not below the floor price level. The mechanism was effective from 28 August 2008 and remained in place until 15 December 2008. Subsequently, there were lower floors on a number of securities.

International Accounting Standard (IAS) 39 'Financial Instruments: Recognition and Measurement' requires that available for sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. Such impairment loss should be charged to profit and loss account.

The Company has opted for the accounting treatment allowed by SECP vide SRO 150(I) / 2009 in respect of its available for sale investments and an impairment loss as at 31 December 2008 amounting to Rupees 26.140 million was shown in equity under the head "Fair value reserve" on remeasurement of available for sale securities. At 30 June 2009 the above impairment loss after adjustment of subsequent price movements amount to Rupees 56.858 million out of which Rupees 43.815 million has been taken to profit and loss account and the balance subject to price movements will be recognized in the remainder of the calendar year.

Had the impairment loss been transferred to profit and loss account, the fair value reserve on remeasurement on available for sale securities would have been higher by Rupees 13.043 million with consequential effect on profit and loss account.


22. REFUNDS DUE FROM THE GOVERNMENTSales tax refundable 27,205 25,217Export rebate claims 77 284

27,282 25,501

23. TAXATION - NETAdvance income tax 22,431 19,691Less: Provision for taxation (Note 32) (4,126) (11,650)

18,305 8,041

24. CASH AND BANK BALANCESWith banks:On PLS saving accounts (Note 24.1 and 24.2) 751 8,601

On current accounts 13,439 5,186

14,190 13,787Cash in hand 148 175

14,338 13,962

24.1 Rate of profit on bank deposits ranges from 4.5% to 14% (2008: 1.5% to 10%) per annum.

24.2 This includes Rupees 0.500 million (2008: Rupees 1.674 million) deposited with IGI Investment Bank Limited on account of central excise duty. The Company cannot encash the amount deposited till the decision of the Court.

25. SALESExport 416,040 404,293Local 2,284,764 1,912,098Export rebate 10 65

2,700,814 2,316,456

26. COST OF SALESRaw material consumed (Note 26.1) 1,946,360 1,846,472Salaries, wages and other benefits (Note 26.2) 154,869 129,255Stores, spare parts and loose tools 56,328 48,343Packing materials consumed 43,773 36,085Repair and maintenance 17,022 12,696Fuel and power 179,258 137,983Insurance 5,524 4,397Other factory overheads 4,595 3,129Depreciation (Note 26.3) 87,790 96,411

2,495,519 2,314,771

A N N U A L R E P O R T 2 0 0 933



Work-in-processOpening stock 12,991 11,083Closing stock (10,872) (12,991)

2,119 (1,908)

Cost of goods manufactured 2,497,638 2,312,863

Finished goodsOpening stock 207,584 80,866Closing stock (141,564) (207,584)

66,020 (126,718)

Cost of sales 2,563,658 2,186,145

26.1 Raw material consumedOpening stock 126,168 33,928Add: Purchased during the year 1,956,942 1,938,712

2,083,110 1,972,640Less: Closing stock 136,750 126,168

1,946,360 1,846,472

26.2 Salaries, wages and other benefits include provident fund contribution of Rupees 2.201 million (2008: Rupees 1.714 million) by the Company.

26.3 DepreciationOperating fixed assets - Owned (Note 14.1.2) 85,026 93,340 - Leased (Note 14.1.2) 2,764 3,071

87,790 96,411

27. DISTRIBUTION COSTSalaries and other benefits (Note 27.1) 777 816Freight and forwarding - Export 19,181 22,964Freight - Local 1,960 1,983Commission to selling agents 21,498 19,701

43,416 45,464

27.1 Salaries and other benefits include provident fund contribution of Rupees 0.027 million (2008: Rupees 0.030 million) by the Company.

28. ADMINISTRATIVE EXPENSESSalaries and other benefits (Note 28.1) 18,132 16,049Rent, rates and taxes 1,581 1,585Legal and professional 512 631Insurance 286 166Traveling and conveyance 2,130 899Vehicles’ running 1,514 1,596Entertainment 643 297Auditors’ remuneration (Note 28.2) 679 378Advertisement 109 29Postage and telephone 961 817Electricity and gas 667 728Printing and stationery 564 775Directors' meeting fee 140 100Repair and maintenance 363 180Fee and subscription 356 559Depreciation (Note 14.1.2) 2,353 1,702Miscellaneous 255 217

31,245 26,708

A N N U A L R E P O R T 2 0 0 934



28.1 Salaries and other benefits include provident fund contribution of Rupees 0.582 million ( 2008: Rupees 0.513 million) by the Company.

28.2 Auditors' remuneration

Riaz Ahmad and Company

Audit fee 500 -Half yearly review 100 -Other certifications 70 -Out of pocket expenses 9 -

BDO Ebrahim and Company

Audit fee - 200Half yearly review - 100Other certifications - 70Out of pocket expenses - 8

679 378

29. OTHER OPERATING EXPENSESLoss on sale of investment 236 71Provision for doubtful debts (Note 18) - 2,380Provision for slow-moving and obsolete items - 190Exchange loss - Net 13,126 28,626Impairment loss on equity investments 43,815 -

57,177 31,267

30. OTHER OPERATING INCOME

Income from financial assetsDividend income (Note 30.1) 1,033 703Settlement of long term financing - 26,679Profit on deposits with banks 638 1,451

1,671 28,833

Income from non financial assetsGain on sale of property, plant and equipment 703 2,251Scrap sales 3,388 5,649Others 25 22

4,116 7,922

5,787 36,755

30.1 Dividend incomePremier Insurance Limited - an associated Company 700 583EFU Life Assurance Limited 333 120

1,033 703

31. FINANCE COSTMark-up on:Long term financing - Secured 25,602 33,664Short term borrowings - Secured 89,437 48,477- Unsecured (Note 31.1) 5,291 -Finance charges on lease liabilities 3,345 3,320Bank charges and commission 4,369 6,182

128,044 91,643

31.1 This represents mark up on short term borrowings from Crescent Powertech Limited, an associated Company.

A N N U A L R E P O R T 2 0 0 935



32. PROVISION FOR TAXATION

For the yearCurrent tax (Note 32.1) 4,162 11,650

Deferred tax (Note 8) (37,693) 851

Prior year

Current tax (36) -

(33,567) 12,501

32.1 The Company is under the ambit of final tax upto the extent of export sales under section 169 of Income Tax Ordinance, 2001. Provision for income tax is made accordingly. No provision for income tax was considered necessary for income which is not subject to final tax under section 169 of the Income Tax Ordinance, 2001, as the Company has carry forwardable tax losses of Rupees 379.995. million.

32.2 The Company has loss before taxation and provision for taxation is made on the basis as explained in the note 32.1, therefore, it is impracticable to prepare the tax charge reconciliation for the years presented.

33. EARNINGS PER SHARE - BASIC AND DILUTEDThere is no dilutive effect on the basic earnings per sharewhich is based on:Loss attributable to ordinary shares (Rupees in thousand) (83,372) (40,517)

Weighted average number of ordinary shares (Numbers) 8,640,000 8,640,000

Earnings per share (Rupees) (9.65) (4.69)

34. CASH FROM OPERATIONSLoss before taxation (116,939) (28,016)Adjustments for non-cash charges and other items:Depreciation 90,143 98,113Provision for doubtful debts - 2,380Provision for slow-moving and obsolete store items - 190Gain on sale of property, plant and equipment (703) (2,251)Gain on settlement of long term loan - (26,679)Loss on sale of investment 236 71Dividend income (1,033) (703)Impairment loss on investments 43,815 -Finance cost 128,044 91,643Working capital changes (Note 34.1) 45,681 (183,168)

189,244 (48,420)

34.1 Working capital changes(Increase) / decrease in current assets:- Stores, spare parts and loose tools 2,275 (19,200)- Stock in trade 57,037 (134,294)- Trade debts (73,757) (44,648)- Loans and advances (14,255) 10,845- Short term deposits and prepayments 870 (505)- Other receivables (3,394) 1,643- Refunds due from the government (1,781) (3,891)

(33,005) (190,050)Increase in trade and other payables 78,686 6,882

45,681 (183,168)

A N N U A L R E P O R T 2 0 0 936

A N N U A L R E P O R T 2 0 0 937


35. REMUNERATION OF CHIEF EXECUTIVE, DIRECTORS AND EXECUTIVES

The aggregate amount charged in these financial statements for remuneration including all benefits to Chief Executive, Director and Executives of the Company is as follows:

(RUPEES IN THOUSAND)

Chief Executive Officer Director Executives

2009 2008 2009 2008 2009 2008

Managerial remuneration 4,840 4,393 2,420 1,887 1,003 1,161AllowancesHouse rent 2,178 1,977 1,089 849 451 517Conveyance - - - - 40 35Medical - - - - 70 118Utilities 484 439 242 189 116 121Contribution to provident fund 290 264 145 113 60 70

7,792 7,073 3,896 3,038 1,740 2,022

Number of persons 1 1 1 1 1 2

35.1 Chief executive, director and an executive of the Company are provided with free maintained vehicles.

35.2 Directors were also paid Rupees 0.140 million (2008: Rupees 0.100 million) as meeting fee.

36. TRANSACTIONS WITH RELATED PARTIESThe related parties comprise associated undertakings, other related parties and key management personnel. The Company in the normal course of business carries out transactions with various related parties. Detail of transactions with related parties, other than those which have been specifically disclosed elsewhere in these financial statements are as follows:

Associated companies

Sale of goods and services 68,306 38,610Insurance claim received 9,696 1,448Purchase of goods and services 33,107 17,244Dividend paid - 5,041Purchase of operating fixed asset 3,603 497Insurance premium 5,810 4,563Electricity purchased 14,046 4,137Borrowings 67,829 -

Other related party

Contribution to provident fund 2,810 2,257

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate


37. FINANCIAL RISK MANAGEMENT

37.1 Financial risk factors

The Company's activities expose it to a variety of financial risks: market risk (including currency risk, other price risk and interest rate risk), credit risk and liquidity risk. The Company's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance.

Risk management is carried out by the Board of Directors (the Board). The Board provides principles for overall risk management, as well as policies covering specific areas such as currency risk, other price risk, interest rate risk, credit risk and liquidity risk.

(a) Market risk

(i) Currency risk

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because of changes in foreign exchange rates. Currency risk arises mainly from future commercial transactions or receivables and payables that exist due to transactions in foreign currencies.

The Company is exposed to currency risk primarily with respect to the United States Dollar (USD). Currently, the Company's foreign exchange risk exposure is restricted to the amounts receivable / payable from / to the foreign entities. The Company uses forward exchange contracts to hedge its foreign currency risk, when considered appropriate. The Company's exposure to currency risk was as follows:

2009 2008

Trade debts - USD 210,196 84,047

Long term supplier's credit - USD (Note 37.1.1) - 579,700

Trade and other payables - USD 70,312 69,752

Foreign currency loan- USD (Note 37.1.2) - 2,890,263

Net exposure - USD 139,884 (3,455,668)

The following significant exchange rates were applied during the year:

Rupees per US Dollar

Average rate 78.69 62.75

Reporting date rate 81.10 68.50

Sensitivity analysis

If the functional currency, at reporting date, had weakened / strengthened by 5% against the USD with all other variables held constant, the impact on loss after taxation for the year would have been Rupees 0.559 million (2008: Rupees 11.833 million) respectively lower / higher, mainly as a result of exchange gains / losses on translation of foreign exchange denominated financial instruments. Currency risk sensitivity to foreign exchange movements has been calculated on a symmetric basis. In management's opinion, the sensitivity analysis is unrepresentative of inherent currency risk as the year end exposure does not reflect the exposure during the year.

37.1.1 The Company is not exposed to currency risk as on 30 June 2009 against long term supplier credit as the rate of exchange between U.S. Dollar and Rupees has been fixed at a specific rate with supplier.

37.1.2 There are no foreign currency loans as on 30 June 2009.

(ii) Other price risk

Other price risk represents the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instrument traded in the market. The Company is not exposed to commodity price risk.

Sensitivity analysis

The table below summarises the impact of increase / decrease in the Karachi Stock Exchange (KSE) Index on the Company's loss after taxation for the year and on equity (fair value reserve). The analysis is based on the assumption that the equity index had increased / decreased by 5% with all other variables held constant and all the Company's equity instruments moved according to the historical correlation with the index:

Impact on loss after Impact on other component of equityIndex taxation (fair value reserve)

2009 2008 2009 2008


KSE 100 (5% increase) (1,775) - 6 787

KSE 100 (5% decrease) 1,775 - (6) (787)

Equity (fair value reserve) would increase / decrease as a result of gains / losses on equity investments classified as available for sale.


(iii) Interest rate risk

This represents the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

The Company has no significant long-term interest-bearing assets. The Company's interest rate risk arises from long term financing, liabilities against assets subject to finance lease and short term borrowings. Borrowings obtained at variable rates expose the Company to cash flow interest rate risk. Borrowings obtained at fixed rate expose the Company to fair value interest rate risk.

At the balance sheet date the interest rate profile of the Company’s interest bearing financial instruments was:


Fixed rate instrumentsFinancial liabilitiesLong term financing 200,705 242,207

Floating rate instruments

Financial assetBank balances - saving accounts 751 8,601

Financial liabilitiesLong term financing 75,913 109,652Liabilities against assets subject to finance lease 15,466 23,807Short term borrowings 660,404 605,343

Fair value sensitivity analysis for fixed rate instruments

The Company does not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore, a change in interest rate at the balance sheet date would not affect profit or loss of the Company.

Cash flow sensitivity analysis for variable rate instruments

If interest rates at the year end date, fluctuates by 1% higher / lower with all other variables held constant, loss after taxation for the year would have been Rupees 7.518 million (2008: Rupees 7.388 million) higher / lower, mainly as a result of higher / lower interest expense on floating rate borrowings. This analysis is prepared assuming the amounts of liabilities outstanding at balance sheet dates were outstanding for the whole year.

(b) Credit risk

Credit risk represents the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was as follows:

Long term deposits 1,611 1,611

Trade debts 277,081 203,324

Loans and advances 1,645 927

Other receivables 3,608 214

Short term investments 29,236 103,271

Bank balances 14,190 13,787

327,371 323,134

The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (If available) or to historical information about counterparty default rate:

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Rating 2009 2008

Short Term Long Term Agency (Rupees in thousand)

Banks

National Bank of Pakistan A-1+ AAA JCR-VIS 119 595

Askari Bank Limited A1+ AA PACRA 25 25

Bank Alfalah Limited A1+ AA PACRA 47 47

Habib Bank Limited A-1+ AA+ JCR-VIS 37 41

MCB Bank Limited A1+ AA+ PACRA 10,236 714

NIB Bank Limited A1+ AA - PACRA 22 121

The Royal Bank of Scotland Limited A1+ AA PACRA 930 7,553

Silkbank Limited A-3 A - JCR-VIS 3 3

Standard Chartered Bank (Pakistan) Limited A1+ AAA PACRA 10 66

United Bank Limited A-1+ AA+ JCR-VIS 2,194 2,910

Bank Al Habib Limited A1+ AA+ PACRA 26 26

The Bank of Punjab A1+ AA- PACRA 41 12

IGI Investment Bank Limited A1+ A PACRA 500 1,674

14,190 13,787

Rating 2009 2008

Short Term Long Term Agency (Rupees in thousand)

Investments

Premier Insurance Limited - A JCR-VIS 6,274 19,944

Samba Bank Limited A- A JCR-VIS 14,609 51,720

EFU Life Assurance Limited - AA- JCR-VIS 7,406 29,357

28,289 101,021

42,479 114,808

The Company's exposure to credit risk and impairment losses related to trade debts is disclosed in Note 18.

Due to the Company's long standing business relationships with these counterparties and after giving due consideration to their strong financial standing, management does not expect non-performance by these counter parties on their obligations to the Company. Accordingly the credit risk is minimal.

(c) Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.

The Company manages liquidity risk by maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. At 30 June 2009, the Company had Rupees 707.425 million available borrowing limits from financial institutions and Rupees 14.338 million cash and bank balances. Inspite the fact that the Company is in a negative working capital position at the year end, management believes the liquidity risk to be low. Following are the contractual maturities of financial liabilities, including interest payments. The amount disclosed in the table are undiscounted cash flows:

Contractual maturities of financial liabilities as at 30 June 2009.

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Carrying Contractual 6 month 6-12 month 1-2 Year More than

Amount cash flows or less 2 Years


Long term financing 276,618 323,109 37,199 68,436 129,307 88,167Long term supplier's credit 39,709 39,709 - - 39,709 -Liabilities against assets subject to finance lease 15,466 17,309 5,758 5,758 5,793 -Trade and other payables 204,103 204,103 204,103 - - -Short term borrowings 660,404 750,701 507,583 243,118 - -

1,196,300 1,334,931 754,643 317,312 174,809 88,167

Contractual maturities of financial liabilities as at 30 June 2008

Carrying Contractual 6 month 6-12 month 1-2 Year More than

Amount cash flows or less 2 Years


Long term financing 351,859 414,544 83,780 71,080 133,923 125,761Long term supplier's credit 39,709 39,709 - - - 39,709Liabilities against assets subject to finance lease 23,807 28,996 5,799 5,887 11,517 5,793Trade and other payables 126,815 126,815 126,815 - - -Short term borrowings 605,343 679,101 462,210 216,891 - -

1,147,533 1,289,165 678,604 293,858 145,440 171,263

The contractual cash flows relating to the above financial liabilities have been determined on the basis of interest rates / mark up rates effective as at 30 June. The rates of interest / mark up have been disclosed in note 5 and note 11 to these financial statements.

37.2 Fair values of financial assets and liabilities

The carrying values of all financial assets and liabilities reflected in financial statements approximate their fair values. Fair value is determined on the basis of objective evidence at each reporting date.

37.3 Financial instruments by categories

Loans and Availablereceivables for sale Total

(Rupees in thousand)As at 30 June 2009Assets as per balance sheetLong term deposits 1,611 - 1,611Trade debts 277,081 - 277,081Loans and advances 1,645 - 1,645Other receivables 3,608 - 3,608Short term investments - 29,236 29,236Cash and bank balances 14,338 - 14,338

298,283 29,236 327,519

Financial liabilities atamortized cost

(Rupees in thousand)Liabilities as per balance sheetLong term financing 276,618 Long term supplier's credit 39,709 Liabilities against assets subject to finance lease 15,466 Trade and other payables 204,103 Accrued mark-up 29,906 Short term borrowings 660,404

1,226,206

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Loans and Availablereceivables for sale Total

(Rupees in thousand)As at 30 June 2008Assets as per balance sheetLong term deposits 1,611 - 1,611Trade debts 203,324 - 203,324Loans and advances 927 - 927Other receivables 214 - 214Short term investments - 103,271 103,271Cash and bank balances 13,962 - 13,962

220,038 103,271 323,309

Financial liabilities atamortized cost

(Rupees in thousand)Liabilities as per balance sheetLong term financing 351,859 Long term suppliers' credit 39,709 Liabilities against assets subject to finance lease 23,807 Trade and other payables 126,815 Accrued mark-up 30,777 Short term borrowings 605,343

1,178,310

37.4 Capital risk management

The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in the industry and the requirements of the lenders, the Company monitors the capital structure on the basis of gearing ratio. This ratio is calculated as borrowings divided by total capital employed. Borrowings represent long term financing and short term borrowings obtained by the Company as referred to in note 5 and 11 respectively. Total capital employed includes 'total equity' as shown in the balance sheet plus 'borrowings'.

2009 2008

Borrowings Rupees in thousand 937,022 957,202Total equity Rupees in thousand 398,586 510,907

Total capital employed Rupees in thousand 1,335,608 1,468,109

Gearing ratio Percentage 70.16 65.20

The increase in the gearing ratio resulted primarily from increase in accumulated loss and decrease in fair value reserves due to decrease in market value of shares.

38. PLANT CAPACITY AND ACTUAL PRODUCTIONNumber of spindles installed 58,416 58,416

Number of spindles operated 58,416 58,416

100 % plant capacity converted to 20s count based 21,711,755 21,711,755on 3 shifts per day ( Kgs)

Actual production converted to 20s count based 20,150,516 21,228,608on 3 shifts per day ( Kgs)

38.1 Reasons for low production:

Due to normal repair and maintenance of plant and machinery.

39. EVENTS AFTER THE BALANCE SHEET DATE

The Board of Directors of the Company has proposed a cash dividend for the year ended 30 June 2009 of Rupees Nil per share (2008: Rupees Nil per share) at their meeting held on October 05, 2009. However, this event has been considered as non-adjusting events under IAS 10 'Events after the Balance Sheet Date' and has not been recognized in these financial statements.

40. DATE OF AUTHORIZATION FOR ISSUE

These financial statements were authorized for issue on October 05, 2009 by the Board of Directors of the Company.

41. CORRESPONDING FIGURES

Corresponding figures have been rearranged and reclassified, whenever necessary, for the purpose of comparison. Significant changes made during the year were as follow:

Description From To

Commission to selling agents Sales Distribution costLegal and professional Other operating expenses Administrative expensesAuditors' remuneration Other operating expenses Administrative expenses

42. GENERAL

Figures have been rounded off to the nearest thousand of Rupees unless otherwise stated.



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PATTERN OF SHARE HOLDINGAS AT JUNE 30, 2009

Form -34

No. Of Shareholders From To Total

425 1 100 19,248311 101 500 80,08268 501 1,000 53,137117 1,001 5,000 302,34535 5,001 10,000 256,24917 10,001 15,000 221,52712 15,001 20,000 202,9208 20,001 25,000 177,0746 25,001 30,000 156,5316 30,001 35,000 200,1316 35,001 40,000 227,0433 40,001 45,000 124,2265 45,001 50,000 246,1122 50,001 55,000 105,0531 65,001 70,000 65,3251 75,001 80,000 76,8001 85,001 90,000 86,0001 115,001 120,000 120,0001 165,001 170,000 165,0661 200,001 205,000 204,2681 205,001 210,000 206,2971 210,001 215,000 212,0001 395,001 400,000 400,0001 810,001 815,000 812,1601 1,210,001 1,215,000 1,211,9981 1,245,001 1,250,000 1,248,4581 1,455,001 1,460,000 1,459,950

1,034 8,640,000

Categories of Shareholders Number Shares Held % Age

Financial Institutions 70 2,511,551 29.07Individuals 929 3,091,205 35.78Insurance Companies 3 425,230 4.92Investment Companies 8 4,950 0.06Joint Stock Companies 20 2,544,548 29.45Modaraba Company 2 13,151 0.15Other 2 49,365 0.57

TOTAL: 1,034 8,640,000 100.00

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INFORMATION REQUIRED AS PER CODE OF CORPORATE GOVERNANCEAS AT JUNE 30, 2009

Categories of Share Holders Net Holding Percentage

Associated Companies, Undertakings & Related Parties

Crescent Textile Mills Ltd. 812,160 9.400

Premier Insurance Limited 4000,000 4.630

Mohd. Amim Mohd. Bashir Limited 210 0.002

Crescent Powertec Limited 1,460,000 16.898

National Investment Trust Limited

National Bank of Pakistan 2,460,976 28.484

Directors, CEO & their Spouse and minor children

Mr. Adil Bashir (D1irector) 204,268 2.364

Mr. Amjad Mahmood (Director) 25,942 0.300

Mr. Asif Bashir (Director) 77,100 0.892

Mr. Bashir Ahmad (Nominee:NIT) (Director) - -

Mr. Khalid Bashir (Director/Chief 137,098 1.587(Executive)

Mr. Muhammad Anwar (Director) 26,946 0.312

Mr. Muhammad Asif (Nominee:NIT) (Director) - -

Mr. Nadeem Maqbool (Director) 37,383 0.433

Mrs. Tanveer Khalid (W/o Mr. Khalid Bashir) 165,066 1.910

Mrs. Naheed Amjad (W/O Mr. Amjad Mahmood) 22,384 0.259

Mrs. Amna Asif Bashir (W/o Mr. Asif Bashir) 10,760 0.125

Mrs. Sana Adil (W/o Mr. Adil Bashir) 18,000 0.208

Public Sector Companies & Corporations:

Corporate Law Authority 1 0.000

Joint Stock, Banks, Development Finance Institutions,

Non Banking Finance Institutions, Insurance Companies, 366,084 4.237

Modarbas & Mutual Funds

Shareholders' holding ten percent or more voting in the Company

National Bank of Pakistan 2,460,976 28.484

Crescent Powertec Limited 1,460,000 16.898

Individuals 2,366,258 27.387

OthersZohra Trust 49,364 0.571

TOTAL NUMBER OF SHARES 8,640,000 100.00

Details of Purchase / Sale of shares by Directors / CEO / Company Secretary / CFO / and their spouses / minor children during 2009

86,738 shares were purchased by Mr. Khalid Bashir Chief Executive Officer.

10,000 shares were purchased by Mrs. Tanveer Khalid (W/o Mr. Khalid Bashir).

*

*

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PROXY

I/We_________________________________________________________________________

_________ of __________________________________________ being a member of Shams Textile

Mills Limited and holder of ________________________________ shares as per

Registered Folio No. ___________

hereby appoint _________________________ of ________________ Who is also a member of the

Company, Folio No. __________________or failing him/her ___________________________________

of ________________ who is also member of the Company vide Registered Folio No. __________ as

ndmy/our Proxy to attend, speak and vote for me/us and on my/our behalf at the 42 Annual General

Meeting of the Company to be held on Thursday, October 29, 2009 at 9:00 a.m. at Registered Office, 7-B

III, Aziz Avenue, Gulberg-V Lahore and at any adjournment thereof.

Dated this _________ day of _________, 2009. Signature of the Shareholder ____________________

AffixRevenue of

Stamps of Rs. 5/-

For Beneficial owners as per CDC list

1-Witness:

Signature

Name

Address

2-Witness:

Signature

Name

Address

For Beneficial Owners as per CDC list

CDC Participant I. D. N o.

Sub-Account N o.

NIC N o.

or Passport N o.

Signature of Member

Note:

Proxies in order to be effective must be received at the Registered Office of the Company at 7-B-III, Aziz Avenue, Gulberg-V, Lahore not later than 48 hours before the meeting.

CDC Shareholders and their Proxies are each requested to attach an attested Photocopy of their National Identity Card or Passport with this proxy form before submission to the Company.

Shams Textile Mills Limited

7-B-3, Aziz Avenue, Gulberg 5

Lahore Pakistan

Telephone 92 (42) 3576 0381

Fax: 92 (42) 3576 0376

E-mail: [email protected]

Web: www.shams.com.pk

Shams Textile annual report

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