The document is the notice for the 55th Annual General Meeting of Dadex Eternit Limited. The meeting will be held on October 23, 2014 to:
1) Receive and adopt the audited financial statements and auditor's report for the year ended June 30, 2014 and the report of the Board of Directors.
2) Appoint auditors for the year ending June 30, 2015 and authorize the Directors to fix their remuneration. Ernst & Young Ford Rhodes Sidat Hyder, the current auditors, have offered themselves for reappointment.
The document is the notice for the 55th Annual General Meeting of Dadex Eternit Limited. The meeting will be held on October 23, 2014 to:
1) Receive and adopt the audited financial statements and auditor's report for the year ended June 30, 2014 and the report of the Board of Directors.
2) Appoint auditors for the year ending June 30, 2015 and authorize the Directors to fix their remuneration. Ernst & Young Ford Rhodes Sidat Hyder, the current auditors, have offered themselves for reappointment.
The document is the notice for the 55th Annual General Meeting of Dadex Eternit Limited. The meeting will be held on October 23, 2014 to:
1) Receive and adopt the audited financial statements and auditor's report for the year ended June 30, 2014 and the report of the Board of Directors.
2) Appoint auditors for the year ending June 30, 2015 and authorize the Directors to fix their remuneration. Ernst & Young Ford Rhodes Sidat Hyder, the current auditors, have offered themselves for reappointment.
For the year ended June 30, 2014 Dadex Eternit Limited
Vision
To be the most valued
Company for all stakeholders,
renowned for customer focus,
innovation, quality, reliability
and ethical practices. Annual Report 2014
Mission Statement · We shall provide unparalleled service and best value to our customers through a responsive and cost effective chain.
· We are committed to provide quality products by strict
adherence to international standards and best practices through technical collaboration with leading global companies in this business.
· We are committed to follow business ethics, comply with SH&E
standards and enhance our contribution to society.
· We shall strive to maximize our shareholders value through
sustained profitable growth.
· We shall enhance existing employees productivity, hire, retain
and develop best talent and provide them competitive environment to excel and grow.
· We will aggressively focus on increasing our penetration in the
piping systems market by exploring new channels.
· We shall continue to set new trends through innovative
marketing and manufacturing. Annual Report 2014
Our Philosophy
Our forte has been and continues to be, to
manufacture and market innovative customer-oriented products. Focusing on superiority, reliability and durability - we believe that these characteristics must embody not just our products but also our business practices. We believe in transparency; integrity, sound business practices and in presenting the best products and services to customers at all times.
At Dadex, our aim is to continue to be an
organization renowned for its principled approach in all spheres of work. Be it the production of piping systems or roofing material or customer service - integrity is a force we believe in. And reliability is the foundation of all that we do.
55 years of existence has only strengthened
our commitment. Excelling in piping systems, roofing materials, building products, irrigation systems and customer service - today, we stand poised to offer you the fundamentals upon which to build your future. Dadex Eternit Limited
Company Information 01
Notice of Annual General Meeting 02
Report of the Board of Directors 04
Attendance of Board of Directors Meeting 11
Statement of Compliance with the Code of Corporate Governance 12
Auditors Review Report on Statement of Compliance 17
Auditors Report to the Members 18
Balance Sheet 19
Profit and Loss Account 20
Statement of Comprehensive Income 21
Cash Flow Statement 22
Statement of Changes in Equity 23
Notes to the Financial Statements 24
Pattern of Shareholding 58
Last Ten Years at a Glance 60
Form of Proxy 61 Annual Report 2014
Company Information Board of Directors Sikander Dada - Chairman (Non - Executive Director) Abu Talib H.K. Dada (Non - Executive Director) Maqbool H.H. Rahimtoola (Non - Executive Director) Shahzad M. Husain (Non - Executive Director) Danish Dada (Non - Executive Director) Syed Shahid Ali Bukhari (Independent Director) Qazi Sajid Ali (Executive Director)
Chief Executive Officer Qazi Sajid Ali
Company Secretary Umar Rasheed
Acting Chief Financial Officer Muhammad Yousuf
Board Audit Committee Shahzad M. Husain - Chairman
Danish Dada Syed Shahid Ali Bukhari
Head of Internal Audit / Mustafa Kamal Khan
Secretary Board Audit Committee
Human Resource and Remuneration Maqbool H.H. Rahimtoola - Chairman
Committee Abu Talib H.K. Dada Qazi Sajid Ali
Management Team Qazi Sajid Ali - Chief Executive Officer
Auditors Ernst & Young Ford Rhodes Sidat Hyder, Chartered Accountants
Bankers National Bank of Pakistan MCB Bank Limited The Bank of Punjab Habib Metropolitan Bank Limited United Bank Limited (UBL Ameen) Dubai Islamic Bank Pakistan Limited Standard Chartered Bank (Pakistan) Limited Habib Bank Limited HSBC Bank Middle East Limited
505, 5th Floor, Kashif Centre, Near Hotel Mehran, Main Shahrah-e-Faisal, Karachi. Phone: (92-21) 35643871-72 Fax: (92-21) 35643873 Email: [email protected]
01 Dadex Eternit Limited
NOTICE OF 55TH ANNUAL GENERAL MEETING
Notice is hereby given that the 55th Annual General Meeting of the Dadex Eternit Limited will be held on Thursday, October 23, 2014 at 09:30 a.m., at Dadex House, 34-A/1, Block-6, PECHS, Shahrah- e-Faisal, Karachi to transact the following ordinary business:
1. To receive, consider and adopt the following documents for the year ended June 30, 2014:
a) Audited Financial Statements and the Auditors' Report thereon; and
b) The Report of the Board of Directors.
2. To appoint auditors of the Company for the year ending June 30, 2015, and authorize the Directors to fix their remuneration. The present auditors, M/s. Ernst & Young Ford Rhodes Sidat Hyder, Chartered Accountants, being eligible have offered themselves for reappointment. As required by the paragraph (xxxv) of the Code of Corporate Governance 2012, the Board of Directors recommends, based on the recommendation of the Audit Committee the appointment of M/s. Ernst & Young Ford Rhodes Sidat Hyder, Chartered Accountants.
By Order of the Board
(Umar Rasheed) Karachi: September 24, 2014 Company Secretary
NOTES: 1. The Register of Members and the Share Transfer Books of the Company shall remain closed from October 16, 2014 to October 23, 2014 (both days inclusive). Transfers received in order at the office of our Share Registrar, JWAFFS Registrar Services (Pvt.) Limited, 505, 5th Floor, Kashif Centre, Main Shahrah-e-Faisal, Karachi by the close of business hours on October 15, 2014 will be treated in time for incorporating the change in the Register of Members as at October 16, 2014.
2. Entitlement to attend, participate and vote at the 55th Annual General Meeting will be according to the Register of Members as at October 16, 2014.
3. A member of the Company entitled to attend and vote may appoint another member as his/her proxy to attend, speak and vote for him/her. An instrument of proxy and the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority, must, to be valid, be deposited at the Registered Office of the Company not less than 48 hours before the time of the Meeting.
4. An instrument of the proxy applicable for the Meeting, in which a Member can direct the proxy how he/she wishes the proxy to vote, is being provided with the notice sent to Members. Further copies of the instrument of proxy may be obtained from the Registered Office of the Company during normal office hours or can be downloaded from our website www.dadex.com.
5. Members are requested to notify change, if any, in their registered addresses to our Share Registrar at above mentioned address.
6. Members who have not yet submitted photocopy of their Computerized National Identity Cards are requested to send the same to our Share Registrar.
7. As per SECP directives all the shareholders of the Company are requested to provide bank mandate details to our Share Registrar, so in future any entitlement, if declared, may directly be deposited in your respective bank accounts to avoid delay in payment of entitlement amount and or risk of loss or non-delivery of dividend warrants.
02 Annual Report 2014
8. As per SECP directives issued through SRO 634 (I)/2014, the Annual Report 2014 of the Company along with Notice of Annual General meeting is available for download at Company's website i.e. www.dadex.com.
9. CDC Account Holders will further have to follow the under-mentioned guidelines as laid down in Circular 1 dated January 26, 2000, issued by the Securities and Exchange Commission of Pakistan.
A. For Attending the Meeting:
i. In the case of individuals, the account holder or sub-account holder whose securities and registration details are uploaded as per the Regulations, shall authenticate his/her identity by showing his original CNIC or original passport at the time of attending the meeting.
ii. In the case of a corporate entity, the Board of Directors' resolution/power of attorney with the specimen signature of the nominee shall be produced (unless it has been provided earlier) at the time of attending the meeting.
B. For Appointing Proxies:
i. In the case of individuals, the account holder or sub-account holder whose securities and registration details are uploaded as per the Regulations shall submit the proxy form as per the above requirement.
ii. The proxy form shall be witnessed by two persons whose names, addresses and CNIC numbers shall be mentioned on the form.
iii. Attested copies of the CNIC or the passport of the beneficial owners and the proxy shall be furnished with the proxy form.
iv. The proxy shall produce his/her original CNIC or original passport at the time of the meeting.
v. In the case of a corporate entity, the Board of Directors' resolution/power of attorney with the specimen signature shall be submitted (unless it has been provided earlier) along with the proxy form to the Company.
10. Transport will be available for members at 08:30 a.m., sharp outside the premises of the Karachi Stock Exchange Building to take them to the venue of the meeting.
03 Dadex Eternit Limited
REPORT OF THE BOARD OF DIRECTORS
The Board of Directors of Dadex Eternit Limited ("Company") would like to present the 55th Annual Report along with the Audited Financial Statements for the year ended June 30, 2014.
NATIONAL ECONOMY
The economy of Pakistan, during the year under review, achieved a growth of 4.1 percent which is the highest level achieved in last six years. The growth momentum is broad based, as the major sectors i.e. agriculture, industry and services have provided support to economic growth. Early positive results, particularly stabilizing foreign exchange reserves, appreciation of exchange rate, increase in remittances, stability in prices despite heavy adjustments, shift in market based (T-bills and PIB) public debt towards medium to long term, successful launching of Euro Bond and auction of 3G/4G licenses, historical heights of Karachi Stock Exchange have all contributed in boosting the economy.
The Manufacturing sector is the most important sub-sector of the industrial sector containing 64.92 percent share in the overall industrial sector. The manufacturing sector registered growth of 5.55 percent compared to 4.53 percent last year. The construction sector has registered a growth of 11.31 percent against a negative growth of 1.68 percent last year. Construction sector contributes considerably to industrial growth and most relevant sector to our business.
BUSINESS
The year under review has been the most challenging for Dadex. In the first half, weakening of the Pak Rupee against foreign currencies increased prices of raw materials and related chemicals, as well as the cost of imported fittings, making our products more expensive while putting severe pressure on our margins. This led to substantial shortages in PVC and PPR raw materials, consequently curtailed production and increased conversion costs, as well as a continuous shortage of essential fittings of our premium products in PVC and PPR.
To counter the above issues, alternate sources of production and imports were quickly established, as well as swapping high cost bank liabilities at lower rates. In the second half, due to non availability of fiber, our mainstay product, FC pipes, could not be produced between December and May, while Karachi Factory operations remained completely suspended for three months, affecting production and sales of premium products like LSC Sheets, PVC and PPR pipes. Production and Sales were severely hampered throughout the year by the law and order situation in Karachi. New import laws and restrictions imposed in Afghanistan have virtually wiped out any potential for exporting our products during 2013/14.
OPERATIONS
During the year ended June 30, 2014, Karachi Factory (KF) continued facing challenging situation in terms of worker's unrest and illegal strikes thus bringing production to halt, one of the reason was retrenchment of redundant workers by the management. Another challange was unjustified disconnection of electric supply by K-Electric since October 2012, KF is being run on captive power generation. However, by end of last quarter, the management has been able to overcome the challenges. Production has resumed employing limited number of work force; the manpower is being shuffled internally wherever required. New hiring is being done under extreme situation and mostly at operator level.
04 Annual Report 2014
Hyderabad Factory has shown sustainable growth in increasing production capability in Plastics, due to various measures taken by the Management cost of production has significantly come down.
Sunder Factory has been steady in meeting the production requirements, the output has been increased. New developments on equipment and tooling have been undertaken to meet sales requirement mostly utilizing in-house capabilities in design and development. Sunder Factory has now added capability to produce "Polydex" pipes of different diameters. At Karachi Factory we are in process of increasing capability to produce "Thermoline" pipes of different smaller diameters. Larger diameter sizing tool of Flowline pipes being developed locally at Karachi Factory.
SALES AND PROFITABILITY
During the year under review, due to abovementioned factors the Sales revenue was severely hampered and Company achieved sales revenue of Rs.1.916 billion, against a target of Rs. 2.503 billion, drop of 24 percent and against sales revenue of Rs. 2.385 billion during 2012/13, a drop of 20 percent.
The year ended with a net Loss after tax of Rs. 189.334 million, (2012/13: net loss of Rs. 12.310 million), the major contributors being lower production and sales, higher conversion costs and financial cost have increased by 22.7 percent as compared to corresponding period last year. That have resulted in a loss per share of Rs. 17.59 (2012/13: loss per share Rs. 1.14).
The sales outlook for 2014/15 has been rationalized positively which is 40% higher than the actual sales of 2013/14.
DIVIDENDS AND APPROPRIATIONS
The Company declared Rs. Nil dividend during the year under review. Summary of profits available for appropriations is as follows:
(Rupees in thousand) Un-appropriated profit as at July 01, 2013 12,287 Prior year adjustment - Transfer from Un-appropriated Profit to general reserves - Surplus on revaluation of fixed assets on account of incremental depreciation charged on related assets 14,454 Loss after taxation for the year ended June 30, 2014 (189,334) Accumulated loss as at June 30, 2014 (162,593) Subsequent Effects Proposed final dividend per share of Rs. Nil - Transfer to general reserves for the year ended June 30, 2014 - Accumulatedloss as at July 01, 2014 (162,593)
Break-up value per share as at June 30, 2014 is Rs. 10.28 (2012/13:Rs.26.53).
BOARD OF DIRECTORS AND ITS COMMITTEES
A. Following the resignation of Mr. Sikander Dada as the Chief Executive Officer of the Company. The Directors appointed Mr. Qazi Sajid Ali as the new Chief Executive Officer of the Company with effect from May 01, 2014 for a period of three years.
05 Dadex Eternit Limited
B. The Board completed its term on July 12, 2014 and a new Board comprising seven directors, including one independent director who meets the criteria of independence under clause i(b) of the CCG, were elected in the Extraordinary General meeting of the Shareholders of the Company held on June 26, 2014 for a period of three years commencing from July 13, 2014. During the year, six Board meetings were held. The attendance of the Directors attending Board meetings is annexed with this Report. C. The Board has formed its Audit Committee & Human Resource and Remuneration Committee and approved the terms of reference for compliance by these Committees. The Audit Committee is comprised of three members and all are Non-Executive Directors. The Human Resource and Remuneration Committee comprises of one Executive and two Non-Executive Directors. During the year four Audit Committee meetings and two Human Resource and Remuneration Committee meetings were held.
ENERGY CONSERVATION
We recognize the need to protect and preserve our planet and we care about the welfare and well-being of our people. Therefore, we go the extra mile to prevent unnecessary wastage of our natural resources and make a conscious effort to protect the environment. Our business strategies are fully aligned with this vision and have been designed taking in account the far-reaching environmental impact of our business decisions.
Increase in Diesel prices & Gas load shedding remained big concern as these impact costs of production of both Plastics and CC Products. Various initiatives were taken in factories to reduce energy consumption. The Company is using Bi-Fuel system on Diesel Generator at Karachi Factory which has brought down the cost of energy produced. At Hyderabad Factory Company is using a Gas fired Generator and a Diesel Generator.
The Company also encourages its employees to conserve electricity by switching off lighting, computer systems, electronic equipments when not in use and all electrical equipments are properly maintained to save the energy. INFORMATION COMMUNICATION TECHNOLOGY
In order to meets its ever growing need to adapt itself to the dynamic era of information and communication technologies the ICT department of DADEX will update its existing software licenses / hardware. The company uses information and communication technologies as a tool to remain upbeat in cut throat competition prevailing in the market thus making sure continuous improvement in business solutions and connectivity amongst its internal and external stakeholders. The ICT Department is committed towards delivering cutting edge and consistent IT and SAP support services to its end users. The Company is working on lines to develop enhanced controls and existing SAP processes, updating applications, software, hardware, data communication to achieve business targets.
CORPORATE PHILANTHROPY AND COMMUNITY WELFARE
The Company during the year has taken part in various philanthropic and welfare activities and has made contribution of Rs. 0.02 million (2012/13: Rs. 0.22 million). BUSINESS ETHICS AND ANTI-CORRUPTION MEASURES
The Company believes that corporate success is based on the respect for the moral values and the satisfaction of the ethical, legal and social expectations. The Company does not discriminate on the basis of race, sex, religion, disability or family status in the recruitment, training or advancement of its employees.
06 Annual Report 2014
The Company has well established internal controls in place. The Board Audit Committee regularly reviews the internal audit reports and measures are taken to implement the recommendations of the internal auditors. The Companys philosophy and policy continues to be to follow sound corporate practices which provide consumer protection and ensure effective anti-corruption measures. RURAL DEVELOPMENT
The Company encourages the employment of local people from adjoining rural areas at its all three manufacturing facilities. CONTRIBUTION TO THE NATIONAL EXCHEQUER AND THE ECONOMY OF THE COUNTRY
The Company has contributed in excess of Rs. 398 million (2012/13: Rs.476 million) towards the National Exchequer in the form of income tax, sales tax, duties, levies and other taxes. HEALTH, SAFETY, ENVIRONMENT (HSE) AND QUALITY
At Dadex, our employees are expected to conform to our HSE management systems and processes which have been designed keeping in view international best practices. During the year under review, the re-certification audit of OSHAS 18001 & 14001 was conducted during October 2013 and the Company was re-certified for the next three years. The next surveillance audit for OSHAS 18001 & 14001 is due in October 2014. As per Environmental Plan Air Monitoring Tests are being conducted and analyzed for both area and personal sampling, one of the best practices in the developing countries despite difficult business environment in Pakistan. The company has been successful in getting the ISO 9001:2008 re-certification of Quality Management System during June 2014 for Head Office, Karachi Factory and Sunder Factory. The auditors (SGS) have given a clean chit with minor Non-Conformities and Observations. In addition, renewal and revalidation of product licenses were done from Pakistan Standard Quality Control Authority (PSQCA). New license requests for Thermoline and Flowline submitted. EMPLOYMENT OF SPECIAL PERSONS The Company considers it a social and moral responsibility to accommodate special persons. The Company has put in place a mechanism to ensure the employment of special persons in all future appointments and a special quota will be kept for them as per requirement.
INDUSTRIAL RELATIONS The Company maintains cordial relations with its employees, agreements are in place with the respective Collective Bargaining Agents [CBA Unions] based on negotiated charter of demands (COD).
Both the management & the Union are motivated enough to play their positive roles to handle the challenges in productivity improvements.
HUMAN RESOURCES
Human Capital at DADEX is seen as the most important resource in terms of our organizations growth. We pursue a comprehensive Human Capital strategy that integrates talent, leadership, culture and organization models with business goals to maximize the investment in people. The passion to perform and excel binds the diverse work force at DADEX.
07 Dadex Eternit Limited
We are committed to enhance the skills and competencies of our Human Capital as well as to augment their personal growth and development through an honest and transparent culture which nurtures learning, growth and empowerment.
COMPLIANCE WITH CODE OF CORPORATE GOVERNANCE
A) The Board of Directors are pleased to confirm that:
1) The Company has applied the principles contained in the Code of Corporate Governance and relevant listing regulations, as narrated in the Statement of Compliance with Code of Corporate Governance for the year ended June 30, 2014 annexed with this Report.
2) The Company while complying with the applicable regulations has applied the principles contained in the Code of Corporate Governance, relating to Related Party Transaction.
3) The Board of Directors have adopted the Code of Conduct and measures have and are being taken to ensure that the employees within the organisation effectively observe these rules of conduct.
4) The following statements which have also been certified by the External Auditors in their Report to the Members:
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 accounts of the Company have been maintained.
c. Appropriate accounting policies have been consistently applied in the preparation of the financial statements, and accounting estimates are based on reasonable and prudent judgment.
d. International Accounting Standards, as applicable in Pakistan, have been followed in the
preparation of the financial statements.
5) The Board has set up an effective Internal Audit function by appointing qualified and experienced head of internal audit who is well conversant with the policies and procedures of the Company. The system of internal controls and such other procedures, which are in place, are being continuously reviewed by the Boards Audit Committee.
6) There are no significant doubts upon the Companys ability to continue as a going concern.
7) There has been no material departure from the best practices of corporate governance, as detailed in the applicable Listing Regulations.
08 Annual Report 2014
B) The further information in accordance with the Corporate and Financial Reporting Framework laid down in the Code of Corporate Governance is as follows: 1) The summary of the key operating and financial data of the Company, spanning the last ten years is annexed with this Report. 2) Taxes and levies are as disclosed in the Notes to the Accounts. 3) The following is the value of investments, held by the Provident Fund based on the latest audited accounts as at June 30, 2014:
2014 2013 (Rupees in thousand) 205,279 176,632 4) The statement, showing the pattern of shareholding of the Company as at June 30, 2014 is annexed with this Report. 5) The Directors, CEO, acting CFO, Head of Internal Audit and the Company Secretary, and their spouses and minor children did not carry out any trade in the shares of the Company during the year, except as those disclosed in the pattern of shareholding. HOLDING COMPANY
M/s. Sikander (Private) Limited is the holding company of Dadex Eternit Limited by virtue of its 63.18% shareholding in the Company. AUDITORS The present auditors M/s. Ernst & Young Ford Rhodes Sidat Hyder, Chartered Accountants retire at the conclusion of the 55th Annual General Meeting. Being eligible, they have offered themselves for re-appointment. As required by the Code of Corporate Governance, the Board Audit Committee has recommended their re-appointment as auditors of the Company for the financial year ending June 30, 2015 and the Board agrees with the recommendation of the Board Audit Committee and therefore have recommended their re-appointment to the Shareholders of the Company. Auditors recommended for appointment hold a satisfactory rating under the Quality Control Review Programme of the Institute of Chartered Accountants of Pakistan. MATERIAL CHANGES AND COMMITMENTS No material changes and commitments affecting the financial position of the Company have occurred between the end of the financial year of the Company, to which the Balance Sheet relates and the date of this Report. FUTURE PROSPECTS AND CHALLENGES
The growth and profitability are affected by a number of external factors. Inflation, political turmoil, power shortages and uncertain law and order tend to upset the Companys set targets. However, a focused program to turn the Company around is under implementation, including targeted cost cutting measures, moving towards a lean and efficient human resource setup curtailing overtime expenses, as well as controlling Distribution and Administration expenditure, wastages and other losses.
09 Dadex Eternit Limited
FUTURE PROSPECTS AND CHALLENGES
The growth and profitability are affected by a number of external factors. Inflation, political turmoil, power shortages and uncertain law and order tend to upset the Companys set targets. However, a focused program to turn the Company around is under implementation, including targeted cost cutting measures, moving towards a lean and efficient human resource setup curtailing overtime expenses, as well as controlling Distribution and Administration expenditure, wastages and other losses.
ACKNOWLEDGEMENTS
Achieving customers trust is the key to our success so far and we are determined to provide the quality of service that will continue to retain this trust. We are most grateful to all our customers for their support and seek their continued patronage. The Company would also like to take this opportunity to thank its outgoing directors who have, over their tenure, rendered invaluable services and contribution towards the progress of the Company and achievement of our objectives. The Company would like to take this opportunity to thank all its shareholders and other stakeholders including suppliers, service providers, banks / financial institutions and insurers for reposing their trust in the Company. The Company would also like to thank its employees who have stood firm with the Company in this challenging phase. We remain committed to improve the way we work, to be more professional, efficient and profitable to deliver sustained return to our shareholders in a well diversified manner.
Karachi: September 24, 2014 On behalf of the Board of Directors
Sikander Dada Chairman
10 Annual Report 2014
ATTENDANCE OF BOARD OF DIRECTORS MEETING
For the year ended June 30, 2014
Total number of Number of
Name of Director meetings held meetings during the year attended
Mr. Sikander Dada 6 6
Mr. Abu Talib H.K. Dada 6 6
Mr. Maqbool H.H. Rahimtoola 6 6
Mr. Qazi Sajid Ali 6 5
Mr. Shahzad M. Husain 6 6
Mr. Zulfiqar Ali Lakhani 6 0
Mr. Samad Dada 6 0
Leave of absence was granted to Directors who could not attend some of the Meetings.
11 Dadex Eternit Limited
Statement of Compliance with the Code of
Corporate Governance Dadex Eternit Limited, year ended June 30, 2014.
This statement is being presented to comply with the Code of Corporate Governance contained in Regulation No 35 (XI) of Listing Regulations of Karachi Stock Exchange 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 CCG in the following manner:
1. The Company encourages representation of Non-Executive Directors and Directors representing
minority interests on its Board of Directors. At present the Board includes:
Category Name
Independent Directors None
Executive Directors Mr. Qazi Sajid Ali
Non-Executive Directors Mr. Sikander Dada
Mr. Abu Talib H.K. Dada Mr. Maqbool H.H. Rahimtoola Mr. Shahzad M. Husain Mr. Zulfiqar Ali Lakhani Mr. Samad Dada
2. The Directors have confirmed that none of them is serving as a director on more than seven 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. During the year, no casual vacancy occurred on the Board of Directors of the Company. Election of Directors was held on June 26, 2014, in an extraordinary general meeting in which seven directors, including one independent director who meets the criteria of independence under clause i (b) of the CCG, were elected for a period of 03 years commencing from July 13, 2014.
5. The Company has prepared a "Code of Conduct" and has ensured that appropriate steps have been taken to disseminate it throughout the Company along with its supporting policies and procedures.
12 Annual Report 2014
6. The Board has developed vision/mission statement, overall corporate strategy and significant policies of the Company. A complete record of particulars of significant policies along with the dates on which they were approved or amended has been maintained.
7. All the powers of the Board have been duly exercised and decisions on material transactions, including appointment and determination of remuneration and terms and conditions of employment of the CEO, other Executive and Non-Executive Directors, have been taken by the Board/Shareholders. 8. The meetings of the Board were presided over by the Chairman and the Board has met at least once in every quarter. Written notices of the Board meetings, along with the agenda and working papers, were circulated at least seven days before the meetings. The minutes of the meetings were appropriately recorded and circulated.
9. The Board is well aware of their duties and responsibilities under the Code. All the Directors, except one, have confirmed that they possess requisite educational and directorship experience on the board of listed companies and hence are exempted from the requirement of attending Directors' Training Program. The Company will take necessary steps to fully comply with the requirement of the CCG by the end of next accounting year.
10. The Board approved the resignation of Ex-Chief Executive Officer and appointment of a new Chief Executive Officer with effect from May 01, 2014, Head of Internal Audit with effect from May 02, 2014. The Board also approved the resignation of the Companys CFO and Company Secretary with effect from June 30, 2014 and appointment of acting CFO and Company Secretary with effect from July 01, 2014 on the recommendation of the Human Resource & Remuneration Committee.
11. The Directors' Report for this year has been prepared in compliance with the requirements of the CCG and fully describes the salient matters required to be disclosed.
12. The financial statements of the Company were duly endorsed by CEO and Acting 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.
14. The Company has complied with all the corporate and financial reporting requirements of the CCG.
15. The Board has formed an Audit Committee. It comprises of three (03) members, and they all are Non-Executive Directors, including the Chairman.
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 CCG. The terms of reference of the committee have been formed and advised to the committee for compliance.
17. The Board has formed a Human Resource & Remuneration Committee. It comprises of three (03) members, one is an executive Director and two are Non-Executive Directors and the Chairman of the committee is a Non-Executive Director.
13 Dadex Eternit Limited
18. The Board has set up an effective internal audit function which is considered suitably qualified and experienced for the purpose and is conversant with the policies and procedures of the Company.
19. The statutory auditors of the Company have confirmed that they have been given satisfactory rating under the quality control review program of the ICAP, 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 the ICAP. 20. 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.
22. Material/price sensitive information has been disseminated among all market participants at once through Stock Exchange.
23. We confirm that all material principles enshrined in the CCG have been complied with, except for the matter as stated in point 9 above towards which reasonable progress will be made by the Compay to seek compliance by the end of next accounting year.
Karachi: September 24, 2014 Qazi Sajid Ali
Cheif Executive
14 FINANCIAL STATEMENTS For the year ended June 30, 2014 Ernst & Young Ford Rhodes Sidat Hyder Tel: +9221 3565 0007-11 Chartered Accountants Fax: +9221 3568 1965 Progressive Plaza,Beaumont Road [email protected] Building a better P.O..Box 15541, Karachi 75530 ey.com/pk working world Pakistan
REVIEW REPORT TO THE MEMBERS ON STATEMENT OF COMPLIANCE
WITH BEST PRACTICES OF CODE OF CORPORATE GOVERNANCE We have reviewed the Statement of Compliance with the best practices contained in the Code of Corporate Governance (the Code) for the year ended 30 June 2014 prepared by the Board of Directors of Dadex Eternit Limited (the Company) to comply with the Listing Regulation No. 35 (Chapter XI) of the Karachi Stock Exchange Limited, where the Company is listed.
The responsibility for compliance with the Code 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 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 control covers all risks and controls, or to form an opinion on the effectiveness of such internal controls, the Company's corporate governance procedures and risks.
Further, the Listing Regulation of the Karachi Stock Exchange require 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 the 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, for the year ended 30 June 2014. We draw your attention to clause 23 of the Statement of Compliance which explains the status of directors' training program. Our conclusion is not qualified in respect of this matter.
Chartered Accountants Date: September 24, 2014 Karachi Ernst & Young Ford Rhodes Sidat Hyder Tel: +9221 3565 0007-11 Chartered Accountants Fax: +9221 3568 1965 Progressive Plaza,Beaumont Road [email protected] Building a better P.O..Box 15541, Karachi 75530 ey.com/pk working world Pakistan
AUDITORS REPORT TO THE MEMBERS
We have audited the annexed balance sheet of Dadex Eternit Limited (the Company) as at 30 June 2014 and the related profit and loss account, statement of comprehensive income, 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 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 CompaniesOrdinance, 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 account have been kept by the Company as required by the Companies Ordinance, 1984; (b) in our opinion: (i) the balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity with the Companies Ordinance, 1984, and are in agreement with the books of account and are further in accordance with accounting policies consistently applied except for the change as stated in note 4.1 to the accompanying 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 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, statement of comprehensive income, 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 2014 and of the loss, its comprehensive loss, 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 (XVIII of 1980).
Chartered Accountants Audit Engagement Partner: Omer Mustafa Ansari Date: 24 September 2014 Karachi Annual Report Balance Sheet 2014
Balance Sheet As at June 30, 2014 2014 2013 Note (Rupees in thousand)
ASSETS NON-CURRENT ASSETS Fixed assets Property, plant and equipment 5 1,508,224 1,301,522 Intangible assets 6 - - 1,508,224 1,301,522 Investment property 7 49,493 - Long-term investment 8 20 - Long-term loans 9 1,619 2,225 Long-term deposits 10 6,597 46,668 Deferred tax assets 11 129,940 62,105 1,695,893 1,412,520 CURRENT ASSETS Stores, spare parts and loose tools 12 34,694 33,147 Stock-in-trade 13 556,245 982,607 Trade debts 14 130,036 161,080 Loans and advances 15 26,146 61,713 Trade deposits and short-term prepayments 16 20,897 25,994 Other receivables 17 18,891 13,096 Sales tax and excise duty - net - 28,157 Taxation - net 18 159,166 144,964 Cash and bank balances 19 6,694 17,782 952,769 1,468,540 TOTAL ASSETS 2,648,662 2,881,060 EQUITY AND LIABILITIES SHARE CAPITAL AND RESERVES Share capital 20 107,640 107,640 Reserves 21 3,062 177,942 110,702 285,582
SURPLUS ON REVALUATION OF FIXED ASSETS 22 780,772 795,226
NON-CURRENT LIABILITIES Long-term financing 23 237,256 88,889 CURRENT LIABILITIES Trade and other payables 24 515,064 854,271 Accrued mark-up 33,600 21,691 Short-term borrowings 25 840,871 824,290 Current portion of long-term financing 23 119,702 11,111 Sales tax and excise duty - net 10,695 - 1,519,932 1,711,363 CONTINGENCIES AND COMMITMENTS 26 TOTAL EQUITY AND LIABILITIES 2,648,662 2,881,060
The annexed notes from 1 to 44 form an integral part of these financial statements.
For the year ended June 30, 2014 2014 2013 Note (Rupees in thousand)
Turnover - net 27 1,915,705 2,385,546
Cost of sales 28 (1,762,605) (1,872,573) Gross profit 153,100 512,973 Distribution costs 29 (150,870) (222,014) Administrative expenses 30 (175,395) (236,657)
Other operating expenses 31 (16,447) (23,030)
Other income 32 109,408 89,470
Operating (loss) / profit (80,204) 120,742
Finance costs 33 (147,873) (120,485) Share of profit / (loss) on investment in an associate 8 20 (494) Loss before taxation (228,057) (237) Taxation 34 38,723 (12,073) Loss for the year (189,334) (12,310)
(Rupees) Loss per share - basic and diluted 35 (17.59) (1.14)
The annexed notes from 1 to 44 form an integral part of these financial statements.
For the year ended June 30, 2014 2014 2013 Note (Rupees in thousand)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash flows generated from operations 39 159,535 20,023
Income tax paid 18 (43,313) (70,290) Long-term loans - net 606 (105) Long-term deposits - net 40,071 - Net cash generated from / (used in) operating activities 156,899 (50,372)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditure 5.1 & 5.2.3 (323,865) (66,017)
Proceeds from disposal of operating assets 18,622 - Interest received 66 50 Net cash used in investing activities (305,177) (65,967)
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term financing 23 256,958 100,000
Short-term borrowings - net 16,581 147,677 Interest / mark-up paid (135,964) (117,053) Dividend paid (385) (1,179) Net cash generated from financing activities 137,190 129,445 Net (decrease) / increase in cash and cash equivalents (11,088) 13,106 Cash and cash equivalents at the beginning of the year 19 17,782 4,676 Cash and cash equivalents at the end of the year 19 6,694 17,782
The annexed notes from 1 to 44 form an integral part of these financial statements.
For the year ended June 30, 2014 Issued, RESERVES Subscribed Capital REVENUE RESERVES and reserves- Un-appropriated Sub-Total Total paid-up share profit/(accumulated Total Equity capital premium General loss)
----------------------------------------------- (Rupees in thousand) ----------------------------------------------
Balance as at June 30, 2012 107,640 5,655 - 170,143 170,143 175,798 283,438
Transfer from general reserve
for the year ended June 30, 2012 - - 160,000 (160,000) - - -
Surplus on revaluation of fixed assets
realised on account of incremental depreciation charged on related asset for the year - - - 14,454 14,454 14,454 14,454
Loss for the year - - - (12,310) (12,310) (12,310) (12,310)
Other comprehensive income for the year - - - - - - - Total comprehensive loss for the year - - - (12,310) (12,310) (12,310) (12,310)
Balance as at June 30, 2013 107,640 5,655 160,000 12,287 172,287 177,942 285,582
Surplus on revaluation of fixed
assets realised on account of incremental depreciation charged onrelated assets for the year - - - 14,454 14,454 14,454 14,454
Loss for the year - - - (189,334) (189,334) (189,334) (189,334)
Other comprehensive income for the year - - - - - - - Total comprehensive loss for the year - - - (189,334) (189,334) (189,334) (189,334)
Balance as at June 30, 2014 107,640 5,655 160,000 (162,593) (2,593) 3,062 110,702
The annexed notes from 1 to 44 form an integral part of these financial statements.
For the year ended June 30, 2014 1. NATURE AND STATUS OF BUSINESS Dadex Eternit Limited (the Company) is a limited liability company incorporated in Pakistan on April 13, 1959 as a public company under the Companies Ordinance, 1984 and is quoted on the Karachi Stock Exchange. The registered office of the Company is situated at Dadex House, 34-A/1, Block 6, P.E.C.H.S, Sharah-e-Faisal, Karachi. The Company has three factories situated at Karachi, Hyderabad and Sundar (Lahore). The principal business of the Company is to manufacture and sell construction material, which mainly includes piping systems and other allied products manufactured from chrysotile cement, rubber and plastics, merchandising of imported pipe fittings, accessories and other building products. The Company is also engaged in providing irrigation solutions for agriculture and landscaping. During the year, the Company entered into a Toll manufacturing agreement for the northern region with a U-PVC Company at the end of December 2013 for manufacturing of U-PVC pipes in order to make prices and logistics more competitive in that region. Sikander (Private) Limited is the holding company, which held 6,800,648 (2013: 6,800,648) ordinary shares of Rs.10/-each of the Company representing 63.18 percent (2013: 63.18 percent) shareholding as of the balance sheet date. 2. 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 (IFRSs) issued by the International Accounting Standards Board (IASB) 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. 3. BASIS OF PREPARATION These financial statements have been prepared under the historical cost convention except for freehold land and leasehold land, which are stated at revalued amounts as referred to in notes 4.4.1 and 5.1.1 to these financial statements. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 4.1 Standards, amendments and interpretations adopted during the year The accounting policies adopted in the preparation of these financial statements are consistent with those of the previous financial year except as follows: New and amended standards and interpretations Company has adopted the following new and amended IFRSs and interpretations which became effective during the year: IAS 1 - Presentation of Financial Statements (Amendment) IAS 12 - Income Taxes (Amendment) The adoption of the above standards, amendments and interpretations did not have any material effect on the financial statements of the Company. 4.2 Standards and amendments to approved accounting standards that are not yet effective The following revised standards, amendments and interpretations with respect to the approved standards as applicable in Pakistan would be effective from the dates mentioned below against the respective standard or interpretation:
24 Annual Report 2014
Effective date (accounting periods beginning on or after) Standard or Interpretation IFRS 10 - Consolidated Financial Statements January 01, 2015 IFRS 11 - Joint Arrangements January 01, 2015 IFRS 12 - Disclosure of Interests in Other Entities January 01, 2015 IFRS 13 - Fair Value Measurement January 01, 2015 IAS 16 & 38 - Clarification of Acceptable Method of Depreciation and Amortization January 01, 2016 IAS 19 - Employee Contributions July 01, 2014 IAS 32 - Offsetting Financial Assets and Financial liabilities (Amendment) January 01, 2014 IAS 36 - Recoverable Amount for Non-Financial Assets (Amendment) January 01, 2014 IAS 39 - Novation of Derivatives and Continuation of Hedge Accounting (Amendment) January 01, 2014 The Company is currently evaluating the impact of the above standards and interpretation on the Company's financial statements in the period of initial application. In addition to the above, the following new standards have been issued by IASB which are yet to be notified by the SECP for the purpose of applicability in Pakistan. IASB Effective date (accounting periods Beginning on or after) Standard IFRS 9 - Financial Instruments: Classification and Measurement January 01, 2018 IFRS 14 - Regulatory Deferral Accounts January 01, 2016 IFRS 15 - Revenue from Contracts with Customers January 01, 2017 4.3 Significant accounting judgments, estimates and assumptions The preparation of financial statements in conformity with approved accounting standards requires the use of certain critical accounting estimates. It also requires management to consider industry practices and exercise its judgments in the process of applying the Company's accounting policies. Estimates and judgments are continually evaluated and are based on historic experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. In the process of applying the Company's accounting policies, management has made the following estimates and judgments which are significant to the financial statements: Property, plant and equipment The Company reviews appropriateness of the rate of depreciation, useful life and residual value used in the calculation of depreciation. Further, where applicable, an estimate of the recoverable amount of assets is made for possible impairment on an annual basis. In making these estimates, the Company uses the technical resources available with the Company. Any change in the estimates in the future might affect the carrying amount of respective item of property, plant and equipment, with corresponding effects on the depreciation charge and impairment. Stock-in-trade The Company reviews the net realisable values of stock in trade to assess any diminution in the respective carrying values. Net realisable value is estimated with reference to the estimated selling price in the ordinary course of business less the estimated costs of completion and estimated costs necessary to make the sale.
25 Dadex Eternit Limited
Trade debts The Company reviews its doubtful trade debts at each reporting date to assess whether provision should be recorded in the profit and loss account. In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the level of provision required. Such estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the provisions. Taxation In making the estimate for income tax payable by the Company, the Company takes into account the applicable tax laws and the decision by appellate authorities on certain issues in the past. With regard to deferred taxation, the Company applies various assumptions on future projections and applicability of different tax regime, as well as recoverability of various deferred tax assets. Contingencies The assessment of the contingencies inherently involves the exercise of significant judgment as the outcome of the future events cannot be predicted with certainty. The Company, based on the availability of the latest information, estimates contingent and exercise its judgment regarding the likelihood and impact, if any of the same and determined as to whether there is a need of creating and making provision, which may differ on the occurrence / non-occurrence of the uncertain future event(s). 4.4 Property, plant and equipment 4.4.1 Owned Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses, if any, except for freehold land and leasehold land. Freehold land and leasehold land are stated at revalued amounts, which are the fair value at the date of revaluation. Freehold land is stated at revalued amounts less accumulated impairment losses, if any and leasehold land is stated at revalued amount less accumulated depreciation and accumulated impairment losses, if any, recognised subsequent to the date of revaluation. Depreciation is charged to profit and loss account using the straight-line method over their estimated useful lives at the rates disclosed in note 5.1 to these financial statements, whereby the cost of an asset less residual value is written-off over its estimated useful life. A full month's depreciation is charged for assets in the month of purchase and no depreciation is charged in the month of disposal. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on de- recognition of the asset are calculated as the difference between the net disposal proceeds and the carrying amount of the item. Gains and losses on disposal of assets are taken to profit and loss account in the year the asset are derecognised. When revalued assets are sold, the relevant remaining surplus is transferred directly by the Company to its profit and loss account. Assets residual values, useful lives and method of depreciation are reviewed, and adjusted, if appropriate at each balance sheet date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. Valuations are performed frequently enough to ensure that the fair value of a revalued asset does not differ materially from its carrying amount at the balance sheet date. Accumulated depreciation at the date of the revaluation is eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset. Capital stores and spare parts held by the Company for replacement of major items of plant and machinery are stated at cost less accumulated impairment losses, if any. Maintenance and normal repairs are charged to profit and loss account as and when incurred. Major renewals and improvements, if any, are capitalised. 4.4.2 Capital work-in-progress Capital work-in-progress is stated at cost less accumulated impairment losses, if any, and consists of expenditure incurred and advances made in respect of operating assets in the course of their acquisition,
26 Annual Report 2014 and installation. The assets are transferred to relevant category of operating assets when they are available for use. 4.4.3 Assets subject to finance lease Finance leases, which transfer to the Company substantially all the risks and benefits incidental to ownership of leased items are capitalised at the inception of lease. Assets subject to finance lease are stated at the lower of the present value of minimum lease payments under the lease agreements and their fair value. Depreciation is charged using the same basis and rates used for similar owned assets whereby the cost of assets less residual value is written off over their estimated useful lives. Income arising from sale and lease back transactions, if any, is deferred and is amortised equally over the lease period. The outstanding obligations under the lease less finance charges allocated to future period are shown as a liability. Financial charges are calculated at the interest rate implicit in the lease and are charged to the profit and loss account. 4.5 Intangible assets An intangible asset is recognised if it is probable that the future economic benefits that are attributable to the asset will flow to the Company and that the cost of such asset can also be measured reliably. Generally, costs associated with developing or maintaining computer software programmes are recognised as an expense as incurred. However, costs that are directly associated with identifiable software and have probable economic benefit exceeding the cost beyond one year, are recognised as an intangible asset. Direct costs include the purchase cost of software and related overhead cost. Intangible assets are stated at cost less accumulated amortisation and impairment, if any. Amortisation is charged to the profit and loss account using the straight-line method over their estimated useful lives at the rate disclosed in note 6 to these financial statements. A full month's amortisation is charged for assets in the month of purchase and no amortisation is charged in the month of disposal. 4.6 Investment property These are assets held for capital appreciation and for rental earnings and are measured under the cost model. These are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Investment property is derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. The difference between the net disposals and carrying amount of the asset is recognised in the profit and loss account in the period of derecognition. Transfers are made to or from the investment property only when there is a change in use. If owner occupied property becomes an investment property, the Company accounts for such property in accordance with the policy stated under property, plant and equipment upto the date of change in use. Depreciation is charged to profit and loss account using the straight-line method over their estimated useful lives at the rates disclosed in note 7 to these financial statements, whereby the cost of an asset less residual value is written-off over its estimated useful life. A full month's depreciation is charged for assets in the month of purchase and no depreciation is charged in the month of disposal. Maintenance and normal repairs are charged to profit and loss account as and when incurred. Major renewals and improvements, if any, are capitalised. 4.7 Impairment The carrying amounts of the Company's assets are reviewed at each balance sheet date to identify circumstances indicating occurrence of impairment loss or reversal of previous impairment losses. If any such indication exists, the recoverable amounts are estimated and impairment losses or reversal of impairment losses are recognised in the profit and loss account. Reversal of impairment loss is restricted to the original cost of the asset. 4.8 Investments 4.8.1 Investment in an associate The Company's investment in its associate is accounted for using the equity method of accounting. An
27 Dadex Eternit Limited
associate is an entity in which the Company has significant influence and which is neither a subsidiary nor a jointly control entity. Under the equity method, the investment in the associate is carried in the balance sheet at cost plus post acquisition changes in the Company's share of net assets of the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is not amortised. The profit and loss account reflects the share of the results of operations of the associate. Where there has been a change recognised directly in the equity of the associate, the Company recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity. Profits and losses resulting from transactions between the Company and the associate are eliminated to the extent of the interest in the associate. The Company recognises the share of loss in an associate to the extent of carrying value of its investment in an associate. The financial statements of the associate are prepared for the same reporting period as of the Company. Where necessary, adjustments are made to bring the accounting policies in line with those of the Company. 4.8.2 Held-to-maturity Held-to-maturity investments are non-derivative financial assets which carry fixed or determinable payments and fixed maturities and which the Company has positive intention and ability to hold till maturity. Held-to-maturity investments are initially measured at fair value plus transaction costs. Subsequent to initial measurement, held-to-maturity investments are measured at amortised cost less accumulated impairment losses, if any. This cost is computed as the amount initially recognised minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initially recognised amount and the maturity amount, less allowance for repayment. This calculation includes all the fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transactions cost and all other premiums and discounts. Gains and losses are recognised in the profit and loss account when the investments are derecognised or impaired, as well as through the amortisation process. 4.9 Stores, spare parts and loose tools These are valued at the lower of cost and net realisable value. Cost is determined on the weighted average cost less provision for obsolete and slow moving items except for items in transit which are stated at invoice values plus other charges incurred thereon. Net realisable value is the estimated selling price in the ordinary course of business less the estimated cost necessary to make the sale which is generally equivalent to the estimated replacement cost. The Company reviews the carrying amount of stores, spare parts and loose tools on an annual basis and provision is made for obsolescence where necessary and is recognised as such in the profit and loss account. 4.10 Stock-in-trade 4.10.1 Raw materials Raw Materials, except in transit, are valued at the lower of weighted average cost and net realisable value. Stock in transit is valued at cost comprising invoice values plus other charges and taxes. 4.10.2 Work-in-process Work-in-process is valued at average cost comprising prime cost and an appropriate portion of manufacturing overheads. 4.10.3 Finished goods Finished goods are valued at the lower of weighted average cost and net realisable value. Cost in the case of manufactured finished goods includes prime cost and an appropriate portion of manufacturing overheads. Items in transit are valued at cost comprising invoice values plus other charges incurred thereon. Net realisable value signifies the estimated selling price in the ordinary course of business less estimated cost of completion and estimated costs necessarily to be incurred to make the sale. 4.11 Trade debts and other receivables Trade debts and other receivables are carried at original invoice amount less an estimate made for
28 Annual Report 2014
doubtful receivables based on the review of outstanding amounts at the year end. No provision is made in respect of the active customers which are considered good. Balances considered bad and irrecoverable are written off when identified. 4.12 Cash and cash equivalents Cash and cash equivalents are stated at cost. For the purposes of cash flow statement, cash and cash equivalents comprises cash in hand, bank balances, short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value and bank overdraft, if any. 4.13 Non-current assets held for sale Non-current assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Non-current assets are classified as for held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Property, plant and equipment and intangible assets once classified as held for sale are not depreciated or amortised. 4.14 Surplus on revaluation of fixed assets The surplus arising on revaluation of fixed assets is credited to the "Surplus on Revaluation of Fixed Assets Account" shown below equity in the balance sheet in accordance with the requirements of section 235 of the Companies Ordinance 1984. The said section was amended through the Companies (Amendment) Ordinance, 2002 and accordingly the Company has adopted the following accounting treatment of depreciation on revalued assets, keeping in view the Securities and Exchange Commission of Pakistan's (SECP) SRO 45(1)/2003 dated January 13, 2003: - depreciation on assets which are revalued is determined with reference to the value assigned to such assets on revaluation and depreciation charge for the year is taken to the profit and loss account; and - an amount equal to incremental depreciation for the year net of deferred taxation is transferred from "Surplus on Revaluation of Fixed Assets account" to accumulated profit through Statement of Changes in Equity to record realisation of surplus to the extent of the incremental depreciation charge for the year. 4.15 Trade and other payables Liabilities for trade and other amounts payable are carried at cost at the balance sheet date, which is the fair value of the consideration to be paid in future for goods and services received, whether or not billed to the Company. 4.16 Operating leases / Ijarah contracts Leases, where a significant portion of the risks and rewards of ownership are retained by the lessor, are classified as operating lease. Payments made under operating leases / Ijarah agreements (net of any incentives received from the lessor) are charged to the profit and loss account on a straight line basis over the lease / Ijarah term. 4.17 Provisions Provisions are recognised when: a) the Company has a present obligation (legal or constructive) as a result of past events; b) it is probable that an outflow of resources will be required to settle the obligation; and c) a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. 4.18 Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. Revenue is measured at fair value of the consideration received, excluding discounts, rebates, and sales tax or duty. The Company assesses its revenue arrangements against specific criteria in order to determine if it is acting as a principal or an agent. The Company has concluded that it is acting as a principal in all its revenue arrangements. The following are
29 Dadex Eternit Limited
the specific recognition criteria that must be met beforerevenue is recognised:
a) Revenue from sale of goods is recognised when significant risk and rewards of ownership of goods have passed to the buyers, usually on delivery of goods. b) Service income is recognised when related services are rendered. In such case, revenue is recognised by reference to the stage of completion of a transaction as of the balance sheet date to the extent of cost incurred and, accordingly adjusting the same against other receivables / advances from customers. c) Sales of scrap goods are recorded on receipt basis . d) Interest income is recorded using effective interest rate. e) Rental income is recorded on accrual basis. f) Dividend income is recognised when the right to receive the dividend is established. 4.19 Retirement benefits The Company operates an approved contributory provident fund for all permanent employees for which the employer's contribution is charged to the profit and loss account for the year. 4.20 Compensated absences The Company provides for its estimated liability towards leaves accumulated by employees on an accrual basis using current salary levels. 4.21 Taxation Current Provision for taxation is computed on taxable income at the current rates of taxation or based on turnover at the specified rates, whichever is higher, after taking into account tax credits and rebates available, if any, in accordance with the provision of the Income Tax Ordinance, 2001. It also includes any adjustment to tax payable in respect of prior years. However, for income covered under final tax regime, taxation is based on applicable tax rates under such regime. Deferred Deferred tax is provided in full using the liability method on all temporary differences arising at the balance sheet date between the tax base of assets and liabilities and their carrying amount for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, while deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax losses and unused tax credits, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, carry-forward of unused tax losses and unused tax credits can be recognised. The carrying amount of deferred tax asset is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each balance sheet date and are recognised to the extent that it has become probable that future taxable profit will allow deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the periods when the asset is recognised or the liability is settled based on the tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. In this regard, the effects on deferred taxation of the portion of income expected to be subject to final tax regime is adjusted in accordance with the requirement of Accounting Technical Release - 27 of the Institute of Chartered Accountants of Pakistan. Deferred tax is charged or credited to profit and loss account. Deferred tax relating to items recognised directly in other comprehensive income or equity is recognised in other comprehensive income or equity and not in profit and loss account. Deferred tax assets and deferred tax liabilities are offset only if there is a legally enforceable right to offset current tax assets and liabilities and they relate to the income tax levied by the same tax authority.
30 Annual Report 2014 4.22 Foreign currency translation The financial statements are presented in Pakistani Rupee, which is the Company's functional and presentation currency. Foreign currency transactions during the year are translated at the exchange ratesruling on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rates of exchange ruling at the balance sheet date. Any resulting gain or loss arising from changes in exchange rates is taken to the profit and loss account. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. 4.23 Financial instruments All the financial assets and financial liabilities are recognised at the time when the Company becomes a party to the contractual provisions of the instrument. All financial assets are derecognised at the time when the Company loses control of the contractual rights that comprise the financial assets. All financial liabilities are derecognised at the time when they are extinguished that is, when the obligation specified in the contract is discharged, cancelled or expired. Any gain or losses on derecognition of financial assets and financial liabilities are taken to the profit and loss account. 4.24 Derivative financial instruments The Company uses derivative financial instruments such as cross currency swaps and interest rate swaps to hedge its foreign market risks and interest rate risks respectively. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Derivatives that do not qualify for hedge accounting are recognised in the balance sheet at fair value with corresponding effect to profit and loss account. The fair values of the cross currency swap and interest rate swap represent the discounted value of the future cash flows estimates based on relevant economic assumptions for the period till the maturity of the swap contracts. The fair value of the forward currency contracts is calculated with reference to current forward exchange rates for contracts with similar maturity terms. At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Company will assess the hedging instrument's effectiveness in offsetting the exposure to changes in the hedged item's fair value or cash flows attributable to the hedge risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair values or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Cash flow hedges Cash flow hedges are when hedging exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognised firm commitment. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the profit and loss account. On an ongoing basis, the Company assesses whether each derivative continues to be highly effective in offsetting changes in the cash flows of hedged items. If and when a derivative is no longer expected to be highly effective, hedge accounting is discontinued.
31 Dadex Eternit Limited
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in other comprehensive income at that time remains in other comprehensive income and is recognised when the forecast transaction is ultimately recognised in the profit and loss account. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the profit and loss account. Movements on the hedging reserve are shown in other comprehensive income. Derivative instruments that are designated as, and are effective hedging instruments, are classified consistent with the classification of the underlying hedged item. The derivative instrument is separated into a current portion and non-current portion only if a reliable allocation can be made. 4.25 Offsetting of financial assets and financial liabilities A financial asset and financial liability is offset and the net amount is reported in the balance sheet, if the Company has a legally enforceable right to set-off the transactions and also intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. 4.26 Borrowing costs Borrowing and other related costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. All other borrowing costs are recognised as an expense in the period in which they are incurred. 4.27 Dividend and appropriation to reserves Dividend and appropriation to reserves are recognised in the financial statements in the period in which these are approved. 4.28 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the Chief Operating Decision Maker. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessments. Segment results, assets and liabilities include items directly attributable to a segment as well as those allocated on a reasonable basis. Unallocated items mainly comprise investment and related income, loans and borrowings and related expenses, corporate assets and income tax assets and liabilities. Segment capital expenditure is the total cost incurred during the year to acquire property, plant and equipment and intangible assets. 2014 2013 Note (Rupees in thousand)
5. PROPERTY, PLANT AND EQUIPMENT
Operating assets - owned 5.1 1,496,501 1,285,694
Capital work-in-progress 5.2 11,723 15,828 1,508,224 1,301,522
32 Annual Report 2014 5.1 Operating assets
WRITTEN COST ACCUMULATED DOWN DEPRECIATION VALUE
As at Additions / (Disposals) As at As at Charge for (On disposals) As at As at Depre-
July 01, *transfers June 30, July 01, the year / transfer June 30, June 30, ciation 2013 2014 2013 2014 2014 rate per annum ----------------------------------------------------- (Rupees in thousand) -------------------------------------------------- %
* Represents transfers from capital work-in-progress (note 5.2.3)
** Includes assets costing Rs. 100 million under common ownership under Diminishing Musharaka arrangement as explained in note 23.2.
COST ACCUMULATED DOWN
DEPRECIATION VALUE As at Additions / As at As at Charge for As at As at Depre- July 01, *transfers June 30, July 01, the year June 30, June 30, ciation 2012 2013 2012 2013 2013 rate per annum % ----------------------------------------------------- (Rupees in thousand) -------------------------------------------------- Freehold land (note 5.1.1) **307,151 - 307,151 - - 307,151 - Leasehold land (note 5.1.1) 778,867 778,867 6,062 14,467 20,529 758,338 1-2.5
Factory buildings on freehold and leasehold land (note 5.1.3) **187,141 *9,625 196,766 107,032 15,725 122,757 74,009 10 Buildings on freehold land other than factory 1,616 - 1,616 76 110 186 1,430 5 Buildings on leasehold land other than factory 13,203 - 13,203 10,091 337 10,428 2,775 5 Plant and machinery (note 5.1.4) **725,483 *43,516 768,999 615,533 23,450 638,983 130,016 10 Furniture and fittings 10,084 *562 10,646 7,136 741 7,877 2,769 10 Vehicles and transportation equipment 46,195 - 46,195 39,567 4,408 43,975 2,220 20
* Represents transfers from capital work-in-progress.
** Includes assets costing Rs. 100 million under common ownership under Diminishing Musharaka arrangement as explained in note 23.2.
33 Dadex Eternit Limited
5.1.1 Freehold land and leasehold land
These represent freehold land and leasehold land owned by the Company which are freely transferrable. During the year ended June 30, 2012, the Company caused to carry out a revaluation exercise by independent valuers, Iqbal A Nanjee & Co. (Private) Limited on January 23, 2012 and K.G. Traders (Private) Limited on February 13, 2012. The revaluation has resulted in surplus on freehold land and leasehold land of Rs. 37.245 million and Rs.1,063.092 million over their cost of Rs. 24.506 million and Rs. 3.596 million and written down value of Rs. 24.506 million and Rs. 1.970 million, respectively. Had there been no revaluation, the cost of revalued freehold land and leasehold land would have been Rs. 269.906 (2013: Rs. 269.906) million and Rs. 185.861 (2013: Rs. 0.831) million respectively, and written down value of revalued freehold land and leasehold land would have been Rs. 269.906 (2013: Rs. 269.906) million and Rs. 183.111 (2013: Rs. 0.420) million, respectively, in the balance sheet and surplus on revaluation of fixed assets would have been lower by Rs. 780.772 (2013: Rs.795.226) million. The fair values were determined with reference to market based evidence, based on active market prices and relevant enquiries and information as considered necessary, adjusted for any difference in nature, location or condition of the specific property. 2014 2013 Note (Rupees in thousand) 5.1.2 The depreciation charge for the year has been allocated as follows:
Cost of sales - manufacturing overheads 28 53,763 54,739
5.1.3 Represents cost of Rs. 131.630 (2013: Rs. 131.630) million and Rs. 65.136 (2013: Rs. 65.136) million and written down value of Rs. 46.929 (2013: Rs. 60.330) million and Rs. 10.259 (2013: Rs. 13.679) million of factory buildings on freehold and leasehold land, respectively. 5.1.4 Plant and machinery includes items such as fusion machine and related equipments having written down value of Nil (2013: Rs. 0.089) million which are in possession of customers for use on a temporary basis. 5.1.5 The cost of fully depreciated assets as at June 30, 2014 is Rs. 650.863 (2013: Rs. 524.916) million. 2014 2013 Note (Rupees in thousand) 5.2 Capital work-in-progress Plant and machinery - Green House Farming System 13,979 13,979 Impairment loss on plant and machinery 5.2.1 (9,312) (8,811) 4,667 5,168 Advance against purchase of operating assets 5.2.3 7,056 10,660 11,723 15,828 5.2.1 Impairment loss on plant and machinery Opening balance 8,811 8,609 Charge for the year 31 501 202 Closing balance 5.2.2 9,312 8,811
5.2.2 Impairment loss has been recognized on the abovementioned plant and machinery which has been determined using fair value (re-export value) as per the valuation by an independent valuer and part of the cost of services, i.e. agronomic support, the labor and logistics, which remained un-availed by the Company as of the balance sheet date and the supplier of abovementioned plant and machinery has committed to provide the aforesaid services to the Company or any of its customers.
34 Annual Report 2014 5.2.3 Included herein advances given for purchase / construction of items of factory buildings on freehold land and leasehold land and plant and machinery aggregating to Rs. 7.056 million. Further, during the year, additions of Rs. 2.128 (2013: Rs. 66.017) million were made to capital work-in-progress which majorly relate to plant and machinery, and assets of Rs. 5.603 (2013: Rs. 55.646) million were transferred to operating assets (note 5.1). 6. INTANGIBLE ASSETS WRITTEN COST ACCUMULATED DOWN DEPRECIATION VALUE As at Addition As at As at For As at As at Amortis- July 01, June 30, July 01, the year June 30, June 30, ation 2013 2014 2013 2014 2014 rate % --------------------------------- (Rupees in thousand) ------------------------------ SAP Software and licenses 20,700 - 20,700 20,700 - 20,700 - 33.33 2014 20,700 - 20,700 20,700 - 20,700 -
WRITTEN COST ACCUMULATED DOWN DEPRECIATION VALUE As at Addition As at As at For As at As at Amortis- July 01, June 30, July 01, the year June 30, June 30, ation 2012 2013 2012 2013 2013 rate % ------------------------------- (Rupees in thousand) -------------------------------- SAP Software and licenses 20,700 - 20,700 20,700 - 20,700 - 33.33 2013 20,700 - 20,700 20,700 - 20,700 - 7. INVESTMENT PROPERTY WRITTEN COST ACCUMULATED DOWN DEPRECIATION VALUE As at Addition As at As at For As at As at Depre- July 01, June 30, July 01, the year June 30, June 30, ciation 2013 2014 2013 2014 2014 rate % ----------------------------- (Rupees in thousand) ------------------------------------ Building on leasehold land - 50,762 50,762 - 1,269 1,269 49,493 5 2014 - 50,762 50,762 - 1,269 1,269 49,493 2013 - - - - - - -
35 Dadex Eternit Limited
7.1 Depreciation charge for the year is allocated to administrative expenses (note 30). 7.2 The fair value of the Head Office building as of August 30, 2013 amounted to Rs. 80.932 million, determined by K.G. Traders - an independent professional valuer. 8. LONG-TERM INVESTMENT - Equity method 2014 2013 Note (Rupees in thousand)
Movement of investment in an associate
Balance at beginning of the year - 494 Share of loss - current year based on unaudited financial statements 8.1 (5) (113) Adjustment for last year's profit / (loss) based on un-audited financial statements 25 (381) 20 (494) Balance at end of the year 20 -
8.1 The Company has 48.04 (2013: 48.04 percent) shareholding [i.e. 625,000 (2013: 625,000) ordinary shares of Rs.10/- each] in Berdex Construction Chemicals (Private) Limited (Berdex). Berdex is engaged in the marketing and distribution of construction chemicals in Pakistan. Based on the un-audited financial statements of Berdex for years ended June 30, 2014 and 2013, Berdex has reported a loss of Rs. 0.011 million and accumulated losses of Rs. 12.732 (2013: reported a profit of Rs. 0.053 million and accumulated losses of Rs. 12.721) million. 8.2 The summarised financial information of the associate of the Company, based on the un-audited financial statements for the year ended June 30, 2014 are as follows: 2014 2013 (Rupees in thousand) (Un-audited) Total assets 482 542 Total liabilities 203 253 Revenue - -
2014 2013 Note (Rupees in thousand) 9. LONG-TERM LOANS - secured, considered good
Employees 9.1 1,916 2,882
Current portion 15 (297) (657) 1,619 2,225
9.1 This represents interest free loans given to employees for the purchase of vehicles. These loans are repayable over periods ranging between four months to five years. All loans are granted in accordance with the terms of the employment and are secured by way of registration of vehicles purchased in the name of the Company. 2014 2013 Note (Rupees in thousand)
36 Annual Report 2014 10.1 These are non-interest bearing and generally on a term of more than a year. 10.2 This includes deposit with Sikander (Private) Limited, the holding company, amounting to Rs. 0.100 (2013: Rs. 0.100) million. 2014 2013 Note (Rupees in thousand) 11. DEFERRED TAX ASSETS
Deferred tax liabilities on taxable temporary difference:
- accelerated tax depreciation on owned assets (39,620) (38,260)
Deferred tax assets on deductible temporary differences:
- provision for slow moving and obsolete stores, spare parts and loose tools 4,814 4,941 - provision for doubtful debts 39,790 39,615 - other deductible temporary differences 6,874 6,125 - tax losses 156,154 88,678 207,632 139,359 Minimum tax 67,981 50,433 235,993 151,532
Temporary differences not expected to be reversed due to
applicability of Final Tax Regime (1,398) 4,188 Deferred tax assets not expected to be recovered with reasonable certainty including minimum tax credit (104,655) (93,615) 129,940 62,105
12. STORES, SPARE PARTS AND LOOSE TOOLS
Stores 3,393 4,067 Spare parts 34,927 35,193 Consumable accessories 8,242 6,063 Loose tools 2,290 2,355 28.1 48,852 47,678 Provision for slow moving and obsolete stores, spare parts and loose tools 12.1 (14,158) (14,531) 34,694 33,147
12.1 Provision for slow moving and obsolete stores,
spare parts and loose tools Opening balance 14,531 15,481 Reversal for the year 28 (373) (950) Closing balance 14,158 14,531
13. STOCK-IN-TRADE Raw materials - in hand 13.1 178,744 364,579 - in transit 23,158 187,909 28 201,902 552,488 Work-in-process 28 79,764 83,853 Finished goods - Manufactured 13.2 & 28 178,576 235,764 - Trading [including in transit Rs. Nil (2013: Rs.16.730) million. 13.3 & 28 96,003 110,502 274,579 346,266 556,245 982,607
37 Dadex Eternit Limited
13.1 Includes raw materials costing Rs. Nil (2013: Rs. 2.563) million which are carried at net realisable value of Rs. Nil (2013: Rs. 1.383) million. 13.2 Includes products costing Rs. 47.048 (2013: Rs. 43.428) million which are carried at net realisable value of Rs. 31.537 (2013: Rs. 27.946) million.
13.3 Includes products costing Rs. Nil (2013: Rs. 70.645) million which are carried at net realisable value of Rs. Nil (2013: Rs. 37.434) million.
14. TRADE DEBTS - unsecured
2014 2013 Turnkey Other than Total Turnkey Other than Total Turnkey Turnkey (notes 14.3 and 14.4) Note ---------------------------------- (Rupees in thousand) ----------------------------------
Considered good - 130,036 130,036 - 161,080 161,080
Reversal during the year - (6,227) (6,227) - (7,997) (7,997) 31 - 512 512 - 2,563 2,563 Closing balance 17,414 99,615 117,029 17,414 99,103 116,517
14.2 Provision for doubtful debts against turnkey projects represents estimate of the loss expected to be incurred on pipes supplied but not installed / certified to date on various projects.
14.3 Includes amount due from a related party, Cyber Internet Services (Private) Limited amounting to Rs. 3.435 (2013: Rs. 1.727) million.
14.4 The provision for doubtful debts includes an amount of Rs.15.632 (2013: Rs.15.632) million recoverable from an ex-employee, who had reportedly collected the amount from customers during the year 2007 and did not surrender the same to the Company. A law suit has been filed against the ex-employee to recover the above amount.
14.5 As at June 30, 2014 and 2013, the ageing analysis of unimpaired trade debts are as follows: Neither Past due but not impaired past due > 30 days > 90 days > 180 days nor upto 90 upto 180 upto 360 > 360 days Total impaired days days days days --------------------------------------- (Rupees in thousand) -----------------------------------------
Related parties 3,435 3,435 - - - -
Other than related parties 126,601 13,447 9,185 10,164 33,833 59,972 2014 130,036 16,882 9,185 10,164 33,833 59,972
Related parties 1,727 1,727 - - - -
Other than related parties 159,353 52,690 14,832 23,363 46,538 21,930 2013 161,080 54,417 14,832 23,363 46,538 21,930
14.6 These are non-interest bearing and generally on an average credit term of 30 days.
38 Annual Report 2014
2014 2013 Note (Rupees in thousand) 15. LOANS AND ADVANCES Loans - secured, considered good Current portion of long-term loans 9 297 657 Advances - unsecured, considered good Employees 270 7,145 Suppliers / contractors 25,439 53,771 Others 140 140 15.1 25,849 61,056 Advances - considered doubtful Suppliers / contractors 500 500 Provision for doubtful advances (500) (500) - - 26,146 61,713
15.1 These are non-interest bearing and generally on an average term of 1 to 6 months. 16. TRADE DEPOSITS AND SHORT-TERM PREPAYMENTS Trade deposits 5,662 11,354 Provision for doubtful trade deposits 16.1 (4,747) (5,107) 915 6,247 Margin deposits 11,997 15,301 Other deposits 2,167 1,930 15,079 23,478 Prepayments Rent 800 - Insurance 2,373 1,275 Technical fee - 761 Others 2,645 480 5,818 2,516 16.2 20,897 25,994 16.1 Provision for doubtful trade deposits
Opening balance 5,107 5,960
Charge for the year 32 140 576 Reversal for the year 32 (500) (1,429) Closing balance 4,747 5,107 16.2 These are non-interest bearing and generally on an average term of 1 to 6 months.
17. OTHER RECEIVABLES
- Provident fund 7,438 1,278 - Others 17.1 11,453 11,818 17.2 18,891 13,096 17.1 Includes herein receivable of Rs. 10.227 million from K-Electric Limited (KE) (formerly known as Karachi Electric Supply Company Limited) on account of excess electricity charges billed by KE to the Company. During the year, based on the advice of its legal counsel in light of the favorable decision of Honorable High Court of Sindh dated March 22, 2011 the Company has made an adjustment for aforesaid amount being an excess amount paid in prior years. In this respect, the Company has taken legal action to recover the above amount from KE.
39 Dadex Eternit Limited
17.2 These are non-interest bearing and generally on an average term of 1 to 6 months. 2014 2013 Note (Rupees in thousand)
18. TAXATION - NET
Opening refundable 144,964 96,840
Less: Provision for current and prior year tax 34 (29,111) (22,166) Add: Income tax paid / deducted at source during the year 43,313 70,290 Closing refundable 159,166 144,964
19. CASH AND BANK BALANCES
Cash in hand 2,964 488
Cash at banks in:
Current accounts - local currency 3,426 16,919 PLS saving account 19.1 304 375 3,730 17,294 6,694 17,782
19.1 This carries return at the rate of 7 percent (2013: 6 percent) per annum at the year end.
20. SHARE CAPITAL
20.1 Authorised capital
2014 2013 2014 2013 (Number of share) (Rupees in thousand)
12,000,000 12,000,000 Ordinary shares of Rs.10/- each 120,000 120,000
8,000,000 8,000,000 'B' class ordinary shares of Rs.10/- each 80,000 80,000 20,000,000 20,000,000 200,000 200,000
20.2 Issued, subscribed and paid-up capital (note 20.3)
2014 2013 2014 2013
(Number of share) (Rupees in thousand) Ordinary shares of Rs.10/- each: 1,714,264 1,714,264 fully paid in cash 17,143 17,143 476,386 476,386 issued as fully paid against 4,764 4,764 consideration other than cash 8,573,309 8,573,309 issued as fully paid bonus shares 85,733 85,733 10,763,959 10,763,959 107,640 107,640
20.3 Ordinary shares include 4,090,536 shares of B class of Rs.10/- each converted into and deemed to be ordinary shares on disposal by a foreign shareholder, in prior years, in accordance with the Articles of Association of the Company.
20.4 Sikander (Private) Limited holds 6,800,648 (2013: 6,800,648) ordinary shares having face value of Rs.10/- each (2013: Rs.10/- each) representing 63.18 percent (2013: 63.18 percent) shareholding as of balance sheet date.
fixed assets 795,226 809,680 Transferred to (accumulated loss) / un-appropriated profit on account of: - incremental depreciation charged during the year (14,454) (14,454) Closing balance of surplus on revaluation of fixed assets 780,772 795,226
23. LONG-TERM FINANCING - secured
Long-term financing Bank of Punjab 23.1 268,069 - United Bank Limited - Diminishing Musharika 23.2 88,889 100,000 356,958 100,000 Less: Current portion of Long-term Financing Bank of Punjab (97,480) - United Bank Limited - Diminishing Musharika (22,222) (11,111) (119,702) (11,111) 237,256 88,889
23.1 During the year, the Company caused an early termination of its Ijarah agreement by purchasing Ijarah asset (commercial property - see note 5) from UBL Ameen as per purchase price option. In order to arrange the required funds for the early termination of Ijarah agreement, the Company simultaneously entered into a financing agreement with the Bank of Punjab ('BOP') and obtained Rs. 292.438 million from the BOP for a period of 3 years with no grace period, carrying mark-up at the rate of 6 months KIBOR plus 2 percent per annum. The facility is repayable in 12 quarterly installments latest by January 21, 2017. This facility is secured against first exclusive charge of Rs. 498.925 million by way of equitable mortgage on Company's land, building and hypothecation over machinery & equipment located at plot no. 34-A/1, Block 6, P.E.C.H.S., Shahra-e-Faisal, Karachi.
23.2 Represents long-term financing obtained through creation of Shirkat-ul-Mulk (joint ownership) in the Musharaka Property situated at Plot No. 561 & 561-A, Sunder Industrial Estate, Raiwind Road, Lahore, based on Diminishing Musharaka. The Musharaka units are to be re-purchased during a period of 5 years' time with no grace period. All of the units comprising 91% of the Bank's Musharaka Share will be purchased during this period. These carry rent / profit at the rate of 6 months' KIBOR plus 2% (2013: Nil) per annum with a ceiling of 18% and a floor of 10%. These are secured by means of proportionate ownership and mortgage in respect of the Musharaka Property in favour of the bank to the extent of the Company's Musharaka Share of 9% in the property.
41 Dadex Eternit Limited
23.3 The amount of future committed installments and the period in which these payments will become due are as follows: 2014 2013 Note (Rupees in thousand)
Not later than one year 22,222 11,111
Later than one year but not later than five years 66,667 88,889 88,889 100,000
24. TRADE AND OTHER PAYABLES
Creditors - trade and non-trade (local) 24.1 48,814 109,916 - trade (foreign) 90,205 384,203 139,019 494,119 Accrued liabilities 70,274 96,736 Accrual for compensated absences 30,964 34,083 Advances from customers 232,416 177,433 Advance from tenants 4,953 4,875 Security deposits from distributors and others 14,435 23,062 Workers' Profits Participation Fund 24.2 668 594 Workers' Welfare Fund 1,890 1,890 Unclaimed dividend 17,475 17,858 Others 2,970 3,621 515,064 854,271
24.1 This includes amounts due to a related party, Berger Paints Pakistan Limited amounting to Rs. 0.01 (2013: Rs. 0.01) million as of balance sheet date. 2014 2013 Note (Rupees in thousand) 24.2 Workers' Profits Participation Fund
Balance as at July 01, 2013 594 5,380
Allocation for the year - - 594 5,380 Interest on funds utilised in the Company's business 34 74 2,576 Amounts paid on behalf of the fund - (7,362) Balance as at June 30, 2014 668 594
24.3 Trade and other payables are non-interest bearing and generally are on an average term of 1 to 12 months.
25.1 These finance facilities have been obtained from various commercial banks aggregating to Rs. 942 (2013: Rs 900) million out of which Rs. 101.129 (2013: Rs. 75.710) million remains unutilized as at the balance sheet date. These facilities are secured by creation of first pari-pasu charge against hypothecation of the Company's stock-in-trade and trade debts of Rs. 1,354.333 (2013: Rs.1,287.333) million, equitable mortgage of Rs. 134 million over property # 36 and 37 located in Gulberg, Lahore and first exclusive mortgage charge of Rs. 934 million over land and building of the Company situated at 21-22, Manghopir Road, Tapo Manghopir, Karachi.
25.2 These facilities carry mark-up at the rate of 11.43 to 12.23 percent (2013: 10.78 to 12.38 percent) per annum. 26. CONTINGENCIES AND COMMITMENTS 26.1 Contingencies 26.1.1 The Environmental Protection Tribunal initiated proceedings against the Company on February 18, 2010, containing allegations of pollution, under the Pakistan Environmental Protection Act, 1997 based on a complaint filed by the brother of an ex-employee of the Company against the Company. 26.1.2 The Company has submitted a plea before the Environmental Protection Tribunal raising the issue of the maintainability of the complaint and its lack of jurisdiction to hear the same. The said plea was dismissed vide an order dated June 29, 2010. Being aggrieved by the said order, the Company filed a constitutional petition before the Honorable High Court of Sindh (HCS) seeking reliefs that the proceedings before Environmental Protection Tribunal (the Tribunal ) vis- à-vis the Compliant were taken corum non judice and has maintained that the Tribunal has no jurisdiction of the subject matter and further sought a declaration that the Tribunal's order dated June 29, 2010 was illegal and void. The said constitutional petition was dismissed by HCS vide its judgment dated March 9, 2011. 26.1.3 Being aggrieved by the judgment of HCS, the Company filed petition for leave to appeal against the judgment of HCS before the Honorable Supreme Court of Pakistan (SCP). The SCP has granted leave to appeal to the Company vide its order dated June 23, 2011 and converted the petition into appeal. Thereafter, after the partial hearing of the civil appeal, the SCP vide its order dated October 25, 2011 has directed a commission constituted by the Tribunal to submit the report of environmental audit of the Company's factory and surrounding premises. Pursuant to the direction of SCP, a report was filed ostensibly on behalf of a commission constituted by the Tribunal to which objections have been filed by the Company before SCP. The hearing of civil appeal on merits is now pending. 26.1.4 Based on the opinion of the legal counsel of the Company, the management expects favorable outcome of the case. Accordingly, no provision in respect of above has been made in these financial statements. 2014 2013 Note (Rupees in thousand) 26.1.5 Bonds and guarantees issued by banks on behalf of the Company 57,286 64,897 These are secured by a first pari passu hypothecation charge as disclosed in note 25.1. 26.2 Commitments Commitments are as follows: Letters of credit 225,742 249,281 Postdated cheques 26.2.1 114,687 110,781 Import contracts 4,204 144,722 Duties payable on goods in transit 7,079 57,376 Local purchase contracts 92,175 18,171 443,887 580,331
43 Dadex Eternit Limited
26.2.1 Represents postdated cheques of Rs. 114.687 (2013: Rs. 110.781) million issued in favour of Collector of Customs on account of import of raw material under SRO 565(I)/2006 dated June 05, 2006 as amended vide SRO 564(I)/2008 dated June 11, 2008. 2014 2013 Note (Rupees in thousand) 27. TURNOVER - net Local - manufactured 2,005,894 2,414,956 - trading 205,895 231,149 - others 27,908 63,740 2,239,697 2,709,845 Export 644 32,189 2,240,341 2,742,034 Less: - Returns 2,982 4,181 - Sales tax 321,654 352,307 324,636 356,488 1,915,705 2,385,546
28. COST OF SALES
Manufactured Raw materials consumed Opening stock 13 552,488 464,842 Purchases 813,017 1,515,908 Closing stock 13 (201,902) (552,488) 1,163,603 1,428,262 Export rebate - duties - (99) 1,163,603 1,428,163 Manufacturing overheads Stores, spare parts and loose tools consumed 28.1 46,356 42,134 Salaries, wages and other benefits [includes Nil (2013: Rs.Nil) million in respect of bonus to workers] 28.2 105,378 115,117 Procured services 61,281 36,378 Fuel, water and power 78,585 79,909 Insurance 5,012 5,459 Traveling 225 206 Communication 1,488 1,524 Depreciation 5.1.2 53,763 54,739 Rent, rates and taxes 10,842 5,491 Repairs and maintenance 19,621 26,032 Technical assistance fee 8,704 3,028 Printing and stationery 886 660 Reversal for slow moving and obsolete stores, spare parts and loose tools 12.1 (373) (950) Other expenses 1,898 2,390 393,666 372,117 Opening stock of work-in-process 13 83,853 91,979 Closing stock of work-in-process 13 (79,764) (83,853) Cost of goods manufactured 1,561,358 1,808,406 Opening stock of finished goods 13 235,764 186,232 Closing stock of finished goods 13 (178,576) (235,764) 1,618,546 1,758,874 Trading Opening stock 13 110,502 53,369 Purchases 129,560 170,832 240,062 224,201 Closing stock 13 (96,003) (110,502) 144,059 113,699 1,762,605 1,872,573
44 Annual Report 2014 2014 2013 Note (Rupees in thousand) 28.1 Stores, spare parts and loose tools consumed
Salaries, wages and other benefits include Rs. 3.862 million (2013: Rs. 4.188 million) in respect of staff retirement benefits (provident fund contribution).
29. DISTRIBUTION COSTS
Transportation and other charges on local sales 21,381 35,087 Transportation and other charges on export sales - 235 21,381 35,322 Salaries and other benefits 29.1 75,640 79,944 Repairs and maintenance 13,299 10,840 Depreciation 5.1.2 2,270 3,956 Advertising and sales promotion 5,294 6,422 Commission expense - 42,412 Communication 2,687 2,722 Traveling 2,721 5,384 Professional charges 296 507 Printing, stationery and subscription 837 895 Rent, rates and taxes 17,954 26,123 Fuel, water and power 2,993 3,188 Insurance 486 603 Procured services 4,045 2,539 Others 967 1,157 150,870 222,014 29.1 Staff retirement benefits Salaries and other benefits include Rs. 3.564 million (2013: Rs. 3.624 million) in respect of staff retirement benefits (provident fund contribution). 2014 2013 Note (Rupees in thousand) 30. ADMINISTRATIVE EXPENSES Salaries and other benefits 30.1 55,037 55,561 Rent, rates and taxes - investment property 1,004 1,331 - others 387 351 Ijarah rentals 30.2 57,061 90,574 Procured services 4,857 3,700 Insurance 2,110 1,596 Depreciation - operating assets 5.1.2 7,193 2,334 - investment property 7.1 1,269 - Repairs and maintenance 9,535 9,193 Printing, stationery and subscription 1,752 2,093 Communication 5,351 8,754 Traveling 7,300 10,821 Fuel, water and power 9,471 4,589 Auditors' remuneration 30.3 2,015 1,973 Legal and professional 9,718 42,193 Others 1,335 1,594 175,395 236,657
45 Dadex Eternit Limited
30.1 Staff retirement benefits
Salaries and other benefits include Rs.3.014 million (2013: Rs. 2.805 million) in respect of staff retirement benefits (provident fund contribution).
30.2 Ijarah Rentals
Includes Rs. 1.343 million (2013: Nil) paid in respect of Charity due to late payment of rentals. 2014 2013 (Rupees in thousand) 30.3 Auditors' remuneration
Audit fee 1,100 1,100
Fee for half yearly review 400 400 Fee for review of compliance with Code of Corporate Governance 100 100 Special certifications 194 145 Out of pocket expenses 221 228 2,015 1,973
2014 2013 (Un-audited) (Audited) (Rupees in thousand) 30.4 Provident fund
Size of the fund 229,231 203,833
Cost of investments made 124,913 147,934
Fair value of investments 213,536 194,881
Percentage of investments made 50.89% 72.58%
30.4.1 Break-up of investments of provident fund
The break-up of investments in terms of amount and percentage of the size of the provident fund are as follows:
2014 2013 ------ (Un-audited) ------ ------ (Audited) ------ % of % of Investments Investments Investments Investments (Rs. in '000') as size of (Rs. in '000') as size of the fund the fund
30.4.2 Investments out of provident fund have been made in accordance with the provisions of the section 227 of the Companies Ordinance, 1984 and the rules formulated for this purpose and monthly contribution are made by the Company to the fund at the rate of 11% of employees' monthly basic salary and cost of living allowance, as defined in the Rules.
46 Annual Report 2014
2014 2013 Note (Rupees in thousand) 31. OTHER OPERATING EXPENSES
Directors' fee 1,300 1,180
Audit committee fee 400 670 Impairment loss on plant and machinery 5.2.1 501 202 Donations 31.1 21 221 Exchange loss - net of exchange gain of Rs. 6.440 million (2013: Rs. 1.040 million) 13,639 18,177 Provision against doubtful trade debts - net 14.1 512 2,563 Others 74 17 16,447 23,030
31.1 Recipients of donations do not include any donee in which a director or his spouse had any interest. 2014 2013 Note (Rupees in thousand) 32. OTHER INCOME
Income from financial assets
Income from bank deposits 66 50 Reversal of provision against doubtful trade deposits - net 16.1 360 853 426 903 Others Gain on disposal of operating assets 15,993 - Rental income - sub-lease property under Ijarah 32.1 35,551 38,233 Liabilities written back 32.2 35,731 18,735 Reversal of restructuring cost - 30,000 Income from scrap sales 21,272 - Net income from services 32.3 435 1,599 108,982 88,567 109,408 89,470
32.1 Expenses in respect of sub-lease commercial property have been allocated to administrative expenses (note 30).
32.2 This includes an amount of Rs. 35.158 million in respect of commission payable recorded last year.
32.3 Net income from services
2014 2013 Nature of services Revenue Expenses Income Revenue Expenses Income ----------------------- (Rupees in thousand) -----------------------
Jointing 475 40 435 1,655 56 1,599
47 Dadex Eternit Limited
2014 2013 Note (Rupees in thousand) 33. FINANCE COSTS
Mark-up on: - short-term borrowings 115,838 115,012 - long-term financings 26,421 - Interest on Workers' Profits Participation Fund 24.2 74 2,576 Bank and other charges 5,540 2,897 147,873 120,485
34.1 Relationship between tax expense and accounting profit
Loss before taxation (228,057)
Tax at the rate of 34% (77,539)
Tax effects of:
Prior year tax (621) Effect of change of tax rate on deferred tax 2,888 Income under Final Tax Regime 20,124 Income at lower rate - separate block (6,755) Permanent differences 5,705 Deferred tax asset not recognised - for the year 17,475 (38,723)
34.2 The income tax assessment of the Company has been finalised upto the tax year 2013. The provision for current income tax is based on minimum tax under Section 113 of the Income Tax Ordinance, 2001 and income chargeable under final tax regime on applicable tax rates under such regime or separate block of income. 2014 2013 Note (Rupees in thousand) 35. LOSS PER SHARE - Basic and Diluted Loss for the year after taxation (189,334) (12,310)
------ (Number of shares) -----
Weighted average ordinary shares in issue during the year 10,763,959 10,763,959
------- (Rupees) -------
Loss per share - basic and diluted (17.59) (1.14)
48 Annual Report 2014
There is no dilutive effect on basic earnings per share of the Company.
36. REMUNERATION OF CHIEF EXECUTIVE, DIRECTORS AND EXECUTIVES
The aggregate amounts charged in these financial statements for the year in respect of remuneration and benefits to the Chief Executive, Directors and Executives of the Company were as follows:
Chief Executive Executives
2014 2013 2014 2013 Note -----------------------(Rupees in '000')-------------------
36.1 In addition to above, the Chief Executive and executives are provided with Company maintained cars.
36.2 Aggregate amount charged in these financial statements with respect to fee paid to executives and non executives directors was Rs. Nil and Rs. 1.700 (2013: Rs. Nil and Rs. 1.850) million, respectively
36.3 During the year, the Company has appointed new Chief Executive effective from May 01, 2014.
37. CAPACITY AND PRODUCTION
The production capacities of the plants depend on product mix. The name plate capacities are determined on a certain product mix whereas actual product mix is different and varies from year to year depending upon the orders from customers. Capacity is also influenced by the timing of the orders. Therefore, production is subject to annual variations and actual capacity of the plant is indeterminable.
38. TRANSACTIONS WITH RELATED PARTIES
The related parties and associated undertakings comprise of holding company, associated companies, staff retirement funds, Chief Executive, directors and key management personnel. The transactions with related parties as mentioned below are entered under normal commercial terms. Transactions with related parties and associated undertakings during the year, other than those which have been disclosed elsewhere in these financial statements, are as follows:
Related parties Nature of transaction 2014 2013
(Rupees in thousand)
Transaction with holding company:
Sikander (Pvt) Ltd. Rent paid 387 -
49 Dadex Eternit Limited
Related parties Nature of transaction 2014 2013
(Rupees in thousand)
Transactions with associated companies
due to common directorship:
Berger Paints Pakistan Ltd. Purchase of goods 93 101
Cyber Internet Services (Pvt) Ltd. Sale of goods 23,041 44,667
Century Insurance Company Ltd. (CICL) Insurance premium paid to Century
Insurance Company Ltd. [(CICL is co-insurer with 20% share (2013: 20% share)] 1,517 1,820
Staff retirement benefits:
Dadex Eternit Ltd. - Provident Fund Employer contribution 10,440 10,617
38.1 For the year ended June 30, 2014, the Company has not made any provision for doubtful debts relating to amounts owed by related parties except as disclosed in note 14.3 to these financial statements. 2014 2013 Note (Rupees in thousand) 39. CASH FLOWS FROM OPERATING ACITIVITIES Loss before taxation (228,057) (237) Adjustments for non cash and other items: Depreciation - property, plant and equipment 5.1 63,271 61,029 - investment property 7.1 1,269 - Amortisation 6 - - Gain on disposal of operating assets 32 (15,993) - Interest income 32 (66) (50) Share of loss on investment in an associate 8 (20) 494 Impairment loss on plant and machinery 5.2.1 501 202 Finance costs 33 147,873 120,485 Working capital changes 39.1 190,757 (161,900) 159,535 20,023
39.1 Working capital changes
(Increase) / decrease in current assets
Stores, spare parts and loose tools (1,547) 1,128 Stock-in-trade 426,362 (186,185) Trade debts 31,044 (34,463) Loans and advances 35,567 (17,659) Trade deposits and short-term prepayments 5,097 (4,465) Other receivables (5,795) (10,706) Sales tax and excise duty - net 28,157 45,059 518,885 (207,291) Increase / (decrease) in current liabilities Trade and other payables (338,823) 45,391 Sales tax and excise duty - net 10,695 - 190,757 (161,900)
50 Annual Report 2014
40. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
The Company finances its operations through equity, borrowings and management of working capital with a view of maintaining an appropriate mix between various sources of finance to minimize risk. Taken as a whole, the Company is exposed to market risk (including interest rate risk, currency risk and other price risk), credit risk and liquidity risk. The Company's principal financial liabilities comprise long-term financing, short-term borrowings and trade and other payables. The main purpose of these financial liabilities is to raise finance for Company's operations. The Company has various financial assets such as loans, advances, deposits, trade and other receivables, cash and bank balances, which are directly related to its operations.
The Company's finance and treasury departments oversee the management of these risks and provide assurance to the Company's senior management that the Company's financial risk-taking activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with Company policies and risk appetite. No changes were made in the objectives, policies or processes and assumptions during the year ended June 30, 2014. The policies for managing each of these risks are summarised below:
40.1 Market risk
Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise three types of risk: interest rate risk, currency risk and other price risk. Financial instruments susceptible to market risk include borrowings and payable in foreign currencies. The sensitivity analysis in the following sections relate to the position as at June 30, 2014 and 2013.
40.1.1 Interest rate risk
Interest rate risk is the risk that the fair value or future cash flows of the financial instruments will fluctuate because of changes in market interest rates. The Company enters into various types of financing arrangements for financing its capital expenditure and to meet working capital requirements at variable rates. The Company is currently evaluating different options to mitigate its exposure against interest rate risk.
The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, on the Company's (loss) / profit before tax (through impact on floating rate borrowings). This analysis excludes the impact of movement in market variables on non-financial assets and liabilities of the Company. Further, interest rate sensitivity does not have an asymmetric impact on the Company's result.
Increase / decrease Effect on (loss) /
in basis points profit before tax (Rs. in thousand)
2014 +100 11,975
-100 (11,975)
2013 +100 9,239
-100 (9,239)
40.1.2 Currency risk
Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company's exposure to the risk of
51 Dadex Eternit Limited
changes in foreign exchange rates relates primarily to the Company's operating activities. The Company is currently evaluating different options to mitigate exposures against currency risk.
The following table demonstrates the sensitivity to a reasonably possible change in the USD exchange rate. As at June 30, 2014, if Pakistani Rupee (Pak Rupee) had weakened / strengthened by 5% against the USD and Euro, with all other variables held constant, the effect on the Company's (loss) / profit before tax (due to changes in the fair value of monetary assets and liabilities) as at June 30, 2014 and 2013 are as follows:
Increase / decrease Effect on (loss) / profit
in US Dollar and Euro to Pak Rupee before tax (Rs. in thousand)
2014 +5% 5,162
-5% (5,162)
2013 +5% 19,239
-5% (19,239)
40.1.3 Other price risk
Other price risk is the risk that the fair value of future cash flows of the financial instruments will fluctuate because of changes in market prices such as equity price risk. Equity price risk is the risk arising from uncertainties about future values of investment securities. As at the balance sheet date, the Company is not exposed to other price risk.
40.2 Credit risk
40.2.1 Credit risk is the risk which arises with the possibility that one party to a financial instrument will fail to discharge its obligation and cause the other party to incur a financial loss. The Company attempts to control credit risk by monitoring credit exposures, limiting transactions with specific counterparties and continually assessing the creditworthiness of counterparties.
Concentrations of credit risk arise when a number of counterparties are engaged in similar business activities or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations of credit risk indicate the relative sensitivity of the Company's performance to developments affecting a particular industry.
40.2.2 The Company seeks to minimize the credit risk exposure through having exposures only to customers considered credit worthy and obtaining securities where applicable. The maximum exposure to credit risk at the reporting date is: 2014 2013 Note (Rupees in thousand) Long-term loans 9 1,619 2,225 Long-term deposits 10 6,597 46,668 Trade debts 14.5 16,882 54,417 Loans and advances 15 26,146 61,713 Deposits 16 15,079 23,478 Other receivables 17 18,891 13,096 Bank balances 19 3,730 17,294 88,944 218,891
52 Annual Report 2014 40.2.3 The credit quality of Company's bank balances can be assessed with reference to external credit ratings as follows: 2014 2013 (Rupees in thousand) Bank Balances by short-term rating category (note 19)
Liquidity risk represents the risk that a Company will encounter difficulties in meeting obligations with the financial liabilities. The Company monitors its risk to shortage of funds by maintaining a balance between continuity of funding and flexibility through the use of financing. As of June 30, 2014, the Company's current liabilities exceed its current assets by Rs. 567.163 million, but the Company is confident that it will have sufficient cash flows to meet its financial obligations in the foreseeable future.
The table below summarises the maturity profile of the Company's financial liabilities at June 30, 2014 and 2013 based on contractual undiscounted payment dates:
On Less than 3 to 12 1 to 5 More than Total
demand 3 months months years 5 years
------------------------ (Rupees in thousand) ------------------------
Fair value is the amount for which an asset could be exchanged, or a liability can be settled, between knowledgeable willing parties in an arm's length transaction. The carrying amounts of all the financial instruments reflected in these financial statements are approximate to their fair value.
40.5 Capital management
The primary objective of the Company's capital management is to ensure that it maintains healthy capital ratios in order to support its business sustain future development of the business and maximize shareholders value.
53 Dadex Eternit Limited
The Company monitors capital using a debt equity ratio, which is net debt divided by total capital plus net debt. Equity comprises of share capital, revenue and other reserves. The gearing ratios as at June 30, 2014 and 2013 were as follows: 2014 2013 Note (Rupees in thousand) Long-term financing 23 356,958 100,000 Trade and other payables 24 515,064 854,271 Accrued mark-up 33,600 21,691 Short-term borrowings 25 840,871 824,290 Total debt 1,746,493 1,800,252 Cash and cash equivalents 19 (6,694) (17,782) Net debt 1,739,799 1,782,470
Total equity excluding surplus on revaluation of fixed assets 113,667 285,582
Total capital and net debt excluding surplus of revaluation
on fixed assets 1,853,466 2,068,052
Gearing Ratio excluding the effect of surplus of revaluation
of fixed assets 93.87% 86.19%
Total equity including surplus on revaluation of
fixed assets 40.5.2 894,439 1,080,808
Total capital and net debt including surplus of revaluation
on fixed assets 2,634,238 2,863,278
Gearing Ratio including the effect of surplus of revaluation
of fixed assets 66.05% 62.25%
40.5.1 The Company finances its expansions projects through equity, borrowings and management of its working capital with a view to maintaining an appropriate mix between various sources of finance to minimize risk. 40.5.2 This represent the amount of total equity including surplus on revaluation of fixed assets as the Company considers the surplus on revaluation of fixed asset as a part of the Company's equity. In view of the same, the management considers that business losses and resulting decrease in equity which will have any significant impact on the Company's operations.
41. INFORMATION ABOUT OPERATING SEGMENTS
For management purposes, the activities of the Company are organised into business units based on their products and have two reportable operating segments as follows:
. The 'Chrysotile Cement' segment relates to manufacturing and supply of corrugated sheets and pipes, manufacturing and supply of rubber rings.
. 'Plastic' products segment includes PVC, Polydex, Polyethylene pipes and products relating to 'Agriculture and Irrigation'.
. All other segments include merchandising of imported other building's products and services.
Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on certain key performance indicators, including business volume, gross profit and reduction in operating cost.
54 Annual Report 2014 Chrysotile Cement Plastic Others Total ------------------ (Rupees in thousand) ------------------
2014 TURNOVER - net 773,192 1,131,678 10,835 1,915,705
RESULT
Segment result 20,274 (189,451) (3,988) (173,165)
Unallocated expense
Other operating expenses (16,447)
Other income 109,408 Finance costs (147,873) Share of profit on investment in an associate 20 Taxation 38,723 Loss for the year (189,334)
OTHER INFORMATION
Capital expenditure - 8,145 315,568 323,713
Unallocated corporate capital expenditure 152
Total capital expenditure 323,865
Depreciation 1,305 9,624 - 10,929
Unallocated corporate depreciation and
amortization 53,611
Total depreciation and amortisation 64,540
ASSETS AND LIABILITIES
Segment assets 283,407 795,081 131,721 1,210,209
Unallocated corporate assets 1,438,453
Total assets 2,648,662
Segment liabilities 246,711 245,533 4,330 496,574
Unallocated corporate liabilities 1,260,614
Total liabilities 1,757,188
55 Dadex Eternit Limited
Chrysotile Cement Plastic Others Total
------------------ (Rupees in thousand) ------------------
2013 TURNOVER - net 913,586 1,465,322 6,638 2,385,546
RESULT
Segment result 58,296 887 (3,282) 55,901
Unallocated expense Other operating expenses (23,030) Other income 87,871 Finance costs (120,485) Share of loss on investment in an associate (494) Taxation (12,073) Loss for the year (12,310)
The geographical information for turnover is given in note 27.
Non-current assets Pakistan 1,565,933 1,350,415
56 Annual Report 2014
41.2 Segment assets and liabilities
Segment assets include all operating assets by a segment and consist principally of property, plant and equipment, stores and spare parts and loose tools, stock- in- trade, trade debts and loans and advances net of impairment and provisions, if any. Segment liabilities include all operating liabilities and consist principally of trade and other payables.
41.3 Finance cost has not been allocated to segments, as this type of activity is driven by the central treasury function, which manages the cash position of the Company. Further, income taxes are not allocated to operating segments.
41.4 There are no inter-segment sales / purchases.
42. Operating assets disposed off
Accumulated Written Sale Gain Cost depreciation down value proceeds / (loss) Mode of disposal Particulars of buyer ------------------------ (Rupees in thousand) ------------------------ Plant and machinery
Cement tank balker 4,678 2,651 2,027 4,950 2,923 Negotiation Mr. Muhammad Khan Niazi
These financial statements have been authorised for issue on September 24, 2014 by the Board of Directors of the Company.
44. GENERAL
44.1 Certain prior year's figures have been reclassified consequent upon certain changes in current year's presentation for more appropriate comparison. However, there are no material reclassifications to report.
44.2 Number of employees as at June 30, 2014 was 404 (2013: 555) and average number of employees during the year was 499 (2013: 560).
44.3 All figures have been rounded off to the nearest thousand rupees, unless otherwise stated.
PATTERN OF SHAREHOLDING AS ON JUNE 30, 2014 Categories of Share Holders Number of Percentage of Shares Held Issued Capital
Associated Companies, Undertakings & Related Parties 6,800,648 63.18%
Sikander (Private) Limited 6,800,648 63.18% NIT 442 0.00% National Bank of Pakistan - Trustee Department 442 0.00% Directors, CEO & their Spouses 1,062,748 9.87% Mr. Abu Talib H. K. Dada - Director 310,469 2.88% Mrs. Halima w/o Abu Talib H.K. Dada 29,847 0.28% Mr. Maqbool H.H. Rahimtoola - Director 5,300 0.05% Mr. Qazi Sajid Ali - CEO / Director 1 0.00% Mr. Shahzad M. Husain - Director 4 0.00% Mr. Samad Dada - Director 25 0.00% Mr. Zulfiqar Ali Lakhani - Director 5 0.00% Mr. Sikander Dada - Director 717,097 6.66% Executives 110 0.00% Banks, Insurance Company & Others 36,312 0.34% Shareholders holding five percent or more voting interest in the Company 1,465,000 13.61% Province Limited 1,465,000 13.61% Individuals 1,398,699 13.00% Total Shareholding 10,763,959 100.00%
DETAILS OF TRADING IN THE SHARES OF THE COMPANY BY DIRECTORS, THEIR SPOUSES AND MINORS
During the year ended June 30, 2014, our Director, Mr. Sikander Dada has bought 107,511 shares from the General Public through Stock Exchange.
58 Annual Report 2014
PATTERNOF SHAREHOLDING As at June 30, 2014
Number of Share Holding Share Holding Total Shares Held
60 Annual Report 2014 The Company Secretary Dadex Eternit Limited Dadex House, 34-A/1, Block 6, PECHS, Shahrah-e-Faisal, Karachi-75400
FORM OF PROXY
I/We son / daughter /wife of
of (full address) being a member(s) of Dadex Eternit Limited holding ordinary shares hereby appoint of (full address) or failing him of (full address) who is/are also member(s) of Dadex Eternit Limited as my/our proxy in my/our absence to attend and vote for me/us and on my/our behalf at the 55th Annual General Meeting of the Company to be held on Thursday October 23, 2014 at 09:30 a.m. and or at any adjournment thereof.
As witness my/our hand/seal this day of 2014
Signed by the said
in the presence of 1
Folio/CDC Account No Signature on
Revenue Stamp of Rs. 5/- Important: 1 This proxy duly completed and signed, must be received at the Registered Office of the Company, Dadex House, 34-A/1, Block 6, P.E.C.H.S., Shahrah-e-Faisal, Karachi, not less than 48 hours before the time of holding the meeting.
2 No person shall act as proxy unless he himself is a member of the Company, except that a corporation may appoint a person who is not a member. 3 If a member appoints more than one proxy and more than one instruments of proxy are deposited by a member with the Company, all such instruments of proxy shall be rendered invalid.
For CDC Account Holders/Corporate Entities:
In addition to the above the following requirements have to be met:
i) The proxy form shall be witnessed by two persons whose names, addresses and CNIC numbers shall be mentioned on the form.
ii) Attested copies of CNIC and of the passport of the beneficial owners and the proxy shall be furnished with the proxy form.
iii) The proxy shall produce his/her original CNIC or original passport at the time of the meeting. iv) In the case of a corporate entity, the Board of Directors resolution/power of attorney with the specimen signature should be submitted (unless it has been provided earlier) along with the proxy form to the Company. Affix correct postage
