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02 OurVisionandMission
04 OurCoreValuesandCodeofConduct/EthicalPrinciples
06 CompanyInformation08 CompanyProfi le
10 ProfilesoftheDirectors12 BoardStructureandCommittees
14 Organizat ionChart16 ProfileoftheKeyManagement
21 ChairmansMessage22 NoticeofThirtyEighthAnnualGeneralMeeting24 Financia lHighlights
26 HorizontalAnalysis-BalanceSheet27 VerticalAnalysis-BalanceSheet
28 HorizontalAnalysis-ProfitandLoss28 VerticalAnalysis-ProfitandLoss
29 EntityRatings30 DirectorsReporttotheMembers47 StatementofCompliancewiththeCodeofCorporateGovernance
49 FinancialStatements
50 ReviewReporttotheMembersonStatementofCompliance51 AuditorsReporttotheMembers
52 BalanceSheet54 ProfitandLossAccount55 StatementofComprehensiveIncome
56 StatementofChangesinEquity57 CashFlowStatement
58 NotestoandformingpartoftheFinancialStatements110 PatternofShareholding
112 FinancialCalendar113 Formof Proxy
Contents
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Pakarab Fertilizers Limited
AnnuAlRepoRt
2010
Our Vision and Mission
Tobeaworldclassmanufactureroffertilizersandancillaryproducts,withafocusonsafety,qualityandcontributiontonationaleconomicgrowthanddevelopment.Wewillcarefortheenvironmentandthecommunitiesweworkinwhilecontinuingtocreateshareholdersvalue.
Vision
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Tobethepreferredfertilizercompanyforfarmers,businessassociatesandsuppliersthroughqualityandservice.
Toprovideemployeesanexciting,enablingandsupportiveenvironmenttoexcelin,beinnovative,entrepreneurialinanethicalandsafeworkingplacebasedonmeritocracyandequalopportunity.
Tobearesponsiblecorporatecitizenwithaconcernfortheenvironmentandthecommunitieswedealwith.
Mission
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Pakarab Fertilizers Limited
AnnuAlRepoRt
2010
Our Core Values and Code o Conduct / Ethical Principles
Acommitmenttohonesty,ethicalconductandintegrityissupremeobjectiveoftheCompany.Toassistemployeesinachievingthisobjectiveandimplementitscommitment,theCompanyhasdevelopedacomprehensiveCodeof
Conductwhichguidesthebehaviourofdirectors,officersandemployeesoftheCompanyandisreproducedintheformofaPolicyStatementofEthicsandBusinessPracticesasfollows:
PakarabFertilizersLimitedconductsits
businesswiththehighestethicalstandardsinfullcompliancewithallapplicablelaws.
Honestyandintegritytakeprecedenceinallrelationshipsincludingthosewith
customers,suppliers,employeesandotherstakeholders.
Ethics and Business Practices
WEbelieveinconductingtheCompanysbusinessinamannerthatrespects,
protectsandimprovestheenvironmentandprovidesemployeeswithasafe
andhealthyworkplace.Weconductourbusinessinanenvironmentallyresponsible
andsustainablemanner.Employeesmust
becompletelyfamiliarwiththepermits,HealthSafetyandEnvironmentPolicy,
locallawsandregulationsthatapplytotheirwork.
Allemployeesareexpectedtounderstand
thelawsandbusinessregulationsrelatedtotheirworkandcomplyfully
sothatourshareholders,employees,
customers,suppliers,stakeholdersand
theGovernmenthavecompletefaithinthewayweoperateandthatourbusiness
decisionsaremadeethicallyandinthebestinterestsoftheCompany.
Employeesareobligatedtoactin
accordancewiththeCompanyscodeofEthicsandBusinessConductandare
restrictedtousingonlylegitimatepracticesincommercialoperationsandinpromoting
theCompanyspositiononissuesbeforegovernmentalauthorities.Inducementsintendedtorewardfavorabledecisionsand
governmentalactionsareunacceptableandprohibited.
Employeesareprohibitedfromusing
theirpositions,Companypropertyorinformationforpersonalgain,andfrom
competingwiththeCompany.Employeesarealsoprohibitedfromtakingadvantage
fromopportunitiesthatbecomeavailable
throughtheuseofCompanyinformation,propertyortheirposition.
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Assets and Proprietary inormation
WEconsiderourCompanysassets,both
physicalandintellectual,veryvaluable.Wehave,thereforeanobligationto
protecttheseassetsintheinterestofthe
Companyanditsshareholders.
ProtectionoftheCompanysinformationis
importantforourbusiness.Allemployees
areexpectedtoknowwhatinformationisproprietaryandwhichmustnotbe
disclosedtounauthorizedsources.Employeesareresponsibleforapplyingall
availabletoolstomanagetheCompanysinformationresourcesandrecords.
Relations with Business partners
WEseektodobusinesswith
suppliers,vendors,contractorsandotherindependentbusinesseswho
demonstratehighstandardsofethical
businessbehavior.OurCompanywillnotknowinglydobusinesswithanypersons
orbusinessesthatoperateinviolationofapplicablelawsandregulations,
includingemployment,health,safetyand
environmentallaws.Weshalltakestepstoassurethatoursuppliers,vendorsand
contractorsunderstandthestandardsweapplytoourselves,andexpectthesame
fromthem.
Our Employees
WEbelievethathighlyengaged
employeesarethekeyingredientinprofessionaldevelopmentandbusiness
success.Therefore,weinviteour
employeestocontributetheirbestandtoavailtheopportunitiesforimprovement
andgrowth.Weareanequalopportunityemployerandpromotegenderdiversity,
self-developmentandinnovation.We
provideemployeeswithtools,techniques,andtrainingtomastertheircurrentjobs,
broadentheirskills,andadvancetheircareergoals.
TheAuditCommitteeoftheBoardensures
thecomplianceofaboveprinciples.
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Pakarab Fertilizers Limited
AnnuAlRepoRt
2010
Company Inormation
Board o Directors
Mr.ArifHabibChairman
Mr.FawadAhmedMukhtarChiefExecutiveOfficer
Mr.FazalAhmedSheikhMr.NasimBeg
Mr.FaisalAhmedMukhtar
Mr.RehmanNaseemMr.AbdusSamad
Mr.MuhammadKashifHabib
Audit Committee
Mr.NasimBeg
Chairman
Mr.FazalAhmedSheikhMember
Mr.RehmanNaseemMember
Mr.MuhammadKashifHabibMember
Human Resource andRemuneration Committee
Mr.NasimBegChairman
Mr.AbdusSamad
MemberMr.FaisalAhmedMukhtarMember
Mr.RehmanNaseemMember
Company Secretary
Mr.AusafAliQureshi
Chie Financial Ofcer
Mr.ArifHamidDar
Key Management
Mr.M.AbadKhanAdvisortoCEO
Mr.QadeerAhmedKhanDirectorOperations
Mr.MuhammadZahirDirectorMarketing
Mr.TanvirH.QureshiGroupHeadofHumanResource
Mr.AsadMuradHeadofInternalAudit
Mr.IftikharMahmoodBaigGeneralManagerBusinessDevelopment
Mr.ShahidSaeed
HeadofInformationTechnology
Mr.JavedAkbarHeadofProcurement
Brig(R)MuhammadAliAsifSirhindiGeneralManagerAdministrativeServices
Mr.MuhammadSaleemZafarGeneralManagerProjects
Legal Advisors
M/s.Chima&IbrahimAdvocates
1-A/245,TufailRoad,LahoreCantt.
Auditors
A.F.Ferguson&Co.,CharteredAccountants
23-C,AzizAvenue,
CanalBank,GulbergV,Lahore-54660.
Tel:04235715864-71Fax:04235715872
Bankers
AlliedBankLimitedAl-BarakaIslamicBankLimited
AskariBankLimited
BankIslamiPakistanLimitedBankAlfalahLimited
DubaiIslamicBankLimitedDeutscheBankLimited
FaysalBankLimitedHabibBankLimited
HabibMetropolitanBankLimited
MCBBankLimitedMeezanBankLimited
NationalBankofPakistanStandardCharteredBank(Pakistan)
Limited
SummitBankLimitedSoneriBankLimited
UnitedBankLimitedZaraiTaraqiatiBankLimited
Registered/Head Ofce
E-110,Khayaban-e-Jinnah,
LahoreCantt.,Pakistan.UAN:111-FATIMA(111-328-462)
Fax:042-36621389E-mail:[email protected]
Website:www.fatima-group.com
Karachi Ofce
21-OilInstallationArea,Keamari,Karachi.
Tel:02132855444-5
Fax:02132855446
Plant Site
KhanewalRoad,Multan.
Tel:0619220022
Fax:0619220021
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Pakarab Fertilizers Limited
AnnuAlRepoRt
2010
Company Profle
PakarabFertilizersLimitedwasestablishedasaresultofprotocol
concludedandsignedonNovember15,1972bytheGovernmentofPakistantofurtherstrengthenanddevelopfraternaltiesbetween
IslamicRepublicofPakistanandStateofAbuDhabi.
AMemorandumofUnderstandingwasconcludedbetweenPakistanIndustrialDevelopmentCorporation(PIDC)andAbuDhabiNational
OilCompanyLimited(ADNOC)onMarch7,1973.Aparticipation
agreementemergedonNovember1,1973toestablishajointventurefortheexpansionandmodernizationoftheoldNaturalGas
FertilizerFactory(NGFF)atMultan.
TheCompanywasincorporatedonNovember12,1973.
Subsequently,PIDCassigned52%ofitssharestoNationalFertilizerCorporation(NFC)ofPakistanandADNOCassigned48%
ofitssharestoInternationalPetroleumInvestmentCompany,withapaid-upcapitalofPKR743.061million.
UndertheprivatizationpolicyofGovernmentofPakistan,PakarabFertilizersLimitedwasprivatizedonJuly14,2005atacostof
Rs.14.125billion.ItwasacquiredbytheconsortiumofFatimaGroupandArifHabibGroup.
Underthenewmanagement,PakarabFertilizersLimitedhas
undergoneextensivemodernizationandnewimprovedprocesseshavebeenintroducedtomaximizetheoutputwhileminimizingthe
negativeimpactsontheenvironment.ForthisaCleanDevelopmentMechanism(CDM)plantwasinstalled,whichisthefirstprojectof
itskindinPakistan.BasicaimofthisprojectistheabatementofN2OandNOXemissionsfromthestackgasesofNitricAcidplant.
Thereductionofgreenhouseeffectofthesegasesshowsthenew
managementscommitmenttowardsacleanerenvironment.
PakarabFertilizersLimitedislocatedatKhanewalRoad,Multan.Thesiteareacomprises302acres,whichincludesareaforthe
factoryandthehousingcolonywithallamenitiesincludingmedical
centre,school,managementandstaffclubsforrecreationofemployeesandtheirfamilies,etc.
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Pakarab Fertilizers Limited
AnnuAlRepoRt
2010
Profles o the Directors
Mr.ArifHabibChairman
Mr.ArifHabibistheChairman
ofPakarabFertilizersLimited.HeisalsotheChairmanofArif
HabibCorporationLimited,FatimaFertilizerCompany
Limited,ThattaCementCompanyLimitedandArif
HabibDMCCDubai.
Mr.ArifHabibhasremainedthe
President/ChairmanofKarachiStockExchangesixtimesin
thepast.HeistheFounding
MemberandFormerChairmanoftheCentralDepository
CompanyofPakistanLimited.HehasservedasMemberof
thePrivatizationCommission,BoardofInvestment,Tariff
ReformsCommissionand
SecuritiesandExchangeOrdinanceReviewCommittee.
Onthesocialservicesfront,
Mr.ArifHabibistheChairman
ofArifHabibFoundation,MemonHealthandEducation
Foundation,TrusteeofFatimidFoundationand
DirectorofPakistanCentreforPhilanthropyandKarachiEducationInitiative(Karachi
BusinessSchool).
Mr.FazalAhmedSheikhDirector
Mr.FazalAhmedSheikhisa
DirectoroftheCompany.HeholdsadegreeinEconomics
fromtheUniversityofMichigan,AnnArbor,USA.Hehasplayed
astrategicroleinFatimaGroupsexpansionandsuccess.
Healsoholdsthefollowing
portfolio:
CEO RelianceWeavingMills
Limited
FatimaEnergyLimited AirOne(Private)Limited
Director
FatimaFertilizerCompanyLimited
RelianceCommodities
(Private)Limited FatimaSugarMillsLimited
FazalClothMillsLimited
Mr.FawadAhmedMukhtarChiefExecutiveOfficer/Director
Mr.FawadAhmedMukhtar
istheChiefExecutiveOfficerandDirectoroftheCompany.
Hehasrichexperienceof
manufacturingandindustrialmanagement.Followinghis
graduationhehasspent27yearsindeveloping
hisfamilybusinessintoasizeableconglomerate.Mr.
FawadMukhtarleadsseveral
communityserviceinitiativesofhisgroupincludingtheFatima
FertilizerTrustandWelfareHospital,FatimaFertilzer
EducationSocietyandSchool,MukhtarA.SheikhWelfareTrustetc.Healsoholdsthe
followingportfolio:
Chairman
RelianceWeavingMillsLimited
FatimaEnergyLimited RelianceCommodities
(Private)Limited FatimaSugarMillsLimited
AirOne(Private)Limited
CEO
FatimaFertilizerCompanyLimited
FatimaSugarMillsLimited
Mr.NasimBegDirector
Mr.NasimBegisDirectorof
theCompany.HequalifiedasaCharteredAccountantin
1970andisaFellowMember
oftheInstituteofCharteredAccountantsofPakistanand
alsoholdsaBachelorsdegreeinCommercefromKarachi
University.Mr.BegisthefounderChiefExecutiveofArif
HabibInvestmentsLimited,a
leadingAssetManagementCompanyofPakistan.Mr.Beg
servesontheBoardofSummitBankLimited,aswellason
theboardsofseveralgroupcompaniesandisChairmanofthegroupsREITSManagement
Company.Hehasextensiveexperienceofover40yearsof
industryandfinancialsectorin
bothdomesticandinternationalmarkets.Hewaspartofthetask
forcesetupbytheSecuritiesandExchangeCommissionof
Pakistan(SECP)todeveloptheVoluntaryPensionSystem.
HeisChairmanoftheSECP
sponsoredInstituteofCapitalMarketsandisaMemberof
thePrimeMinistersEconomicAdvisoryCouncil.
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Mr.FaisalAhmedMukhtarDirector
Mr.FaisalAhmedMukhtaris
aDirectoroftheCompany.HeholdsaLawdegreefrom
BahauddinZakariyaUniversity,
Multan.HeistheformerMayorofMultanandcontinuesto
leadwelfareeffortsinthecity.Healsoholdsthefollowing
portfolio:
Chairman
WorkersWelfareBoard-PakarabFertilizersLimited
Director
FatimaFertilizerCompanyLimited FatimaSugarMillsLimited
FatimaEnergyLimited RelianceWeavingMills
Limited
RelianceCommodities(Private)Limited
FazalClothMillsLimited AirOne(Private)Limited
Member
SyndicateofBahauddin
ZakariyaUniversity,Multan ProvincialFinance
Commission SteeringCommittee
ofSouthernPunjab
DevelopmentProject DecentralizationSupport
Program
Mr.RehmanNaseemDirector
Mr.RehmanNaseemisdirector
oftheCompany.HeobtainedaBachelorofEconomicsDegree
fromColumbiaUniversity,New
York.HeistheChiefExecutiveofAhmedFineTextileMills
LimitedandRehmanAmirFabricsLimited.Heisalso
directorofFazalClothMillsLimited,AhmedFineTextile
MillsLimited,AmirFineExports
(Pvt)Limited,FazalRehmanFabricsLimited,Hussain
GinneriesLimited,ZafarNasirOilExtractionLimited,Rehman
AmirFabricsLimitedandFazalFarms(Pvt)Limited.
Mr.AbdusSamadDirector
Mr.AbdusSamadisDirector
oftheCompany.Hehasvastexperienceofequityportfolio
managementandcapitalmarket
operationsandcorporatefinanceactivities.
HebeganhiscareerwithArif
HabibCorporationLimitedasInvestmentAnalyst.After
obtaininghisMBAin2001,he
waselectedastheCompanysDirector.Hewasassignedthe
dualresponsibilityofheadingtheSalesDepartmentandto
actastheCompanySecretary.In2003,heledtheMarketingDepartmentasExecutive
Director.
OnSeptember4,2004,he
becametheChairmanandCEOofArifHabibLimited,a
BrokerageCompany.Hehasextensiveexperienceinserving
corporateclients,institutionsandhighnetworthindividuals
fortheirinvestmentsinthe
securitiesmarketandraisingcapitalthroughIPO,TFCs
forcorporateentities.Duringhiscareer,hehasservedon
theboardsofvariousgroup
concernssuchasArifHabibCorporationLimited,Fatima
FertilizerCompanyLimited,ArifHabibInvestmentsLimited
andThattaCementCompany
Limited.
Mr.MuhammadKashifHabibDirector
Mr.MuhammadKashifHabib
isaDirectoroftheCompany.HehascompletedC.A.
IntermediatefromtheInstitute
ofCharteredAccountantsofPakistan(ICAP)andhas
completedhismandatoryArticleswithM/s.A.F.
Ferguson&Co.CharteredAccountants.Heisalsodirector
ofFatimaFertilizerCompany
Limited,ArifHabibCorporationLimited,ArifHabibInvestments
Limited,NooriabadSpinningMills(Pvt)Limited,Rotocast
Engineering(Pvt)Limited,RealEstateModarabaManagementCompanyLimited,Thatta
CementCompanyLimited,ArifHabibREITSmanagement
Limited(AHRML)andtheChief
ExecutiveofAl-AbbasCementIndustriesLimited.
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Pakarab Fertilizers Limited
AnnuAlRepoRt
2010
Board Structure and Committees
Board Structure
PFLsBoardiscomprisedofeightdirectorswhohavebeenelectedbytheshareholdersforatermofthreeyearsexpiringonDecember31,2012.OtherthantheChiefExecutiveOfficer(CEO),there
isoneexecutivedirectorandsixnon-executivedirectorsonthe
Board.TheChairmanoftheBoardisanon-executivedirector.
TheBoardprovidesleadershipandstrategicguidancetotheCompany,overseestheconductofbusinessandpromotesthe
interestsofallstakeholders.Itreviewscorporatepolicies,overall
performance,accountingandreportingstandardsandothersignificantareasofmanagement,corporategovernanceand
regulatorycompliance.
TheBoardisheadedbytheChairmanwhomanagestheBoards
businessandactsasitsfacilitatorandguide.TheBoardisassistedbyanAuditCommitteeandaHumanResourceandRemuneration
CommitteewhiletheCEOcarriesresponsibilityforday-to-dayoperationsoftheCompanyandexecutionofBoardpolicies.
Board Committees
ThestandingcommitteesoftheBoardare:
Audit Committee
Composition
TheAuditCommitteeconsistsoffourmembersoftheBoard.MajorityofthemembersoftheAuditCommitteearenon-executive
includingtheChairman.Themembersare:
1. Mr. NasimBeg Chairman
2. Mr.FazalAhmedSheikh Member
3. Mr.RehmanNaseem Member
4. Mr.MuhammadKashifHabibMember
TermsofReference
InadditiontoanyotherresponsibilitieswhichmaybeassignedfromtimetotimebytheBoard,themainpurposeoftheAuditCommittee
istoassisttheBoardbyperformingthefollowingmainfunctions:
tomonitorthequalityandintegrityoftheCompanysaccountingandreportingpractices;
tooverseetheperformanceofCompanysinternalaudit
function;
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toreviewtheexternalauditorsqualification,independence,performanceandcompetence,and
tocomplywiththelegalandregulatoryrequirements,
Companysby-lawsandinternalregulations.
TheTermsofReferenceoftheAuditCommitteehavebeendrawnupandapprovedbytheBoardofDirectorsincompliancewiththe
CodeofCorporateGovernance.Inadditiontocompliancewith
CodeofCorporateGovernance,theAuditCommitteecarriesoutthefollowingdutiesandresponsibilitiesfortheCompanyasperits
TermsofReference:
a) determinationofappropriatemeasurestosafeguardthe
Companysassets;
b) reviewofpreliminaryannouncementsofresultspriortopublication;
c) reviewofquarterly,half-yearlyandannualfinancialstatements
oftheCompany,priortotheirapprovalbytheBoardofDirectors,focusingon:
majorjudgmentalareas;
significantadjustmentsresultingfromtheaudit;
thegoing-concernassumption;
anychangesinaccountingpoliciesandpractices;
compliancewithapplicableaccountingstandards;and
compliancewithlistingregulationsandotherstatutoryandregulatoryrequirements.
d) facilitatingtheexternalauditanddiscussionwithexternal
auditorsofmajorobservationsarisingfrominterimandfinalauditsandanymatterthattheauditorsmaywishtohighlight
(intheabsenceofmanagement,wherenecessary);
e) reviewofmanagementletterissuedbyexternalauditorsandmanagementsresponsethereto;
f) ensuringcoordinationbetweentheinternalandexternal
auditorsoftheCompany;
g) reviewofthescopeandextentofinternalauditandensuring
thattheinternalauditfunctionhasadequateresourcesandis
appropriatelyplacedwithintheCompany;
h) considerationofmajorfindingsofinternalinvestigationsand
managementsresponsethereto;
i) ascertainingthattheinternalcontrolsystemincludingfinancialandoperationalcontrols,accountingsystemandreporting
structureareadequateandeffective;
j) reviewoftheCompanysstatementoninternalcontrolsystemspriortoendorsementbytheBoardofDirectors;
k) institutingspecialprojects,valueformoneystudiesorotherinvestigationsonanymatterspecifiedbytheBoard
ofDirectors,inconsultationwiththeChiefExecutiveandto
considerremittanceofanymattertotheexternalauditorsortoanyotherexternalbody;
l) determinationofcompliancewithrelevantstatutory
requirements;
m) monitoringcompliancewiththebestpracticesofcorporategovernanceandidentificationofsignificantviolationsthereof;
and
n) considerationofanyotherissueormatterasmaybeassignedbytheBoardofDirectors.
Human Resource and Remuneration Committee
Composition
TheHumanResourceandRemunerationCommitteeconsistsoffourmembersoftheBoard.AllthemembersoftheauditCommittee
arenon-executivedirectorsincludingtheChairman.Themembers
are:
1. Mr. NasimBeg Chairman
2. Mr.AbdusSamad Member
3. Mr.FaisalAhmedMukhtar Member
4. Mr.RehmanNaseem Member
TermsofReference(Underreviewandapproval)
TheHumanResourceandRemunerationCommitteeisentrusted
withthefollowingmaintasks:
a) ToreviewandrecommendtheannualCompensationstrategywithfocusontheannualbudgetforHeadcountandSalaries
andWages;b) Toreviewandrecommendtheannualbonusandincentive
plan;
c) ToreviewandrecommendthecompensationoftheChiefExecutiveandExecutiveDirectors;
d) ToassisttheBoardinreviewingandmonitoringthe
successionplansofkeypositionsintheCompany;
e) Toreviewandmonitorprocessesandinitiativesrelatedto
workenvironmentandculture;
f) ToperformsuchotherdutiesandresponsibilitiesasmaybeassignedfromtimetotimebytheBoardofDirectors.
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Organization Chart
BoardofDirectors
ChiefExecutiveOfficer
GMProjects
HeadofProcurement
HeadofInformationTechnology
ChiefFinancialOfficer
DirectorMarketing
GroupHeadofHumanResource
HeadofInternalAudit
GMBusiness
Development
CompanySecretary
DirectorOperations
AuditCommittee
HR&RemunerationCommittee
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Profle o the Key Management
Mr.M.AbadKhanAdvisortoCEO
M.AbadKhangraduatedin
MechanicalEngineeringfromUETLahoreandreceivedextensivetraininginFertilizeroperationsinEurope.AfterservingsomeinitialyearsincommissioningPakistansfirstUreaPlantwithPIDC,hejoinedExxonChemicalPakistanLtd.atitsveryinitialstage.After15yearsworkingmostlyatseniormanagementpositions,hetookearlyretirementtojoinFaujiFertilizerCo.asGeneralManagerPlant.HereheorganizedandestablishedsystemsandprocedurestoleadthePlanttoworldstandards.Afterservingfor14
years,andwhenPlantcapacityhadmorethandoubled,heretiredfromcompanyserviceonattainingtheageofsuperannuation.
In2001,whenFaujiFertilizerBinQasimfacedseriouschallenges,heacceptedthepositionofGeneralManagerPlant.Duringhiscontractof4years,Plantproductionandreliabilitywasimprovedandamajorre-vampof25%overdesigncapacitywasconceived,plannedandorderedwhichwassubsequentlyimplementedwithverygoodresults.
HehasbeenwithFatimaGroupforalmost5yearsandplayedsignificantroleinestablishmentofFatimaFertilizer.
Duringthecourseofalongcareer,hehadextensiveinternationalexposurethroughtrainings,seminarsandsymposiums.
QadeerAhmedKhanDirectorOperations
Mr.QadeerAhmedKhanisDirector
Operations.HehasdonehisM.SinPetrochemicalsandHydrocarbonsfromtheUniversityofManchesterInstituteofScienceandTechnology.HehasvastexperienceofworkinginChemicalandFertilizerindustryi.e.over32yearsofexperiencefromEngroChemicalsandEngroPolymersinvariouscapacitiesandover2yearsofexperienceinPakarabFertilizersLimitedasDirectorOperations.
TanvirH.QureshiGroupHeadofHumanResource
Mr.TanvirH.Qureshiisworkingas
GroupHeadofHumanResource.Mr.Qureshihasover24yearsofprofessionalexperienceinpharmaceutical,bankingandfertilizerindustries,inthefieldsofHumanResource,Finance,EconomicsandCorporateandStrategicPlanning.HeworkedatBankersEquityLtdandMuller&PhippsPakistan(Pvt)Ltd,priortojoiningFatimaGroup.Hedidhis MastersinBusinessAdministrationfromIBA,Karachi,andMastersinEconomicsandLLBfromtheUniversityofKarachi.HejoinedtheGroupinearly2009.
MuhammadZahirDirectorMarketing
Mr.MuhammadZahirholdsa
MastersdegreeinBusinessAdministrationfromtheInstituteofBusinessAdministration,Karachi.Hespent29yearswithICIPakistanworkinginitsvariousbusinessesandtheHumanResourceFunction.HeservedasanexecutiveDirectorontheBoardofICIPakistan.Hehasdiverseexperienceinbusinessincludingpaints,polyesterfiber,chemical,agrochemicals,pharmaceuticals,seedsandanimalhealth.
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AusafAliQureshiCompanySecretary
Mr.AusafAliQureshiisaFellow
MemberofInstituteofCharteredAccountantsofPakistan.Hehasover27yearsofexperiencewithFaujiFertilizers,PakistanInternationalAirlines(Holdings)andBristol-MyersSquibb(BMS).Inhisover20yearscareeratBMS,heheldvariousseniormanagementpositionsinPakistan,SouthKorea,EgyptandSingaporeintheareasoffinance,corporatecomplianceandstrategicprojectplanning.
Mr.IftikharMahmoodBaigGMBusinessDevelopment
Mr.IftikharMahmoodBaigisworking
asGMBusinessDevelopmentoftheCompany.HealsoremainedCompanySecretaryofthecompanytillMay27,2010sinceitsacquisition.Mr.BaigisassociatedwiththeFatimaGroupsince1996andhasheldvariousmiddleandseniorlevelmanagementpositions.HeisaFellowmemberofInstituteofCharteredSecretariesandManagersofPakistan.Hehasover24yearsofexperienceinCorporate,StrategicPlanningandFinancialManagementofvariouscompanies.
AsadMuradHeadofInternalAudit
Mr.AsadMuradisaFellow
MemberoftheInstituteofCharteredAccountantsofPakistanHehas12yearsofexperienceofhandlingfinanceandbusinessplanningfunctionswithHondaAtlasCars(Pakistan)Limited.
ArifHamidDarChiefFinancialOfficer
Mr.ArifHamidDarisChiefFinancial
OfficerofPakarabFertilizersLimited.HeisafellowmemberoftheInstituteofCharteredAccountantsofPakistanandgottrainingwithA.F.Ferguson&Co.CharteredAccountants.Hehas14yearsofdiversifiedexperienceofhandlingfinance,businessplanning,aftersalesservicesfunctionswithHondaAtlasCars(Pakistan)Ltd,asubsidiaryofHondaMotorCompany,Japan.HehasjoinedtheCompanyinearly2010.
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Brig(R)
MuhammadAliAsifSirhindiGeneralManagerAdministrativeServices
Brig(Retd)MuhammadAliAsifSirhindiSI(M)joinedPakarabFertilizersLimitedteaminSeptember2009asGeneralManager(AdministrativeServices).HeisaGraduateofCommandandStaffCollegeandhasmorethan30YearsofrichArmyexperience.IntheArmyhehasservedonimportantassignmentsofCommand,StaffandInstructionalappointmentsinPakistanandabroad.HewasawardedtwoCAOSCommendationCardsforactofvalorandsafeflyingandSitara-e-Imtiaz(Military)fordevotiontoduty,
hardworkandexcellence.
BeforejoiningPakarabFertilizersLimitedhehasalsoservedasGeneralManagerAdministrationinOilandGasDevelopmentCompanyLimited(OGDCL)formorethanthreeyears.
JavedAkbarHeadofProcurement
Mr.JavedAkbarisaMechanicalEngineerfromNEDUniversityofEngineeringandTechnologyKarachi,andalsodidhisgraduationincomputersciencefromuniversityofMississippi,USA.Hebringswithhimanexperienceofaround25years,outofwhichmorethan15yearsisintheareaofsupplychainwithmultinationalcompaniesinPakistanincludingPhilips,Alcatel,MobilinkandPTCL.HehasattendedInternationalTrainingCourseonmanagementandleadershipfromworldrenownedinstitutionslikeInsead,Harvard
andMIT.Mr.AkbarisregisteredasProfessionalEngineerwithPakistanEngineeringCouncil.HeisalsoamemberofInstituteofEngineers,Pakistan.
MuhammadSaleemZafarGeneralManagerProjects
Mr.MuhammadSaleemZafarisGeneralManager(Projects).HedidhisM.Sc.ChemistryfromPunjabUniversityLahorein1971withacademicRoleOfHonour.Hehasover32yearsworkexperienceinfertilizerindustry.HeremainedassociatedwithPakarabPlantsstartupactivitiesafternecessarytrainingfromM/sUdhe&Stamicarbon.HehasbeenworkingwithPakarabFertilizersLimitedsince1976.PriortojoiningPakarabFertilizersLimited,healsoworkedatPakDyes&ChemicalsIskanderabadforfouryearsand
developedFeasibilityReportformanufactureofSodiumThiosulfateasabyproductofSulfurBlackDyestuff.
ShahidSaeedHeadofInformationTechnology
Mr.ShahidSaeedholdsaMastersdegreeinInformationTechnology,fromtheUK.Hehasmorethan25yearsofnationalandinternationalexperienceinthefinancial,telecomandutilitysectors.Hehasmanagedseveralmajorprojectsinthefinancialandtelecomdomains.Mr.Saeedhasheldseniorpositionsformorethan10yearsduringwhichhehasmanagedanoffshoreITunitofamajorEuropeanBank,launchedamajortelecomcompanyaspartoftheoriginalcoreteam.
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Chairmans Message
GlobalFertilizerMarket
Theglobalfertilizermarkethasseensomeunprecedentedvolatilityoverthelastfew
years.Thesharpriseandfallinpriceshavebeenreflectedintheunpredictability
ofpricesinNitrogen,PhosphateandPotash.Therecentupturnanditspossible
recurrenceinthefuturehavebeendrivenbysomedemandfactors.Theseinclude
croppricesalsoreachingrecordlevelsbothgloballyandlocally.Farmeconomies
haveimprovedsignificantly,encouragingfarmerstoapplymorefertilizers.Prices
offertilizershavebeenincreasingdramaticallywithfactorssuchasinputcost
(PhosphateandSulphurprices)jumpedsignificantly.However,withotherkeydrivers
suchasfarmeconomiesandtheglobalfoodsecurityprograms,thedemandfor
fertilizersisexpectedtoremainfirm.
DomesticFertilizerMarketofNitrogenandPhosphatebasedFertilizers
Thedomesticmarketrunningintandemwiththeglobalscenariosawsomedramatic
growthinfertilizerconsumption.Withstrongcropprofitabilityparticularlyincotton,
wheatandsugarcane,thefertilizerutilizationhasbeengood.
Punjabconstitutes70%oftotalfertilizerusage,followedbySindhwith22%sharein
productoff-take.
Fromavaluationstandpoint,adifficultsituationinRabipostfloodshaspassed
withoutseriousincidence.Potentialupsidetothisscenariocouldbeseeninterms
ofbetterfertilizerapplicationgoingforwardin2011tocaterforsoilerosioncaused
byflood,betterwateravailabilitywhichcouldencouragehigherwheatcultivationin
otherdistrictsandlimiteddemanddeteriorationformanufacturers.
RevampandExpansionProject
PakarabFertilizersLimitedplanstorevampandexpanditsexistingfertilizer
manufacturingcapacity.Inthisrespect,PakarabFertilizersplanstoincreaseits
Ammoniaplantproductioncapacityby138,600tonsperyearfromitscurrent
productionof316,800metrictonsperyear.
ArifHabib
Chairman
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Pakarab Fertilizers Limited
AnnuAlRepoRt
2010
Notice o Thirty Eighth Annual General Meeting
NoticeisherebygiventhattheThirtyEighthAnnualGeneral
MeetingoftheshareholdersofPAKARABFERTILIZERSLIMITEDwillbeheldonThursday,March31,2011at12:00noonatRoyalPalmGolfandCountryClub,52-CanalBankRoad,Lahore,to
transactthefollowingbusiness.
Ordinary Business
1. ToconfirmtheminutesoftheAnnualGeneralMeetingheldon
April30,2010.
2. Toreceive,considerandadopttheauditedfinancialstatementsoftheCompanytogetherwiththeDirectorsand
AuditorsReportsthereonfortheyearendedDecember31,
2010.
3. ToappointAuditorsfortheyearendingDecember31,2011andtofixtheirremuneration.TheAuditCommitteeandthe
BoardofDirectorshaverecommendedforreappointmentof
M/sA.F.Ferguson&Co.,CharteredAccountantsasexternalauditors.
4. TodeclarefinalspeciedividendfortheyearendedDecember
31,2010attherateof50%i.e.todistribute225millionsharesofFatimaFertilizerCompanyLimited(FATIMA)havingface
valueofRs.10each,totheshareholdersoftheCompany
asspeciedividendintheratioof5:10(5sharesofFATIMAforevery10sharesheldofPakarabFertilizersLimited),as
recommendedbytheBoardofDirectorsoftheCompanyand
alsotoconfirmthe50%interimSpeciedividendofAugust27,2010forthefinancialyearendedDecember31,2010.
Special Business
5. Toconsiderand,ifthoughtfit,topassthefollowingresolution
asanordinaryresolution:
Resolved,thatfractionalsharestobeallocatedasaresultof
distributionofspeciedividendintheformofquotedsharesofFatima,betreatedasperCompaniesOrdinance,1984.
Other Business:
6. TotransactanyotherbusinesswiththepermissionoftheChair.
ByorderoftheBoard
AusafAliQureshiLahore:March10,2011. CompanySecretary
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Notes:
1. ThesharetransferbooksoftheCompanywillremainclosedfromMarch25,2011toMarch31,2011(bothdaysinclusive).TransfersreceivedinorderattheRegisteredOfficeofthe
CompanybythecloseofbusinessonMarch24,2011willbetreatedintime.
2. Amemberentitledtoattendandvoteatthemeetingmayappointanothermemberashis/herproxywhoshallhave
suchrightsasrespectsattending,speakingandvotingatthemeetingasareavailabletoamember.
3. ProxiesinordertobeeffectivemustbereceivedbytheCompanyattheRegisteredOfficenotlaterthan48hours
beforethetimeforholdingmeeting,dulysignedandstamped
andwitnessedbytwopersonswiththeirnames,address,NICnumberandsignatures.
4. AnyIndividualBeneficialOwnerofCDC,entitledtovote
atthisMeeting,mustbringhis/heroriginalNICtoproveidentity,andincaseofproxy,acopyofshareholdersattested
computerisednationalidentitycard(CNIC)mustbeattachedwiththeproxyform.Representativesofcorporatemembers
shouldbringtheusualdocumentsrequiredforsuchpurpose.
CDCAccountHolderswillalsohavetofollowtheunder
mentionedguidelinesaslaiddowninCircular1datedJanuary26,2000issuedbytheSecuritiesandExchangeCommission
ofPakistan.
A. ForattendingtheMeeting:
i) Incaseofindividuals,theaccountholderorsubaccount
holderand/orthepersonwhosesecuritiesareingroup
accountandtheirregistrationdetailisuploadedaspertheregulations,shallauthenticateidentitybyshowing
his/heroriginalCNICororiginalpassportatthetimeofattendingtheMeeting.
ii) Incaseofcorporateentity,theBoardofDirectors
resolution/powerofattorneywithspecimensignatureof
thenomineeshallbeproduced(unlessprovidedearlier)atthetimeofMeeting.
B. Forappointingproxies:
i) Incaseofindividuals,theaccountholderorsubaccountholderand/orthepersonwhosesecuritiesareingroup
accountandtheirregistrationdetailisuploadedaspertheregulations,shallsubmittheproxyformasperthe
aboverequirement.
ii) Theproxyformshallbewitnessedbythepersonwhose
name,addressandCNICnumbershallbementionedontheform.
iii) AttestedcopiesofCNICorthepassportofthebeneficial
ownersandtheproxyshallbefurnishedwiththeproxyform.
iv) TheproxyshallproducehisoriginalCNICororiginalpassportatthetimeofMeeting.
v) Incaseofcorporateentity,theBoardofDirectorsresolution/powerofattorneywithspecimensignature
shallbesubmitted(unlessithasbeenprovidedearlier)alongwithproxyformtotheCompany.
5. Shareholdersarerequestedtoimmediatenotifythechangeoftheiraddress,ifany.
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Pakarab Fertilizers Limited
AnnuAlRepoRt
2010
Financial Highlights
December31, December31, December31, December31, FY2005 FY2006 FY2007 2007 2008 2009 2010
(Transitional)* Restated
IncomeStatement
Turnover Rs. 5,954 7,069 9,102 5,164 18,887 16,706 18,248CostofGoodsSold Rs. (3,911) (4,255) (5,658) (2,473) (6,378) (9,796) (9,051)GrossProfit Rs. 2,043 2,814 3,444 2,691 12,509 6,910 9,197AdminCost Rs. (515) (148) (198) (144) (590) (610) (780)DistributionCost Rs. - (97) (250) (178) (583) (898) (994)FinancialCost Rs. (8) (1,088) (1,093) (660) (2,296) (3,160) (3,590)OtherExpenses Rs. (130) (673) (315) (121) (1,019) (244) (386)Re-measurementgain Rs. - - - - - 2,866 (121)InterestIncome Rs. 21 125 79 21 37 146 543OtherIncome Rs. 13 17 35 21 34 196 866Sharegain/(loss)ofassociatedcompany Rs. - - - 6 (57) (25) (39)ProfitbeforeTax Rs. 1,424 950 1,702 1,636 8,035 5,182 4,696ProfitafterTax Rs. 685 1,442 1,359 1,337 7,090 4,739 3,232EBITDA Rs. 1,604 2,617 3,208 2,543 10,815 8,342 8,943
BalanceSheet
PaidupCapital Rs. 743 743 743 3,000 3,000 4,500 4,500ShareholdersEquity Rs. 1,532 5,839 7,069 6,156 11,976 14,847 12,248Longtermborrowings Rs. - 7,920 7,040 10,905 13,805 16,191 13,372Capitalemployed Rs. 1,532 13,759 14,109 17,061 25,781 31,038 25,620Deferredliabilities Rs. - 4,389 4,364 4,417 4,656 5,021 5,631Property,plantandequipment Rs. 339 13,808 14,305 16,784 20,279 21,285 21,916Longtermassets Rs. 396 17,485 18,585 23,703 32,047 35,039 33,178Netcurrentassets/Workingcapital Rs. 1,034 1,262 581 930 1,666 4,388 811TotalAssets Rs. 3,573 23,225 25,167 30,645 45,523 52,126 50,637
CashFlows
Operatingactivities Rs. 838 3,202 2,512 240 2,780 6,712 4,109Investingactivities Rs. (188) 11 (1,935) (5,000) (10,278) (10,353) (2,989)Financingactivities Rs. (594) (2,952) (218) 2,864 3,100 3,467 (316)Changesincashandcashequivalents Rs. 655 261 359 (1,896) (4,398) (174) 804Cashandcashequivalents-Yearend Rs. 413 789 1,147 (748) (5,146) (5,321) (4,517)
KeyIndicators
Operating:GrossProfitMargin % 34.31 39.81 37.84 52.11 66.23 41.36 50.40Pretaxmargin % 23.92 13.44 18.70 31.68 42.54 31.02 25.73Netprofitmargin % 11.50 20.40 14.93 25.89 37.54 28.37 17.71EBITDA%agetosale % 26.94 37.02 35.25 49.24 57.26 49.93 49.01Earningpershare(Rs.)Basic Rs. 9.22 19.40 18.29 4.46 23.63 10.53 7.18
Performance
BookValuepershare Rs. 20.61 78.59 95.14 20.52 39.92 32.99 27.22Returnonassets % 19.17 6.21 5.32 4.36 15.57 9.09 6.38TotalAssetsTurnover Times 1.67 0.30 0.36 0.17 0.41 0.32 0.36FixedAssetsTurnover Times 17.57 0.51 0.63 0.31 0.93 0.77 0.82Debtorsturnover Times 6.89 9.00 21.34 4.85 19.18 11.80 11.13Debtorsturnover Days 53 41 17 38 19 31 33Inventoryturnover Times 3.29 2.76 3.30 1.21 1.43 1.80 1.82
Inventoryturnover Days 111 132 111 152 255 203 200ReturnonShareCapital % 92.21 194.08 183.04 44.57 236.33 105.31 71.82ReturnonEquity % 92.21 24.70 19.22 21.72 59.20 31.92 26.39
Leverage
LongTermDebt:Equity 0:100 58:42 50:50 64:36 54:46 54:46 59:41Interestcover 179.50 2.03 2.60 4.41 5.21 2.64 2.31
Liquidity
CurrentRatio 1.51 1.28 1.10 1.15 1.14 1.35 1.05Quickratio 0.91 0.88 0.85 0.70 0.62 0.98 0.73
Valuation
Earningspershare(beforetax) Rs. 19.16 12.79 22.91 5.46 26.78 11.52 10.44Earningspershare(aftertax) Rs. 9.22 19.41 18.30 4.46 23.63 10.53 7.18EarningsGrowth % (35.97) 110.50 (5.72) (1.64) 430.29 (55.44) (31.80)Break-upvalue Rs. 20.61 78.59 95.14 20.52 39.92 32.99 27.22Cashdividend % 80.17 - - - - - -
Bonusdividend % - 2,562.10 - 303.73 50.00 - -Speciedividend % - - - 75.00 50.00 100.00 100.00*PeriodendedDecember31,2007wastransitionalperiodofsixmonthsfromJuly07toDec.07
Sx Yers glnce n rnsonl pero of sx monhs (Rs. n mllon excep per shre n ros)
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AnnuAlRepoRt
2010
Horizontal Analysis Balance Sheet
RupeesinMillion Variancein%
2007 Dec31, Dec31, Dec31, FY2007 2007(Trans.) 2008Vs 2009Vs 2010Vs FY2006 FY2007 (Trans.)* 2008 2009 2010 Vs.FY2006 Vs.FY2007 2007(Trans.) 2008 2009
Restated Restated
Issued,subscribedandpaidupcapital 743 743 3,000 3,000 4,500 4,500 - 303.77 - 50.00 -
Reserves 3,423 4,673 1,818 1,646 4,995 4,995 36.52 (61.09) (9.49) 203.46 -
Sharedepositmoney - - - 240 200 200 - - - (16.67) -
Unappropriatedprofit 1,673 1,653 1,338 7,090 5,152 2,553 (1.20) (19.07) 430.04 (27.33) (50.45)
Revaluationreserve - - 2,476 2,476 2,476 2,476 - - - - -
5,839 7,069 8,632 14,452 17,323 14,724 21.07 22.11 67.43 19.87 (15.00)
Non-currentliabilities
Longtermfinances 7,920 7,040 10,905 13,805 16,191 13,372 (11.11) 54.90 26.60 17.28 (17.41)
Liabilitiesagainstassetssubjecttofinancelease - 36 38 75 107 218 - 5.20 98.14 42.67 103.74
Payableagainstminingrights - - - - 52 - - - - - (100.00)
Longtermdeposits 599 657 641 724 732 44 9.68 (2.35) 12.84 1.10 (93.99)
Deferredliabilities 10 15 23 42 46 57 50.00 52.27 83.61 8.95 24.57
Deferredtaxation 4,379 4,349 4,394 4,614 4,975 5,574 (0.69) 1.03 5.01 7.82 12.04
12,908 12,097 16,001 19,260 22,103 19,265 (6.28) 32.27 20.37 14.76 (12.84)
Currentliabilities
Currentportionoflongtermliabilities 80 891 13 32 1,339 4,009 1,013.75 (98.53) 141.50 4,141.50 199.40
Financesundermarkuparrangements-secured 26 11 935 5,231 5,556 4,702 (57.69) 8,401.25 459.43 6.20 (15.37)
Derivativefinancialinstruments - - - 52 - - - - - - -
PayabletoPrivatizationCommissionofPakistan 2,293 2,198 2,198 2,198 2,198 2,198 (4.14) - - - -
Tradeandotherpayables 1,105 2,339 1,940 3,045 2,491 4,458 111.67 (17.07) 56.97 (18.19) 78.96
Accruedfinancecost 975 561 320 799 989 650 (42.46) (42.90) 149.55 23.73 (34.28)
Provisionfortaxation 461 374 606 454 127 631 (18.87) 62.01 (25.10) (72.01) 396.85
4,940 6,374 6,012 11,811 12,700 16,648 29.03 (5.68) 96.45 7.53 31.09
23,687 25,540 30,645 45,523 52,126 50,637 7.82 19.99 48.55 14.50 (2.86)
RupeesinMillion Variancein%
2007 Dec31, Dec31, Dec31, FY2007 2007(Trans.) 2008Vs 2009Vs 2010Vs FY2006 FY2007 (Trans.)* 2008 2009 2010 Vs.FY2006 Vs.FY2007 2007(Trans.) 2008 2009
Restated Restated
Non-currentassets
Property,plantandequipment 13,809 14,305 16,784 20,279 21,285 21,916 3.59 17.33 20.82 4.96 2.96
Assetssubjecttofinancelease - 50 44 117 148 283 - (12.04) 165.70 26.65 91.22
Intangibles - - - 4 206 183 - - - - (11.17)
Goodwill 3,488 3,305 3,305 3,305 3,305 3,305 (5.25) - - - -
Investments-relatedparty - 744 3,562 8,334 7,882 2,930 - 378.79 133.95 (5.42) (62.83)
Loantosubsidiary - - - - 2,196 4,516 - - - - 105.65
Securitydeposits 188 182 8 8 17 45 (3.19) (95.78) 5.52 109.67 164.71
17,485 18,586 23,703 32,047 35,039 33,178 6.30 27.53 35.20 9.34 (5.31)
Currentassets
Storesandspareparts 966 1,033 1,277 1,777 1,880 2,310 6.94 23.58 39.21 5.80 22.87
Stock-in-trade 901 533 1,428 4,430 2,793 2,947 (40.84) 167.93 210.21 (36.95) 5.51
Tradedebts 353 500 564 1,405 1,427 1,851 41.64 12.93 148.87 1.57 29.71
otherreceivables 3,167 3,477 3,486 5,779 6,814 3,583 9.79 0.26 65.79 17.91 (47.42)
Derivative - 251 - - 8 69 - (100.00) - - 762.50
Investments - - - - 3,930 6,513 - - - - 65.73
Cashandbankbalances 815 1,160 187 85 235 186 42.33 (83.90) (54.53) 176.47 (20.85)
6,202 6,954 6,941 13,476 17,087 17,459 12.13 (0.18) 94.14 26.80 2.18
23,687 25,540 30,645 45,523 52,126 50,637 7.82 19.99 48.55 14.50 (2.86)
*PeriodendedDecember31,2007wastransitionalperiodofsixmonthsfromJuly07toDec.07
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agriculturesectorandontheeconomyofthecountryasawhole.
However,despitethegeneralconsensusonthenegativeimpact
ofthefloods,cottonpricesandsugarcanepricescontinuedtorise,
bothlocallyandinternationally.Withtheaftermathofthefloods
sowingintheaffectedareasforwheatcommencedaheadoftime
whereasinsouthernpartsitwasdelayedasgrowerscontinuedto
getexcellentpricesforcotton.Theimprovedfinancialpositionof
thefarmingcommunitycouldimproveinvestmentbyfarmersinsoil
nutrientslikefertilizer.
Fertilizer Industry
Theyearbeganfairlynormallybutbytheendofthefirstquarterthe
specterofthegasshortagewasfastbecomingareality.InApril,
GovernmentrequestedtheIndustrytobuckleupforcurtailment
foraquartertogenerateelectricity.Theindustryadvisedthe
Governmentontheshortagesthatwouldoccur.Consequentlythe
Governmentwentaheadwithasignificantimportof600,000tons
ofUreaforKharif.Withwidespreadrainsthemammothfloods
soonfollowedandfertilizerdemandplummetedbyover30%inthe
season.Withthecombinedimpactofheavyimportsandlowoff
taketheindustrypiledupaninventoryof800,000tonsofUreaat
thecloseofSeptember,asignificanthighinrecenthistory.During
thesameperiodDAPinventoryalsoballoonedtoover420,000
tonsrepresentingadropof45%versus2009.Salesbouncedback
forboththecategoriesinthelastquarter.Anumberofreasons
beyondtheyearendrally.Earlysowingofwheat,continuedgood
returnsoncottonandsugarcane,strengtheningoftheinternational
DAPpricesandmostsignificantlythepossibilityoftheimposition
ofRGSTonfertilizersspurredbuying.Asaconsequence,the
Ureamarketdecline,wasrestrictedtoonly6%comparedtothe
previousyearandDAPvolumesregistereda25%shortfallagainst
2009.Localproductiongrewprimarilyonaccountoftheadditional
volumeinjectedbythestartupofFatimasproduction.Thusthe
totalindustrysalesforureaendedtheyearat6,092,000tonswith
theGovernmentsvolumereducedby460,000tonsi.e.,to1million
tons.
SalesofUreaat74thousandtonswere31%behindlastyear
mainlyonaccountofgascurtailmentandshortagesduringthe
year.NPsaleswere18%behindthevolumesoldin2009.This
shortfallwasonaccountofpracticallynoopeninginventoryin2010
whereasatthebeginningof2009thebusinesshadalmost100
thousandtonsofstock.CANsalesgrewby20%over2009onthe
backofstrongdemandinthefirsthalfoftheyear.Overallthesaleswere5%behindlastyear.
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Pakarab Fertilizers Limited
AnnuAlRepoRt
2010
Directors Report to the Members
Financial Perormance Review
Rupeesinmillion
December December 31,2010 31,2009 Restated
Sales 18,248 16,706GrossProfit 9,197 6,910
OtherOperatingIncome 1,409 342
OperatingProfit 8,445 5,500
FinanceCost (3,590) (3,160)
Re-measurementoffinancialassets
atfairvalue (121) 2,866
Profitaftertax 3,232 4,739
Appropriationsduringtheyearwereasfollows:
Rupeesinmillion
General Un-appropriated Reserve profit
BalanceasatDecember31,2009 4,995 5,152
Totalcomprehensiveincomefortheyear - 3,232
Finalspeciedividendfortheyear2009 - (2,920)
Interimspeciedividendfortheyear2010 - (2,911)
BalanceasatDecember31,2010 4,995 2,553
Theyear2010wasadifficultyearfortheindustryasawhole
becausefertilizerindustrywasseverelyhitbygascurtailment/
stoppageduringsummerseasonandthenfloodhaditsdevastating
effectonofftakeofKharifseason.Stockspiledupandbudgeted
revenuescouldnotbeachieved,whichwasreflectedduringthe
quarterlyaccountsfortheninemonthsendedSeptember2010.
Ne Prof & Ebitda Mrgn(n percenge)
Prof o sle Ebitda Mrgn
2006 2007 Dec*
2007
2008 2009 2010
20
15
26
38
28
18
3735
49
57
50 49
Reurn on Cpl Employe(n percenge)
2006 2007 Dec*
2007
2008 2009 2010
15
20
13
40
27
32
* Six months period.
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Besidesconfrontingwiththisdevastatingnaturalcalamityandgas
curtailment/stoppageduetowaveofsummerheat,yourCompany
managedtorecoverduringthelastquarterofthefinancialyearand
closedthefinancialyearwithgrowthintermsofrevenue,gross
profitandoperatingprofitoverthelastyear.Operatingprofitofthe
Companyforthecurrentyearishigherascomparedtolastyear.
Theincreaseinprofitismainlyattributabletohigherfertilizerprices
comparedtolastyearandotherincome.Netprofitaftertaxforthe
yearislowerascomparedtolastyearduetorecognitionoflosson
re-measurementoffinancialassetsatfairvaluethroughprofitand
lossaccount.Moreover,higherfinancialchargesalsoaddedtothe
reductioninnetprofitsduetoincreaseinKIBORrates.
PostBalanceSheetEvent
TheBoardofDirectorsoftheCompanyhasrecommendedfinal
speciedividendfortheyearendedDecember31,2010attherate
of50%i.e.todistribute225millionsharesofFatimaFertilizerCompanyLimited(FATIMA)havingfacevalueofRs.10each,to
theshareholdersoftheCompanyintheratioof5:10(5sharesof
FATIMAforevery10sharesheldofPakarabFertilizersLimited),in
theirmeetingheldonFebruary24,2011.
EarningsPerShare
BasedonthenetprofitfortheyearenddedDecember31,2010,the
earningspershare(EPS)standatRs.7.18pershare.
ContributiontotheNationalExchequerandEconomy
TheCompanyscontributiontotheNationalExchequerbywayof
Ernngs per Shre(n Rupees)
19.418.3
4.46
15.76
10.53
7.18
2006 2007 Dec*
2007
2008 2009 2010
taxes,levies,excisedutyandsalestaxamountedtoRs.1,344
millionintheyear2010asagainstRs.1,034millionintheyear
2009.
CreditRating
JCR-VIS,arenownedratingagencyapprovedbybothSECPandSBP,hasconductedtheratingofPakarabFertilizersLimited.The
PPTFCofPKR6.5billionandTFCofPKR5billionareratedAAby
theagency.Furthermorekeepinginviewthestrongperformance
ofPakarabFertilizersLimited,JCR-VISreaffirmedtheentityrating
ofthecompanyatAA-/A-1(DoubleAMinus/A-One).Theoutlook
ontheratingisstableshowingaconsistentstrongperformance
expectedinfuture.
* Six months period.
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2010
NPproductionhasincreased8.42%in2010comparedto2009.
Similarly,CANproductionhasalsoincreased2.38%comparedto
2009.
UreaproductionremainedlowerthanPlanmainlydueto31days
outagetakentoreplacetheleakingtubesheetofHighPressure
Stripper.
Althoughproductionin2010washigherthan2009yetproduction
targetswerenotachievedandwasshortby50,042tonsmainlydue
tofrequentshutdownsandplantloadreductionsbecauseofnatural
gaslimitationbySNGPL.
Smoothplantoperationswereachievedthroughouttheyearby
focusingandimplementingpreventivemaintenanceplansandplant
reliabilitymeasures.
PlantReliabilityandImprovements
PakarabFertilizerscontinueditseffortstobecometheleading
fertilizercomplexinPakistanduring2010.Foreffectiveandreliable
operationofplants,anumberofcriticaljobswereidentifiedand
attendedintheannualturnaround.Excludingtheplantoutagedue
togasshortages,capacityfactorofAmmoniaPlantincreasedfrom
0.94in2009to0.98in2010.Inadditiontonormalmaintenance
jobs,anumberofplantreliabilityimprovementprojectswerealso
implemented.
341,
928
2009 2010
Proucs(M. ton)
Nitro
Phosphate
Calcium
Ammonium
Nitrate
Urea
350,
062
105,6
7
4
73,
933
Thechartdepictstheincreaseinproductionofthetwofertilizersin2010.
292,
102
316,
699
tol Proucon(M. ton)
Actual Budgeted
740,694
790,736
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Directors Report to the Members
New Ammonia Storage Tank
Adoublewall,doubleintegrityammoniastoragetankwithadditionalpiping,equipmentandaflaresystemhasbeeninplace
toreplacetheoldtank.
New Catalyst Basket for Ammonia Converter
CatalystbasketsofboththeAmmoniaConverterswereinstalled
in1993.Itscatalystchargehadcompleteditsusefullifeperiod;
moreoverminorcatalystslipwasbeingnotedfromthebasketof
oneconverter,whichwasaffectingtheplantoperation.Nowboth
theConvertersBasketsarereplacedwithTOPSOES-200design
alongwithnewcatalystcharge.Thenewbasketsaredesigned
fortheAmmoniarevampthruputsof1400Tonsperday.This
replacementwillprovideoperationalreliability.
Replacement of Urea Stripper Tube Sheet
In2010,aleakagewasfoundonthetubesheetofStripperatUrea
plant.SincetheshellofStripperisnotdesignedtowithstandhigh
pressurestreamsandposingasafetyhazard.Thetubesheetwas
replacedinJuly2010underthesupervisionofforeignVSMs.This
isauniquerepairofitskindcarriedoutinPakistan.
Installation of IS Limiter
TheinstallationoftheISlimiteronournewlyinstalled3Gas
turbinesoftheCo-genplantenabledustorunallthreemachines
insynchronizedmode.Ithasenhancedtheoperationalreliability
ofourpowergenerationsystemandultimatelyimprovedtheplant
servicefactor.
Nitric Acid Bleacher Tower
ThirtyyearsoldBleacherTowerofNitricAcidlineAandBhad
outliveditsusefullife.Thishasbeenreplacedtoenhancereliability
ofplantoperations.
NewProjects
Ammonia Revamp and Expansion Project
DetailworkingonAmmoniaPlantRevampProjectwasdone.
Feasibilitystudyandbasicengineeringagreementwassigned
withM.W.Kellogg,UKforAmmoniaPlantRevamp.Ammonia
productioncapacitywouldincreaseby138,600MTperyearfromits
currentproductionof316,800MTperyearafteritsimplementation.
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Corporate Social Responsibility
EstablishmentofPakarabWorkersWelfareBoard
AnagreementhasbeensignedbetweenGoverningBodyof
WorkerWelfareFund,MinistryofLaborandManpowerand
PakarabFertilizersLimitedfortheconstructionofMukhtarA.
SheikhMemorialWelfareHospitalaKidneyandPsychiatric
treatmentfacilityandotheralliedservicesatMultan.
Undertheagreement,PakarabWorkersWelfareBoardisbeing
establishedasaPublic-PrivatepartnershipbetweenWorker
WelfareFund(WWF)andPakarabFertilizersLimitedforthe
efficientmanagementandadministrationofthemoneytobe
allocatedfortheProject.Fortheestablishmentofthehospital50%
willbecontributedbytheWWFandtheremaining50%willbe
contributedbyPakarabFertilizersLimited.Thetotalprojectcostof
Rs.2billiondoesnotincludethelandcost.Thelandfortheproject
isbeingprovidedbyPakarabFertilizersLimited.Oncecompleted,
itwillbeaselfsustaininghospital.
MukhtarA.SheikhMemorialWelfareHospitaloncecompleted
willprovidefreeKidneyandPsychiatrictreatmenttoallworkers
registeredwithEOBIorESSI.
ThisisthefirstWorkerWelfareBoardofitskindandonlythefifth
afterthefourProvincialWorkerWelfareFunds.
EstablishmentofIndustrialHome
Anindustrialhomehasbeenestablishedforthewelfareof
surroundingcommunitiesandwives/daughtersofPFLstaff
employeestoimparttraininginsewing,knittingandembroidery.
FloodRelief
YourCompanyactivelyparticipatedinfloodreliefeffortstowards
mitigatingthesufferingsofouraffectedpeoplebydispatching
rations,tentsandmedicinesonbehalfofFatimaGrouptoSanawan
areaofKotAdduDistrict.TheemployeesofPakarabFertilizers
Limitedhavealsodonatedseparatelyinthisactivity.
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2010
Directors Report to the Members
Commitment to Health Saety and Environment
Environment
Environmentalconcernsaregivenhighprioritiesandremedial
actionsaretakenpromptly.WaterConservation,wastewater
treatment,airpollutants,globalwarmingandhazardouswaste
disposalarethekeyconcernsofmodernera.
WeareanISO-14001:2004certifiedCompanysince2008which
alsoadvocatesoureffortsindevelopingrobustEnvironmental
ManagementSystem.Inrecentturnaroundanumberof
maintenancejobswereperformedtoreduceimpactsofgaseous
emission,liquideffluentsandsolidwaste.
WearestrivingforcontinuousbettermentofourEnvironment
portfoliothroughbetterprocesscontrol,R&Dworkandimproving
thewastetreatmentsystems.
Followingstepsillustratethecommitmentofourmanagementfor
environment.
CDM Cogen Plant
In2010,CDMwasapprovedforCogenandgenerationof
monitoringreportsstartedforverificationofCarbonCredits.Total54,583numberofCERsweregeneratedduringtheyear2010.
Process Optimizations
ThedosageofCalciumNitrateforFluorideremovalwasoptimized
whichhasreduced20%totaldissolvedsolidsinplanteffluentas
comparedto2009.
Celebrations on Environmental Days
ToraiseawarenessamongPFLemployeesandtheirfamilies,
EarthDayandWorldEnvironmentDayswerecelebratedandtree
plantationwasdoneontheseoccasions.
SafetyManagement
PFLmanagementmaintaineditsfocustowardsdevelopmentof
safetysystemandalignmentwithDupontProcessSafetyandRisk
Management(PSRM)Standard.
ManagementofChangeProtocolremainedatoppriorityanda
lotofimprovementwasbroughtaboutinthisregard.Aninitiative
wastakenforimprovingthereviewprotocolthroughintroduction
ofchecklistsystem.ThereviewprocessinSub-SafeOperations
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CommitteesforProcessandMechanicalwereimprovedbyuse
ofthesechecklistscoveringallaspectsofsafeoperationsofthe
facility.
SafetytrainingsystemwasenhancedbyuseofDVDsonDupont
guidelinesforPSRM.AfulldaytrainingsessiononRootCause
AnalysiswasconductedbyDirectorOperationstodevelopRCA
skillsinmanagementemployeesofPFL.OthertrainingsonPSM
elementswerealsoconductedbySafetyUnit.
Loss Time Injury
EmergencyResponseProcedurewasrevisedtoincorporatesome
oftheimportantelementsofanemergencyresponseplan.These
factorswereincludedkeepinginviewtheOSHAguidelines.
WorkPermitprocedurewasrevisedandextensivetrainingof
staffwasconductedtoimplementthissystemproperly.Another
importantsteptoimprovethissystemwasthedevelopmentofWork
PermitIssuersandReceiversProcedure.Accordingtothisnew
systemallworkpermitissuersandreceivershavetogothrough
arigorousprocesstoqualifyasanauthorityforIssueorReceive
PermittoWork(PTW).Onqualifyingforworkpermit,theyare
issuedacardoftwoyearsvalidity.
Human Resource Management
HumanresourcefunctionatPakarabFertilizersLimitedhasplayed
itsprofessionalroleofbusinesspartnering.Therehasbeen
emphasisandefforttoenableemployeestoexcelintheircareers
andcontributetowardstheachievementofcorporategoalsand
objectives.HR,duringtheyeartookmanyinitiatives,including:
DevelopmentofaprofessionalHRteam
Recruitmentofindustrybestprofessionalsacrossallfunctions
Benchmarkingwithindustrytoalignwithexternalequity
JobevaluationonHaysSystem
Traininganddevelopmentforallemployees
Careerprogressionwithinandacrossdifferentfunctions
Organizationdevelopment
Developmentofcorporategoalsandobjectives
Developmentofindividualgoalsandobjectivesandits
transparentperformancemeasurement
Developmentofcorporatecommunicationfunction
Participationincorporatesocialresponsibilityrelatedactions.
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49
Financial Statements of
Pakarab Fertilizers Limitedfor the year ended December 31, 2010
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2010
Review Report to the Memberson Statement o Compliance with Best Practices o Code o Corporate Governance
We have reviewed the Statement o Compliance with the best
practices contained in the Code o Corporate Governance
prepared by the Board o Directors o Pakarab Fertilizers
Limited (the company) to comply with the Listing RegulationsNo. 35 o The Karachi Stock Exchange (Guarantee) Limited,
where the company is listed.
The responsibility or compliance with the Code o Corporate
Governance is that o the Board o Directors o the company.
Our responsibility is to review, to the extent where such
compliance can be objectively veried, whether the Statement
o Compliance refects the status o the companys compliance
with the provisions o the Code o Corporate Governance and
report i it does not. A review is limited primarily to inquiries
o the company personnel and review o various documents
prepared by the company to comply with the Code.
As part o our audit o nancial statements we are required
to obtain an understanding o the accounting and internal
control systems sucient to plan the audit and develop an
eective audit approach. We are not required to consider
whether the Boards statement on internal control covers all
risks and controls, or to orm an opinion on the eectiveness
o such internal controls, the companys corporate governance
procedures and risks.
Further, Sub-Regulation (xiii a) o Listing Regulation 35 notied
by The Karachi Stock Exchange (Guarantee) Limited vide circular
KSE/N-269 dated January 19, 2009 requires the company
to place beore the Board o Directors or their consideration
and approval related party transactions distinguishing between
transactions carried out on terms equivalent to those that
prevail in arms length transactions and transactions which are
not executed at arms length price recording proper justication
or using such alternate pricing mechanism. Further, all such
transactions are also required to be separately placed beore
the audit committee. We are only required and have ensured
compliance o requirement to the extent o approval o related
party transactions by the Board o Directors and placement o
such transactions beore the audit committee.
We have not carried out any procedures to determine whether
the related party transactions were undertaken at arms length
price or not.
Based on our review, nothing has come to our attention which
causes us to believe that the Statement o Compliance does
not appropriately refect the companys compliance, in all
material respects, with the best practices contained in the Code
o Corporate Governance as applicable to the company or the
year ended December 31, 2010.
A.F. Ferguson & Co.
Chartered Accountants
Lahore: February 24, 2011
Engagement Partner: Muhammad Masood
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We have audited the annexed balance sheet o Pakarab
Fertilizers Limited (the company) as at December 31,
2010 and the related prot and loss account, statement o
comprehensive income, statement o changes in equity andcash fow statement together with the notes orming part
thereo, or the year then ended and we state that we have
obtained all the inormation and explanations which, to the best
o our knowledge and belie, were necessary or the purposes
o our audit.
It is the responsibility o the companys management to
establish and maintain a system o internal control, and prepare
and present the above said statements in conormity with the
approved accounting standards and the requirements o the
Companies Ordinance, 1984. Our responsibility is to express
an opinion on these statements based on our audit.
We conducted our audit in accordance with the auditing
standards as applicable in Pakistan. These standards require
that we plan and perorm the audit to obtain reasonable
assurance about whether the above said statements are ree
o 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 signicant estimates made by
management, as well as, evaluating the overall presentation o
the above said statements. We believe that our audit provides
a reasonable basis or our opinion and, ater due verication,
we report that:
(a) in our opinion, proper books o account have been
kept by the company as required by the Companies
Ordinance, 1984;
(b) in our opinion:
(i) the balance sheet and prot and loss account
together with the notes thereon have been
drawn up in conormity with the Companies
Ordinance, 1984, and are in agreement with the
books o account and are urther in accordance
with accounting policies consistently applied
except or the changes in accounting policies
as stated in note 2.2.1 and 4.1 to the annexed
nancial statements with which we concur;
(ii) the expenditure incurred during the year was or
the purpose o the companys business; and
(iii) the business conducted, investments made andthe expenditure incurred during the year were in
accordance with the objects o the company;
(c) in our opinion and to the best o our inormation
and according to the explanations given to us the
balance sheet, prot and loss account, statement
o comprehensive income, statement o changes in
equity and cash fow statement together with the notes
orming part thereo conorm with approved accounting
standards as applicable in Pakistan, and, give the
inormation required by the Companies Ordinance,
1984, in the manner so required and respectively
give a true and air view o the state o the companys
aairs as at December 31, 2010 and o the prot, total
comprehensive income, changes in equity and its cash
fows or the year then ended; and
(d) in our opinion, Zakat deductible at source under the
Zakat and Ushr Ordinance, 1980 (XVIII o 1980),
was deducted by the company and deposited in the
Central Zakat Fund established under Section 7 o that
Ordinance.
A.F. Ferguson & Co.
Chartered AccountantsLahore: February 24, 2011
Engagement Partner: Muhammad Masood
Auditors Report to the Members
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2010
Balance Sheetas at December 31, 2010
2010 2009
Restated
Note (Rupees in thousand)
EQUITY AND LIABILITIES
CAPITAL AND RESERVES
Authorised share capital
1,000,000,000 (2009: 1,000,000,000)
Ordinary shares o Rs 10 each 10,000,000 10,000,000
Issued, subscribed and paid up share capital
450,000,000 (2009: 450,000,000)
Ordinary shares o Rs 10 each 5 4,500,000 4,500,000
Reserves 6 4,995,352 4,995,352
Share deposit money 7 200,000 200,000
Unappropriated prot 2,553,104 5,152,449
12,248,456 14,847,801
SURPLUS ON REVALUATION OF PROPERTY,
PLANT AND EQUIPMENT 8 2,475,847 2,475,847
NON-CURRENT LIABILITIES
Long term nances - secured 9 13,371,890 16,190,740
Liabilities against assets subject to nance lease 10 217,379 106,720
Payable against mining rights 11 - 52,500
Long term deposits 12 44,031 732,241
Deerred liabilities 13 57,366 45,760
Deerred taxation 14 5,574,152 4,975,084
19,264,818 22,103,045CURRENT LIABILITIES
Current portion o long term liabilities 15 4,008,533 1,338,502
Short term borrowings - secured 16 4,702,528 5,555,693
Payable to Privatization Commission o Pakistan 17 2,197,901 2,197,901
Trade and other payables 18 4,458,237 2,491,206
Accrued nance cost 19 650,151 989,422
Provision or taxation 630,936 127,043
16,648,286 12,699,767
CONTINGENCIES AND COMMITMENTS 20
50,637,407 52,126,460
The annexed notes 1 to 52 orm an integral part o these nancial statements.
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2010 2009
Restated
Note (Rupees in thousand)
ASSETS
NONCURRENT ASSETS
Property, plant and equipment 21 21,916,392 21,285,201
Assets subject to nance lease 22 282,714 147,524
Intangibles 23 183,347 205,693
Goodwill 24 3,305,163 3,305,163
Investments 25 2,930,231 7,881,744
Long term loans - unsecured 26 4,515,565 2,196,320
Security deposits 45,018 17,546
33,178,430 35,039,191
CURRENT ASSETS
Stores and spare parts 27 2,309,564 1,880,195
Stock-in-trade 28 2,946,995 2,793,255
Trade debts 29 1,850,695 1,427,054
Advances, deposits, prepayments
and other receivables 30 3,582,964 6,813,895
Derivative nancial instruments 31 69,958 7,882
Investments 32 6,513,126 3,930,000
Cash and bank balances 33 185,675 234,988
17,458,977 17,087,269
50,637,407 52,126,460
Director
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2010
Proft and Loss Accountor the year ended December 31, 2010
2010 2009
Restated
Note (Rupees in thousand)
Sales 34 18,247,829 16,705,556Cost o sales 35 (9,050,836) (9,795,619)
Gross prot 9,196,993 6,909,937
Administrative expenses 36 (780,046) (610,153)
Selling and distribution expenses 37 (993,556) (897,737)
Other operating expenses 38 (386,735) (243,919)
Other operating income 39 1,408,607 342,400
Prot rom operations 8,445,263 5,500,528
Finance cost 40 (3,589,819) (3,159,504)
(Loss)/gain on re-measurement o nancial
assets at air value through prot or loss (120,720) 2,866,388Share o loss o associate 25.2 (39,002) (25,207)
Prot beore taxation 4,695,722 5,182,205
Taxation 41 (1,463,760) (443,659)
Prot ater taxation 3,231,962 4,738,546
Earnings per share in Rupees 42 7.18 10.53
Appropriations have been refected in the statement o changes in equity.
The annexed notes 1 to 52 orm an integral part o these nancial statements.
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2010
Share
Share Share Hedging General deposit Unappropriated
capital premium reserve reserve money prot Total
(Rupees in thousand)
Balance as on January 01, 2009
as previously reported 3,000,000 1,048,652 (9,545) 606,700 240,000 7,090,638 11,976,445
Eect o change in accounting policy as
reerred to in note 4.1 413,265 413,265
Balance as on January 01, 2009 restated 3,000,000 1,048,652 (9,545) 606,700 240,000 7,503,903 12,389,710
Share deposit money reunded (40,000) (40,000)
Issuance o bonus shares 1,500,000 (1,048,652) (451,348)
Transer to general reserve 7,090,000 (7,090,000)
Specie dividend (2,250,000) (2,250,000)
Total comprehensive income or the year restated
- reer note 4.1 9,545 4,738,546 4,748,091
Balance as on December 31, 2009 restated 4,500,000 4,995,352 200,000 5,152,449 14,847,801
Specie dividend (note 25.2) (5,831,307) (5,831,307)
Total comprehensive income or the year 3,231,962 3,231,962
Balance as on December 31, 2010 4,500,000 4,995,352 200,000 2,553,104 12,248,456
The annexed notes 1 to 52 orm an integral part o these nancial statements.
Statement o Changes in Equityor the year ended December 31, 2010
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2010 2009
Restated
Note (Rupees in thousand)
Cash fows rom operating activities
Cash generated rom operations 43 8,454,216 10,118,399
Finance cost paid (3,929,090) (2,983,608)
Taxes paid (379,235) (403,835)
Retirement benets paid (36,713) (27,816)
Long term deposits received 8,318
Net cash infow rom operating activities 4,109,178 6,711,458
Cash fows rom investing activities
Purchase o property, plant and equipment (1,193,641) (1,521,256)
Security deposits (27,472) (9,438)Sale proceeds o property, plant and equipment disposed 22,255 2,718
Investments purchased (20,000) (6,635,883)
Proceeds rom sale o investment 150,000
Long term loans to related party (2,319,245) (2,196,320)
Interest received rom associated company 386,602
Prot on bank deposits received 12,593 7,715
Net cash outfow rom investing activities (2,988,908) (10,352,464)
Cash fows rom nancing activities
Repayment o redeemable capital (297,000) (2,000)Proceeds rom long term loans 1,066,201 1,524,198
Repayment o long term loans (943,270)
Proceeds rom syndicated term nance 2,037,500
Payment o liability against mining rights (52,500)
Share deposit money reunded (40,000)
Repayment o nance lease liability (89,849) (52,899)
Net cash (outfow)/infow rom nancing activities (316,418) 3,466,799
Net increase/(decrease) in cash and cash equivalents 803,852 (174,207)
Cash and cash equivalents at the beginning o the year (5,320,705) (5,146,498)
Cash and cash equivalents at the end o the year 44 (4,516,853) (5,320,705)
The annexed notes 1 to 52 orm an integral part o these nancial statements.
Cash Flow Statementor the year ended December 31, 2010
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evaluated and are based on historical experience, including expectations o uture events that are believed to be
reasonable under the circumstances. These judgments involve assumptions or estimates in respect o uture events
and the actual results may dier rom these estimates.
a) Employee retirement benets
The company uses the valuation perormed by an independent actuary as the present value o its retirement
benet obligations. The valuation is based on assumptions as mentioned in note 4.3.
b) Provision or taxation
The company takes into account the current income tax law and the decisions taken by appellate authorities.
Instances where the companys view diers rom the view taken by the income tax department at the assessment
stage and where the company considers that its views on items o material nature is in accordance with law, the
amounts are shown as contingent liabilities.
c) Useul lives and residual values o property, plant and equipment
The company reviews the useul lives o property, plant and equipment on regular basis. Any change in estimatesin uture years might aect the carrying amounts o the respective items o property, plant and equipment with
a corresponding eect on the depreciation charge and impairment.
4. Signicant accounting policies
The signicant accounting policies adopted in the preparation o these nancial statements are set out below. These policies
have been consistently applied to all years presented, except or the change in accounting policy as explained in note 4.1.
4.1 Change in accounting policy
During the year, the company has changed its accounting policy or revenue recognition o Certied Emission
Reductions (CERs). As per the new policy, revenue is recognized on the generation o the Emission Reductions, when
a rm commitment or sale o CERs exists with a buyer. Previously, such revenue was recognized on the certication
o the Emission Reductions by the Designated Operational Entity and issuance o the CERs by the CDM ExecutiveBoard o the United Nations Framework Convention or Climate Change (UNFCCC) in accordance with the CDM
Modalities and Procedures, when a rm commitment or sale o CERs existed with a buyer. The accounting policy has
been revised as in managements view, the previous policy did not properly depict the revenue accruing to the company
on a timely basis since the certication and issuance o the Emission Reductions by the CDM Executive Board o
the UNFCCC took a considerable period o time due to which the revenue o Emission Reductions generated during
a certain period was recognised in later periods. Also, as per the terms o the sale agreements with the buyers, the
Emission Reductions which the company has generated are deemed to be sold and the companys primary obligation
to the contract is the generation o the Emission Reductions. Furthermore, based on past experience, the units o
Emission Reductions generated by the company according to the companys monitoring system are substantially
the same that are certied and issued by the CDM Executive Board o the UNFCCC. Hence, in managements view,
the new policy provides reliable and more relevant inormation because it results in a more transparent treatment o
revenue.
The change in accounting policy has been applied retrospectively and comparative inormation has been restated
in accordance with the treatment specifed in IAS 8 Accounting Policies, Changes in Accounting Estimates and
Errors.
Eect on 2009 Rupees in thousand
Increase in sales 154,975
(Increase) in cost o sales (12,952)
(Increase) in administrative expenses (3,821)
(Increase) in selling and distribution expenses (133,727)
(Increase) in other operating expenses (6,191)
Increase in other operating income 53,565
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2010
Decrease in nance cost 31,682
Decrease in taxation 12,137
Increase in prot ater taxation 95,668
Eect on periods prior to 2009
Increase in prot ater taxation 413,265
Increase in retained earnings at December 31, 2009 508,933
Had there been no change in the accounting policy, the amount o retained earnings would have been lower by Rs 682.116
million, net current assets would have been lower by Rs 721.028 million as at December 31, 2010 and sales would have been
lower by Rs 328.648 million or the year ended December 31, 2010.
4.2 Taxation
Current
Provision o current tax is based on the taxable income or the year determined in accordance with the prevailing law
or taxation o income. The charge or current tax is calculated using prevailing tax rates or tax rates expected to apply
to the prot or the year i enacted. The charge or current tax also includes adjustments, where considered necessary,to provision or tax made in previous years arising rom assessments ramed during the year or such years.
Deerred
Deerred tax is accounted or using the balance sheet liability method in respect o all temporary dierences arising
rom dierences between the carrying amount o assets and liabilities in the nancial statements and the corresponding
tax bases used in the computation o the taxable prot. However, the deerred tax is not accounted or i it arises
rom initial recognition o an asset or liability in a transaction other than a business combination that at the time o
transaction neither aects accounting nor taxable prot or loss. Deerred tax liabilities are generally recognized or
all taxable temporary dierences and deerred tax assets are recognized to the extent that it is probable that taxable
prots will be available against which the deductible temporary dierences, unused tax losses and tax credits can be
utilised.
Deerred tax is calculated at the rates that are expected to apply to the period when the dierences reverse based
on tax rates that have been enacted or substantively enacted by the balance sheet date. Deerred tax is charged or
credited in the income statement, except in the case o items credited or charged to equity in which case it is included
in equity.
4.3 Employee retirement benets
The main eatures o the schemes operated by the company or its employees are as ollows:
(a) Dened benet plan - Gratuity
The company operates an approved unded gratuity scheme or all permanent employees. Annual provision
is made on the basis o actuarial valuation to cover obligations under the scheme or all employees eligible to
gratuity benets.The latest actuarial valuation or the gratuity scheme was carried out as at December 31, 2010. Projected unit
credit method, using the ollowing signicant assumptions, is used or valuation o the scheme:
- Discount rate 13% per annum
- Expected rate o increase in salary level 12% per annum
- Expected rate o return 13% per annum
The companys policy with regard to actuarial gains/losses is to ollow minimum recommended approach under
IAS 19 Employee Benets.
(b) Dened contribution plan - Provident Fund
There is an approved dened contributory provident und or all employees. Equal monthly contributions are made
Notes to and orming part o the Financial Statementsor the year ended December 31, 2010
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both by the company and employees to the und at the rate o 8.33 percent o salary or the executives and 10
percent o salary or the workers respectively.
(c) Accumulating compensated absences
Provisions are made annually to cover the obligation or accumulating compensated absences and are charged
to prot.
Retirement benets are payable to employees on completion o prescribed qualiying period o service under
these schemes.
4.4 Property, plant and equipment
4.4.1 Operating xed assets
Operating xed assets except reehold land is stated at cost less accumulated depreciation and any identied
impairment loss. Freehold land is stated at revalued amount less any identied impairment loss. Cost in relation to
certain operating xed assets o the company except vehicles signies the air value as on July 14, 2005 determined
by an independent valuer, M/s Projects (Private) Limited based on present market value, pursuant to the amalgamationo Reliance Exports (Private) Limited (REL) with the company. Cost in relation to other operating xed assets signies
historical cost, gains and losses transerred rom other comprehensive income on qualiying cash fow hedges as
reerred to in note 4.18.
Depreciation on operating xed assets is charged to prot on the straight line method so as to write o the depreciable
amount o an asset over its estimated useul lie at the annual rates given in note 21.1 ater taking into account their
residual values. The assets residual values and useul lives are reviewed, at each nancial year end, and adjusted i
impact on depreciation is signicant. The companys estimate o the residual value o its operating xed assets as at
December 31, 2010 has not required any adjustment as its impact is considered insignicant.
Depreciation on additions to operating xed assets is charged rom the month in which the asset is available or use,
while no depreciation is charged or the month in which the asset is disposed o.
An assets carrying amount is written down immediately to its recoverable amount i the assets carrying amount is
greater than its estimated recoverable amount (note 4.6).
Subsequent costs are included in the assets carrying amount or recognised as a separate asset, as appropriate, only
when it is probable that uture economic benets associated with the item will fow to the company and the cost o
the item can be measured reliably. All other repair and maintenance costs are charged to income during the period in
which they are incurred.
The gain or loss on disposal or retirement o an asset represented by the dierence between the sale proceeds and
the carrying amount o the asset is recognised as an income or expense.
4.4.2 Capital work-in-progress
Capital work-in-progress is stated at cost less any identied impairment loss. All expenditure connected with specic
assets incurred during installation and construction period are carried under capital work-in-progress. These are
transerred to operating xed assets as and when these are available or use.
4.5 Intangible assets
4.5.1 Computer sotware
Expenditure incurred to acquire computer sotware is capitalised as intangible asset and stated at cost less accumulated
amortisation and any identied impairment loss. Computer sotware is amortised using the straight line method over a
period o our years.
Amortisation on additions to computer sotware is charged rom the month in which the asset is available or use while
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no amortisation is charged or the month in which the asset is disposed o.
An assets carrying amount is written down immediately to its recoverable amount i the assets carrying amount is
greater than its estimated recoverable amount (note 4.6).
4.5.2 Mining rights
Expenditure incurred to acquire mining rights is capitalised as intangible asset and stated at cost less accumulated
amortisation and any identied impairment loss. Mining rights are amortised using the straight line method over a
period o ten years.
Amortisation on additions to mining rights is charged rom the month in which the asset is available or use while no
amortisation is charged or the month in which the asset is disposed o.
An assets carrying amount is written down immediately to its recoverable amount i the assets carrying amount is
greater than its estimated recoverable amount (note 4.6).
4.6 Impairment o non-nancial assets
Assets that have an indenite useul lie, or example land, are not subject to depreciation/amortisation and are
tested annually or impairment. Assets that are subject to depreciation/amortisation are reviewed or impairment
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognised or the amount by which the assets carrying amount exceeds its recoverable amount.
The recoverable amount is the higher o an assets air value less costs to sell and value in use. For the purposes o
assessing impairment, assets are grouped at the lowest levels or which there are separately identiable cash fows
(cash-generating units). Non-nancial assets that suered an impairment are reviewed or possible reversal o the
impairment at each reporting date.
4.7 Leases
The company is the lessee.
4.7.1 Finance leases
Leases where the company has substantially all the risks and rewards o ownership are classied as nance leases.
At inception nance leases are capitalised at the lower o present value o minimum lease payments under the lease
agreements and the air value o the assets.
The related rental obligations, net o nance charges, are included in liabilities against assets subject to nance lease
as reerred to in note 10. The liabilities are classied as current and long term depending upon the timing o the
payment.
Each lease payment is allocated between the liability and nance charges so as to achieve a constant rate on the
balance outstanding. The interest element o the rental is charged to prot over the lease term.
Assets acquired under a nance lease are depreciated over the useul lie o the asset on a straight-line method at
the rates given in note 22. Depreciation o leased assets is charged to prot.
Depreciation on additions to leased assets is charged rom the month in which an asset is acquired while no
depreciation is charged or the month in which the asset is disposed o.
4.7.2 Operating leases
Lease