FCML Annual Report 2011 - Fazal ClothBank Al-Habib Limited National Bank of Pakistan Soneri Bank Limited Allied Bank Limited Meezan Bank Limited Faysal Bank Limited ... INTRODUCTION

Company Information 02

Corporate Vision / Mission Statement 03

Statement of Ethics 04

Notice of Meeting 06

Directors' Report 09

Statement of Compliance with the best Practices

of Code of Corporate Governance 12

Review Report to the Members on

Statement of Compliance with the Best Practices


Auditors' Report to the Members 15

Balance Sheet 16

Profit and Loss Account 18

Cash Flow Statement 19

Statement of Changes in Equity 20

Notes to the Financial Statements 21

Pattern of Shareholding of Shareholders 58

Pattern of Shareholding As Per Requirements


Form of Proxy

CONTENTS

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COMPANY INFORMATION

Board of Directors Sh. Naseem Ahmad Chairman & Chief Executive OfficerMr. Amir Naseem SheikhMr. Rehman Naseem Mr. Fazal Ahmad Sheikh Mr. Faisal AhmadMr. Fahd MukhtarMr. Jamal Nasim Nominee NIT Ltd.

Audit Committee Sh. Naseem Ahmad ChairmanMr. Rehman Naseem MemberMr. Faisal Ahmad Member

Company Secretary Mr. M.D. Kanwar

Chief Financial Officer Mr. Faizan-ul-Haq

Auditors M. Yousuf, Adil, Saleem & Co.,Chartered Accountants

Bankers Habib Bank LimitedUnited Bank LimitedMCB Bank LimitedAskari Bank LimitedBank Al-Habib LimitedNational Bank of PakistanSoneri Bank LimitedAllied Bank LimitedMeezan Bank LimitedFaysal Bank LimitedStandard Chartered Bank Pakistan LimitedBank Al-Falah LimitedDubai Islamic Bank Pakistan LimitedBarclays Bank PLC, PakistanSaudi Pak Industrial and Agricultural Investment Company LimitedThe Bank of PunjabThe Bank of KhyberSilk Bank LimitedHabib Metropolitan Bank LimitedSamba Bank LimitedPak Kuwait Investment Company (Pvt) LimitedPak Brunei Investment Company LimitedPak Oman Investment Company Limited

Head Office &Shares Department: 129/1, Old Bahawalpur Road, Multan.

Phone: (92) 61-4587632, 4781637 Fax: (92) 61-4541832e-mail: [email protected]: www.fazalcloth.com

Shares Registrar: Vision Consulting Ltd.3-C, LDA Flats, Lawrence Road, LahorePhone: (92) 42-36375531, 36375339 Fax: (92) 42-36374839

Registered Office: 69/7, Abid Majeed Road, Survey # 248/7, Lahore Cantt, LahorePhone: (92) 300-8631543

Mills: i) Fazal Nagar, Jhang Road, Muzaffargarh - Pakistan Ph. (92) 66-2422216 & 18 Fax: (92) 66-2422217

ii) Qadirpur Rawan Bypass, Khanewal Road, Multan - PakistanPh. (92) 61-6740041-43 Fax : (92) 61-6740052

CORPORATE VISION / MISSION STATEMENT

Vision

The Company aims at becoming a complete textile unit, which can explore local and international market of very

high value products. The Company would keep its emphasis on product and market diversification, value addition

and cost effectiveness. We want to fully equip the Company to play a meaningful role on the sustainable basis in the

economic development of the country.

Mission

The Company should provide a secure and rewarding investment to its shareholders and investors, quality products

to its customers, a secure place of work to its employees and an ethical partner to all its business associates.

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INTRODUCTION

The Company's policy is to conduct business with honesty and integrity and be ethical in all its dealings, showing respect for the interest of those with whom it has relationships.

EMPLOYEES

1. This Code of Ethics is established on the basis that unless a limitation is specifically stated, the objectives and fundamental principles are equally valid for all employees, whether they are at mills or at head office.

2. An employee is distinguished by certain characteristics including :

2.1 Master of particular intellectual skills, acquired by training and education.

2.2 Acceptance of duty to society as a whole in addition to duties to the organization and employer.

2.3 Rendering personal services to a high standard of conduct and performance.

3. The specialized knowledge, skills, training and experience required to be a proficient employee.

4. The efforts of the services of superiors to train those working directly and indirectly under them would be appreciated.

THE PUBLIC INTEREST

5. A distinguishing mark of a profession is acceptance of its responsibility to the organization. The organization is responsible towards customers, credit grantors, government, employees, investors, the business and financial community and others who rely on the objectivity and integrity of the organization to maintain the orderly functioning of commerce and industry. This reliance imposes a public interest responsibility on the organization. The public interest is defined as the collective well being of the community of people and institution served by the organization.

6. An organization's responsibility is not exclusively to satisfy the needs of an individual customer or director. The standards of service are heavily determined by the public interest for example:

6.1 Transparent dealings help to maintain the integrity and efficiency of the Organization presented to the shareholders, financial institutions, customers, employees, government regulations and tax authorities. The transparent dealings would help to secure loans and to obtain capital from shareholders.

6.2 Financial planning serves in efficient and effective use of the organization's resources.

6.3 Internal auditors provide assurance about a sound internal control system, which enhances the reliability of the external financial information of the organization.

6.4 Directors help to establish confidence and efficiency for fair resolution of Organization's affairs.

6.5 Management has responsibility toward the organization in advocating sound management decision making.

7. The organization has an important role towards society, shareholders, creditors, employees and other sectors of the business community, as well as the government and the public at large for sound financial accounting, reporting effective financial management and variety of business and taxation matters. Sound business practices of the organization have an impact on the economic well being of the country.

8. It is in the best interest of the organization that services are provided at the highest level of performance and in accordance with ethical standards to ensure continued good performance.

9. In formulating this code of ethics, the Board of Directors has considered the public service and employees expectations of the ethical standards of the organization.

OBJECTIVES OF THE ORGANIZATION

10. The code recognizes that the objectives of the organization is to work to the highest standards of professionalism, to attain the highest levels of performance and generally to meet the interested group requirements set out above. These objectives require four basic needs to be met:

STATEMENT OF ETHICS

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10.1 CredibilityIn the whole of society there is a need for credibility in information and information systems.

10.2 ProfessionalismThe customers, employees and other interested parties can rely on the professionalism of the organization.

10.3 Quality of ServicesThere is a need for assurance that all services provided, are carried out to the highest standards of performance.

10.4 ConfidenceInterested groups should be able to feel confident that there exists a framework of professional ethics, which governs the provision of services provided by the organization to the community and the country.

FUNDAMENTAL PRINCIPLES

11. In order to achieve the objectives of the organization, employer and employees have to observe a number of prerequisites or fundamental principles.

The fundamental principles are:

11.1 IntegrityAn interested group connected with the organization should be straight forward and honest in performing professional services.

11.2 ObjectivityThe organization should be fair and should not allow prejudice or bias or influence of other to override objectivity.

11.3 Professional Competence, Due Care and TimelinessAn organization should perform and provide goods and services with due care, competence and diligence and has a continuing duty to maintain a level required to ensure that a customer or an employee receives goods and service based on up to date product line. Further all industrial obligations should be adhered to for timely compliance.

11.4 ConfidentialityThe organization should respect the confidentiality of information acquired during the course of providing goods and services and should not use or disclose any such information without proper and specific authority or unless there is a legal or professional right or duty to disclose.

11.5 Organizational BehaviourThe organization should act in a manner consistent with the good reputation of the industry and refrain from any conduct, which might bring discredit to the company.

11.6 Technical StandardsThe organization should provide goods and services in accordance with the relevant technical and professional standards. The organization has a duty to carry out with care and skill, the instructions of the customers in so far as they are compatible with the requirements of commercial trade practice. In addition they should conform with the technical and professional standards promulgated by:

– PCSIR (Pakistan Council for Scientific & lndustrial Research) – International Standards– Relevant Legislation

12. In addition to observing the fundamental principles listed above; the organization should be and appear to be free of any interest, which might be, regarded, whatever its actual effect, as being incompatible with integrity, objectivity and independence.

13. The objectives as well as the fundamental principles are of a general nature and are not intended to be used to solve the organization's ethical problems in a specific case. However, the code provides some guidance as to the application in practice of the objectives and the fundamental principles with regard to a number of typical situations occurring in the industrial process and company procedure.

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Notice is hereby given that the 46th Annual General Meeting of the Shareholders of the Company M/S. FAZAL CLOTH MILLS LIMITED will be held on

Monday, the 31st day of October, 2011 at 11:00 a.m. at 129/1, OLD BAHAWALPUR ROAD, MULTAN to transact the following business:

ORDINARY BUSINESS

1. To confirm the minutes of the last Extra Ordinary General Meeting of the Company held on 30-05-2011.

2. To receive, consider and adopt the Audited Accounts of the Company for the year ended 30th June, 2011 together with the Auditors' and

Director's Report thereon.

3. To approve issuance of Specie Dividend, as recommended by the Board of Directors, @ 50% i.e. 9,377,597 quoted shares of Fatima Fertilizer

Company Limited having face value of Rs.10/- each to the shareholders of the Company in the ratio of 5:10 (Five shares of Fatima Fertilizer

Company Limited for every Ten ordinary shares held of M/s. Fazal Cloth Mills Limited).

4. To appoint External Auditors of the Company for the Financial Year Ending 30th June, 2011 and fix their remuneration. M/s. M. Yousuf, Adil,

Saleem & CO., Chartered Accountants, MULTAN, External Auditors of the Company retire and being eligible offer themselves for re-

appointment.

SPECIAL BUSINESS

5. To consider and approve issuance of Bonus Shares in proportion of 2.05 bonus shares for every 10 ordinary shares held i.e. 20.50% as

recommended by the Board of Directors.

6. The Directors have recommended to consider and if thought fit to pass with or with-out modification the following resolution as Ordinary

Resolution:

“RESOLVED that a sum of Rs.38,448,060.00 out of the free reserves of the Company be capitalized and applied towards the issue of 3,844,806

ordinary shares of Rs. 10/- each, to be allotted as bonus shares in proportion of 2.05 bonus shares for every 10 existing ordinary shares held by

the members who are registered in the books of the Company on 25th October 2011, and that such new shares shall rank pari passu in all

respects with the existing ordinary shares of the Company”.

“Members entitled to fractions of shares as a result of their holding either being less than 10 Ordinary Shares or in excess of an exact multiples of

10 Ordinary Shares be given the sale proceeds of their fractional entitlements for which purpose the fractions be considered and sold in the

stock exchange. For the purpose of giving effect to the foregoing, Mr. M.D. KANWAR, Company Secretary be and is hereby authorized to take all

necessary actions under the law and file necessary returns, documents, as required under the provisions of Companies Ordinance, 1984 and to

settle any questions or difficulties that may arise in the distribution of the said bonus shares or in the disposal of fractions and payment of

proceeds thereof ”.

7. Any other business with the permission of the Chairman.

BY ORDER OF THE BOARD

Place: MULTAN. Sd/-

Dated: October 05, 2011. ( M.D KANWAR )

Company Secretary

NOTICE OF MEETING

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NOTES.

BOOK CLOSURE FOR ORDINARY SHARES

I. The Share Transfer Books of the Company will remain closed from 26th October, 2011 to 03rd November, 2011 (both days inclusive).

BOOK CLOSURE FOR THE ENTITLEMENT OF 14.87% DIVIDEND ON PREFERENCE SHARES (NON VOTING) FOR THE YEAR ENDED 30

JUNE, 2011.

II. The share transfer Books of preference shares (non voting) of the Company will remain closed from 26th October, 2011 to 03rd November, 2011

(both days inclusive) for entitlement of preference Dividend @ 14.87% per annum with effect from 1st July, 2010 to 30th June, 2011. Physical

transfers/CDS Transactions IDs received at Company's Share Department at 129/1 Old Bahawalpur Road, MULTAN or Company's Share

Registrar VISION CONSULTING LIMITED, 3-C, LDA Flats, Lawrence Road, LAHORE at the close of business on 25th October, 2011 will

be treated in time for entitlement purpose of preferred Dividend. The preference shareholders are not entitled to attend meeting.

III. A member entitled to attend and vote at the meeting may appoint another member as his/her proxy to attend and vote instead of him/her. A

corporate Body being a member of the Company may appoint its proxy either under its Seal or under the hand of any officer or attorney duly

authorized. The instrument of appointing proxy must be deposited with Company's Share Department at 129/1 Old Bahawalpur Road,

MULTAN or Company's Share Registrar VISION CONSULTING LIMITED, 3-C, LDA Flats, Lawrence Road, LAHORE not later than 48 hours

before the time of meeting.

IV. CDC Account holders will further have to follow the under mentioned guidelines as laid down by the Securities and Exchange Commission of

Pakistan:-

a. For attending the meeting

In case of individuals, the account holders or sub-account holders whose registration details are uploaded as per regulations shall

authenticate their identity by showing their original National Identity Cards (NIC) or original Passport at the time of attending the

meeting.

In case of corporate entities, the Board of Directors' resolution/power of attorney with specimen signature of the nominees shall be

produced (unless it has been provided earlier) at the time of the meeting.

b. For appointing proxies

• In case of individuals, the account holders or sub-account holders whose registration details are uploaded as per regulations shall

submit the proxy form as per the above requirements.

• The proxy form shall be witnessed by two persons whose names, addresses and NIC numbers shall be mentioned on the form.

• Attested copies of NIC or the passport of the beneficial owners and the proxy shall be furnished with the proxy form.

• The proxies shall produce their original NIC or original passport at the time of meeting.

• In case of corporate entities, the Board of Director's resolution/power of attorney with specimen signature of the person

nominated to represent and vote on behalf of the corporate entity, shall be submitted (unless it has been provided earlier) along

with proxy form to the Company.

V. Shareholders are requested to promptly notify any change in their addresses.

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STATEMENT UNDER SECTION 160(1)(b) OF THE COMPANIES ORDINANCE, 1984 REGARDING SPECIAL BUSINESS

BONUS SHARES – ITEM NO. 5 - 6 OF THE NOTICE

The present Capital base of the Company needs to be expanded to meet the future growth and expansion needs of business. It will not

only improve Company's leverage position but will also enable the management to increase the paid up capital of the Company.

Directors have no interest in the matter except as shareholders.

Place: MULTAN. Sd/-

Dated: October 05, 2011. ( M.D KANWAR )

Company Secretary

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Dear Shareholders,Assalam-o-Alaikum,

It is a pleasure to welcome you to the 46th Annual General Meeting of the Company and place before you the Audited Financial Statement of the Company for the year ended June 30, 2011.

FINANCIAL AND OPERATING RESULTS:

Sales for the year were Rs.18, 934 Million as compared to Rs. 11, 211 Million last year. This represents an increase of 68.89%. Profit for the year after tax is Rs. 824.586 Million after charging depreciation of Rs. 286.795 Million and contribution to Workers Profit Participation Fund of Rs. 56.535 Million. Earnings per share (EPS) is Rs. 43.97 (2010:Rs.28.08). EBITDA of Rs. 2,154 Million was generated. EBITDA per ordinary share is Rs. 114.83 (2010:Rs. 86.19).

Auditors have qualified valuation of investment in associated companies, which we have valued at cost. As explained previously, we are of the view that as your company is holding only 5.73% (2010: 5.73%) of total equity of the Company concerned, it does not exercise significant control over the Company concerned's policies and profits. So in lieu of prudence, your company is following it's policy of valuing investment in Associated Companies at cost and booking profits/gains only after they are realized.

Dividend of Rs. 35 Million (2010:Rs. 38 Million) on Preference Shares was approved for the year in accordance with the agreement reached with the Preference Shareholders. This amount has been included in Financial Charges for the year. The auditors of the Company have qualified this treatment of dividend paid on preference shares. However, in our view, terms and conditions under which these Preference Shares have been issued result in qualification of the same as “Financial Liability” of the Company, and not as an Equity Instrument, as defined by IAS 32.

Your Directors and Chief Executive Officer, Chief Financial Officer, Company Secretary, their spouses and minor children have made following transaction in Company's shares.

Description Sh. Naseem Amir Rehman Fazal Fahad Faisal Company CFOAhmad & Naseem Naseem Ahmed Mukhtar Ahmed Secretary

Mst.Nighat Sh. & & Minor SheikhNaseem Minor Childern

Childern

Opening balance as on

01.07.2010 190,757 1,787,544 1,807,178 1,276,361 27,200 1,275,270 424 608

Purchase - - - - - - - -

Bonus - - - - - - - -

Inherited - - - - - - - -

Gift - - - - - - - -

Transfer as Gift - - - - - - - -

Closing balance as on

30.06.2011 190,757 1,787,544 1,807,178 1,276,361 27,200 1,275,270 424 608

During the year 2010-2011, four board meetings were held which were attended as follow:

Sh. Naseem Ahmad Chairman/ Chief Executive Officer 4Mr. Jamal Nasim Nominee of NIT Ltd. 4Mr. Amir Naseem Sheikh 4Mr. Rehman Naseem 4Mr. Fazal Ahmad Sheikh 3Mr. Faisal Ahmad 3Mr. Fahd Mukhtar 2

DIRECTORS REPORT'

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COMPARISON OF LAST SIX YEARS OF OPERATIONS:

2011 2010 2009 2008 2007 2006

Production in Lbs (000) 46,454 43,723 41,995 38,422 38,859 35,232

Sales net (Rs.in million) 18,934 11,211 8,651 7,021 5,982 5,128

Gross Profit (Rs. in million) 2,026 1,573 1,196 944 817 726

Net Profit before tax (Rs. in million) 1,050 729 180 340 183 181

Provision for taxation including

deferred tax (Rs. in million) 226 203 92 200 83 72

Profit after taxation (Rs. in million) 825 527 87 141 100 109

Un-appropriated profit brought

forward (Rs. in million) 1,703 1,135 1,006 768 693 599

Appropriation (Rs. in million) 2,290 1,612 1,043 909 793 708

Specie Dividend %age 50% 100% Nil Nil Nil Nil

Bonus Shares %age 20.50% Nil Nil Nil Nil 15%

Gross Profit ratio 10.70% 14.03% 13.83% 13.44% 13.66% 14.16%

Net profit ratio 4.36% 4.70% 2.08% 4.85% 3.06% 3.53%

Earnings before interest, tax,

depreciation and amortization

(EBITDA) (Rs. in million) 2,154 1,617 1,194 1,166 830 748

CORPORATE GOVERNANCE:

As required by the code of corporate governance the board of directors hereby declares that:

• The financial statements for the year ended June 30, 2011 present fairly the state of affairs, the result of its operations, cash flows and changes in equity;

• Proper books of account have been maintained;• Appropriate accounting policies have been consistently applied in preparation of financial statements for the year ended June 30, 2011

and accounting estimates are based on reasonable and prudent judgment;• International Accounting Standards (IAS) as applicable in Pakistan, have been followed in preparation of financial statements;• The system of internal control is sound in design and has been effectively implemented and monitored;• There is no doubt about the Company to continue as going concern;• There has been no material departure from best practices of corporate governance as detailed in listing regulations.

PATTERN OF SHAREHOLDING:

The pattern of share holding as on June 30, 2011 is annexed.

FUTURE OUTLOOK:

After hitting a high of Rs. 13,500 in March 2011, raw cotton prices started falling sharply and touched a low of Rs. 4,700 in August 2011. Although your Company had covered less cotton this year fearing such a situation, still the extent and pace at which cotton prices fell, caused large inventory losses. Due to this, outlook for the July to September quarter is not good. However, demand for yarn remains strong and your management expects situation to improve from October onwards.

Energy (gas and electricity) availability and cost remain the most important issue. Gas availability in 2011 was lower than that in 2010. However, during the days when gas was not available, electricity supply from utility companies was available by and large. Due to this factor, production was not effected. Your management hopes that Government of Pakistan continues to provide priority to the export oriented textile industry for supply of Gas and Electricity and resolves the energy crisis in Pakistan on urgent basis for smooth operation failing which textile industry will suffer huge losses.

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Work on setting up a weaving unit with 117 looms and BMR/Expansion of spinning units of the company is continuing at a satisfactory pace. Your management expects to complete these projects by December 2011.

DIVIDEND ANNOUNCEMENT:

Your Directors have proposed to distribute @50% i.e 9,377,597 (2010:100%) quoted shares of Fatima Fertilizer Company Limited having

face value of Rs. 10/-each to shareholders of the Company as specie dividend in the ratio of 1:1/2 (Half share of Fatima Fertilizer Company

Limited for every one share of Fazal Cloth Mills Limited) and “Bonus Shares” in the proportion of 2.05 shares for every 10 ordinary shares

held i.e. 20.50 % (2010: Nil%).

AUDITORS:

M/s. M. Yousaf, Adil, Saleem & Co., Chartered Accountants, auditors of the Company retire and being eligible offers themselves for reappointment for the year 2011-2012.

MANAGEMENT/LABOUR RELATIONS:

The management/labour relations remained warm and cordial throughout the year under review. We place great importance on our employees. We continue to invest in the professional development and improvement of skills of our human resources, since we believe that by investing in our people we invest in our future. Company's human resource policy is based on the underlying values of fairness, merit, equal opportunity and social responsibility. Complying with our human resource policies we do not hire any child labour.

The employees and management of the company continued to make joint efforts to keep up high standards of productivity. By the grace of Allah the Almighty, relationship of management and employees continued to remain in total harmony.

The board wishes to place on record its deep appreciation to all of them for their hard work and dedication to achieve these results.

Sd/-(SH. NASEEM AHMAD)

Dated: October 05, 2011. Chairman/Chief Executive Officer

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This statement is being presented to comply with the Code of Corporate Governance contained in the Listing Regulation No. 35 (Chapter XI) of the Karachi Stock Exchange (Guarantee) Limited and the Listing Regulation Clause 35 (Chapter XI) of the Lahore Stock Exchange (Guarantee) Limited for the purpose of establishing a framework of good governance, whereby a listed company is managed in compliance with the best practices of Corporate Governance.

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

1. The Board of Directors comprises of seven directors including the Chief Executive Officer (CEO). The number of working directors on the Board is four (4).

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

3. All the resident directors of the Company are registered as taxpayers and none of them has defaulted in payment of any loan to a banking company, a Development Financial Institution or a Non-banking Financial Institution. None of the directors of the Company are members of any Stock Exchange.

4. No casual vacancy occurred in the Board during the current year.

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

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

8. The related party transactions and pricing methods have been placed before the audit committee and approved by the board of directors with necessary justification for pricing methods for transactions that were made on terms equivalent to those that prevail in the arm's length transactions.

9. The meetings of the Board were presided over by the Chairman and in his absence, by a director elected by the Board for this purpose. The Board met at-least once in every quarter. Written notices of the Board meetings were circulated at least seven days before the meetings. Agenda and working papers were also circulated before the meetings. The minutes of the meetings were appropriately recorded and circulated.

10. The directors are conversant with the relevant laws applicable to the Company including the Companies Ordinance, 1984, Listing Regulations, Code of Corporate Governance, Company Memorandum and Articles of Association and other relevant rules and regulations and are fully aware of their duties and responsibilities.

11. A vacancy has been created for Head of Internal Audit and has been filled immediately. There was no appointment of Chief Financial Officer (CFO) or Company Secretary.

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

STATEMENT OF COMPLIANCE WITH THE BESTPRACTICES OF CODE OF CORPORATE GOVERNANCE

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

14. The directors, CEO and executives do not hold any interest in the shares of the Company other than that disclosed in the pattern of shareholdings.

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

16. The Board has formed an Audit Committee which comprises of three (3) members out of which two (2) are non-executive directors.

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

18. The Board has set-up an effective internal audit function manned by suitably qualified and experienced personnel who are conversant with the policies and procedure of the Company.

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

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

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

On behalf of the Board of Directors

Sd/-Place: Multan (SH. NASEEM AHMAD)Date: October 05, 2011. Chief Executive Officer

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We have reviewed the Statement of Compliance with the best practices contained in the Code of Corporate Governance prepared by the Board of Directors of FAZAL CLOTH MILLS LIMITED to comply with the Listing Regulation of the Karachi and Lahore Stock Exchange (Guarantee) Limited, where the Company is listed.

The responsibility for compliance with the Code of Corporate Governance is that of the Board of Directors of the Company. Our responsibility is to review, to the extent where such compliance can be objectively verified, whether the Statement of Compliance reflects the status of the Company's compliance with the provisions of the code of Corporate Governance and report if it does not. A review is limited primarily to inquiries of the Company’s 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 have not carried out any special review of the internal control system to enable us to express an opinion as to whether the Board's statement on the internal control covers all controls and the effectiveness of such internal controls.

The Code of Corporate Governance requires Board of Directors to approve related party transactions bifurcating 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. In this connections we are only required and have ensured compliance of requirement to the extent of Board of Directors approving the related party transactions in the aforesaid manner. We have not carried out any procedures to enable us to express and opinion as to whether the related party transactions were carried out at arm’s length price.

Based on our review, nothing has come to our attention which causes us to believe that the Statement of Compliance does not appropriately reflect the Company's compliance, in all material respects, with the best practices contained in the Code of Corporate Governance as applicable to the Company for the year ended June 30, 2011.

Sd/-Place: Lahore M. YOUSUF ADIL SALEEM & CODated: October 05, 2011 Chartered Accountants

REVIEW REPORT TO THE MEMBERS ON STATEMENT OF COMPLIANCE WITH THE BEST PRACTICES OF CODE

OF CORPORATE GOVERNANCE

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We have audited the annexed balance sheet of Fazal Cloth Mills Limited (the Company) as at June 30, 2011 and the related profit and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof, for the year then ended and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit.

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

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

(a) The Company has received 25,790,610 shares of Fatima Fertilizer Company Limited (an associated undertaking) as specie dividend from Pakarab Fertilizer Limited (an associated undertaking) (refer note 5.4 to the financial statement) which have been recognized at par value of Rs. 257.9 million as income in profit and loss account instead of derecognizing the investment in Pakarab Fertilizer Limited contrary to the requirement of International Accounting Standard - 28 “Investment in Associates” (IAS 28). Also the Company has distributed 18,755,194 shares of Fatima Fertilizer Company Limited to its shareholders as specie dividend. The Company has derecognized the shares at par value and recorded the dividend distributed at Rs. 187.6 million, contrary to the requirement of IFRIC 17 “Distribution of Non-Cash Assets to Owners” (IFRIC 17) at fair value of Rs. 186.4 million.

The Company has valued its investment in associates at cost and par value (refer note 5.2 and 5.3 to the financial statements) contrary to the requirement of International Accounting Standard – 28 “Investment in Associates” (IAS 28) which requires re-measurement of investment in associates on equity method.

Had the Company complied with the requirement of IAS 28 and IFRIC 17, and accounted for investment in associates at equity method, the value of investment, surplus on revaluation of property, plant and equipment and un-appropriated profits would have been higher by Rs. 596.7 million, Rs. 141.9 million and Rs. 521.5 million respectively, and profit for the year would have been lower by Rs. 66.7 million.

(b) The Company has shown dividend on redeemable preference shares as finance cost in profit and loss account (refer note 36 to the financial statements) during the year contrary to the provisions of Companies Ordinance, 1984 instead of appropriation of profits in statement of changes in equity.

(c) In our opinion, proper books of account have been kept by the Company as required by the Companies Ordinance, 1984;

(d) In our opinion:

(i) Except for the matters as mentioned in paragraphs (a) and (b) above, 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;

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

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

(e) Except for the effects of adjustments, if any, as mentioned in paragraphs (a) and (b) above, in our opinion and to the best of our information and according to the explanations given to us, the balance sheet, profit and loss account, cash flow statement and the 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 June 30, 2011 and of the profit, its cash flows and changes in equity for the year then ended; and

(f ) In our opinion, no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980.

Sd/-Place: Lahore M. YOUSUF ADIL SALEEM & CODate: October 05, 2011 Chartered Accountants

AUDITORS REPORT TO THE MEMBERS'

16

BALANCE SHEET


CHIEF EXECUTIVE OFFICER

Sd/-(REHMAN NASEEM)

DIRECTOR

2011 2010Note Rupees Rupees

NON-CURRENT ASSETS

Property, plant and equipment 3 7,064,862,691 5,945,743,637

Intangible assets 4 4,538,527 6,220,596

Long term investments 5 667,195,666 596,841,506

Long term loans 6 399,270 1,504,830

Long term deposits 25,638,156 12,894,365

7,762,634,310 6,563,204,934

CURRENT ASSETS

Stores, spares and loose tools 7 306,844,778 175,918,362Stock-in-trade 8 3,410,214,097 2,645,452,686Trade debts 9 1,767,710,377 883,729,860Loans and advances 10 449,389,173 427,308,670Trade deposits and short term prepayments 11 7,678,585 12,282,677Interest / markup accrued 12 16,265,203 -Other receivables 13 3,796,190 2,648,375Other financial assets 14 125,142,836 16,132,400Tax refunds due from government 15 81,688,761 42,602,780Cash and bank balances 16 191,635,465 123,497,519

6,360,365,465 4,329,573,329

14,122,999,775 10,892,778,263

17

AS AT JUNE 30, 2011

Sd/-(FAIZAN-UL-HAQ)

CHIEF FINANCIAL OFFICER


SHARE CAPITAL AND RESERVES

Authorized capital40,000,000 (2010: 40,000,000) ordinary shares of Rs. 10/- each 400,000,000 400,000,00030,000,000 (2010: 30,000,000) Preference shares of Rs. 10/- each 300,000,000 300,000,000

700,000,000 700,000,000

Issued, subscribed and paid up 17 362,551,940 437,551,940Capital reserves 18 227,616,000 177,616,000Unappropriated profits 2,374,674,027 1,702,733,550

2,964,841,967 2,317,901,490Surplus on revaluation of Property, plant and equipment 19 2,192,499,393 2,280,444,023

NON CURRENT LIABILITIES

Long term financing 20 1,956,200,180 1,573,814,880Long term musharika 21 273,755,451 71,266,367Bills payable 22 155,210,331 154,398,656Deferred liabilities 23 960,455,903 848,175,803Custom duties 24 122,665,470 104,416,117

3,468,287,335 2,752,071,823

CURRENT LIABILITIESTrade and other payables 25 598,021,473 589,896,693Interest / mark-up accrued on loans 26 176,362,211 121,477,564Short term borrowings 27 4,016,584,511 2,177,448,310Current portion of non current liabilities 28 530,399,099 443,396,812Provision for taxation 29 176,003,786 210,141,548

5,497,371,080 3,542,360,927

CONTINGENCIES AND COMMITMENTS 30 - -

14,122,999,775 10,892,778,263

The annexed notes 1 to 47 form an integral part of these financial statements.

18


Sales - net 31 18,933,932,261 11,210,976,902

Cost of sales 32 (16,908,218,085) (9,638,169,018)

Gross profit 2,025,714,176 1,572,807,884

Distribution cost 33 (257,635,438) (187,079,499)

Administrative expenses 34 (131,191,187) (111,252,565)

Other operating expenses 35 (85,331,014) (60,379,001)

Finance cost 36 (816,526,361) (620,939,936)

735,030,176 593,156,883

Other operating income 37 315,429,703 136,100,281

Profit before taxation 1,050,459,879 729,257,164

Provision for taxation 38 (225,874,092) (202,549,291)

Profit after taxation 824,585,787 526,707,873

Other comprehensive income net of tax - -

Total comprehensive income for the year - net of tax 824,585,787 526,707,873

Earnings per share 39

Basic 43.97 28.08

Diluted 23.72 12.91


PROFIT AND LOSS ACCOUNTFOR THE YEAR ENDED JUNE 30, 2011



Sd/-(REHMAN NASEEM)

DIRECTOR

Sd/-(FAIZAN-UL-HAQ)


19

CASH FLOW STATEMENT

2011 2010Rupees Rupees

CASH FLOWS FROM OPERATING ACTIVITIESProfit before taxation 1,050,459,879 729,257,164Adjustments for:

Depreciation of property, plant and equipment 286,795,237 266,401,671Amortization of Intangible assets 1,682,069 1,591,735Provision for gratuity 32,915,715 25,092,630Provision for customs duties 18,249,353 20,232,731Gain on disposal of property, plant and equipment (908,212) (716,086)Specie dividend received from associates (257,906,100) (128,953,050)Exchange loss on bills payable 811,675 -Gain on remeasurement of other financial assets (38,228,703) (5,379,653)Dividend income - (785,000)Finance cost (inclusive of preference dividend) 816,526,361 620,939,936

Operating cash flows before movements in working capital 1,910,397,274 1,527,682,078(Increase) / decrease in current assets

Stores, spares and loose tools (130,926,416) (40,820,994)Stock in trade (764,761,411) (423,362,025)Trade debts (883,980,517) (144,630,061)Loans and advances (8,572,525) (27,575,549)Trade deposits and short term prepayments 4,604,092 (7,819,430)Tax refunds due from the government 23,941,101 6,436,481Interest / markup accrued (16,265,203) 37,751,496Other receivables (1,147,815) 16,221,195Increase in trade and other payables 8,124,780 301,025,906

(1,768,983,914) (282,772,981)

Cash generated from operations 141,413,360 1,244,909,097Gratuity paid (17,526,615) (17,517,425)Income taxes paid (242,693,914) (107,806,979)

Net cash inflow from operating activities (118,807,169) 1,119,584,693Long term loans to employees - net 1,105,560 (552,630)Long term deposits (12,743,791) (1,446,000)

Net cash (used in) / from operating activities (A) (130,445,400) (1,117,586,063)

CASH FLOWS FROM INVESTING ACTIVITIESAddition to property, plant and equipment (1,407,381,079) (486,628,692)Proceeds from disposal of property, plant and equipment 2,375,000 2,101,307Purchase of intangible assets - (749,582)Purchase of other financial assets (70,781,733) (1,538,647)Dividend received from trading investment - 785,000

Net cash (used in) / from investing activities (B) (1,475,787,812) (486,030,614)

CASH FLOWS FROM FINANCING ACTIVITIES Long term financing obtained 865,573,484 401,129,034Long term financing repaid (396,185,897) (371,905,463)Long term Musharika obtained 250,000,000 -Long term Musharika repaid (47,510,916) (47,510,916)Bills payable obtained - 154,398,656Redemption of preference shares (75,000,000) -Short term borrowings - net 1,839,136,201 (70,885,013)Finance cost paid (761,641,714) (650,684,343)

Net cash from / (used in) financing activities (C) 1,674,371,158 (585,458,045)

Net (decrease) / increase in cash and cash equivalents (A+B+C) 68,137,946 46,097,404Cash and cash equivalents at beginning of the year 123,497,519 77,400,115

Cash and cash equivalents at end of the year 191,635,465 123,497,519


FOR THE YEAR ENDED JUNE 30, 2011



Sd/-(REHMAN NASEEM)

DIRECTOR

Sd/-(FAIZAN-UL-HAQ)


20

Balance as at July 01, 2009 187,551,940 250,000,000 77,616,000 50,000,000 1,135,491,465 1,700,659,405

Profit for the year endedJune 30, 2010 - - - - 526,707,873 526,707,873

Other comprehensive incomefor the year ended June 30, 2010 - - - - - -

Total comprehensive incomefor the year ended June 30, 2010 - - - - 526,707,873 526,707,873

Incremental depreciation arising due tosurplus on revaluation of property, plantand equipment - net of deferred tax 19 - - - - 90,534,212 90,534,212

Transfer to capital redemption reservefund from unappropriated profit - - - 50,000,000 (50,000,000) -

Balance as at June 30, 2010 187,551,940 250,000,000 77,616,000 100,000,000 1,702,733,550 2,317,901,490

Profit for the year ended June 30, 2011 - - - - 824,585,787 824,585,787

Other comprehensive income forthe year ended June 30, 2011 - - - - - -

Total comprehensive income forthe year ended June 30, 2011 - - - - 824,585,787 824,585,787

Incremental depreciation arising due tosurplus on revaluation of property, plantand equipment - net of deferred tax 19 - - - - 84,906,630 84,906,630

Specie dividend distributed 5.4 - - - - (187,551,940) (187,551,940)

Preference share redeemed - (75,000,000) - - - (75,000,000)

Transfer to capital redemption reservefund from unappropriated profit - - - 50,000,000 (50,000,000) -

Balance as at June 30, 2011 187,551,940 175,000,000 77,616,000 150,000,000 2,374,674,027 2,964,841,967


STATEMENT OF CHANGES IN EQUIT YFOR THE YEAR ENDED JUNE 30, 2011



Sd/-(REHMAN NASEEM)

DIRECTOR

Sd/-(FAIZAN-UL-HAQ)


Note

Share capital Capital reserves

Capitalredemptionreserve fund

Ordinaryshares

Preferenceshares

Sharepremium

Un-appropriated

profitsTotal

.................................................... Rupees ....................................................

1. LEGAL STATUS AND NATURE OF BUSINESS

1.1 Fazal Cloth Mills Limited (the Company) was incorporated in Pakistan in 1966 as a public limited company under the

Companies Act, 1913 (now Companies Ordinance, 1984) and its shares are quoted on Karachi and Lahore Stock Exchanges.

The registered office of the Company is situated at 69/7, Abid Majeed Road, Survey # 248/7, Lahore Cantt, Lahore. The

Company is engaged in manufacture and sale of yarn. The manufacturing facilities are located at Fazal Nagar, Jhang Road,

Muzaffargarh and Qadirpur Rawan Bypass, Khanewal Road, Multan in the province of Punjab.

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

2. SIGNIFICANT ACCOUNTING POLICIES

2.1 Statement of compliance

These financial statements have been prepared in accordance with the approved accounting standards as applicable in

Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRS) issued by the

International Accounting Standards Board (the IASB) as notified under the provisions of the Companies Ordinance, 1984, the

requirements of the Companies Ordinance, 1984 and the directives issued by the Securities and Exchange Commission of

Pakistan (SECP). Wherever the requirements of the Companies Ordinance, 1984 or the directives issued by the SECP differ

with the requirements of the IFRS, the requirements of the Companies Ordinance, 1984, and the said directives shall take

precedence.

2.2 Standards, interpretations and amendment adopted during the year

In the current year, the Company has adopted all new standards issued by the IASB and as notified by the SECP that are

relevant to its operations and effective for Company's accounting period beginning on July 01, 2010.

Amendments to IFRS 2 - Share based Payment

Amendments to IFRS 5 - Non-current Assets Held for Sale and Discontinued Operations

Amendments to IFRS 8 - Operating Segments

Amendments to IAS 1 - Presentation of Financial Statements

Amendments to IAS 7 - Statement of Cash Flows

Amendments to IAS 17 - Leases

Amendments to IAS 32 - Financial Instruments: Presentation

Amendments to IAS 36 - Impairment of assets

Amendments to IAS 39 - Financial Instruments: Recognition and Measurement

IFRIC 19 - Extinguishing Financial Liabilities with Equity Instruments

The adoption of new standards, interpretation and amendments/improvements did not have any effect on the financial

statements.

2.3 New, revised and amended standards and IFRIC interpretation that are not yet effective

The following standards, amendments and interpretations of approved accounting standards are effective for accounting

periods beginning on or after January 01, 2011. These standards are either not relevant to the Company’s operations or are

not expected to have significant impact on the Company’s financial statements:

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED JUNE 30, 2011

21

Effective date (accounting periodbeginning on or after)

IFRS 7 - Financial Instruments Disclosures (Amendment) January 01, 2011

IFRS 7 - Financial Instruments Disclosures (Amendment) July 01, 2011

IAS 1 - Presentation of Financial Statements (Amendment) January 01, 2011

IAS 1 - Presentation of Financial Statements (Amendment) July 01, 2012

IAS 12 - Income Taxes (Amendment) January 01, 2012

IAS 24 - Related Party Disclosures (Revised) January 01, 2011

IAS 34 - Interim Financial Reporting (Amendment) January 01, 2011

IFRIC 13 - Customer Loyalty Programmes (Amendment) January 01, 2011

IFRIC 14 - Prepayment of Minimum Funding Requirement January 01, 2011

IFRIC 14 - IAS 19 - The Limit on a Defined Benefit Asset,

Minimum Funding Requirements and Their Interaction (Amendment) January 01, 2011

2.4 Accounting convention and basis of preparation

These financial statements have been prepared under the historical cost convention, except for:

- modification of foreign currency translation adjustments as stated in note 2.5,

- recognition of employee retirement benefits at present value,

- certain long term investments at par value,

- revaluation of certain property, plant and equipment,

- certain financial instruments at fair value

2.5 Foreign currency translations

Transactions in foreign currencies are accounted for in Pak Rupees at the exchange rates prevailing on the date of

transactions. Assets and liabilities in foreign currencies are translated into Pak Rupees at the exchange rates prevailing

on the balance sheet date except where forward exchange rates are booked, which are translated at the contracted rates. All

exchange fluctuations are taken to profit and loss account.

2.6 Staff retirement benefits

The Company operates an un-funded gratuity scheme covering all eligible employees completing the minimum qualifying

period of service as specified by the scheme. Provision for gratuity is made annually to cover obligation under the scheme in

accordance with actuarial recommendations. The projected unit credit method is based on assumptions stated in note 23.1.

2.7 Trade and other payables

Liabilities for trade and other amounts payable are measured at cost which is the fair value of the consideration to be paid in

the future for the goods and services received whether billed to the Company or not.

2.8 Taxation

Current

Charge for current taxation is based on taxable income at the current rates of taxation after taking into account tax credits and

tax rebates available, if any, or provisions of minimum tax. However, for income covered under final tax regime, taxation is

based on applicable tax rates under such regime.

Deferred

Deferred tax is recognized using the balance sheet liability method in respect of all temporary differences between the

carrying amounts of assets and liabilities for financial reporting purposes and the tax base (the amounts used for taxation

purposes). In this regard, the effects on deferred taxation of the portion of income subject to final tax regime is also

considered in accordance with the requirement of Technical Release – 27 of Institute of Chartered Accountants of Pakistan.

22

Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the

deductible temporary differences, unused tax losses and tax credits can be utilized. Deferred tax liabilities are generally

recognized for all taxable temporary differences. Deferred tax assets and liabilities are based on the expected tax rates

applicable at the time of reversal.

2.9 Property, plant and equipment

Operating assets

Furniture and fixtures, office equipment and vehicles are stated at cost less accumulated depreciation and any identified

impairment in value. Operating assets except mentioned above are stated at revalued amount (refer to note 3.1) being the fair

value at the time of revaluation determined by market value/ depreciated replacement cost. Cost includes borrowing cost in

respect of qualifying assets as stated in note 2.12.

Depreciation is charged to income applying reducing balance method to write-off the cost over estimated remaining useful

life of assets. The useful life and depreciation method are reviewed periodically to ensure that the method and period of

depreciation are consistent with the expected pattern of economic benefits from items of property, plant and equipment.

Rates of depreciation are stated in note 3.1.

Depreciation on additions to operating fixed assets is charged from the month in which the asset is available for use, while no

depreciation is charged for the month in which the asset is disposed off.

Gain/ loss on disposal of operating assets is taken to profit and loss account.

Minor repairs and maintenance are charged to income, as and when incurred. Major renewals and replacements are

capitalized and the assets so replaced, if any, other than those kept as stand by, are retired.

Surplus arising on revaluation of operating assets is credited to surplus on revaluation of property, plant and equipment

account. The surplus on revaluation of operating assets to the extent of incremental depreciation charged on the related

assets is transferred by the Company to its unappropriated profit.

Capital work in progress

Capital work in progress is stated at cost. All expenditure connected with specific assets incurred during installation and

construction period are carried under capital work in progress. These are transferred to specific assets as and when these

assets are available for use.

Leased

These are stated at the lower of present value of minimum lease payments under the lease agreements and the fair value of the

assets. The related obligation of leases is accounted for as liability. Financial charges are allocated to accounting periods in a

manner so as to provide a constant periodic rate of finance cost on the remaining balance of principal liability for each period.

Depreciation is charged to income at the same rates and basis as applicable to the Company's owned assets. Outstanding

obligation under lease less finance cost allocated to future periods is shown as liability. The finance cost is calculated at the rate

implicit in the lease and is charged to income.

2.10 Intangible assets

Intangible fixed assets are stated at cost less accumulated amortization and identified impairment losses, if any. Amortization

is charged to income on straight line basis during the estimated useful life. The useful life is reviewed periodically to ensure

that it is consistent with the expected pattern of economic benefits.

Amortization is charged from the month of acquisition and upto the month preceding the disposal respectively. Gain/ loss on

disposal of intangible assets are taken to profit and loss account.

Major improvements and modifications are capitalized. Minor repairs and replacements are taken to profit and loss account.

2.11 Impairment of assets

Assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset

may not be recoverable, whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is

recognized in income for items of assets.

23

2.12 Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that

necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets,

until such time as the assets are substantially ready for their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying

assets is deducted from the borrowing costs eligible for capitalization.

All other borrowing costs are charged to income in the period of incurrence.

2.13 Long term investments

Investment in associates

These investments are carried at cost / par value.

Available for sale

Investment securities held by the Company which may be sold in response to needs for liquidity or changes in interest rates or

equity prices are classified as available for sale. These investments are initially recognized at cost less any permanent diminution

in value. All purchases and sales are recognized on the trade dates. Changes in carrying values are recognized in equity until

investment is sold or determined to be impaired at which time the cumulative gain or loss previously recognized in equity is

included in profit and loss account for the year.

2.14 Short term investments

Short term investments are designated at fair value through profit or loss at inception. These are initially measured at fair value

and changes on re-measurement are taken to profit and loss account. Regular way purchase or sale of held for trading

investments is recognized using trade date accounting. A trade date is the date that an enterprise commits to purchase or sell

an asset. All investments are de-recognized when the rights to receive cash flows from the investments have expired or have

been transferred and the Company has transferred substantially all risks and rewards of ownership.

2.15 Stores, spares and loose tools

These are valued at moving average cost less allowance for obsolete and slow moving items except items-in-transit which are

stated at cost accumulated to the balance sheet date.

2.16 Stock- in- trade

Basis of valuation are as follows:

Particulars Mode of Valuation

Raw materials

– At mills – At lower of weighted average cost of both local and

imported stock or net realizable value.

– In transit – At cost accumulated to the balance sheet date.

Work-in-process – At manufacturing cost.

Finished goods – At lower of cost and net realizable value.

Waste – At net realizable value.

– Cost of finished goods represents annual average manufacturing cost which consists of prime cost and appropriate

production overheads.

– Net realizable value signifies the selling price in the ordinary course of business less cost of completion and cost

necessary to be incurred to effect such sale.

2.17 Revenue Recognition

– Sales are recorded on despatch of goods to customers.

– Return on investments and deposits is accounted for on time proportion basis.

– Dividend income is accounted for when the right to receive is established.

24

– Gain on sale and lease-back transactions is deferred and is credited to Profit and Loss Account over the lease term.

– Interest / mark-up is recognized as the interest / mark-up become due.

2.18 Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is

probable that an outflow of resources will be required to settle the obligation, and 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.

2.19 Trade debts and other receivables

Trade debts and other receivables are carried at original invoice amount less an estimate made for doubtful receivables based

on review of outstanding amounts at the year end. Balances considered bad and irrecoverable are written off when identified.

2.20 Cash and cash equivalents

Cash and cash equivalents consist of cash-in-hand and balances with banks.

2.21 Financial instruments

Financial assets and liabilities are recognised when the Company becomes a party to the contractual provisions of the

instrument and de-recognised when the Company loses control of the contractual rights that comprises the financial asset

and in case of financial liability when the obligation specified in the contract is discharged, cancelled or expired.

2.22 Off setting of financial instruments

Financial assets and liabilities are off-set and the net amount reported in the balance sheet when there is a legally enforceable

right to set-off the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the

liability simultaneously.

2.23 Government grants

Government grants that compensates the company for expenses incurred is recognised in the profit and loss account on a

systematic basis in the same period in which the expenses are recognised. Government grants are deducted in reporting the

related expense.

2.24 Critical judgments in applying accounting policies

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and

assumptions that affect the application of policies and reported amounts of fixed assets, liabilities, income and expenses. The

estimates and associated assumptions are based on historical experience and various other factors that are believed to be

reasonable under circumstances, the results of which form the basis of making the judgment about carrying values of assets

and liabilities that are not readily apparent from other resources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on the ongoing basis. Revisions to accounting estimates are

recognized in the period in which estimates are revised.

Significant areas requiring the use of management estimates in these financial statements relate to the useful life of

depreciable assets, provision for doubtful receivables and slow moving inventory. However, assumptions and judgments

made by management in the application of accounting policies that have significant effect on the financial statements are not

expected to result in material adjustments to the carrying amounts of assets and liabilities in the next year.

25

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26

27

3.2

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3.5 Depreciation for the year has been allocated as follows:

Cost of sales 32 277,878,693 259,391,189

Administrative expenses 34 8,916,544 7,010,482

286,795,237 266,401,6713.6 Capital work in progress

Factory buildings

Material and expenses 9,715,064 13,005,298

Advance payments 51,068,740 -

60,783,804 13,005,298

Non-factory buildings

Material and expenses 16,896,590 6,446,552

Plant and machinery

Cost and expenses 11,131,956 -

Advance payments 62,245,780 -

Letters of credit 5,025,887 5,106,251

78,403,623 5,106,251

156,084,017 24,558,1014. INTANGIBLE ASSETS

Computer software

Opening balance 6,220,596 2,392,076

Cost capitalized during the year - 5,420,255

Less: Amortization for the year 34 (1,682,069) (1,591,735)

4,538,527 6,220,596

5. LONG TERM INVESTMENTS

2011 2010 2011 2010Number of shares Name of Company Note Rupees Rupees

Investment in associates

104,500 104,500 Fazal Industries (Pvt.) Limited 5.1 475,000 475,000

Equity interest held 9.5%

(2010: 9.5%)

Less: Impairment loss 475,000 475,000

25,790,610 25,790,610 Pakarab Fertilizers Limited

Equity interest held 5.2 252,966,706 252,966,706

5.73% (2010: 5.73%)

41,422,896 34,387,480 Fatima Fertilizer Company

Limited 5.3 414,228,960 343,874,800

Equity interest held

2.07% (2010 : 1.72%)

667,195,666 596,841,506

28

5.1 Break up value per share on the basis of latest audited financial statements is Rs. Nil (2010: Rs. Nil)

5.2 Break up value per share on the basis of unaudited financial statements for the half year ended June 30, 2011 is Rs. 29.62 (2010:

Rs. 32.98). The valuation of this investment has been made at cost contrary to the requirement of International Accounting

Standard – 28 “Investment in Associates” (IAS 28) which requires re-measurement of investment in associates on equity

method.

5.3 The break up value per share on the basis of unaudited financial statements for the half year ended June 30, 2011 is Rs. 10.05

(2010: Rs. 10.18). The valuation of investment in associate has been made at par value i.e. Rs. 10 per share, contrary to the

requirement of International Accounting Standard – 28 “Investment in Associates” (IAS 28) which requires re-measurement of

investment in associates on equity method.

5.4 During the year, The Company has received 25,790,610 shares of Fatima Fertilizer Company Limited as specie dividend from

Pakarab Fertilizer Limited which have been recognized at par value of Rs. 257.9 million as income in profit and loss account

instead of derecognizing the investment in Pakarab Fertilizer Limited contrary to the requirement of International Accounting

Standard - 28 “Investment in Associates” (IAS 28). Furthermore, 18,755,194 shares of Fatima Fertilizer Company Limited were

distributed during the year to the share holders of the Company as a specie dividend. The Company has derecognized the

shares at par value and recorded the dividend distributed at Rs. 187.6 million, contrary to the requirement of IFRIC 17

“Distribution of Non-Cash Assets to Owners” (IFRIC 17) at fair value of Rs. 186.4 million.

5.5 Had the Company complied with the requirement of IAS 28 and IFRIC 17, and accounted for investment in associates at equity

method, the value of investment, surplus on revaluation of property, plant and equipment and un-appropriated profits would

have been higher by Rs. 596.7 million (2010: Rs. 631.9 million), Rs. 141.9 million (2010: Rs. 141.9 million) and Rs. 521.5 million

(2010: Rs. 372.6 million) respectively, and profit for the year would have been lower by Rs. 66.7 million (2010: higher by Rs. 117.4

million)

5.6 Following is the summary of financial information of the investee companies.June 30, 2008

Fazal Industries (Pvt.) Limited 5.7

Total assets 282,437,387

Total liabilities 70,263,538

Revenue -

Profit after tax for the year 6,024,900

Company's share of associate's profit for the year -

Twelve months Twelve monthsended ended

June 30, 2011 June 30, 2010

Pakarab Fertilizers Limited 5.8

Total assets 50,429,869,000 52,211,409,000

Total liabilities 37,098,955,000 37,370,486,000

Revenue 7,299,367,000 7,602,072,000

Profit after tax for the period 3,789,840,000 4,338,340,000

Company's share of associate's profit for the year 217,205,079 248,640,967

Fatima Fertilizer Company Limited 5.8

Total assets 73,269,600,000 64,079,711,000

Total liabilities 53,163,536,000 47,726,329,000

Revenue - -

Loss after tax for the period (242,779,000) (130,316,000)

Company's share of associate's loss for the year (5,028,305) (2,240,619)

Market value per share 16.64 12.53

29

5.7 The financial information of Fazal Industries (Pvt.) Limited is based on audited financial statements for the year ended June 30,

2008. No later financial statements are available.

5.8 The financial information of Pakarab Fertilizers Limited and Fatima Fertilizer Company Limited is based on financial statements

for the half year ended June 30, 2011 duly reviewed by the Companies' auditors.

5.9 The investment in associate is less than 20%, however it is treated as an associate as a result of common directorship.


6. LONG TERM LOANS

To Employees:

Executives 1,866,830 1,500,000

Other employees 730,712 1,171,602

2,597,542 2,671,602

Less: Current portion grouped under current assets 2,198,272 1,166,772

399,270 1,504,830

6.1 These interest free unsecured loans have been advanced for various personal purposes and are recoverable in installments

which vary from case to case.

7. STORES, SPARES AND LOOSE TOOLS

Stores 7.1 138,273,928 47,421,554

Spares 168,633,572 123,147,568

Loose tools 1,707,594 7,119,556

308,615,094 177,688,678

Less: Provision for slow moving items 1,770,316 1,770,316

306,844,778 175,918,362

7.1 This includes stores in transit of Rs. 89.658 million (2010: Rs. 7.362 million).

8. STOCK-IN-TRADE

Raw material 8.1 2,457,338,332 2,186,926,214

Work in process 163,759,089 57,442,903

2,621,097,421 2,244,369,117

Finished goods

Yarn 764,093,494 379,443,954

Waste 25,023,182 21,639,615

789,116,676 401,083,569

3,410,214,097 2,645,452,686

8.1 This includes raw material in transit of Rs. 46.53 million (2010: Rs. 149.57 million).

30


9. TRADE DEBTS

Considered good

Secured - Export bills 1,062,615,871 343,900,580

Unsecured - local 9.6 705,094,506 539,829,280

1,767,710,377 883,729,860

9.1 Trade receivables are non-interest bearing and are generally on 0 to 180 days terms.

9.2 The Company provides for doubtful debts on the basis of past due balances. Balances considered bad and irrecoverable are

written off when identified.

9.3 Trade receivables consist of a large number of diversified customers. Ongoing credit evaluation is performed on the financial

condition of accounts receivable and, where appropriate, provision is made.

9.4 The fair value of trade receivables approximate their carrying amounts.

9.5 As at year end, all trade receivables were neither past due nor impaired.

9.6 These include due from following associated undertakings on account of trading activities.

Fazal Rehman Fabrics Limited 24,160,327 58,212,889

Ahmad Fine Textile Mills Limited 87,663,474 31,987,366

Reliance Weaving Mills Limited 6,293,021 -

Amir Fine Exports (Pvt.) Limited 8,400 8,400

Fatima Fertilizers Company Limited - 6,006

Reliance Commodities (Pvt) Limited - 77,090

Hussain Ginneries Limited - 235,705

Fatima Sugar Mills Limited - 15,604

118,125,222 90,543,060

10. LOANS AND ADVANCES

Considered good

Due from associated undertaking / related party 10.1 200,021,484 200,016,667

Others

Advances to:

- Suppliers and contractors 40,300,887 40,335,384

Loan to:

- Executives 10.2 1,517,560 857,587

- Other employees 4,353,443 4,882,649

Advance income tax/ tax deducted at source 185,257,008 178,139,897

Flood surcharge deducted at source 10.3 6,390,867 -

Letters of credit 11,547,924 3,076,486

449,389,173 427,308,670

31


10.1 Due from associated undertakings / related party- On account of non-trading activities

Pakarab Fertilizers Limited 200,000,000 200,016,667

Reliance Commodities (Pvt.) Limited 21,484 -

200,021,484 200,016,667

10.2 Maximum aggregate amount due from executives at any month end during the year was Rs. 1.9 million (2010: Rs. 1.5 million).

10.3 This represents additional flood surcharge at the rate of 15% on the withholding tax deducted at source.

11. TRADE DEPOSITS AND SHORT TERM PREPAYMENTS

Deposits 5,837,616 10,495,922

Prepayments 1,840,969 1,786,755

7,678,585 12,282,677

12. INTEREST / MARKUP ACCRUED

This amount represents interest receivable amounting to Rs. 16.265 million (2010: Rs. Nil) from Pakarab Fertilizers Limited (an

associated undertaking) against loan of Rs. 200 million, carrying interest at the rate of 6 month KIBOR + 1.25%.

13. OTHER RECEIVABLES

Insurance claim receivable 3,796,190 2,648,375

14. OTHER FINANCIAL ASSETS

Investment- Financial asset at fair value through profit and loss account

In quoted companies

Fatima Fertilizer Company Limited

6,520,000 (2010: Nil) fully paid ordinary shares of Rs. 10 each 108,492,800 -

Pakistan State Oil Company Limited

62,000 (2010: 62,000) fully paid ordinary shares of Rs. 10 each 16,403,960 16,132,400

In open-end mutual fund

Pak Cash Management Fund - A

4,809 (2010: Nil) units having face value of Rs. 50 each 246,076 -

125,142,836 16,132,400

15. TAX REFUNDS DUE FROM GOVERNMENT

Sales tax 12,361,476 36,302,577

Income tax 69,327,285 6,300,203

81,688,761 42,602,780

32


16. CASH AND BANK BALANCES

Cash in hand 955,357 1,025,723

Cash at bank on:

- Current accounts 190,103,164 121,672,261

- Dividend accounts 551,572 551,630

- Saving accounts 16.1 25,372 247,905

190,680,108 122,471,796

191,635,465 123,497,519

16.1 Rate of interest and mark up on saving accounts ranges from 5% to 8.2% (2010: 5% to 8.2%).

17. ISSUED, SUBSCRIBED AND PAID UP CAPITAL

Ordinary shares 17.1 187,551,940 187,551,940

Preference shares 17.2 175,000,000 250,000,000

362,551,940 437,551,94017.1 Ordinary shares

2011 2010(Number of shares)

1,000,000 1,000,000 Ordinary shares of Rs. 10 each

fully paid in cash 10,000,000 10,000,000


fully paid as right shares 91,872,000 91,872,000


issued as bonus shares 85,679,940 85,679,940

18,755,194 18,755,194 187,551,940 187,551,940

17.1.1 There were no movements in the ordinary shares during the reporting year.

17.1.2 As at the balance sheet date ordinary shares held by an associated company is as follows:

Number of shares

Amir Fine Exports (Private) Limited 4,556,393 4,254,526

17.2 Preference shares

2011 2010 2011 2010(Number of shares) Rupees Rupees

17,500,000 25,000,000 Preference shares of Rs. 10

each fully paid in cash 175,000,000 250,000,000

33

Preference shares are issued to the following financial institutions: 2011 2010Number of shares

MCB Bank Limited 10,000,000 10,000,000

Allied Bank Limited - 7,500,000

The Bank of Punjab 2,500,000 2,500,000

Faysal Bank Limited 2,500,000 2,500,000

NIB Bank Limited 2,500,000 2,500,000

17,500,000 25,000,000

17.2.1 Preference shares carry mark up @ 6 months KIBOR+ 250 bps per annum.

17.2.2 During the year Company has redeemed preference shares issued to Allied Bank Limited amounting Rs. 75 million (2010: Rs.

Nil)2011 2010

18. CAPITAL RESERVES Note Rupees Rupees

Share premium

Issue of 3,168,000 ordinary shares of Rs. 10 each @ Rs. 20

per share issued during 2001 63,360,000 63,360,000

Issue of 2,851,200 ordinary sahres of Rs. 10 each @ Rs. 5

per share issued during 2002 14,256,000 14,256,000

77,616,000 77,616,000

Capital redemption reserve fund 18.1 150,000,000 100,000,000

227,616,000 177,616,000

18.1 This represents capital redemption reserve created for the redemption of preference shares.

19. SURPLUS ON REVALUATION OF PROPERT Y, PLANT AND EQUIPMENT

Surplus on revaluation of operating assets as at July 01 3.2 2,636,485,023 2,727,019,235

Less: Transferred to unappropriated profit on account of:

Incremental depreciation - net of deferred tax (84,906,630) (90,534,212)

Surplus on revaluation of operating assets as at June 30 2,551,578,393 2,636,485,023

Less: Related deferred tax liability 359,079,000 356,041,000

2,192,499,393 2,280,444,02320. LONG TERM FINANICING - SECURED

Banking Companies

Askari Bank Limited

- Term finance - III 20.1 (a) - 1,449,924

- Term finance under LTF-EOP Scheme 20.1 (b) 5,166,668 12,055,558

- Term finance - V 20.2 92,726,000 139,090,000

- Term finance - VI under LTF-EOP Scheme 20.3 13,464,000 16,830,000

- Term finance - under LTF-EOP Scheme 20.4 73,860,834 88,633,000

- Term finance - VII 20.5 (a) 100,444,772 109,576,115

- Term finance - VII under LTFF Scheme 20.5 (b) 14,138,188 15,423,478

- Term finance - VIII 20.6 (a) 83,095,476 90,581,586

- Term finance - VIII under LTFF Scheme 20.6 (b) 51,904,750 32,700,600

434,800,688 506,340,261

34


Soneri Bank Limited

- Term finance 20.7 57,100,000 73,500,000

Faysal Bank Limited

- Term finance 20.8 200,000,000 200,000,000

Habib Bank Limited

- Demand finance 20.9 (a) - 17,248,220

- Demand finance under LTF-EOP Scheme 20.9 (b) 2,596,500 7,789,500

- Demand finance - (FAF) 20.10 (a) - 18,024,900

- Demand finance (FAF) under LTF-EOP Scheme 20.10 (b) 5,412,000 10,824,000

- Demand finance 20.11 (a) 125,643,642 161,541,825


159,610,277 247,155,090

National Bank of Pakistan

- Demand finance under LTF-EOP Scheme 20.12 - 4,473,392

- Demand finance - IV 20.13 200,000,000 200,000,000

200,000,000 204,473,392

United Bank Limited

- Demand finance-I A 20.14 - 19,065,901

- Demand finance-I B 20.15 131,442,104 184,018,944

- Demand finance-I C 20.16 30,000,000 40,000,000

- Demand finance-II 20.17 (a) 85,648,000 119,907,000

- Demand finance - under LTF-EOP Scheme 20.17 (b) 17,619,000 22,653,000

- Demand finance-III under LTF-EOP Scheme 20.18 11,557,896 16,181,056

- Demand finance-IV under LTF-EOP Scheme 20.19 20,833,338 29,166,670

297,100,338 430,992,571

MCB Bank Limited

- Demand finance 20.20 (a) 24,080,273 48,160,547


33,879,153 62,858,869

Allied Bank Limited

- Demand finance 20.21 (a) 126,966,570 163,242,731


- Demand finance under LTFF Scheme 20.21 (c) 1,586,834 2,040,214

- Term loan - 2 20.22 (a) 150,706,500 24,876,950

- Term loan - 2 under LTFF Scheme 20.22 (b) 104,293,500 24,876,950

- Term loan - 3 20.23 (a) 239,743,698 -

- Term loan - 3 under LTFF Scheme 20.23 (b) 8,998,645 -

656,730,907 244,380,593

Pak Kuwait Investment Company (Pvt) Ltd.

- Term finance 20.24 300,000,000 -

Saudi Pak Industrial and Agricultural Investment Company Ltd.

- Term finance 20.25 (a) 91,867,000 -

- Term finance under LTFF Scheme 20.25 (b) 8,000,000 -

99,867,000 -

2,439,088,363 1,969,700,776

Less:

Current portion grouped under current liabilities 28 482,888,183 395,885,896

1,956,200,180 1,573,814,880

35

20.1 (a) Askari Bank Limited - TF-III

This finance was obtained for retirement of letter of credit for imported machinery, and was repayable in 24 equal quarterly

installments of principle amount. This finance has been fully repaid during the current year. It carried mark up at the rate of 6

months average KIBOR + 1.25% pa with a floor of 4.25% per annum. During the year mark up was charged at the rates ranging

from 13.60 % to 14.89 % per annum (2010: from 13.66% to 14.01% per annum). It was secured against 1st Joint Pari Passu

charge/mortgage of Rs.723.500 Million on all present and future fixed assets of the Company and personal guarantees of the

sponsoring directors of the Company.

(b) Askari Bank Limited - Term Finance under LTF-EOP Scheme

During the year 2007, an amount of Rs.31.00 million out of Term Finance-III of Askari Bank Ltd was approved and refinanced by the

State Bank of Pakistan under LTF-EOP Scheme against the imported textile machinery eligible under the Scheme. This finance is

repayable in remaining 18 equal quarterly installments of principle amount. However, during the year 2009 SBP has allowed grace

period of one year starting from January 01, 2009 to December 31, 2009 and accordingly last installment is due on March 23, 2012.

This finance carries mark up at the rate of SBP rate + 2.00% per annum. During the year mark up was charged at the rate of 7 % per

annum (2010: 7.00% per annum). This finance is secured against the security as stated in note 20.1(a).

20.2 Askari Bank Limited - TF-V

This finance has been obtained to finance permanent working capital requirement/ refinancing of fixed assets. Originally it was

repayable in 5 semi annual installments with break up of first 4 installments of Rs.15.00 million each and 5th/last installments of

Rs.240.00 million. 1st installment was due after 12 months of first DD. However, as per revised terms during the year 2008, balance

amount of Rs.255.00 million is repayable in 11 equal semi annual installments of principle amount. Before this revision in the

terms, this finance carried markup at the rate of 6 months average KIBOR ask rate+ 2.50% p.a with a floor of 4.25% per annum

however, after revision in terms, it carries mark up at the rate of 6 months KIBOR + 1.25% p.a with a floor of 4.25% per annum .

During the year markup was charged at the rates ranging from 13.60 % pa to 14.89 % per annum (2010: from 13.66% pa to 14.01%

per annum). It is secured against the security as stated in note 20.1(a).

20.3 Askari Bank Limited - TF-VI under LTF-EOP Scheme

This finance has been obtained for the purpose of disbursement and retirement of Letters of credit of Meezan Bank Ltd opened

for import of Caterpillar Gas Generator set. During the year 2008 this finance was approved and refinanced by the State Bank of

Pakistan under LTF-EOP Scheme. This finance is repayable in 12 half yearly installments commencing from July 10, 2008 after a

grace period of one year. However, during the year 2009, SBP has allowed grace period of one year starting from January 01,

2009 to December 31, 2009 and accordingly last installment is due on January 26, 2015 . This finance carried mark up at the rate

of 6 months KIBOR + 2.50% pa before refinancing by SBP under LTF-EOP Scheme, however, after approval and refinancing by

SBP under LTF-EOP it carries mark up at the rate of SBP rate + 2.00% pa. During the year mark up was charged at the rate of

7% per annum (2010: 7.00% per annum). It is secured against the security as stated in note 20.1(a).

20.4 Askari Bank Limited - TF under LTF-EOP Scheme

This finance has been disbursed during the year 2008 for the purpose of retirement of Letter of credit opened for import of

Caterpillar Gas Generator sets. This finance was approved and refinanced by the State Bank of Pakistan under LTF-EOP Scheme.

This finance is repayable in 12 half yearly equal installments of principle amount commencing after a grace period of one year.

However, during the year 2009 SBP has allowed grace period of one year starting from January 01, 2009 to December 31, 2009 and

accordingly last installment is due on June 08, 2016. It carries mark up at the rate of SBP rate + 2.00% per annum. During the year

mark up was charged at the rate of 7 % per annum (2010: 7.00% pa.). It is secured against the security as stated in note 20.1(a).

20.5 (a) Askari Bank Limited - TF-VII

This finance has been obtained for the purpose of retirement of letters of credit opened for import of textile machinery. It is

repayable within a period of eight years including two years grace period in 12 half yearly equal installments of principal amount.

36

This finance carries markup at the rate of 6 months KIBOR + 1.25% per annum with floor of 4.25% per annum. During the year

markup was charged at the rates ranging from 13.60 % pa to 14.89 % per annum (2010: from 13.66% pa to 14.01% pa). It is secured

against the security as stated in note 20.1(a).

(b) Askari Bank Limited - TF-VII under LTFF Scheme

During the year 2010 an amount of Rs.15.423 Million out of Term Finance VII of Askari Bank Ltd was approved and refinanced by the

State Bank of Pakistan under LTFF Scheme against imported textile machinery eligible under the Scheme. This finance is repayable

in 12 equal installments of principal amount. Last installment is falling due on September 30, 2016. This finance carries mark up at

the rate of SBP rate + 3.00 % pa. During the year mark up was charged at the rate of 10.50 % pa (2010: from 10.25% pa to 10.50% pa).

It is secured against the security as sated in note 20.1(a).

20.6 (a) Askari Bank Limited - TF-VIII

This finance has been obtained during the year 2010 for the purpose of retirement of letters of credit opened for import of

textile machinery. It is repayable within a period of eight years including two years grace period in 12 half yearly equal

installments of principal amount. Last installment is falling due on December 23, 2017.This finance carries markup at the rate of

6 months KIBOR + 2.25% per annum. During the year markup was charged at the rates ranging from 13.60 % pa to 14.89 %

per annum (2010: from 13.66% pa to 14.01% pa) . It is secured against the security as stated in note 20.1(a).

(b) Askari Bank Limited - TF-VIII under LTFF Scheme

During the year 2010 an amount of Rs.32.700 Million and during current year an amount of Rs. 19.204 Million, out of Term

Finance VIII of Askari Bank Ltd were approved and refinanced by the State Bank of Pakistan under LTFF Scheme against

imported textile machinery eligible under the Scheme. This finance is repayable in 12 equal installments of principal amount.

Last installment is falling due on December 23, 2017. This finance carries mark up at the rate of SBP rate + 3.00 % pa. During

the year mark up was charged at the rate of 10.50 % pa (2010: from 10.25% pa to 10.50% pa) . It is secured against the security

as sated in note 20.1(a).

20.7 Soneri Bank Limited - TF

During the year 2009, a term finance amounting to Rs.82.00 million has been obtained for BMR projects and retirement of

letters of credit. It is repayable within a period of 6 years including one year grace period in 10 equal semi annual installments

of principal amount. It carries mark up at the rate of 6 months KIBOR + 1.25% pa. During the year mark up was charged at the

rates ranging from 13.60 % pa to 14.89 % pa (2010: from 13.66% pa to 13.79% pa). It is secured against 1st Joint Pari Passu

charge/mortgage of Rs. 167.00 Million over all present and future fixed assets of the Company and personal guarantees of the


20.8 Faysal Bank Limited - TF

This finance was obtained during the year 2009 to finance the import of textile machinery and existing fixed assets. It is

repayable within a period of 6 years including two years grace period in 8 equal semi annual installments of principal amount. It

carries mark up at the rate of 6months KIBOR + 2.50% pa. During the year mark up was charged at the rates ranging from

14.88 % pa to 16.29 % pa (2010: from 14.93% pa to 15.41% pa). It is secured against 1st Joint Pari Passu charge/mortgage of

Rs. 267.00 Million over all present and future fixed assets of the Company and personal guarantees of the sponsoring directors.

20.9 (a) Habib Bank Limited - DF

This finance was obtained for repayment of letters of credit for Rs. 205.00 million. It was repayable within a period of six years

in ten equal half yearly installments with grace period of one year. It has been fully repaid during the current year. It carried

mark up at the rate of 6 months KIBOR offer rate+ 1.00% with a floor of 3.50% per annum. During the year markup was

charged at the rate of 13.43 % per annum (2010: from 13.43% to 14.01% per annum). It was secured against 1st Joint Pari Passu



37

(b) Habib Bank Limited - DF under LTF-EOP Scheme

During the year 2007, an amount of Rs.20.772 Million out of Demand Finance of Habib Bank Ltd was approved and refinanced

by the State Bank of Pakistan under LTF-EOP Scheme against the imported textile machinery eligible under the Scheme. This

finance is repayable in remaining 8 equal half yearly installments. However, during the year 2009, SBP has allowed grace period

of one year starting from January 01, 2009 to December 31, 2009 and accordingly last installment is due on August 25, 2011.

This finance carries mark up at the rate of SBP rate + 2.00% per annum. During the year mark up was charged at the rate of

7% per annum (2010: 7% per annum). This finance is secured against the security as stated in note 20.9 (a).

20.10 (a) Habib Bank Limited - DF (FAF)

This finance was obtained for repayment of letters of credit and swap the debt from Meezan Bank Ltd for finances and other

financial institutions. It has been fully repaid during the current year. It was repayable in ten equal half yearly installments with

no grace period from the date of first disbursement. It carried markup at the rate of 6 months KIBOR+ 150 bps. During the

year markup was charged at the rates ranging from 13.93 % to 14.37 % per annum (2010: from 13.93% pa to 14.51% per

annum). It was secured against the security as stated in note 20.9(a).

(b) Habib Bank Limited - DF (FAF under LTF-EOP Scheme

During the year 2007, an amount of Rs.24.354 Million out of Demand Finance (FAF) of Habib Bank Ltd was approved and

refinanced by the State Bank of Pakistan under LTF-EOP Scheme against the imported textile machinery eligible under the

Scheme. This finance is repayable in remaining 9 equal half yearly installments of principal amount. However, during the year

2009, SBP has allowed grace period of one year starting from January 01, 2009 to December 31, 2009 and accordingly last

installment is due on February 11, 2012. This finance carries mark up at the rate of SBP rate + 2.00% per annum. During the

year mark up was charged at the rate of 7 % per annum (2010: 7.00% per annum). This finance is secured against the security

as stated in note 20.9 (a).

20.11 (a) Habib Bank Limited - DF

This finance has been disbursed for the purpose of retirement of Letters of credit and swap of other expensive term finances.

This finance is repayable with in seven years inclusive of one year grace period in 12 half yearly equal installments of principal

amount. It carries mark up at the rate of 6 months KIBOR + spreads of 1.00% p.a for first year, 1.25% p.a for second year and

1.50% p.a from third year to onward. During the year mark up was charged at the rates ranging from 13.73 % to 15.08 % per

annum (2010: from 13.73% pa to 14.94% pa). It is secured against the security as stated in note 20.9(a). During the year 2009

an amount of Rs.0.923 Million and year 2008 an amount of Rs.33.687 Million out of this finance were refinanced by the State

Bank of Pakistan under LTF-EOP Scheme and accordingly transferred to DF under LTF-EOP of Habib Bank Ltd as stated in note

20.11(b).

(b) Habib Bank Limited - DF under LTF-EOP Scheme

During the year 2009 an amounts of Rs.0.923 Million and year 2008 an amount of Rs. 33.687 Million out of Demand Finance of

Habib Bank Ltd were approved and refinanced by the State Bank of Pakistan under LTF-EOP Scheme against the imported

textile machinery. This finance is repayable in 12 equal half yearly installments of principle amount. However, during the year

2009, SBP has allowed grace period of one year starting from January 01, 2009 to December 31, 2009 and accordingly last

installment is due on November 19, 2015. This finance carries mark up at the rate of SBP rate + 2.00% per annum. During the

year mark up was charged at the rate of 7 % per annum ( 2010: 7.00% pa). This finance is secured against the security as stated

in note 20.9 (a).

20.12 National Bank of Pakistan - DF under LTF-EOP Scheme

During the year 2007, amount of Rs.29.671 million out of Demand Finance and amount of Rs.20.526 million out of Demand

Finance-II of National Bank of Pakistan were approved and refinanced by the State Bank of Pakistan under LTF-EOP Scheme

against the imported textile machinery eligible under the Scheme. It has been fully repaid during the current year. This finance

38

was repayable in 11 equal quarterly installments of principal amount. However, during the year 2009, SBP has allowed grace

period of one year starting from December 31, 2008 to December 31, 2009 and accordingly last installment was due on

September 30, 2010. This finance carried mark up at the rate of SBP rate + 2.00% per annum. During the year mark up was

charged at the rate of 6.00 % per annum (2010: 6.00% per annum). This finance was secured against 1st Joint Pari Passu



20.13 National Bank of Pakistan - DF-IV

This finance has been obtained during the year 2010 for the purpose of re-profiling of balance sheet to ease out cash flow

burdens owing to repayments of long term loans. It is repayable within a period of six years including one year grace period in

10 half yearly equal installments of principal amount. Last installment is falling due on March 16, 2016. This finance carries

markup at the rate of 6 months KIBOR + 2.00% per annum. During the year markup was charged at the rates ranging from

14.37 % pa to 15.73 % pa (2010: 14.43% pa.). It is secured against the security as stated in note 20.12.

20.14 United Bank Limited - DF-I A

This finance was obtained for swap of Soneri bank loan which was obtained for meeting the working capital requirements. It is

repayable within a period of six years including one year grace period in 10 bi-annual installments of principal amount

commencing from December 16, 2006. It has been fully repaid during the current year. Originally it carried markup at the rate

of 6 months KIBOR Ask Rate + 2.00% per annum. During the year 2008 pricing was reduced to 3 months KIBOR Ask rate +

1.00% pa. However, during the year 2009, spread was revised to 1.50% pa. During the year markup was charged at the rates

ranging from 13.76 % pa to 15.02 % per annum (2010: from 13.83% to 14.01% per annum). It was secured against 1st Joint Pari

Passu charge/mortgage of Rs. 911.500 Million on all present and future fixed assets of the Company and personal guarantees of

the sponsoring directors of the Company.

20.15 United Bank Limited - DF-I B

This finance has been obtained for retirement of import documents of plant and machinery . It is repayable in 10 bi-annual

installments of principal amount commencing from March 31, 2009 after grace period of 2 years. Originally it carried markup at

the rate of 6 months KIBOR Ask Rate + 2.00% per annum. During the year 2008, pricing was reduced to 3 months KIBOR Ask

rate + 1.00% pa. However, during the year 2009, spread was revised to1.50 % pa. During the year markup was charged at the

rates ranging from 13.76 % pa to 15.02 % per annum (2010: from 13.83% per annum to 14.01% per annum). It is secured

against the security as stated in note 20.14.

20.16 United Bank Limited - DF-I C

This finance has been obtained for the purpose of incurring capital expenditures. It is repayable in 10 bi-annual installments of

principal amount commencing from September 30, 2009 after grace period of 2 years. Originally it carried markup at the rate of

6 months KIBOR Ask Rate + 2.25% per annum. During the year 2008, pricing was reduced to 3 months KIBOR Ask rate +

1.50% pa. During the year markup was charged at the rates ranging from 13.76 % pa to 15.02 % per annum (2010: from 13.83%

per annum to 14.10% per annum). It is secured against the security as stated in note 20.14.

20.17 (a) United Bank Limited - DF-II

This finance has been obtained for retirement of import documents of plant and machinery. It is repayable in 12 equal semi-

annual installments of principal amount with no grace period. Originally it carried markup at the rate of 6 months KIBOR Ask

Rate + 2.00% per annum. During the year 2008, pricing was reduced to 3 months KIBOR Ask rate + 1.00% pa. However, during

the year 2009, spread was revised to 1.50% pa. During the year markup was charged at the rates ranging from 13.76 % pa. to

15.02% per annum (2010: from 13.83% pa to 14.10% pa.). It is secured against the security as stated in note 20.14. During the year

2008, an amount of Rs.30.204 million out of this finance was refinanced by the State Bank of Pakistan under LTF-EOP Scheme and

accordingly transferred to Demand Finance under LTF-EOP of United Bank Ltd as stated in note 20.17(b).

39

(b) United Bank Limited - DF under LTF-EOP Scheme

During the year 2008, an amount of Rs.30.204 million out of Demand Finance II of United Bank Ltd was approved and refinanced

by the State Bank of Pakistan under LTF-EOP Scheme against the imported textile machinery eligible under the Scheme. It is

repayable in 12 equal semi annual installments of principal amount. However, during the year 2009, SBP has allowed grace period

of one year starting from January 01, 2009 to December 31, 2009 and accordingly last installment is due on July 31, 2014. This

finance carries mark up at the rate of SBP rate + 2.00% per annum. During the year mark up was charged at the rate of 7 % per

annum (2010: 7.00% pa). This finance is secured against the security as stated in note 20.14.

20.18 United Bank Limited - DF-III under LTF-EOP Scheme

During the year 2007, an amount of Rs.23.116 million out of Demand Finance I B of United Bank Ltd was approved and

refinanced by the State Bank of Pakistan under LTF-EOP Scheme against the imported textile machinery eligible under the

Scheme. It is repayable in 10 equal semi annual installments of principal amount. However, during the year 2009, SBP has allowed

one year grace period starting from January 01, 2009 to December 31, 2009 and accordingly last installment is due on July 20,

2013. This finance carries mark up at the rate of SBP rate + 2.00% per annum. During the year mark up was charged at the rate of

7.00% per annum (2010: 7.00% per annum). This finance is secured against the security as stated in note 20.14.

20.19 United Bank Limited - DF-IV under LTF-EOP Scheme

This finance was obtained under LTF-EOP Scheme of SBP for swap of an amount of Rs.50.00 million out of outstanding

Diminishing Musharika Finance of Meezan Bank Ltd. This finance was approved and refinanced by the State Bank of Pakistan

under LTF-EOP Scheme against the eligible textile machinery imported through Meezan Bank Ltd. It is repayable in 24 equal

quarterly installments of principal amount . However, during the year 2009, SBP has allowed grace period of one year starting

from January 01, 2009 to December 31, 2009 and accordingly last installment is due on October 10, 2013. This finance carries

mark up at the rate of SBP rate + 2.00% per annum. During the year mark up was charged at the rate of 7 % per annum (2010:

7.00% per annum). It is secured against the security as stated in note 20.14.

20.20 (a) MCB Bank Limited - DF

This finance has been obtained for retirement of letters of credit for imported machinery, and is repayable in 14 equal half yearly

installments of principal amount with a grace period of one year. It carries mark up at the rate of 6 months KIBOR + 1.00 % per

annum with no floor no cap. During the year mark up was charged at the rates ranging from 13.35 % pa to 14.74 % per annum

(2010: from 13.40% to 13.65% per annum). This finance is secured against 1st Joint Pari Passu charge/mortgage of Rs.226.600

Million on all present and future fixed assets of the Company and personal guarantees of the sponsoring directors of the

Company.

(b) MCB Bank Limited - DF under LTF-EOP Scheme

During the year 2007, an amount of Rs.26.947 Million out of Demand Finance of MCB Bank Ltd was approved and refinanced by

the State Bank of Pakistan under LTF-EOP Scheme against the imported textile machinery eligible under the Scheme. It is

repayable in 11 equal semi annual installments of principal amount. However, during the year 2009, SBP has allowed grace period

of one year starting from January 01, 2009 to December 31, 2009 and accordingly last installment is due on February 19, 2013.

This finance carries mark up at the rate of SBP rate + 2.00% per annum. During the year mark up was charged at the rate of 7 %

per annum (2010: 7.00% per annum). This finance is secured against the security as stated in note 20.20 (a).

20.21 (a) Allied Bank Limited - DF

This finance has been obtained for retirement of letters of credit opened for import of plant and machinery. It is repayable with in

a period of seven years including one year grace period in 12 equal bi-annual installments of principal amount. Last installment is

falling due on July 04, 2014. Originally it carried markup at the rate of 6 months KIBOR + 2.50% per annum. During the year

2008, pricing was reduced to 6 months KIBOR + 1.50% pa. During the year markup was charged at the rates ranging from 13.87

% pa to 15.12 % per annum (2010: from 13.93% pa to 14.26% pa). It is secured against 1st Joint Pari Passu charge/mortgage of

40

Rs.1,008.00 Million on all present and future fixed assets of the Company and personal guarantees of the sponsoring directors of

the Company. During the year 2009 an amount of Rs. 1.293 Million and year 2008 an amount of Rs.28.158 Million out of this

finance were refinanced by the State Bank of Pakistan under LTF-EOP Scheme and accordingly transferred to Demand Finance

under LTF-EOP of Allied Bank Ltd as stated in note 20.21(b).

(b) Allied Bank Limited - DF under LTF-EOP Scheme

During the year 2009 an amount of Rs.1.293 Million and year 2008 an amount of Rs.28.158 Million out of Demand Finance of

Allied Bank Ltd were approved and refinanced by the State Bank of Pakistan under LTF-EOP Scheme against the imported textile

machinery eligible under the Scheme. It is repayable in 12 equal semi annual installments of principle amount commencing from

November 13, 2009 after a grace period of one year. However, during the year 2009, SBP has allowed one year grace period

starting from January 01, 2009 to December 31, 2009 and accordingly last installment is due on May 16, 2016. This finance carries

mark up at the rate of SBP rate + 2.00% per annum. During the year mark up was charged at the rate of 7 % per annum (2010:

7.00% pa). This finance is secured against the security as stated in note 20.21(a).

(c) Allied Bank Ltd - DF under LTFF Scheme

During the year 2010, an amount of Rs.2.267 Million out of Demand Finance of Allied Bank Ltd was approved and refinanced by

the State Bank of Pakistan under LTFF Scheme against imported textile machinery eligible under the Scheme. This finance is

repayable in remaining 10 equal installments of principal amount. Last installment is falling due on July 04, 2014. This finance

carries mark up at the rate of SBP rate + 2.50 % pa. During the year mark up was charged at the rate of 9 % pa (2010: 9.00% pa). It

is secured against the security as stated in note 20.21(a).

20.22 (a) Allied Bank Ltd - TL-2

This finance has been obtained during the current year and year 2010 for the purpose of retirement of letters of credit opened for

import of textile machinery. It is repayable within a period of seven years including two years grace period in 10 half yearly equal

installments of principal amount. Last installment is falling due on December 13, 2017. This finance carries markup at the rate of 6

months KIBOR + 2.15% per annum. During the year markup was charged at the rates ranging from 14.52 % pa to 15.77 % per

annum (2010: from 14.58% pa to 14.80% pa). It is secured against the security as stated in note 20.21(a).

(b) Allied Bank Ltd - TL-2 under LTFF Scheme

During current year an amount of Rs.79.417 Million and during year 2010 an amount of Rs.24.877Million out of Term Loan-2 of

Allied Bank Ltd were approved and refinanced by the State Bank of Pakistan under LTFF Scheme against imported textile

machinery eligible under the Scheme. This finance is repayable in 10 equal installments of principal amount. Last installment is

falling due on December 13, 2017. This finance carries mark up at the rate of SBP rate + 3.00 % pa. During the year mark up was

charged at the rates ranging from 10.25 % pa to 11.20 % pa (2010: from 10.25% pa to 10.50% pa). It is secured against the security

as stated in note 20.21(a).

20.23 (a) Allied Bank Ltd - TL-3

This finance amounting to Rs.248.74 Million has been obtained during the current year for the purpose of retirement of letters of

credit opened for import of textile machinery. It is repayable within a period of seven years inclusive of grace period of two years

in 10 half yearly equal installments of principal amount. Last installment is falling due on November 23, 2017. This finance carries

markup at the rate of 6 months KIBOR + 2.15% per annum. During the year markup was charged at the rates ranging from 14.52

% pa to 15.77 % per annum. It is secured against the security as stated in note 20.21(a).

(b) Allied Bank Ltd - TL-3 under LTFF Scheme

During current year an amount of Rs.8.998 Million out of Term Loan-3 of Allied Bank Ltd were approved and refinanced by the

State Bank of Pakistan under LTFF Scheme against imported textile machinery eligible under the Scheme. This finance is

repayable in 10 equal installments of principal amount after grace period of two years. Last installment is falling due on November

23, 2017. This finance carries mark up at the rate of SBP rate + 3.00 % pa. During the year mark up was charged at the rate of

11.50 % pa. It is secured against the security as stated in note 20.21(a).

20.24 Pak Kuwait Investment Company (Pvt) Ltd - TF

This finance amounting to Rs.300.00 Million has been obtained during the current year from Pak Kuwait Investment Company

(Pvt) Ltd to finance the capital expenditures of the Company's capacity expansion. It is repayable within a period of six years

41

inclusive of grace period of one year in 10 half yearly equal installments of principal amount. Last installment is falling due on

October 28, 2016. This finance carries markup at the rate of 6 months KIBOR + 2.45% per annum. During the year markup was

charged at the rates ranging from 15.68 % pa to 16.14 % per annum. It is secured against the security of 1st Joint Pari Passu



20.25 (a) Saudi Pak Industrial and Agricultural Investment Company Ltd - TF

This finance has been obtained during the current year from Saudi Pak Industrial and Agricultural Investment Company Ltd for

the purpose of retirement of letters of credit opened for import of plant and machinery. Sanctioned amount of this facility is

Rs.250 Million. It is repayable within a period of eight years inclusive of grace period of two years in 12 half yearly equal

installments of principal amount. Last installment is falling due on November 03, 2018. This finance carries markup at the rate of

6 months KIBOR + 2.75% per annum. During the year markup was charged at the rates ranging from 15.96 % pa to 16.42 % per

annum. It is secured against the security of 1st Joint Pari Passu charge/mortgage of Rs.334 Million on all present and future fixed

assets of the Company and personal guarantees of the sponsoring directors of the Company.

(b) Saudi Pak Industrial and Agricultural Investment Company Ltd-TF under LTFF Scheme

During the current year an amount of Rs.8.00 Million out of Term Finance of Saudi Pak Industrial and Agricultural Investment

Company Ltd was approved and refinanced by the State Bank of Pakistan under LTFF Scheme against imported textile machinery

eligible under the Scheme. This finance is repayable in 12 equal installments of principal amount after grace period of two years.

Last installment is falling due on November 03, 2018. This finance carries mark up at the rate of SBP rate + 3.00 % pa. During the

year mark up was charged at the rate of 11.20 % pa. It is secured against the security as sated in note 20.25(a).

2011 201021. LONG TERM MUSHARIKA Note Rupees Rupees

- Secured

Meezan Bank Limited

- Diminishing Musharika - I 21.1 71,266,367 118,777,283

- Diminishing Musharika - II 21.2 250,000,000 -

321,266,367 118,777,283

Less: Current portion grouped under current liabilities 28 47,510,916 47,510,916

273,755,451 71,266,36721.1 Meezan Bank Limited-Diminishing Musharika- I

Diminishing Musharika-I finance has been obtained from Meezan Bank Ltd for repayment of cost of imported plant and

machinery. It carries mark up for first 5 years (4 years plus 1 year grace period) at the rate of 6 months KIBOR + 1.25% per

annum and for the remaining period of three years at the rate of 6 months KIBOR + 1.50% per annum. During the year, the

bank has charged mark up at the rates ranging from 13.86 % to 15.25 % per annum (2010: from 13.86% pa to 14.77% pa). It was

repayable in twenty eight equal quarterly installments from the date of disbursement after one year grace period, however,

during the year 2007, due to prepayment, a grace of seven quarterly installments was allowed by the bank and accordingly

remaining balance of Rs.201.921 Million is repayable in 17 equal quarterly installments over the original tenor. This finance is

secured against exclusive charge of Rs.270.00 Million over machinery imported through Meezan Bank Ltd and personal

guarantees of the sponsoring directors of the Company.

21.2 Meezan Bank Limited-Diminishing Musharika- II

Diminishing Musharika-II finance amounting to Rs.250 Million has been obtained during the current year from Meezan Bank Ltd

for repayment of cost of imported plant and machinery. It carries mark up at the rate of 6 months KIBOR + 2.00% per annum.

During the year, bank has charged mark up at the rates ranging from 15.31 % pa to 15.68 % per annum. It is repayable within

seven years inclusive of two years grace period in ten equal half yearly installments of principal amount . This finance is secured

against exclusive charge of Rs.334.00 Million over machinery imported through Meezan Bank Ltd and personal guarantees of

the sponsoring directors of the Company.

42

22. BILLS PAYABLE

This represents liability outstanding against Letters of Credit of DA 720 days open for import of machinery during the year ended June

30, 2010, which will be converted into long term loan on payment of Letters of Credit by the bank.


23. DEFERRED LIABILITIES

Staff gratuity 23.1 71,445,903 56,056,803

Deferred taxation 23.2 889,010,000 792,119,000

960,455,903 848,175,80323.1 Staff gratuity

Amount recognized in the balance sheet is as follows:

Present value of defined benefit obligation as at June 30 74,080,961 60,093,491

Unrecognized actuarial loss (2,635,058) (4,036,688)

Liability recognized as at June 30 71,445,903 56,056,803

Movement in liability recognized:

Net liability at the beginning of the year 56,056,803 48,481,598

Amount recognized during the year 32,915,715 25,092,630

Benefits paid during the year (17,526,615) (17,517,425)

Net liability at the end of the year 71,445,903 56,056,803

Amounts recognized during the year

Current service cost 25,704,496 19,683,058

Interest cost 7,211,219 5,861,561

Actuarial (Gains) / losses - (451,989)

32,915,715 25,092,630Allocation of expense recognized:

Cost of sales 29,055,680 21,535,054

Administrative expenses 3,860,035 3,557,576

32,915,715 25,092,630

Actuarial valuation was conducted as on June 30, 2011 on the basis of projected unit credit method by an independent Actuary.

The Company's policy with regard to actuarial gains/ losses is to follow minimum recommended approach under IAS-19

'Employees benefits'.

Discount rate 14% per annum 12% per annum

Expected rate of increase in salary 13% per annum 11% per annum

Amounts for the current and previous four years are as follows:

2011 2010 2009 2008 2007------------------------------------------------------- Rupees -------------------------------------------------------

Defined benefit obligation 74,080,961 60,093,491 48,846,341 43,157,605 30,384,646Unrecognized actuarial loss (2,635,058) (4,036,688) (364,743) (6,977,543) (4,312,169)

43


23.2 Deferred taxation

This comprises of the following:

Deferred tax liability on taxable temporary differences:

Surplus on revaluation of operating assets 359,079,000 356,041,000

Tax on Specie Dividend 41,422,900 90,267,000

Tax depreciation allowance 501,837,700 346,115,000

Deferred tax asset on deductible temporary differences:

Provision for Gratuity (13,007,300) -

Provision for slow moving items (322,300) (304,000)

889,010,000 792,119,000

24. CUSTOMS DUTIES

Surcharge 24.1 - 708,434

Customs duties 24.2 - 17,679,598

Infrastructure cess 24.3 122,665,470 86,028,085

122,665,470 104,416,117

24.1 It represented surcharge on plant and machinery imported by the Company. In current year the amount of surcharge has been

reversed as described in note 37.1.

24.2 Customs duties represented customs duties and sales tax on plant and machinery imported under S.R.Os. 554(I)/98, 27(I)/98,

369(I)/2000 and 439(I)/2001 of Government of Pakistan, which specify that customs duties and sales tax on imported plant and

machinery would have been exempted, provided that the export sales of the Company shall not fall below 50% of the additional

capacity due to expansion, in first five and ten years respectively. Since the above mentioned period has been expired, it is no

longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation and as a

result this provision has been reversed (Refer to note 37.1).

22.3 It represents infrastructure cess levied by the Excise and Taxation Department of Sindh under section 9 of the Sindh Finance Act

1994 on items imported by the Company. The Company has filed an appeal in the Sindh High Court at Karachi against the said

levy. The appeal is pending for decision till the balance sheet date. However keeping in view any unfavorable outcome of the

appeal, the Company has provided the balance payable amount in these financial statements.

25. TRADE AND OTHER PAYABLES

Creditors 95,900,792 75,430,767

Accrued liabilities 349,744,416 329,601,075

Advance from customers 15,723,808 77,820,716

Un-claimed dividend 754,723 754,723

Preference dividend payable 35,250,048 38,150,000

Due to associated undertakings 25.1 13,777,349 1,139,436

Tax deducted at source - 1,470

Workers' Profit Participation Fund 25.2 56,534,593 39,187,011

Workers' Welfare Fund 29,134,524 25,922,130

Due to employees 1,201,220 1,889,365

598,021,473 589,896,693

44


25.1 Due to Associated undertaking on account of trading activities

Hussain Ginneries Limited 5,880,482 -

Reliance Weaving Mills Limited 7,893,686 1,139,436

Fatima Sugar Mills Limited 3,181 -

13,777,349 1,139,436

25.2 Workers' Profit Participation Fund

Opening balance 39,187,011 9,697,100

Add:

Interest on amount utilized by the Company 36 2,259,426 413,256

41,446,437 10,110,356

Less: Payment made during the year 41,446,437 10,110,356

Add: Contribution for the year 35 56,534,593 39,187,011

56,534,593 39,187,011

26. INTEREST / MARK-UP ACCRUED ON LOANS

Long term financing 83,862,539 62,395,048

Short term borrowings 92,499,672 59,082,516

176,362,211 121,477,564

27. SHORT TERM BORROWINGS

Banking Companies

Secured

Cash finance 27.1 844,269,050 326,423,708

Running finance 27.1 239,231,931 363,218,025

Foreign currency export finance 27.1 1,063,145,979 950,153,070

Finance Against Imported Merchandise 27.1 1,768,417,511 537,310,587

Money Market Loan 27.1 100,000,000 -

Un-secured 27.2 1,520,040 342,920

4,016,584,511 2,177,448,310

27.1 Short term finance facilities available from commercial banks under mark-up arrangements are aggregating to Rs.13,653 Million

(2010:Rs.8,691 Million). Limits up to Rs. 7,305 Million (2010: Rs. 3,725 Million) out of these facilities can be utilized for opening

of letters of credit. Limits equivalent to US $ 108.56 Million (2010: US $ 68.28 Million) out of these facilities are available in terms

of foreign currency finances. During the year mark-up was charged by banks at various rates ranging from 1.79 % pa to 15.65 %

per annum on monthly / quarterly basis (2010: from 2.27% pa to 14.67% per annum on monthly/quarterly basis). The aggregate

facilities are secured against pledge / hypothecation of stocks-in-trade, hypothecation charge of stores and spares, lien over

import/export documents, charge on current assets and personal guarantees of the sponsoring directors except nominee

director. All short term finance facilities which remained unutilized at year end were Rs. 9,639 Million (2010: Rs. 6,593 Million).

Facilities available for letters of guarantee are aggregating to Rs. 360.80 Million (2010: Rs.313.80 Million). These facilities are

expiring on various dates by May 31, 2012.

45

These include foreign currency balance aggregating to US $ 27.786 Million (2010: US $ 13.677 Million) which have been

converted into Pak Rupees at the exchange rate prevailing on the balance sheet date.

27.2 These have arisen due to issuance of cheques for amounts in excess of balances at bank accounts.


28. CURRENT PORTION OF NON CURRENT LIABILITIES

Long term financing 20 482,888,183 395,885,896

Long term musharika 21 47,510,916 47,510,916

530,399,099 443,396,812

29. PROVISION FOR TAXATION

Opening balance 210,141,548 37,772,257

Add: provision for the year 132,021,092 172,369,291

342,162,640 210,141,548

Less: Payments / adjustments against completed assessments 166,158,854 -

176,003,786 210,141,548

30. CONTINGENCIES AND COMMITMENTS

Contingencies

30.1 The following proceedings initiated by the tax authorities are pending:

30.1.1 Amendment proceedings initiated by the Additional Commissioner Inland Revenue, under section 122 (5A) of the Income

tax ordinance, 2001 for tax year 2008 & 2009.

30.1.2 Company's appeals against the amendment orders passed under section 122(5A) & 122(5) of the Income tax Ordinance,

2001 in respect of tax years 2004 & 2006 respectively, have been disposed of by the Commissioner Inland Revenue

[CIR(A)] through its separate orders dated July 30, 2011 and a substantial relief has been extended to the company. In

respect of the issues which were not favourably decided by the CIR(A), company has preferred appeals before Appellate

Tribunal Inland Revenue (Tribunal), which have not yet been taken up for hearing.

30.1.3 Consequent to the amendment of deemed assessment for tax year 2007 through order passed under section 122(5) of the

Ordinance by the Assistant Commissioner Inland Revenue (Audit), the Company contested such order in appeal before

the Commissioner Inland Revenue (Appeals) [CIR (A)] which remained successful on various accounts. The Company has

preferred further appeal before the Tribunal to assail the issues not decided favourably by CIR(A) which has not yet been

taken for hearing.

30.1.4 Proceedings under section 161 of the Ordinance for verification of the Company's withholding tax compliance for period

relating to tax year 2009.

30.1.5 The issue of admissibility of "return to preference share-holders" has been raised in the amendment proceedings for tax

years 2007 and 2009 on the grounds that such payments were not classified as "profit on debt" as claimed by the Company.

In this respect, the Company's detailed submissions have been furnished with the departmental officials. In case the

departmental official proceeded on to draw adverse inference, considering the matter as un-precedence in nature,

ultimate outcome thereof cannot be predicted with certainty at this stage.

30.2 Market Committee, Muzaffargarh, during 1985, raised demands of market committee fee of eleven years and penalty due to non-

payment. The Company did not accept the said demands and filed appeal with the Lahore High Court (Multan Bench). The appeal

46

is pending for decision. Quantum of unprovided market committee fee has not been worked out whereas penalty till the balance

sheet date @ Rs. 100 per day worked out Rs. 1,342,200 (2010: Rs.1,305,700).

30.3 Foreign bills discounted outstanding as at June 30, 2011 aggregated Rs.162.5 million (2010: Rs. 113.2 million).

30.4 Counter guarantees given by the Company to its bankers outstanding as at June 30, 2011 were for Rs. 297.657 million (2010:

Rs. 237.886 million).

Commitments2011 2010

30.5 Commitments for irrevocable letters of credit Note Rupees Rupees

- Property, plant and equipment 1,521,199,693 759,576,193

- Raw material and stores and spares 777,020,177 378,153,630

2,298,219,870 1,137,729,82331. SALES - NET

Local:

Yarn 9,185,019,395 5,234,791,451

Comber noil 22,959,260 66,573,405

Waste 169,796,628 112,356,416

9,377,775,283 5,413,721,272

Raw material 979,180,825 561,438,069

10,356,956,108 5,975,159,341

Less:

Sales return 97,795,550 54,047,415

Commission 13,086,218 61,526,024

110,881,768 115,573,439

Net local sales 10,246,074,340 5,859,585,902

Export:

Yarn - Net 31.1 7,930,230,009 4,240,433,377

Indirect Export 469,762,985 998,939,075

Fabric - 19,912,068

Comber noil 375,071,410 182,727,836

8,775,064,404 5,442,012,356

Less:

Commission 87,206,483 90,621,356

Net export sales 8,687,857,921 5,351,391,000

18,933,932,261 11,210,976,902

31.1 Yarn export includes exchange gain of Rs. 36.530 million (2010: Rs. 12.258 million).

47


32. COST OF SALES

Raw material consumed 32.1 & 32.2 12,814,484,751 6,596,889,129

Packing material consumed 32.2 201,308,127 153,014,537

Salaries, wages and benefits 32.3 677,320,643 598,938,239

Traveling and conveyance 3,799,034 2,475,958

Power and fuel 866,040,354 698,306,772

Stores and spares consumed 214,847,550 172,468,966

Processing charges 4,240,654 7,752,752

Repair and maintenance 29,952,893 26,766,221

Insurance 39,896,138 20,080,045

Depreciation 3.5 277,878,693 259,391,189

Rates and taxes 3,941,621 3,386,621

Others 214,065 276,254

15,133,924,523 8,539,746,683

Adjustment of work in process

Opening stock 57,442,903 47,562,922

Closing stock (163,759,089) (57,442,903)

(106,316,186) (9,879,981)

Cost of goods manufactured 15,027,608,337 8,529,866,702

Adjustment of finished goods

Opening stock 401,083,569 393,174,804

Finished goods purchased 1,359,305,898 650,660,966

Closing stock (789,116,676) (401,083,569)

971,272,791 642,752,201

Cost of goods sold 15,998,881,128 9,172,618,903

Cost of raw material sold 909,336,957 465,550,115

16,908,218,085 9,638,169,01832.1 Raw material consumed

Opening stock 2,152,045,508 1,781,352,935

Purchases and expenses 12,874,683,998 6,978,294,817

Transfer from Ginning unit 32.1.1 279,443,702 -

13,154,127,700 6,978,294,817

15,306,173,208 8,759,647,752

Less:

Insurance claim 34,350,126 10,713,115

Closing stock 2,410,810,242 2,037,360,028

Stock in transit 46,528,089 114,685,480

2,491,688,457 2,162,758,623

12,814,484,751 6,596,889,129

48

2011Rupees

32.1.1 Production cost of ginning unit - Net

Raw material consumed 320,577,514

Lease charges 300,000

Salaries, wages and benefits 3,956,114

Traveling and conveyance 491,054

Repair and maintenance 1,313,560

Store consumption 64,124

Utilities 1,386,708

Entertainment 96,509

Printing and stationery 58,741

Communication 47,580

Insurance 149,617

Financial charges 28,522

Others 229,353

328,699,396

Less: Sale of cotton seed 49,255,694

Transferred to raw material consumed 279,443,702

The Company has acquired a cotton ginning factory (Hussain Ginneries Limited) on operating lease basis. Its total cost of

production, after adjustment of sale of cotton seed to third parties, has been transferred to the company as raw material cost.

32.2 Sale of salvage aggregating Rs. 1.3 million (2010: Rs. 1.4 million), out of which Rs. 0.8 million (2010: Rs. 0.9 million) and Rs. 0.5

million (2010: Rs. 0.5 million) have been netted off against the cost of raw material and packing material respectively.

32.3 These include Rs. 29.1 million (2010: Rs. 21.5 million) in respect of staff retirement benefits.

2011 201033. DISTRIBUTION COST Note Rupees Rupees

- Export sales

Export development surcharge 18,385,392 11,150,627

Freight, shipment and handling charges 203,246,519 152,087,850

Export regulatory duty 12,862,875 5,490,233

Insurance 785,749 587,751

- Local sales

Freight, shipment, handling and other charges 21,710,981 17,516,394

Insurance 643,922 246,644

257,635,438 187,079,499

49

2011 201034. ADMINISTRATIVE EXPENSES Note Rupees Rupees

Directors' meeting fee 150,000 13,000

Salaries and benefits 34.1 63,854,040 54,704,117

Traveling and conveyance 34.2 7,212,177 5,759,750

Vehicle running and maintenance 10,442,572 8,342,002

Rent, rates, taxes and fees 4,163,302 5,831,336

Electricity, gas and water 1,886,650 2,105,423

Entertainment/ guest house expenses 4,772,518 3,360,071

Communication 8,080,210 7,359,076

Printing and stationery 3,492,636 3,622,862

Insurance 1,832,987 1,114,999

Repair and maintenance 4,919,357 3,599,543

Subscription/ advertisement 2,020,753 2,134,336

Auditors' remuneration 34.3 1,310,000 995,000

Legal and professional charges 5,551,491 3,042,134

Depreciation 3.5 8,916,544 7,010,482

Amortization 4 1,682,069 1,591,735

Others 903,881 666,699

131,191,187 111,252,565

34.1 These include Rs. 3.9 million (2010: Rs. 3.5 million) in respect of staff retirement benefits.

34.2 These include directors traveling expense of Rs. 5.1 million (2010: Rs. 4.2 million).

34.3 Auditors' remuneration

M. Yousuf Adil Saleem & Co.

Audit fee 1,000,000 750,000

Interim review fee 165,000 100,000

Code of Corporate Governance review fee 25,000 25,000

CDC certificate fee 10,000 10,000

Out of pocket expense 75,000 75,000

1,275,000 960,000

Ahmad Mushir & Co.

Workers profit participation fund's audit fee 35,000 35,000

1,310,000 995,00035. OTHER OPERATING EXPENSES

Workers' profit participation fund 25.2 56,534,593 39,187,011

Workers' welfare fund 21,437,957 14,882,799

Donations 35.1 6,953,806 5,892,770

Promotion of education 404,658 416,421

85,331,014 60,379,001

35.1 Donations include Rs. 2.8 million (2010: Rs. 2.9 million) paid to Fazal-ur-Rehman Foundation, 487-A, Mumtazabad, Vehari Road,

Multan. Sheikh Naseem Ahmad (Chairman/ Chief Executive Officer) is amongst the trustees of the Foundation.

50

2011 201036. FINANCE COST Note Rupees Rupees

Interest on:

- Workers' profit participation fund 25.2 2,259,426 413,256

Markup on:

- Long term financing 36.1 334,405,498 218,014,445

- Musharika 11,284,250 21,551,767

- Short term borrowings 36.2 407,859,254 318,337,082

Interest income on margin/ bank account (132,677) (302,531)

407,726,577 318,034,551

Bank charges 57,099,957 52,469,090

Dividend on redeemable preference shares 35,250,048 38,150,000

Interest income from associated undertaking 36.3 (31,499,395) (27,693,173)

816,526,361 620,939,936

36.1 The company has received 5% markup rate support amounting to Rs. 13.335 million (2010: Rs. 21.895 million) as sanctioned to

spinning sector by SBP vide SMEFD Circular No. 4 dated March 22, 2010. No subsidy has received during the year which were

applicable last yeas (2010: @ 3 %) amounting to Rs. Nil (2010: Rs. 15.294 million) as sanctioned by State Bank Of Pakistan (SBP)

vide MFD Circular No. 6 dated October 30, 2007. The Company has adjusted the said amounts against markup on long term

financing.

36.2 It includes exchange loss on foreign currency finances amounting to Rs. 10 million (2010: Rs. 30 million).

36.3 During the year the company has charged interest on loan of Rs. 200 million to Pakarab Fertilizers Limited (an associated

undertaking) at the rate of 6 month KIBOR + 1.25% and adjusted it with finance cost.

37. OTHER OPERATING INCOME

Gain on disposal of property, plant and equipment 908,212 716,086

Balance written back 37.1 18,386,688 266,492

Specie dividend received from associates 257,906,100 128,953,050

Dividend income - 785,000

Gain on remeasurement of other financial assets 38,228,703 5,379,653

315,429,703 136,100,281

37.1 This represents reversal of surcharge and custom duties (refer to note 24) amounting to Rs. 708,434 and Rs. 17,679,598

respectively as at 30 June 2010, because its no longer probable that an outflow of resources embodying economic benefits will

be required to settle the obligation (as the required time span relating to provision has expired) and as a result this provision has

been reversed.

38. PROVISION FOR TAXATION

Current tax 29 132,021,092 172,369,291

Deferred tax 93,853,000 30,180,000

225,874,092 202,549,291

51

201038.1 Relationship between tax expense and accounting profit Rupees

Accounting profit before tax 729,257,164

Tax rate % 35%

Tax on accounting rate 255,240,007

Tax effect of:

Expenses that are inadmissible in determining taxable profit 98,919,018

Income exempt from tax (215,247,316)

Brought forwarded tax losses (575,168)

Income chargeable to tax at special rate:

- Export sales 54,648,870

- Dividend income 78,500

- Import of raw materials 4,273,317

Adjustments of prior years in respect of:

- Deferred tax 30,180,000

Tax liability under final regime (24,967,937)

Tax charge for the year 202,549,291

Figures in respect of relationship between accounting profit and tax expense in current year are not reported as the tax liability for the

current year is determined under provisions of final tax regime and minimum tax.2011 2010

39. EARNINGS PER SHARE Rupees Rupees

The calculation of the basic and diluted earnings per share is based on the following data:

Profit after taxation 824,585,787 526,707,873

Number of Shares

Weighted average number of ordinary shares for the 18,755,194 18,755,194

purpose of basic earnings per share

Effect of dilutive potential ordinary shares: 17,500,000 25,000,000

-Convertible preference shares

Weighted average number of ordinary shares for the

purposes of diluted earnings per share 36,255,194 43,755,194

Basic and diluted earnings per share have been computed by dividing earnings as stated above with weighted average number of

ordinary shares.Rupees Rupees

Basic earnings per share 43.97 28.08

Diluted earnings per share 23.72 12.91

40. FINANCIAL RISK MANAGEMENT

40.1 The Company’s principal financial liabilities comprise long-term financing, short-term borrowing, interest/mark-up accrued on

loans and trade and other payables. The main purpose of these financial liabilities is to raise finance for the Company’s

operations. The Company has trade debts, loans and advances, other receivables, cash and bank balances and short-term

deposits that arrive directly from its operations.

The Company’s activities expose it to a variety of financial risks: market risk (including currency risk, and price risk), credit risk

and liquidity risk.

52

53

40.2 Credit risk and concentration of credit risk

Credit risk represents the accounting loss that would be recognized at the reporting date if counter parties fail completely to

perform as contracted. Out of the total financial assets of Rs. 2,992,848,793 (2010: Rs. 1,975,494,370), the financial assets which

are subject to credit risk amounted to Rs. 2,991,893,436 (2010: Rs. 1,974,468,646 ). The Company manages credit risk in trade

debts by assigning credit limits to its customers and thereby does not have significant exposure to any individual customer.

The Company is exposed to credit risk from its operating activities (primarily for trade debts and loans and advances) and from

its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial

instruments.

40.2.1 Credit risk related to receivables

The Company has adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral,

where appropriate, as a means of mitigating the risk of financial loss from defaults. The Company’s exposure is

continuously monitored and the aggregate value of transactions concluded is spread amongst approved

counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the

management annually.

Trade debts consist of a large number of customers, spread across geographical areas. Ongoing credit evaluation is

performed on the financial condition of accounts receivable and, where appropriate, provision is made. The Company

does not have any significant credit risk exposure to any single counterparty or any group of counterparties having

similar characteristics. The Company defines counterparties as having similar characteristics if they are related entities.

40.2.2 Interest rate sensitivity

If interest rates had been 100 basis points higher/lower and all other variables were held constant, the Company’s profit

for the year ended June 30, 2011 would decrease/increase by Rs. 67.769 million (2010: Rs. 42.659million). This is mainly

attributable to the Company’s exposure to interest rates on its variable rate borrowings.

40.3 Liquidity Risk Management

Liquidity risk reflects the Company’s inability in raising funds to meet commitments. Management closely monitors the

Company’s liquidity and cash flow position. This includes maintenance of balance sheet liquidity ratios, debtors and creditors

concentration both in terms of the overall funding mix and avoidance of undue reliance on large individual customer.

The Company’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank

overdrafts, bank loans and short term borrowings. 19% (2010: 21%) of the Company’s debt will mature in less than one year at

June 30, 2011 based on the carrying value of borrowings reflected in the financial statements.

40.3.1 Liquidity and Interest Risk Management

The following tables detail the Company’s remaining contractual maturity for its non-derivative financial liabilities. The

tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on

which the Company can be required to pay. The table includes both interest and principal cash flows.

WeightedAverage effective Less than 1 3months - 1 More than 5rate of interest month 1 - 3 months years 1 - 5 years years Total

2011 ------------------------------------------------------- Rupees -------------------------------------------------------

Long term loans 7% to 16.42% 89,349,827 71,179,497 369,869,775 1,882,219,263 347,736,368 2,760,354,730

Short-term borrowings 1.79% to 15.65% 76,715,416 458,569,995 3,481,299,100 - - 4,016,584,511

Trade and other payables 219,577,070 47,727,814 330,716,589 - - 598,021,473

385,642,313 577,477,306 4,181,885,464 1,882,219,263 347,736,368 7,374,960,714

54

WeightedAverage effective Less than 1 3months - 1 More than 5rate of interest month 1 - 3 months years 1 - 5 years years Total

2010 ------------------------------------------------------- Rupees -------------------------------------------------------

Long term loans 7% to 15.41% 86,703,316 72,433,737 284,259,759 1,485,080,514 160,000,733 2,088,478,059

Short-term borrowings 2.27% to 14.67% 200,000,000 115,645,724 1,861,802,586 - - 2,177,448,310

Trade and other payables 219,500,060 38,906,193 331,490,440 - - 589,896,693

506,203,376 226,985,654 2,477,552,785 1,485,080,514 160,000,733 4,855,823,062

40.4 Foreign exchange risk management

Foreign currency risk arises mainly where receivables and payables exist due to transactions with foreign undertakings and

balances held in foreign currency. However, the Company is not materially exposed to foreign currency risk on assets and

liabilities. As at June 30, 2011, the total foreign currency risk exposure was Rs. 897.416 million (2010: Rs. 230.700 million) in

respect of trade debts.

40.4.1 Foreign Currency Sensitivity Analysis

At June 30, 2011, if the Rupee had weakened / strengthened by 10% against the US Dollar with all other variables held

constant, profit for the year would have been lower / higher by Rs. 132.437 million (2010 : Rs. 82.510 million), mainly as

a result of foreign exchange gains / losses on translation of foreign currency trade debts and US Dollar denominated

borrowings.

40.5 Equity Price Risk Management

The Company’s listed and unlisted equity securities are susceptible to market price risk arising from uncertainties about future

values of the investment securities. The Company manages the equity price risk through diversification and placing limits on

individual and total equity instruments. Reports on the equity portfolio are submitted to the Company’s senior management on

a regular basis. The Company’s Board of Directors reviews and approves all equity investment decisions.

The Company is exposed to equity price risks arising from equity investments. Equity investments are held for strategic as well

as trading purposes.

40.6 Determination of fair values

Fair value of financial instruments

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable willing parties in

an arms length transaction other than in a forced or liquidation sale.

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

40.7 Financial Instruments by Category

The accounting policies for financial instruments have been applied for line items below:

55

2011 2010Rupees Rupees

Assets as per balance sheet

Long term investments at cost / par value 667,195,666 596,841,506Loans and receivables

Deposits 31,475,772 23,390,287

Trade debts 1,767,710,377 883,729,860

Loans and advances 449,389,173 427,308,670

Other receivables 3,796,190 2,648,375

Cash and bank balances 191,635,465 123,497,519

Financial assets at fair value through profit and loss

Other financial assets 125,142,836 16,132,400

Liabilities as per balance sheet

Financial liabilities measured at amortized cost

Long term loans 2,760,354,730 2,088,478,059

Short term borrowings 4,016,584,511 2,177,448,310

Trade and other payables 598,021,473 589,896,693

Interest/mark-up accrued on loans 176,362,211 121,477,564

41. CAPITAL MANAGEMENT DISCLOSURE

The Company's objectives when managing capital are:

- to safeguard the Company’s ability to continue as a going concern, so that it can continue to provide returns for shareholders

and benefits for other stakeholders, and

- to provide an adequate return to shareholders by pricing products and services commensurately with the level of risk.

Capital comprises all components of equity (i.e. share capital, capital reserves and unappropriated profit). The Company manages its

capital structure by monitoring return on net assets and makes adjustments to it in the light of changes in economic conditions. In

order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders or issue new

shares.

During the current year, the Company's strategy, unchanged from last year, was to maintain the debt-to-adjusted capital ratio between 1

to 3. The debt-to-adjusted capital ratios at June 30, 2011 and June 30, 2010 are as follows:

Total debts 6,932,149,572 4,420,325,025

Less: Cash and cash equivalents (191,635,465) (123,497,519)

Net debt 6,740,514,107 4,296,827,506

Total equity 2,964,841,967 2,317,901,490

Adjusted capital 9,705,356,074 6,614,728,996

Debt-to-adjusted capital ratio 69% 65%

56

42. REMUNERATION OF CHIEF EXECUTIVE OFFICER, DIRECTORS AND EXECUTIVES

Chief executive Executive Executives 2011 2010Particulars Officer directors Total Total

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

Managerial remuneration 1,259,050 2,750,034 4,480,962 8,490,046 8,795,733

Medical - 83,697 527,098 610,795 359,174

Rent and utilities 485,240 1,060,676 799,940 2,345,856 2,551,283

Conveyance - - 25,200 25,200 18,000

Insurance 20,599 2,890 - 23,489 -

1,764,889 3,897,297 5,833,200 11,495,386 11,724,190

Number of persons 1 3 7 11 12

42.1 In addition to above, meeting fee of Rs. 150,000 (2010: Rs. 13,000) was paid to three (2010: two) non executive directors.

42.2 Chief executive officer, executive directors and some of the executives are also provided with free use of the company maintained cars and telephones at their residences.

2011 201043. NUMBER OF EMPLOYEES (Number)

Total number of employees at the year end 3,496 3,131

44. TRANSACTIONS WITH RELATED PARTIES

44.1 Related parties comprise of associated undertakings, directors and executives. The company in the normal course of business

carries out transactions with various related parties. Amounts due from and to related parties are shown under receivables and

payables. Remuneration of directors and executives are disclosed in note 41. Significant transactions with related parties are as

follows:2011 2010

Note Rupees RupeesAssociated Undertakings

- Sale of goods 2,290,059,043 1,068,513,530

- Purchase of goods 305,303,872 372,477,675

- Transfer of operating assets 55,606 -

- Services received 57,448 341,419

- Mark up charged 31,499,395 27,693,173

- Specie distribution received 5.3 - -

Key Management Personnel

- Contributions to post retirement benefits 2,095,000 1,639,600

44.2 Maximum aggregate debit balance of the related parties, accrued due to trading activities, at any month end during the year was

Rs. 196.827 million (2010: Rs. 31.125 million).

44.3 Sales, purchases and other transactions with related parties are carried out on commercial terms and conditions.

45. CAPACIT Y AND PRODUCTION

Particulars 2011 2010

Number of spindles installed 156,984 140,184

Number of rotors installed 780 780

Number of shifts worked

Unit I, II & IV 1,093 1,093

Unit III 1,094 1,094

Number of spindles - Shifts worked 159,456,024 151,553,028

Capacity at 20's count Kgs. 33,900,033 31,287,310

Actual production of all counts Kgs. 46,454,572 43,722,683

Actual production converted into 20's count Kgs. 55,938,316 53,505,052

It is difficult to describe precisely the production capacity in spinning mills since it fluctuates widely depending on various factors such

as count of yarn spun, spindles speed, twist and raw materials used, etc. It also varies according to the pattern of production adopted

in a particular year.

46. DATE OF AUTHORIZATION OF FINANCIAL STATEMENTS

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

47. GENERALS

47.1 NON ADJUSTING EVENTS AFTER BALANCE SHEET DATE

The board of directors of the Company has proposed to distribute @ 50% i.e 9,377,597 quoted shares of Fatima Fertilizer

Company Limited having face value of Rs. 10/- each to the shareholders of the Company as specie dividend in the ratio of 5:10

(Five shares of M/s. Fatima Fertilizer Company Limited for every ten ordinary shares held of M/s. Fazal Cloth Millls Limited) also

proposed bonus share issue @ 20.50% in the ratio of 2.05 shares for every 10 Ordinary shares held by shareholders in order to

increase paid up capital of Rs. 187,551,940 for approval of members at the annual general meeting of the company. These

financial statements do not include the effect of this proposed final specie dividend and bonus issue and will be accounted for

subsequent to year end.

47.2 FIGURES

In the financial statements the figures have been rounded-off to the nearest rupee, except stated otherwise.

57

Sd/-(FAIZAN-UL-HAQ)



CHIEF EXECUTIVE

Sd/-(REHMAN NASEEM)

DIRECTOR

FORM-34PATTERN OF SHAREHOLDING OF SHAREHOLDERS

AS AT JUNE 30, 2011

NO. OF SHAREHOLDERSCATEGORIES OFSHARE HOLDING

FROM TO

TOTAL NO. OFSHARES HELD

% OF TOTALCAPITAL

885

343

72

80

19

2

1

2

4

1

1

1

1

1

1

1

1

2

1

2

2

1

1

2

1

1

1

1430

1

101

501

1,001

5,001

10,001

15,001

20,001

25,001

30,001

35,001

40,001

80,001

105,001

135,001

155,001

185,001

355,001

515,001

710,001

715,001

780,001

1,105,001

1,245,001

1,510,001

3,530,001

3,770,001

18,216

93,801

56,184

180,374

130,829

22,167

17,791

47,303

110,480

33,578

37,389

43,659

82,018

105,248

139,050

160,000

185,242

714,946

515,096

1,422,034

1,437,742

784,343

1,105,611

2,496,823

1,510,058

3,533,162

3,772,050

18,755,194

0.10

0.50

0.30

0.96

0.70

0.12

0.09

0.25

0.59

0.18

0.20

0.23

0.44

0.56

0.74

0.85

0.99

3.81

2.75

7.58

7.67

4.18

5.89

13.31

8.05

18.84

20.11

100.00

100

500

1,000

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

85,000

110,000

140,000

160,000

190,000

360,000

520,000

715,000

720,000

785,000

1,110,000

1,250,000

1,515,000

3,535,000

3,775,000

INDIVIDUALS

INVESTMENT COMPANIES

FINANCIAL INSTITUTIONS

JOINT STOCK COMPANIES

NIT & ICP

FUND

OTHERS (Holding of Ex-

East Pakistanis)

DIRECTOR'S SPOUSES

& MINOR CHILDREN

TOTAL

1,392

1

3

14

3

1

1

15

1,430

5,893,959

124

1,211,352

5,221,026

29,840

1,005

33,578

6,364,310

18,755,194

31.4257

0.0007

6.4588

27.8378

0.1591

0.0054

0.1790

33.9336

100.0000

CATEGORIES OFSHAREHOLDERS

NO. OFSHARE HOLDERS

NO. OFSHARES

PERCENTAGE%

58

CATEGORIES OF SHAREHOLDERS SHARES HELD PERCENTAGE

DIRECTORS, CEO & THEIR SPOUSESAND MINOR CHILDREN Sh. Naseem Ahmad (CEO & Director) 5,515 0.029Mst. Nighat Naseem (Spouse CEO) 185,242 0.988Amir Naseem Sheikh (Director) 10,000 0.053Rehman Naseem (Director) 10,000 0.053Fazal Ahmad Sheikh (Director) 1,276,361 6.805Faisal Ahmad Mukhtar (Director) 1,275,270 6.800Fahad Mukhtar (Director) 27,200 0.145Abdullah Amir Fazal 711,017 3.791Muhammad Yousaf Amir 711,017 3.791Ayesha Amir Fazal 355,510 1.896Amin Rehman Fazal 718,871 3.833Sadek Rehman 718,871 3.833Maha Rehman Fazal 359,436 1.916ASSOCIATED COMPANIES, UNDERTAKINGSAND RELATED PARTIESAmir Fine Exports (Pvt.) Ltd. 4,556,393 24.294Reliance Commodities (Pvt.) 654,146 3.488Mst. Farrukh Mukhtar 3,533,162 18.838Fawad Ahmad Mukhtar 1,510,058 8.051Mrs. Ambreen Fawad 43,659 0.233SHARE HOLDERS TEN PERCENT (10% OR MORE)Mst. Farrukh Mukhtar - -Amir Fine Exports (Pvt.) Ltd. - -BANKS, DEVELOPMENT FINANCIAL INSTITUTIONS,NON BANKING FINANCIAL INSTITUTIONS.NBP - (Trustee Department) 1,210,859 6.456United Bank Ltd. 493 0.003Escorts Investment Bank Ltd. 124 0.001NIT & ICPIDBP - (ICP Unit) 1,368 0.007National Investment Trust Ltd. 28,472 0.152INSURANCE COMPANIES

- - -MUDARABAS & MUTUAL FUNDSGolden Arrow Selected Stocks Fund Ltd. 1005 0.005JOINT STOCK COMPANIESFazal Vegetable Ghee Mills Ltd. 4,808 0.026Fateh Textile Mills Ltd. 162 1.001Freedom Enterprises (Pvt) Ltd. 3,946 0.021Molasses Trading & Exports Co. Ltd. 86 0.000Naeems' Securities Ltd. 478 0.003Sarfraz Mahmood (Pvt.) Ltd. 46 0.000H.M. Investment Ltd. 254 0.001First Capital Equities Ltd. 77 0.000Hussain Mills Ltd. 565 0.003Money Line Securities (Pvt) Ltd. 65 0.000OTHERSGovt. of Pakistan Abandoned Properties 33,578 0.179(Holding of Ex-East Pakistanis)INDIVIDUALS (other than above) 807,080 4.303

TOTAL 18,755,194 100.000

PATTERN OF SHAREHOLDING AS PER REQUIREMENTS OFCODE OF CORPORATE GOVERNANCE

59

I/We________________________________________________________________________________

of__________________________________________________________________________________

being a member of Fazal Cloth Mills Ltd., hereby appoint______________________________________

____________________________________________________________________________________

of_________________________________________________another member of the company or failing

him_________________________________________________________________________________

(being a member of the Company) as my/our proxy to attend, act and vote for me/us and on my/our behalf, at

the 46th Annual General Meeting of the Company to be held on Monday, the 31st October, 2011 at 129/1 Old

Bahawalpur Road, Multan at 11:00 am or at any adjournment thereof.

As witness my hand this __________________day of October, 2011.

(Member's Signature)

Affix

Revenue

Stamp

(Witness Signature)

Note: This form of proxy duly completed must be deposited at the Company's at Shares Department 129/1

Old Bahawalpur Road, Multan not later than 48 hours before the time of meeting.

FORM OF PROXY

(Name)

(Name)

Please quote Reg. Folio No.

FCML Annual Report 2011 - Fazal ClothBank Al-Habib Limited National Bank of Pakistan Soneri Bank Limited Allied Bank Limited Meezan Bank Limited Faysal Bank Limited ... INTRODUCTION

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