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DESCON OXYCHEM LIMITED For the Quarter ended September 30, 2011
CONTENTS
Company Information
Directors’ Report
Condensed Interim Balance Sheet
Condensed Interim Profit and Loss Account
Condensed Interim Statement of Comprehensive Income
Condensed Interim Cash Flow Statement
Condensed Interim Statement of Changes in Equity
Notes to and Forming Part of the Condensed InterimUnaudited Financial Information
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2
3
4
5
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7
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DESCON OXYCHEM LIMITED For the Quarter ended September 30, 2011
1
Company InformationBoard of DirectorsAbdul Razak DawoodChairmanTaimur SaeedChief Executive OfficerDr. Salman ZakariaFarooq NazirChief Financial OfficerSyed Zamanat AbbasTaimur DawoodMuhammad SadiqFaisal Dawood
Company SecretaryAbdul Sohail
AuditorsM/s A.F Ferguson & Co.Chartered Accountants
Internal AuditorsM/s KPMG Taseer Hadi & Co.Chartered Accountants
Legal Advisors Hassan & Hassan Advocates
BankersAllied Bank LimitedBank Al Habib LimitedHabib Metropolitan Bank LimitedHabib Bank Limited KASB Bank LimitedSummit Bank LimitedSoneri Bank LimitedAskari Bank Limited
Share RegistrarM/s Corplink (Pvt.) LimitedWings Arcade, 1-K Commercial Area Model Town, Lahore - 53000Tel : 92 42 35887262, 35839182Fax : 92 42 35869037
Registered OfficeDescon Headquarters18-KM Ferozepur RoadLahore - 53000 Pakistan.Tel : 92 42 35923721-9Fax : 92 42 35923749
Plant Site18-KM Lahore - Sheikhupura Road, Lahore, Pakistan. Tel : 92 42 3797 1822-243Fax : 92 42 3797 1831
Karachi OfficeBusiness Avenue, 26/A, 9th Floor, Block 6, PECHS, Shahra-e-Faisal, Karachi, PakistanTel : 92 21 34544485-6Fax : 92 21 34382674
Web PresenceUpdated Company's Information together with the latest Annual Report can be accessed at Descon's website,www.descon.comwww.desconoxychem.com
DESCON OXYCHEM LIMITED For the Quarter ended September 30, 2011
2
30, 30,
DESCON OXYCHEM LIMITED
DIRECTORS’ REPORT TO THE SHAREHOLDERSFOR THE QUARTER ENDED SEPTEMBER 30, 2011
Ladies and Gentlemen:
Inspite of the challenging economic conditions in the country and the region, your company has been able to report a profit of PKR 3.5mln for the quarter ended on September 30, 2011 a turnaround of PKR 46mln compared to the last year. Relentless electricity and gas shortages have continually affected our customers resulting in lower demand for our products. However, it has not impacted DOL as we had already developed export markets that help us develop surplus production to neighboring countries. Load shedding of electricity and gas effects the company negatively, however it is being managed to minimize the impact of disruption.
Financial HighlightsQuarter ended
September September2011 2010
Rupees ‘000 Sales 338,188 294,502Gross profit /(loss) 117,284 73,584Operating Profit / (loss) 96,476 46,628Profit / (loss) for the period 3,496 (41,870)Earnings / (loss) per share (PKR) 0.03 (0.41)
Sales for the quarter are 15% more than the same period, which has supported by stable international prices. The margin has improved by 10 percentage points to 35%, resulting in the gross margin of PKR 117mln in the quarter PKR 43mln more than the last year. This was in spite of the increases in the natural gas and electricity has had an adverse impact on margins. The cash generated from operations have increased to PKR 106mln, as compared to PKR 26mln last year, mainly brought about by increased profitability and efficient use of working capital.
Future Outlook
The significant increase in the electricity rates and the planned increase for natural gas in the coming quarters will further erode margins. The recent reduction in KIBOR shall impact positively on the bottom line, however, effect would be seen in third and fourth quarters, when our interest rate is re-priced by the lenders. The external environment in the country will continue to remain challenging. Nevertheless, the company is confident that the prices of the product globally would remain stable, ensuring that we continue to generate the same level of growth and profitability. We once again thank all our stakeholders and ask them for their continued support on our way to prosperity.
For and on behalf of the Board
_______________Lahore Taimur SaeedOctober 21, 2011 Chief Executive Officer
DESCON OXYCHEM LIMITED For the Quarter ended September 30, 2011
3
Unaudited Audited September 30, June 30,
2011 2011Note Rupees '000 Rupees '000
EQUITY AND LIABILITIES
SHARE CAPITAL AND RESERVES
Authorized capital 110,000,000 (June 2010: 110,000,000) ordinary shares of Rs 10 each 1,100,000 1,100,000
Issued, subscribed and paid up capital 102,000,000 (June 2010: 102,000,000) ordinary shares of Rs 10 each 1,020,000 1,020,000
Reserves 3,094 2,115 Accumulated loss (281,789) (285,285)
741,305 736,830 NON-CURRENT LIABILITIES
Long term finances - secured 5 1,383,711 1,476,764 - unsecured 6 408,785 408,785
Liabilities against assets subject to finance lease 107,537 115,039 Accrued finance cost 70,955 54,520
1,970,988 2,055,108
CURRENT LIABILITIES
Current portion of long term liabilities 211,033 113,906 Finances under markup arrangement- secured 124,592 114,188 Trade and other payables 95,688 142,964 Accrued finance cost 36,820 102,594
468,133 473,652
CONTINGENCIES AND COMMITMENTS 7
3,180,426 3,265,590
ASSETS
NON-CURRENT ASSETS
Property, plant and equipment 8 2,164,721 2,202,585 Assets subject to finance lease 125,903 128,125 Intangible asset 43,152 47,616 Long term deposits 79,551 79,551 Deferred taxation 188,442 188,442
2,601,769 2,646,319 CURRENT ASSETS
Stores and spares 146,628 165,016 Stock-in-trade 114,750 128,052 Trade debts - unsecured 98,439 93,475 Investment - available for sale 9 83,739 110,347 Advances, deposits, prepayments and other receivables 104,921 84,714 Cash and bank balances 30,180 37,667
578,657 619,271
3,180,426 3,265,590
The annexed notes 1 to 15 form an integral part of this condensed interim financial information.
CONDENSED INTERIM BALANCE SHEET AS AT SEPTEMBER 20, 2011 (UN-AUDITED)
DESCON OXYCHEM LIMITED
CHIEF EXECUTIVE DIRECTOR
DESCON OXYCHEM LIMITED For the Quarter ended September 30, 2011
4
DESCON OXYCHEM LIMITEDCONDENSED INTERIM PROFIT AND LOSS ACCOUNT
FOR THE QUARTER ENDED SEPTEMBER 30, 2011 (UN-AUDITED)
September 30, September 30,
2011 2010
Note ---------------- Rupees '000 ----------------
Sales 10 338,188 294,502
Cost of goods sold 11 (220,904) (220,918)
Gross profit/(loss) 117,284 73,584
Administrative expenses (10,248) (9,023)
Distribution and selling cost (14,142) (18,890)
Other operating income 3,582 957
Profit / (loss) from operations 96,476 46,628
Finance cost (89,529) (85,525)
Profit / (loss) before taxation 6,947 (38,897)
Taxation (3,451) (2,973)
Profit / (loss) for the period 3,496 (41,870)
Profit / (loss) per share
- basic and diluted 12 0.03 (0.41)
The annexed notes 1 to 15 form an integral part of this condensed interim financial information.
Quarter ended
CHIEF EXECUTIVE DIRECTOR
DESCON OXYCHEM LIMITED For the Quarter ended September 30, 2011
5
DESCON OXYCHEM LIMITED
CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOMEFOR THE QUARTER ENDED SEPTEMBER 30, 2011 (UN-AUDITED)
September 30, September 30,2011 2010
--------------- Rupees '000 --------------
Income / (Loss) for the period 3,496 (41,870)
Other comprehensive income 979 297
Total comprehensive income / (loss) for the period
The annexed notes 1 to 15 form an integral part of this condensed interim financial information.
Quarter ended
4,475 (41,573)
CHIEF EXECUTIVE DIRECTOR
DESCON OXYCHEM LIMITED For the Quarter ended September 30, 2011
6
DESCON OXYCHEM LIMITED
CONDENSED INTERIM CASH FLOW STATEMENTFOR THE QUARTER ENDED SEPTEMBER 30, 2011 (UN-AUDITED)
September 30, September 30,
2011 2010
Note -------------- Rupees '000 --------------
Cash flow from operating activities
Profit / (Loss) before taxation 6,947 (38,897)
Adjustments for:- Depreciation on property, plant and equipment 37,864 37,403 - Depreciation on assets subject to finance lease 2,222 2,222 - Amortization of intangible assets 4,464 4,464 - Finance cost 89,529 85,525 - Interest from bank deposits (440) - - Net exchange gain (138) - - Gain on sale of investment (2,413) -
131,088 129,614
Operating Profit before working capital changes 138,035 90,717
Effect on cash flow due to working capital changes
- (Increase)/Decrease in stores and spares 18,388 23,340 - (Increase)/Decrease in stock-in-trade 13,302 (63,702) - (Increase)/Decrease in trade debts (4,826) (78,568) - (Increase) /Decrease in advances, deposits, prepayments
and other receivables (11,309) (819) - Increase/(Decrease) in trade and other payables (47,276) 55,461
(31,721) (64,288)
Cash generated from operations 106,314 26,429
Finance cost paid (138,868) (18,551) Profit on deposits received 440 - Income tax paid (12,349) (2,973)
Net cash generated from / (used in) operating activities (44,463) 4,905
Cash flows from investing activities
Fixed capital expenditure - 54 Long term security deposits - net - (9,714) Proceeds from sale of available for sale investments 70,000 1,225 Investment in short term investments (40,000) -
Net cash generated from / (used in) investing activities 30,000 (8,435)
Cash flows from financing activities
Finance lease liabilities - net (3,428) (13)
Net increase / (decrease) in cash and cash equivalents (17,891) (3,543) Cash and cash equivalents at beginning of the period (76,521) (226,305)
Cash and cash equivalents at the end of the period 15 (94,412) (229,848)
The annexed notes 1 to 15 form an integral part of this condensed interim financial information.
Quarter ended
CHIEF EXECUTIVE DIRECTOR
DESCON OXYCHEM LIMITED For the Quarter ended September 30, 2011
7
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DESCON OXYCHEM LIMITED For the Quarter ended September 30, 2011
8
1. The Company and its operations
2. Basis of preparation
3. Significant accounting policies
4. Taxation
September 30, June 30,2011 2011
-------------- Rupees '000 -------------5. Long term loans - secured
Opening balance - note 5.1 1,569,818 1,469,818 Add: Disbursement/restructuring during the period - note 5.2 - 100,000
1,569,818 1,569,818
Less: Current portion shown under current liabilities 186,107 93,054 1,383,711 1,476,764
The company was incorporated in Pakistan as a private limited company on November 12, 2004 under the CompaniesOrdinance, 1984 and was converted into a public limited company with effect from February 28, 2008. Subsequently,on September 15, 2008, it was listed on Karachi Stock Exchange. The registered office of the company is situated at18-KM Ferozepur Road, Lahore and the factory is situated at 18-KM Lahore-Sheikhupura Road, Lahore. It is principallyengaged in the manufacture, procurement and sale of hydrogen peroxide and allied products. The companycommenced its commercial production on March 1, 2009.
This condensed interim financial information is unaudited and has been prepared and is being submitted to theshareholders in accordance with section 245 of the Companies Ordinance, 1984 and International Accounting Standard(IAS) 34 - 'Interim Financial Reporting'. This condensed interim financial information does not include all theinformation required for annual financial statements and therefore should be read in conjunction with the annualfinancial statements for the year ended June 30, 2011.
NOTES TO AND FORMING PART OF THE CONDENSED INTERIM FINANCIAL INFORMATION FORTHE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2011 (UN-AUDITED)
5.1 This loan has been obtained from a consortium of financial institutions led by Allied Bank Limited to financethe capital expenditure in relation to the hydrogen peroxide plant installation, construction and fabrication project. It issecured by way of hypothecation charge over all present and future fixed assets, wherever situated other than theimmovable property and first pari passu mortgage charge over immovable property. It carries markup at six monthKIBOR plus 2.75% per annum and is payable semi annually. Out of the aggregate facility of Rs 1,470 million (June2011: Rs 1,470 million) the amount availed as at September 30, 2011 is Rs 1,470 million (June 2011: Rs 1,470million). The loan is repayable in 12 six monthly installments commencing on February 24, 2012.
5.2 This represents the loan obtained from KASB Bank, and is secured by a pari passu charge over present andfuture fixed assets (including land, building, plant and machinery) of the company for Rs. 134 million. It carriesmarkup at six month KIBOR plus 2.50% per annum and is payable semi annually. The loan is repayable in 10 equalsemi annual installments commencing on December 01, 2012.
The provision for taxation for the quarter ended September 30, 2011 has been made using the tax rate that would beapplicable to expected total annual earnings.
The accounting policies adopted for the preparation of this condensed interim financial information are the same asthose applied in the preparation of preceding annual published financial statements of the company for the year endedJune 30, 2011.
DESCON OXYCHEM LIMITED
DESCON OXYCHEM LIMITED For the Quarter ended September 30, 2011
9
September 30, June 30,2011 2011
-------------- Rupees '000 --------------
6. Subordinated loans from associated companies - unsecured
- Descon Engineering Limited - Loan 1 - note 6.2 276,785 276,785 - Descon Engineering Limited - Loan 2 - note 6.3 112,000 112,000 - Interworld Travels (Private) Limited - Loan 3 - note 6.4 20,000 20,000
408,785 408,785
7. Contingencies and commitments
7.1 Contingencies
(i)
7.2 Commitments
The company has the following commitments in respect of:
(i) Letters of credit other than capital expenditure Rs 35.111 million (June 2011: Rs 40.273 million).
September 30, June 30,2011 2011
-------------- Rupees '000 -------------8. Property, plant and equipment
Opening book value 2,202,585 2,307,064 Add: Additions during the period - note 8.1 - 46,497
2,202,585 2,353,561
Less: Disposals during the period (at cost) - 961 Less: Depreciation charged during the period 37,864 150,015
37,864 150,976
Closing book value 2,164,721 2,202,585
8.1 Additions during the period
Buildings on freehold land - 44,558 Plant, machinery and equipment - 1,402 Lab equipment - 467 Material Handling - 70
- 46,497
9. Investment - available for sale
Available for sale - at cost 80,645 108,232 Add : cumulative fair value gain 3,094 2,115
83,739 110,347
Guarantee issued to Sui Northern Gas Pipeline Limited against the performance of a contract amounting toRs 48.64 million (June 2011: Rs 48.64 million).
DESCON OXYCHEM LIMITED For the Quarter ended September 30, 2011
10
September 30, September 30,2011 2010
-------------- Rupees '000 --------------10. Sales
Gross sales:- Local 264,379 192,658 - Export 80,290 104,073
344,669 296,731 Less: Commission on sales (6,481) (2,229)
338,188 294,502
11 Cost of goods sold
Raw materials consumed 114,817 106,118 Salaries, wages and other benefits 11,904 11,489 Repair and maintenance 8,830 7,311 Fuel and power 39,048 39,315 Printing and stationery 109 125 Services through contractors 10,455 12,201 Traveling 89 82 Communication 127 142 Depreciation on property, plant
and equipment 37,617 37,244 Depreciation on assets subject
to finance lease 2,222 2,222 Amortization on intangible assets 4,464 4,464 Insurance 1,561 1,361 Safety items consumed 41 55 Miscellaneous 1,144 487
232,428 222,616
Add: Opening work in process 2,548 3,125 Less: Closing work in process - (347)
2,548 2,778
Cost of goods produced 234,976 225,394
Add: Opening finished goods 30,633 14,160 Less: Closing finished goods (44,705) (18,636)
(14,072) (4,476)
220,904 220,918
September 30, September 30,2011 2010
12. Earnings / (Loss) per share
12.1 Basic earnings / (loss) per share
Earnings / (Loss) for the period 3,496 (41,870)
Weighted average number of ordinary shares in issue during the period 102,000,000 102,000,000
Earnings / (Loss) per share (Rupees) 0.03 (0.41)
12.2
Quarter ended
Quarter ended
Diluted earnings per share has not been presented as the company doesn't have any convertible instrument in issue as at September 30, 2011 and September 30, 2010 which would have any effect on the earnings per share if the option to convert is exercised.
(Rupees’ 000)
Diluted earnings per share
DESCON OXYCHEM LIMITED For the Quarter ended September 30, 2011
11
13. Transactions with related parties
Relationship with Nature of transaction September 30, September 30,the company 2011 2010
i. Associated undertakings Purchase of goods and services 536 7,392 Purchases in respect of
fixed capital expenditure - - Sale of goods/scrap 195 290 Share of common expenses charged
from associated companies 6,482 8,207 Share of common expenses charged
to associated companies 1,230 1,745 Mark-up expense 16,436 16,024
ii. Post employment Expense charged in respect of benefit plans retirement benefit plans 363 473
September 30, June 30,
2011 2011
14 Cash and cash equivalents
Cash and bank balances 30,180 37,667
Finances under markup arrangement - secured (124,592) (114,188)
(94,412) (76,521)
15. Date of authorization for issue
Quarter ended
This condensed interim financial information was authorised for issue on October 21, 2011 by the Board of Directors of the Company.
CHIEF EXECUTIVE DIRECTOR
-------------- Rupees '000 ---------------
-------------- Rupees '000 ---------------