DIRECTORS REPORT T0 THE MEMBERS
FOR THE YEAR ENDED JUNE 30, 2003

The directors are pleased to place before you the financial results of the company along with audited accounts for the year ended June 30, 2003.

OVERVIEW
There has been a noticeable improvement in the macro economic indicators of the country during the last financial year. The national economy has responded to the various economic and budgetary measures taken by the government by showing signs of revival and stability. The benefits of the macroeconomic stability are finally beginning to reflect on the productive sectors of the national economy evidenced by higher manufacturing output, greater demand for credit (especially for auto and housing loans), increased private investment and robust exports. However, the potential investors both local and foreign are still concerned about the law and order situation, security and political stability.

PERFORMANCE OF THE COMPANY
The cut throat competition among the cement producers for most part of the year under review kept the cement prices depressed. During this period, we were able to complete the process of conversion to coal firing system and also merger of Cherat Electric. These measures will result in more effective and efficient running of the plant.

Production
The company significantly increased its level of production during the year under review to meet the enhanced demand both for local consumption and exports. Capacity utilization increased to almost 90%, which is significantly higher than recorded for last few years.

The comparative production figures of clinker and cement are stated under:

_
2002/03
(in tons)
2001/02
(in tons)
variance
(in tons)
Variance
(in adage)
Clinker
656,416
528,295
128,121
24%
Cement
692,788
555,190
137,598
25%

Sales and dispatches
Improved economic environment coupled with easy availability of cheap credit along with lower cement prices in the country led to an increased demand for cement in the country as local sales for the company rose by 12% during the year under review. Due to its proximity to the Afghan border and brand recognition, the company was also able to make further inroads into the Afghanistan market, where sales more than double doing the last 12 months as compared to the previous year.

_
2002/03
(in tons)
2001/02
(in tons)
variance
(in tons)
variance
(in Wage)

Local sales
552,188
492,755
59,433
12%
Export sales
154,231
62,318
91,913
147%
 
706,419
555,073
151,346
27%

Operating Performance
Though there was an impressive increase in the quantity of cement dispatched during the year, in financial terms the net sales were up by only 6%. This was mainly due to extremely depressed prices that prevailed because of competition among the cement producers. This trend lasted for most part of the year and the prices improved only during the last quarter of the year.

The operating performance of the company is summarized below:

_
2002/03
(Rs. in million)
2001/02
(Rs. in million)
Variance
(Rs. In million)
Variance
(in %age)
Net sales
1,507.66
1,422.97
84.69
6%
Cost of sales
1 ,357.52
1,137.48
220.04
19%
Gross Profit
150.14
285.49
(135.35)
(47%)
Expenses
124.92
108.72
16.20
15%
Taxes
15.48
38.64
(23.16)
(60%)
Net Profit
9.74
138.13
(128.39)
(93%)

APPROPRIATION OF PROFIT
The profit after tax for current year amounts to Rs. 9.74 million, which together with un-appropriated profit of Rs. 30.64 million from last year and transfer from general reserve of Rs. 30:00 million gives us Rs. 70.38 million to be appropriated. The directors propose the following appropriation of the available profit.

_ _
(Rs. in million)
_ Net profit for the year
9.74
Add: Un-appropriated profit brought forward
30.64
_ Transferred from General Reserve
30.00
_ Total available for appropriation
70.38

Appropriations:

Proposed cash dividend @ 12.50% (25% in 2002)
66.49
Balance carried forward
3.89


COAL FIRING PLANT
The coal firing plant was successfully commissioned in April 2003. With this conversion, the company is now meeting all of its combustion requirements from coal, a step which will have a positive impact on the cost of production.

MERGER WITH CHERAT ELECTRIC
The Honorable High Court of Sindh, in its order, approved the scheme of arrangement during the year, leading to the merger of Cherat Electric Limited with Cherat Cement Co. Ltd. on October 16, 2002. The financial statements have therefore been prepared taking into account the effect of merger.

OUTSOURCING OF QUARRY
During the year, the company outsourced its quarry operation. This was done to manage the resources efficiently and reduce the cost of procurement of raw material.

STATEMENT ON CORPORATE AND FINANCIAL REPORTING FRAMEWORK

• The financial statements prepared by the company fairly present its state of affairs, the result of operations, cash flows and changes in equity.

• Proper books of account have been maintained by the company.

• Appropriate accounting policies have been consistently applied in the preparation of financial statements and accounting estimates are based on reasonable and prudent judgment.

• Applicable International Accounting Standards have been followed in preparation of financial statements and there has been no departure therefrom.

• The system of internal control has been effectively implemented and is continuously reviewed and monitored.

• The company is a going concern and there are no doubts about its ability to continue.

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

• The key operating and financial data for last six (6) years is annexed herewith.

• Although the company has been declaring regular dividends to its shareholders, it could not do so in the financial year 1998, due to unfavorable market conditions and low profits.

• There is nothing outstanding against the company on account of taxes, duties, levies and other charges except for those which are being made in the normal course of business.

• The company maintains Provident and Gratuity Fund accounts for its employees. Stated below are the values of the investments of the funds as on 30th June 2003.

- Provident Fund Rs. 75.15 million
- Gratuity Fund Rs. 39.53 million

During the year, the Board of Directors held seven (7) meetings. The attendance record of each director is as follows:

Name of Director
Meetings Attended
Mr. Mohammed Faruque
6
Mr. Zahid Faruque
7
Mr. Iqbal Faruque *
1
Mr. Akbarali Pesnani
7
Mr. Mr. Azam Faruque
5
Mr. K.M. Aminullah (NIT)
7
Mr. Abdul Latif Uqaili (ICP) *
4
Mr. Anis Wahab Zuberi (NlT)
6
Mr. Muhammed Nawaz Tishna (NIT)
7

* Mr. Abdul Latif Uqaili resigned from the board on 10th February 2003. In his place, Mr. Iqbal Faruque was appointed as director.

• The pattern of shareholding is annexed herewith.
• No trading of Company's shares was made by the directors during the year.

FUTURE PROSPECTS
The economic indicators of the country are encouraging and are pointing towards an era of sustainable economic development. With construction activity likely to commence on several mega infrastructures projects including housing schemes coupled with cheap availability of loans from the financial institutions, the cement sector is poised for growth along with other sectors of the economy in the coming year. We also hope that the much awaited and promised rehabilitation and reconstruction funds for Afghanistan are released, which could translate into increased demand for cement and higher exports for us.

AUDITORS
The present auditors M/s. Ford Rhodes Sidat Hyder & Co., Chartered Accountants, retire and being eligible, offer themselves for reappointment.

ACKNOWLEDGMENT
We would like to thank all the financial institutions having business relationship with us, our dealers and customers for their continued support, cooperation and the trust they have reposed in us. Also, we would like to share our deepest appreciation for our team of executives, managers, supervisors and other employees, for their dedication, loyalty and hard work.

KARACHI: September 15, 2003

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