2014s Annual Report

of Nishat Mills Limited

By Hijab Waheed

Nishat Mills Limited

1. Introduction
Nishat Mills Limited is the most modern and largest vertically integrated
textile Company in Pakistan. The Company commenced its business as a partnership
firm in 1951 and was incorporated as a private limited Company in 1959.
The Companys production facilities comprise of spinning, weaving,
processing, stitching, apparel and power generation. Overall the Company has 29
manufacturing units each specializing in a specific product range located in
Faisalabad, Sheikhupura, Ferozewatwan and Lahore.
A major portion of the Companys earnings is export based. Over the the
years, the Company has achieved significant geographical diversification in its
export sales mix. The Company has a very broad base of customers for its products
outside Pakistan.
Nishat Mills Limited is also called the flagship company of the Nishat
Group. Nishat Group is a leading business entity in South Asia. Its net worth makes
it the largest business house of Pakistan. The Group has grown from a cotton export
house into the premier business group of the country. Highly diversified, the Group
has a presence in all the major sectors including Textiles, Cement, Banking,
Insurance, Power Generation, Hotel Business, Agriculture, Dairy, Real Estate,
Aviation and Paper Products. Showcasing its varied expertise and acumen in every
facet of its operations, the group companies hold the distinction of being among the
leading players in each sector.
Its vision is to transform the Company into a modern and dynamic yarn,
cloth and processed cloth and finished product manufacturing Company that is fully
equipped to play a meaningful role on sustainable basis in the economy of Pakistan.
Its mission is to provide quality products to customers and explore new
markets to promote/expand sales of the Company through good governance and
foster a sound and dynamic team, so as to achieve optimum prices of products of the
Company for sustainable and equitable growth and prosperity of the Company.

2.

Long-term Assets

Property, plant, equipment

Property, plant and equipment except freehold land and capital work-inprogress are stated at cost less accumulated depreciation and accumulated
impairment losses (if any). Cost of property, plant and equipment consists of
historical cost, borrowing cost pertaining to erection / construction period of
qualifying assets and other directly attributable costs of bringing the asset to working
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condition. Freehold land and capital work-in-progress are stated at cost less any
recognized impairment loss. Subsequent costs are included in the assets carrying
amount or recognized as a separate asset, as appropriate, only when it is probable
that future economic benefits associated with the item will flow to the Company and
the cost of the item can be measured reliably. All other repair and maintenance costs
are charged to profit and loss account during the period in which they are incurred.
Property, plant and equipment include operating fixed assets and
capital work in progress. Operating fixed assets are further categorized into owned
and leased. Freehold land, buildings on freehold land, Plant and machinery, stand by
equipment, electric installations, factory equipment, computer equipment, vehicles
and furniture, fixtures & office equipment are owned fixed assets, while some plant
and machinery are leased.
Depreciation
Depreciation on property, plant and equipment is charged to profit and
loss account applying the reducing balance method so as to write off the cost /
depreciable amount of the assets over their estimated useful lives. The Company
charges the depreciation on additions from the date when the asset is available for
use and on deletions up to the date when the asset is de-recognized. The residual
values and useful lives are reviewed by the management, at each financial year-end
and adjusted if impact on depreciation is significant.
Buildings, plant and machinery, stand by equipment, electric
installations, factory equipment, furniture, fixtures & equipment have 10%
depreciation rate. Computer equipment has 30% depreciation rate. Vehicles are
deprecated at 20%.
Investment properties
Land and buildings held for capital appreciation or to earn rental income
are classified as investment properties. Investment properties except land, are stated
at cost less accumulated depreciation and any recognized impairment loss. Land is
stated at cost less any recognized impairment loss. Depreciation on buildings is
charged to profit and loss account applying the reducing balance method so as to
write off the cost of buildings over their estimated useful lives at a rate of 10% per
annum.
De-recognition
An item of property, plant and equipment is de-recognized upon disposal
or when no future economic benefits are expected from its use or disposal. Any gain
or loss arising on de-recognition of the asset is included in the profit and loss account
in the year the asset is de-recognized.
Intangible Assets

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Intangible assets include franchise and computer software. These are

amortized at the rate of 20%.

3. Current Liabilities
Currents liabilities include trade and other payables, accrued mark up, short
term borrowing, current portion of non-current liabilities, and contingencies and
commitments.

Trade and other payables

This includes both definitely determinable and estimated current

liabilities. Nishat Mills payables include Creditors, Accrued liabilities, Advances
from customers, Securities from contractors, Retention money payable, Income tax
deducted at source, Dividend payable, Payable to employees provident fund trust,
Fair value of forward exchange contracts, Workers profit participation fund and
Workers welfare fund. From these Income tax is an estimated liability.
Short term borrowings
It includes Short term running finances, State Bank of Pakistan (SBP) refinance,
Temporary bank overdrafts and other short term borrowings. Short term running
finances rates of mark-up range from 9.45% to 12.25% per annum on the balance
Outstanding. State bank of Pakistan refinances rates of markup range from 8.70% to
8.90% per annum on the balance outstanding. These finances are obtained from
banking companies under markup arrangements and are secured against joint pari
passu hypothecation charge on all present and future current assets, other
instruments and ranking hypothecation charge on plant and machinery and pledge of
cotton of the Company.
Contingencies
The Company is contingently liable on account of central excise duty not
acknowledged as debt as the case is pending before Court.
Postdated cheques are issued to customs authorities in respect of duties on imported
items availed on the basis of consumption and export plans. If documents of exports
are not provided on due dates, cheques issued as security shall be encashable.
Guarantees are given by the banks of the Company to Sui Northern Gas Pipelines
Limited against gas connections, Shell Pakistan Limited and Pakistan State Oil
Limited against purchase of furnace oil, Director Excise and Taxation, Karachi
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against infrastructure, Pakistan Army against fulfilment of sales order and Punjab
Power Development Board for issuance of Letter of Interest to set up an electricity
generation facility.
Nishat Linen (Private) Limited - Subsidiary Company is contesting sales tax
demands of Rupees 5.230 million before CIR (Appeals) and ATIR. No provision
against these demands has been made in these consolidated financial statements as
the legal advisor of the Subsidiary Company expects a favourable outcome of
appeals.

4. Stock Transactions
Authorized share capital is of 1100000000 ordinary shares of rupees 10 each.
Ordinary shares of Nishat Mills are held by D.G. Khan Cement Company
Limited, Adamjee Insurance Company Limited and MCB Bank Limited. The shares
are 30,289,501, 1,258,650 and 227 respectively. 256,772,316 shares are of Ordinary
shares of Rupees 10 each fully paid-up in cash. 2,804,079 shares are of Ordinary
shares of Rupees 10 each issued to shareholders of Nishat Apparel Limited under the
Scheme of Amalgamation. 37,252,280 shares are of Ordinary shares of Rupees 10
each issued as fully paid for consideration other than cash. 54,771,173 shares are of
Ordinary shares of Rupees 10 each issued as fully paid bonus shares. Total of
351,599,848 are issued. Profit attributable to ordinary shareholders of Holding
Company is 7,219,768 thousand rupees.

5. Income tax, unusual Income items and investments in

stocks.
There are not any unusual income items in this company. There are not any
discontinued operations, extraordinary items nor changes in accounting principles.
Weighted average number of ordinary shares of Holding Company is 351,599,848.
Profit attributable to ordinary shareholders of Holding Company is 7,219,768
thousand rupees. EPS (Earnings per share) is 20.53 rupees.
Short term investments
Nishat Mills have made short term investments in Security General Insurance
Company Limited, Nishat (Chunian) Limited, Pakistan Strategic Allocation Fund,
MCB Cash Management Optimizer, Pakistan Petroleum Limited and United Bank
Limited. Security General Insurance Company Limited-10,226,244 fully paid
ordinary shares of Rupees 10 each, equity held 15.02%. Nishat (Chunian) fully
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paid ordinary shares of Rupees 10 each, equity held 13.61% . Pakistan Strategic
Allocation Fund-899,392 units. Pakistan Petroleum Limited- 434,782 ordinary
shares. United Bank Limited-368,105 fully paid ordinary shares of Rupees 10
each, Equity held 0.03%
Long term investments
Nishat Mills have made long term investments in D.G. Khan Cement Company
Limited, Lalpir Power Limited, Pakgen Power Limited, Nishat Paper Products
Company Limited, Nishat Dairy (Private) Limited, Adamjee Insurance Company
Limited, MCB Bank Limited and Habib bank Limited. The Holding Company has
divested 10% of its shareholding representing 12,154,839 ordinary shares of
Rupees 10 each in Lalpir Power Limited whereby. Ordinary shares of Lalpir Power
Limited are now listed on the Karachi Stock Exchange Limited and Lahore Stock
Exchange Limited. Investments in Lalpir Power Limited and Pakgen Power
Limited include 550 and 500 shares respectively, held in the name of nominee
director of the Holding Company. D.G. Khan Cement Company Limited
137,574,20 fully paid ordinary shares of Rupees 10 each, equity held 31.40%
Lalpir Power Limited-109,393,555 fully paid ordinary shares of Rupees 10 each,
equity held 28.80%Pakgen Power Limited-102,524,728 fully paid ordinary shares
of Rupees 10 each, equity held 27.55%. Nishat Paper Products Company Limited11,634,199 fully paid ordinary shares of Rupees 10 each, equity held 25%. Nishat
Dairy (Private) Limited-60,000,000 fully paid ordinary shares of Rupees 10 each,
equity held 12.50%Adamjee Insurance Company Limited-102,809 fully paid
ordinary shares of Rupees 10 each, equity held 0.03%MCB Bank Limited80,790,591fully paid ordinary shares of Rupees 10 each, equity held 7.26% .Habib
bank Limited-210 fully paid ordinary shares of Rupees 10 each

6. Long term liabilities

Long term liabilities include long term financing, liabilities against assets
subject to finance lease, and deferred income tax liability. Long term financing
includes long term loans, long term musharika, and motor vehicles loans. The banks
from which long term financing is obtained are Habib Bank Limited, National Bank
of Pakistan, Allied Bank Limited, United Bank Limited and Faysal Bank Limited.
The portion of long term from Faysal Bank Limited is on murabaha basis. There is a
financing from sale and leaseback arrangement between the Holding Company and
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Pak Kuwait Investment Company (Private) Limited. According to the lease

agreement, leasing company has contributed Rupees 150.047 million from its own
sources and the remaining amount of Rupees 149.953 million has been financed
under Long Term Finance Facility (LTFF) scheme of State Bank of Pakistan.
Minimum lease payments have been discounted using implicit interest rate ranging
from 9.70% to 12.15% per annum. Balance rentals are payable in quarterly
instalments. Taxes, repairs and insurance costs are borne by the Holding Company.
These are secured against the leased assets and demand promissory notes.

7. Cash flow statements

The operating activities in cash flow statement had profit before taxation and
further adjustments were done in them. Those further adjustments included adding
deprecation as it is a non-cash expense, deducting of Provision for slow moving
stores, spare parts and loose tools, deducting Net exchange gain on forward
contracts, deducting Gain on sale of property, plant and equipment, deducting Gain
on sale of investment, deducting Dividend Income, deducting Profit on deposits with
banks, deducting Share of profit from associated companies, and adding finance
costs. After things working capital adjustments were made. There was an increase in
current assets; stores, spares parts, and loose tools, stock in trade, trade debts, short
term deposits and prepayments, and other receivables. There was deduction by the
amount these assets were increased. Loans and advances (Current assest) were
decreased so they were being added to the amount. As far as current liabilities are
concerned, trade and other payables were increased so they were being added. There
was a cash outflow in the operating activities of Nishat Mills Limited.

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