INSTITUTE OF BUSINESS MANAGEMENT

ANALYSES OF FINANCIAL STATEMNENTS

DAWOOD LAWRENCEPUR LTD.

BASED ON A 2009 STUDY

1

INSTITUTE OF BUSINESS MANAGEMENT

ANALYSES OF FINANCIAL STATEMENTS

DAWOOD LAERENCEPUR LTD.

BASED ON A 2009 STUDY

PRESENTED TO:

Sir Maqbool-ur-rehman

Course Instructor,

Analysis of financial statements

PRESENTED BY:

Wajiah Rahat (7211)

Student

DATE: 7TH December 2009

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LETTER OF ACKNOWLEDGEMENT

Sir Maqbool-ur-rehman

Course Instructor

IoBM, Karachi

Dear Readers:

This report was authorized to us by our course instructor. This report was

assigned to analyze the financial statements of any one of the textile

composite company.

This report provides us an opportunity to analyze the financial statements

in a way we have lean-to

I thank Sir Maqbool who imparted us the necessary knowledge of

Portfolio Management so that we could reach correct conclusions. This

report has enabled me to apply most of what I studied in class and gave

me chance to enhance my knowledge.

Sincerely,

Wajiah Rahat,

DATE: 7TH December’2009

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LETTER OF TRANSMITTAL

Sir Maqbool-ur-rehman

Course Instructor

IoBM, Karachi

Respected Sir:

I am pleased to inform you that the final report you assigned to us on start

of this fall semester has been completed and is ready for your

examination. The report as per your instruction has covered all areas to

analyze the financial statements of the company.

I hope that you will find this report comprehensive and interesting. For

any queries regarding the report you can reach me at

wajiahrahat@live.com

Sincerely,

Wajiah Rahat,

DATE: 7TH December 2009

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TABLE OF CONTENTS

Sectoral Outlook………………………………………………………………………………..8- About the sector- Porter Five Forces Analysis- Pest Analysis- Other Driving Forces Influencing the Industry- Demand & Supply- Pricing- Government Policies - Problems faced by the sector- Financial Analysis of The Sector- Forecasts & Future Outlook- Conclusion

Company Introduction………………………………………………………………………..21- About the company- Mission & Vision- Plant Location- Capacity- Product Line

Analysis of Company Outlook……………………………………………………………...24- SWOT Analysis- PEST Analysis- demand & supply (also mention about exports)- Contribution to Sectoral GDP- Position among other Companies in the Sector- Sales And Growth ( Both real & nominal)

Analysis of Director’s Report (for each year)………………………………………………34- List of Important Findings

Analysis and Comment on Auditor's Report……………………………………………….35

Vertical and Horizontal Common Sizing and Analysis……………………………………36

Ratio Analysis…………………………………………………………………………………40

Analysis of Financial Statements…………………………………………………………..42Income Statement - Analysis of basic elements of income statement- Analysis of special income statement item (if present)Balance Sheet- Analysis and insight on Assets- Analysis and insight on Liabilities and Shareholder’s Equity- Analysis and insight on Shareholder’s investmentCash Flow StatementAnalysis of Statement of Changes in Equity

Analysis of Capital Structure of The firm............…………………………………………………………………………………….60

Analysis of bad debt estimation method used by the company…………………………63

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Dawoods comparison with Industrial Averages………………….……...……………….64

Analysis of depreciation method employed by the company…………………………….65

Analysis of cost flow assumption employed by the company…………………………...66

Policy Analysis (Conservative, Moderate, or Aggressive)……………………………….67

Insight and Recommendation for Investors & Creditors………………………………….68

Forecast & Future Outlook…………………………………………………………………..70

Conclusion…………………………………………………………………………………….70

References…………………………………………………………………………………….72

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Sectoral outlook

About the sector

7

The textile sector enjoys a pivotal position in the exports of Pakistan. In Asia,

Pakistan is the 8th largest exporter of textile products. The contribution of this

industry to the total GDP is 8.5%. It provides employment to about 15 million

people, 30% of the country work force of about 49 million. The annual volume

of total world textile trade is US$18 trillion which is growing at 2.5 per cent.

Out of it, Pakistan’s share is less than one per cent.

The development of the Manufacturing Sector has been given the highest

priority since Pakistan’s founding with major stress on Agro-Based Industries.

For Pakistan which was one of the leading producers of cotton in the world,

the development of a Textile Industry making full use of its abundant

resources of cotton has been a priority area towards industrialization. At

present, there are 1,221 ginning units, 442 spinning units, 124 large spinning

units and 425 small units which produce textile products.

The industry consists of large-scale organized sector and a highly fragmented

cottage / small-scale sector. The various sectors that are a part of the textile

value chain are: Spinning, most of the spinning industry operates in an

organized manner with in-house weaving, dyeing and finishing facilities.

Weaving comprises of small and medium sized entities. The processing

sector, comprising dyeing, printing and finishing sub-sectors, only a part of

this sector is operating in an organized state, able to process large quantities

while the rest of the units operate as small and medium sized units. The

printing segment dominates the overall processing industry followed by textile

dyeing and fabric bleaching. The garments manufacturing segment generates

the highest employment within the textile value chain. Over 75% of the units

comprise small sized units. The knitwear industry mostly consists of factories

operating as integrated units (knitting + processing + making up facilities). The

clothing sectors both woven and knits are mainly clustering in Karachi–

Lahore and Faisalabad where sufficient ladies labor is available.

High value added products i.e. garments and textile made-ups have over the

years progressively increased their share in the textile export portfolio.

Currently these products constitute 57% of the total textile exports. During

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early nineties the textile exports were dominated by yarn and greige fabric

which had a share of almost 56% in the total exports. As far as the markets

are concerned 60% -70% of the merchandise is exported to the USA and the

EU.

The Textile Industry in Pakistan Is Divided Into Six Major Sub-Categories

Ginning Industry

Spinning Industry

Weaving Industry

Knitting Industry

Garment Industry

Polyester Fiber Industry

Established capacity

The textile industry of Pakistan has a total established spinning capacity of

1550 million kgs of yarn, weaving capacity of 4368 million square metres of

fabric and finishing capacity of 4000 million square metres. The industry has a

production capacity of 670 million units of garments, 400 million units of

knitwear and 53 million kgs of towels.

The industry has a total of 1221 units engaged in ginning and 442 units

engaged in spinning. There are around 124 large units that undertake

weaving and 425 small units. There are around 20600 power looms in

operation in the industry. The industry also houses around 10 large finishing

units and 625 small units.

Pakistan’s textile industry has about 50 large and 2500 small garment

manufacturing units. Moreover, it also houses around 600 knitwear-producing

units and 400 towel-producing units.

Contribution to exports

9

According to recent figures, the Pakistan textile industry contributes more than

60% to the country’s total exports, which amounts to around 5.2 billion US

dollars. The industry contributes around 46% to the total output produced in

the country.

In Asia, Pakistan is the 8th largest exporter of textile products.

Contribution to GDP and employment

The contribution of this industry to the total GDP is 8.5%. It provides

employment to 38% of the work force in the country, which amounts to a

figure of 15 million. However, the proportion of skilled labor is very less as

compared to that of unskilled labor.

Organisations in the industry

All Pakistan Textile Mills Association is the chief organization that determines

the rules and regulations in the Pakistan textile industry.

Opportunities available

The world demand for textiles is rising at around 2.5%, due to which there is a

greater opportunity for rise in exports from Pakistan.

Porter's five model analyses

One of the worst hit sectors during the skyrocketing interest rate scenario in the late 90s and

early 2000s, the debt-laden Indian textile industry has spun many turn-around stories since

then. Aided by lower interest rates, restructuring packages from financial institutions and the

recent dismantle of quotas; the sector is today well poised to capture growth opportunities. In

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2005, the sector contributed 20% to industrial production, 9% to excise collections, 18% of

employment in industrial sector, nearly 20% to the country's total export earnings and 4% to

the GDP. The textile sector employs nearly 35 m people and is the second highest employer

in the country. Infect, it is estimated that one out of every six households in the country

directly or indirectly depend on this sector. Here we analyze the sector's dynamics through

Porter's five-factor model.

Bargaining power of customers (demand scenario)

Global textile & clothing industry is currently pegged at around US$ 440 bn. US and European

markets dominate the global textile trade accounting for 64% of clothing and 39% of textile

market. With the dismantling of quotas, global textile trade is expected to grow (as per Mc

Kinsey estimates) to US$ 650 bn by 2010 (5 year CAGR of 10%). Although China is likely to

become the 'supplier of choice', other low cost producers like India would also benefit as the

overseas importers would try to mitigate their risk of sourcing from only one country. The two-

fold increase in global textile trade is also likely to drive India's exports growth. India's textile

export (at US$ 15 bn in 2005) is expected to grow to US$ 40 bn, capturing a market share of

close to 8% by 2010. India, in particular, is likely to benefit from the rising demand in the

home textiles and apparels segment, wherein it has competitive edge against its neighbor.

Nonetheless, a rapid slowdown in the denim cycle poses risks to fabric players.

Bargaining power of suppliers (supply scenario)

India is the third largest producer of cotton in the world after China and US and has the

largest area under cultivation. Cotton, a key

raw material in the textile and garment

industry, accounts for about 30% of the

fabric cost and 13% of the garment cost.

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India has an abundant supply of locally grown long staple cotton, which lends it a cost

advantage in the home textile and apparels segments. Other countries, like China and

Pakistan, have relatively lower supply of locally grown long staple cotton. Moreover, low

cotton prices due to a bumper cotton crop would enable India to lower its production cost and

sustain pricing pressure. Further, efforts on improving the yield per hectare would ensure

higher productivity and production, thereby providing the much-needed security of raw-

material supply to textile producers.

India also enjoys a significant lead in terms of labor cost per hour (US$ 0.6 in 2004), over

developed countries like US (US$ 15.1) and newly industrialized economies like Hong Kong

(US$ 5.1), Taiwan (US$ 7.1), South Korea (US$ 5.7) and China (US$ 0.9). Also, India is rich

in traditional workers adept at value-adding tasks, which could give Indian companies

significant margin advantage.

Threat of new entrants

In the quota free regime, capacity expansion is the name of the game in the textile sector.

Resultantly, smaller players who cannot venture into the global markets are flooding the

domestic markets with excess supply, thus weakening the pricing scenario. Be it denim

(Arvind Mills), home textiles (Welspun and Alok Industries) or branded apparels (Raymond),

new capex and consolidation with international players is also not likely to safeguard margins

for the larger players, unless they can tap a significant pie of the overseas markets.

Threat of substitutes

Low cost producing countries like Pakistan and Bangladesh (labor cost 50% cheaper) are

also posing a threat to India's exports demand. Infact, players like Arvind Mills have already

started feeling the pinch as overseas buyers have started shifting to 'alternative sources', thus

impacting their incremental volume off-takes.

Competitive rivalry

India's logistic disadvantage due to its geographical location can give it a major thumbs-down

in global trade. The country is distant from major markets as compared to its global

competitors like Mexico, Turkey and China, which are located in relatively close vicinity to

major global markets of US, Europe and Japan. As a result, high cost of shipments and

longer lead-time coupled with lack of infrastructure facility may prove to be major hindrances.

The fragmented structure of the industry has also stood in the way of achieving true

integration between the various links in the supply chain. The sector has one of the longest

and most complex supply chains in the world, which the larger players are trying to correct by

integrating their operations and improving efficiency levels.

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Textiles being a fairly regulated sector till the recent past (quota regime), another

indispensable leg of the above analysis is government regulations. Technology Upgradation

Fund Scheme (TUFS) was launched in FY99 for a period of five years (later extended upto

FY07) to promote the upgradation of the textile and jute industry. The scheme aimed at

providing loans to the sector at internationally comparable rates of interest (5% lower than the

domestic interest rates), which enabled the players to upgrade their technology at lower cost

of capital. Establishment of 'Apparel Export Parks' and fiscal incentives in the recent budgets

also indicate the government's resolve to aid the sector's growth and international

competitiveness.

As one can comprehend from the above analysis, the potential for the sector's growth are

ample, but the trick lies in competing effectively against rivals. Consolidation of the industry

and delivery of better quality at effective rates and minimum lead time would certainly help the

players surmount all competitive pressures

PEST analyses

Political Analysis – Political stability, trade regulations, tax policies, industrial

safety and environmental regulations, employment laws, IP rights. The factors

negatively affect all businesses; including the political wars among the parties

etc. The monthly wages were increased. These steps did prove to be a

successful in motivating an already depressed and low paid labor force but at

the same time increased the threats from labor unions for meeting their

demands and cost of production for already suffering textile industry.

Economic Analysis – Economic growth, inflation rate, interest rates, exchange

rates, labor costs, government expenditure, consumer spending. The

inflationary pressures as noted in the year 2006 influences the company

sales. However the inflation rate is stabilizing and is at 10.26% and the SBP

has decreased interest and is expected to further cut the interest rates. The

rupee depreciation during the year has been beneficial for the exporters, as

unit prices in PKR have increased for the textile segment.

Social Analysis – Demographics, consumer behavior, leisure interests,

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income distribution, living standards, health consciousness, fashion & lifestyle

changes In rural areas of Pakistan there are fewer opportunities to earn a

living, so many bread earners move out to find a better earning opportunities.

They mostly find jobs in different sectors including textiles and also prove to

be low cost labor. This benefits the companies in competing in terms of cost.

Technological Analysis – Technological developments, new inventions,

automation, information technology Pakistan is facing serious power crises in

terms of electricity shortage and gas shortage as well. Due to this many textile

units have completely shut down and many units have to cut down production.

Since decades many incentives were given to the local industry such as tax

rebates, R&D support in 2007. The domestic companies took advantage of

such policies but were not able to add value to the textile exports due to which

Pakistan exports are falling sharply.

Other Driving Forces Influencing the Industry

Security concerns (refrained international buyers to visit Pakistan)

Compliance with Social, Environment and Health standards

Quality of products

Focus on low value added products e. g. spinning than on composites.

Insufficient product diversification

The wastage of material during production is among 16-18 % which is very high in relation to competitors where wastage is around 4-5% .

Availability of machinery but shortage of skilled operators

Lack of Marketing efforts .

Duty imposed on the import of bed linen by EU 7.5%

Demand and supply

Global textile & clothing industry is currently pegged at around US$ 440 bn.

US and European markets dominate the global textile trade accounting for

14

64% of clothing and 39% of textile market. With the dismantling of quotas,

global textile trade is expected to grow (as per Mc Kinsey estimates) to US$

650 bn by 2010 (5 year CAGR of 10%). Although China is likely to become

the 'supplier of choice', other low cost producers like India would also benefit

as the overseas importers would try to mitigate their risk of sourcing from only

one country. The two-fold increase in global textile trade is also likely to drive

India's exports growth. India's textile export (at US$ 15 bn in 2005) is

expected to grow to US$ 40 bn, capturing a market share of close to 8% by

2010. India, in particular, is likely to benefit from the rising demand in the

home textiles and apparels segment, wherein it has competitive edge against

its neighbour. Nonetheless, a rapid slowdown in the denim cycle poses risks

to fabric players.

India is the third largest producer of cotton in the world after China and US

and has the largest area under

cultivation. Cotton, a key raw

material in the textile and garment

industry, accounts for about 30% of

the fabric cost and 13% of the

garment cost. India has an abundant

supply of locally grown long staple cotton, which lends it a cost advantage in

the home textile and apparels segments. Other countries, like China and

Pakistan, have relatively lower supply of locally grown long staple cotton.

Moreover, low cotton prices due to a bumper cotton crop would enable India

to lower its production cost and sustain pricing pressure. Further, efforts on

improving the yield per hectare would ensure higher productivity and

production, thereby providing the much-needed security of raw-material

supply to textile producers.

Pricing

15

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Government policies

However, the government changed its policies and started making frequent

upward revision of power, gas tariffs, oil prices and other inputs cost, which

affected the local industries seriously and manufacturing costs have gone up

tremendously making locally products goods uncompetitive in international as

well as local market. This has resulted in decline of sale and closure of

industries converting them in warehouses.

He feared that government revenue collection would also suffer to a large

extent if the present trend remains continue and government failed to reduce

cost of doing business as well as overcome the smuggling. He urged the

government to take appropriate measures to stop export of yarn and its prices

should be kept at reasonable level.

Former Vice President KCCI, Abdullah Zaki said that the textile sector facing

serious problems owing to increase in price of yarn in local market, its non-

availability. He claimed that over 60 lakhs dollars' export orders of towel have

been cancelled due to high prices and non -availability of yarn. He said that

Bangladesh and China are supplying fabrics at very low price in international

market owing to huge export of yarn from Pakistan as well as low cost of

production in these countries.

Problems Faced By the textile Industry

1. Lost competitiveness in the global market

2. Lack of awareness of global trends and changing rules and regulation.

3. The reinvestment and introduction of the latest technology

4. Sector did not focus on the emerging trend of the value additions

5. More dependence on cotton

6. Poor infrastructure

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7. Unstable political situation

8. Obsolete technology machinery and equipment used for manufacturing

9. Availability of raw material and inconsistent raw material prices

10.Unskilled labor (only 1% workers have certificate / diploma from

technical training institutions)

11.Absence of research and development culture

12.Lack of synergies between Govt. support institutions and practical

market.

13.Lack of standardization and quality control

14.Non-sophisticated marketing sense. (Branding & grading)

15.Unorganized vendor base

16.Limited access to information (availability of finance, technological

know-how & Govt. regulations)

17.Energy costs

18.20% Interest on Bank Loans

19.Tariff hikes of Gas

20.Tariff hikes of Electricity

21.Frequent Interruption in supply of electricity and Gas

22.High Freight Cost

23.Demand Of drastic cut on textile products from their buyers from US

and EU

FINANCIAL ANALYSES

The fiscal year 2008-09 was a year of recession for most businesses

including textile sector worldwide. Deep recession in the US and European

markets led to lower sales at retail levels together with stiff competition for

suppliers. Pakistan's textile exports were hit hard due to intense competition

with regional countries in FY09. This, alongside rising interest rates and

prolonged power cuts proved to be a hindrance to earnings of the textile

industry in FY09, as depicted by a decline of 57% YoY. For textile sector in

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Pakistan, the year was also one of the most volatile due to a number of

reasons.

Decelerated business volumes and electricity crisis have taken its toll and

many small and medium size production houses have shut down already or at

the verge of closure. A record increase in the prices of cotton and yarn in the

first quarter and steep rise in interest rates had impacted the sector on varying

degrees. Domestic textile units gained as well as lost in all these volatilities as

per their strengths and relative positioning in the market.

FUTURE OF TEXTILE INDUSTRY

Demand of textile products is increasing every year to almost 3%. So

Pakistan can also capture some share from this but the industrialists and the

government needs to focus on this sector. Textile industry just needs a good

leader in the government which can drive the industry in a right direction.

Textile Industry of Pakistan can kick its competitors far off and can contribute

up to 90% in the total GDP of Pakistan. In short Textile Industry of Pakistan

has a great potential, it is lacking in some natural resources like power and

some political instability of the country is also playing a vital role in the reverse

gear of Textile sector. But I am sure Textile industry of Pakistan will grow and

will keep its big share in the world textile.

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I. COMPANY INTRODUCTION

About the company

Dawood Lawrencepur Limited, "The Company" is a duly incorporated

public limited company formed as a result of scheme of arrangement for

amalgamation in terms of provisions of section 284 to 287 of the

Companies Ordinance, 1984 between Dawood Cotton Mills Limited,

Dilon Limited, Burewala Textile Mills Limited, Lawrencepur Woollen and

Textile Mills Limited and members of the said companies. The shares of

20

the Company are listed on the Karachi and Lahore Stock Exchanges.

The Company is principally engaged in the business of manufacture and

sale of yarns and fabrics made from natural and man-made fibers and

blends thereof. The registered office of the Company is situated at 35-A,

Shahrah-e-Abdul Hameed Bin Baadees (Empress Road), Lahore. During

the year the Company, due to continuous losses of its Dawoodabad unit

located at Burewala, District Vehari, has also suspended its operations of

the said unit effective March 2008. Accordingly in line with IFRS-5 Non

current assets held for sale and Discontinued Operations, the operations

relating to the closed down plant and machinery have been classified as

discontinued operations. The assets and liabilities related to discontinued

operations have been transferred to assets held for disposal and

liabilities directly associated with the assets classified as held for sale.

Based on the above, following operations of the Company are now

classified under discontinued operations:

- Landhi Mills - Karachi

- Dilon Mills - Karachi (Landhi Synthetic)

- Dawoodabad Mills - Burewala

Mission And Vision

Vision:

To pursue sustained growth through a diversified business portfolio

For enhancing stakeholder value.

Mission:

To be a responsible corporate citizen with respect for the society.

To achieve safe & healthy business environment.

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To provide excellent working environment and growth potential for the

employees.

To strive for excellence through commitment, integrity, honesty and

teamwork.

To make honest and ethical behavior a way of life.

To improve quality of life for the employees.

Plant location

The mills of the Dawood Lawrencepur are located in the Landdhi Mills in

the Landhi Industrial Area, Karachi. The Landhi synthetic is also situated

in the Landhi Industrial Area.

The registered office of the Company is situated at 35-A, Shahrah-e-Abdul

Hameed Bin Baadees (Empress Road), Lahore. During the year the

Company, due to continuous losses of its Dawoodabad unit located at

Burewala, District Vehari, has also suspended its operations of the said

unit effective March 2008. Accordingly in line with IFRS-5 Non current

assets held for sale and Discontinued Operations, the operations relating

to the closed down plant and machinery have been classified as

discontinued operations. The assets and liabilities related to discontinued

operations have been transferred to assets held for disposal and liabilities

directly associated with the assets classified as held for sale. Based on the

above, following operations of the Company are now classified under

discontinued operations:

- Landhi Mills - Karachi

- Dilon Mills - Karachi (Landhi Synthetic)

- Dawoodabad Mills - Burewala

Capacity

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The total production capacity uptil 2008 has includes the following:

Capacity

(KGS)

'000

2008 2007 2006 2005 2004 2003 2001 2000

Polyester

Yarn

1400 1400 1400 1050 1400 -

Yarn 25619 25619 25619 17135 22847 12355

Cloth 5060 5060 5060 6396 17179 8698

The Capacity production as we can see from the above table of Polyester was

same throughout the eight year except for in 2005. The Figure for 205 is

change as due to the change in the accounting year. Yarn has had the most

capacity among the three product lines. However that of the Cloth capacity

decreased drastically from the year 2004 and reach to 5060'000 Kgs.

Product Line

The Company is principally engaged in the business of manufacture and

sale of yarns and fabrics made from natural and man-made fibers and

blends thereof

II. ANALYSES OF THE COMPANY OUTLOOK

SWOT Analysis

The availability on economical, reliable and sustainable energy is the key

Issue that companies face globally today. Countries all over the world are

Grappling ways in which millions of households, industries and other

Businesses can be provided with energy that is dependable and does not tax

Our future generations.

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STREGNTHS

Dawood Lawrencepur have decided that with technical and financial

capabilities within the company and the group, they can play an instrumental

role in an effort to the national objective of reliable, economical, sustainable

energy for sustainable economic development, creating an environment

where everyone can turn reach grow.

WEAKNESS

The weakness of the company includes the power shortages, due to the

increased cost of which the company re

THREATS

In Pakistan we face a slightly different challenge. While the world

Figures out a way to power the economic growth of the future, we at home

Are concerned with the issue of inadequate energy today. Demand has

Outgrown supply massively in the past, the resulting in prolonged power

Breakdowns and gas load shedding. Pakistan's energy scarcity is indeed

disconcerting. It is seen as the single biggest impediment to the

growth for our industrial sector. Frequent power outages render our

exports uncompetitive, as idle factories cannot deliver goods so

desperately needed to

Be produce on time. This is the issue of reliable energy.

OPPORTUNITIES

The company currently generates over 6500 MW from renewable hydel

energy, but have the capacity to generate 32000 MW more. According to

latest figures Dawood has the potential to generate up to 43,000 MW through

wind energy alone, a source already producing electricity at commercially

viable levels. The location in the tropics gives Dawood Lawrencepur an added

advantage to use the sun to power our homes, with technologies becoming

increasingly competitive with conventional methods of power generation.

Pakistan possesses over 180 billion tones of coal. We also have the lowest

drilling densities and highest success ratios suggesting tremendous potential

24

In hydrocarbon exploration. On top of that we are located in the region that

has provided much of the world with cheap energy and is forecasted to do so

for next few decades. All of these factors have coupled together for us to look

back and turn.

PEST Analysis

Political

The factors negatively affect all businesses; including the political wars among

the parties etc. The monthly wages were increased. These steps did prove to

be a successful in motivating an already depressed and low paid labor force

but at the same time increased the threats from labor unions for meeting their

demands and cost of production for already suffering textile industry.

Economic

The inflationary pressures as noted in the year 2006 influences the company

sales. However the inflation rate is stabilizing and is at 10.26% and the SBP

has decreased interest and is expected to further cut the interest rates. The

rupee depreciation during the year has been beneficial for the exporters, as

unit prices in PKR have increased for the textile segment.

Social

In rural areas of Pakistan there are fewer opportunities to earn a living, so

many bread earners move out to find a better earning opportunities. They

mostly find jobs in different sectors including textiles and also prove to be low

cost labor. This benefits the companies in competing in terms of cost.

Technology

25

Pakistan is facing serious power crises in terms of electricity shortage and gas

shortage as well. Due to this many textile units have completely shut down

and many units have to cut down production. Since decades many incentives

were given to the local industry such as tax rebates, R&D support in 2007.

The domestic companies took advantage of such policies but were not able to

add value to the textile exports due to which Pakistan exports are falling

sharply.

Demand & supply

The demand and supply of a Dawood textile industry depends upon few main

factors. Some of them are mentioned below.

1. Internal Conditions of the home country

2. Condition of the country where the end product is to be exported

3 Global financial conditions

If we take an example of current situation of textile sector we’ll come to know

that the demands are much more then supply. Reason for less supply from

industry is

1. Shortage of Cotton.

2. Unavailability of Skilled Labor

3. Problems of Electricity Shortage

4. Problems of Gas shortage

5. Improper law and order situations

6. Unrealistic hike in fuel prices

The textile industry can supply more then it is already supplying if the above

mentioned problems get solved.

26

Regarding past if we compare then the demands were high but the supply

was low because of hike in freight charges and also the raw material which

depends upon oil or we can say due to hike in the prices of all petrochemical

products which are necessary for a textile industry. For example:

1. Plastic Resin: Which is used for making plastic bags

2. Dyes: Used as colorants

3. Chemicals of all types used in dyeing and finishing processs

4. Lubricants.

5. Fuel ( which is some what stable now then before )

6. Transportation charges.

In future if our government can provide the better fuel including power and

natural gas then much of the problems of a textile industry will get solved in

this way.

Contribution to Sectoral GDP & Position among other

Companies in the Sector

The Ranking of Dawood Lawrencepur according to its sector can be seen

from the below table which shows that the company has Rs. 245.6 million of

net worth and a net income of 289.7 million and net profit of 29.8 million

rupees. Due to the present changes in the company, that is selling off of the

plant and discontinued operations the companies earning has suffered a

major downfall as compared to the industry.

COMPANY NAME RS. IN MILLION NET WORTH

RS. IN MILLION NET INCOME

RS. IN MILLION NET PROFIT

A.A. TEXTILES LTD. 223.2 822.3 53.9

AHMAD HASSAN TEXTILE 209.8 659.4 101.8

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MILLS LTD.

AL-ABID SILK MILLS LTD. 352.3 2033.1 80.8

AL-HAMAD TEXTILE MILLS 96.3 380.2 28.2

ALLAWASAYA TEXTILE 7 FINISHING MILLS LTD.

77.6 589.4 28.9

APOLLO TEXTILE MILLS LTD. 213.3 968.8 18.8

ARTISTIC DENIM MILLS LTD 321.2 917.2 55.4

AYESHA TEXTILE MILLS LTD. 152.8 1211.6 118.2

BENGAL FIBRE INDUSTRIES LTD.

91.8 389.5 19.3

BHANERO TEXTILE MILLS LTD.

325 1308.3 165.2

BLESSED TEXTILE LTD. 215.8 693 116.4

BUREWALA TEXTILE MILLS LTD.

337.9 431.1 60.5

CHANAB FIBER LTD. 108.6 478.6 47.8

COLONY TEXTILE MILLS LTD 96.4 683.3 147.7

CRESCENT TEXTILE MILLS LTD 1425.9 4632.5 246

DARES SALAAM TEXTILE MILLS LTD

92.3 452.1 82.5

DEWAN KHALID TEXTILE MILLS LTD

254.7 560.6 31.9

DEWAN MUSHTAQ TEXTILE 124.8 761.7 38.5

28

MILLS LTD

DEWAN SALMAN FIBRE LTD 458.4 6723.7 514.2

DEWAN TEXTILE MILLS LTD 685.4 2282 121.6

DILON LTD 100.7 186.6 18.5

FAISAL SPINNING MILLS LTD 387.9 714.3 127.9

FATEH TEXTILE MILLS LIMITED

585.2 3636.2 21.9

FAZAL CLOTH MILLS LTD 257.5 1553 107.2

GADOON TEXTILE MILLS LTD 1332.5 3438.6 485.4

GATRON INDUSTRIES LTD 1709.6 4924.9 349.9

GUL AHMED TEXTILE MILLS LTD

1322 4516 558

GULISTAN SPINNING MILLS LTD

214.5 592.8 76.8

GULISTAN TEXTILE MILLS LTD 875.8 2323.6 120.2

GULISTAN SPINNING MILLS LTD

512.2 4373.4 99.8

HUSSEIN INDUSTRIES LTD 276.1 1188.6 35.7

IBRAHIM FIRES LTD 5138.1 6944.2 474.8

IBRAHIM TEXTILE MILLS LTD 239.9 1161.6 52.8

ICC TEXTILES LTD 147 629 31.8

IDEAL SPINNING MILLS LTD 137.2 536.5 22.8

29

INDUS DYEING & MANUFACTURING CO LTD

281.2 2184.7 134.6

ISHAQ TEXTILE MILLS LTD 218.7 742.8 10.8

KHALID SIRAJ TEXTILE MILLS LTD

144.6 367.4 46.5

KOHAT TEXTILE MILLS LTD 96.2 532.3 27.7

KOHINOOR RAIWIND MILLS LTD

525.4 1372.9 132.0

KOHINOOR TEXTILE MILLS LTD

502.8 2251.8 97.7

KOHINOOR WEAVING MILLS LTD

741.8 2140 308.7

LANDMARK SPINNING INDUSTRIES LTD

121.2    

LAWRENCEPUR TEXTILE MILLS LTD

245.6 298.7 29.8

LIBERTY MILLS LTD 193.3 1455.7 35.1

MAHMOOD TEXTILE MILLS LTD

816.1 2936 421.3

MAQBOOL TEXTILE MILLS LTD 146.7 640.7 34

MAIN TEXTILE INDUSTRIES LTD

114.3 807.6 51.4

N.P. SPINNING MILLS LTD 155.8 922.3 61

NADEEM TEXTILE MILLS LTD 188.5 406.7 54.4

30

NAKSHBANDI INDUSTRIES LTD

262.6 1067.2 27.6

NAYAB SPINNING & WEAVING MILLS LTD

251.6 413.5 12.3

NINA INDUSTRIES LTD 352.3 892.4 16.3

NISHAT CHUNIAN LTD 595.5 2367.0 357.5

NISHAT MILLS LTD 4569.6 10134 700.9

PARAMOUNT SPINNING MILLS LTD

286.6 830.7 3

PROSPERITY WEAVING MILLS LTD

244 1141.1 78.5

QUETTA TEXTILE MILLS LTD 245.9 1792.9 110.4

RELIANCE COTTON SPINNING MILLS LTD

236.1 701.3 40.3

RELIANCE WEAVING MILLS LTD

313.4 1306.9 143.1

RUPALI POLYSTER LIMITED 1374.1 2175.2 140.4

S.G. FIBRE LTD 417 808 66

SAIF TEXTILE MILLS LTD 506.1 1066 28

SAMIN TEXTILE MILLS LTD 256.5 1012.9 32.1

SAPPHIRE FIBRES LTD 1305.7 2499.6 500.9

SAPPHIRE TEXTILE MILLS LTD 1108.3 4128.1 650.2

SHAHPUR TEXTILE MILLS LTD 161.2 416.6 24.6

31

SHAHTAJ TEXTILE MILLS LTD 146.8 474 39.6

SUNRAYS TEXTILES MILLS LTD 91.9 861.6 87

TATA TEXTILE MILLS LTD 223.5 793.3 120.7

THAL JUTE MILLS LTD 331.2 1406.4 68.6

TOWELLERS LTD 384.2 1766.4 43.3

YOUSAF WEAVING MILLS LTD 225.9 1271.9 47.9

YUSUF TEXTILES MILLS LTD 122 603 89.1

ZAINAB TEXTILES MILLS LTD 261.1 991.5 61.1

ZAMAN TEXTILE MILLS LTD 89.4 407.2 21.6

III. Analysis of Director’s Report

32

The textile operations and the polyester staple fiber operations at

Landhi were closed down during the year 2006-07, the operations at

Burewala had to be closed down in March 2008. Accordingly, all closed

down operations are classified under 'discontinued operations', as

required under the International Financial Reporting Standard (IFRS) 5

“Non Current Assets held for sale and Discontinued Operations'.

In January 2008 acquired 100% shareholding in Tenaga Generasi

Limited. This company holds an LOI from the Alternate Energy

Development Board and has a Generation License from NEPRA for

setting up a 50 MW Wind Energy Farm.

DLL Group's turnover for the year was Rs. 689.84 million (inclusive of

turnover from 'discontinued operations' of Rs.323.88 million) as against

the turnover of Rs. 1,629.60 million of the previous year.

Earnings per share of the Group were Rs. 31.36 as compared to Rs.

1.81 per share of the similar period last year.

During the year, with the acquisition of 100% share holding in TGL,

DLL became a holding company of TGL.

The company has decided to re-measure its investment in

associate at Cost. This change has been applied

retrospectively.

The Company's profitability during the year was significantly impacted

by the inflationary pressures, power tariff hike and by the need to

rationalize old inventories in 2006.

The figures for the past three years (2001-2003) represent the period

when the Merger had not taken place and those of previous year 2005

are of nine months because of the change in accounting year from

September to June.

In May 2004, the Company name was changed ' Dawood Lawrencepur

Limited' to so as to take advantage of the goodwill associated with the

name of Lawrencepur. This report being the first annual report of the

merged entity, demonstrates the commitment to be better prepared in

the post WTO scenario.

33

IV. Analysis and Comment on Auditors’s Report

The report has been conducted in accordance with the auditing

standards applicable in Pakistan.

The books of account has been kept by the company in accordance

with the company ordinance

The expenditures incurred were for the purpose of business

The expenditures and investments made were also in accordance with

the business objectives

The Zakat was deductable at source under the zakat and ushr

ordinance.

34

V. Vertical and Horizontal Common Sizing

Analysis

VERTICAL ANALYSES (2008-2003) In Percentage termsBALANCE SHEET

2008 2007 2006 2005 2004 2003NON CURRENT ASSETS

Fixed Assets

Property, plant and equipment 4.26 22.5

Operating Asset 11.44 9.75 10.88 8.44Capital Work in Progress 0.115 5.7

Intangible assets 0.11 0.0002

Long Term Investments 27.5 27.5 68.29 51.94 51.52 59.16

Long term loans and advances 9.78 0.015 0.014

Long Term Deposits 1.17 0.86 3.89 0.622 0.676 0.329

33.04 50.8602 83.735 77.792 63.091 67.943

CURRENT ASSETS

Stores and spares 2.5 3.9 1.48 1.91 1.7 2.019

Stock-in-trade 10.94 15.15 10.44 19.09 21.73 11.629

Trade debtors 2.619 7.63 4.71 5.91 6.57 6.01

Short term investments 0.24 0.21 0.075 0.115 0.32 2.156

Loans and advances 0.03 0.16Deposits, prepayments and other receivables 4.79 4.62 2.48 3.71 4.26 3.31Cash and bank balances 3.46 1.76 0.49 1.196 2.29 6.911

24.579 33.43 19.675 31.931 36.87 32.035Assets of disposal group classified as held for sale 42.34 15.61

Total Assets 100 100 100 100 100 100

SHARE CAPITAL AND RESERVES

Issued, subscribed & paid up 26.06 17.58 5.56 7.27 7.87 9.32

Reserves 62.3 65.43 8.69 12.48 13.51 15.99

Unappropriated profit 12.83 19.51 10.2 10.26

Fair value reserve on investment 60.23 38.27 44.89 51.15

88.36 83.01 87.31 77.53 76.47 86.72

NON CURRENT LIABILITIESLiabilities against assets subject to finance lease - 0.97 0.66 1.81 2.74 0.425

Deferred Liabilities 2.1 3.42 1.76 2.5 2.69 3.38

CURRENT LIABILITIES

Trade and other payable 7.63 5.16 2.47 2.94 3.92 4.35

Short term bank finances-secured 5.6 6.74 13.52 10.37 1.139

Current portion of lease liabilities 1.32 0.937 0.56 0.96 1.03 0.2Interest / markup on short term bank finances 0.246

Provision for taxation 0.56 0.621 0.2 0.27 0.316 0.72

35

dividend 0.3 0.43 2.41 3.03

Total 11.61 16.954 12.69 22.43 23.476 13.244CONTINGENCIES AND COMMITMENTS - 10.26 18.13

Total Liabilities and Equities 100 100 100 100 100 100

VERTICAL ANALYSES (2008-2003) In Percentage terms

BALANCE SHEET

2008 2007 2006 2005 2004 2003Sales - net 100 100 100 100 100 100

Cost of goods sold -79.9 -95.01 -94.616 -89.568 -90.95 -90.78Gross profit 20.1 4.99 5.384 10.432 9.05 9.22

Operating expenses

Administrative and general -6.46 -4.47 -3.979 -4.14 -4.16 -4.768Selling and distribution -5.68 -3.71 -3.339 -4.3 -3.61 -2.23Loss from discontinued operations -81.68 -5.92

Operating (loss) -73.72 -9.11 -1.934 1.992 1.28 2.222

Finance cost -0.09 -2.875 -4.07 -2.49 -1.17 -1.32

Other income 23.059 13.643 6.506 41.45 10.01 16.15

Other charges -0.0026Donation to Earthquake relief fund -0.6679(Loss) / Profit before tax -50.751 1.658 -0.1685 40.952 10.12 17.052

Taxation - current -2.737 -1.228 -0.7 -1.06 -0.875 -2.01

- prior -0.0157 -0.236 - Deffered 1.204 0.479 2.98

(Loss)/Profit for the year after tax -53.488 1.634 -0.8685 39.892 9.7083 17.786

36

HORIZONTAL ANALYSES (2008-2003) In Percentage terms

BALANCE SHEET

2008 2007 2006 2005 2004 2003NON CURRENT ASSETS 100

Fixed Assets 100

Property, plant and equipment 76,286,430 543,766,550 100

Operating Asset 249.5597 148.0515 152.4301 100Capital Work in Progress 100

Intangible assets 1,987,421 6900 100Long Term Investments 22.13421 29.84008 212.6152 112.5519 103.0908 100

Long term loans and advances 0 0 0 84.18373 124.7119 100

Long Term Deposits 169.0466 168.1174 221.1545 242.3281 243.1303 100

100

CURRENT ASSETS 100

Stores and spares 59.16137 124.157 136.7135 121.3025 99.94338 100

Stock-in-trade 44.81101 83.59441 165.3697 210.5154 221.2335 100

Trade debtors 20.74004 81.40362 144.7853 126.1839 129.4685 100Short term investments 5.337458 6.474139 6.523559 6.869506 17.99244 100

Loans and advances 565,433 3,924,264 100Deposits, prepayments and other receivables 68.85479 89.39726 138.0375 143.5686 152.284 100Cash and bank balances 23.85453 16.36852 13.24372 22.1821 39.29559 100

36.55825 66.97681 113.3741 127.8206 136.322 100Assets of disposal group classified as held for sale 758,363,668 376,699,002 100

Total Assets 47.60145 64.13287 184.1495 128.1817 118.372 100

100SHARE CAPITAL AND RESERVES 100

Issued, subscribed & paid up 133.1 121 110 100 100 100

Reserves 185.3668 262.29 100 100 100 100

Unappropriated profit 0 0 230.1745 243.7881 117.7376 100

Fair value reserve on investment 216.7745 95.90944 103.8914 100

Captal and Reserves 118.2123 149.6286 140.1637 141.4704 105.1158 100

100

NON CURRENT LIABILITIES 100Liabilities against assets subject to finance lease 0 146.9327 285.791 546.1221 762.9798 100

Deferred Liabilities 29.67091 65.04591 96.28082 94.80581 94.35947 100CURRENT LIABILITIES 100Trade and other payable 83.42893 76.06013 104.1859 86.59669 106.7407 100

Short term bank finances-secured 0 315.5751 1089.193 1521.665 1078.238 100

Current portion of lease liabilities 312.6761 298.7532 511.6346 614.7002 607.1488 100Interest / markup on short term bank finances 5945176 100

Provision for taxation 37.64982 55.33764 52.61793 48.08809 51.99817 100

37

dividend 18.22472 18.44461 94.10717 100

Total 47.96072 85.32074 200.0177 245.9525 226.2396 100CONTINGENCIES AND COMMITMENTS 184.1495 100

Total Liabilities and Equities 47.60145 64.13287 128.1817 118.3727 100

HORIZONTAL ANALYSES (2008-2003) In Percentage terms

INCOME STATEMENT

2008 2007 2006 2005 2004 2003Sales - net 27.26 90.41 137.79 90.38 119.23 100Cost of goods sold 23.98 94.61 143.63 89.15 119.41 100Gross profit 58.87 48.38 80.64 102.41 116.93 100Operating expenses 100Administrative and general 36.95 84.76 114.99 78.54 104.09 100Selling and distribution 69.38 150.35 206.11 174.19 169.83 100Loss from discontinued operations 300825659 72349185 100Operating (loss) 908.47 372.59 120.46 81.06 68.5 100Finance cost 1.85 196.57 424.58 170.85 105.43 100Other income 38.917 76.35 55.49 231.9 73.88 100Other charges 50,000 100Donation to Earthquake relief fund 12432869 100(Loss) / Profit before tax 81.23 8.73 1.4 217.06 70.71 100Taxation 100 - current 37.19 55.33 52.61 48.085 51.99 100 - prior 0 0 0 0 7.92 100 - Deffered 0 36.5 0 0 19.16 100(Loss)/Profit for the year after tax 82.05 8.24 7.28 202.6 65.01 100

VI. Ratio Analysis

38

2008 2007 2006 2005 2004 2003

Liquidity

Ratios

Current

Ratio 2.584 2.661 1.922 1.762 2.043 2.083

Quick Ratio 1.171 1.145 0.7584 0.603 0.745 1.946

Cashflow

Ratio 1.945 1.179 0.320 0.170 (0.553) 0.786

Average

collection

period 46.49 55.033 64.225 83.335 66.368 61.125

Average

inventory per

day 298.86 144.72 171.50 338.228 260.125 152.855

Average

payable in

days 169.488 39.197 35.37 47.35 43.574 48.76

Turnovers

Recievable 3.187 3.51 3.95 2.82 3.909 3.32

Inventory 0.839 1.25 1.27 0.695 1.09 0.916

Payable 1.479 4.98 7.288 4.769 5.70 4.775

Fixed Asset 4.705 2.246 2.322 1.637 3.324 4.24

Total Asset 0.206 0.506 0.269 0.253 0.362 0.359

Leverage

Debt Ratio 0.116 0.1698 0.1269 0.224 0.235 0.133

Long term

debt to

Capital 0.0232 0.050 0.027 0.052 0.066 0.041

Debt to

equity 0.131 0.2036 0.145 0.289 0.307 0.1526

Profitability

Ratios

39

CashFlow

Margin 0.732 0.258 0.051 0.028 (0.394) 0.0489

Gross profit

margin (0..242) 0.0108 0.053 0.1043 0.090 0.0636

Operating

margin (o.381) (0.0656) (0.026) 0.0198 0.0127 0.0256

Net Profit

Margin (0.535) (0.01622) (0.00868) 0.3986 0.0969 0.17786

ROA (0.11) 0.008 0.047 0.1009 0.035 0.046

Roe 12.45 0.99 5.86 13.01 4.58 5.36

EPS (4.22) 0.42 5.90 13.88 4.45 3.43

P/E (33.56) 195.24 13.03 5.12 19.33 18.66

Dividend

Yield 0.71 1.22 1.30 1.41 2.91 11.72

VII. Analysis of Financial Statements

Income Statement

40

During 2008, the company achieved sales of Rs. 689.84 million (inclusive of

sales from 'discontinued operations' of Rs. 323.88 million) against the sales of

Rs. 1,629.60 million for the previous year. After taking into account the loss

from the closed down operations of Rs. 300.83 million (2007: Rs. 72.35

Million), the operating loss of the company stood at Rs. 271.64 million as

against Rs. 111.41 million for last year. The loss before taxation is Rs. 187.04

million as compared to profit of Rs. 20.11 million of the similar period last

year.

DLL Group's turnover for the year was Rs. 689.84 million (inclusive of

turnover from 'discontinued operations' of Rs. 323.88 million) as against the

turnover of Rs. 1,629.60 million of the previous year. The operating loss of the

company stood at Rs. 271.70 million as against loss of Rs. 111.41 million.

With the share of profit from associate of Rs. 1,873.60 million (2007: Rs.

223.46 million) the profit before tax was Rs. 1,646.24 million as against profit

of Rs. 136.22 million. Earnings per share of the Group were Rs. 31.36 as

compared to Rs. 1.81 per share of the similar period last year.

Analysis of basic elements of income statement

NET SALES

Sales and Growth ( Both real & nominal)

During 2008, the company achieved sales of Rs. 689.84 million (inclusive

of sales from 'discontinued operations' of Rs. 323.88 million) against the

sales of Rs. 1,629.60 million for the previous year OF 2008.

41

The sales of the company as we can conclude from the horizontal and

vertical analyses show a very fluctuating trend. From the FY 2003 the

sales increased upto 119.23% in 2004 and declined to 90.38% in FY2005,

however in 2005 it consists of computation of 9 months due to the change

in Accounting year. In 2006 ithe sales reached upto 137.79% and den

took a drastic decline to 27.26%. This declined is explained by the

discontinued operation of the company. The textile operations and the

polyester staple fiber operations at Landhi were closed down during the

year 2006-07, the operations at Burewala had to be closed down in March

2008, so this explains the drastic fluctuation in the net sales.

2008 2007 2006 2005 2004 2003

Sales - net 27.26 90.41 137.79 90.38 119.23 100

42

.

We can see from the above graph of 2006 that 70% of the sales value was

dues to the yarn. And the Below chart of 2004 shows that cotton yarn

consisted around 80% of the total yarn value in the sales value.

The sales also have a direct impact n the company's Gross profit margin

which declined to a negative 24.2%. In FY 2003 the gross profit margin

was 6.36% which increased to 9% in FY2004. In 2005 due to the change

in accounting policy the GPM was estimated to 10%, it takes into account

only nine months data. In 2006 The GPM Declined to 5.3% and further it

43

declined to 1.08% in FY2007 due to the discontinued operation and in

2008 it reached to negative 24.2%. The sales had a direct impact on the

Gross Profit Margin of the company. The gross profit of the company

declined to 58.88% at the year end 2008.

The operating margin of the company is the lowest in 2008 .i.e. 38.1%. As

well as the Net profit margin. The behavior of continuous decline explains

that the companies discontinued operations were a part of major sales and

growth of the company.

The Company's profitability during the year was significantly impacted by

the inflationary pressures, power tariff hike and by the need to rationalize

old inventories in 2006.

The company hence must increase its sales of the continuing operations

so as to secure its previous profitable position

COST OF GOODS SOLD

the cost of goods sold of the company throughout 2003 to 2007 remained

around 90% of the sales, however in 2008, it was 79.9% of the sales. This

can again be justified by the affect of discontinued operations. As

compared to 2003 the cost of goods sold declined to 23.98%. The textile

operations and the polyester staple fiber operations at Landhi were closed

down during the year 2006-07, the operations at Burewala had to be

closed down in March 2008. This explains the lower cost of goods sold in

the year 2008. The main components influencing the decreasing Cost of

Goods sold are stocks and spared in part, which has declined to 59.16%

and 44.14% since the year 2003.

Also the company Average inventory per day increased to 298.86 as

compared to 152.855 in 2003. Which can be explained by the increasing

cost of goods sold as compared to the change in the increase in the

44

inventory.

OTHER OPERATING REVENUE

The income from other sources has been fluctuating through out the 6

years which increased to 231.9% in the year 2004 and declined 55.48% in

2005 then reached to 76.35% and eventually fell to 38.45% in the year

2008. It comprises of 23.39% of the sales and is an important reason of

the income to not falls as much as it could have due to the discontinued

operations.

OPERATING EXPENSES

The operating expenses of the company reached to a12.36% of the sales

in 2008, which can be referred to as the highest the company reached in

the last six years. As compared to the company initial year 2003 the

operating expense only comprised of 6.99% of the companies sales which

gradually incread throughout the years and reached to 10%.

This has impact on the operating loss or gain of the company. In 2008 the

Operating profit margin is (38.1%) as compared to the operating profit of

2003 which is 2.56% which is the highest the company achieved in this six

year. The operating expenses had a major impact on reducing the

operating profit margin through out the year.

OTHER EXPENSES

Other charges is minor as in the year 2006 which also includes donation to

the earthquake relief fund. Other charges are only 0.0026% and the

donation comprises of 0.66% of the total sales in the year 2006.

Analysis of special income statement item

Discontinued operations in 2008 and 2007 are the major reasons of a

loss in the profits of the company. The textile operations and the

polyester staple fiber operations at Landhi were closed down during the

year 2006-07, the operations at Burewala had to be closed down in

March 2008, so this explains the drastic fluctuation in the net sales.

45

The figures for the past three years (2001-2003) represent the period

when the Merger had not taken place

In May 2004, the Company name was changed ' Dawood Lawrencepur

Limited' to so as to take advantage of the goodwill associated with the

name of Lawrencepur. This report being the first annual report of the

merged entity, demonstrates the commitment to be better prepared in

the post WTO scenario.

Of previous year 2005 are of nine months because of the change in

accounting year from September to June.

The sale of the disposal held for sale in the year 2007 and 2008.

PROFITABLITY

The Company's profitability during the year was significantly impacted by the

inflationary pressures, power tariff hike and by the need to rationalize old

inventories in 2006.

The figures for the past three years (2001-2003) represent the period when

the Merger had not taken place and those of previous year 2005 are of nine

months because of the change in accounting year from September to June.

46

The Companies Profitability margins can be assessed from the graph above.

In the year 2003 that is the initial year the companies margins were all

positive, with the net profit margin as 11.8% however in the year 2005

Dawood Lawrencepurs NPM increased to 39.9%, this is due to the merger as

well as due to the change is accounting period. The Net profit margin declined

to a negative 28.5% in the year 2008 due to abandonment of the companies

few operations. The Major reasons for the decline in the Net profit are

mentioned above.

The Company Cashflow margin peaked to 73.2% in the last 6 years. In 2004

the company's cash flow margin declined to a negative 39.4% due to the

substantial selling of the shares.

The operating margin of dawood Lawrencepur remained weak through out the

six years of the analyses. The margin reached its negative value in 2008 to

38.1% . The operating margin remained positive for the first 3 initial years.

Which lead to the conclusion that the discontinued operations had a major

impact on the operating profit margin of the company, the operating loss

reached to 908% in 2008 and 372% in 2007 as compared to a positive

47

operating margin of the year 2003. The discontinued operations were the

major reason. The company needs to utilize its current operations to a

maximum.

The sales also have a direct impact n the company's Gross profit margin

which declined to a negative 24.2%. In FY 2003 the gross profit margin was

6.36% which increased to 9% in FY2004. In 2005 due to the change in

accounting policy the GPM was estimated to 10%, it takes into account only

nine months data. In 2006 The GPM Declined to 5.3% and further it declined

to 1.08% in FY2007 due to the discontinued operation and in 2008 it reached

to negative 24.2%. The sales had a direct impact on the Gross Profit Margin

of the company. The gross profit of the company declined to 58.88% at the

year end 2008.

The Chart above shows that the company ROA is weak throughout the years

of our analyses and goes negative in the year 2008 of 11%. The Net income

over the total assets ratio. Which indicates that the companies net income is

not increase in pace with the increase in the total asset. Dawood Lawrencepur

needs to increase in total income. However from the analyses done, the

company's nets income suffered a major decline due to the discontinued

48

operations. The net income increased to 202% in the year 2005 and then

declined to 7.28% in 2006 and eventually declined to 82.05% in the year

2008. This again shows the impact of discontinued operations.

The Chart above shows the EPS which confides with the earning patterns of

the company analyzed throughout. EPS in the year 2005 reached its peak

to13.88% however after that (due to the discontinued operations and the

inflationary pressure, the merger that took place) the EPS of the company

declined drastically to 5.96% in 2006 and further to a negative (4.22%) in the

year 2008. The company needs to concentrate on improving its earnings.

49

Dawood Lawrencepur P/E shows a stable and a positive pace throughout the

6 years of analyses and peaked in the year 2007 to 195.24% and then went

negative in the year 2008 that is -33.56%. This is due to a good market share

of the company. The EPS since showed no improvements eventually the

market share of the company also declined. The earning made the investors

loose faith in their investment due to the declining trend of the company's

EPS.

Dividend

Yield % 0.71 1.22 1.30 1.41 2.91 11.72

The company had a dividend yield of 11.72% and then it declined

substantially in 2004 to 2.91% in 2004 and kept declining to 0.71 % in the

year 2008. This is due to the DPS given and declining EPS.

Balance Sheet

Analysis and insight on Assets

The companies Assets as we can see from the below graph were the

Highest in the year 2006. The assets in 2003 were 3762 million which

increased gradually till the year 2006, But after discontinuing certain

operation in the year 2007 and 2008 the company assets declined

drastically to 1791 million. Also the increased trend in the assets from

2004 can be explained by the company merger which resulted in the

50

increased assets. We can see from the analytical analyses that the

company's non current assets have been more as compared to the current

assets of the company. However in 2008 the major part of the asset of the

company were the assets of disposal held for sale .i.e. 42.34%. In 2007

the Non current assets ratio reached 50.23% of the total assets of the

company.

From the Horizontal analysis of the company, the company's assets have

increased at a substantial rate till 2006 and then declined from there onwards

to 47.60% in the year 2008. The assets increased to 184.89% in the year

2006.

In the NON CURRENT ASSETS, the operating assets reached to 249.597%

as compared to 2003. And the long term deposit were 222.34% No long term

loan and advances were taken in the year 2007, 2009 and 2006. IN 2008 long

term deposits were reached upto169.04%. Intangible assets were acquired by

the company in 2007 and 2008. As compared to the increasing long term

investments in the previous year, in 2008 and 2007 its acquisition declined to

22 and 29%.

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In CURRENT ASSETS, it shows a declining trend from 2004 which increased

to 136.322% in 2004, after the merger the rate declined to 127% in 2005,

113% in 2006, and then 66% and 36% in the year 2007 and 2008. IN the first

3 initial years the current assets composed around 30% part of the total asset,

in 2006 the currents assets were only 19.6% of the total assets which

increased in 2007 to 33.34% and in 2008 declined to the rate of 24.579 of the

total assets.

The stocks and spares held a major portion of the current assets throughout

the 6 years amounting to 13.94% of the current assets in the year 2008. The

second major portion of the current assets is the trade debtors. The dash and

bank balances show a decreasing trend from 39.29559% in 2004 gradually

decreasing to 13.24% in 2006 and increasing to 23.85% in the year 2008.

Analysis and insight on Liabilities and Shareholder’s Equity

The companies Liabilities and stockholders Equity has the same trend to that

of the assets of the company. From the Vertical and common size analyses

of the company it is noted that the company contains more then 70% of the

liabilities in the total liabilities and the stock holders equity sections of the

company. The Major portion of stockholders Equity is the fair value reserve on

the investment amounting to 60.23% of the total liabilities and SHE in the year

2006. In 2008 and 2007 there was no fair value of reserve on the investment..

In the total Liabilities section the company's current liability has heavy weight

as to the weight of the non current liabilities. Shows a bell shape pattern

referring to 13.244% of the total liabilities and stockholders equity in 2003,

increasing to 22.43% in the year 2005 and then declining substantially to

11.61 percent of the total liabilities and the stock holder's equity. The total

liabilities increased to 226.65% in 2004, declined to 2005 in 2006 and

eventually reached to 47% liabilities as in the year 2008 as compared to the

year 2003. The Major portion that is the trade and other payable in 2006 was

the highest 108.56% and then declined to 83.428% in the year 2008.

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LIQUIDITY

The trend of the Dawood Lawrencepurs current and Quick ratio shows a

fluctuating or a cyclical type pattern. The company at the year end shows

that its liquidity position has increased as compared to the 1.802 and

0.508 of current and quick ratio of the year 2001 to 2.584 and 1.171 in the

year 2008. In the year 2005 and 2004 the company's liquidity position went

down to 1.762 in 2005 and following the pattern in 2006. This is due to the

change in the accounting period in the year 2005 and due to the merger of

the company. This low ratio can be understood by analyzing the current

assets and current liabilities position. The current assets during the year

2006, 2004 and 2005 amounted to 19.36%, 39.89% and 36.99% of the

total assets whereas the current liabilities amounted to 12.69% in 2006,

22.43% and 23.47% in the year 2005 and 2004. The Company's

profitability during the year was significantly impacted by the inflationary

pressures, power tariff hike and by the need to rationalize old inventories

in 2006. The quick ratio for is showing a weak trend, it means that the

company is holding large amount of inventory and not utilizing it efficiently

to pay off its current liabilities.

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From the above chart, it can be analyzed that the companies Average

collection period has maintained a steady pace fluctuating now and then.

The company is collecting its receivables in 61.25 days in the year 2003,

which increased to 83.335% in the year 2005 and thereon declined to

46.49% in the year 2008. The receivables declined to 20.38% in this year

due to the reduced sales in the year of 27.26% which showed progress in

collecting the receivables.

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The company's inventory per day shows a progressive impact as the

companies cost of goods sold is increasing steadily with the increase or

more to the increase in the inventory made per day which in 2003 was

152.23% and reached to 338% in the year 2005 and declined over the

next 3 years but reached 298.86% in the year 2008. The stores and

spares were the major portion of out inventory which reached to 55% and

44.81% in the year 2008.

The company is making its payable slow throughout the year in 40-50

days but in the year 2008 the payable per day increased to 169.488%

TURNOVERS

Dawood Lawrencepur receivable turnover shows a fluctuating rate

throughout the six year. In 2003 the company is collecting 3.32 receivables

times in a year which is increasing every alternate year and reaches 3.187

times in the year 2008. The turnover is however weak which we have

discussed above.

The firm inventory turnover is less. The firm has an efficiency of selling

0.916 times inventory in the year 2003, which remains stable through out

the coming year. The Cogs of the inventory are less as compared to the

sales made.

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The firms payable turn over shows sensitivity over the years. It reaches

7.288 times in the year 2006 and declines to 1.479 times in 2008.

The fixed assets as noted above had a more then 75% ratio in the totals

assets, hence the fixed asset turnover is much higher and covers up to 4.7

times of the sales in the year 2008 The company needs to reduce its fixed

assets.

The total asset turnover is less. In the year 2007 it reached 0.506 times

the sales. The firm is utilizing less resources, this is due to the result of

three major things; mergers, change in the accounting period,

discontinuing operations.

Cash Flow Statement

Dawood Lawrencepur only generated positive cash flow in two years in the

last six year. As we can see from the table given below, it shows the cash

flow generated in the year 2003 and the year 2008 amounted to 217 and

62 million. The cash suffered a drastic decline in 2004 amounting to a

negative 359 million and then in 2005 it peaked to 594 million. In the yea

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2004, the company suffered loss in its cash flows due to the merger with

the other company. Also in 2005 due to the change in accounting period.

In 2006, due to the inflationary pressures the company suffered losses and

the cash generated was recovered in the year 2007 and 2008 as the

company discontinued some of its operations which generated cash of

about 62 million rupees.

On the further analyses of the cash flow statement, the companies cash

generated from the financing actives are negative through out. The

dividend is paid less in the year 2008 and 2007 where as the finance lease

payment increased as compared to the preceding years.

The cash generated from investing activities is the only source which gave

positive cash flows in all years except in the year 2005. Purchasing of

shares and fixed capital expenditure was the major reason for the negative

generation of cash from the investing activities in the year 2005. In 2004

the sale of shares for the merger resulted in generating huge cash flows

for the company. Where in the year 2008 and 2007 the most cash is

generated for operation as a result of the sales of disposals and

discontinued operations which brought positive cash flows for the

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company.

Analysis of Statement of Changes in Equity

In the year 2008 the statement of equity has changed to 1528 million rupees.

The portions considered here include the mergers, the capital reserve the

share right etc. from 6049 million in the year 2006. The capital reserves were

the major portion of the change (Mergers and disposition) accounting for the

most part of the changes. The changes resulted in 3204 million rupees in the

year 2004.

VIII. Analysis of Capital Structure of The firm

The Graph above shows the capital structure of the firm, which shows that

throughout the six years the firm's capital structure consists of 75 – 89% of the

contribution to it by the equity sector and the rest percentage is financed by

the current and noncurrent liabilities of the firm. The contribution by the

liabilities reached 22% in 2005 which was the highest in the considered

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analyses. The amount relates to the 9 month data due to the chance in the

accounting period.

We can see from the graph below that in the year 2005 and 2004 12.69%

and22.4% of the total assets are being financed by the debts of the company.

The total debt of the company increases to 245% and 226% as to change

from 2003. Where as the Liability . The firm's total liabilities and equities

decreased to 47.60% in the year 2008, after peaking to 184% in the year

2006.

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The graph above is the analyses of the company's long-term debt to

capitalization ratio which shows that the long term debt is the major part of

financing the business. Which reaches to 6.6% in the year 2004 due to the

merger of the firm. The deferred liabilities are the major portion of the long

term debt in the permanent financing of the debt. Although the ratio

throughout is less the major portion of financing is done by the current

liabilities amounting to 9.6% in the 2008. But the major financing of the

business is through equity hence the company's liabilities i.e. current and non

current ratios are less.

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The graph below shows the capital structure of the firm. The ratio increased to

30.7% in the year 2004 and declined gradually to 13.1% in the year 2008, as

the result of discontinued operations and mergers.

.

IX. Analysis of Bad Debt method used by the

company

Trade debts are carried at original invoice amount less provision for

impairment. Known bad debts are written off, while provisions are made

against debts considered doubtful based on review of outstanding amount at

the end of the year.

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X . POSITION OF DAWOOD COMPARED WITH THE

INDUSTRIAL AVERAGE

PROFITABILITY

The gross profit margin is less as compared to the industrial average only in

the year 2004 does the companies gross profit margin reaches close to the

industrial average. The operating profit margin of the company is minimum as

compared to the industry. Not in 8 years does it reach close to the industry.

The Net profit margin of the company although shows an upward trend

through out the eight years of analyses. The return on equity shows an above

average rate of growth specifically in the year 2008 to 12.46%. The return on

assets has remained negative through out the years as compared to the

industry. The cash flow margin has also shown an upward trend mainly due to

the sale of discontinued operations. The EPS of the company has also shown

a below average trend as compared to the industry.

LIQUIDITY

The above chart shows that Dawood Lawrencepur is not competing very well

to the industrial average of the textile sector. The current ratio shows a below

average trend constantly throughout the 8 years of analyses. However the

company's quick ratio shows an upward trend as compared to the industry.

The cash flow liquidity ratio is also showing a downward trend as compared to

the industrial average of the textile sector.

The average collection period of the company is greater which means its

collecting its receivables in much more delaying period as compared to the

industrial average of the companies. The payables of the company are made

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in more then hundred days which mean that the company is slow is collecting

as well as making payments as compared to the industrial average.

EFFICIENCY

The receivable turnover is below the industrial average of relievable

turnovers, much below, which means mean that the company is collecting its

receivable fewer times in a year as compared to the industry. The company's

inventory turnover also shows a below-average trend. The payable turnover of

the company is also below average although the companies fixed asset

turnover shows an above average trend. The total asset turnover also shows

a below average trend.

SOLVENCY

The company's solvency position is below average to the industrial computed

rates which shows that the company's debt financing is less and much

dependence is on the equity financing as compared to the industrial average

INVESTORS ANALYSES

Dawood lawrencepur's Earning per share has remained positive through out

the year but less then the industrial average, this is the result of the losses the

company suffered in the few years of analyses, the change in accounting

policy, closing down of some operations and discontinued operations, but the

company offers good perspective in the future.

XI. Analysis of Depreciation method used by the

company

The Company reviews appropriateness of the rate of depreciation on plant

and equipment, useful life and residual value used in the calculation of

depreciation. Further where applicable, an estimate of recoverable amount of

assets is made for possible impairment on an annual basis.

Depreciation is provided on a diminishing balance method at the rate

mentioned in the relevant note except for lease hold land which is amortized

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on straight line method. Depreciation is charged from the date the asset is put

into operation and discontinued from the date the asset is retired.

Depreciation of leased assets is charged to income. The related obligations of

leased assets are accounted for as liabilities.

XII. Analysis of cost flow assumption employed

by the company

Stores, spares and loose tools are valued at average cost except for

items in transit which are stated at cost incurred upto the balance sheet

date. For items which are slow moving and /or identified as surplus to

the Company's requirements, adequate provision is made for any

excess book value over estimated realizable value. The Company

reviews the carrying amount of stores and spares on a regular basis

and provision is made for obsolescence.

Stock in trade is valued at the lower of cost and net realizable value

Cost incurred in bringing each product to its present location and

condition are accounted for as follows.

(a) Items in transit/bond are valued at cost comprising invoice values

plus other charges incurred thereon upto the balance sheet date.

(b)Net realizable value signifies the estimated selling price in the

ordinary course of business less cost necessary to be incurred to make

the sale

(c)Trading goods are accounted for on cost which is the invoice value

plus other expenses incurred to bring them to the point of sale.

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Plant and equipment: The costs of replacing part of an item of

property, plant and equipment is recognized in the carrying

amount of the item if it is probable that the future economic

benefits embodied within the part will flow to the company

and its cost can be measured reliably. The carrying amount of

the replaced part is derecognized. The costs of the day to day

servicing of property, plant and equipment are recognized in

profit or loss as they are incurred.

XIII. Policy Analysis

During the year 2008, with the acquisition of 100% share holding in TGL, DLL

became a holding company of TGL. In line with paragraph 35 of IAS 28, in the

separate financial statements of the Holding Company, the investments in

associates where significant influence exist are required to be measured

under cost or fair value as envisaged in IAS 27. Previously the investments in

associates where significant influence exist were measured under equity

method of accounting as required under IAS 28. Accordingly, the company

has decided to re-measure its investment in associate at Cost. This change

has been applied retrospectively.

Had this policy been not changed the investments in associate

would be higher by Rs. 3,125.59 million and reserves would be

higher by the same amount.

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XIV. Insight and Recommendation for Investors

& Creditors

In order to improve liquidity position, company has to utilize its

inventories to an optimum level to reduce its holding cost.

Company needs to improve its asset utilization to improve its liquidity

position to pay off their current liabilities.

Dawood lawrencepur should increase current assets to improve its

liquidity position because it acts as a guarantee to the creditors for

meeting its current liabilities.

The company should try to reduce its equity and go for debt finance

because with high equity comes high losses and that is one reason the

company is suffering from losses

Dawood Lawrencepur should either reduce its expenses, but also to

increase its sales so as to cover from the losses suffered from the

discontinued operations as that are one reason they are increasing

their debt and seem incapable to bear the rising inflation.

They should negotiate with government regulatory authorities to

remove price freeze

They should come up with finance mix that shifts towards debt

financing

Company’s sales are decreasing and so are the average collection

period is not improving with this decrease, company should employ

more efficient people who can get these receivables back on time, but

mostly it should increase its sales.

In 2008, company’s selling and distribution expenses have decreased

to 36.95 and 69.38% at the same time sales decreased to 27.26%.

Looking at the profitability ratios we can say that company is getting

itself into serious problems. Main issues are the discontinued

operations which have dented the company’s profits. This can damage

the confidence of the investors and also puts a question mark on

company’s management abilities. To attract more investors the

management should think of strategic solutions to bring its costs down

and manage its operations well because with improvements in profits

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the company will be able to get improvements in its market price

because profitability is one the major aspect on which investors keep a

close look because it also reflects the ability of company’s

management.

To improve sales growth management will have to come up with some

strategic solutions to increase the sales growth to attract more

investors for the company and to have attractive gross and net profits

in the coming years.

From management point of view profitability is also a major aspect

because higher profitability will eventually help the managers in getting

more benefits and higher salaries. Top management must also think of

downsizing to bring its administrative costs down to an acceptable

level.

Agency costs must also be taken care of so that management should

work in best interest for the company rather than looking for their own

personal benefits. The solutions for this can be to give executive stock

options to the management which will motivate them to work for

company’s own benefits which will benefit the management as well.

The earnings per share have declined sharply because of low

earnings. This is reducing the attractiveness for investors in Dawood

Lawrencepur LTD.. So, earnings per share should be improved by

focusing on the earnings growth.

After analyzing the market ratios for Dawood lawrencepur, we observe

that the major market value indicators have been declining. This is

because the earnings are declining. So, there is a major problem with

earnings which should be improved and the Sales which should

increase.

In view of the escalating gas and oil prices, we need to employ

alternative sources of energy. We are actively pursuing this option.

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XV. Forecast & Future Outlook

With a very difficult year behind the company, the management has recently

taken the necessary steps to bring about material improvement in the

company's operations. The increased focus on line efficiencies improvement

and product rationalization, should lead to improved results in future.

Having understood the issues that the nation faces, the Dawood Lawrencepur

conceptualized on what role a traditionally textile driven company can play in

the energy sector. The more Dawood lawrencepur studied the clearer it

became that exploring opportunities in the renewable energy sector was

indeed not only possible but desirable. Therefore DAWOOD LAWRENCEPUR

focused on wind power, a global competitive and commercially viable solution

to generate power within everyone's reach.

XVI. Conclusio n

The cotton textiles operations having become unsustainable on account of the

continuing losses and to arrest the decline in shareholders value, your

company has taken steps over the last 18 months to close down these

operations in stages. Whereas the textile operations and the polyester staple

fiber operations at Landhi were closed down during the year 2006-07, the

operations at Burewala had to be closed down in March 2008. Accordingly, all

closed down operations are classified under 'discontinued operations', as

required under the International Financial Reporting Standard (IFRS) 5 – “Non

Current Assets held for sale and Discontinued Operations'.

Due to this the companies sales will increase as the discontinued operations

was the major reason of the difficult year the company faced. The inflationary

pressures was also one of the reason for the losses the company suffered

Having understood the issues that the nation faces, at Dawood Lawrencepur

management conceptualized on what role a traditionally textile driven

company can play in the energy sector. The more we studied the clearer it

68

became that exploring opportunities in the renewable energy sector was

indeed not only possible but desirable. We therefore focused on wind power,

a global competitive and commercially viable solution to generate

power within everyone's reaches.

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REFERENCES

The Annual statements of the Dawood Lawrencepur Ltd.

http://www.dawoodlawrencepur.com/dll%20report%202008.pdf

http://www.dawoodlawrencepur.com/Annual_2006_DLL.pdf

http://www.dawoodlawrencepur.com/Annual%20Report%202004%20DLL.pdf

http://www.dawoodlawrencepur.com/

http://www.equitymaster.com/detail.asp?date=3/31/2006&story=1

http://docs.google.com/viewer?a=v&q=cache:7fWq-78polEJ:prr.hec.gov.pk/

Chapters/187-

2.pdf+demand+and+supply+textile+industry&hl=en&gl=pk&sig=AHIEtbS2wtY

vtnIgcNQ-oebVa8eKHIcXbw

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