Sugar & Allied Industries: SANGHAR SUGAR MILLS LIMITED - Year Ended September 30, 2005 (Audited)
Sanghar Sugar Mills Limited (Sanghar Sugar) is a public limited company incorporated in Pakistan under the Companies Ordinance, 1984. Its shares are listed on Karachi and Lahore Stock Exchanges. The company is principally engaged in production and sale of sugar. It had 348 permanent employees on September 30 2005 (2004: 351 employees).
Authorised capital of the company is Rs 200 million, comprising 20 million shares of Rs 10 each. As on September 30, 2005 the paid up capital was Rs 119.460 million held by 956 shareholders. Of the total capital, 939 individuals hold over 77% shares (the directors/Chief Executive holding over 13%). The national Bank of Pakistan (Trustees Department) holds 18% shares. The rest of the shares are distributed among a small number of corporate entities including banks and DFIs.
Sanghar Sugar was able to produce 30,024 MT of sugar during 2004-2005 season compared to 47,274 MT sugar produced in the last season. Details on working days, sugarcane crushed and production of sugar are given below.
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Season Season
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Sugar Unit 2004-2005 2003-2004
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Capacity - Tons Crushing per Day Not provided Not provided
Actual Crushing - MT: 330,744 532,824
Sugar produced (MT): 30,024 47,274
Recovery %: 9.15% 8.90%
Duration of crushing season-Days: 103 159
Molasses Production - (MT): 17,351 35,142
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The Auditors in paragraph d) of their Report to the Members state as under: "Without qualifying our opinion, we draw attention to note 1.2 to the financial statements. The company had incurred a loss of Rs 55,002 thousands during the year.
As of balance sheet date, the Company's accumulated loss amounts to Rs 142,320 thousands and its current liabilities exceed its current assets by Rs 130, 535 thousands. These conditions indicate the existence of material uncertainty, which may cast doubt about the Company's ability to continue as a going concern".
Note 1.2 on Going Concern, is as under:
"The Company had incurred substantial operating losses in prior years including the year ended September 30, 2003.Main reason whereof being under utilization of its achievable production level due to paucity of sugarcane because of shortfall of irrigation water in Sindh. During the year ended September 30, 2004, the Company made profit due to ease in supply of quantity of sugarcane for crushing at reasonable price as compared to previous year.
During the year ended September 30, 2005, the Company and other sugar mills in Sindh had again faced problem of paucity of sugarcane which resulted in crushing of lower quantity of sugarcane besides burden of higher procurement cost of sugarcane as compared to last year. Consequently, the Company had suffered loss in the year under reference which resulted in the increase of current liabilities over current assets by Rs 130,535 thousand".
"Regarding the Company's ability to continue as a going concern, the management is of the view that the Company has the potential of growth and should Insha Allah achieve better financial position in the coming years. Because the company has monitored the trend and able to reduce its long term financing by Rs 23,720 thousand, obtained short term borrowing of Rs 20,000 thousand and renewal of other cash finance facilities to meet the financial requirements.
Moreover, the Company's directors and their associates who had provided / arranged long term mark-up free loans, also subordinated part of their loans and also committed to continue to arrange necessary financing as and when required by the Company. The management is confident that rational production level, strategic management to reduce the cost under the prevailing situation and the Government's initiative to help the sugar industry particularly in Sindh through rationalizing the price of sugarcane along with price of sugar, would Insha Allah improve the financial position of the Company and thus there is no doubt upon the Company's ability to continue as going concern. Accordingly, these financial statements have been prepared on going concern basis".
Total assets of the company as on September 30, 2005 at Rs 664 million were almost at the level of Rs 667 million as on September 30, 2004.
The deployment of total resources was 84% in non-current assets on September 30, 2005 (2004: 82%) and the rest were current assets. The current ratio is much below unity. Debt to negative equity as on September 30, 2005, debt to equity ratio has not been calculated (2004: 91:09). Of the total debt of Rs 240 million as on September 30, 2005, nearly 50% are directors/associates interest free unsecured loans except that the Chief Executive has given personal guarantee. The Directors/associates have given their consent to subordinate loans of Rs 31 million out of total loans of Rs 122 million.
Net sales for 2004-05 at Rs 568 million were 17% lower over the net sales at Rs 681 million for the previous year. Cost of Goods Sold for 2004-05 was 94% of net sales as compared to 88% of net sales for the previous year. This decreased profitability margins and the company made before tax loss of Rs 20 million for the year ending September 30, 2005 as against before tax profit of Rs 19 million for the previous year.
Due to high income tax particularly the deferred tax, the company closed the year ending September 30, 2005 at an after tax loss of Rs 55 million as against after tax profit of Rs 4 million for the previous year. As a result the company now has a negative equity of Rs 23 million.
The company shares are being traded these days at about 10 % discount to the par value. Performance statistics are given below. The sponsors/directors may consider strengthening the capital structure of the company.
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Performance Statistics (Million Rupees)
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Balance Sheet (Audited) (Rs in 000)
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As on September 30, 2005 2004
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Share Capital-Paid-up: 119,460 119,460
Reserves & un-app. Profit: -142,320 -95,453
Total Equity: -22,860 24,007
Revaluation surplus, FA: 115,910 101,387
LT Debt: 240,373 255,711
Deferred tax & Gratuity, etc: 92,514 51,649
Total - NC Liabilities: 332,887 307,360
Capitalization: 425,937 432,754
Current Liabilities: 238,025 234,268
Total Liabilities & Equity: 663,962 667,022
Operating Fixed Assets: 555,559 545,510
Stores and spares: 45,379 42,621
Stock-in-Trade: 12,400 24,848
Trade Debts: 0 0
Current Assets: 107,490 120,499
Total Assets: 663,962 667,022
Conting.& Commitments: 20,303 18,030
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Ratios:
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Current Ratio: 0.45 0.51
Debt-Equity Ratio: Neg. equity 91:9
Book Val./share - Rs: -1.91 2.01
Quoted Price- (17-7-06)- Rs: 9.10 -
Price/Book Value Ratio: -4.76 -
Contin. & Commit./Equity-X: -0.89 0.75
Income Statement 2005 2004
Net Sales: 568,370 680,996
COGS: 535,819 598,172
Gross Profit: 32,551 82,824
Operating Profit/(Loss): -8,055 37,368
Profit before Taxation/(Loss): -19,855 18,915
Profit after Taxation/(Loss): -55,002 4,215
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Ratios:
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Gross Profit/Net Sales: 6% 12%
Operating Profit (Loss)/Net Sale -1% 5%
Profit after Tax (Loss)/Net Sale -10% 1%
Net Profit (Loss)/Equity: Neg. equity 18%
ROA: -8% 1%
ROCE: -13% 1%
Earnings/Share (Y. end capital)- -4.60 0.35
Cash Dividend: 0% 0%
Stock Dividend: 0% 0%
Inventory Turnover-X: 43.21 24.07
Receivable Turnover-X: No Tr. Debts No Tr. debts
Price/Earning Ratio: -1.98 -
Asset Turnover-X: 0.86 1.02
Days Inventory: 8 15
Days Receivable: No Tr. Debts No Tr. debts
Cash flow Summary 2005 2004
Net Cash flow, Operations: 11,284 -58,364
Net Cash flow, Investing: -9,757 -5,899
Net Cash flow, Financing: -8,397 91,789
Change in net Liquidity: -6,870 27,526
Net Liquidity at beginning: 9,691 -17,835
Net Liquidity at end: 2,821 9,691
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COMPANY INFORMATION: Chairman & Chief Executive: Haji Khuda Bux Rajar;
Director: Ghulam Dastagir Rajar; Chief Financial Officer: Muhammad Jawad Durrani; Company Secretary: Abdul Ghafoor Ateeq; Statutory Auditors: Hyder Bhimji & Co, Chartered Accountants; Cost Auditors: Siddiqui & Company, Cost & Management Accountants; Registered Office: 101- First Floor, Ocean Centre, Talpur Road, Karachi Mills: 13th km, Sanghar-Sindhri Road, Deh Kehar, District Sanghar (Sindh); Web Address: Not Provided.
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