DAWOOD HERCULES CHEMICALS LIMITED Annual Report 2007

Manufacturers of Bubber Sher Urea

35-A, Shahrah-e-Abdul Hameed Bin Baadees
(Empress Road), Lahore-54000
Tel: +92 42 6301601 - 07 Fax: +92 42 6360343, 6364316
E-mail: [email protected]
Website: www.dawoodhercules.com

Dawood
Hercules
Chemicals
Limited
 A few home truths...

This year Dawood Hercules highlights and pays tribute to different types of organisations and structures, be it
the constitution of the family, and brings to the fore the businesses, monarchies, sainthood or heads of states.
families of the farmers, the employees and the corporate Many perceive families and family-run structures to be
as the concept extends to the very notion of nationhood in patriarchal, parochial, archaic, and the antithesis of
Pakistan. It is the family that holds Pakistanis together, professionalism and modernity, but in the world of
even those who have immigrated to other countries. It is business, family-owned businesses present a
the quom, the biraderi that inculcates a sense of identity, contradictory reality. Such family-controlled enterprises
and this broadens into the belief of brotherhood that is constitute the majority of businesses in the world. A
pivotal to the religion of Islam as well as the other religions whopping 80-90% of businesses in America are family-
of the Book. owned, while 75% of businesses in Britain are considered
to be family firms. There are many multinational family-
This perspective of nationalism is in consonance with the controlled businesses, notably, L’Oreal, Benetton,
Chinese philosopher Confucius who asserted that “the Siemens, Ikea and Kikkoman.
strength of a nation derives from the integrity of the
home”. In any given society, a family unit forms the So what makes family businesses so popular and in many
foundation of socialisation and enculturation. Families are cases successful globally? The answer is that it is the
therefore fundamental to social cohesion, discipline and mixture of commitment, loyalty, integrity, a legacy to look
perpetuation of all aspects of culture, including religion, up to, a sense of shared identity with the name/business
law, history and tradition. Moreover, families are a source and most importantly emotionality…qualities that are
of love, trust, sharing and protection and thus act as the farmed out from the hearth and home into the world at
gluing agents that bind social structures in communities. large.
Not surprisingly, families often figure at the basis of
 Performance Highlights
KEY FIGURES

497,940
Production (Tons)
12% 1,862 42%
Gross Profit (Million Rs.)

112 12%
Capacity Utilization (%)
1,572 46%
Operating Profit (Million Rs.)

508,540
Urea Sales (Tons)
16% 5,011
Sales (Million Rs.)
29%

KEY EVENTS

Capacity utilization of 112%, A record breaking year,

the highest record in the setting new standards in
Company's history. Sales, Production, Capacity
Utilization, Capital Gains
and Earnings Per Share.

Conversion from ICAP and ICMAP award

interest-based financing for the second best annual
to Islamic financing. report in the chemical and
fertilizer sector.

Market share of Urea For the second consecutive

expanded by 2%. year received the KSE Top 25
Companies Award for 2006.
“Its all in the Family”

Contents
Stakeholders Report 7
Company Information 8
Operating Highlights 12
Notice of Annual General Meeting 16
About Fertilizer 21
Chairman’s Review 25
Directors’ Report 29
Vision and Mission 84
Business Ethics & Core Values 86
Statement of Compliance with the Code of Corporate Governance 90
Review Report to the Members 92
Auditors’ Report to the Members 93
Profit and Loss Account 95
Balance Sheet 96
Cash Flow Statement 98
Statement of Changes in Equity 99
Notes to the Financial Statements 100
Pattern of Shareholding 120
Form of Proxy
What makes an organisation
a home away from home
are the people who give their
time, energy and values to their
company.
Dear Stakeholder,

The role of a business has changed in the past decade.

An organisation is not just about making profits and
projecting operational and financial performance.
Companies have evolved into multidimensional entities
that possess distinctive personas which need to present
more than operational values. They are now required to
manifest ethical and civic facets, and must be aware of
their impact in all aspects, be it environmental, social,
economic, communal, global… and the list goes on.
Thus a corporation now stands as an individual and is
perceived by society as such.

These changes in the evaluation of businesses are

determined by the company's stakeholders, who want to
know more about their organisation and how it runs its
operations, along with what it does as a corporate
'citizen'. We consider everyone who is involved directly
or indirectly with us as a stakeholder, each with varying
degrees of interests in our business; to whom we are
obligated to in diverging ways. It is this responsibility or
corporate duty that we feel has propelled us to
constantly review and improve our processes and
continuously energizes us to tackle new challenges in
through new means that contribute to the benefit of
everyone.
 dh Annual Report 2007 - Company Information dh Annual Report 2007 - Company Information

Company Information

Board of Directors

8 9
Hussain Dawood Shahzada Dawood Khawaja Amanullah S.M.Asghar A. Samad Dawood Abdul Ghafoor Gohar
Chairman Chief Executive Executive Director

Hussain Dawood is the Shahzada Dawood is a He holds an Honours Degree Director of Dawood Hercules A Graduate in Economics Mr. Gohar Joined PIDC -
Chairman of Dawood Hercules director on the boards of in Literature. His lifelong Chemicals Limited since 1999. He from University College National Gas Fertilizer Factory,
Chemicals Limited, Engro Dawood Hercules Chemicals association with The Dawood is also on the Board of Sui London UK. He is a Certified in 1958 as Assistant Process
Chemical Pakistan Limited, Limited, Dawood Group extends over a period Northern Gas Pipelines Limited. Director of Corporate Engineer at Daudkhel. He
Central Insurance Company, Lawrencepur Limited and of five decades during which Mr. Asghar has over 35 years Governance from Pakistan received specialized training
Pakistan Poverty Alleviation Central Insurance Company he has served with most industrial experience in finance, Institute of Corporate in fertilizer industry in France,
Fund and Dawood Foundation. Limited. He is also a director companies of the Group in taxation, legal and corporate Governance. He is one of the Switzerland and Italy and
He serves as a director of Sui
on the boards of Engro various capacities. affairs. An accountant by directors of ABL Asset worked at PAFL and NGFF till
Northern Gas Pipelines Limited
Chemical Pakistan Limited profession, is Member of the Management, Central 1970. He joined Dawood
and Shell. He is a member of
and its associated companies, Institute of Chartered Insurance Company Limited Hercules thereafter and
the World Economic Forum and
Sui Northern Gas Pipelines Accountants of Pakistan as well and an independent director worked in various capacities
Pakistan Business Council. He
Limited and a Member of the as the Institute of Cost and of Pakistan Refinery Limited. including Assistant Plant
is also Honorary Consul of Italy
National Management Management Accountants of He is also the Chief Executive Manager, on BMR at Kelogg's
in Lahore.
Foundation (LUMS). Pakistan. Officer of the Dawood office in London, G.M.
Corporation (Pvt.) Limited. DAHEG, Director Operations,
Director Projects and is
presently Executive Director.
 dh Annual Report 2007 - Company Information dh Annual Report 2007 - Company Information

Board Audit Committee Registered Office Tax Consultants

S.M. Asghar 35-A, Shahrah-e-Abdul Hameed UHY Hassan Naeem & Company
Chairman Chartered Accountants
Bin Baadees (Empress Road),
A. Samad Dawood Lahore, Pakistan 193-A, Shah Jamal Lahore - 54000
Member Tel: +92 (42) 6301601-07 Tel: +92 (42) 7599938, 7599948
Haroon Mahenti Fax: +92 (42) 6364316, 6360343 Fax: +92 (42) 7599740
Member E-mail: [email protected]
[email protected]
Website: www.dawoodhercules.com
Senior General Manager Projects
Muhammad Aslam Plant Auditors
E-mail:[email protected] 28-Km Lahore Sheikhupura Road, KPMG Taseer Hadi & Co.
Chartered Accountants
Chichoki Mallian,
Chief Internal Auditor Sheikhupura, Pakistan 201-Office Block,
Syed Ahmad Ashraf Tel: +92 (42) 7352762-7 Siddiq Trade Centre,
E-mail:[email protected] Fax: +92 (42) 7313380 72-Main Boulevard,
Gulberg-II,
Human Resources Manager Bankers Lahore, Pakistan
Khawaja Ahmed Arsalan Bank Al-Habib Limited Tel: +92 (42) 5781751-6
E-mail:[email protected] Fax: +92 (42) 5781757
Faysal Bank Limited
10 Website: www.kpmg.com.pk 11
Aftab Ahmed Qaiser Gulzar Saleem Habib Bank Limited
Haroon Mahenti Commercial Manager
Company Secretary Chief Financial Officer Habib Metropolitan Bank Limited Legal Advisors
[email protected] [email protected] Ch. Abdul Mughni
E-mail:[email protected] MCB Bank Limited Hassan & Hassan
Mr. Mahenti, is also a director Mr. Aftab Ahmed Qaiser Fellow member of the Advocates
Allied Bank Limited
of Central Insurance signed up with the Dawood Institute of Chartered Information Technology Manager United Bank Limited
PAAF Building,
Ashraf R. Karimi 7D Kashmir Egerton Road,
Company and Dawood Group in 1978 and has Accountants of Pakistan
E-mail:[email protected] Meezan Bank Limited Lahore, Pakistan
Lawrencepur Limited. He has worked in the Group's textile having more than 17 years Emirates Global Islamic Bank Limited Tel: +92 (42) 6360800-03
Fax: +92 (42) 6360811-12
been associated with The
Companies in various experience of managing General Manager Plant
Website: www.hnh.com.pk
Dawood Group for the last 48 Ahmad Din
capacities. He joined Dawood Corporate Planning, Treasury, E-mail: [email protected]
years, during which period he
Hercules Chemicals Limited in Insurance, Taxation,
has managed a number of
2002 as General Manager Secretarial Practices,
companies and trading
Finance. At present he is the Accounting and Auditing in
activities.
Company Secretary. various Industries. He joined
Mr. Mahenti has attended
He is a qualified Chartered Dawood Hercules Chemicals
various Advance
Accountant from the Institute Limited in March 1998.
Management Courses and
possesses a rich experience of Chartered Accountants in

in the field of Financial England and Wales in the year

Management including 1977.

portfolio management and He completed his articles
banking. from Ben-I-Freedman & Co,
Chartered Accountants Cardiff
(UK).
 Each prill, each sack is the
Operating Highlights brain child of a collective effort.

Sr.# PARTICULARS UNIT 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998

INCOME STATEMENT
1 Sales Value Rs. in Million 5,011 3,882 3,291 2,699 2,983 2,810 2,851 2,886 2,215 2,767
2 Gross Profit Rs. in Million 1,862 1,312 1,260 818 1,060 1,010 745 970 623 1,242
3 Operating Profit Rs. in Million 1,572 1,075 1,057 653 888 886 605 842 504 1,147
4 Profit Before Taxation Rs. in Million 11,126 2,590 3,568 1,726 1,686 1,131 823 1,057 819 1,329
5 Profit After Taxation Rs. in Million 10,134 2,054 2,868 1,240 1,379 793 595 764 622 928
DIVIDEND
6 Cash Dividend % 30 80 85 105 100 95 100 100 100 80
7 Stock Dividend % 20 Nil 15 Nil Nil 50 20 Nil Nil 20
BALANCE SHEET
8 Total Assets Employed Rs. in Million 29,223 16,163 12,787 12,300 9,403 5,089 4,380 4,197 4,083 3,841
9 Current Assets Rs. in Million 11,237 8,510 6,364 9,757 6,180 2,267 2,111 1,902 1,716 3,247
10 Current Liabilities Rs. in Million 3,573 6,672 3,345 4,379 2,994 520 758 698 963 935
11 Paid Up Capital Rs. in Million 829 829 721 721 721 480 480 400 400 400
12 Shareholders' Equity with FVR Rs. in Million 18,889 9,273 9,355 7,834 6,365 4,490 3,535 3,420 3,056 2,834
13 No. of Ordinary Shares Million 82.87 82.87 72.06 72.06 72.06 48.04 48.04 40.00 40.00 40.00
RATIO ANALYSIS
14 Gross Profit % 37 34 38 30 36 36 26 34 28 45
15 Earnings Per Share Rs. 122.30 24.79 34.61 17.21 19.13 11.01 12.39 19.10 15.55 23.19
16 Inventory Turnover Time 5.70 12.80 17.46 21.90 17.08 14.18 12.96 8.25 9.38 17.32
17 Age of Inventory Days 64.04 28.52 20.91 16.67 21.38 25.74 28.16 44.25 38.92 21.07
18 Debtors Turnover Time 1,383.24 1,221.98 499.03 364.09 475.90 384.43 342.46 302.98 209.98 57.60
19 Average Collection Period Days 0.26 0.30 0.73 1.00 0.77 0.95 1.07 1.20 1.74 6.34
20 Total Assets Turnover % 17.15 24.02 25.73 21.94 31.73 55.22 65.08 68.76 54.26 72.04
21 Fixed Assets Turnover % 421.57 305.19 712.09 526.37 983.23 842.59 713.38 689.60 453.06 476.43
22 Break-up Value of Share with FVR Rs. 227.95 111.90 129.83 108.72 88.34 93.47 73.59 85.50 76.40 70.86
23 Dividend Yield % 0.76 2.71 3.32 5.34 5.69 7.09 13.70 12.35 9.52 8.99
24 Dividend Payout Ratio % 2.45 32.27 24.56 61.01 52.26 86.32 80.74 52.36 64.31 34.49
25 Return on Equity % 53.65 22.15 30.66 15.83 21.66 17.66 16.83 22.34 20.35 32.73
26 Debt Equity Ratio % 34.41 Nil Nil Nil Nil Nil Nil Nil Nil Nil
27 Current Ratio Time 3.15 1.28 1.90 2.23 2.06 4.36 2.78 2.72 1.78 3.47
28 Interest Cover Ratio Time 13.96 3.69 10.76 14.21 49.27 1,233.31 - - - -
29 Market Value per Share Rs. 393.80 295.00 256.00 196.50 175.60 134.00 73.00 81.00 105.00 89.00
30 Market Capitalization Rs. in Million 32,633 24,446 18,447 14,159 12,653 6,437 3,507 3,240 4,200 3,560
31 Price Earning Ratio Time 3.22 11.90 7.40 11.42 9.18 12.18 5.89 4.24 6.75 3.84
PRODUCTION
32 Designed Production (for 12 months) Thousand mt 445.50 445.50 445.50 445.50 445.50 445.50 445.50 445.50 445.50 445.50
33 Actual Production Thousand mt 497.94 446.70 428.78 351.12 430.60 414.62 381.95 436.90 419.39 423.52
34 Capacity Utilization % 112 100 96 79 97 93 86 98 94 95
35 Sales Thousand mt 508.54 437.73 405.67 361.20 436.83 415.31 396.82 456.63 366.39 436.10
OTHERS
36 Employees Nos. 474 485 472 481 498 525 533 554 584 566
37 Capital Expenditure Rs. in Million 149.00 740.65 235.84 328.15 189.81 11.00 42.00 12.00 12.00 14.00
38 Contribution to the National Exchequer Rs. in Million 857 773 665 724 857 767 615 633 665 616
Be it a “dera” or a corporate meeting, we confer for the benefit of all.
 dh Annual Report 2007 - Notice of Annual General Meeting dh Annual Report 2007 - Notice of Annual General Meeting

Notice of Annual General Meeting

Notice is hereby given that the Fortieth Annual General Meeting of Dawood Hercules Chemicals Limited will, Insha Allah, be held shareholders in proportion of 1 share for every 5 existing ordinary shares held by the members of the Company who are
at the Company's Registered Office at 35-A, Shahrah-e-Abdul Hameed Bin Baadees (Empress Road), Lahore at 1130 hours on registered on the books of the Company on 20th February 2008 and that, after allotment, such new shares shall rank pari
Thursday, 28th February 2008, to transact the following business after recitation from the Holy Quran: passu in all respect with the existing ordinary shares of the Company. These bonus shares will not be eligible for the final
cash dividend of 15% for the year ended 31st December 2007.
ORDINARY BUSINESS:
Members entitled to fractions of shares as a result of their holding either less than 5 Ordinary Shares or in excess of

1. To confirm the Minutes of the Extraordinary General Meeting held on Wednesday, 19 December 2007. exact multiple of 5 Ordinary Shares be given the sale proceeds of their fractional entitlements for which purpose the

16 fractions be consolidated and sold at the Stock Exchange. 17

2. To receive, consider and adopt the Audited Accounts of the Company for the year ended 31 December 2007
together with the Auditors' and Directors' Reports thereon. For the purpose of giving effect to the foregoing, the Chief Executive and the Company Secretary be and are hereby
severally authorised to take all necessary actions under the law and to settle any questions or difficulties that may arise in
the distribution of the said Bonus Shares or in the disposal of fractions and payment of proceeds thereof.”
3. To consider and, if thought fit, approve payment of final cash dividend at the rate of Rs. 1.50 per share (15%) for the
year ended 31 December 2007 as recommended by the Board of Directors. This is in addition to the interim cash
dividend of Rs. 1.50 per share (15%) already paid during the year. 6. To consider and if thought fit, pass with or without modification, the following Special Resolution to increase the
Authorized Share Capital of the Company from Rupees One Billion to Rupees Ten Billion.

4. To appoint Auditors and to fix their remuneration. The retiring Auditors M/s. KPMG Taseer Hadi & Co, being eligible, offer
themselves for re-appointment. “RESOLVED, that the Authorized Share Capital of the Company be and is hereby increased from Rs. 1,000,000,000/-
(Rupees one billion) to Rs. 10,000,000,000 (Rupees ten billion) divided into 1,000,000,000 (one billion) ordinary shares
of Rs. 10/- (Rupees ten) each.
SPECIAL BUSINESS:

FURTHER RESOLVED, that Clause V of the Memorandum of Association of the Company be and is hereby amended
5. To approve the issue of bonus shares in the ratio of 1 bonus share for every 5 ordinary shares held by the shareholders
and reworded accordingly and be read as under:
(20%) as recommended by the Board of Directors. To give effect to the above, the Directors have recommended to
consider and, if thought fit, pass, with or without modification, the following resolution as an ordinary resolution.
v The capital of the Company is Rs. 10,000,000,000 (Rupees ten billion) divided into 1,000,000,000
(one billion) shares of Rs. 10/- (Rupees ten) each.
“RESOLVED, that a sum of Rs. 165,732,480/- (Rupees one hundred sixty five million seven hundred thirty two
thousand four hundred eighty only) be capitalized out of the unappropriated profit of the Company and applied
towards the issue of 16,573,248 ordinary shares of Rs. 10/- each as fully paid bonus shares to be allotted to the The Company shall have powers to increase, reduce, subdivide, consolidate or otherwise reorganize
 dh Annual Report 2007 - Notice of Annual General Meeting dh Annual Report 2007 - Notice of Annual General Meeting

its capital and to divide the shares into several classes from time to time in accordance with the the case of corporate entities, the Board of Directors' rights & bonus shares from time to time in future. It is,
provisions of the Companies Ordinance, 1984. resolution / power of attorney with specimen signature of therefore, considered advisable to increase the authorised
the person nominated to represent and vote on behalf of share capital of the Company from Rupees One Billion to

FURTHER RESOLVED, that the Chief Executive and the Company Secretary be and are hereby severally authorized to do any and all the corporate entity, unless provided earlier, shall be Rupees Ten Billion divided into 1,000,000,000 shares of

acts legitimately required to be undertaken on behalf of the Company to complete all formalities in connection with giving effect submitted to the Company along with the Proxy Form. Rs. 10/- each. The proposed increase of the authorised

to the above Resolution.” share capital of the Company has been unanimously

In order to be effective, Proxy Forms, duly filled and recommended by the Board and requires the approval of

signed, must be received at the Registered Office of the the members in general meeting. Consequent upon the
18 19
Company, not less than forty eight (48) hours before the increase in authorised capital of the Company, its

Meeting. A blank Proxy Form is attached herewith. Memorandum of Association will require alterations so as
Lahore By order of the Board
to reflect the increased share capital. The proposed special
28 January 2008 Aftab Ahmed Qaiser
resolution incorporates approval for corresponding
Company Secretary 4.Change of Address
changes in the Memorandum.

Shareholders are requested to immediately notify the

The Directors of the Company are interested to the extent
change of address, if any.
of their shareholdings in the Company.

Notes: Meeting and vote thereat in person or through Proxy. A STATEMENT UNDER SECTION 160 (1) (b) OF
Proxy, duly appointed, shall have such rights as respects THE COMPANIES ORDINANCE, 1984
1. Closure of Share Transfer Books speaking and voting at the Meeting as are available to a
member. The proxies shall produce their original CNICs or Agenda Item No. 6
original Passports at the time of the Meeting.
The share transfer books of the Company will remain
closed from 20th February 2008 to 28th February 2008 The authorised share capital of the Company presently
(both days inclusive). 3. Proxy stands at Rupees One Billion divided into 100,000,000
shares of Rs. 10/- each. With the growing expansion of the
A member of the Company may appoint another member Company's business, it is desirable to bring the authorised
2. Participation in the Annual General Meeting
as his/her Proxy to attend and vote instead of him/her. A capital of the Company in proper co-relation with the
Corporation being a member may appoint any person, magnitude of the Company's resources and the size of its
All members of the Company are entitled to attend the
whether or not a member of the Company, as its Proxy. In Balance Sheet and to accommodate issuance of further
 dh Annual Report 2007 - About Fertilizer

About Fertilizer

Definition create more nourishment than the soil is naturally able to

supply.

Fertilizer is any naturally occurring or chemically

synthesized material that increases the nutritional value of History
soil needed to enhance plant growth and yield.

The process of adding substances to soil to improve its

Background growing capacity was developed in the early days of
agriculture. Ancient farmers knew that the first yields on a 21

Although, fertilizers in the form of manure were utilized by plot of land were much better than those of subsequent

ancient farmers, the research into the chemical or years. This caused them to move to new, uncultivated

nutritional needs of plants and the mounting pressure areas, which again showed the same pattern of reduced

upon the earth for growing food to meet the demands of yields over time (this farming practice is known as ‘slash

the ever-increasing global population triggered the and burn’, ‘swidden’ cultivation or ‘shifting cultivation’).
If the family were a fruit, it would be an manufacture and use of chemical fertilizers. Eventually it was discovered that plant growth on a plot of
orange, a circle of sections, held together land could be improved by spreading animal manure
but separable - each segment distinct. throughout the soil.
Modern synthetic fertilizers mainly contain compounds of
Letty Cottin Pogrebin
nitrogen, phosphorus and potassium with secondary
nutrients. Like all living organisms, plants growth depends Over time, fertilizer technology became more refined.

on nutrients contained in the soil. The availability of these New substances that improved the growth of plants were

components in the soil diminishes as it is extracted by the discovered. The Egyptians are known to have added ashes

plant for its growth. Thus the more a soil is used for from burned weeds to soil. Ancient Greek and Roman

cultivation, the more barren and parched of nutrients it writings indicate that various animal excrements were

becomes, resulting in the reduction in the plant quality used, depending on the type of soil or plant grown. It was

and yield. also known by this time that growing leguminous plants
on plots prior to growing wheat was beneficial (crop
rotation). Other types of materials added include sea-
Fertilizers replenish the chemical components extracted
shells, clay, vegetable waste, waste from different
by the flourishing plants from the soil and improve the
manufacturing processes, and other assorted trash.
growing potential of the soil. They also have the ability to
 dh Annual Report 2007 - About Fertilizer dh Annual Report 2007 - About Fertilizer

The chemical fertilizer industry, however, had its elevated temperature & pressure over iron catalysts Nitrate. The material is a good fertilizer as it contains high
beginnings with a patent issued to Sir John Lawes, which produces Ammonia. concentration of Nitrogen.
outlined a method for producing a form of phosphate
Top 10 Urea Importing Countries USA 16%
that was an effective fertilizer. The synthetic fertilizer Though Ammonia itself is sometimes used as a fertilizer, it While ammonia itself is sometimes used as a fertilizer, it is in the World India 14%
Thailand 5%
industry experienced significant growth after the First is often converted to Urea, Ammonium Sulphate, often converted to other substances for ease of handling. Brazil 5%
Turkey 4%
World War, when facilities meant for ammonia and Ammonium Nitrate and Ammonia Phosphate for ease of like Ammonium Nitrate etc. Mexico 4%
Australia 3%
synthetic nitrates for explosives were converted to the handling. Iran 3%
France 3%
Pakistan 2%
production of nitrogenous fertilizers.
22 Nitric Acid is produced by reaction of water with nitrous Others41% 23

Nitric Acid is produced by reaction of water with nitrous oxide formed by burning Ammonia with air in a vessel
The Manufacturing Process - Nitrogen oxide formed by burning Ammonia with air in a vessel containing catalyst. Subsequently the Nitric Acid is
Fertilizer Component containing catalyst. Subsequently the Nitric Acid is neutralized with Ammonia to produce Ammonium
neutralized with Ammonia to produce Ammonium Nitrate. The material is a good fertilizer as it contains high
FERTILIZER USE BY CROP

Fully integrated factories have been designed to concentration of Nitrogen. Wheat 46%
Cotton 23%
produce compound fertilizers. Depending on the Sugar 11%
Rice 5%
Maize 2%
actual composition of the end product, the n ia Bagging
mo
Fruit/Vegetables 6%
Am xide Others 7%
production process will differ from ndio
rbo
Ca
manufacturer to manufacturer.
Fertilizers are typically supplied to farmers in 50 Kg. bags.
To fill these bags the fertilizer is first delivered into a large
Ure

Nitrogen fertilizer component

a

hopper. An appropriate amount is released from the PROVINCE-WISE OFF-TAKE OF UREA

hopper into a bag that is held open by a clamping device.

UTILITY
Ammonia is produced using Nitrogen
UNIT
Punjab 68%
of air and Natural gas as raw material. The bag is on a vibrating surface, which allows better Sindh 22%
NWFP 7%
In the process natural gas, steam and packing. When filling is complete, the bag is transported Balochistan 3%

air are reacted to form Carbon Dioxide, upright to a machine that seals it closed. The bag is then
Hydrogen and Nitrogen. The Carbon conveyored to a palletizer, which stacks multiple bags,
Dioxide is removed leaving behind mixture readying them for shipment to distributors and eventually
of Hydrogen and Nitrogen, which react at to farmers.
 dh Annual Report 2007 - About Fertilizer dh Annual Report 2007 - Chairman’s Review

Little drops of prills fall

to nourish mother Nature. Chairman’s Review

It gives me great pleasure to present my report on the Company succession planning remains a core issue. The
performance of our Company. The year 2007 was one Chief Executive deserves commendation for the many
which I shall remember as the 'Year of Records'. outstanding achievements he and his team have brought
about.

Corporate Governance
Investments
As the “Chief Corporate Governance Officer” it is my
24 responsibility to continuously develop the corporate Our investment portfolio comprises mainly of a 38% 25

governance systems and monitor the performance of the ownership of Engro Chemical Pakistan Limited and 19%

Board of our Company. We started out by trying to stake in Sui Northern Gas Pipelines Limited. Engro has

understand how well our system operates at present and embarked on a massive growth drive with investment

what international best practices we can imbibe. To this plans in the tune of $1.6 billion. This includes setting up the

effect we have sent our directors and members of the top largest single train state of the art urea plant in the world, a

management on various training programs and 220 MW power plant, back integration of the PVC business,

conferences and I am happy to report that two members expansion of the chemical terminal and organic growth for

of the DH team have been certified as directors from the the newly formed foods division. To fuel this growth Engro

Pakistan Institute of Corporate Governance. With this in increased its capitalization by issuing rights shares in June

mind, we have chalked out an improvement plan, effects 2007, which with your permission our Company

of which will become more visible in the coming years. subscribed, amounting to a further investment of Rs. 1.2
billion. Engro's market capitalization has increased by a
remarkable 179% during the year to close at Rs. 51.41
Operating Performance
Top 10 Urea Consuming Countries China 35% Top 10 Urea Exporting Countries Russia 15% Top 10 Urea Producing Countries China 36%
India 18% Ukraine 11% India 15%
billion by 31 December 2007. To date our investment of
in the World in the World in the World
USA 7% Qatar 9% Indonesia 4%
Indonesia 4% Saudi Arabia 9% Russia 4% Rs. 7.14 billion in Engro has grown about three times.
Pakistan 4% Canada 6% USA 4% I am also very proud of the DH management. They have
Brazil 2% Egypt 5% Pakistan 4%
Canada 2% Oman 5% Canada 3% excelled in operating performance by delivering
Bangladesh 2% Venezuela 4% Ukraine 3%
The energy of the Country continues to be dominated by
Iran 2%
Germany 2%
China 4% Saudi Arabia 2%
Qatar 2%
exceptional growth in an ever competitive market. Our
Romania 3%
Others 22% Others 29% Others 23% the gas sector. With a 2/3rd share of the National gas
top line has grown by 29% to above Rs. 5 billion, pushing
distribution and transmission sector, Sui Northern is ideally
our market share to 11%. Our operating profits have
shown a similar growth, up by 46% to Rs 1.57 billion. In our
 dh Annual Report 2007 - Chairman’s Review dh Annual Report 2007 - Chairman’s Review

placed to play a pivotal role in the energy dynamics of the to conduct our Corporate Social Responsibilities. We
Country for the years to come. Sui Northern has continue to work with society at large, with a particular
embarked on a large capital expenditure program of Rs 19 focus on the community around the Plant. We have
billion to expand its network in the northern part of the initiated several educational, health and emergency relief
country. This has resulted in the Company increasing its projects ranging from eye camps to supplies for disaster
sales volume by 70% over the last 4 years. However, struck areas of Baluchistan and Bangladesh. The opening
operating profits have lagged behind owing to the higher of the TCF-Dawood Hercules Campus School is one such
Unaccounted For Gas (UFG) losses. We continue to work highlight that I cherish as one of our most important
26 27
with the SNGPL Management through our participation at successes this year. It is a place where over 200 children in
the Board to bring these losses in line with OGRA the Plant's vicinity gain an opportunity to receive
requirements. The market capitalization of SNGPL on 31 education. Also the Company plans to address the seminal
December 2007 was Rs. 38.85 billion. need of clean drinking water in the villages around the
Plant. In addition, the gracious and generous

Health, Safety and Environment contributions of Dawood Hercules' Employees and The
Dawood Foundation for the reconstruction of an
earthquake demolished Federal Government school in
We have placed ever more importance to the HSE
Muzaffarabad, are all projects that will add collective value
practices of our Company. Safety has become a priority
to our Country and our Organisation.
focus for us. The effects have already benefitted our lives.
The impact of accidents continues to decline as our safety
culture thrives. This has led us to reach 6 million man In conclusion it is my privilege to be associated with an

hours without LWI on 29 December 2007. institution in which all its employees are enthusiastically
committed with courage and a shared identity to the
values of human dignity, respect, integrity, truthfulness,
Corporate Social Responsibility
honesty, dedication, hard work, and loyalty. I am
convinced that such a team will continue to realise yet
We at DH are very aware of the impact we have on the lives
greater accomplishments.
of those around us. We have concentrated more and
more on the concept of the “double bottom line”. For this
purpose we have set out clear objectives with which
Necessity is the mother of invention

Directors’ Report

Fertilizer Review 30
Performance Review 36
Corporate Affairs 50
Committees 54
Health, Safety & Environment 63
CSR 66
Human Resource Management 74
Quality Management System 80
Outlook 2008 83
 dh Annual Report 2007 - Directors’ Report - Fertilizer Marketing Review dh Annual Report 2007 - Directors’ Report - Fertilizer Marketing Review

Fertilizer Marketing Review

Global Review and in East Asia by 3.3%.

Production: Globally, the urea consumption in 2007 is estimated to be

145.2 million nutrient tons, as compared to 131.3 million

According to the International Fertilizer Association (IFA) tons in 2006.

Report (December 2007) the global urea production in

2007 was estimated to be 143.1 million tons products, Global Urea Supply/Demand Balances
(Million Tons Products)
30 representing a 6% increase over 2006, while the main 31

production expansions took place in China, Egypt and 2007 2008-11

Expected Forecast
Saudi Arabia. Global urea trade was pushed up at a rate of
Urea Supply 145.2 178.8
12% to 35.1 million tons. by the sustained requirements
Urea Demand 143.3 163.7
from large consumers such as India, West Europe and the
Global Balance +1.9 +15.1
United States. China proved to be one of the world's
Source: IFA
largest urea exporter, with exports exceeding 4 million
tons.
Pakistan’s Fertilizer Scenario
Demand:
The fertilizer consumption in Pakistan is said to be low with WORLD UREA PRODUCTION AND TRADE
SHARE OF UREA (%) (Million Tons Products)
the current fertilizer consumption averaging to 162.5 kg 143.1
After revealing some unexpected strength in 2006, the 135.3
per hectare. The fertilizer consumption closely follows the 129.5
world urea demand remained stable during 2007, 123.3
63
economic growth of the country as exhibited by the
although the fertilizer market is expected to continue to
positive correlation between the fertilizer consumption
grow till year 2011. Simultaneously some 50 new plants are
22
per hectare and nominal GDP. The further growth of
scheduled to be launched within the same period. 28.6 29.6 31.4 35.1
fertilizer off-take is predicated on the economic well being 6 5
2 2
of the agriculture sector. Urea DAP NP CAN SSP Other 2004 2005 2006 2007
According to the initial estimates for the year ended 2007 Export
Import
the world fertilizer consumption has fallen slightly but
increased steadily in South Asia (including Pakistan) by 4%,
 dh Annual Report 2007 - Directors’ Report - Fertilizer Marketing Review dh Annual Report 2007 - Directors’ Report - Fertilizer Marketing Review

Local Market Scenario – Urea /DAP application which consequently increased its demand by
10% as compared to previous Rabi (2006-07). This switch

In contrast to the last year the local market remained over is a cause for concern to advocators of 'balanced use

suppressed during the first six months of 2007 as a result of of fertilizers' as preference for cheaper urea over dearer

which the national urea inventory burgeoned to 800,000 DAP will once again create an imbalance in applications of

metric tons by the fifth month as compared to 215,000 nutrients and it is estimated that this year the ratio will be

metric tons in May 2006. This excess supply situation 1:5 instead of ideal 1:1. The Govt. in anticipation of rise in

posed a great challenge to the industry in view of the urea demand has imported 200,000 tons of urea to meet
32 33
factors in play. Dawood Hercules adopted an aggressive any shortfall.

marketing strategy which resulted in the Company

surpassing its 2006 record with a growth rate of 16%. Urea Agriculture Credit
sales picked up perceptibly in the fall and it is expected that
a growth rate of 8% over the last year will be achieved in During July - December 2006 banks disbursed Rs. 72 billion
this Rabi (2007-08) period. to the agriculture sector which is 16% higher than the
disbursement of Rs. 62 billion during the same period last
Urea off-take at national level during the year 2007 was year. The disbursement covered about 45% of SBP targets
4.90 million tons as compared to 5.20 million tons in year for the financial year 2006-07 as against 48% covered in the
2006 depicting a negative growth rate of 6.1%. This drop in corresponding period last year. Out of the total
“If you want one year of prosperity, grow grain.
urea sale is attributable to the subsidy offered by the disbursements farm sector got a share of 87% whereas
If you want ten years of prosperity, grow trees.
Government of Pakistan on DAP (Di-ammonium non-form sector had a share of only 13%.
If you want one hundred years of prosperity, grow people.”
Phosphate) making its use attractive for farmers.
Chinese Proverb
Resultantly, DAP sales in Rabi 2006-07 soared by 52% over During the last one and half year interest rates of the banks
the corresponding period last year. Encouraged by this are at their top levels and those high rates have severely hit
high DAP demand, the Company imported 42,988 metric agri loans. For the fiscal year 2007-08 the central bank has
tons of DAP in this fall. Rising international prices, once raised the agri credit target to Rs. 200 billion, up by
again, has made this nutrient beyond the reach of our Rs. 40 billion from the last year. This target set is only
farmers reducing DAP sales by 24% in first half of current achievable, if interest rates remain stable.
Rabi (2007-08) and forcing farmers to switch over to urea
 Distribution Network
The map shows point of sales of Bubber Sher Urea in the
market .

G I L G I T A G E N C Y
CHITRAL
MALAKAND

KOHISTAN

SWAT
DIR MANSEHRA
BAJJAUR
MALAKAND HAZARA J A M M U
MOHMAND
MARDAN
&
ABBOTTABAD
PESHAWAR
ISLAMABAD
K A S H M I R
KHYBER KOHAT

ADAMKHEL
KURRAM ATTOCK
RAWALPINDI
KOHAT
AHMADZAI CHAKWAL
S. WAZIRISTAN JHELUM GUJRAT

BANNU GUJRANWALA
BHITTAN
KHUSHAB SIALKOT
DERA SARGODHA
S. WAZIRISTAN GUJRANWALA
ISMAIL KHAN BHAKKAR

MIANWALI SHEKHUPURA
LARGHA SHIRANI JAHANG
LAHORE
FAISALABAD
KASUR
ZHOB
PISHIN P U N J
T.T. SINGH A B
OKARA
MUZAFFARGARH
LEIAH SAHIWAL /
KHANEWAL PAKPATTAN
QUETTA
SIBI LORALAI MULTAN
VEHARI

DERA BAHAWALNAGAR
GHAZI KHAN

KALAT
CHAGAI KOHLU
RAJANPUR
KACHHI
BAHAWALPUR
B A L U C H I S T A N RAHIMYAR KHAN

NASIRABAD JACOBABAD Bubber Sher Dealers Sale Points

DHARKEE
KHARAN SHADADKOT RATUDERU

LARKANA SUKKUR 1-50 1-30

LARKANA
KHUZDAR
S I N D
PANJGUR KHAIRPUR 51-100 31-60
NAWABSHAH
TURBAT DADU
SARKAND
SANGHAR 101-150 61-90
SHAHDADPUR

G W A D A R LASBELA HYDERABAD

MATLI TANDO ADAM 151-200 91-120

KARACHI
MIRPUR KHAS
BADIN

Bubber Sher:
THARPARKAR
TANDO MOHD.
201-250
TANDO ALLAH YAR

a household
KHAN
THATTA
251-300
name
 dh Annual Report 2007 - Directors’ Report - Performance Review dh Annual Report 2007 - Directors’ Report - Performance Review

Performance Review

Financial Results
Rupees in Million Financial Results
5,011 (Rs. Million)
3,882
OTHER INCOME
2007 2006 3,149
(Rs. In Millions)
The Board of Directors takes pleasure in reporting that the 2,570 8,661
1,862
1,572
year 2007 was another milestone in the history of our Sales 5,011 3,882 1,312 1,075
290 237 629
Company. The year recorded sales of Rs. 5,011 million as Cost of Sales (3,149) (2,570)
326 296 2 2 65 120
Sales Cost of Sales Gross Profit Selling & Operating Profit on sale Dividend Income from Misc.
compared to Rs. 3,882 million for the year 2006. Gross Gross Profit 1,862 1,312
Admin Exp. Profit of investment Income time deposits
Years 2007 2006 Years 2007 2006
Profit for the period under review stood at Rs. 1,862 million
Selling & Admin Expenses (290) (237)
36
against the Gross Profit of Rs. 1,312 million, of the 37
Operating Profit 1,572 1,075
comparable period for the year 2006. The operating profit
Financial & other charges (830) (626)
showed a healthy increase of 46.2% for the year under recognize the capital gains in the accounts. For this Plant Performance
Other Income 9,054 1,047
review and climbed to Rs. 1,572 million as compared to purpose the approval of shareholders was obtained in the
Rs. 1,075 million of the year 2006. Share of Profit from Associate 1,330 1,093
EGM held on 19 December 2007. The BMR completed in 2006 has began to pay off in 2007
Income Tax
with optimum Plant performance Operations remained
DHCL (540) (212)
The profit before tax and share from associate jumped to With the approval of the shareholders, transactions were excellent during the year. The urea production in 2007 was
Rs. 9,795 million from Rs. 1497 million in 2006. The major Associate (452) (323)
completed at arms length and in conformity with all the 498 thousand metric tons as against the designed
source of increase in pre-tax profit is the capital gain of Net Profit After Tax 10,134 2,054
legal requirements. Resultantly the Company has production of 445 thousand metric tons and last year's
Rs. 8,661million, slightly offset by the increase in financial recognized a capital gain of Rs. 8,661 million. production of 446 thousand metric tons. The current
expenses to Rs. 756 million from Rs. 555 million of last year. production level was achieved despite the 18-day plant
shutdown on account of gas curtailment and
Profit before taxation, including the share from associate, maintenance.
Capital Gain
jumped to Rs. 11,126 million (L.Y. Rs. 2,590 million). The
year's profit after taxation including the share of associate
As the shareholders are aware that the tax exemption on Gross Profit 1,862

has been reported at Rs. 10,134 million (L.Y. Rs. 2,054 (Rs. In Million)
capital gain is only available up to the tax year 2008, which Operating Profit 1,572
million). The summary of the operating results of the (Rs. In Million)
in case of your Company corresponds to the year ending 1,260
1,312
1,075 PROFIT AFTER TAX 10,134
Company for the year under review along with the 886
1,057
(Rs. In Million)
888
December 2007. There was no indication from the 1,060
comparatives for the last year are as under: 1,010 653
Government for extending the period for tax exemption; 818
2,868
2,054
therefore the Board of our Company decided to 793 1,379 1,240

2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007
Years Years Years
 dh Annual Report 2007 - Directors’ Report - Performance Review dh Annual Report 2007 - Directors’ Report - Performance Review

Dawood Hercules was incorporated To improve performance, reliability

and productivity second BMR was done.

Construction of 1,100 metric tons per day Another milestone. A new prill tower
(MTPD) urea fertilizer Plant with a capacity at a cost of Rs. 300 million was erected
of 625 MTPD anhydrous ammonia
was launched

Commercial production started A remarkable production volume

was achieved. The year was celebrated
as the silver jubilee year

BMR Program was BMR program was

launched completed with the cost
of Rs. 1,250 million

1968 1969 1971 1988 1991 1997 2004 2006

38 39
 dh Annual Report 2007 - Directors’ Report - Performance Review dh Annual Report 2007 - Directors’ Report - Performance Review

Five Million Safe Man-Hours Sales Record Plant Operation Six Million Safe Man-Hour Highest Capacity Utilization
Achieved the milestone Unprecedented sales of Attained the landmark of Five Passed the Six Million Safe Highest capacity utilization
of Five Million Safe Man-Hours on Rs. 508,540 million tons of urea. Year Safe Plant Operation on Man-Hours milestone on achieved; 1,500 MTPD in winter
31 January 2007. 26 February 2007 29 December 2007. and 1,450 MTPD during the
peak summer season.

2007: Breaking Records

40 Monthly Production Record Yearly Production Record Capital Gain Earnings Per Share 41

Urea production for the month of December, Urea production for 2007 escalated to Capital Gain of Rs. 8.7 billion set Earnings Per Share peaked to a new
2007 peaked at 45,802 metric tons, scoring 497,940 metric tons, marking it as the a new benchmark. high at Rs. 122.30.
a daily average of 1,477 metric tons; thus highest annual production by a significant
establishing unsurpassed records for the margin of + 51,240 metric tons.
monthly production and the average daily
production to date since the Plant was
commissioned in 1971.

“Unity, Faith and Discipline” (Jinnah, Father of the Nation)

These are the lessons we learn from our father figures, our legends,
our heroes, our ancestors and our predecessors - all of whom
we wish to emulate.
 dh Annual Report 2007 - Directors’ Report - Performance Review dh Annual Report 2007 - Directors’ Report - Performance Review

The Company also achieved a new record in urea urea, which was 71 thousand metric tons or 16.2% more
production of 1500 metric tons in a single day on 19th than last year. Furthermore, the Company sold 13 PRODUCTION/SALES
(MT)
November 2007, the highest in the Company's history. The thousand metric tons of DAP from its imported 43 508,540
497,940
446,700 437,730 YEAR END MARKET VALUE
capacity utilization for the year stood at 112%. In terms of thousand metric tons of stock. PER SHARE (Rs.)
394
percentage the production for the year 2007 exceeds 295
256
197
11.47% over last year. The product mix of urea and DAP facilitated the farmers 134
176

and led to the increase in the sale of urea in the second 2007 2006
2002 2003 2004 2005 2006 2007
Production (MT) Sales (MT) Years
42
Sales Review half of 2007. 43

During the first half of the year there was a nationwide The Company's sales reached Rs. 5,011 million for the year
build up of urea inventory. This amassing was partly due to 2007 as compared to Rs. 3882 million in 2006, a 29.1% Earnings per Share Market Capitalization
the inventory of imported urea and partly due to the slow increase.
off-take. The situation improved in the second half and The Earnings per Share (EPS) of the Company stood at The market capitalization of our Company during the year
consequently by the close of the year under review the Rs. 122.30 as compared to Rs. 24.79 of the last year. The fluctuated with the capital market. The peak value of the
Company was able to sell 509 thousand metric tons of break-up of EPS of Rs. 122.30 is portioned into three share during the year reached Rs. 420 on 27 December
segments with the Company earning Rs. 11.47 per share and the lowest price of Rs. 231 was hit on 5 September.
from operations, Rs. 100.22 per share from other income
and Rs. 10.61 per share from the earnings of associate.

UREA PRODUCTION
CAPACITY UTILISATION (%) (Thousand M. Tons) SALES EARNINGS PER SHARE 122.30
5,011
112 498 (Rs. In Millions) (Rs.)
93
97 96 100
415 431 429 447
3,882 MARKET CAPITALIZATION
79 351 3,291 (Rs. In Milliion)
2,810 2,983
2,699
32,633
34.61 24,446
24.79 18,447
19.13
17.21 12,653 14,159
11.01 6,437

2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007
Years Years Years Years Years
 BREAK UP VALUE OF TOTAL DIVIDEND (%)
It is not flesh and blood SHARE (Rs.) 227.95 105
95 100
but teaching which makes us 85 80
129.83 50
fathers and sons. 93.47
88.34
108.72 111.90
15
30
20

2002 2003 2004 2005 2006 2007

2002 2003 2004 2005 2006 2007 Years
Years Cash Dividend Stock Dividend
 dh Annual Report 2007 - Directors’ Report - Performance Review dh Annual Report 2007 - Directors’ Report - Performance Review

Market Value of Shares Vs KSE100 Index (2007)

At the close of the year, the market capitalization was Installation of Gas Turbine Power Generator Long term arrangements
Rs. 32,633 million, with a market value of Rs. 393.80 per
137
share and break-up value of Rs. 227.95 per share. The 127 We at DH are striving to conserve energy in various ways. Musharaka arrangement of Rs. 6.5 billion obtained for a
124 125
122 122
strong performance depicts the market confidence in the 118 To save the energy and mitigate the risk of the present period of 5 years represented by Islamic Sukuk Certificates
115
value of our Company. 110 108
114 turbo generator's sudden failure, a study was carried out in favour of the participants, carrying markup at average
100 100
99
104 for putting up a Gas Turbine Power Generator as an six months KIBOR plus 120 bps payable on half yearly basis.
100
Gain in Net Worth 96
93
95 97 96
92
alternative to our existing Turbo Generators. After carrying The financing is secured by a ranking charged created by
89

46
out in-depth analyses and discussions with various way of hypothecation of specific fixed assets of the 47
82

There was a significant gain in net worth during the year January February March April May June July August September October November December
experts, as well as gathering information from other Company.

2007 amounting to Rs. 9,616 million which was a rise of fertilizer plants, it was decided to procure the Gas Turbine
Comparative Market Value Comparative KSE 100 Index

104% over the last year and therefore increased the per with Heat Recovery Steam Generator (HRSG) for Process Short term arrangements
share book value from Rs. 111.90 to Rs. 227.95. use and Co-generation.

Murabaha finance facility of Rs. 1.203 billion for purchase

In addition to the above, the Board is pleased to
Market Value of Shares vs KSE 100 Index The project is planned to be commissioned by January of right shares of Engro Chemical, carrying markup @ 3
recommend a final cash dividend of Rs. 1.5 per share (15%)
(2007) 2009. months KIBOR plus 100 bps payable quarterly and secured
and a stock dividend of 1 share for each 5 held (20%) for
against pledge of shares with 30% margin. Principle
approval by the shareholders in the ensuing Annual
The share of our Company outperformed the KSE 100 General Meeting, making a total of 50% for the year.
Islamic Mode of Financial Arrangements amount is payable in lump sum at the end of tenor i.e. 15

Index by considerable margin. During the year the KSE 100 August 2008.

Index increased by 25% whereas the stock of your To exhibit our commitment and zeal for implementing
Capital Investment
Company improved by 37% outperforming the Islamic Shariah with its true spirit, the company has Awards and Recognition:
benchmark on yearly basis. switched over from conventional interest based financial
The BMR of 2006 began manifesting results in 2007. The
arrangements to Shariah compliant mode of financing. A This year the annual report of Dawood Hercules ranked
increased production of 53 thousand tons in 2007 over the
composition of long term and short term Musharaka and second in the Chemical and Fertilizer category for the
capacity production of 445 thousand metric tons was the
Murabaha financing of Rs. 8.50 billion was arranged
Appropriations outcome of timely decisions regarding the 2006 BMR. To
“Best Presented Annual Reports” by the Institute of
during the year which was the biggest Islamic mode of Chartered Accountants of Pakistan (ICAP), and Institute of
enhance the capacity, reliability and efficiency of the
financial arrangements by any company till then. Cost and Management Accountants of Pakistan (ICMAP).
During the year the Board declared an interim dividend of Plant, we are contemplating options for further BMR in the
Rs. 1.50 per share (15%) at the end of the second quarter. future.
 dh Annual Report 2007 - Directors’ Report - Performance Review dh Annual Report 2007 - Directors’ Report - Performance Review

Together we are determined

to create a Company of which
The Company has also been awarded the Karachi Stock
we can be proud of.
Exchange's Top 25 Companies Award, which is ninth such
award in last 12 years.

Contribution to the National Exchequer

Value addition and distribution
during 2007
Dawood Hercules is one of the leaders in its contribution
48 Retained with the business 9,637 to the National Exchequer. Our Company's input 49
Government Taxes 857
Provider of Capital 756
Employees as remuneration 506
amounted to Rs. 857.01 million as compared to
Shareholder as dividend 497
Rs. 772.71 million of the preceding year. This includes
Rs. 288.37 million (L.Y. 273.08 million) as Income Tax,
Rs. 533.48 million (L.Y. Rs.453.35 million) as Sales Tax,
Rs. 35.17 million (L.Y. Rs. 46.27 million) as Custom and
Excise Tax. Furthermore the Company's contribution to the
National Exchequer as withholding tax agent under
different provisions of Income Tax Ordinance 2001,
amounted to Rs. 110 million (L.Y. Rs. 95 million)

Contribution to National Economy

Value addition and distribution
during 2006

Your Company's contribution to the national economy by

Retained with the business 1,476
Government Taxes 773 way of value addition was Rs. 12,253 million (L.Y. Rs. 3,853
Provider of Capital 555
Employees as remuneration 471
million). The beneficiaries were the Govt., receiving
Shareholder as dividend 578

Rs. 857 million (L.Y. Rs. 773 million), the Company

employees; Rs. 506 million (L.Y. Rs. 471 million), the
shareholders; Rs. 497 million (L.Y. Rs. 578 million) and the
provider of Capital Rs. 756 million (L.Y. Rs. 555 million). The
amount of Rs. 9,637 million (L.Y. Rs. 1,476 million) was
retained in the business.
 dh Annual Report 2007 - Directors’ Report - Corporate Affairs dh Annual Report 2007 - Directors’ Report - Corporate Affairs

Our Comprehensive Approach to Corporate Governance

The perceived quality of a company’s corporate governance can influence its share price as well as the cost of raising
capital. quality is determined by the financial markets, legislation and other external market forces plus the
international organisational environment; how policies and processes are implemented and how people are led.
external forces are, to a large extent, outside the circle of control of any board. the internal environment is quite a
different matter, and offers companies the opportunity to differentiate from competitors through their board culture.

Corporate Affairs

Board Meetings International Accounting and Reporting Standards, as

applicable in Pakistan have been followed in preparation

Six meetings of the Board of Directors were held during of financial statements and any departure therefrom have
Assur
the year 2007. Attendance by each Director is provided been adequately disclosed. ing
& Ac Cor
plia nc e c ou ntabili por
hereunder: Com ty ate
Cre
The system of internal control is sound in design and has dib
ilit
been effectively implemented and monitored. e

y
su
lo
isc

Co
50 Legislation Accountability 51

&D

rpo
Financial Management
There are no significant doubts upon the Company's Systems

rat
ncy
Compliance framework

e
ability to continue as a going concern. Risk Management

re

Citi
spa

zen
Annual Report Accountability and

Tran
Capability framework

ship
Communication and Occupational health and safety
relationships with Codes of conduct
stakeholders and regulators Employee relations
Operational Policy
There has been no material departure from the best and procedures
Individual Performance
Management System
practices of Code of Corporate Governance, as detailed in Corporate
Corporate and Financial Reporting
the listing regulations. Govemance
Framework

The Financial Statements together with the notes thereto

Compliance with the Code of Corporate Strategic planning
framework Integrated Performance
have been drawn up by the management in conformity Corporate Capability Plans Monitoring System
Governance Human Resources Strategy Financial Performance
with the Companies Ordinance, 1984. These statements Resource Allocation /budgets Evaluation
Organizational Structure
Business and Communication
present fairly the Company's state of affairs, the results of System
The Company's Statement of Compliance with the Code of Information Technology System
its operations, cash flow and changes in equity. Effective and Appropriate
Committee Structures
Corporate Governance is annexed with the report.

Proper books of accounts have been maintained by the

Company. Appropriate accounting policies have been
consistently applied in preparation of the financial
statements and accounting estimates are based on
reasonable and prudent judgment.
 dh Annual Report 2007 - Directors’ Report - Corporate Affairs dh Annual Report 2007 - Directors’ Report - Corporate Affairs

In order to get the fruit,

one must risk climbing
the tree.
Pattern of Shareholding their re-appointment by the shareholders at the 40th
Annual General Meeting, as auditors of the Company for

Ownership the year ending 31 December 2008.

As at 31 December 2007 there were 2,247 Shareholders on RISK MANAGEMENT

the record of the Company.
Our Company uses a structured approach in identifying,
52 Pattern of Shareholding of the Company as at 31 assessing and controlling risks to support better decision- 53

December 2007, along with the necessary information is making for effective and efficient use of resources.

attached to this report.

The Company endeavours to mitigate financial risk

Provident and Gratuity Funds through hedging programs. The Company has actively
managed its excess cash reserves by investment in Blue
Chips and other instruments in order to enable it to obtain
The funded retirement benefits of the employees of the
an enhanced return.
Company are audited at regular intervals and are
adequately covered by appropriate investments. The value
of the investments of the two provident funds as per the The Company mitigates the risks of fire of its assets vis a vis

last audited accounts aggregated to Rs. 582.63 million. Fair - urea stocks and stores, spares, plant and machinery,

value of the assets of the funded defined benefit gratuity building, furniture and fixture, equipment, electrical

plan was Rs. 113.49 million as at 31 December 2007, appliances, computers, mobile phones by taking out fire

according to the actuarial valuation. insurance, while the Company takes out comprehensive
insurance policy for its fleet of vehicles. The Company also
insures its imported and local consignments of goods by
Auditors
taking out marine insurance cover.

M/s KPMG Taseer Hadi & Company, retiring auditors of the

Company, offer themselves for re-appointment. The Board
Audit Committee and the Board of Directors recommend
 dh Annual Report 2007 - Directors’ Report - Committees dh Annual Report 2007 - Directors’ Report - Committees

Committees

To assist the Board and Chief Executive in decision-making Functions the auditors may wish to highlight (in the . monitoring compliance with the best practices of
and policy formation, a secondary stratum of absence of management, where necessary); corporate governance and identification of
management in the form committees is situated in the The terms of reference of the Audit Committee shall . review of management letter issued by external significant violations thereof; and
corporate structure. These committees ensure and include the following: auditors and management's response thereto; . consideration of any other issue or matter as may
systematise internal control and are functional in . ensuring coordination between the internal and be assigned by the Board of Directors.
administering good governance through their prudent external auditors of the Company;
. Determination of appropriate measures to
and systematic approach. The committees are deployed to
safeguard the Company's assets; . review of the scope and extent of internal audit
verify and inspect that applicable laws and rules are fully
54 . Review of preliminary announcements of results and ensuring that the internal audit function has MANAGEMENT COMMITTEE 55
followed, that fiduciary responsibility is discharged
prior to publication; adequate resources and is appropriately placed
appropriately along with safeguarding the interests of
within the Company;
. Review of quarterly, half-yearly and annual The Committees is headed by Chief Executive and it meets
stakeholders in all business practices.
financial statements of the Company, prior to . consideration of major findings of internal every month.
their approval by the Board of Directors, focusing investigations and management's response
AUDIT COMMITTEE thereto;
on: The purpose of the Management Committee is to improve
. major judgmental areas; . ascertaining that the internal control system
coordination and review operational issues including
Pursuant to the Code of Corporate Governance, the Board including financial and operational controls,
. significant adjustments resulting from costs and budgets, opportunities and threats and
has established an Audit Committee comprising of three accounting system and reporting structure arc
the audit; facilitate/coordinate timely decision making to improve
Directors, of which the majority of the members are non- adequate and effective;
. the going-concern assumption; performance and operating efficiency.
executive directors. The Committee meets at least once . review of the Company's statement on internal
. any changes in accounting policies and
every quarter to review the accounts and any concerns control systems prior to endorsement by the
prior to their presentation to the Board.
practices; Functions:
Board of Directors;
. compliance with applicable accounting
. instituting special projects, value for money
standards; and . Periodically reassess the performance with
The terms of reference of the Audit Committee are those studies or other investigations on any matter
. compliance with listing regulations and regard to the following operational matters and
as specified in the Code of Corporate Governance. The specified by the Board of Directors, in
other s tatutor y and regulator y take / recommend necessary actions for
Audit Committee has the authority to ask for any consultation with the Chief Executive and to
requirements. improvement:
information or explanation in order to satisfy it regarding consider remittance of any matter to the external
financial statements and internal controls. . Facilitating the external audit and discussion with · Plant operations
auditors or to any other external body;
external auditors of major observations arising · Production performance
. determination of compliance with relevant
from interim and final audits and any matter that · Shut downs
statutory requirements;
 dh Annual Report 2007 - Directors’ Report - Committees dh Annual Report 2007 - Directors’ Report - Committees

56 57
 dh Annual Report 2007 - Directors’ Report - Committees dh Annual Report 2007 - Directors’ Report - Committees

· Major break-down / failure of · Major issues (any area) The terms of reference of the Capex Committee is to HUMAN RESOURCE COMMITTEE
equipment . To review and approve capital expenditure up to forward its recommendations to the Board of Directors

· Gas availability situation Rs. 200,000/- concerning major Capex Projects after reviewing all The Committee is headed by Chief Executive and its
· Gas consumption (energy efficiency) . Review and recommend the following to the material aspects of the proposals. Monitor meeting is held at least once in a quarter.
CEO / Board for approval: implementation progress and review of post-
· Wastages
implementation performance.
· Quality of prill (product quality) The primary objective of the Human Resource Committee
· Stores & Spares Inventory a. Vision / Mission Statement, Core Values is to assist in the promotion of an environment which is
58 and goals and objectives Functions: conducive to the Company employees for their optimum 59
· Manpower
b. Biz Plan and Budgets performance. The Committee periodically advises the
· Sales performance
c. Limits of Authority Table The committee forwards its recommendations to the Management in adopting measures which will augment
· Procurement performance
Board of Directors concerning major Capex Projects after energy and interest.
· Implementation of capital projects d. Policy changes
reviewing all material aspects of the proposals including
· Introduction, enhancement & major e. Major write-offs (products, bad debts,
the following: The terms of reference of the Human Resource
changes in IT / systems claims etc.)
Committee are to supervise the overall HR function and
· Departmental expenses variance with
. Capex proposal / justification issue necessary guidelines. Their ambit of responsibilities
the budget
. Project cost estimates also include the review and recommendation of the
· Capital expenditure variance with the STRATEGIC CAPEX COMMITTEE
. Implementation plan organization structural changes and HR policies,
budget
recruitment, promotion and increment criteria and CBA
. Funding plan
· Departmental expenses - monthly The Committee is headed by Chief Executive and its Agreement.
. Pay-back (where applicable)
· Litigation and cases pertaining to plant meeting is convened as and when required.
. Projected profitability and cash flow
operations
Functions:
. Follow-up procedure
· Implementation of Internal audit The rationale behind the Strategic Capex Committee is to
review all major capital expenditure proposals and . Monitoring of implementation
recommendations
. To perform various HR functions under the
recommend appropriate cases to the Board of Directors progress
· Status / progress of I.R. situation guidance of the Board of Directors (BOD).
for approval. The Committee also monitors the execution . Review of post implementation
· Environmental, safety & security issues / . Motivate the employees to pursue long-term
of approved projects to ensure economical and timely performance
initiatives development and success of the Company.
implementation.
· Recommendations made by other . Establish and maintain a process to set robust
committees
 dh Annual Report 2007 - Directors’ Report - Committees dh Annual Report 2007 - Directors’ Report - Committees

performance measures and targets that . Job descriptions.

encourage superior executive performance and . Acceptance of resignations.
ethical behaviour. . Termination of service.
. Assist the board of Directors in implementing the . Ex-Pakistan Leave.
principles of good corporate governance in day
. Organizational changes.
to day management of the Company.
. Constitution of management team for
. To motivate employees to pursue the long-term
negotiation of agreement with CBA.
60
development and success of the Company. 61
. Any other task assigned by the board of Directors
. To review and approve the following in
from time to time.
accordance with the approved criteria:

PROCUREMENT COMMITTEE
. Recruitment and Selection.

The Committee is headed by Chief Executive and it meets . value purchases, e.g. proposal and give its recommendations for
. Employment on Contract.
once in a week. revision / approval thereof.
· Catalysts and Chemicals

· PP and Cotton bags . To compare the purchases of the Company with

. Induction of Trainees.
The main objective of the Procurement Committee is to the Procurement Budget and review the
· Granules
facilitate procurement related functions of the Company explanations for material variances, if any.
· Meat and Chicken
. Annual Increments & Promotions. with a view to ensure timely supply of the required . To review and, if considered appropriate,
· Vegetables and Fruits
materials at competitive prices and avoid wastage and approve the list of items declared as scrap.
· Milk, etc.
. Rev i s i o n a n d re s t ru c t u ri n g o f unnecessary blockage of funds. This Committee is also
. To sell the scrap at the best negotiated price.
Supervisors' Compensation Package responsible for scrap disposal.
. To approve the list of Suppliers.
. Policies and Procedures.
Functions: . To review selected indents.
. Succession planning for key executives.
. To get direct information from Suppliers / Market
. Development plans for key executives
to satisfy themselves about the prices on
with high potential. . To review and approve Local and Off- Shore
quotations / POs, where deemed necessary.
. Local and overseas Training. Purchase Orders.
. To review the Procurement Budget
. To negotiate all long-term and / or high
 dh Annual Report 2007 - Directors’ Report - Health, Safety And Environment

Health, Safety And Environment

Dawood Hercules nurtures an environment that values responsibilities in compliance with the applicable law and
expressions of ideas, the merging of different industry standards relating to health and safety in the
experiences, teamwork, ethical behaviour and workplace and protection of the environment.
performance, both in the corporate office and at the Plant
site. As a responsible employer, the Company ensures that HEALTH
all its operations comply with the Health, Safety and
Environmental (HSE) standards. it maintains HSE as a core
Occupational health is defined as “the promotion and
value which is upheld by our commitment to the
maintenance of the highest degree of physical, mental 63
following:
and social well-being of workers in all occupations by
preventing departures from health, controlling risks and
Creating an incident-free environment; the adaptation of work to people, and people to their
Conducting business with minimal adverse jobs”.(ILO/WHO 1950). Employees’ occupational health
environmental impact; involves two elements; first, how work can influence
Integrating HSE into all of our business activities; health, and secondly, how health can affect work.
Defining HSE value, and; Examples of the former include such incidents as noise

Demonstrating industry leadership in HSE exposure causing hearing loss, or improper lighting

performance. producing eye strain or headaches; while the latter implies

instances such as fitness for air travel, etc. Dawood
Hercules employs strict policies regarding health which
These HSE standards not only create value for the
apply to all employees during recruitment and service. The
Company and its people, but also our customers,
employment of underage person is strictly prohibited and
stakeholders and the Country. The main objective of the
all employees are required to undergo medical check-ups
Dawood Hercules is to ensure that all its operations and
regularly. There is a dispensary present at the Plant, and an
processes follow procedures that protect people, property
ambulance is available for any emergency.
and the environment. These include our dealings with our
employees, clients, contractors, suppliers, partners and
customers and the surrounding communities. It is
imperative that our employees conduct their duties and
 dh Annual Report 2007 - Directors’ Report - Health, Safety And Environment dh Annual Report 2007 - Directors’ Report - Health, Safety And Environment

SAFETY: Crossing the Six million safe man were also held at the plant and head office and the In addition to the plantation of trees that took place last
hours Emergency Exit plan was reviewed. The practice of year and continued into the earlier part of 2007, the
inducting new employees through Health, Safety & administrative department of Dawood Hercules is also in

The year began with Dawood Hercules traversing the Five Environment Department continued and refresher the process of implementing recycling of paper, glass, and

Million Safe Man-Hours on January 30, 2007, while we courses on the use of various safety equipments were plastic in the corporate office and hopes to implement it at

reached the Five years’ Safe Operation mark on February conducted throughout the year. Moreover, safe driving the Plant in the following year.

25, 2007, without any incidence of Lost Work Injury (LWI). rules (compulsory wearing of seat belts and adhering to

The year ended with the attainment of Six Million Safe speed limits) were put into place for all employees at the
64 65
Man-Hours on December 25, 2007, which translates to Plant and at the office.

2,129 safe operation days without any LWI. At the year end,
the Company recorded 2,135 days, representing 6,019,932 ENVIRONMENT
Man-Hours from the last LWI.

The importance of protecting the environment has

The issue of safety is on-going, and we continue to review increasingly become a concern the world over. In Pakistan,
our safety processes and have developed and executed a multiple discourses are emerging about what the
new incident/accident investigation procedure. government, the corporations and individuals are doing to
Furthermore, a Management Safety Audit (MSA) conserve the environment. We, at the Company feel that it
procedure is in the pipeline for implementation. During is imperative to ensure that the surrounding atmosphere
the year, HSE meetings, Plant Safety Meetings and and the effluent water of the Plant continue to remain well
Monthly Safety Implementation Committee (SIC) within the limits permitted by the National Environmental
Meetings were held. Scheduled area safety inspections Quality Standards. Furthermore, plans are being set in
took place to check emergency preparedness, safety motion by the engineers of the Company to decrease the
equipments and safety related issues. In addition, Floor emission of carbon dioxide at the Plant.
Safety Committees enforced safety methods and
strengthened safety alertness at the grass root level As a part of continual improvement five DH Engineers
through safety awareness campaigns and trainings which from the Plant Site and Head Office participated in ISO-
comprised of presentations, briefing, video shows, 14001 (Environment Management System) 5 days training
banners, talks and bulletins. First Aid Training Sessions course which was conducted by Moody International.
 dh Annual Report 2007 - Directors’ Report - Corporate Social Responsibility dh Annual Report 2007 - Directors’ Report - Corporate Social Responsibility

Corporate Social Responsibility

Corporate Social Responsibility (CSR) has become the duty Nation. The CSR Committee mapped out and demarcated
of every corporation. Organisations usually have their own its funds according to the areas of Health, Education,
ideas and definition of what CSR means to them. Simply Environment, Social Benefits and carved out a portion of
1
put; “CSR is about business giving back to society”. But its budget for emergency relief, as and when required. The
CSR has a much greater and complex role within Committee has attempted to concentrate on the
corporations. From a purely business point of view, CSR Sheikhupura area around the DH plant for its philanthropic
activities are greatly beneficial in projecting and activities, in order to facilitate the inhabitants of the area in
enhancing the Company’s image, reputation and brand. all aspects of communal life.
66 67
CSR activities are also especially effective in developing
employee skills of management, team work, and giving. In the preceding report of 2006, various projects initiated
While on a larger scale, it nurtures and promotes a culture by the CSR were reported to the members. This year the
of commonality, team loyalty and sharing among people, Committee has continued to work in the same vein on the
as well as augments sentiments of having been part of
worthwhile and meaningful causes. And lastly, a company
various projects it had kick started previously. It gives us A New Beginning
i m m e n s e p l e a s u re to re p o r t th e fo l l o w i n g
performing CSR activities is able to benefit the community accomplishment in the areas of social activities: Gulfam, a 7 year old student in our TCF School was born depends upon the type and severity of the condition, and
and positively contribute to the society as a whole.
with a cleft lip and palate, a congenital abnormality that may require a series of corrective surgeries that could span
HEALTH: separates him from the rest of his class fellows. Cleft lip is a a lifetime.
For us Corporate Social Responsibility means “the condition where the plates of the skull that form the roof of
continuing commitment by business to behave ethically the mouth (the hard palate) are not completely joined,
Blood Donation Drive: Making blood brothers/sisters For Gulfam, who belongs to a poor family in Shiekhupura,
and contribute to economic development while leaving either a gap or a hole in the jaw or a ‘hole’ in the the chance to receive treatment is small, due to their
improving the quality of life of the workforce and their roof of the mouth.
Pursuant to the pervious year's success in donating blood, meagre resources. The CSR Committee has with the
families as well as of the local community and society at
2 another blood donation drive was organised and this time permission of his parents, decided to begin his treatment.
large.” Last year we reported the formation of our CSR
conducted with Fatimid Foundation. The objective was to Studies show that the incidence of cleft lip deformities are At present, he is undergoing various examinations by a
Committee which was entrusted with the responsibility to
collect as many bottles of blood as possible for higher among Asians, particularly Pakistanis. The rate of team of doctors (which includes an orthodontist and a
determine and identify the areas where the Company
Hemophiliac or Thalassemic patients, especially children cleft and palate deformities in Pakistan is estimated as 1.91 plastic surgeon) to see how best to proceed in correcting
could participate positively to the development and
per 1,000 births. Treatment of this congenital deformity the abnormality.
improvement of society and the creation of a better
Pakistan as well as fulfil its corporate and civic duty to the
1& 2: Corporate social responsibility - What does it mean? (2007, April). Corporate Social Responsibility News Elahi, M.M., Jackson, I.T., Elahi, O., Khan, A.H., Mubarak, F.M., Tariq, G.B., & Mitra, A. (2004).
and Resources. Retrieved January 10, 2008. Form http://www.mallenbaker.net/csr/CSRfiles/definition.html Epidemiology of cleft lip and cleft palate in Pakistan. Plastic & Reconstructive Surgery, 113(6), 1548-1555.
 dh Annual Report 2007 - Directors’ Report - Corporate Social Responsibility dh Annual Report 2007 - Directors’ Report - Corporate Social Responsibility

who suffer from these genetic conditions. Thalassemia, provided free of cost. Food and transportation were also the field of education and is at present running 455 the Company that the forest will begin to thrive in three
5
especially, continues to proliferate in Pakistan, and it is offered to patients. schools, which impart education to 55,000 students . The years.
estimated that 3-8% of the Pakistani population suffers construction of the school building began in mid 2006,
3
from the disorder . The Eye Camp from its induction in November 2006 to the incurring a cost of Rs. 20 million. Water Purification : Clean Water for Everyone
close of the year 2007 has treated a total of 11500 patients,
Fatimid Foundation is the largest blood band and out of which 500 patients in danger of losing their vision The School became fully functional in summer 2007, and The district of Sheikhupura is a heavily industrialised area.
haematological services provider in Pakistan that is geared due to cataracts were successfully operated upon. The has rapidly filled to capacity, catering to approximately 213 Countless factories bellow smoke and steam, consume
4
68
towards the underprivileged . Doing our bit to pull up our Company has spent approximately Rs.2.5 million to date students, who are currently receiving primary education. millions of gallons of water, which is then pumped out as 69
sleeves and lend a hand, the Company's employees, their on this cause, which has earned us an enormous amount The Company organised an opening ceremony to mark industrial waste; making the search for clean water by the
relatives and friends volunteered for the noble cause and of gratitude from people, whose excitement in having the occasion on 26th November 2007. The Committee poor communities as gigantic a task as the factories that
donated more than 160 bags of blood. Their humble their sight restored cannot be expressed in words. This has hopes that it will be able to continue its support of the sprawl over Sheikhupura's horizons.
donation was thankfully acknowledged by the parents of encouraged the Committee to continue and persevere School by extending its capacity in the future. However, for
Thalassemic children; whose very survival depends upon with this activity onto the next year as well as to look for the moment DH has borne the running expenses of the
Realising this dearth of clean drinking water, the CSR
receiving a continuous supply of blood. other such endeavours. School's first year, which amounts to Rs.1.8 million, and
Committee tested the water at several sites in the district
has purchased the entire furniture for the School, in
and has planned to set up four water purification plants,
addition to a Suzuki van procured for the transport of the
each having a capacity for purifying 1,000 gallons per hour
School staff.
Eye Camp: Keeping an eye on Sheikhupura EDUCATION: (GPH) at different areas in proximity of the DH plant. At
present one of the above-mentioned units is in operation

TCF-Dawood Hercules Campus: A Different School of and is providing clean drinking water to the community of

The DH Plant is located in the surrounding rural areas of Thought ENVIRONMENT: 6

Nurpur Virkan . The second unit is scheduled to be up and

Lahore where the majority of inhabitants are unable to running by the end of January 2008, whereas the other

obtain affordable treatment within their vicinity for eye Afforestation: Planting At the Plant remaining two units are targeted to be operational by June
As reported in our Annual Report for the year 2006, the
conditions. CSR Committee set up a rudimentary camp in 2008.
Company established a school with The Citizens
November 2006 on an experimental basis which has Foundation (TCF), a well-renowned not-for-profit The afforestation of 50 acres of land surrounding the DH
proved to be extremely successful for eye treatments. organization. The School is located in the village of Plant began in September 2006 and was completed in
Patients were seen on a first come first serve basis. All Noorpur Virkan, District Sheikhupura, situated across the March 2007. The project is being maintained by replacing
medicines and necessary surgical procedures were road from the DH Plant. TCF possesses a vast experience in indigenous plants that die with new ones. It is hoped by

6. Lab tests have been conducted to check the bacterial content of the treated water throug
3: See - http://en.wikipedia.org/wiki/Thalassemia, 5. See - http://www.thecitizensfoundation.org Shaukat Khanum Diagnostic Centre. The results show that the water is now within the
4: See - http://www.fatimid.org parameters for safe drinking.
 dh Annual Report 2007 - Directors’ Report - Corporate Social Responsibility

EMERGENCY RELIEF: SOCIAL BENEFITS:

Baluchistan Flood Relief: Deluge, Destruction and Roshni’s Special People: Going an Extra Mile
Destitution

Roshni Association is an NGO driven to care for the needs

A deluge struck the province of Baluchistan, taking with it of special people and provides day care and vocational
the homes and infrastructure of the towns and villages. training to those over the age of sixteen. The organisation
Thousands were left without shelter and electricity, while concentrates on harmoniously integrating the “three parts 71
7
the rain poured relentlessly, sweeping away everything in of the human life – work, social life and cultural life ”
its wake. Having learnt the extreme importance of according the requirements of the special men and
immediate proactivity in the face of disaster from the women in 'Roshni Village' located on Bedian Road near
earthquake that shook the entire Nation in October, 2005; Lahore. DH has donated a van for their convenience and
we immediately procured 500 tents that were despatched the CSR Committee is considering providing them further
post-haste to Baluchistan. These efforts were appreciated support in the forthcoming year.
by the concerned authorities and a note of thanks was
issued by the Relief Commissioner of Baluchistan to this
effect.

Bangladesh Ceaseless Cyclones

Almost every year Bangladesh suffers from considerable

When dark, tumultuous and tempestuous destruction of life and property due to floods and
clouds overcast the rays of hope - cyclones. As a disaster-prone country, its people are often
each member of our corporation left destitute and without access to proper food, shelter,
pulls together to do what we can. sanitation and medical facilities. For this purpose, the
Company sent 10,000 hospital bed sheets as a small
contribution on its part.

7. See http://www.roshni.org.pk/community.html
 dh Annual Report 2007 - Directors’ Report - Corporate Social Responsibility dh Annual Report 2007 - Directors’ Report - Corporate Social Responsibility

Planting at the Plant Water Purification Emergency Relief Social Benefits

50 acres of land reserved 4 water purification 500 tents donated to the A van gifted to Roshni
for afforestation, of plants scheduled in flood-affected people in Association.
which 42 acres have Sheikhupura, each Baluchistan.
been covered. having a capacity to 10,000 hospital bed
Approximately 37,000 clean 1,000 gallons of sheets donated to
trees have been planted. water per hour. Bangladesh.

Forest projected to thrive 1 plant in function at TCF.

in 3 to 5 years. Remaining plants to be
operational by June ‘08.
Blood Donation Drive Eye Camp TCF School

Positive
· DH employees, friends · Rs. 2.5 million · 213 students under Community
Impact
Investment
and relatives expended for optical tutelage. on Society
participated in blood treatment. · Imparting quality
72 bank for Haemophilic · 11,500 patients education to the Workforce
73
& their
Philanthropy Families
and Thalassemic examined at by the underprivileged Donation
Improving
patients as volunteers. Volunteerism
close of the year. children of the Quality
of Life
· 160 bags of blood Sheikhupura.
Local
collected. · Approximately 500 · Rs. 20 million spent for Community
Environment

patients underwent building construction.

Economic
cataract replacement · Rs. 1.8 million donated Development Society at
Large
surgery. for running through CSR
Governance
expenses. Operations

Human Shareholders
Rights Market
Place

Work Customers

“Peace, like charity, begins Place

Financial
at home” Analysts

Franklin D. Roosevelt Union

Employees
 dh Annual Report 2007 - Directors’ Report - Human Resource Management dh Annual Report 2007 - Directors’ Report - Human Resource Management

Human Resource Management

The Company considers its human resource as the most Engineering Department was also split into two
valuable asset and, therefore, consistently endeavours to independent sections having separate in-charges. The
Sharing our work and our
create and maintain an environment conducive to their Bagging and Shipping unit of the Production Department
duties,makes us brothers.
further development. The excellent operational was strengthened to improve productivity and efficiency.
achievements during the year would not have been This organizational re-structuring will continue onto the
possible without the commitment and active involvement next year.
of our people because an organization cannot achieve its
objectives without a motivated workforce. Policy Formulation
74 75

Organizational Development Coupled with the organizational changes and

development mentioned above; the Management
In continuation of the Management’s endeavours to devised various policies for providing an enabling
optimize professionalism and productivity, an framework whereby various HR policies and procedures
organizational restructuring exercise was undertaken were revamped to align them with the changing trends
during the year 2007. The Safety and Training Department and requirements, in order to empower the employees at
was bifurcated into two independent departments. The different levels of management.
prime objective of the Health, Safety and Environment
(HSE) Department was focused on implementing the A job rotation and enrichment plan was put in place. This
highest standards of safety and occupational health and plan is intended to:
to handle the technical and regulatory aspects of the
supply exposure to employees in various
environment. The Training Department, on the other
operations of the Company thus enhancing their
hand, was pressed to organise the training and
decision making ability;
development functions on professional lines in close
encourage them to acquire new skills and
coordination with the Human Resources Department. This
diversified experience;
arrangement is believed to produce fur ther
place employees in jobs for which they are best
improvements in the quality of the Company’s training
suited;
schemes and facilitate the capacity building and skill
attain maximum efficiency and production;
development of existing and prospective employees. The
Electrical and Instrument Section of the
 dh Annual Report 2007 - Directors’ Report - Human Resource Management dh Annual Report 2007 - Directors’ Report - Human Resource Management

HR Transformation Workforce Transformation Knowledge Transformation

Our effective HR Management Our HR team designs and HR provides assistance to establish
involves managing a constant implements initiatives that reduce our business objectives relating to
stress in the workplace and create
tension between efficiency and the new solution, secure executive
more effective reward programmes -
effectiveness. In order for our HR support, build our business case,
making us an employer of choice.
team to act as effective business and manage the involvement of all
1- Build an organizational structure
partners, they are geared up to that attracts and retains the best key stakeholders.
transform the way they operate to available talent. HR will also develop a tailored
focus less on transactional and 2- Harness the productivity programme of employee
administrative services and more on advantages of a Committed communications, training and
strategic value adding activities that workforce.
process re-engineering to help
support our Company. 3- Compete more effectively for the
achieve our long term objective.
best available people.
promote career and succession planning in the overhauled to make it more progressive and beneficial for
organization as a source of motivation especially the students.
for employees possessing high leadership and
management potential. We have continued to invest in the professional
development of our employees. Various in-house and
Succession Pla
er and nnin This initiative is expected to propel the positive cultural outside training programs, seminars and workshops in the
Care g
changes already in motion within the Company. areas of management, plant operation and maintenance,

76
information technology, finance, training, et cetera were 77

Training and Development arranged throughout the year. Senior level employees

ace Culture
including Directors were sent abroad with the objective of
rkpl Aut
fits

o ho Po equipping them with the modern business techniques.

W rity
e

As a responsible corporate citizen, the Company has

licie
Ben

ce

an

played a significant role in training young people for highly

s&P
pla
n&

dA

Compensation and Benefits

ork

technical jobs. Over 1,300 persons including engineers,

cco
Compensatio

rocedur
afety in the W

operators, diploma holders and matriculate apprentices

untability

Human have been trained in the Company’s institutionalized The Company offers a competitive compensation
es

Resource training centre. The Graduate Engineers Training Program package to its employees. The Provident Fund, Gratuity,
Management
of the Company was revamped to make it more vigorous free medical facility, bonus, transportation, loan facility
nd S

Perfo

and competitive. The 24th batch with increased strength and other monetary and non-monetary benefits form
a

rm
h

started training during the year. The selection process for integral part of the Total Remuneration. In order to keep
t

a
a l

nc
e

e
H

an
M Diploma Apprenticeship Training was in the last stage at pace with the rising inflation and market demand for
ag
ons eme the year end and the batch is expected to start training technical staff and to retain the leading edge in the
Functi
Co

nt
early 2008. The stipends for all training schemes were industry, a salary revision exercise was undertaken during
u
t
en

nse
m

significantly increased to cater to the financial needs of the the year whereby the salaries of the management staff
lin
l

p ga
elo
trainees. were significantly raised, especially of the good
e v nd
&D Me
nto
ing ring performers. This initiative was taken in line with the
Train
The Company offers internship opportunities to the Company’s objective of attracting and retaining good

students of engineering, commerce and management employees. Another salary revision exercise is also

disciplines. This year the internship scheme was also planned for the year 2008. The salaries of the
 dh Annual Report 2007 - Directors’ Report - Human Resource Management dh Annual Report 2007 - Directors’ Report - Human Resource Management

non-management staff were also increased in accordance The employees of the Company are therefore encouraged
with the Settlement with CBA. to arrange and fully participate in the annual sport festival,
which involves cricket, badminton, volleyball matches,

Industrial Relations cycle races and athletics. This year, the DH women and
children also participated in the Sports Day competitions.
Besides, these sports events, Qirat and Naat competitions,
Dawood Hercules has always been proud of the cordial
debates and quizzes are also organised. Furthermore,
relations maintained between the management and
seasonal employee matches of snooker and table tennis
78 employees, which continues to be exemplary. During the 79
occur intermittently in the DH office gymnasium.
year, a new union was elected by the workers and the
whole process of elections and transfer of power was
completed in a smooth and peaceful manner. During the The people in the Organisation are not only the most

37 years history of the Company, there has not been a important and crucial asset of the Company, but they

single incident of workers’ strike, lockout or go-slow. A create the Company’s successes. The Management hence

total of 16 settlements have been reached with the strives to ensure that all cadres of employees continue to New uniforms of the Bagging and Shipping labourers.
Workers Union in a peaceful and amicable environment. remain motivated. In this regard, we have introduced

Negotiations for the next settlement shall be held after smart new uniforms for all drivers within the Company. We

June 2008. are proud to state that we have organised the serving of
meals and refreshments free of cost to the labourers hired selected through a draw at the annual DH Haj dinner. Till
contractually in the Bagging and Shipping Department. now, a total of 325 employees have performed the sacred
Employees’ Welfare
Furthermore, they have been furnished with uniforms that pilgrimage since 1988 under this scheme. In the same way,
are designed to protect their shoulders from the heat of 4 employees are selected for Umrah every month when a
A performance-driven working environment requires the
the freshly bagged urea. This exercise has greatly specified production target is achieved. Accordingly, a total
continued fortification of the employees’ morale. In our
improved their performance. of 40 employees were selected through draw during the
culture an individual is believed to be an amalgamation of
year. Since the inception of this scheme in 1997, a total of
the mind, body and soul. Thus in order to boost the
Spirituality is extremely crucial to Pakistanis as it cultivates 252 employees have performed Umrah.
productivity, sense of well being and energy levels of
contentment. DH has a tradition of furnishing the cost of
people, an environment must be created that inculcates
performing Hajj for 16 employees each year that are
aspects of harmony, discourse and good wholesome fun.
Quality Management
System
An effective quality management system underpins a successful
organization by providing direction in a systematic and
transparent manner. It allows competitiveness, efficient and
ensures the ability to deliver what the customer requires in the
best way possible.

ISO 9001 is an internationally recognized standard for Quality

Management. The standard provides a framework of globally Its only when we work akin to Nature,
recognized principles of quality management to ensure client’s that we hope to prosper.
satisfaction through continuous improvement and a systems
approach to management and effective leadership. The Quality
management system of Dawood Hercules Chemicals Limited
was assessed and registered in accordance with quality
assurance standard BS EN ISO-9002: 1994 by M/s Moody
International in November 1997. Considering quality assurance
standards, Dawood Hercules took another initiative in May, June
2001 to upgrade its quality management system from ISO-9002:
1994 to ISO-9001: 2000 quality assurance standard in November
2002. We are at present targeting the attainment of ISO 14001
certification by 2009, by which time we will have fully conformed
to all requirements of NEQS.
 dh Annual Report 2007 - Directors’ Report - Outlook 2008 dh Annual Report 2007 - Directors’ Report - Outlook 2008

Driving onwards
and forwards towards
greener pastures.
Outlook 2008

Demand of different fertilizers during the year 2008 will ACKNOWLEDGEMENT

be determined primarily by the interplay of the following
parameters: The Directors are fully appreciative of the dedication and
commitment of employees in all cadres and would like
Food production requirement to thank them for their contribution in the progress of
Agronomic needs the Company.

Agricultural credit
82 Water availability 83

Crops and fertilizer prices

Steep rise in the international price of DAP during the On behalf of the Board
recent past is likely to suppress its usage unless the
Government allows corresponding increase in the
subsidy. Any shrinkage in the DAP application will
escalate demand for urea which is otherwise expected
Shahzada Dawood
to follow the study growth pattern.
Chief Executive Officer

The Plant is in a good condition and Urea production for

the year 2008 is expected to be in excess of the design
capacity.
Vision and Mission
To excel in the fertilizer and allied business at national and
international level by maintaining highest standards of product
quality thereby playing our role in the development of the country's
economy and adding value to the shareholders' investment.

To offer consistent dividends to the shareholders.

To chalk out a plan to improve production techniques and quality

standards.

To provide career grooming opportunities to the talented

professionals.

To become a good corporate citizen.

To develop long-term relationship with the

employees.

To create high performing organizational environment in which

bright ideas are generated and nurtured.

To inculcate honest and ethical behaviour.

To create safe, healthy environment and friendly atmosphere for the

employees.

To improve quality of life for the employees. “Cherish your visions and your dreams,
as they are the children of your soul, the
blueprints of your ultimate achievements”.
Napoleon Hill
Business Ethics and Core Values

Professionalism through leadership

and integrity.

Innovation, teamwork and

partnership.

Long term profitability and growth.

Commitment to quality and continuous

improvement.
Financial Statements
Statement of Compliance with the Code of
Corporate Governance

Review Report to the Members on Statement of

Compliance with the Best Practices of Code of
Corporate Governance

Auditors' Report to the Members

 dh Annual Report 2007 - Financial Statements dh Annual Report 2007 - Financial Statements

10. The Board approves appointment of CFO, Company Secretary and Head of Internal Audit, including their

Statement of Compliance with the remuneration and terms and conditions of employment, as determined by the CEO.

Code of Corporate Governance 11. The Directors' report for the year has been prepared in compliance with the requirements of the Code and
fully describes the salient matters required to be disclosed.

The statement is being presented to comply with the Code of Corporate Governance contained in the listing 12. The financial statements of the Company were duly endorsed by the CEO and CFO before approval of

regulations of Karachi and Lahore Stock Exchanges for the purpose of establishing a framework of good governance, the Board.

whereby a listed company is managed in compliance with the best practices of corporate governance.
13. The Directors, CEO and executives do not hold any interest in the shares of the Company other than that

The Company has applied the principles contained in the Code in the following manner: disclosed in the pattern of shareholding.

1. The Board comprises of seven Directors including the Chief Executive Officer. The Company encourages 14. The Company has complied with all the corporate and financial reporting requirements of the Code.

representation of independent non-executive Directors. At present, the majority of the Directors on the
15. The Board has formed an Audit Committee. It comprises of three members, majority of whom are
Board are non-executive.
non-executive Directors.

90
2. The Directors have confirmed that none of them is serving as a Director in more than ten listed companies, 91
16. The meetings of the Audit Committee were held at least once every quarter prior to approval of interim
including this Company.
and final results of the Company and as required by the Code. The terms of reference of the committee

3. All the Directors of the Company are registered as taxpayers and none of them has defaulted in payment of have been formed and advised to the committee for compliance.

any loan to a banking company, a DFI or an NBFI or, being a member of a Stock Exchange, has been declared
17. The Board has setup an effective internal audit function.
as a defaulter by that Stock Exchange.
18. The statutory auditors of the Company have confirmed that they have been given a satisfactory rating
4. No casual vacancy occurred in the Board during the year.
under the Quality Control Review Program of the Institute of Chartered Accountants of Pakistan, that they

5. The Company has prepared a “Statement of Ethics and Business Practices”, which has been signed by all the or any of the partners of the firm, their spouses and minor children do not hold shares of the Company

Directors and employees of the Company. and that the firm and all its partners are in compliance with the International Federation of Accountants
(IFAC) guidelines on code of ethics as adopted by Institute of Chartered Accountants of Pakistan.
6. The Board has developed a vision/mission statement, which is annexed with the report. Significant policies
of the Company are revised and updated as and when deemed appropriate. 19. The statutory auditors or the persons associated with them have not been appointed to provide other
services except in accordance with the listing regulations and the auditors have confirmed that they
7. All the powers of the Board have been duly exercised and decisions on material transactions, including have observed IFAC guidelines in this regard.
appointment and determination of remuneration and terms and conditions of employment of the CEO and
other Executive Directors, have been taken by the Board. 20. We confirm that all other material principles contained in the Code have been complied with.

8. The meetings of the Board were presided over by the Chairman and the Board met at least once every
quarter. Written notices of the Board meetings, along with agenda and working papers, were normally
circulated at least seven days before the meetings. The minutes of the meetings were appropriately
recorded and circulated.

9. The Board arranged orientation courses for its Directors and executives to apprise them of their duties Lahore: Shahzada Dawood
and responsibilities. 28 January 2008 Chief Executive
 dh Annual Report 2007 - Financial Statements dh Annual Report 2007 - Financial Statements

Review Report to the Members Auditors' Report to the Members

on Statement of Compliance with best practices
of Code of Corporate Governance

We have reviewed the statement of compliance with the best practices contained in the Code of Corporate We have audited the annexed balance sheet of Dawood Hercules Chemicals Limited (“the Company”) as at
Governance prepared by the Board of Directors of Dawood Hercules Chemicals Limited (“the Company”) to comply 31 December 2007 and the related profit and loss account, cash flow statement and statement of changes in equity,
with the Listing Regulations of the respective Stock Exchanges, where the Company is listed. together with the notes forming part thereof, for the year then ended and we state that we have obtained all the
information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of
The responsibility for compliance with the Code of Corporate Governance is that of the Board of Directors of the our audit.
Company. Our responsibility is to review, to the extent where such compliance can be objectively verified, whether
the statement of compliance reflects the status of the Company's compliance with the provisions of the Code of It is the responsibility of the Company's management to establish and maintain a system of internal control, and
Corporate Governance and report if it does not. A review is limited primarily to inquiries of the Company personnel prepare and present the above said statements in conformity with the approved accounting standards and the
92 93
and review of various documents prepared by the Company to comply with the Code. requirements of the Companies Ordinance, 1984. Our responsibility is to express an opinion on these statements
based on our audit.
As part of our audit of financial statements we are required to obtain an understanding of the accounting and
internal control system sufficient to plan the audit and develop an effective audit approach. We have not carried out We conducted our audit in accordance with auditing standards as applicable in Pakistan. These standards require
that we plan and perform the audit to obtain reasonable assurance about whether the above said statements are
any special review of the internal control system to enable us to express an opinion as to whether the Board's
free of any material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
statement on internal control covers all controls and the effectiveness of such internal controls. and disclosures in the above said statements. An audit also includes assessing the accounting policies and
significant estimates made by management, as well as, evaluating the overall presentation of the above said
Based on our review, nothing has come to our attention, which causes us to believe that the statement of statements. We believe that our audit provides a reasonable basis for our opinion and, after due verification, we
compliance does not appropriately reflect the Company's compliance, in all material respects, with the best practices report that:
contained in the Code of Corporate Governance.
a) in our opinion, proper books of account have been kept by the Company as required by the
Companies Ordinance, 1984;

b) in our opinion:

i) the balance sheet and profit and loss account together with the notes thereon have been drawn
up in conformity with the Companies Ordinance, 1984, and are in agreement with the books of
account and are further in accordance with accounting policies consistently applied;

Lahore KPMG TASEER HADI & CO. ii) the expenditure incurred during the year was for the purpose of the Company's business; and
28 January 2008 Chartered Accountants
iii) the business conducted, investments made and the expenditure incurred during the year were
in accordance with the objects of the Company;

c) in our opinion and to the best of our information and according to the explanations
given to us, the balance sheet, profit and loss account, cash flow statement and statement of
changes in equity together with the notes forming part thereof conform with approved
 dh Annual Report 2007 - Financial Statements dh Annual Report 2007 - Financial Statements

PROFIT AND LOSS ACCOUNT

For the year ended 31 December 2007

Note 2007 Rupees 2006 Rupees

Sales - net 3 5,011,002,249 3,881,749,695

Cost of goods sold 4 3,148,550,713 2,570,246,167

Gross Profit 1,862,451,536 1,311,503,528

Selling and administrative expenses 5 290,879,875 236,129,083

accounting standards as applicable in Pakistan, and, give the information required by the Operating Profit 1,571,571,661 1,075,374,445
Companies Ordinance, 1984, in the manner so required and respectively give a true and fair
view of the state of the Company's affairs as at 31 December 2007 and of the profit, its cash
flows and changes in equity for the year then ended; and Finance cost 6 755,840,660 555,469,279
Realized gain on disposal of investment in associate 8,658,697,711 -
d) in our opinion Zakat deductible at source under the Zakat and Ushr Ordinance, 1980,
Other income 7 395,240,918 1,047,260,406
was deducted by the Company and deposited in the Central Zakat Fund established
under section 7 of that Ordinance. 8,298,097,969 491,791,127

Profit for the year 9,869,669,630 1,567,165,572

Other operating expenses 8 74,370,791 70,508,258

Profit before taxation and share from Associate 9,795,298,839 1,496,657,314

94 Share of profit from Associate 1,330,767,095 1,092,926,538 95

Profit before taxation 11,126,065,934 2,589,583,852

Provision for taxation 9 539,700,000 212,200,000

Share of taxation from Associate 451,919,410 323,177,058

991,619,410 535,377,058

Profit after taxation 10,134,446,524 2,054,206,794

Earnings per share - basic and diluted 27 122.30 24.79

The annexed notes 1 to 32 form an integral part of these financial statements.

Lahore KPMG TASEER HADI & CO.

28 January 2008 Chartered Accountants

Lahore Shahzada Dawood A.G. Gohar

28 January 2008 Chief Executive Director
 dh Annual Report 2007 - Financial Statements dh Annual Report 2007 - Financial Statements

BALANCE SHEET AS AT 31 DECEMBER 2007 BALANCE SHEET AS AT 31 DECEMBER 2007

Note 2007 Rupees 2006 Rupees Note Note 2007 Rupees 2006 Rupees

Liabilities Assets
Share Capital And Reserves Fixed Capital Expenditure

Authorized capital Property, plant and equipment 17 1,188,664,372 1,271,931,809

100,000,000 ordinary shares of Rs. 10 each 1,000,000,000 1,000,000,000 Capital work in progress 18 185,364,261 75,442,444
Issued, subscribed and paid up capital 10 828,662,400 828,662,400 1,374,028,633 1,347,374,253
Revenue reserves 17,841,618,878 8,204,369,794
Investment In Associate 19 16,610,255,523 6,292,386,865
Fair value reserve on short term investments 219,050,827 240,111,684
Long Term Loans And Advances 20 1,113,125 12,799,615
18,889,332,105 9,273,143,878

Non Current Liabilities

Long Term Loans 11 6,500,000,000 -
96 97
Deferred taxation 12 207,200,000 172,200,000

Staff retirement and other service benefits 13 53,353,807 45,693,082 Current Assets
6,760,553,807 217,893,082 Stores, spares and loose tools 21 893,254,067 759,952,372

Current Liabilities Stock in trade 22 867,510,588 237,295,434

Short term financing - secured 14 2,281,428,109 5,924,514,565 Trade debts 4,742,483 2,502,849
Trade and other payables 15 512,953,299 490,446,012 Loans, advances, deposits, prepayments and other receivables 23 491,751,391 298,706,918
Markup payable on secured loans 249,436,081 169,893,509 Short term investments 24 7,882,223,476 7,155,378,175

Provision for taxation 529,000,000 86,800,000 Cash and bank balances 25 1,097,824,115 56,294,565

3,572,817,489 6,671,654,086 11,237,306,120 8,510,130,313

Contingencies And and
Contingencies Commitments
commitments 16
29,222,703,401 16,162,691,046 29,222,703,401 16,162,691,046

The annexed notes 1 to 32 form an integral part of these financial statements.

Lahore Shahzada Dawood A.G. Gohar

28 January 2008 Chief Executive Director
 dh Annual Report 2007 - Financial Statements dh Annual Report 2007 - Financial Statements

CASH FLOW STATEMENT STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2007 For the year ended 31 December 2007
Note 2007 Rupees 2006 Rupees
Cash flow from operating activities Revenue reserves
Share Fair value
11,126,065,934 2,589,583,852 Total
Profit before taxation capital General Unappropriated reserve
reserve profit Total
Adjustment for non cash expenses and other items:
Rupees
Depreciation charged to profit and loss account 121,309,761 81,426,153
Balance as at 1st January 2006 720,576,000 700,000,000 6,028,425,240 6,728,425,240 1,906,238,414 9,355,239,654
Finance costs 755,840,660 555,469,279 Adjustment arising from measurement to fair value of investments - - - - (1,097,555,730) (1,097,555,730)
available for sale
Profit on sale of property, plant & equipment (42,308,835) (1,062,740) Fair value reserve transferred to profit and loss account on - - - - (568,571,000) (568,571,000)
- disposal of investments
Realized gain on disposal of investment in associate (8,658,697,711)
Net expense recognised directly in equity - - - - (1,666,126,730) (1,666,126,730)
Profit on sale of short term investments - (629,031,905)
Net profit for the year - - 2,054,206,794 2,054,206,794 - 2,054,206,794
Unrealized gain due to fair value adjustment of investments at fair value through profit or loss (10,401,353) -
- Total recognised income and expenses for the year - - 2,054,206,794 2,054,206,794 (1,666,126,730) 388,080,064
Realized gain on disposal of investments at fair value through profit or loss (2,204,805)

Share of profit of associate (1,330,767,095) (1,092,926,538) Final dividend @ 25% for the year ended 2005 - - (180,144,000) (180,144,000) - (180,144,000)

Liabilities no longer payable written back - (98,979,288) Final bonus @ 15% for the year ended 2005 108,086,400 - (108,086,400) (108,086,400) - -

Dividend income (98,979,288)

(326,018,550) (296,380,500) - - (124,299,360) (124,299,360) - (124,299,360)
1st interim dividend @ 15% for the year ended 31 December 2006
Provision for staff retirement and other service benefits 23,042,475 20,273,909 - - (165,732,480) (165,732,480) -
2nd interim dividend @ 20% for the year ended 31 December 2006 (165,732,480)
Profit on term deposits (2,194,931) (1,733,302)
108,086,400 - (578,262,240) (578,262,240) - (470,175,840)
(9,472,400,384) (1,462,944,932)
Balance as at 31 December 2006 828,662,400 700,000,000 7,504,369,794 8,204,369,794 240,111,684 9,273,143,878
Profit before working capital changes 1,653,665,550 1,126,638,920
Adjustment arising from measurement to fair value of investments - - - -
available for sale 3,239,143 3,239,143
Working capital changes
Net profit for the year - - 10,134,446,524 10,134,446,524 10,134,446,524
(Increase)/decrease in current assets:
Total recognised income and expenses for the year - - 10,134,446,524 10,134,446,524 3,239,143 10,137,685,667
Stocks, stores and spares (763,516,849) (186,305,459)
Deferred tax arising on unrealised gain from measurement to
Trade debtors (2,239,634) 1,347,495 fair value of investment available for sale - - - - (24,300,000) (24,300,000)

Loans, advances, deposits, prepayments and other receivables 8,526,909 47,363,496 Final dividend @ 45% for the year ended 31 December 2006 -
828,662,400 -
700,000,000 (372,898,080)
17,545,016,318 (372,898,080)
18,245,016,318 - (372,898,080)

Increase / (Decrease) in current liabilities: 1st interim dividend @ 15% for the year ended 31 December 2007 - - (124,299,360) (124,299,360) - (124,299,360)
Trade and other payables 21,372,481 (40,405,885) -- -- (497,197,440) (497,197,440) (24,300,000) (521,497,440)
1st interim dividend @ 15% (124,299,360) (124,299,360) -
243,350,827 (124,299,360)
19,313,790,402
(735,857,093) (178,000,353)
Balance as at 31 December 2007 828,662,400 700,000,000 17,141,618,878 17,841,618,878 219,050,827 18,889,332,105
98 Cash generated from operations 917,808,457 948,638,567
99

Finance costs paid (676,298,088) (433,815,050)

Taxes paid (288,371,382) (273,086,747)

The annexed notes 1 to 32 form an integral part of these financial statements
Staff retirement and other service benefits paid (15,381,750) (14,879,906)

Decrease/(Increase) in long term loans and advances 11,686,490 (12,155,805)

Net cash(outflow)/inflow from operating activities (50,556,273) 214,701,059

Cash flow from investing activities

Fixed capital expenditure (149,343,686) (740,653,533)

Proceeds from sale of property, plant & equipment 43,688,380 3,215,388

Profit on term deposits 2,194,931 1,733,302

Proceeds from disposal of available for sale investments - 2,005,000,000

Proceeds from disposal of investment held for trading 408,000,000 -

Proceeds from sale of investment in associate 20,215,572,589 -

Investment in associate (21,464,235,045) (466,589,440)

Short term investments (1,119,000,000) (5,450,545,000)

Dividends received 794,357,744 972,935,254

Net cash (outflow) from investing activities (1,268,765,087) (3,674,904,029)

Cash flow from financing activities

Short term financing (3,643,086,456) 3,589,614,296

Long term loans 6,500,000,000 -

Dividends paid (496,062,634) (472,035,897)

Net cash inflow from financing activities 2,360,850,910 3,117,578,399

Net increase/(decrease) in cash and cash equivalents 1,041,529,550 (342,624,571)

Cash and cash equivalents at the beginning of the year 56,294,565 398,919,136
Cash and cash equivalents at the end of the year 25 1,097,824,115 56,294,565

The annexed notes 1 to 32 form an integral part of these financial statements.

Lahore Shahzada Dawood A.G. Gohar

Lahore Shahzada Dawood A.G. Gohar 28 January 2008 Chief Executive Director
28 January 2008 Chief Executive Director
 dh Annual Report 2007 - Financial Statements dh Annual Report 2007 - Financial Statements

NOTES TO THE FINANCIAL STATEMENTS Compensated absences

For the year ended 31 December 2007 Liability for accumulated encashable leaves is arrived at on the basis of actuarial valuation. The actuary, for
ascertaining the present value of liabilities under the scheme, has adopted the projected unit credit method.

The Company recognizes actuarial gains/losses immediately. Valuation for the current year was carried out
1. LEGAL STATUS AND NATURE OF BUSINESS as at 31 December 2007 to determine the liability at the balance sheet date.

Dawood Hercules Chemicals Limited ("the Company") is a public limited company. It was incorporated in Pakistan in Other benefits
1968 under the Companies Act 1913 (now Companies Ordinance, 1984) and is listed on Karachi and Lahore Stock
Exchanges. The principal activity of the Company is production, purchase and sale of fertilizer. The registered office The Company also operates approved contributory provident funds for all employees. Equal contribution is
of the Company is situated at 35-A, Shahrah-e-Abdul Hameed Bin Baadees, Lahore. made both by employees and the Company. The funds are administrated by the Trustees.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.6 Fixed capital expenditure

2.1 Statement of compliance Property, plant and equipment

These financial statements have been prepared in accordance with approved accounting standards as These are stated at cost less accumulated depreciation and impairment loss, if any, except for land, which is
applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting stated at cost. The Company provides depreciation under the "straight line method" so as to write off the
Standards (IFRS) issued by the International Accounting Standards Board as are notified under the historical cost of an asset over its estimated useful life at the following rates:
Companies Ordinance, 1984, provisions of and directives issued under the Companies Ordinance, 1984.
In case requirements differ, the provisions or directives of the Companies Ordinance, 1984 shall prevail.
Percentage
2.2 Basis of measurement
Buildings on freehold land 5
These financial statements have been prepared under the historical cost convention, except for those Railway siding 5
available for sale and investments at fair value through profit or loss, which have been recognized at fair
value, investment in an associate which has been accounted for using the equity method, recognition of Plant and machinery 7.5
certain staff retirement benefits at present value and recognition of certain financial assets and liabilities at
Furniture 10
fair value.
Fittings and equipment 12.5
2.3 Use of estimates and judgments
Motor vehicles 20
The preparation of financial statements in conformity with approved accounting standards requires Data processing equipment 33.33
management to make judgments, estimates and assumptions that effect the application of policies and
reported amounts of assets and liabilities, income and expenses. The estimates and associated Catalysts 10 to 50
assumptions and judgments are based on historical experience and various other factors that are believed to
be reasonable under the circumstances, the result of which form the basis of making the judgment about
carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates. Depreciation is provided at the above rates subject to 1% retention of the original cost except for Catalysts,
which are fully depreciated over their estimated useful lives.
100 The estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting 101
estimates are recognized in the period in which the estimate is revised if the revision affects only that period, Assets residual values ’ and useful lives ’ are reviewed at each financial year and adjusted if impact on
or in the period of revision and future periods if revision affects both current and future periods. The areas depreciation is significant.
where various assumptions and estimates are significant to Company's financial statements or where
judgments were exercised in application of accounting policies are as follows: Depreciation is charged on prorata basis on additions from the following month in which the asset is put to
use and on disposals up to the month preceding the month of disposal.
- Useful life of depreciable assets
- Staff retirement benefits Maintenance and normal repairs are charged to income as and when incurred. Major renewals and
- Taxation improvements are capitalized when it is probable that respective future economic benefits will flow to the
- Provisions and contingencies Company and the cost of the item can be measured reliably, and the assets so replaced, if any, are retired.
- Accruals
The initial catalysts cost in Ammonia plant was capitalized with plant and machinery whereas costs of
2.4 Revenue recognition subsequent replacement of such catalysts are separately included in property, plant and equipment and
depreciated over their estimated useful life.
Revenue represents the fair value of the consideration received or receivable for goods sold, net of
discounts and sales tax. Revenue is recognized when it is probable that the economic benefits associated Gains and losses on disposals of property, plant and equipment, if any, are included in income.
with the transaction will flow to the Company and the amount of revenue, and the associated cost incurred,
or to be incurred, can be measured reliably. Capital work-in-progress

Sales of products and services are recorded when the risks and rewards are transferred i.e. on delivery of Capital work-in-progress is stated at cost less identified impairment loss, if any.
goods/products to customers or performance of services.
2.7 Stocks, stores and spares
Interest income is accrued on a time proportion basis by reference to the principal outstanding and the
applicable rate of return. Stocks are valued at lower of cost and net realizable value. Cost is determined as follows:

Dividend income is recognized when the right to receive payment is established. Stocks
Raw material at moving average cost
2.5 Staff retirement benefits Materials in process at average cost
Finished goods at average cost
Gratuity Stores, spares and loose tools at moving average cost. Items which are identified as
slow moving and as surplus to the Company's
The Company operates approved funded gratuity schemes for its management and non-management staff. requirements are written down to their estimated net
Actuarial valuations are carried out on regular intervals to determine and adjust the liability on the balance realisable value.
sheet date. The actuary, for ascertaining the fair value of assets and liabilities, has adopted the projected Stores and spares in transit at cost, comprising invoice value plus other charges incurred
unit credit method. thereon.

The Company recognizes actuarial gains/losses over the expected future service of current members, based Cost of work in process and finished goods comprises of cost of direct materials, labour and appropriate
on the "minimum 10% corridor" approach recommended under IAS-19 "Employee Benefits". Valuation for manufacturing overheads.
the current year was carried out as at 31 December 2007 to determine the liability at the balance sheet date.
Related details are given in note 13 to the financial statements. Net realisable value signifies the estimated selling price in the ordinary course of business less costs of
completion and selling expenses.
 dh Annual Report 2007 - Financial Statements dh Annual Report 2007 - Financial Statements

Investments at fair value through profit or loss are initially recognized at cost, being the fair value of the
consideration given. Subsequent to initial recognition these are recognized at fair value unless fair value can
2.8 Foreign Currencies not be reliably measured. Any surplus or deficit on revaluation of investments is charged to income
currently.
Transactions in foreign currencies are recorded using the rates prevailing on the date of transaction. All
monetary assets and liabilities in foreign currencies are translated into rupees at exchange rates prevailing All purchases and sales of investments are recognized on the trade date, which is the date that the
at the balance sheet date. Non-monetary assets and liabilities that are measured in terms of historical cost in Company commits to purchase, or sell the investment.
a foreign currency are translated into rupees at exchange rates prevailing at the date of transaction. Non-
monetary assets and liabilities denominated in foreign currency that are stated at fair value are translated 2.11 Financial instruments
into rupees at exchange rates prevailing at the date when fair values are determined.
Financial assets and financial liabilities are recognized when the Company becomes a party to the
All exchange differences are charged to profit and loss account. contractual provisions of the instruments. The Company derecognizes the financial assets and liabilities
when it ceases to be a party to such contractual provisions of the instruments. The particular measurement
2.9 Taxation methods adopted are disclosed in the individual policy statements associated with each item.

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax expense is Significant financial assets include investments except for those accounted for under equity method, loans
recognized in profit and loss account except to the extent that it relates to items recognized directly in equity, and advances and cash and bank balances. Significant financial liabilities include short term borrowing,
in which case it is recognized in equity. trade and other payables and mark-up payable on borrowing.

Current 2.12 Offsetting of financial assets and liabilities

Provision for current taxation is based on taxable income at the current rates of taxation after taking into Financial assets and liabilities are offset and the net amount is reported in the balance sheet if the Company
account tax credits available, if any. The charge for current tax also includes adjustments, where considered has legally enforceable rights to set off the recognized amounts and the Company intends to settle on the
necessary, to provision for tax made in previous years arising from assessments framed during the year for net basis or realise the asset and settle the liability simultaneously.
such years.
2.13 Trade debts
Deferred
Trade debts are recognized initially at original invoice amount which is the fair value of consideration to be
The Company accounts for deferred taxation using the balance sheet liability method, on all temporary received in future and subsequently measured at amortized cost less an estimate made for doubtful debts
timing differences. Deferred tax liabilities are generally recognized for all taxable temporary differences and based on a review of all outstanding amounts at the year end. A provision for impairment of trade debts is
deferred tax assets are recognized to the extent that it is probable that taxable profits will be available established when there is objective evidence that the Company will not be able to collect all amounts due
against which the deductible temporary differences, unused tax losses and tax credits can be utilized. according to the original terms of receivables. Bad debts are written off when identified.

Deferred tax assets and liabilities are calculated at the rates that are expected to apply to the period when 2.14 Cash and cash equivalents
the asset is realized or the liability is settled based on tax rates (and tax laws) that have been enacted or
substantively enacted by the balance sheet date. Cash and cash equivalents are carried in the balance sheet at cost. For the purpose of cash flow statement,
cash and cash equivalents comprise cash in hand and cash with banks in current and saving accounts.
The carrying amount of deferred tax asset is reviewed at each balance sheet date and reduced to the extent
that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax
asset to be utilized 2.15 Trade and other payables

102 2.10 Investments Liabilities for trade and other amounts payable are initially recognized at cost which is the fair value of the 103
consideration to be paid in future for goods and services and subsequently at amortized cost using effective
Investment in associate interest rate method.

Associated companies, where the Company holds 20% or more of the voting power of the investee company 2.16 Provisions
and where the Company has significant influence, but not control, over the financial and operating policies,
are accounted for using the equity method. Provisions are recorded when the Company has a present legal or constructive obligation as a result of a
past event and it is probable that an outflow of resources embodying economic benefits will be required to
The financial statements of the Company include the Company's share of the income and expenses of the settle the obligation and a reliable estimate can be made of the amount of obligation.
associate accounted for under equity method, after adjustments, if required, to align the accounting policies
of associate with those of the Company from the date when significant influence is established until the date 2.17 Borrowing costs
when that significant influence ceases. When the Company's share of losses exceed its interest in associate
accounted for under equity method, the carrying amount of that interest is reduced to zero and recognition of Borrowing costs are recognized as an expense, as and when incurred.
further losses is discontinued except to the extent that the Company has an obligation or has made
payments on behalf of the investee. 2.18 Impairment

Unrealised gains arising from transactions, if any, with the associate accounted for under equity method are The Company assesses at each balance sheet date whether there is any indication that assets, excluding
eliminated against the investment to the extent of the Company's interest in the associate. Unrealised losses inventory, deferred tax asset and investments accounted for under equity method, may be impaired. If such
are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of indication exists, the carrying value of such assets are reviewed to assess whether they are recorded in
impairment. excess of their recoverable amount. Where carrying amount exceeds recoverable amount, assets are written
down to recoverable amount and the difference is charged to profit and loss for the year.
Investments in associates other than those described above are classified as "available for sale".
2.19 Related party transactions
Available for sale investments
The Company enters into transactions with related parties on an arms length basis. Prices for transactions
Investments intended to be held for an unidentified period of time, which may be sold in response to need for with related parties are determined using admissible valuation methods.
liquidity or changes to interest rates, exchange rates or equity prices are classified as available for sale.
2.20 Dividend
These are initially measured at cost, being fair value of the consideration given. Subsequent to initial
recognition these are recognized at fair value reassessed at each reporting date. Fair value is determined on Dividend to the shareholders is recognized as a liability in the period in which it is approved.
the basis of period end bid prices obtained from stock exchange quotations.
2.21 Standards, interpretations and amendments to published approved accounting standards
All purchases and sales of investments are recognized on the trade date, which is the date that the
Company commits to purchase, or sell the investment. Cost of purchase includes transaction cost. Amendments to published standards effective in 2007

Changes in carrying value are recognized in equity until investment is sold or determined to be impaired at IAS 1 (Amendment) - "Presentation of Financial Statements", is mandatory for the Company's accounting
which time the cumulative gain or loss previously recognized in equity is included in profit and loss account periods beginning on or after 01 January 2007. Adoption of this amendment only impacts the format and
for the year. extent of disclosures as presented in note 10 to the financial statements.

Investments at fair value through profit or loss Standards, amendments and interpretations effective in 2007 but not relevant

Investments that are acquired principally for the purpose of generating profit from short term fluctuations in
price or dealer's margin are classified as investment at fair value through profit or loss.
 dh Annual Report 2007 - Financial Statements dh Annual Report 2007 - Financial Statements

Other new standards, amendments and interpretations that are mandatory for the Company's accounting 4.1 Raw and packing materials consumed
periods beginning on or after 01 January 2007 are considered not to be relevant or have any significant
effect to the Company's operations. Note 2007 Rupees 2006 Rupees
Standards or interpretations not yet effective but relevant Opening stock 5,614,831 9,784,439

IAS 23 "Borrowing Costs" has been revised and is effective for the Company's accounting period beginning Add: Purchases 1,311,960,501 1,090,858,992
after 01 January 2009. Adoption of this standard will have an impact on the accounting policy of the
Company for treatment of borrowing cost. 1,317,575,332 1,100,643,431

3. SALES - NET Less: Closing stock 22 3,777,142 5,614,831

1,313,798,190 1,095,028,600
Note 2007 Rupees 2006 Rupees

Own manufactured 5,186,195,217 4,333,920,696 4.2 Salaries, wages, benefits and staff welfare include Rs. 6.564 million (2006: Rs. 6.281 million) in respect of
contribution to staff gratuity funds and Rs. 12.194 million (2006: Rs. 11.161 million) in respect of provident
Less: Sales tax 523,165,368 452,171,001 funds.
4,663,029,849 3,881,749,695 5 SELLING AND ADMINISTRATIVE EXPENSES
Purchased product 357,282,618 -
Note 2007 Rupees 2006 Rupees
Less: Sales tax 9,310,218 -
Salaries, wages, benefits and staff welfare 5.1 131,429,544 118,413,092
347,972,400 -
Communication, stationery and office supplies 36,058,152 29,913,561
5,011,002,249 3,881,749,695
Rent, rates and taxes 26,930,315 19,818,513
4 COST OF GOODS SOLD Travel and conveyance 22,619,658 21,401,824

Repairs and maintenance 14,017,805 14,937,467

Raw and packing materials consumed 4.1 1,313,798,190 1,095,028,600 Depreciation 17.2 18,162,621 16,930,062

Fuel and power 664,557,495 777,794,244 Legal and professional charges 16,595,592 3,770,074

Catalysts and chemicals 34,588,528 32,780,083 Sales promotion, advertising and market development 11,117,425 4,507,605

104 Salaries, wages, benefits and staff welfare 4.2 374,206,667 352,273,291 Insurance 845,211 688,780 105

Stores and spares consumed 148,785,047 158,674,708 Donations 5.2 5,512,400 31,500

Repairs and maintenance 48,387,746 99,166,907 Other expenses 7,591,152 5,716,605

Travel and conveyance 38,054,298 40,238,492 290,879,875 236,129,083

Rent, rates and taxes 2,295,496 2,359,257

5.1 Salaries, wages, benefits and staff welfare include Rs. 3.021 million (2006: Rs. 2.686 million) in respect of
Insurance 22,019,439 17,824,247
contribution to staff gratuity funds and Rs. 5.375 million (2006: Rs. 5.314 million) in respect of provident
Depreciation 17.2 103,147,140 64,496,091 funds.

Communication, stationery and office supplies 3,087,881 3,889,767 5.2 None of the Directors of the Company or any of their spouses have any interest in or are otherwise
associated with any of the recipients of donations made by the Company during the year.
Other expenses 5,146,537 2,753,074
6 FINANCE COST
2,758,074,464 2,647,278,761
Note 2007 Rupees 2006 Rupees
Add: Opening stock of work-in-process 12,033,657 12,182,512
Mark-up: Short term financing 546,163,411 555,424,779
Less: Closing stock of work-in-process 22 9,643,989 12,033,657
Long term financing 209,611,649 -
Cost of goods manufactured 2,760,464,132 2,647,427,616
Interest on workers' profits participation fund 15.3 65,600 44,500
Add: Opening stock of finished goods 219,646,946 142,465,497
755,840,660 555,469,279
Less: Closing stock of finished goods 22 150,131,038 219,646,946

Cost of goods sold - Own manufactured 2,829,980,040 2,570,246,167

- Purchased product 318,570,673 -

Cost of goods sold 3,148,550,713 2,570,246,167

 dh Annual Report 2007 - Financial Statements dh Annual Report 2007 - Financial Statements

7 OTHER INCOME 10 ISSUED, SUBSCRIBED AND PAID UP CAPITAL

Note 2007 Rupees 2006 Rupees 2007 No. of shares 2006 No. of shares 2007 Rupees 2006 Rupees
Ordinary shares of Rs 10 each
Cost of goods
Income manufactured
from financial assets: 13,900,000 13,900,000 fully paid in cash 139,000,000 139,000,000
Ordinary shares of Rs 10 each
Profit on sale of short term investments available for sale - 629,031,905 68,966,240 68,966,240 issued as fully paid bonus shares 689,662,400 689,662,400

Realized gain on disposal of investments at fair value through profit or loss 2,204,805 - 82,866,240 82,866,240 828,662,400 828,662,400
Unrealized gain due to fair value adjustment of investment at 10,401,353 -
fair value through profit or loss
10.1 Reconciliation of issued, subscribed and paid up capital
Income from term deposits 2,194,931 1,733,302

14,801,089 630,765,207 2007 No. of shares 2006 No. of shares

Income from related parties: Outstanding as at 01 January 82,866,240 72,057,600

Dividend income from Fully paid bonus shares issued during the year - 10,808,640

Sui Northern Gas Pipelines Limited 326,018,550 296,380,500 82,866,240 82,866,240

Income from non-financial assets:

10.2 Shares held by related parties
Sale of scrap 6,546,919 16,037,957

Profit on sale of property, plant and equipment 42,308,835 1,062,740 2007 No. of shares 2006 No. of shares

Liabilities no longer payable written back - 98,979,288 Dawood Lawrencepur Limited

5,565,525 Percentage of equity held 16.19% (2006: 16.19%) 13,418,027 13,418,027

Miscellaneous 4,034,714
120,114,699 Dawood Corporation (Private) Limited
54,421,279

395,240,918 1,047,260,406 Percentage of equity held 4.34% (2006: 4.34%) 3,593,786 3,593,786

The Dawood Foundation

8 OTHER OPERATING EXPENSES
Percentage of equity held 3.95% (2006: 3.95%) 3,273,415 3,273,415

Central Insurance Company Limited

Workers' profits participation fund 15.3 40,755,801 25,968,258 Percentage of equity held 2.97% (2006: 3.00%) 2,462,081 2,486,581

106 Workers' welfare fund 15 33,000,000 44,000,000 Patek (Private) Limited 107

Auditors' remuneration: Percentage of equity held 0.032% (2006: 0.032%) 26,737 26,737

Audit fee 500,000 425,000 Sach International (Private) Limited

Half year review and other certifications 80,000 80,000 Percentage of equity held 0.001% (2006: 0.001%) 1,205 1,205

Out of pocket expenses 34,990 35,000 22,775,251 22,799,751

74,370,791 70,508,258
10.3 The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market
The provision for workers’ profits participation fund is based on profits caused by business and trade, and excludes confidence and to sustain future development of the business. The Board of Directors monitors the return on
other income in accordance with the law, as advised by the legal advisor of the Company. capital, which the Company defines as net operating income divided by total shareholders’ equity.

9 PROVISION FOR TAXATION The Company's objectives when managing capital are:

Current a) to safeguard the entity's ability to continue as a going concern, so that it can continue to
provide returns for shareholders and benefits for other stakeholders; and
For the year 529,000,000 104,000,000
b) to provide an adequate return to shareholders by pricing products commensurately with the level
Prior period - (17,200,000) of risk.

Deferred 10,700,000 125,400,000 The Company sets the amount of capital in proportion to risk. The Company manages the capital structure
and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the
539,700,000 212,200,000 underlying assets. In order to maintain or adjust the capital structure, the Company may adjust the amount
of dividends paid to shareholders, issue new shares, or sell assets to reduce debt.
9.1 Reconciliation of tax charge for the year
Consistently with others in the industry, the Company monitors capital on the basis of the debt-to-adjusted
capital ratio. This ratio is calculated as net debt divided by adjusted capital. Net debt is calculated as total
2007 % 2006 % debt (as shown in the balance sheet) less cash and cash equivalents. Adjusted capital comprises all
components of equity (i.e share capital, share premium and retained earnings).
Applicable tax rate 35.00 35.00

Tax effect of amounts that are not deductible for tax purposes 1.63 0.05
Tax effect of amount that relate to prior periods 0.00 (0.66)

Tax effect of amounts exempt from tax (27.25) (9.64)

Tax effect of amount taxed at lower rate (0.73) (3.43)

Tax effect of associate 0.26 (0.66)

Average effective rate charged on income 8.91 20.66

 dh Annual Report 2007 - Financial Statements dh Annual Report 2007 - Financial Statements

The debt-to-equity ratios at 31December 2007 and at 31 December 2006 were as follows: Call option

Under the Musharaka arrangement the Company carries a right to exercise "Call Option" to purchase all or any of the
2007 Rupees 2006 Rupees Sukuk units from certificate holders at their applicable Buy Out Prices (Pre Purchase) at any time after the expiry of
one year from the issue date. “The Call Option” can be exercised by the company after giving a prior written notice of
Total debt 8,781,428,109 5,924,514,565 at least thirty days of its intention to purchase all or any of the remaining Sukuk Units having aggregate face value of
multiple of Rs. 100 million.
Less: cash and cash equivalents (1,097,824,115) (56,294,565)

7,683,603,994 5,868,220,000 12 DEFERRED TAXATION

Net debt
Total equity 18,889,332,105 9,273,143,878 Note 2007 Rupees 2006 Rupees
Debt-to-equity ratio 0.41 0.63 Deferred liability arising due to accelerated depreciation allowance 158,700,000 170,700,000

Deferred liability arising due to unrealized profits of associate 23,400,000 17,500,000

The decrease in the debt-to-equity ratio during 2007 resulted primarily from the capital gain realized on the
sale of investment in associate amounting to Rs. 8,659.697 million, improved profitability and higher sales Deferred debits arising in respect of provision for gratuity and other (16,000,000)
timing differences 800,000
volume resulting in significant increase in equity.
Deferred liability arising due to unrealized gain on investments 24,300,000 -
During the year the Company has changed its approach to capital management by financing its activities
through long term rather than short term financing arrangements. 207,200,000 172,200,000

The Company is not subject to externally imposed capital requirements.

13 STAFF RETIREMENT AND OTHER SERVICE BENEFITS
11 LONG TERM LOANS
Defined benefit plan funded for management staff 13.1 162,973 215,607
Participatory Redeemable capital - secured Defined benefit plan funded for non-management staff 13.2 571,396 656,003
2007 2006 Compensated absences 52,619,438 44,821,472
13.4
Participatory Number of Face Value Rs. Number of Face Value Rs.
of Consolidated of Consolidated 53,353,807 45,693,082
Sukuk Certificates Sukuk Certificates Sukuk Certificates Sukuk Certificates
Banks
13.1 Defined benefit plan funded for management staff
Habib Bank Limited 60,000 3,000,000,000 - -
Amounts recognized in the balance sheet are as follows:
Meezan Bank Limited 20,000 1,000,000,000 - -
Present value of defined benefit obligation 13.1.1 101,938,100 86,624,636
Allied Bank Limited 20,000 1,000,000,000 - -
Fair value of plan assets 13.1.2 (72,006,260) (76,475,907)
United Bank Limited 12,000 600,000,000 - -
Unrecognized actuarial losses (29,768,867) (9,933,122)
108 MCB Bank Limited 14,000 700,000,000 - - 109
Liability as at 31 December 162,973 215,607
Meezan Islamic Income 3,950 197,500,000 - -
Fund
Net liability as at 01 January 215,607 11,951
Meezan Tahaffuz Pension 50 2,500,000 - -
-Fund-Debt Sub Fund
Charge to profit and loss account 13.1.3 7,664,314 6,062,697
Total 130,000 6,500,000,000 - -
Contribution made by the Company (7,716,948) (5,859,041)

Liability as at 31 December 162,973 215,607

Participatory redeemable capital represents Islamic Sukuk certificates issued to banks under musharaka
arrangements. The loan is secured by a ranking charge created by way of hypothecation over the specific
moveable fixed assets of the Company upto the extent of Rs. 7.72 billion, comprising various machinery of urea and
ammonia plant .The facility carries mark-up at average six months ask side KIBOR plus 120 bps payable half yearly 13.1.1 Movement in liability for defined benefit obligation
subject to a minimum of 3.5% per annum and a maximum of 25% per annum.
Present value of defined benefit obligation as at 01 January 86,624,636 83,827,648
Trustee
Current service cost 7,374,504 5,643,405
In order to protect the interest of the Certificate Holders, and investment agent (Meezan Bank Ltd.) has been
appointed as trustee under a trust deed dated 12 September 2007 at fee of Rs. 500,000 each year till the expiry of the Interest cost 7,796,217 7,544,488
agreement. in case the Company defaults on any of its obligations, the trustee may enforce the Company’s
Benefits paid during the year (10,986,053) (13,529,960)
obligations in accordance with the terms of the trust deed.
Actuarial loss on present value of defined benefit obligation 11,128,796 3,139,055
TERM OF PAYMENT Present value of defined benefit obligation as at 31 December 101,938,100 86,624,636

The principal amount is repayable according to the following schedule:

Payment Date (Rupees in 000)

First Trenche at any time between 18 September 2008 to 18 September 2011 1,300,000

Second Trenche 18 March 2012 2,600,000

Third Trenche 18 September 2012 2,600,000

6,500,000

In case of default in payment, the Company will be liable to pay an markup at the rate six month KIBOR plus 200 bps
per annum of the unpaid amount.

Face value of each sukuk certificate is Rs 50,000 which consist of 13 sukuk unit.
 dh Annual Report 2007 - Financial Statements dh Annual Report 2007 - Financial Statements

13.1.2 Movement in fair value of plan assets Note 2007 Rupees 2006 Rupees

Amounts recognized in balance sheet are as follows:

2007 Rupees 2006 Rupees Present value of defined benefit obligation 13.2.1 39,770,746 43,163,618
Fair value of plan assets as at 01 January 76,475,907 79,168,843 Fair value of plan assets 13.2.2 (41,480,476) (42,507,615)
Expected return on plan assets 7,647,591 7,125,196 Unrecognized actuarial losses 2,281,126 -
Contributions paid during the year 7,716,948 5,859,041 Liability as at 31 December 571,396 656,003
Benefits paid during the year (10,986,053) (13,529,960) Net liability as at 01 January 656,003 -
Actuarial (loss) on plan assets (8,848,133) (2,147,213) Charge to profit and loss account 13.2.3 2,021,117 2,904,736
Fair value of plan assets as at 31 December 72,006,260 76,475,907 Contribution made by the Company (2,105,724) (2,248,733)
Plan assets consist of the following: Liability as at 31 December 571,396 656,003
Term finance certificates of listed company 4,500,000 4,500,000
13.2.1 Movement in liability for defined benefit obligation
Funds placed under mark up arrangements with banks 67,506,260 71,975,907

72,006,260 76,475,907
Present value of defined benefit obligation as at 01 January 43,163,618 -
13.1.3 Charge to profit and loss account
Current service cost 1,962,076 -
Current service cost 7,374,504 5,643,405 Interest cost 3,884,726 -
Interest cost 7,796,217 7,544,488 Cost of defined contribution plan for the year - 2,248,733
Expected return on plan assets (7,647,591) (7,125,196) Liability transferred from defined contribution plan - 44,045,860
Actuarial loss 141,184 - Increase in present value of defined benefit
obligation due to change in benefits from - 656,003
7,664,314 6,062,697
defined contribution to defined benefit

13.1.4 Actual return on plan assets of funded gratuity scheme was Rs. 1.201 million (2006: Rs. 4.978 million). Benefits paid during the year (2,127,409) (3,786,978)

13.1.5 Historical information Actuarial (gain) on present value of defined benefit obligation (7,112,265) -

110 2007 2006 2005 2004 2003 Present value of defined benefit obligation as at 31 December 39,770,746 43,163,618 111
Rupees
Present value of defined benefit obligation 101,938,100 86,624,636 83,827,648 78,908,628 74,514,461 13.2.2 Movement in fair value of plan assets

Fair value of plan assets (72,006,260) (76,475,907) (79,168,843) (74,907,260) (68,550,166) Fair value of plan assets at 01 January 42,507,615 -

Deficit in the plan 29,931,840 10,148,729 4,658,805 4,001,368 5,964,295 Expected return on plan assets 3,825,685 -

Experience adjustment arising on plan liabilities 11,128,796 3,139,055 (890,429) (1,038,023) 619,179 Assets transferred from defined contribution to defined benefit plan - 44,045,860

Experience adjustment arising on plan assets (8,848,133) (2,147,213) (1,772,405) (1,830,016) (370,979) Contributions paid during the year 2,105,724 2,248,733

Benefits paid during the year (2,127,409) (3,786,978)

13.1.6 The Company expects to pay Rs. 13.762 million in contributions to defined benefit plan in 2008. Actuarial (loss) on plan Assets (4,831,139) -

Fair value of plan assets at 31 December 41,480,476 42,507,615

13.2 Defined benefit plan funded for non-management staff
Plan assets consist of the following:
The Company had maintained a defined contributory Gratuity Fund for its non-management staff upto
31 December 2005. During the last year the Company has changed benefit plan for non-management staff Funds placed under mark up arrangements with banks 37,500,000 37,500,000
from defined contribution to defined benefit.
Cash at bank 3,980,476 5,007,615

41,480,476 42,507,615

13.2.3 Charge to profit and loss account

Current service cost 1,962,076 -

Interest cost 3,884,726 -

Cost of defined contribution plan for the year - 2,248,733

Charge due to change in benefit type from - 656,003

defined benefit to defined contribution

Expected return on plan assets (3,825,685) -

2,021,117 2,904,736
13.2.4 The Company expects to pay Rs. 1.914 million in contributions to defined benefit plan in 2008.
 dh Annual Report 2007 - Financial Statements dh Annual Report 2007 - Financial Statements

13.3 Assumptions used for valuation of the defined benefit schemes for management and non-management staff
are as under: 15.1 The maximum aggregate amount due from related parties at the end of any month during the year was
Rs. 484.312 million (2006: Rs. 521.270 million).
Note 2007 % per annum 2006 % per annum
15.2 The above deposits are interest free and repayable on demand or otherwise adjustable in accordance with
Discount rate 10 9 the Company's policy. These deposits include Rs. 10 million (2006: Rs. 10 million) received from Dawood
Corporation (Private) Limited, a related party, as deposit money under the urea sales agreement.
Expected rate of return on plan assets 10 9
15.3 Workers' profits participation fund
Expected rate of increase in salary 9 8
Note 2007 Rupees 2006 Rupees
Average expected remaining working life time of management and non-management employees is 9 years and 10
years respectively. Balance at the beginning of the year 26,125,813 40,053,098

13.4 COMPENSATED ABSENCES Add: Allocation for the year 8 40,755,801 25,968,258

Note 2007 Rupees 2006 Rupees Interest on funds used in the Company's business 6 65,600 44,500

Opening balance 44,821,472 40,287,128 66,947,214 66,065,856

Expenses recognized during the year 13,357,044 11,306,476 Less: Amount paid to the fund 25,968,258 39,940,043

Payments made during the year (5,559,078) (6,772,132) 40,978,956 26,125,813

Closing balance 52,619,438 44,821,472

14 SHORT TERM FINANCING - SECURED 16 CONTINGENCIES AND COMMITMENTS

Running finance 14.1 196,477,709 5,924,514,565 16.1 Contingent liabilities

Murabaha finance-of purchase of shares 14.2 1,202,926,000 - The Company is contingently liable for:

Murabaha finance-for import of DAP fertilizer 14.3 882,024,400 - Counter guarantees given to the bank 2,171,467 2,171,467

2,281,428,109 5,924,514,565 Indemnity bonds/guarantees given to Customs authorities

equivalent to duties chargeable on import of machinery
payable if matter is decided by the CBR against the
45,811,747 45,811,747
Company regarding the eligibility of certain machinery and
14.1 These represent utilized portion of short term running finance facilities available from various banks under
equipment for duty free import under BMR programme
mark-up arrangements. These facilities aggregate Rs. 3,100 million (2006: Rs. 9,300 million) and expire on
(contingent liability of capital nature)
various dates latest by 31 May 2008, carrying mark-up rates of one to three months KIBOR plus 75-125
(2006: KIBOR plus 75-125) bps per annum. The facilities are secured by pledge of shares held as
investments and first hypothecation charge of Rs. 427 million on finished goods, stores and spares. The Indemnity bonds given to Customs authorities equivalent to
market value of these investments as at 31 December 2007 was Rs. 6,275 million (2006: Rs. 8,957 million). duties chargeable on import of machinery which shall be
112 released on production of installation certificate from 1,650,770 1,650,770 113
14.2 This represent short term Murabaha finance facility availed from Meezan Bank Limited and Habib competent authority (contingent liability of capital nature)
Bank Limited for purchase of shares. The facility carries mark-up @ 3-month KIBOR plus100 bps
per annum payable quarterly and the principal amount is payable in lump-sum at the end of tenor i.e Pending law suits 120,000 120,000
15 August 2008.This facility is secured against pledge of share with 30% margin thereon.

14.3 This represent short term Murabaha finance facility availed from Meezan Bank Limited and Bank AL Habib 16.2 Commitments
Limited for import of DAP fertilizer. The facility carries mark-up @ 3-month KIBOR plus 50 bps per annum.
Commitments in respect of contracts for capital expenditure 26,798,610 -
The facility aggregate available is Rs. 1,900 million (2006-nil). The principal and profit to Meezan Bank
Limited is to be paid in lump sum at maturity date which is 150 days from the date of draw down i.e Commitments in respect of store purchases 75,759,049 41,906,472
5 March 2008. For Bank AL Habib Limited principal and profit is to be paid within a maximum period
of 120 days from the date of draw down i.e 2 February 2008. This facility is secured against pledge of share
of Engro Chemical Pakistan Limited with 30% margin coverage.
17 PROPERTY, PLANT AND EQUIPMENT
15 TRADE AND OTHER PAYABLES
COST in Rupees DEPRECIATION in Rupees Net book
value as at
As at Disposals As at As at For the As at 31-12-2007
Additions Disposals
Note 2007 Rupees 2006 Rupees 01-01-2007 31-12-2007 01-01-2007 Period 31-12-2007 Rupees

Freehold land 249,982,856 674,000 - 250,656,856 - - - - 250,656,856

Trade creditors
Buildings on freehold land 105,003,968 9,631,834 - 114,635,802 70,059,838 3,581,501 - 73,641,339 40,994,463
Related parties 15.1 175,312,772 189,682,058
Railway siding 2,314,451 - - 2,314,451 2,291,307 - - 2,291,307 23,144
Others 21,323,698 28,692,284
Plant and machinery 2,531,789,012 9,900,197 10,000,000 2,531,689,209 1,681,519,472 72,769,406 9,900,000 1,744,388,878 787,300,331
196,636,470 218,374,342
Catalysts 137,640,283 - - 137,640,283 74,915,353 19,384,809 - 94,300,162 43,340,121
Advances from customer-related party 15.1 72,607,039 3,276,640
Furniture, fittings and equipment 46,498,089 1,227,311 - 47,725,400 38,090,071 1,660,693 - 39,750,764 7,974,636
Unclaimed dividends 15,602,774 14,467,968
Data processing equipment 93,749,202 2,791,700 - 96,540,902 73,277,773 10,337,193 - 83,614,966 12,925,936
Accrued expenses 72,748,449 113,340,245
Motor vehicles 92,838,888 15,196,827 11,933,655 96,102,060 47,731,126 13,576,159 10,654,110 50,653,175 45,448,885
Sales tax payable 59,328,680 45,429,445
2007 3,259,816,749 39,421,869 21,933,655 3,277,304,963 1,987,884,940 121,309,761 20,554,110 2,088,640,5911,188,664,372
Deposits 15.2 15,615,681 16,583,313
2006 2,373,679,534 893,410,756 7,273,541 3,259,816,749 1,911,579,680 81,426,153 5,120,893 1,987,884,940 1,271,931,809
Workers' profits participation fund 15.3 40,978,956 26,125,813

Workers' welfare fund 8 33,000,000 44,000,000

Others 6,435,250 8,848,246

512,953,299 490,446,012
 dh Annual Report 2007 - Financial Statements dh Annual Report 2007 - Financial Statements

17.1 Cost of fully depreciated assets is (i.e carried at 1% of cost) Rs. 1,714.480 million 19.1 Fair value of investments in associate Rs. 19,606 million (2006: Rs.10,842 million).
(2006: Rs. 1,717.317 million).
19.2 The financial year end of ECPL is 31 December. However, due to the non-availability of financial statements
17.2 Depreciation charge for the year has been allocated as follows: of ECPL at the time of preparation of these accounts, financial results as of 30 September have been used
for the purpose of application of equity method.
Note 2007 Rupees 2006 Rupees
19.3 Summarized financial information of ECPL is as follows:
Cost of goods sold 4 103,147,140 64,496,091

Selling and administrative expenses 18,162,621 16,930,062 Note 31-Dec-07 31-Dec-06

5
121,309,761 81,426,153 Total assets as at 30 September 44,541,390,000 17,142,531,000

Total liabilities as at 30 September 31,678,950,000 8,512,432,000

17.3 Disposal of property, plant and equipment
Revenue (12 months period from 01 Oct to 30 Sep) 30,334,355,000 18,814,025,000
Type of property, plant Original Accumulated Written Sale Mode of
Sold to cost depreciation down value proceeds disposal Profit after taxation (12 months period from 01 Oct to 30 Sep) 2,315,310,000 2,018,485,000
and equipment
Rupees Rupees Rupees Rupees Rupees
20 LONG TERM LOANS AND ADVANCES - UNSECURED CONSIDERED GOOD
Plant and machinery

Harp Assembly NIQ Traders 10,000,000 9,900,000 100,000 37,861,000 Negotiations 2007 Rupees 2006 Rupees

Motor vehicles Employees Executives 20.1 & 20.3 419,730 588,080

As per Employees 20.2 693,395 12,211,535
Toyota Corolla Shakeel Chughtai (P - 404) 909,340 121,246 788,094 831,295 Company Policy
As per 1,113,125 12,799,615
Suzuki Mehran Ashraf R. Krimi (IT - 002) 385,098 243,896 141,202 166,876 Company Policy
As per
Suzuki Mehran M. Tauseef Basit (P-532) 307,140 220,117 87,023 120,297 Company Policy 20.1 Loans to executives are provided interest free as temporary financial assistance and are repayable in 18
As per
equal monthly instalments.
Honda City Mr. Ijaz Ahmad (ST-028) 746,560 671,904 74,656 232,018 Company Policy
As per 20.2 Loans to other employees are interest free and repayable within two years. These include loans to workers
Toyota Corolla S. Muhammad Saleem (P-457) 125,000 64,583 60,417 429,203 Company Policy under agreement with the Workers Union.
Aggregate of other items of property, plant and 20.3 Reconciliation of carrying amounts of loans to executives
equipment with individual book values not 9,460,517 9,332,364 128,153 4,047,691 As per
Company Policy
exceeding Rs. 50,000
2007 Rupees 2006 Rupees
21,933,655 20,554,110 1,379,545 43,688,380
Opening balance 3,634,085 1,346,495

18 CAPITAL WORK IN PROGRESS Disbursement during the year 3,049,290 4,450,860

114 115
2007 Rupees 2006 Rupees Promotion of non-executive employees as executives 1,338,210 670,225

Plant and machinery 185,364,261 75,442,444 Loan recovered during the year (4,719,895) (2,833,495)

185,364,261 75,442,444 Closing balance 3,301,690 3,634,085

Less: Current portion shown under current assets 2,881,960 3,046,005

19 INVESTMENT IN ASSOCIATE 419,730 588,080

2007 Rupees 2006 Rupees

20.4 None of the loans are outstanding for periods exceeding three years.
Engro Chemical Pakistan Limited (ECPL)
20.5 The maximum amount due from executives at any month end during the year was Rs. 4.231 million
64,156,054 (2006: 64,156,054) ordinary shares of Rs 10 each 6,292,386,865 5,732,602,699 (2006:Rs.3.634 million)
Add: Cost of 9,623,408 right shares acquired during the year 1,202,926,000 466,589,440
21 STORES, SPARES AND LOOSE TOOLS
Cost of acquisition of 73,779,462 ordinary shares during the year 20,261,309,045 -

Percentage of equity held - 38.13% (2006: 38.13%) 2007 Rupees 2006 Rupees

Share of post acquisition profits 878,847,685 769,749,480 Stores 349,565,791 265,513,267

28,635,469,595 6,968,941,619 Spares 658,505,818 629,428,549

Less: Cost of sale of 73,779,462 ordinary shares during the year 11,556,874,878 - Loose tools 12,269,763 12,357,908

Dividends received during the period 468,339,194 676,554,754 Stores and spares in transit 108,577,695 88,317,648

12,025,214,072 676,554,754 1,128,919,067 995,617,372

16,610,255,523 6,292,386,865 Less: Provision for obsolete items 235,665,000 235,665,000

893,254,067 759,952,372
 dh Annual Report 2007 - Financial Statements dh Annual Report 2007 - Financial Statements

22 STOCK IN TRADE
25 CASH AND BANK BALANCES
Note 2007 Rupees 2006 Rupees
Raw and packing materials 3,777,142 5,614,831 Note 2007 Rupees 2006 Rupees
Material in process 9,643,989 12,033,657
With banks:
Finished goods - own manufactured 150,131,038 219,646,946
On current accounts 153,467,104 5,722,638
- purchased product 703,958,419 -
On saving accounts 25.1 481,465,931 50,217,181
867,510,588 237,295,434
Term deposits 25.2 462,000,000 -
23 LOANS, ADVANCES, DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES 1,096,933,035 55,939,819
These receivables are all unsecured and considered good: Cash in hand 891,080 354,746
Advances to suppliers for goods and services 23.1 23,843,791 26,671,311 1,097,824,115 56,294,565
Advances and loans:
25.1 These carry mark up at the rate ranging from 4% to 6% per annum (2006: 4% to 5% per annum).
Executives 23.3 & 20.3 2,881,960 3,046,005
25.2 These carry mark up at the rate ranging from 7.5% to 8.3% per annum (2006: NIL).
Employees 23.3 21,324,771 22,239,367

Advance income tax 426,333,334 224,761,952

26 REMUNERATION OF CHIEF EXECUTIVE, DIRECTORS AND EXECUTIVES
Prepayments 6,673,693 5,020,111
2007 Rupees 2006 Rupees
Deposits 3,600,118 2,683,991 Chief Chief
Director Executive Director Executive
Executive Executive
Miscellaneous receivables 7,093,724 14,284,181
Managerial remuneration 3,712,410 20,164,511 73,185,849 3,599,910 19,007,952 49,812,499
491,751,391 298,706,918
Retirement benefits 629,910 2,418,854 7,433,626 629,910 2,599,428 5,491,633
23.1 This includes due from related party Rs. 2.433 million (2006: Rs. 0.272). Maximum aggregate amount due
from at the end of any month during the year was Rs. 2.466 million (2006:Rs. 1.051 million). Rent and utilities 1,485,000 7,448,844 23,362,337 1,485,000 7,545,444 15,550,791

Leave fair assistance - 1,003,920 - - 422,360 -

23.2 Chief Executive and directors have not taken any loan/advance from the Company (2006: Rs Nil).
Medical - 447,864 1,590,942 - 346,944 1,426,532
23.3 Advances and loans to executives and employees include Rs. 18.335 million (2006: Rs. 18.667 million)
being current portion of the loans described under note 20.3 and the balance represents interest free 5,827,320 31,483,993 105,572,754 5,714,820 29,922,128 72,281,455
advance.
116 Number of employees 1 3 48 1 4 40 117
24 SHORT TERM INVESTMENTS - AVAILABLE FOR SALE

2007 Rupees 2006 Rupees (Including those who worked part of the year).
These comprise of fully paid ordinary shares of the following Chief Executive, 3 directors (2006: 4) and 48 executives of the Company (2006: 40) are provided with free use
listed companies: of cars owned and maintained by the Company.
Related parties - Quoted
Meeting fees amounting to Rs. 34,000 (2006: 24,000) were paid to 7 directors including Chief Executive (2006:7).
Sui Northern Gas Pipelines Limited

108,672,850 (2006: 108,672,850) ordinary shares of Rs. 10 each-at cost 27 EARNINGS PER SHARE
6,796,835,201 6,796,835,201

Percentage of equity held: 19.20% (2006: 19.20%) 27.1 Basic and diluted

Adjustment arising from measurement to fair value 326,670,117 321,236,474 2007 2006

7,123,505,318 7,118,071,675 Profit after taxation Rupees 10,134,446,524 2,054,206,794

Others - Quoted Weighted average number of ordinary shares No. of shares 82,866,240 82,866,240

Southern Electric Power Company Limited Basic earnings per share Rupees 122.30 24.79

6,270,000 (2006: 6,270,000) ordinary shares of Rs 10 each - at cost 118,431,290 118,431,290

There is no dilution effect on the basic earnings per share of the Company as it has no such commitments.
Percentage of equity held: 10% (2006: 10%)

Adjustment arising from

Adjustment measurement
arising to fair value
from measurement to fair value (83,319,290) (81,124,790)

35,112,000 37,306,500

7,158,617,318 7,155,378,175
Financial assets at fair value through profit and loss account classified
as held for trading
Un-quoted

Meezan Islamic Fund (type - B AMIN)

13,859,532 (2006: NIL) units of Rs. 50 each 713,204,805 -

Adjustment arising from measurement to fair value 10,401,353 -

723,606,158 -

7,882,223,476 7,155,378,175
 dh Annual Report 2007 - Financial Statements dh Annual Report 2007 - Financial Statements

28 FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES 30 PRODUCTION CAPACITY

As against the annual production capacity of 445,500 tons (2006: 445,500 tons) of urea fertilizer the plant produced
Interest / Markup Bearing Non-Interest / Markup Bearing 497,940 tons (2006: 446,700 tons) which was 111.77% (2006: 100.27%) of designed capacity.

Maturity from Maturity more Maturity from Maturity more 31 POST BALANCE SHEET EVENTS
Maturity upto Maturity upto 2007 2006
one to five than five Sub-total one to five than five Sub-total
one year one year Total Total
years years years years The Board of Directors at its meeting held on 28 January 2008 has proposed a final cash dividend @ Rs1.50 per
share amounting to Rs. 124,299,360 and 20% stock dividend for the year ended 31 December 2007 for approval of
Financial assets Rupees
the members at the Annual General Meeting to be held on 28 February 2008. The financial statements do not reflect
Short term investments - - - - 7,882,223,476 - - 7,882,223,476 7,882,223,476 7,155,378,175 these proposed dividends.
Loans and advances - - - - 18,334,660 1,113,125 - 19,447,785 19,447,785 31,467,060 32 GENERAL
Trade debts - - - - 4,742,483 - - 4,742,483 4,742,483 2,502,849
32.1 These financial statements have been authorised for issue by the Board of Directors of the Company on
Cash and bank balances 943,465,931 - - 943,465,931 154,358,184 - - 154,358,184 1,097,824,115 56,294,565 28 January 2008.
2007 943,465,931 - - 943,465,931 8,059,658,803 1,113,125 - 8,060,771,928 9,004,237,859 7,245,642,649
32.2 Figures have been rounded off to the nearest rupee.
2006 50,217,181 - - 50,217,181 7,182,625,853 12,799,615 - 7,195,425,468 7,245,642,649

Financial liabilities
Long Term Loans - 6,500,000,000 - 6,500,000,000 - - - - 6,500,000,000 -
Short term financing 2,281,428,109 - - 2,281,428,109 - - - - 2,281,428,109 5,924,514,565

Trade and other payables - - - - 301,422,943 - - 301,422,943 301,422,943 365,030,801

Markup payable on - - - - - -
249,436,081 249,436,081 249,436,081 169,938,009
secured loans
2007 2,281,428,109 6,500,000,000 - 8,781,428,109 550,859,024 - - 550,859,024 9,332,287,133 6,459,483,375

2006 5,924,514,565 - - 5,924,514,565 534,968,810 - - 534,968,810 6,459,483,375

28.1 CREDIT RISK MANAGEMENT

Credit risk represents the accounting loss that would be recognized at the reporting date if counter-parties
failed completely to perform as contracted. The credit risk attributed to trade receivable is minimal as the
Company allows minimum credit.

28.2 INTEREST RATE RISK MANAGEMENT

118 Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in the market 119
interest rates. The Company has borrowed funds at fixed and market based rates and as such the risk is
minimized. The effective interest rate for the financial assets and liabilities ranges between 4% to 11.50%
(2006: 4% to 11.32%) per annum.

28.3 LIQUIDITY RISK MANAGEMENT

Liquidity risk reflects an enterprise's inability in raising funds to meet commitments. The Company follows an
effective cash flow management to ensure availability of funds and to take appropriate measures for the
new requirements.

28.4 FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES

The carrying amounts of the financial assets and financial liabilities approximate their fair values.

29 RELATED PARTY TRANSACTIONS

The related parties comprise local associated companies, related group companies, directors of the Company,
companies where directors also hold directorship, and key management employees. The Company in the normal
course of business carries out transactions with various related parties. Amounts due from and to related parties are
shown under receivables and payables. Details of transactions with related parties, other than those which have been
specifically disclosed elsewhere in these accounts are as follows:

2007 Rupees 2006 Rupees

Associated company
Sale of goods and services 5,427,452,217 4,219,935,502

Purchase of goods and services 2,113,202,177 2,036,757,885

Dividend income 794,357,744 972,935,254

No buying or selling commission has been paid to any related party.

Lahore Shahzada Dawood A.G. Gohar

28 January, 2008 Chief Executive Director
 dh Annual Report 2007 - Financial Statements dh Annual Report 2007 - Financial Statements

PATTERN OF SHAREHOLDING AS AT 31 DECEMBER 2007 PATTERN OF SHAREHOLDING AS AT 31 DECEMBER 2007

Disclosure Requirement under the Code of Corporate Governance Category-Wise

Number of Total Shares

Details of holding on 31.12.2007: Categories of Shareholders Percentage
Shareholders Held
Associated Companies, Undertakings and Related Parties
Individuals 2,179 12,112,046 14.62
Dawood Lawrencepur Limited 13,418,027
Dawood Corporation (Pvt.) Ltd. 3,593,786 Joint Stock Companies 34 50,468,383 60.90

Central Insurance Company Ltd. 2,462,081 Financial Institutions 13 11,910,733 14.37

The Dawood Foundation 3,273,415 Insurance Companies 6 4,759,010 5.75

Patek (Pvt.) Ltd. 26,737
Investment Companies 2 4,903 0.01
Sach International (Pvt.) Ltd. 1,205
Educational/Charitable Institutions 5 3,472,730 4.19
NIT & ICP
National Bank of Pakistan, Trustee Department 411,737 Modaraba 1 500 0.00

Investment Corporation of Pakistan 160 Mutual Funds 4 116,800 0.14

Directors & CEO (including holding of their spouses & minor children) Leasing Companies 1 10,700 0.01
Mr. Hussain Dawood - Chairman 5,737,751
The Administrator, Abandoned Properties,
120 Mr. Shahzada Dawood - CEO 850,173 121
Government of Pakistan 1 10,432 0.01
Mr. A. Samad Dawood 850,466
Securities & Exchange Commission of Pakistan 1 3 0.00
Mr. Haroon Mahenti 296
Total 2,247 82,866,240 100.00
Khawaja Amanullah 3
Mr. Abdul Ghafoor Gohar 3
Syed Muhammad Asghar 1
Executives 426
Public Sector Companies and Corporations -

Banks, Development Finance Institutions, Non-Banking Finance

Institutions, Insurance Companies, Modarabas & Mutual Funds 16,787,043
Shareholders holding ten percent or more shares
Faisal Private Bank (Switzerland) SA 11,476,080
Dawood Lawrencepur Limited 13,418,027
 dh Annual Report 2007 - Financial Statements

PATTERN OF SHAREHOLDING
As at 31 December 2007

PROXY FORM
Shareholding Range Number of Total Shares
Shareholders Held
From To
I/We
1 100 392 19,554
of being a member of Dawood Hercules Chemicals Limited and holder of
101 500 1,223 357,630
501 1,000 266 188,587 Ordinary Shares, as per:

1,001 5,000 264 590,745 Share Register Folio No. and/or

5,001 10,000 37 261,958 CDC Participant ID No. Sub A/c No. ,
10,001 15,000 10 119,925
hereby appoint Mr./Ms. of
15,001 20,000 12 213,047
20,001 25,000 3 67,265 , another member of the Company* (or failing him Mr./Ms.
25,001 30,000 5 140,886 of , another member of the Company*) as my/our proxy to attend, speak and vote for me/us
30,001 35,000 1 33,980
and on my/our behalf, at the Fortieth Annual General Meeting of the Company to be held on Thursday, 28 February 2008
35,001 40,000 1 36,156
at the Company’s Registered Office at 35-A, Shahrah-e-Abdul Hameed Bin Baadees (Empress Road), Lahore, and at any
45,001 50,000 1 49,000
50,001 55,000 2 105,820 adjournment thereof.
55,001 60,000 1 59,616 Signed this day of 2008
65,001 70,000 1 68,540
70,001 75,000 1 75,000 WITNESSES:
122 75,001 80,000 1 80,000
1. Signature:
80,001 85,000 1 83,568 Name:
100,001 105,000 1 100,023 Address: Signature on
125,001 130,000 1 127,677 Revenue Stamps
of Rupees Five
160,001 165,000 1 161,000
CNIC No. or
205,001 210,000 1 209,747
Passport No.
245,001 250,000 1 250,000
Signature should agree with the
325,001 330,000 1 328,169 2. Signature: specimen signature with the Company.
330,001 335,000 1 333,849 Name:
410,001 415,000 1 411,350 Address:
850,001 855,000 4 3,402,691
1,030,001 1,035,000 1 1,034,337
CNIC No. or
2,030,001 2,035,000 1 2,032,506 Passport No.
2,460,001 2,465,000 1 2,462,081
* Proxy representing a corporation may or may not himself be a member of the Company.
3,270,001 3,275,000 1 3,273,415
3,590,001 3,595,000 1 3,593,786 IMPORTANT:
4,550,001 4,555,000 1 4,553,729
1. This Proxy Form, duly completed, must be deposited at the Company’s Registered Office, not less than forty eight hours
6,235,001 6,240,000 2 12,479,616 before the meeting.
6,605,001 6,610,000 2 13,214,880
7,450,001 7,455,000 1 7,452,000 2. CDC shareholders and their proxies are each requested to attach an attested photocopy of their new/computerized
National Identity Card (CNIC) or Passport with this proxy form before submission to the Company.
11,475,001 11,480,000 1 11,476,080
13,415,001 13,420,000 1 13,418,027 3. All proxies attending the AGM are requested to bring their original CNIC/Passport for identification.
2,247 82,866,240
 AFFIX
CORRECT
POSTAGE

The Company Secretary

Dawood Hercules Chemicals Limited
35-A, Shahrah-e-Abdul Hameed Bin Baadees
(Empress Road), Lahore 54000.
 Annual Report 2007

DAWOOD HERCULES CHEMICALS LIMITED

Manufacturers of Bubber Sher Urea

2nd Position
ICAP & ICMAP
Best Corporate Report Awards 2006 - Chemical & Fertilizers sector

3rd Position
ICAP & ICMAP
Best Corporate Report Awards 2005 - Chemical & Fertilizers sector