Annual Report For Dawood Hercules LTD

Adding Dimensions
with Diverse Business Interests
A n n u a l
R e p o r t
2 0 1 1
We are pleased to share Dawood Hercules Corporation's new identity - our new name and logo. Over the last 44 years, as we have continued to invest in funding the growth of our underlying businesses, we have become much more diverse than what our name (formerly Dawood Hercules Chemicals Limited) suggested. Dawood Hercules Corporation Limited is now an investment holding company with associated business interests which range from information technology and financial services to food, fertilizer, chemicals manufacturing and storage, and energy. We are proud of our heritage and reputation and our new identity reflects our abiding commitment to conducting our business as always, with the highest levels of integrity and professionalism. The new logo is congruent with the emerging reality of our present and our transforming vision for the future. We believe businesses should develop intellectual as well as financial capital. Our commitment extends to encouraging sustainable business practices to protect our nation's human, natural and cultural resources. Finally and most importantly, it is our unequivocal belief that ethical business conduct is the only way to secure a better future for us all.
Dawood Hercules Corporation Limited

(formerly Dawood Hercules Chemicals Limited)

Wholly Owned Subsidiary
Associated Company
Contents
Vision Mission Business Ethics and Core Values Company Information Performance Highlights Achievements 2011 Board of Directors Director Profiles Committees Operating Highlights Ten years at a Glance Horizontal Analysis (Balance Sheet) Vertical Analysis (Balance Sheet) Horizontal Analysis (Profit & Loss) Vertical Analysis (Profit & Loss) Statement of Value Addition Notice of Annual General Meeting Directors Report Organizational overview - demerger Business overview Global agriculture Pakistan agriculture Fertilizer market overview Corporate awards Financial performance Contribution to the national exchequer and economy Board of Directors Business risks and future outlook Domestic gas supply and demand Urea demand and prices DH Fertilizers Long term investment Acknowledgement 4 5 6 7 10 11 14 16 18 22 22 24 26 28 28 30 34 38 38 38 40 41 41 42 43 44 45 46 46 46 47 47 48
Financial Statements 53 Statement of Compliance 54 Review Report on Statement of Compliance 56 Auditor's Report to the Members 57 Financial Statements 58 Notes to the Financial Statements 64 Consolidated Financial Statements Auditor's Report 97 Consolidated Financial Statements 98 Notes to the Consolidated Financial Statements 104 Pattern of Shareholding 142 Form of Proxy
Vision
To be the leading investor in and wealth creator of value driven businesses
Mission
We will maximize profit by investing in businesses that share our vision and fulfill our investment criteria to achieve our growth and return aspirations on a consistent basis. We will create intrinsic value by incorporating efficiency and capability within our existing operations and through our investments.
Business Ethics & Core Values

This statement of Business Ethics and Core Values constitutes the basis on which Dawood Hercules Corporation Limited conducts its business. The Board of Directors and the employees of Dawood Hercules Corporation Limited are the custodians of the excellent reputation for conducting our business according to the highest principles of business ethics. Our reputation not only affects whether or not someone will do business with us, it also determines whether we are proud to be associated with this Company. We are committed to conducting our business activities in honest and sincere alignment with our Core Values and in full compliance with all the applicable laws and regulations. We also believe in treating our employees with the same principles in order to build mutual respect, confidence and trust based upon integrity, honesty, openness and competence. In order to maintain and enhance our reputation for integrity in our business, it is important for all of us individually and collectively to adhere to the highest moral, ethical and legal standards.
Core Values
At Dawood Hercules Corporation Limited, all our actions are based on and guided by the following values:
Integrity
We will conduct ourselves with uncompromising ethics and honesty at all times, in all situations, both professionally and personally.
Diversity
We respect the dignity, rights and views of others and will provide unrestricted opportunity for personal advancement to employees irrespective of gender, ethnicity, beliefs, cultures and religions.
Accountability
We will be accountable as individuals and as employees for our ethical conduct and for compliance with applicable laws and policies and directives of the management.
Commitment to Excellence
We will drive and achieve results while pursuing the highest standards and maximizing the use of resources.
Teamwork
We are committed to work as a team to achieve common goals whilst fairly recognising and rewarding individual contributions on merit.
06
Annual Report 2011
07
Company Information
Board of Directors:
Mr. Hussain Dawood Mr. Shahid Hamid Pracha Mr. Isar Ahmad Mr. Javed Akbar Mr. M. Abdul Aleem Mr. M. Aliuddin Ansari Mr. A. Samad Dawood Mr. Shahzada Dawood Mr. Parvez Ghias Mr. Asad Umar Chairman Chief Executive Officer Director Director Director Director Director Director Director Director
Bankers:
Bank Al-Habib Limited Barclays Bank PLC, Pakistan
Auditors:
M/s. KPMG Taseer Hadi & Co. Chartered Accountants 53-L, Gulberg-III, Lahore Tel: +92 (42) 35851587-88 Fax: +92 (42) 35781757
Board Audit Committee:

Mr. M. Abdul Aleem Mr. Isar Ahmad Mr. Javed Akbar Mr. Parvez Ghias Chairman Member Member Member
Shares Registrar:
M/s. Corplink (Pvt.) Limited Wings Arcade, 1-K, Commercial Model Town, Lahore Tel: +92 (42) 35839182, 35916719 Fax: +92 (42) 35869037
Board Compensation Committee:

Mr. Hussain Dawood Mr. M. Aliuddin Ansari Mr. A. Samad Dawood Mr. Asad Umar Chairman Member Member Member
Tax Consultants:
UHY Hassan Naeem & Company Chartered Accountants 193-A, Shah Jamal, Lahore-54000 Tel: +92 (42) 37599938, 37599948 Fax: +92 (42) 37599740
Company Secretary:
Mr. Aftab Ahmed Qaiser
Chief Financial Officer:

Mr. Ali Aamir
(appointed 6 February 2012; succeeding Mr. Gulzar Saleem)
Legal Advisors:
Hassan & Hassan (Advocates) PAAF Building 7-D, Kashmir/Egerton Road, Lahore Tel: +92 (42) 36360800-03 Fax: +92 (42) 36360811-12
Registered Office:
Dawood Center, M.T. Khan Road Karachi-75530 Tel: +92-21-35686001 Fax: +92-21-35693416 Email: qaiser@dawoodgroup.com Web: www.dawoodhercules.com

formerly Dawood Hercules Chemicals Limited
07
Adding Dimensions
Performance Highlights
Sales Revenue (Rs million)
Profit after Tax (Rs million)
6,310 2010 8,716

2011
2,893 2010 3,248

2011
2011 Sales Revenue (Rs million) Profit after Tax (Rs million) Weighted average no of Ordinary shares Earnings per share Basic and Diluted (Rs) EBITDA (Rs million) Market Capitalization (Rs million) Market Capitalization (US$ million) -31.12.11 Total Assets Total Equity Price Earnings Ratio (times) Return on Equity (%) 6,310 2,893 481,287 6.01 4,636 20,402 227 31,966 25,128 7.05 11.51
2010 8,716 3,248 481,287 6.75 5,308 23,867 277 30,355 22,359 11.11 14.52
10
Annual Report 2011
07
Achievements 2011
KSE Top 25 Companies Award:
12 awards in last 16 years (latest 2010)
Environment Excellence Award 2011:

This award was received from the National Forum of Environment & Health in recognition of the Companys efforts for a cleaner environment
Adding Dimensions
Directors Profiles
Hussain Dawood
Chairman
Chairman of Dawood Hercules Corporation Limited. He is also the Chairman of Engro Corporation Limited, Pakistan Poverty Alleviation Fund and The Dawood Foundation. His Social Responsibilities include Chairmanship of the International Advisory Council of the Cradle to Cradle Institute in San Francisco, Karachi Education Initiative's Karachi School for Business & Leadership. He also serves as a Member of the Govt. of Pakistan Education Task Force, Director of the Pakistan Business Council, Pakistan Centre for Philanthropy, Beaconhouse National University and is a Global Charter Member of The Indus Entrepreneurs (TiE). He is the Honorary Consul of Italy in Lahore and was conferred the award Ufficiale Ordine al Merito della Repubblica Italiana by the Italian Government. Mr. Dawood is an MBA from the Kellogg School of Management, Northwestern University, USA, and a graduate in Metallurgy from Sheffield University, UK.
Shahid Hamid Pracha

Chief Executive Officer
Serves as Chief Executive of Dawood Hercules Corporation Limited and Chairman of DH Fertilizers Limited, Dawood Lawrencepur Limited, and Tenaga Generasi Limited. He is also a Director on the Boards of Cyan Ltd., Engro Powergen Ltd. and Engro Powergen Qadirpur Ltd. He previously served as Chief Executive of the Dawood Foundation, the philanthropic arm of the Dawood Hercules Corporation. Mr. Pracha is a graduate electrical engineer from the University of Salford, UK and prior to joining the Dawood Group, spent a major part of his career with ICI Plc's Pakistan operations in a variety of senior roles including a period of international secondment with the parent company in the UK. He is also a founding member of the Pakistan Society for Human Resource Managers and previously served as the first CEO of the Karachi Education Initiative, the sponsoring entity of the Karachi School for Business & Leadership.
Isar Ahmad
Director
Mr. Ahmad has diversified experience of working in senior management positions in multinational and large Pakistani organizations, having served as Chief Executive of Dawood Hercules Corporation Limited, Chief Executive of DH Fertilizers Ltd., Finance Director, Supply Chain Director and Head of Business Unit at Reckitt Benckiser, Managing Director, Haleeb Foods, as well as having been the Financial Advisor at Indus Motor Company Limited. He holds a Masters Degree in Economics and is a Chartered Accountant from the Institute of Chartered Accountants of England & Wales. He also serves as a Director on the Boards of Cyan Limited, Engro Corporation Limited, Engro Polymer and Chemicals Limited, and Engro Foods Limited.
Javed Akbar
Director
He has a Masters degree in Chemical Engineering from United Kingdom and has over 35 years experience in fertilizer and chemical business with Exxon, Engro and Vopak. He has managed Exxon and Engro fertilizer plants and their expansions in Pakistan, worked in Exxon's Chemical Technology divisions in USA and Canada, and served as Human Resources Manager in Exxon Pakistan. He was part of the buyout team when Exxon divested its stake in Engro. Prior to his retirement in 2006, Javed Akbar was Chief Executive of Engro Vopak Terminal Limited, a joint venture between Engro and Royal Vopak of Holland. After his retirement, he established a consulting company specializing in analyzing and forecasting petroleum, petrochemical and energy industry trends and providing strategic insight. He also serves on the Board of Directors of DH Fertilizers Limited, Engro Fertilizers Limited, Engro Powergen Limited, Engro Powergen Qadirpur Limited, Engro Vopak Terminal Limited, Javed Akbar Associates (Private) Limited, Pakistan Petroleum Limited and is also on the panel of environmental experts of Sindh Environmental Protection Agency.
16
Annual Report 2011
M. Abdul Aleem
Director
A Fellow Chartered Accountant (FCA) (Gold Medalist) and a Fellow Cost and Management Accountant (FCMA). Mr. Aleem has worked for 20 years in the oil refining, petrochemicals and oil marketing business. Between 1990 and 2004, he worked for British American Tobacco, (BAT), including the last ten years as the CEO of BAT operations in Cambodia, Mauritius and Indian Ocean. Since 2004, Mr. Aleem has worked for large GOP owned corporations. His last assignment was as the Managing Director of Pakistan State Oil Limited. Currently, he is the CE/Secretary General of OICCI. Mr. Aleem is also a Director of Meezan Bank Limited, Pakistan Institute of Corporate Governance and Chairman of Faysal Asset Management Company.
Muhammad Aliuddin Ansari

Director
Mr. Ansari is the Chief Executive Officer of Dewan Drilling, Pakistans first independent oil & gas drilling company. He has also served as the Chief Executive Officer, AKD Securities and Chief Operating Officer, Emerging Europe for Credit Lyonnais Securities. He started his career as an investment manager at Worldinvest /Bank of America in London. Mr. Ansari is also on the Boards of Engro Corporation Limited, National Clearing Company of Pakistan and Faysal Asset Management. He holds a BA (Hon.) in Business Administration and Economics, with a major in Finance, from Richmond College, London.
A. Samad Dawood
Director
A graduate in Economics from University College London, UK and a Certified Director of Corporate Governance from the Pakistan Institute of Corporate Governance. He is the Chief Executive of Cyan Limited and Dawood Corporation (Pvt.) Limited. He also serves as Director on the Boards of Dawood Hercules Corporation Limited, Dawood Lawrencepur Limited, DH Fertilizers Limited, Engro Corporation Limited, Engro Fertilizers Limited, International Industries Limited, Inbox Business Technologies (Pvt.) Limited, Pebbles (Private) Limited, Sui Northern Gas Pipelines Limited, Tenaga Generasi Limited, and WWF Pakistan Limited. Mr. Dawood is a member of Young Presidents Organization, Pakistan Chapter.
Shahzada Dawood
Director
Joined the Board in 1996. He is a Director of Avanceon Limited, Dawood Corporation (Private) Limited, Dawood Hercules Corporation Limited, Dawood Lawrencepur Ltd, DH Fertilizers Limited, Engro Corporation Ltd, Engro Fertilizers Limited, Engro Foods Limited, Engro Polymer & Chemicals Limited, Engro Powergen Limited, Engro Powergen Qadirpur Limited, Engro Vopak Terminal Limited, Patek (Private Limited) Pebbles (Private) Limited, Sach International (Private) Limited, Sirius (Private) Limited and Tenaga Generasi Limited. He is a member of the Board of Governors of National Management Foundation (LUMS) and also a member of Board of Trustees of Dawood Foundation. He is an M.Sc in Global Textile Marketing from Philadelphia University, USA, an LLB from Buckingham University, UK and a Certified Director of Corporate Governance from the Pakistan Institute of Corporate Governance.
Parvez Ghias
Director
Parvez Ghias is the Chief Executive Officer at Indus Motor Company Limited, a leading automobile manufacturer in the country of Toyota and Daihatsu brands. He also serves as an independent director on the board of Standard Chartered Bank Pakistan Limited and Dawood Hercules Corporation Limited. Prior to joining Indus Motor in 2005, he was Vice President and CFO at Engro Chemical Pakistan Limited where he served as a member of the Board of Directors for several years. Mr. Ghias is a fellow of the Institute of Chartered Accountants from England & Wales and member of several faculties of the Institute and holds a Bachelors Degree in Economics and Statistics.
Asad Umar
Director
Asad Umar graduated as an MBA from the IBA, Karachi in 1984. Started his career with HSBC, Pakistan and in 1985 he joined Exxon subsequently renamed Engro. During his years with Engro, he has worked in all the major divisions, of the Company. He also worked on an assignment with Exxon Chemical overseas in Canada. He was the first President of Engro Polymer & Chemicals Ltd. In January 2004, he took over as President & Chief Executive of Engro Corporation Ltd. Mr. Umar is the Chairman of all Engro subsidiaries, Pakistan Business Council, Pakistan Chemical & Energy Sector Skill Development Company and Punjab Skill Development Fund. He is also a member of the Board of Directors of Engro Corporation Ltd., Karachi Education Initiative, State Bank of Pakistan. He has previously been a Director of OGDCL, KSE, PCP, PSO & Port Qasim Authority (PQA), Pakistan Institute of Corporate Governance, Member of The Board of Trustees of Lahore University of Management Sciences. He is also a Past Chapter Chair of Young Presidents Organisation (YPO), Pakistan Chapter. He was awarded the Sitra-i-Imtiaz in 2010.

17
Committees
Board Audit Committee
The Board has set up an audit committee comprising of four independent non executive Directors. The Committee meets at least once in a quarter or as often as it considers necessary, to review and discuss the financial statements. The Committee also meets with the external auditors at least once a year. After each meeting, the Chairman of the Committee reports to the Board. The Committee met four times in the year. DIRECTORS' NAMES: M. Abdul Aleem (Chairman) Isar Ahmad Javed Akbar Parvez Ghias The Head of Internal Audit function acts as Secretary of the Committee.
Board Compensation Committee

Board Compensation Committee is responsible for reviewing and approving the companys executive compensation, overall compensation strategy, human resources mangement policies, performance evaluation and succession plans including career planning for employees with high potential. The Board Compensation Committee consists of three non-executive and one executive Director. The Chief Executive Officer attends the meetings by invitation. DIRECTORS NAMES Hussain Dawood (Chairman) M. Aliuddin Ansari A. Samad Dawood Asad Umar The Secretary of the Committee is Akram Durrani, Director HR & Corporate Affairs.
M. Abdul Aleem (Chairman)
Isar Ahmad
Hussain Dawood (Chairman)
M. Aliuddin Ansari
Javed Akbar
Parvez Ghias
A. Samad Dawood
Asad Umar
Adding Dimensions
Operating Highlights
Ten Years at a Glance
Sr# Particulars
A) 1 2 3 4 5 6 B) 1 2 C) 1 2 3 4 5 6 7 D) 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 E) 1 2 3 4 F) 1 2 3 INCOME STATEMENT Sales Value Gross Profit Operating Profit EBITDA Profit Before Taxation Profit After Taxation DIVIDEND Cash Dividend Stock Dividend BALANCE SHEET Fixed capital expenditure Long term investments Current Assets Current Liabilities Paid Up Capital Reserves No. of Ordinary Shares RATIO ANALYSIS Gross Profit Net Profit to Sales Earnings Per Share Inventory Turnover Age of Inventory Debtors Turnover Average Collection Period Operating Cycle Total Assets Turnover Fixed Assets Turnover Break-up Value of Share Dividend Yield Dividend Payout Ratio Return on Equity Debt Equity Ratio Current Ratio Quick Ratio Operating Profit Margin Total Debt Ratio Interest Cover Ratio Dividend Cover Ratio Return on capital employed EBITDA margin Market Value per Share Market Capitalization Price Earning Ratio PRODUCTION Designed Production (for 12 months) Actual Production Capacity Utilization Sales OTHERS Employees Capital Expenditure Contribution to the National Exchequer
2011
2010
2009 Restated
11,040 3,960 57 207 (928) (1,781) 25 10 2,075 19,290 5,987 2,983 1,094 16,761 109.38 36% -16% (14.80) 81.92 4.46 1,171.4 0.31 4.77 0.40 636.09 163.23 2.22 (27.02) (9.98) 0.35 2.01 1.24 0.52 0.27 0.06 (3.70) 0.23 1.87 179.81 19,668 (12.15) 445.50 513.32 115 513.22 576 833.17 1,003
2008
Rs. in Million Rs. in Million Rs. in Million Rs. in Million Rs. in Million Rs. in Million % % Rs. in Million Rs. in Million Rs. in Million Rs. in Million Rs. in Million Rs. in Million Million % % Rs. Time Days Time Days Days Time % Rs. % % % Time Time Time % Time Time Time % % Rs. Rs. in Million Times Thousand M.T. Thousand M.T. % Thousand M.T. Nos. Rs. in Million Rs. in Million
6,310 2,266 1,462 4,637 3,632 2,893 10
8,716 3,501 3,145 5,308 4,191 3,247 40 300 2,238 22,424 5,690 2,320 1,203 21,156 120.32 40% 37% 6.75 34.83 10.48 1,433.6 0.25 10.73 0.32 404.14 185.83 2.52 28.00 14.53 0.26 2.46 1.59 36.09 0.21 4.26 3.57 17.97 60.89 198.36 23,867 11.11 445.50 456.12 102 441.51 564 393.12 783
7,429 3,116 2,952 4,943 3,900 3,063
10 1,396 19,206 5,027 1,577 1,094 16,289 109.38 42% 41% 28.00 9.01 40.61 1,095.4 0.33 40.95 0.29 536.30 158.91 1.13 8.93 17.62 0.36 3.19 2.01 39.74 0.25 5.33 11.20 12.27 66.53 220.30 24,097 7.87 445.50 508.05 114 527.86 478 163.26 1,059
2,117 24,701 5,145 1,116 4,813 20,315 481.29 36% 46% 6.01 16.58 2,619.73 0.14 16.72 0.20 289.77 52.21 2.36 16.64 11.51 0.19 4.61 3.30 23.17 0.15 5.48 6.01 14.40 73.48 42.39 20,402 7.05 445.50 199.90 45 207.24 572 92 1,422
22
Annual Report 2011
07
For the Year Ended 31st December

2007 2006 2005 2004 2003 2002
5,011 1,862 10,551 11,551 10,674 10,134 30 20 1,374 16,610 11,237 3,573 829
3,882 1,312 2,052 2,903 2,266 2,054 80 Nil 1,347 6,292 8,510 6,672 829 8,635 82.87 34% 53% 24.79 12.80 28.52 1,221.98 0.30 28.82 0.24 381.00 111.90 2.71 32.27 22.15 Nil 1.28 1.08 52.86 0.37 5.08 3.10 21.62 74.79 295.00 24,446 11.90 445.50 446.70 100 437.73 485 740.65 773
3,291 1,260 2,777 3,534 3,201 2,868 85 15 690 5,733 6,364 3,345 721 7,114 72.06 38% 87% 34.61 17.46 20.91 499.03 0.73 21.64 0.26 539.10 129.83 3.32 24.56 30.66 Nil 1.90 1.54 84.39 0.18 13.40 4.07 29.41 107.40 256.00 18,447 7.40 445.50 428.78 96 405.67 472 235.84 665
2,699 818 1,176 1,663 1,464 1,240 105 Nil 530 2,001 9,757 4,379 721 5,645 72.06 30% 46% 17.21 21.90 16.71 364.09 1.01 17.72 0.22 543.08 108.72 5.34 61.01 15.83 Nil 2.23 1.95 43.57 0.29 18.68 1.64 14.85 61.63 196.50 14,159 11.42 445.50 351.12 79 361.20 481 328.15 724
2,983 1,060 1,721 1,810 1,686 1,379 100 Nil 464 2,758 6,180 2,994 721 4,010 72.06 36% 46% 19.13 17.08 21.38 475.90 0.77 22.14 0.32 748.09 88.34 5.69 52.26 21.66 Nil 2.06 1.61 57.69 0.19 49.27 1.91 26.85 60.67 175.60 12,653 9.18 445.50 430.60 97 436.83 498 189.81 857
2,810 1,010 1,132 1,214 1,131 793 95 50 334 2,487 2,267 520 480 48.04 36% 28% 11.01 14.18 25.74 384.43 0.95 26.69 0.55 766.02 93.47 7.09 86.29 17.67 Nil 4.36 2.99 40.29 1,233.31 1.16 24.78 43.21 134.00 6,437 12.17 445.50 414.62 93 415.31 525 11.00 767
8,444
82.87 37%
202% 122.30 5.70 64.04 1,383.24 0.26 64.30 0.17 368.27 227.95 0.76 3.24 53.65 0.34 3.51 2.51 210.56 0.30 15.12 30.88 41.14 230.52 393.80 32,633 4.25 445.50 497.94 112 508.54 474 149.00 857

23
Horizontal Analysis
Balance Sheet
Rs. in Million
2009
Particulars
Share Capital and Reserves Issued, subscribed and paid up capital Revenue reserves Fair value reserve Others Share holder's equity with FVR Non Current Liabilities Sub Total Current Liabilities Current portion - long term loan Short term financing - secured Trade and other payables Markup payable on secured loans Provision for taxation Sub Total Total
2006
828.66 8,204.37 240.11 9,273.14 217.89 9,491.03
2007
828.66 17,841.62 219.05 18,889.33 6,760.55 25,649.88
2008
1,093.83 20,415.40 (4,126.57) 17,382.66 6,670.36 24,053.02
Restated
1,093.83 16,756.87 3.98 17,854.69 6,516.30 24,370.98
2010
1,203 21,333 136 (312) 22,359 5,675 28,034
2011
4,813 20,496 (181) 25,128 5,722 30,850
5,924.51 490.45 169.89 86.80 6,671.65 16,162.69
2,281.43 512.95 249.44 529.00 3,572.82 29,222.70
70.14 538.13 275.85 693.00 1,577.12 25,630.14
1,196.60 648.23 280.27 858.00 2,983.10 27,354.08
661 46 695 233 686 2,321 30,355
641 9 466 1,116 31,966
Particulars Assets Fixed capital expenditure Long term investments Long term loans and advances Sub Total Current Assets Stores, spares and loose tools Stock in trade Trade debts Loans, advances, deposit, prepayments and other receivables including advance income tax Short term investments Cash and bank balances Sub Total Total Assets Employed
2006
2007
Rs. in Million 2008 2009
2010 Restated 2,238 22,425 2 24,665 1,074 216 2 708 2,440 1,250 5,690 30,355
2011
1,347.37 6,292.39 12.80 7,652.56 759.95 237.30 2.50 298.71 7,155.38 56.29 8,510.13 16,162.69
1,374.03 16,610.26 1.11 17,985.40 893.25 867.51 4.74 491.75 7,882.22 1,097.82 11,237.30 29,222.70
1,396.33 19,205.63 1.26 20,603.22 1,025.76 89.57 8.82 735.40 2,233.42 933.94 5,026.92 25,630.14
2,075.00 19,289.96 2.42 21,367.38 1,303.30 83.28 10.03 912.63 3,399.31 278.15 5,986.70 27,354.08
2,117 24,702 2 26,821 800 151 3 509 2,951 731 5,145 31,966
24
Annual Report 2011
07
Percentage Change 07 Over 06 0% 117% -9%

-
08 Over 07 32% 14% -1984%

-
09 Over 08 0% -18% -100%

-
10 Over 09 10% 9% 3311%

-
11 Over 10 300% -4% -42%

-
104% 3003% 170%
-8% -1% -6%
3% -2% 1%
9% -18% 2%
-100% 12% 1%
-61% 5% 47% 509% -46% 81%
-97% 5% 11% 31% -56% -12%
1606% 20% 2% 24% 89% 7%
-96% 7% -17% -20% -22% 0%
-100% -100% -8% -96% -32% -52% 5%
07 Over 06
08 Over 07
Percentage Change 09 Over 08
10 Over 09
2% 164% -91% 135% 18% 266% 90% 65% 10% 1850% 32% 81%
2% 16% 14% 15% 15% -90% 86% 50% -72% -15% -55% -12%
49% 0% 92% 4% 27% -7% 14% 24% 52% -70% 19% 7%
8% 0% -31% 1% -18% 160% -79% -22% -28% 349% -5% 0%

25
Vertical Analysis
Balance Sheet
Rs. in Million Particulars
Share Capital and Reserves Issued, subscribed and paid up capital Revenue reserves Others Fair value reserve Share holder's Equity with FVR Non Current Liabilities Sub Total Current Liabilities Current Portion - Long Term Loan Short term financing - secured Trade and other payables Markup payable on secured loans Provision for taxation Sub Total Total
2006
2007
2008
Restated 1,093.83 16,756.87 3.98 17,854.69 6,516.30 24,370.98
2009
2010
2011
828.66 8,204.37 240.11 9,273.14 217.89 9,491.03
828.66 17,841.62 219.05 18,889.33 6,760.55 25,649.88
1,093.83 20,415.40 (4,126.57) 17,382.66 6,670.36 24,053.02
1,203 21,333 (312) 135 22,359 5,675 28,034
4,813 20,496 (181) 25,128 5,722 30,850
5,924.51 490.45 169.89 86.80 6,671.65 16,162.69
2,281.43 512.95 249.44 529.00 3,572.82 29,222.70
70.14 538.13 275.85 693.00 1,577.12 25,630.14
1,196.60 648.23 280.27 858.00 2,983.10 27,354.08
661 46 695 233 686 2,321 30,355
641 9 466 1,116 31,966
Particulars Assets Fixed capital expenditure Long term investments Long term loans and advances Sub Total Current Assets Stores, spares and loose tools Stock in trade Trade debts Loans, advances, deposit, prepayments and other receivables including advance income tax Short term investments Cash and bank balances Sub Total Total Assets Employed
2006
2007
Rs. in Million 2008 2009 Restated 1,396.33 19,205.63 1.26 20,603.22 1,025.76 89.57 8.82 735.40 2,233.42 933.94 5,026.92 25,630.14 2,075.00 19,289.96 2.42 21,367.38 1,303.30 83.28 10.03 912.63 3,399.31 278.15 5,986.70 27,354.08
2010
2011
1,347.37 6,292.39 12.80 7,652.56 759.95 237.30 2.50 298.71 7,155.38 56.29 8,510.13 16,162.69
1,374.03 16,610.26 1.11 17,985.40 893.25 867.51 4.74 491.75 7,882.22 1,097.82 11,237.30 29,222.70
2,238 22,425 2 24,665 1,074 216 2 708 2,440 1,250 5,690 30,355
2,117 24,702 2 26,821 800 151 3 509 2,951 731 5,145 31,966
26
Annual Report 2011
07
Percentage 2006 5% 51% 1% 57% 1% 59% 2007 3% 61% 1% 65% 23% 88% 2008 4% 80% -16% 68% 26% 94% 2009 4% 61% 0% 65% 24% 89% 2010 4% 67% 0% 72% 20% 91% 2011 15% 64% -1% 0% 79% 18%
0% 37% 3% 1% 1% 41% 100%
0% 8% 2% 1% 2% 12% 100%
0% 0% 2% 1% 3% 6% 100%
0% 4% 2% 1% 3% 11% 100%
2% 0% 3% 1% 3% 9% 100%
0% 0% 2% 0% 1% 3% 100%
Percentage 2006 8% 39% 0% 47% 5% 1% 0% 2% 44% 0% 53% 100% 2007 5% 57% 0% 62% 3% 3% 0% 2% 27% 4% 38% 100% 2008 5% 75% 0% 80% 4% 0% 0% 3% 9% 4% 20% 100% 2009 8% 71% 0% 78% 5% 0% 0% 3% 12% 1% 22% 100% 2010 8% 71% 0% 79% 4% 1% 0% 3% 9% 5% 21% 100% 2011 7% 77% 0% 84% 3% 0% 0% 1% 9% 2% 16% 100%

27
Horizontal Analysis
Profit and Loss
Rs. in Million
Particulars Sales - net Cost of goods sold Gross profit 2006 3,881.75 2,570.25 1,311.50 2007 5,011.00 3,148.55 1,862.45 2008 7,428.70 4,312.46 3,116.24 2009 11,040.36 7,080.46 3,959.90 2010 Restated 8,716 5,214 3,501 2011 6,310 4,044 2,266
Distribution expenses Administrative expenses Impairment loss Other expenses Other income Result from operating activities Finance cost Share of profit from associate, net of tax Profit / (Loss) before tax Income tax expenses Profit / (Loss) after tax Earnings / (loss) per share (Rs.)
(6.20) (229.93) (70.51) 1,047.26 2,052.12 555.47 769.76 2,266.41 (212.20) 2,054.21 24.79
(13.07) (277.81) (74.37) 9,053.94 10,551.14 755.84 878.85 10,674.15 (539.70) 10,134.45 92.65
(72.28) (317.57) (100.31) (183.93) 509.59 2,951.74 901.45 1,850.20 3,900.49 (837.80) 3,062.69 28.00
(392.03) (328.27) (3,791.09) (159.51) 767.76 56.76 984.75 (927.99) (853.30) (1,781.29) (14.80)
(268) (432) (2) (116) 462 3,145 910 1,956 4,191 (943) 3,248 6.75
67 418 587 82 351 1,462 811 2,981 3,632 739 2,893 6.01
Vertical Analysis
Rs. in Million
Particulars
2006 2007 2008 2009 Restated 11,040.36 7,080.46 3,959.90
Profit and Loss

2010 2011
Sales - net Cost of goods sold Gross profit
3881.75 2,570.25 1,311.50
5,011.00 3,148.55 1,862.45
7,428.70 4,312.46 3,116.24
8,716 5,214 3,501
6,310 4,044 2,266
Distribution expenses Administrative expenses Impairment loss Other expenses Other income Result from operating activities Finance cost Share of profit from associate, net of tax Profit / (Loss) before tax Income tax expenses Profit / (Loss) after tax Earnings / (loss) per share (Rs.)
(6.2) (229.93) (70.51) 1,047.26 2,052.12 555.47 769.76 2,266.41 (212.20) 2,054.21 24.79
(13.07) (277.81) (74.37) 9,053.94 10,551.14 755.84 878.85 10,674.15 (539.70) 10,134.45 92.65
(72.28) (317.57) (100.31) (183.93) 509.59 2,951.74 901.45 1,850.20 3,900.49 (837.80) 3,062.69 28.00
(392.03) (328.27) (3,791.09) (159.51) 767.76 56.76 984.75 (927.99) (853.30) (1,781.29) (14.80)
(268) (432) (2) (116) 462 3,145 910 2,236 2,968.90 (820.37) 2,148.53 17.86
67 418 587 82 351 1,462 811 651 2,981 3,632 739 2,893
28
Annual Report 2011
07

Percentage Change 07 Over 06 29% 22% 42% 08 Over 07 48% 37% 67% 09 Over 08 49% 64% 27% 10 Over 09 -21% -26% -12% 11 Over 10 -28% -22% -35%
111% 21% 5% 765% 414% 36% 14% 371% 154% 393% 274%
453% 14% 147% -94% -72% 19% 111% -63% 55% -70% -70%
442% 3% 3679% -13% 51% -98% 9% -100% -124% 2% -158% -153%
-32% 30% -100% -27% 55% 6733% -8%
-75% -3% 29250% -29% -24% -54% -11% -71% 52% -13% -22% -11% -11%
-420% -4% -221% -221%

Percentage 2006 100% 66% 34% 2007 100% 63% 37% 2008 100% 58% 42% 2009 100% 64% 36% 2010 100% 60% 40% 2011 100% 64% 36%
0% 6% 0% 2% 27% 53% 14% 20% 58% 5% 53%
0% 6% 0% 1% 181% 211% 15% 18% 213% 11% 202%
1% 4% 1% 2% 7% 40% 12% 25% 53% 11% 41%
4% 3% 34% 1% 7% 1% 9% 0% -8% 8% -16%
3% 5% 0% 1% 14% 45% 10% 0% 34% 9% 25%
1% 7% 9% 1% 6% 23% 13% 10% 47% 58% 12% 46%

29
Statement of Value Addition

2011 Rs. in 000
Value Additon Gross sales Other income (Including share of profit from associates) 5,340,294 1,200,405 6,540,699 Value Distribution Cost of sales (excluding employees costs and depreciation) Distribution expenses (excluding employees costs and depreciation) Administrative expenses (including other charges and excluding employees costs) Employees costs - Salaries, wages, benefits and staff welfare - Workers profit particiaption fund Government - Income taxes - Sales tax - Workers welfare fund To providers of Capital - Dividend to Shareholders - Bonus shares - Markup/interest on borrowed money Retained for investment & future growth - Depreciation & retained profit
2010 Restated Rs. in 000

8,741,005 1,189,023 9,930,028
81.65 18.35 100.00
88.03 11.97 100.00
3,340,466 32,609 154,489
51.07 0.50 2.36
4,471,358 196,575 157,764
45.01 1.98 1.59
807,862 59,163 867,025 466,000 643,831 22,000 1,131,831 120,322 810,829 931,151 83,128 6,540,699
12.35 0.90 13.26 7.12 9.84 0.34 17.30 1.84 12.40 14.24 1.27 100.00
880,894 94,856 975,750 820,373 25,294 20,000 865,667 590,671 109,383 909,596 1,609,650 1,658,375 9,935,139
8.87 0.95 9.82 8.26 0.25 0.20 8.71 5.95 1.10 9.16 16.20 16.69 100.00
* During the year ended 31 December 2011, the Company issued bonus shares of Rs 3,609.65 million by way of capitalization of accumalated reserves.
1.27% 14.24% 16.69%
2011
2010
17.30%
51.07%
16.20%
45%
13.26% 2.36% 0.50%
8.71% 9.82% 1.59% 1.9%
Cost of Sales Distribution expenses Administrative expenses Employees costs
Government Providers of Capital Retained in business
30
Annual Report 2011
07
(%)
100
120
130
140
150
160
110
60 Jan-11 Feb-11 Feb-11 Mar-11 Mar-11 Mar-11 Apr-11 Apr-11 DAWH May 11 May 11 Jun 11 Jun 11 Jul 11 Jul 11 Aug-11 Aug-11 Aug-11 Sep-11 Sep-11 Oct-11 Oct-11 Nov-11 Nov-11 Dec-11 Dec-11 KSE-100 Index
DH Corp. Vs KSE 100 (2011)
70
80
90
Adding Dimensions
Notice of Annual General Meeting

Notice is hereby given that the Forty Fourth Annual General Meeting of Dawood Hercules Corporation Limited will be held at Karachi Marriot Hotel, Abdullah Haroon Road, Karachi, on Thursday, 29th March 2012 at 11:00 a.m. to transact the following business:
ORDINARY BUSINESS:
1. To confirm the Minutes of the Extraordinary General Meeting held on Thursday, 28th April 2011. 2. To receive, consider and adopt the Audited Accounts of the Company for the year ended 31st December 2011 together with the Auditors' and Directors' Reports thereon. 3. To consider and, if thought fit, approve payment of final cash dividend at the rate of Rs. 1.00 per share (10%) for the year ended 31st December 2011 as recommended by the Board of Directors. 4. To appoint Auditors for the year ending 31st December 2012 and to fix their remuneration.
By Order of the Board Karachi 15th February 2012
Aftab Ahmed Qaiser Company Secretary
34
Annual Report 2011
07
NOTES:
1. Closure of Share Transfer Books: The share transfer books of the Company will remain closed from Monday, 19th March 2012 to Thursday, 29th March 2012 (both days inclusive). Transfers received in order at the office of our Shares Registrar, M/s. Corplink (Pvt.) Limited, Wings Arcade, 1-K, Commercial, Model Town, Lahore, by the close of business (1300 hours) on Saturday, 17th March 2012 will be treated in time for the purpose of above entitlement to the transferees. 2. Participation in the Annual General Meeting: All members of the Company are entitled to attend the Meeting and vote thereat in person or through Proxy. A Proxy, duly appointed, shall have such rights as respects speaking and voting at the meeting as are available to a member. The proxies shall produce their original CNICs or original Passports at the time of the Meeting. 3. Proxy: A member of the Company may appoint another member as his/her Proxy to attend and vote instead of him/her. A Corporation being a member may appoint any person, whether or not a member of the Company, as its Proxy. In the case of corporate entities, the Board of Directors' resolution / power of attorney with specimen signature of the person nominated to represent and vote on behalf of the corporate entity, unless provided earlier, shall be submitted to the Company along with the Proxy Form. In order to be effective, Proxy Forms, duly filled and signed, must be received at the Registered Office of the Company, not less than forty eight (48) hours before the Meeting. A blank Proxy Form is attached herewith. 4. Change of Address: Any change of address of Members should be notified immediately at the office of our Shares Registrar.

35
Adding Dimensions
Directors Report
The Directors are pleased to present their report and the audited financial statements for the year ended 31 December 2011.
Organizational overview - demerger

During the year, the Company achieved a major milestone as part of its restructuring initiative by the demerger and transfer of its fertilizer operations to its wholly owned subsidiary company DH Fertilizers Limited (DHFL). Consequent to the Scheme of Arrangement under Sections 284 to 288 of the Companies Ordinance 1984, this demerger was approved by the Honorable Lahore High Court on 23rd of July 2011 retrospectively with effect from 1 January 2011. On 12th August 2011 the Company was re-named as Dawood Hercules Corporation Limited (DH Corp) and, in recognition of its new role as an investment holding company, launched its new corporate identity soon thereafter. DH Corp will focus on managing its investments and the new logo of the Company symbolizes this change through its contemporary design while retaining the essentials of its pedigree from its past. The registered office of DH Corp has also been relocated from Lahore to Karachi. The Company continues to own 38.13% of its associated company Engro Corporation Limited (Engro) via a direct shareholding of 33.25% and an indirect 4.88 % shareholding through its subsidiary DH Fertilizers transferred on demerger. Engro, which is itself a holding company, has investments in fertilizer, petrochemicals, chemical terminal, industrial automation, food, commodities trading and power generation businesses. Engro has successfully pursued a business diversification strategy with many of its fast growing businesses turning to profit during this year. Revenues in 2011 exceeded Rs 100 billion for the first time.
Business overview
Pakistan's economy turned in a weak performance during 2011 with subpar growth, persisting inflation, fiscal constraints and vulnerabilities on the balance of payments front. Problems emanating from power shortages and circular debt spilled over into a full blown energy crisis with extensive electricity outages throughout the country, especially during the peak summer months. In addition, a highly damaging shortage of natural gas particularly in the central and northern parts of the country not only exacerbated the electricity crisis, but also adversely impacted the fertilizer sector supplied via the SNGPL network. According to the IMF, Pakistan's highly constrained and unpredictable energy supply contributes a loss of up to 2% of GDP whilst causing significant social unrest and unemployment. From the investment perspective, the other negative feature of the economy was its declining savings and investment rate. This is attributed to a combination of factors which include low business confidence due to security issues and economic uncertainty, a banking industry which is increasingly risk averse, government borrowing which has virtually crowded out private sector borrowing, and infrastructure bottlenecks which are exacerbated by cuts in development spending. Although exports grew significantly in monetary terms, they remained narrowly based on textile related products and the momentum has already begun to falter as cotton prices begin their slide downwards on weakening international demand.
38
Annual Report 2011
07
Pic
On the international economic front, the global financial crisis which in 2011 fully enveloped a number of European economies has accelerated the shift of global economic weight from advanced to developing and emerging economies. The Euro zone debt crisis has curtailed growth prospects and its indecisive handling was characterized by repeated bail outs and calls for austerity measures rather than relevant reform. The US economy began to show some signs of self sustaining improvement although the housing market remained weak.
Emerging markets share of global consumption is now estimated at 35% compared to 28% with the US. This trend was supported by rising urban middle classes and growing populations resulting in demand for physical and social infrastructure, better quality food and status bestowing branded goods. However, growth is now more subdued to check inflation and spending is increasingly concentrated on domestic consumption, shifting some trading activity away from the developed countries. International investment and capital flows are expected to decline further as economic recession sets in the major western economies.

39
Global agriculture
Some of the major agricultural regions in the world were affected by adverse weather conditions in 2011 - droughts in northern China, northwestern part of the EU, the US southern states and Mexico; floods in Australia & Thailand; and cool & wet weather in the US corn-belt. However, weather in the northern hemisphere during the winter cereal planting season remained relatively favorable. In response to tight market conditions and attractive grain prices during 2011, farmers increased the planted area and their crop productivity. According to the Food and Agriculture Organisation (FAO) and the United States Department of Agriculture (USDA), global cereal output grew by 3.5 - 3.7%, establishing a new record projected at some 2.3 billion metric tons. The 2011 wheat crop has been estimated to be the second largest harvest on record, marginally smaller than in 2008. Soybean and rapeseed production was slightly short by 2% as compared to 2010, but this negative impact is expected to be offset by higher production of other oil crops. Sugar and cotton outputs have increased by approximately 4% and 8%, respectively.
World Cereal Production and Utilization (million metric tonnes)

2400
Production
2300 2200 2100 2000 1900 1800
Utilization
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
1010
Source : FAO
Prices of almost all agricultural commodities (with rice being a notable exception) surged in the second half of 2010 and remained high during the first half of 2011 before contracting in the second half. Current prices are, however, well above those recorded during the pre-food crisis period in 2007/2008
2011
Pakistan agriculture
Along with the rest of the world, Pakistan too is being impacted by climate change and is now considered to be the 16th most vulnerable country to this phenomenon through unpredictable weather patterns, temperature extremes, heavier monsoon flooding and droughts. Along with these uncertainties, agriculture growth in Pakistan has lost significant momentum over the years as it slowed down from 5.4% in the 1980s to 4.4% in the 1990s and 2.7% in the decade of 2000s. Major crops remained the victim of natural calamities as a result of which the agriculture sector in Pakistan recorded modest growth of 1.2 percent in the fiscal year 2010-11. Whilst agricultural incomes in Pakistan have been boosted in the last few years due to the commodity price boom and generous crop support prices, this trend is set to see a reversal beginning in 2012 as international prices retreat and farm inputs like fertilizer, pesticides, diesel and electricity become more expensive. Availability of irrigation water remains the primary source of agricultural performance in Pakistan. During 2010-11, the availability of water in Kharif 2010 was 20 % less than normal and the previous year's Kharif season. Water availability during the Rabi season (for major crops such as wheat), is however, estimated at 34.6 MAF or 38% higher than the comparative period last year. Despite higher water availability for the Rabi season, a 20% reduction in the wheat cultivable area is expected due to the recent floods in Sindh in addition to a shift in cropping pattern in the northern wheat-
cotton belt and drought conditions in the rain fed areas. These factors may restrict wheat production during 2011-12 to below 20 M tes.
Fertilizer market overview

Global
Due to a strong recovery of nitrogen and phosphate based fertilizers' consumption in 2009-10, global fertilizer demand increased by 6.2% to 173 M tes (Million tonnes). The strong growth in that year was triggered by the sharp rebound of economic activity and high agricultural commodity prices. Global Fertilizer Consumption (Mt nutrients) 07/08 08/09 09/10 10/11 Change 11/12 Change 12/13 Change Source : IFA 100.5 98.2 101.9 104.5 2.6% 107.7 3.1% 109.5 1.7% 38.4 33.6 37.4 40.7 8.8% 41.1 1.0% 42.3 3.0% 28.9 23.4 23.6 27.8 17.7% 29.4 5.7% 30.4 3.3% 167.9 155.2 162.9 173.0 6.2% 178.2 3.0% 182.3 2.3%
As a result, global nutrient production capacity grew by 4% and exceeded aggregate demand while actual urea production at 158.9 M tes was 2% higher than in 2010. The fertilizer industry operated at 83% of installed capacity during the year versus 82% in 2010. In response to attractive agricultural commodity prices in 2011 and sound agricultural market fundamentals in 1H 2012, world fertilizer demand is forecast to rise by approximately 3% in 2011-12 to a record high of 178.2 M tes. The largest increases in volume are expected in East Asia (1.4 M tes) South Asia (1.4 M tes) and Latin America (1.3 M tes).
Government policy on gas allocations

Urea prices are intimately connected to the Government's gas allocation to the network based fertilizer industry. To recapitulate, prices rose as a consequence of the Government's reactive response to the unfolding gas crisis in 2011. Firstly, under the influence of politically influential lobbies, the fertilizer industry on the SNGPL network was starved of its basic raw material i.e. natural gas. Prolonged and unplanned gas supply suspension was unprecedented and breached established contractual rights and was operated egregiously against all rational policy, business and commercial norms. Secondly, by intervening directly in making specific and unfair gas allocations to different fertilizer plants on the SNGPL network, the Government stands accused of poor energy governance and opens itself to charges of not providing a level playing field to all its constituents. Thirdly, whilst some companies were subject to gas curtailment and increased prices to forestall economic loss, others continued to receive near normal supplies (those with access to dedicated gas fields) and as is now apparent, made extraordinary windfall gains during the year.
Urea and DAP in Pakistan

Total urea production in 2011 was restricted to 4.89 M tes or 68% of demonstrated production capacity. The lower production is attributed primarily to severe gas curtailment on the Sui based network plants that together equate to 41% of total production capacity in the country. In stark contrast, the Mari gas field based plants produced 3.7 M tes (89% of demonstrated capacity) whilst those fed by the SNGPL network just 0.7 M tes (31% of capacity) and the single unit on the SSGC network, 0.4 M tes (67% of capacity). Since total urea demand exceeded aggregate production in the country, not only was the government forced to import 1 M tes of urea, but the price per bag increased from Rs 830 in Dec 2010 to Rs 1,480 in Dec 2011. For the second consecutive year, urea off take declined in 2011 by 3% to 5.9 M tes mainly due to the high price, reduction in demand due to the floods in Sindh and lower average prices of agricultural produce. The highest off take of urea at 6.5 M tes was recorded in 2009. Domestic production of DAP was 0.57 M tes (88% of installed capacity) while 0.66 M tes was imported during 2011, which represented a decline of around 15% versus 2010, again mainly due to higher prices in the international market, floods during the Kharif season and reduction in area under wheat cultivation. The highest ever DAP sales volume of 1.8 Mt was achieved in 2009. Around 60% of DAP is consumed in Rabi and 40% in Kharif.
Corporate awards
KSE Top 25 Companies Award
The Company has been ranked amongst the top 25 companies of the Karachi Stock Exchange (KSE) Top Companies Award for the year 2010. The competition is held every year by the KSE to acknowledge the best performing companies and we feel pleased to inform that this award is DH Corp's 12th in the last 16 years.
National Environment Excellence Award 2011

Our subsidiary DH Fertilizers Limited has been awarded the National Environment Excellence Award 2011 by the National Forum for Environment & Health (NFEH) for the third year running after the Company started participating in this event since 2009.
42
Annual Report 2011
Financial performance
Fertilizer
In this environment of feast and famine, DHFL has been a victim of a manifestly discriminatory and anticompetitive gas allocation by SNGPL in 2011. DHFL's urea production was severely constrained due to suspension of gas supply for a total of 197 days during the year (the highest for any urea plant) compounded by curtailment of gas supply during the rest of the year. As a result, only 199,900 tes of urea was manufactured as compared to 456,120 tes for the similar period last year. Further due to unplanned gas suspension, the DHFL plant, designed for continuous operation, had to be shut down and restarted a number of times during the year resulting in conversion inefficiencies adding considerably to production costs. Frequent gas stoppages at short notice are also a potential process safety hazard but were handled with due care by DHFL's competent plant operations team. Fertilizer sales volume at 207,239 tes was 53% lower as compared to last year. Very concerted efforts were made to contain fixed costs, reducing these by 31% during the year against the comparable figure in the previous year. The consolidated profits were impacted by impairment in the value of DHFL's investment in SNGPL. A summary of operating results of the Company for the year 2011 along with comparatives for the year 2010 is as under:
Particulars 2011 Rupees million Sales Gross profit Operating costs Impairment loss Share of profit from associate Profit before taxation Profit after taxation 6,309 2,265 (567) (587) 2,980 3,632 2,893 8,715 3,501 (816) (2) 1,956 4,191 3,247 2010
Auditors
The present auditors, KPMG Taseer Hadi & Co., Chartered Accountants are retiring at the conclusion of the forthcoming annual general meeting. The Audit Committee has recommended the appointment of A.F Ferguson & Co., Chartered Accountants, as the statutory auditors of the Company for the year ending 31 December 2012. The Board has endorsed this recommendation.
Appropriations
The Board has recommended a final cash dividend of Rs. 1.00 per share (10%) for approval by the shareholders in the 44th Annual General Meeting.
Contribution to the national exchequer and economy

We are one of the leading contributors to the national exchequer. During the year, in aggregate a sum of Rs. 1,422 million (2010: Rs. 783 million) was paid as taxes and levies. Furthermore, the contribution to the national exchequer as a withholding tax agent under different provisions of Income Tax Ordinance, 2001 amounted to Rs. 135 million (2010: Rs. 159 million).
Pattern of shareholding
The pattern of shareholding of the Company as at 31st December 2011, together with other necessary information, is available at the end to this report along with the proxy form.
Earnings per share

Earnings per share for the year 2011 were Rs. 6.01 per share as compared to Rs.6.75 per share for the year 2010.
Provident and gratuity funds

The funded retirement benefits of the employees of the 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 last audited accounts aggregated to Rs 837 million. Fair value of the assets of the funded defined benefit gratuity plan for management staff was Rs. 101 million as at 31st December 2011. Based on the actuarial valuation, the value of assets of defined contribution plan for non-management staff was Rs. 38 million as on 30th June 2011.
Market capitalization and book value

At the close of the year, the market capitalization of the Company was Rs. 20,402 million (2010: Rs. 23,868 million) with a market value of Rs. 42.39 (2010: Rs 49.60) per share and book value of Rs 19,849 million (2010: Rs 19,544 million) or Rs. 41.24 (2010: Rs 40.60) per share.
44
Annual Report 2011
Board of Directors
Board composition:
The Board comprises of ten Directors.
2. 3.
flows and change in equity. Proper books of accounts of the Company have been maintained. Appropriate accounting policies have been consistently applied in preparation of the financial statements except for changes resulting on initial application of standards, amendments or interpretations to existing standards and reclassification of capital spares. Accounting estimates are based on reasonable prudent judgment. International Accounting Standards, as applicable in Pakistan, have been followed in preparation of the financial statements and any departures there-from have been adequately disclosed. The system of internal controls is sound in design and has been effectively implemented and monitored. There are no significant doubts upon the Company's ability to continue as a going concern. There is no material departure from the best practices of corporate governance, as detailed in the Listing Regulations.
Changes in the Board

During the year, Messrs. S.M. Asghar and Inam-urRahman retired from the directorship of the Company. The Board would like to place on record its appreciation for the dedication, commitment and valuable contribution made by them as members of the Board. The Board also welcomes Messrs. M. Aliuddin Ansari and Asad Umar who joined as members in place of the outgoing Directors.
4.
Board meetings
Nine meetings of the Board were held during the year 2011, which were all presided over by the Chairman. The Company Secretary and Chief Financial Officer also attended the meetings as required by the Code of Corporate Governance. Attendance by each Director was as follows: Name of the Director Mr. Hussain Dawood Mr. Shahid Hamid Pracha Mr. Isar Ahmad Mr. Javed Akbar Mr. M. Abdul Aleem Mr. M. Aliuddin Ansari Mr. A. Samad Dawood Mr. Shahzada Dawood Mr. Parvez Ghias Mr. Asad Umar Mr. S. M. Asghar Mr. Inam-ur-Rehman Meetings Attended 9/9 8/9 9/9 8/9 8/9 5/6 7/9 2/9 6/9 4/6 3/3 3/3
5.
6.
7.
Statement of Directors' responsibilities

The Directors confirm compliance with the Corporate and Financial Reporting Framework as per the Listing Regulations of the stock exchanges in Pakistan as follows: 1. The financial statements prepared by the management of the Company, present fairly its state of affairs, the result of its operations, cash Dawood Hercules Corporation Limited
45
Change of Chief Executive Officer

Mr. Isar Ahmad relinquished the charge of Chief Executive Officer of the Company and Mr. Shahid Hamid Pracha assumed these responsibilities with effect from 28th November 2011. The Board, management and employees of the Company wish to place on record their appreciation for the contributions made by Mr. Isar Ahmad as Chief Executive and welcome Mr. Shahid Hamid Pracha as the new CEO who brings with him a diverse background of working in leadership positions.
Integrated Energy Model study sponsored by the Asian Development Bank for the Planning Commission) and should be provided a stable and predictable supply of gas in order to make the most efficient and productive use of this depleting resource, will inevitably make our industry hostage to Government patronage.
Urea demand and prices

Urea prices saw the historically largest single year increase during 2011 rising 78% from Rs 830 to Rs 1480 per bag, and, following the imposition of the Gas Development Surcharge on feed gas increasing prices by 193% at the beginning of this year, the current market price has shot up even further to around Rs 1700 per bag. The Government has recently announced an increase in the price of imported urea to Rs 1550 per bag. Farmers have therefore to contend with a higher urea price benchmark for both local and imported product and the lower off take is an indicator of an increasingly stressed agricultural economy. In comparison, urea retails at the equivalent of Rs 500 per bag in India where it is heavily subsidized to benefit farmers in line with policy in most other developing economies. Hence we foresee a softening of the urea market and further slowdown in the country's agricultural growth momentum, and, unless we see a change in the Government's policy, a threat to long standing efforts to preserve food security due to changing economics of different crop choices. We maintain that high priced imports are not the sustainable solution to the problem and urea prices can be brought down to more affordable levels if all the domestic urea manufacturers are accorded priority as per 2005 Gas Policy and provided gas on a reliable and equitable basis.
Related party transactions

In order to comply with the requirements of Listing Regulations, the Company presented all related party transactions before the Audit Committee and the Board for their review and approval, respectively.
Business risks and future outlook

DH Corp has embarked on a new strategic journey as reflected in its new Mission Statement. Whilst it is now set up as an investment holding company, its future profitability has a very strong fertilizer industry orientation and is fundamentally linked to energy and gas supplies. We therefore begin with a review of the gas supply scenario in 2012.
Domestic gas supply and demand

While it is expected that about 150 MMCFD gas will be added into the SNGPL system from some northern fields, with present production of 475 MMCFD going up to 625 MMCFD during 2012, about 100 MMCFD of this addition is likely to be offset by the annual depletion of Sui and Sawan fields in the southern parts of the country. On the other hand, additional demand of around 55 - 60 MMCFD of gas will be created in 2012 on account of new connections and growth in CNG usage. The net shortfall, on average day load basis, is expected to be around 200 - 250 MMCFD, which would mean very little change in the demand/supply deficit from 2011. It is thus imperative for the government to ensure equitable distribution of gas amongst all the affected fertilizer producers and to work collaboratively with the industry to forge a long term solution to this imbroglio. Failure by the Government to recognize that the fertilizer industry makes the greatest value addition (as now confirmed by the
46
Annual Report 2011
DH Fertilizers
In view of the discriminatory treatment in the matter of gas supply to DHFL during 2011, the company has been compelled to opt for legal recourse. It has consequently filed a writ petition in the Honorable Lahore High Court to restrain SNGPL from making any further discriminatory gas supplies to comparably placed fertilizer plants on its network (Pak Arab Fertilizer, Agritech) to the detriment of DHFL and to make up any shortfalls in supply parity during 2011 and to otherwise discharge its contracted supply obligations under the established Natural Gas Allocation and Management Policy, 2005. The Writ Petition was heard on 13th February 2012 and the Court was pleased to grant interim relief by directing that when supplies are resumed, respondents SNGPL and the Ministry of Petroleum & Natural Resources will ensure that gas is provided strictly in accordance with the above policy and without any taint of discrimination. Whilst the management of DHFL will continue to make hectic efforts to secure gas, we anticipate that urea production in 2012 will again be a
constrained by the amount of gas that is made available to the industry and to that extent the Government has the sole responsibility of acting as the collective and selective arbiter of the fertilizer industry's profits or losses. Other than our urea business, we will continue to explore other opportunities and in particular to retain our position as a relevant player in the DAP market, based on imported product.
Long term investment

Prospects for DH Corp's long term investment in Engro continue to remain bright despite the continued suspension of gas to its new world scale Enven plant. Whilst this is a matter of grave concern as the price of Engro's share dipped to Rs 92.7 per share at the year-end date versus cost to the Company of Rs 128 per share, management remains confident that Engro has a very strong legal and moral case and it will succeed in convincing the Government to provide a viable solution despite the challenging circumstances. As a result of management's assessment of Engro's future cash flows and expected dividend payouts, no impairment

47
Adding Dimensions
Financial Statements
Statement of Compliance with the Code of Corporate Governance

This statement is being presented to comply with the requirements of the Code of Corporate Governance contained in the listing regulations of Karachi, Lahore and Islamabad Stock Exchanges of Pakistan for the purpose of establishing a framework of good governance, whereby a listed company is managed in compliance with the best practices of corporate governance. The Company has applied the principles contained in the Code in the following manner: 1. The Company encourages representation of independent non-executive Directors on its Board of Directors. At present the Board comprises of ten Directors, which includes three independent nonexecutive Directors. The Directors have confirmed that none of them is serving as a Director in more than ten listed companies, including this Company. All the Directors of the Company are registered as taxpayers and none of them has defaulted in payment of any loan to a banking company, a Development Financial Institution (DFI) or a Non-Banking Financial Institution (NBFI) or, being a member of a stock exchange, has been declared as a defaulter by that stock exchange. Casual vacancies occurred in the Board during the year 2010 were filled within the statutory period. The Company has prepared a 'Statement of Ethics and Business Practices', which has been signed by all the Directors and employees of the Company. The Board of Directors has developed a Vision/Mission statement. All significant policies of the Company are revised and updated from time to time as appropriate. All the powers of the Board have been duly exercised and decisions on material transactions, including appointment and determination of remuneration and terms and conditions of employment of the CEO, have been taken by the Board. During the year seven meetings of the Board were held, which were all presided over by the Chairman and the Board met at least once in every quarter. Written notices of the Board meetings, along with agenda and working papers, were circulated seven days before the meetings. The minutes of the Board meetings were appropriately recorded, circulated within 14 days from the date of meetings and signed by the Chairman. All material information as required under the relevant rules has been provided to the stock exchanges and to the Securities & Exchange Commission of Pakistan within the prescribed time limit. The Board encourages the participation of its Directors and Executives in the orientation courses to apprise them of their duties and responsibilities. The Board approves appointment of CFO, Company Secretary and Head of Internal Audit, including their remuneration and terms and conditions of employment as determined by the CEO. However, no new appointment of Chief Financial Officer (CFO), Company Secretary and Head of Internal Audit were made during the year. The Directors' Report for this year has been prepared in compliance with the requirements of the Code and fully describes the salient matters required to be disclosed. The financial statements of the Company were duly endorsed by CEO and CFO before approval of the Board. The half-yearly and annual financial statements were also initialed by the external auditors before presentation to the Board.
2. 3.
4. 5. 6. 7.
8.
9. 10. 11.
12. 13.
54
Annual Report 2011
07
KPMG Taseer Hadi & Co. Chartered Accountants 53 L Gulberg III Lahore Pakistan
Telephone Fax Internet
+ 92 (42) 3585 0471-76 + 92 (42) 3585 0477 www.kpmg.com.pk
Review 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 Governance prepared by the Board of Directors of Dawood Hercules Corporation Limited ("the Company") (Formerly Dawood Hercules Chemicals Limited) to comply with the Listing Regulations of Karachi, Islamabad and Lahore Stock Exchanges. The responsibility for compliance with the Code of Corporate Governance is that of the Board of Directors of the 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 Corporate Governance and report if it does not. A review is limited primarily to inquiries of the Company personnel and review of various documents prepared by the Company to comply with the Code. As part of our audit of financial statements we are required to obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. We have not carried out any special review of the internal control system to enable us to express an opinion as to whether the Board's statement on internal control covers all controls and the effectiveness of such internal controls. Further, Sub-Regulation (xiii a) of the Listing Regulation No. 35 (previously Regulation No. 37) notified by The Karachi Stock Exchange (Guarantee) Limited vide circular KSE/N-269 dated 19 January 2009 requires the Company to place before the Board of Directors for their consideration and approval related party transactions distinguishing between transaction carried out on terms equivalent to those that prevail in arm's length transactions and the transactions which are not executed at arm's length price recording proper justification for using such alternate pricing mechanism. Further, all such transactions are also required to be separately placed before the audit committee. We are only required and have ensured compliance of requirement to the extent of approval of related party transactions by the Board of Directors and placement of such transactions before the audit committee. We have not carried out any procedures to determine whether the related party transactions were undertaken at arm's length price. Based on our review, nothing has come to our attention which causes us to believe that the Statement of Compliance does not appropriately reflect the Company's compliance, in all material respects, with the best practices contained in the Code of Corporate Governance as applicable to the Company for the year ended 31 December 2011.
Lahore Date 15 February 2012
KPMG Taseer Hadi & Co. Chartered Accountants (Bilal Ali)
56
Annual Report 2011
07
+ 92 (42) 3585 0471-76 + 92 (42) 3585 0477 www.kpmg.com.pk
Auditors Report to the Members

We have audited the annexed balance sheet of Dawood Hercules Corporation Limited ("the Company") (Formerly Dawood Hercules Chemicals Limited) as at 31 December 2011 and the related profit and loss account, statement of comprehensive income, cash flow statement and statement of changes in equity 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 our audit. It is the responsibility of the Company's management to establish and maintain a system of internal control, and prepare and present the above said statements in conformity with the approved accounting standards and the requirements of the Companies Ordinance, 1984. Our responsibility is to express an opinion on these statements based on our audit. We conducted our audit in accordance with the 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 free of any material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts 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 statements. We believe that our audit provides a reasonable basis for our opinion and, after due verification, we report that: a) in our opinion, proper books of accounts 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; ii) the expenditure incurred during the year was for the purpose of the Company's business; and 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, statement of comprehensive income, cash flow statement and statement of changes in equity together with the notes forming part thereof conform with approved accounting standards as applicable in Pakistan, and, give the information required by the 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 2011 and of the profit, its comprehensive income, its cash flows and changes in equity for the year then ended; and d) in our opinion Zakat deductible at source under the Zakat an Ushr Ordinance, 1980, (XVIII of 1980), was deducted by the Company and deposited in the Central Zakat Fund established under section 7 of that Ordinance.
Lahore Date 15 February 2012
KPMG Taseer Ha di & Co. Chartered Accountants (Bilal Ali)

57
Notes to the Financial Statements

For the year ended 31 December 2011 1 1.1 Legal status and nature of business Dawood Hercules Corporation Limited (Formely Dawood Hercules Chemicals Limited) is a public limited company (the 'Company'). It was incorporated in Pakistan under the Companies Ordinance, 1984 and is listed on Karachi, Lahore and Islamabad Stock Exchanges. The principal activity of the Company, subsequent to the separation of Fertilizer Undertaking (note 1.2), is to manage investments in its subsidiary and associated company. During the year, the registered office of the Company has been changed from the province of Punjab to the province of Sindh in June 2011 and is now situated at Dawood Center, M.T. Khan Road, Karachi. The Board of Directors in their meeting on 16 June 2010 decided to divide the Company into two companies by separating its Fertilizer Undertaking from the rest of the undertaking, that is to be retained in the Company (Retained Undertaking). In this regard a wholly owned subsidiary named DH Fertilizers Limited (subsidiary company) was incorporated on 02 August 2010. The division was effected on 01 January 2011 (the Effective Date) through a Scheme of Arrangement (the 'Scheme') under Section 284 to 288 of the Companies Ordinance, 1984,which was approved by the Honourable Lahore High Court on 23 July 2011, whereby: (a) the fertilizer undertaking has been transferred and vested in DH Fertilizers Limited against the issuance of ordinary shares of DH Fertilizers Limited, as summarised in note 1.4; and the retention of Retained Undertaking in the Company along with the change of name of Company to Dawood Hercules Corporation Limited. Dawood Hercules Corporation Limited henceforth will function as a Holding Company to oversee the business of new fertilizer subsidiary.
1.2
(b)
1.3
Bifurcated Balance Sheet as at 01 January 2011 In order to determine the net assets of the Retained Undertaking and the Fertilzer Undertaking for the aforementioned transfer/demerger of the Company, the assets and liabilities of the Company, as at 01 January 2011 were bifurcated, as per the Scheme, between the Fertilizer Undertaking and the Retained Undertaking. The bifurcated balance sheet as at 01 January 2011, duly audited by the external auditors, is summarised below:
64
Annual Report 2011
07
Note
ASSETS Fixed capital expenditure Property, plant and equipment Capital work-in-progress Long term investments Long term loans and advances Current assets Stores, spares and loose tools Stock-in-trade Trade debts Loans, advances, deposits, prepayments and other receivables Advance income tax Short term investments Cash and bank balances 17.1 4.3.2 18.2
Total Retained Fertilizer Undertaking Undertaking (DH (DHCL) Fertilizers Limited ------------------Rupees in '000-----------------
45,037 45,037 16,820,499 9,298 568,609 383,956 961,863 17,827,399
1,826,671 366,514 2,193,185 2,469,463 1,680 1,073,544 216,117 2,131 80,011 625,148 1,871,322 866,307 4,734,580 9,398,908
1,871,708 366,514 2,238,222 19,289,962 1,680 1,073,544 216,117 2,131 89,309 625,148 2,439,931 1,250,263 5,696,443 27,226,307
4.4 4.4 4.1 19.2 20.1.1 21.2
EQUITY AND LIABILITIES Share capital and reserves Share capital Revenue reserves Fair value reserve on short term investments Long term loan Deferred taxation Staff retirement and other service benefits Current liabilities Current portion - long term loan Short term financing - secured Trade and other payables Accrued mark-up Provision for taxation 11 1.4 12 13 14.2.1
Retained Fertilizer Total Undertaking Undertaking (DH (DHCL) Fertilizers Limited ------------------Rupees in '000-----------------
1,203,217 18,205,346 19,408,563 3,321 3,321 30,634 30,634 19,442,518
135,765 135,765 5,042,000 268,464 48,269 5,358,733 660,500 45,725 664,083 232,983 686,000 2,289,291 7,783,789 1,615,119 9,398,908
1,203,217 18,205,346 135,765 19,544,328 5,042,000 268,464 51,590 5,362,054 660,500 45,725 694,717 232,983 686,000 2,319,925 27,226,307 27,226,307
15.1
Adjustment relating to Fertilizer Undertaking (note 1.4)
(1,615,119) 17,827,399

65

For the year ended 31 December 2011 1.4 Transfer to Fertilizer Undertaking The net assets of the Fertilizer Undertaking transferred to DH Fertilizers Limited as at 01 January 2011 amounting to Rs 1,615,119 thousand are summarized below: Note Total Assets Less: Total liabilities Net assets transferred to Fertilizer Undertaking Less: fair value reserve 1.3 1.3 1.4.1 1 January 2011 Rupees in '000 9,398,908 7,648,024 1,750,884 135,765 1,615,119
DH Fertilizer Limited in return issued 99,999,994, in addition to existing 06, fully paid ordinary shares of Rs.10 each plus share premium to the Company against the above net adjustment as follows: Rupees in '000 Shares par value Share premium 1.4.1 Fair value reserve As per the 'Scheme', the fair value reserve as at 01 January 2011is to be transferred to the Fertilizer Undertaking and is to be deducted from the net assets so transferred to determine the share premium amount over and above Rs. 1,000,000,000 share capital. 2 2.1 Basis of preparation Statement of compliance These financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board as are notified under the 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. 2.2 New standards, amendements and interpretations issued but are effective for annual periods beginning on or after 01 January 2012 and not early adpoted Amendments to IAS 12 deferred tax on investment property (effective for annual periods beginning on or after 1 January 2012). The 2010 amendment provides an exception to the measurement principle in respect of investment property measured using the fair value model in accordance with IAS 40 Investment Property. The measurement of deferred tax assets and liabilities, in this limited circumstance, is based on a rebuttable presumption that the carrying amount of the investment property will be recovered entirely through sale. The presumption can be rebutted only if the investment property is depreciable and held within a business model whose objective is to consume substantially all of the assets economic benefits over the life of the asset. The amendment has no impact on financial statements of the Company. 1,000,000 615,119 1,615,119
66
Annual Report 2011
07
IAS 27 Separate Financial Statements (2011) - (effective for annual periods beginning on or after 1 January 2013). IAS 27 (2011) supersedes IAS 27 (2008). Three new standards IFRS 10 - Consolidated Financial Statements, IFRS 11- Joint Arrangements and IFRS 12- Disclosure of Interest in Other Entities dealing with IAS 27 would be applicable effective 01 January 2013. IAS 27 (2011) carries forward the existing accounting and disclosure requirements for separate financial statements, with some minor clarifications. The amendments have no impact on financial statements of the Company. IAS 28 Investments in Associates and Joint Ventures (2011) - (effective for annual periods beginning on or after 1 January 2013). IAS 28 (2011) supersedes IAS 28 (2008). IAS 28 (2011) makes the amendments to apply IFRS 5 to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held for sale; and on cessation of significant influence or joint control, even if an investment in an associate becomes an investment in a joint venture. The amendments have no impact on financial statements of the Company. IAS 19 Employee Benefits (amended 2011) - (effective for annual periods beginning on or after 1 January 2013). The amended IAS 19 includes the amendments that require actuarial gains and losses to be recognised immediately in other comprehensive income; this change will remove the corridor method and eliminate the ability for entities to recognise all changes in the defined benefit obligation and in plan assets in profit or loss, which currently is allowed under IAS 19; and that the expected return on plan assets recognised in profit or loss is calculated based on the rate used to discount the defined benefit obligation. Presentation of Items of Other Comprehensive Income (Amendments to IAS 1) - (effective for annual periods beginning on or after 1 July 2012). The amendments require that an entity present separately the items of other comprehensive income that would be reclassified to profit or loss in the future if certain conditions are met from those that would never be reclassified to profit or loss. The amendments do not address which items are presented in other comprehensive income or which items need to be reclassified. The requirements of other IFRSs continue to apply in this regard. The amendments have no impact on financial statements of the Company. Disclosures Transfers of Financial Assets (Amendments to IFRS 7) - (effective for annual periods beginning on or after 1 July 2011). The amendments introduce new disclosure requirements about transfers of financial assets, including disclosures for financial assets that are not derecognised in their entirety; and financial assets that are derecognised in their entirety but for which the entity retains continuing involvement. The amendments have no impact on financial statements of the Company. Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) (effective for annual periods beginning on or after 1 January 2014). The amendments address inconsistencies in current practice when applying the offsetting criteria in IAS 32 Financial Instruments: Presentation. The amendments clarify the meaning of currently has a legally enforceable right of set-off; and that some gross settlement systems may be considered equivalent to net settlement. Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) (effective for annual periods beginning on or after 1 January 2013). The amendments to IFRS 7 contain new disclosure requirements for financial assets and liabilities that are offset in the statement of financial position or subject to master netting agreement or similar arrangement. IFRIC 20 - Stripping cost in the production phase of a surface mining (effective for annual periods beginning on or after 01 January 2013). The interpretation requires production stripping cost in a surface mine to be capitalized if certain criteria are met. The amendments have no impact on financial statements of the Company.

67

For the year ended 31 December 2011 There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Company. 3 3.1 Basis of measurement These financial statements have been prepared on the basis of historical cost convention, except for revaluation of certain financial instruments at fair value and recognition of certain employee retirement benefits at present value. The preparation of financial statements in conformity with approved accounting standards requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated 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 judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimates are recognized in the period in which the estimate is revised if the revision effects only that period, or in the period of revision and future periods if the revision affects both current and future periods. The areas where various assumptions and estimates are significant to Company's financial statements or where judgments were exercised in application of accounting policies are: 4 retirement and other benefits residual value and useful life of depreciable assets provision for taxation provisions and contingencies Note 4.2 4.3 4.6 4.13
3.2
Significant accounting policies The significant accounting policies applied in the preperation of these financial statements are set out below. These policies have been consistently applied to all the years presented unless otherwise stated. Further, certain policies may not be applicable to the current year financial statements consequent to the demerger of the Fertilizer Undertaking (note 1.2) but have been presented for the purposes of comparative information.
4.1
Revenue recognition 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 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. Revenue from sale of goods is recognized when the significant risk and rewards of ownership of the goods are transferred to the buyer. Return on deposits is accrued on a time proportion basis by reference to the principal outstanding and the applicable rate of return. Dividend income is recognized as income when the right of receipt is established.
68
Annual Report 2011
07
4.2
Retirement and other benefits Defined benefit plan- Gratuity The Company operates an approved funded defined benefit gratuity plan for management staff having a service period of more than five years. Provisions are made in the financial statements to cover obligations on the basis of actuarial valuations carried out annually. The most recent valuation was carried out on 31 December 2011 using the "Projected Unit Credit Method". The amount recognized in balance sheet represents the present value of the defined benefit obligation on fair value of plan assets as on 31 December 2011 as adjusted for unrecognized actuarial gains and losses. Cumulative net unrecognized actuarial gains and losses at the end of the previous year which exceed 10% of the greater of the present value of the Company obligations and the fair value of plan assets are amortized over the expected average working lives of the participating employees. Accumulated Compensated absences The Company provides annually for the expected cost of accumulated absences. All the employees are entitled to earned leaves and unavailed leaves in a year are accumulated and encashed, subject to a maximum cap on the number of days that can be encashed, at the time of cessation of employment either due to retirement, death in service, withdrawal or early retirement. Provisions are made annually to cover the obligation for accumulating compensated absences based on actuarial valuation and are charged to profit and loss. The most recent valuation was carried out on 31 December 2011 using the "Projected Unit Credit Method". The amount recognized in the balance sheet represents the present value of the defined benefit obligations. Actuarial gains and losses are charged to income immediately in the period when these occur. Other benefits Provident Fund The Company also operates approved contributory provident funds for all employees. Equal contribution is made both by employees and the Company. The funds are administrated by the Trustees Effective from 01 January 2011, liablilites for staff retirement benefits relating to the Fertilizer Undertaking have been transferred to DH Fertilizers Limited under the Scheme of Arrangement (notes 1.2 & 1.3).
4.3
Operating Fixed Assets
4.3.1 Property, plant and equipment Property, plant and equipment except freehold land are stated at cost less accumulated depreciation and any identified impairment loss. Freehold land is stated at cost less any identified impairment loss. The Company provides depreciation under the "straight line method" so as to write off the historical cost of the asset over its estimated useful life at the following rates:

69

For the year ended 31 December 2011 Buildings on freehold land Railway siding Plant and machinery Furniture Fittings and equipment Motor vehicles Data processing equipment Catalysts Percentage % 5 5 7.5 10 12.5 20 33.33 10 to 50
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. Assets residual values' and useful lives' are reviewed at each financial year end and adjusted if impact on depreciation is significant. 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 of disposal. The Company assesses at each balance sheet date whether there is any indication that property, plant and equipment may be impaired. If such indication exists, the carrying amounts of such assets are reviewed to assess whether they are recorded in excess of their recoverable amount. Where carrying values exceed the respective recoverable amount, assets are written down to their recoverable amounts and the resulting impairment loss is recognized in income currently. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. Where an impairment loss is recognized, the depreciation charge is adjusted in the future periods to allocate the asset's revised carrying amount over its estimated useful life. Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repair and maintenance costs are charged to income during the period in which they are incurred. The initial catalysts cost in Ammonia plant was capitalized with plant and machinery whereas costs of subsequent replacement of such catalysts are separately included in property, plant and equipment and depreciated over their estimated useful life. The gain or loss on disposal or retirement of an asset represented by the difference between the sale proceeds and the carrying amount of the asset is recognized as an income or expense. Effective 01 January 2011, cost and accumulated depreciation of assets relating to Fertilizer Undertaking has been transferred to DH Fertilizers Limited as per the Scheme of Arrangement (note 1.2 & 1.3) 4.3.2 Capital work-in-progress Capital work in progress is stated at cost less any identified impairment loss and represents expenditure incurred on property, plant and equipment during the construction and installation. Cost also includes applicable borrowing costs. Transfers are made to relevant property, plant and equipment category as and when assets are available for use. Effective 01 January 2011, capital work in progress balance has been transferred to DH Fertilizers Limited as per the Scheme of Arrangement (note 1.2 & 1.3)
70
Annual Report 2011
07
4.4
Inventories Inventories are valued at lower of cost and net realizable value. Cost is determined as follows: Raw material Materials in process Finished goods Stores, spares and loose tools at moving average cost at average cost at average cost at moving average cost. Items which are identified as slow moving and are surplus to the Company's requirements are written down to their estimated net realizable value. at cost, comprising invoice value plus other charges incurred thereon.
Stores and spares in transit
Cost of work in process and finished goods comprises of cost of direct materials, labour and appropriate manufacturing overheads. Net realisable value signifies the estimated selling price in the ordinary course of business less costs of completion and selling expenses. Effective from 01 January 2011, inventories balance has been transferred to DH Fertilizers Limited as per the Scheme of Arrangement (note 1.2 & 1.3) 4.5 Foreign currencies All monetary assets and liabilities in foreign currencies are translated into rupees at exchange rates prevailing at the balance sheet date. Transactions in foreign currencies are translated into rupees at exchange rates prevailing at the date of transaction. Non-monetary assets and liabilities that are measured in terms of historical cost in 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 into rupees at exchange rates prevailing at the date when fair values are determined. 4.6 Taxation Income tax expense comprise current and deferred tax. Income tax is recognized in profit and loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current Provision of current tax is based on the taxable income for the year determined in accordance with the prevailing laws for taxation of income. The charge for current tax is calculated using prevailing tax rates or tax rates expected to apply to the profit for the year if enacted after taking into account tax credits, rebates and exemptions, if any. The charge for current tax also includes adjustments, where considered necessary, to provision for tax made in previous years arising from assessments framed during the year for such years.

71

For the year ended 31 December 2011 Deferred Deferred tax is accounted for using the balance sheet liability method in respect of all temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable income. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, unused tax losses and tax credits can be utilized. Deferred tax assets and liabilities are calculated at the rates that are expected to apply to the period when the asset is realized or the liability is settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited to the profit & loss account, except in the case of items credited or charged to equity in which case it is included in equity. 4.7 Investments Investment in associate Associates are those entities in which the Company has significant influence and which is neither a subsidiary nor a joint venture of the Company. Investment in associates where significant influence can be established are initially recognized at cost. At subsequent reporting dates, the recoverable amounts are estimated to determine the extent of impairment losses, if any, and carrying amount of investments is adjsuted accordingly. Impairment losses are recognized as an expense. Where impairment losses subsequently reverse, the carrying amounts of investments are increased to the revised recoverable amount but limited to the extent of initail cost of investments. A reversal of impairment loss is recognized in the profit and loss account. Available for sale investments Investments which are intended to be held for an indefinite period of time but may be sold in response to the need for liquidity are classified as available for sale. Available for sale investments are recognized initially at cost being the fair value of the consideration given plus any directly attributable transaction costs. After initial recognition and at each reporting date, these are stated at fair values unless fair values can not be measured reliably, with any resulting gains and losses being taken directly to equity until the investment is disposed or impaired. At the time of disposal, the respective surplus or deficit is transferred to income currently. Fair value of quoted investments is their bid price on Karachi Stock Exchange at the balance sheet date. Unquoted investments, where active market does not exist, are carried at cost as it is not possible to apply any other valuation methodology. Investments intended to be held for less than twelve months from the balance sheet date or to be sold to raise operating capital, are included in current assets, all other investments are classified as noncurrent. Management determines the appropriate classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. 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.
72
Annual Report 2011
07
Investments at fair value through profit or loss Investments which are acquired principally for the purpose of generating profits from short term fluctuations in price or dealer margins are classified as Investments at fair value through profit and loss these are initially recognized on trade date at cost being the fair value of the consideration given and derecognized by the Company on the date it commits to sell them off. Transaction costs are charged to profit and loss account as and when incurred. At each balance sheet date, fair value is determined on the basis of year-end bid prices obtained from stock exchange quotations or NAV declared by the respective investee company and publicly available. Any resultant increase/(decrease) in fair value is recognized in the profit and loss account for the year. Effective from 01 January 2011, certain investments have been transferred to DH Fertlizers Limited under the Scheme of Arrangement (notes 1.2 & 1.3). 4.8 Financial assets and liabilities Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instrument. All financial assets and liabilities are initially measured at cost, which is the fair value of the consideration given and received respectively. These financial assets and liabilities are subsequently measured at fair value, amortized cost or cost, as the case may be. The particular measurement methods adopted are disclosed in the individual policy statements associated with each item. The Company derecognizes the financial asset and financial liability when it ceases to be a party to such contractual provisions of the instrument. 4.9 Offsetting of financial assets and liabilities A financial asset and a financial liability is offset and the net amount is reported in the balance sheet if the Company has a legally enforceable right to set-off the recognized amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. 4.10 Trade debts Trade debts are recognized initially at original invoice amount which is the fair value of consideration to be received in future and subsequently measured at amortized cost less an estimate made for doubtful debts based on a review of all outstanding amounts at the year end. A provision for impairment of trade debts is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of receivables. Bad debts are written off when identified. Effective from 01 January 2011, trade debts balance has been transferred to DH Fertilizers Limited as per the Scheme of Arrangement (note 1.2 & 1.3) 4.11 Cash and cash equivalents 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, deposit and saving accounts.

73

For the year ended 31 December 2011 4.12 Trade and other payables Liabilities for trade and other amounts payable are initially recognized at cost which is the fair value of the consideration to be paid in future for goods and services and subsequently at amortized cost using effective interest rate method. These are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not they are presented as non-current liabilites. 4.13 Provisions Provisions are recognized when the Company has a legal or constructive obligation as a result of past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made. However, provisions are reviewed at each balance sheet date and adjusted to reflect current best estimate. 4.14 Borrowing costs Mark-up, interest and other charges on borrowings are capitalized up to the date of commissioning of the related property, plant and equipment acquired out of the proceeds of such borrowings. All other mark-up, interest and other charges are charged to income in the period in which they are incurred. 4.15 Impairment The Company assesses at each balance sheet date, whether there is any indication that asset may be impaired. If such an indication exists, the carrying amount of such assets is reviewed to assess whether they are recorded in excess of their recoverable amount. Where carrying values exceed their respective recoverable amounts, assets are written down to their recoverable amount and resulting impairment loss is recognized in income currently. The recoverable amount is higher of an assets fair value less costs to sell and value in use. 4.16 Related party transactions The Company enters into transactions with related parties on an arm's length basis. Prices for transactions with related parties are determined using admissible valuation methods, except in extremely rare circumstances where, subject to approval of the Board of Directors, it is in the interest of the Company to do so. 4.17 Earnings per Share The Company presents basic and diluted earning per share (EPS) for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the wieghted average number of ordinary shares outstanding during the year. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shares outstanding, for the effects of all dilutive potiential ordinary shares. 4.18 Dividend distribution Dividend distribution to the Company's shareholders is recognized as a liability in the period in which the dividends are approved by the Company's shareholders.
74
Annual Report 2011
07
Note 5 Administrative expenses Salaries, wages, benefits and staff welfare Communication, stationery and office supplies Rent, rates and taxes Subscription & periodicals Travel and conveyance Repairs and maintenance Depreciation Legal and professional charges Insurance Donations Other expenses 5.1 5.1
2011 2010 Rupees in '000
17.2 5.2 & 5.3
130,691 14,465 11,441 24,137 10,106 6,570 6,662 4,794 1,883 1,283 2,402 215,434
253,297 45,459 30,190 22,996 23,920 20,938 14,086 1,708 1,574 11,710 425,878
Salaries, wages, benefits and staff welfare include Rs. 2.29 million (2010: Rs. 6.26 million) in respect of contribution to staff gratuity funds and Rs. 4.90 million (2010: Rs. 9.32 million) in respect of staff provident funds. Donation includes Rs. 0.83 million given to Pakistan Centre for Philanthorpy and Rs. 0.45 million given to Karachi Centre for Dispute Resolution. 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 except for the Pakistan Center of Philanthropy of which Mr. Hussain Dawood is a board member. Note 2011 2010 Rupees in '000
5.2 5.3
Other operating expenses Workers' profits participation fund Workers' welfare fund Auditors' remuneration: Audit fee Half year review and other certifications Out of pocket expenses 6.1 50 100 35 185 94,856 20,000 750 175 85 115,866
6.1
The provision for workers' profits participation fund is based on profits caused by business and trade, and excludes other income in accordance with the law, as advised by the legal advisors of the Company.

75

For the year ended 31 December 2011 Note 7 Other operating income Income from financial assets: Realized gain on disposal of short term investments available for sale Realized gain on disposal of investments at fair value through profit or loss Unrealized gain due to fair value adjustment of investment at fair value through profit or loss Profit on bank deposits and others Income from non-financial assets: Sale of scrap Profit on sale of property, plant and equipment Liabilities no longer payable written back Insurance claim Other income 10,750 94,414 7.1 12,482 117,646 1,150 101 1,251 118,897 179,413 4,049 3,681 63,218 250,361 12,376 12,392 7,657 16,347 22,756 71,528 321,889 2011 2010 Rupees in '000
17.4
7.1
This includes interest amounting to Rs. 0.76 million received from DH Fertilizers Limited with respect to its incorporation expenses paid on its behalf. 2011 2010 Rupees in '000
Dividend income Related parties Engro Corporation Limited (ECL) Sui Northern Gas Pipelines Limited (SNGPL) 741,080 741,080 727,170 139,964 867,134
Finance cost Mark-up: Short term borrowings Long term loans Interest on workers' profits participation fund Bank Charges 17 17 68,803 840,340 453 909,596
76
Annual Report 2011
07
2011 2010 Rupees in '000 10 Income tax expense Current - for the year - prior year Deferred 78,000 78,000 2011 % 10.1 Reconciliation of tax charge for the year Applicable tax rate Tax effect of amounts that are not deductible for tax purposes Tax effect of amounts exempt from tax Tax effect of amount taxed at lower rate 11 Issued, subscribed and paid up capital 2011 2010 Number of shares 13,900,000 13,900,000 Ordinary shares of Rs.10 each fully paid up in cash Ordinary shares of Rs.10 each issued as bonus shares 2011 2010 Rupees in '000 139,000 4,673,871 4,812,871 139,000 1,064,218 1,203,218 35.00 7.00 (1.00) (29.00) 12.00 35.00 2.14 (2.21) (7.30) 27.63 686,000 35,109 99,264 820,373 2010 %
467,387,116 106,421,779 481,287,116 120,321,779
2011 2010 Number of shares 11.1 Reconciliation of Issued, subscribed and paid up capital Outstanding as at 01 January Bonus shares issued during the year Closing as at 31 December 120,321,779 109,383,436 360,965,337 10,938,343 481,287,116 120,321,779

77

For the year ended 31 December 2011 2011 2010 Number of shares 11.2 Shares held by related parties Dawood Lawrencepur Limited Percentage of equity held 16.19% (2010: 16.19%) Dawood Corporation (Private) Limited Percentage of equity held 0.02% (2010: 0.02%) The Dawood Foundation Percentage of equity held 3.93% (2010: 3.95%) Cyan Limited (Formerly Central Insurance Company Limited) Percentage of equity held 1.82% (2010: 2.97%) Patek (Private) Limited Percentage of equity held 0.032% (2010: 0.032%) Sach International (Private) Limited Percentage of equity held 0.001% (2010: 0.001%) Note 12 Long term loans Paricipatory redeemable capital Opening balance Redemption during the year under call option Transferred to Fertilizer Undertaking Closing balance Transfer to current portion 13 Deferred taxation Deferred liability arising due to accelerated depreciation allowance Deferred (asset) arising in respect of provision for compensated absences 286,520 (18,056) 268,464 5,702,500 (5,702,500) 6,302,500 (600,000) 5,702,500 (660,500) 5,042,000 77,931,896 101,844 18,911,988 8,780,760 155,284 6,996 19,482,974 25,461 4,752,997 3,574,940 38,821 1,749
2011 2010 Rupees in '000
1.3
13.1 The taxable business income of the Company comprises of capital gain and dividend income and is taxed as separate block of income at lower rates under the Income Tax Ordinance, 2001, while the Company is under taxable losses in respect of other sources of income. Taxable profit will not be available in the forseeable future, accordingly deferred tax asset has not been recognized in respect of tax losses.
78
Annual Report 2011
07
Note 14 Staff retirement and other service benefits Defined benefit plan fundedfor management staff Compensated absences 14.1 Defined benefit plan funded for management staff Amounts recognized in the balance sheet are as follows: Present value of defined benefit obligation Fair value of plan assets Unrecognized actuarial losses Liability as at 31 December Net liability as at 01 January Charge to profit and loss account Contribution made by the Company Liability as at 31 December 14.1.1 Movement in liability for defined benefit obligation Present value of defined benefit obligation as at 01 January Transferred to Fertilizer Undertaking Current service cost Interest cost Benefits paid during the year Actuarial gain on present value of defined benefit obligation Present value of defined benefit obligation as at 31 December 14.1.1 14.1.2 14.1 14.2
2011 2010 Rupees in '000
1,288 5,221 6,509
51,590 51,590
7,593 (2,711) (3,594) 1,288 3,579 (2,291) 1,288
143,455 (107,904) (35,551) 198 16,502 (16,700) -
14.1.3
1.3
143,455 (112,104) 31,351 2,054 4,075 (25,920) (3,967) 7,593
148,767 148,767 16,323 17,852 (40,280) 793 143,455

79

For the year ended 31 December 2011
Note
14.1.2 Movement in fair value of plan assets Fair value of plan assets as at 01 January Plan asset transferred to Fertilizer Undertaking Expected return on plan assets Funds receivable from Workers Gratuity Fund Contributions made during the year Benefits paid during the year Actuarial (loss) / gain on plan assets Fair value of plan assets as at 31 December Plan assets consist of the following: Funds placed under mark up arrangements with banks Investment company Open ended mutual funds Funds receivable from Workers Gratuity Fund Funds payble to DHFL Gratuity fund 14.1.3 Charge to profit and loss account Current service cost Interest cost Expected return on plan assets Actuarial losses recognised during the year Past service cost charge 1.3
2011 2010 Rupees in '000
107,904 (84,323) 23,581 3,066 2,291 (25,920) (307) 2,711 100,525 1.3 613 (98,427) 2,711
106,171 106,171 12,740 7,990 16,700 (40,280) 4,583 107,904 88,334 11,580 7,990 107,904
2,054 4,075 (3,066) 516 3,579
16,323 17,852 (12,741) (7,990) 3,058 16,502
14.1.4 Actual return on plan assets of funded gratuity scheme was Rs. 2.76 million (2010: Rs. 17.3 million). 14.1.5 Historical information Present value of defined benefit obligation Fair value of plan assets Deficit in the plan Experience adjustment arising on plan liabilities Experience adjustment arising on plan assets 2011 2010 2009 2008 2007 ------------------------Rupees in '000------------------------7,593 (2,711) 4,882 (3,967) (307) 143,455 (107,904) 35,551 793 4,583 148,767 (106,171) 42,596 16,877 (7,821) 112,044 (92,608) 19,436 2,113 10,857 101,938 (72,006) 29,932 11,129 (8,848)
80
Annual Report 2011
07
14.1.6 The Company expects to pay Rs 2.30 million (2010: Rs. 20.91 million) as contribution to defined benefit plan in 2012. 14.1.7 Assumptions used for valuation of the defined benefit schemes for management staff are as under: 2011 2010 % per annum % per annum Discount rate Expected rate of return on plan assets Expected rate of increase in salary 13 13 12 13 12 12
Average expected remaining working life time of management employees is 10 years (2010: 9 years). Note 14.2 Compensated absences Balance as at 01 January Expenses recognized during the year Payments made during the year Balance as at 31 December 14.2.1 Movement in liability for defined benefit obligation Present value of defined benefit obligation as at 01 January Transferred to Fertilizer Undertaking Current service cost Interest cost Benefits paid during the year Actuarial loss on present value of defined benefit obligation Present value of defined benefit obligation as at 31 December 14.2.2 Balance Sheet liability as on 31st December 2011 Present value of defined benefit obligations as on 31 December 2011 5,221 51,590 51,590 (48,269) 3,321 1,333 431 (1,139) 1,275 5,221 44,397 44,397 4,921 5,328 (5,779) 2,723 51,590 14.2.3 14.2.1 3,321 3,039 (1,139) 5,221 44,397 12,972 (5,779) 51,590 2011 2010 Rupees in '000
1.3

81

For the year ended 31 December 2011 Note 14.2.3 Charge to profit and loss account Current service cost Interest cost Actuarial loss charged 1,333 431 1,275 3,039 2011
% per annum
2011 2010 Rupees in '000
4,921 5,328 2,723 12,972 2010

% per annum
14.2.4 Assumptions used for valuation are as under: Discount rate Expected rate of eligible salary increase in future years 15 Trade and other payables Trade creditors Related parties Others Advances from customers Unclaimed dividends Accrued expenses Sales tax payable Deposits Workers' profits participation fund Workers' welfare fund Others 15.1 19,383 14,232 86 33,701 177,657 18,722 196,379 20,486 20,130 253,743 1,215 25,609 95,309 70,251 11,595 694,717 13 12 13 12
15.2
The corresponding amounts of trade and other payables include Rs. 664.083 million transferred to the Fertilizer Undertaking (note 1.2 & 1.3).
82
Annual Report 2011
07
Note 15.2 Workers' profits participation fund Balance at the beginning of the year Transferred to Fertilizer Undertaking Add: Allocation for the year Interest on funds used in the Company's business 1.3 6
2011 2010 Rupees in '000
95,309 (95,309) -
112,963 94,856 453 208,272 112,963 95,309
Less: Amount paid to the fund 16 16.1 Contingencies and Commitments Contingencies
All contingencies were transferred to the Fertilizer Undertaking as at 01 January 2011 under the Scheme of Arrangement (note 1.3) and there are no material contingencies as at the reporting date. 16.2 Commitments During the year, the Company (the Guarantor) issued a Corporate Guarantee to a syndicate of financial institutions through Meezan Bank Limited (Investment Agent) to guarantee the liabiliteis of DH Fertilizers Limited - a subsidiary company with respect to the Islamic Finance Facility (Diminishing Musharika) amounting to Rs 4,800 million. The Guarantee issued shall in no event exceed an aggregate amount of Rs 6,400 million. The Facility is for a period of 05 years.

83
84
Cost As at 01 January 2011 ---------------------Rupees in '000----------------------------------------------Rupees in '000-------------------------Additions Transfers to Fertilizer Undertaking Disposals As at 31 Depreciation December rate (% per 2011 annum) As at 01 January 2011 For the period Transfers to Fertilizer Undertaking Disposals As at 31 December 2011 Net book value as at 31 December 2011 Accumulated depreciation
17
Property, plant and equipment
Particulars
Freehold land Buildings on freehold land Railway siding Plant and machinery Catalysts Furniture, fittings and equipment Data processing equipment Motor vehicles 2011 5.0 5.0 7.5 10 - 50 10 - 12.5 33.3 20.0 Cost As at 01 January 2010 ---------------------Rupees in '000-------------------------Additions Transfers to Fertilizer Undertaking Disposals As at 31 Depreciation December rate (% per 2010 annum) As at 01 January 2010 For the period Accumulated depreciation Transfers to Fertilizer Undertaking Disposals As at 31 December 2010
250,657 114,636 2,314 3,472,084 216,213 75,155 118,143 171,028 4,420,230
290 1,258 5,617 7,165
(227,941) (107,136) (2,314) (3,472,084) (216,213) (65,682) (109,045) (136,858) (4,337,273)
(66) (535) (6,650) (7,251)
22,716 7,500 9,697 9,821 33,137 82,871
85,120 2,291 2,040,823 185,261 46,895 103,793 84,339 2,548,522
375 718 1,091 4,478 6,662
(80,058) (2,291) (2,040,823) (185,261) (41,409) (96,410) (64,350) (2,510,602)
(65) (356) (4,099) (4,520)
5,437 6,139 8,118 20,368 40,062
22,716 2,063 3,558 1,703 12,769 42,809
Annual Report 2011

---------------------Rupees in '000-------------------------250,657 114,636 2,314 2,767,056 216,213 65,706 109,507 183,798 3,709,887 5.0 5.0 7.5 10 - 50 10 - 12.5 33.3 20.0 705,028 9,524 9,090 37,370 761,012 250,657 114,636 2,314 - 3,472,084 216,213 (75) 75,155 (455) 118,142 (50,139) 171,029 (50,669) 4,420,230 81,442 2,291 1,905,689 159,007 42,935 97,412 80,523 2,369,299 3,678 135,134 26,254 3,972 6,797 31,673 207,508 85,120 2,291 - 2,040,823 185,261 (12) 46,895 (416) 103,793 (27,857) 84,339 (28,285) 2,548,522
Particulars
Net book value as at 31 December 2010
07
Freehold land Buildings on freehold land Railway siding Plant and machinery Catalysts Furniture, fittings and equipment Data processing equipment Motor vehicles 2010
250,657 29,516 23 1,431,261 30,952 28,260 14,349 86,690 1,871,708
2011 Rupees in '000
17.1
Reconciliation of net book value of Assets of Retained Undertakings
Opening cost as at 01 January 2010 Accumulated Depreciation as at 01 January 2010 Opening NBV as at 01 January 2010 Less: Transferred to Fertilizer Undertaking Opening NBV retained as at 01 January 2010
1.3
4,420,230 (2,548,522) 1,871,708 (1,826,671) 45,037
Note 17.2 The depreciation charge for the year has been allocated as follows: Cost of sales Distribution expenses Administrative expenses 17.3 17.4
2011 2010 Rupees in '000
6,662 6,662
182,535 4,035 20,938 207,508
Property, plant and equipment that are fully depreciated amounts to Rs. 25.15 million (2010: Rs.1,076.19 million). Disposal of property, plant and equipment
Type of property, plant and equipment Sold to Original cost Accumulated Net book Sale depreciation value proceeds Mode of disposal
------------------Rupees in '000-----------------Motor vehicles Toyota Camry Toyota Corolla Honda Civic Data Processing Equipment Panasonic Copier-FP7830 Notebook Toshiba Portage Shirazi Trading O&A Business Machines 345 190 341 15 4 175 14 190 Negotiation Trade in Employees Mr. Isar Ahmad Mr. Humayun Javed Khan Mr. Anis Dayala 4,150 1,430 1,070 2,351 690 1,058 1,799 740 12 2,390 1,019 267 As per Company policy As per Company policy As per Company policy
Aggregate of other items of property, plant and equipment with individual book values not exceeding Rupees 50,000
66 7,251
65 4,520
1 2,731
1 3,881
Negotiation
Note 18 Long term investments Investment in subsidiary company Investment in associate 18.1 Investment in subsidiary company DH Fertilizers Limited - Unquoted 100,000,000 ordinary shares of Rs.10 each Percentage of equity held 100% 18.1 18.2
2011 2010 Rupees in '000
1,615,119 16,820,499 18,435,618
19,289,962 19,289,962
1.4
1,615,119

85

For the year ended 31 December 2011 Note 18.2 Investment in associate Engro Corporation Limited - Quoted 130,778,890 (2010: 113,620,371) ordinary shares of Rs. 10 each Transferred to Fertilizer Undertaking Percentage of equity held - 33.25% (2010: 38.13%) 19,289,962 (2,469,463) 16,820,499 19,289,962 19,289,962 2011 2010 Rupees in '000
1.3
18.2.1 Under the Scheme of Arrangement, 16 million ordinary shares of Engro Corporation Limited were transferred to DH Fertilizers Limited and the balance 108,982,408 shares were retained herein with the Company as referred to in note 1.2. Subsequent to 01 January 2011, the Company recieved 21,796,482 bonus shares from Engro Corporation Limited. 18.2.2 Market value of investments in associate as at 31 December 2011 was Rs. 12,123 million (2010: Rs. 24,223 million). Note 19 Loans, advances, deposits, prepayments and other receivables These are unsecured and considered good: Advances to suppliers for goods and services Advances and loans: Executives Employees Prepayments Deposits Due from subsidiary company - DH Fertilizers Limited Insurance claim receivable Others 19.1 19.2 19.1 368 681 892 1,941 26,220 6,718 9,510 3,143 2,109 6,121 16,347 19,141 89,309 2011 2010 Rupees in '000
Chief Executive and directors have not taken any loan/advance from the Company (2010: Rs. Nil). Corresponding amount of loans,advances, deposits, prepayments and other receiveables include Rs. 80.01 million transferred to the Ferilizer Undertaking (notes 1.2 & 1.3)
86
Annual Report 2011
07
Note 20 Short term investments Available for sale Financial assets at fair value through profit or loss 20.1 Available for sale - Quoted Sui Northern Gas Pipelines Limited - Related party Southern Electric Power Company Limited - Others 20.1.1 Sui Northern Gas Pipelines Limited 20.1.1 20.1.2 20.1 20.2
2011 2010 Rupees in '000
2,536 969,282 971,818
1,879,401 560,530 2,439,931
2,536 2,536
1,871,322 8,079 1,879,401
69,982,155 shares of Sui Northern Gas Pipelines Limited having carrying value of Rs. 1,871.322 thousand were transferred to the Fertilizer Undertaking (note 1.3). Note 20.1.2 Southern Electric Power Company Limited 3,622,900 (2010: 3,622,900) ordinary shares of Rs.10 each - at cost Percentage of equity held: 2.65% (2010: 2.65%) Less: Cumulative Impairment loss 20.2 Financial assets at fair value through profit or loss ABL Income Fund 18,242,324 (2010: 2,917,016) units of Rs. 10 each Adjustment arising from measurement to fair value Meezan Cash Fund-Growth Units 4,163,996 (2010: 4,199,685) units of Rs. 50 each Adjustment arising from measurement to fair value UBL Liquidity Plus Fund-Class C 2,960,961 (2010: 800,447) units of Rs. 100 each Adjustment arising from measurement to fair value ABL Cash Fund 27,952,179 (2010: 24,075,792) units of Rs. 10 each Adjustment arising from measurement to fair value 166,198 16,561 182,759 187,966 20,817 208,783 270,202 27,329 297,531 250,502 29,707 280,209 969,282 27,870 1,328 29,198 208,979 1,174 210,153 80,000 202 80,202 240,000 977 240,977 560,530 68,431 65,895 2,536 68,431 60,352 8,079 2011 2010 Rupees in '000

87

For the year ended 31 December 2011 Note 21 Cash and bank balances With banks: On current accounts In deposit account -local currency -foreign currency Cash in hand 21.1 21.2 435,195 435,195 250 435,445 3,605 1,245,327 686 1,246,013 645 1,250,263 2011 2010 Rupees in '000
21.1
These carry mark up at the rate ranging from 5% to 11 % per annum (2010: 5% to 10.5%). The corresponding amount of cash and bank balances include Rs. 866.31 million transferred to the Fertilizer Undertaking (note 1.3). Note 2011 2010 Rupees in '000 Cash flow from operating activities Profit before tax Adjustment for non cash expenses and other items: Depreciation Finance cost Profit on sale of property, plant and equipment Profit on sale of short term investments Unrealized (gain) due to fair value adjustment of investment at fair value through profit or loss Impairment loss on available for sale investments Dividend income Provision for staff retirement and other service benefits Profit on time deposits Cash flow from operations before working capital changes Working capital changes Decrease in current assets: Stocks, stores and spares Trade debtors Loans, advances, prepayments and other receivables Increase in current liabilities: Trade and other payables Cash generated from operations 638,798 6,662 17 (1,150) (10,750) (94,414) 5,543 (741,080) 6,618 (12,482) (841,036) (202,238) 2,968,903 207,508 909,596 (12,392) (183,462) (3,681) 2,391 (867,134) 31,901 (63,218) 21,509 2,990,412
22
7,357 3,071 10,428 (191,810)
96,924 7,897 3,413 44,135 152,369 3,142,781
88
Annual Report 2011
07
23
Remuneration of Chief Executive, Directors and Executives

2011 Chief Directors Executives Executive ----------Rupees in '000-----------Managerial remuneration Retirement benefits including ex-gratia Rent and utilities Leave fare assistance Medical 19,182 182 1,104 919 21,387 2 52,542 2,696 969 524 56,731 2 38,474 2,561 3,959 1,543 46,537 19 2010 Chief Directors Executives Executive ----------Rupees in '000-----------8,470 30,585 3,760 24 42,839 1 31,955 24,617 18,525 298 1,417 76,812 6 173,283 19,731 56,677 6,646 256,337 98
Number of employees (including those who worked part of the year).
Two Chief Executives (2010: two), 02 Directors (2010: six) and some of the Executives of the Company are provided with cars owned and maintained by the Company. Meeting fees amounting to Rs. 5 million (2010: Rs. 2.60 million) were paid to six Directors (2010: five Directors). Note 24 24.1 Earnings per share Basic and diluted Profit after taxation Weighted average number of ordinary shares Earnings per share- basic Rupees in thousand No. of shares Rupees 560,798 2,148,530 2011 2010 Restated
481,287,116 481,287,116 1.17 4.46

89

For the year ended 31 December 2011 25 Financial instruments The Company has exposure to the following risks from its use of financial instruments.: Credit risk Liquidity risk Market risk
The Board of Directors have the overall responsibility for the establishment and oversight of Companys risk management framework. The Board is also responsible for developing and monitoring the Company's risk management policies. This note presents information about the Companys exposure to each of the above risks, the Companys objectives, policies and processes for measuring and managing risk and the Companys management of capital. The Company's risk management policies are established to identify and analyse the risks faced by the Company to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to react to changes in market conditions and the Company's activities. 25.1 Credit risk Credit risk is the risk of accounting loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company's receivables from banks financial institution on account of return on deposits and due from related parties. The Company's exposure to credit risk is influenced mainly by the individual characteristics of each of the party. To manage exposure to credit risk in respect of receivables, management reviews credit ratings, total deposits worthiness, and maturities of the investments made, past experience and other factors. Concentration of credit risk arises when a number of counter parties are engaged in similar business activities or have similar economic features that would cause their abilities to meet contractual obligation to be similarly effected by the changes in economic, political or other conditions. The maximum exposure to credit risk at the reporting date is: Note Available for sale financial assets Financial assets at fair value through profit and loss Long term loans, advances and deposits and other receiveables Trade debts Bank balances 2011 2010 Rupees in '000 2,536 969,282 435,195 1,407,013 1,879,401 560,530 31,914 2,131 1,249,618 3,723,594
The Company believes that it is not exposed to major concentration of credit risk.
90
Annual Report 2011
07
Available for sale financial assets comprise of ordinary shares of Southern Electric Power Company Limited listed on the Stock Exchanges. Financial assets at fair value through profit and loss comprise of investments in Open End money market Mutual Funds. The credit rating of the financial assets can be assessed with reference to their historical performance with no or negligible defaults in recent history, however, no losses were incurred. The credit quality of the Company`s liquidity can be assessed with reference to external credit ratings as follows: Bank Bank Al- Habib Limited Barclays Bank PLC - Pakistan Open End Mutual Funds ABL income fund ABL cash fund Meezan cash fund UBL liquidity plus fund 25.2 Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions. For this purpose the Company has sufficient liquid funds available to meet its liquidity requirements. Further liquidity position of the Company is closely monitored through budgets, cash flow projections and comparison with actual results by the Board. Following is the maturity analysis of financial liabilities:
Carrying Contractual Six months Six to twelve One to two Two to five Amount Cash Flows or less months years years -----------------------------------Rupees in '000-----------------------------------
Rating agency PACRA Standard & Poors Rating agency JCR-VIS JCR-VIS JCR-VIS JCR-VIS
Rating Short term Long term A1+ A1+ AA+ AA-
Rating Long term Short term A+ AA+ AM2 AA+
Non derivative financial liabilities Trade and other payables 2011
14,318 14,318
14,318 14,318
14,318 14,318

91

Carrying Contractual Six months Six to twelve One to two Two to five Amount Cash Flows or less months years years -----------------------------------Rupees in '000----------------------------------
Non derivative financial liabilities Short term financing - secured Long term Loan Trade and other payables Accrued markup 2010
45,725 5,702,500 481,847 232,983 6,463,055
47,257 6,808,779 481,847 232,983 7,570,866
47,257 162,270 1,070,831 5,575,678 481,847 232,983 924,357 1,070,831 5,575,678
25.3
Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. The financial instruments carrying market risks in respect of foreign currency fluctuations and interest rates fluctuations have been transferred to the Fertilizer Undertaking (note 1.2 & 1.3).
25.3.1 Equity price risk Equity price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk). Equity price risk arises from available-for-sale equity securities held. Material investments within the portfolio are managed on an individual basis and all buy and sell decisions are approved by the Board. The primary goal of the Company's investment strategy is to maximise investment returns. Sensitivity analysis: A 10% increase/decrease in share prices at year end would have decreased / increased the surplus on re-measurement of investments (fair value reserve) on 'available for sale' investments as follows: Note Effect on Equity Effect on profit and loss account 2011 2010 Rupees in '000 254 187,132 808
A 10% increase/decrease in share prices at year end does not affect equity (fair value reserve) because in both cases fluctuation in share prices is significantly below cost of purchase and would have been charged to profit and loss account as impairment.
92
Annual Report 2011
07
25.4
Fair value of financial instruments The carrying values of all other financial assets and financial liabilities reported in the balance sheet approximate their fair values. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arms length transaction. The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements: Level 1: Quoted market price (unadjusted) in an active market for an identical instrument. Level 2: Valutation techniques based on observation inputs, either directly (i.e.as prices) or indirectly (i.e derived from prices) Level 3: Valuation techniques using significant un-observable inputs.
Investments in ordinary shares of listed companies is valued using quoted prices in active market, hence, fair value of such investments fall within level 1 in fair value hierarchy as mentioned above, whereas the investments in mutual funds fall within level 2. 25.5 Capital management The Boards policy is to maintain an efficient capital base so as to maintain investor, creditor and market confidence and to sustain the future development of its business. The Board of Directors monitors the return on capital employed, which the Company defines as operating income divided by total capital employed. The Board of Directors also monitors the level of dividends to ordinary shareholders. The Company's objectives when managing capital are: (i) (ii) 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 to provide an adequate return to shareholders.
The Company manages the capital structure in the context of economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Company may, for example, adjust the amount of dividends paid to shareholders, issue new shares,or sell assets to reduce debt. The Company monitors capital on the basis of the debt-to-equity ratio - calculated as a ratio of total debt to equity.

93

For the year ended 31 December 2011 The debt-to-equity ratios as at 31 December 2011 and at 31 December 2010 were as follows: Note 2011 2010 Rupees in '000 (435,445) (435,445) 19,849,039 0% 5,748,225 (1,250,263) 4,497,962 19,544,328 23%
Total debt Less: Cash and Cash equivalents Net Debt Total equity Debt -to -equity ratio
All the debts of the Company were pertaining to the Fertilizer business and accordingly have been transferred to the Fertilizer Undertaking under the Scheme of Arrangement (note 1.2 & 1.3). 26 Related party transactions The related parties comprise subsidiary company, 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: Note Subsidiary Company Reimbursement of expenses made by the company Reimbursement of expenses made to the company Associated company Sale of goods and services Purchase of goods and services Dividend Income Dividend Income Reimbursement of expenses from related party Reimbursement of expenses to related party Other related parties Gratuity funds Provident funds Key management personnel Sale of fixed assets 2011 2010 Rupees in '000 52,262 5,211 12,358 741,080 948 81 2,291 4,902 3,676 6,121 14,400 2,348,821 867,134 16,347 4,757 4,582 18,930 28,892 -
94
Annual Report 2011
07
Consolidated Financial Statements
+ 92 (42) 3585 0471-76 + 92 (42) 3585 0477 www.kpmg.com.pk
Auditors Report to the Members

We have audited the annexed consolidated financial statements of Dawood Hercules Corporation Limited (formerly Dawood Hercules Chemicals Limited) ("the Holding Company") and its Subsidiary Company DH Fertilizers Limited (herein after referred as "the Group") comprising consolidated balance sheet as at 31 December 2011 and the related consolidated profit and loss account, consolidated statement of comprehensive income, consolidated cash flow statement and consolidated statement of changes in equity, together with the notes forming part thereof, for the year then ended. We have also expressed separate opinion on the standalone financial statements of the holding company and its subsidiary company. These consolidated financial statements are the responsibility of the Holding Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards requires that we plan and perform the audit to obtain reasonable assurance about whether the above said statements are free of any material mistatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the above said statements. An audit also includes assessing the accounting policies and significant estimates made by the management, as well as, evaluating the overall presentation of the above said statements. We believe that our audit provides a reasonable basis for our opinion. In our opinion the consolidated financial statements present fairly the consolidated financial position of the Group as at 31 December 2011 and the consolidated results of their operations, their consolidated statement of comprehensive income, their consolidated cash flows statement and consolidated statement of changes in equity for the year then ended in accordance with the approved accounting standards as applicable in Pakistan.
Lahore Date: 15 February 2012
KPMG Taseer Hadi & Co. Chartered Accountants (Bilal Ali)

97
Notes to the Consolidated Financial Statements

For the year ended 31 December 2011 1 1.1 Legal status and nature of business Dawood Hercules Corporation Limited (Formerly Dawood Hercules Chemicals Limited) is a public limited company. It was incorporated in Pakistan under the Companies Ordinance, 1984 and is listed on Karachi, Lahore and Islamabad Stock Exchanges. The principal activity of the Holding Company, consequent to the demerger (note 1.2), is to manage investments in associated company and subsidiary company which is engaged in the production, purchase and sale of fertilizers. The registered office of the Company has been changed from the province of Punjab to the province of Sindh in September 2011 and is situated at 11 Floor, Dawood Center, M.T. Khan Road, Karachi. The Board of Directors in their meeting on 16 June 2010 decided to divide the Company into two companies by separating its Fertilizer Undertaking from the rest of the undertaking, that is to be retained in the Holding Company (Retained Undertaking). In this regard a wholly owned subsidiary named DH Fertilizers Limited (subsidiary company) was incorporated on 02 August 2010. The division was effected on 01 January 2011 (the Effective Date) through a Scheme of Arrangement (the 'Scheme') under Section 284 to 288 of the Companies Ordinance, 1984,which was approved by the Honorable Lahore High Court on 23 July 2011, whereby: (a) (b) the fertilizer undertaking has been transferred and vested in DH Fertilizers Limited against the issuance of ordinary shares of DH Fertilizers Limited; and the retention of Retained Undertaking in the Company along with the change of name of Company to Dawood Hercules Corporation Limited. Dawood Hercules Corporation Limited henceforth will function as a Holding Company to oversee the business of new fertilizer subsidiary.
1.2
1.3
The Group consists of : Holding Company: Dawood Hercules Corporation Limited ( Formerly Dawood Hercules Chemicals Limited). Subsidiary Company: DH Fertilizers Limited (the Company) is a public unlisted company incorporated on 2 August 2010 in Pakistan under the Companies Ordinance, 1984, as a wholly owned subsidiary of the Holding Company. The Company is engaged in the business of production, purchase and sale of fertilizers. The registered office of the Company is situated at 35-A, Shahrahe-Adbul-Hameed-BinBadees (Empress Road), Lahore.
2 2.1
Basis of preparation Statement of compliance These consolidated financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board as are notified under the 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.
104
Annual Report 2011
07
2.2
New standards, amendments and interpretations issued but are effective for annual periods begining on or after 1 January 2012 and not early adopted The following standards, amendments and interpretations of approved accounting standards are effective from the dates specified below and are either not relevant to the Group's operations or are not expected to have significant impact on the consolidated financial statements other than certain increased disclosures: Amendments to IAS 12 deferred tax on investment property (effective for annual periods beginning on or after 1 January 2012). The 2010 amendment provides an exception to the measurement principle in respect of investment property measured using the fair value model in accordance with IAS 40 Investment Property. The measurement of deferred tax assets and liabilities, in this limited circumstance, is based on a rebuttable presumption that the carrying amount of the investment property will be recovered entirely through sale. The presumption can be rebutted only if the investment property is depreciable and held within a business model whose objective is to consume substantially all of the assets economic benefits over the life of the asset. The amendment has no impact on financial statements of the Group. IAS 27 Separate Financial Statements (2011) - (effective for annual periods beginning on or after 1 January 2013). IAS 27 (2011) supersedes IAS 27 (2008). Three new standards IFRS 10 Consolidated Financial Statements, IFRS 11- Joint Arrangements and IFRS 12- Disclosure of Interest in Other Entities dealing with IAS 27 would be applicable effective 01 January 2013. IAS 27 (2011) carries forward the existing accounting and disclosure requirements for separate financial statements, with some minor clarifications. The amendments have no impact on financial statements of the Group. IAS 28 Investments in Associates and Joint Ventures (2011) - (effective for annual periods beginning on or after 1 January 2013). IAS 28 (2011) supersedes IAS 28 (2008). IAS 28 (2011) makes the amendments to apply IFRS 5 to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held for sale; and on cessation of significant influence or joint control, even if an investment in an associate becomes an investment in a joint venture. The amendments have no impact on financial statements of the Group. IAS 19 Employee Benefits (amended 2011) - (effective for annual periods beginning on or after 1 January 2013). The amended IAS 19 includes the amendments that require actuarial gains and losses to be recognized immediately in other comprehensive income; this change will remove the corridor method and eliminate the ability for entities to recognize all changes in the defined benefit obligation and in plan assets in profit or loss, which currently is allowed under IAS 19; and that the expected return on plan assets recognized in profit or loss is calculated based on the rate used to discount the defined benefit obligation. Presentation of Items of Other Comprehensive Income (Amendments to IAS 1) - (effective for annual periods beginning on or after 1 July 2012). The amendments require that an entity present separately the items of other comprehensive income that would be reclassified to profit or loss in the future if certain conditions are met from those that would never be reclassified to profit or loss. The amendments do not address which items are presented in other comprehensive income or which items need to be reclassified. The requirements of other IFRSs continue to apply in this regard. The amendments have no impact on financial statements of the Group.

105

For the year ended 31 December 2011 Disclosures Transfers of Financial Assets (Amendments to IFRS 7) - (effective for annual periods beginning on or after 1 July 2011). The amendments introduce new disclosure requirements about transfers of financial assets, including disclosures for financial assets that are not derecognized in their entirety; and financial assets that are derecognized in their entirety but for which the entity retains continuing involvement. The amendments have no impact on financial statements of the Group. Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) (effective for annual periods beginning on or after 1 January 2014). The amendments address inconsistencies in current practice when applying the offsetting criteria in IAS 32 Financial Instruments: Presentation. The amendments clarify the meaning of currently has a legally enforceable right of set-off; and that some gross settlement systems may be considered equivalent to net settlement. Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) (effective for annual periods beginning on or after 1 January 2013). The amendments to IFRS 7 contain new disclosure requirements for financial assets and liabilities that are offset in the statement of financial position or subject to master netting agreement or similar arrangement. IFRIC 20 - Stripping cost in the production phase of a surface mining (effective for annual periods beginning on or after 01 January 2013). The interpretation requires production stripping cost in a surface mine to be capitalized if certain criteria are met. The amendments have no impact on financial statements of the Group. There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group. 3 3.1 Basis of measurement These consolidated financial statements have been prepared on the basis of historical cost convention, except for revaluation of certain financial instruments at fair value and recognition of certain employee retirement benefits at present value. The preparation of consolidated financial statements in conformity with approved accounting standards requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated 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 judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimates are recognized in the period in which the estimate is revised if the revision affect only that period, or in the period of revision and future periods if the revision affects both current and future periods. The areas where various assumptions and estimates are significant to consolidated financial statements or where judgments were exercised in application of accounting policies are:
3.2
106
Annual Report 2011
07
retirement and other benefits residual value and useful life of depreciable assets provision for taxation provisions and contingencies
Note 4.3 4.4 4.7 4.14
Significant accounting policies The significant accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.
4.1
Basis of Consolidation These consolidated financial statements include the financial statements of DHCL and its wholly owned subsidiary DH Fertilizers Limited (DHFL), referred to as "the Group". Subsidiary Subsidiaries are those enterprises in which parent company directly or indirectly controls, beneficially owns or holds more than 50% of the voting securities or otherwise has power to elect and appoint more than 50% of its directors. The financial statements of the subsidiary are included in the consolidated financial statements from the date control commences until the date that control ceases. The assets and liabilities of subsidiary company have been consolidated on a line by line basis and the carrying value of investment held by the parent company is eliminated against parent company's share in paid up capital of the subsidiary. Material intra-group balances and transactions have been eliminated.
4.2
Revenue recognition 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 with the transaction will flow to the Group and the amount of revenue, and the associated cost incurred, or to be incurred, can be measured reliably. Revenue from sale of goods is recognized when the significant risk and rewards of ownership of the goods are transferred to the buyer. Return on deposits is accrued on a time proportion basis by reference to the principal outstanding and the applicable rate of return. Dividend income is recognized as income when the right of receipt is established.

107

For the year ended 31 December 2011 4.3 Retirement and other benefits Defined benefit plan- Gratuity The Group operates an approved funded defined benefit gratuity plan for management staff having a service period of more than five years. Provisions are made in the Group financial statements to cover obligations on the basis of actuarial valuations carried out annually. The most recent valuation was carried out on 31 December 2011 using the "Projected Unit Credit Method". The amount recognized in balance sheet represents the present value of the defined benefit obligation net off fair value of plan assets as on 31 December 2011 as adjusted for unrecognized actuarial gains and losses. Cumulative net unrecognized actuarial gains and losses at the end of the previous year which exceed 10% of the greater of the present value of the Group obligations and the fair value of plan assets are amortized over the expected average working lives of the participating employees. Accumulated Compensated absences Provisions are made annually to cover the obligation for accumulating compensated absences based on actuarial valuation and are charged to profit and loss. The most recent valuation was carried out on 31 December 2011 using the "Projected Unit Credit Method". The amount recognized in the balance sheet represents the present value of the defined benefit obligations. Actuarial gains and losses are charged to income immediately in the period when these occur. Other benefits Defined contribution plan The Subsidiary Company maintains a defined contributory Gratuity Fund for its non-management staff. Monthly contributions are made to the fund by the Subsidiary Company as per agreement with the Union. Provident Fund The Group also operates approved contributory provident funds for all employees. Equal contribution is made both by employees and the Group. The funds are administrated by the Trustees. 4.4 Fixed capital expenditure Property, plant and equipment Property, plant and equipment except freehold land are stated at cost less accumulated depreciation and any identified impairment loss. Freehold land is stated at cost less any identified impairment loss.
108
Annual Report 2011
07
The Group provides depreciation under the "straight line method" so as to write off the historical cost of the asset over its estimated useful life at the following rates: Buildings on freehold land Railway siding Plant and machinery Furniture Fittings and equipment Motor vehicles Data processing equipment Catalysts Percentage % 5 5 7.5 10 12.5 20 33.33 10 to 50
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. Assets residual values' and useful lives' are reviewed at each financial year end and adjusted if impact on depreciation is significant. 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 of disposal. The Group assesses at each balance sheet date whether there is any indication that property, plant and equipment may be impaired. If such indication exists, the carrying amounts of such assets are reviewed to assess whether they are recorded in excess of their recoverable amount. Where carrying values exceed the respective recoverable amount, assets are written down to their recoverable amounts and the resulting impairment loss is recognized in income currently. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. Where an impairment loss is recognized, the depreciation charge is adjusted in the future periods to allocate the asset's revised carrying amount over its estimated useful life. Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repair and maintenance costs are charged to income during the period in which they are incurred. The initial catalysts cost in Ammonia plant was capitalized with plant and machinery whereas costs of subsequent replacement of such catalysts are separately included in property, plant and equipment and depreciated over their estimated useful life. The gain or loss on disposal or retirement of an asset represented by the difference between the sale proceeds and the carrying amount of the asset is recognized as an income or expense. Capital work-in-progress Capital work in progress is stated at cost less any identified impairment loss and represents expenditure incurred on property, plant and equipment during the construction and installation. Cost also includes applicable borrowing costs. Transfers are made to relevant property, plant and equipment category as and when assets are available for use.

109

For the year ended 31 December 2011 4.5 Inventories Inventories are valued at lower of cost and net realizable value. Cost is determined as follows: Raw material Materials in process Finished goods Stores, spares and loose tools at moving average cost at average cost at average cost at moving average cost. Items which are identified as slow moving and are surplus to the Subsidiary Company's requirements are written down to their estimated net realizable value. Stores and spares in transit at cost, comprising invoice value plus other charges incurred thereon.
Cost of work in process and finished goods comprises of cost of direct materials, labour and appropriate manufacturing overheads. Net realizable value signifies the estimated selling price in the ordinary course of business less costs of completion and selling expenses. 4.6 Foreign currencies All monetary assets and liabilities in foreign currencies are translated into rupees at exchange rates prevailing at the balance sheet date. Transactions in foreign currencies are translated into rupees at exchange rates prevailing at the date of transaction. Non-monetary assets and liabilities that are measured in terms of historical cost in 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 into rupees at exchange rates prevailing at the date when fair values are determined. Exchange gains and losses are included in the income currently. 4.7 Taxation Income tax expense comprise current and deferred tax. Income tax is recognized in profit and loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current Provision of current tax is based on the taxable income for the year determined in accordance with the prevailing law for taxation of income. The charge for current tax is calculated using prevailing tax rates or tax rates expected to apply to the profit for the year if enacted after taking into account tax credits, rebates and exemptions, if any. The charge for current tax also includes adjustments, where considered necessary, to provision for tax made in previous years arising from assessments framed during the year for such years.
110
Annual Report 2011
07
Deferred Deferred tax is accounted for using the balance sheet liability method in respect of all temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of the taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, unused tax losses and tax credits can be utilized. Deferred tax assets and liabilities are calculated at the rates that are expected to apply to the period when the asset is realized or the liability is settled, based on the tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited to the income statement, except in the case of items credited or charged to equity in which case it is included in equity. 4.8 Investments Investment in associate Associates are those entities in which the Group has significant influence and which is neither a subsidiary nor a joint venture of the Group. The consolidated financial statements of the Group include the group's share of the income and expenses of the associate accounted for under equity method, after adjustments, if required, to align the accounting policies of associate with those of the Group from the date when significant influence is established until the date when that significant influence ceases. When the Group'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 further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. Unrealized gains arising from transactions, if any, with the associate accounted for under equity method are eliminated against the investment to the extent of the Group's interest in the associate. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. Available for sale investments Investments which are intended to be held for an indefinite period of time but may be sold in response to the need for liquidity are classified as available for sale. Available for sale investments are recognized initially at cost being the fair value of the consideration given plus any directly attributable transaction costs. After initial recognition and at each reporting date, these are stated at fair values unless fair values can not be measured reliably, with any resulting gains and losses being taken directly to equity until the investment is disposed or impaired. At the time of disposal, the respective surplus or deficit is transferred to income currently. Fair value of quoted investments is their bid price on Karachi Stock Exchange at the balance sheet date. Unquoted investments, where active market does not exist, are carried at cost as it is not possible to apply any other valuation methodology.

111

For the year ended 31 December 2011 Investments intended to be held for less than twelve months from the balance sheet date or to be sold to raise operating capital, are included in current assets, all other investments are classified as noncurrent. Management determines the appropriate classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. All purchases and sales of investments are recognized on the trade date which is the date that the Group commits to purchase or sell the investment. Investments at fair value through profit or loss Investments which are acquired principally for the purpose of generating profits from short term fluctuations in price or dealer margins are classified as Investments at fair value through profit and loss these are initially recognized on trade date at cost being the fair value of the consideration given and derecognized by the Group on the date it commits to sell them off. Transaction costs are charged to profit and loss account as and when incurred. At each balance sheet date, fair value is determined on the basis of year-end bid prices obtained from stock exchange quotations or NAV declared by the respective investee company and publicly available. Any resultant increase/(decrease) in fair value is recognized in the profit and loss account for the year. 4.9 Financial assets and liabilities Financial assets and liabilities are recognized when the Group becomes a party to the contractual provisions of the instrument. All financial assets and liabilities are initially measured at cost, which is the fair value of the consideration given and received respectively. These financial assets and liabilities are subsequently measured at fair value, amortized cost or cost, as the case may be. The particular measurement methods adopted are disclosed in the individual policy statements associated with each item. The Group derecognizes the financial asset and financial liability when it ceases to be a party to such contractual provisions of the instrument. 4.10 Offsetting of financial assets and liabilities A financial asset and a financial liability is offset and the net amount is reported in the balance sheet if the Group has a legally enforceable right to set-off the recognized amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. 4.11 Trade debts Trade debts are recognized initially at original invoice amount which is the fair value of consideration to be received in future and subsequently measured at amortized cost less an estimate made for doubtful debts based on a review of all outstanding amounts at the year end. A provision for impairment of trade debts is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. Bad debts are written off when identified. 4.12 Cash and cash equivalents 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.
112
Annual Report 2011
07
4.13
Trade and other payables Liabilities for trade and other amounts payable are initially recognized at cost which is the fair value of the consideration to be paid in future for goods and services and subsequently at amortized cost using effective interest rate method.
4.14
Provisions Provisions are recognized when the Group has a legal or constructive obligation as a result of past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made. However, provisions are reviewed at each balance sheet date and adjusted to reflect current best estimate.
4.15
Borrowing costs Mark-up, interest and other charges on borrowings are capitalized up to the date of commissioning of the related property, plant and equipment acquired out of the proceeds of such borrowings. All other mark-up, interest and other charges are charged to income in the period in which they are incurred.
4.16
Impairment The Group assesses at each balance sheet date, whether there is any indication that asset may be impaired. If such an indication exists, the carrying amount of such assets is reviewed to assess whether they are recorded in excess of their recoverable amount. Where carrying values exceed their respective recoverable amounts, assets are written down to their recoverable amount and resulting impairment loss is recognized in income currently. The recoverable amount is higher of an assets fair value less costs to sell and value in use.
4.17
Earnings per Share The Company presents basic and diluted earning per share (EPS) for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shares outstanding, for the effects of all dilutive potential ordinary shares.
4.18
Dividend Dividend distribution to the Company's shareholders is recognized as a liability in the period in which the dividends are approved by the Company's shareholders.

113

For the year ended 31 December 2011 Note 5 Sales - net Own manufactured Less: Sales tax Purchased product Less: Sales tax 5,340,294 643,831 4,696,463 1,871,266 258,105 1,613,161 6,309,624 6 Cost of sales Raw and packing materials consumed Fuel and power Catalysts and chemicals Salaries, wages, benefits and staff welfare Stores and spares consumed Repairs and maintenance Travel and conveyance Rent, rates and taxes Insurance Depreciation Communication, stationery and office supplies Health and safety consultancy charges Other expenses Add: Opening stock of work-in-process Less: Closing stock of work-in-process Cost of goods manufactured Add: Opening stock of finished goods Less: Closing stock of finished goods Cost of sales - Own manufactured Purchased product 6.1 Raw and packing materials consumed Opening stock Add: Purchases Less: Closing stock 25 10,078 687,294 697,372 18,357 679,015 14,700 1,576,627 1,591,327 10,078 1,581,249 6.1 6.2 679,015 468,726 53,546 529,738 380,524 38,719 63,905 260 15,822 173,669 3,576 24,921 5,768 2,438,189 7,657 (9,612) 2,436,234 198,382 (122,140) 2,512,476 1,531,397 4,043,873 1,581,249 939,352 109,294 560,483 470,136 167,286 63,594 1,873 25,215 182,535 2,836 25,664 4,486 4,134,003 10,367 (7,657) 4,136,713 58,218 (198,382) 3,996,549 1,217,827 5,214,376 7,357,562 25,294 7,332,268 1,383,443 1,383,443 8,715,711 2011 2010 Rupees in '000
20.1
25
25
114
Annual Report 2011
07
6.2
Salaries, wages, benefits and staff welfare include Rs. 15.09 million (2010: Rs. 12.23 million) in respect of contribution to gratuity funds and Rs. 19.58 million (2010: Rs. 19.16 million) in respect of provident funds. Note 2011 2010 Rupees in '000
Distribution expenses Product transportation and handling cost Salaries, wages, benefits and staff welfare Communication, stationery and office supplies Rent, rates and taxes Travel and conveyance Repairs and maintenance Depreciation Insurance Sales promotion, advertising and market development Legal and professional charges Other expenses 7.1 24,525 31,494 1,087 1,391 1,019 386 3,188 241 3,689 20 251 67,291 132,320 67,114 2,257 4,617 1,795 1,605 4,035 406 53,542 33 267,724
20
7.1
Salaries, wages, benefits and staff welfare include Rs. 0.99 million (2010: Rs. 0.44 million) in respect of gratuity funds and Rs. 1.48 million (2010: Rs. 0.41 million) in respect of provident funds. Note 2011 2010 Rupees in '000
Administrative expenses Salaries, wages, benefits and staff welfare Communication, stationery and office supplies Rent, rates and taxes Travel and conveyance Repairs and maintenance Depreciation Legal and professional charges Insurance Donations Other expenses 8.1 246,630 51,652 30,024 21,525 24,683 16,990 11,898 2,433 1,433 10,841 418,109 253,297 45,459 30,190 22,996 23,920 20,938 20,207 1,708 1,574 11,710 431,999
20 8.2
8.1
Salaries, wages, benefits and staff welfare include Rs. 6.01 million (2010: Rs. 6.26 million) in respect of contribution to staff gratuity funds and Rs. 9.64 million (2010: Rs. 9.32 million) in respect of provident funds.

115

For the year ended 31 December 2011 8.2 None of the Directors of the Group or any of their spouses have any interest in or are otherwise associated with any of the recipients of donations made by the Group during the year except for the Pakistan Centre for Philanthropy of which Mr. Hussain Dawood is a Board member. Note 9 Other operating expenses Workers' profits participation fund Workers' welfare fund Auditors' remuneration: Audit fee Half year review and other certifications Out of pocket expenses 18.3 59,163 22,000 800 250 89 82,302 94,856 20,000 750 175 85 115,866 2011 2010 Rupees in '000
The provision for workers' profits participation fund is based on profits caused by business and trade, and excludes other income in accordance with the law, as per legal advise. 2011 2010 Rupees in '000 10 Other operating income Income from financial assets: Realized gain on disposal of short term available for sale investments Realized gain on disposal of investments at fair value through profit or loss Unrealized gain due to fair value adjustment of investment at fair value through profit or loss Profit on bank deposits and others Income from related parties: Dividend income from Sui Northern Gas Pipelines Limited (SNGPL) Income from non-financial assets: Sale of scrap Profit on sale of property, plant and equipment Liabilities no longer payable written back Insurance claim - related party Other income 10,750 119,028 109,415 239,193 69,982 14,334 3,089 23,927 41,350 350,525 179,413 4,049 3,681 63,218 250,361 139,964 12,376 12,392 7,657 16,347 22,756 71,528 461,853
116
Annual Report 2011
07
Note 11 Finance cost Mark-up: Short term borrowings Long term loans Workers' profits participation fund Bank charges 12 Income tax expenses Current - for the year - prior year Deferred
2011 2010 Rupees in '000
18.3
19 810,047 746 17 810,829
68,803 840,340 453 909,596
466,000 272,598 738,598 2011 %
686,000 35,109 222,100 943,209 2010 %
12.1
Reconciliation of tax charge for the year Applicable tax rate Tax effect of amounts that are not deductible for tax purposes Tax effect of amounts exempt from tax Tax effect of amount taxed at lower rate Tax effect of associate 35.00 7.58 (1.25) (0.48) (20.52) 20.33 35.00 1.55 (1.56) (0.83) (11.66) 22.50
13
Issued, subscribed and paid up capital 2011 2010 Number of shares 13,900,000 467,387,116 13,900,000 106,421,779 Ordinary shares of Rs. 10 each fully paid in cash Ordinary shares of Rs. 10 each issued as bonus shares 2011 2010 Rupees in '000 139,000 4,673,871 4,812,871 139,000 1,064,217 1,203,217
481,287,116 120,321,779

117

For the year ended 31 December 2011 2011 Number of shares 13.1 Reconciliation of Issued, subscribed and paid up capital Outstanding as at 01 January Bonus shares issued during the year Closing as at 31 December 13.2 Shares held by related parties Dawood Lawrencepur Limited Percentage of equity held 16.19% (2010: 16.19%) Dawood Corporation (Private) Limited Percentage of equity held 0.02% (2010: 0.02%) The Dawood Foundation Percentage of equity held 3.93% (2010: 3.95%) Cyan Limited (Formerly Central Insurance Company Limited) Percentage of equity held 1.82% (2010: 2.97%) Patek (Private) Limited Percentage of equity held 0.032% (2010: 0.032%) Sach International (Private) Limited Percentage of equity held 0.001% (2010: 0.001%) Note 14 Long term loans Participatory redeemable capital - secured Diminishing Musharaka Musharaka arrangement - Long term portion - Current portion Less: Redemption during the year 14.2 14.1 4,800,000 5,042,000 660,500 5,702,500 (5,702,500) 4,800,000 14.1 6,302,500 (660,500) 5,642,000 (600,000) 5,042,000 5,042,000 77,931,896 101,844 18,911,988 8,780,760 155,284 6,996 19,482,974 25,461 4,752,997 3,574,940 38,821 1,749 120,321,779 109,383,436 360,965,337 10,938,343 481,287,116 120,321,779 2010 Number of shares
2011 2010 Rupees in '000
During the year the Group through Meezan Bank Limited acting as an Investment Agent on behalf of participating banks entered into a Musharaka Agreement for a long term financial facility of Rs. 4,800 million based on Diminishing Musharaka. The facility was utilized towards redemption of existing
118
Annual Report 2011
07
Musharaka Arrangement under participatory redeemable capital (Islamic Sukuks). The participating banks along with their share is given below: No. of units Name of bank Meezan Bank Limited Allied Bank Limited Al Baraka Bank (Pakistan) Limited Bank Islami (Pakistan) Limited United Bank Limited Burj Bank Limited Total 21,000 5,000 5,000 7,000 5,000 5,000 48,000 Face value of consolidated units. Rs '000 2,100,000 500,000 500,000 700,000 500,000 500,000 4,800,000
14.1.1 The finance facility (Diminishing Musharaka) is for a period of 05 years inclusive of grace period of 02 years starting from the date of first drawdown i.e. 27 December 2011. The musharaka investment share of the financiers will be purchased by the Company in six equal semi annual installments in arrears. The first musharaka buyout will be due at the end of 30th month from the date of first drawdown. The facility is secured by a first charge equal to financiers musharaka share plus 25% margin on specific movable assets of the Subsidiary Company, ranking pari passu inter se the financiers and a corporate guarantee of Dawood Hercules Corporation Limited (Holding Company). The profit is payable semi annually in arrears at six month asked side KIBOR plus 110 bps. First profit payment will fall due and payable at the end of six months from the date of first drawdown. The repayment schedule is given below: No. of units to be purchased by investment agent 8,000 8,000 8,000 8,000 8,000 8,000 Buy-out payment amount (Rupees) 800,000,000 800,000,000 800,000,000 800,000,000 800,000,000 800,000,000 Balance units of Investment Agent 40,000 32,000 24,000 16,000 8,000 -
Months from 1st Musharaka Contribution Date 30 month due on 27 June 2014 36 months due on 27 December 2014 42 month due on 27 June 2015 48 months due on 27 December 2015 54 month due on 27 June 2016 60 month due on 27 December 2016
14.1.2 Under the terms of agreement, the Group carries a right to exercise call option to purchase all or any musharaka units at the applicable buyout price anytime after the expiry of two years from the first drawdown. Call option can be exercised by the Group after giving a prior notice of at least thirty days of its intention to purchase all or any number of units having face value of Rs. 100,000 per unit. 14.2 These have been fully redeemed during the year at face value of the units outstanding by exercising the call option available.

119

For the year ended 31 December 2011 Note 15 Deferred taxation Deferred liability arising due to accelerated depreciation allowance Deferred liability arising due to unrealized profits from associate Deferred (asset) arising in respect of provision for compensated absences 16 Staff retirement and other service benefits Defined benefit plan funded for management staff Compensated absences 16.1 Defined benefit plan funded for management staff Amounts recognized in the balance sheet are as follows: Present value of defined benefit obligation Fair value of plan assets Unrecognized actuarial losses Liability as at 31 December Net liability as at 01 January Charge to profit and loss account Contribution made by the Group Liability as at 31 December 16.1.1 Movement in liability for defined benefit obligation Present value of defined benefit obligation as at 01 January Current service cost Interest cost Benefits paid during the year Actuarial loss on present value of defined benefit obligation Present value of defined benefit obligation as at 31 December 143,455 13,749 18,649 (38,829) (2,880) 134,144 148,767 16,323 17,852 (40,280) 793 143,455 16.1.1 16.1.2 134,144 (101,138) (31,718) 1,288 20,727 19,439 40,166 143,455 (107,904) (35,551) 198 16,502 (16,700) 16.1 16.2 1,288 51,771 53,059 51,590 51,590 344,279 541,130 (16,292) 869,117 286,520 313,444 (18,056) 581,908 2011 2010 Rupees in '000
16.1.3
120
Annual Report 2011
07
2011 2010 Rupees in '000 16.1.2 Movement in fair value of plan assets Fair value of plan assets as at 01 January Expected return on plan assets Funds receivable from Workers Gratuity Fund Contributions made during the year Benefits paid during the year Actuarial (loss)/ gain on plan assets Fair value of plan assets as at 31 December Plan assets consist of the following: Funds placed under mark up arrangements with banks Investment company Funds receivable from Workers Gratuity Fund 16.1.3 Charge to profit and loss account Current service cost Interest cost Expected return on plan assets Contributions receivable from workers gratuity fund Actuarial loss recognized during the year 13,749 18,649 (14,028) 2,357 20,727 16,323 17,852 (12,741) (7,990) 3,058 16,502 107,904 14,028 19,439 (38,829) (1,404) 101,138 100,525 613 101,138 106,171 12,740 7,990 16,700 (40,280) 4,583 107,904 88,334 11,580 7,990 107,904
16.1.4 Actual return on plan assets of funded gratuity scheme was Rs. 12.625 million (2010: Rs. 17.323 million). 16.1.5 Historical information 2011 2010 2009 2008 2007 ------------------------Rupees in '000------------------------Present value of defined benefit obligation Fair value of plan assets Deficit in the plan Experience adjustment arising on plan liabilities Experience adjustment arising on plan assets 134,144 (101,138) 33,006 (2,880) (1,404) 143,455 (107,904) 35,551 793 4,583 148,767 (106,171) 42,596 16,577 (7,821) 112,044 (92,608) 19,436 2,113 10,857 101,938 (72,006) 29,932 11,129 (8,848)

121

For the year ended 31 December 2011 16.1.6 The Group expects to pay Rs. 20.344 million as contribution to defined benefit plan in 2012. 16.1.7 Assumptions used for valuation of the defined benefit schemes for management staff are as under: 2011
% per annum
2010
% per annum
Discount rate Expected rate of return on plan assets Expected rate of increase in salary
12.5 12.5 11.5
13.0 12.0 12.0
Average expected remaining working life time of management employees is 10 years . Note 16.2 Defined Contributory gratuity funded for non-management staff Balance as at 01 January Expenses recognized during the year Payments made during the year Balance as at 31 December 16.3 Compensated absences Balance as at 01 January Expenses recognized during the year Payments made during the year Balance as at 31 December 16.3.1 Movement in liability for defined benefit obligation Present value of defined benefit obligation as at 01 January Current service cost Interest cost Benefits paid during the year Actuarial loss on present value of defined benefit obligation Present value of defined benefit obligation as at 31 December 51,590 4,623 6,705 (3,530) (7,617) 51,771 44,397 4,921 5,328 (5,779) 2,723 51,590 16.3.3 16.3.1 51,590 3,711 (3,530) 51,771 44,397 12,972 (5,779) 51,590 2,652 (2,652) 2,428 (2,428) 2011 2010 Rupees in '000
122
Annual Report 2011
07
Note 16.3.2 Balance Sheet liability as on 31st December Present value of defined benefit obligations as on 31 December 16.3.3 Charge to profit and loss account Current service cost Interest cost Actuarial loss / (gains) charge
2011 2010 Rupees in '000
51,771
51,590
4,623 6,705 (7,617) 3,711
4,921 5,328 2,723 12,972
2011 2010 % per annum % per annum 16.3.4 Assumptions used for valuation are as under: Discount rate Expected rate of eligible salary increase in future years 12.5 11.5 13.0 12.0
2011 2010 Rupees in '000 17 Short term financing - secured Running finance 17.1 17.1 45,725
This represents short term running finance facility available from Habib Bank Limited (2010: Habib Bank Limited and Habib Metropolitan Bank Limited) under mark-up arrangement aggregating to Rs. 398 million (2010: Rs. 1,148 million) expiring on 30 April 2012 and carries mark-up at the rate of one month KIBOR plus 100 bps (2010: 1 month KIBOR plus 150 bps and 3 months KIBOR plus 75 bps respectively). This facility has been arranged to meet working capital requirements and secured by pledge of 20 million shares of SNGPL (2010: 20 million shares of SNGPL and 14.1 million shares of ECL respectively) held as investments by the Group. The market value of pledged shares as at 31 December 2011 was Rs. 314 million (2010: 1,658 million).

123

For the year ended 31 December 2011 Note 18 Trade and other payables Trade creditors Related parties Others 2011 2010 Rupees in '000
18.1
16,112 18,618 34,730 235,935 19,383 159,661 65,902 10,263 59,909 40,911 14,331 641,025
177,657 18,722 196,379 20,486 20,130 253,743 1,215 25,609 95,309 70,251 11,595 694,717
Advances from customers Unclaimed dividends Accrued expenses Sales tax payable Deposits Workers' profits participation fund Workers' welfare fund Others
18.2 18.3
18.1
This includes amount payable to SNGPL against purchase of sui gas amounting to Rs.15.20 million (2010: Rs. 177.61 million), M/s. Avanceon Limited Rs. 0.50 million (2010: Rs. 0.44 million) and M/s. Javed Akbar Associates Rs. 0.41 million (2010: Nil). The maximum amount due to related parties at the end of any month during the year was Rs. 178.06 million (2010: Rs. 248.037 million). The above deposits are interest free and repayable on demand or otherwise adjustable in accordance with the Group's policy. Note 2011 2010 Rupees in '000
18.2
18.3
Workers' profits participation fund Balance at the beginning of the year Add: Allocation for the year Interest on funds used 10 11 95,309 59,163 746 155,218 95,309 59,909 112,963 94,856 453 208,272 112,963 95,309
Less:
Amount paid to the fund
124
Annual Report 2011
07
2011 2010 Rupees in '000 19 19.1 Contingent liabilities and commitments Contingent liabilities There are no material contingencies as at the reporting date.
19.2
Commitments Commitments in respect of contracts for capital expenditure Commitments in respect of store purchases 246 57,500 54,355
In addition to the commitment mentioned above, during the year, the Holding Company (the Guarantor) issued a Corporate Guarantee to a syndicate of financial institution through Meezan Bank Limited (Investment Agent) to guarantee the liabilities of DH Fertilizers Limited - a subsidiary company with respect to Islamic Finance Facility (Diminishing Musharaka) amounting to Rs. 4,800 million. The guarantee issued shall in no event exceed an aggregate amount of Rs. 6,400 million. The facility is for a period of 5 years.

125
126
Cost As at 01 January 2011 -------------------Rupees in '000------------------------------------------Rupees in '000-----------------------Additions Disposals/ *adjustment As at 31 December 2011 Depreciation rate (% per annum) As at 01 January 2011 For the period Disposals/ *adjustment As at 31 December 2011 Net book value as at 31 December 2011 Accumulated depreciation
20
Property, plant and equipment
Particulars
Freehold land Buildings on freehold land Railway siding Plant and machinery Catalysts Furniture, fittings and equipment Data processing equipment Motor vehicles 2011 5.0 5.0 7.5 10 - 50 10 - 12.5 33.3 20.0
Cost As at 01 January 2010 -------------------Rupees in '000-----------------------Additions Disposals As at 31 December 2010 Depreciation rate (% per annum) As at 01 January 2010 For the period Accumulated depreciation Disposals As at 31 December 2010
250,657 114,636 2,314 3,472,084 216,213 75,155 118,143 171,028 4,420,230
318,264 87,062 1,679 2,753 24,780 434,538
*(10,446) (66) (535) (19,797) (30,844)
250,657 114,636 2,314 3,779,902 303,275 76,768 120,361 176,011 4,823,924
85,120 2,291 2,040,823 185,261 46,895 103,793 84,339 2,548,522
3,841 141,114 10,845 4,500 7,711 25,836 193,847
*(1,959) (65) (356) (9,080) (11,460)
88,961 2,291 2,179,978 196,106 51,330 111,148 101,095 2,730,909
250,657 25,675 23 1,599,924 107,169 25,438 9,213 74,916 2,093,015
Annual Report 2011

-------------------Rupees in '000------------------------
Particulars
Net book value as at 31 December 2010
07
250,657 114,636 2,314 2,767,056 216,213 65,706 109,507 183,798 3,709,887 5.0 5.0 7.5 10 - 50 10 - 12.5 33.3 20.0 705,028 9,524 9,090 37,370 761,012 (75) (455) (50,139) (50,669) 250,657 114,636 2,314 3,472,084 216,213 75,155 118,142 171,029 4,420,230 81,442 2,291 1,905,689 159,007 42,935 97,412 80,523 2,369,299
Freehold land Buildings on freehold land Railway siding Plant and machinery Catalysts Furniture, fittings and equipment Data processing equipment Motor vehicles 2010
3,678 135,134 26,254 3,972 6,797 31,673 207,508
(12) (416) (27,857) (28,285)
85,120 2,291 2,040,823 185,261 46,895 103,793 84,339 2,548,522
250,657 29,516 23 1,431,261 30,952 28,260 14,349 86,690 1,871,708 2011 2010 Rupees in '000
20.1
The depreciation charge for the year has been allocated as follows: 173,669 3,188 16,990 193,847 182,535 4,035 20,938 207,508
Cost of sales - (Note 6) Distribution expenses - (Note 7) Administrative expenses - (Note 8)
20.2
Property, plant and equipment that are fully depreciated amounts to Rs. 1,824 million (2010: Rs. 1,076 million).
20.3
Disposal of property, plant and equipment

Type of property, plant and equipment Sold to Original cost Accumulated Net book Sale depreciation value proceeds Mode of disposal
------------------Rupees in '000-----------------Vehicles Toyota Corolla Xli (LE-11-9083) Toyota Corolla Gli (LEE-08-2059) Suzuki Cultus VXR (LED-10-6396) Toyota Corolla Gli (LE-10-5338) Toyota Corolla 1300 CC Xli (ART-428) Suzuki Cultus VXR-CNG (LEA-09-8391) Toyota Corolla 1300 CC Xli (LEA-09-8367) Toyota Corolla 1300 CC Xli (LEA-09-8370) Toyota Corolla 1300 CC Xli (LEA-09-8372) Toyota Corolla 1300 CC Xli (LEA-09-8377) Toyota Camry 2400 CC (ARW-272) Toyota Corolla 1300 CC Gli (ARQ-629) Office Equipment Notebook Toshiba Portage Qazi M. Tariq Imtiaz H.Chughtai Iftikhar Ahmad Abdul Sattar A.Z. Kamal Fazal ur Rehman Iftikhar Ahmad M. Saleem Ch. Nazeer Ahmed Dabeer ul Hassan Isar Ahmad Humanyun Javed Khan 1,383 1,035 894 1,457 1,306 889 1,296 1,296 1,296 1,296 4,150 1,430 277 656 119 170 544 326 475 475 475 475 2,351 690 1,106 379 775 1,287 762 563 821 821 821 821 1,799 740 1,277 750 808 1,330 898 644 940 940 940 940 2,390 1,019 As per Company Policy As per Company Policy As per Company Policy As per Company Policy As per Company Policy As per Company Policy As per Company Policy As per Company Policy As per Company Policy As per Company Policy As per Company Policy As per Company Policy
O&A Business Machines
190
15
175
190
Trade in
Aggregate of other items of property, plant and equipment with individual book values not exceeding Rupees 50,000
2,480 20,398
2,453 9,501
27 10,897
920 13,986
As per Company Policy
Note 21 Capital work in progress Plant and machinery 22 Investment in associate Engro Corporation Limited 124,982,408 (2010: 113,620,371) ordinary shares of Rs. 10 each Share of post acquisition profits Share of other comprehensive income Less: Dividend received during the year 149,978,890 (2010: 124,982,408) ordinary shares of Rs. 10 each Percentage of equity held - 38.13% (2010: 38.13%) 22.1 22.2 22.2
2011 2010 Rupees in '000
23,619 24,701,636 22,424,778 2,980,632 146,106 (849,880) 2,276,858 24,701,636
366,514 22,424,778 21,292,135 1,955,580 (95,767) (727,170) 1,132,643 22,424,778
Market value of investments in associate Rs. 13,903 million (2010: Rs. 24,223 million). During the year the Group has received 24,996,482 (2010: 11,362,037) bonus shares from Engro Corporation Limited.

127

For the year ended 31 December 2011 22.3 The financial year end of Engro Corporation Limited (ECL) is 31 December, however, due to nonavailability of the financial statements of ECL at the time of preparation of these financial statements, the financial results as of 30 September have been used for the purpose of application of equity method. Note 22.4 Summarized financial information of ECL is as follows: Total assets as at 30 September Total liabilities as at 30 September Revenue (12 months period from 01 October to 30 September) Profit after taxation (12 months period from 01 October to 30 September) 23 Long term loans and advances - unsecured considered good Loan to employees - considered good - Executives - Others Less: Receivable within one year - Executives - Others 23.1 & 23.4 23.2 11,251 21,447 32,698 9,921 20,577 30,498 2,200 7,649 7,282 14,931 6,718 6,533 13,251 1,680 180,487,952 140,378,532 105,230,487 7,816,003 158,605,768 126,345,289 71,160,915 5,128,045 2011 2010 Rupees in '000
23.1 23.2
Loans to executives are provided interest free as temporary financial assistance and are repayable in 18 equal monthly installments. These represent interest free loans given to both supervisors and workers as temporary financial assistance. These are repayable in 18 and 24 equal monthly installments respectively. Loans to workers are provided under agreement with Workers Union. 2011 2010 Rupees in '000 Reconciliation of carrying amounts of loans to executives Balance as at 01 January Disbursement during the year Promotion of non-executive employees as executives Loan recovered during the year Balance as at 31 December Less: Current portion shown under current assets 7,649 12,610 2,383 (11,391) 11,251 9,921 1,330 9,875 6,163 2,476 (10,865) 7,649 6,718 931
23.3
128
Annual Report 2011
07
23.4
None of the loans are outstanding for periods exceeding three years and the maximum amount due from executives at any month end during the year was Rs.12.38 million (2010: Rs 10.11 million). 2011 2010 Rupees in '000
24
Stores, spares and loose tools Stores Spares Stores and spares in transit Less: Provision for obsolete items 245,283 755,653 35,337 1,036,273 235,665 800,608 417,934 838,685 52,590 1,309,209 235,665 1,073,544
Stores and spares include items which may result in fixed capital expenditure but are not distinguishable. 2011 2010 Rupees in '000 25 Stock in trade Raw and packing materials Material in process Finished goods - Own manufactured - Purchased product - DAP 18,357 9,612 122,140 1,158 123,298 151,267 10,078 7,657 198,382 198,382 216,117
26
Loans, advances, deposits, prepayments and other receivables These receivables are all unsecured and considered good: Loans to employee - considered good Advances to suppliers for goods and services Advances - considered good - to employee - to suppliers Prepayments Deposits Insurance claim receivable Others 30,498 1,420 20,187 21,607 3,034 2,181 14,362 71,682 13,251 2,577 26,620 29,197 3,143 2,109 16,347 19,141 83,188
26.1
Chief Executive and directors have not taken any loan/advance from the Group (2010: Rs. Nil).

129

For the year ended 31 December 2011 Note 27 Short term investments Available for sale Financial assets at fair value through profit or loss 27.1 Available for sale Related parties - Quoted Sui Northern Gas Pipelines Limited Cost of 69,982,155 shares of Rs. 10 each Percentage of equity held: 12.75% (2010: 18.29%) Cost of shares disposed off during the year (2010: 30,460,195) Cost of 73,481,262 (2010: 69,982,155) shares of Rs. 10 each - at cost Percentage of equity held: 12.75% (2010: 12.75%) Less: Cumulative Impairment loss Fair value adjustment Others - Quoted Southern Electric Power Company Limited 3,622,900 (2010: 3,622,900) ordinary shares of Rs.10 each - at cost Percentage of equity held: 2.65% (2010: 2.65%) Less: Cumulative Impairment loss 4,376,964 27.1.1 4,376,964 (3,222,574) 1,154,390 1,154,390 6,282,067 (1,905,103) 4,376,964 (2,641,407) 1,735,557 135,765 1,871,322 27.1 27.2 1,156,926 1,794,162 2,951,088 1,879,401 560,530 2,439,931 2011 2010 Rupees in '000
68,431 (65,895) 2,536 1,156,926
68,431 (60,352) 8,079 1,879,401
27.1.1 During the year the Group has received 3,499,107 (2010: Nil) bonus shares from Sui Northern Gas Pipelines Limited (SNGPL).
130
Annual Report 2011
07
Note 27.2 Financial assets at fair value through profit or loss ABL Income Fund 18,242,324 (2010 2,917,016) units of Rs. 10 each Adjustment arising from measurement to fair value Meezan Cash Fund-Growth Units 4,163,996 (2010: 4,199,685) units of Rs. 50 each Adjustment arising from measurement to fair value UBL Liquidity Plus Fund-Class C 6,039,840 (2010: 800,447) units of Rs. 100 each Adjustment arising from measurement to fair value ABL Cash Fund 58,847,709 (2010: 24,075,792) units of Rs. 10 each Adjustment arising from measurement to fair value HBL Money Market Fund 1,996,129 (2010: Nil) units of Rs. 10 each Adjustment arising from measurement to fair value
2011 2010 Rupees in '000
166,198 16,561 182,759 187,966 20,817 208,783 570,234 36,678 606,912 550,724 39,021 589,745 200,012 5,951 205,963 1,794,162
27,870 1,328 29,198 208,979 1,174 210,153 80,000 202 80,202 240,000 977 240,977 560,530
27.2.1 These represents investments in various money market funds which are valued at their respective Net Assets Value at balance sheet date. 28 Cash and bank balances With banks: On current accounts On saving accounts -local -foreign 28.1 Cash in hand 28.1 5,420 723,634 753 724,387 941 730,748 3,605 1,245,327 686 1,246,013 645 1,250,263
These carry mark up at the rate ranging from 5% to 11% per annum (2010: 5% to 10.5%).

131

For the year ended 31 December 2011 2011 2010 Rupees in '000 29 Cash flow from operating activities Profit before taxation Adjustment for non cash expenses and other items: Depreciation Finance costs Profit on sale of property, plant and equipment Profit on sale of short term investments Unrealized gain on investment at fair value through profit or loss Impairment loss on available for sale investments Share of profit from associate Dividend income Provision for staff retirement and other service benefits Profit on time deposits Other non-cash items Cash flow from operations before working capital changes Working capital changes Decrease / (increase) in current assets: Stocks, stores and spares Trade debtors Loans, advances, prepayments and other receivables (Decrease) / increase in current liabilities: Trade and other payables Cash generated from operations 30 Remuneration of Chief Executive, Directors and Executives
2011 Chief Directors Executives Executive ------------Rupees in '000------------Managerial remuneration Retirement benefits including ex-gratia Rent and utilities Leave fare assistance Medical 19,182 182 1,104 919 21,387 2 66,082 2,696 5,636 1,203 75,617 4 200,313 23,461 57,542 7,509 288,825 117 2010 Chief Directors Executives Executive ------------Rupees in '000------------8,470 30,585 3,760 24 42,839 2 31,955 24,617 18,525 298 1,417 76,812 6 173,283 19,731 56,677 6,646 256,337 98
3,631,667 193,847 810,829 (3,089) (10,750) (119,028) 586,710 (2,980,632) (69,982) 27,090 (109,415) 8,488 (1,665,932) 1,965,735
4,191,192 207,508 909,881 (12,392) (183,462) (3,681) 2,391 (1,955,580) (139,964) 31,901 (63,218) (1,206,901) 2,984,291
337,786 (555) 11,506 (54,434) 294,303 2,260,038
96,924 7,897 9,534 44,135 158,490 3,142,781
Number of employees (including those who worked part of the year).
Two Chief Executives (2010: two), four Directors (2010: six) and some of the Executives of the Group are provided with cars owned and maintained by the Group. Meeting fees amounting to Rs. 5.5 million (2010: 2.6 million ) were paid to six directors (2010: 5 directors).
132
Annual Report 2011
07
2011 31 Earnings per share Basic and diluted Profit after taxation Weighted average number of ordinary shares Earnings/(loss) per share- basic 32 Prior period adjustments Rupees in thousands No. of shares Rupees 2,893,069 481,287,116 6.01
2010 Restated
3,247,983 481,287,116 6.75
Group's share of other comprehensive income of associate was not accounted for in the consolidated financial statements of the Group for the year ended 31 December 2010. Accordingly, as per International Accounting Standard 8 (IAS 8) "Accounting Policies, Changes in Accounting Estimates and Errors", the above mentioned adjustment has been made retrospectively. Consequently, for the year ended 31 December 2010, the carrying value of "Investment in associate" has decreased by Rs. 346.918 million, the balance of Deferred tax has decreased by Rs. 34.69 million, the balance of "Other reserve" has decreased by Rs. 312.22 million, "Other Comprehensive Income" for the ended 31 December 2010 decreased by Rs. 86.19 million and the reserves as at 01 January 2010 have been restated by Rs. 226.036 million. There was no impact on profit and earnings per share due to the said restatements. 33 Financial Instruments The Group has exposures to the following risks from its use of financial instruments: - Credit risk - Liquidity risk - Market risk The Board of Directors has overall responsibility for the establishment and oversight of the Groups risk management framework. The Board is also responsible for developing and monitoring the Group's risk management policies. This note presents information about the Groups exposure to each of the above risks, the Groups objectives, policies and processes for measuring and managing risk and the Groups management of capital. The Group's risk management policies are established to identify and analyse the risks faced by the Group to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to react to changes in market conditions and the Group's activities.

133

For the year ended 31 December 2011 33.1 Credit risk Credit risk is the risk of accounting loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from trade receivables and investment in debt securities, receivables from banks and financial institutions on account of return on deposits and due from related parties. Out of the total financial assets of Rs.3,756 million (2010: Rs. 3,724 million), the financial assets which are subject to credit risk amounted to Rs. 3,755 million (2010: Rs. 3,723 million). The Group's exposure to credit risk is influenced mainly by the individual characteristics of each of the party. To manage exposure to credit risk in respect of trade receivables, management reviews credit ratings, total deposits worthiness, and maturities of the investments made, past experience and other factors. Furthermore, the Subsidiary Company deals its customers receipt against sale on advance basis. The management has set a maximum credit period of one month in respect of its fertilizer sales to reduce the credit risk. All investing transactions are settled / paid for upon delivery as per the advice of investment committee. The Group's policy is to enter into financial instrument contract by following internal guidelines such as approving counterparties and approving credits. Concentration of credit risk arises when a number of counter parties are engaged in similar business activities or have similar economic features that would cause their abilities to meet contractual obligation to be similarly effected by the changes in economic, political or other conditions. 2011 2010 Rupees in '000 The maximum exposure to credit risk at the reporting date is: Available for sale financial assets Financial assets at fair value through profit and loss Loans, advances and deposits and other receivables Trade debts Bank balances 1,156,926 1,794,162 71,682 2,686 729,807 3,755,263 1,879,401 560,530 31,914 2,131 1,249,618 3,723,594
The Group believes that it is not exposed to major concentration of credit risk. Available for sale investment comprise of ordinary shares of Sui Northern Gas Pipelines Limited (SNGPL) and Southern Electric Power Company Limited (SEPCO) listed on Stock Exchanges. Financial assets at fair value through profit or loss comprise of investments in Open End Mutual Funds.
134
Annual Report 2011
07
The credit rating of the financial assets can be assessed with reference to their historical performance with no or negligible defaults in recent history, however, no losses were incurred. The credit quality of the Group`s liquidity can be assessed with reference to external credit ratings as follows: Bank Bank Al- Habib Limited Barclays Bank PLC - Pakistan Habib Metropolitan Bank Limited Habib Bank Limited Rating agency PACRA Standard & Poors PACRA JCR-VIS Rating agency Open End Mutual Funds ABL income fund ABL cash fund Meezan cash fund UBL liquidity plus fund HBL Money Market Fund JCR-VIS JCR-VIS JCR-VIS JCR-VIS JCR-VIS A+ AA+ AM2 AA+ AA Rating Long term Short term A1+ A1+ A1+ A1+ Rating Short term AA+ AAAA+ AA+ Long term
The trade debts as at the balance sheet date are classified as follows: 2011 2010 Rupees in '000 Domestic 2,686 2,131
The maximum exposure to credit risk before any credit enhancements for trade receivables at the reporting date by type of customer is: 2011 2010 Rupees in '000 Trade receivables The aging of trade receivables at the reporting date is: Past due 1-30 days Past due 30-150 days Past due 150 days 2,686 1,148 911 627 2,686 2,131 215 17 1,899 2,131
Based on past experience the management believes that no impairment allowance is necessary in respect of trade receivables past due as some receivables have been recovered subsequent to the year end and for other receivables there are reasonable grounds to believe that the amounts will be recovered in short course of time.

135

For the year ended 31 December 2011 33.2 Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions. For this purpose the Group has sufficient running finance facilities available from various commercial banks to meet its liquidity requirements. Further liquidity position of the Group is closely monitored through budgets, cash flow projections and comparison with actual results by the Board. The following are the contractual maturities of the financial liabilities, including estimated interest payments:
Carrying Contractual Six months Six to twelve One to two Two to five Amount Cash Flows or less months years years -----------------------------------Rupees in '000----------------------------------2011 Financial Liabilities Long term finances Trade and other payables Accrued markup
4,800,000 228,105 8,614 5,036,719
7,159,866 228,105 8,614 7,396,585
315,261 228,105 8,614 551,980
315,261 315,261
628,800 628,800
5,900,544 5,900,544
2010 Financial Liabilities Short term financing - secured Long term finances Trade and other payables Accrued markup
45,725 5,702,500 481,847 232,983 6,463,055
47,257 6,808,779 481,847 232,983 7,570,866
47,257 162,270 481,847 232,983 924,357
1,070,831 1,070,831
5,575,678 5,575,678
33.3
Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Group's income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.
33.3.1
Currency risk The Group is exposed to currency risk on import of raw materials and stores and spares mainly denominated in US dollars and on foreign currency bank accounts. The Group's exposure to foreign currency risk for US Dollars is as follows: 2011 2010 Rupees in '000 Foreign currency bank account Outstanding letters of credit Net exposure 753 (246) 507 686 (54,355) (53,669)
136
Annual Report 2011
07
The following significant exchange rate has been applied: Average rate Reporting date rate Average rate 2011 2010 Rupees Rupees USD to PKR Sensitivity analysis At reporting date, if the PKR had strengthened by 10% against the US Dollar with all other variables held constant, post-tax profit for the year would have been higher by the amount shown below. 2011 2010 Rupees in '000 Effect on profit or loss USD (51) 5,367 86.5 85.35 Reporting date rate 2011 2010 Rupees Rupees 89.70 85.90
The weakening of the PKR against US Dollar would have had an equal but opposite impact on the post tax loss / profits. The sensitivity analysis prepared is not necessarily indicative of the effects on profit/(loss) for the year and assets / liabilities of the Group. 33.3.2 Interest rate risk At the reporting date the interest rate profile of the Group's significant interest bearing financial instruments was as follows: Effective rate Carrying amount 2011 2010 2011 2010 % % Rupees in '000
Financial assets Financial liabilities Variable rate instruments Long term loan
13.10 to 14.94
13.64 to 14.10
4,800,000
5,702,500
Fair value sensitivity analysis for fixed rate instruments The group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore a change in interest rates at the reporting date would not affect profit and loss account.

137

For the year ended 31 December 2011 Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points in interest rates at the reporting date would have decreased / (increased) loss for the year by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. The analysis is performed on the same basis as 2010. Profit and loss 100 bps Increase Decrease Rupees in '000 As at 31 Dec 2011 Cash flow sensitivity-Variable rate financial liabilities As at 31 Dec 2010 Cash flow sensitivity-Variable rate financial liabilities
(48,000) (57,482)
48,000 57,482
The sensitivity analysis prepared is not necessarily indicative of the effects on profit/ (loss) for the year and assets / liabilities of the Group. 33.3.3 Other price risk Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk). Other price risk arises from the Group's investment in ordinary shares of listed companies. To manage its price risk arising from aforesaid investments, the Group actively monitors the key factors that affect stock price movement. A 10% increase/decrease in share prices at year end would have decreased/increased the surplus on re-measurement of investments in 'available for sale' investments as follows: 2011 2010 Rupees in '000 Effect on equity 33.4 Fair value of financial instruments The carrying values of other financial assets and financial liabilities reported in balance sheet approximate their fair values. The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements: Level 1: Quoted market price (unadjusted) in an active market for an identical instrument Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: Valuation techniques using significant un-observable inputs. 115,693 187,132
138
Annual Report 2011
07
Investments in ordinary shares of listed companies is valued using quoted prices in active market, hence, fair value of such investments fall within level 1 in fair value hierarchy as mentioned above, whereas the investments in mutual funds fall within level 2. 33.5 Capital management The Boards policy is to maintain an efficient capital base so as to maintain investor, creditor and market confidence and to sustain the future development of its business. The board of Directors monitors the return on capital employed, which the Group defines as operating income divided by total capital employed. The board of Directors also monitors the level of dividends to ordinary shareholders. The Group's objectives when managing capital are: (i) (ii) 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 to provide an adequate return to shareholders.
The Group manages the capital structure in the context of economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may, for example, adjust the amount of dividends paid to shareholders, issue new shares, or sell assets to reduce debt. The Group monitors capital on the basis of the debt-to-equity ratio - calculated as a ratio of total debt to equity. The debt-to-equity ratios as at 31 Dec 2011 and at 31 Dec 2010 were as follows: 2011 2010 Rupees in '000 Restated Total debt Less: Cash and Cash equivalents Net Debt Total equity Debt-to-equity ratio 4,800,000 (730,748) 4,069,252 25,128,056 14% 5,748,225 (1,250,263) 4,497,962 22,359,579 17%
The decrease in the debt-to-equity ratio in 2011 resulted primarily due to repayment of long term borrowings and less reliance on short term borrowings Neither there were any changes in the Groups approach to capital management during the year nor the Group is subject to externally imposed capital requirements.

139

For the year ended 31 December 2011 34. Operating Segments The financial information has been prepared on the basis of a single reportable segment. 34.1 34.2 35. Sales from fertilizer products represent 100% (2010: 100%) of total revenue of the Subsidiary Company. All sales are made by the Subsidiary Company in Pakistan. Related party transactions The related parties comprise associated companies, related group companies, directors of the Group, companies where directors also hold directorship, and key management employees. The Group 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: 2011 2010 Rupees in '000 Associated company Sale of goods and services Purchase of goods and services Dividend Income Insurance claim receivable Loan and markup - Meezan Bank Limited Reimbursement of expenses from related party Reimbursement of expenses to related party Other related parties Gratuity funds Provident funds Key management personnel Sale of fixed assets No buying or selling commission has been paid to any related party. 36. Production capacity As against the annual production capacity of 445,500 tons (2010: 445,500 tons) of urea fertilizer, the plant produced 199,900 tons (2010: 456,120 tons) which was 44.87 % (2010: 102.38%) of designed capacity. This shortfall in production was due to non-availability of gas. 16,242 1,203,337 919,862 2,227,299 2,616 1,057 22,091 30,701 13,781 14,400 2,348,821 867,134 16,347 133,334 4,757 4,582 18,930 28,892 -
140
Annual Report 2011
07
Pattern of Shareholding
Details of holding on 31.12.2011 1
As at 31 December 2011 Disclosure Requirement under the Code of Corporate Governance
Associated Companies, Undertakings and Related Parties Dawood Lawrencepur Limited Dawood Foundation Cyan Limited Patek (Pvt.) Ltd. Dawood Corporation (Pvt.) Ltd. Sach International (Pvt.) Ltd. 77,931,896 18,991,988 8,780,760 155,284 101,844 6,996
NIT & ICP National Bank of Pakistan, Trustee Department IDBP (ICP UNIT) National Investment Trust Limited Investment Corporation of Pakistan 2,120,896 766 12,132 50
Directors & CEO (including holding of their spouses & minor children) Mr. Hussain Dawood - Chairman Mr. Shahzada Dawood Mr. A. Samad Dawood Mr. Isar Ahmad 38,273,516 5,111,616 5,111,616 10,000 540 34,646,385
4 5 6 7
Executives Public Sector Companies and Corporations Banks, Development Finance Institutions, Non-Banking Finance Institutions, Insurance Companies, Modarabas & Mutual Funds Shareholders holding ten percent or more shares Faisal Private Bank (Switzerland) SA Dawood Lawrencepur Limited
66,653,068 77,931,896
142
Annual Report 2011
07
Pattern of Shareholding
As at 31 December 2011
Shareholding Range From 1 101 501 1,001 5,001 10,001 15,001 20,001 25,001 30,001 35,001 40,001 45,001 50,001 55,001 60,001 65,001 70,001 75,001 80,001 95,001 100,001 105,001 110,001 115,001 120,001 130,001 135,001 140,001 170,001 190,001 195,001 215,001 220,001 235,001 315,001 350,001 395,001 715,001 760,001 810,001 1,505,001 2,120,001 5,110,001 7,655,001 8,780,001 9,995,001 11,275,001 12,200,001 18,990,001 28,270,001 36,240,001 38,375,001 43,280,001 66,650,001 77,930,001 To 100 500 1,000 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000 70,000 75,000 80,000 85,000 100,000 105,000 110,000 115,000 120,000 125,000 135,000 140,000 145,000 175,000 195,000 200,000 220,000 225,000 240,000 320,000 355,000 400,000 720,000 765,000 815,000 1,510,000 2,125,000 5,115,000 7,660,000 8,785,000 10,000,000 11,280,000 12,205,000 18,995,000 28,275,000 36,245,000 38,380,000 43,285,000 66,655,000 77,935,000 Number of Shareholders 529 949 577 2,004 337 125 52 36 18 18 13 8 6 3 6 6 6 2 1 1 8 5 2 1 4 1 2 1 2 1 1 2 1 1 1 2 1 1 1 1 1 1 1 4 1 1 1 1 1 1 1 2 2 1 1 1 4,757 Total Shares Held 26,618 315,172 486,124 4,442,205 2,466,781 1,552,694 918,244 815,273 504,586 599,774 504,958 343,332 288,288 155,563 348,951 377,832 407,850 143,864 76,922 82,500 788,377 510,004 216,224 113,632 474,540 120,596 269,948 140,000 313,534 173,116 191,200 397,352 218,532 224,200 240,000 637,216 353,996 400,000 715,600 760,888 811,064 1,506,592 2,120,896 20,446,460 7,655,328 8,780,760 10,000,000 11,279,450 12,204,788 18,991,988 28,273,516 72,481,592 76,752,016 43,281,216 66,653,068 77,931,896 481,287,116
144
Annual Report 2011
07
www.dawoodhercules.com

Dawood Center, M.T. Khan Road, Karachi - 75530 Tel: +92-21-35686001 Fax: +92-21-35693416 www.dawoodhercules.com

Annual Report For Dawood Hercules LTD

Uploaded by

Copyright:

Available Formats

Annual Report For Dawood Hercules LTD

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Annual Report For Dawood Hercules LTD

Uploaded by

Copyright:

Available Formats

Adding Dimensions

with Diverse Business Interests

Dawood Hercules Corporation Limited

Dawood Hercules Corporation Limited

Wholly Owned Subsidiary

Business Ethics & Core Values

Annual Report 2011

Board Audit Committee:

Board Compensation Committee:

Chief Financial Officer:

Dawood Hercules Corporation Limited

Sales Revenue (Rs million)

Profit after Tax (Rs million)

6,310 2010 8,716

2,893 2010 3,248

Annual Report 2011

Environment Excellence Award 2011:

Shahid Hamid Pracha

Annual Report 2011

Muhammad Aliuddin Ansari

Dawood Hercules Corporation Limited

Board Compensation Committee

M. Abdul Aleem (Chairman)

Hussain Dawood (Chairman)

6,310 2,266 1,462 4,637 3,632 2,893 10

7,429 3,116 2,952 4,943 3,900 3,063

Annual Report 2011

For the Year Ended 31st December

Dawood Hercules Corporation Limited

5,924.51 490.45 169.89 86.80 6,671.65 16,162.69

2,281.43 512.95 249.44 529.00 3,572.82 29,222.70

70.14 538.13 275.85 693.00 1,577.12 25,630.14

1,196.60 648.23 280.27 858.00 2,983.10 27,354.08

661 46 695 233 686 2,321 30,355

641 9 466 1,116 31,966

Rs. in Million 2008 2009

Annual Report 2011

Percentage Change 07 Over 06 0% 117% -9%

08 Over 07 32% 14% -1984%

09 Over 08 0% -18% -100%

10 Over 09 10% 9% 3311%

11 Over 10 300% -4% -42%

104% 3003% 170%

-8% -1% -6%

-61% 5% 47% 509% -46% 81%

-97% 5% 11% 31% -56% -12%

1606% 20% 2% 24% 89% 7%

-96% 7% -17% -20% -22% 0%

-100% -100% -8% -96% -32% -52% 5%

Percentage Change 09 Over 08

49% 0% 92% 4% 27% -7% 14% 24% 52% -70% 19% 7%

8% 0% -31% 1% -18% 160% -79% -22% -28% 349% -5% 0%

Dawood Hercules Corporation Limited

Restated 1,093.83 16,756.87 3.98 17,854.69 6,516.30 24,370.98

828.66 8,204.37 240.11 9,273.14 217.89 9,491.03

828.66 17,841.62 219.05 18,889.33 6,760.55 25,649.88

1,093.83 20,415.40 (4,126.57) 17,382.66 6,670.36 24,053.02

1,203 21,333 (312) 135 22,359 5,675 28,034