NISHAT MILLS LTD
Financial Department:
Financial department typically include planning, organizing, auditing, accounting for and
controlling its company's finances. The finance department usually produces the
company's financial statements.
Role Of Financial Department
The finance department is responsible for management of the organization’s cash flow and
ensuring there are enough funds available to meet the day-to-day payments. This area also
encompasses the credit and collections policies for the company’s customers, to ensure the
organization is paid on time, and that there is a payment policy for the company’s suppliers. In
most organizations there will be some form of forecast prepared on a regular basis to
systematically calculate the ongoing cash needs.
Financial Review of Nishat Mill Fot The Year Ended 30June2017
Financial Performance:
Profitability of the Company decreased during the financial year ended 30 June 2017 as
compared to the profitability of corresponding last year ended 30 June 2016 mainly due to
increase in cotton prices, increase in labour cost due to increase in minimum wages from Rs.
13,000 to Rs. 14,000 per month, increase in fuel and power cost and decrease in profit margins
due to low demand in international market. However, finance cost decreased due to better
financial planning and fund managemet.
Financial Highlights 2017 2016
(Rupees) (Rupees)
Revenue 49,247,657 47,999.179
Gross Profit 5,379,838 6,239,391
EBTIDA 8,235,549 8,937,616
Deprecation 2,300,135 2,166,357
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NISHAT MILLS LTD
Finance Cost 915,072 1,046,221
Dividend Income 3,403,733 3,700,227
Pre-tax Profit 5,020,342 5,725,038
After-tax Profit 4,262,342 4,923,038
Revenue recorded an increase of Rs. 1,248.478 million (2.60%) in the current year as compared
to the corresponding year ended 30 June 2016. Primary reason for this increase was the increase
in export sales from US$ 344.744 million to US$ 350.736 despite severe competition and slow
global demand for textile products and amount of Rs. 841.530 million accrued on account of
duty draw back incentive on export sales.
THE COMPANY AND ITS OPERATIONS
Nishat Mills Limited is a public limited Company incorporated in Pakistan under the Companies
Act, 1913 (Now Companies Act, 2017) and listed on Pakistan Stock Exchange Limited. Its
registered office is situated at 53-A, Lawrence Road, Lahore. The Company is engaged in the
business of textile manufacturing and of spinning, combing, weaving, bleaching, dyeing,
printing, stitching, apparel, buying, selling and otherwise dealing in yarn, linen, cloth and other
goods and fabrics made from raw cotton, synthetic fibre and cloth and to generate, accumulate,
distribute, supply and sell electricity
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies applied in the preparation of these financial statements are
set out below. These policies have been consistently applied to all years presented, unless
otherwise stated: 2.1 Basis of preparation a) 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
(IFRS) issued by the International Accounting Standards Board as are notified under the repealed
Companies Ordinance, 1984, provisions of and directives issued under the repealed Companies
Ordinance, 1984. In case requirements differ, the provisions or directives of the repealed
Companies Ordinance, 1984 shall prevail
Accounting convention
These financial statements have been prepared under the historical cost convention except for the
certain financial instruments carried at fair value
Critical accounting estimates and judgments
The preparation of financial statements in conformity with the approved accounting standards
requires the use of certain critical accounting estimates. It also requires the management to
exercise its judgment in the process of applying the Company’s accounting policies. Estimates
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and judgments are continually evaluated and are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the
circumstances. The areas where various assumptions and estimates are significant to the
Company’s financial statements or where judgments were exercised in application of accounting
policies are as follows: Financial instruments The fair value of financial instruments that are not
traded in an active market is determined by using valuation techniques based on assumptions that
are dependent on conditions existing at balance sheet date. Useful lives, patterns of economic
benefits and impairments Estimates with respect to residual values and useful lives and pattern of
flow of economic benefits are based on the analysis of the management of the Company. Further,
the Company reviews the value of assets for possible impairment on an annual basis. Any change
in the estimates in the future might affect the carrying amount of respective item of property,
plant and equipment, with a corresponding effect on the depreciation charge and impairment.
Inventorie
Net realizable value of inventories is determined with reference to currently prevailing selling
prices less estimated expenditure to make sales
Taxation
In making the estimates for income tax currently payable by the Company, the management
takes into account the current income tax law and the decisions of appellate authorities on certain
issues in the past.
Provision for doubtful debts
The Company reviews its receivable against any provision required for any doubtful balances on
an ongoing basis. The provision is made while taking into consideration expected recoveries,
Impairment of investments in subsidiaries and equity method accounted for associated
companies
In making an estimate of recoverable amount of the Company’s investments in subsidiaries and
equity method accounted for associated companies, the management considers future cash flows.
Taxation
Current
Provision for 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. 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.
Deferred
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NISHAT MILLS LTD
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 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.
Foreign currencies
These financial statements are presented in Pak Rupees, which is the Company’s functional
currency. All monetary assets and liabilities denominated in foreign currencies are translated into
Pak Rupees at the rates of exchange prevailing at the balance sheet date, while the transactions in
foreign currencies during the year are initially recorded in functional currency at the rates of
exchange prevailing at the transaction date. All nonmonetary items are translated into Pak
Rupees at exchange rates prevailing on the date of transaction or on the date when fair values are
determined. Exchange gains and losses are recorded in the profit and loss account.or such years.
RISKS AND OPPORTUNITIES
Nishat Mills Limited takes risks and creates opportunities in the normal course of business.
Taking risk is important to remain competitive and ensure sustainable success. Our risk and
opportunity management encompass an effective framework to conduct business in a
wellcontrolled environment where risk is mitigated and opportunities are availed. Each risk and
opportunity is properly weighted and considered before making any choice. Decisions are
formulated only if opportunities outweigh risks. Following is the summary of risks and strategies
to mitigate those risks:
STRATEGIC RISKS
We are operating in a competitive environment where innovation, quality and cost matters. This
risk is mitigated through continuous research & development and persistent introduction of new
technologies under BMR. Strategic risk is considered as the most crucial of all the risks. Head of
all business divisions meet at regular basis to form an integrated approach towards tackling risks
both at the international and national level.
BUSINESS RISKS
The Company faces a number of following business risks:
Cotton Supply and Price
The supply and prices of cotton is subject to the act of nature and demand dynamics of local and
international cotton markets. There is always a risk of non-availability of cotton and upward shift
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in the cotton prices in local and international markets. The Company mitigates this risk by the
procurement of the cotton in bulk at the start of the harvesting season
Export Demand and Price
The exports are major part of our sales. We face the risk of competition and decline in demand
of our products in international markets. We minimize this risk by building strong relations with
customers, broadening our customer base, developing innovative products without
compromising on quality and providing timely deliveries to customers.
Energy Availability and Cost
The rising cost and un-availability of energy i.e. electricity and gas shortage is a major threat to
manufacturing industry. This risk, if unmitigated, can render us misfit to compete in the
international markets. The Company has mitigated the risk of rising energy cost by opting for
alternative fuels such as coal, furnace oil, bio-mass and diesel. The measures to conserve energy
have also been taken at all manufacturing facilities of the Company. Likewise, risk of
nonavailability of the energy has been minimized byinstalling power plants for generating
electricity at almost all locations of the Company along with securing electricity connections
from WAPDA and installation of 1.2 MW solar plant at new Apparel Denim Plant.
FINANCIAL RISKS
The Board of Directors of the Company is responsible to formulate the financial risk
management policies which are implemented by the Finance Department of the Company. The
Company faces the following financial risks:
Currency risk
The Company is exposed to currency risk arising from various currency exposures, primarily
with respect to United States Dollar (USD), Arab Emirates Dirham (AED) and Euro. The
Company’s foreign exchange risk exposure is restricted to the bank balances and the amounts
receivable/ payable from/to the foreign entities.
Interest rate risk
The Company’s interest rate risk arises from long term financing, short term borrowings, loans
and advances to subsidiary companies, term deposit receipts and bank balances in saving
accounts. Fair value sensitivity analysis and cash flow sensitivity analysis shows that the
Company’s profitability is not materially exposed to the interest rate risk.
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NISHAT MILLS LTD
Credit risk
The Company’s credit exposure to credit risk and impairment losses relates to its trade debts.
This risk is mitigated by the fact that majority of our customers have a strong financial standing
and we have a long standing business relationship with all our customers. We do not expect
nonperformance by our customers; hence, the credit risk is minimal.
Liquidity risk
It is at the minimum due to the availability of enough funds through committed credit facilities
from the Banks and Financial institutions.
Capital risk
When managing capital, it is our objective to safeguard the Company’s ability to continue as a
going concern in order to provide returns for shareholders and benefits to other stakeholders and
to maintain an optimal capital structure to reduce the cost of capital. The Company maintains
low leveraged capital structure. We monitor the capital structure on the basis of the gearing ratio.
Our strategy is to keep the gearing ratio at the maximum of 40% equity and 60% debt.
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