E

Major
e n

s
1965 1966 1967 1967 1969

Incorporation of the Company (as a private Company) Signing of contract for the supply of Paper Machine-1 (PM-1) with Mills-Paugh, U. K. Conversion into public Company Listing on the Karachi Stock Exchange Start of commercial production of PM-1 Signing of contract for supply of Paper Machine-2 (PM-2) with Voith Paper, Germany (Obsolete PM-1 made redundant and scrapped) Start of Commercial Production of PM-2 Formal inauguration of PM-2 by the Prime Minister Commissioning of Co-Generation Power Plant Modification and upgrading of plant Commissioning of new Mould Cover preparation building

2001 2003 2004 2009 2011 2012

annual report two thousand

02

12 Contents
4 Board of Directors 6 Corporate Awards 8 Chairmans Review 14 Directors Report 19 Profile of the Members of the Board of Directors 24 Organization Chart 25 Criteria to Evaluate Boards Own Performance 26 Shareholders Information 28 Vision Statement 29 Mission Statement 30 Core Values 31 Strategic Goals 32 Code of Ethics and Business Practices 33 Statement of Value Addition and its Distribution 34 Key Operating and Financial Data 35 Horizontal Analysis 36 Vertical Analysis 37 Management Review

Contents

49 Statement of Compliance with

the Code of Corporate Governance

52 Review Report to the Members 53 Auditors Report to the Members 54 Balance Sheet 55 Profit and Loss Account 56 Statement of Comprehensive Income 57 Cash Flow Statement 58 Statement of Changes in Equity 59 Notes to the Financial Statements 90 Pattern of Shareholding 93 Company Information 96 Information on Board Committees 98 Notice of Annual General Meeting 100 Environment
Form of Proxy
03

12 Board of Directors

04

annual report two thousand

Board of Directors

Mr. Mustapha A. Chinoy

Chairman

Sheikh Mohammmad Aijaz Akhtar

Managing Director / Chief Executive

Mrs. Naiyer Muzafar Husain

Mr. Hasan Irfaan

Mr. Jamal Nasim

Mrs. Ayla Akin

Mr. Mazhar-ul-Hassan Shah

Ms. Yasmin Saud

Mr. Mohammad Reza Roshani Moghaddam

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annual report two thousand

12 Corporate Awards

28th Corporate Excellence Award

Best Corporate Report Award 2010

06

Best Sustainability Report Award 2010

Board Meeting in Progress

07

annual report two thousand

12 Chairman's Review
It is indeed a matter of privilege for me to assume the role of the Chairman of the Board of Security Papers Limited. On behalf of the Board and shareholders I would like to take this opportunity to thank my predecessor Mrs. Naiyer Muzafar Husain for her invaluable contribution towards the growth of the Company. Looking ahead, I hope to play my role in taking the Company forward to strategic aims and objectives. Operational Performance Strategically the Company remained on course in realizing our vision of providing highest quality banknote and security paper to our customers. The Company has performed well on the operational front as we continue to build on our consistent and well-executed strategy. The Company entered 2012 with innate confidence that the financial outcome of business process reengineering carried out over the past years has indeed established a platform for sustained profitability. The results of operations have been steady despite the challenges faced during the current year that witnessed fluctuations in the prices of the cotton comber which is a major constituent of the banknote paper. The operational results recorded for the year under review demonstrate performance consolidation. I am delighted that the Board of Directors of your Company has recommended the payment of 60% cash dividend for the year ended 30 June, 2012. Production The management of the Company remained committed to produce and deliver high quality banknote and security paper to our customers by optimizing production, operational efficiencies, risk management and reinforced cost control measures. The Company produced 1,661 tons banknote and other security paper as against 1,402 tons during the corresponding period showing an increase of 259 tons. The cost of production has been kept at optimum level through effective utilization of resources and by controlling production wastages and maximizing output to achieve efficiency objectives. Your management instituted additional procedures to effectively control production processes and corrective actions were taken and preventive measures planned. Sales PRODUCTION AND SALES VOLUME
2,000 1,800 1,600 1,400 1,200

TONS

1,000 800 600 400 200 -

20

07

20

08

20

09

20

10

20

11

20

12

YEAR Sales Production

The sales value during the year under review increased by Rs 268 million showing an improvement of 15% over the last year. During the year under review the Company has successfully negotiated sales price increase with its major customer Pakistan Security Printing Corporation (Pvt.) Limited. The increase in the top line has been contributed by banknote paper and other security paper which mainly consists of non judicial paper. The Company achieved a sales volume of 1,658 tons as against 1,622 tons during the corresponding period. Product diversification We have continued our efforts to expand the product base to achieve economy of scales and optimize the production capacity. During the year under review we have successfully produced traveller's cheque paper and have delivered it to the customer. We have also accelerated our efforts for the production and marketing of the passport paper and have successfully carried out its trial run. Plant Upgrade We are now living in a highly competitive and quality conscious world; therefore it has become essential to replace 40-50 years old machines. To this end, the Company started balancing, modernization and replacement (BMR) of plant and machinery to replace critical machines with modern, automatic version.

08

Chairman's Review
The following projects which have been commissioned during the previous year are successfully in operation: Up-gradation of Control System (PCS-7) Control/Monitoring of Quality Parameters Modification in Sheeter Machine Modification in Rewinder Machine Automatic Packaging Line On-line surface inspection system The following projects have been completed during the year under review and are in operations: Repulping & Cleaning of Broke Automatic Embossing Machine Automatic E-type Welding Automatic Spot & Seam Welding The BMR projects will maintain continuity of operations, improve quality parameters of paper, and keep ourselves technologically advanced. Co-generation Power Plant The Company installed a 2.8 mega watt co-generation power plant in 2009 which is working satisfactorily. The plant has helped in substantially reducing the production breakdown caused due to frequent power outages. The self power generation is relatively cheaper. Therefore, the Company is able to bring increased plant efficiency with reduced cost. Business process re-engineering The Company is pursuing business process re-engineering program and redesigning manufacturing processes to achieve improvement in current performance which have an impact on Company's bottom line. During the year the Company has undertaken balancing modernization and replacement (BMR) of its production facility to upgrade various business processes by bringing in latest innovations and technological advancements. The aim of these efforts is to ensure continuity of operations, improve product quality parameters and achieve cost effectiveness. Internal Audit The Internal Audit function is an independent appraisal activity in the Company for the review of accounting, financial, and operational matters and acts as a managerial control and resident value adding agent. Internal audit reviews are risk-based and impartial. The broad targets of these reviews are operational efficiency, safeguard of profitability and Company's interests, and establishment and observance of internal controls. Internal Audit's scope covers financial as well as operational aspects and is an effective tool to monitor compliance with management policies. The function performs risk assessment and recommends improvements in internal control, through application of the 'Committee of Sponsoring Organizations of the Treadway Commission' (COSO) and Control Self Assessment (CSA) provisions. Integrated Quality and Environmental Management System (IMS) During the year under review, SPL has been re-certified by M/s. SGS Pakistan (Pvt.) Limited in respect of Integrated Quality and Environmental Management System of ISO 9001:2008 & ISO 14001:2004. In order to maintain high quality levels, Company has adopted modern management techniques and training practices. For the monitoring of the effectiveness of the Integrated Quality and Environmental Management System of ISO 9001:2008 & ISO 14001:2004, regular internal and external

09

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12

Chairman's Review
audits are being conducted. The external audits have been carried out by external agency of M/s. SGS Pakistan (Pvt.) Limited. Quality Management System The Company believes in maintaining highest standards of quality in the production of banknote and other security paper. Conformance to the quality parameters and desired specifications is an integral part of our Quality Management System. ISO certification on Quality Management System (QMS) clearly manifests our desire of manufacturing quality products. This also enables us to adopt international practices with respect to the QMS. Environmental Management System We have implemented Environmental Management System (EMS) through planning and collective efforts to ensure delivery of quality products with minimum adverse negative environmental impacts and compliance with National Environmental Quality Standard (NEQS). The Company has a comprehensive Environmental Management System (EMS), which is certified and periodically audited by M/s. SGS Pakistan (Pvt.) Limited. We mitigate the environmental impact by effective implementation of ISO 14001:2004 to comply applicable laws and regulations. The ISO certification on Environmental Management System (EMS) reassures safe environment for plant operations, workers and the community. We maintain cleanliness and green environment in and around the factory area with a view to control pollution. Research & Development (R&D) The Company continues its research and development activities to keep ahead of the field to attain efficiency and sustainability. It is a continuing process with a prime objective to improve product performance to provide competitive advantage and to obtain new knowledge, applicable to the Company's business needs. This eventually will result in new or improved products, processes, systems, or services that can increase the Company's sales and profits. Occupational Health and Safety The Company has made objective based efforts for reducing unsafe and unhealthy work practices/conditions. A review of hazards identification and risk assessment is regularly carried out. Incident/accident analysis and follow-up for corrective/preventive measures are taken to reduce accidents. Comprehensive trainings are provided to

Chairman's Review
our employees in the area of Occupational Health and Safety Assessment Specifications (OHSAS). The Company has a Fire Fighting System equipped with all the facilities to cope with fire hazards. The Company recognizes the importance of a healthy workforce and accordingly arrangements are in place for their regular medical check-up. Safety and Security The Company has strategic nature of operations as its products are of highest national importance. Therefore, the security and safety of production facilities and human capital is of prime concern. In view of the security threats prevailing in the country, a Crises Management Cell is functional to monitor, identify and overcome any kind of subversive activities. Our security systems include CCTV System, Fire Alarm System, Access Control System, Security Lighting System, Road Blockers, Walk Through Gate and Under Vehicle Surveillance System to cater to the security requirements of the Company. Corporate Social Responsibility (CSR) The Company believes that every business entity needs to contribute to the well being of its surrounding communities for a better and prospering nation. The successful and sustainable business requires fulfilling our social responsibilities and to be more responsive, more flexible and more open to the society's expectations. Our Company participated actively towards the welfare of society at large and donations were made to non government / non-profit organizations and to the deceased employees' families as detailed below: Donation to Friends of Burns Centre for providing burns care facilities to burns victims Flood relief activities through M/s. Hussaini Foundation and Army relief cell in the form of food cartons, tents, pillows, quilts and duvet beddings Deceased employees' families Contribution to the national exchequer and the economy of the country During the year under review the Company made contribution to the national exchequer by way of taxes, levies, sales tax etc. amounted to Rs 246.54 million as compared to Rs 247 million during the corresponding period. In addition, the Company has also made foreign exchange savings of US$ 15.62 million (approx.) through import substitution during the year as compared to US$ 15.20 million in the corresponding period. Energy Conservation The Company has a self co-generation power plant and is aware of the country's need for energy conservation to bridge the gap between energy supply and increasing demand. Areas having energy saving possibilities are identified and analyzed for initiating energy saving projects. Employees are encouraged to switch off lighting, computer systems, electronic equipments and air-conditioners when not in use. Also heat insulation is provided in steam line and tanks to avoid heat losses. All electrical equipments are properly maintained to save the energy. Human Resource and Administration The company believes that attracting and retaining high quality human resource is a great challenge for any organization. Human resource policies are designed to ensure best practices to attract, recruit, develop and retain highest quality of human capital. We make all endeavors to take good care of our human resource in order to grow, compete and stay profitable.

11

annual report two thousand

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12

Chairman's Review
Training & Development We believe learning is a continuous process, initiatives have been taken to identify the employees training needs and arranged various training program within the organization and outside the organization. During the current financial year 2011-2012 training of 1,467 man-hours were availed for the development and improvement of soft and technical skills. We encourage our employees to take professional memberships in business, professional and technical organizations and institutions, which enhances their functional ability and are directly related to employees' job. Business Ethics and Anti-Corruption Measures The Company has a comprehensive Code of Ethics and Business Practices which has been disseminated throughout the Company. The authorities and responsibilities are defined and appropriately delegated for transparent operation and a policy on detection and prevention of corruption is in place. During the year we have introduced a 'Speak Up policy' to encourage our employees to speak up promptly, if they have any reason to suspect that there have been breach or potential breach of our ethics and core values or any other misconduct. Credit Rating JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Security Papers Limited (SPL) at 'AAA/A-1+' (Triple A/A-One Plus). Outlook on the medium to long term rating is 'Stable'. Corporate Governance Rating It is a matter of great satisfaction that for the year under review the Corporate Governance Rating has been upgraded to "CGR 8++" denoting "high level of governance" by M/s. JCR-VIS Credit Rating Company Limited from previous rating of "CGR 8+". Corporate governance rating is based on evaluation of key governance elements of the rated enterprise, which include Ownership Structure, Regulatory Compliance, Composition and Operations of the Board of Directors and Executive Management, Financial Transparency, Self-Regulation, and Stakeholder Relations. The rating is measured on a scale ranging from CGR-1 (lowest) to CGR10 (highest). Corporate Excellence Award The Company holds 24th to 28th Awards (five times running) of the Management Association of Pakistan (MAP) for the Forestry & Paper Sector. The Corporate Excellence Awards are conferred by the MAP with an objective to recognize the listed companies which excel in corporate and management practices. The award manifests Company's commitment to quality, maintenance of highest professional standards and constant strive to achieve excellence in all spheres of its activity. This award is considered the most prestigious achievement in the corporate sector. The quality of management practices of the companies in different areas like corporate governance, strategic planning, social responsibility, planning human resources, production management, research and development are appraised by the MAP. Best Corporate Report Award During the year Company has won the Best Corporate Report Award 2010. The selection was based on comprehensive criteria, which requires inclusion of detailed information in the Annual Report on the subjects of Corporate Objectives, Director's Report, Disclosure, Shareholder Information, Report Presentation and Corporate Governance. The Joint Committee of the Institute of Chartered Accountants of Pakistan (ICAP) and the Institute of Cost & Management Accountants of Pakistan (ICMAP) has instituted this Award.

Chairman's Review
The Annual Report - 2003 and 2006 to 2009 of the Company already won the Best Corporate Report Award. Top Companies Award The Company has the distinction of receiving Top Companies Award of the Karachi Stock Exchange (KSE) for the year 2000 to 2007 and 2009 to 2010. The award is conferred by KSE on the basis of criteria which includes Distribution to Shareholders, Return on Equity, Turnover of Shares, Number of Shareholders, Corporate Social Responsibility (CSR) and Good Corporate Governance/ Compliance with Code of Corporate Governance. Best Sustainability Report Award During the year the Sustainability Report 2010 of SPL won the "Certificate of Appreciation". The Award has been introduced by the Joint Committee of the Institute of Chartered Accountants of Pakistan (ICAP) and the Institute of Cost and Management Accountants of Pakistan (ICMAP). Environmental Reporting Award During the year the Company's Environmental Report 2011 has been short listed in the top ten companies out of 78 companies by Association of Chartered Certified Accountants-World Wildlife Fund (ACCA-WWF) Pakistan Environmental Reporting Award (PERA) 2011. In the year 2010, the Company had been awarded "commendation for commitment to environmental reporting 2010". Fire & Safety Award The Company has won the 1st Fire and Safety Award - 2011. The Award is jointly organized by National Forum for Environment & Health (NFEH) and Fire Protection Association of Pakistan (FPAP) Risks and Challenges The revenue of the Company is largely dependent on increase in selling prices obtained from the major customer i.e. Pakistan Security Printing Corporation (Pvt.) Limited. The manufacturing of banknote and other security paper will continue to be competitive on account of inflationary pressures resulting from rising fuel and commodities prices, economic recession, and rupee depreciation which continue to be a major challenge for the Company. However, relief on account of decline in cotton comber prices will partially absorb cost escalation. The increase in cost of production on multiple accounts may squeeze margins and affect the Company's profitability. The Company is making all out efforts to improve the capacity utilization of its existing operations. The management is also laying lot of emphasis on internal efficiencies by improving quality and making determined efforts to reduce the cost of doing the business. The Company is well poised to face these challenges through various measures including planning and controlling costs, operational analysis, expanding product base and prudent financial management. Acknowledgement I take this opportunity to acknowledge the contribution and commitments made by all management, staff members and workers in achieving the Company's objectives. I am also thankful to the board of directors, shareholders, customers, bankers and other stakeholders for their support that will undoubtedly bring continual improvement and success for the Company.

MUSTAPHA A. CHINOY Chairman Karachi Dated: July 31, 2012

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annual report two thousand

12 Directors' Report

Sitting from left to right: Ms. Yasmin Saud, Mrs. Naiyer Muzafar Husain, Mr. Jamal Nasim and Sheikh Mohammad Aijaz Akhtar Standing from left to right: Mr. Hasan Irfaan, Mr. Mohammad Reza Roshani Moghaddam, Mr. Mazhar-ul-Hassan Shah, Mr. Mustapha A. Chinoy and Mrs. Ayla Akin

14

Directors' Report
The Directors of the Company are pleased to present the Annual Report of the Company along with the Audited Financial Statements for the year ended June 30, 2012. Financial Results The operating results of the Company for the year ended June 30, 2012 are summarized as follows:

2012 2011 (Rupees in 000) Profit before taxation Taxation Current - for the year Current - for prior Year Deferred Profit after taxation Subsequent Appropriations The Directors have recommended (i) final cash dividend of Rs 6/- per share, i. e. 60% (2011: Rs 5/- per share, i.e. 50%) and appropriation of Rs 131.20 million (2011 Rs 109 million) to revenue reserves. These appropriations will be reflected in the subsequent financial statements, in compliance with the revised Fourth Schedule to the Companies Ordinance, 1984. Earnings per share
Paid up Capital

510,222 12,127 (1,525) 10,602 121,519 132,121 378,101

421,528 25,347 (405) 24,942 81,510 106,452 315,076

PAID UP CAPITAL VS. DIVIDEND

450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 -

RS IN THOUSAND

07 20

08 009 010 20 2 2
YEAR
Cash Dividend

11 20

12 20

Bonus Shares

The earnings per share (EPS) - before and after taxation are Rs 12.4 and Rs 9.19 (2011: Rs 10.24 and Rs 7.66) respectively. Operating Results During the year under review, the net sales revenue is higher by Rs 267.89 million as compared to the previous year mainly due to higher sales volume and increase in product pricing. The company earned a gross profit of Rs 513.86 million during the year under review as compared to Rs 344.00 million in the previous year. The increase in gross profit during the current year as compared to the corresponding year is mainly attributable to higher sales volume, increase in selling prices and reinforced cost effective measures.
EARNINGS PER SHARE
16.00 14.00 12.00

RUPEES

10.00 8.00 6.00 4.00 2.00 -

07 008 009 2 20 2

10 11 12 20 20 20
Earning per Share after Tax

YEAR
Earning per Share before Tax

15

annual report two thousand

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Directors' Report
Other operating income decreased marginally by Rs 5.05 million during the current year as compared to the previous year. The profit after tax of Rs 378.10 million has been earned for the year as compared to Rs 315.07 million during the previous year. The increase in Company's profitability during the year under review is mainly due to higher sales volume, product pricing, reduced production losses, higher absorption of production overheads and availability of tax credit on Balancing, Modernization, and Replacement (BMR) projects. Market and book value per share The book value per share stood at Rs 82.44 as against Rs 78.25 in the previous year. The before and after tax return on equity worked out to be 15.04% and 11.15% compared to 13.09% and 9.78% in the corresponding period respectively.
REVENUES AND EXPENSES
2,000,000 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 -

RS IN THOUSAND

07 20

08 20

09 20

10 20

11 20

12 20

YEAR
Net Sales & Other Income Cost of Sales, Operating & Financial Expenses Pre-tax Profit

The average market price during the year remained at Rs 39.52 (2011: Rs 42.20) per share. The market price as of June 30, 2012 was Rs 44 (2011: Rs 40.50). MARKET VALUE PER SHARE VS. Cash Flow Management BOOK VALUE PER SHARE During the year under review an amount of Rs 263.60 million was generated from the operating activities of the Company and Rs 227.62 million obtained through external financing. The Company made an outlay of Rs 549.15 million (2011: Rs 586.22 million) on account of capital expenditure and paid Rs 187.91 million as dividend to the shareholders. Long term debt equity and current ratios The long term debt-equity and the current ratios of the Company as at June 30, 2012 works out to 0.14:1 and 3.84:1 (2011:1:10 and 4.92:1) respectively. Material changes and commitments No material changes and commitments affecting the financial position of the Company have occurred between the end of the financial year of the Company to which the balance sheet relates and the date of the report. Financial Statements The auditors of the Company, M/s. KPMG Taseer Hadi & Co., Chartered Accountants, audited the financial statements of the Company and have issued an unqualified report to the members. Auditors
120.00 100.00 114.0

RUPEES

60.00 40.00 20.00 -

50.0

72 .2

43.0

75 .6

42.2

78 .3

80.00

81 .3

39.5

07 20

08 20

09 20

10 20

11 20

12 20

YEAR Market Value Book Value

FIXED ASSETS AT COST VS. CASH OUTFLOW FOR FIXED CAPITAL EXPENDITURE
2,100,000 RS IN THOUSAND 1,800,000 1,500,000 1,200,000 900,000 600,000 300,000 07 20 08 20 10 09 20 20 YEAR 11 20 12 20

Fixed Assets at Cost Fixed Capital Expenditure

The auditors, M/s. KPMG Taseer Hadi & Co., Chartered Accountants, retire at the conclusion of the Annual General Meeting. Being eligible, they have offered themselves for re-appointment. As suggested by the Board Audit Committee, the Board recommends the appointment of M/s. KPMG Taseer Hadi & Co., Chartered Accountants, as auditors of the Company for the year 2012-13.

16

82 .4

.2 89

76.7

Directors' Report
Board and Committee Changes In line with the Code of Corporate Governance, the following changes have taken place during the year: The common position of Chairperson and Chief Executive has been separated whereby Mr. Mustapha A. Chinoy, an independent Non-executive Director has been appointed as Chairman of the Board of Directors while Mrs. Naiyer Muzafar Husain retained the position of Chief Executive of the Company. Mr. Jamal Nasim, an independent Non-executive Director has been appointed as member of the Board Audit Committee (BAC) in place of Mr. Ansar Hussain. Subsequently, he has been appointed as Chairman BAC in place of Mr. Mustapha A. Chinoy, Chairman of the Board of Directors. Mr. Mustapha A. Chinoy, an independent Non-executive Director has been appointed as Chairman of the Board Human Resource and Remuneration Committee (HR&RC) in place of Mrs. Naiyer Muzafar Husain, Chief Executive. Besides, Mr. Jamal Nasim, an independent Non-executive Director was inducted as member of the HR&RC. The following other changes have also taken place since the previous year's Annual Report: Ms. Yasmin Saud has joined the Board as an independent Non-executive Director being nominee of State Life Insurance Corporation of Pakistan in place of Mr. Ansar Hussain. Mr. Mazhar-ul-Hassan Shah, a Non-executive Director has been appointed as member of Board Investment Committee in place of Mr. Ansar Hussain. The Board welcomes the new member and appreciates the contribution of the outgoing member while on the Board of Directors and the Committee of Directors of the Company. Compliance with the Code of Corporate Governance The "Statement of Compliance with the Code of Corporate Governance" (CCG) is annexed (page 49). Statement on Corporate and Financial Reporting Framework a. b. c. d. e. f. g. h. i. j. The financial statements, prepared by the management of the Company, present its state of affairs fairly, the results of its operations, cash flows and changes in equity. Proper books of account of the Company have been maintained. Appropriate accounting policies have been consistently applied in preparation of financial statements and accounting estimates are based on reasonable and prudent judgment. The International Financial Reporting Standards (IFRS), as applicable in Pakistan, have been followed in preparation of financial statements and any departure there from has been adequately disclosed and explained. The system of internal control is sound in design and has been effectively implemented and monitored: and There are no significant doubts upon the Company's ability to continue as a going concern. Key operating and financial data of last six years in summarized form is annexed (page 34). Outstanding taxes and levies have been adequately disclosed in the annexed audited financial statements. The following is the value of investments based on respective latest audited accounts: (i) Provident Fund Rs 238.22 million (ii) Gratuity Fund Rs 228.115 million. The detail of number of Board and Committee meetings held during the year and attendance by each Director is as follows:

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annual report two thousand

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Directors' Report
Name of Directors Mrs. Naiyer Muzafar Husain Mr. Mustapha A. Chinoy Sheikh Mohammad Aijaz Akhtar Mr. Hasan Irfaan Mrs. Ayla Akin - (Turkey) Mr. Ansar Hussain Mr. Jamal Nasim Mr. Mazhar-ul-Hassan Shah Mr. Mohammad Reza Roshani Moghaddam - (Iran) Ms. Yasmin Saud Board Audit Committee Investment Committee Eligible to Attended Eligible to Attended Eligible to Attended Attend Attend Attend 6 6 0 0 2 2 6 6 5 5 2 2 6 6 0 0 0 0 6 6 5 5 0 0 6 0 0 0 0 0 4 4 3 3 1 1 6 6 1 1 0 0 6 6 0 0 1 1 6 2 4 2 0 0 0 0 0 0 0 0

During the year under review no formal Human Resource and Remuneration Committee (HR&RC) meeting was held. However, matters of urgent nature were directly discussed and approved at the Board meeting on the recommendation of members of HR&RC. k. During the year Mrs. Naiyer Muzafar Husain, Chief Executive and Ms. Yasmin Saud, Director have completed Corporate Governance Leadership Skill (CGLS) program. In addition Mr. Mustapha A. Chinoy, Chairman meets the criteria of exemption under clause (xi) of CCG and is accordingly exempted from directors' training program. The pattern of shareholding is annexed (page 90). No trading in Company's shares was carried out by its Directors, CEO, CFO, Company Secretary, Head of Internal Audit, other Executives and their spouse(s) and minor children.

l. m.

The Economy Real GDP growth for 2011-12 has been estimated at 3.7 percent as compared to 3.0 percent in the previous fiscal year 2011. Manufacturing Sector registered growth at 3.56 percent compared to the growth of 3.06 percent last year. Per capita real income grew at 2.33 percent in 2011-12 as compared to 1.33 percent growth in last year. In dollar term it increased from $ 1258 to $ 1372 in 2011-12. The agriculture growth this year stood at 3.1 percent as compared to 2.4 percent during 2010-11. Cotton production has increased to 13,595 thousand bales in 2011-12 from 11,460 thousand bales in 2010-11 showing an increase of 18.6 percent. The inflation rate as measured by the changes in Consumer Price Index (CPI) stood at 10.8 percent during (July-April) during current fiscal year 2011-12, against 13.8 percent in the comparable period of last year. Future Prospects and Outlook The profitability of the Company during the financial year 2012-13 will largely depend on the availability of raw materials at reasonable prices, positive business environment and growth oriented policies of the Government. The inflationary pressures are expected to remain dominant. However, the Company on its part is geared up to face the future with a positive outlook through plant upgrade, product diversification, improving efficiencies, cost effectiveness, cost control and an appropriate price increase for its products. Every effort will be made to convert risk and challenges into opportunities. All energies are focused on directing resources towards sustainable growth and development of the business. The Board of Directors endorse the contents of the Chairman's Review annexed (page 8). On behalf of the Board of Directors

MRS. NAIYER MUZAFAR HUSAIN Chief Executive

18

Karachi Dated: July 31, 2012

Profile of the Members of the Board of Directors

MR. MUSTAPHA A. CHINOY Independent Non-Executive Director Mr. Mustapha A. Chinoy was elected to the Board of Directors in 1996. Being Non-Executive Director, he is also: Chairman of (i) Board Human Resource & Compensation Committee, Member of (ii) Board Audit Committee and (iii) Board Investment Committee. He is Bachelor of Science in Economics from Wharton School of Finance, University of Pennsylvania, USA. He has vast experience of trade & industry. He has worked with M/s. Checchi & Company Washington DC and has been Assistant to the President Hollywood Sporting Goods, Los Angeles; he is currently Chief Executive of Intermark (Private) Limited, dealing in Test & Measurement equipment and Training Aids & Teaching System. He is presently Honorary Consul General of Greece in Karachi. In the past he has served on the Board of Union Bank Limited prior to its sale to Standard Chartered Bank. Other Directorship: (i) (ii) (iii) (iv) (v) (vi) International Industries Limited Pakistan Cables Limited International Steels limited Intermark (Pvt.) Limited Travel Solutions (Pvt.) Limited Global E Com Services (Pvt.) Limited

MRS. NAIYER MUZAFAR HUSAIN Managing Director / Chief Executive Being nominee of Pakistan Security Printing Corporation (Pvt.) Limited (PSPC), Mrs. Naiyer Muzafar Husain was appointed to the Board of Directors in 2000 and as Managing Director in 2008. She is also Chairperson of Board Investment Committee and member of Board Human Resource & Compensation Committee. She is a 'Certified Director'. She holds Masters Degree in Pakistan Studies. Mrs. Naiyer has over 33 year experience in various government departments such as Ministry of Finance & Economic Affairs Division. Manager (Foreign Aid) Civil Aviation Authority (CAA), Chief of Foreign Aid, Planning & Development Department, Government of Sindh. Director Finance & Air Transport CAA. Other Directorship: Chairperson & Managing Director: (i) Pakistan Security Printing Corporation (Pvt.) Limited and (ii) SICPA Inks Pakistan (Pvt.) Limited.

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annual report two thousand

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Profile of the Members of the Board of Directors

SHEIKH MOHAMMAD AIJAZ AKHTAR Independent Non-Executive Director

Sheikh Mohammad Aijaz Akhtar is on the Board of Directors Since 2006. He was elected to the Board of Directors in 2008. Being a Non-Executive Director, he is also Member of Board Human Resource & Compensation Committee. He is a Graduate (B.Sc.). Sheikh Aijaz has about 39 year of experience with (i) family business (ii) Trade & Industry (iii) Steel Merchants and (iv) Gulf Builders & Developers (Pvt.) Limited.

MR. HASAN IRFAAN Non-Executive Director Mr. Hasan Irfaan was appointed to the Board of Directors in 2006 as Non-Executive Director, being the nominee of Pakistan Security Printing Corporation (Pvt.) Limited (PSPC). He is also member of Board Audit Committee. He is an Electrical Engineer by profession from Engineering College Peshawar with post graduate education in advance Electronics from Netherlands. He has 26 years of experience of working in Philips Electrical Industries of Pakistan in managing the overall operations of Consumer Electronics and Lighting factories. He has rich experience, both in batch / flow production and running a process industry. During his stay in Philips, he gained extensive training in manufacturing, total quality, process management and general management. He attended numerous seminars, conferences, workshops and training courses in Asia pacific and European countries. For the last about 10 years, he has been working in PSPC in the capacity of Director Operations and Plant Manager, managing the factory operations of the printing of complete range of high value and security documents for the country. Other Directorship: SICPA Inks Pakistan (Pvt.) Limited.

20

Profile of the Members of the Board of Directors

MRS. AYLA AKIN Independent Non-Executive Director Mrs. Ayla Akin was appointed to the Board of Directors in 2007 as Non-Executive Director, being nominee of Sumer Holding A.S., Turkey. She is a Graduate from Ankara University. Mrs. Akin has over 26 year experience in government service. Other Directorship: Director of Privatization in Sumer Holding A.S., Turkey.

MR. JAMAL NASIM Independent Non-Executive Director Mr. Jamal Nasim was appointed to the Board of Directors in 2010. He is a Non-Executive Director being nominee of National Investment Trust Limited (NIT). He is also Chairman of (i) Board Audit Committee and member of (ii) Board Human Resource & Compensation Committee. After having Bachelor of Commerce, he has done MBA from The Asian Institute of Management, Manila, Philippine. Mr. Nasim has about 32 years professional experience in Banking, Finance and Audit fields. He had been an ardent debater with a passion for poetry. He has taken part in declamation contests and won numerous prizes, gold medal and certificate of honour. He is fond of socializing and reading. Presently he is Chairman / Managing Director of Industrial Development Bank of Pakistan (IDBP). Other Directorship: Managing Director: (i) Industrial Development Bank of Pakistan (IDBP) Directors: (ii) Ellcot Spinning Mills Limited, (iii) Fazal Cloth Mills Limited, (iv) Mitchell's Fruit Farms Limited, (v) National Investment Trust Limited, (vi) National Bank Modaraba and (vii) Central Depository Company of Pakistan Limited. He is also on the Board of Governors of Lahore University of Management Sciences (LUMS) and Lahore School of Economics (LSE).

21

annual report two thousand

12

Profile of the Members of the Board of Directors

MR. MAZHAR-UL-HASSAN SHAH Non-Executive Director Mr. Mazhar-ul-Hassan Shah was appointed to the Board of Directors in 2011 as Non-Executive Director, being nominee of Pakistan Security Printing Corporation (Pvt.) Limited. He is also member of Board Investment Committee. He is M.Sc. (Pakistan Studies). He has done Management course on 'Public Policy' from National School of Public Policy (NSPP). Mr Mazhar has about 11 year professional experience in the public sector gaining in depth knowledge of Government working systems and procedures. He is presently working with Ministry of Finance, Government of Pakistan. Reading books and hiking are his hobbies.

MR. MOHAMMAD REZA ROSHANI MOGHADDAM Independent Non-Executive Director

Mr. Mohammad Reza Roshani Moghaddam is appointed to the Board of Directors in the year 2011. He is Non-Executive Director, being nominee of Industrial Development & Renovation Organization of Iran (IDRO). He is B.S in Mechanical Engineering from Sharif Industrial University and M.S in MBA from Industrial Management Institute. Mr. Roshani has more than 26 years rich experience in the fields of Machinery Design, Industrial Projects Management, Automotive and Oil & Gas industry, etc. He has worked in the senior management positions with: (i) President of Tyco (E.P.C. Contractor) (ii) Vice Chairman of J.T.s Co. (E.P.C. Contractor) (iii) Chairman of Soyab Sanat Co. (Manufacturer of DC Motors) (iv) Chairman of Sard Saz Khodro Co. (Manufacturer of A/C Systems) (v) Chairman of Mavad Karan Co. (Gas Turbine Blade Manufacturer) (vi) Chairman & President of Mega Motor Co., (Automotive Power Train Manufacturer) (vii) Vice Chairman of Renult Pars (Joint venture between IDRO and Renult) (viii)Member Board and Vice President of Saipa Group (Automotive Manufacturer) (ix) Vice Chairman of Pars Khodro (Automotive Manufacturer) Other Directorship: Presently he is (i) Deputy of IDRO, (ii) Chairman of Saipa Kashan, (Automotive Manufacturer), (iii) Vice Chairman of AIRC Co., (R&D for Automotive Industries) and (iv) Chairman of RTI {Metro engineering, procurement, construction, installation (EPC) Contractor} and Vice Chairman of IPMI (E.P.C Contractor in oil and gas fields). Mr. Roshani is married and has three children.

22

He is widely traveled.

Profile of the Members of the Board of Directors

MS. YASMIN SAUD Independent Non-Executive Director Ms. Yasmin Saud was appointed to the Board in 2012. She is Non-Executive Director being nominee of State Life Insurance Corporation of Pakistan (SLIC). She is a 'Certified Director'. She has done: (i) Masters in English Literature from University of Peshawar and (ii) Executive Development Training at Kennedy School of Harvard University, USA. She joined civil services (Inland Revenue) in 1979 and has 32 years of extensive professional experience in taxation, finance, human resource, administration and insurance. She has served as Chief Commissioner Income Tax at Large Tax Payers Unit Karachi and Executive Director Finance, Admin and Human Resource, Pakistan Reinsurance Company Limited. Presently she is working with State Life Insurance Corporation of Pakistan as Executive Director (Finance). Her special interest is teaching at prestigious institutions like, Institute of Business Administration (IBA), SZABIST and NIPA. Other Directorship: (i) M/s. Alpha Insurance Company and (ii) M/s. Pakistan Reinsurance Company Limited.

23

annual report two thousand

12 Organization Chart
D
BO

IR E

AR

CT

RS

Board Audit Committee

Board Investment Committee

Board Human Resource & Remuneration Committee

MANAGING DIRECTOR / CHIEF EXECUTIVE

Director Projects

General Manager (Internal Audit)

General Manager (F&A) / CFO

General Manager (Supply Chain)

General Manager (Security)

General Manager (HR & Admin.)

Company Secretary

Dy. General Manager (Works)

Dy. General Manager (QA / R&D)

Dy. General Manager (Production)

24

Criteria to Evaluate Board's Own Performance

Following areas of responsibility forms the basis of criteria to evaluate Board's own performance: a. Adherence to the laws, rules and regulations, etc. as laid down under the Companies Ordinance, 1984 and as may be specified from time to time by the Securities and Exchange Commission of Pakistan, the Memorandum and Articles of Association of the Company and the Listing Regulations of Stock Exchange. Adherence to the requirements of the Code of Corporate Governance in all material respects. Determining and monitoring the Company's values to be applied in all its operations. Establishing and evaluating strategic direction of the Company. Approving Company's policies and monitoring implementation. Ensuring adequate financial resources. Ensuring risk management and ways to mitigate the risks. Providing effective fiscal oversight. Delegating to Board's Committees. Approving hiring, compensation, salary reviews, and dismissals of top management. Overseeing the succession planning of the Company's top management Ensuring that the Company has defined the operating principles of internal control and monitors the functions of such control.

b. c. d. e. f. g. h. i. j. k. l.

m. Supporting the Chief Executive. n. Enhancing Company's public image.

25

annual report two thousand

12 Shareholders' Information
Annual General Meeting The Annual General Meeting of Security Papers Limited will be held on Thursday, the August 30, 2012 at 11:00 AM at The Institute of Chartered Accountants of Pakistan, Chartered Accountants Avenue, Clifton, Karachi. Eligible shareholders are encouraged to participate and vote. Registered Office Jinnah Avenue, Malir Halt, Karachi-75100 Telephone: 99248285 Fax: 99248286 E-mail: [email protected] Website: http://security-papers.com Share Registrar FAMCO Associates (Pvt.) Limited 1st Floor, State Life Building 1-A, I. I. Chundrigar Road, Karachi-74000. Tel: 32427012, 32425467 & 32426597 Fax: 32426752 & 32428310 Timings: 8:30 AM to 1:00 PM & 2:00 PM to 3:30 PM Auditors KPMG Taseer Hadi & Co. Chartered Accountants Investor Relations Contact Mr. Muhammad Abdul Aleem Company Secretary Telephone: 99248285 Fax: 99248286 E-mail: [email protected] and [email protected] Web Reference The Company maintains a functional website. Annual, Half-yearly and Quarterly reports are regularly posted at the Company's website: http://security-papers.com. Stock Exchange Listing Security Papers Limited is listed on Karachi Stock Exchange (Guarantee) Limited. The symbol code for dealing in shares of the Company is SEPL. Karachi Stock Exchange Share Prices 2011-12 Price in Rupees Period 1st Quarter - September 30, 2011 2nd Quarter - December 31, 2011 3rd Quarter - March 31, 2012 Annual - June 30, 2012 High 34.96 43.55 42.00 47.85 Low 32.60 31.20 35.00 31.20 Average 33.78 37.38 41.50 39.52

26

Shareholders' Information
Reporting Period 1st Quarter - September 30, 2011 2nd Quarter - December 31, 2011 3rd Quarter - March 31, 2012 Annual - June 30, 2012 Dividend The Board of Directors have recommended in their meeting held on July 31, 2012 payment of final cash dividend at the rate of Rs 6/- per share i.e. 60% for the year ended June 30, 2012. Dividend Mandate [Optional] Transferee of shares may exercise option for dividend mandate by using the revised "Form of Transfer Deed". The revised form of transfer deed will enable the transferees to receive cash dividend directly in their bank accounts, if such transferee provides particulars of its bank account which he/she/it desires to be used for credit of cash dividend. The existing shareholders have the option to seek the dividend mandate by using the standardized "Dividend Mandate Form" if they so desires. Shareholders maintaining shareholdings under Central Depository System (CDS), are advised to please submit their Bank mandate information directly to the relevant participant / CDC Investor Account Service. Requirement of CNIC Number / National Tax Number (NTN) or Certificate / Passport Number Members are requested to provide a copy of the following valid document(s), as may be relevant, by post, fax or e-mail (if not yet submitted) to enable the Company comply with relevant laws: (i) CNIC [in case of local individual(s)] (ii) NTN Certificate [in case of corporate entities] or (iii) Passport Number [in case of foreigner(s)] Delivery of the Unclaimed/Undelivered Shares Members are requested to contact the Registered Office of the Company or the Share Registrar, M/s. FAMCO Associates (Pvt.) Limited for collection of their shares which they have not received due to any reasons. Financial Results October 25, 2011 January 26, 2012 April 24, 2012 July 31, 2012

27

annual report two thousand

28

12 Vision Statement
"To be a nationally and internationally recognized and accepted security paper producing organization, providing highest quality paper to our customers, both in Pakistan and abroad. "

Mission Statement
"We are the only national organization producing strategically important security paper products for the nation. We have developed a unique set of strengths and competencies. We wish to build on these assets and will strive continuously to achieve higher levels of excellence. Our mission is to exceed the expectations of our customers in producing, with security and efficiency, highest quality paper products, employing international best practices and applying an integrated approach to product research and development, manufacturing technology, operations management, counterfeit deterrence, materials procurement, human resource management, financial management and information systems."

29

annual report two thousand

12 Core Values
1. Striving for continuous improvement and innovation with commitment and responsibility; 2. Treating stakeholders with respect, courtesy competence; and

3. Practicing highest personal and professional integrity; 4. Maintaining teamwork, trust and support, with open and candid communication; 5. Ensuring cost consciousness in all decisions and operations.

30

Strategic Goals
a. Providing Customer Satisfaction by serving with quality products, security paper needs of national and international customers. b. Ensuring Quality Manufacturing by production of state-of-the-art security paper products with highest quality at lowest cost. c. Deterring Counterfeiting by producing security paper products that have built-in deterrence against counterfeiting so as to contribute to public confidence and facilitation of commercial transactions. d. Ensuring Security and Accountability by creating an environment of security and accountability for employees, production facilities and products. e. Expanding Customer Base by exploring new national and international markets and undertaking product research and development in security paper. f. Ensuring Efficient Resource Management by managing human, financial, technical and infra-structural resources so as to support the above strategic goals and to ensure highest possible value addition to stakeholders.

31

annual report two thousand

32

12 Code of ethics and business

practices
2. Reporting violations 3. Maintaining correct books and records of the Company 4. Strictly observing the laws of the country 5. Strictly avoiding questionable and improper payments, or use of the Company's assets 6. Strictly avoiding conflicts of interest 7. Strictly avoiding political contributions 8. Expediting payment of amounts due customers, agents or distributors 9. Strictly avoiding giving and receiving of gifts 10. Treating means to be as important as ends 1. Maintaining integrity and scrupulous dealings

Statement of Value Addition and its Distribution

2012 % VALUE ADDITION Net Sales including Taxes Other Operating Income 1,823,688 252,575 2,076,263 VALUE DISTRIBUTION Materials and Services Government Taxes and duties Employees remuneration and benefits Society Operating and other costs Finance Cost Dividends Retained Profit 780,172 388,782 350,317 5,854 129,827 43,210 205,750 172,351 2,076,263 37.6% 18.7% 16.9% 0.3% 6.3% 2.1% 9.9% 8.3% 100% 87.8% 12.2% 100%

2011

(Rupees in 000)

1,544,289 85.7% 257,621 14.3% 1,801,910 100%

615,380 355,987 293,298 4,103 211,801 6,265 205,750 109,326

34.2% 19.8% 16.3% 0.2% 11.8% 0.3% 11.4% 6.1%

1,801,910 100%

2012
9.9% 8.3% 2.1% 6.3% 0.3% 16.9% 18.7%
Materials and Services Government Taxes and duties Employees remuneration and benefits Society Operating and other costs Finance Cost Dividends Retained Profit

11.8% 37.6% 11.4%

2011
6.1% 34.2%

0.3%

0.2% 16.3% 19.8%

Materials and Services Government Taxes and duties Employees remuneration and benefits Society Operating and other costs Finance Cost Dividends Retained Profit

33

annual report two thousand

12

Key Operating and Financial Data

PARTICULARS Financial Position Fixed Assets - Net Investments Other Assets Current Assets Current Liabilities Working Capital Less : Long Term & Deferred Liabilities Shareholders' Equity Paid-up-Capital Reserves Captial Employed Trading Results Sales - Net of taxes Gross Profit Profit after Admn. & General Expenses Other Income/Finance & Other Costs Profit before Tax Taxation Profit after Tax Investors Information Dividend * Cash - Value Cash - % Bonus - Value Bonus - % Profit retained in Business - Value Retention - % Gross Profit to Sales % EBITDA (Rs '000) EBITDA Margin to Sales % Profit before Tax to Sales % Profit after Tax to Sales % Return on Equity - before tax % Return on Equity - after tax % Return on Capital Employed % Return on Assets - before tax % Return on Assets - after tax % Total Assets Turnover % Stock Turnover - No. of Days Debtor turnover Ratio - No. of Days Creditor turnover Ratio - No. of Days Operating Cycle Current Ratio Quick Ratio Cash to Current Liabilities Cash flow from operations to Sales Long Term Debt to Equity Long Term Debt to Asset Debt Equity Ratio Interest cover ratio No. of Shares in issue - (Rs '000) Bonus Shares Issued - No. Cash Dividend per share (Rs) Earning per share - before tax (Rs) Earning per share - after tax (Rs) Break-up value per share (Rs) : - Without Surplus on Revaluation on Fixed Assets - With Surplus on Revaluation on Fixed Assets Price Earning Ratio - Year end Price (Rs) Earning Yield - Year end Price % Dividend Payout % Dividend Yield - Year end Price % Dividend Cover - Times Market Capitalization - Year end Price - Rs '000) SHARE PERFORMANCE Share Price - Highest (Rs) Share Price - Lowest (Rs) Share Price - Average (Rs) Share Price - At year end (Rs) Turnover of shares PRODUCTION (Ton) Actual Production Banknote Paper Non-Banknote Paper SALES (Ton) Banknote Paper Non-Banknote Paper CASH FLOW SUMMARY Cash Flows from Operating activities Net cash used in investing activities Net cash used in financing activities Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year 263,604 (319,519) 34,820 37,592 16,497 234,684 (441,575) 194,726 49,757 37,592 286,335 (144,602) (211,364) 119,388 49,757 288,243 (421,147) (105,782) 358,074 119,388 129,742 (88,157) (87,488) 403,977 358,074 379,901 (570,047) (66,004) 660,127 403,977 1,241 419 1,660 1,433 189 1,622 1,416 171 1,587 1,415 293 1,708 1,561 171 1,732 1,601 129 1,730 1,243 418 1,661 1,199 203 1,402 1,423 164 1,587 1,424 300 1,724 1,627 171 1,798 1,709 130 1,839 47.85 31.20 39.52 44.00 2,239,201 50.40 34.00 42.20 40.50 2,215,905 64.71 39.50 52.11 42.99 2,383,636 83.50 35.50 59.50 50.00 1,068,200 143.75 75.05 109.40 76.66 4,295,000 142.85 78.15 110.50 113.95 1,417,100 205,750 0.00% 172,351 45.58% 32.71% 705,114 44.89% 32.48% 24.07% 15.04% 11.15% 8.95% 10.73% 7.95% 33.03% 131 67 31 167 3.84:1 3.08:1 0.03:1 0.17:1 0.14:1 0.10:1 0.25:1 16:1 41,150 12.40 9.19 205,750 50.00% 109,326 34.70% 26.40% 549,987 42.21% 32.35% 24.18% 13.09% 9.78% 8.35% 9.81% 7.33% 30.33% 136 63 26 173 4.92:1 4.24:1 0.07:1 0.18:1 0.10:1 0.08:1 0.17:1 86:1 41,150 5.00 10.24 7.66 78.25 5.29 18.91% 65.30% 12.35% 1.53 1,666,571 205,750 50.00% 142,341 40.89% 39.75% 636,622 55.24% 45.14% 30.20% 16.72% 11.19% 10.65% 14.32% 9.58% 31.71% 163 67 35 195 6.46:1 5.49:1 0.14:1 0.25:1 0.00:1 0.00:1 0.05:1 340:1 41,150 5.00 12.64 8.46 75.59 5.08 19.68% 59.11% 11.63% 1.69 1,769,034 205,750 50.00% 126,405 38.06% 40.76% 598,791 53.03% 43.68% 29.42% 16.61% 11.18% 10.68% 14.31% 9.63% 32.75% 146 77 42 181 6.43:1 5.65:1 0.35:1 0.26:1 0.00:1 0.00:1 0.05:1 335:1 41,150 5.00 11.99 8.07 72.17 6.19 16.14% 61.94% 10.00% 1.61 2,057,495 102,875 30.00% 68,583 20.00% 125,963 42.35% 45.55% 579,244 56.55% 46.62% 29.04% 17.13% 10.67% 10.31% 14.95% 9.31% 32.06% 164 51 27 188 6.36:1 5.47:1 1.15:1 0.13:1 0.00:1 0.00:1 0.03:1 1,099:1 34,292 6,858 3.00 11.60 7.23 67.74 10.61 9.43% 57.65% 6.52% 1.73 2,628,794 85,729 30.00% 57,153 20.00% 154,341 51.93% 47.72% 552,803 57.95% 47.61% 31.16% 17.83% 11.67% 11.39% 16.06% 10.51% 33.73% 146 29 14 160 7.09:1 6.04:1 1.85:1 0.40:1 0.00:1 0.00:1 0.02:1 4,387:1 28,576 5,715 3.00 11.04 7.22 61.91 15.78 6.34% 48.07% 4.39% 2.08 3,256,269 1,570,912 513,856 370,675 139,547 510,222 132,121 378,101 1,303,019 344,000 215,188 206,340 421,528 106,452 315,076 1,152,511 458,179 353,466 166,791 520,257 172,166 348,091 1,129,070 460,262 384,834 108,377 493,211 161,056 332,155 1,024,221 466,500 404,803 72,649 477,452 180,031 297,421 953,914 455,166 402,948 51,215 454,163 156,940 297,223 2,111,951 577,710 24,188 2,713,849 2,042,810 532,331 1,510,479 4,224,328 831,966 3,392,362 411,499 2,980,863 3,392,362 1,713,993 17,436 1,731,429 2,564,953 520,822 2,044,131 3,775,560 555,549 3,220,011 411,499 2,808,512 3,220,011 1,244,364 17,258 1,261,622 2,372,344 367,021 2,005,323 3,266,945 156,260 3,110,685 411,499 2,699,186 3,110,685 1,264,704 16,757 1,281,461 2,166,062 337,016 1,829,046 3,110,507 140,616 2,969,891 411,499 2,558,392 2,969,891 1,205,059 16,296 1,221,355 1,973,044 310,448 1,662,596 2,883,951 96,478 2,787,473 342,916 2,444,557 2,787,473 1,244,199 24,711 15,490 1,284,400 1,543,842 217,863 1,325,979 2,610,379 62,601 2,547,778 285,763 2,262,015 2,547,778 2012 2011 2010 2009 2008 (Rs In Thousand) 2007

82.44 4.79 20.88% 54.42% 11.36% 1.84 1,810,596

Total

* Proposed cash dividend of Rs 246.899 million (i.e. Rs 6 /- per share) is not reflected in the financial statements as referred to in note 37 of the financial statements.

34

Horizontal Analysis
BALANCE SHEET
ASSETS Non-current assets Property, plant and equipment Long-term deposits Investments Current assets Stores, spares and loose tools Stock-in-trade Trade debts - considered good Advances, deposits, prepayments and other receivables Accrued mark-up Loans, receivables & Investments Cash and bank balances Total assets LIABILITIES Current liabilities Current portion of Long term liabilities - Lease/Loan Trade and other payables Accrued mark-up on short term finance - secured Taxation - net Non-current liabilities Liabilities against asset subject to finance lease Long Term Finance Deferred taxation - net Total liabilities NET ASSETS Issued, subscribed and paid-up capital General reserve Unappropriated profit Surplus on re-measurement of investments classified as 'available for sale' SHAREHOLDER'S EQUITY Total liabilities & Shareholder Equity 2012 2011 2010 2009 2008 2007

23.22% 38.72% 100% 32.17% 12.57% 0.47% 68.37% -90.91% -100.00% -56.12% 10.71%

37.74% 1.03% -9.82% -0.14% 60.75% -59.34% 101.05% -4.45% -24.45% 18.23%

-1.61% 2.99% 17.19% 36.86% -30.06% -31.82% 285.03% 6.39% -28.29% 5.41%

4.95% 2.83% 12.21% -4.39% 9.90% 2.02% 219.41% 19.68% -56.10% 7.92%

-3.15% 5.20% -100.00% 27.78% 19.78% 314.16% 153.22% 81.50% 16.36% -11.68% 12.95%

-5.03% 5.60% -85.21% 34.94% 34.57% -41.02% 43.57% -33.51% 109.55% -3.32% 13.48%

76% 9.50% 36% -95.98% -26.19% 49.97% 53.22% 26.75% 5.35% 0.00% 4.37% 20.10% 5.35% 10.71%

4334% 46.81% 10377% -32.71% 19.85% 100% 55.52% 105.70% 3.51% 0.00% 6.05% -9.47% 3.51% 18.23%

26.34% 13.05% 544.44% 2.76% 41.14% 9.63% 9.56% 4.74% 0.00% 5.69% 4.77% -100.00% 4.74% 5.41%

23.24% 19.01% 125.00% -3.64% 37.89% 46.17% 17.38% 6.54% 20.00% 6.00% 11.66% -96.80% 6.54% 7.92%

100.00% 36.29% -50.00% 48.94% 100.00% 46.37% 45.09% 9.41% 20.00% 7.95% 0.01% 137.23% 9.41% 12.95%

0.77% 100.00% 247.98% 53.34% 48.34% 10.62% 30.00% 15.68% -24.81% 189.73% 10.62% 13.48%

Profit & Loss Account

Sales - net Cost of sales Gross profit Administration and general expenses Other operating income Other operating charges Impairment loss on 'available for sale' investment Operating profit Finance costs Profit before taxation Taxation - net Profit after taxation 20.56% 10.22% 49.38% 11.16% -1.96% 65.55% -100% 29.34% 578.25% 21.04% 24.11% 20.00% 13.06% 38.12% -24.92% 23.01% 20.66% -2.41% 67.03% -18.05% 239.79% -18.98% -38.17% -9.48% 2.08% 3.82% -0.45% 38.83% 5.48% -51.20% -55.75% 5.48% 4.92% 5.48% 6.90% 4.80% 10.24% 19.92% -1.34% 22.26% 80.18% 126.08% 100.00% 3.56% 239.09% 3.30% -10.54% 11.68% 7.37% 11.82% 2.49% 18.15% 27.81% 7.14% 5.21% 318.25% 5.13% 14.71% 0.07% -0.69% 0.69% -2.17% 3.08% 38.61% -12.69% 4.16% -25.88% 4.17% 289.00% -24.87%

35

annual report two thousand

12

Vertical Analysis
BALANCE SHEET
ASSETS Non-current assets Property, plant and equipment Long-term deposits Long Term Investments Current assets Stores, spares and loose tools Stock-in-trade Trade debts - considered good Advances, deposits, prepayments and other receivables Accrued mark-up Loans, receivables & Investments Investments Cash and bank balances Total assets LIABILITIES Current liabilities Current portion of liabilities against asset subject to finance lease Trade and other payables Accrued mark-up on short term finance - secured Taxation - net Non-current liabilities Liabilities against asset subject to finance lease Long Term Finance Deferred taxation - net Total liabilities NET ASSETS Issued, subscribed and paid-up capital General reserve Unappropriated profit Surplus on re-measurement of investments classified as 'available for sale' SHAREHOLDER'S EQUITY Total liabilities & Shareholder Equity 2012 2011 2010 2009 2008 2007

44.40% 0.51% 12.15% 2.40% 8.45% 6.89% 0.33% 0.65% 23.88% 0.35% 100%

39.89% 0.41% 2.01% 8.32% 7.60% 0.21% 7.89% 32.80% 0.87% 100%

34.24% 0.47% 2.63% 9.85% 5.59% 0.62% 4.64% 40.58% 1.37% 100%

36.68% 0.49% 2.37% 7.58% 8.42% 0.97% 1.27% 40.21% 2.01% 100%

37.72% 0.51% 2.28% 8.56% 8.27% 1.02% 0.43% 36.26% 4.95% 100%

43.99% 0.55% 0.87% 2.01% 8.07% 2.26% 0.46% 0.27% 35.20% 6.33% 100%

3.41% 7.53% 0.17% 0.08% 0.18% 9.96% 7.36% 28.68% 71.32% 8.65% 54.71% 7.96% 71.32% 100%

2.14% 7.61% 0.14% 2.23% 0.26% 7.35% 5.31% 25.05% 74.95% 9.58% 58.03% 7.33% 74.95% 100%

0.06% 6.13% 0.00% 3.91% 0.26% 0.00% 4.04% 14.40% 85.60% 11.32% 64.70% 9.58% 85.60% 100%

0.05% 5.71% 0.00% 4.01% 0.19% 0.00% 3.88% 13.85% 86.15% 11.94% 64.53% 9.64% 0.04% 86.15% 100%

0.04% 5.18% 0.00% 4.49% 0.15% 0.00% 2.87% 12.74% 87.26% 10.73% 65.70% 9.32% 1.52% 87.26% 100%

0.00% 4.29% 0.00% 3.41% 0.00% 0.00% 2.21% 9.92% 90.08% 10.10% 68.74% 10.52% 0.72% 90.08% 100%

Profit & Loss Account

Sales - net Cost of sales Gross profit Administration and general expenses Other operating income Other operating charges Impairment loss on 'available for sale' investment Operating profit Finance costs Profit before taxation Taxation - net Profit after taxation 100.00% 67.29% 32.71% 9.11% 16.08% 4.44% 35.23% 2.75% 32.48% 8.41% 24.07% 100.00% 73.60% 26.40% 9.89% 19.77% 3.24% 0.21% 32.84% 0.49% 32.35% 8.17% 24.18% 100.00% 60.25% 39.75% 9.09% 18.53% 3.75% 0.14% 45.30% 0.16% 45.14% 14.94% 30.20% 100.00% 59.24% 40.76% 6.68% 17.93% 7.84% 0.33% 43.84% 0.16% 43.68% 14.26% 29.42% 100.00% 54.45% 45.55% 6.02% 10.97% 3.82% 46.67% 0.05% 46.62% 17.58% 29.04% 100.00% 52.28% 47.72% 5.47% 9.21% 3.83% 47.62% 0.01% 47.61% 16.45% 31.16%

36

Management Review

annual report two thousand

12 The Management

Front row from left to right: Mrs. Naiyer Muzafar Husain, Mr. Rizwan Ul Haq Khan, Mr. Ghulam Hussain Akhtar and Syed Ahmad Raza Back row from left to right: Mr. Nadeem Azhar, Mr. Muhammad Imran Awan, Mr. Talha Bin Hamid Maj. (Retd.) Muhammad Ali Niazi, Mr. Khalil Ahmed, Mr. Faiz-Ul-Islam, Mr. Saadat Ali and Mr. Muhammad Abdul Aleem

38

Production
During the year, the Production department has made significant headway in the following areas: Improvement in the quality of paper by changing recipes of size solution (for both internal sizing and external coating) Increased the seasoning and conditioning properties of paper for earlier readiness of paper for printability. This has reduced finished inventory carrying time and cost Reduced the level of expensive raw material in raw material mix and improved the volume of paper broke for efficient recycling. A Project of broke re-pulping plant is in progress for efficient use of recycled paper Reduction in consumption of costlier chemicals Increase in the machine speed through process re-engineering Implementation of different quality management tools and techniques including DMIAC, LEAN, BRAIN STORMING and 5S within the production environment As part of product diversification program, travellers cheque paper is successfully manufactured and production of passport and cheque book paper is planned. The quality and consistency of input raw material is being improved through implementing a system of in-house quality checks to reduce spoilage It is the commitment of the Production department to continue improving production processes for cost saving and profit maximization

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40

12 Engineering
During the year 2011-2012, the Engineering department attended the following jobs to further improve the plant efficiency: Successful increase in machine speed from 32 meter per minute (m/min) to 42 m/min which increased the plant production Construction of new Mould building equipped with state-of-the-art mould cover making equipment and facilities Installation of new water supply system to increase water supply to plant Execution of scheduled preventive maintenance of plant equipments. This included overhauling of stock preparation Refiner using advanced Shaft Alignment Tool Construction of the new office of Supply Chain department and renovation of Board room Tasks in Progress Installation of Broke re-pulping plant for efficient recycling of paper broke Renovation of existing Pulp Mill section including installation of new goods lift, pumps, flooring, improvement in ventilation and lighting, etc. Future Plans Enhancement in capacity of the existing Reverse Osmosis (RO) plant from 0.5 Million Gallon Daily (MGD) to 0.75 MGD Enhancement in existing Co-generation power plant from 2.8 MW to 4.2 MW to meet the requirement of plant upgrade

Quality Assurance and Research & Development

To achieve the highest degree of customers' satisfaction, quality system procedures have been built-in in the entire management system by setting the quality objectives and targets for the whole year with continuous improvement in the existing Integrated Quality and Environmental Management System (IMS) of ISO 9001:2008 and ISO 14001:2004. To maintain the quality of products conforming to customers' requirements, all the stages of production processes from acceptance of raw materials to release of final finished products to customers are ensured by the implementation of quality management system. Research & Development To meet future challenges, we are constantly in search of areas of improvement. For this purpose, we are already engaged in balancing, up-gradation and modernization of existing capital assets and resources. We feel that the research and development activities are the backbone of sustainability. Efforts are being made to reduce processes and material losses to ensure continuous improvement in efficiency. The objective is to increase customers' satisfaction. During the year, following activities were carried out in the R&D department for achieving the desired objectives: Cost reduction by using cost effective alternate raw material and chemicals New product formulation and design modification have been developed (such as for cheque and national passport papers) according to customers' requirement. SPL has now developed capability to produce cheque paper and is on way to achieving such capability in respect of passport paper Overall spoil losses were reduced to lower side as compared to previous year By improving the system of monitoring the relative humidity, the process efficiency and the level of customers' satisfaction have significantly increased

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42

12 Security
Security is the prime concern owing to the prevailing law and order situation of the country. Keeping in view the objective, our focus remained on finding innovative and latest technology to further improve the safety and security of our product and premises against any pilferage, theft or sabotage. The following activities were performed by the Security department during the year: Along with the main road and away from main wall of the factory a 11 feet high solid security fence has been erected to keep the installation safe from any sabotage. This has significantly improved and upgraded the quality of security CCTV, Access Control & Fire Alarm Systems have been upgraded The following systems have been installed in the new Mould Building: o Fire Alarm System including smoke detectors, heat detectors, sounder and manual call points o Access Control System o CCTV System including dome and fixed cameras More Dome and fixed cameras have been added to increase level of security in the Finishing department New internal telephone line has been laid from SPL Telephone Exchange extending upto the Main and new Mould building to ensure efficient communication In-house training sessions in "Basic Fire Fighting & First Aid" were arranged through Civil Defence Authorities Local and foreign training on security related matters was arranged for four and two officers respectively

Finance & Accounts

The Finance & Accounts department plays a vital role in achieving company s' Vision, and Objectives. The department manages company's finances and has core responsibility for organising the financial and accounting affairs including the preparation and presentation of financial information. The following are the finance department's objectives: To provide a systematic and effective accounting system and financial management To strengthen strategic planning, budgeting functions and financial management and coordinate important activities for achievement of the Company's objectives Finance department is responsible for all matters related to financial procedures and the application of the principles of sound finance Provide strategic financial support for business and operational planning Preparation and compilation of budget estimates and to maintain an effective budgetary control system Provide day to day financial services to the management and staff Control of expenditure and economy measures Advise on the financial aspect of all transactions Introduce cost effectiveness and profit improvement plans Strive for overall corporate health Monitor capital structure and debt equity ratios Working capital and funds management Cost control, product pricing and management controls The Finance & Accounts department is committed to maintain highest standards of ethics and professionalism and play a proactive role in achieving company's objectives. The finance and accounts department will continue to work with dedication and team work, add value, face new challenges and to excel the expectations of the management and the shareholders.

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44

12 Information Technology
The Information Technology department (IT) caters to the company's information technology requirements and its focus is on rationalization and optimization of processes by aligning with industry best practices. The IT provides requisite leverage to the Company to boost its performance by focusing on effective and rapid communication and developing information technology policies and procedures for sustaining the current business status and for future business progress by performing following functions: Implementation and continuous developments of Oracle applications Attain business efficiency through Oracle systems Provide hardware and software support and management Identify and analyze user needs for computer-based systems Users training and design workflow of IT department Disaster recovery management Implement security policies to ensure security of database Provides technical support in the form of training Integrate IT-based solutions into the user environment Application of best practices and standards Implementation of data back up management policies Planning of different IT related programmes Design develop and maintain the Company's website

The role of the Information Technology department is to provide information and communication services and support through Oracle based systems to enable the Company to attain business efficiency and to achieve its goals and objectives and ensure that all investment in hardware and software are in line with Company's long term plans.

Internal Audit
Internal Audit (IA) closely monitors and analyses critical areas such as production losses, raw material costs, profitability, corporate compliance and inventory management. IA is also involved in a comprehensive pre-audit procedure covering procurements, capital expenditures and all payments. During 2011-12 IA initiated and implemented an annual audit plan covering all departments of the Company; a formal Internal Audit Manual was developed and was implemented after independent vetting by an Audit Firm. The Manual aims to bring the IA in line with the latest Internal Auditing Standards as issued by Institute of Internal Auditors, USA and other best practices. IA also added considerable value to SPL's operations by advising on various affairs and providing guidance and assistance in the areas of compliance and efficiency. The Internal Audit department is governed by the Board Audit Committee (BAC) which consists of Non-executive Directors and is chaired by an independent Director. It assists the BAC and the Board in fulfilling their responsibilities. The head of the Internal Audit department reviews and reports to the Chairman of BAC on the following aspects of Company's operations: Adequacy and effectiveness of internal controls Management of financial risk Watching for indications of fraud and other malpractices and ensuring that the Company has adequate safeguards against this risk Continued assurance that financial accounting and other records and reports provide a true and fair view of Company's operations Safeguard of Company's assets, processes, information and interests by the management Monitoring and advice on Company's profitability and risks affecting business continuity Compliance of Company's operations with applicable regulatory framework, including Companies Ordinance 1984, Code of Corporate Governance, other applicable statutes, International Accounting Standards (as adopted by Institute of Chartered Accountants of Pakistan) and best practices Compliance of respective departments with policies, plans and procedures as laid down by the management Compliance of Company's internal control structure with Corporate Governance provisions and International Professional Practices Framework issued by Institute of Internal Auditors, USA

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12 Human Resource and

Administration
We believe that Human Resource & Administration (HR&A) department exists to serve people in the organization who are seen as a key resource rather than simply as a cost. Employees are the key factor behind organizational success. We aspire to stay agile, year after year, by creating a vision driven organization that continuously strives to empower employees. They are empowered to make decision that concerns them and the productivity. However, where required they may seek guidance from their superiors to execute new ideas. Ensuring a healthy organization culture and conducive work environment are two of the most focus areas for Human Resource function. Various steps have been taken to create comfortable working environment so that the best results and high performance of individuals can be achieved. Our personnel have not only grown professionally, but also intellectually.

Corporate
All the legal and regulatory requirements were complied in all material respects. Matters related to the shareholders were quickly responded. No shareholder related issues remain unresolved during the year. All of the team members of corporate affairs function believe in facilitating the shareholders to exceed their expectations. All Board meetings were arranged within the time frame required by the law. Annual General Meeting of the Company was held within the period of two month as against the allowed time period of four month. Dividend Warrants were dispatched within 10 days instead of the requirement of 30 days. A high level of coordination has been maintained among the share registrar, shareholders and other stakeholders.

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48

12 Supply Chain
During the year the Supply Chain (SC) department played its due role in achieving Company objectives and targets. This has resulted in improved efficiency and satisfaction of relevant stakeholders. One of the major areas of concern was the prevailing uncertainty in international and local market-place which continued this year as well. This made the role of the SC department even more difficult as it had to ensure maximum economy and benefit for the organization. We once again made certain that all our buying pattern of raw / input materials and plant spares must have a correlation with global and domestic pricing patterns and we believe we remained competitive by any standards in doing so. The SC department has also ensured uninterrupted supply of raw materials, allied items, and engineering spares etc, at most competitive prices for smooth operation of the Plant. Timely availability of required items has ensured trouble free operations. There was no incidence of production disruption because of non-availability of any required item. All out efforts were made to locate and develop the best possible set of suppliers who can contribute in making the final product most economical and of the highest quality standards. We searched for alternate suppliers and added several new names in our existing list so that an environment of healthy competition could be created. The objective is to provide most beneficial options for the organization. The SC department has also worked for training and development of major raw material (i.e. Comber and Denim) suppliers. Our team frequently visited the suppliers and guided them about required quality and specifications of the material to be supplied by them. This has ensured that rejections due to quality non-conformance are minimized. In-house training sessions were also held for the suppliers and they were guided on all aspects of supplied material from quality, testing and inspection parameters to its ultimate use and the sensitivity attached with it. The Quality Assurance and Production departments provided necessary support during the training. During the year, various plant upgrade projects continued which involved imports of various heavy machinery and equipments. The SC department ensured timely clearance and delivery of all consignments which included sophisticated components requiring utmost care in handling. We assure all our stakeholders that we will continue to work to the best of our abilities and use all our resources to ensure even better performance comparable with international standards for the ultimate gain and benefit of the organization.

Statement of Compliance with the Code of Corporate Governance

Name of Company: Year Ended: Security Papers Limited June 30, 2012 This statement is being presented to comply with the Code of Corporate Governance (CCG) contained in Regulation No. 35 of listing regulations of Karachi Stock Exchange (Guarantee) Limited 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 CCG in the following manner: 1. The Company encourages representation of independent non-executive directors and directors representing minority interests on its Board of Directors. At present the Board includes: Name of Director Category of Director Independent Non-Executive Executive (06) (08) (01) 3 3 3 3 3 3 3 3 3 3 3 3 3 3 3

Mr. Mustapha A. Chinoy Mrs. Naiyer Muzafar Husain Sheikh Mohammad Aijaz Akhtar Mr. Hasan Irfaan Mrs. Ayla Akin - (Turkey) Mr. Jamal Nasim Mr. Mazhar-ul-Hassan Shah Mr. Mohammad Reza Roshani Moghaddam - (Iran) Ms. Yasmin Saud 2. 3.

The directors have confirmed that none of them is serving as a director on more than seven listed companies, including this Company. All the resident 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 Finance Institution (DFI) or a Non-Banking Finance Institution (NBFI) or, being a member of a stock exchange, has been declared as a defaulter by that stock exchange. One casual vacancy has occurred during the period under review. This vacancy was immediately filled up. The Company has prepared a 'Statement of Ethics and Business Practices' and has ensured that appropriate steps have been taken to disseminate it throughout the Company along with its supporting policy and procedures. The Board has developed a vision/mission statement, overall corporate strategy and significant policies of the Company. A complete record of particulars of significant policies along with the dates on which they were approved or amended has been maintained. 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, other executive and non-executive directors, have been taken by the Board/Shareholders. The meetings of the Board were presided over by the Chairman and, in his absence, by a director elected by the Board for this purpose and the Board met at least once in every quarter. Written notices of the Board meetings, along with agenda and working papers, were circulated at least seven days before the meetings. The minutes of the meetings were appropriately recorded and circulated.

4. 5.

6.

7.

8.

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12

Statement of Compliance with the Code of Corporate Governance

9. The Board arranges orientation course for its directors as and when needed to apprise them of their duties and responsibilities. The incoming directors are also provided with appropriate briefing and orientation material to enable them first hand knowledge on the working of the Company. Two directors of the Company have completed Corporate Governance Leadership Skills (CGLS) Program of the Pakistan Institute of Corporate Governance (PICG) during the period under review. In addition one director meets the criteria of exemption under clause (xi) of CCG and is accordingly exempted from directors' training program.

10. The Board had approved appointment of CFO, Company Secretary and Head of Internal Audit, including their remuneration and terms and conditions of employment. 11. The directors' report for this year has been prepared in compliance with the requirements of the CCG and fully describes the salient matters required to be disclosed. 12. The financial statements of the Company were duly endorsed by CEO and CFO before approval of the Board. 13. The directors, CEO and executives do not hold any interest in the shares of the Company other than that disclosed in the pattern of shareholding. 14. The Company has complied with all the corporate and financial reporting requirements of the CCG. 15. The Board has formed an Audit Committee. It comprises three members, of whom all are non-executive directors and the Chairman of the Committee is an independent director. 16. The meetings of the Audit Committee were held at least once every quarter prior to approval of interim and final results of the Company and as required by the CCG. The terms of reference of the Committee have been formed and advised to the Committee for compliance. 17. The Board has formed an HR and Remuneration Committee. It comprises four members, of whom three are non-executive directors and the Chairman of the Committee is an independent director. 18. The Board has set-up an effective internal audit function. 19. The statutory auditors of the Company have confirmed that they have been given a satisfactory rating under the quality control review programme of the Institute of Chartered Accountants of Pakistan (ICAP), that they or any of the partners of the firm, their spouses and minor children do not hold shares of the Company and that the firm and all its partners are in compliance with International Federation of Accountants (IFAC) guidelines on code of ethics as adopted by ICAP. 20. The statutory auditors or the persons associated with them have not been appointed to provide other services except in accordance with the listing regulations and the auditors have confirmed that they have observed IFAC guidelines in this regard. 21. The 'closed period', prior to the announcement of interim/final results, and business decisions, which may materially affect the market price of Company's securities, was determined and intimated to directors, employees and stock exchange. 22. Material/price sensitive information has been disseminated among all market participants at once through stock exchange. 23. We confirm that all other material principles enshrined in the CCG have been complied with. On behalf of the Board of Directors

MRS. NAIYER MUZAFAR HUSAIN Chief Executive Karachi Dated: July 31, 2012

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Financial Statements

annual report two thousand

52

12

Review Report to the Members on Statement of Compliance with best practices of the code of Corporate Governance

Auditors Report to the Members

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annual report two thousand

12 B a l a n c e S h e e t
As At 30 June 2012
Note ASSETS Non-current assets Property, plant and equipment Long-term deposits Long-term investments Current assets Stores, spares and loose tools Stock-in-trade Trade debts - considered good Advances, deposits, prepayments and other receivables Accrued mark-up Investments Cash and bank balances Total assets LIABILITIES Current liabilities Trade and other payables Accrued mark-up Current maturity of long term loan Current portion of liabilities against asset subject to finance lease Taxation - net Non-current liabilities Long term loan Liabilities against asset subject to finance lease Deferred taxation - net Total liabilities Contingencies and commitments NET ASSETS FINANCED BY: Authorised share capital 70,000,000 (2011: 70,000,000) ordinary shares of Rs 10 each Issued, subscribed and paid-up capital General reserve Unappropriated profit SHAREHOLDER'S EQUITY 20 2012 2011 (Rupees in '000) 4 5 6 7 8 9 10 11 12 13 2,111,951 24,188 577,710 2,713,849 114,067 402,159 327,903 15,537 30,812 1,135,835 16,497 2,042,810 4,756,659 1,713,993 17,436 1,731,429 86,303 357,264 326,355 9,228 339,033 1,409,178 37,592 2,564,953 4,296,382

14 16 17

358,051 8,252 158,792 3,387 3,849 532,331 473,766 8,346 349,854 831,966 1,364,297 3,392,362

326,982 6,077 89,033 3,068 95,662 520,822 315,906 11,308 228,335 555,549 1,076,371 3,220,011

16 17 18 19

700,000 411,499 2,602,389 378,474 3,392,362

700,000 411,499 2,493,389 315,123 3,220,011

The annexed notes 1 to 38 form an integral part of these financial statements.

54

Naiyer Muzafar Husain Chief Executive

Jamal Nasim Director

Profit and Loss Account

For the year ended 30 June 2012
Note 2012 2011 (Rupees in '000) 1,570,912 (1,057,056) 513,856 23 25 26 (143,181) 252,575 (69,817) 553,433 27 28 (43,211) 510,222 (132,121) 378,101 (Rupees) Earnings per share 29 9.19 7.66 1,303,019 (959,019) 344,000 (128,812) 257,621 (42,174) (2,736) 427,899 (6,371) 421,528 (106,452) 315,076 Sales - net Cost of sales Gross profit Administration and general expenses Other operating income Other operating charges Impairment loss on 'available for sale' investment Operating profit before finance cost Finance costs Profit before taxation Taxation - net Profit after taxation 21 22

The annexed notes 1 to 38 form an integral part of these financial statements.

Naiyer Muzafar Husain Chief Executive

Jamal Nasim Director

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12 Statement of
Profit for the year

Comprehensive Income
For the year ended 30 June 2012
2012 2011 (Rupees in '000) 378,101 315,076

Other comprehensive income for the year Unrealised diminution during the year on remeasurement of investments classified as 'available for sale' 2,736

Impairment loss on 'available for sale' investment transferred to profit and loss account Total comprehensive income for the year 378,101 (2,736) 315,076

The annexed notes 1 to 38 form an integral part of these financial statements.

Naiyer Muzafar Husain Chief Executive

Jamal Nasim Director

56

Cash Flow Statement

For the year ended 30 June 2012
Note 2012 2011 (Rupees in '000)

CASH FLOWS FROM OPERATING ACTIVITIES Cash generated from operations Long-term deposits Taxes paid Finance costs paid Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditure Proceeds from sale of property, plant and equipment Investment made during the year - net Mark-up received Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long term loan Payments against lease obligations Dividend paid Net cash from financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year 227,619 (4,892) (187,906) 34,821 (21,094) 37,592 16,497 404,939 (4,463) (205,750) 194,726 (12,165) 49,757 37,592 (549,152) 2,142 (277,215) 504,706 (319,519) (586,221) 12,510 61,254 70,882 (441,575) 33 413,808 (6,752) (102,416) (41,036) 263,604 306,652 (178) (71,438) (352) 234,684

The annexed notes 1 to 38 form an integral part of these financial statements.

Naiyer Muzafar Husain Chief Executive

Jamal Nasim Director

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12 Statement of Changes in Equity

For the year ended 30 June 2012
Issued, subscribed and paid-up share capital General reserves Unappropriated profit Total ----------------------------- (Rupees in 000) ----------------------------

Balance as at 30 June 2010 Total comprehensive income for the year ended 30 June 2011 Profit for the year Transactions with owners - Final cash dividend @ Rs 5.00 per share for the year ended 30 June 2010 Transfer to general reserves Balance as at 30 June 2011 Total comprehensive income for the year ended 30 June 2011 Profit for the year Transactions with owners - Final cash dividend @ Rs 5.00 per share for the year ended 30 June 2011 Transfer to general reserves Balance as at 30 June 2012

411,499

2,351,089

348,097

3,110,685

315,076

315,076

411,499

142,300 2,493,389

(205,750) (142,300) 315,123

(205,750) 3,220,011

378,101

378,101

411,499

109,000 2,602,389

(205,750) (109,000) 378,474

(205,750) 3,392,362

The annexed notes 1 to 38 form an integral part of these financial statements.

Naiyer Muzafar Husain Chief Executive

Jamal Nasim Director

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Notes to the Financial Statements

For the year ended 30 June 2012
1. STATUS AND NATURE OF BUSINESS Security Papers Limited (''the Company") is incorporated and domiciled in Pakistan as a public company limited by shares. The address of its registered office is Jinnah Avenue, Malir Halt, Karachi, Pakistan. The Company is listed on the Karachi Stock Exchange. The principal activity of the Company is manufacturing of specialised paper for banknote and non-banknote security documents. 2. BASIS OF PREPARATION

2.1 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 Companies Ordinance, 1984, provisions of and directives issued under the Companies Ordinance, 1984. In case requirements differ, the provisions of or directives of the Companies Ordinance, 1984 shall prevail. 2.2 Basis of measurement These financial statements have been prepared under the historical cost convention except that certain investments are carried at fair value obligation in respect of gratuity scheme is measured at present value. 2.3 Functional and presentation currency These financial statements are presented in Pak Rupees which is the Company's functional and presentation currency and rounded to the nearest thousand rupee. 2.4 Use of estimates and judgments The preparation of financial statements in conformity with approved accounting standards requires management to make estimates, assumptions and use judgments that affect the application of policies and the reported amounts of assets, liabilities, income and expenses. Estimates, assumptions and judgments are continually evaluated and are based on historical experience and other factors, including reasonable expectations of future events. Revisions to accounting estimates are recognised prospectively commencing from the period of revision. Judgments and estimates made by management that may have a significant risk of material adjustments to the financial statements in subsequent years are as follows: Residual values and useful lives of property, plant and equipment (Note 3.1) Provision for slow moving and obsolete stores and spares and stock-in-trade (Note 3.4, 3.5) Estimates of liability in respect of employee retirement gratuity and employees' compensated absences (Note 3.10,3.11 and 24) Taxation (Note 3.15) Fair value of investments classified as 'available for sale' (Note 3.3, 34.4)

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Notes to the Financial Statements

2.5 Standards, amendments or interpretations which became effective during the year During the year certain amendments to Standards and new intepretations became effective however they did not have any material effect on the financial statements of the Company. 2.6 New / revised accounting standards, amendments to published accounting standards, and interpretations that are not yet effective The following standards, amendments and interpretations of approved accounting standards are only effective for annual periods beginning from the dates specified below. Except for the amendment in IAS 19 which results in immediate recognition of actuarial gains or losses and revised basis of calculation for net finance cost, these standards are either not relevant to the Companys operations or are not expected to have significant impact on the Companys financial statements, other than increased disclosures in certain cases: 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. 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. 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. Annual Improvements 20092011 (effective for annual periods beginning on or after 1 January 2013). The new cycle of improvements contains amendments to the following four standards, with consequential amendments to other standards and interpretations.

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Notes to the Financial Statements

IAS 1 Presentation of Financial Statements is amended to clarify that only one comparative period which is the preceding period is required for a complete set of financial statements. If an entity presents additional comparative information, then that additional information need not be in the form of a complete set of financial statements. However, such information should be accompanied by related notes and should be in accordance with IFRS. Furthermore, it clarifies that the third statement of financial position, when required, is only required if the effect of restatement is material to statement of financial position. IAS 16 Property, Plant and Equipment is amended to clarify the accounting of spare parts, stand-by equipment and servicing equipment. The definition of property, plant and equipment in IAS 16 is now considered in determining whether these items should be accounted for under that standard. If these items do not meet the definition, then they are accounted for using IAS 2 Inventories. IAS 32 Financial Instruments: Presentation - is amended to clarify that IAS 12 Income Taxes applies to the accounting for income taxes relating to distributions to holders of an equity instrument and transaction costs of an equity transaction. The amendment removes a perceived inconsistency between IAS 32 and IAS 12. IAS 34 Interim Financial Reporting is amended to align the disclosure requirements for segment assets and segment liabilities in interim financial reports with those in IFRS 8 Operating Segments. IAS 34 now requires the disclosure of a measure of total assets and liabilities for a particular reportable segment. In addition, such disclosure is only required when the amount is regularly provided to the chief operating decision maker and there has been a material change from the amount disclosed in the last annual financial statements for that reportable segment. IFRIC 20 - Stripping cost in the production phase of a surface mining (effective for annual periods beginning on or after 1 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.

3.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies adopted in the preparation of these financial statements are set out below and have been consistently applied to all the years presented.

3.1 Property, plant and equipment Owned These are stated at cost less accumulated depreciation and accumulated impairment losses (if any), except for capital work-in-progress, leasehold and freehold land which are stated at cost less accumulated impairment losses (if any). All expenditures connected to the specific assets incurred during installation and construction period are carried under capital work-inprogress. These are transferred to specific assets as and when assets are available for use. Subsequent costs are included in the asset's carrying amounts or recognised as a separate asset, as appropriate, only when it is probable that future benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The value assigned to the leasehold land is not depreciated as the leases are expected to be renewed for further periods on payment of relevant rentals. Annual lease rentals are charged to income and premium paid at the time of renewal, if any, is amortised over the remaining lease period. An asset's carrying amount is written down immediately to its recoverable amount if the carrying amount is greater than the recoverable amount.

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12

Notes to the Financial Statements

Depreciation on all property, plant and equipment is charged using the straight line method in accordance with the rates specified in note 4.1 to these financial statements and after taking into account residual values, if any. The residual values, useful lives and depreciation methods are reviewed and adjusted, if appropriate, at each balance sheet date. Depreciation on additions is charged from the month in which the assets become available for use, while no depreciation is charged in the month of disposal. Repairs and maintenance are charged to income as and when incurred. Gains or losses on disposal of property, plant and equipment are included in income. Leased Assets held under finance lease are stated at the lower of their fair value or present value of minimum lease payments at inception less accumulated depreciation and accumulated impairment losses, if any. The outstanding obligations under the lease agreements are shown as a liability net of finance charges allocable to future periods. The finance charges are allocated to accounting periods in a manner so as to provide a constant periodic rate of return on the outstanding liability. Depreciation on assets held under finance lease is charged in a manner consistent with that for depreciable assets which are owned by the Company. 3.2 Borrowing cost Borrowing cost are recognised as an expense in the period in which these are incurred except to the extent of borrowing cost that are directly attributable to the acquisition, construction or production of a qualifying asset. Such borrowing cost, if any, are capitalised as part of the cost of the relevant asset. 3.3 Financial instruments Financial instruments carried on the balance sheet include investments, deposits, trade debts and other receivables, accrued mark-up on investments, cash and bank balances, trade and other payables, accrued mark-up on short term finance and liabilities against assets subject to finance lease. Financial assets The Company classifies its financial assets in held to maturity, loans receivables and availablefor-sale categories. The classification depends on the purpose for which the financial assets are acquired. Management determines the classification of its financial assets at initial recognition. (a) Held-to-maturity These are non-derivative financial assets with fixed or determinable payments and fixed maturity that the Company has the positive intention and ability to hold till maturity. (b) Loans and receivables These are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. (c) Available for sale Available for sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories.

62

Notes to the Financial Statements

All financial assets are recognised at the time when the Company becomes a party to the contractual provisions of the instrument. Regular purchases and sales of investments are recognised on trade date - the date on which the Company commits to purchase or sell the asset. Financial assets are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are derecognised when the right to receive the cash flows from the assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownerships. Loans and receivables and held-to-maturity investments are carried at amortised cost using the effective interest method. Fair value of available for sale investments are determined on the basis of rates notified by Mutual Fund Association of Pakistan for debt securities, relevant redemption prices for the open-end mutual funds, or PKRV sheets. Available-for-sale financial assets are subsequently carried at fair value with changes in fair value recognised in other comprehensive income until derecognised or impaired. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustment recognised in equity are included in the profit and loss account as gains and losses from investment securities. Interest on available-for-sale securities calculated using the effective interest method is recognised in the profit and loss account. Dividends on available-for-sale equity instruments are recognised in the profit and loss account when the Company's right to receive the dividends is established. The Company assesses at the end of each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss is removed from equity and is recognised in the profit and loss account. Impairment losses recognized in the profit and loss account on equity instruments are not reversed through the profit and loss account. The Company follows trade date accounting for regular way purchase and sales of securities. Financial liabilities All financial liabilities are recognised at the time when the Company becomes a party to the contractual provisions of the instruments. A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expired. Offsetting of financial assets and financial liabilities Financial assets and liabilities are off-set and the net amount is reported in the financial statements only when the Company has a legally enforceable right to off-set the recognised amounts and the Company intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. 3.4 Stores, spares and loose tools These are valued at lower of moving average cost and net realisable value. Items in transit are valued at cost comprising invoice value and other charges incurred thereon. Provision for obsolete and slow moving stores, spares and loose tools is determined based on management's estimate regarding their future usability. Net realisable value signifies the estimated selling price in the ordinary course of business less the estimated costs necessary to be incurred to make the sale.

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annual report two thousand

64

12

Notes to the Financial Statements

3.5 Stock-in-trade Raw materials are valued at the lower of moving average cost and net realisable value except for items in transit which are stated at cost incurred to date. Work-in-process, semi-finished and finished goods are valued at lower of cost (calculated on weighted average basis) and net realisable value. Cost in relation to work-in-process, semi finished and finished goods, represents direct cost of materials, direct wages and an appropriate portion of production overheads. Net realisable value signifies the estimated selling price in the ordinary course of business less the estimated cost of completion and the costs necessary to be incurred to make the sale. 3.6 Trade debts and other receivables Trade debts and other receivables are stated initially at fair value and subsequently measured at amortised cost using the effective interest rate method less provision for impairment. A provision for impairment is established where there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is charged to profit and loss account. Trade debts and other receivables are written off when considered irrecoverable. 3.7 Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. Cash and cash equivalents include cash in hand, balances with banks and other short-term highly liquid investments with original maturities of three months or less. 3.8 Trade and other payables Trade and other payables are recognised initially at fair value, and subsequently carried at amortised cost. 3.9 Provisions Provisions are recognized in balance sheet when the Company has a legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the outflow can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. 3.10 Employee retirement benefits The Company operates: (a) an approved contributory provident fund for all eligible employees. Contributions are made equally by the Company and employees at the rate of 6.45% of gross salary; and (b) an approved funded gratuity fund for all permanent employees. Annual contributions are made to the fund based on actuarial recommendations. The actuarial valuations are carried out using the Projected Unit Credit Method. The unrecognised actuarial gains or losses at each valuation date are amortised over the average remaining working lives of the employees in excess of the higher of the following corridor limits:

Notes to the Financial Statements

(i) (ii) 10 % of the present value of the defined benefit obligation; and 10 % of the fair value of the plan assets.

Employee retirement benefits are payable to eligible employees on completion of the prescribed qualifying period of service under these funds. 3.11 Employees' compensated absences The liability for accumulated compensated absences of employees is recognized in the period in which employees render service that increases their entitlement to future compensated absences. 3.12 Mark-up bearing borrowings Mark-up bearing borrowings are recognized initially at fair value, less attributable transaction costs. Subsequent to initial recognition, mark-up bearing borrowings are stated at amortized cost with any difference between cost and redemption value being recognized in the profit and loss account over the period of the borrowings on an effective interest basis. 3.13 Liabilities against assets subject to finance lease Liabilities against assets subject to finance lease are accounted for at the net present value of minimum payments under the lease arrangements. Finance charges under lease arrangements are allocated to periods during the lease term so as to produce a constant periodic rate of financial cost on the remaining balance of principal liability for each period. 3.14 Revenue recognition Sales are recorded on dispatch of goods when significant risk and rewards of ownership are transferred to the customers. Return on bank deposits is recognised on accrual basis taking into account the effective yield. Income on available for sale debt securities, held-to-maturity investments and loans and receivables are recognised using effective interest rate method. Dividend income is recognised when the Company's right to receive the dividend is established. Gains / (losses) arising on sale of investments are included in the profit and loss account in the period in which they arise. Sale of waste materials is recognized when goods are dispatched and miscellaneous receipts are recognised on receipt basis.

3.15 Taxation Current Provision for current taxation is based on taxable income at the current rates of taxation after taking into account tax credits and rebates available, if any. The charge for the current tax also includes adjustments where necessary, relating to prior years which arise from assessments framed / finalised during the year.

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annual report two thousand

12

Notes to the Financial Statements

Deferred Deferred tax is recognized using the balance sheet liability method on all temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and amounts used for taxation purposes. Deferred tax is calculated using the rates that are expected to apply to the period when the differences reverse based on tax rates that have been enacted at the balance sheet date. Deferred tax liabilities are recognized for all taxable temporary differences. A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax asset is reduced to the extent that it is no longer probable that the related tax benefits will be realized. 3.16 Expenses All expenses are recognized in the profit and loss account on an accrual basis. 3.17 Impairment The carrying amount of the Company's assets is reviewed at each balance sheet date to determine whether there is any objective evidence that an asset or group of assets may be impaired. If any such evidence exists, the asset or group of assets' recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognized in profit and loss account. 3.18 Foreign currency transactions Transactions in foreign currencies are accounted for in rupees at the foreign exchange rates prevailing on the date of the transaction. Monetary assets and liabilities in foreign currencies are translated into rupees at the foreign exchange rates approximating those prevailing at the balance sheet date. Exchange differences are taken to the profit and loss account. 3.19 Proposed dividend and transfer between reserves Dividend distributions to the Company's shareholders is recognised as a liability in the period in which dividends are approved. Transfer between reserves made subsequent to the balance sheet date is considered as non-adjusting event and is recognised in the financial statements in the period in which such transfers are made. 4. PROPERTY, PLANT AND EQUIPMENT Note 2012 2011 (Rupees in '000) 2,083,182 2,558 26,211 2,111,951 1,570,615 143,378 1,713,993

Operating fixed assets Capital work-in-progress Spares held for capital expenditure - in transit

4.1 4.4 4.5

66

Notes to the Financial Statements

4.1 Operating fixed assets
---------------------------------------------------------------------------------- 2012 ---------------------------------------------------------------------------------Land Buildings on Motor vehicles Plant Furniture Electric, Office and Computers LeaseFree- Leasehold Freehold Laboratory water and and and and security Owned Leased Total hold hold land land gas computer machinery equipment fixtures installation equipment accessories --------------------------------------------------------------------------------- (Rupees in '000) --------------------------------------------------------------------------------417 417 417 293 293 293 1,015 (897) 118 (25) 93 63,054 2,173,711 (12,981) (726,858) 50,073 1,446,853 32,601 596,468 26,300 (16,127) 10,173 (2,597) 7,576 2,545 (1,358) 1,187 4,189 (185) 5,191 59,202 (25,566) 33,636 26,871 (3,905) 56,602 28,225 (17,061) 11,164 2,987 (3,769) 10,382 9,851 (7,956) 1,895 606 (790) 1,711 5,283 (3,770) 1,513 38 (88) 25 (63) (886) 602 18,782 2,388,678 (5,489) (818,063) 13,293 1,570,615 2,248 (2,605) 908 (1,697) 666,008 (2,693) 933 (1,760)

At 1 July 2011 Cost Accumulated depreciation Net book value During the year Additions Disposals: Cost Depreciation Depreciation charge for the year Closing net book value At 30 June 2012 Cost Accumulated depreciation Net book value Depreciation rate % per annum

(1,564) (134,279) 81,110 1,909,042

(3,681) (151,681) 10,163 2,083,182

417 417 -

293 293 -

1,015 (922) 93 2.5%

95,655 2,770,179 (14,545) (861,137) 81,110 1,909,042 2.5% 6% & 25%

26,300 (18,724) 7,576 10%

6,734 (1,543) 5,191 6%

86,073 (29,471) 56,602 6%

31,212 (20,830) 10,382 15%

10,457 (8,746) 1,711 25%

5,233 (4,631) 602 20%

18,425 3,051,993 (8,262) (968,811) 10,163 2,083,182 20%

At 1 July 2010 Cost Accumulated depreciation Net book value During the year Additions Disposals: Cost Depreciation Depreciation charge for the year Closing net book value At 30 June 2011 Cost Accumulated depreciation Net book value Depreciation rate % per annum

---------------------------------------------------------------------------------------------------------- 2011 ---------------------------------------------------------------------------------------------------------Land Buildings on Electric, Computers Motor vehicles LeaseFree- Leasehold Freehold Plant Laboratory Furniture water and Office and and and equipment and security Total hold hold land land gas computer Owned Leased machinery fixtures installation equipment accessories ---------------------------------------------------------------------------------------------------- (Rupees in '000) ---------------------------------------------------------------------------------------------------417 417 417 417 417 293 293 293 293 293 1,015 (872) 143 (25) 118 1,015 (897) 118 2.5% 61,377 1,744,711 (11,615) (625,496) 49,762 1,119,215 1,677 434,279 (5,279) 5,279 26,300 (13,522) 12,778 (2,605) 10,173 26,300 (16,127) 10,173 10% 2,545 (1,243) 1,302 (115) 1,187 2,545 (1,358) 1,187 6% 54,869 (22,454) 32,415 4,333 (3,112) 33,636 59,202 (25,566) 33,636 6% 27,604 (13,813) 13,791 742 (121) 94 (27) (3,342) 11,164 28,225 (17,061) 11,164 15% 8,389 (7,482) 907 1,462 (474) 1,895 9,851 (7,956) 1,895 25% 7,256 (5,028) 2,228 350 (2,323) 2,184 (139) (926) 1,513 5,283 (3,770) 1,513 20% 13,852 1,948,628 (2,739) (704,264) 11,113 1,244,364 7,327 (2,397) 732 (1,665) 450,170 (10,120) 8,289 (1,831)

(1,366) (106,641) 50,073 1,446,853 63,054 2,173,711 (12,981) (726,858) 50,073 1,446,853 2.5% 6% & 25%

(3,482) (122,088) 13,293 1,570,615 18,782 2,388,678 (5,489) (818,063) 13,293 1,570,615 20%

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Notes to the Financial Statements

4.1.1 Additions during the year in plant and machinery include borrowing costs capitalised amounting to Rs 42.893 million (2011: Rs. 18.999 million) which relate to long term loan acquired for the balancing, modernisation and replacement project of the plant and machinery of the Company. 4.2 The depreciation charge for the year has been allocated as follows: Note Cost of sales Administration and general expenses 22 23 2012 2011 (Rupees in '000) 145,823 5,858 151,681 116,807 5,281 122,088

4.3

Particulars of operating fixed assets disposed off during the year

Cost

Accumulated Net book Sales depreciation value proceeds

Mode of disposal

Particulars of buyers

Location

------------------------- (Rupees in '000) -------------------------

Vehicle - owned Trakker Trakker Vehicle - leased Suzuki Alto Toyota Corolla Suzuki Alto 2012 2011

44 44

10 15

34 29

6 7

Company policy Khawaja Saqib Company policy Faisal Farooq

Karachi Karachi

603 1,384 618 2,693 10,120

261 461 186 933 8,289

342 923 432 1,760 1,831

477 1,126 526 2,142 12,510

Company policy Faisal Farooq Company policy Khawaja Saqib Company policy Khalil Ahmad

Karachi Karachi Karachi

4.4

Capital work-in-progress 2012 2011 (Rupees in '000) Building Advance against purchase of plant and machinery Others 86 933 1,539 2,558 994 142,384 143,378

68

Notes to the Financial Statements

Note 2012 2011 (Rupees in '000)

The movement in capital work-in-progress is as follows: Balance as at beginning of the year Additions during the year - Plant and machinery - Building - Electric, water and gas installations - Others Transfers to operating fixed assets - Plant and machinery - Building - Electric, water and gas installations - Others Balance at end of the year 4.5 Spares held for capital expenditure - in transit This pertains to spares in transit for certain machinery capitalised during the year. 5. LONG-TERM DEPOSITS Security deposits 5.1 24,188 17,436 143,378 -

435,835 31,692 21,122 5,184 493,833 (577,285) (32,602) (20,582) (4,184) (634,653) 2,558

575,259 2,546 416 578,221 (432,875) (1,552) (416) (434,843) 143,378

5.1 These include deposits amounting to Rs 11.661 million and Rs 10.145 million (2011: Rs 11.661 million and Rs 3.705 million) given to the Karachi Electric Supply Corporation Limited (KESC) and the Sui Southern Gas Company Limited (SSGC) respectively on which interest is received @ 5% per annum. 6. LONG-TERM INVESTMENT Held to maturity Pakistan Investment Bond - 5 years

6.1

577,710

6.1 These represents investments in Pakistan Investment Bonds (PIB's) carrying profit at a rate of 11.5% (effective yeild of 12.4% to 12.96%) per annum with maturity in August 2016. The profit payments are made semi annually. Fair value of the PIB's as at 30 June 2012 is Rs 572.658 million. The fair value has been determined using PKRV sheet.

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Notes to the Financial Statements

Note 2012 2011 (Rupees in '000)

7.

STORES, SPARES AND LOOSE TOOLS Stores Spares - in hand Spares in transit Loose tools Provision for slow moving and obsolete stores and spares 8,658 105,561 13,942 247 128,408 (14,341) 114,067 6,527 93,938 179 100,644 (14,341) 86,303

8.

STOCK-IN-TRADE Raw materials - in hand Raw materials - in transit Less: Raw materials written off 159,224 12,619 171,843 (8,629) 163,214 11,163 193,327 204,490 65,444 433,148 (30,989) 402,159 190,977 1,260 192,237 192,237 7,245 104,205 111,450 61,076 364,763 (7,499) 357,264

Work-in-process Semi-finished goods

Finished goods Provision for slow moving inventories

9.

TRADE DEBTS - considered good Unsecured Due from Pakistan Security Printing Corporation (Private) Limited - related party - considered good - considered doubtful - provision for doubtful debts

9.1 327,903 9,498 337,401 (9,498) 327,903 326,355 4,749 331,104 (4,749) 326,355

9.1 The maximum amount due from the related party, Pakistan Security Printing Corporation (Private) Limited, at the end of any month during the year was Rs 475.417 million (2011: Rs 326.355 million).

70

Notes to the Financial Statements

Note 2012 2011 (Rupees in '000)

10. ADVANCES, DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES Advance to suppliers - unsecured Receivable from gratuity fund Short-term deposits Short-term prepayments Loan to employees Others 24.1.2 7,453 1,642 3,962 616 504 1,360 15,537 8,507 67 384 270 9,228

10.1

10.1 This represents loan provided to two employees carrying interest rate at 12% per annum. Having maturity on 30 June 2013. 11. ACCRUED MARK-UP Special saving certificates Pakistan investment bond Term finance certificates Security deposits Term deposit receipts Deposit and savings accounts 12. INVESTMENTS Available for sale Term finance certificates B.R.R. Guardian Modaraba 4,400 (2011: 4,400) units of Rs 5,000 each Held to maturity Treasury Bills Loans and receivables Term deposit receipts Special Saving Certificates 25,307 5,127 373 3 2 30,812 335,826 2,828 373 4 2 339,033

12.1 12.2 12.3

15,744 1,120,031 60 60 1,135,835

16,500 442,623 55 950,000 950,055 1,409,178

12.1 The term finance certificates originally had a term of 5 years and carried profit at the rate of six months KIBOR plus 1.3% (effective annual rate of 15.65%) payable semi annually with maturity on 7 July 2014. On 7 January 2011 the borrower defaulted in the payment of interest and entered into a restructuring agreement with the TFC holders. As per the revised terms, the principal amount will be redeemed in varying monthly principal instalments commencing from 7 August 2011 and ending on 7 December 2016. The certifcates now carry markup at the rate of one month KIBOR (effective annual rate of 12.09%) payable on monthly basis alongwith the accrued profit before the restructuring. The fair value of the above investment has been valued using rate notified by Mutual Fund Association of Pakistan.

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Notes to the Financial Statements

12.2 These represent investments in seven treasury bills of six months and one year carrying profit rate ranging from 11.76% to 11.94% (2011: 13.44% to 13.55%) per annum with maturity ranging from August 2012 to January 2013 . Fair value of the treasury bills as at 30 June 2012 is Rs 1,119.376 million (2011: Rs 455.064 million). The fair value has been determined using PKRV sheet. 12.3 These represent term deposit receipts with Faysal Bank Limited maturing on December 2012. Return on these investments is 10% per annum (2011: 10.75% per annum). Note 13. CASH AND BANK BALANCES Cash in hand With banks in: - Current accounts - Saving accounts - Dividend accounts 140 13.1 345 7,715 8,297 16,357 16,497 100 170 28,172 9,150 37,492 37,592 2012 2011 (Rupees in '000)

13.1 Saving accounts carry profit ranging from 5% to 10% per annum (2011: 5% to 10% per annum). 14. TRADE AND OTHER PAYABLES Creditors Payable against purchase of operating fixed assets Salaries, wages and benefits payable Provision for employees compensated absences Sales tax payable Special excise duty payable Witholding tax payable Provision for fire tax Unclaimed dividend Workers' welfare fund Workers' profit participation fund Advances from customers Utilities Payable to provident fund Payable to gratuity fund Deposits repayable on demand Others 14.1 Employees' compensated absences Balance at begning of the year Cost for the year Balance at end of the year 23,638 2,312 25,950 21,010 2,628 23,638 52,538 56,661 47,513 25,950 40,988 4,159 37,023 45,494 18,626 2,500 2,500 12,195 3,256 8,649 358,051 41,341 52,479 41,622 23,638 33,089 5,784 1,814 37,023 27,650 22,915 (376) 15,706 9,237 3,248 834 3,102 7,876 326,982

14.1

14.2 14.3 14.4

14.5

72

Notes to the Financial Statements

Note 2012 2011 (Rupees in '000)

14.2 Provision for fire tax Balance as at 1 July Add: Charge for the year 37,023 37,023 34,704 2,319 37,023

The Karachi Metropolitan Corporation (KMC) vide notification no.FB/DCFO/ENH-F.T-81/2001 dated 23 May 2001 changed the basis of charging Fire Tax and specified that this tax should be charged on the basis of water consumed. Previously, the fire tax was being levied on the basis of net annual rental value of the property as part of the property tax. The Company has filed a constitutional petition before the Honourable High Court of Sindh, Karachi challenging the above notification which is still pending. As a matter of abundant caution and without prejudice to the Company's contention in appeal, the management has made provision in respect of the above tax based on the bills received from KMC. 14.3 Workers' welfare fund Balance as at 1 July Provision for the year Reversal of prior year charge Payments / adjustments during the year 14.4 Workers' profit participation fund Balance as at 1 July Add: Allocation for the year Interest on funds utilised in the Company's business Less: Paid during the year 26 27 (376) 28,877 28,877 28,501 (26,001) 2,500 2,557 22,744 106 22,850 25,407 (25,783) (376) 22,915 3,976 (4,470) (3,795) 18,626 25,055 8,265 (10,405) 22,915

14.5 These represent interest free security deposits received from various contractors / suppliers. 15. SHORT TERM FINANCE AND OTHER FACILITIES 15.1 Running finance At 30 June 2012, the Company has an unavailed running finance facility from National Bank of Pakistan and Bank Al Habib Limited of Pakistan amounting to Rs 100 million each (2011: Rs 100 million facility from National Bank of Pakistan). The arrangements are secured by way of hypothecation on stores, spares, loose tools, stockin-trade and book debts of the Company and are available till 31 December 2012. The outstanding balance against these facilities will be subject to mark-up at the rate prevailing on the last day of each quarter of Karachi Inter Bank Offered Rate (KIBOR) plus 1.25 basis points for National Bank of Pakistan (2011: one month's average KIBOR plus 0.75 basis points) and three months KIBOR of preceding 6 working days of each calander quarter on the basis of arthmetic mean for Bank Al Habib Limited.

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Notes to the Financial Statements

15.2 Import letter of credit (sight / usance) As at 30 June 2012, the Company has facilities from the National Bank of Pakistan and Bank AL Habib Limited relating to import letters of credit (sight / usance) amounting to Rs 100 million each (2011: Rs 100 million facility from National Bank of Pakistan and Bank Al Habib Limited). 15.3 Letter of Guarantee Facility As at 30 June 2012, the Company has facilities from National Bank of Pakistan and Bank Al Habib Limited relating to letters of guarantee as follows: 2012 2011 (Rupees in '000) Total facility available Utilized facility 16. LONG TERM LOAN - secured Balance as at 1 July Long term loan obtained during the year Repayments during the year Current maturity shown under current liabilities 404,939 348,795 (121,176) 632,558 (158,792) 473,766 445,165 (40,226) 404,939 (89,033) 315,906 120,000 20,480 200,000 14,040

The Company has acquired facility amounting to Rs 900 million from Bank Al Habib Limited for purchase & installation of plant and machinery for balancing, modernisation and replacement of existing machinery out of which the company has availed facility of Rs 793.96 million. The entire financing is to be availed by 31 December 2012 and carries mark-up at three months Karachi Inter Bank Offer Rate (KIBOR) (effective annual rate of 12.47%). The facility is secured by Pakistan Investment Bond and Treasury Bills of the Company having face value of Rs 950 million. The facility availed is re-payable in 5 years in 20 equal quarterly installments starting from the date of disbursment. The Company has an option to prepay the loan without incurring any penalty. 17. LIABILITIES AGAINST ASSETS SUBJECT TO FINANCE LEASE Minimum lease payments 2011 Present Minimum Finance Present value of lease charge value of minimum payments minimum lease lease payments payments ---------------------------------- (Rupees in '000) ---------------------------------4,675 9,565 14,240 1,288 1,219 2,507 3,387 8,346 11,733 4,783 13,580 18,363 1,715 2,272 3,987 3,068 11,308 14,376 2012 Finance charge

Not later than one year Later than one year and not later than five years

74

Notes to the Financial Statements

The Company has entered into Ijarah arrangement with a financial institution in respect of vehicles. Islamic Financial Accounting Standard (IFAS) No.2 "Ijarah" was notified by SECP vide S.R.O. 431 (I) / 2007 on 22 May 2007. The said IFAS requires the Ujrah payments under such arrangements to be recognised as an expense over the ijarah term. The Company intends to acquire such asset at the end of the lease term and has consequently recorded such arrangements under IAS-17 "Leases". The liability under the agreements is payable by January 2015 in monthly installments and is subject to annual finance charge rates ranging from 12.07% to 12.22% (2011: 13.67% to 13.82%). Note 18. DEFERRED TAXATION - net Deferred tax liability arising due to accelerated tax depreciation Deferred tax asset arising in respect of: Provision for slow moving inventory, doubtful debts and fire tax Leased assets 2012 2011 (Rupees in '000)

381,155

248,929

(30,689) (612) (31,301) 349,854

(20,148) (446) (20,594) 228,335

19. CONTINGENCIES AND COMMITMENTS 19.1 Contingencies Income tax Claims against the Company not acknowledged as debt 19.2 19.3 10,221 1,120 11,341 10,221 1,120 11,341

19.2 The Income Tax authorities had raised a demand of Rs 43.991 million against the Company under Section 12(9A) of the repealed Income Tax Ordinance, 1979 in respect of assessment year 2000-01. The Company had filed appeal against this demand before Income Tax Appellate Tribunal (ITAT). The Company had also filed reference before the Alternate Dispute Resolution Committee (ADRC). Based on the recommendation of the ADRC, the Revenue Division, Federal Board of Revenue (formerly Central Board of Revenue) had issued an order as a result of which the above demand was reduced to approximately Rs 10.221 million. During the financial year ended 30 June 2006, the ITAT through its order dated 15 September 2005 decided the matter in favour of the Company by deleting the above demand of Rs 43.991 million. The Income Tax department has filed an appeal against this order before the Sindh High Court, which is currently pending. Management is confident that the eventual outcome of the matter will be decided in favour of the Company and accordingly no provision has been made in these financial statements in respect of this demand. 19.3 This represents claims filed by certain ex employees against the company.

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annual report two thousand

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Notes to the Financial Statements

2012 2011 (Rupees in '000) 19.4 Commitments Capital expenditure contracted for but not incurred Commitments against letters of credit 4,877 30,163 35,040 352,528 11,681 364,209

20. ISSUED, SUBSCRIBED AND PAID-UP CAPITAL 2012 2011 (Number of shares) 1,250,000 39,899,989 41,149,989 1,250,000 39,899,989 41,149,989 Ordinary shares fully paid in cash Ordinary shares issued as fully paid bonus shares 12,500 398,999 411,499 12,500 398,999 411,499

20.1 The following shares were held by the related parties of the Company as at 30 June 2012: Name of related party Pakistan Security Printing Corporation (Private) Limited Summer Holding A.S. (Turkey) Industrial Development & Renovation Organisation of Iran, Tehran (Iran) 2011 2012 Shares held Percentage Shares held Percentage 16,473,430 4,114,976 40.03% 10.00% 16,473,430 4,114,976 40.03% 10.00%

4,114,976

10.00%

4,114,976

10.00%

2012 2011 (Rupees in '000) 21. SALES - net Banknote paper Non-banknote paper: - Commercial paper - Others 1,410,935 1,410,001

Less: Sales tax / special excise duty

40,924 371,829 412,753 1,823,688 (252,776) 1,570,912

8,449 125,839 134,288 1,544,289 (241,270) 1,303,019

76

Notes to the Financial Statements

Note 2012 2011 (Rupees in '000)

22. COST OF SALES Opening stock of raw materials Add: Purchases - net Less: Closing stock of raw materials Raw materials consumed Salaries, wages and benefits Technical assistance fee Stores, spares and loose tools consumed Utilities Repairs and maintenance Insurance Rent, rates and taxes Depreciation Other expenses 8 22.1 192,237 547,281 739,518 (171,843) 567,675 219,922 11,950 54,788 123,237 22,525 3,776 921 145,823 3,847 1,154,464 111,450 (204,490) 1,061,424 61,076 (65,444) 1,057,056 147,982 495,166 643,148 (192,237) 450,911 182,960 11,602 49,610 82,261 22,036 2,882 831 116,807 218 920,118 55,722 (111,450) 864,390 155,705 (61,076) 959,019

4.2

Opening stock of work-in-process and semi-finished goods Less: Closing stock of work-in-process and semi-finished goods Cost of goods manufactured Opening stock of finished goods Less: Closing stock of finished goods 22.1 Employee retirement benefits

Salaries, wages and benefits include Rs 12.081 million (2011: Rs 15.99 million) in respect of employee retirement benefits. 23. ADMINISTRATION AND GENERAL EXPENSES Salaries, wages and benefits Rent, rates and taxes Travelling expenses including those of directors Rs 0.853 million (2011: Rs 2.523 million) Printing and stationery Repairs and maintenance Packing and forwarding Advertisement Training Software expenses Communication Entertainment Legal and professional Depreciation Provision for doubtful debts Others 23.1 101,518 247 6,247 2,466 5,558 788 1,739 2,766 968 2,008 1,855 3,602 5,858 4,749 2,812 143,181 87,489 594 9,875 1,593 4,181 400 1,876 2,009 383 2,301 3,288 3,309 5,281 4,749 1,484 128,812

4.2

23.1 Salaries, wages and benefits include Rs 5.951 million (2011: Rs 10.646 million) in respect of employee retirement benefits.

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Notes to the Financial Statements

24. EMPLOYEE RETIREMENT BENEFITS 24.1 Gratuity The Company operates an approved gratuity fund for its eligible employees. The actuarial valuation is carried out on an annual basis and the latest valuation was carried out at 30 June 2012. The projected unit credit method, using the following significant assumptions has been used for the actuarial valuation. Note 24.1.1 Actuarial assumptions a) Discount rate b) Expected rate of increase in salary c) Expected return on plan assets 24.1.2 Amounts recognised in the balance sheet are as follows: Present value of defined benefit obligations Fair value of plan assets Unrecognised actuarial loss (Asset) / liability on balance sheet 24.1.3 Movement in present value of defined benefit obligations Opening present value of obligation Current service cost Interest cost Benefits paid Actuarial gain on obligation Income distributed among the members Closing present value of obligation 24.1.4 Movement in the fair value of plan assets Opening fair value of plan assets Expected return on plan assets Actuarial gain / (loss) on plan assets Benefits paid Contribution by Company Closing fair value of plan assets 24.1.5 Expense recognised in the profit and loss account Current service cost Interest cost Past service cost- vested Acturial loss recognized Cost for the year 6,658 10,945 429 18,032 5,665 13,026 18,691 215,605 30,240 7,979 (20,110) 20,507 254,221 230,219 31,208 (18,768) (33,242) 6,188 215,605 243,342 6,658 10,945 (20,110) (7,809) 30,240 263,266 243,342 5,665 13,026 (33,242) (9,676) 31,212 243,342 24.1.3 24.1.4 12.5% 12.5% 12.5% 14% 14% 14% 2012 2011

(Rupees in '000) 263,266 (254,221) 9,045 (10,687) (1,642) 243,342 (215,605) 27,737 (26,903) 834

78

Notes to the Financial Statements

24.1.6 Plan assets comprised of following Defence Saving Certificates (DSCs) Regular Income Certificates (RICs) Special Saving Certificates (SSCs) Bank account and short-term deposits Treasury Bills (T Bills) Others (FIBs, PIBs, TFCs) 24.1.7 (Surplus) / deficit on the plan assets are as follows: 2012 2011 2010 2009 2008 ---------------------- (Rupees in '000) ---------------------Present value of defined benefit obligation Fair value of plan assets Deficit / (surplus) 263,266 254,221 9,045 243,342 215,605 27,737 236,357 230,219 6,138 214,568 216,679 (2,111) 199,339 204,718 (5,379) 2012 2011 (Rupees in '000) 11% 38% 39% 7% 4% 1% 100% 13% 45% 39% 2% 0% 1% 100%

24.1.8 5 years data on experience adjustments are as follows: (Gain) / loss on obligation Gain / (loss) on plan assets (7,809) 7,979 (9,676) (18,768) (2,641) (1,083) 7,710 (8,511) -

24.1.9 Based on actuarial advice the Company intends to charge an amount of approximately Rs 22.099 million in respect of gratuity fund in the financial statements for the year ending 30 June 2013. 24.1.10 The investment income of the fund is distributed among the members of the fund. Accordingly, expected return on plan assets has not been taken in the gratuity cost for the year ended 30 June 2012. 24.1.11 The information provided in notes 24.1.1 to 24.1.10 has been obtained from the valuation carried out by independent actuaries as at 30 June 2012 24.2 Defined contribution plan An amount of Rs 10.879 million (2011: Rs 7.950 million) has been charged during the year in respect of contributory provident fund maintained by the Company. 25. OTHER OPERATING INCOME Income from financial assets Amortization of discount on Pakistan Investment Bond Mark-up on: - Special saving certificates - Pakistan investment bond - Treasury bills - Bank deposits and savings account - Term finance certificates - Certificate of investments - Security deposits - Loan to employees - Term deposit receipts Income from non-financial assets Gain on sale of property, plant and equipment Sale of waste materials Other income Note 2012 2011 (Rupees in '000) 1,085 128,491 18,992 65,877 5,683 2,712 748 40 6 223,634 382 3,903 24,656 28,941 252,575 170,474 55,985 7,741 3,015 1,712 748 6 239,681 10,679 3,873 3,388 17,940 257,621

25.1

25.1 This represents claims received from a customer and certain suppliers.

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Notes to the Financial Statements

Note 26. OTHER OPERATING CHARGES Workers' profit participation fund Workers' welfare fund Raw material written off Provision for slow moving inventories Donation Auditors' remuneration Exchange loss 26.1 Donation None of the directors or their spouses had any interest in any of the donees. 26.2 Auditors' remuneration Audit fee Audit of funds, special certification and other services Out of pocket expenses 27. FINANCE COSTS Interest / mark-up on: - long-term finance - short-term finance - finance leases - workers' profit participation fund Bank charges 28. TAXATION - net Current - for the year Current - for prior year Deferred 28.1 Reconciliation between tax expense and accounting profit Accounting profit before taxation Tax on accounting profit @ 35% (2011: 35%) Surcharge under section 4A of the Ordinance Rebates under section 65A and 65B of the Ordinance Tax effect of permenant differences Expenses not admissible Tax for prior year Others 510,222 178,578 (54,974) 5,894 1,658 (1,525) 2,491 132,121 421,528 147,535 1,077 (45,046) 1,365 (405) 1,926 106,452 12,127 (1,525) 10,602 121,519 132,121 25,347 (405) 24,942 81,510 106,452 38,931 1,857 1,883 540 43,211 2,232 1,441 2,135 106 457 6,371 550 225 132 907 550 171 125 846 14.4 14.3 26.1 26.2 28,877 (494) 8,629 23,490 5,854 907 2,554 69,817 22,744 8,265 5,857 4,103 846 359 42,174 2012 2011 (Rupees in '000)

80

Notes to the Financial Statements

The income tax assessments of the Company have been finalised up to and including the assessment year 2002-2003. Tax returns of subsequent tax years are deemed to be assessed under provisions of the Income Tax Ordinance, 2001 ("the Ordinance") unless selected for an audit by the taxation authorities. The Commissioner of Income Tax may, at any time during a period of five years from date of filing of return, select the deemed assessment order for audit. The Company had previously exercised option of being assessed under the Final Tax Regime (FTR) in respect of goods manufactured by it, which was valid for tax years 2005 to 2007. However, due to the amendments made by the Finance Act 2005 and insertion of clause (41A) of Part IV of the second schedule to the Ordinance, the facility of assessment under FTR available for tax years 2006 and 2007 has been withdrawn. The Company has filed a constitutional petition with the High Court challenging the withdrawal of the facility upto and including tax year 2007. The High Court has admitted the petition for hearing. Based on legal advice, the Company has filed returns of income for tax years 2006 and 2007 under FTR. The liability for the aforesaid tax years has however been recorded in these financial statements under the Normal Tax Regime. 29. EARNINGS PER SHARE Profit after taxation 2012 2011 (Rupees in '000) 378,101 315,076

(Number of shares) Weighted average number of ordinary shares 41,149,989 41,149,989

(Rupees) Earnings per share - basic and diluted 9.19 7.66

29.1 There were no convertible dilutive potential ordinary shares in issue as at 30 June 2012 and 30 June 2011. 30. REMUNERATION OF CHIEF EXECUTIVE, DIRECTORS AND EXECUTIVES The aggregate amount charged in the financial statements for remuneration including certain benefits to the Chief Executive, Directors and Executives of the Company are as follows: 2012 Directors 2011 Directors

Chief Executive Directors' fee Managerial remuneration (including bonus) Housing, utilities and other perquisites Retirement benefits Medical Total Number of persons

Executives

Chief Executive

Executives

----------------------------- (Rupees in '000) ----------------------------1,570 864 2,572 2,572 1 1,570 8 27,090 17,271 2,582 2,044 48,987 25 1,374 1,374 1 864 8 22,511 14,228 2,074 1,647 40,487 23

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Notes to the Financial Statements

30.1 The Chief Executive is provided with free use of Company's owned and maintained car. 30.2 The Company also bears the travelling expenses of the Chief Executive and Directors relating to travel for official purposes including expenses incurred in respect of attending Board meetings. 30.3 The above figures do not include amounts and facilities paid or provided for by the associated company to the Chief Executive. 30.4 Housing, utilities and other perquisites include an amount of Rs 1 million (net of tax) as an award in recognition of her excellent performance and valuable services to the Company. 30.5 The Chief Executive, Directors and Executives as above represent key management personnel of the Company, i.e. the personnel having authority and responsibility for planning, directing and controlling the activities of the Company. 31. TRANSACTIONS WITH RELATED PARTIES Key Management Personnel Transactions during the year: Sale of goods to Pakistan Security Printing Corporation (Private) Limited - net Purchase of goods from Pakistan Cables Limited Remuneration to key management personnel Balance outstanding at the year end Receivable from Pakistan Security Printing Corporation (Private) Limited - net Advance from Pakistan Cables Limited 2012 Associated underTotal Others takings --------- (Rupees in '000) --------1,538,122 606 1,538,122 606 53,129

53,129

331,169 2011

19

331,169 19

Key Management Personnel Transactions during the year: Sale of goods to Pakistan Security Printing Corporation (Private) Limited - net Purchase of goods from Pakistan Cables Limited Remuneration to key management personnel Balance outstanding at the year end Receivable from Pakistan Security Printing Corporation (Private) Limited - net Advance from Pakistan Cables Limited

Associated underTotal Others takings --------- (Rupees in '000) --------1,295,933 1530 1,295,933 1,530 42,725

42,725

323,134 -

68

323,134 68

The Company has related party relationship with its associated undertakings, employee benefit plans and its directors and executive officers. Transactions with related parties essentially entail sale and purchase of goods and / or services from the aforementioned concerns.

82

Notes to the Financial Statements

All sales transactions with Pakistan Security Printing Corporation (Private) Limited are carried out by the Company using the "Cost Plus Mark-up Method". Transactions with employee benefit funds are carried out based on the terms of employment of the employees and according to the actuarial advice. All other transactions are carried out on commercial terms. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity. The Company considers all members of their management team, including the Chief Executive Officer and Directors to be its key management personnel. There are no transactions with key management personnel other than under their terms of employments / entitlements. Balances outstanding from related parties are interest free, unsecured and repayable on demand. Particulars of transactions with workers' profit participation fund and employee retirement benefit and contribution funds are disclosed in notes 14.4 and 26 to the financial statements. 2012 32. PRODUCTION CAPACITY Total Installed Capacity - on three shift basis Available installed capacity -based on available three shift working days Actual production 2,000 1,949 1,661 2011

(Tons)

2,000 1,888 1,402

The short capacity utilization during the year was due to scheduled plant (PM-2) shut down of 18 days (2011: 52 days) for maintenance purpose. Note 33. CASH GENERATED FROM OPERATIONS Profit before taxation Adjustments for: Depreciation Provision for slow moving inventories Provision for doubtful debts Gain on disposal of property, plant and equipment Impairment loss on available for sale investments Amortization of discount Mark-up on investments Mark-up on bank deposits and saving accounts Mark-up on security deposits Finance costs Working capital changes 510,222 151,681 23,490 4,749 (382) (1,085) (216,118) (5,683) (748) 43,211 (90,781) (96,415) 413,808 421,528 122,088 5,857 4,749 (10,679) 2,736 (238,927) (748) (6) 6,371 (6,317) (114,876) 306,652 2012 2011 (Rupees in '000)

33.1

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Notes to the Financial Statements

2012 2011 (Rupees in '000) 33.1 Working capital changes (Increase) / decrease in current assets Stores, spares and loose tools Stock-in-trade Trade debts Advances, deposits, prepayments and other receivables Increase / (decrease) in current liabilities Trade and other payables (27,764) (68,385) (6,297) (6,309) (108,755) 13,225 (95,530) 9,402 (5,354) (128,084) 13,465 (110,571) 104,254 (6,317)

34. FINANCIAL INSTRUMENTS The Company 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 Companys risk management framework. The Board is also responsible for developing and monitoring the Company's risk management policies. 34.1 Credit risk Credit risk represents the financial loss that would be recognised at the reporting date if counterparties fail completely to perform as contracted. Out of the total financial assets of Rs 2,131.399 million (2011: Rs 2,138.438 million), the financial assets which are subject to credit risk amounted to Rs 396.702 million (2011: Rs 719.772 million). All investing transactions are settled / paid for upon delivery as per the advice of investment committee. The Company's policy is to enter into financial instrument contract by following internal guidelines such as approving counterparties and approving credits. The bulk of the sales of the Company are made to Pakistan Security Printing Corporation (Private) Limited (PSPC) and the amount due from PSPC at the balance sheet constituted 15.8% ( 2011: 15.3%) of the total financial assets. The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date is: 2012 2011 (Rupees in '000) Investments Trade debts Deposits, accrued mark up and other receivables Bank balances 15,804 327,903 36,638 16,357 396,702 16,555 326,355 339,370 37,492 719,772

Investments comprise of Term Finance Certificates, Certificates of Investments and Term Deposit Receipts. The analysis below summarises the credit quality of the Company's investments. Besides these investments, the Company also has investments in Special Saving Certificates and Treasury Bills as disclosed in note 12 to the financial statements.

84

Notes to the Financial Statements

2012 Term Finance Certificates Certificates of Investments Term Deposit Receipts * Refer note 12.1 All the counterparties are of domestic origin. All the trade debts of the Company relate to PSPC the aging of which is as under: 2012 2011 Gross Not past due 31-90 91-180 181-360 360 and above 299,196 11,342 6,612 8,848 11,403 337,401 Impairment Impairment Gross --------- (Rupees in '000) --------9,498 9,498 296,300 19,935 5,371 7,169 2,329 331,104 3,585 1,165 4,749 * D A-1 / A-1+ 2011 D AA / A1+ AA+ / A-1+

Based on the past experience the management believes that no impairment allowance is necessary in respect of unprovided past due amounts as some invoices have been recovered subsequent to the year end and for others there are reasonable grounds to believe that the amounts will be recovered in short course of time. 34.2 Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company's approach to managing liquidity is to ensure as far as possible to always have sufficient liquidity to meet its liabilities when due. The Company is not materially exposed to liquidity risk as all obligations / commitments of the Company are short term in nature and are restricted to the extent of available liquidity. In addition, the Company has unavailed facilities of running finance amounting to Rs 200 million to meet any deficit, if required to meet the short term liquidity commitment. The following are the contractual maturities of the financial liabilities, including estimated interest payments: 2012 Carrying Contractual Six months Six to twelve One to Two to five amount cash flows or less months two years years ----------------------------- (Rupees in '000) ----------------------------Financial Liabilities Long term loans Trade and other payables Liabilities against asset subject to finance lease Accrued mark up 632,558 289,279 (810,277) (289,279) (119,041) (289,279) (2,344) (8,252) (418,916) (114,147) (2,332) (116,479) (213,078) (4,240) (217,318) (364,011) (5,324) (369,335)

11,733 (14,240) 8,252 (8,252) 941,822 (1,122,048)

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Notes to the Financial Statements

2011 Carrying Contractual Six months Six to twelve One to Two to five amount cash flows or less months two years years Financial Liabilities Long term loans Trade and other payables Liabilities against asset subject to finance lease Accrued mark up 34.3 Market risk Market risk is the risk that changes in market price, such as foreign exchange rates, interest rates and equity prices will effect the Company's income or the value of its holdings of financial instruments. 34.3.1 Currency risk The Company is exposed to currency risk on technical assistance fee payable to SPTEC GmbH in Euros and import of raw materials and fixed assets being denominated in US dollars and Euros. The Company's exposure to foreign currency risk is as follows: 2012 USD GBP Euro Total --------------(Rupees in '000)-------------Payable against purchase of operating fixed assets Technical fee payable Gross balance sheet exposure Outstanding letters of credit Net exposure 7,034 7,034 13,231 13,231 308,500 7,492 315,992 9,898 325,890 2011 USD GBP Euro Total ------------------(Rupees in '000)-----------------Advances from customers Technical fee payable Gross balance sheet exposure Outstanding letters of credit Net exposure The following significant exchange rates have been applied: USD to PKR GBP to PKR Euro to PKR 4,475 4,475 52,479 4,078 56,557 56,557 52,479 4,078 56,557 4,475 61,032 308,500 7,492 315,992 30,163 346,155 ----------------------------------- (Rupees in '000) ----------------------------------404,939 243,968 14,376 6,077 669,360 (517,916) (243,968) (18,275) (6,077) (786,236) (64,401) (243,968) (2,392) (6,077) (316,838) (63,762) (2,392) (66,154) (124,565) (4,574) (129,139) (265,188) (8,917) (274,105)

Average rate 2012 89.64 142.10 120.15 2011 85.73 136.63 117.72

Reporting date rate 2012 94.20 147.07 118.50 2011 86.05 138.62 124.89

86

Notes to the Financial Statements

Sensitivity analysis At reporting date, if the PKR had strengthened / weakened by 10% against the Euro with all other variables held constant, post-tax profit for the year would have been higher / lower by the amount shown below, mainly as a result of foreign exchange gain / loss on translation of technical fee obligation and liability against purchase of fixed assets. 2012 2011 (Rupees in '000) 20,539 3,676

Effect on profit Increase / decrease 34.3.2 Interest rate risk

At the reporting date the interest rate profile of the Company's interest bearing financial instruments was as follows: Note 2012 2011 Carrying amount (Rupees in '000)

Financial assets Fixed rate instruments Pakistan investment bond Special Saving Certificates Treasury Bills Term deposit receipts Variable rate instruments Term finance certificates Financial liabilities Variable rate instruments Long term loan Liabilities against asset subject to finance lease

6 12 12 12 12

577,710 1,120,031 60 1,697,801 15,744

950,000 442,623 55 1,392,678 16,500

16 17

632,558 11,733 644,291

404,939 14,376 419,315

Fair value sensitivity analysis for fixed rate instruments The Company does not account for any fixed rate financial assets and liabilities at fair value through profit and loss. Therefore a change in interest rates at the reporting date would not affect profit and loss account. Cash flow sensitivity analysis for variable rate instruments A change of 100 basis points in interest rates at the reporting date would have increased/(decreased) profit 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 for 2012.

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Notes to the Financial Statements

Effect on profit and loss 100 bp increase As at 30 June 2012 Cash flow sensitivity-Variable rate instruments As at 30 June 2011 Cash flow sensitivity-Variable rate instruments 1,611 1,048 100 bp decrease (1,611) (1,048) (Rupees in '000)

The sensitivity analysis prepared is not necessarily indicative of the effects on profit for the year and assets of the Company. 34.3.3 Other price risk Other price risk arises from the Company's investment in term finance certificates of B.R.R. Guardian Modaraba. To manage its price risk arising from such investments, the Company regularly monitors them through its investment committee. A 10% increase / decrease in MUFAP rates for B.R.R. Guardian Modaraba Term Finance Certificates at year end would have increased / decreased the Company's profit before tax and the value of investments as follows. 2012 2011 (Rupees in '000) B.R.R. Guardian Modaraba Term Finance Certificates 1,574 1,650

The sensitivity analysis prepared is not necessarily indicative of the effects on other comprehensive income, equity and assets of the Company. 34.4 Fair value of financial instruments The carrying values of the financial assets and financial liabilities 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. Fair value hierarchy The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices). Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). 30 June 2012 Available for sale investments B.R.R. Guardian Modaraba Term Finance Certificates 30 June 2011 Available for sale investments B.R.R. Guardian Modaraba Term Finance Certificates 16,500 Level 1 Level 2 (Rupees in '000) Level 3 15,744

88

Notes to the Financial Statements

35. OPERATING SEGMENTS These financial statements have been prepared on the basis of a single reportable segment. 35.1 Revenue from bank notes represents 77.34% (2011 : 91.35%) of the total revenue of the Company. 35.2 All the sales of the Company are made to customers located in Pakistan. 35.3 All non-current assets of the Company at 30 June 2012 are located in Pakistan. 35.4 One customer of the Company accounts for 97.89% (2011: 99.47%) of total revenue of the Company for the year. 36. CAPITAL RISK MANAGEMENT The Company's objective when managing capital is to safe guard the Company'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 maintain a strong capital base to support the sustained development of its businesses. The Company manages its capital structure by monitoring return on net assets and makes adjustments to it in the light of changes in economic conditions. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividend paid to shareholders or issue new shares. 37. NON-ADJUSTING EVENT AFTER THE BALANCE SHEET DATE The Board of Directors in its meeting held on 31 July 2012 has proposed a cash dividend in respect of the year ended 30 June 2012 of Rs 6/- per share (2011: cash dividend Rs 5 per share). In addition, the directors have also announced appropriation of Rs 131.20 million (2011 : Rs 109 million) to revenue reserves. These appropriations will be approved in the forthcoming Annual General Meeting. The financial statements for the year ended 30 June 2012 do not include the effect of these appropriations which will be accounted for subsequent to the year end. 38. DATE OF AUTHORISATION FOR ISSUE These financial statements were authorised for issue on 31 July 2012 by the Board of Directors of the Company.

Naiyer Muzafar Husain Chief Executive

Jamal Nasim Director

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12 Pattern of Shareholding
As At June 30, 2012
Size of Holding Rs 10 Shares 1 101 501 1,001 5,001 10,001 15,001 20,001 25,001 30,001 35,001 40,001 45,001 55,001 75,001 80,001 95,001 110,001 120,001 135,001 170,001 225,001 265,001 330,001 390,001 530,001 640,001 935,001 1,830,001 2,950,001 3,485,001 4,110,001 16,470,001 100 500 1,000 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 60,000 80,000 85,000 100,000 115,000 125,000 140,000 175,000 230,000 270,000 335,000 395,000 535,000 645,000 940,000 1,835,000 2,955,000 3,490,000 4,115,000 16,475,000 TOTAL Number of Shareholders 382 338 235 384 100 33 16 10 8 5 3 1 7 2 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 1 1,545 Number of Shares 9,175 95,076 185,080 976,755 756,269 405,306 283,735 221,539 222,517 161,843 112,883 41,184 336,697 117,864 77,686 81,672 198,695 115,000 125,000 139,464 174,662 225,388 269,473 330,333 392,611 533,823 644,924 935,011 1,834,812 2,954,362 3,487,768 8,229,952 16,473,430 41,149,989

90

Pattern of Shareholding
As At June 30, 2012
Categories of Shareholders i. Associated Companies, Undertakings and Related Parties INDUSTRIAL DEVELOPMENT & RENOVATION ORGANIZATION OF IRAN PAKISTAN SECURITY PRINTING CORPORATION (PVT.) LIMITED SUMER HOLDING A.S. ii. Mutual Funds NATIONAL BANK OF PAKISTAN-TRUSTEE DEPARTMENT NI(U)T FUND CDC - TRUSTEE AKD INDEX TRACKER FUND TRUSTEE - PAKISTAN PENSION FUND - EQUITY SUB FUND iii. Directors and their Spouse(s) and minor children SHEIKH MOHAMMAD AIJAZ AKHTAR MR. MUSTAPHA A.CHINOY iv. Executives v. Public Sector Companies and Corporations STATE LIFE INSURANCE CORPORATION OF PAKISTAN PAKISTAN REINSURANCE COMPANY LIMITED DEPUTY ADMINISTRATOR ABANDONED PROPERTIES ORGANIZATION NATIONAL INVESTMENT TRUST LIMITED - ADMINISTRATION FUND vi. Banks, Development Finance Institutions, Non-Banking Finance Companies, Insurance Companies, Takaful, Modarabas and Pension Funds HABIB BANK LIMITED UNITED BANK LIMITED MERCANTILE COOPERATIVE FINANCE MUSLIM COMMERCIAL BANK LIMITED E F U GENERAL INSURANCE LIMITED INNOVATIVE INVESTMENT BANK LIMITED PREMIER INSURANCE LIMITED BANK ALFALAH LIMITED THE PUNJAB PROVINCIAL COOPERATIVE BANK NATIONAL BANK OF PAKISTAN SAUDI PAK INDUSTRIAL & AGRICULTURAL INVESTMENT CO. LTD. - CAD THE BANK OF PUNJAB, TREASURY DIVISION B.R.R. GUARDIAN MODARABA NATIONAL INVESTMENT TRUST LIMITED General Public a. Local b. Foreign Number 3 1 1 1 3 1 1 1 3 2 1 5 2 1 1 1 Shares held 24,703,382 4,114,976 16,473,430 4,114,976 1,881,572 1,834,812 1,000 45,760 21,614 1,252 20,362 4,936,144 3,487,924 644,924 269,473 533,823 Percentage 60.03 10.00 40.03 10.00 4.57 4.46 0.00 0.11 0.05 0.00 0.05 12.00 8.48 1.57 0.65 1.30

16 2 1 1 1 1 1 1 1 1 2 1 1 1 1 1476 1476 -

4,629,416 1,380 224 24,672 108 525 1,000 10,611 26,000 2,954,362 1,109,673 50,000 392,611 11,000 47,250 4,154,386 4,154,386 -

11.25 0.00 0.00 0.06 0.00 0.00 0.00 0.03 0.06 7.18 2.70 0.12 0.95 0.03 0.11 10.10 10.10 -

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Pattern of Shareholding
As At June 30, 2012
Categories of Shareholders Others ADMINISTRATOR ABANDONED PROPERTIES FIKREE DEVELOPMENT CORPORATION AZEEM SERVICES (PVT.) LIMITED N. H. SECURITIES (PVT.) LIMITED ASIAN SECURITIES LIMITED UHF CONSULTING (PRIVATE) LIMITED MOOSA,NOOR MOHAMMAD,SHAHZADA & CO. (PVT.) LIMITED PRUDENTIAL SECURITIES LIMITED MOOSANI SECURITIES (PVT.) LIMITED TECHNOLOGY LINKS (PVT.) LIMITED Y.S. SECURITIES & SERVICES (PVT.) LIMITED DAWOOD FOUNDATION MILLWALA SONS (PRIVATE) LIMITED MOHAMAD AMIN BROS (PVT.) LIMITED PAKISTAN MEMON EDUCATIONAL & WELFARE SOCIETY CRESCENT STEEL AND ALLIED PRODUCTS LIMITED TRUSTEES SAEEDA AMIN WAKF TRUSTEES MOHAMAD AMIN WAKF ESTATE TRUSTEES OF SANA INDUSTRIES LIMITED EMPLOYEES GRATUITY FUND TRUSTEES AL-BADER WELFARE TRUST S.H. BUKHARI SECURITIES (PVT.) LIMITED CRESCENT COTTON MILLS LIMITED TRUSTEES D.G.KHAN CEMENT CO. LTD. EMPLOYEES PROVIDEND FUND H M INVESTMENTS (PVT.) LIMITED NH SECURITIES (PVT.) LIMITED EXCEL SECURITIES (PVT.) LIMITED ACE SECURITIES (PVT.) LIMITED CAPITAL VISION SECURITIES (PVT.) LIMITED MULTILINE SECURITIES (PVT.) LIMITED INVEST AND FINANCE SECURITIES LIMITED LIVE SECURITIES LIMITED CLIKTRADE LIMITED DARSON SECURITIES (PVT.) LIMITED MUHAMMAD SALIM KASMANI SECURITIES (PVT.) LIMITED MUHAMMAD BASHIR KASMANI SECURITIES (PVT.) LIMITED M.R. SECURITIES (SMC-PVT.) LIMITED PEARL CAPITAL MANAGEMENT (PRIVATE) LIMITED SEVEN STAR SECURITIES (PVT.) LIMITED Total vii. Shareholders Holding five percent or more Voting Rights in the Listed Company PAKISTAN SECURITY PRINTING CORPORATION (PVT.) LIMITED SUMER HOLDING A.S. INDUSTRIAL DEVELOPMENT & RENOVATION ORGANIZATION OF IRAN STATE LIFE INSURANCE CORPORATION OF PAKISTAN THE PUNJAB PROVINCIAL COOPERATIVE BANK Number 39 1 1 1 1 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1,545 5 1 1 1 1 1 Shares held 823,475 10,197 3,907 1 37 22,684 290 5,000 38 10,822 4,680 72 225,388 45 6,000 5,000 32,924 46,500 81,672 36,890 41,184 645 364 115,000 276 2,576 172 2,652 9,162 7,500 125,000 2,354 1 1 2,000 2,000 20,000 341 100 41,149,989 31,145,668 16,473,430 4,114,976 4,114,976 3,487,924 2,954,362 Percentage 2.00 0.02 0.01 0.00 0.00 0.06 0.00 0.01 0.00 0.03 0.01 0.00 0.55 0.00 0.01 0.01 0.08 0.11 0.20 0.09 0.10 0.00 0.00 0.28 0.00 0.01 0.00 0.01 0.02 0.02 0.30 0.01 0.00 0.00 0.00 0.00 0.05 0.00 0.00 100.00 75.69 40.03 10.00 10.00 8.48 7.18

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Company Information
BOARD OF DIRECTORS Non-executive Directors Chairman Mr. Mustapha A. Chinoy Directors Sheikh Mohammmad Aijaz Akhtar Mr. Hasan Irfaan Mrs. Ayla Akin - Turkey Mr. Jamal Nasim Mr. Mazhar-ul-Hassan Shah Mr. Mohammad Reza Roshani Moghaddam - Iran Ms. Yasmin Saud Executive Director Chief Executive Mrs. Naiyer Muzafar Husain - Nominee - PSPC Minority & Independent Minority & Independent Minority & Independent Minority & Independent Minority & Independent Elected Nominee - PSPC Nominee - SHAS Elected - NIT Nominee - PSPC Nominee - IDRO Elected - SLIC Minority & Independent - Elected

PSPC NIT IDRO SHAS SLIC

Pakistan Security Printing Corporation (Pvt.) Limited National Investment Trust Limited Industrial Development and Renovation Organization of Iran Sumer Holding A.S. Genel Mudurlugu, Turkey (formerly SEKA) State Life Insurance Corporation of Pakistan

BOARD AUDIT COMMITTEE Mr. Jamal Nasim Independent Non-executive Director Mr. Mustapha A. Chinoy Independent Non-Executive Director Mr. Hasan Irfaan Non-executive Director Mr. Talha Bin Hamid General Manager (Internal Audit) BOARD HUMAN RESOURCE AND REMUNERATION COMMITTEE Mr. Mustapha A. Chinoy Independent Non-Executive Director Mrs. Naiyer Muzafar Husain Executive Director Sheikh Mohammmad Aijaz Akhtar Independent Non-Executive Director Mr. Jamal Nasim Independent Non-Executive Director Mr. Nadeem Azhar General Manager (HR&A) - Chairman - Member - Member - Member - Secretary - Chairman - Member - Member - Secretary

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12

Company Information
BOARD INVESTMENT COMMITTEE Mrs. Naiyer Muzafar Husain Executive Director Mr. Mustapha A. Chinoy Independent Non-Executive Director Mr. Mazhar-ul-Hassan Shah Non-executive Director Mr. Rizwan Ul Haq Khan General Manager (F&A)/CFO MANAGEMENT AND STRATEGIC PLAN COMMITTEE Chairperson: Mrs. Naiyer Muzafar Husain Members: Mr. Ghulam Hussain Akhtar Mr. Rizwan Ul Haq Khan Mr. Muhammad Abdul Aleem Maj. (Retd.) Muhammad Ali Niazi Mr. Faiz-Ul-Islam Mr. Talha Bin Hamid Mr. Nadeem Azhar Mr. Muhammad Imran Awan Mr. Saadat Ali Mr. Khalil Ahmed BANKERS National Bank of Pakistan Faysal Bank Limited Standard Chartered Bank Limited Habib Metropolitan Bank Limited Bank Alfalah Limited Bank Al Habib Limited AUDITORS KPMG Taseer Hadi & Co. Chartered Accountants LEGAL ADVISORS Mohsin Tayebaly & Co. Advocates & Legal Consultants REGISTERED OFFICE Jinnah Avenue, Malir Halt, Karachi-75100 Telephone: 99248285 Fax: 99248286 E-mail: [email protected] Website: http://security-papers.com FACTORY Jinnah Avenue, Malir Halt, Karachi-75100 Telephone: 99248536-37 Fax: 99248616 SHARE REGISTRAR FAMCO Associates (Pvt.) Limited 1st Floor, State Life Building 1-A, I. I. Chundrigar Road, Karachi-74000. Tel: 32427012, 32425467 & 32426597 Fax: 32426752 & 32428310 TAX CONSULTANTS A. F. Ferguson & Co. Chartered Accountants Director Projects General Manager (F&A)/CFO Company Secretary General Manager (Security) General Manager (Supply Chain) General Manager (Internal Audit) General Manager (HR&A) D.G.M. (Production) D.G.M. (QA/R&D) D.G.M. (Works) - Chief Executive - Chairperson - Member - Member - Secretary

94

Board Audit Committee Meeting in Progress

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annual report two thousand

12 Information on Board Committees

The following are the Board Committees, the number of meetings held by them during the year and terms of reference: 1. Board Audit Committee (BAC) Five meetings were held during the year. The Board of Directors of the Company shall determine the terms of reference of the Audit Committee. The Audit Committee shall among other things, be responsible for recommending to the Board of Directors the appointment of external auditors by the Company's shareholders and shall consider any questions of resignation or removal of external auditors, audit fees and provision by external auditors of any service to the Company in addition to audit of its financial statements. In the absence of strong grounds to proceed otherwise, the Board of Directors shall act in accordance with the recommendations of the Audit Committee in all these matters. Other terms of reference of the Audit Committee are as follows: a) b) c) Determination of appropriate measures to safeguard the Company's assets. Review of preliminary announcement of results prior to publication. Review of quarterly, half yearly and annual financial statements of the Company, prior to their approval by the Board of Directors focusing on: d) Major judgmental areas Significant adjustments resulting from the audit The going concern assumption Any changes in accounting policies and practices Compliance with applicable accounting standards Compliance with listing regulations and other statutory and regulatory requirements

Facilitating the external audit and discussion with external auditors of major observations arising from interim and final audits and any matter that the auditors may wish to highlight (in the absence of management, where necessary). Review of management letter issued by external auditors and management's response thereto. Ensuring coordination between the internal and external auditors of the Company. Review of the scope and extent of internal audit and ensuring that the internal audit function has adequate resources and is appropriately placed within the Company. Consideration of major findings of Internal Investigations and management's response thereto. Ascertaining that the Internal Control System including financial and operational controls, accounting system and reporting structure are adequate and effective. Review of Company's statement on Internal Control System prior to endorsement by the Board of Directors. Instituting special projects, value for money studies or other investigations on any matter specified by the Board of Directors in consultation with the Chief Executive and to consider remittance of any matter to the external auditors or to any other external body.

e) f) g) h) i) j) k)

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Information on Board Committees

l) Determination of compliance with relevant statutory requirements. m) Monitoring compliance with the best practices of corporate governance and identification of significant violations thereof. n) o) 2. Consideration of any other issue or matter as may be assigned by the Board of Directors. Review of third party related transactions.

Board Human Resource & Remuneration Committee (HR&RC) No formal meeting was held during the year. However, matters of urgent nature were directly discussed and approved at the Board meeting on the recommendation of members of HR&RC. The purpose of Board Human Resource and Remuneration Committee (HR&RC) is to assist the Board to fulfill its oversight responsibilities for: Recommending human resource management policies to the Board Evaluate executive officer performance and review the Company's management succession plan Employee reward and performance management

The HR&RC will consist of at least three members comprising a majority of Non-executive Directors, including preferably an independent Director. The Managing Director/Chief Executive Officer (MD/CEO) may be included as a member of the Committee but not as the Chairman of the Committee. The MD/CEO if member of HR&RC shall not participate in the proceedings of the Committee on matters that directly relate to his/her performance and compensation. The Head of Human Resource & Administration (HR&A) will act as Secretary of the Committee. To exercise its responsibilities, the HR&RC will have authority to discuss any relevant matters with management and to request appropriate reports, explanations, accounts and/or activity modifications. The HR&RC may delegate its authority to the Chairman or any other member of the Committee when it deems appropriate and in the best interest of the Company. 3. Board Investment Committee (BIC) Two meetings were held during the year. The function of the BIC is to assist the Board of Directors (BoD) in their responsibilities regarding investment of funds. BIC will also assist and report on any other investment related matter(s) assigned to it by the BoD. BIC has no executive powers relevant to recommendations made by it and therefore does not relieve the BoD of its responsibilities regarding such matters. BIC may recommend the appointment of an Investment Advisor of the Company to BoD BIC may recommend investment policy of the company to the BoD for approval BIC may authorize Managing Director/Chief Executive to take investment decisions as per investment policy from time to time. However, the committee will ratify such investments in the succeeding meeting For executing its duties BIC will have authority to discuss with management, any matter(s) relevant to exploring better investment opportunities BIC is authorized by the Board to explore better investment proposals and other professional advice that may be necessary for the BIC to properly carry out responsibilities

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annual report two thousand

12 Notice of Annual General Meeting

Notice is hereby given that the Forty-seventh Annual General Meeting of Security Papers Limited will be held on Thursday, the August 30, 2012 at 11:00 AM at The Institute of Chartered Accountants of Pakistan, Chartered Accountants Avenue, Clifton, Karachi to transact the following business: A. 1. 2. 3. B. 4. ORDINARY BUSINESS To receive, consider and adopt the Audited Financial Statements of the Company for the year ended June 30, 2012 together with the Reports of the Auditors and the Directors. To declare final cash dividend at the rate of Rs 6/- per share i.e. 60% for the year ended June 30, 2012 as recommended by the Board of Directors. To appoint Auditors for the year 2012-13 and to fix their remuneration. SPECIAL BUSINESS To consider and if thought fit, to pass the following as ordinary resolution: "RESOLVED that the aggregate remuneration to be paid to non-executive Directors for attending meetings of the Board / Committee(s) of the Board; shall not exceed Rs 6.25 million in a financial year." STATEMENT UNDER SECTION 160 (1) (b) OF THE COMPANIES ORDINANCE, 1984 REGARDING THE SPECIAL BUSINESS: The existing annual lump sum amount of remuneration to be paid to non-executive Directors for attending the meetings of the Board / Committee(s) of the Board was fixed three years ago in 2009 at Rs 2.22 million. The said lump sum amount has become inadequate and does not compensate the increasing level of roles and responsibilities of the Directors, the quantum of time put in and the commitment required. The proposed resolution seeks to revise the existing annual lump sum amount to Rs 6.25 million in the case of non-executive Directors. The Directors are interested in the Business to the extent of their remuneration". By Order of the Board

Karachi, July 31, 2012 NOTES 1.

(Muhammad Abdul Aleem) Company Secretary

The Share Transfer Books of the Company will remain closed from August 22 to August 30, 2012 (both days inclusive). Transfers received in order at the office of our Share Registrar, M/s. FAMCO Associates (Pvt.) Limited, 1st Floor, State Life Building No.1-A, I. I. Chundrigar Road, Karachi-74000 by the close of business on August 21, 2012 will be considered in time to determine the above mentioned entitlement and to attend and vote at the Meeting. A member entitled to attend and vote at this meeting may appoint any other member as his/her proxy to attend and vote on his/her behalf. The instrument appointing proxy must be received at the Registered Office of the Company duly stamped and signed not later than 48 hours before the meeting. CDC Account Holders will further have to follow the under mentioned guidelines as laid down in Circular No.1 dated January 26, 2000 issued by the Securities & Exchange Commission of Pakistan.

2.

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Notice of Annual General Meeting

A. For Attending the Meeting: (i) In case of individuals, the account holder or sub-account holder and/or the person whose securities are in group account and their registration details are uploaded as per the Regulations, shall authenticate his/her identity by showing his/her original Computerized National Identity Card (CNIC) or original passport at the time of attending the meeting. In case of corporate entity, the Board of Directors' resolution/ power of attorney with specimen signature of the nominee shall be produced (unless it has been provided earlier) at the time of the meeting.

(ii)

B.

For Appointing Proxies: (i) In case of individuals, the account holder or sub-account holder and/or the person whose securities are in group account and their registration details are uploaded as per the Regulations, shall submit the proxy form as per the above requirement. The proxy form shall be witnessed by two persons whose names, addresses and CNIC Numbers shall be mentioned on the form.

(ii)

(iii) Attested copies of CNIC or Passport of the beneficial owners and the proxy shall be furnished with the proxy form. (iv) The proxy shall produce his/her original CNIC or original Passport at the time of the meeting. (v) In case of corporate entity, the Board of Directors' resolution/power of attorney with specimen signature shall be submitted (unless it has been provided earlier) along with proxy form to the Company. 3. Members are requested to provide by mail or fax their National Tax No. (NTN) and CNIC or passport No. if foreigner (unless it has been provided earlier) to enable the Company comply with relevant laws. Members are requested to notify any change in their addresses immediately to our Share Registrar, M/s. FAMCO Associates (Pvt.) Limited, 1st Floor, State Life Building No.1-A, I. I. Chundrigar Road, Karachi-74000.

4.

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12

Environment

FACTORY

OFFICE

100

Form of Proxy
I/We_________________________________________________________________________________________ of____________________________________________________________________________________________ being member(s) of SECURITY PAPERS LIMITED and holder of ____________________________________ Ordinary Shares as per Share Register Folio/CDC Account No.__________________________________ hereby appoint_______________________________ Folio/CDC Account No. ________________________ of_________________________________CNIC No. or Passport No.___________________________________ or failing whom ___________________________________ Folio/CDC Account No. ____________________ of_______________________CNIC No. or Passport No._______________________ who is also a member of the Company as my/our proxy to attend and vote for me/us and on my/our behalf at the 47th ANNUAL GENERAL MEETING of the Company to be held on Thursday, August 30, 2012 at 11:00 AM and at any adjournment thereof. Signed this_________________day of _______________ 2012. Witnesses: 1.Signature ___________________ Name: _______________________ Address:______________________ CNIC or Passport No.__________ 2. Signature __________________ Name: _______________________ Address:______________________ CNIC or Passport No.__________ Rs 5/Revenue Stamp Signature _______________________________
(Signature should agree with the specimen signature registered with the Company).

CNIC or Passport No.____________________

IMPORTANT 1. 2. 3. This form of proxy, duly completed and singed, must be deposited at the Company's Registered Office not later than 48 hours before the meeting. This form should be signed by the Member or by his/her attorney duly authorised in writing. If the Member is a Corporation, its common seal should be affixed to the instrument. A Member entitled to attend and vote at the meeting may appoint any other Member as his/her proxy to attend and vote on his/her behalf except that a corporation may appoint a person who is not a Member.

For CDC Account Holders/Corporate Entities: In addition to the above, following requirements have to be met: (i) (ii) The proxy form shall be witnessed by two persons whose names, addresses and CNIC or Passport Numbers shall be mentioned on the form. Attested copies of CNIC or Passport of the beneficial owners and the proxy shall be furnished with the proxy form.

(iii) The proxy shall produce his/her original CNIC or original Passport at the time of the meeting. (iv) In case of corporate entity, the Board of Directors' resolution/power of attorney with specimen signature shall be submitted (unless it has been provided earlier) alongwith proxy form to the Company.

REGISTERED OFFICE & SHARE DEPARTMENT Jinnah Avenue, Malir Halt, Karachi-75100 Ph: (92)-021-99248285 Fax: (92)-021-99248286 FACTORY Jinnah Avenue, Malir Halt, Karachi-75100 Ph: 99248536-37 Fax: 99248616