Gatron Industries : Transmission of Half Year Report for the period ended December 31, 2023

Half Yearly Report

December 31, 2023

C	02		Corporate Information
UNCONSOLIDATED PRESENTATION
	03		Directors' Report
O	11		Directors' Report (in Urdu)
12		Auditor's Report to Members on Review of
		Condensed Interim Financial Statement
13		Condensed Interim Statement of Financial Position
N	14		Condensed Interim Statement of Profit or Loss
15		Condensed Interim Statement of Comprehensive Income
1716		Condensed Interim Statement of Changes in Equity
	Condensed Interim Statement of Cash Flows
T	18		Notes to the Condensed Interim Financial Statements
CONSOLIDATED PRESENTATION
	32		Directors' Report
E	35		Directors' Report (in Urdu)
36		Condensed Interim Statement of Financial Position
37		Condensed Interim Statement of Profit or Loss
38		Condensed Interim Statement of Comprehensive Income
39		Condensed Interim Statement of Changes in Equity
N	40		Condensed Interim Statement of Cash Flows
41		Notes to the Condensed Interim Financial Statements
T	55		Notes for Members
S

Board of Directors

Abdul Razak Diwan - Chairman

Shabbir Diwan - Chief Executive Officer

Zakaria Bilwani

Muhammad Iqbal Bilwani

Saqib Haroon Bilwani

Muhammad Taufiq Bilwani

Muhammad Altaf Bilwani

Talat Iqbal

Muhammad Tufail Iqbal

Huma Rafique

Special Advisor

Pir Muhammad Diwan

Audit Committee

Muhammad Tufail Iqbal - Chairman

Muhammad Iqbal Bilwani

Talat Iqbal

HR & Remuneration Committee

Talat Iqbal - Chairman

Muhammad Iqbal Bilwani

Saqib Haroon Bilwani

Company Secretary

Muhammad Yasin Bilwani

Chief Financial Officer

Mustufa Bilwani

Auditor

M/s. Kreston Hyder Bhimji & Co.

Chartered Accountants

Karachi.

Legal Advisor

Naeem Ahmed Khan

Advocates

Quetta.

Shares Registrar

F.D. Registrar Services (Pvt) Limited

Suit 1705, 17th Floor, Saima Trade Tower-A,

I.I. Chundrigar Road, Karachi.

Phone: [phone]

Bankers / Financial Institutions

Askari Bank Limited

Bank Alfalah Limited

Bank Al-Habib Limited

Dubai Islamic Bank Pakistan Limited

Faysal Bank Limited

First Habib Modaraba

Habib Bank Limited

Habib Metropolitan Bank Limited

MCB Bank Limited

Meezan Bank Limited

National Bank of Pakistan

Standard Chartered Bank (Pakistan) Ltd

The Bank of Punjab

United Bank Limited

Plant

Plot No.441/49-M2, Sector "M",

H.I.T.E., Main R.C.D. Highway,

HUB, District Lasbela,

Balochistan, Pakistan.

Registered Office

Room No.32, First Floor,

Ahmed Complex,

Jinnah Road, Quetta - Pakistan.

Liaison/Correspondence Office

11th Floor, G&T Tower,

• 18 Beaumont Road, Civil Lines-10,Karachi-75530 - Pakistan. Phone: [phone] Fax: [phone]

Email

[e-mail]

Website

www.gatron.com

Directors' Report

Dear Shareholders,

The Directors of Gatron (Industries) Limited are pleased to present the half yearly report together with the financial statements, duly reviewed by the external auditors, for the half year ended December 31, 2023.

Financial Review:

The financial synopsis for the period under review are as below:

• Net sales Rs.18,199 million,
• Operating Profit Rs.425 million,
• Loss before income tax Rs. 494 million,
• Loss after income tax Rs.919 million,
• Loss per share Rs.11.98
• Paid up capital Rs. 767 million,
• Shareholders' equity Rs.6,941 million

The Operating Profit of your company is Rs 425 million for the six months ending 31 Dec 2023 compared to operating profit of Rs 553 million in the 12 months period ending 30 June 2023

.Your company achieved a net revenue of Rs. 18,199 million compared to Rs. 12,028 million in the last corresponding 6 months period, indicating an overall net increase of 51%. This substantial increase in sales has been accomplished by the introduction of a new product line, Film Grade Chips (FGC), and the effect of the average rupee exchange rate against the US dollar, which was Rs. 283 in the current reporting quarter compared to Rs. 223 in the corresponding quarter last year. FGC is a polyester chip, which your company is now producing in addition to the regular yarn grade polymer/chip.

The current reporting period was challenging for the company due to extraordinary dumping of imported yarn adding supply of yarn in the local market at exceptionally low dumped prices. NTC has terminated ab-initio (since 2017) the anti-dumping duties on PFY with its notification dated November 07, 2023 on a technical reason by exclusion of Fully Drawn Yarn (FDY) from the scope of Sunset Review, despite acknowledging the existence of injury due to already proven dumping on DTY yarn. This exclusion of FDY from the sunset review was done by NTC itself in the year 2022. Your company has challenged this termination in the Appellate Tribunal. The low demand in downstream industries caused by a tight economic and political situation as well as inflationary impact on the consumers with this overhang of dumped imported yarn inventory made it more challenging.

Despite significant investments in PFY capacity in recent years, company has encountered obstacles in fully utilizing its available capacity. The prevalence of widespread dumping of PFY at substantially reduced prices has compelled us to operate at significantly diminished levels. Consequently, this has resulted in a notable escalation in fixed costs including the depreciation of the newly installed capacity. As you are aware that your company has made investments in the last 3 years to allow increase of annual production of mixed deniers by around 100% to make it approx. 95,000 tons.

The administrative expenses saw an 25% increase, primarily attributed to inflationary pressures stemming from the devaluation of the Pak Rupee.

A notable escalation in finance costs occurred (compared to the corresponding period last year) due to the significant rise in the base markup rate set by the State Bank of Pakistan, reaching a historical high of 22%. This increase directly impacted the bottom line following the operating results. Moreover, heightened levels of stock-in-trade, coupled with an increased

HALF YEARLY REPORT DECEMBER 2023 03

unit value of stocks, necessitated higher working capital requirements in rupee terms while the Company successfully reduced stock levels in terms of quantum compared to the previous corresponding period. We are also actively engaged in efforts to reduce the volume of outstanding receivables. Looking ahead, with the forthcoming operation of the newly installed higher capacity polymer plant, we anticipate lower polymer production costs compared to the previous plant as well normalized raw material stock levels, consequently decreasing working capital requirements. The new installed polymer line will increase the flexibility to allow production of other kind of polymers/chips adding new a revenue stream as well offset some of the increase in operating cost due to increase in gas and energy rates.

Regrettably, the imposition of the Minimum Tax on Turnover has resulted in a tax increase for the period. Minimum Tax is quite regressive by not being linked to actual profits.

In terms of the balance sheet, compared to June 30, 2023, we observed a decrease in stocks by Rs. 2,820 million, totaling Rs. 8,567 million. Conversely, debtors increased by Rs. 470 million, reaching Rs. 4,446 million, while creditors increased by Rs. 2,843 million, reaching Rs. 12,087 million. Notably, the company's short-term borrowings decreased by Rs. 3,485 million compared to June 30, 2023, reaching Rs. 4,989 million. This reduction can be attributed to reduction in inventory. We anticipate further sharp decreases in short-term borrowings in the coming months due optimization of stock levels as well as the equity funds is being injected in the company. This will help in improving the financial health of your company.

Despite challenges and unfavorable business environment your company's management taking cost saving measures in every part of the operations and administration.

CHALLENGES FACED AND FUTURE OUTLOOK

• Pursuant to the final determination of antidumping duties made by the National Tariff Commission (NTC) in 2017, the Importers and foreign exporters of PFY had filed appeals before the Anti-Dumping Appellate Tribunal in 2017. The Appellate Tribunal after more than four years of the appeal remanded the case back to the NTC in December 2021 to re-calculate the duties and reconsider the injury to the domestic industry from non-attributable factors other than dumped imports. Accordingly, NTC made its Final determination in January 2022 and renotified the antidumping duties in the reduced range of 2.78% to 6.82% (average 4.8%). Before remand the notified antidumping duties were in the range of 3.25% to 11.35%. The NTC also determined that non attributable factors are not causing injury to the domestic industry. It is the dumped imports that are the main cause of injury.
  The importers and traders of PFY again went into appeal in the Anti-Dumping Appellate Tribunal on certain aspects in February 2022, while also filing stay petition in the High Courts. Finally just before the Commission was to become dysfunctional in Dec 2022 they pursued this appeal and for the second time the Tribunal remanded the matter again in December 2022 for again giving a hearing for injury. However, after injury hearing, the newly constituted NTC on November 07, 2023 terminated the original anti-dumping investigation against dumped imports of PFY China and Malaysia ab-anitio that is from the year 2017. On a technical reason of the exclusion of Fully Drawn Yarn (FDY) from the scope of Sunset Review, despite acknowledging the existing of injury due already proven dumping on DTY yarn. This exclusion for the sunset review was done by NTC itself in the year 2022 your company has challenged this termination in the Appellate Tribunal.
• The ADD rates in Pakistan imposed in 2017 were already low, now terminated, to cover the actual dumping/injury and are much lower than the following ADD imposed on Chinese exporters of Polyester Filament Yarn:

04 HALF YEARLY REPORT DECEMBER 2023	rt Septe	mb	er 30, 20	22

• by Turkey of minimum 16% or $250/ton
• by India of minimum 23%
• by the USA of minimum 32% (anti-dumping and anti-subsidy duties)
• by Vietnam of minimum 17.45% (and max 21.23%)
  While Brazil as well as Mexico have also initiated ADD on PFY from China. So, 6 major countries have Anti-Dumping or countervailing duties on PFY from China, while Indonesia is restricting imports of PFY by not allowing the same to traders. So, this covers most the PFY producing countries. Bangladesh protects its PFY industry by way of 20% import duty on competing imported yarn. Recently India has imposed the non-tariff barrier removing the BIS (Bureau of Indian standard) exemption for imports of PFY into India. The Chinese producers have been trying for long to call the BIS team for inspection and approval but while other countries like Korea, Taiwan etc have got the BIS approval, the BIS visit/approval of China is not happening. In the above background it is expected that the dumping margins and the dumping duties in Pakistan on Chinese PFY imports will be revived or will be revised to higher levels or that imports of yarn remain subject to Regulatory duty (RD).
• As noted above para of this report, now the dumping by the Chinese producers have become intense due to their capacity expansions coming on stream and correspondingly reduction in world demand due to recession. The re-imposition of 5% RD w.e.f. December 2022 has slightly helped in this situation where the ADD had earlier been evaded by the importers and now been terminated. The NTC has also acknowledged that the 5% RD is needed to remain in view of the injury sustained by the industry and the ADD being removed.
• In current situation, continuation (in fact doubling) of Regulatory Duty is need to promote local production since the domestic industry with investment to double its capacity in last 3 years now has capacity to approx. 165,000 tons per annum which is around 45% of the total need of the local industry in the country. PFY is among the top 10 imports of Pakistan, so needs to be produced locally, particularly when its raw material PTA is also produced locally. It should also be kept in mind that in the year 2003 over 90% of local demand of Filament Yarn was met by indigenous production, Moreover, the downstream industry and demand has also grown over the years and the total demand stood at nearly 350,000 MT tons compared to 260,000 tons in year 2018-19.

OTHER MATTERS

• The principal business of Wholly Owned Subsidiary Company Messrs. Gatro Power (Private) Limited is to generate and sell electric power. The operations of the subsidiary Company remained disturbed due to irregularity in gas supply during the reporting period.
• The principal business of Wholly Owned Subsidiary Company Messrs. G-Pac Energy (Private) Limited is to generate and sell electric power. The operations of this Subsidiary Company are expected to be commenced soon and it is waiting commissioning of the sanctioned gas in the already laid new gas line.
• Wholly Owned Subsidiary Messrs. Global Synthetics Limited has yet to commence its operations.

HALF YEARLY REPORT DECEMBER 2023 05

APPROPRIATION

During the half year, the Board of Directors of the Company does not recommend any interim cash dividend.

The Board of Directors in their meeting held on December 14, 2023 approved to raise further capital by issue of a further 32,000,000 right shares at a value of Rs. 175 per share (premium of Rs. 165 per share) to its existing shareholders in the proportion of 41.7052 right shares for every 100 ordinary share held.

EARNING PER SHARE

The loss per share of the Company for half year ended on December 31, 2023, is Rs.11.98.

MATERIAL CHANGES AND COMMITMENTS

No material changes and commitments affecting the financial position of the Company occurred during the period to which the balance sheet relates and the date of this report.

CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The un-audited condensed interim consolidated financial statements of the Group along with notes and directors' report thereto have also been included in this report.

AUDTORS' REVIEW REPORT

The Auditors of the Company, M/s. Kreston Hyder Bhimji & Co., Chartered Accountants have issued an unqualified review report to the members of the Company on financial statements for the half year ended December 31, 2023.

INTERNAL FINANCIAL CONTROLS

The system of internal controls is sound in design and has been effectively implemented and monitored.

BOARD OF DIRECTORS

In the Extra Ordinary General Meeting of the Company held on December 04, 2023, members of the Company elected following Directors for the term of three years commencing from December 24, 2023:

1)	Mr. Shabbir Diwan	Director
2)	Mr. Abdul Razak Diwan	Director
3)	Mr. Zakaria Bilwani	Director
4)	Mr. Muhammad Iqbal Bilwani	Director
5)	Mr. Saqib Haroon Bilwani	Director
6)	Mr. Muhammad Taufiq Bilwani	Director
7)	Mr. Muhammad Altaf Bilwani	Director
8)	Mr. Talat Iqbal	Independent Director
9)	Mr. Muhammad Tufail Iqbal	Independent Director
10)	Ms. Huma Rafique	Independent Director

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ACKNOWLEDGMENT

The Board of the Company is grateful to all the Stakeholders for their diligent trust and confidence in the Company and all the Directors acknowledged their consistent cooperation and continued support throughout the years and we are confident that they will continue to do so in the future. We would like to express our sincere appreciation to each member of the Company for their commitment, innovative thinking and delivering their duties with utmost dedication and also we are thankful to all the Government Institutions, Auditors, the SECP, the PSX and Banks for their valuable guidance and assistance extended for the growth and progress of the Company.

SHABBIR DIWAN	MUHAMMAD IQBAL BILWANI
CHIEF EXECUTIVE OFFICER	DIRECTOR
Dated: February 29, 2024

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