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Agriauto Industries Limited

Annual Report 1996

CONTENT

COMPANY INFORMATION

BOARD OF DIRECTORS

R.D. Minwalla

Chairman

Farhad Zulficar

Vice-Chairman

S. Ikram Haider

Chief Executive/Managing Director

Abdul Majeed Quraishi

K m S. Stack

Hasan Irshad

Sohail P. Ahmed

Asfandiyar R. Minwalla

COMPANY SECRETARY

S. Ikram Haider

AUDITORS

Feroze Sharif Tariq & Company

Chartered Accountants

SHARE REGISTRAR

Noble Computer Services (Pvt.) Ltd.,

2nd Floor, AI-Manzoor Building,

Dr. Ziauddin Ahmed Road,

Karachi.

REGISTERED OFFICE

Agriauto Industries Ltd.

11, Banglore Town Housing Society

Main Shahrah-e-Faisal,

Karachi-75350

Pakistan.

FACTORY

Mouza Baroot,

Hub Chowki, Distt. Lasbella,

Balochistan.

NOTICE OF ANNUAL GENERAL MEETING

NOTICE is hereby given that the Fifteenth Annual General Meeting of Agriauto Industries Limited will be

held at the registered office of the Company situated at 11, Banglore Town Housing Society, Main

Shahrah-e-Faisal, Karachi-75350 on Tuesday, December 31,1996 at 7.00 p.m. to transact the following

business:-

1. To receive, consider and adopt the Audited Accounts of the Company for the year ended

June 30, 1996 together with Director and Auditors Report thereon.

2. To appoint auditors and fix their remuneration for the year ending June 30, 1997. The

present auditors Messrs. Feroze Sharif Tariq & Co., Chartered Accountants, retire and

being eligible offer themselves for reappointment.

3. To elect seven directors of the company for a period of three years under section 178(I)

of the Companies Ordinance 1984, in place of present directors namely:

(1) Mr. R. D. Minwalla (2) Mr. Farhad Zulficar (3) Mr. K.S. Stack

(4) Mr. Sohail P. Ahmed (5) Mr. Asfandiyar R. Minwalla (6) Mr. Hasan Irshad

(7) Mr. Syed Ikram Haider

All retiring Director shall be eligible to offer themselves for re-election.

Mr. Abdul Majeed Qureshi nominated by Investment Corporation of Pakistan as a

Director is not subject to retirement in accordance with the provision of Section 183(a)

of the Companies Ordinance, 1984.

4. To fix the remunerations of the Chief Executive.

By Order of the Board

S. Ikram Haider

Chief Executive &

Company Secretary

Karachi: December 10, 1996

NOTES:

a) The share transfer books of the Company will remain closed from December 26, 1996

to January 01, 1997 (both days inclusive).

b) A member entitled to attend and vote at this meeting may appoint another member as

his/her proxy to attend the meeting and vote for him/her. Proxies in order to be effective

must be received at the registered office of the company duly stamped and signed not

less than 48 hours before the time for holding the meeting.

c) Members are requested to promptly communicate change in their addresses, if any, to

our Share Registrar, Noble Computer Services (Pvt.) Ltd.

d) Members who intend to offer themselves for election as Directors shall file with the

Company at its registered office not latter than fourteen (14) days before the date of the

meeting, notice of their intention to offer themselves for election as Director.

DIRECTORS' REPORT

1. The Directors of the Company take pleasure in submitting their report alongwith the audited

accounts of the Company, and Auditors' Report thereon, for the year ended June 30, 1996

as follows:-

(Rupees in Thousand)

Loss before Taxation

(47,769)

Provision for Taxation

1,192

-----------

Loss after Taxation

(48,961)

Add: Unappropriated profit

brought forward

535

-----------

Loss available for appropriation

(48,426)

Less: Appropriation:

Transfer from general reserve

31,000

-----------

Unappropriated loss carried forward

(17,426)

===========

2. PATTERN OF SHAREHOLDINGS

The pattern of shareholdings is provided on Page 26.

3. BOARD CHANGE

Mr. Sohail P. Ahmed was nominated by House of Habib as Director on 31 st December, 1995

in place of Mr. Ali S. Habib. Mr. Syed Ikram Haider was appointed as Chief Executive and

Company Secretary on August 15, 1996 in place of Mr. Najmul Hassan.

4. AUDITORS

Messrs, Feroze Sharif Tariq & Co., Chartered Accountants retire and being eligible, offer

themselves for reappointment as the auditors of the Company for the year ending June 30,

1997.

By Order of the Board

SYED IKRAM HAlDER

Chief Executive

Karachi: 3rd December 1996

CHAIRMAN'S REVIEW

It gives me a great pleasure to welcome you to the 15th Annual General Meeting of Agriauto Industries Limited, and

to present the Annual Report for the year ended 30th June, 1996.

1. THE ECONOMY & AUTO ENGINEERING SECTOR

While reviewing the performance of the company, it may be appropriate to know the performance of the country's

economy. During the year 1994-95, we saw some positive economic indicators such as growth in GDP was 5.7%

from 4.42% in the preceding year. The agriculture sector also registered a growth of 6.74% from 5.8%. There

was also some revival in the textile industry. Inspire of all that, the manufacturing sector declined to 18% from

18.2% of the last year. During the year 1995-96 exports experienced a nominal increase of 7% whereas imports

increased by 16.2% which widened the gap of Balance of Trade. Remittances from overseas workers declined

by 21.7%. The current deficit was 6.6% of GDP compared with 3.5% in the preceding year. The Government tried

to make up this gap through additional borrowings, which in turn pushed upward domestic prices and led to de-

valuation of the Pak Rupee and the inflation rate touched double digit figures. Furthermore Government Policies

to concentrate excessively on indirect taxes e.g. levying, of regulatory duty and imposition of sales tax etc.,

resulted in higher local cost of products.

This coupled with much higher rate of Bank profits and continues smuggling and under-invoicing of imported auto

and tractor parts hurt our.local industry.

The engineering sector has always been working on adhocism and it has lacked and continues to lack any long

term policies thus suffering badly. Countries like Thailand, Malaysia, Taiwan and Indonesia etc. where

industrialization started much later than us have made tremendous progress over a short period of time due to

their steady, consistent long term policies with a clear vision and with outright support from the Government. Our

Government has some policies which are unfortunately not implemented in letter and spirit.

Realising the importance of the Engineering sector the Government of Pakistan set-up last year the Engineering

Development Board (EDB) which still a lot of work to do, such as developing guide-lines and a clear vision for

our country. Manufacturing of parts is a prerequisite in the development of the local engineering industry and thus

the role of the vendor industry becomes even more vital. Your company, which is one of the finest precision

engineering and automotive vehicles and equipment parts manufacturing company in the country, unfortunately

has been the victim of such inconsistent policies, ever since it came into existence.

During the year 1995-96, once again due to change in policy of the Agricultural Development Bank of Pakistan

(ADBP), restricting tractor loans coupled with launching of the Awami Tractor Scheme under which thousands

of fully built tractors have been imported has adversely affected the local tractor manufacturers and consequently

us. The after sale market of replacement parts experienced a severe set back due to many factors, including high

inflation, devaluation of the Pak Rupee, levying 10% Regulatory duty on imports and imposition of 18% sales

tax on finished goods. All these have only further encouraged imports, smuggling, wrong and under-invoicing.

With the joining of W.T.O. Pakistan has opened our doors for more and larger imports and particularly by reducing

our custom duties. One can not understand how our Government expects our local Engineering Industry to

operaate, when our cost of manufacturing remains very high. Particularly due to much lower scales of production,

much higher cost of raw materials bought in few tons annually compared to millions of tons consumed by

overseas highly industrialised nations, very high rates of locally made Pig Iron and Mild Steels, very costly Bank

Credits, much higher costs and taxes on Transport, Electricity, Gas, Water etc.

Now a days we are talking about opening trade relation with India and import of engineering goods. Our vendor

industry which is already suffering badly, will suffer more and more. We must understand and keep a balanced

relationship between socio-economy, socio-political and trade and business. Any ambiguity would only lead us

to a greater disaster than one we are in now. Above all we must protect our national interests at all and any costs.

2. OPERATING RESULTS:

Net sales during the year 1995-96 totaled Rs. 230 million compared to Rs. 234 million (a mere decline of 1.7%)

in the preceding year. The Awami Tractor Scheme launched by the Government, badly affected the agriculture

tractor manufacturing sector. In addition our major customer AI-Ghazi Tractors Ltd. developed in-house facilities

for component pads being manufactured by us and sale to AI-Ghazi dropped by 20% from the previous year.

However, sales to the automotive sector registered a growth of 79%. Your company entered into a new Technical

Collaboration Agreement with M/s. Kayaba of Japan and invested over Rs. 21 million last year in the Shock

Absorber Plant and as a result thereof the sale of Shock Absorbers and Struts to local car assemblers has

increased.

The substantial loss of Rs. 49 million suffered by your company was attributable to the various factors already

explained above. in addition provisions were also made against slow moving and dead items of stocks and raw

material etc.

Administration Expenses for the year were higher by 7.5% than last year on account of inflation. Selling Expenses

increased by 55% which was mainly due to launching of the Mobikes.

3. MOBIKE (AUTOMAC)

The Mobikes introduced earlier for the first time in Pakistan, did not receive a good response from local users

and buyers who prefer to own and ride fast powerful bikes rather than cheap low priced Mopeds. We have only

recently in September '1996 introduced and launched a new 70 c.c. engine powered Mobikes with 'Kick' starting

and made many other additional changes as per market demand and customer dictates. We are confident that

people would like the new model (KS-70) and it will gain the popularity very soon.

4. FUTURE OUTLOOK

Unless the new Government makes a marked improvement in economic and fiscal policies, it looks we are

heading toward not too pleasant a situation.

Your company is grappling with ever changing economic grounds and is trying to widen its revenue base and

is confident of improved performance in future years. Export is another potential area. 95 Nos. of Mobikes were

exported since the end of year and many more orders and enquiries for other products are in process.

5. INDUSTRIAL RELATION

The overall industrial relation climate remained cordial and satisfactory. After protracted negotiations on the

Charter of Demands submitted by the Collective Bargaining Agent (CBA), an agreement effective for a period

of Two years from January 1,1996 to December 31,1997 was concluded with the CBA on November 30, 1996.

6. CHANGE IN THE BOARD OF DIRECTORS

Mr. Sohail P. Ahmed was nominated by House of Habib as Director on December 31, 1995 in place of Mr. Ali

S. Habib. We all thank Mr. Ali S. Habib for his very valuable contribution while being on our board of our Company.

Mr. Najmul Hassan, the Managing Director/Chief Executive Officer resigned on August 15, 1996. He joined the

company in 1983 and worked on various senior assignments. He was appointed as Managing Director on 1 st

October, 1990. We all wish him a bright future.

Mr. Syed Ikram Haider, a Chartered Accountant from England and Wales, having almost 24 years of successful

work experience particularly in the engineering and automobile industries has joined as Managing Director/Chief

Executive Officer of your company. We are confident that the company will prosper under his control and

direction.

7. ACKNOWLEDGMENT

We wish to thank our all bankers for their continued help, advice and support. We are always very grateful

especially to all our OEM Customers and our Dealer for their continued patronage and support.

We are also grateful to our overseas technical collaborators M/s. Arvin Engineering Industries of USA {for Shock

Absorbers), Kayaba Industry Company Ltd., Japan (for Gas Charged Shock Absorbers and Struts) and EGE Mosan,

Turkey (for mobikes) for their continued technical support and help. The efforts put in by our highly energetic and

committed team of management and all the workers of the company are greatly appreciated. May Allah continue to

bless our efforts.

R.D. MINWALLA

Chairman

REPORT OF THE AUDITORS TO THE MEMBERS

We have audited the annexed Balance Sheet of M/S AGRIAUTO INDUSTRIES LTD., as at 30th

June, 1996 and the related Profit and Loss Account and Statement of the Changes in Financial

Position, together with the notes forming part thereof, for the year then ended and we state that we

have obtained all the information and explanations which to the best of our knowledge and belief,

were necessary for the purpose of our audit and, after due verification thereof, we report that:

a) In our opinion, proper books of accounts have been kept by the company as required by the

Companies Ordinance, 1984;

b) In our opinion;

i) the Balance Sheet and Profit and Loss Account together with the notes thereon have

been drawn up in conformity with the Companies Ordinance, 1984, and are in

agreement with the books of accounts and are further in accordance with accounting

policies consistently applied;

ii) the expenditure incurred during the year was for the purpose of the company's

business; and

iii) the business conducted, investments made and expenditure incurred during the

year, were in accordance with the objects of the company;

c) in our opinion and to the best of our information and according to the explanation given to

us, the Balance Sheet, Profit and Loss Account and the Statement of Changes in Financial

Position, together with the notes forming part thereof, give the information required by the

Companies Ordinance, 1984, in the manner so required and respectively give a true and fair

view of the State of the Company's affairs as at 30th June 1996 and of the Loss and the

changes in the Financial Position for the year then ended; and

d) in our opinion "no Zakat was deductible at source under the Zakat and Ushr Ordinance 1980".

FEROZE SHARIF TARIQ & COMPANY

CHARTERED ACCOUNTANTS

Karachi: 3rd December, 1996

BALANCE SHEET AS AT JUNE 30, 1996

Note

1996

1995

(Rupees in Thousand)

CAPITAL AND LIABILITIES

SHARE CAPITAL AND RESERVES

AUTHORISED CAPITAL

40 Million Ordinary Shares of Rs. 5/- each

200,000

===========

ISSUED, SUBSCRIBED & PAID UP CAPITAL

120,000

90,000

CAPITAL RESERVE

12,598

REVENUE RESERVE

31,000

UNAPPROPRIATED PROFIT/(LOSS)

(17,426)

535

-----------

115,172

121,535

LIABILITY AGAINST ASSETS

SUBJECT TO FINANCE LEASE

2,301

6,697

CURRENT LIABILITIES:

Current Maturity/Overdue Installments of

Long Term Liabilities and Financial lease

44,561

46,266

Short Term Finances And Borrowings

59,962

70,785

Creditors, Accrued And Other Liabilities

72,444

83,542

Advance From Customers

14,457

17,837

Workers' Profit Participation Fund

219

Workers' Welfare Fund

Provision For Taxation

1,1 54

1,1 51

-----------

192,724

219,873

CONTINGENCIES & COMMITMENTS

-----------

310,197

348,105

===========

PROPERTY AND ASSETS

TANGIBLE FIXED ASSETS

OPERATING FIXED ASSETS

(at cost less accumulated depreciation)

121,405

111,832

CAPITAL WORK IN PROGRESS

29,643

30,688

-----------

151,048

142,520

LONG TERM DEPOSITS AND DEFERRED COST

3,256

3,006

CURRENT ASSETS

Stock And Stores

93,149

124,852

Trade Debts

42,343

55,645

Advances, Deposits, Prepayments And

Other Receivables

8,650

12,059

Advance Income Tax

8,581

4,181

Cash And Bank Balances

3,170

5,842

-----------

155,893

202,579

-----------

310,197

348,105

===========

The annexed notes form an integral part of these accounts.

Profit and Loss Account

for the year ended June 30, 1996

Note

1996

1995

(Rupees in Thousand)

NET SALES

230,766

234,238

COST OF SALES

226,381

187,656

-----------

GROSS PROFIT

4,385

46,582

Administrative Expenses

10,931

9,828

Selling and Distribution Expenses

14,100

8,826

-----------

25,031

18,654

-----------

OPERATING PROFIT/(LOSS)

(20,646)

27,928

Financial Charges

27,485

24,990

-----------

(48,131)

2,938

Other Income

362

-----------

(47,769)

2,954

Workers' Profit Participation Fund

148

Workers' Welfare Fund

-----------

204

-----------

PROFIT/(LOSS) BEFORE TAXATION

(47,769)

2,750

Provision for Taxation

1,192

1,108

-----------

PROFIT/(LOSS) AFTER TAXATION

(48,961)

1,642

Unappropriated Profit Brought Forward

535

893

-----------

Profit/(Loss) available for appropriation

(48,426)

2,535

APPROPRIATION:

Transferred (to)/From General Reserve

31,000

(2,000)

-----------

Unappropriated Profit/(Loss) Carried Forward

(17,426)

535

===========

The annexed notes form an integral part of these accounts.

Statement of Changes in Financial Position

(Cash Flow Statement)

for the year ended June 30, 1996

Note

1996

1995

(Rupees in Thousand)

CASH FLOW FROM OPERATING ACTIVITIES

- Cash generated from operations

25,393

24,812

- Financial charges paid

(26,447)

(16,269)

-Income tax paid

(5,589)

(4,534)

- Long term deposit and deferred cost

(250)

(430)

NET CASH FLOW FROM OPERATING ACTIVITIES

(6,893)

3,579

CASH FLOW FROM INVESTING ACTIVITIES

- Fixed capital expenditures

(22,077)

(11,679)

- Right Share Issuance (Less Issuance Expenses)

42,598

- Sales proceeds of fixed assets

624

-----------

NET CASH FLOW FROM 'INVESTING ACTIVITIES

21,145

(11,647)

CASH FLOW FROM FINANCING ACTIVITIES

- Redeemable capital, long term loan & lease financing

(6,101)

(9)

-----------

INCREASE/(DECREASE) IN CASH & CASH EQUIVALENTS

8,151

(8,077

Cash and cash equivalents at beginning of the year

64,943

56,866

Cash and cash equivalents at end of the year

(56,792)

(64,943)

Notes to the Accounts

for the year ended June 30, 1996

INTRODUCTION:

Agriauto Industries Limited, a public limited company was incorporated in Pakistan on June 25, 1981

and was listed on the Stock Exchanges in June 1984. The Company manufactures components for

Automotive Vehicles Motor Cycles and Agricultural Tractors. The production units manufacturing

Gaskets, Valves, and Sleeves commenced commercial production on 1st October, 1985 and

production unit manufacturing shockabsorbers and Camshafts commenced commercial production

on June 01,1988. The Company established an other unit for the production/assembly of Mobike,

two wheeler which started commercial activity from 1 st March, 1995.

For the improved utilization of plant capacities various other Auto and Tractor Components such as

Brake Band, Hydraulic Lift Covers, Steering Boxes and Transmission components are also

manufactured under a planned diversification programme.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

1.1 Accounting Convention:

These accounts have been prepared under the historical cost convention.

1.2 Foreign Currency Loans/Other Liabilities:

The foreign currency loans/other liabilities are converted into Pak Rupees at the Rate of

exchange prevailing on the date of Balance Sheet. The resultant exchange difference arising

directly on the acquisition of assets invoiced in a foreign currency is included in the carrying

amount of the related assets and in respect of other liabilities the exchange difference is

recognised in income for the period.