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AGRIAUTO INDUSTRIES LIMITED

ANNUAL REPORT 1997

CONTENTS

COMPANY INFORMATION

BOARD OF DIRECTORS

R.D. Minwalla

Chairman

S. Ikram Haider

Chief Executive

Abdul Majeed Quraishi

K. S. Stack

Hasan Irshad

Sohail P. Ahmed

Asfandiyar R. Minwalla

Owaisul Mustafa

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 Sixteenth Annual General Meeting of Agriauto Industries Limited will

be held at the Institute of Chartered Accountants of Pakistan, situated at G-13, Block-8, Kehkashan,

Clifton, Karachi-75350 on Tuesday, December 23, 1997 at 5.00 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, 1997 together with Director and Auditors Report thereon.

2. To appoint auditors and fix their remuneration for the year ending June 30, 1998. The

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

being eligible offer themselves for reappointment.

NOTES:

(a) The share transfer books of the Company will remain closed from December 18, 1997

to December 24, 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.

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

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, 1997

as follows:-

(Rupees in Thousand)

Loss before Taxation

(13,946)

Provision for Taxation

996

----------

Loss after Taxation

(14,942)

Add: Unappropriated Loss

brought forward

(17,426)

----------

Unappropriated loss carried forward

(32,368)

==========

2. CHAIRMAN'S REVIEW

The Chairman's Review on Page 5 and 6 deals with the year's activities and Directors of the

Company endorse contents of the same.

3. PATTERN OF SHAREHOLDINGS

The pattern of shareholdings is provided on Page 26.

4. BOARD CHANGE

Mr. Owaisul Mustafa was nominated by House of Habib as Director in place of Mr. Farhad

Zulficar.

5. 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,

1998.

CHAIRMAN'S REVIEW

It is my privilege to welcome you to the 16th Annual General Meeting of Agriauto Industries Limited and to present

the Annual Report for the year ended 30th June, 1997

1. THE ECONOMY & AUTO ENGINEERING SECTOR

in order to review the company's performance, I consider it appropriate to paint a brief picture of the country's

economy. The year 1996-97 rightly be termed as the year of deep economic crisis in the history of Pakistan. Due

to continued political and economic uncertainty and change of three Governments during the year, each having

its own style and concept of economic management, none of the targets fixed in budget were achieved, The

GDP grew at a rate of 3.1% as against the target of 6% reflecting low productivity in almost all the sectors of the

economy. Total debt increased to approximately Rs. 2.2 trillion which is almost 90% of GDP. The Agricultural

sector grew at a rate of 1.78% and large scale manufacturing suffered negative growth of 1.4% and, overall the

Manufacturing sector registered a growth of 1.78% down from 4.4% in 1995-96. All these had a serious adverse

impact on the Engineering industry.

The Government resorted to further borrowing which resulted in inflationary pressure on domestic prices as well

as depressing on the exchange rate and the balance of payments. Continuous devaluation and low productivity

raised the inflation to around 12% against a set target of 8.5%. Overseas workers' remittances also declined and

the Current Account deficit widened to 7.5% of GDP, compared with 6.6% in 1995-96. The foreign exchange

reserves tell to a critical level of US$ 1.1 billion and the country was at the verge of getting default. Resultantly,

hasty borrowing of foreign debt was incurred at very high rates of interest which further worsened the position.

Thus the economy of our country remained throughout under severe recession and in the grip of stagnation.

It is a universally accepted fact that the economic development of a country is directly linked with the technological

level of the Engineering Industry. in fact. the Engineering Industry is the prime mover for country's economic

growth. Unfortunately no sincere efforts have ever been made to uplift this sector in our country. No long-term

policies have been formulated. No vision has been developed. As a result, this sector possibly more than others

has continued to suffer. Formulation of the Engineering Development Board (EDB) was a very positive step to

develop a long-term vision for the Engineering sector and to formulate/co-ordinate Government policies, but still

there are many anomalies to be solved, It is now ,imperative that Government take immediate measures and

draws some long-term policies with clear vision and outright support. otherwise, the Engineering industry will

collapse soon. There is a need that PAAPRAM, EDB AND EPB work together in formulating and implementing

a growth strategy for the autoparts industry.

in this overall scenario and under the worst possible economic conditions. one such industry, which stood against

these odds, is that of the automobile sector because the demand for locally assembled cars remained almost

constant. Moreover, with modern. new production facilities, high productivity levels are possible, compared with

other sectors of industry with out-dated machines. This chain reaction has a positive, reassuring effect on the

future outlook of its vendor industries and Agriauto industries Limited is fully committed to the automobile

industry.

Your company which is one of the largest precision auto and tractor parts manufacturing unit has passed through

another difficult year. Our products are sold both to OEM and in the replacement parts market. in OEM, no doubt

the Car segment achieved some growth but on the other hand Tractor industries suffered heavily due to stoppage

of financing by government through ADBP and the institution of a vigorous campaign for the recoveries. This

had a severely adverse effect on the Tractor industry as a whole and consequently affected the company's

business.

The replacement market conditions were also very uncertain and the market was badly affected by multiple

factors. Smuggling continued unabated and under-invoicing at 50-75% below actual prices, due to faulty import

regulations, put the prices of the company's products under pressure. This resulted in heavy loss of sale. The

annual demand of autoparts in the after sale market is estimated at around Rs. 30 billion, out of which only 15%

is met by domestic manufacturers, 30% from misdeclared and underinvoiced imports, whereas no less than 55%

is met through smuggling and unauthorised channels. In order to curb the menace of smuggling it is again

suggested that Government should introduce some checks.

2. OPERATING RESULTS

The sales during the year 1996-97 amounted to Rs. 199 million compared to 230 million, a decline of 13% of the

preceding year. However inspire of this company registered a pre-tax loss of Rs. 15 million as against the loss

of Rs. 48 million in the last year. The prudent employment of financial resources and efficiently managing material

and other inputs resulted in improvement of gross profit during the year to 18% form 1.9% of the preceding year.

The administration, selling and distribution expenses remained almost same at Rs. 25 million. The financial

charges were up by Rs. 2 million i.e. 29 million from Rs. 27 million of the last year. After making a provision for

taxation of Rs. 1 million cumulative net loss carried forward was up Rs. 33 million.

The technical collaboration the company has with M/s. Kayaba of Japan started bearing fruit and as a result the

sale of Shocks Absorbes and Struts to local Car assemblers increased from Rs, 72 million to Rs. 120 million.

3. MOBIKE (AUTOMAC)

The redesigned Mobike introduced and launched in September 1996 has not received a positive response from

local users and buyers as these inherited some technical faults. Furthermore the CKD Kits lying at the port could

not be cleared as the permission to import under the deletion plant had expired in June 1996 and Government

refused to extend this permission. The company took up the matter at the highest level and the company has

finally got the permission to clear the stuck up CKD Kits of 1000 units on payment of penalty of 15% as an

additional levy.

The company intends to convert these CKDs into complete Mobikes and is planning to relaunch the product

early next year after incorporating necessary rectifications demanded by the market forces. It is hoped that the

public would like and accept the newly designed Mobikes and soon would gain popularity.

4. FUTURE OUTLOOK

Unless the Government brings about a marked improvement in economic and fiscal performance, there seems

little prospect of relief from the current critical recession.

Nearly half the year of 1997-98 has passed and immediate future poses many challenges which we can gel

through only by hard work and a disciplined focus on all management activities to enable the company to have

good earnings, maintain its quality and service and invest intelligently in improving value to our customers

employees and shareholders. The company is updating its facilities with the acquisition of IBM system AS-400

Computer to achieve better analysis to improve our efficiency. Mobile service workshops for Mobikes, Shocks

and Struts arebeing planned to provide service throughout the country.

Since September 1996, the Rupee has devalued by 24% whereas Exports have not really increased. The

Government should stop to ponder now whether continued devaluation contributes to escalate imports,

especially of oil and food items, which in turn bring in inflation, hurting the interests of the very large majority

of Pakistanis.

The sales to automotive sector registered a growth of 31% whereas sales to Tractor manufacturing sector

decreased by 24.7%. The ratio between OEM and replacement market sale was 85:15 comparing to 85:35 in

the last year. The new Government however recognizes that the tractor is the essential prime mover, the

bulwark of agriculture. The resolve of the Government to patronize the local tractor industry by purchasing

30,000 tractors from domestic production would give a long overdue rebound to industry. There is thus renewed

hope for the current year.

5. CHANGE IN THE BOARD OF DIRECTORS

Mr. Owaisul Mustafa was nominated by House of Habib as Director in place of Mr. Farhad Zulfiquar. We all thank

Mr. Farhad Zulfiquar for his very valuable contribution while being on our board of our Company and welcome

Mr. Owaisul Mustafa.

6. INDUSTRIAL RELATION

The overall industrial relations climate remained cordial and satisfactory and I believe that the existing mutual

trust and understanding between the management and workers shall go on improving.

10. ACKNOWLEDGMENT

I would like to close with thanks to our energetic and committed team of Management, Executives and Workers

under the leadership of our new Chief Executive Mr. S. Ikram Haider, Customers, Dealers and Vendors for their

valuable contribution to the affairs of the company. I am also grateful to all our Bankers for their continued help,

advice and support.

Thanks are also due to our overseas Technical Collaborators M/s. Arvin Engineering industries of USA (for

Shock Absorbers) and Kayaba Industry Company Ltd., Japan (for gas charged Shock Absorbes and Strut) for

their continued technical support and help. May Allah continue to bless our efforts.

REPORT OF THE AUDITORS TO THE MEMBERS

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

June, 1997 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 1997 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".

BALANCE SHEET AS AT JUNE 30, 1997

Note

1997

1996

(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

CAPITAL RESERVE

12,598

UNAPPROPRIATED PROFIT/(LOSS)

(32,368)

(17,426

----------

100,230

115,172

LONG TERM LOAN

4,937

8,076

LIABILITY AGAINST ASSETS

SUBJECT TO FINANCE LEASE

2,301

CURRENT LIABILITIES

Current Maturity/Overdue Installments of

Long Term Liabilities and Financial lease

38,270

39,911

Short Term Finances And Borrowings

58,437

59 962

Creditors, Accrued And Other Liabilities

88,065

69,018

Loan From Others

24,413

14,457

Workers' Profit Participation Fund

Workers' Welfare Fund

Provision For Taxation

2,150

1,154

----------

211,479

184,648

CONTINGENCIES & COMMITMENTS

----------

316,646

310,197

==========

PROPERTY AND ASSETS

TANGIBLE FIXED ASSETS

OPERATING FIXED ASSETS

(at cost less accumulated depreciation)

112,246

121,405

CAPITAL WORK IN PROGRESS

29,643

----------

141,889

151,048

LONG TERM DEPOSITS AND DEFERRED COST

7,604

3,256

CURRENT ASSETS

Stock And Stores

102,897

93,149

Trade Debts

40,513

42,343

Advances, Deposits, Prepayments And

Other Receivables

7,273

8,650

Advance Income Tax

14,172

8,581

Cash And Bank Balances

2,298

3.17

----------

167,153

155,893

----------

316,646

310,197

==========

The annexed notes form an integral pad of these accounts.

Profit and Loss Account

for the year ended June 30, 1997

Note

1997

1996

(Rupees in Thousand)

NET SALES

198,938

230,766

COST OF SALES

159,493

226,381

----------

GROSS PROFIT

39,445

4,385

----------

Administrative Expenses

11,511

10,931

Selling and Distribution Expenses

13,119

14,100

----------

24,630

25,031

----------

OPERATING PROFIT/(LOSS)

14,815

(20,646)

Financial Charges

29,237

27,485

----------

(14,422)

(48,131)

Other Income

476

362

----------

PROFIT/(LOSS) BEFORE TAXATION

(13,946)

(47,769)

Provision for Taxation

996

1,192

----------

PROFIT/(LOSS) AFTER TAXATION

(14,942)

(48,961)

Unappropriated Profit/(Loss) Brought Forward

(17,426)

535

----------

Profit/(Loss) available for appropriation

(32,368)

(48,426)

APPROPRIATION

Transferred (to)/From General Reserve

31,000

----------

Unappropriated Profit/(Loss) Carried Forward

(32,368)

(17,426)

==========

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, 1997

Note

1997

1996

(Rupees in Thousand)

CASH FLOW FROM OPERATING ACTIVITIES

- Cash generated from operations

37,697

25,393

- Financial charges paid

(17,326)

(29,873)

- income tax paid

(5,591)

(5,589)

- Long term deposit and deferred cost

(4,348)

(249)

----------

NET CASH FLOW FROM OPERATING ACTIVITIES

10,432

(10,318)

CASH FLOW FROM INVESTING ACTIVITIES

----------

- Fixed capital expenditures

(3,339)

(22,077)

- Right Share Issuance (Less issuance Expenses)

42,598

- Scrap Sales

- Sales proceeds of fixed assets

624

623

----------

NET CASH FLOW FROM INVESTING ACTIVITIES

(2,698)

21,145

CASH FLOW FROM FINANCING ACTIVITIES

- Redeemable capital, long term loan & lease financing

(7,081)

(2,675)

----------

INCREASE(DECREASE} IN CASH & CASH EQUIVALENTS

653

8,151

Cash and cash equivalents at beginning of the year

56,792

64,943

Cash and cash equivalents at end of the year

56,139

(56,792)

==========

Notes to the Accounts

for the year ended June 30, 1997

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 shock absorbers 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.

1.3 Staff Retirement Benefits

The Company follows the recognised provident fund scheme duly approved by the

Commissioner of Income Tax.

1.4 Fixed Assets:

These are stated at cost less accumulated depreciation except Freehold Land and Capital

Work-in-Progress which are stated at cost. Depreciation is provided on the reducing balance

method including the exchange difference capitalised and the rates applied are in no case less

than the rates prescribed by the Central Board of Revenue.

Maintenance and normal repairs are charged to income as and when incurred. Profit or Loss

on disposal of fixed assets is charged/credited in the current year's income.

1.5 Stock & Stores

The basis of valuation has been specified against each as under: -