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Al-Ghazi Tractors Limited

Annual Report 1998

CONTENTS

COMPANY INFORMATION

Board of Directors

Auditors

MR. JOHN E. HAINES - CHAIRMAN

A.F. FERGUSON & CO.

MR. PARVEZ ALl - CHIEF EXECUTIVE

MR. KUNWAR IDRIS

Legal Advisors

MR. HASAN IRSHAD

SURRIDGE & BEECHENO

MR. PETER WALL

MR. MOHD ALl QAIYUM

Tax Advisors

MR. NAZIR A. SHAIKH

FORD RHODES, ROBSON,

MR. FRANCESCO MIZZI

MORROW

Bankers

SOCIETE GENERALE

UNION BANK LTD.

BANK AGRICOLE INDOSUEZ

Company Secretary

ASKARI COMMERCIAL BANK

SALEEM ADIL

HABIB BANK LTD.

OFFICES

KARACHI

Registered Office-11th Floor, NIC Building, Abbasi Shaheed Road, Karachi 74400.

Telephone: (92.021) 5660881-5. Telefax: (92.021) 5689387.

DERA GHAZI KHAN

PLANT P.O. Box 38, Sakhi Sarwar Road, Dera Ghazi Khan.

Telephone: (92.0641) 63159, 63805,63750. Telefax: (92.0641) 62117.

LAHORE

MARKETING Center- 10 km Sheikhupura Road, Lahore.

Telephone: (92.042) 270081 , 272226,7924676-7. Telefax: (92.042) 272257.

ISLAMABAD

Flat No. 8,2rid Floor, Malik Complex, Shahrahe Quaid-e-Azam,

Blue Area, Sector F-7 & G-7, Islamabad.

Telephone: (92.05 l) 829895, 272866. Telefax: (92.051) 272377.

MULTAN

20 Industrial Estate, Multan.

Telephone: (92.061) 539557-9 Telefax: (92.061) 539241.

SUKKAR

C/631/3, Minara Road, Sukkar.

NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the Fifteenth Annual General Meeting of A1-Ghazi Tractors Limited

will be held at Hotel Marriott, Karachi on Monday, December 21, 1998 at 11.00 a.m to

transact the following business:

ORDINARY BUSINESS

1. To receive and consider the audited Accounts, the Directors' report and the Auditors' report for

the year ended June 30, 1998.

2. To declare the final cash dividend (The Directors have recommended a final Dividend of 60%

i.e. Rs. 3.00 per share issued).

3. To appoint Auditors for the year ending June 30, 1999 and to fix their remuneration. The retiring

Auditors M/s. A.F. Ferguson & Co. being eligible, offer themselves for reappointment.

SPECIAL BUSINESS

1. To approve issue of bonus shares and in this regard to pass the following special resolutions:

"RESOLVED THAT a sum of Rs. 22,304,650 out of the Free Reserves of the company be

capitalized and applied to the issue of 4,460,930 Ordinary shares of Rs. 5/- each and

allocated as fully paid up Bonus shares to the Members whose names appear in the register

of the members at the close of business on December 6, 1998 in the proportion of one Share

for every four existing shares held and that such new shares shall rank pari passu with the

existing ordinary shares of the company but shall not be eligible for dividend in respect of

the year ended June 30, 1998.

FURTHER RESOLVED THAT in the event of any member holding shares which are not

an exact multiple of Four, the Directors be and are hereby authorised to sell in the stock

market such fractional entitlement and to pay the proceeds of sale when realized to a

charitable Institution."

By order of the Board

Karachi

SALEEM ADIL

November 28, 1998

Company Secretary

STATEMENT UNDER SECTION 160

OF THE COMPANIES ORDINANCE 1984:

1. The Directors consider it advisable to capitalise a sum of Rs. 22,304,650 which they have set

aside in a special Reserve for issue of Bonus shares.

NOTES:

1. A member entitled to attend and vote at this meeting is entitled to appoint a proxy to attend and

vote on his/her behalf. No person shall act as a proxy (except for a corporation) unless he is

entitled to be present and vote in his own right. 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 of the meeting.

2. The Share Transfer Books of the Company will remain closed from December 7, 1998 to

December 21, 1998 (both days inclusive).

3. Members are requested to promptly communicate to the Company any change in their addresses.

CHAIRMAN'S REVIEW

given excellent returns to its shareholders. I am pleased to report that despite the recent

economic difficulties affecting our country, the year ended June 1998 was no exception.

OPERATING RESULTS

During the period an all time record pre-tax profit of Rs 303.81 million was achieved against

Rs 186.03 million last time, an increase of some 63%. Turnover increased from Rs 1,717 million to

Rs 2,349 million or 37% with gross margins strengthening. Earnings per share increased from

Rs 8.26 to Rs 11.62. All other financial and non-financial measurements also showed significant

improvement.

In recognition of the above, a cash dividend of 60% will be paid and in further pursuance of our

policy to strengthen the balance sheet and continually enlarge the equity base of the company,

shareholders will receive a bonus share issue of 1 share for every four. This will have the effect of

increasing the paid up capital of the Company from Rs 89 million to Rs 112 million.

Despite difficult conditions, market share increased to 49.9% against 40% last year, with the current

trend remaining very positive. A1-Ghazi has therefore achieved the No. 1 position in the market for

the first time.

CORPORATE EXCELLENCE

For achieving the highest undiluted earnings per share in the automotive sector for the years 1994,

1995, and 1996, the company was awarded the "Top Companies Award" by the Karachi Stock

Exchange. Similarly in 1995 and 1996 the Management Association of Pakistan awarded A1-Ghazi

first place for "Best Corporate Performance" in the Engineering Sector. With anticipation we await

the 1997 results.

The company's efforts in the area of art and culture have also been recognised, with the National

Council of Culture and Arts awarding us special prize for the year 1997 and the first prize in 1998

for the company's annual calendar.

During the year our focus has remained resolute on tight management control of the manufacturing

process and its assets, optimisation of the integrated production process by gradual and continual

improvement, Just-in-Time components delivery, strengthened procurement management,

intensified quality assurance and increased staff productivity through improved and enhanced

training.

By such management techniques we have been able to benefit our customers by significantly

improving specifications and quality. At the same time, prices were held at July 1996 levels through

to June 1998, and in concert we were also able to maintain above average returns to our

shareholders.

Obtaining ISO-9002 from AOQC Moody International was another goal we set ourselves during the

year. Under the banner "Fast Track to ISO-9000" we set out on the task. In record time we earned

the distinction of being the first company in the automotive sector to achieve this prestigious

accolade.

SHAREHOLDER ACTIVITY

A1-Futtaim (Industries) Ltd, part of A1-Futtaim (Private) Ltd. of Dubai have held the majority

shareholding in AI-Ghazi having acquired 46% of the equity at the time of privatisation in

December 1991. Fiat/New Holland of Italy at that time held 5% equity.

In May 1998, Fiat/New Holland increased its shareholding to 43.17% by acquiring the entire

shareholding of NIT and other financial institutions. In parallel, A1-Futtaim increased its

shareholding to 50.02% thus maintaining its majority position and management control.

This situation greatly benefits the company and its long term future. Fiat/New Holland has now

increased its technical support and assistance in R&D, as well as giving the Company greater access

to its global network and wider product range, whilst Al-Futtaim brings to the party its local

knowledge and significant management expertise. In addition both parties are totally committed to

the long term financial and strategic development of the business.

FUTURE PROSPECTS

During the year ahead we will continue to focus on our core strategy.

"To be the lowest cost producer of the highest quality products"

Total customer satisfaction is our corporate goal. We are confident that well planned investment in

areas that will either generate significant improvements in the area of customer satisfaction, quality

of product or productivity will continue to keep us in the number one position in the market.

The Pakistan tractor market is expected to increase by around 33% next year to 20,000. A1-Ghazi

plans to further improve upon its dominant market position.

The government has committed funds to the Agricultural Development Bank of Pakistan (ADBP)

to ensure the farming community has access to suitable financing arrangements.

In June 1998 the government withdrew sales tax of 12.5% and import duty on CKD imports of 10%,

whilst at the same time forcing the country's tractor manufacturers to reduce retail prices by an

average 7.5%.

We believe that the margin squeeze created by the above will be off-set by the projected increase in

volume and that 1999 financial results will therefore also be encouraging.

With A1-Ghazi Tractors now holding almost 50% market share the company has looked to

diversification to maintain growth. This diversification will come in two forms. "New products

within the agricultural sector" and "new business opportunities outside the sector." Both are

currently under study and plans will be announced in due course.

DIRECTORS

Vacancies were created during the year due to the passing away of Mr. Shah Jalil Alam. On behalf

of the Board and all his friends in the company I would like to thank him posthumously for his

assistance, guidance and help. He will be missed by all who knew him.

Resignations were received from:

Mr. Keith Stack (A1-Futtaim)

Mr. Mario Chessa (Fiat/New Holland)

Mr. Razi-ur-Rehman Khan (NIT)

Vacancies were filled by:

Mr. John Haines (Group Director - Al-Futtaim)

Mr. Mohammed Ali Qaiyum (A1-Futtaim)

Mr. Peter Wall (Fiat/New Holland)

Mr. Francesco Mizzi (Fiat/New Holland)

TO CONCLUDE

I would like to pass on the appreciation of the board of directors to the management and staff of the

company, their trade unions and trade union officials. During the year the team has worked

positively, enthusiastically, and in harmony to create quality products, satisfied customers and

financial success.

May I also thank the Government of Pakistan and the ADBP for their continuing financial and moral

support to the agricultural industry. I also acknowledge the support of The Engineering

Development Board and the Ministry of Industries for finalising the industry specific deletion

programme for the tractor industry. This programme now confirms our claims to have the highest

local content of any tractor manufacturer in Pakistan.

I thank and acknowledge Fiat/New Holland for their enhanced technical support and their continual

strive for technical excellence.

Last but not least I would thank our dealers. The hardworking and entrepreneurial team who are the

front line of our sales and after-sales delivery. The most professional team in the country.

Dated: October 19, 1998

John E. Haines

Chairman

DIRECTORS' REPORT

The Directors of A1-Ghazi Tractors Limited are pleased to present their Annual Report

together with the company's audited accounts for the year ended June 30, 1998 .

(Rs. '000)

Profit for the year before taxation

303,813

Less: Provision for taxation (Net)

96,500

---------------

Profit after taxation

207,313

Un-appropriated profit brought forward

4,140

---------------

Profit available for appropriation

211,453

Less: Appropriations

Dividend @ 60%

53,531

Transfer to Reserve for Issue

of Bonus Shares

22,305

Transfer to General Reserve

135,000

210,836

---------------

Un-appropriated profit carried forward

617

==========

1. A1-Futtaim Industries (Pvt) Ltd., Dubai incorporated in U.A.E. is the holding company of

A1-Ghazi Tractors Ltd., being the holder of 50.02% shares of the Company.

2. The pattern of share holdings is included in this Annual Report.

3. The Directors do not foresee any problem viz-a-viz the Millennium Bug as the existing

computer systems of the Company were designed to take care of the problem.

4. The retiring Auditors Messrs A.F. Ferguson & Co., being eligible, offer themselves for

re-appointment.

On behalf of the Board

Karachi

John E. Haines

October- 19, 1998

Chairman

DECADE AT A GLANCE

1997-98

1996-97

1995-96

1994-95

1993-94

1992-93

1991-92

1990-91

1989-90

VOLUME IN UNITS

Production

Model 480s

5,375

3,841

4,415

4,400

3,686

4,101

2,595

4,226

4,722

Model 640

1,007

1,098

2,202

2,015

1,861

2,081

732

1,438

1,885

Total Production

6,382

4,939

6,617

6,415

5,547

6,182

3,327

5,664

6,607

Sales:

-Industry

13,659

10,161

16,286

17,334

16,089

15,797

10,684

13,909

20,103

-AGTL

6,441

4,701

6,617

6,420

5,798

5,955

3,402

5,737

6,621

-AGTLs share %

47.16

46.27

40.63

37.04

36.04

37.70

31.84

41.25

32.94

Bookings:

-Industry

15,021

8,294

14,419

21,739

17,552

13,464

14,527

12,387

19,526

-AGTL

7,495

3,322

5,843

8,693

6,839

3,944

5,509

4,958

6,715

-AGTLs share %

49.90

40.10

40.50

40.00

39.00

29.30

37.90

40.00

34.40

Deletion Achieved

Model 480s

82%

81%

79%

Model 640

74%

71%

58%

VALUE IN RS. 000

Sale Revenue

2,349,148

1,717,094

2,264,748

2,029,937

1,749,255

1,700,645

869,590

1,376,778

1,369,485

Gross Margin

366,435

254,487

225,422

298,948

275,135

196,194

25,678

82,541

111,404

Profit(loss) before t

303,813

186,034

171,893

259,859

166,191

102,521

(77,009)

9,065

6,278

Income tax paid

96,500

52,073

64,292

87,069

70,000

12,500

5,282

6,949

Profit(loss) after ta

207,313

133,961

107,601

172,790

96,191

90,021

(82,291)

2,116

6,278

Capital Expenditure

14,131

13,477

25,528

9,050

17,919

5,551

5,122

1,195

4,345

Dividend

- Cash

53,531

40,554

36,867

28,359

13,613

6,188

6,187

- Percentage

60.0%

50.0%

30.0%

15.0%

- Stock

22,305

8,111

7,373

17,016

11,343

4,125

6,187

- Percentage

25.0%

10.0%

30.0%

25.0%

10.0%

15.0%

Earning/(loss) per sh

11.62

8.26

7.30

15.23

10.60

10.91

(9.97)

0.26

0.76

A. F. FERGUSON & CO.

STATE LIFE BUILDING 1-C

Telephones: (021)242 6682 6

CHARTERED ACCOUNTANTS

OFF I. I. CHUNDRIGAR ROAD

(021) 242 6711-5

P.O. BOX 4716

Fax: (021) 241 5007 Audit

OTHER OFFICES AT

KARACHI 74000

(021) 242 7938 Tax

LAHORE - RAWALPINDI - ISLAMABAD

PAKISTAN

Telex: 21155 AFFCO

E-mail affco-abs @cyber. net.pk

affco-tax@cyber. net.pk

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of AI-Ghazi Tractors Limited as at June

30, 1998 and the related profit and loss account and cash flow statement, 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 purposes of our audit and, after due verification thereof,

we report that:

(a) in our opinion, proper books of account 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 account 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 the expenditure incurred

during the year were in accordance with the objects of the Company;

explanations given to us, the balance sheet, profit and loss account and the cash

flow statement, 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

June 30, 1998 and of the profit and the cash flows for the year then ended; and

(d) in our opinion Zakat deductible at source under the Zakat and Ushr Ordinance,

1980 was deducted by the Company and deposited in the Central Zakat Fund

established under section 7 of that Ordinance.

Sd/-

Chartered Accountants

Balance Sheet

As at June 30, 1998

Note

1998

1997

(Rupees '000)