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Gillete Pakistan Limited

Annual Report 1998

CONTENTS

Directors' Report

Auditors' Report

Balance Sheet

Profit and Loss Account

Statement of Changes in Financial Position

Notes to the Accounts

Pattern of Shareholding

Notice of Meeting

Gillette Pakistan Limited, formed in 1986, is a sub-

sidiary of The Gillette Company, Headquartered in

U.S.A. founded in 1901. The Gillette Company is

the world leader in male grooming, a category that

includes blades, razors and shaving preparations.

Gillette also holds the number one position world-

wide in selected female grooming products, such

as wet shaving products and hair epilation devices.

The Company is the world's top seller of writing

instruments and correction products, toothbrushes

and oral care appliances. In addition, the Company

is the world leader in alkaline batteries.

Gillette manufacturing operations are conducted

at 64 facilities in 26 countries, and products are

distributed through wholesalers, retailers and

agents in over 200 countries and territories.

CORPORATE DATA

COMPANY SECRETARY

Asif S. Keshodia

AUDITORS

Taseer Hadi Khalid & Co., Chartered Accountants

LEGAL ADVISORS

Surridge & Beecheno

BANKERS

ABN-AMRO Bank

Citibank N.A.

American Express Bank

ANZ Grindlays Bank

Deutsche Bank

Habib Bank Limited

REGISTERED OFFICE

2nd Floor, Imperial Court Building,

Dr. Ziauddin Ahmed Road, Karachi.

Telephone: 5688930

Fax: 5680530

FACTORY

Plot No. G-I, Hub Industrial Trading Estate, Hub,

Telephone: (0202) 32326

Fax: (0202) 32611

BOARD OF DIRECTORS

* Jamsheed R. Rahim

Chairman

* Muhammed Amin

Chief Executive

* Jose L. Ribera

(Alternate Sanaullah Qureshi)

* G.S. Gill

(Alternate Asif S. Keshodia)

* Andrew J. Redpath

(Alternate Zafar A. Siddiqui)

* Salim Adaya

(Alternate Bashir Ismail)

* Rashid Abdulla

(Alternate Khalid Malik)

COMPANY MANAGEMENT

* Muhammed Amin

General Manager & Chief Executive

* Asif S. Keshodia

Director Finance & Company Secretary

* Zafar A. Siddiqui

Director Marketing

* Irfan Ozturk

Director Manufacturing

* Muhammad Azhar Aqil

Director Sales

* Sohail Arif

Director Human Resources

DIRECTORS' REPORT

The Directors of your Company take pleasure in presenting their Report and the

Audited Accounts of the Company together with the Auditors' Report thereon for the

year ended 31 December 1998. The Company's financial results are as follows:

(Rupees in '000)

Year ended

Thirteen

31 December

months ended

1998

31 December

1997

Profit before taxation

40,059

9,843

Taxation

4,456

3,445

Profit after taxation

35,603

6,398

Accumulated loss brought forward

(92,265)

(98,663)

Accumulated loss carried forward

(56,662)

(92,265)

The financial results of the Company for the year 1998, reflect a very strong perfor-

mance. The Company achieved profit before tax of Rs. 40.1 million compared to

Rs. 9.8 million last year. Profit after tax of Rs. 35.6 million is almost five times higher

than 1997, this translates into significant increase in earning per share of Rs. 1.85 from

Rs. 0.33 last year.

Despite difficult economic situation and adverse business conditions, the Company

was able to grow its trading profit by 50% and the operating profit depicts an excellent

growth of almost 100%. The trading margin improved to 39% of sales in 1998 from

32% of sales in 1997.

All this has come about due to the Company's focused efforts on the brand building of

premium products. A significant growth has been achieved in the high margin products

in domestic market resulting in both, sales growth and an improved sales mix. The

other factors contributing in improved trading margins include rationalized import duty

tariff rates and significant cost savings from various cost reduction projects.

Administrative and selling expenses at Rs. 114.4 million reflect an increase of 35%

over last year. The major part of this increase comes from increase in our investment

in advertising of our premium products Gillette Blue II, Gillette Sensor Excel and

Gillette Series.

Financial expenses have shown a marked reduction of 17% in comparison to the last

year. This is the result of improved cash generations resulting from higher turnover and

better cash management.

MARKETING AND SALES

Sales for the year grew by 21% to Rs. 427.9 million. During the year, export sales were

lower than last year by Rs. 45 million but our domestic sales growth more than com-

pensated the export shortfall. Domestic sales at Rs. 404.3 million were 42% higher

than last year. Our premium products Gillette Blue II, Gillette Sensor Excel and

Gillette Series launched in 1997 have turned in an excellent performance.

Marketing and sales activities were further reinforced with strong franchise building

programs. Focused marketing programs with heavy media support were successful in

persuading a large number of users to upgrade their shaving standard by converting

from old traditional shaving blades to our superior performance systems and dispos-

ables blade products.

During 1998, we have made a considerable progress in expanding distribution net-

work. A significant amount was also invested in improving display of products particu-

larly in the key outlets to support our brand building programs.

Gillette Blue II Long Handle, our growth driver continued reinforcing its growth trend

with record unit shipments. Heavy media support throughout the year have signifi-

cantly enhanced consumer demand resulting in expansion of disposable razors mar-

ket segment and increase in our market share within the disposable segment.

In the systems segment, Gillette is the undisputed market leader. Gillette Sensor

Excel, the most technologically advanced shaving system available in the market

reflects a dramatic growth in 1998.

In the double edge blades segment, we have also strengthened our position with the

re-launch of 7 O'Clock brand. The re-launch was supported by TV advertising and dis-

tribution expansion program.

FUTURE OUTLOOK

The year under review has been encouraging in every way. We expect to continue this

trend by focusing around our key strategic objectives of building up a strong demand

for our core products through effective advertising and widening of our distribution

channels. We have successfully weathered the economic crises following the nuclear

test. We hope that the Government efforts on economic and law and order fronts will

be successful. Assuming consistency in the Government economic policies, improve-

ment in law and order and stability in foreign currency exchange rates, our business is

poised to achieve the current trend in sales and profitability.

YEAR 2000

All necessary arrangements have been made to face any potential threat that may

arise due to millennium bug. All core software that were not Year 2000 compliant have

been modified and it has been ensured that software are Year 2000 compliant.

HOLDING COMPANY

The Gillette Company, a company incorporated in the United States of America, is the

holding company.

PATTERN OF SHAREHOLDING

The pattern of shareholding is given on page 26 of the Annual Report.

AUDITORS

The present auditors Messrs. Taseer Hadi Khalid & Co., Chartered Accountants,

Karachi retire and being eligible, offer themselves for re-appointment.

We would like to thank the Company's employees for their tremendous efforts without

which we would not have achieved these results. We would also like to thank our

Shareholders for their continued support.

On behalf of the Board.

Muhammed Amin

Karachi

Chief Executive

11 February 1999

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of Gillette Pakistan Limited as at

31 December 1998 and the related profit and loss account and statement of 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 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 the 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;

c. in our opinion and to the best of our information and according to the explanations

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 31 December 1998 and of the profit and the changes in financial posi-

tion for the year then ended; and

d. in our opinion, no zakat was deductible at source under the Zakat and Ushr

Ordinance, 1980.

TASEER HADI KHALID & CO.

Karachi

Chartered Accountants

11 February 1999

BALANCE SHEET

As at 31 December 1998

Note

1998

1997

Rupees in '000

SHARE CAPITAL AND

RESERVES

Authorised share capital

20,000,000 ordinary shares of Rs. 10 each

200,000

==========

Issued, subscribed and paid-up

share capital

192,000

Accumulated loss

(56,662)

(92,265)

----------

135,338

99,735

LONG-TERM LOANS - unsecured

22,750

CURRENT LIABILITIES

Current maturity of long-term loans

45,500

Short-term finances

73,200

20,122

Creditors, accrued expenses and

other liabilities

81,715

45,486

----------

154,915

111,108

CONTINGENCIES AND COMMITMENTS

----------

290,253

233,593

==========

TANGIBLE FIXED ASSETS

Operating fixed assets

85,613

84,990

Capital work-in-progress

120

----------

85,733

85,040

LONG-TERM DEPOSITS

1,403

1,261

CURRENT ASSETS

Stores and spares

5,145

4,693

Stock-in-trade

98,437

64,880

Trade debts - unsecured considered

good

52,332

45,278

Advances, deposits, prepayments

and other receivables

27,394

18,328

Taxation - net

14,316

12,726

Cash and bank balances

5,493

1,387

----------

203,117

147,292

----------

290,253

233,593

==========

These accounts should be read in conjunction with the attached notes.

Muhammed Amin

Sanaullah Qureshi

Chief Executive

Director

PROFIT AND LOSS ACCOUNT

For the year ended 31 December 1998

For the

Thirteen

year ended

months ended

31 December

Note

1998

1997

Rupees in '000

Sales- net

427,856

353,271

Cost of goods sold

(260,073)

(241,596)

----------

Trading profit

167,783

111,675

Administrative and selling expenses

(114,418)

(84,666)

----------

Operating profit

53,365

27,009

Financial expenses

(15,836)

(19,157)

----------

37,529

7,852

Other income

4,638

2,509

Workers' profits participation fund

(2,108)

(518)

----------

Profit before taxation

40,059

9,843

Taxation - current

(4,456)

(3,445)

----------

Profit after taxation

35,603

6,398

Accumulated loss brought

forward

(92,265)

(98,663)

Accumulated loss carried

----------

forward

(56,662)

(92,265)

==========

These accounts should be read in conjunction with the attached notes.

Muhammed Amin

Sanaullah Qureshi

Chief Executive

Director

STATEMENT OF CHANGES IN FINANCIAL POSITION

For the year ended 31 December 1998

For the

Thirteen

year ended

months ended

31 December

Note

1998

1997

Rupees in '000

Cash flows from operating activities

Cash generated from operations

54,473

(14,396)

Financial expenses paid

(14,513)

(8,237)

Taxes paid

(6,046)

(8,405)

Long-term deposits

(142)

(61)

----------

Net cash inflow/(outflow) from operating activities

33,772

(31,099)

Cash flows from investing activities

Capital expenditure incurred

(17,486)

(16,598)

Capital work-in-progress

(70)

(50)

Sale proceeds from disposal of operating fixed assets

3,062

39,674

Profit on bank deposits received

----------

Net cash (outflow)/inflow from investing activities

(14,494)

23,079

Cash flows from financing activities

Long-term loan less repayments

(68,250)

1,308

----------

Net decrease in cash and cash equivalents

(48,972)

(6,712)

Cash and cash equivalents at the beginning of the year/period

(18,735)

(12,023)

----------

Cash and cash equivalents at the end of the year/period

(67,707)

(18,735)

==========

Muhammed Amin

Sanaullah Qureshi

Chief Executive

Director

NOTES TO THE ACCOUNTS

For the year ended 31 December 1998

1. STATUS AND NATURE OF BUSINESS

Gillette Pakistan Limited was incorporated on 09 December 1986 as a public lim-

ited company under the Companies Ordinance, 1984 and was listed on Karachi

Stock Exchange (Guarantee) Limited and Lahore Stock Exchange (Guarantee)

Limited. Its principal activities are manufacturing of double edge blades, assem-

bling of disposables and import of personal care products, dental care products

and alkaline batteries.

2. SIGNIFICANT ACCOUNTING POLICIES

2.1 Accounting convention

These accounts have been prepared under the historical cost convention.

2.2 Staff retirement benefits

Defined benefit plan

The Company operates an approved funded pension fund scheme for all its

employees subject to prescribed qualifying age limit. Contributions are made

monthly to the fund on the basis of actuarial recommendations at the rate of 9.57

per cent of basic salaries of employees. An actuarial valuation is performed once

in every three years and the most recent actuarial valuation was carried out on

31 December 1997. The actuarial valuation was carried out using "Entry Age

Normal (EAN) Actuarial Cost Method". At latest actuarial valuation date, the fair

value of the fund's assets was Rs. 14.235 million and the estimated EAN liabili-

ty was Rs. 12.941 million. Main valuation assumptions used for actuarial valua-

tion were as under:

- Expected rate of increase in salaries is 14 per cent per annum.

- Expected rate of return on investment is 14 per cent per annum.

Defined contribution plan

The Company operates an approved funded provident fund scheme for all its

permanent employees. Equal monthly contributions are made, both by the

Company and its employees, to the fund at the rate of 10 per cent of basic

salaries of employees.

2.3 Taxation

Current

The charge for current taxation is based on taxable income at the current rates

of taxation or tax determined under 'presumptive tax' basis under section 80(c)

and 80(cc) of the Income Tax Ordinance, 1979.

Deferred

The Company accounts for deferred taxation using the liability method on all

major timing differences. However, deferred tax debits are not accounted for.

2.4 Tangible fixed assets and depreciation

The cost of tangible fixed assets is depreciated over the useful life of related

assets under the straight line method, except for leasehold land and capital

work-in-progress which are stated at cost. Gains and losses on disposal of

assets are included in income currently. Maintenance and normal repairs are

charged to income as and when incurred. Major renewal and improvements are

capitalised and assets so replaced, if any, are retired.

2.5 Stores