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Pak Elektron Limited
Annual Report 1998
Contents
Pak Elektron Limited
Company Information
Chairman's Review
Consolidated Balance Sheet
Consolidated Profit & Loss Account
Pattern of Holding of Shares
Notice of Annual General Meeting
Directors' Report
Auditors' Report
Balance Sheet
Profit & Loss Account
Cash Flow Statement
Notes to the Accounts
Statement and Report under Section 237
PEL Daewoo Electronics Limited
Company Information
Directors' Report
Auditors' Report
Balance Sheet
Profit & Loss Account
Notes to the Accounts
Company Information
BOARD OF DIRECTORS
Mr. M. Naseem Saigol		(Chairman/Chief Executive)
Mr. M. Azam Saigol
Mr. Shahid Sethi
Mr. Muhammad Ilyas Bajwa
Mr. Muhammad Asif Bajwa
Mr. Saeed Mian Ansari
Mr. K.M.M. Shah	(NIT Nominee)
COMPANY SECRETARY
Sheikh Muhammad Shakeel, ACA
AUDITORS
M/s Manzoor Hussain Mir & Co.
Chartered Accountants
BANKERS (in alphabetical order)
ABN Amro Bank
Askari Commercial Bank Limited
Bank of Punjab
Emirates Bank International Limited
Faysal Bank Limited
National Bank of Pakistan
National Development Finance Corporation
Standard Chartered Bank
REGISTERED OFFICE
06-Egerton Road,
Lahore.
Tel: 6306131 (5 Lines)
WORKS
14 K.M., Ferozepur Road,
Lahore.
Tel: 5811951 (7 Lines)
Chairman's Review
I take this opportunity to present before you the
audited accounts and annual report on the
performance of Pak Elektron Limited the holding
company, PEL Appliances Limited the subsidiary
and PEL Daewoo Electronics Limited a subsidiary
and joint venture with Daewoo Electronics
Company Limited, Korea. The year under review
was eventful and the country's economy has gone
through an extremely difficult phase. Internally the
country has faced extraordinary constitutional
issues destabilizing the Government and
externally it has seen unusual economic crises
affecting most of the Asian countries. This situation
created further slow down in the country's already
decelerating economy. During the year, country's
Balance of Payments further deteriorated and
foreign exchange reserves reached to a critical
level. In May 1998, in the interest of national
security, Pakistan decided to detonate its nuclear
devices which resulted into economic sanctions
by developed countries and consequently freezing
of foreign currency accounts. Pak Rupee, which
had already suffered 8.7% devaluation in October
1997, was further devalued by 4.4% in June 1998
and lately the two-tier exchange rate system was
introduced.
Your company which was already in the extremely
adverse phase of its history managed to put a halt
to the downturn seen last year. Consolidated Sales
dropped last year to Rs. 1.510 billion from previous
year's Rs. 2.909 billion rose to Rs. 2.155 billion in
the year under review. Accordingly gross profit of
Rs. 309 million was earned against last year's
Rs. 129 million bringing operating profit to Rs.
8.408 million from last year's operating loss of Rs.
80.225 million.
With above positive indications and some healthy
developments in your company's business
explained in the later paragraphs, in a couple of
years your company is expected to come out of
difficulties due to heavy losses in the last two
years. Obstruction in the company's way of revival
at this stage are heavy liabilities grown due to hefty
losses and availability of working capital to meet
increased requirements of growing business.
Sponsors of your company, to address this
situation had decided to sell off one of their
profitable project and inject fresh equity.
Unfortunately, due to the country's situation, as
explained above, this could not be achieved.
Alhamdolillah, company's bankers, especially
National Bank of Pakistan have come forward and
restructured company's long term and short term
borrowings in a way to ensure reduction in the
financial cost as well as availability of required
working capital for the company's needs. Efforts
for injection of fresh equity are also continuing
and would Insha Allah further help the company
in achieving its goals.
Despite the above factors, servicing of heavy
liabilities grown to an amount disproportionate
with the current level of company's business is
going to be a tough target. The management of
your company has accepted this challenge and
has taken various steps for this purpose, which
are also explained in the later paragraphs.
The business in our Power Division has seen a
growth and is expected to further grow in the
future. Transformers and Energy Meters produced
by your company are basic components of
electricity distribution networks of WAPDA and
KESC. The existing distribution networks in the
country have reached to a situation where there
is a dire necessity of upgradation to avoid frequent
breakdowns in supply of electricity as well as to
control pilferage. Demand for both transformers
and meters is therefore growing. Accordingly
various steps are being taken to improve
productivity, quality and delivery of these products.
In order to widen the product range, your company
has, with its existing facilities, attained a capability
of producing three phase meters. An order for
5,000 three phase meters has already been
secured and this business is expected to grow
rapidly. As a result of continuous efforts to balance
and improve our energy meter plant, our capacity
of producing single phase meters is going to be
600,000 in the year 1998-99. Our Energy meter
plant, this year is expected to attain highest level
of capacity utilization since its inception.
Timely payments by WAPDA and KESC against sales
to them have always been a problem. To address
this issue supplies to WAPDA are now being made
against bills of exchange to be accepted by them
for their payment. WAPDA has performed perfectly
in meeting its obligations against these bills of
exchange. In addition the company has obtained
substantial orders from WAPDA and newly
established Area Electricity Corporations against
inland letters of credit. The chronic problem of
delayed payment by WAPDA is therefore expected
to be resolved this way.
In our Appliances business unabated smuggling
and unpredictable changes in tariff have been the
major problems. Unfortunately no adequate
solution has as yet been put to place to control
smuggling. General Sales Tax regime at retail level
was relaunched this year but is yet to be fully
implemented. Some administrative measures
taken by the present Government and political
situation in our neighboring countries of Iran and
Afghanistan have, however, curbed smuggling to
some extent in the recent past.
During the year under review your company
started production of Window Air-conditions under
Carrier brand which was well received in the
market. Orders for supply of Carrier Air-
conditioning commercial systems have also been
received and this business is expected to grow
with revival of economy in the coming years.
A new model of refrigerator with Aero design has
been developed and expected to be launched in
January 1999. A psychological weakness in our
refrigerator, exploited by our competitors, to have
a locally assembled compressors, is being
removed in the new model where an imported
compressor will be utilized. Impact of its higher
cost is being absorbed by reduction in cost of other
materials and overheads. Compressor plant will
now be operating to sell compressors in the after
sales market. In consequence of measure taken
to improve productivity and quality of our
refrigerators we have, by the grace of God, shipped
our first lot of refrigerators against an export order.
These are also expected to grow in future.
Colour television manufacturing of our subsidiary
PEL Daewoo Electronics Limited is a victim of
smuggling and adverse fiscal pronouncements.
This year we have been approached by some
multinational manufacturers of colour television
sets who already have significant market share in
our country, to assemble TV sets for them. Our
negotiations with one of these organizations are
at advanced stage. Under these arrangements the
TV plant is expected to operate at high capacity
utilization levels and reasonable revenue in form
of conversion charges is expected to be earned
this way. At a conservative capacity utilization level
this project is expected to take care of its fixed
costs and debt servicing.
In order to reduce fixed overheads and bring
efficiencies, your company has embarked upon a
major management restructuring plan. A
substantial downsizing is being carried out to bring
efficiencies and reduce costs. In view of sluggish
demand for switchgears, this division has been
merged with transformers and similarly some
departments have been merged into others to cut
down company's fixed overheads.
I believe that the devotion and cooperation of our
management and work force will continue. With
their help the company will be able to meet all
the challenges being faced by it today and we
will be Insha Allah very soon out of the difficult
phase we are passing through.
Lahore,		M. NASEEM SAIGOL
December 09, 1998.		Chairman
Consolidated Balance Sheet
As at June 30, 1998
Pak Elektron Limited
Pel Appliances Limited
Pel Daewoo Electronics Limited
				1998	1997
				(Rupees in thousands)
FIXED CAPITAL EXPENDITURE				750,333	808,836
LONG TERM INVESTMENT				149,201	149,201
LONG TERM DEPOSITS				12,031	30,394
				911,565	988,431
CURRENT ASSETS
Stores, spares and stock in trade				667,450	1,000,792
Trade debts				638,428	387,811
Advances, deposits and prepayments				383,547	396,521
Cash and bank balances				61,769	81,094
				1,751,194	1,866,218
CURRENT LIABILITIES
Short term running finances				1,114,414	1,605,171
Current portion of long term liabilities				113,898	103,805
Creditors, provisions and accrued liabilities				370,085	579,989
				1,598,397	2,288,965
NET WORKING CAPITAL				152,797	(422,747)
TOTAL NET ASSETS				1,064,362	565,684
CONTINGENCIES AND COMMITMENTS				-	-
Long-term loans				l 1,092,409	93,513
Gratuity				389	-
Liabilities against assets subject to finance lease				96,993	128,232
				1,189,791	221,745
MINORITY INTEREST				(263,944)	84,574
NET WORTH				138,515	259,365
REPRESENTED BY
Share capital				185,418	185,418
Reserves				755,350	558,953
Unappropriated profit / (loss)				(802,253)	(485,006)
SHARE HOLDERS EQUITY				138,515	259,365
Some of the fixed assets have been revalued giving rise to a revaluation surplus of Rs. 1,556,889 thousands
which has not been accounted for in the above Balance Sheet.
Consolidated Profit & Loss Account
For the year ended June 30, 1998
Pak Elektron Limited
Pel Appliances Limited
Pel Daewoo Electronics Limited				1998	1997
				(Rupees in thousands)
SALES - GROSS				2,155,473	1,510,011
Sales tax and excise duty				306,303	281,226
				----------	----------
SALES- NET				1,849,170	1,228,785
Cost of sales				1,540,064	1,099,885
				----------	----------
GROSS PROFIT				309,106	128,900
OPERATING EXPENSES
Administrative				70,900	59,939
Selling				229,802	149,186
				----------	----------
				300,702	209,125
				----------	----------
OPERATING PROFIT				8,404	(80,225)
FINANCIAL EXPENSES				473,913	479,499
MISCELLANEOUS				1,305	7,565
OTHER INCOME
Profit on disposal of operating assets				930	1,478
Income of unusual & nonrecurring, nature				1,001	1,779
Profit on bank deposits				1,519	-
				----------	----------
				3,450	3,257
PROFIT/(LOSS) BEFORE TAXATION				(463,364)	(564,032)
Provision for taxation				6,002	3,827
				----------	----------
PROFIT/(LOSS) AFTER TAXATION				(469,366)	(567,859)
UNAPPROPRIATED PROFIT BROUGHT FORWARD				(485,006)	1,230
				----------	----------
				(954,372)	(566,629)
MINORITY INTEREST				152,116	81,623
				----------	----------
UNAPPROPRIATED PROFIT/( LOSS)				(802,253)	(485,006)
				==========	==========
Pattern of Holding of Shares
Held by the Shareholders as at June 30, 1998
Number	Shareholding		Total
of	From	To	Shares Held
Shareholders
226	1	100	11,264
524	101	500	175,775
204	501	1000	150,651
299	1001	5000	671,884
61	5001	10000	445,889
18	10001	15000	223,935
12	15001	20000	207,879
9	20001	25000	207,196
6	25001	30000	161,031
4	30001	35000	130,282
2	40001	45000	87,839
2	45001	50000	98,965
1	50001	55000	50,510
2	60001	65000	126,918
1	65001	70000	68,750
1	75001	80000	76,351
1	105001	110000	110,000
1	115001	120000	115,885
2	120001	125000	242,728
1	135001	140000	138,973
1	155001	160000	156,573
1	175001	180000	176,346
1	180001	185000	184,250
1	185001	190000	189,279
1	200001	205000	200,750
1	225001	230000	226,472
1	225001	255000	250,345
1	295001	300000	295,698
1	370001	375000	371,146
2	515001	520000	1,033,753
1	560001	565000	563,000
1	2355001	2360000	2,357,278
1	3070001	3075000	3,073,324
1	5960001	5965000	5,960,956
----------	----------	----------	----------
1392			18,541,875
==========	==========	==========	==========
Note: The Slabs not applicable have not been shown.
Categories of Shareholders			Numbers	Shares Held	Percentage
Individuals			1332	11839698	63.85
Investment Companies			6	508261	2.74
Insurance Companies			3	716838	3.87
Joint Stock Companies			15	168394	0.91
Financial Institutions			5	2450105	13.21
Foreign Companies			28	2851357	15.38
Leasing & Modaraba Companies			3	7222	0.04
			----------	----------	----------
Total			1392	18541875	100.00
			==========	==========	==========
Notice of Annual General Meeting
Notice is hereby given that the Forty Second Annual General Meeting of the shareholders of PAK ELEKTRON
LIMITED will be held on Thursday December 31, 1998 at 10:30 Am. at Associated House, Mezzanine Floor, 07
Egerton Road, Lahore to transact the following business:-
1. To confirm the minutes of Extraordinary General Meeting held on November 04, 1998.
2. To receive and adopt the Annual Audited Accounts for the year ended June 30, 1998 alongwith Directors'
and Auditors' Reports thereon.
3. To appoint Auditors to hold office till the conclusion of the next Annual General Meeting and fix their
remuneration.
4. Any other business with the permission of the Chair.
By Order of the Board
Lahore,				SHEIKH MUHAMMAD SHAKEEL
December 09, 1998.				Company Secretary
NOTES:
1. The Share Transfer Books of the Company will remain closed from 31 December 1998 to 06 January
1999 (both days inclusive).
2, A member entitled to attend and vote at this meeting may appoint another member as proxy. Proxies
in order to be effective must be received at the Registered Office of the Company not later than forty-
eight hours before the time of meeting and must be duly stamped, signed and witnessed.
3. Members are requested to notify the Company change in their addresses, if any.
Director's Report to the Members
GENTLEMEN
Your Directors are pleased to submit their Report together with the Audited Accounts of the Company for
the year ended June 30, 1998.
FINANCIAL				1998	1997
				(Rupees in thousands)
Net Sales				1,200,450	765,475
Gross Profit				231,740	97,965
Operating profit/(loss)				49,901	(29,486)
Loss before tax				(308,782)	(373,573)
Net loss for the year				(314,784)	(377,400)
AUDITORS & THEIR REPORT
The present Auditors Messrs. Manzoor Hussain Mir 8, Company, Chartered Accountants, retires and being
eligible, offer themselves for reappointment.
No provision has been made for diminution in the value of investments in view of their long term nature
and the fact that prices quoted on Stock Exchanges are abnormally depressed these days. The investee
company is earning profits and breakup value of its shares is not only much more the prevailing price at
Stock Exchange but is also greater than the cost of this investment.