Allwin Engineering Industries Limited - Annual Reports

For business information, annual reports, laws, ordinances, regulations and articles.

Allwin Engineering Industries Limited

Annual Report 2000

MISSION STATEMENT

To be a dynamic, profitable and growth

oriented company with market leadership in

auto parts, through excellence in quality,

advance technology, innovation and

continuous improvement. To create joy of

producing and selling, and joy for the

customers to buy. To ensure attractive return

to business associates, share holders and

to reward employees according to their ability

& performance. Be a good corporate citizen

in order to fulfill social responsibility.

CONTENTS

COMPANY INFORMATION

Auditors

Ford, Rhodes, Robson, Morrow,

Chartered Accountants

Tax Adviser

Mahmood Law Associates

Legal Advisors

Mohsin Tayebaly & Co.

Advocate Incorporation

Bankers

Standard Chartered Grindlays Bank Limited

Al-Baraka Islamic Bank

Habib Bank Limited

Muslim Commercial Bank Limited

National Bank of Pakistan

United Bank Limited

Registered Office (Factory)

15th Mile, National Highway, Landhi,

Karachi-75120

NOTICE OF MEETING

Notice is hereby given that the 38th Annual General Meeting of Allwin Engineering Industries Limited will be

held at Corporate Office at 8th floor Adamjee House, I.I. Chundrigar Road, Karachi on 18th December, 2000 at

9:00 a.m. to transact the following business:

ORDINARY BUSINESS

1. To confirm the minutes of the thirty-seventh Annual General Meeting held on 20th December, 1999.

2. To receive, consider and adopt the Audited Accounts of the Company together with the Directors' and

Auditors' Reports thereon for the year ended 30th June, 2000.

3. To appoint Auditors for the year 2000-2001 and to fix their remuneration.

4. To transact any other business with the permission of the chair.

SPECIAL BUSINESS

5. To approve the remuneration of the Chief Executive Officer.

A statement under section 160 of the Companies Ordinance, 1984 pertaining to the Special Business

referred to above is annexed to this Notice of Meeting.

By order of the Board

Karachi: 15th November, 2000

Company Secretary

NOTES:

1. The Share Transfer Books of the Company will remain closed from 11th December, 2000 to 18th December,

2000 (both days inclusive).

2. A member entitled to attend and vote at the meeting may appoint another member as his/her proxy to

attend and vote on his/her behalf. The instrument appointing a proxy must be received at the Company's

Registered Office not less than 48 hours before the time of holding of the meeting.

STATEMENT UNDER SECTION 160 OF THE COMPANIES ORDINANCE, 1984.

Approval is being sought for fixing the remuneration of the Chief Executive Officer working with the Company.

The Chief Executive Officer is interested only in the remuneration payable to him.

CHAIRMAN'S REVIEW

It is my pleasure to present to you the 38th Annual

Report and review of the performance of your

company for the year ended 30th June, 2000.

THE ECONOMY

The year ending June 30, 2000 remained under the

shadow of the international and domestic political and

economic situation prevailing in the year 1999.

Nuclear detonation, Kargil issue and ultimately army

take over have had its impact on the political,

economic and social fabric of the country. Good

cotton, rice and wheat crops, however did help in

raising the GDP growth but inept pricing and other

policy measures could not yield the desired

socio-economic benefits at the grass roots so as to

uplift the economy on the whole. It was against this

background that the National Budget for the year

2000-2001 was presented as a part of 3 years

Perspective Plan aimed at achieving a 6% GDP

growth and budgetary deficit below 5% by the year

ending 2003.

The GDP growth for the year 1999-2000 was 4.8%,

agriculture being highest at 7.2%, manufacturing the

lowest at 1.1% and service sector at 4.5%. Inflation

was claimed to be 3.6% which was the lowest in the

past decade. The GDP growth target set for the year

2000-2001 vis-a-vis 1999-2000 is at 5%, up 0.2%

from the previous year. Agriculture growth is

projected at 3.9%, services at 5.2%, and the

manufacturing at 5.9%. The target growth rates are

an encouraging sign. The inflation for the year 2000-

2001 is estimated at 4.5%, 0.9% higher than last

year. Despite government's emphasis on agriculture

sector, a projection of lower growth as compared to

last year seems reasonably cautious keeping in view

the current water shortage and vagaries of the

weather. In the present circumstances, the growth in

manufacturing at 5.9% seems to be optimistic but

achievable! Similarly, the budgetary deficit target set

at 4.6% of GDP vis-a-vis 6.5% of last year and 6.6%

average of the last 4 years seems to be somewhat

realistic though with a lot of focus on the rough edges

of the economy. The revenue target hinges on

collection of an extra Rs.100 bn. It is essential that

all these targets are met in the wake of prevailing

economic situation particularly the IMF

conditionalities and the overall external pressures,

which are becoming increasingly arduous for the

borrowing nations with Pakistan the most hard hit at

the present time.

On the other hand, in July 2000 the State Bank of

Pakistan chose to remove the restrictions on the inter

bank market and freed the rupee-dollar parity which

caused the rupee to fall from Rs.52.36 to Rs.59.30 a

dollar in early October 2000, about a 13.3%

devaluation within a period of 10 weeks. In the kerb

market, the rupee went as low as Rs.63 to a dollar-

resulting in cost-push pressures in the long run. This

was stated to meet one of the IMF conditionalities -

before any settlement with them in sight. There is

thus no alternative but to come out of the vicious

circle of ever rising debts, falling rupee, debt servicing

and costlier imports, consequently rendering exports

incompetitive due to rising internal costs. This can

only be done by a better business environment,

which promotes greater investment and savings. The

devaluation has indeed made everything costlier

without a corresponding increase in investment and

production - productivity, value addition and volume

growth. Full utilization of capacity needs to be the

focus, which alone will bring the cost down and result

in export competitiveness.

In order to revive the economy, the world financing

agencies prescription may be just marginal. It has

hardly helped any developing country so far. A

recommendation in this connection to phase out

seven main industries in Pakistan - steel, fertiliser,

sugar, oil refineries, chemicals, pharmaceuticals and

automobile, constituting over 50% of the economy,

being not competitive by world standards, will further

damage the economy as a whole. What will then

remain for achieving self-reliance, a view the

Government does espouse. Unemployment is

'becoming a bigger concern and challenge day by

day. Similarly, a report that localization programmes

will be done away will only discourage investment.

Equally important is the competitive advantage of the

local industry being eroded without which localization

is effected. Imagine the rate of custom duty is being

reduced from 35% to 25%, without a corresponding

reduction in raw material duty which remains at 10%.

Since the automobile engineering industry clearly

does not come under the world financing institutions

and other regulatory agencies - WTO - there is no

reason to succumb to any pressure from any other

international agency. Otherwise such policies will

suspend investment, production and export - and

above all, any entrepreneurial initiatives in these

industries, to say the least, unless the situation is

rectified or clarified in bold letters:

(The state secrets are the preservatives of the statesmen)

THE INDUSTRY

During the year under review, however, the

automobile industry in general did not perform well

except the tractor segment. The production of

tractors increased to 34,559 units from 26,644 units

in the previous year, up 30%. The sales at 33,201

units were, up 21%, from 27,414 units in the previous

year, mainly due to support from the agricultural sector.

The tractor industry has the highest deletion ratio i.e.

84%. Therefore, the increase in volume during the

year indicates the capacity and capability of the

vending industry, which is geared to meet the

challenge of the growth. Your company also

contributed to the growth in tractor industry in their

localization initiatives and is further geared to play the

role whenever relevant.

Production of the cars on the whole, however, was at

32,461 units against 38,682 units in the previous

year, down 16%. The sale was also down 15% to

31,759 units from 37,262 units in the previous year.

However, the industry witnessed rise in the

production of cars in the category of 1300 cc and

above - and stood at 17,326 units by June 2000

against 15,190 units by June 1999, up 14%. The

sales also increased to 17,452 units against 14,653

units of the last year, up 19%. The production of the

motorcycle fell to 86,959 units from 87,504 units of

the previous year, down 0.62%.

Following are the relevant production figures relating

to the automobile industry, as a whole, for the year

under review:

Particulars

2000

1999

Incr(Decr)

%age

Cars

32,461

38,682

(6,221)

-16.08

Motorcycles

86,959

87,504

(545)

-0.62

Tractors

34,559

26,644

7,915

+ 29.71

Buses, trucks & LCVs

9,409

10,908

(1,499)

-13.75

Total

163,388

163,738

(350)

-0.21

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

Source: PAMA

This year also witnessed few new models of the old

makes and new car manufacturers entering the

market, particularly in the category of 1000 cc and

below, making competition severer in the coming

years. Suzuki launched "Cultus" in 1000 cc category

and Daihatsu launched "Cuore" in 850 cc in March

this year. South Korea also entered the market with

small cars launching "Santro" and started production

in June 2000. Fiat is scheduled to enter the market soon.

In bigger cars sector also the new models are in

offing in early next year. This created competition

among the major players in price and quality. On the

other hand, the process of indigenization was

affected as the deletion programmes were frozen a

year before, as allowed under the Industry Specific

Deletion Programmes (ISDP) in force. The

Engineering Development Board is, therefore,

expected to review the policy of the "New Models" so

that the Deletion Programmes are not rolled back.

There is no doubt that the survival of the automotive

industry lies in the localization and not in mere y

"assembly" plants as some would suggest. However,

the Government has clearly stated that the world

financial and other regulatory institutions

conditionalities are not applicable in the Automobile

Industry. So a reasonable protection to the industry

as determined by the Government itself should

continue and so the localization programmes!

The Government is preparing the next 5 years

deletion programme, which we believe will be

economically viable both for the assemblers and the

vending industry. Government must also remove the

anomaly in the rates of custom duty at 35% being

same for the CKD units and spare parts. This is all

the more necessary for the competitive advantage

that is always required for localization.

MARKET REVIEW

Be it as it may, the year under review, however, was

no less difficult than the previous year. The large

manufacturing sector, with the exception of textiles,

witnessed a sharp decline. Inspite of a bumper

cotton crop, no economic benefit was passed on to

the farmers due to the low cotton rates - also

because of the excess stocks imported last year - so

as to benefit the economy at its grassroots. Though

the government expressed a desire to establish the

cotton prices but this vital issue was not settled in

time; the growers were left alone at the mercy of the

market forces'! At a later stage, the T.C.P. did

intervene and fixed the cotton prices, which, however,

were much lower than the expectations of the

growers. Payment of cotton purchased by T.C.P. was

also not made timely. All this resulted in deprivation

of the customer in the rural areas, in particular, the

cotton belt - the backbone of the economy.

The government also started tax survey in order to

document the economy, covering 13 big cities, to

begin with. The government has targeted about Rs.

100 billion additional revenue collection from this

survey. Tax amnesty scheme resulted in additional

collection of revenue of over Rs. 10 billion. This

scheme had the highest response over all the

previous such schemes. With the collection of Rs. 10

billion, wealth of Rs. 100 billion came into the net of

regular economy, a welcome step indeed. Although

there has been unrest among the traders and the

stockist in the market which has affected normal

business activities, it is hoped that the matter will be

settled sooner than better!

However, your company being in the organized

sector has challenges from the spurious

manufacturers, smuggling, irregular imports through

Afghan trade and under-invoicing. The menace has

yet to be rooted out; the several steps taken by the

government have not yielded the desired results so

far. The concerted effort by the regime can only

produce results.

A statement showing the vehicle population in

Pakistan is given below:

VEHICLE POPULATION

Nos. in '000

YEAR

TOTAL

CARS

JEEPS

STN

TRACTORS

BUSES

TAXIS

VANS

TRUCKS

MOTOR

OTHERS

WAGONS

CYCLES

1994

2672

548

102

374

1343

1995

2879

576

111

403

1457

1996

3097

605

119

434

1580

1997

3335

636

129

468

1713

1998

3671

681

141

539

103

1882

1999

3916

742

149

566

109

2004

2000

4146

773

158

601

116

2135

This indicates the volume of commercial parts market

in the country in which your company is striving hard

to get its due share. Whatever the circumstances

may be, your company is determined to meet the

challenges in the short and the long term.

COMPANY PRODUCT AND TECHNOLOGY

Allwin is a leading company in the engineering

industry. It's range of product includes diesel engine

pistons, cylinder liners, petrol (gasoline) pistons,

automotive radiator assemblies, radiator cores, and

scores of fully-machined grey and ductile cast iron parts.

Well-equipped iron and aluminum foundry, in-house

tool making and machining facilities, chemical and

metallurgical laboratories, standards room, and a

good quality assurance system have enabled Allwin

to earn the reputation of a reliable manufacturer and

supplier of good quality automobile and tractor parts.

The company was the first to develop its line of diesel

engine pistons and cylinder liners in 1967 with the

technical assistance of Associated Engineering

Limited, U.K., who are one of the largest

manufacturers of pistons, liners and others engine

components. Associated Engineering Limited is now

merged with Federal Mogul Powertrain Systems, U.K.

Other technical assistance agreements that Allwin

Engineering has entered into during the last ten years

are with Honda Foundry Go. Ltd., Japan, for

production of petrol pistons, since 1996; U.E.

Automotive Manufacturing, Inc., Philippines, for

production of automobile radiator assemblies, since

1997; and F.C.C. Co. Ltd., Japan, for production of

motorcycle clutch assembly, since 1999.

The Company supplies its products to all OEMs as

well as to the commercial market and export. The

company has, thus, made a significant contribution to

import substitution thereby saving foreign exchange

and earning foreign exchange through export.

INVESTMENTS

The facilities at Allwin have been extended and

modernized steadily over the last decade in order to

take full share of the industry growth, quality

improvement and higher productivity, and are

amongst the best in the engineering sector of the

country. The company, infact, has been following a

prudent policy of investment in technology and

balancing and modernisation and replacement with a

view to ensure customer satisfaction and provide the

market automotive pads with the latest technology for

which your company has the unique distinction.

Following this policy, your company invested Rs.

23.26 mn in Piston Project, Rs. 35.79 mn in Radiator

Plant and Rs. 10.76 mn in C.I. Parts machinery

besides Rs. 46.88 mn in power generation project.

Your company had made an investment of Rs.

171.38 mn since the control of the company was

acquired by the Atlas Group in 1981 to 1991, while