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Al-Ghazi Tractors Limited

Annual Report 1999

CONTENTS

COMPANY INFORMATION

Board of Directors

Auditors

MR. JOHN E. HAINES - CHAIRMAN

A.F. FERGUSON & CO.

MR. PARVEZ ALl - CHIEF EXECUTIVE

MR. KUNWAR IDRIS

MR. HASAN IRSHAD

MR. PETER WALL

MR. MOHD ALI QAIYUM

MR. NAZIR A. SHAIKH

Tax Advisors

MR. FRANCESCO MIZZI

FORD, RHODES, ROBSON, MORROW

Bankers

SOCIETE GENERALE

UNION BANK LTD.

BANK AGRICOLE INDOSUEZ

Company Secretary

ASKARI COMMERCIAL BANK

SALEEM ADIL

MUSLIM COMMERCIAL BANK LTD

OFFICES

KARACHI

Registered Office-1l th 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. 8.2nd Floor, Malik Complex. Shahrahe Quaid-e-Azam.

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

Telephone: (92.051 ) 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 Sixteenth Annual General Meeting of A1-Ghazi Tractors Limited will be held at Hotel Marriott, Karachi on

Monday December 06, 1999 at 2:30 p.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, 1999.

2. To declare the final cash dividend (The Directors have recommended a final Dividend of 150% i.e Rs.7.50 per share issued).

3. To elect 8 Directors of the Company in accordance with the provisions of Section 178 of the Companies Ordinance 1984 for a period of 3

years, commencing from December 06, 1999 in place of the present Directors namely Mr. John E. Haines, Mr. Parvez Ali, Mr. Kunwar Idris,

Mr. Hasan Irshad, Mr. Benjamin Peter Wall, Mr. M.A Qaiyum, Mr. Francesco Mizzi and Mr. Nazir A Shaikh.

4. To appoint Auditors for the year ending June 30, 2000 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.83,642,425 out of the Free Reserves of the Company be capitalized and applied to the issue of 16,728,485

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 mem-

bers at the close of business on November 22, 1999 in the proportion of three 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, 1999.

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."

2. To approve increase in the company's authorized capital from Rs.200 million to Rs.300 million and to pass the following special resolution

in this respect:

"RESOLVED THAT the figures and words "Rs. 200,000,000 divided into 40,000,000 shares of Rs.5/-each" appearing in clause V of

the Memorandum of Association and in Article 5(a)of the Articles of Association of the company be and are hereby substituted by

the figures and words "Rs. 300,000,000 divided into 60,000,000 shares of Rs.5/- each".

By order of the Board

Karachi

SALEEM ADIL

November 12, 1999

Company Secretary

STATEMENTS UNDER SECTION 160

OF THE COMPANIES ORDINANCE 1984.

1. The Directors consider it advisable to capitalise a sum of Rs.83,642,425 which they have set aside in a Special Reserve for issue of

Bonus Shares.

2. The Company's authorized capital of Rs.200 million needs to be increased to keep pace with future requirements of capitalization. It

is, therefore, proposed to increase the authorised capital from Rs.200 million to Rs.300 million.

NOTES

1. A member entitled to attend and vote may appoint a proxy to attend and vote on his/her behalf. No person shall act as a proxy (except

for a corporation) unless he/she is entitled to be present and vote in his/her own right. Proxies, in order to be effective must be received

at the registered office of the Company duly stamped & signed not less than 48 hours before the time of the meeting.

2. The Share Transfer Books of the Company will remain closed from November 23, 1999 to December 06, 1999 (both days inclusive).

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

CHAIRMAN'S REVIEW

OPERATING RESULTS

The financial year ending June 1999 has been a turbulent one for Pakistan. The

almost global embargo imposed post nuclear testing, emergency banking regula-

tions, adverse exchange rate fluctuations, lack of hard currency and government

imposed price reductions all contributed to making FY99 a somewhat challenging

year for our management team.

Due to the positive attention of the Government of Pakistan, the total market for agri-

cultural tractors strengthened. During the year 26,885 tractors were produced;

47,539 orders taken, and 27,702 delivered. As a result of lack of production capaci-

ty in the earlier part of the year, AGTL market share expressed against deliveries was

44.3%-a drop from 47.2% last time. Capacity has now been increased to meet

demand.

Despite these problems, management has remained totally focused. Manufacturing

volumes increased from 6,288 to 12,200 units (94.0%) and sales from 6,441 units to

12,260 units (90.3%). Revenues likewise improved from Rs 2.382 billion to Rs

4.343 billion (82.3%). Profits before tax rose from Rs 303.8 million to Rs 544.1 mil-

lion, post tax from Rs 207.3 million to Rs 362.3 (74.8%). By year end the compa-

ny has amassed cash deposits in excess of Rs One billion.

I am therefore pleased to announce that the Board of Directors has proposed a cash

dividend of Rs 167 million equal to 150% of the Company's paid up share capital or

Rs 7.5 per share. In addition it is proposed that shareholders receive a bonus of three

shares for every four currently held.

The effect of this distribution will be to increase the paid up share capital of the com-

pany from Rs 112 million to Rs 196 million close to the authorised capital limit of

Rs 200 million. The equity base of the company will strengthen from Rs 632 mil-

lion to Rs 827 million.

OPERATIONAL EXCELLENCE

The Company's "Work Smart" culture has further enhanced our competitive posi-

tion. Working closely with component suppliers, procurement management has sig-

nificantly reduced unit procurement costs whilst improving and securing supply and

further enhancing quality.

Additional cost reductions have also been achieved in the areas of manufacturing,

logistics, administration and marketing. Despite enforced price reductions these cost

efficiencies have resulted in margin improvements and equally important have estab-

lished AGTL as the lowest cost, highest quality producer in Pakistan.

Despite significant expansion in output there has been no increase in headcount.

Workload therefore has notably increased. Despite this our workforce has remained

highly motivated and enthusiastic and the whole company remains committed to our

philosophy of "Evolution through Continuous Change." Our union leaders and rep-

resentatives must likewise be congratulated for their support of the employees and

understanding of the Company's goals and ambitions.

While continuous enhancement of shareholder value and ongoing financial success

are of great importance they are only the result of "what we are and what we do."

Our company culture revolves around what the Japanese call Kaizen, roughly trans-

lated, the continuous search for improvement and excellence. This search for

improvement encompasses every echelon of our company. People as well as prod-

uct, process and innovation.

To achieve well above average results we must give support through investment.

This year we have made record investments in the key areas of manufacturing, infor-

mation and production technology and training. These investments have already

borne fruit and will continue to do so in the years ahead.

CORPORATE EXCELLENCE

The accolades bestowed on the company and its people this year by the government,

financial and cultural communities are too numerous to mention. In an attempt to

cover a select few:

The President of Pakistan awarded Mr. Parvez Ali, CEO, the "Executive Excellence

Award" of the Hamdard Institute of Management Sciences.

The Prime Minister of Pakistan presented A1-Ghazi the "Top Companies Award" on

behalf of the Karachi Stock Exchange in recognition of the Company's outstanding

performance in the areas of corporate governance and enhancement of shareholder

value.

Other awards of significance were "The American International Quality Award" by

Fulham Geisler Associates, the "Corporate Excellence Award" from the Hamdard

Institute of Management Sciences and the "Best Corporate Performance" award

from the Management Association of Pakistan.

In addition, the National Council of Culture and Arts conferred "First Prize" to the

Company's calendar for its accurate and artistic depiction of scenes of historic and

cultural significance to Pakistan.

FUTURE PROSPECTS

Our company enters the new financial year and the new millennium with the

strongest order book ever recorded. Our unit production costs are lower than they

were ten years ago. We have the strongest management team in the country. Quality

is now world competitive. Component supplies are secure. The balance sheet is

fighting fit. The distribution network has been highly trained and finely honed. The

prognosis is therefore "Cautiously Optimistic."

With most of the controllable factors being positive it would be easy to become com-

placent. We must avoid this at all costs. Management must and do realise that our

competitors do not stand still and while we are in a strong position we must take

advantage of it. We must "work even smarter" and every member of the team must

take personal responsibility to make further improvements in his or her area of influence.

External factors are against us. The overall economic climate is still weak. There are political and social uncertainties and ques-

tions over exchange rates and availability of hard currency.

One major concern is the current inability of the Agricultural Development Bank of Pakistan (ADBP) to meet its commitments

to encash demand drafts for tractors already delivered by its orders. The ADBP currently owes the company Rs 550 million. It

is hoped that ADBP will revert to normally accepted terms of business in the very near future.

Taking all factors into account, it is imperative that we strictly contain costs, effectively evaluate investment opportunities and

overall, continue to make smart management decisions.

APPRECIATION

Let me conclude by recording the Board's appreciation to the Pakistan Government for its support of the agricultural communi-

ty and its commitment to increased funding through the ADBP to meet production targets.

Thanks are also due to AGTL's dealers, who through their sales and marketing expertise and commitment to offering our cus-

tomers the highest level of value and service have contributed greatly to our success.

Likewise our vendors. During the year major investment commitments have been made. These have enabled AGTL to increase

production and quality while in parallel, reduce costs. We look forward to working closely with them in the future.

Our technical partners, New Holland Limited also deserve appreciation for their work during the year in supporting our drive for

technical and design excellence.

Above all, our people are the creators of our success. The management and staff have "worked smart" and hard to bring about

this year's results. Our people have been supported by their unions, who in turn have resolutely represented their member's inter-

ests, while at the same time have understood and supported the objectives and goals of the company. It is this total team com-

mitment that makes AGTL what it is today - Pakistan's Top Company - Thank you all.

John E. Haines

Date: October 26, 1999

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, 1999.

( Rs. '000)

Profit for the year before taxation

544,134

Less: Provision for taxation (Net)

181,883

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

Profit after taxation

362,251

Un-appropriated profit brought forward

618

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

Profit available for appropriation

362,869

Less: Appropriations

Dividend @ 150% 7.50 per share

167,285

Transfer to Reserve for Issue

of Bonus Shares

83,642

Transfer to General Reserve

110,000

360,927

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

Un-appropriated profit carried forward

1,942

==========

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

ing 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 vis-a-vis 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.

5. The earnings per share have been given in note 27 to the accounts.

On behalf of the Board

Karachi

John E. Haines

October 26, 1999

Chairman

DECADE AT A GLANCE

1998-99

1997-98

1996-97

1995-96

1994-95

1993-94

1992-93

1991-92

1990-91

VOLUME IN UNITS

Production

Model 480s

10,012

5,375

3,841

4,415

4,400

3,686

4,101

2,595

4,226

Model 640

2,188

913

1,098

2,202

2,015

1,861

2,081

732

1,438

Total Production

12,200

6,288

4,939

6,617

6,415

5,547

6,182

3,327

5,664

Sales:

-Industry

27,702

13,659

10,161

16,286

17,334

16,089

15,797

10,684

13,909

-AGTL

12,260

6,441

4,701

6,617

6,420

5,798

5,955

3,402

5,737

-AGTLs share %

44.26

47.16

46.27

40.63

37.04

36.04

37.70

31.84

41.25

Bookings:

-Industry

47,539

15,021

8,294

14,419

21,739

17,552

13,464

14,527

12,387

-AGTL

22,018

7,495

3,322

5,843

8,693

6,839

3,944

5,509

4,958

-AGTLs share %

46.3

49.9

40.1

40.5

40.0

39.0

29.3

37.9

40.0

Deletion Achieved

Model 480s

82%

81%

Model 640

74%

71%

VALUE IN RS. 000

Sale Revenue

4,232,832

2,349,148

1,717,094

2,264,748

2,029,937

1,749,255

1,700,645

869,590

1,376,778

Gross Margin

561,073

366,435

254,487

225,422

298,948

275,135

196,194

25,678

82,541

Profit/(loss) before tax

544,134

303,813

186,034

171,893

259,859

166,191

102,521

(77,009)

9,065

Income tax paid

181,883

96,500

52,073

64,292

87,069

70,000

12,500

5,282

6,949

Profit/(loss) after tax

362,251

207,313

133,961

107,601

172,790

96,191

90,021

(82,291)

2,116

Capital Expenditure

152,147

14,131

13,477

25,528

9,050

17,919

5,551

5,112

1,195

Dividend

- Cash

167,285

53,531

40,554

36,867

28,359

13,613

6,188

- Percentage

150.0%

60.0%

50.0%

30.0%

15.0%

- Stock

83.642

22,305

8,111

7,373

17,016

11,343

4,125

- Percentage

75.0%

25.0%

10.0%

30.0%

25.0%

10.0%

Earning/(loss) per share

16.24

11.62

8.26

7.30

15.23

10.60

10.91

(9.97)

0.26

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, 1999

and the related profit and loss account, statement of changes in equity 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;

given to us, the balance sheet and profit and loss account, statement of changes in

equity 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