| Philips Electrical Industries of Pakistan Limited |
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| ANNUAL
REPORT 1998 |
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| Contents |
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| Key Data |
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| Board
of Directors |
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| Chairman's
Review |
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| Auditors'
Report to the members |
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| Balance
Sheet |
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| Profit
and Loss Account |
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| Cash
Flow Statement |
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| Notes
to the Accounts |
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| Ten-Year
Review |
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| Pattern
of Shareholding |
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| Notice
of Meeting |
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| Key Data |
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1998 |
1997 |
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Rupees in
millions |
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| Sales |
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2,690 |
2,911 |
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| Operating
Profit |
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216 |
194 |
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| Profit
before Taxation |
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105 |
69 |
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| Taxation |
|
35 |
31 |
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| Profit
after Taxation |
|
70 |
38 |
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| Dividend - |
Cash |
% |
|
40 |
25 |
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|
Bonus Issue |
% |
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- |
10 |
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| Paid-up
Capital |
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101 |
91 |
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| Shareholders'
Equity |
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361 |
306 |
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| Earning
per share |
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6.9 |
3.9 |
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| Number
of Employees |
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811 |
972 |
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| Board
of Directors |
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Javed Iqbal |
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Rafiq M. Habib |
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Nizam A. Shah |
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Razi-ur-Rehman Khan |
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Muhammad Ali Khoja |
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M. Kamil Shahbazker |
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L.J. Mees |
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| Management
Team |
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Javed Iqbal |
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M. Kamil Shahbazker |
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Jalees A. Siddiqi |
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Shahid Zaki |
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Arif Kably |
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Sohail Swaleh |
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| Bankers |
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ABN Amro Bank |
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American Express Bank |
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ANZ Grindlays Bank |
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Bank of America |
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Citibank N.A. |
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Emirates Bank
International Ltd. |
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Habib Bank Limited |
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Hong Kong & Shanghai
Banking Corporation |
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Muslim Commercial Bank |
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National Bank of Pakistan |
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Standard Chartered Bank |
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| Auditors |
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A.F. Ferguson & Co. |
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Chartered Accountant |
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| Registered
Office |
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F-54, S.I.T.E. |
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Karachi-75730 |
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| Chairman's
Review |
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| Considering
the economic recession prevailing in the country, I |
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| am
pleased to report that your Company performed reasonably well in 1998. |
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| During
the first half of the year, overall business continued at a steady pace, |
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| owing
mainly to effective market strategies, cost controls, pricing man- |
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| agement,
alternate sourcing, production efficiencies and rationalization of tariffs |
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| by
the Government. However, the same trend could not be maintained in the |
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| second
half of the year, as a result of economic and financial turmoil faced by |
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| the
country due to joining the nuclear club. Some of the resultants were stop- |
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| page
of aid and sanctions by the international community, freezing of |
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| foreign
currency accounts, devaluation of the rupee, introduction of two tier |
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| currency
system, restriction on imports, rise in bank financial charges, |
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| and
higher inflation resulting in increasing costs. |
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| The
above factors had negative effect on the business and profitability suf- |
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| fered,
as the increase in costs could not be passed on to the market. During the |
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| later
part of the year inventories and receivables remained high resulting in |
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| enhanced
financing costs. However, Governments effort in introducing |
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| some
fundamental reforms are having a positive impact on the economy as a whole. |
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| Sales
and Profits |
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| Sales
amounted to Rs. 2.690 billion as compared to Rs. 2.532 billion, after |
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| adjustment
of demerged turnover of Refrigerator business, in the previous |
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| year.
Operating profit increased to Rs. 216 million from Rs. 191 million (on |
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| comparable
basis) of last year as a result of actions taken by the Company |
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| in
improving the profitability as mentioned earlier. |
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| As
lighting is the largest sector of our business, the Company |
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| maintained
its traditional position of being the market leader. This |
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| was
possible largely on account of improved customer service level, |
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| emphasis
on delivering quality in all facets of the business, and improving |
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| and
consolidating its market share in a larger section of the population. |
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| In
this division, sales amounted to Rs. 1.583 billion compared to Rs 1.581 bil- |
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| lion
of previous year. Operating profit improved to Rs. 189 million from last |
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| year's
figure of Rs. 184 million mainly due to effective cost controls, improve- |
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| ment
in factory efficiencies and concerted marketing efforts. |
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| Consumer
Electronics |
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| The
market of televisions remained stagnant due to ero- |
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| sion
of purchasing power in general. In this sector the Company is fol- |
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| lowing
the policy of selected diversification to lessen the dependence on |
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| colour
televisions. Since the past few years, emphasis has shifted towards |
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| entertainment
market, and Audio and Video products such as VCR/VCP and |
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| portable
audio systems have been introduced. Another significant addition |
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| is
PC Monitors which were introduced in 1996, and the sales of this product |
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| has
shown quantum jumps due to competitive price and excellent quality. |
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| As
a result, sales of this division recorded an impressive growth of 22% |
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| amounting
to Rs. 812 million against Rs. 663 million of last year. Operating prof- |
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| it
amounted Rs. 14 million compared to operating loss of Rs. 8 million of previ- |
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| ous
year. The improvement in profitability is mainly attributable to effective |
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| marketing
strategies, strict cost controls and rationalization of tariffs by the |
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| Government. |
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| However,
imports through irregular channels is a continual threat to this |
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| activity
restricting our market share and future growth. Unless judiciously |
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| administered
by the Government, it is our apprehension that this may result |
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| as
a serious threat to the very survival of the local industry. |
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| Other
Activities |
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| This
sector covers the activities of Domestic Appliances & Personal |
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| Care
(DAP) Professional Systems and After Sales Service. |
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| The
DAP activity has shown improvements through a balanced mix of local |
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| and
imported activity and diversification in its product range, managed |
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| through
effective and innovative marketing and selling skills. This is despite |
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| severe
competition from imports through irregular channels including |
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| baggage
and Afghan Transit Trade. As stated earlier, this activity also remains |
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| threatened,
unless effective measures will be taken to curb such activities. |
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| The
activity of Professional Systems caters to the market of |
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| high
tech products/equipment and is primarily project based. The |
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| Company,
as a policy, focuses on major projects only. This activity is mainly |
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| dependent
on development funds/grants, and due to economic |
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| crunch
during the later part of the year, overall performance suffered. The |
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| Division
continues to offer total solutions to customers, and service of their |
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| sophisticated
equipment through a "one window" operation. During the |
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| year
under review, lighting of 3 inter-changes on the Lahore-Islamabad |
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| motorway
was completed and work on installation of weigh bridges on the |
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| same
motorway is in hand. |
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| To
provide excellent "After Sales Service", the Company is maintaining
a |
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| network
of centers in all major cities and towns of the country. After Sales |
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| Service
is undoubtedly a paramount customers need and a potential area |
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| for growth. |
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| The
Company and the Shareholders |
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| Profit
after tax stands at Rs. 70 million compared to Rs. 38 million of |
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| last
year, and earning per share (EPS) amounts to Rs. 6.90 (1997 Rs. 3.90) |
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| The
Board of Directors propose for your approval, payment of final dividend |
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| of
25% in addition to interim dividend of 15% already paid, thus making a total |
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| dividend
of 40% for the year under review. The Board also recommends |
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| transfer
Rs. 29 million to General Reserve. |
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| Profit
and proposed appropriations for |
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| the
year are as follows:- |
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Rs. in '000' |
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| Profit
Before |
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| Providing
for taxation |
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104,888 |
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| Provision
for taxation:- |
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| Current-for
the year |
|
29,804 |
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|
-for prior year |
|
36 |
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| Deferred |
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5,388 |
35,228 |
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---------- |
---------- |
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| Profit
after tax |
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69,660 |
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| Add:
Unappropriated profit |
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| brought
forward |
|
1,018 |
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| Profit
available |
|
---------- |
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| for
appropriation |
|
70,678 |
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| Appropriations
recommended:- |
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| General
Reserve |
|
29,000 |
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| Interim
Dividend |
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| declared
15% |
|
15,093 |
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| Proposed
Final |
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| Dividend
25% |
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25,154 |
69,247 |
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| Unappropriated
profit |
|
---------- |
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| carried
forward |
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1,431 |
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========== |
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| Human
Resources |
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| Our
belief that people are our Company's most valuable |
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| resource
was further strengthened this year following the aftermath |
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| of
the nuclear explosion. Inspite of widespread economic turbulence, the |
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| Company
managed to achieve its desired results, which was only made |
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| possible
through strong determination of our employees to achieve the year's |
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| targets. |
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| The
Board acknowledges with thanks dedication of its workforce and their |
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| understanding
of the management's sincere and serious efforts in making |
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| improvements
and introducing changes which have far reaching consequences. |
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| Realising
its responsibility towards the workforce, the management has, as a |
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| policy,
continuously endeavoured to induct and develop a pool of talented |
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| employees
equipped to hold future management positions and face the |
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| challenges
of a highly competitive market in the next millennium. However, due |
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| to
re-engineering and right-sizing, changes in processes, and higher level |
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| of
automation, 163 employees left the service under a voluntary separation |
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| scheme
offered by the Company during the year. |
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| Quality |
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| Keeping
pace with the demands of growing quality conscious market, your |
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| Company
has consistently attempted to provide superior quality products |
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| and
services to its customers. To ensure international quality standards |
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| in
all its operations the "Philips Quality Programme" was launched in
the early |
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| nineties.
We take pride in mentioning that all our factories including Light, |
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| Consumer
Electronics and Domestic Appliances and Personal Care (DAP) |
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| are
ISO certified. We are now aiming for ISO 14001 certification and the |
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| much-coveted
Philips Quality Award (PQA 90). |
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| Information
Technology |
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| The
Company has embarked upon an ambitious programme for making its IT |
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| needs
most modern and to enable the organisation in achieving its business |
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| goals
with speed, team work and best demonstrated practices. |
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| An
advanced software, J.D. Edwards, is being installed by the company under a |
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| phased
programme which is fully Y2K compliant and will cater to our ever |
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| increasing
IT needs. Other softwares which are notY2K compliant, will be |
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| phased
out by the Company before the end of 1999. In order to make e-mail |
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| system
efficient, fast and online with other Philips offices worldwide, work |
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| on
the Philips Global Network project is also currently in hand. |
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| Social
Responsibility |
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| Your
Company has continued to uphold its tradition of working towards |
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| the
welfare of humanity by supporting endeavours of institutions like the |
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| Layton
Rahmatullah Benevolent Trust, Child Aid Association, and Indus Valley |
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| School
of Art and Architecture. |
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| Besides
this, our environmental policy lays special emphasis on minimising the |
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| impact
of our activities on the environment. |
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| Directors |
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| The
term of office of the present seven directors is due to expire on May 9th, |
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| 1999
as such, election of Directors will be held at the forthcoming annual gen- |
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| eral
meeting. |
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| During
the year, Mr. S. Naseem Ahmad Chairman and Chief Executive of the |
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| Company
retired from the service of the Company on reaching the age of |
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| superannuation.
The Board wishes to place on record its appreciation for his |
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| valuable
services. |
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| Auditors |
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| The
present auditors A.F Fergusons & Co. retire at the conclusion of the |
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| annual
general meeting. The Company has received a notice from the majority |
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| shareholder,
Royal Philips Electronics, The Netherlands of its intention to |
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| propose
M/s. Taseer Hadi Khalid & Co. the representatives of KPMG in |
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| Pakistan,
for appointment as the auditors of the Company for the year |
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| 1999,
as KPMG are responsible for the audit of the group companies of the |
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| parent
organization worldwide. |
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| We
would like to place on record our appreciation of the services rendered |
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| by
the retiring auditors M/s. A.F. Ferguson & Co. over a long |
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| period
of our association. |
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| Pattern
of Shareholding |
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| A
statement of the pattern of share-holding as at December 31, 1998 is |
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| shown
on page 50 of this report. Royal Philips Electronics, The Netherlands |
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| continues
to hold 60% of the Company's share. |
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| Future
Outlook |
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| In
all business areas, the Company intends to follow the policy of steady |
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| growth
and diversification. Considering the strength of the organisation and its |
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| infrastructure,
coupled with good quality products, the Company will, in |
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| future,
strive to improve on the profit trends shown during 1998. |
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| The
above expectations are based on the assumptions that appropriate mea- |
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| sures
and policies are adopted by the Government to create an environment |
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| conducive
for growth of business activity in the country. Amongst these mea- |
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| sures
are adequate protection to local industry while lowering tariffs, control |
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| of
parallel trade/imports via grey channels and improvement in basic eco- |
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| nomic
fundamentals. |
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|
On behalf of the Board of Directors |
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|
Javed Iqbal |
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|
Chairman & Managing Director. |
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|
March 25, 1999 |
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| Auditors'
Report to the members |
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|
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| We
have audited the annexed balance sheet of Philips Electrical Industries of
Pakistan |
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| Limited
as at December 3 I, 1998 and the related profit and loss account and cash
flow |
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| statement,
together with the notes forming part thereof, for the year then ended and |
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| 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 |
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| due
verification thereof, we report that: |
|
|
| a)
in our opinion, proper books of account have been kept by the Company as |
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| required
by the Companies Ordinance, 1984; |
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| b)
in our opinion: |
|
|
| i.
the balance sheet and profit and loss account together with the notes thereon |
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| have
been drawn up in conformity with the Companies Ordinance, 1984 and are |
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| in
agreement with the books of account and' are further in accordance with |
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| accounting
policies consistently applied; |
|
|
| ii.
the expenditure incurred during the year was for the purpose of the Company's |
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| business;
and |
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| iii.
the business conducted, investments made and the expenditure incurred during |
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| 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 cash flow statement, |
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| together
with the notes forming part thereof, give the information required by the |
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| Companies
Ordinance, 1984 in the manner so required and respectively give a true |
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| and
fair view of the state of the Company's affairs as at December 3 I, 1998 and
of |
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| the
profit and cash flows for the year then ended; |
|
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| 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 |
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| established
under section 7 of that Ordinance; and |
|
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| e)
without qualifying our opinion we draw attention to note 17 to the accounts
which |
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| explains
the reasons for deferment of the employees voluntary separation schemes |
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| cost. |
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|
A.F. Ferguson & Co. |
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| Karachi:
March 25,1999 |
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Chartered Accountants |
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|
| Balance
Sheet as at December 31, 1998 |
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|
Note |
1998 |
1997 |
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|
|
|
(Rupees in
thousands) |
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|
|
| SHARE
CAPITAL AND RESERVES |
|
|
| Authorized
capital |
|
|
|
| 16,000,000
ordinary shares of Rs. 10 each |
|
160,000 |
160,000 |
|
|
|
|
========== |
========== |
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| Issued,
subscribed and paid-up capital |
3 |
100,617 |
91,470 |
|
|
|
|
|
|
| Reserves |
|
4 |
233,469 |
213,616 |
|
| Unappropriated
profit |
|
|
1,431 |
1,018 |
|
|
|
|
|
---------- |
---------- |
|
|
|
|
|
234,900 |
214,634 |
|
|
|
|
|
---------- |
---------- |
|
|
|
|
|
335,517 |
306,104 |
|
|
|
|
| SURPLUS
ON REVALUATION OF FIXED ASSETS |
5 |
65,935 |
65,935 |
|
| REDEEMABLE
CAPITAL |
|
6 |
73,000 |
- |
|
| DEFERRED
LIABILITIES |
|
|
| Provision
for staff retirement benefits |
|
14,985 |
20,482 |
|
|
|
|
|
| CURRENT
LIABILITIES AND PROVISIONS |
|
|
| Short-term
finances under mark-up |
|
|
| arrangements |
|
7 |
805,476 |
278,325 |
|
| Short-term
loans |
|
8 |
- |
174,730 |
|
| Current
maturity of redeemable capital |
6 |
24,000 |
102,799 |
|
| Creditors,
accrued and other liabilities |
9 |
309,073 |
330,327 |
|
| Provision
for turnaround expenses |
|
10 |
48,600 |
27,000 |
|
| Proposed
dividend |
|
|
25,154 |
22,867 |
|
|
|
|
---------- |
---------- |
|
|
|
|
1,212,303 |
936,048 |
|
| CONTINGENCIES
AND COMMITMENTS |
|
11 |
|
|
|
|
|
---------- |
---------- |
|
|
|
|
1,701,740 |
1,328,569 |
|
|
|
|
========== |
========== |
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|
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|
|
Note |
1998 |
1997 |
|
|
|
|
|
(Rupees in
thousands) |
|
|
|
|
|
| TANGIBLE
FIXED ASSETS |
|
|
|
| Operating
assets |
|
12 |
159,081 |
142,317 |
|
| Capital
work-in -progress |
|
13 |
3,395 |
3,090 |
|
|
|
|
---------- |
---------- |
|
|
|
|
162,476 |
145,407 |
|
|
|
|
| LONG-TERM
INVESTMENTS |
|
|
14 |
9,680 |
9,680 |
|
| LONG-TERM
LOANS AND ADVANCES |
|
15 |
15,222 |
13,937 |
|
| LONG-TERM
DEPOSITS |
|
|
|
6,051 |
7,003 |
|
| DEFERRED
TAXATION |
|
|
16 |
9,499 |
14,887 |
|
| DEFERRED
COSTS |
|
|
17 |
37,218 |
- |
|
|
|
|
|
|
|
| CURRENT
ASSETS |
|
|
|
| Stores
and spares |
|
18 |
25,899 |
25,664 |
|
| Stock-in-trade |
|
19 |
592,554 |
556,995 |
|
| Trade debts |
|
|
20 |
331,157 |
253,081 |
|
| Deposits
and short-term prepayments |
21 |
120,573 |
45,874 |
|
| Other
receivables |
|
22 |
108,739 |
109,794 |
|
| Taxation |
|
|
|
159,953 |
79,982 |
|
| Cash
and bank balances |
|
23 |
122,719 |
66,265 |
|
|
|
|
---------- |
---------- |
|
|
|
|
1,461,594 |
1,137,655 |
|
|
|
|
---------- |
---------- |
|
|
|
|
|
|
1,701,740 |
1,328,569 |
|
|
|
|
|
|
========== |
========== |
|
|
|
|
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
Javed Iqbal |
|
|
M. Kamil Shahbazker |
|
|
Chief Executive |
|
|
Director |
|
|
|
| Profit
and Loss Account for the year ended December 31, 1998 |
|
|
|
|
Note |
1998 |
1997 |
|
|
|
|
|
(Rupees in
thousands) |
|
|
|
|
| Net sales |
|
24 |
2,689,871 |
2,910,668 |
|
| Cost
of sales |
|
25 |
1,991,245 |
2,261,924 |
|
|
|
|
---------- |
---------- |
|
| Gross
profit |
|
|
698,626 |
648,744 |
|
| Selling
and administrative expenses |
26 |
483,065 |
455,115 |
|
|
|
|
---------- |
---------- |
|
| Operating
profit |
|
|
215,561 |
193,629 |
|
|
|
|
| Other
income |
|
27 |
8,352 |
5,660 |
|
|
|
|
---------- |
---------- |
|
|
|
|
223,913 |
199,289 |
|
|
|
|
| Financial
charges |
|
28 |
1,060,801 |
118,021 |
|
| Other
charges |
|
29 |
12,945 |
