Allwin Engineering Industries Limited - Annual Reports

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

Allwin Engineering Industries Limited

Annual Report 2001

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

Legal Advisors

Mohsin Tayebaly & Co.

Advocate Incorporation

Tax Advisors

Mahmood Law Associates

Bankers

A1-Baraka Islamic Bank

Habib Bank Limited

Muslim Commercial Bank Limited

National Bank of Pakistan

National Development Finance Corporation

Standard Chartered Grindlays Bank Limited

United Bank Limited

Registered Office (Factory)

15th Mile, National Highway, Landhi, Karachi-75120

Tel: 5016921-24 Fax: 5011709

E-mail: aeil@aeilkhi.atlasgrouppk.com

Branch Offices

Lahore Office:

C/o Atlas Battery Limited,

Salam Chamber, 21 Link Mcleod Road., Lahore.

Phones: 7227075-7354245 Fax: 7352724

E-mail: aeil@aeillhr.atlasgrouppk.com

Multan Office:

C/o Atlsa Honda Limited,

Azmat Wasti Road, Multan.

Phone: 512181 Fax: 586280

E-mail: aeil@mul.atlasgrouppk.com

Faisalabad Office:

C/o Atlas Battery Limited,

No. 54, Chanab Market, Madina Town, Faisalabad.

Phone: 713127 Fax: 726628

Rawalpindi Office:

C/o Atlas Battery Limited,

312, R-A-Bazar, Kashmir Road., Rawalpindi

Phone: 567423 Fax: 567423

E-mail: aeil@aeilisb.atlasgrouppk.com

NOTICE OF MEETING

Notice is hereby given that the 39th 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 20 December 2001 at 10:30

a.m. to transact the following business:

ORDINARY BUSINESS

1. To confirm the minutes of the thirty-eight Annual General Meeting held on 18 December 2000.

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

Reports thereon for the year ended 30 June 2001.

3. To appoint Auditors for the year 2001-2002 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: 07 November 2001

SECRETARY

NOTES:

1. The Share Transfer Books of the Company will remain closed from 13 December 2001 to 20 December 2001

(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.

3. Any individual Beneficial Owner of the Central Depository Company, entitle to vote at this meeting must bring

his/her National Identity Card with him/her to prove his/her identity and in case of proxy, must enclose an

attested copy of his/her National Identity Card. Representative of corporate members should bring the usual

documents required for such purpose.

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 39th Annual

Report and Review of the performance of your Company

for the year ended 30 June 2001.

THE ECONOMY

Pakistan's growth performance during the fiscal year

2000-01 suffered from an unprecedented drought. The

situation not only worsened 'but engulfed the entire

country causing serious damage to agriculture and the

overall economic growth.

GDP was targeted to grow by 4.5% with agriculture

and manufacturing sharing 2.6% and 5.9% respectively.

Real growth was, however, around 3%. Major

contribution to GDP growth was by the manufacturing

sector particularly the automobile and textile sectors.

The greatest set back came from the agriculture sector

which declined to negative 0.7%. Consequently, the

value added in agriculture also registered a decline of

2.5% as against growth of 6.1% last year. Major crops

like cotton, wheat, sugarcane, and rice also witnessed

decline in production by 10.5%. Since agriculture,

electricity and gas distribution account for almost 30%

of GDP, any significant decline in these sectors heavily

affects the overall GDP growth. A positive achievement

of the outgoing year, however, has been the lower

than targeted inflation rate of 4.7% against the targeted

rate of 6%. Another significant achievement of the year

was the sharp reduction in the overall fiscal deficit of

5.3% or Rs. 185.7 billion. This is the lowest fiscal deficit

over the last decade.

The persistence of large fiscal deficit associated with

the build up of public debt has been the major source

of macroeconomic imbalance in Pakistan. This legacy

is attributed to a host of factors, chiefly leakage in

revenue collection and widespread financial indiscipline

with ineffective accountability. Frequent changes in

the monetary & fiscal policies have created imbalances.

Growing debt servicing over the years has also made

the fiscal adjustment more difficult. Pakistan's public

debt burden of Rs. 3,198 billion is much higher than

that of many developed and developing countries.

However, with the government's multi-dimensional

approach, one can hopefully look forward to better

results!

IMF's acceptance of economic measures taken by the

Government is no less an achievement, which facilitated

another round of external debt rescheduling. The

approval of the third tranche of US$ 133 million by

IMF under the standby facility agreement also adds

support to the lenders' confidence and growing

satisfaction with the country's economic measures and

their viability. Also the government's emphasis on the

export target of US$ 10.66 billion, an increase of 3.4%

over last year's US$ 10.31 billion will certainly help

reduce the trade deficit of US$ 1.52 billion.

In order to promote investment and achieve sustainable

growth, the dire need however is a stable

macroeconomic environment where the key elements

include low inflation, sustainable budget deficit, realistic

exchange rates, appropriate real interest rates and

consistency in economic, fiscal and other related

policies.

THE INDUSTRY

The automobile industry in general performed well

except the tractor segment. The production of tractor

decreased to 31,635 units from 34,559 units in previous

year, lower 8.5%. Production of the Cars, at 39,573

units registered increase of 21.9% over 32,461 units in

previous year. The production of Motor-cycle was

recorded at 108,850 units against 86,959 units of the

last year, up 25.17%. Your company got its due share

from the OEM sector.

COMPANY PRODUCT AND TECHNOLOGY

Following are the relevant production figures relating

to the automobile industry, as a whole for the year

under review.

Particulars

2001

2000

Incr/(Decr)

% age

Cars

39,573

32,461

7,112

21.91

Motorcycle

108,850

86,959

21,891

25.17

Tractors

31,635

34,559

(2,924)

(8.46)

Bus trucks & LCVs

9,662

9,409

253

2.69

Total

189,720

163,388

26,332

16.12

In the spare parts market, your company faced severe

competition from the unorganized sector, which is not

under the tax net. The Government has not succeeded

to impose the GST at retail stage, which is the only

remedy of this menace. Spurious manufacturing, gross

misdeclaration at Customs stage and smuggling continue

to hinder the development of parts industry in the

organized sector.

As your company pays all applicable taxes, its prices

are higher in the market. However, there is brand

loyalty in the market. Allwin parts are known for quality

which we do not compromise despite extreme cost

pressures.

There is a vast market for auto parts. It only needs to

be streamlined with good business ethics. The

Government efforts of tax survey etc is expected to

bear results, perhaps in the next year and the years to

come. We wish the Government success in this regard.

Allwin is a leading company in the engineering industry.

It's range of product includes diesel engine pistons

and 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 foundries, 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 other 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 Co. 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

parts 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 during 1992 to 2001, an additional investment

of Rs. 223.36 mn was made, making a total investment

of Rs. 394.74mn, a no mean achievement in the given

circumstances. We continue to do this upgradation of

equipment and technology, year after year, in order to

provide the customer the right quality, all the times.

COMPANY OPERATIONS

The sales revenue for the year was RS.405.38 million

as compared to RS.414.18 million in the corresponding

year, lower 2.0%. In replacement market, sales was

only 81% of the previous year. The gross profit for the

period declined to Rs.54.44 million, lower 12.0%, against

Rs.61.87 million in the corresponding period. Lower

sales and increase in cost clue to devaluation of Rupee

at about 23%, increase in price of utilities specially gas

- by 30%, and higher wages on account of Labour

Union agreement are some of the reasons for lower

gross profit. Your company due to fierce competition,

smuggling and under-invoiced imports was unable to

increase prices of its products in proportion to cost

increases.

The operating expenses were generally under control

and as a ratio to sales worked out to 7.02% against

7.73% in the corresponding period. Due to better

working capital management, the financial expenses

for the year stood at Rs.18.56 million, down 21.12%,

against Rs.23.53 million in the previous year.

The net profit after tax for the year was Rs.6.03 million

against Rs.5.90 million of the previous year. Earning

per share after tax worked out to Rs. 1.22 as against

Rs. 1.20 last year.

Your company contributed Rs. 72.41 million to the

Government revenues in the form of Custom duty,

Sales tax, Income tax, etc., being 17.84% of the sales

value during the year.

WORLD TRADE ORGANIZATION (WTO)

Agreement on Trade Related Investment Measures-

TRIMs - has come into focus for some time now. The

WTO in its recent decision has granted a two year

extension after expiry of the transitional period allowed

to the developing countries, including Pakistan. For

further liberalization, the XX/TO has asked the government

to submit a response to TRIMs, if further extension is

desired by any member country.

The Government of Pakistan is working out a strategy

to protect the industry interests. Your company's view

is that localization measures are in the interest of local

industry.

The industry is also of the view that in our situation

the automotive sector does not come under the purview

of this agreement and, if at all, it is applicable, adequate

extension (the industry recommended at least seven

years) is necessary to further promote the local industry.

The Government of Pakistan may, therefore, proceed

and represent their case for seeking at least a 7-year

extension since similar exemptions and extensions

have been allowed to other countries as well. In the

larger interest of the country, it is necessary to protect

the huge investment and employment in this sector.

As a developing country Pakistan has severe balance

of payment problem and thus deserves the support.

It will be pertinent to note that contrary to the practices

in other countries, the private sector was neither

associated with nor taken into confidence before signing

the original agreement or its extension of highly

significant consequences. In fact, even after signing

the agreement, the Government induced and pursued

the policies of further investment by the automotive

sector through its indigenization programme. If the

current indigenization policy is phased out, it will have

far reaching repercussions on investment and

employment opportunities.

(There is a world, beyond this world!)

HUMAN RESOURCE

Col. (Retd.) Mir Moatazid has joined the company as

General Manager Plant, in place of Lt. Col. (Retd.)

Sultan Ahmed, who resigned. Mr. Mir has 30 years on

hand experience as an Electrical and Mechanical

Engineer in the coveted military service. He has a

record of eminent service of great value to the job. Mr.

M.H. Tabassum, who was working with Atlas Battery

Ltd., an Atlas Group Company, was transferred to

Allwin Engineering as General Manager Human

Resources, as a group policy of job rotation. I would

like to thank the outgoing General Manager for his

valuable contribution to the company and welcome

the new General Managers and wish them great tenures

with your company.

During the year, the charter of demand was settled for

the next two years. Increased working hours from 45.0

to 46.15 hours per week have been negotiated, resulting

in increased capacity and productivity.

Hay system was introduced in your company, which

will be a fair base for future growth of the company

and the employees in all respects. A competitive just

culture is under focus of your company more than

ever before.

FUTURE OUTLOOK

I foresee a challenging time ahead. The changing

environment, after the attacks in New York and

Washington on September 11, 2001, will have a

significant bearing on our economy. Any negative

development in the country could result in slow down

of the economy. On the other hand, wide scale

smuggling of the auto parts, increasing market

competition, cost constraints arising from the inflationary

market pressure, and progressive devaluation of rupee

aggregating to 23% during the last year alone, will

require the management and staff to rise to the occasion.

In March 2001, your company received ISO 9002

Certificate from Lloyd's Register Quality Assurance, for

Radiator manufacturing. This will help to improve

overall internal efficiency and quality of work leading

to tangible savings. This will open prospects to enter

new export market for which your company is making