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Siemens (Pakistan) Engineering Co. Ltd.

Annual Report 1999

Corporate Objectives

Our prime objective is to offer to our customers quality products and services at competitive prices to their

complete satisfaction.

We constantly endeavor to maintain our position as market leaders and technology pace-setters in all areas

of our operations and to continuously improve our efficiency and competitive strength.

To enhance their creativity and job satisfaction, we provide our employees, opportunity for personal

development, limited only by their own ability and drive; we consider this to be an important means of achieving

our corporate goals.

By continually improving our performance, we aim to generate earnings sufficient to ensure a secure future for

the Company and to protect and increase shareholders' investment.

Local presence, backed fully by the high-tech engineering expertise of Siemens world wide, is our

special strength. We are an integral part of national economy with a strong sense of responsibility to society

and the environment.

Contents

Company information

Board of Directors

Syed Babar Ali, Lahore

Chairman

Martin Sulger, Karachi

Managing Director (until September 30, 1999)

Sohail Wajahat Siddiqui, Karachi

Managing Director (effective October 1, 1999)

Karl Friedrich Hunke, Munich

Director

Asadullah Khawaja, Karachi

Director

Roll Schlotfeldt, Munich

Director

Klaus Voges, Erlangen

Director

Razi-ur-Rahman Khan, Karachi

Director (until April 30, 1999)

Dr. Amjad Waheed, Karachi

Director (effective May 1, 1999)

Mohammad Haleem Khan

Company Secretary

Management

(Until September 30, 1999)

Martin Sulger

Chief Executive Officer & MD

Hamiduddin Ahmed

Products & Services Division

Farhat Ali

Systems & Projects Division

Pervez Iftikhar

Telecommunication Division

Bakhtiyar Saeed

Power Engineering Division

Tertius Vermeulen

Finance & Business Admn. Division

(Effective October 1, 1999)

Sohail Wajahat Siddiqui

Chief Executive Officer & MD

Tertius Vermeulen

Chief Financial Officer

Pervez Iftikhar

Information Communication and

Medical Division

Mohammad Ilyas

Energy Distribution & Transmission,

Rail Transport, Solar Division

Nasim A. Siddiqui

Industrial Projects & Technical

Services Division

Sohail Wajahat Siddiqui

Automation and Drives, Power

Generation Division

Auditors

Taseer Hadi Khalid & Company, Karachi

Legal Advisor

Syed Imran Bokhari, Lahore

Registered Office

B-72, Estate Avenue, Sindh Industrial Trading Estates

Karachi-75700

Corporate Structure

Managing Director

Divisions

Telecommunication

Systems & Projects

Power Engineering

Products & Services

Finance & Business Administration

Business Units

Communication Public Networks

Private Carriers

Business Networks

Special Systems

Medical Engineering

Industrial Projects

Solar

Rail Transportation System

Power Generation

Transmission & Distribution

Transformers

Switchboards

Diesel Generating Sets

Motors & Alternators

Standard Products

Engg. & Const. Services Traffic Control Systems IT Services.

Central Depts.

Finance & Accounting

Audit

Central Comm. Services

Security & General Services

Corporate Depts.

Industrial Relations

Human Resources

Quality

Communication

Joint Venture Partners of Siemens AG with Pakistan Telecommunication Company Limited

Telephone Industries of Pakistan (Pvt.) Limited, Haripur

Carrier Telephone Industries (Pvt.) Limited, Islamabad

Regional Offices

Karachi, Lahore, Islamabad, Quetta, Peshawar

Directors' Report

Your Directors take pleasure in presenting their report and the audited

accounts for the year ended September 30, 1999 alongwith the Auditors'

report.

(Rupees in thousand)

Net profit for the year after taxation

114,173

Unappropriated profit brought forward

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

Available for appropriation

114,264

Appropriations

Transfer to asset replacement reserve

(49,800)

Transfer to revenue reserve- general

(17,367)

Transfer from revenue reserve - general

64,567

Interim dividend @ 82.5 % out of revenue reserve

(64,567)

Proposed final dividend @60%

(46,958)

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

Unappropriated profit carried forward

139

The earning per share (EPS) amounted Rs. 14.59

Mr. Razi-ur-Rahman Khan, nominee of National Investment Trust Limited,

resigned on April 30, 1999. He has been replaced by Dr. Amjad Waheed. The Board

acknowledges the valuable services of Mr. Razi-ur-Rahman Khan and welcomes Dr. Amjad

Waheed.

Mr. Martin Sulger, who was appointed as Managing Director of the Company with

effect from November 1, 1991 resigned with effect from September 30, 1999 on his

retirement from the services of the Company. The Board of Directors have co-opted

Mr. Sohail Wajahat Siddiqui in place of Mr. Sulger and has also appointed him as Managing

Director of the Company with effect from October 1, 1999.

The Board places on record its appreciation for the services rendered by Mr. Sulger in

bringing growth and financial strength to the Company during the last eight years. During his

tenure new orders and sales doubled, profit on average jumped to six fold. Mr. Sulger

has positively transformed the image of the Company during the last eight years and he is

leaving the Company with a strong base.

The Board welcomes Mr. Sohail Wajahat Siddiqui and assures full cooperation in his task of

steering the Company for further progress.

The Company has completed its programme of making all of its Computer Systems and

applications "Year 2000 Compliant".

No. material changes and commitments affecting the financial position of your

Company have occurred between the end of the financial year of the Company to which

this Balance Sheet relates and the date of the Directors' Report.

The present auditors, Messrs Taseer Hadi Khalid & Company retire and being eligible, offer

themselves for re-appointment. The statement of pattern of the shareholding of the Company

as at 30 September, 1999 is shown on page 37.

The Company is a subsidiary of Siemens Aktiengesellschaft, which is incorporated in

Germany.

The Board endorses the contents of the Management report for the year 1998/99.

Sohail Wajahat Siddiqui

S. Babar Ali

Chief Executive Officer

Chairman

Karachi, November 13, 1999

Management Report

General Review

During the year the impact of economic sanctions continued and investments in the private

sector remained limited. Also in the public sector the non-availability of funds prevented

the launch of new infrastructure projects and some projects have been shelved.

We, therefore, continued our program of restructuring, rationalization and

diversification, and intensified our activities in the service field.

We were successful in our efforts to increase the export of goods and services and our

export revenue reached US$ 3.6 million. Margins on export of goods were, however,

unsatisfactory, as present export incentives are not sufficient especially for

engineering goods.

NEW ORDERS increased by 15 % over the previous year, mainly in the public

communication networks and industrial projects.

SALES also increased by 26% largely on account of completion of some projects,

which were delayed in the last business year.

We managed to maintain our profitability over the last year but it declined in relation to

increased sales. Major cost increases include cost incurred for promoting export business

as well as for implementing an integrated IT solution - SAP/R3. Another major cost impact was

very high Forward Exchange Cover fees, which had to be paid to hedge against possible

adverse exchange rate fluctuations on import of raw materials.

Our plants remained substantially under-utilized during the year as the receipt of

new orders for locally produced goods were very erratic.

PROFIT AFTER TAX declined substantially compared with the last year as tax authorities have

retrospectively assessed the tax liabilities of the Company for prior years under a different tax

regime, against which the Company has filed an appeal.

CAPITAL investment amounted to Rs. 79 million towards replacements, modernization

and rationalization in plant and machinery, transport and computer equipment. An

integrated IT System SAP/R3 has been implemented well within the planned time frame.

It has not only made the Company's information systems "Year 2000 compliant"

but has also provided an IT Architecture on which future needs of growth and higher

efficiencies can be met with least investment in time and money.

Our contribution to the Exchequer during the year amounted to Rs. 540 million as

duties and taxes.

We express our appreciation and gratitude to all our managers, officers and workers

who faced the challenges with dedication devotion and in a team spirit enabling the

Company to achieve these results despite unfavourable economic environment.

TELECOMMUNICATION DIVISION

Sales

787 million +143 %

New Orders

885 million +114 %

Information & Communication Public Networks

The market growth remained steady as PTCL and other telecom operators continued to expand

their services. Voice Messaging System and Internet Expansion were major new orders received from

PTCL which are under execution.

Telephone Industries of Pakistan (TIP) a joint venture manufactured nearly 200,000 Line Units of EWSD

Switching System and more than 50,000 Primary Rate Interfaces for connection of mushrooming

Internet Systems in the country. TIP also produced 350,000 Telephone sets and will now start production

of new technology Digital Switching Line. This is possible through an additional investment

in TIP of approx. Rs. 136 million (including Rs. 36 million foreign exchange from Siemens AG).

Carrier Telephone Industries (CTI) another joint venture manufactured SDH equipment for optical

transmission. CTI is now starting to manufacture new digital radio equipment, SRAL.

Information & Communication Public Networks (Service)

The service team achieved, in a record time of 8 months conversion of 123 EWSD Main Exchanges of

PTCL into new version of software to be Y2K Compliant, involving over 2 million ports. ICN (Service)

is also providing O&M services to PTCL Digital Switching Network consisting of 2 million ports.

An increase in revenue due to export of services all over the world in the fields of EWSD, IN, lB, ISDN

and CA (Mobile Networks) was achieved.

A contract for providing higher level (TAC-II) services for the two mobile switches has been signed

with Mobilink.

Our ICN Training Centre has been enhanced further with new technology to cater for the needs of

our customers as well as for our engineers.

Information & Communication Networks (Private Carriers)

With an increasing number of Internet Service Providers (ISPs) in the market and growth in Mobile

Telephony, this unit has been established to support the new entrepreneurs in this field. It focuses

on offering integrated solutions to Private Internet, Data and Mobile Phone Operators. This year our

customers included Gerry's Net, Sattech, Business Communications and Systems, AKnet, Century 21,

WebNet and IUCN etc.

In mobile communications we received an order from Mobilink for Voice Compression equipment in

their GSM Network.

Enterprise / Business Networks

Our latest state-of-the-art Hicom 150E communication system has been well received by our

customers. It is a fully digital ISDN system suitable for medium and large size organizations.

With convergence of voice and data in networks, local area network solutions for data are now

an integral part of the communication solution for every organization. Our supplied turnkey

networking solutions have been a success with our customers.

The New C-25 Mobile Phones were also introduced successfully in the market. Maintenance support has

been expanded with establishment of repair facilities at Lahore and Islamabad.

The Personal Computer business also improved. The synergy between networking and

computing provides the driving force for success to the organizations like higher

educational institutions and banks etc.

Special Systems

Activities on Civil Aviation Authority Project for the expansion of the ground to air communication

system are in progress.

SYSTEMS & PROJECTS DIVISION

Sales

530 million

+23%

New Orders

435 million

+54%

Medical Engineering

During the year we were successful in introducing in Pakistan some of the latest state-of-the-art

equipment which include Linear Accelerator Type PRIMUS with Lantis for Karachi Institute of

Radiotherapy and Nuclear Medicine (KIRAN), Gamma Cameras type ECAM at KIRAN,

Mammomat 3000, new mammography unit with Digital Biopsy and Spot Imaging at Ittefaq

Hospital, Lahore and Ventilators including latest SV 300 at Children Hospital, Lahore. We also supplied

and installed first of its kind Anaesthesia Machine type KION at Kashmir Welfare Society, Gujranwala.

Medical Technical Services Unit increased maintenance contracts with several hospitals and clinics

and is providing after-sales service to our customers to maintain over 95% uptime.

Industrial Projects

During the year this unit completed a Tin Plate project which was first of its kind in Pakistan in which we

supplied and installed instrumentation and Control equipment. Other projects in progress include electrification

of PARCO Housing Project in Multan and Airfield Lights at Quaid-e-Azam International Airport, Karachi.

Solar

During the year business volume remained very low due to non-availability of funds with the

customers who are in the public sector. In the northern areas of Pakistan we have installed a solar

system to provide power to Naran Digital Telephone Exchange which is one of the many suitable

applications of solar power. Efforts are continuing to market and install solar systems in the far-flung areas,

particularly in Baluchistan, to improve the quality of life of the people living there.

Rail Transportation System

There has been no investment in the rail transportation sector although Pakistan Railways is in

dire need of upgradation of its entire system. There has been no positive development in the

proposed urban mass transit systems for Karachi and Lahore. Our activities remained confined to

completion of Track Circuiting Project for 94 stations of Pakistan Railways which stands completed

to the extent of 90%.

POWER ENGINEERING DIVISION

Sales

1,200 million +10%

New Orders

1,007 million -23%

Power Generation

Construction of Rousch Power Project (an IPP 412 MW) has been substantially completed

and its commercial operation is expected shortly.

Service Centre for Power Plant established last year has remained engaged in many

commissioning and service jobs in Pakistan and abroad. One of the major jobs was

supervision and commissioning of Habibullah Coastal Power Company, Quetta (an IPP

project of 140 MW). Negotiations have also been successful for an order to

provide technical services for a Combined Cycle power plant in Abu Dhabi. An agreement is

also in place with the operator of Rousch Power Plant for its maintenance.

Transmission & Distribution

Due to lack of finances with WAPDA and KESC no new orders were placed. The only

major order in the year was for medium voltage power distribution system for new

terminal building of Lahore Airport. Switchyards of Japan Power Project and Saba Power

Project have been completed and the stations are being made ready for commissioning. Work

on WAPDA 500 kV Muzaffargarh Grid Station will now be accelerated as bulk of

equipment has reached site from abroad.

The progress on KESC's 5th Power Project remained slow due to various problems being

faced by the customer.

In our efforts to extend our business outside the country we participated in a few tenders

in Dubai and Bangladesh and are expecting some success Steps have been taken to export

our engineering services and orders have been received for complete engineering services

for 2 Nos. High Voltage sub-stations being constructed in Saudi Arabia.

Transformers

The volume of domestic market remained low due to financial constraints of WAPDA and

KESC. We continued to strive for expanding the export business and based on our past

performance a repeat order was received from Ministry of Electricity and Water, Kuwait.

We also received an order from Saudi Arabian Utility. Repair and service business is also

increasing gradually, and we have been successful in obtaining orders for repair/service of power

transformers from Utility and IPPs.

Switchboards

Due to lack of investment in public and private sectors the market continued to shrink

which has created a fierce competition leading to reduction of prices to an unrealistic level.

The loading of the manufacturing capacity of our plant remained unsatisfactory. An

order for over 300 panels for PARCO Mid Country Refinery Project is among the few

important orders. Our plant to expand our business outside the country was successful

to some extent and an order was received for supply of over 100 Panels of Medium Voltage

and Low Voltage Switchboards for a cement plant in Sri Lanka.

PRODUCTS & SERVICES DIVISION

Sales

813 million + 8 %

New Orders

968 million +15 %

Diesel Generating Sets

This unit has achieved the position of the major supplier of DG Sets in the Country despite

many adverse factors such as tariff anomalies. Orders have been received from PIZZA HUT

for their existing outlets. All of their outlets to be opened in Pakistan will have Siemens DG

Sets to cater for their power needs under standby and prime application. Similarly, Siemens

DG Sets will be installed at all the locations of Dr. Ziauddin Hospital & Medical University,

Karachi.

The commercial production has started of the new type of alternator under the licensing

agreement with Siemens AG. A modest beginning has been made in exporting of our DG

Sets and an expansion in this direction is foreseen in the future.

Motors & Alternators

The market volume remained low in the country which resulted in idle manufacturing

capacity during the year. We continued to explore new markets abroad and were

successful in exporting motors for the first time to Iran and consolidated business in

Bangladesh and Dubai. We also supplied over 20,000 motors for air conditioners to a local air

conditioner manufacturer.

Standard Products

This unit has maintained a steady growth. The high voltage motors supplied to

Karachi Water & Sewerage Board have been commissioned at the Dhabeji Pumping

Station. Supply of a 60 kVA UPS to Pakistan Petroleum Limited and UPS of different

ratings at McDonald's outlets were some of the significant orders. Collaboration with

various technical educational institutions are continuing to create know-how in the

field of automation and the products of Siemens.

Engineering & Construction Services/Traffic Control Systems Information Technology Services

The Engineering & Construction Services (ECS) Unit has maintained its growth not only

in the domestic market but has also secured acceptance in the export market. Based on our

past performance our principals Siemens AG have made available to us access to

regional markets of Middle East, Central Asian Countries, Sri Lanka, Bangladesh and

Myanmar etc. Some of the significant orders received during the year include

Puttalam Cement Expansion Project in Sri Lanka and construction of Spill-over-

storage Tanks of PARCO at Mehmoodkot, Multan. In the field of electrification and

instrumentation orders have been received from Port Qasim Authority, ABN Amro Bank, I

Pur Terminal, PN Dockyard, Samsung Heavy Industries etc. We were the only sub-

contractor to get an Early Completion Bonus from SABA Power Plant. Similarly the

project of Siddique Sons Tinning Line was also completed before schedule. The

business of Operation & Maintenance Service remained healthy and new orders were

received from KAPCO, ICI, National Power, KMC Asphalt Plant and Pakistan, Refinery.

The business of traffic signals maintenance with KDA, KMC, CDA and LDA remained

satisfactory.