Article StudyPost and View Articles Free!

1. INTRODUCTION OF AL-GHAZI TRACTORS LIMITED

Al-Ghazi Tractors Limited (AGTL) was the first automobile company in Pakistan to earn the IS0-9002 certificate Austerity and primacy of efficiency being settled wisdom at AI-Ghazi, AGTL’s core strategy has been to be the lowest cost producer of the highest quality products.

1.1 BACKGROUND

From a corporate wreck at the time of privatization in December 8,1991, to Corporate Excellence on December 8,2001, AI- Ghazi Tractors Ltd. is a case study of rollicking corporate successes.

Located at Dera Ghazi Khan, the AGTL plant for the manufacture of Fiat Tractors in collaboration with Fiat New Holland is a hallmark of engineering dynamics. With the distinction of having achieved the highest local content in Pakistan’s automobile industry, producing 83% of the parts locally, quality is AGTL’s most -enduring competitive edge.

With no short cuts to distinction, AGTL operates with a disciplined focus on all management activities - the most important asset being its human capital: the customers, the employees and the investors - for AGTL believes that this human capital does not depreciate with time. The management works to ensure that all vendors, dealers, shareholders, employees, share in the Company’s growth and prosperity.

Making the best use of the human, financial and material resources available to the organization and giving value to these resources, AGTL’s continued success is the result of an ongoing struggle to raise local efficiencies, control spending and cut costs. Effort is made to make each process efficient, to drive down cost per tractor. Material and Plant utilization has been the driver on the cost side critical path being reduction in cycle time, reduction in work-in-process inventory, documentation of the process and improved quality measurements. AGTL is the only automobile company in Pakistan which has the not raised its selling prices ever since these were reduced by the government in August, 1998.

AGTL’s “Work Smart” culture continues to enhance its competitive position. Al-Ghazi Tractors Ltd, has welcomed the new millennium with an auspicious start. AI-Ghazi Tractors Ltd. entered as Market Leader with over 53% of the Pakistan’s tractor market.

Al-Futtaim’s flagship in Pakistan, with almost 94% foreign share holding, Al-Ghazi Tractors Ltd. believes that the only thing that tops progress is successful progress - hence the long list of accolades of Corporate Excellence. Since a reputation carries responsibility, efforts to live upto its reputation at AGTL continue - endless, relentless

1.2 COMPANY PROFILE

· Date of incorporation June 26, 1983

· Date of commencement of Operations September 1, 1983

· Date of Take Over by Al-Futtaim December 8, 1991

· Start Of Production At Dera Ghazi Khan Plant

i) Auxiliary Plant. February 20, 1984

ii) Main Plant. April 1, 1985

· Installed Capacity 15,000 tractors per annum in single shift.

· Total Land Area 90 ACRES

· Employees 498

1.3 COMPANY INFORMATION

Chairman Mr. Keith Sidney Stack	Chief Executive Officer Mr. Parvez Ali	Company Secretary Saleem Adil
Directors · Mr. Kunwar Idris · Mr. J.r.n. Keech · Mr. Peter Wall · Mr. Mohd Ali Qaiyum · Mr. Nazir A. Shaikh · Mr. Francesco Mizzi	Bankers · Union Bank Ltd. · Askari Commercial Bank · Bank Agricole Indosuez · Societe generale · Muslim Commercial Bank Ltd	Auditors A.F.Ferguson & Co.
Legal Advisor Surridge & Beecheno. Karachi	Tax Advisors Ford, Rhodes, Robson, Morrow

1.4 CORPORATE VISION

To Make AGTL A Symbol of Success

1.5 MISSION
With AGTL’s name being synonymous with stability, profitability, brand strength and customer loyalty. AGTL’s mission is to retain market leadership as the lowest cost producer of the highest quality products- the most enduring competitive edge being the quality of our tractors.

1.6 CORPORATE FOCUS
To achieve evolution through continuous change - the deliverables being: to pursue”LEAN MANAGEMENT”; to eliminate all activities which don’t add value; to eliminate waste; to reduce costs; to focus on all target markets; customer focus and to continuously add customer care centres to give fillip to mechanization of farming in the country.

1.7 EXPRESSION

Al-Futtaim (Industries) Ltd., part of Dubai have held the majority shareholding in Al-Ghazi having acquired 46% of the equity at the time of privatization in December 1991. Fiat/New Holland of Italy at the time held 5% equity.

In May 1988, Fiat/New Holland increased its shareholding to 43.17% by acquiring the entire shareholding of NIT and other financial institutions. In parallel, Al-Futtaim increased its shareholding to 50.02% thus maintaining its majority position and management control.

This situation greatly benefits the company and its long-term future. Fiat/New Holland has now increased its technical support and assistance in R&D, as well as giving the Company greater access to its global network and wider product range, whilst Al-Futtaim brings to the party its local knowledge and significant management expertise. In addition both parties are totally committed to the long-term financial and strategic development of the business.

1.8 CHAIRMAN’S REVIEW

As the world clocked in to the new millennium, AI-Ghazi Tractors Ltd entered the 21st century as Market Leader of Pakistan’s Tractor Industry. Galvanizing growth, enhancing operations through margin improvement, better capital utilization, cost reduction, process re-engineering, greater capacity rationalization, have yielded sweeping performance improvements - performance that exceeds expectations. And with obvious sense of pride, the proof is everywhere.

1.9 DIRECTORS’ REPORT

With a strong order bank, the company continued to accelerate production and sales. 5,297 tractors were sold during the third quarter (July – September) of 2005, generating a pre-tax profit of Rs. 425 million.

For the three quarters (January – September) 2005, the company has delivered 15,705 tractors compared with 12,636 delivered during the same period last year. The total pre-tax profit of the company for the three quarters of 2005 had thus reached Rs. 1,160 million – the highest profit recorded for any nine months in the history of the company, despite the fact that the company continues to sell tractors at prices fixed by the government in August 1998.

While the company continues to play an important role in the economy of the country through indigenization, dealer development and taxes, fundamental changes in the policy of the government continue to disturb bona fide tractor manufacturers and their stake holders. Three companies have been given a letter of intent to import 2,500 tractors each in CBU condition at zero rated tariffs. As many as five companies have been allowed to set up manufacturing operation at a rolled back deletion level of 40%.These decisions are a clear deviation from the laid down policies of the government and appear completely arbitrary. The company’s submissions to be allowed to participate in the scheme were just ignored. Extending permissions to those who are not even bona fide manufacturers hurts the interests of companies like Al-Ghazi which have toiled hard for over 20 years to raise vendor industries and dealer networks and have invested in human capital and manufacturing capability.

Despite such disruptions, the company, with focus on indigenous effort, is confident of continued strong growth for the balance of 2005

1.10 OPERATIONAL EXCELLENCE

Success has developed naturally as the cultural personality of the Company, continuous improvement has become the Company’s primary motivator. With sustained justified pride in its achievements since privatization and take over by AI-Futtaim in December 1991, the Company benchmark itself for competition. As the first automobile manufacturing company in Pakistan to be certified for ISO-9002 and with the highest local content in the automobile industry of Pakistan, product containment, process control, quality assurance and quality leadership are the Company’s most enduring competitive edge. Using the collective knowledge of its ordinary worker combined with the quality of its management, the key factors that have influenced the Company’s growth this year, once again, were sales, costs, and effectiveness.

With the product enjoying a high differentiated position in the market which the customer perceives as the best buy, sales revenue were maximized with market share increasing to 53% Of the 35055 tractors sold by the tractor industry this year, AGTL delivered 18420 tractors-an all time record.

Buying synergistically and keeping lean inventories kept the working capital to the minimum, the company maximized productivity, as output per head and output per unit out performed all aspirations. While each AGTL’s worker excelled in his performance, his determination was obvious Peak performance. 18425 tractors were produced in the sweltering and sizzling heat of Dera Ghazi Khan without increase in the head count. In the noise, grit and sweat of manufacturing, AGTL’s work force launched a production offensive reducing cycle times and yielding highest profits.

Tight financial control, with no bank borrowings throughout year, and optimizing cash holdings while gaining maximum interest on surplus cash strengthened the bottom line of the Company even further.

Company’s year 2000 calendar was declared the “Calendar of the Year” and was given the First Prize by National Council of Culture and Arts.

1.11 AGTL WINS CORPORATE EXCELLENCE AWARD

For demonstrating the Best Corporate Performance in the Engineering and Allied sector, AGTL was once again awarded the “Corporate Excellence Award” for 2003 by the Management Association of Pakistan

AGTL has been winning the award since 1994.

AL GHAZI INCENTIVE PLANS FOR EMPLOYEES

Al Ghazi Provides a gratuity for all employees. Gratuity schemes are incentive plans which are not payable during the period when a PF has been in existence to which the workmen is a contributor. Other facilities are detailed below

FACILITIES AT THE AGTL

STAFF TOWN

Housing: 126 family homes and bachelor quarters for executives and workers

Population of the staff town children in the AGTL: approximately 500.

Primary school: 87

other facilities:			Mosque
			hospital with ambulance
			AGTL primary school for children of
			The staff residing in the town.
			recreation centers for executives,
			workers and ladies, with indoor
			games, TV, videos, dish antennas, and
			Other facilities.
			play grounds, parks, horticulture,
			And janitorial services.
			school bus for pick and drop services
			to school and college going
			children of the staff for d.g. khan
			City.
			private electric generator for
			uninterrupted power supply
			Clean water supply with UV filters.
			transport facility for d.g. khan city
			& adjoining areas.
			waste water recycling plant for
			Hotriculture.

1.13 Annual General Meeting (AGM)

The 22nd Annual General Meeting of the shareholders of AGTL was held in Karachi. Chaired by Mr. Keith Stack, Chairman AGTL, the Company announced a total cash dividend of 300% plus 10% bonus shares for the year 2004 – the highest in company’s history.

1.14 Future Plans: AGTL To Launch 30 Hp Tractor

AGTL is shortly to launch Tractors in the 30 – 35 hp category in two wheel and four wheel drive version. The tractors to be supplied by New Holland’s plant in Shanghai will be launched taking advantage of the Agricultural Package announced by the government

Costing and Valuation Methods

Costing System

Statement of Compliance

The financial statements have been prepared in accordance with the requirements of the company’s ordinance, 1984 (the ordinance) and the international accounting standards (IASs) issued by the international accounting standards committee (IASC) and interpretation issued by the standing interpretation committee of the IASC (the interpretation) as adopted in Pakistan. However the requirements of the ordinance have been followed in cases where its requirements are not consistent with the requirements of the IASc and the interpretation.

Accounting Convention

The financial statements are made under the historical cost convention. Further, fair value adjustment under IAS-39 are not considered material and hence not recognized in these financial statements.

Costing Method

Stocks are revalued based on the market price on monthly basis, based on the “Standard Costing System”. “Moving Average” is taken on periodic basis for inventory valuation.

It means the average price of a security over a specified time period (the most common being 20, 30, 50, 100 and 200 days), used in order to spot pricing trends by flattening out large fluctuations. This is perhaps the most commonly used variable in technical analysis followed by AL-Ghazi. Moving average data is used to create charts that show whether a stock’s price is trending up or down. They can be used to track daily, weekly, or monthly patterns. Each new day’s (or week’s or month’s) numbers are added to the average and the oldest numbers are dropped; thus, the average “moves” over time. In general, the shorter the time frame used, the more volatile the prices will appear, so, for example, 20 day moving average lines tend to move up and down more than 200 day moving average lines.

Valuation Method

Fixed Assets

Fixed Assts are stated at cost less accumulated deprecation/amortization except freehold land and capital work in progress which are stated at cost.

Lease hold land is amortized over the period of lease. Depreciation/amortization on all other asset is charged to income applying straight line method whereby the cost of an asset is written off over its estimated use full life. Full year’s depreciation/amortization is charged in the year of acquisition and no depreciation/amortization is charged in the year of disposal.

Maintenance and normal repairs are changed to the income as and when incurred. Major renewal and improvements are capitalized and the assets so replaced, if any are retired.

Gains and losses on disposal/retirement of fixed assets are included in the income currently.

Store Spares & Repair Tools

These are valued at average cost. Items in transit are valued at cost comprising invoice values plus other charges thereon.

Stock In Trade

These are valued at the lower of cost and net realizable value. Cost is determined on moving average method expect for stock in trade which is valued at the invoice value plus other charges incurred thereon.

Cost of the finish goods includes prime cost and appropriate portion of manufacturing expense.

The trading stock or spare parts is valued on average cost basis.

Net realizable values signifies the estimated selling price in the ordinary course of the business less cost of the completion and cost necessary to be incurred in order to make the sale.

Investments

The investments of the company are classified into the following categories.

· Held to Maturity

These are the investment with fixed or determinable payments and fixed maturity with the company having positive intent and ability to hold the maturity. These are stated at the amortized cost.

· Available for Sale

These represents securities held for an indefinite period of time and sold in response to needs for the liquidity or changes in the profit rates. Investments are classified as available for sales are initially measured at cost, being the fair value consideration given. At the subsequent reporting dates, these investments are re measured at closing market rates. Gains and loses arises from changes in the fair values during the year and disposals are taken to profit and loss accounts.

· Trade Debts

Trade debts are valued at invoice value. Provision is made against debts considered doubt full of recovery.

Cash & Cash Equivalent

Cash and cash equivalent are carried into the balance sheet at cost. For the purpose of cash flow statement, Cash and cash equivalent comprise cash, cheques and demand drafts in hand, balance with banks on current accounts and deposit accounts and running finance under the markup arrangements.

Foreign Currencies

Assets and liabilities in foreign currencies are recorded using the rate of the exchange prevailing on the date of transaction. Monetary assets and liabilities in the foreign currencies are translated into rupees at the rates of exchange approximating to those applicable on balance sheet dates. Exchange gains and losses are taken to profit and losses account.

Flow of Material

PO Issued to Supplier

Item Delivered by Supplier into warehouse

GRN/RIR received

Stock In

Final QA

Debit Note to Suppliers

Bill of Material

Assembly Line

Initial QA

TRACTOR

Reject

Reject

Accept

Accept

ERP BAAN

SSA Global’s solution portfolio of end-to-end core ERP and best-in-class solutions (supply chain management, supplier relationship management and product lifecycle management) extend ERP across and beyond your enterprise. SSA CPM helps analyze and measure performance across your entire business and SSA Open Architecture provides a common, modern infrastructure that unifies interfaces and standardizes connectivity.

COMPETATIVE ANALYSIS

Millat Tractors Ltd. (MTL)

VS

Al-Ghazi Tractors Ltd. (AGTL)

Sales Value

Unit Sales

Profit before Tax

RATIO Comparisons

<!–[if mso & !supportInlineShapes & supportFields]> SHAPE \* MERGEFORMAT <![endif]–><!–[if mso & !supportInlineShapes & supportFields]> <![endif]–>

Cost of Goods Sold

Cost of Goods Sold (% of Sale)

<!–[if mso & !supportInlineShapes & supportFields]> SHAPE \* MERGEFORMAT <![endif]–><!–[if mso & !supportInlineShapes & supportFields]> <![endif]–>

Share Price Comparison as of 01-Dec-2005

Share Price as of May 29, 2004

MTL 293.00

AGTL 186.00

ANALYSIS OF FINANCIAL STATEMENTS

In this report we found that the company fiscal year is from 1 January to 31^st December, which is a calendar year. We have analyzed two-year (2003 – 2004) statements of Balance Sheet, Profit and Loss Statement & Cash Flow Statements but we also consider 2005 quarterly reports too, which was discussed very briefly for review purpose. These quarterly reports basically give the idea of the company major trends.

3. ANALYSIS OF PROFIT & LOSS STATEMENT

First, we will start with the comparison of the profit and loss (PnL) account for 2004 with that of year 2003. We will try to discuss each line item individually and we will analyze whether there has been a positive or a negative change in that year. Once we are through with this, we will take a glance at the half yearly figures of 2005.

The first item that we encounter on the PnL account is “Sales”. When we look at sales of 2004, we see that there is a 23.35 percent rise as compared to year 2003. The notes to this item do not specifically give us much information about sales. All that we get to know from the notes is that this amount is of gross sales, minus commission & discounts, and sales tax.

Next up is cost of goods sold, which has increase by 29.93 percent in one year. A look at the notes shows the following;

As seen from the notes, there are a lot of items that add up to form the “cost of goods sold”. Since this is a manufacturing concern, finished goods inventory and trading goods inventory both. The reason for a sharp increase in cost is off course the rise in the cost of raw materials and components. When we look at the gross profit for the year of 2004, it no doubt is higher than that of 2003, but the gross profit margin of 2004 is less than that of 2003. Overall there has been a rise in the gross profit of 6.09 percent, but the margin of gross profit to sales has declined from 27.59 percent in 2003 to 23.73 percent in 2004.

This can be justified by the fact that the costs over the year have risen more than the sales. This is why the gross profit margin had a hit. 23.35 percent increase in sales, compared to 29.93 percent increase in Cost of goods sold.

Through with this part, we move forward to analysis the rest of the items. We start with the discussion of distribution costs and administrative expenses. Distribution cost includes items which are related to the distribution of the product. These include Salaries, wages and benefits, Rent, rates and taxes, repairs and maintenance, traveling, vehicles running and entertainment, depreciation / amortization, electricity, communication, free after sales service, dealers’ convention, publicity, warranty, printing and stationery, Insurance and other expenses. For the year 2004, distribution costs have risen by 9.47 percent as compared to the figure of 2003.

Next we have the administration expenses which comprise of the following items; salaries, wages and benefits, traveling, vehicles running and entertainment, rent, rates and taxes, depreciation / amortization, repairs and maintenance, communication, advertising, printing and stationery, auditors’ remuneration, legal and professional charges, Insurance and other expenses.

Surprisingly, administration expenses for the year 2004 have declined by 5.34 percent. A look at the notes to this item shows that there is decease in the cost charged for depreciation and amortization.

We now move on to Earnings before interest and taxes, EBIT, which have risen by 6.57 percent over the period of one year.

The next item that we are going to discuss is “Other operating income”. A look at the notes to the statement shows that this item comprises of the following; dividend income, Gain on sale of investments, revaluation gain on investments, return on deposit accounts, Scrap sales, profit on sale of fixed assets and Other sources. For the year 2004, Other Operating income has increased by 2.12 percent, compared to the figure of 2003.

Next we have the Other Operating Expenses which is formed by including the following items. workers’ profits participation fund & workers’ welfare fund. Much detail of these items is not available but we can safely assume that these are some sorts of funds created to benefit the workers. Other Operating expenses have increased. In the year 2004, Other Operating expenses have increased by 4.56 percent. There is other cost, Finance cost, which includes mark-up on running finance, mark-up on short term loan, bank charges, commission and excise duty, interest on workers’ profits participation fund, mark-up on security deposit and exchange loss. The finance cost for the year has risen by 5.10 percent compared to year 2003.

The result that we get is the profit before taxation, which has increased by 6.34 percent over the period of one year.

Taxation rate is not disclosed, the only thing that we can make out by looking at the notes is that the combined value of taxation includes current year’s tax, prior year’s tax (if any) and differed taxes. The amount of taxation in the year 2004 has risen by 6.74 percent.

Net profit after tax has increased by 6.13 percent for the year of 2004. This figure shows that this amount would be used to calculate the earning per share. A look at the balance sheet shows that the number of ordinary shares at the end of year 2003 and year 2004 are 3,903,3000 approximately. Dividing the net income after taxation, by this amount will give us, the amount in rupee terms, earning per share. There is no issue of dilution anywhere so we will just consider the basic earning per share.

Basic earning per share has increased by 6.14 percent in year 2004 as compared to that of year 2003.

With this we wrap up the discussion of the profit and loss account for the year 2003 and 2004. A summary of the analysis is summarized in the table that follows.

The Profit and Loss Statement is attached in Appendix-3(A) and the Note to PnL is attached in Appendix-3(B).

4. ANALYSIS OF CASH FLOW STATEMENT

The cash flow statement is intended to help predict the firm’s ability to sustain (and increase) cash from current operations. As a matter of fact, neither the statement of cash flows nor the income statement alone contains sufficient information for the decision-making.

Income statement and balance sheet data must be combined with cash flows for insights into the firm’s ability to turn its assets into cash inflows, repay its liabilities, and generate positive returns to the shareholders.

We provide a comparative analysis of the cash flow trends based on the cash flow statements for 2003-2004. A separate analysis will be presented for cash flow statement of 2005 (for nine months to September 30, 2005)

ANALYSIS OF CASH FLOW TRENDS

4.1 Cash Flow from Investing Activities

Investing activities generally use cash because most businesses are more likely to acquire new equipment and machinery than to sell old fixed assets. When a company does need cash to fund investing activities in a given year, it must come either from an internal operating cash flow surplus or from financing activity increases or from cash reserves built up in prior years.

The Cash flow from Investing Activities (CFI) portion of the company’s cash flow statements shows a significant increase in the investment in Net Fixed Capital expenditure from 12,608 (‘000) in 2003 to 24,651 (‘000) in 2004. The note to the statement (Note 8.4) suggests a considerable proportion of investment in the “Capital work in progress” asset category contributing to more than 48% of total investment in the fixed assets which involves the work and projects undertaken by the company which has not been completed but has already incurred a capital investment from the company.

The components of this category include Plant and machinery contributing to almost 99% and Civil work contributing to approximately 1 percent of total investment in capital work in progress.

The trend continues in first 9 months of 2005 (January-September) where a net fixed capital expenditure has reached to (51,435) (‘000) in Sept 2005 from (43181) (‘000) in December 2004.

Another item “Proceeds from the sale of fixed assets” also marks a significant improvement showing an increase of 15,290 (‘000) in from its value of 3240 (‘000) in 2003 to 18,530 (‘000) in 2004.

The section 8.5 from the notes reflect this change as the result of disposal of Lease hold land, Furniture’s and fixtures, Vehicles, office equipment, factory equipment and tools etc.

The proceeds from the sale of fixed assets are showing a downward trend in first nine months of 2005 falling to 947(‘000).

Most of the fixed assets disposed of the amount of 156761 (‘000) in the year 2004 were having a book valued of more than 50,000 contributing to approx 99% of total fixed asset disposal of 158,030 (‘000). The thing to be noted here is that against the sale of asset of such huge amount the cash inflow is a mere 15,290 (‘000) showing that majority of the fixed assets were sold on exchange or adjusted to some related business transactions.

The company has made some investments in Certificate of Investments (COI) in 2004 amounting (72,229) (‘000). During the same period last year, the company disinvested from COI’s an amount of 324,340 (‘000) .This depicts investing some funds in these securities and using others for expansion and development projects.

The investments of the company are classified in the “Held to maturity” and ”Available for Sale” securities. No investments were maintained in “Available for sale” securities in 2004 as opposed to an investment of 108,131 (‘000) in 2003.

The investments in COIs continues in the first nine months of 2005 falling reaching to 3,317,521 showing the continuing trend of investments and consistency in company’s policies.

On the same trend, the category of CFI called “Investment made” also shows 0% investment in this category contrary to an investment of 102,034 (‘000) in 2003.

The category “Proceeds from the sale of investments” results in a inflow of 128218 in 2004 against no proceeds in 2003.

The company received an increase in dividends income from 2,154 (‘000) in 2003 to 5,641 (‘000) in 2004. This is the result of continuous and steady investment of the company in COI’s and other securities.

The “Return on bank deposits” also shows an increase of 13,264 (‘000) from 24,980 (‘000) in 2003 to 38,244 (‘000) in 2004

The “Return on COIs” has reduced considerably from 96699 in 2003 to 33484 in 2004. This considerable decrease amounts to 63215 (65.37%) is due to the decreasing investment of the company in previous years For example, in 2003 company’s decrease in investments in COI’s amounted to 324,340.

The increase in long term loans as the part of investment is 12566 (‘000) in 2004. This is the result of increase in loans from 928 (‘000) in 2003 to 13494 (‘000) in 2004. This increase in the long term loans marks a percentage increase of a whopping 1354 percentage points.

The long term loans and advances decrease in the first nine months of 2005 resulting in the cash inflow of 4710 (‘000) during this period.

This constant movement in the long term loans and advances depict a dynamic policy on the part of company in the fact that excess liquidity expected to remain unused for approximately 12 months or so is invested as the part of long term loan and then recovered loans are reinvested or kept for use based on requirement.

4.2 Cash Flow from Financing Activities

Financing activities represent the external sources of funds available to the business. Financing activities typically will be a provider of funds when a company has shortfalls in operating or investing activities. The reverse is often true when operating activities are a source of excess cash flow, as the overflow often is used to reduce debt.

The Cash flow from financing activities (CFF) reports significant and increasing payments to stockholders in the form of cash dividend payments increasing from (486,179) in 2003 to (583,521) in 2004 marking an increase of 97,342 (‘000) which is an increase of 20.02% from the previous year.

Due to the constantly increasing dividend payout ratio for the company, the investors in the stock market are showing continual interest in buying the shares of the company. At present AGTL shares trading at Rs 178 per share which works out to nearly six times of the par value. During the last one year the market value of the share remained within the range of Rs 135 and Rs 199 per share.

The net increase of 936,914 (‘000) in 2004 in comparison to 849,550 (‘000) in 2003 in “Cash and Cash equivalents” deems strong liquidity position of the company in relation to the continual growth of the company.

Similar trends are observed with reference to the dividend payment and cash and cash equivalent positions in the first nine months of 2005.

4.3 Cash Flow from Operating Activities

The operating activities are the daily occurrences that are essential to any business operation. If these are positive, then it indicates to the owner that the business is self-sufficient in funding its daily operational cash flows internally. If the number is negative, then it indicates that outside funds were needed to sustain the operation of the business.

The cash generated from operations show a significant increase of 542,576 (‘000) (39.8%) from 1,361,378 (‘000) in 2003 to 1903954 (‘000) in 2004. This is a result of approximately 24 percent increase in net sales in 2004.

As per note 34 (v) the company manages liquidity risk by maintaining sufficient cash and the availability of financing through banking arrangements.

The markup paid for the year 2004 decreased to (407) (‘000) as compared to a greater cost of (2,512) (‘000) in 2003. It means the supplies and raw materials for the productions of tractors are available cost effectively resulting in decrease in production cost to a considerable extent.

The taxes paid also increased from (358,288) (‘000) in 2003 to (480,041) (‘000) in 2004 depicting increased sales.

The Long term deposits also decreased to 18 (‘000) in 2004. This decrease when compared to the one in 2003 is comparatively less considering the decrease in 2003 amounted to 149 (‘000). The cash inflow in 2004 of 18 (‘000) is the result of decrease in Long-term deposits from 397 (‘000) in 2003 to 379 (‘000) in 2004.

The increase in accumulating compensated staff benefits bears an inflow of 770 (‘000) in 2004 compared to 1471 (‘000) in 2003.

The overall increase in CFO is positive and increasing over time. It is a good sign for the company as it provides the resources to service debt, invest in growth and reward shareholders.

The Profit and Loss Statement Annually (2004-2003) is attached in Appendix-4(A), Profit and Loss Statement Quarterly (2005-2004) is attached in Appendix – 4(B) and Note to PnL is attached in Appendix-4(C)

5. ANALYSIS OF BALANCE SHEET

The Balance Sheet (2004-2003) is attached in Appendix-5(A), and Note to Balance Sheet is attached in Appendix- 5(B)

FUTURE PROSPECTS

The Agricultural Packages announced by the Government of Pakistan in 1998 envisaging requirement of 40,000 tractors every year had prompted a surge in tractor sales. 47539 units were booked by the tractor industry during the year 1998-99. The Company had thus entered the last financial year in July 1999 with the strongest order book with a huge order bank of pending bookings. Thus even when Pakistan’s tractor industry registered a steep fall in bookings from 47539 last year to only 20153 this year, the Company, based on its last year’s order bank, delivered 18420 tractors.

The government had reduced and fixed the tractors prices in August 1998 with assurances to provide credit for 40,000 tractors every year. It is the only tractor manufacturing company in Pakistan that has not increase the prices fixed by the government in August 1998, despite fall in tractor bookings. With a slow economy, the rapidly falling value of the rupee and the down turn in credit, all these add stress and strain to the Company’s bottom line. The real test for the margins will be the fall in sale volumes anti rise in the costs of inputs. With cost side trending higher because of big increases in the costs of all inputs and the revenue line trending lower, margin squeeze is eminent.

The Company is however optimistic that the Government’s repeated commitments to provide generous credit to the farmers, and augment the agricultural sector with high priority will be fulfilled, and that requirements of providing credit for the promised 40,000 tractors this year, as recently announced by ADBP, would be implemented. The confluence of good crop and its prices to the growers, the support of the ADBP to develop and mechanize agriculture by increasing the farm horse power, the orientation of the government to revitalize agriculture, make the future prospects look bright.

APPENDIX- Internal Documents