COMPANY INFORMATION NOTICE OF ANNUAL GENERAL MEETING SIX YEARS AT A GLANCE DIRECTORS REP ORT TO THE SHAREHOLDERS PATTERN OF SHAREHOLDING

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2 COMPANY INFORMATION NOTICE OF ANNUAL GENERAL MEETING SIX YEARS AT A GLANCE DIRECTORS REP ORT TO THE SHAREHOLDERS PATTERN OF SHAREHOLDING AUDITORS' REPORT TO THE MEMBERS BALANCE SHEET PROFIT AND LOSS ACCOUNT CASH FLOW S TATEMENT STATEMENT OF COMPREHENSIVE INCOME STATEMENT OF CHANGES IN EQUITY NOTES TO THE FINANCIAL STATEMENTS PROXY FORM MILLAT EQUIPMENT LIMITED ANNUAL REPORT

3 Company Information BOARD OF DIRECTORS Sikandar Mustafa Khan (Chairman) Ahsan Imran Shaikh (Chief Executive) Latif Khalid Hashmi Sohail Bashir Rana Laeeq Uddin Ansari Mian Muhammad Saleem Syed Muhammad Ir fan Aqueel BOARD AUDIT COMMITTEE Latif Khalid Hashmi Laeeq Uddin Ansari COMPANY SECRETARY Mian Muhammad Saleem CHIEF FINANCIAL OFFICER Sohail Ahmad Nisar FCA AUDITORS Er nst & Young Ford Rhodes Sidat Hyder Char tered Accountants LEGAL ADVISORS Walker Martineau Saleem Advocate & Legal Consultants REGISTERED ADDRESS 8.8K.M. Lahore Sheikhupura Road, Shahdara, Lahore. PLANT SITE 10K.M. Raiwind Road, Lahore PRINCIPAL BANKERS Habib Bank Limited Bank AlHabib Limited Habib Metropolitan Bank Limited MCB Bank Limited United Bank Limited JS Bank Limited Faysal Bank Limited Meezan Bank Limited 02 MILLAT EQUIPMENT LIMITED ANNUAL REPORT 2013

4 Notice of Annual General Meeting Notice is hereby given that 21st Annual General Meeting of Millat Equipment Limited will be held at the Registered Office of the Company at 8.8 K.M. Sheikhupura Road, Shahdara, Lahore, on Monday, September 16, 2013 at 4:00 P.M to transact the following business: A. ORDINARY BUSINESS 1) To confirm minutes of 20th Annual General Meeting held on October 02, ) To receive, consider and adopt the audited accounts of the Company for the year ended June 30, 2013 together with the Directors' and Auditors' Repor ts thereon. 3) 4) To approve final cash dividend of Rs per share i.e. 100% in addition to the interim dividend of Rs.3.00 per share i.e. 30%already paid making a total cash dividendof Rs persharei.e. 130%. To appoint auditors and fixtheir remuneration for the year ending June 30, B. ANY OTHER BUSINESS To transact any other business with the permission of the Chair. BY ORDER OF THE BOARD Lahore: August 19, 2013 Mian Muhammad Saleem (Company Secretary) MILLAT EQUIPMENT LIMITED ANNUAL REPORT

5 NOTES 1. The share transfer books of the Company will remain closed from September 06, 2013 to September 16, 2013 (both days inclusive) and no transfer will be accepted during this period. The members whose names appear in the Register of Members as at the close of business on September 05, 2013 will qualify for the payment of cash dividend. 2. A memberentitledto attendand vote at this meeting may appoint another member as his/herproxy to attend the meeting and vote for him/her. Proxies in order to be effective must be received by the Company not less than 48 hours before the meeting. 3. Shareholders are requested to notify the change of address, if any, immediately. 4. Members who have not yet submitted photocopy of their computerized National identity Card (CNIC) to the company are requested to send the same at the earliest. 04 MILLAT EQUIPMENT LIMITED ANNUAL REPORT 2013

6 Six years at Glance (Rupees in thousand) Trading Results SalesNet Gross profit Operating profit Profit before tax Net profit after tax 2,600, , , , ,418 2,147, , , , ,209 2,435, , , , ,032 1,911, , , , ,255 1,172, , , ,635 93, , , ,350 88,718 45,699 Balance sheet Share capital Reserves Operating Fixed assets Non current assets Long term liabilities Deferred Liabilities 260, , ,437 9,569 90, , , ,331 15,622 94, , , ,723 14, , , , ,305 15,356 79, , , , ,179 14, ,313 91, ,000 71, ,631 18, ,651 40,438 Investor Information Sales growth Gross profit growth Pre tax profit growth Net profit after tax growth % % % % (12) (18) (19) (13) (13) Gross profit ratio Operating profit ratio Profit before tax ratio profit after tax ratio Return on capital employed % % % % % Inventory turnover Total Assets turnover Fixed assets turnover Return on assets Times Times Times % Long term debts: Equity ratio Current ratio Financial charges coverage Times 2.54 : : : : : : : : : Pay out Dividend Rs. Per share Earning per share ( after tax) Breakup value Return on equity Dividend cover Rs. Rs. Rs. % % MILLAT EQUIPMENT LIMITED ANNUAL REPORT

7 Six Years Financial Performance SALES / PROFIT BEFORE TAX (RS. IN THOUSANDS) EARNING / DIVIDEND PER SHARE (RS.) SHAREHOLDER EQUITY SALES / PROFIT AFTER TAX (RS. IN (RS. THOUSANDS) IN THOUSANDS) RETURN ON ASSETS (PERCENTAGE) RETURN ON EQUITY (PERCENTAGE) 06 MILLAT EQUIPMENT LIMITED ANNUAL REPORT 2013

8 Directors Report to the Shareholders for the year ended June 30, 2013 The Directors feel pleasure in presenting their 21st Annual Repor t together with the Audited Accounts of the Company for the year endedjune 30, ACCOUNTS / APPROPRIATIONS Financial resultsfor the year are as follows: Accumulated profit Brought Forward Rs. 717,169,352 Profit for the year Rs. 628,750,065 Less: Dividend (year 100%) Rs. 260,000,000 Less: Interim Dividend (year 30%) Rs. 78,000,000 Less: Current Taxation Rs. 202,331,916 Appropriations Rs. Profit car ried forward Rs. 805,587,501 Your Directors recommended payment of cash dividend@ Rs per share (100%) in addition to interim dividend of Rs.3.00 per share (30%)already paid. PATTERN OF SHAREHOLDING Thepattern of shareholding as on June 30, 2013 is annexed. EARNING PER SHARE Theearning per share for the year was Rs.16.40Comparedtoa pershare profit of Rs.12.20forthe prioryear. DIRECTORS TheBoard comprises of seven directors. Since the last repor t, there has been no change in its composition. During theyear, four board meetings wereheld. The number of meetings attended by each Director is given hereunder: Name of Director Meetings attended Mr. Sikandar M. Khan (Chairman) 03 Mr. Sohail Bashir Rana 04 Mr. Latif Khalid Hashmi 04 Mr. Laeeq Uddin Ansari 04 Mian Muhammad Saleem 04 Mr. Ahsan Imran Shaikh 04 Syed Muhammad Irfan Aqueel 04 The Director(s) who could not attend the meetings were granted leave of absence. BOARD AUDIT COMMITTEE TheCommittee comprises of the following Directors: Mr. Latif Khalid Hashmi, Non Executive Director Chairman Mr. Laeeq Uddin Ansari, NonExecutive Director Member TheAudit Committee reviewed the quar terly, half yearly and annual financial statements before submission to the Board. TheAudit Committee also reviewed internal audit findings. DUTY & TAXES Information relating to duty & taxeshas been given in the respective notes to theaccounts. MILLAT EQUIPMENT LIMITED ANNUAL REPORT

9 AUDITORS As per Company s policy, external auditors are changed after ever y five years. Keeping in view the above policy the Boards Audit Committee and the Board of Directors have endorsed the appointment of M/s A.F. Ferguson & Co., Chartered Accountants in place of retiring auditors M/s. Ernst & Young Ford Rhodes SidatHyder, Chartered Accountants at the for th coming Annual general meeting. They have been given satisfactory rating under the Quality Control Review of the Institute of Char tered Accountants of Pakistan and being eligiblehas accepted the appointment. NUMBER OF EMPLOYEES There were 130numbers of employeesas on June 30, 2013 comparedto118 employees as on June 30, SUBSEQUENT EVENTS No material changes or commitments effecting the financial position of the Company have occurred between the end of the financial year of the company and the dateof thisrepor t. ABSTRACT UNDER SECTION 218 OF THE COMPANIES ORDINANCE, 1984 The following abstract under section 218(1) of the Companies Ordinance, 1984 were previously circulated to the shareholders. The shareholders are notified that Board of Directors vide their resolutions dated October 10, 2012 passed the following resolutions for appointment of Chief Executive of the Company. 1Appointment of Chief Executive Resolved that Mr. Ahsan Imran Sheikh be and is hereby appointed as Chief Executive of the Company with effect from October 10, Fixation of Remuneration of Chief Executive The remuneration and terms of employment of the Chief Executive were approved by the Board of Directors by passing the following resolution. RESOLVED that the Board hereby approves and authorizes holding of office of profit and payment of remuneration to Mr. Ahsan Imran Sheikh, CEO not exceeding Rs.10 million per annum inclusive of perquisites and benefits but exclusive of terminal benefits and medical expenses for self and dependants. The above remuneration shall be subject to such increases, adjustments and restructuring within the approved limit including bonuses as may be granted at any time and from time to time by the company in accordance with the Company's policy and terms of his appointment. FURTHER RESOLVED that Mr. Ahsan Imran Sheikh be and is hereby authorized for free use of Company maintained transport for official and private purposes and the Chairman be and is hereby authorized to determine his entitlement in this regard. 08 MILLAT EQUIPMENT LIMITED ANNUAL REPORT 2013

10 Being interested, Mr. Ahsan Imran Sheikh did not participate in the resolutions. CORPORATE SOCIAL RESPONSIBILITY I. CORPORATE PHILANTHROPY The Company has not made any contribution towards corporate philanthropy because the Company is just emerged out of bank borrowings. II. ENERGY CONSERVATION Millat Equipment is fully committed towards energy conser vation. MEL has conducted an energy audit for conservation of energy. The recommendations of this repor t are under phased implementation including replacement of lights, automation of furnace burners and SCADA systems. III. ENVIRONMENTAL PROTECTION MEASURES The Company has initiated plantation and hor ticulture drive within its premises. IV. COMMUNITY INVESTMENT AND WELFARE SCHEMES The Company could not contribute in anywelfare schemes because company was paying off its bor rowing. V. CONSUMER PROTECTION MEASURES The Company manufactures its products for OEMs only and does not manufacture any consumer product. VI. WELFARE SPENDING FOR UNDERPRIVILEGED CLASSES The Company did not spend any moneyfor underprivileged classes yet. VII. INDUSTRIAL RELATIONS MEL is discharging all liabilities stipulated in Industrial Relation Ordinance and Labour Laws. The Company also ensuresthat all legal dues and liabilities are being met by its labour contractors. VIII. EMPLOYMENT OF SPECIAL PERSONS The Company has not employed any special person during the year. IX. OCCUPATIONAL SAFETY & HEALTH All employees at the Millat Equipment Limited are fully committed to maintain their personal Safety & Health and ensure to prevent harm to their fellow colleagues aswell as to the environment. To accomplish and enhance our safety program, all possible steps have been taken to recognize and eliminate occurrence of unsafe acts and conditions through training and development of people along with providing them the required safety gadgets. Management at all levels recognizes the responsibility of preventing injuries, occupational illnesses, property loss, and harm to theenvironment and of providing a safe and healthful workplace. MILLAT EQUIPMENT LIMITED ANNUAL REPORT

11 X. BUSINESS ETHICS AND ANTI CORRUPTION MEASURES The Company abides by all business ethics and discourages every typeof corruption. XI. NATIONAL CAUSE DONATIONS The Company has not allocated any budget towardsnational cause donations. XII. CONTRIBUTION TO EXCHEQUER Millat Equipment Limited has contributed Rs. 612 million to the national exchequer in the shape of direct and indirect taxes. XIII. RURAL DEVELOPMENT PROGRAMS The Company carries out all its operations in urban areas therefore the Company has not made any contribution towards rural development programs. For and on behalf of the Board LAHORE: July 25, 2013 CHIEF EXECUTIVE 10 MILLAT EQUIPMENT LIMITED ANNUAL REPORT 2013

12 Pattern of Shareholding as at June 30, 2013 No. o f Sha reh olders From S ize of Holding To TOTAL Total S hares Held 26,771 46,667 86, , , , , , , , , , , , , , , , , , , , , ,501 6,8 17,954 11,6 99,993 26,000,0 00 CATEGORIES OF SHAREHOLDERS Particulars 1. Directors, CEO and their spouses and minor children 8 7,652, Associated Companies, undertaking and related parties 1 11,699, NIT and ICP 4. Banks Development Financial Institutions, No. of Shareholders Shares held Percentage of issued capital Non Banking Financial Institution 5. Insurance Companies 6. Modarabas and Mutual Funds 7. Share Holders Holding 10% 8. General Public a. Local 419 6,647, b. Foreign 9. Others Total ,000, MILLAT EQUIPMENT LIMITED ANNUAL REPORT

13 Financial Statement 2013 Millat Equipment Limited 12 MILLAT EQUIPMENT LIMITED ANNUAL REPORT 2013

14 Auditors' Report to the Members We have audited the annexed balance sheet of MILLAT EQUIPMENT LIMITED as at 30 June 2013 and the related profit and loss account, statement of comprehensive income, cash flow statement and statement of changes in equity together with the notes forming part thereof, for the year then ended and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit. It is the responsibility of the company's management to establish and maintain a system of internal control and prepare and present the above said statements in conformity with the approved accounting standards and the requirements of the Companies Ordinance, Our responsibility is to express an opinion on these statements based on our audit. We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the above said statements are free of any material misstatement. An audit includes examining on a test basis, evidence suppor ting the amounts and disclosures in the above said statements. An audit also includes assessing the accounting policies and significant estimates made by management, as well as, evaluating the overall presentation of the above said statements. We believe that our audit provides a reasonable basis for our opinion and, after due verification, we repor t that: a) in our opinion, proper books of account have been kept by the company as required by the Companies Ordinance, 1984; b) in our opinion: i) the balance sheet and profit and loss together with the notes thereon have been drawn up in conformity with the Companies Ordinance, 1984, and are in agreement with the books of account and arefurther in accordance with accounting policies consistently applied; ii) iii) the expenditure incurred during the year was for the purpose of the company's business; and the business conducted, investments made and the expenditure incurred during 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, cash flow statement and statement of changes in equity together with the notes forming par t thereof conform with approved accounting standards as applicable in Pakistan, and, give the information required by the Companies Ordinance, 1984 in the manner so required and respectively give a tr ue and fair view of the state of the company's affairs as at 30 June 2013andof the profit, comprehensive income, its cash flows andchanges in equity forthe yearthen ended; and d) in our opinion, Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIIIof 1980), was deducted by the Company and deposited in the Central Zakat Fund established under section 7 of thatordinance. Chartered Accountants Engagement Partner: Naseem Akbar Lahore: July 25, 2013 MILLAT EQUIPMENT LIMITED ANNUAL REPORT

15 Balance Sheet as on June 30, Note Rupees Rupees EQUITY AND LIABILITIES Share capital and reserves Authorized capital 30,000,000 (2012: 30,000,000) ordinary shares of Rs. 10/ each 300,000, ,000,000 Issued, subscribed and paid up share capital 26,000,000 (2012: 26,000,000) ordinary shares of Rs. 10/ each fully paid in cash 260,000, ,000,000 Unappropriated profit717,169, ,587,501 Total equity Noncurrent liabilities Long term advances 5 3,188,127 2,522,898 Deferred tax liability 6 81,992,504 87,823,125 Accumulating compensated absences 7 8,360,378 6,576,736 Current liabilities Total liabilities CONTINGENCIES AND COMMITMENTS TOTAL EQUITY AND LIABILITIES 977,169,352 96,922,759 Trade and other payables 8 353,367, ,567,313 Markup accrued on secured loans 9 41,330 3,329,829 Sales tax payable 18,994,074 13,249,420 Provision for income tax 43,922, ,065,587,501 93,541, ,581, ,122,206 1,569,709, ,891, ,813,975 1,329,983,327 The annexed notes from 1 to 35 form an integral par t of these financial statements. Chief Executive 14 MILLAT EQUIPMENT LIMITED ANNUAL REPORT 2013

16 Balance Sheet as on June 30, Note Rupees Rupees ASSETS Noncurrent assets Property, plant and equipment ,482, ,381,632 Intangibles 12 31,801 47,464 Long term deposits 3,523,844 3,523, ,037, ,952,940 Current assets Stores, spares & loose tools ,461, ,127,222 Stock in trade ,996, ,470,197 Trade debts ,536, ,870,667 Loans and advances 16 36,781,388 18,072,987 Shor t term prepayments 557, ,799 Taxationnet 12,553,201 Shor t term investments ,045,591 Cash and bank balances 18 32,218,715 21,378,975 1,043,671, ,030,387 TOTAL ASSETS 1,569,709,707 1,329,983,327 Director MILLAT EQUIPMENT LIMITED ANNUAL REPORT

17 Profit and Loss Account for the year ended June 30, Note Rupees Rupees Sales net 19 2,600,176,714 2,147,771,340 Cost of sales Gross profit 20 1,891,307, ,868,904 1,599,327, ,443,451 Distribution cost 21 6,375,377 5,687,899 Administrative expenses 22 46,017,101 39,181,687 Other operating expenses Operating Profit 23 46,297,809 98,690, ,178,617 36,269,293 81,138, ,304,572 Finance cost 24 2,410, ,767,813 26,200, ,104,197 Other income 25 20,982, ,750,065 13,616, ,721,008 Taxation Profit after tax ,331, ,418, ,511, ,209,166 Earnings per share basic and diluted The annexed notes from 1 to 35 form an integral par t of these financial statements. Chief Executive Director 16 MILLAT EQUIPMENT LIMITED ANNUAL REPORT 2013

18 Cash Flow Statement for the year ended June 30, 2013 Net cash flows generated from operating activities Note Rupees Rupees CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxation 628,750, ,721,008 Adjustment for noncash charges and other items: Depreciation 48,340,837 46,198,807 Amortization 23,378 15,663 Net realizable value adjustment of stores 2,305,091 Liability written back (102,900) Loss / (gain) on disposal of fixed assets (110,374) 792,686 Unrealized gain on shor t term investments (45,591) Workers' welfare fund 12,545,415 8,907,164 Workers' profit participation fund 33,752,394 24,264,352 Finance cost 26,200,375 2,410, ,517, ,451,991 Cash flows before working capital changes (Increase) / decrease in current assets: Stock in trade (14,558,543) 84,473,664 Store, spare parts and loose tools 3,666,020 5,104,241 Trade debts (27,866,073) (87,666,065) Loans and advances 27,374,035 (18,708,401) Shor t term prepayments (74,661) 1,048,798 (18,309,443) (8,897,542) Increase / (decrease) in current liabilities: Accumulating compensated absences 1,783, ,565 Trade and other payables 100,835,924 (26,133,186) 84,310,123 (34,687,163) 807,827, ,764,828 CASH FLOW AFTER WORKING CAPITAL CHANGES Finance cost paid (25,540,915) (5,699,303) Dividend paid (195,010,434) (337,906,441) Workers' profit participation fund (24,264,352) (30,184,990) Workers Welfare Fund (8,907,164) (11,367,396) Taxes paid (184,967,879) (151,686,632) (447,071,614) 83,693,214 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditure incurred (20,991,589) (22,479,517) Decrease / (increase) in long term deposits 200,000 Proceeds from disposal of operating fixed assets 1,802,686 6,673,675 Investment in mutual funds (250,000,000) Net cash used in investing activities (269,188,903) (15,605,842) CASH FLOWS FROM FINANCING ACTIVITIES Decrease in short term borrowings net (54,768,859) Increase in advances from employees 665, ,603 Net cash from /(used in) financing activities Net increase in cash and cash equivalents 665,229 10,839,740 (54,583,256) 13,504,116 Cash and cash equivalents at the beginning of the year 21,378,975 7,874,859 Cash and cash equivalents at the end of the year (18) 32,218,715 21,378,975 The annexed notes from 1 to 35 form an integral par t of these financial statements. (528,463,892) 279,363,414 Chief Executive Director MILLAT EQUIPMENT LIMITED ANNUAL REPORT

19 Statement of Comprehensive Income for the year ended June 30, Rupees Rupees Profit after tax for the year Other comprehensive income Total comprehensive income for the year 426,418, ,418, ,209, ,209,166 The annexed notes from 1 to 35 form an integral par t of these financial statements. Chief Executive Director 18 MILLAT EQUIPMENT LIMITED ANNUAL REPORT 2013

20 Statement of Changes in Equity for the year ended June 30, 2013 Share capital Unappropriated Profit Rupees Total equity Balance as at 01 July ,000, ,960, ,960,186 Dividend for the year ended 30 June 2011 (195,000,000) (195,000,000) Total comprehensive income for the year 317,209, ,209,166 Balance as at 01 July ,000, ,169, ,169,352 Dividend for the year ended 30 June 2012 (260,000,000) (260,000,000) Interim dividend for the year ended 30 June 2013 (Rs. 3 per ordinar y share) (78,000,000) (78,000,000) Total comprehensive income for the year 426,418, ,418,149 Balance as at 30 June ,000, ,587,501 1,065,587,501 The annexed notes from 1 to 35 form an integral par t of these financial statements. Chief Executive Director MILLAT EQUIPMENT LIMITED ANNUAL REPORT

21 Notes to the Financial Statements for the year ended June 30, LEGAL STATUS AND NATURE OF BUSINESS 1.1 Millat Equipment Limited was incorporated as a Private Limited Company under the Companies Ordinance 1984, and was conver ted into unquoted Public Limited Company as on April 20, The registered office of the company is situated in Pakistan at Sheikhupura Road, Lahore. The company aims to be engaged in the business of manufacturing of automotive agricultural and industrial vehicles, parts and components there of. 1.2 The company has purchased the Gear Manufacturing plant from M/s Agco Limited, United Kingdom. The factory is situated at Raiwind Road, Lahore. 2. BASIS OF PREPARATION 2.1 Statement of compliance These financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Repor ting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as are notified under the Companies Ordinance, 1984, provisions of and directives issued under the Companies Ordinance, In case requirements differ, the provisions or directives of the Companies Ordinance, 1984 shall prevail. 3. BASIS OF MEASUREMENT These financial statements have been prepared under the historical cost convention except cer tain financial instruments which are stated at their fair values. 4. SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies which have been adopted in the preparation of financial statements of the Company are as follows: 4.1 New and amended standards and interpretations The Company has adopted the following amendments to IFRSs which became effective for the current year: IAS 1 IAS 12 Presentation of Financial Statements Presentation of items of other comprehensive income (Amendment) Income Taxes Recovery of Underlying Assets (Amendment) The adoption of the above amendments did not have any effect on the financial statements. 4.2 Standards, Interpretations and Amendments to Published Approved Accounting Standards that are not yet effective Effective date (annual periods beginning Standard or Interpretation on or after) IAS 32 Offsetting Financial Assets and Financial liabilities (Amendment) 01 January MILLAT EQUIPMENT LIMITED ANNUAL REPORT 2013

22 IFRS 9 Financial instruments: classification and measurement 01 Januar y 2015 The Company expects that the adoption of the above revisions and amendments of the standards will not affect the Company's financial statements in the period of initial application. In addition to the above, the following new standards have been issued by IASB which are yet to be notified bythesecp for the purpose of applicability in Pakistan: Effective date (annual periods beginning Standard or Interpretation on or after) IFRS 10 Consolidated financial statements 01 Januar y 2013 IFRS 11 Joint Arrangements 01 Januar y 2013 IFRS 12 Disclosureof Interests in other entities 01 Januar y 2013 IFRS 13 Fair Value Measurement 01 Januar y Property, plant and equipment Operating fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses (if any), except freehold land and capital work in progress, which have been stated at cost. Cost includespurchase price and all incidental expenses incurred up to the date of operation. Depreciation on fixed assets is charged to profit on reducing balance method over its estimated useful life so as to write off the historical cost of an asset at the rates specified in note 12. Depreciation on additions is charged from the month in which the assets become available for use, while on disposals depreciation is charged upto themonth of deletion. An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and carr ying amount of the asset) is included in the year the assetis derecognized. Minor renewals, replacements, maintenance, repair and gain or loss on disposal of fixed assets are charged to current year's profit. Major renewals and improvements are capitalized. 4.4 Capitalwork in progress Capital work in progress is stated at cost less identified impairment losses, if any, and includes the expenditures on material, labour and appropriate overheads directly relating to the project. These costs are transferred to fixed assets and when assets are available for intended use. All expenses including borrowing cost will be capitalized at the time of commence of commercial operations of relevant asset of the company. 4.5 Intangibles assets Intangible assets are recognized in the financial statements, if and only if, it is probable that future MILLAT EQUIPMENT LIMITED ANNUAL REPORT

23 economic benefits that are attributable to the assets will flow to the company and cost of assets can be measured reliably. These assets are carried at cost less accumulated amortization. Amortization of intangible assets is charged on straightline basis beginning from the month in which assets were first available for use. 4.6 Borrowing costs Finance cost on long term liabilities which are specifically obtained for the acquisition of qualifying assets i.e. assets that take a substantial period of time to get ready for their intended use, are capitalized up to the date of commissioning of respective assets. All other interest, markup and expenses are charged to income in the period in which they are incurred. Borrowing costs consist of interest / mark up and other costs that thecompany incurs in connection with the borrowing of funds. 4.7 Stores, spares and loose tools These are measured at lower of net realizable value and moving weighted average cost except items in transit which are valued at cost comprising invoice value plus other charges incurred on till balance sheet date. Provision is madefor slow moving and obsolete items. Loose tools areamor tized over their useful life. 4.8 Stock in trade Raw materials are measured at lower of moving average cost and net realizable value. Net realizable value signifies the estimated selling price in the ordinary course of business less costs necessary to be incurred in order to make a sale. Raw material in transit is stated at cost comprising invoice value plus other charges incurred there on till balance sheet date. Work in process and finished goods are measured at lower of cost and net realizable value. Cost comprised of direct materials, labour and appropriate manufacturing overheads. 4.9 Taxation Current: Provision for current taxation is based on taxable income at current tax rates after taking into account applicable taxrebates and credits. Deferred: Deferred tax is accounted for using liability method on all temporary differences between the taxbase of assets and liabilities and their respective carrying amounts for the purpose of financial repor ting at the repor ting date. Deferred tax liabilities are recognized for all taxable temporary differences while defer red tax assets are recognized to the extent that that it is probable that taxable profit will be available against which the deductible temporary differences, unused tax losses and tax credits can be utilized. Carr ying amount of deferredtax asset is reviewedat each balance sheet date andreducedtothe extent that it is no longer probable that therelated tax benefit will be realized. Deferred taxis calculated at the rates that are expected to be applied to the period when the differences reverse, based on tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the income statement, except where deferred tax arises on the items credited or charged to equity in which caseit is included in equity. 22 MILLAT EQUIPMENT LIMITED ANNUAL REPORT 2013

24 4.10 Sales tax Expenses and assets are recognised net of the amount of sales tax, except: When receivables and payables are stated with the amount including the sales tax; When the sales tax incurred on a purchase of assets or ser vices is not recoverable from the taxation authority, in that case the sales tax is recognised as par t of the cost of acquisition of the asset or as part of the expense item, as applicable; The net amount of sales tax recoverable from, or payable to, the taxation authority is included as par t of receivablesor payables in the balance sheet Cash and cash equivalents For the purpose of cash flow statement, cash and cash equivalents consist of cash in hand, postage stamps, cheques / demand drafts in hand and deposits in banks Foreign currency translation All monetary assets and liabilities in foreign currency are translated at the rates of exchange prevailing on the balance sheet date. Nonmonetar y assets and liabilities that are measured in terms of historical cost in foreign currency are translated into rupees at exchange rates prevailing at the date of transaction. Nonmonetary assets and liabilities denominated in foreign currency that are stated at fair value are translated into r upees at exchange rates prevailing at the date when fair values are deter mined. Transactions in foreign currencies are conver ted into Pak rupees at exchange rates prevailing on the date of transaction. All exchange gains/losses are taken to profit and loss account currently Investments at fair value through profit or loss Investments classified as heldfortrading and those designated as such are included in this category. Investments are classified as heldfortrading if these are acquired for the purpose of selling in the shor t term. Gains or losses on investments heldfortrading arerecognized in profit and loss account Financial instruments initial recognition and subsequent measurement Initial recognition and measurement All financial assets are recognised initially at fair value plus transaction costs, except in the case of financial assetsrecorded at fair value through profit or loss. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, net of directly attributable transaction costs. Financial assets and liabilities are recognized at fair value of the time when the company becomes a party to thecontractual provisions of the instr ument by following trade date accounting. Subsequent measurement The subsequent measurement of financial assets / liabilities at fair value through profit or loss is described below: Financial assets / liabilities at fair value through profit or loss include financial assets / liabilities held for trading and financial assets designated upon initial recognition at fair value through profit or loss. MILLAT EQUIPMENT LIMITED ANNUAL REPORT

25 Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in thenear term. Derecognition A financial asset or par t thereof is derecognized when the company loses control of the contractual rights that comprise the financial assets or par t thereof. Such control is deemed to be lost if the company realizes the rights to benefits specified in the contracts, the rights expire or the company surrenders those rights. A financial liability or par t thereof is removed from the balance sheet when it is extinguished i.e. when the obligation specified in the contract isdischarged, cancelled or expires. Any gain or loss on subsequent measurement and derecognition is charged to income Offsetting financialassetsand financial liabilities Financial assets and financial liabilities are offset and the net amount is repor ted in the balance sheet if thecompany has legally enforceable right to setoff therecognized amounts and the company intends to settle either on a net basis or realize the assets and settle liabilities simultaneously Employees retirement benefits Provident fund scheme: The Company operates a funded provident fund scheme for its permanent employees eligible under the Employees Provident Fund Rules of the company. The employees and Company make equal monthly contributions at the rateof ten percent of basic salary. Accumulating compensated leave absences: Provision for compensated absences is made to the extent of value of accumulate accrued leaves/leave fare assistance of the employee at the balance sheet date as per entitlement on the basis of relevant period salary Revenue recognition The revenue from sales of goods is recognized on dispatch of goods to customers while profit on bank deposits is recognized on effective interest method. Gain /loss on disposal of fixed assets is chargedto profit andloss account Trade debts These are initially carried at original invoice amount, which is the fair value of consideration to be received in future and subsequently measure at amor tized cost less impairment loss, if any. A provision for impairment of trade debts is established when there is objective evidence that the company will not be able to collect all amounts due according to the original terms of receivable Provision Provision are recognized in the balance sheet where the company has present legal or constructive obligations a result of past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and reliable estimate of the amount of the obligation can be made. Provision are reviewed at each balance sheet date and adjusted to reflect current best estimate Impairment The carrying amounts of the company's assets are reviewed at each balance sheet date to determine 24 MILLAT EQUIPMENT LIMITED ANNUAL REPORT 2013

26 whether there is an indication of impairment. If any such indication exist, the assets, recoverable amount is estimated and impairment lossesare recognized in the profit and loss currently Trade and other payables Trade and other payables are initially carried at fair value and subsequently at amortized cost using effective interest rate method Loansand borrowings After initial recognition, interest bearing loans and borrowings are subsequently measured at amor tized cost using the effective interest rate method. Amor tized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integralpart of the effective interest rate Critical accounting estimates and judgments The preparation of financial statements in confor mity with approved accounting standards requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amount of assets and liabilities, income and expenses. The estimates and associated assumption and judgments are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the result of which form the basis of making the judgment about carrying values of assets and liabilities that are not ready apparent from other sources. Actual resultsmay differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimates is recognized in the periods if the revision affects both current and future periods. The areas where various assumptions and estimates are significant to the Company's financial statements or where judgments wereexercised in application of accounting policies areas follows: Depreciation (Note: 4.3) Inventories (Note: 4.8) Taxation (Note: 4.9) Provision for doubtful debts (Note: 4.18) Provision (Note: 4.19) Impairment (Note: 4.20) MILLAT EQUIPMENT LIMITED ANNUAL REPORT

27 5. LONG TERM ADVANCES These represent the amounts received from the employees of the company against future sale of vehicle as per the company policy. Note 2013 Rupees 2012 Rupees 6. DEFERRED TAX LIABILITY Accelerated tax depreciation 84,686,368 90,015,414 Accumulating compensated absences (2,693,864) (2,192,289) 81,992,504 87,823, ACCUMULATING COMPENSATED ABSENCES Opening balance 6,233,171 6,576,736 Provision for the year 2,088,622 1,509,105 8,665,358 7,742,276 Less: Payments made during the year (304,980) (1,165,540) 8,360,378 6,576, TRADE AND OTHER PAYABLES Creditors (8.1) 280,745, ,753,361 Accr ued and other liabilities 20,854,734 15,604,872 Advances from customers (8.2) 3,245,638 1,167,533 Security deposit from customers (8.3) 1,422, ,360 Withholding tax 499,043 70,169 Retention money payable 168, ,231 Unclaimed dividends 562, ,397 Workers profit participation fund (8.4) 33,752,394 24,264,352 Workers' welfare fund (8.5) 12,545,415 8,907, ,367, ,567, Creditors include amount due to related parties Rs. 6,853,327 (2012: Rs. 14,150,947). This represent advance against sale of scrap. This represent security deposits from customers against scrap sales which, by virtue of agreement, are interest free, repayable on completion of contract and are used in Company's business. 26 MILLAT EQUIPMENT LIMITED ANNUAL REPORT 2013

28 Rupees Rupees 8.4 Workers profit participation fund Opening balance 24,264,352 30,184,990 Allocation for the year 33,752,394 24,264,352 58,016,746 54,449,342 Less: Payment made during the year (24,264,352) (30,184,990) 33,752,394 24,264, Workers' welfare fund Opening balance 8,907,164 11,470,296 Allocation for the year 12,545,415 8,907,164 Less: 21,452,579 20,377,460 Payment made during the year 8,907,164 11,367,396 Liability written back 102,900 12,545,415 8,907, MARKUP ACCRUED ON SECURED LOANS This represents amount payable to banking companies on short term borrowings. As on the balance sheet date the Company has unavailedshort term borrowing facilities from UBL, HBLand MCB against aggregated sanctionedlimit of Rs. 700 million (2012: Rs. 700 million). The rate of markuprange from 1 month offer rate of KIBORplus 40 Bps (for UBL andmcb)toaverage of 1 month offerrate of KIBOR plus 45 Bps (for HBL). (2012: 1 month offer rate of KIBOR plus 40 Bps to average of 1 month offer rate of KIBOR plus 50 Bps). The Company also has the facilities for opening of letters of credit and guarantees aggregating to Rs.550 million (2012: Rs. 550 million) out of which Rs. 550 million (2012: Rs million) remained unutilized at the end of the year. These above facilities are secured by way of pari passu hypothecation charge over current assets of the company and lien over import documents. 10. CONTINGENCIES AND COMMITMENTS Contingencies Guarantees issued by the banks on behalf of the company in the normal course of business amount to Rs. 6,633,100 (2012: Rs. 6,633,100). Commitments Commitments in respect of outstanding letters of credit amount to Rs. 57,316,787 (2012: Rs. 38,631,275) Rupees Rupees 11. PROPERTY, PLANT AND EQUIPMENT Operating fixed assets (11.1) 516,437, ,330,846 Capital work in progress plant and machinery (11.2) 6,044,801 12,050,786 Note 522,482, ,381,632 MILLAT EQUIPMENT LIMITED ANNUAL REPORT

29 11.1 Operating fixed assets DESCRIPTION BA LANCE AS AT 30 J UNE 2012 Cost Accumulated Depreciation Net Book Value MOVEMENT DURING THE YEAR BA LANCE AS AT 30 JUNE 2013 Additions Disposal Cost/ (Accumulated depreciation) Depreciation Char ge Cost Accumulated Depreciation NetBook Value ( Rupees) RATE % Freehold land Building on freehold land 87,109, ,247,763 33,721,181 87,109,570 96,526,582 1,889,090 4,850,388 87,109, ,136,853 38,571,569 87,109,570 93,565,284 5 Plant and machinery 490,374, ,424, ,949,649 12,441,982 30,123, ,816, ,548, ,267, El ectricequipment & Instal lation Office Equipment Tool sandequi pments Fur niture,fixtures and equi pment Fire Fighting Equipments Vehi cles Communication Equipments 55,683,939 93,813 23,328,877 20,695, ,250 22,756,099 1,195,689 38,541,849 75,259 13,249,253 8,631, ,358 7,291, ,837 17,142,090 18,554 10,079,624 12,063, ,892 15,465, ,852 2,317, ,825 8,506,000 3,426,864 (1,734,552) 3,634,127 3,711 1,511,944 1,217,221 30,089 3,767,644 75,370 58,001,085 93,813 23,328,877 21,126, ,250 27,835,235 1,195,689 42,175,976 78,970 14,761,197 9,848, ,447 9,324, ,207 15,825,109 14,843 8,567,680 11,277, ,803 18,511, , C omputers : 6,028, ,961,164 3,730, ,630,318 2,298, ,330,846 1,412,531 26,997,574 3,426,864 (1,734,552) 984,576 46,198,807 7,441, ,531,874 4,715, ,094,573 2,725, ,437, DESCRIPTION Cost Accumulated Depreciation Net Book Value MOVEMENT DURING THE YEAR BA LANCE BA LANCE AS AT AS30 ATJ 30 UNE JUNE Additions Disposal Cost/ (Accumulated depreciation) Depreciation Char ge Cost Accumulated Depreciation NetBook Value ( Rupees) RATE % Freehold land Building on freehold land Plant and machinery El ectricequipment & Instal lation Office Equipment Tool sandequi pments Fur niture,fixtures and equi pment Fire Fighting Equipments Vehi cles Communication Equipments 87,109, ,247, ,306,471 53,014,722 93,813 23,213,989 20,559, ,250 22,140,689 1,257,347 28,640, ,494,476 34,625,381 70,621 11,482,322 7,303, ,925 6,304, ,769 87,109, ,606, ,811,995 18,389,341 23,192 11,731,667 13,255, ,325 15,836, ,578 10,104,137 2,669, , ,680 6,326,500 7,036,568 (1,242,208) 5,711,090 (1,994,433) 61,658 5,080,346 32,172,123 3,916,468 4,638 1,766,931 1,327,706 33,433 2,981,005 91,656 87,109, ,247, ,374,040 55,683,939 93,813 23,328,877 20,695, ,250 22,756,099 1,195,689 33,721, ,424,391 38,541,849 75,259 13,249,253 8,631, ,358 7,291, ,837 87,109,570 96,526, ,949,649 17,142,090 18,554 10,079,624 12,063, ,892 15,465, , C omputers : 6,513, ,904,533 4,387, ,182,025 2,125, ,722,508 1,370,205 20,720,627 (32,588) 1,854,680 (1,623,315) 14,663,996 (4,892,544) 966,531 48,340,837 6,028, ,961,164 3,730, ,630,318 2,298, ,330, MILLAT EQUIPMENT LIMITED ANNUAL REPORT 2013

30 Note Rupees Rupees The depreciation charge for the year has been allocated as follows: Cost of sales (20) 40,150,285 42,969,301 Administrative expenses (22) 6,048,522 5,371,536 46,198,807 48,340, Capital work in progress Movement in plant and machinery is as follows: Opening balance 12,050,786 10,291,896 Additions during the year 2,693,420 1,925,730 Capitalized during the year (8,699,405) (166,840) 6,044,801 12,050, INTANGIBLES ASSETS Opening balances 70,842 47,464 Less: Amortization charge for the year (20) 15,663 23,378 31,801 47, Intangible assets represent computer softwares being used by the company. 13. STORES, SPARES & LOOSE TOOLS Stores 147,947, ,728,251 Spares 4,053,010 4,399,525 Loose tools including gauges 22,333,426 18,126, ,461, ,127, STOCK IN TRADE Raw material (14.1) 143,064, ,650,229 Work in process (14.2) 119,633, ,145,371 Finished goods 78,674,597 60,298, ,996, ,470, This includes stock in transit amounting to Rs. Nil (2012: Rs. 13,212,516). This includes workin process amounting to Rs. 45,899,000(2012: Rs. 49,617,122) held with third parties. MILLAT EQUIPMENT LIMITED ANNUAL REPORT

31 Note Rupees Rupees 15. TRADE DEBTS Considered Good Secured (against letters of credit) 34,213,287 Unsecured (15.1) 200,323, ,870, These are unsecured and considered good by the management and include an amount of Rs. 200,238,289 (2012: Rs. 146,784,975) receivable from an associated undertaking. 234,536, ,870, LOANS AND ADVANCES Advances to suppliers considered good 4,915,788 5,920,553 Advances to executives considered good against salary 208, ,339 against expenses 316, ,660 Letter of credits 11,508,435 31,340,182 36,781,388 18,072, SHORT TERM INVESTMENTS Held for Trading No of Units MCB Cash Management Optimizer 692,861 70,000,000 ABL Cash Fund 7,998,400 80,000,000 HBL Money Market Fund 987, ,000,000 Total Cost 9,678, ,000,000 Unrealised gain on re measurement 45,591 9,678, ,045, CASH AND BANK BALANCES Cash in hand 48,764 24,839 Cash at banks: Current accounts 3,840,616 18,346,284 Dividend account 564, ,335 Saving account (18.1) 27,788,884 2,223,592 32,193,876 32,218,715 21,330,211 21,378, Rate of retur n on saving account ranges from 6% to 8.2% (2012: 6% to 7%). 30 MILLAT EQUIPMENT LIMITED ANNUAL REPORT 2013

32 Note Rupees Rupees 19. SALES net Sales local 2,318,058,648 Sales export 149,444,919 2,903,586,930 98,704,899 3,002,291,829 2,467,503,567 Less: sales tax (402,115,115) (319,732,227) 2,600,176,714 2,147,771, COST OF SALES Raw material consumed 1,220,898,681 1,025,010,732 Salaries, wages and amenities (20.1) 224,771, ,233,395 Fuel and power 120,321, ,817,880 Stores, spares and loose tools 83,503,917 80,527,492 Oil and lubricants 32,682,782 38,163,154 Repair and maintenance 54,471,143 54,817,443 Depreciation (11.1.1) 40,150,285 42,969,301 Amortization (12) 15,663 23,378 Insurance 4,484,655 4,400,187 Packing material consumed 4,134,031 8,129,009 Travelling and conveyance 4,969,799 3,852,604 Other direct expenses 9,603,672 9,032,623 1,831,419,545 1,566,565,293 Work in process Opening inventory 161,145, ,484,247 Closing inventory (119,633,318) (161,145,371) 41,512,053 62,338,876 Finished goods Opening inventory 78,674,597 49,098,317 Closing inventory (60,298,385) (78,674,597) 18,376,212 1,891,307,810 (29,576,280) 1,599,327, This includes an amount of Rs. 2,203,019 (2012: Rs. 1,897,336) in respect of contribution towards provident fund. MILLAT EQUIPMENT LIMITED ANNUAL REPORT

33 Note Rupees Rupees 21. DISTRIBUTION COST Carriage and freight 5,995,363 5,392,469 Insurance 162,603 79,992 Advertisement 132, ,022 6,375,377 5,687, ADMINISTRATIVE EXPENSES Salaries and amenities (22.1) 30,787,026 23,579,134 Rent, rates and taxes 342, ,492 Fee and subscription 245, ,849 Enter tainment 290, ,821 News papers, periodicals and couriers 197, ,660 Fuel and power 1,582,760 1,760,690 Communication 929, ,594 Traveling and conveyance 1,685,681 1,430,357 Printing, stationery and office supplies 765, ,504 Insurance 810, ,334 Repair and maintenance 670,679 1,951,621 Legal and professional 735,500 1,079,800 Auditors' remuneration 460, ,000 Depreciation (11.1.1) 6,048,522 5,371,536 Others 124, ,189 46,017,101 39,181, This includes an amount of Rs. 689,823 (2012: Rs. 822,894) in respect of contribution towards provident fund. 23. OTHER EXPENSES Workers' profit participation fund 33,752,394 24,264,352 Workers' welfare fund 12,545,415 8,907,164 Net realizable value adjustment of stores 2,305,091 Loss on disposal of operating fixed assets 792,686 46,297,809 36,269, FINANCE COST Markup on shor t ter m borrowings secured 1,783,831 25,040,318 Bank charges and commission 626,973 1,160,057 2,410,804 26,200, MILLAT EQUIPMENT LIMITED ANNUAL REPORT 2013