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GlaxoSmithKline Pakistan Limited


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JP Garnier Sir Christopher Gent


Chief Executive Officer Chairman
GlaxoSmithKline plc. GlaxoSmithKline plc.
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Contents
Mission 1
Our Vision 2
Corporate Information 3
Highlights of the Year 4
GlaxoSmithKline Overview 6
Our Products 8
Notice of Annual General Meeting 14
Financial Performance at a Glance 16
Statement of Value Added 17
Key Operating and Financial Data 18
Directors’ Report to Shareholders 22
Chairman / Chief Executive’s Review 26
Statement of Compliance with the
Code of Corporate Governance 30
Review Report to the members on Statement of
Compliance - Corporate Governance 32
Auditors’ Report to the Members 33
Balance Sheet 34
Profit and Loss Account 36
Cash Flow Statement 37
Statement of Changes in Equity 38
Notes to the Financial Statements 39
Shareholding - Pattern, Categories and Information 65
Contact Details 68
Proxy Form
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Mission

Our quest is to improve


the quality of human life
by enabling people to

do more
feel betterand
live longer

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Our
Vision GlaxoSmithKline’s vision is exciting –
the opportunity to make a difference
to the lives of billions of people.

Our value system and operating principles provide the necessary


guidance on how we work at GlaxoSmithKline.

The key to our success is our desire and passion to pursue


GlaxoSmithKline’s priorities – expressed by our business drivers.

We are aware that the work we do improves quality of people’s


life. We take pride in this and in our commitment to produce
products that benefit patients.

Our success in meeting this challenge depends on people at


GlaxoSmithKline. Doing their jobs with commitment to this
vision, enthusiasm for and alignment with GlaxoSmithKline’s
priorities, and an unmatched sense of urgency.

While new medicines and products may originate in our


international laboratories, bringing those medicines and products
to patients require the combined efforts of everyone else in the
Company. Our manufacturing staff for example, turns chemicals
into medicines that can be used easily and effectively, while our
marketing and sales staff introduces those products to doctors
for the benefit of their patients. All of us have a responsibility to
engage in this quest and to successfully deliver our promise.

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Corporate Board of Directors


Mr. M. Salman Burney Chairman / Chief Executive
Information Mr. Tariq Iqbal Khan
Mr. Rafique Dawood
Non-Executive Director
Non-Executive Director
Mr. S. Masood Abbas Jaffery Non-Executive Director
Mr. Shahid Mustafa Qureshi Legal and Corporate Affairs Director
Mr. Ghulam Mustafa Aziz Finance and Information Technology Director
Dr. Muzaffar Iqbal Technical Director

Audit Committee
Mr. Rafique Dawood Chairman
Mr. Tariq Iqbal Khan Member
Mr. M. Salman Burney Member

Management Committee
Mr. M. Salman Burney Chairman / Chief Executive
Dr. Muzaffar Iqbal Technical Director
Mr. Ghulam Mustafa Aziz Finance and Information Technology Director
Mr. Shahid Mustafa Qureshi Legal and Corporate Affairs Director
Dr. Iffat Yazdani Director Medical Services
Ms. Talat Naseer Director Human Resources & O.D.
Dr. Z. U. Khan Head of Quality
Haji Muhammad Hanif Head of Procurement
Ms. Naila Hasan Marketing Director
Ms. Erum S. Rahim Business Development Director
Mr. Pervaiz Iqbal Awan Sales Director
Mr. Maqbool ur Rehman Sales Director
Mr. Javed Y. Ahmedjee Financial Controller

Company Secretary Auditors


Mr. Shahid Mustafa Qureshi A.F. Ferguson & Co. ,
Chartered Accountants
Chief Financial Officer
Mr. Ghulam Mustafa Aziz Legal Advisors
Rizvi, Isa, Afridi & Angell
Bankers Mandviwalla & Zafar
ABN Amro Bank NV Orr, Dignam & Co.
Citibank NA Surridge & Beecheno
Habib Bank Limited Vellani & Vellani
Standard Chartered Bank
The HongKong and Shanghai
Banking Corporation Limited

Registered Office
35 – Dockyard Road, West Wharf, Karachi – 74000.
Telephones: 2315478-82, 2316071-73 & 2315101-08
Fax: 2314898 & 2311122

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Highlights of the Year


GSK’s Global Business Strategy Operational Excellence Research and
• To build the best product pipeline in the industry 2006 saw a number of Development
• To achieve commercial and operational excellence Operational Excellence (OE)
• To improve access to medicines for those who cannot initiatives which materialized to Number of R&D Trials
afford them. give leaner processes, and conducted
• To make GSK the best place for the best people to do improved work standards. This 19 - Phase II & Phase III
their best work. in turn boosted cost savings and Clinical Trials
• To contribute to investment in communities around optimization of resources. Therapy Areas Covered
the world. Leading edge programs were
• To ensure our business decisions take into consideration revisited to compliment OE and under Clinical Trials
ethical, social and environmental concerns. revive the spirit of GSK. Metabolic
Oncology
Cardiology
Best Place, Best People, Best Work EHS Haemotology
This year our recruitment team conducted career counselling • F-268, West Wharf and Landhi Neurosciences
sessions for over 3,000 students, in 22 universities across sites achieved 1 million hours Psychiatry
20 cities of Pakistan. These sessions also enable us to without Lost Time • Dr Iffat Yazdani won the
generate a good pipeline for our organization. injury/illness qualifying for International Finalist Award
We continued with our blended learning plan offering the EHS Milestone 2006 at the Excellence
courses on general management, leadership and technical Certificate Exchange competition at the
expertise . Some of these plans were: 2006 Medical Directors
• Leadership Essentials Logos - Graphical representation • West Wharf site received a
Special Commendation in the Meeting.
of the 8 Leadership essentials which represent the spirit
of GSK. EHS Initiative- Environment • Dr. Jawad Gill won the award
• 2 Learning Fairs conducted - two weeks each of training category for its submission for the best trainer for clinical
and development for all employees across the board. titled "Lighten up by research.
Recycling" in the 2006 CEO's GSK Pakistan is currently running
• From ‘I’ to ‘Us’ - an in house Team Building workshop.
EHS Excellence Award the largest Oncology portfolio
• Health Expo - awareness sessions for the GSK employees Programme.
regarding specific products and their respective of R&D trial and Pakistan has
therapeutic areas. • GSK Pakistan received a shield been declared as Oncology Hub.
• Leadership Impact - a workshop for the development in the Employers' Federation
of the first line managers. of Pakistan Excellence
Key Learning Statistics Award in the Best Practices
No of courses conducted during the year 191 - Occupational Safety & Internal Audit and
Average number of participants per course 26 Health Category for the year Compliance HHHHH
Learning hours per employee 69 2004-5.
A full scope audit conducted
by Group Internal Audit (GIA)
of the Commercial Operations
Quality of GSK Pakistan, in which GSK
• IMS (Laboratory Information Management system) successfully implemented. Pakistan achieved a 5 Star rating
• Launch of QMS in GMS and Commercial. which is the highest achievable
• Quality Council launched in GMS and Commercial. in a GIA audit. This is a result
• Satisfactory GQA Audits of West Wharf and Landhi Sites. of the team work put in by all
• Satisfactory regulatory/GMP inspections of West Wharf and F-268 Sites. in the organization where the
• Vision factory projects implemented in Quality. focus has always been on
• Suppliers Forum and Distributors Forum to support Procurement and Commercial. “Performance with Integrity”.

Sales and Marketing excellence


• According to the Medical Representatives Satisfaction Survey conducted by IMS in Pakistan in June 2006, GlaxoSmithKline Pakistan
Limited was rated highest across the entire industry in all attributes according to specialists and also achieved highest overall results in
the GP category for the second consecutive year.
• Key brands achieved good growth as high as 91% for Havrix, 83% for Mencevax, 51% for Priorix, 28% for Varilrix, 26% for Fluarix,
25% for Calpol, 25% for Zovirax, 10% for Augmentin and 8% for Panadol.
• During the year 2 new products, antibiotic injections for IV infusion and skin infection, were launched.

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Financial Highlights

Rs10.1 Net Sales


bn
7.1% growth over 2005
Rs 5.5
Sales per Employee
7.8% Growth over 2005
m

Rs 2.6 bn
Profit Before Tax
decrease by 2.3% over 2005
Rs 966.9
Corporate Tax Charges
increase by 9.8% over 2005
m

Rs 1.7 bn
Profit After Tax
decrease by 8.2% over 2005
Rs 12.2
Earnings per Share (basic and diluted)
decrease by 8.2% over 2005

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GlaxoSmithKline Overview
History and Development Strategy and Business Drivers
GlaxoSmithKline (GSK) plc, and its subsidiary and associated GlaxoSmithKline’s business goal is to become the indisputable
undertakings, constitute a major global healthcare group leader globally in the pharmaceutical industry. Achieving
engaged in the creation and discovery, development, this goal will require meeting the three key challenges that
manufacture and marketing of pharmaceutical and face both the industry and the society as a whole:
consumer health-related products. GlaxoSmithKline has
Improving productivity in research and development
its corporate head office in London and also has operational
headquarters in Philadelphia and Research Triangle Park, Ensuring patients access to new medicines
USA, and operations in some 116 countries, with products Reaching consumers beyond the traditional healthcare
sold over 130 countries. It plays leadership role in four professional
major therapeautic areas – antibiotics, central nervous
system (CNS), respiratory and gastro-intestinal/metabolic. The strategies to meet these challenges focus on several
In addition, GlaxoSmithKline contributes to the important business drivers:
area of vaccines and also has a growing portfolio of
oncology products. Build the best product pipeline in the industry
GlaxoSmithKline is aiming to create the most productive
History of GlaxoSmithKline Pakistan Limited: discovery pipeline in the industry for the benefits of patients,
consumers and society. This includes developing a focused
Founded: portfolio strategy to support the pipeline and manage the
full life cycle of compounds from launch through to over-
1947 Glaxo operations organised in Pakistan at independence
the-counter products. This strategy includes selective in-
1949 SK&F came to Pakistan under the name of Pharmaco licensing and efficient execution of development,
Limited. commercialization and the supply chain process.
1952 Glaxo became public limited.
GSK’s R&D organization measures productivity by the
1954 Beecham incorporated in Pakistan.
number and innovation of the products it creates and also
1955 Glaxo established manufacturing facilities in Pakistan. by the commercial value and their ability to address the
1955 Wellcome incorporated in Pakistan. unmet needs of all consumers. This includes patients,
1956 Wellcome established manufacturing facilities in Pakistan healthcare professionals, budget holders and regulators,
each with their own perspective on what constitutes a
1979 Wellcome Pakistan became public limited
valuable new product.
1996 Glaxo and Wellcome merged to become Glaxo Wellcome
2002 Glaxo Wellcome, Beecham and SK&F integrated as a Achieve commercial and operational excellence
result of global merger to form GlaxoSmithKline Pakistan. GlaxoSmithKline links research and commercial operations
closely in order to maximize the value of the portfolio.
GSK operates in an increasingly global environment where
Business Segments scale offers significant advantages. The Group leverages
GlaxoSmithKline operates principally in two industry that scale by building interdependent businesses that
segments: share successful practices across business boundaries and
geographic borders. Common approaches to management
Pharmaceuticals (prescription pharmaceuticals and processes and business functions are used by an
vaccines) internationally diverse and talented management team
Consumer Healthcare (over-the-counter medicines, oral in order to create and sustain competitive advantage in
care and nutritional healthcare) all markets.

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GlaxoSmithKline undertakes a range of activities to sites. Converting active compounds into a finished dosage
maximize the commercial potential of its intellectual formulation is the responsibility of the secondary
property, by introducing products into as many markets manufacturing sites.
as possible, accelerating the process of bringing new
products to market, increasing brand recognition and By adopting leading edge practices and developing its
ensuring that patients have access to new medicines. people GMS expects to derive benefits from:
Both the pharmaceutical and consumer healthcare a secure source of supply of high quality products
businesses focus on ways to improve existing performance
compliance with regulatory requirements and customer
through commercial and operational excellence
expectations
initiatives.
best in class cost
Improve access to medicines
GSK continues to seek new ways of improving access to Marketing and Distribution
its medicines for people who need them, but are least GlaxoSmithKline sells its prescription medicines through
able to obtain them. It has created extensive programmes distributors, primarily to pharmacists, hospitals, government
designed to improve the healthcare of people who have entities and other institutions. These products are prescribed
limited access to medicines. It is working to provide by doctors, and dispensed to patients by pharmacies or
meaningful access to medicines for people with limited used in a hospital environment.
financial resources.
GlaxoSmithKline sales team provides value to healthcare
Be the best place for the best people to do professionals. Well organized training is provided aimed
their best work at raising the standards of representatives’ knowledge
The single greatest source of competitive advantage of about diseases and the role of GlaxoSmithKline
any organization is its people. GlaxoSmithKline’s ambition medicines in treating them.
is to be the place where great people apply their energy
and passion to make a difference in the world. Their skills Value in health care can only be achieved with
and intellect are key components in the successful appropriate treatment being administered to maximum
implementation of GSK’s strategy. The work environment number of patients.
supports an informed, empowered and resilient workforce,
in which the Group values and draws on the diverse GlaxoSmithKline’s marketing initiatives aim to remain
knowledge, perspectives and experience and styles of the leader of new medicines from cost of treatments, proper
global community. diagnosis and knowledge about diseases and prospective
options with effective and ethical marketing initiative.
Global Manufacturing and Supply (GMS)
GlaxoSmithKline manufacturers large portfolio of products,
ranging from tablets and toothpaste to inhalers and
complex capsules, in different pack sizes and presentations.
Manufacture of medicines begins with the development
of a therapeutic active ingredient (bulk active) in a selected
formulation. Global Manufacturing and Supply (GMS)
develops manufacturing processes for full scale volume
production of active compounds at primary manufacturing

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Our
GlaxoSmithKline discovers, develops,
Products manufactures and markets pharmaceuticals,
vaccines, over-the-counter medicines and health-
related consumer products.

Our broad pharmaceutical product line includes


antibiotic, antidepressant, gastrointestinal,
dermatological, respiratory, cancer and
cardiovascular medications. We are the world
leader in anti-infectives, CNS, respiratory and
alimentary and metabolic - four of the five
largest therapeutic areas worldwide.

The company also enjoys a leading position in


vaccines and treats diseases including hepatitis
A and B, diphtheria, tetanus, and influenza.
GSK Consumer Healthcare focuses on over-the-
counter medicines, oral care (GSK is a leader
in oral care in Western Europe), and nutritional
drinks, with products in such therapeutic areas
as smoking cessation/respiratory health, bacterial
and viral infections, gastrointestinal,
dermatologicals, vitamins and naturals, and
analgesia.

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Antibiotics Tagamet Uniplex Polyfax


Augmentin Dyspamet Wellcosine Cicatrin
Amoxil Marzine Lotrix
Ampiclox Maxolon Calcium Pilzcin
Ceporex Phillips Milk of Magnesia Supplement Furacin
Septran Stelabid Chewcal Silvate
Penbritin ENO
Zinacef Anticoagulants Cardio-vasculars
Fortum Central Nervous Fraxiparine Lanoxin
Floxy System
Angised
Orbenin Seroxat Anthelmintics
Wellcodox Imigran Zentel
Syraprim Requip Nemazole Anti-malarials
Timentin Lamictal Halfan
Floxapen Kemadrin Anti-virals
Migril Zeffix Anti-diarrhoeals
Analgesics Stelazine Valtrex Dependal-M
Panadol Zovirax Furoxone
Calpol Vaccines Hepsera
Dicofen Engerix-B Anaesthesia
Empirin Compound Havrix Systemic Steroids Tracrium
Iodex Infanrix Betnesol
Tritanrix-HB Betnelan Oncology
Respiratory Fluarix Hycamtin
Seretide Hiberix Eye/Ear Zofran
Ventide Typherix Cortisporin
Ventolin Varilrix Polyfax Other Products
Flixonase Priorix Betnesol Zyloric
Flixotide Mencevax ACWY Otosporin Imuran
Beconase Lidosporin
Thyroxine
Serevent Haematinics &
Relifex
Becotide Vitamins Cough/Cold
Amphyll Fefol Actifed-P
Fefol-Vit Piriton Oral Care
Diuretic Fesovit-Z Actidil Aquafresh
Dyazide Revitale-B Macleans
Revitale Multi Dermatologicals Sensodyne
Gastro- intestinal & Starvits Cutivate
Metabolic Cytacon Betnovate Nutritional
Avandia Cytexin Dermovate Healthcare
Zantac Cytamen Bactroban Horlicks

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2006 was the landmark year for GSK Pakistan


as the Company achieved Rs. 10 billion sales

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GlaxoSmithKline at Work
A conducive, learning and friendly GSK is a company which values talent,
environment is what GSK has to diversity and ambition. Every day
offer! Two thumbs up for the brings with it new challenges &
training and development efforts put newer opportunities for growth and
by GSK! Batool learning. At the end of the day you
are left with an exhilarating sense of
achievement with a tomorrow promising
so much more. Arif Tahir

GSK recognises the influence and


capabilities of women as equal An amazing place to work, with a
employees with an ongoing very cordial and challenging
commitment towards the development environment. No wonder why it is
of women leaders in the company. GSK easy for newcomers to adapt
provides challenges and opportunities themselves at GSK. Fatima
for all who aspire to lead. Natasha

If you want to excel, you will get the


A respectful environment where opportunity to shine! GlaxoSmithKline
employees respect and value each is all about the people. It’s about giving
other as individuals. every employee the opportunity to “do
Amir Ather more, feel better and live longer”!
Maria

GSK as a workplace is exciting, challenging An equal employer in a true sense where


and demanding. Dynamism and gender is not considered in assigning
innovation characterize the ethos of jobs, targets and in measuring
this enterprise. Each day, it urges you performances. Competitive and a
to bring the best out of you, but above congenial work environment where
all the hallmark of the entire experience you can perform with utmost passion
is that it is incredible FUN! Dr. Khawar and deliver best results. Obaid

The organization does not discriminate


on the grounds of gender, ethnicity
Great working environment,
or religious sectors; these practices
new challenges everyday.
make what GSK is today!
M Saadi
GSK is like the olympics; passion,
challenge, fervor and the perfect place
to learn, grow and perform. Shifa

GSK is an equal opportunity employer


At the heart of my definition of a great
focus very closely on creating a
place to work, GSK simply qualifies
framework that is conducive to
– I believe it’s a place where employees
optimum performance and utilization
“trust the people they work for, have
of skills. GSK as a workplace is very
pride in what they do, and enjoy the
supportive with a keen eye on
people they work with”. Kiran
professional development and personal
growth, feel honoured to be a part of
GSK family. Ayesha

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Business
Ethics and
Integrity High standards of honesty and integrity are vital to the success of
our business. “Performance with integrity” is the principle by
which we aim to live and work at GlaxoSmithKline.

Our Code of Conduct lays out the principles that we value and
that employees should apply in their daily work. It is the responsibility
of every employee to implement the Code and Company policies.

Each Employee of GlaxoSmithKline has a


responsibility to:
Conduct Company business with honesty, integrity and in a
professional manner.

Understand and comply with the legal requirements and internal


policies and procedures that apply to the duties assigned to
the employee.

Avoid any activities that could involve or lead to involvement


in any unlawful practice.

Avoid actual or potential conflicts of interest in transactions


on behalf of the Company.

Provide accurate and reliable information to records submitted


and safeguard the confidential information of the Company.

Promptly report to the Company any violations of law or ethical


principles of the Company or Group policies that come to the
employees’ attention.

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Notice of Annual General Meeting


Notice is hereby given that the SIXTIETH Annual General Meeting of the Shareholders of the Company will be held
at Beach Luxury Hotel, Karachi at 12:00 noon on Thursday, March 29, 2007 to transact the following business:

1. (a) To receive and adopt the Report of the Directors and the Accounts for the year ended December 31,
2006 and the Auditors' Report thereon;

(b) to approve the payment of a dividend.

2. To appoint Auditors and fix their remuneration.

By Order of the Board

Karachi Shahid Mustafa Qureshi


March 7, 2007 Director / Secretary

Notes:

1. The Share Transfer Books of the Company will be closed from March 23, 2007 to March 29, 2007 (both days
inclusive) for the purpose of determining the entitlement for the payment of Final Dividend.

2. A member entitled to attend and vote at the Meeting may appoint another member as his/her Proxy to attend,
speak and vote at the Meeting on his/her behalf. Instrument appointing Proxy must be deposited at the
Registered Office of the Company not less than 48 hours before the time of the Meeting.

3. The shareholders are requested to notify the Company if there is any change in their address.

4. CDC Account Holders will further have to follow the under mentioned guidelines as laid down in
Circular No. 1 of 2000 dated January 26, 2000 issued by the Securities and Exchange Commission
of Pakistan.

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A. For Attending the Meeting:

i) In case of individuals, the account holder or sub-account holder and/or the person whose
securities are in group account and their registration details are uploaded as per the
Regulations, shall authenticate his/her identity by showing his/her original National Identity
Card (NIC) or original passport at the time of attending the meeting.

ii) In case of corporate entity, the Board of Directors’ resolution/power of attorney with specimen
signature of the nominee shall be produced (unless it has been provided earlier) at the time
of the meeting.

B. For Appointing Proxies:

i) In case of individuals, the account holder or sub-account holder and/or the person whose
securities are in group account and their registration details are uploaded as per the
Regulations, shall submit the proxy form as per the above requirement.

ii) The proxy form shall be witnessed by two persons whose names, addresses and NIC numbers
shall be mentioned on the form.

iii) Attested copies of NIC or the passport of the beneficial owners and the proxy shall be
furnished with the proxy form.

iv) The proxy shall produce his/her original NIC or original passport at the time of the meeting.

v) In case of corporate entity, the Board of Directors’ resolution/power of attorney with specimen
signature shall be submitted (unless it has been provided earlier) along with proxy form to
the Company.

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Financial Performance at a Glance


2006 2005
Rs. in million

Net Sales 10,088.2 9,416.9

Gross Profit 3,866.7 3,846.4

Operating Profit 2,651.2 2,707.6

Profit before Taxation 2,631.9 2,694.4

Taxation 966.9 880.7

Profit after Taxation 1,665.0 1,813.7

Dividend – cash* 1,092.3 873.8

– per share - Rs. 8.0 8.0

– issue of bonus shares 273.1 218.5

Paid-up Capital 1,365.4 1,092.3

* Represents final dividend declared by the Board of Directors subsequent to the year-end.

Gross and Operating Profit


4,000 3,846 3,867
3,506
3,500
3,152
3,000
2,708 2,651
2,467
2,500
2,125 2,148
Rs. in Million

1,968
2,000
1,557
1,500
1,093
902 904
1,000

500

0
2000 2001 2002 2003 2004 2005 2006
Gross Profit Operating Profit

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Statement of Value Added


The statement below shows the amount of revenue generated by the Company during the year and the way this
revenue has been distributed:
2006 2005
Rs. 000 % Rs. 000 %
Revenue Generated
Total revenue 10,599,212 100.0 9,782,988 100.0

Revenue Distributed
Bought-in-materials and Services 6,221,581 58.7 5,570,494 56.9
Selling, Marketing and Distribution Expenses 1,053,388 10.0 901,671 9.2
Administrative Expenses and Financial Charges 456,137 4.3 375,533 3.8

Income tax 966,906 9.1 880,731 9.0


Workers' funds and Central research fund 221,662 2.1 225,186 2.3
Sales tax 14,575 0.1 15,705 0.2

To Government 1,203,143 11.3 1,121,622 11.5


Cash dividend* 1,092,300 10.3 873,840 8.9
Issue of bonus shares 273,075 2.6 218,460 2.2

To Shareholders 1,365,375 12.9 1,092,300 11.1

Retained in the Business


Retained in the business 299,588 2.8 721,368 7.5
10,599,212 100.0 9,782,988 100.0

* Represents final dividend declared by the Board of Directors subsequent to the year-end.

Revenue and its Disposal

Bought-in-materials
and Services 12.9%
Selling, Marketing and 2.8%
Distribution Expenses
Administrative Expenses
and Financial Charges 11.3%
Government
Retained in the Business
4.3%
58.7%
Shareholders 10.0%

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Key Operating and Financial Data


2000 2001 2002 2003 2004 2005 2006
(Rs. in million)
Assets employed
Fixed assets - property, plant and equipment 1,219 1,347 1,396 1,461 1,434 1,503 1,774
Investments - available-for-sale - - - - 407 192 96
Deferred taxation 26 41 5 - - - -
Long-term loans and deposits 41 30 57 63 55 47 43
Net current assets**** 1,952 2,154 2,345 3,316 3,877 5,252 5,827
Total assets employed 3,238 3,572 3,803 4,840 5,773 6,994 7,740

Financed by
Issued, subscribed and paid-up capital 881 881 506 728 874 1,092 1,365
Reserves 2,151 2,416 3,051 3,854 4,674 5,646 6,172
Surplus on revaluation of fixed assets 25 25 3 3 - - -
Shareholders' equity 3,057 3,322 3,560 4,585 5,548 6,738 7,537
Staff retirement benefits - Staff gratuity 157 249 242 198 149 159 66
Deferred taxation 23 - - 57 76 97 137
Long-term loan 1 1 1 - - - -

181 250 243 255 225 256 203


Total capital employed 3,238 3,572 3,803 4,840 5,773 6,994 7,740

Turnover and profit


Net sales 5,910 6,560 6,993 8,101 8,867 9,417 10,088
Gross profit 1,968 2,125 2,467 3,152 3,506 3,846 3,867
Operating profit 1,093 902 904 1,557 2,148 2,708 2,651
Profit before taxation 1,078 893 886 1,548 2,119 2,695 2,632
Taxation 339 414 344 522 648 881 967
Profit after taxation 739 479 542 1,026 1,471 1,814 1,665
Dividend including bonus shares* 221 214 404 631 757 1,092 1,365
Sales per employee (Rs. in '000) 2,216 2,758 3,146 4,112 4,765 5,087 5,549

Ratios
Earnings per share - Rs.** 5.4 3.5 4.0 7.5 10.8 13.3 12.2
Cash dividend per share - Rs. 5.2 5.0 6.0 7.0 7.0 8.0 8.0
Bonus shares (%) - - 20 20 20 25 25
Price earning ratio (times) 16.6 21.4 21.1 25.5 16.8 14.0 12.9
Market value per share - year end - Rs.*** 89.5 75.0 84.6 191.1 181.0 186.3 157.9
Market value per share - high - Rs. *** 103.0 115.9 93.0 244.8 236.5 240.3 215.8
Market value per share - low - Rs. *** 45.0 59.0 71.0 77.0 176.0 162.1 148.0
Break-up value per share-without surplus on revaluation-Rs. 34.4 37.4 70.3 62.9 63.5 61.7 55.2
Break-up value per share-with surplus on revaluation-Rs. 34.7 37.7 70.4 63.0 63.5 61.7 55.2
Dividend payout (%) 29.9 44.7 74.5 61.5 51.5 60.2 82.0
Dividend yield (%) 5.8 6.7 9.5 4.7 5.0 5.6 6.6
Return on capital employed (%) 22.8 13.4 14.3 21.2 25.5 25.9 21.5
Total assets turnover (times) 1.5 1.4 1.4 1.4 1.3 1.1 1.1
Fixed assets turnover (times) 4.8 4.9 5.0 5.6 6.2 6.3 5.7
Debtors turnover (days) 8.6 7.7 5.4 3.7 2.2 1.9 2.7
Inventory turnover (times) 2.5 2.9 3.0 3.3 3.3 3.1 3.0
Current ratio**** 3.0 3.0 2.8 4.2 4.6 5.1 4.4
Acid test ratio**** 1.4 1.5 1.7 2.6 3.1 3.6 3.1
Gross profit margin (%) 33.3 32.4 35.3 38.9 39.5 40.8 38.3
Notes: Figures for 2000 include financial data for former Smith Kline & French of Pakistan Limited and former Beecham Pakistan (Private) Limited for the purposes of comparison only.
* Dividend includes final dividend declared by the Board of Directors subsequent to the year-end.
** Earnings per share has been restated to reflect the impact of bonus shares issued subsequently.
*** Market value per share for 2000 and 2001 represents market value of former Glaxo Wellcome Pakistan Limited only.
**** Figures/ratios for 2000 to 2002 include final dividend declared by the Board of Directors subsequent to the year-end.

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Shareholders’ Equity Assets & Liabilities

5,827
8,000
6,172 6,000

5,252
7,000 5,646
5,000
6,000
4,674

3,877
4,000

3,316
5,000 3,857

Rs. in Million
Rs. in Million

4,000 3,000
3,054

2,345
2,154
2,441

1,952
2,176

1,774
3,000
2,000

1,503
1,461

1,434
1,396
1,347
1,219
2,000
1,000

462
250

256

203
255
243
1,000 1,365

181

225

239

139
1,092

67

63
71

62
881 881 728 874 0
0 506
2000 2001 2002 2003 2004 2005 2006
2000 2001 2002 2003 2004 2005 2006
Long Term Liabilities Long Term Assets Net Current Assets Fixed Assets
Paid up capital Reserves

Fixed Assets Turnover Ratio Debtors Turnover Ratio


7 9 8.6
6.2 6.3
6 5.7
8 7.7
5.6
7
4.9 5.0
5 4.8
6
5.4
Number of days
Number of times

4
5

3 4 3.7
3 2.7
2 2.2
2 1.9
1
1

0 0
2000 2001 2002 2003 2004 2005 2006 2000 2001 2002 2003 2004 2005 2006

Price Earning Ratio Current Ratio


30 6

25.5 5.1 5.1


25 5

21.4 4.6 4.4


21.1 4.2
20 4
16.6 16.8
Number of times

3.0 3.0
15 14.0 3 2.8
12.9

10 2

5 1

0 0
2000 2001 2002 2003 2004 2005 2006 2000 2001 2002 2003 2004 2005 2005
2006

Notes: Figures for 2000 include financial data for former Smith Kline & French of Pakistan Limited and former Beecham Pakistan (Private) Limited
for the purposes of comparison only.
Figures/ratios for 2000 to 2002 include final dividend declared by the Board of Directors subsequent to the year-end.

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GlaxoSmithKline Leadership Essentials

Delivering on promises with organizational and individual


PERFORMANCE WITH INTEGRITY trustworthiness.

Creating and sustaining competitive advantage through


INNOVATION AND ENTREPRENEURSHIP well-executed ingenuity.

Inspiring, motivating and enabling people to do their


PEOPLE WITH PASSION best work.

Creating a focused, agile, productive and fast-learning


SENSE OF URGENCY organization.

Enabling, encouraging and allowing all employees the


EVERYONE COMMITTED,
opportunity to make meaningful contributions and
EVERYONE CONTRIBUTING succeed on merit.

Setting, communicating and committing to the critical


few clear expectations. Superior performance matters and will
ACCOUNTABILITY FOR ACHIEVEMENT be rewarded.

Operating as “one team, in single-minded pursuit of our


ALIGNMENT WITH GSK INTERESTS mission”, reflecting a common spirit and integrated strategies.

Learning continuously and developing professional potential


and ability. Leaders act as teachers, coaches and champions
of development, creating career-long learning agility across
DEVELOP SELF AND OTHERS the organization.

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?
Did you
know
?
GSK globally
has ......

Over 100,000 employees,


Operating in 116 countries,
With more than 20research
and development centres

and 80 manufacturing
sites in 37 countries.

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Board of Directors

Mr. M. Salman Burney Mr. Tariq Iqbal Khan Mr. Rafique Dawood

Mr. Shahid Mustafa Qureshi Mr. Ghulam Mustafa Aziz Dr. Muzaffar Iqbal Mr. S. Masood Abbas Jaffery

Directors’ Report to Shareholders


The Board of Directors of GlaxoSmithKline Pakistan The Company’s turnover grew by 7.1% to Rs. 10,088.2
Limited is pleased to present the annual report together million in 2006 as compared to Rs. 9,416.9 million in
with the Company’s audited financial statements for 2005. The Company earned a pre-tax profit of Rs.
the year ended December 31, 2006. 2,631.9 million, marginally decline by 2.3% from 2005.

The directors’ report is prepared under section 236 of Holding company


the Companies Ordinance, 1984 and clause XIX of the As at December 31, 2006, Setfirst Limited UK held
Code of Corporate Governance. This report is to be 107,562,871 shares of Rs. 10 each. The ultimate parent
submitted to the members at Sixtieth Annual General of the company is GlaxoSmithKline plc, UK.
Meeting of the Company to be held on March 29, 2007.
Shareholding information
Operating results The shareholding information as at December 31, 2006
Rs. in million and other related information are set out on pages 65
to 67.
Profit for the year before taxation 2,631.9
Taxation 966.9 The Directors, CEO, Company Secretary and CFO, their
Profit after taxation 1,665.0 spouses and minor children did not carry out any trade
in the shares of the Company.
Un-appropriated profit brought forward 1,280.2
Profit available for appropriation 2,945.2 Chairman / Chief Executive’s review
Appropriations: The Chairman / Chief Executive’s review on pages 26
to 29 deals with:
- Issue of bonus shares (273.1)
• The performance of the Company during the year
- Final dividend for the year in comparison to last year with reasons for variances
ended December 31, 2005 (873.8)
• Significant plans and decisions
Un-appropriated profit carried forward 1,798.3
• Future outlook of the Company

The Board of Directors proposed a final cash dividend The directors of the Company endorse the contents of
of Rs. 8 per share amounting to Rs. 1,092.3 million. the same.

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Basic and diluted earnings per share developing personal credibility, providing efficient
Basic and diluted earnings per share after taxation were customer service to internal employees, & upgrading
Rs. 12.19. HR technology and processes.

Earnings per Share Sales per Employee


6
5.5
14 13.3 5.1
12.2 5 4.8
12 10.8
4.1
10 4

Rs. in Million
3.1
8
Rupees

7.5 3 2.8

6 2.2
5.4 2
4.0
4
3.5
1
2

0 0
2000 2001 2002 2003 2004 2005 2006 2000 2001 2002 2003 2004 2005 2006

Corporate responsibility and community Diversity


investment GSK Pakistan is committed to developing an inclusive
Corporate responsibility is an integral part of our business culture and making diversity an integral part of its
and inherent in GSK’s mission. The Company makes a overall business. We believe inclusive practices open
significant positive contribution to society through doors to a culture of innovation and make for a more
medicines, vaccines and healthcare products that we collaborative environment - which is where our best
manufacture and sell. Community partnership activities ideas and performance come from. With a diverse
encompass support for healthcare and education workforce, we are also strongly placed to attract and
initiatives, not only with cash donations but also with
retain quality staff. It enables us to be more competitive
product donations and employee involvement.
in serving the needs of our customers and in expanding
our businesses.
GSK’s strong social commitment is reflected in
continuous support of and partnership with major
charities in Pakistan. The Company has setup and GSK is proud to promote an open culture, encouraging
supports two community trusts/ NGOs i.e. people to be themselves and giving their ideas a chance
Concern for Children Trust (CFC) and Trust for Health to flourish. GSK is an equal opportunity employer.
and Medical Sciences, which work in the underserved
communities of Landhi and Mohammadi (Machar) Environment, Health and Safety (EHS)
Colony in Karachi. Our long term plan for excellence charts a journey
which begins with improving our systems, progresses
Human resource development to leadership in EHS performance and ultimately moves
The biggest challenge for GSK Pakistan is to develop us towards sustainability.
human resources which are in line with our business
requirement. The HR team is working closely with their
As good EHS management and performance are
business partners to deliver business results.
achieved, GSK will set more challenging sustainability
The role of HR department has evolved over a last few objectives on materials efficiency, energy efficiency and
years and successfully managed to change the perception use of renewable resources. GSK also needs to look
from being a process oriented function to strategic more closely at the inter-relations between the social,
business partnership. The focus of the HR team at GSK economic and environmental impacts of our business.
Pakistan is on acquiring strong business/HR knowledge, Corporate EHS audit of our two sites was held during

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2006 and both sites achieved good audit results. This Best in Class Tax Participation Award
indicates GSK Pakistan’s commitment to excellence in GlaxoSmithKline Pakistan Limited has been awarded
environment, health & safety and continuous the Pakistan Revenue Board’s recently instituted award
improvement in EHS performance. Both sites have for ‘best in class tax participation’.
received Achievement Level Recognition from Corporate
EHS in the Audit Performance Programme.
The prestigious award recognises the excellence of tax
GSK Pakistan’s F-268, West Wharf and Landhi sites payers in achieving high standards in tax payments
have all achieved one million hours without Lost Time compliance, transparency and reporting. Out of more
injury and Illness in 2006. As per EHS Reward and than 700 listed companies in Pakistan, only 17 were
Recognition Programme, approval for the Milestone selected as winners in various sectors.
Certificate for working one million hours without Lost
Time Injury or Illness has been received from Corporate GSK Pakistan has always endeavored to set the highest
Environment Health & Safety for F 268 and West Wharf standards of ethics, transparency and tax compliance
applications. in its dealings with the Government.
GSK Pakistan has also received the shield in the
Employers' Federation of Pakistan Excellence Award in Audit Committee
the Best Practices - Occupational Safety & Health An Audit Committee has been in existence since May
Category for the year 2004-5. 2002. It comprises of three members, of whom two are
non-executive directors including the chairman of the
Effluent treatment plants have been set up at F268 and committee. The terms of reference of the Committee
West Wharf sites and are in commissioning stage.
have been determined by the Board of Directors in
GSK Earth Week was celebrated in June 2006 to coincide accordance with the guidelines provided in the Listing
with World Environment Day with activities to create Regulations and advised to the Committee for compliance.
environmental awareness. Exhibition of items made The Committee held four meetings during the year.
with recyclable materials was held at all sites and prizes
awarded to best three winning entries at all sites. An independent Internal Audit function reporting to
Health and safety week was celebrated at site in October the Board’s Audit Committee reviews risks and controls
2006 and a Health & Safety Quiz Competition was held across the organization and utilizes the services of
at all sites. independent audit firms for continuous reviews of
internal controls and risks.
Statement of ethics and business practices
The Board of Directors of the Company has adopted
a statement of ethics and business practices. All Management Committee
employees are informed and aware of this and are The Management Committee comprises of 13 senior
required to observe these rules of conduct in relation members who meet and discuss important business
to business and regulations. plans, issues and progress made in their functions.
Significant matters to be put forth in the Board are
Meetings of the Board of Directors discussed for onward approval by the Board.
During the year, 4 meetings of the Board of Directors
were held, the details are as follows:
Auditors
Name of directors Meetings attended The present auditors, Messrs A.F. Ferguson & Co.,
Mr. M. Salman Burney 3 Chartered Accountants, retire and being eligible, offer
Mr. Tariq Iqbal Khan - themselves for re-appointment. The Board of Directors
Mr. Rafique Dawood 4 endorses recommendation of the Audit Committee for
Mr. Shahid Mustafa Qureshi 4 their re-appointment.
Mr. Ghulam Mustafa Aziz 4
Dr. Muzaffar Iqbal 4 Subsequent events
Mr. S. Masood Abbas Jaffery 1 No material changes or commitments affecting the
financial position of the Company have occurred
Leave of absence was granted to the Directors who between the end of the financial year of the Company
could not attend some of the board meetings. and the date of this report.

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Value of investments of provident, gratuity b. Proper books of account of the Company have been
and pension funds maintained.
The value of investments of provident, gratuity and
pension funds based on their un-audited accounts as on c. Appropriate accounting policies have been
December 31, 2006 (audit in progress) was as follows: consistently applied in preparation of financial
statements and accounting estimates are based on
2006 reasonable and prudent judgement.
Rs. in ‘000
Provident fund 667,256 d. International Accounting Standards, as applicable
Pension fund 875,047 in Pakistan, have been followed in preparation of
financial statements.
Gratuity fund 357,336

Investment in Funds-2006 e. The Company maintains a sound internal control


system which gives reasonable assurance against
any material misstatement or loss. The internal
46% 35%
control system is regularly reviewed. This has been
formalized by the Board’s Audit Committee and is
updated as and when needed.

f. There are no significant doubts upon the Company’s


ability to continue as a going concern.

19% g. There has been no material departure from the best


practices of Corporate Governance as detailed in
Provident Fund Pension Fund Gratuity Fund the listing regulations.

Corporate and financial reporting framework h. There has been no departure from the best practices
a. The financial statements, prepared by the of transfer pricing.
management of the Company, present fairly its state
of affairs, the result of its operations, cash flows i. The key operating and financial data for the seven
and changes in equity. years is set out on page 18.

By order of the Board

M. Salman Burney Ghulam Mustafa Aziz


Chairman / Chief Executive Director

Karachi
February 26, 2007

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Chairman/Chief Executive’s Review


I am pleased to present the Annual Report of your Review of operating results
Company for the financial year ended December 31, The year 2006 saw rising inflation and high fuel and
2006. energy costs which adversely affected our margins.
However the company managed to sustain good
Economy & Market financial performance through cost saving initiatives,
Pakistan’s economy sustained good economic growth productivity improvements, and sustained investment
in 2005-06 despite a surge in oil prices and the in product promotion.
earthquake of October 8, 2005. This sustained growth
momentum indicates both resilience & dynamism in Net Sales
industry, agriculture and services, and the emergence 11,000
10,088
of a new investment cycle. 10,000 9,417
9,000
8,867
8,101
The pharmaceutical business in Pakistan remained 8,000
6,993
very challenging and competitive. The Pakistan’s 7,000 6,560
5,910
pharmaceutical industry with market size of around Rs. in Million 6,000

5,000
Rs 70 billion(US$ 1.2 billion),continued to grow in
4,000
line with GDP, with over 400 manufacturing and
3,000
importing companies competing in a highly genericised
2,000
market.
1,000

0
Pharmaceutical Turnover 2000 2001 2002 2003 2004 2005 2006

GlaxoSmithKline Pakistan Limited achieved a successful


year in 2006, driven by sales growth and has made Net sales for the year at Rs 10,088.2 million grew by
history by becoming the first company in Pakistan’s Rs 671.4 million (7.1%). This increase in sales was
pharmaceutical industry to cross the Rs 10 billion sales achieved primarily from volume growth as prices have
mark. GlaxoSmithKline Pakistan’s ability to deliver remained static since 2001. The sales growth was
pharmaceutical turnover growth in line with the market mainly led by strong performances in the Antibiotics,
despite it’s size is due to a broad product portfolio of Analgesics, Dermatology and CNS portfolios. New
fast growing, high–value products, produced & priced products introduced in recent years also contributed
at affordable levels , marketed and sold by a top to the good sales growth.
quality team.
Export sales at Rs 214.6 million continued to grow
With eight of its products amongst the top 15 brands well, representing an increase of 16.5% over last
in the country GSK Pakistan retained its position as year. Major export markets included Afghanistan, Sri
the market leading company in terms of value, Lanka, Syria and Greece.
prescription and volume shares and a subtantial
size difference over its nearest competitors in the The Consumer Healthcare segment achieved sales of
country. Rs. 185.4 million (2005: Rs. 166.5 million) showing

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growth of 11.3% as compared to last year. Iodex, Eno Profit after Tax
and Macleans were the leading contributors in the year.
2,000
1,814
The Animal Health portfolio maintained its sales at 1,800
1,665
Rs. 91.4 million (2005: Rs. 90.2 million). 1,600
1,471
1,400

Overall gross margin for the year was lower at 38.3% 1,200

Rs. in Million
1,026
compared to 40.8% in 2005. The decline in margins 1,000

reflects the effect of inflation on costs of materials 800 739

and costs relating to site and manpower 600 542


479
400
rationalization. Operational excellence and cost
200
containment initiatives continue in manufacturing and
0
commercial operations & procurement to mitigate 2000 2001 2002 2003 2004 2005 2006
these effects .

Capital expenditure of Rs. 471.8 million (2005: Rs.


Selling, marketing and distribution expenses increased
264.6 million) was made on facility improvement and
by Rs 151.7 million representing an increase of 16.8%.
rationalization. Work on new state of art, Penicillin
This is attributable to increase in distribution costs
facility which is one of the most modern Penicillin
and travelling expenses, primarily due to increase in
facilities in the region, is progressing as per plan and
fuel prices. The company maintained it’s commitment
commercial production is expected to start in the third
to invest in core and new products which is reflected
quarter of the year 2007.
in higher sales promotion expenses

Administrative expenses at Rs.436.8 million recorded The Company continues to invest in plant, machinery

an increase of 20.6% This was due to increased site and infrastructure upgradation.
lease charges and the overall impact of inflation.
Capital Expenditure
Other operating expenses at Rs 221.7 million,
500
decreased by Rs. 3.5 million. 472
450

400
Other operating income increased by Rs.146 million
350
showing good growth of 41.7% over last year. The
301
higher income was made possible through the efficient 300 282
265
Rs. in Million

250
247
management of the Company’s funds and also the
improved interest rate profile during the year. 200 189
172
150

During the year under review, profit before tax was 100

Rs. 2,631.9 million, a decrease of 2.3% from previous 50

year. After tax charges of Rs. 966.9 million, net profit 0


2000 2001 2002 2003 2004 2005 2006
for the year was Rs. 1,665 million.

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Despite significant capital expenditure during the year, Over the last few years , payout as well as shareholder
the cash position of the Company improved by Rs value has increased significantly as a result of
676.3 million over last year. Company’s sustained business success. The Company’s
market capitalization has increased over the last 4
years from Rs 4.3 billion in 2002 to Rs 21.6 billion as
Payout to Shareholders
at December 31, 2006.
1400
273
1200 Future outlook
218 1092
GlaxoSmithKline Pakistan aims to create value for it’s
1000
shareholders by continuing to provide affordable
800 874 healthcare products to it’s customers many of which
Rs. in Million

146 are the most cost effective treatment options available


600
121 612 to the doctors and patients.
510
400
101
The company will also continue to focus on introducing
200 303
221 214 innovative medicines which are developed through
0 it’s global R & D efforts.
2000 2001 2002 2003 2004 2005 2006

Cash Dividend Bonus Shares


An area of particular focus for the company in Pakistan
is the area of preventive healthcare & vaccines.
A good return & payout to shareholders is one of the
GlaxoSmithKline is the world’s leading developer and
primary objectives of your Company. The Board of
manufacturer of vaccines. The potential to cost
Directors in its meeting held on February 26th, 2007
effectively prevent disease and protect health in
proposed a cash dividend of Rs. 8 ( 2005: Rs 8 ) Pakistan is significant, and the company sees this as
per share. an area of great opportunity for adding value to the
healthcare situation in the country.

Market Capitalization
The year 2007 is likely to be challenging , in particular
25,000
for the Pharmaceutical industry in Pakistan. The
21,559 industry has great potential for growth, however, its
20,350
20,000
sustained success depends on a regulatory
15,817 environment which is able to balance the interests of
15,000 13,916 this research based industry, with the need for
Rs. in Million

affordable healthcare.
10,000

Prices of pharmaceutical products remain unchanged


5,000 4,278 since 2001 and there has been no offset given to
account for the adverse impact of increasing inflation
0 (particularly in energy and fuel costs), raw and packing
2002 2003 2004 2005 2006
material costs and devaluation.

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The business improvement initiatives undertaken in Acknowledgment


the last few years have contributed towards improved GlaxoSmithKline Pakistan Limited’s sustained success
operational efficiencies and cost savings for the is only possible due to the effort and commitment of
Company. The beneficial impact of these enhanced all it’s employees.
business efficiencies is, however, eroding and will
continue to do so unless the government implements, On behalf of the Board I would like to place on record
in a timely manner, the existing notified policy of our appreciation for the passion and commitment
allowing price adjustments to offset inflation and demonstrated by all members of the GlaxoSmithKline
devaluation. Pakistan family individually and as a team.

This is essential if this industry is to sustain itself for During the year, industrial relations remained cordial
the future. and GlaxoSmithKline is committed to maintaining a
motivational and co-operative work environment
Intellectual Property enabling everyone to contribute their best reflecting
The protection of intellectual capital and property is a common spirit.
important to ensure returns for the very substantive
costs of researching and commercializing new I invite all shareholders, employees and stakeholders
treatments. to share our enthusiasm for our company and look
forward to its continued success in 2007.
In the recent past Pakistan has made some progress
in this regard, by updating its IPR laws to the levels
required by global conventions. At a practical level
however, much more needs to be done to discourage
both piracy and counterfeiting. Effective
implementation will protect consumers, as well as M. Salman Burney
industry and also lead to a quality and research- Chairman / Chief Executive
oriented culture which is vital for the future progress Karachi
of this industry. February 26th, 2007

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Statement of Compliance with the Code of


Corporate Governance
for the year ended December 31, 2006

The statement is being presented to comply with the 6. No casual vacancy occurred in the Board of Directors
Code of Corporate Governance contained in the listing during the year ended December 31, 2006.
regulations of Karachi and Lahore Stock Exchanges for
the purpose of establishing a framework of good 7. The powers of the Board have been duly exercised
governance, whereby a listed company is managed in and decisions on material transactions, including
compliance with the best practices of corporate appointment and determination of remuneration and
governance. The Company has applied the principles terms and conditions of employment of CEO and
contained in the Code as follows: other executive directors have been taken by the
Board, and significant matters are documented by a
1. The Company encourages representation of resolution passed by the Board.
independent non-executive directors and
representation of minority interests on its Board of 8. The meetings of the Board were presided over by the
Directors. At present, the board includes three Chairman and the Board met at least once in every
non-executive directors one of whom represents quarter. Written notices of the Board meetings, along
minority shareholders’ interests. with the agenda were circulated at least seven days
before the meetings. The minutes of the meetings
2. The directors have confirmed that none of them is were appropriately recorded and circulated.
serving as a director in more than ten listed companies
9. There was no new appointment of CFO and Company
including this company, except for Mr. Tariq Iqbal
Secretary during the year.
Khan representing NIT, who has been specifically
exempted by the Securities and Exchange Commission
10. All the directors on the Board are fully conversant
of Pakistan for holding directorship in more than ten
with their duties and responsibilities as directors of
listed companies.
corporate bodies. The Board had previously arranged
an orientation course of the Code of Corporate
3. All the resident directors of the Company are registered
Governance for its directors to apprise them of their
as taxpayers and none of them has defaulted in
role and responsibilities.
payment of any loan to a banking company, a DFI or
a NBFI or, being a member of Stock Exchange, has 11. The directors’ report for this year has been prepared
been declared as a defaulter by that Stock Exchange. in compliance with the requirements of the Code and
fully describes the salient matters required to be
4. The Company has a vision/ mission statement and disclosed.
overall corporate strategy. All policies of the Company
are governed by the “Corporate Governance Charter” 12. The financial statements of the Company were duly
which has been approved by the Board. endorsed by the CEO and CFO before the approval
of the Board.
5. The Company has prepared and circulated during the
year a “Statement of Ethics and Business Practices”, 13. The directors, CEO and executives do not hold any
to all employees and directors of the Company which interest in the shares of the Company other than that
has been signed by them. disclosed in the pattern of shareholding.

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14. The Company has complied with all the corporate and that the firm and all its partners are in compliance
and financial reporting requirements of the Code. with International Federation of Accountants (IFAC)
guidelines on code of ethics as adopted by the Institute
15. The Audit Committee has been in existence since of Chartered Accountants of Pakistan.
May 2002. It comprises of three members, of whom
two are non-executive directors including the chairman 19. The statutory auditors or the persons associated with
of the committee. them have not been appointed to provide other
services except in accordance with the listing
16. There exists an effective internal audit function within regulations and the auditors have confirmed that they
the Company. have observed IFAC guidelines in this regard.

17. The meetings of the audit committee were held at 20. We confirm that all other material principles contained
least once in every quarter prior to approval of interim in the code have been complied with.
and final results of the Company as required by the
Code. The terms of reference of the committee have
been formed and advised to the committee for
compliance.

18. The statutory auditors of the Company have confirmed


that they have been given satisfactory rating under M. Salman Burney
the Quality Control Review Program of the Institute Chairman / Chief Executive
of Chartered Accountants of Pakistan, that they or
any of the partners of the firm, their spouses and Karachi
minor children do not hold shares of the Company February 26, 2007

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Review report to the members on Statement


of Compliance with best practices of Code of
Corporate Governance
We have reviewed the Statement of Compliance with the Best Practices contained in the Code of Corporate
Governance prepared by the Board of Directors of GlaxoSmithKline Pakistan Limited to comply with the
Listing Regulation No. 37 of the Karachi Stock Exchange and chapter XIII of Lahore Stock Exchange where
the Company is listed.

The responsibility for compliance with the Code of Corporate Governance is that of the Board of Directors
of the Company. Our responsibility is to review, to the extent where such compliance can be objectively
verified whether the Statement of Compliance reflects the status of the Company’s compliance with the
provisions of the Code of Corporate Governance and report if it does not. A review is limited primarily to
inquiries of the Company personnel and review of various documents prepared by the Company to comply
with the Code.

As part of our audit of financial statements we are required to obtain an understanding of the accounting
and internal control systems sufficient to plan the audit and develop an effective audit approach. We have
not carried out any special review of the internal control system to enable us to express an opinion as to
whether the Board’s statement on internal controls covers all controls and the effectiveness of such internal
controls.

Based on our review, nothing has come to our attention which causes us to believe that the Statement of
Compliance does not appropriately reflect the Company’s compliance, in all material respects, with the best
practices contained in the Code of Corporate Governance as applicable to the Company for the year ended
December 31, 2006.

A. F. Ferguson & Co.


Chartered Accountants

Karachi
February 26, 2007

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Auditors’ Report to the Members


We have audited the annexed balance sheet of GlaxoSmithKline Pakistan Limited as at December 31, 2006 and
the related profit and loss account, 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, 1984. 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 supporting 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 report 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 account 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 are further in accordance with accounting policies consistently applied;

(ii) the expenditure incurred during the year was for the purpose of the company's business; and

(iii) 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 account, cash flow statement and statement of changes in equity together with the
notes forming part 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 true and fair view of the state of the company's affairs as at December 31, 2006 and of the profit, its
cash flows and changes in equity for the year then ended; and

(d) in our opinion Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was
deducted by the company and deposited in the Central Zakat Fund established under section 7 of that
Ordinance.

A. F. Ferguson & Co.


Chartered Accountants

Karachi
February 26, 2007

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Balance Sheet
as at December 31, 2006

Note 2006 2005


Rupees ‘000

SHARE CAPITAL AND RESERVES

Authorised capital
150,000,000
ordinary shares of Rs. 10 each 1,500,000 1,500,000

Issued, subscribed and paid-up capital 3 1,365,375 1,092,300

Reserves 4 6,171,543 5,645,662

7,536,918 6,737,962

NON-CURRENT LIABILITIES

Staff retirement benefits - staff gratuity 5 66,057 158,469

Deferred taxation 6 137,041 97,385

203,098 255,854
CURRENT LIABILITIES

Trade and other payables 7 1,598,432 900,021

Taxation 105,374 372,525

1,703,806 1,272,546

CONTINGENCIES AND COMMITMENTS 8

9,443,822 8,266,362

M. Salman Burney Ghulam Mustafa Aziz


Chairman / Chief Executive Chief Financial Officer

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Note 2006 2005


Rupees ‘000

NON-CURRENT ASSETS

Fixed assets – property, plant and equipment 9 1,774,449 1,503,102

Long-term loans 10 35,786 39,568

Long-term deposits 6,808 7,008

Investments - available-for-sale 11 96,425 191,674

CURRENT ASSETS

Stores and spares 12 64,996 52,877


Stock-in-trade 13 2,195,407 1,972,953
Trade debts 14 84,697 64,881
Loans and advances 15 64,589 62,781
Trade deposits and prepayments 16 76,420 62,592
Accrued return 189,829 66,624
Other receivables 17 88,846 56,107
Investments - available-for-sale 11 99,100 196,045
Cash and bank balances 18 4,666,470 3,990,150

7,530,354 6,525,010

9,443,822 8,266,362

The annexed notes form an integral part of these financial statements.

M. Salman Burney Ghulam Mustafa Aziz


Chairman / Chief Executive Chief Financial Officer

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Profit and Loss Account


for the year ended December 31, 2006

Note 2006 2005


Rupees ‘000

Net sales 19 10,088,247 9,416,881


Cost of goods sold 20 (6,221,581) (5,570,494)

Gross profit 3,866,666 3,846,387

Selling, marketing and distribution expenses 21 (1,053,388) (901,671)

Administrative expenses 22 (436,821) (362,287)

Other operating expenses 23 (221,662) (225,186)

Other operating income 24 496,390 350,402

Operating profit 2,651,185 2,707,645

Financial charges 25 (19,316) (13,246)

Profit before taxation 2,631,869 2,694,399

Taxation 26 (966,906) (880,731)

Profit after taxation 1,664,963 1,813,668

Earnings per share - basic and diluted 27 Rs. 12.19 Rs. 13.28

The annexed notes form an integral part of these financial statements.

M. Salman Burney Ghulam Mustafa Aziz


Chairman / Chief Executive Chief Financial Officer

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Cash Flow Statement


for the year ended December 31, 2006

Note 2006 2005


Rupees ‘000

CASH FLOW FROM OPERATING ACTIVITIES

Cash generated from operations 28 3,087,966 2,354,569


Staff gratuity paid (129,550) (21,721)
Taxes paid (1,196,524) (620,626)
Decrease in long-term loans 3,782 8,131
Decrease in long-term deposits 200 240

Net cash from operating activities 1,765,874 1,720,593

CASH FLOW FROM INVESTING ACTIVITIES

Fixed capital expenditure (471,772) (264,555)


Proceeds from sale of operating assets 26,404 61,707
Investments encashed 200,000. -
Return received on investments 25,000 25,000

Net cash used in investing activities (220,368) (177,848)

CASH FLOW FROM FINANCING ACTIVITIES

Dividend paid (869,186) (609,147)

Net increase in cash and cash equivalents 676,320 933,598

Cash and cash equivalents at the beginning of the year 3,990,150 3,056,552

Cash and cash equivalents at the end of the year 4,666,470 3,990,150

The annexed notes form an integral part of these financial statements.

M. Salman Burney Ghulam Mustafa Aziz


Chairman / Chief Executive Chief Financial Officer

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Statement of Changes in Equity


for the year ended December 31, 2006

Share Capital reserve Fair value General Unappro- Total


capital Share Exchange Reserve For issue reserve reserve priated
premium loss on issue arising on of bonus profit
of shares amalgamation shares
Rs. 000

Balance at January 1, 2005 873,840 1,409 9 375,563 - 691 2,775,970 1,520,672 5,548,154

Final dividend for the year ended


December 31, 2004 @ Rs 7.00 per share - - - - - - - (611,688) (611,688)

Transfer to general reserve - - - - - - 1,224,000 (1,224,000) -

Transfer to reserve for issue of bonus shares - - - - 218,460 - - (218,460) -

Issue of 1 bonus share for every


4 shares held 218,460 - - - (218,460) - - - -

Profit after taxation for the year


ended December 31, 2005 - - - - - - - 1,813,668 1,813,668

Deficit on revaluation of available-for-sale


investments - - - - - (12,172) - - (12,172)

Balance at December 31, 2005 1,092,300 1,409 9 375,563 - (11,481) 3,999,970 1,280,192 6,737,962

Final dividend for the year ended


December 31, 2005 @ Rs 8.00 per share - - - - - - - (873,840) (873,840)

Transfer to reserve for issue of bonus shares - - - - 273,075 - - (273,075) -

Issue of 1 bonus share for every


4 shares held 273,075 - - - (273,075) - - - -

Profit after taxation for the year


ended December 31, 2006 - - - - - - - 1,664,963 1,664,963

Surplus on revaluation of available-for-sale


investments - - - - - 7,833 - - 7,833

Balance at December 31, 2006 1,365,375 1,409 9 375,563 - (3,648) 3,999,970 1,798,240 7,536,918

The annexed notes form an integral part of these financial statements.

M. Salman Burney Ghulam Mustafa Aziz


Chairman / Chief Executive Chief Financial Officer

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Notes to the Financial Statements


for the year ended December 31, 2006

1. THE COMPANY AND ITS OPERATIONS


The company is incorporated in Pakistan as a limited liability company and is listed on the Karachi and Lahore
Stock Exchanges. It is engaged in manufacture and marketing of research based ethical specialities, other
pharmaceutical, animal health and consumer products.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


2.1 Basis of preparation
These financial statements have been prepared in accordance with the approved accounting
standards as applicable in Pakistan and the requirements of the Companies Ordinance, 1984.
Approved accounting standards comprise of such International Financial Reporting Standards as
notified under the provisions of the Companies Ordinance, 1984. Wherever the requirements of the
Companies Ordinance, 1984 or directives issued by the Securities and Exchange Commission of
Pakistan differ with the requirements of these standards, the requirements of the Companies
Ordinance, 1984 or the requirements of the said directives have been followed.
The preparation of financial statements in conformity with approved accounting standards requires
the use of certain critical accounting estimates. It also requires management to exercise its judgement
in the process of applying the Company's accounting policies. The matters involving a higher degree
of judgement or complexity, or areas where assumptions and estimates are significant to the financial
statements are provision for taxes and deferred taxation, provision for slow moving and obsolete
stock, estimates made for impairment of property, plant and equipment and provision for staff
retirement benefits.
Amendments to published standards and new interpretations effective in 2006
IAS 19 (Amendment) - Employee Benefits, is mandatory for the Company's accounting periods
beginning on or after January 1, 2006. It introduces the option of an alternative recognition approach
for actuarial gains and losses. It also adds new disclosure requirements. Presently, the Company does
not intend to adopt the alternative approach for recognition of actuarial gains and losses.
Standards, amendments and interpretations effective in 2006 but not relevant
The other new standards, amendments and interpretations that are mandatory for accounting
periods beginning on or after January 1, 2006 are considered not relevant and have no significant
impact on the Company's operations.
Standard or interpretation not yet effective
Following amendments to existing standards have been published that are mandatory for the
Company's accounting periods beginning on the dates mentioned below:
IAS 1 Presentation of Financial Statements
- Capital Disclosures effective from January 1, 2007
Adoption of the above amendment may only impact the extent of disclosures presented in the
financial statements.
IFRS 2 - Share-based Payments effective for annual periods beginning on or after
December 6, 2006
IFRS 5 - Non-current Assets Held for Sale effective for annual periods beginning on or
and Discontinued Operations after December 6, 2006
Adoption of the above standards are considered not to have any significant effect on the Company's
financial statements.

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2.2 Basis of measurement


These financial statements have been prepared under the historical cost convention except as
otherwise disclosed in the accounting policies below.

2.3 Staff retirement benefits

2.3.1 Defined benefit plans


The Company operates approved funded gratuity schemes for all its employees.
The Company also operates an approved funded pension scheme for the senior management
employees of former Glaxo Wellcome Pakistan Limited.
Monthly contributions to the funded schemes are based on actuarial recommendations. The latest
actuarial valuations of the schemes were carried out as at December 31, 2006 using the Projected
Unit Credit method.
Cumulative net unrecognised actuarial gains and losses at the beginning of the year which exceed
10% of the greater of the present value of the obligations and if applicable, the fair value of
respective fund's assets are amortised over the average remaining working lives of the employees.
Retirement benefits are payable to employees on completion of prescribed qualifying period of service
under these schemes.

2.3.2 Defined contribution plan


The Company also operates approved contributory provident funds for all employees.

2.4 Compensated absences


The Company provides for compensated absences of its employees on unavailed balance of leave in
the period in which the leave is earned.

2.5 Provisions
Provisions are recognised when the Company has a present legal or constructive obligation as a result
of past events, it is probable that an outflow of resources will be required to settle the obligation, and
a reliable estimate of the amount can be made.
2.6 Taxation
2.6.1 Current
The charge for current taxation is based on taxable income at the current rates of taxation after taking
into account tax credits and rebates available, if any, and taxes paid under the final tax regime.
2.6.2 Deferred
Deferred tax is accounted for using the balance sheet liability method on all temporary differences
arising between tax bases of assets and liabilities and their carrying amounts in the financial
statements. Deferred tax liability is generally recognised for taxable temporary differences and
deferred tax asset is recognised to the extent that it is probable that taxable profits will be available
against which the deductible temporary differences, unused tax losses and tax credits can be utilised.
Deferred tax is charged or credited in the profit and loss account except for deferred tax arising on
revaluation of investments which is charged or credited directly to equity.

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2.7 Fixed assets - Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation / amortisation and
impairment loss except freehold land and capital work-in-progress which are stated at cost.

Depreciation is charged using the straight line method whereby the cost of an asset less estimated
residual value, if not insignificant, is written off over its estimated useful life. Depreciation /
amortisation on assets is charged at the normal rates from the month of addition to the month of
disposal. Cost of leasehold land is amortised equally over the period of the lease.

The assets' residual value and useful life are reviewed and adjusted, if appropriate, at each balance
sheet date.

Company accounts for impairment, where indications exist, by reducing its carrying value to the
estimated recoverable amount.

Maintenance and normal repairs are charged to income as and when incurred. Also assets costing up
to Rs 25,000 are charged to income. Major renewals and improvements are capitalised and the assets
so replaced, if any, are retired.

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

2.8 Investments - Available-for-sale

Securities intended to be held for an indefinite period of time, which may be sold in response to needs
for liquidity or changes in the interest rates, are classified as available-for-sale.

Gains and losses arising from changes in fair value are recognised in equity under fair value reserve.

2.9 Stores and spares

These are valued at cost using moving average method. Items in transit are valued at cost comprising
invoice value plus other charges incurred thereon.

2.10 Stock-in-trade

These are valued at the lower of cost and net realisable value except goods-in-transit which is stated
at cost. Cost is determined using first-in first-out method.

Cost of raw and packing materials comprises purchase price including directly related expenses less
trade discounts. Cost of work-in-process and finished goods includes cost of raw and packing
materials, direct labour and related production overheads.

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

2.11 Trade debts

Trade debts are valued at the invoice value. Provision is made against debts considered doubtful of
recovery. Bad debts are written off when considered irrecoverable.

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2.12 Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of cash flow
statement, cash and cash equivalents comprise cash and cheques in hand and in transit, balances
with banks on current and deposit accounts and running finance under mark-up arrangements.

2.13 Foreign currencies


Monetary assets and liabilities in foreign currencies are reported using the rates of exchange
approximating those prevailing on the balance sheet date. Assets and liabilities in foreign currencies
are recorded into Rupees at the rates of exchange prevailing on transaction date. Exchange gains and
losses are included in income currently except the exchange loss referred to in note 4 which has been
recognised in equity.
The financial statement are presented in Pakistan Rupees, which is the company’s functional and
presentation currency.

2.14 Revenue recognition


Sales are recorded on despatch of goods to customers and in case of export when the goods are shipped.

Returns on deposits and investments are recognised on accrual basis.

2.15 Financial assets and liabilities


All financial assets and liabilities are initially measured at cost which is the fair value of the
consideration given or received as appropriate. These financial assets and liabilities are subsequently
measured at fair value or amortised cost as the case may be.

2.16 Dividend
Dividend is recognised as a liability in the period in which it is declared.

3. ISSUED, SUBSCRIBED AND PAID-UP CAPITAL


Ordinary shares of
Rs. 10 each
2006 2005 2006 2005
Rupees ‘000

5,386,825 5,386,825 Shares allotted for consideration paid in cash 53,868 53,868

26,951,523 26,951,523 Shares allotted for consideration


other than cash 269,515 269,515

104,199,127 76,891,632 Shares allotted as bonus shares 1,041,992 768,917

136,537,475 109,229,980 1,365,375 1,092,300

As at December 31, 2006 Setfirst Limited UK held 107,562,871 (2005: 86,050,297) shares of Rs 10 each.
The ultimate parent of the company is GlaxoSmithKline plc, UK.

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2006 2005
Rupees ‘000

4. RESERVES

Capital reserves

Share premium 1,409 1,409

Exchange loss on issue of shares 9 9

Reserve arising on amalgamation 375,563 375,563

376,981 376,981

Fair value reserve - note 4.1 (3,648) (11,481)

General reserve 3,999,970 3,999,970

Unappropriated profit 1,798,240 1,280,192

6,171,543 5,645,662

4.1 This represents deficit arising on revaluation of available-for-sale investments as follows:

2006 2005
Rupees ‘000

Deficit on revaluation (5,612) (15,568)

Deferred tax 1,964 4,087

(3,648) (11,481)

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5. STAFF RETIREMENT BENEFITS


2006 2005
Funded Funded Funded Funded
gratuity pension gratuity pension
Rupees ‘000
5.1 Movement in liability / (asset)
Balance at January 1 158,469 (30,909) 76,183 (32,281)
Transfer from unfunded to funded gratuity - - 72,886 -
Charge / (Reversal) for the year (note - 5.4) 37,138 (11,242) 31,121 1,372
Payments to the fund (129,550) - (21,721) -

Balance at December 31 66,057 (42,151) 158,469 (30,909)

5.2 Balance sheet reconciliation as at December 31


Present value of obligations 482,634 656,351 428,947 595,498
Less: Fair value of assets (372,849) (920,556) (240,920) (854,090)

109,785 (264,205) 188,027 (258,592)

Unrecognised actuarial (loss) / gain (43,728) 222,054 (29,558) 227,683

66,057 (42,151) 158,469 (30,909)

5.3 Movement in the present value of defined


benefit obligation and fair value of plan assets

5.3.1 The movement in the present value of defined benefit


obligation during the year is as follows:
Balance at January 1 428,947 595,498 373,435 550,689
Current service cost 20,280 20,589 19,263 16,035
Interest cost 38,168 53,279 27,766 38,548
Actuarial losses 23,080 14,585 11,884 17,058
Benefits paid (27,841) (27,600) (3,401) (26,832)

Balance at December 31 482,634 656,351 428,947 595,498

5.3.2 The movement in the fair value of plan assets


during the year is as follows:
Balance at January 1 240,920 854,090 218,087 708,274
Expected return on plan assets 21,310 75,625 16,359 49,579
Actuarial gains / (losses) 8,910 18,441 (11,846) 123,069
Employer contributions 129,550 - 21,721 -
Benefits paid (27,841) (27,600) (3,401) (26,832)

Balance at December 31 372,849 920,556 240,920 854,090

5.4 Charge for the year


Service cost 20,280 20,589 19,263 16,035
Interest cost 38,168 53,279 27,766 38,548
Expected return on assets (21,310) (75,625) (16,359) (49,579)
Net actuarial loss / (gain) recognised during the year - (9,485) 451 (3,632)

37,138 (11,242) 31,121 1,372

5.5 Actual return on plan assets 30,220 94,066 4,513 172,648

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2006 2005
Funded Funded Funded Funded
gratuity pension gratuity pension
Rupees ‘000
5.6 Principal actuarial assumptions
Expected return on plan assets (% per annum) 10 10 9 9
Expected rate of increase in salaries (% per annum) 10 10 9 9
Expected rate of increase in pension (% per annum) - 5 - 4
Discount factor used (% per annum) 10 10 9 9
Retirement age (years) 60 60 60 60

As per actuarial recommendation, the expected return on plan assets was determined by considering the expected
returns available on the assets underlying the current investment policy.

2006 2005
Funded Funded Funded Funded
gratuity pension gratuity pension
% % % %

5.7 Plan assets


Plan assets are comprised of the following:
Equity 16.57 19.89 - -
Mutual Funds 17.11 0.16 22.88 0.12
Bonds 61.55 73.28 54.73 98.46
Others 4.77 6.67 22.39 1.42

100 100 100 100

5.8 For the year ending December 31, 2007 expected contribution to funded gratuity scheme would be Rs 33.64 million
whereas no contribution is expected for funded pension scheme.

5.9 Comparison for five years 2006 2005 2004 2003 2002
Rupees ‘000
Gratuity scheme

Present value of defined benefit obligation 482,634 428,947 373,435 392,094 357,328
Fair value of plan assets (372,849) (240,920) (218,087) (215,387) (111,325)

109,785 188,027 155,348 176,707 246,003

Experience loss / (gain) on plan liabilities 23,080 11,884 (20,026) (4,685) 22,779
Experience gain on plan assets 13,410 4,578 6,932 6,808 4,382

Pension scheme

Fair value of plan assets 920,556 854,090 708,274 645,109 555,985


Present value of defined benefit obligation (656,351) (595,498) (550,689) (519,467) (421,041)

Surplus 264,205 258,592 157,585 125,642 134,944

Experience loss on plan liabilities 14,585 17,058 6,128 70,123 21,889


Experience gain on plan assets 18,441 123,069 63,452 52,008 10,172

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2006 2005
Rupees ‘000

6. DEFERRED TAXATION

Credit balances arising in respect of:

- Accelerated tax depreciation allowances 177,840 169,977

Debit balances arising in respect of:

- Provision for staff gratuity 22,985 55,551


- Provision for doubtful debts 311 261
- Provision for slow moving and obsolete stock 9,699 6,436
- Provision for slow moving and obsolete stores and spares 5,181 5,545
- Provision for doubtful other receivables 659 712
- Deficit on revaluation of investments 1,964 4,087

(40,799) (72,592)

137,041 97,385

7. TRADE AND OTHER PAYABLES

Creditors 99,552 69,322


Bills payable 458,674 213,853
Accrued liabilities 775,232 446,844
Royalty and technical fee payable - Note 7.1 76,747 14,301
Advances from customers 44,889 29,470
Contractors' earnest / retention money 12,952 6,320
Taxes deducted at source and payable to statutory authorities 4,072 3,541
Workers' Profits Participation Fund – note 7.2 11,339 14,708
Workers’ Welfare Fund 54,859 46,577
Central Research Fund 26,584 27,283
Unclaimed dividend 19,209 14,555
Others 14,323 13,247

1,598,432 900,021

7.1 These include Rs. 56.09 million (2005: NIL) due to associated company as at December 31, 2006.

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2006 2005
Rupees ‘000
7.2 Workers' Profits Participation Fund
At the beginning of the year 14,708 12,765
Allocation for the year – note 23 141,366 144,708
156,074 157,473
Interest on funds utilised in Company's business – note 25 370 1,854
156,444 159,327
Less: Amount paid to the Fund’s Trustees 145,105 144,619
At the end of the year 11,339 14,708

8. CONTINGENCIES AND COMMITMENTS


8.1 Contingencies
a) Claims against the Company not
acknowledged as debt 77,614 71,508

b) Taxation
In finalising the company's assessments for the years 1999 - 2000 through 2002 - 2003 (accounting
years ended December 31, 1998 through 2001) the Deputy Commissioner of Income Tax (DCIT) made
additions to income raising tax demands of Rs 74.85 million. Such additions were made on the
contention that the company had allegedly paid excessive amounts for importing raw materials. Upon
company's appeals the Commissioner of Income Tax (Appeals) (CITA) maintained the addition to
income for assessment years 1999 - 2000 and 2000 - 2001 (accounting years ended December 31,
1998 and 1999) while the addition made in assessment years 2001 - 2002 and 2002 - 2003
(accounting years ended December 31, 2000 and 2001) were deleted. In respect of assessment years
1999 - 2000 and 2000 - 2001 the company, and in respect of assessment years 2001 - 2002 and 2002
- 2003, the department, have filed appeals with the Income Tax Appellate Tribunal (ITAT).
In finalising the assessment of former Smith Kline & French of Pakistan Limited for the assessment year
2002 - 2003 (accounting year ended December 31, 2001), the DCIT made addition to income raising
tax demands of Rs. 4.4 million. Such addition was made on the contention that the company had
allegedly paid excessive amount for importing raw materials. Upon company's appeal, the CITA
maintained the addition to income. The company has filed an appeal with the ITAT.
The management is confident that the ultimate decision will be in favour of the company; hence no
provision has been made in respect of the aforementioned additional tax demands.

8.2 Commitments
Commitments for capital expenditure outstanding as at December 31, 2006 amounted to Rs. 137.88
million (December 31, 2005: Rs. 274.87 million).
Note 2006 2005
Rupees ‘000
9. FIXED ASSETS - property, plant and equipment
Operating assets 9.1 1,354,712 1,319,565
Capital work-in-progress 9.5 419,737 183,537
1,774,449 1,503,102

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9.1 Operating Assets

Cost Additions/ Cost Accumulated Depreciation / Accumulated Impairment Net book Rate of
as at (Disposals) as at depreciation/ Amortisation depreciation / loss as at value as at depreciation/
January 1, December amortisation for the year / amortisation December December amortisation
2006 31, 2006 as at January (on disposals) as at December 31, 2006 31, 2006 %
1, 2006 31, 2006 (Note 9.4)
Rs. 000

Freehold land 174 - 174 - - - - 174 -

Leasehold land 52,937 - 52,937 10,863 1,653 12,516 - 40,421 2.5 to 10

Buildings on
freehold land 70,492 113 70,605 28,261 1,129 29,390 - 41,215 2.5

Buildings on
leasehold land 518,588 6,221 524,809 149,705 10,225 159,930 27,156 337,723 2.5

Plant and
machinery 1,561,649 111,183 1,648,153 854,887 76,195 908,255 65,153 674,745 5 to 10
(24,679) (22,827)

Furniture and fixtures 82,407 4,013 86,030 56,838 4,462 60,958 180 24,892 10
(390) (342)

Vehicles 182,138 37,558 203,802 81,920 24,075 96,456 - 107,346 25


(15,894) (9,539)

Office equipments 330,739 76,484 368,506 243,467 35,027 240,074 236 128,196 10 to 33.33
(38,717) (38,420)

December 31, 2006 2,799,124 235,572 2,955,016 1,425,941 152,766 1,507,579 92,725 1,354,712
(79,680) (71,128)

December 31, 2005 2,743,854 130,672 2,799,124 1,335,759 151,605 1,425,941 53,618 1,319,565
(75,402) (61,423)

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9.2 Reconciliation of opening and closing Net Book Value (NBV)

Cost Accumulated Impairment NBV Cost of NBV of Depreciation/ Impairment NBV


depreciation/ loss additions disposals Amortisation loss for as at
amortisation (Note 9.4) during during for the the year December
As at January 1, 2006 the year the year year (Note 9.4) 31, 2006
Rs. 000

Freehold land 174 - - 174 - - - - 174

Leasehold land 52,937 (10,863) - 42,074 - - (1,653) - 40,421

Buildings on
freehold land 70,492 (28,261) - 42,231 113 - (1,129) - 41,215

Buildings on
leasehold land 518,588 (149,705) (20,502) 348,381 6,221 - (10,225) (6,654) 337,723

Plant and
machinery 1,561,649 (854,887) (32,700) 674,062 111,183 (567) (76,195) (33,738) 674,745

Furniture and fixtures 82,407 (56,838) (180) 25,389 4,013 (48) (4,462) - 24,892

Vehicles 182,138 (81,920) - 100,218 37,558 (6,355) (24,075) - 107,346

Office equipments 330,739 (243,467) (236) 87,036 76,484 (297) (35,027) - 128,196

December 31, 2006 2,799,124 (1,425,941) (53,618) 1,319,565 235,572 (7,267) (152,766) (40,392) 1,354,712

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9.3 The following items of fixed assets were disposed of during the year:

Description Cost Accumulated Impairment Book Sale Mode of Particulars of purchaser


depreciation loss value proceeds disposal
Rupees ’000

Office equipments 115 26 - 89 89 Company Policy GlaxoSmithKline Export Limited


Associated company

Vehicles 179 66 - 113 286 ‘’ Mr. Tariq Iqbal - Executive


254 41 - 213 650 ‘’ Mr. Moin A Khan - Ex-Executive
295 64 - 231 228 ‘’ Mr. Ehteshamul Haq - Executive
295 52 - 243 144 ‘’ Mr. Muhammad Ali Shah - Executive
341 40 - 301 280 ‘’ Mr. Mushahid Raza - Executive
550 374 - 176 126 ‘’ Mr. Yahya Zakaria - Executive
555 389 - 166 222 ‘’ Mr. Muhammad Ali - Executive
555 385 - 170 277 ‘’ Mr. Zubair Waheed - Executive
560 397 - 163 280 ‘’ Mr. Abdul Samad - Executive
560 354 - 206 224 ‘’ Mr. Ali Murtuza - Ex-Executive
560 292 - 268 455 ‘’ Mr. Kashif Ijaz Shaikh - Ex-Executive
560 311 - 249 280 ‘’ Dr. Rizwan Mehmood - Executive
560 342 - 218 280 ‘’ Mr. Rizwan Ullah Qureshi - Executive
560 245 - 315 336 ‘’ Mr. S. M. Qamar Qureshi - Ex-Executive
619 342 - 277 430 ‘’ Ms. Salimah Saleh - Ex-Executive
1,176 509 - 667 589 ‘’ Mr. Aleemuddin - Ex-Executive
102 45 - 57 344 Tender Syed Hasan Ali Warsi, A 162/12,
Federal B. Area, Karachi
102 45 - 57 334 ‘’ ‘’
216 87 - 129 486 ‘’ Mr. Pervez Ahmed, 820 Nargis Block,
Allama Iqbal Town, Lahore
171 32 - 139 408 Insurance Claim New Jubilee Insurance Company Limited
New Jubilee Insurance House,
I. I. Chundrigar Road, Karachi
464 61 - 403 477 ‘’ ‘’

4,378 2,802 - 1,576 1,200 ‘’ ‘’

Aggregate amount of assets sold of


having book value less than
Rs 50,000 each
Plant and machinery 17,255 16,197 844 214 13,721
Furniture and fixtures 129 129 - - 354
Vehicles 2,282 2,264 - 18 3,904

Assets scrapped *
Plant and machinery 7,424 6,630 441 353 -
Office equipments 38,602 38,394 - 208 -
Furniture and Fixtures 261 213 - 48 -

46,287 45,237 441 609 -

79,680 71,128 1,285 7,267 26,404

* Assets scrapped primarily include items that are obsolete or redundant and have no economic value to the Company.

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9.4 Impairment loss

Buildings Plant Furniture Office Total Total


on lease and and equipments 2006 2005
hold land machinery fixtures
Rupees ‘000

As at January 1 20,502 32,700 180 236 53,618 24,123

Charge during the year 6,654 33,738 - - 40,392 30,211

Reversals on disposals - (1,285) - - (1,285) (716)

As at December 31 27,156 65,153 180 236 92,725 53,618

2006 2005
Rupees ‘000
9.5 Capital work-in-progress

Civil work 117,899 48,472


Plant and machinery 267,717 96,998
Furniture and fixtures 13,037 1,553
Office equipments 8,224 4,759
Advances to contractors and suppliers 12,860 31,755

419,737 183,537

10. LONG-TERM LOANS – secured, considered good

10.1 Reconciliation of the carrying amount of loans to executives and other employees:

2006 2005
Executives Other Other Total Executives Other Other Total
Non- Employees Employees Non- Employees Employees
interest Interest Non-interest interest Interest Non-interest
bearing bearing bearing bearing bearing bearing
Rupees '000

Balance at January 1 577 1,976 67,580 70,133 631 1,992 72,623 75,246
Disbursements 1,036 1,049 33,260 35,345 391 1,222 34,119 35,732
Repayments (909) (1,400) (41,038) (43,347) (445) (1,238) (39,162) (40,845)

Balance at December 31 704 1,625 59,802 62,131 577 1,976 67,580 70,133
Current portion included in note 15 (482) (1,099) (24,764) (26,345) (196) (593) (29,776) (30,565)

222 526 35,038 35,786 381 1,383 37,804 39,568

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10.2 The loans have been given in accordance with the terms of employment for purchase of house, motor
cars, motor cycles, computers and staff welfare and are repayable in 12 to 60 equal monthly
installments depending upon the type of the loan. These loans are interest free except certain loans
which carry interest ranging from 5% to 8% (2005: 5% to 8%). All loans are secured against the
retirement fund balances.
The maximum aggregate amount of loans due from executives at the end of any month during the
year was Rs 1.57 million (2005: Rs 750 thousand).
2006 2005
Rupees ‘000
11. INVESTMENTS - available-for-sale
Pakistan Investment Bonds - note 11.1 195,525 387,719

Less: Current portion 99,100 196,045.

96,425 191,674

11.1 Pakistan Investment Bonds are held by Citibank on behalf of the Company. These carry interest at 6%
to 7% per annum having maturities from April 2007 to October 2008.

2006 2005
Rupees ‘000
12. STORES AND SPARES
Stores 1,719 1,326
Spares 80,108 68,231

81,827 69,557
Less: Provision for slow moving and obsolete items 16,831 16,680

64,996 52,877

13. STOCK-IN-TRADE
Raw and packing materials including in transit 783,241 901,167
Rs. 218.85 million (2005: Rs. 240.76 million)
Work-in-process 188,306 212,401
Finished goods including in transit Rs. 122.61 million
(2005: Rs. 55.21 million) 1,255,365 878,741

2,226,912 1,992,309

Less: Provision for slow moving and obsolete items 31,505 19,356

2,195,407 1,972,953

13.1 Stock-in-trade includes Rs. 98.13 million (2005: Rs. 42.47 million) held with third parties.

13.2 The above balances include items costing Rs. 50.73 million (2005: Rs 58.29 million) valued at net
realisable value of Rs. 46.04 million (2005: Rs. 47.44 million).

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2006 2005
Rupees ‘000
14. TRADE DEBTS
Considered good
Related party - associated companies:
GSK Trading Services Ltd. 4,770 -
Adechsa-GmbH, Switzerland - 3,083
Others 79,927 61,798
Considered doubtful 1,010 786
85,707 65,667

Less: Provision for doubtful debts 1,010 786

84,697 64,881

14.1 The maximum aggregate amount due from related party at the end of any month during the year
was Rs 8.33 million (2005: Rs 9.2 million).
2006 2005
Rupees ‘000
15. LOANS AND ADVANCES - considered good
Loans due from:
Executives
Other employees } Note 15.1 482
25,863
196
30,369
26,345 30,565
Advances to:
-
Executives
Other employees } Note 15.2
20,210
1,073
17,919

20,210 18,992
Advances to suppliers 18,034 13,224

64,589 62,781

15.1 These represent current portion of loans referred to in note 10.


15.2 The maximum aggregate amount of advances due from Directors and Executives at the end of any
month during the year was Rs 3 thousand and Rs. 60 thousand (2005: Rs. 341 thousand and Rs. 4.72
million) respectively.
2006 2005
Rupees ‘000
16. TRADE DEPOSITS AND PREPAYMENTS
Trade deposits 13,749 20,408
Prepayments
Staff pension fund - note 5 42,151 30,909
Others 20,520 11,275

76,420 62,592

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2006 2005
Rupees ‘000
17. OTHER RECEIVABLES
Customs duty and sales tax refundable
considered good 39,430 36,690
considered doubtful 18,465 18,465
Due from related parties – note 17.1 25,833 7,964
Claims recoverable from suppliers 11,990 4,296
Due from staff provident fund 642 439
Others 10,951 6,718
107,311 74,572
Less: Provision for doubtful receivables 18,465 18,465
88,846 56,107

17.1 Due from related parties - associated companies


GlaxoSmithKline Services Unlimited, UK 22,045 5,777
GlaxoSmithKline Limited, Bangladesh 1,563. -
GlaxoSmithKline Export Limited, UK 2,225 1,762
GMS Finance Services, USA - 425.
25,833 7,964

The maximum aggregate amount due from related parties at the end of any month during the year
was Rs. 25.83 million (2005: Rs. 13.73 million).
2006 2005
Rupees ‘000
18. CASH AND BANK BALANCES
With banks
on deposit accounts 4,640,971 3,960,634
on current accounts 21,471 26,091
Cash in hand 4,028 3,425
4,666,470 3,990,150

18.1 At December 31, 2006 the rates of mark-up on PLS savings accounts and on term deposit accounts range
from 0.5% to 2.5% (2005: 0.5% to 4.75%) and 9% to 11.6% (2005: 3% to 9.3%) per annum
respectively.
2006 2005
Rupees ‘000
19. NET SALES
Gross sales
Local 10,025,453 9,369,871
Export 214,612 184,207
10,240,065 9,554,078
Less: Commissions, returns, discounts and rebates 137,243 121,492
Sales tax 14,575 15,705
10,088,247 9,416,881

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2006 2005
Rupees ‘000
20. COST OF GOODS SOLD

Raw and packing materials consumed 4,057,514 3,798,525


Manufacturing charges to third party 78,554 137,001
Stores and spares consumed 24,154 17,583
Salaries, wages, benefits and staff welfare – notes 20.1 & 20.2 775,250 566,874
Fuel and power 152,482 122,606
Rent, rates and taxes 9,288 5,467
Royalty and technical fee 126,822 9,282
Lease rentals - 120
Insurance 42,252 27,860
Repairs and maintenance 93,011 73,526
Training expenses 1,237 2,195
Travelling and entertainment 12,753 10,547
Vehicle running 6,563 6,022
Depreciation / Amortisation 90,946 89,922
Impairment loss 40,392 30,211
Provision for slow moving and obsolete stock
charged / (written back) 21,648 (10,667)
Provision for slow moving and obsolete stores
and spares charged / (written back) 151 (233).
Canteen expenses 45,134 36,409
Laboratory expenses 15,658 15,295
Communication and stationery 8,493 8,463
Security expenses 2,389 2,372
Other expenses 15,507 14,320

5,620,198 4,963,700
Opening stock of work-in-process 212,401 221,860
Closing stock of work-in-process (188,306) (212,401)

Cost of goods manufactured 5,644,293 4,973,159


Opening stock of finished goods 878,741 762,045
Purchase of finished goods 1,026,701 791,746

7,549,735 6,526,950
Closing stock of finished goods (1,255,365) (878,741)
Cost of samples shown under selling, marketing
and distribution expenses (72,789) (77,715)

6,221,581 5,570,494

20.1 Salaries, wages, benefits and staff welfare include staff severance cost of Rs 127.33 million (2005: Nil).

20.2 Salaries, wages, benefits and staff welfare include Rs 12.79 million and Rs 17.11 million (2005:
Rs 20.12 million and Rs 15.45 million) in respect of defined benefits plans and contributory provident
fund respectively.

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2006 2005
Rupees ‘000

21. SELLING, MARKETING AND DISTRIBUTION EXPENSES

Salaries, wages, benefits and staff welfare – note 21.1 395,321 305,260
Handling, freight and transportation 86,339 59,919
Advertising 59,768 71,495
Sales promotion 298,272 269,919
Travelling and entertainment 92,624 71,110
Vehicle running 21,742 20,266
Depreciation / Amortisation 18,844 16,951
Canteen expenses 461 260
Rent, rates and taxes 6,371 6,548
Lease rentals - 2,266
Training expenses 2,276 9,119
Fuel and power 8,008 9,170
Publication and subscriptions 12,937 9,000
Insurance 7,684 11,291
Repairs and maintenance 5,506 4,567
Stationery 7,557 7,022
Postage, telex and telephone 12,733 14,220
Security expenses 2,769 3,721
Provision for doubtful debts 885 -
Other expenses 13,291 9,567

1,053,388 901,671

21.1 Salaries, wages, benefits and staff welfare include Rs. 9.42 million and Rs. 10.99 million (2005: Rs
8.57 million and Rs. 10.82 million) in respect of defined benefits plans and contributory provident
fund respectively.

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2006 2005
Rupees ‘000

22. ADMINISTRATIVE EXPENSES

Salaries, wages, benefits and staff welfare – note 22.1 and 22.2 234,933 182,632
Travelling and entertainment 12,820 11,491
Vehicle running 8,180 7,483
Depreciation / Amortisation 42,976 44,732
Canteen expenses 3,620 4,537
Rent, rates and taxes 18,509 2,333
Lease rentals - 1,134
Training expenses 11,850 4,482
Publication and subscriptions 2,296 4,106
Insurance 3,586 3,814
Repairs and maintenance 20,285 20,985
Stationery 8,606 7,976
Legal and professional charges 16,793 16,290
Auditors’ remuneration – note 22.3 8,086 7,705
Donations – note 22.4 14,581 15,972
Postage, telex and telephone 18,531 17,993
Security expenses 3,740 3,510
Other expenses net of recovery from a related party of
Rs. 38.97 million (2005: Rs 24.17 million) 7,429 5,112

436,821 362,287

22.1 Salaries, wages, benefits and staff welfare include staff severance cost of Rs 19.42 million (2005:
Rs 5.09 million).

22.2 Salaries, wages, benefits and staff welfare include Rs 3.69 million and Rs 5.54 million
(2005: Rs 3.8 million and Rs 4.83 million) in respect of defined benefits plans and contributory
provident fund respectively.

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2006 2005
Rupees ‘000

22.3 Auditors' remuneration


Audit fee 2,200 1,900
Fee for limited review of half yearly financial
statements, special certifications and reportings 2,805 2,280
Taxation services 2,767 3,300
Out-of-pocket expenses 314 225

8,086 7,705

22.4 Donations

Donations include a sum of Rs 200 thousand (2005: Rs. 500 thousand) paid to Concern for Children Trust, B/63,
Estate Avenue, S.I.T.E, Karachi in which Mr. Salman Burney, Chairman / Chief Executive, Mr. Ghulam Mustafa
Aziz and Syed Masood Abbas Jaffery, Directors, are the trustees.

2006 2005
Rupees ‘000

23. OTHER OPERATING EXPENSES


Workers' Profits Participation Fund – note 7.2 141,366 144,708
Workers' Welfare Fund 53,712 53,195
Central Research Fund 26,584 27,283

221,662 225,186

24. OTHER OPERATING INCOME


Income from financial assets
Return on investments 22,140 25,068
Income on deposit accounts 419,471 226,983
Exchange gain - 10,994.
Income from non-financial assets
Gain on disposal of operating assets 19,137 48,444
Others
Scrap sales 12,650 10,797
Liabilities no longer payable written back 2,373 4,562
Insurance commission 13,542 14,332
Provision for doubtful debts written back - 1,776
Service fee 1,948 1,209.
Others 5,129 6,237

496,390 350,402

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2006 2005
Rupees ‘000

25. FINANCIAL CHARGES

Amortisation of premium on investments 2,150 2,505


Interest on Workers' Profits Participation Fund - note 7.2 370 1,854
Bank charges 8,327 8,887
Exchange loss 8,469 -

19,316 13,246

26. TAXATION

Current
for the year 944,373 875,000
prior years (15,000) (20,000).
Deferred 37,533 25,731

966,906 880,731

26.1 Relationship between tax expense and


accounting profit

Profit before taxation 2,631,869 2,694,399

Tax at the applicable rate of 35% (2005: 35%) 921,154 943,040


Tax effect of permanent differences 10,503 26,170
Effect of final tax regime 50,249 (68,479)
Prior years’ tax (15,000) (20,000).

966,906 880,731

27. EARNINGS PER SHARE - basic and diluted

Profit for the year after taxation 1,664,963 1,813,668

Number of ordinary shares outstanding at the end of


year (in thousands) – note 27.1 136,537 136,537

Basic and diluted earnings per share Rs. 12.19 Rs. 13.28

27.1 Number of ordinary shares outstanding at December 31, 2005 has been increased to reflect the
bonus shares issued during 2006.

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2006 2005
Rupees ‘000

28. CASH GENERATED FROM OPERATIONS

Profit before taxation 2,631,869 2,694,399

Add / (Less): Adjustments for non-cash charges and other items


Depreciation / Amortisation 152,766 151,605
Return on investments (22,140) (25,068)
Impairment loss 40,392 30,211
Gain on disposal of fixed assets (19,137) (48,444)
Provision for staff gratuity 37,138 31,121
Amortisation of premium on investments 2,150 2,505

191,169 141,930

Profit before working capital changes 2,823,038 2,836,329

Effect on cash flow due to working capital changes


(Increase) / Decrease in current assets
Stores and spares (12,119) 1,103
Stock-in-trade (222,454) (340,645)
Trade debts (19,816) (31,474)
Loans and advances (1,808) (12,707)
Trade deposits and prepayments (13,828) (18,074)
Accrued return on term deposits (126,065) (44,930)
Other receivables (32,739) 23,811

(428,829) (422,916)
Increase / (Decrease) in trade and other payables 693,757 (58,844)

264,928 (481,760)

3,087,966 2,354,569

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29. REMUNERATION OF CHIEF EXECUTIVE, DIRECTORS AND EXECUTIVES

The aggregate amounts charged in the financial statements for remuneration, including all benefits to the
Chief Executive, Directors and Executives were as follows:

Chief Executive Directors Executives


2006 2005 2006 2005 2006 2005

Rupees ’000

Managerial remuneration 8,573 7,822 10,356 13,256 79,114 68,414

Bonus 11,039 9,187 12,026 11,767 49,192 34,691

Retirement benefits 1,692 1,522 1,360 2,135 14,317 10,927

House rent 3,385 3,106 4,315 5,533 31,836 27,382

Utilities 752 690 959 1,230 7,075 6,085

Medical expenses 79 29 92 234 2,422 2,128

Others 524 555 599 974 2,330 4,176

26,044 22,911 29,707 35,129 186,286 153,803

Number of person (s) 1 1 3 4 80 73

In addition to the above, fee to three non-executive Directors during the year amounted to Rs. 26 thousand
(2005: Rs 2,500).

The Chief Executive, Directors and certain executives are also provided with free use of company maintained
cars and certain items of fixtures and household furniture in accordance with the company policy.

Bonus includes amount payable in cash to Chief Executive, Directors and certain executives Rs. 5.5 million,
Rs. 5.3 million and Rs. 14.62 million (2005: Rs 5.12 million, Rs 6.01 million and Rs 12.85 million) respectively
on completion of qualifying period of service, based on share value of ultimate parent company.

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2006 2005
Rupees ‘000

30. TRANSACTIONS WITH RELATED PARTIES

Relationship Nature of transactions

Holding company: Dividend paid 688,402 -


Associated companies: a. Royalty paid 59,222 -
b. Purchase of goods, materials and services 1,856,703 1,756,397
c. Sale of goods and services 35,674 41,980
d. Recovery of expenses from related party 38,969 24,172
e. Service fee 1,948 1,209.
f. Donation 200 500
g. Sales of fixed assets 89 -.

Staff retirement funds: Expense charged for retirement


benefits plans 59,439 63,590

Key management personnel:


a. Salaries and other employee benefits 63,936 59,808
b. Post employment benefits 4,785 10,263
c. Share based remuneration 16,146 14,827

The related parties balances as at December 31, 2006 are included in trade and other payables, trade debts
and other receivables respectively.

31. RUNNING FINANCE UNDER MARK-UP ARRANGEMENTS

The facilities for running finance available from various banks amounted to Rs 506.6 million (2005: Rs 580
million). The rate of mark-up ranges from one month KIBOR plus 0.5% to three month KIBOR plus 0.5%
(2005: three months KIBOR Plus 1%) . The arrangements are secured by way of pari-passu charge against
hypothecation of company's stock-in-trade and book debts.

The facilities for export refinance available from various banks amounted to Rs 10 million (2005: Rs 10
million). These facilities carry mark-up at 1% (2005: 1%) above the State Bank of Pakistan Export Refinance
rate per annum.

The facilities for opening letters of credit and guarantees as at December 31, 2006 amounted to Rs 1.77
billion (2005: Rs 1.80 billion) of which unutilised balances at the year end amounted to Rs 746.5 million
(2005: Rs 1.09 billion).

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32. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES

(i) Financial assets and liabilities

Interest bearing Non-interest bearing Total

Maturity Maturity Total Maturity Maturity Total


up to after up to after
one year one year one year one year

Rupees '000

Financial Assets
Loans and advances to employees 1,099 526 1,625 45,456 35,260 80,716 82,341
Deposits - - - 13,749 6,808 20,557 20,557
Investments 99,100 96,425 195,525 - - - 195,525
Trade debts - - - 84,697 - 84,697 84,697
Accrued return - - - 189,829 - 189,829 189,829
Other receivables - - - 49,416 - 49,416 49,416
Cash and bank balances 4,640,971 - 4,640,971 25,499 - 25,499 4,666,470

December 31, 2006 4,741,170 96,951 4,838,121 408,646 42,068 450,714 5,288,835

December 31, 2005 4,157,272 193,057 4,350,329 249,810 45,193 295,003 4,645,332

Financial liabilities

Trade and other payables - - - 1,456,689 - 1,456,689 1,456,689

December 31, 2006 - - - 1,456,689 - 1,456,689 1,456,689

December 31, 2005 - - - 778,442 - 778,442 778,442

The effective mark-up rates for the monetary financial assets and liabilities are mentioned in respective notes to
the financial statements.

(ii) Interest rate risk management

Interest risk arises from the possibility that changes in interest rate will affect the value of financial
instruments. The company does not expect to be materially exposed to interest rate changes.

(iii) Financial risk management objectives and policies

The company finances its operations through equity, borrowings and management of working capital
with a view to maintaining an appropriate mix between various sources of finance to minimise risk.

(iv) Concentration of credit risk

Credit risk represents the accounting loss that would be recognised at the reporting date if
counterparts failed to perform as contracted. The company does not have significant exposure to any
individual customer. To reduce exposure to credit risk the company applies credit limits to its customers.

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(v) Foreign exchange risk management

Foreign currency risk arises mainly where receivables and payables exist due to transactions with
foreign undertakings. Payables exposed to foreign currency risks included in bills payable as at
December 31, 2006 amounted to Rs. 458.67 million (2005: Rs 213.85 million).

(vi) Liquidity risk

The company manages liquidity risk by maintaining sufficient cash and the availability of financing
through banking arrangements.

(vii) Fair values of financial instruments

The carrying values of all the financial instruments reported in the financial statements approximate
their fair values.

33. CAPACITY AND PRODUCTION

The capacity and production of the Company's plant are indeterminable as it is multi-product and involves
varying processes of manufacture.

34. DIVIDEND

The Board of Directors in its meeting held on February 26, 2007 proposed a cash dividend of Rs 8 per share
(2005: Rs 8 per share) amounting to Rs 1,092.30 million (2005: Rs. 873.84 million)

35. CORRESPONDING FIGURES

Corresponding figures have been rearranged, wherever necessary, for the purpose of comparison, the effect
of which is not material.

36. DATE OF AUTHORISATION FOR ISSUE

These financial statements were authorised for issue on February 26, 2007 by the Board of Directors of the
company.

M. Salman Burney Ghulam Mustafa Aziz


Chairman / Chief Executive Chief Financial Officer

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Form 34
Pattern of Shareholding
Number of Shareholding Total Shares
Shareholders From To Held

844 1 100 Shares 32,438


1,485 101 500 Shares 441,457
534 501 1,000 Shares 396,657
930 1,001 5,000 Shares 2,125,726
212 5,001 10,000 Shares 1,480,475
96 10,001 15,000 Shares 1,168,134
44 15,001 20,000 Shares 761,303
24 20,001 25,000 Shares 532,021
20 25,001 30,000 Shares 548,674
14 30,001 35,000 Shares 456,197
11 35,001 40,000 Shares 410,488
8 40,001 45,000 Shares 344,668
10 45,001 50,000 Shares 473,282
3 50,001 55,000 Shares 158,123
1 55,001 60,000 Shares 56,733
4 60,001 65,000 Shares 252,533
2 70,001 75,000 Shares 145,037
2 75,001 80,000 Shares 152,326
4 80,001 85,000 Shares 333,898
2 85,001 90,000 Shares 176,604
3 90,001 95,000 Shares 281,994
1 105,001 110,000 Shares 108,875
1 110,001 115,000 Shares 112,425
1 120,001 125,000 Shares 125,000
1 125,001 130,000 Shares 125,818
1 140,001 145,000 Shares 143,145
1 150,001 155,000 Shares 152,146
2 160,001 165,000 Shares 321,832
1 175,001 180,000 Shares 177,156
1 210,001 215,000 Shares 213,906
1 235,001 240,000 Shares 235,795
1 315,001 320,000 Shares 318,015
1 360,001 365,000 Shares 365,000
1 430,001 435,000 Shares 430,198
1 575,001 580,000 Shares 575,581
1 4,755,001 4,760,000 Shares 4,756,705
1 10,080,001 10,085,000 Shares 10,084,239
1 107,560,001 107,565,000 Shares 107,562,871

4,271 136,537,475

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Categories of Shareholders
(a)
Sr. Categories of Number of Shares Percentage
No. Shareholders Shareholders Held (%)

1 Individuals 2,375 4,526,193 3.32


2 Investment Companies 4 2,017 0.00
3 Insurance Companies 3 68,640 0.05
4 Joint Stock Companies 11 16,393 0.01
5 Financial Institutions 8 67,692 0.05
6 Holding Company 1 107,562,871 78.78
7 Central Depository Company (b) 1,864 24,269,376 17.77
8 Others (see below) 5 24,293 0.02

4,271 136,537,475 100.00

Others:
i Mohsin Trust 1 13,827 0.01
ii The Al-Malik Charitable Trust 1 2,175 0.00
iii Securities Exchange Commission of Pakistan 1 1 0.00
iv Punjabi Saudagar Co-operative Society 1 175 0.00
v The Anjuman Wazifa Sadat-o-Momineen Pakistan 1 8,115 0.01

5 24,293 0.02

(b) Categories of Account holders and Sub-Account


holders as per Central Depository Company of
Pakistan as at December 31, 2006

Sr. Categories of Number of Shares Percentage


No. Shareholders Shareholders Held (%)

1 Individuals 1,765 5,068,444 3.71


2 Investment Companies 10 1,186,523 0.87
3 Insurance Companies 12 6,168,443 4.52
4 Joint Stock Companies 52 332,938 0.24
5 Financial Institutions 11 11,211,933 8.21
6 Modarbas 6 66,095 0.05
7 Foreign Company 1 2,700 0.00
8 Others (see below) 7 232,300 0.17

1,864 24,269,376 17.77

Others:
i Trustees Mohammad Amin WAKF Estate 1 54,000 0.04
ii Trustees Saeeda Amin WAKF 1 31,000 0.02
iii Trustees Kandawala Trust 1 28,626 0.02
iv The Pakistan Memon Educational & Welfare Society 1 43,518 0.03
v Managing Committee Karachi Zorthosti Banu Mandal 1 8,331 0.01
vi Trustees Mrs. Khorshed H. Dinshaw & Mr. Hosh 1 28,350 0.02
vii Trustees D.N.E. Dinshaw Charity Trust 1 38,475 0.03

7 232,300 0.17

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Shareholding information
Categories of Shareholders No. of No. of Shares
Shareholders Held

Holding company:
Setfirst Limited U.K. 1 107,562,871

N.I.T. and I.C.P. :


Investment Corporation of Pakistan 2 257
National Bank of Pakistan (Trustee Department) 2 10,084,264

Directors, CEO and their spouses and minor children:


Mr. M. Salman Burney 1 2,500
Mr. Shahid Mustafa Qureshi 1 3
Dr. Muzaffar Iqbal 1 1
Mr. Rafique Dawood 1 1
Mr. S. Masood Abbas Jaffery 1 187

Executives 8 2,723

Public sector companies and corporation:


Banks, Development Finance Institutions,
Non-Banking Finance Institutions, Insurance
Companies, Modarabas and Mutual Funds. 51 8,689,522

Shareholders holding 10% or more voting interest:


Setfirst Limited U.K. 1 107,562,871

Distribution of Shares

1%
8%
5%
Holding company
Individuals

7% Insurance companies
Financial Instituions

Others

79%

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Contact Details
Factories Distribution / Sales offices
Karachi Karachi
35, Dockyard Road, F/268, S.I.T.E.,
West Wharf, Near Labour Square,
Karachi-74000 Karachi- 75700
Telephones: 2315478-82, Telephones: 2564355-65, 2570665-69,
2316071-73 and 2202701-82 2574120-23, 2572200 and 2564366
Fax: 2311120 and 2314898 Fax: 2570119

94, Deh Landhi, Lahore


Karachi-75120 Cordeiro House,
Telephones: 5015040-44 Plot No. 27, Kot Lakhpat Industrial Estate,
Fax: 5015515 Kot Lakhpat, Lahore
Telephones: 5111061-64 and 5111066-69
F-268, S.I.T.E., Fax: 5111065 and 5111067
Near Labour Square,
Karachi-75700 Multan
Telephones: 2570665-69 and 2564355-65 Islam-ud-din House,
Fax: 2572613 and 2564373 Mehmood Kot,
Bosan Road,
Lahore Multan.
18.5 km, Ferozepur Road, Telephones: 6222061-63 and 6221730-33
P.O. Box No. 244, Fax: 6222064
Lahore.
Telephones: 5811931-35 Islamabad
Fax: 5820821 Aleem House,
Plot No. 409, Sector I – 9,
Industrial Area, Islamabad
Telephones: 4433598, 4435692,
4435695 and 4435589
Fax: 4433706 and 4433708

Peshawar
D’Souza House,
Nasirpur, Near Abid Flour Mills,
G.T. Road, Peshawar.
Telephones: 2261451-52 and 2650115-16
Fax: 2261457

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