Directors' Report to the Shareholders Directors' Report to the Shareholders The Directors are pleased to present their Report

together with Company’s audited financial statements for six months ended December 31, 2009. Operating Results & Performance Overview Company achieved sales of Rs. 5.203 bil lion during six months ended December 31, 2009 which were marginally lower than corresponding period’s sales of Rs. 5.547 billion. Profit after taxation of Rs. 16 1 million grew more than 16% over previous six months figure of Rs. 138 million. This performance is noteworthy especially in view of prevailing non-conducive b usiness conditions. Comparative figures, although, have been reported for the ye ar ended June 30, 2009 but for better understanding figures of corresponding six months have also been reported wherever necessary, in this report. In order to match the seasonal business cycle with the accounting year, Company has adopted calendar year as its accounting year whereby the year-end will not f all in the peak season. As such these accounts have been prepared for six months ended December 31,2009 after obtaining necessary approvals from relevant authorities. Summary of the results is as under : Financial Results (Rs. in Million) 6 months ended December 31, 2009 6 months ended December 31, 2008 Year ended June 30, 2009 Gross Sales 5,203 5,547 16,117 Gross Profit 1,483 1,305 3,337 Operating Profit 839 820 1,757 Profit before tax 224 204 394 Profit after tax 160 139 261 Earnings per share (Basic) - Rupees 1.31 1.17 1.97 Earnings per share (Diluted) - Rupees 1.24 1.06 1.94 Economic Analysis & Company’s Contribution Pakistan has been facing both economic and political instability in parallel to the global financial crisis. Turbulent political and security situation coupled with inflation, trade deficit, adverse balance of payment, circular debt, poor p erformance of state enterprises and stock market have remained the key indicator s of Pakistan’s economy. Lately, Political, Security and Economic indicators are s een taking a positive turn and given the resilience demonstrated by this country in the past, we are confident that this turnaround should continue. GDP growth is likely to achieve the target of 3.3 per cent for the year and gradual recover y is underway. During the period under review, with IMF’s program in place and support from multi lateral lending agencies, country’s foreign exchange reserves have been strengthen ing after going through a worst period in the previous year, but the much needed confidence from domestic as well as foreign investors in the country’s economy re mained weak. This was probably due to instability in political as well security situation together with internal financial woes like liquidity constraints, circ ular debt, unabated inflation, negative growth of large scale manufacturing sect or and slow down in growth of services sector. Robust growth of agricultural sec tor despite worries about availability of water and healthy foreign remittances from overseas Pakistanis are contributing in achieving the GDP growth target. On top of all above was internal strife and intensification of domestic security challenge which caused an extremely high cost to the economy both in terms of d irect cost of war against extremism and in terms of knock-on effect on investmen t inflows and market confidence. Continued international support through IMF’s and other programs, reduction in the current account deficit mainly due to lower oil prices together with growing fo reign remittances have caused foreign exchange reserves to cross US$ 14 billion mark. Relative calm in security situation, silver lining in the agricultural sec tor and recent positive developments on the political front have given rise to a positive sentiment. Stock exchange is bouncing back to win confidence of invest

ors. Bumper wheat, cotton and other crops, with good price received by farmers h as given them enough disposable income to purchase goods and services and hence boost economy. As such the outlook at the end of year is encouraging for compani es to do a good business during the next year. Power Division The gap in demand and supply of energy in the country is on the rise for quite a while resulting into severe load management. This requires huge input from Gove rnment and Private sector on the generation side in different forms such as ther mal, hydel, coal and wind. Funding aspect of fuel supply and the circular debt i ssue also results into less than optimum capacity utilization of the generation facilities. Commensurate investment in the distribution network is also required without which it is deteriorating day by day due to increasing load on old and worn out electrical distribution equipment. Although financial institutions like ADB and World Bank have stepped in, however , the pace of implementation is lower than plans envisaged. Increased pace in th e implementation would play a pivotal role in the improvement of electrical dist ribution network. Keeping in view the challenges in this area, few years ago the company embarked upon a major program of enhancing its capabilities to design and manufacture sta te of the art electrical distribution equipment in the country. We by the Grace of God, are market leaders in the field of distribution transformers and have ta ken a leap in this direction by setting up a new state of the art manufacturing facility for production of new generation of distribution transformers. This has commenced production during the period under review. An estimate of the benefits of replacing the existing population of distribution transformers in the country by the newly designed transformers reveals a minimu m saving of 450 MWs of power in addition to bringing the much needed reliability and stability in the distribution system. Hence with a very modest investment b y electrical utility companies, not only the electrical shortage can be covered, sizeable additional revenue to utilities can be generated. The resultant stabil ity in the system will also enhance the life and productivity of the electrical goods in domestic and industrial usage. Power division manufactures distribution & power transformers, switchgears, ener gy meters and is involved in construction of grid stations and power networks on EPC basis. Share of the power division in the overall sales of the Company duri ng six months ended December 31, 2009 amounted to PKR 2.226 billion. The Company has also diversified its power division business by establishing an Engineering Procurement and Construction (EPC) division which has recognized its elf as a major player in the construction of 132KV grid stations on EPC basis. R ecently PEL was awarded its first 220KV sub-station construction contract. Over the years, PEL electrical equipment has been used in numerous power projects of national importance within Pakistan. Distribution Transformers Setting up of the new manufacturing facility has given a technological edge to t he Company over its competitors not only within the country but also in the enti re Middle East and North African region. The new site is 20 Km away from the pre sent factory on Ferozepur Road and has commenced production during the period un der review. The new designs, in addition to achieving more market penetration on the basis of lower transformation losses, increased strength to sustain over lo ading, ensure smooth power supply, enhanced life and low after sale service will also provide reduction in variable manufacturing costs. Parallel to building the required hardware and the manufacturing facilities, inv estments have been made in acquiring and strengthening the necessary software an d human resource in the engineering design, manufacturing, quality control and m arketing & sales areas. Adequately experienced professionals from local as well as foreign organizations with Pakistani and European nationalities are part of o ur core teams. As part of our continuing R & D activities, we also have acquired technologies a nd developed in-house dry type and smart transformers for specialized applicatio ns.

Power Transformers PEL established its power transformers division in 2005 and has become the leadi ng manufacturer of power transformers in Pakistan capable to produce 132KV power transformers and have started to contribute to revenues and profitability of th e company. The volumetric growth in this area has been exemplary over the past few years. T his has been based on recognition of electrical distribution companies that only improved distribution networks can bring efficiencies in the system and availab ility of stable energy for the final consumer. After completing the full range 132Kva transformers, your company is now in proc ess of acquisition of technology for production of 220 KV Power Transformers. Ed ucational order for 250 MVA, 220 KV Power Transformer is expected from WAPDA soo n. After setting up a solid base of successful performance in Pakistan, we have sta rted export of this product to African and European Markets. Energy Meter The cash machine of Electric Utility Companies is in the process of change from Electro Mechanical to Digital Meters. The features of digital metering include t ime of the day, maximum demand indication, remote access, two way communication and a number of other features that make this equipment a smart product. It also enjoys the confidence of the consumer with respect to its reliability and accur acy. PEL had anticipated this new trend and had timely acquired proven technology. He nce we are able to meet the demand for single and three phase applications by in -house production. The business in this product is showing healthy signs in term s of revenue and profitability and enhanced utilization of production capacities . Switchgear Switchgear business during the current period remained constant due to moderate demand from both private sector as well as from WAPDA. Since implementation of p rograms funded by World Bank and ADB are on the rise, we are expecting more orde rs from public sector. PEL manufactures MV & LV switchgears for indoor & outdoor installations which co mply all requirements of significant international standards & regulations. PEL share in market for switchgear including MV metal clad switchgear cubicles, MV P ad Mounted Transformers, Kiosk Type Substations, LV Power Factor improvement pla nts, Motor control centers & bus tie duct remained stable due to better manageme nt of customer relation. Due to World Bank and ADB financing to WAPDA we are exp ecting more sales as compared to this period. Marketing efforts to accelerate sa les to private sector, WAPDA & also KESC market are well underway. EPC Contracting With restructuring of power sector in Pakistan and increase in economic, commerc ial and industrial activity, more and more power utilities and other customers d emanded high value packaged solutions for their transmission systems and enterpr ise electrification requirements. To meet this demand PEL established an Enginee ring Procurement and Construction division. PEL EPC Division consists of human r esource with high academic qualifications and experience of local as well as glo bal markets. The EPC division delivers custom designed and built solutions in fo llowing areas. • 132kV and 220kV grid stations for power utility companies. • 132kV and 11kV substations for industrial and commercial customers. • Integration of private captive power generation plants into utility network for sale of their surplus power to utility companies. • Electrification of housing projects and industrial parks Business overview - Appliances division The period under review has registered steady growth in Appliances division. Sal es grew to Rs.2.898 billion from Rs. 2.642 billion over corresponding period sho wing an increase of 10%. This performance is noteworthy especially in view of on going power crisis.

Among other reasons, increase in sales of home appliances can be attributed to i ncrease in disposable income of farmers from agricultural products. For instance , according to Economic survey of Pakistan, the disposable income of farmers has grown from Rs. 288 billion in 2003 (for wheat, cotton, rice & sugarcane) to Rs. 900 billion in 2009. With availability of this additional money, demand of home appliances have gained momentum and have come within reach of farmers. Refriger ator for example in addition to preservation of food ensures availability of coo l water. Demand for electrical goods in Pakistan, despite energy crisis and inflationary pressure, is on the rise again and is mainly attributable to shift of majority o f home appliances products from ‘Luxury’ to ‘Necessity’ cadre. We are seeing a shift in demand of ACs from urban to rural areas whereas similar shift in demand has alre ady been witnessed for last 5 to 7 years in Refrigerators with total market incr easing from 200,000 to over 1 million units. Similar trend was observed in Micro wave ovens and Washing machines. Despite shortage of power and load shedding, surge in demand and sales of air co nditioners is seen. This is due to the fact that consumers have buying power for this product and want to use air conditioners even for smaller durations when p ower supply is there. Raw material costs increased in last six months on account of both, in Forex rat es as well as in C & F prices. Increase in other fixed costs were also observed following inflationary trend while energy costs i.e. electricity & generator run ning costs went up sharply due to ongoing power crisis. Consequently selling pri ces of our appliances products during current period had to be increased but inc rease was less than what It was during corresponding period when Pak rupee was d evalued substantially. Assigning of distributorship rights of LG products in Pakistan has started to yi eld positive results. The addition of LG brand implies that PEL will have two le ading brands in both the categories of home appliances and air conditioners with minimal products directly competing with each other. This synergy of brands wil l bring technologically superior products to the customer at competitive prices. Refrigerators: Consumer demand for Refrigerators remained steady despite unfavorable economic c onditions during last six months and we are pleased to report that we achieved o ur six monthly targets of this product. In view of increase in raw material pric es and energy crisis, much against our will, we had to increase selling prices o f Refrigerators and we are satisfied to note that these increases were absorbed by the market. Economical models introduced last year were continued to be well received by the market and have become a permanent part of our Refrigerator range. By offering single price strategy, we have gained huge confidence of our customers which has brought uniformity of pricing across the country. We are planning to introduce new range in Refrigerators offering new features in attractive designs and colors. We have also strengthened our R & D team to upgr ade the existing line up and play a vital role in bringing new series to the mar ket. Forecast for forthcoming season appears to be conducive for our business and wit h the onset summer and , increased consumer demand, we are confident in achievin g our annual targets. Air Conditioners: Air conditioners sold well in the last six months and we are pleased to inform t hat Company achieved its budgeted sales figures of the period. With the inductio n of new models, we now offer wide range of choice to our customers at competiti ve prices. The launch of LG products, especially, air conditioner, will give us an edge and will also compliment PEL brand with the same group of dealers used f or primary sales. The outlook for the next six months appears to be promising as demand for the ne xt six months is anticipated to grow due to increasing temperature in Pakistan. Aggressive advertising and in-store branding has added to enhance consumer perce

ption of PEL brand. Deep Freezers: The ability to produce tailor made B2B projects has helped in securing orders fr om corporate sector. This segment has become permanent feature to our deep freez er business with repeat orders. Proven quality of our products and our prompt af ter sales service has also helped us to maintain and develop stronger relation w ith our valuable corporate customers. Meanwhile, we also intend to increase our dealer network in this category by off ering new models to customers at competitive prices. Other Domestic Appliances This category includes Microwave ovens, Water dispensers and Washing machines wh ich compliment the home appliances range of the Company. PEL emphasizes on each product category through product campaigns, in-time availability & focusing on s hop share. Microwave was the most highlighted in this category which is offered with new & attractive designs for the consumers. PEL has increased Microwave pro duct range by offering different sizes and models meeting varying requirement of our customers. New art flower designs in Microwave range will be shortly added to our Microwave range. In addition, we have launched economical models in water dispenser category to meet the growing customer needs. LG Electronics LG Electronics is one of the world’s top companies in Home Appliances, and as ment ioned in our last annual review, company has acquired distribution rights for it s domestic appliances and air conditioners. Sales for Split ACs constitutes more than 70% of total LG business and majority of split ACs sale takes place in summer. For the forthcoming season, we have pla nned to introduce innovative and attractive models which includes Art Cool, Jet Cool & Exceed. Combined with contemporary technological characteristics, modern designs, the split air conditioner series is a must for luxury and healthy livin g. The new series includes MF (multi-flow) condenser which is 30% lighter, with longer life & energy efficiency due to the new multi-flow technology. LG Refrigerator is known across the globe for its technologically advanced featu res like green ion door cooling system, vitamin plus, bio shield. LG refrigerato r series promises to store things with healthy preservation to keep food fresh a nd in good health so that you can be healthy. The flagship model of LG refrigerators, the side-by-side fridge features premium styling, a soft-touch LED control panel, and easy access to the foods you reach for most. Inside are plenty of adjustable shelves, bins and drawers, a “Moisture Balance Crisper” for longer lasting veggies, even digital controls which react ins tantly to fluctuations in temperature. LG is always at the forefront of advanced technology with special emphasis on he althcare. New and attractive models were also introduced in other products of LG like Solar Dom in Mircowave category which uses light wave cooking instead of c onventional microwaves and is 40% energy efficient. LG Washing Machine has uniqu e feature of Inverter Direct Drive motor which offers energy efficiency & comes with a ten year warranty. Future Outlook PEL is geared towards addressing and meeting the expectation of our customer for quality products in both domestic appliances and electrical equipments. With ac hievement of higher deletion levels, a source of import substitution, the Compan y is effectively contributing towards saving of valuable foreign exchange of the country. PEL future performance will be based on cost savings, increased sales and high operating efficiencies. Various steps have already been introduced with the objective of generating sustainable earnings by focusing on different opera tional areas and business diversifications. As a successful business enterprise, PEL continues to attract great numbers of d iverse and talented people in every discipline. As a corporation, we are committ ed to greater diversity in our workforce and the competitive edge. Pakistan’s economy is also expected to grow largely on account of population, util ization of natural resources, potential of agricultural products and competitive

edge it has towards manufacturing of goods at lesser costs. We are confident th at PEL is well positioned to realize its potential by taking advantage from the expected growth in the economy as our capabilities are alligned with the priorit y of our customers both in power as well as in appliances division. Dividend and equity Stock dividend @ 10% has been declared out of capital reserves for the period en ded December 31, 2009. Transactions with Related Parties Transactions with related parties were made at arm’s length prices determined in a ccordance with the comparable uncontrolled price method. The Company has fully c omplied with the best practices on Transfer Pricing as contained in the relevant rules and regulations. Material Changes The annexed financial statements have been prepared for six months ended Decembe r 31, 2009 as the Company changed its accounting year from June 30th to December 31st . The said change was made after obtaining necessary approvals from releva nt authorities. There have been no other material change since June 30, 2009 and the Company has not entered into any commitment which would affect its financial position at th e date. Statement of Ethics and Business Practices The Board has adopted the statement of Ethics and Business Practices. All employ ees have been informed of this statement and are required to observe these rules of conduct in relation to customers, suppliers and regulations. Earnings per Share Basic Earnings per Share works out to Rs. 1.28 (June 2009 : 1.97). Operating and Financial Data: The key operating and financial data for six years is annexed. Corporate Governance – Statement of Directors' Responsibilities In compliance of the Code of Corporate Governance, we give below the statements on Corporate and Financial Reporting Framework: • The financial statements, prepared by the management of the Company, present fai rly its state of affairs, the result of its operations, cash flows and changes i n equity • Proper books of account of the Company have been maintained • Appropriate accounting policies have been consistently applied in the preparatio n of financial statements and accounting estimates are based on reasonable and p rudent judgment. • International Accounting Standards, as applicable in Pakistan, have been followe d in preparation of financial statements and any departure there from has been a dequately disclosed. • The system of internal control is sound in design and has been effectively imple mented and monitored. • There are no significant doubts upon the Company’s ability to continue as a going concern. • There has been no material departure from the best practices of corporate govern ance, as detailed in the listing regulations. • Value of investments of Provident Fund as on December 31, 2009 is Rs. 305 millio n. • The Board of Directors presently comprises 10 individuals, out of which Five are independent non executive directors while four are working executive directors and one executive director as Managing Director of the company. • Board Meetings Meetings of the board of directors are held regularly to take notice of the resu lts of corporate operations and their management and to make decisions concernin g company’s business activities.Meetings also take place to consider business tren ds and operational plans of the company. During the period under review, Board of Directors held two meetings on October 8, 2009 and October 30, 2009. Attendance by each director during these meetings was as follows:

Name of Director Number of Meetings Attended Mr. M. Naseem Saigol 1 Mr. M. Azam Saigol 1 Mr. Murad Saigol 2 Mr. Zeid Yousaf Saigol 2 Mr. Haroon Ahmad Khan 2 Mr. Muhammad Rafi Khan Ms. Neelofar Hameed (NIT Nominee) 1 Mr. Wajahat A.Baqai (NBP Nominee) 1 (Resigned) Mr. Tajammal H. Bokhari (NBP Nominee) 1 Mr. Rizwan Hameed (NBP Nominee) 1 Pattern of shareholding The information under this head along with information under clause XIX (i) and (j) of the Code of Corporate Governance is annexed. Auditors and their Report M/s Yousaf Adil Saleem & Company, Chartered Accountants, Lahore, retires and bei ng eligible, has offered them for re-appointment. As suggested by the Audit Comm ittee, the Board of Directors has recommended their re-appointment as auditors o f the Company for the year ending December 31, 2010, at a fee to be mutually agr eed. Acknowledgement We take this opportunity to thank all our customers, shareholders, bankers, empl oyees, CBA and workers for their continued help, support and guidance. On behalf of the Board Lahore. April 9, 2010 M. NASEEM SAIGOL Chairman / Chief Executive Officer