Our Mission

Our Mission
do

more
feel

Our quest is to improve the quality of human life by enabling people to

& longer
live

better

Our Vision Our Vision

to the lives of billions of people.

Our value system and operating principles provide the necessary guidance on how we work at

GlaxoSmithKlines vision is the opportunity to make a difference

exciting :

GlaxoSmithKline.
The key to our success is our desire and passion to pursue GlaxoSmithKlines priorities expressed by our business drivers. We are aware that the work we do improves quality of peoples 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 GlaxoSmithKlines 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 requires 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 on our promise.

Contents
Contents
05 06 10 13 17 18 20 21 22 25 30 34 36 37 38 40 41 42 43 71 74
Corporate Information Highlights of the Year History of GlaxoSmithKline Corporate and Social Responsibility Our Products Notice of Annual General Meeting Financial Performance at a Glance Statement of Value Added Key Operating and Financial Data Directors Report to Shareholders Chairman / Chief Executives Review Statement of Compliance with the Code of Corporate Governance Review Report to the members on Statement of Compliance with best practices of Code of Corporate Governance Auditors Report to the Members Balance Sheet Profit and Loss Account Cash Flow Statement Statement of Changes in Equity Notes to and Forming Part of the Financial Statements Shareholding - Pattern, Categories and Information Contact Details Proxy Form

Corporate Information
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 Ms. Talat A. Naseer Chairman / Chief Executive Non-Executive Director Non-Executive Director Legal and Corporate Affairs Director Finance and Information Technology Director Technical Director Director Human Resources & O.D. Chairman Member Member Chairman / Chief Executive Technical Director Finance and Information Technology Director Legal and Corporate Affairs Director Director Medical Services Head of Quality Head of Procurement Director Marketing and Business Development Sales Director Sales Director Country Manager - Consumer Healthcare A. F. Ferguson & Co. Chartered Accountants

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

Management Committee
Mr. M. Salman Burney Dr. Muzaffar Iqbal Mr. Ghulam Mustafa Aziz Mr. Shahid Mustafa Qureshi Dr. Iffat Yazdani Dr. Z. U. Khan Haji Muhammad Hanif Ms. Erum S. Rahim Mr. Pervaiz Iqbal Awan Mr. Maqbool ur Rehman Mr. Sohail Matin

Company Secretary

Mr. Shahid Mustafa Qureshi

Auditors

Chief Financial Officer

Mr. Ghulam Mustafa Aziz

Legal Advisors

Bankers

ABN Amro Bank (Pakistan) Limited Citibank NA Habib Bank Limited Standard Chartered Bank (Pakistan) Limited The HongKong and Shanghai Banking Corporation Limited

Rizvi, Isa, Afridi & Angell Mandviwalla & Zafar Surridge & Beecheno Vellani & Vellani Orr, Dignam & Co.

Registered Office

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

Website:

www.gsk.com.pk

Highlights of the Year Highlights

Financial Performance
Total turnover grew to Rs.10.6 billion. Profit before tax of Rs. 2,659 million. EPS of Rs. 9.79 in this year. Market capitalization of Rs. 33 billion as of December 31, 2007.

Operational

Excellence (OE)

OE initiatives yielded a saving of Rs. 59 million during the year. The Leading Edge program continued in 2007 to bring the cultural change. This program compliment the OE, Quality and EHS drives.

Environment, Health and Safety (EHS)

F-268 Site received Respirator free tablet Compression award in this year.

Effluent Treatment plant has been commissioned at F-268 site for environmental compliance.
Business Continuity Plan desktop exercise conducted against Pandemic Flu preparedness. Seminars conducted to create awareness about Global Warming & Green House Effects. Earth Week celebrated in June 2007.

o f the Year Quality

Management System
Roll out of Customer Complaint System. An automated system to log customer complaints, analyze data and provide greater visibility.

(QMS)

Quality leading edge has also been launched to create the desired quality mindset for QMS implementation.

Research and Development

R&D Pakistan conducted 15 Phase-II & III studies in the therapeutic areas of Oncology, Neurosciences, Psychiatry, Metabolic and Hematology. Pakistan R&D in the top 10 countries internationally.

Certificate of recognition awarded to Dr. Iffat Yazdani for outstanding achievement of bringing
R&D Pakistan received award for "Best Country Highlights" in MENA.

Best Best
Place,
Key Learning Statistics

People

HR team visited 22 universities for career counseling to over 3500 students. New GSK Leadership Framework has been launched promoting a high performance culture. Cafe-Learning, a forum introduced to promote self-learning and development for employees. Team Building events; organized bowling events, snooker tournament, movie show for employees to promote diversity. Conducted Learning Fairs in 4 cities offering a range of courses for employees development and learning exposure.

& Best

Work

Total courses offered during 2007 Average number of participants / course Learning hours / employee

192 23 79

Highlights of the Year Highlights

Marketing and

Sales excellence

#
8

GSK Pakistan: Multiple Firsts !

Pharma Company by Value! Product by Value! Product by Rx! Product by Volume! Rating from Customers!
(According to medical representative satisfaction survey conducted by IMS in Pakistan in 2007).

New Launches

of the Year
NEW

PENICILLIN FACILITY
A state of the art new Penicillin facility has been built at F-268 site to cater for future supply requirements in Pakistan. The facility is a self contained complex to house manufacturing, packaging, quality control, utilities, cafeteria and staff change rooms, with a total covered area of about 77,000 square feet.

The total project cost is Rs 432 million.

The facility has been designed and built to meet current GMP and Safety standards. Compact lay out and flat visual production floor provides added control on the operations. New manufacturing equipments and packaging lines have been acquired to provide higher efficiency and flexibility in operation. The facility is validated and approved by the Ministry of Health. The facility was designed locally by the GSK Leadership team and constructed by the local contractors.

History of Gl
History of GlaxoSmithKline
Glaxo
CELEBRATING

100 YEARS

OF SERVICES

Glaxo, SmithKline and French, Beecham, Wellcome, GlaxoSmithKline; so many names and so much history, its hard to keep all of it in mind at times. Yet looking at the bright orange logo sometimes makes you think this company is about more than someone who works for it can afford to forget. And if you read closely, its actually pretty interesting.

SO WHAT IS

THE HISTORY

Burroughs Wellcome & Company was founded in 1880 in London and Glaxo was founded in Bunnythrope, New Zealand, originally a baby food manufacturer processing local milk into an early baby food. Glaxo became Glaxo Laboratories, and opened new units in London in 1935. To be a stronger force in the medicine market, Burroughs Wellcome and Glaxo merged in 1995 and the new name of the company was GlaxoWellcome. There are four main companies in the history of GSK: Burroughs Wellcome & Company, Glaxo Laboratories, Beecham and SmithKline and French. In 1830, John K. Smith opened its first pharmacy in Philadelphia. The company also wanted to spread all over the world to capture shares in various medicine markets, and to accomplish this they bought 7 more laboratories in Canada and US and changed its name to SmithKline Beckman. In 1988, SmithKline Beckman bought its biggest competitor, International Clinical Laboratories and enlarged by 50%. The next year, Beecham and SmithKline Beckman became one and changed the name of the company to SmithKline Beecham plc. The latest merger occurred in 2000 with GlaxoWellcome. Since 2001, the name of the company has been GlaxoSmithKline.

10

axoSmithKline
GSK at a Glance
1830
John K. Smith opens a drugstore in Philadelphia

1842
Thomas Beecham launches Beechams Pills in England

1880
Burroughs Wellcome & Company was founded

1891
SmithKline & Co. acquires French, Richards & Company

1906
Glaxo is registered by Joseph Nathan & Company as a trademark for dried milk

1929
SmithKline & French becomes research focused

1989
SmithKline & Beecham merge

1995
Glaxo & Wellcome merge

2001
GlaxoSmithKline

11

Did you know

Did

You

Know

GlaxoSmithKline Globally...
The only pharmaceutical company tackling the three WHO

"priority" diseases: HIV/AIDS, tuberculosis and malaria

Four billion packs of medicines and healthcare products manufactured yearly

Over 15,000

people working to discover new drugs 65 million compounds screened every year

A quarter

of the world's vaccines supplied by GSK

More than 100 countries benefit from our humanitarian product donations

12

Corporate and Social Responsibility(CSR)

We believe that our business makes a

valuable contribution to society

by developing and marketing medicines

which improve peoples lives.

Commitment to corporate responsibility

GSK is committed to connecting business decisions to ethical, social and environmental concerns. Thus, corporate responsibility is an integral and embedded part of the way GSK does business.

Community initiatives
GSK makes donations of money, medicines, vaccines, time and equipment to support good causes. Our community investment strategy focuses on improving health and education in under-served communities.

Employee involvement
GSK employees are encouraged to contribute to their local communities through employee volunteering schemes.

Research and innovation

The most important element of corporate responsibility for us is the contribution our products make to health. GSK is involved in various public/private partnership projects researching new medicines and vaccines for diseases disproportionately affecting developing countries, including HIV/AIDS, malaria and TB.

Local CSR initiatives:

GSK is proud of being a good corporate citizen no matter where it does business around the world.

Following are some local CSR initiatives:

Earthquake Disaster Relief contribution. GSK Pakistan has 2 non-profit partners: Concern for Children (CFC) & Trust for Health and Medical Sciences (THMS) in Pakistan. GSK was a significant donor to National Commission for Human Development (NCHD) supporting

Primary Health care Extension Programme.

SKMT & UNHCR (for Afghan Refugees in Pakistan).

13

What is GSK
What is GSK for you?
GSK is a dynamic and global company. Each day presents a new challenge. GSK is like a learning academy, where there is immense opportunity to apply, practice and grow! Plus, working in a superb environment with excellent people has always been an impetus for vigor and achievement.

The place to be with diversified jobs, people, culture and a company that sincerely cares for its internal and external customers with a desire to do more, feel better and live longer.

14

for you?
A company where you get to learn a lot and it has opportunities for those who can improve & change with time. GSK provides ample career development opportunities to those who work hard and are open to change and learning.

GSK provides a continuous learning environment.

Those who have the willingness to face challenges and to excel in their profession are highly energetic, and are ready to learn and grow, are presented with opportunities at GSK in an extremely motivated and pleasant environment.
15

TM

(fondaparinux sodium)

Neomycin Sulphate & Bacitracin zinc

Thiamine HCl, Pyridoxine HCl & Cyanocobalamin

(furazolidone + metronidazole)

aspirin BP 300 mg, paracetamol BP 200 mg, caffeine BP 30 mg

(Furazolidone)

Azathioprine

(Polymyxin B sulphate, Lignocaine HCL & Propylene glycol

Cloxacillin sodium monohydrate

Ampicillin

Chlorpheniramine maleate
Polymyxin B sulphate & Bacitracin Zinc

PAEDIATRIC MULTIVITAMINS

salmeterol/fluticasone propionate

Trimethoprim

Thyroxine

Atracurium Besylate

Vitamin B-Complex with B12

Salbutamol

Vitamin B-Complex with Lysine and Vitamin C

Allopurinol

Our Products Our Products

GlaxoSmithKline discovers, develops, 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, 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.

Antibiotics Augmentin Amoxil Ampiclox Ceporex Septran Penbritin Zinacef Fortum Floxy Orbenin Wellcodox Syraprim Timentin Floxapen Analgesics Panadol Calpol Dicofen Empirin Compound Iodex Respiratory Seretide Ventide Ventolin Flixonase Flixotide Aerolin Beconase Serevent Amphyll Anti-virals Zeffix Valtrex Zovirax Hepsera

Gastro - intestinal & Metabolic Avandia Zantac Tagamet Dyspamet Marzine Maxolon Phillips Milk of Magnesia ENO Central Nervous System Seroxat Imigran Requip Lamictal Kemadrin Migril Vaccines Engerix-B Havrix Infanrix Tritanrix-HB Fluarix Hiberix Typherix Varilrix Priorix Mencevax ACWY Rotarix Eye/Ear Cortisporin Polyfax Betnesol Otosporin Lidosporin

Cough/Cold Actifed-P Actifed-DM Piriton Actidil Anticoagulants Fraxiparine Arixtra Haematinics & Vitamins Fefol Fefol Vit Fesovit Z Revitale B Revitale Multi Starvits Chewcal Cytacon Cytamen Uniplex Wellcosine Anthelmintics Zentel Nemazole Systemic Steroids Betnesol Betnelan Anti-diarrhoeals Dependal-M Furoxone Cardio-vasculars Lanoxin Angised

Dermatologicals Cutivate Betnovate Dermovate Bactroban Polyfax Cicatrin Lotrix Pilzcin Furacin Silvate Oncology Hycamtin Zofran Other Products Zyloric Imuran Thyroxine Relifex Tracium Avodart Dyazide Halfan Horlicks Oral Care Aquafresh Macleans Sensodyne

17

Notice of Annual General Meeting

Notice is hereby given that the SIXTY-FIRST Annual General Meeting of the Shareholders of the Company will be held at Beach Luxury Hotel, Karachi at 11:00 am on Monday, March 31, 2008 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, 2007 and the Auditors' Report thereon; to approve the payment of a dividend.

(b) 2. 3.

To appoint Auditors and fix their remuneration. To elect seven Directors of the Company as fixed by the Board for a term of three years commencing from May 7, 2008 in accordance with the provisions of Section 178(1) of the Companies Ordinance 1984. Retiring Directors are Mr. M. Salman Burney, Mr. Shahid Mustafa Qureshi, Mr. Ghulam Mustafa Aziz, Dr. Muzaffar Iqbal, Mr. Rafique Dawood, Mr. Tariq Iqbal Khan and Ms. Talat A. Naseer. By Order of the Board

Karachi March 7, 2008 Notes: 1.

Shahid Mustafa Qureshi Director / Secretary

The Share Transfer Books of the Company will be closed from March 25, 2008 to March 31, 2008 (both days inclusive) for the purpose of determining the entitlement for the payment of Final Dividend. Article 66 of the Articles of Association of the Company states The Members in General Meeting shall elect the Directors from amongst persons who, not being ineligible in accordance with section 178 of the Ordinance, offer themselves for election as Directors in accordance with this Article. Any person claiming to be eligible who desires to offer himself for election shall, whether he is a retiring Director or not, file with the Company not later than fourteen days before the date of the General Meeting at which Directors are to be elected, a notice that he, being eligible, intends to offer himself for election as a Director at that meeting and that he consents to act as a Director if elected. 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. The shareholders are requested to notify the Company if there is any change in their address.

2.

3.

4.

18

5.

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.

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. 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.

ii)

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. The proxy form shall be witnessed by two persons whose names, addresses and NIC numbers shall be mentioned on the form. Attested copies of NIC or the passport of the beneficial owners and the proxy shall be furnished with the proxy form. The proxy shall produce his/her original NIC or original passport at the time of the meeting. 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.

ii)

iii)

iv) v)

19

Financial Performance at a Glance

2007 Rs. in million Net Sales Gross Profit Operating Profit Profit before Taxation Taxation Profit after Taxation Dividend cash* per share - Rs. issue of bonus shares Paid-up Capital 10,610.9 3,952.1 2,670.1 2,658.5 988.0 1,670.5 1,280.0 7.5 341.3 1,706.7 10,088.2 3,866.7 2,651.2 2,631.9 966.9 1,665.0 1,092.3 8.0 273.1 1,365.4 2006

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

Gross and Operating Profit

4,500 4,000 3,500

3,846 3,506 3,152 2,708 2,467 2,148 1,557

3,867

3,952

Rs. in Million

3,000 2,500 2,000 1,500 1,000 500 0

2,651

2,670

904

2002

2003

2004

2005

2006

2007

Gross Profit

Operating Profit

20

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: 2007 2006 Rupees 000 % Rupees 000 %

Revenue Generated
Total revenue

11,263,254

100.0

10,599,212

100.0

Revenue Distributed
Bought-in-materials and Services Selling, Marketing and Distribution Expenses Administrative Expenses and Financial Charges Income tax Workers' funds and Central research fund Sales tax To Government Cash dividend* Issue of bonus shares To Shareholders Retained in the Business Retained in the business 6,658,753 1,210,818 498,271 988,018 223,912 12,957 1,224,887 1,280,039 341,344 1,621,383 49,142 11,263,254 59.1 10.8 4.4 8.8 2.0 0.1 10.9 11.4 3.0 14.4 0.4 100.0 6,221,581 1,053,388 456,137 966,906 221.662 14,575 1,203,143 1,092,300 273,075 1,365,375 299,588 10,599,212 58.7 10.0 4.3 9.1 2.1 0.1 11.3 10.3 2.6 12.9 2.8 100.0

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

Revenue and its Disposal

Bought-in-materials and Services Selling, Marketing and Distribution Expenses Administrative Expenses and Financial Charges Government Retained in the Business Shareholders 4.4% 10.8% 59.1% 0.4% 10.9% 14.4%

21

Key Operating and Financial Data

2002 Assets employed Fixed assets - property, plant and equipment Investments Deferred taxation Long-term loans and deposits Net current assets*** 1,396 5 57 2,345 3,803 Less: Non-current liabilities Staff retirement benefits - Staff gratuity Deferred taxation Long-term loan 242 1 243 2003 1,461 63 3,316 4,840 198 57 255 4,585 728 3,854 3 4,585 8,101 3,152 1,557 1,548 522 1,026 631 4,112 6.0 7.0 20 31.9 191.1 244.8 77.0 62.9 63.0 3.0 13,916 61.5 4.7 22.4 1.4 5.6 3.7 51 4.2 2.6 38.9 12.7 2004 2005 (Rs. in million) 1,434 407 55 3,877 5,773 149 76 225 5,548 874 4,674 5,548 8,867 3,506 2,148 2,119 648 1,471 757 4,765 8.6 7.0 20 20.9 181.0 236.5 176.0 63.5 63.5 2.9 15,817 51.5 5.0 26.5 1.3 6.2 2.2 50 4.6 3.1 39.5 16.6 1,503 192 47 5,252 6,994 159 97 256 6,738 1,092 5,646 6,738 9,417 3,846 2,708 2,695 881 1,814 1,092 5,087 10.6 8.0 25 17.5 186.3 240.3 162.1 61.7 61.7 3.0 20,350 60.2 5.6 26.9 1.1 6.3 1.9 54 5.1 3.6 40.8 19.3 2006 1,774 96 43 5,827 7,740 66 137 203 7,537 1,365 6,172 7,537 10,088 3,867 2,651 2,632 967 1,665 1,365 5,549 9.8 8.0 25 16.2 157.9 215.8 148.0 55.2 55.2 2.9 21,559 82.0 6.6 22.1 1.1 5.7 2.7 63 4.4 3.1 38.3 16.5 2007 2,237 347 61 5,758 8,403 23 262 285 8,118 1,707 6,411 8,118 10,611 3,952 2,670 2,659 988 1,671 1,621 5,850 9.8 7.5 25 19.6 192.4 210.0 151.0 47.6 47.6 4.0 32,837 97.0 5.2 20.6 1.1 4.7 3.5 69 4.3 3.0 37.2 15.7

Net assets employed

Financed by Issued, subscribed and paid-up capital Reserves Surplus on revaluation of fixed assets

3,560 506 3,051 3 3,560 6,993 2,467 904 886 344 542 404 3,146 3.2 6.0 20 26.4 84.6 93.0 71.0 70.3 70.4 1.2 4,278 74.5 9.5 15.2 1.4 5.0 5.4 52 2.8 1.7 35.3 7.8

Shareholders' equity Turnover and profit

Net sales Gross profit Operating profit Profit before taxation Taxation Profit after taxation Dividend including bonus shares* Sales per employee (Rs. in '000)

Ratios

Earnings per share - Rs.** Cash dividend per share - Rs. Bonus shares (%) Price earning ratio (times) Market value per share - year end - Rs. Market value per share - high - Rs. Market value per share - low - Rs. Break-up value per share-without surplus on revaluation-Rs. Break-up value per share-with surplus on revaluation-Rs. Market price to Book value with surplus(times) Market capitalisation (Rs in million) Dividend payout (%) Dividend yield (%) Return on equity (%) Total assets turnover (times) Fixed assets turnover (times) Debtors turnover (days) Inventory turnover (days) Current ratio*** Acid test ratio*** Gross profit margin (%) Net margin (%)
Notes:

* 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. *** Figures/ratios for 2002 include final dividend declared by the Board of Directors subsequent to the year-end.

22

Return on equity
30
35

Price Earning Ratio

31.9 26.4 20.9 17.5 16.2 19.6
30

26.5
25 20 15 10 5 0

26.9 22.1 20.6 Times

22.4 15.2

25 20 15 10 5 0

Percentage

2002

2003

2004

2005

2006

2007

2002

2003

2004

2005

2006

2007

Debtors Turnover Ratio

6.0 5.0 80

Inventory Turnover Ratio

70 60

5.4

63 52 51 50 54

69

Number of days

4.0 3.0 2.0 1.0 0

Number of days

3.7 2.2 2.7 1.9

3.5

50 40 30 20 10 0

2002 2003 2004 2005 2006 2007

2002 2003 2004 2005 2006 2007

Assets & Liabilities

7,000 5,827 5,758 6,000 5,000 5,252 6 5

Current Ratio
5.1 4.2 Rs. in million
4 3 2 1 0

4.6

4.4

4.3

Rs. in million

4,000 3,000 2,000 243 62 1,000 0 2,345

3,316

3,877

1,396

225 462

1,434

1,461

1,503

1,774

256 239

2002

2003

2004

2005

203 139

2006

285 408

255 63

2007

2,237

2.8

Non-current Liabilities

Non-current Assets

Net Current Assets

Property, plant and equipment

2002

2003

2004

2005

2006

2007

Note: Figures/ratios for 2002 include final dividend declared by the Board of Directors subsequent to the year-end.

23

Board of Dir
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

Ms. Talat A. Naseer

24

Directors Report to Shareholders

The Board of Directors of GlaxoSmithKline Pakistan Limited is pleased to present the annual report and the Companys audited financial statements for the year ended December 31, 2007. The directors report is prepared under section 236 of the Companies Ordinance, 1984 and clause xix of the Code of Corporate Governance. This report is to be submitted to the members at Sixty first Annual General Meeting of the Company to be held on March 31st, 2008. The Directors, CEO, Company Secretary and CFO, their spouses and minor children did not carry out any trade in the shares of the Company.

Chairman / Chief Executives review

The Chairman / Chief Executives review on pages 30 to 33 deals with: The performance of the Company during the year in comparison to last year with reasons for variances. Significant plans and decisions. Future outlook and Challenges.

Operating results
Rs. in million Profit for the year before taxation Taxation Profit after taxation Un-appropriated profit brought forward Profit available for appropriation Appropriations: - Issue of bonus shares - Final dividend for the year ended December 31, 2006 Un-appropriated profit carried forward 2,658.5 988.0 1,670.5 1,798.2 3,468.7 (341.3) (1,092.3)

The directors of the Company endorse the contents of the same.

Basic earnings per share

Basic earnings per share after taxation were Rs. 9.79 (2006: Rs. 9.76).

Earnings per Share

12 10 8

10.6 8.6 6.0 3.2

9.8

9.8

Rupees

2,035.1

6 4 2 0

The Company achieved net sales of Rs 10.6 billion, grew by 5.2% in 2007. Profit after tax in this year was Rs 1,671 million. The Board of Directors is pleased to propose a final cash dividend of Rs. 7.50 per share amounting to Rs. 1,280.04 million.

2002

2003

2004

2005

2006

2007

Holding company

Corporate and social responsibility

As at December 31, 2007, Setfirst Limited UK held 134,453,588 shares of Rs. 10 each. The ultimate parent of the company is GlaxoSmithKline plc, UK.

Corporate responsibility is an integral and embedded part of the way GSK does business, and GSK is committed to connecting business decisions to ethical, social and environmental concerns. We are deeply involved with our communities and are significant corporate donors to numerous NGOs and also the National Commission for Human Development (NCHD). We consider it our responsibility to nurture the environment we operate in, to extend support to our community.

Pattern of Shareholding

The Company shares are traded in Karachi and Lahore stock exchanges. The shareholding information as at December 31, 2007 and other related information are set out on pages 71 to 73.

25

GSK is also an active supporter of charitable activities which include supporting medical camps, welfare organizations and donating to sponsoring various medical institution and hospitals. The company has set up and supports two community trusts/ NGOs i.e. Concern for Children Trust (CFC ) and Trust for Health and Medical Sciences, which work in the underserved communities of Landhi and Mohammadi (Machar) Colony in Karachi and are involved in the design, implementation and replication of models for the sustainable development with specific emphasis on primary healthcare and education.

grow and contribute meaningfully to the organizations overall strategy. This gives us the opportunity to thrive on diverse ideas and perspectives, enabling us to: Attract and retain best people. Enhancing customer intimacy by meeting their needs in a highly customized manner. Work effectively with other public and private sector organizations. GSK is proud to promote an open culture, encouraging people to be themselves and giving their ideas a chance to flourish. GSK is an equal opportunity employer

Human resource

Attracting and retaining the best people is critical in enhancing and sustaining any companys performance. Faced with challenges such as an increasingly diverse workforce in a complex and competitive environment, GSK Pakistan continues to provide a fulfilling, healthy environment where our employees can learn, grow and develop.

Environment, Health and Safety

Environment, health and safety (EHS) is a key element of corporate responsibility for the GSK and has a high priority. GSK is committed to working towards designing a workplace that minimizes workrelated risks to occupational health and safety. GSK Pakistan in its efforts for environmental compliance has commissioned a compliant effluent treatment plant at its F268 Site. GSK Earth week was celebrated in June 2007. Seminar conducted during earth week celebrations at F-268 site inorder to create awareness about Global warming and Green House effect among the employees. In a community partnership project with Concern for Children Trust, school children were provided with pots which they painted and planted saplings for environmental awareness. West Wharf site achieved over 2 million man hours without Lost Time Injury and Illness. GSK Pakistan also received Respirator free tablet Compression award in this year. Moreover, GSK Pakistan was awarded first prize in the poster competition on EHS. Health & Safety Week Celebrations were carried out in October 2007. An Ergo tool project was also launched in this year and training provided to 100 employees. Environmental targets are monitored on a continuous basis and environmental impacts identified and managed in line with required standards.

Sales per Employee

7 6

Rs. in million

5 4 3 2 1 0

4.8 4.1 3.1

5.1

5.5

5.8

2002

2003

2004

2005

2006

2007

GSKs HR function contributes to organizational performance by aligning people and processes in line with GSKs strategic policy and mission whilst recognizing the importance of human knowledge, skills and competencies. The HR team provides learning activities that compliment staffing practices to provide skill enhancement and opportunities for development.

Diversity

GSK Pakistan believes that a diverse workforce is essential to the Companys leadership in the Pharmaceutical industry in Pakistan. We encourage and practice an inclusive corporate culture where every employee has the opportunity to learn,

26

Statement of ethics and business practices

Performance with integrity is central to operating at GSK. The Board of Directors of the Company has adopted a statement of ethics and business practices. All employees are informed and aware of this and are required to observe these rules of conduct in relation to business and regulations.

Management Committee

The Management Committee comprises of 11 senior members who meet and discuss important business plans, issues and progress made in their functions. Significant matters to be put forth in the Board are discussed for onward approval by the Board.

Board of Directors meetings and attendance

The Board of Directors met five times in 2007, with each member attending as follows: Name Mr. M. Salman Burney Mr. Tariq Iqbal Khan Mr. Rafique Dawood Mr. Shahid Mustafa Qureshi Mr. Ghulam Mustafa Aziz Dr. Muzaffar Iqbal Syed Masood Abbas Jaffery * Meetings attended 5 2 5 5 5 4 -

Auditors

The present auditors, Messrs A.F. Ferguson & Co. Chartered Accountants, retire and being eligible, offer themselves for reappointment. The Board of Directors endorses recommendation of the Audit Committee for their re-appointment as auditors of the Company for the financial year ending December 31, 2008, at a fee to be mutually agreed.

Subsequent events

No material changes or commitments affecting the financial position of the Company have occurred between the end of the financial year of the Company and the date of this report.

Value of investments of provident and gratuity funds

The Company maintains retirement benefits plans for their employees. Value of investments of provident and gratuity funds based on their un-audited accounts as on December 31, 2007 (audit in progress) was as follows: 2007 Rupees 000 Provident fund 875,671 Gratuity fund 386,098

* Ms Talat A. Naseer was appointed as Director with effect from November 30, 2007 to fill the casual vacancy caused by the resignation of Syed Masood Abbas Jaffery from the Board. Leave of absence was granted to the Directors who could not attend some of the board meetings.

Audit Committee

An Audit Committee has been in existence since May 2002. The committee consists of three members, of whom two are non-executive directors including the chairman of the committee. The terms of reference of the Committee have been determined by the Board of Directors in accordance with the guidelines provided in the Listing Regulations and advised to the Committee for compliance. The Committee held four meetings during the year. An independent Internal Audit function reporting to the Boards Audit Committee reviews risks and controls across the organization, and utilizes the services of independent audit firms for continuous reviews of internal controls and management of risks.

Investment in Funds-2007
31% 69%

Provident fund

Gratuity fund

27

Following a reorganization of retirement benefit schemes, the company has discontinued its pension scheme through commutation or the provision for annuities to the beneficiaries.

Corporate and financial reporting framework

a. The financial statements, prepared by the management of the Company, present fairly its state of affairs, the result of its operations, cash flows and changes in equity. b. Proper books of account of the Company have been maintained. c. Appropriate accounting policies have been consistently applied in preparation of financial statements and accounting estimates are based on reasonable and prudent judgment. d. The financial statements are prepared in accordance with International Financial Reporting Standards, as applicable in Pakistan.

e. The Company maintains a sound internal control system which gives reasonable assurance against any material misstatement or loss. The internal control system is regularly reviewed. This has been formalized by the Boards Audit Committee and is updated as and when needed. f. There are no significant doubts upon the Companys ability to continue as a going concern. g. There has been no material departure from the best practices of Corporate Governance as detailed in the listing regulations. h. There has been no departure from the best practices of transfer pricing. i. The key operating and financial data for the six years are set out on page 22.

By order of the Board

M. Salman Burney Chairman / Chief Executive Karachi February 22, 2008

Ghulam Mustafa Aziz Director

28

Excellence
It proved to be yet

Excellence Awards 2007

another year of extensive external
with independent bodies presenting the company with
recognition for GlaxoSmithKline Pakistan,

prestigious awards.

GlaxoSmithKline Pakistan was awarded the

24th Corporate Excellence Award

in Business and Industrial category by the Management Association of Pakistan (MAP) on 22nd March 2007. Engage Human Resources in collaboration with the Pakistan Society for Human Resources Management (PSHRM) selected GlaxoSmithKline Pakistan as winner of
its Most

Preferred Pharmaceutical Company 2007 Award.

People as Key Resource Award

In Consumer Healthcare, Macleans won the Consumer Choice Award by Consumer Association of Pakistan for

GlaxoSmithKline Pakistan is also one of the eight companies out of ninety who have been given

by Employers Federation of Pakistan in National Employers Convention held on December 10, 2007.

Best Toothpaste

29

Chairman/Chief Executives Review

It gives me immense pleasure to present the Annual Report of your Company for the financial year ended December 31, 2007. Economy & Market Pakistans economy continued to perform well and despite political turmoil consolidated the growth achieved in past years. Economic growth was maintained at approximately 7% in fiscal year 200607 on the back of robust growth in agriculture, manufacturing and services and also increase in foreign investment. However inflation remained a challenge for the Government and also particularly to our industry by impacting costs. The pharmaceutical industry is a highly competitive and challenging business in Pakistan. The Pakistans pharmaceutical industry with market size of around Rs 85 billion(US$ 1.4 billion), has shown growth of approximately 9% in this year with over 400 manufacturing and importing companies competing in a highly genericised market. Pharmaceutical Turnover Your Company delivered a good financial performance in 2007 despite rising inflation which impacted costs and margins. Sales growth was driven over a wide portfolio despite issues with raw material availability which constrained production of a few key products. The Company continued to retain its position as the largest research based pharmaceutical company in Pakistan in terms of value, prescription and volume shares. Out of top fifteen products in Pharmaceutical industry, eight are manufactured and sold by GlaxoSmithKline. Review of Operating results As mentioned earlier, the year 2007 witnessed rising inflation and high oil prices which adversely affected our operating margins. The company remained focused on continuous improvement in business processes and sustained investment in product promotion to offset the negative impact on margins through productivity improvements and sales growth. GSK Pakistan achieved a turnover of Rs 10.6 billion for the year, an increase of Rs 523 million (5.2%). This increase in sales was driven by double digit growth in the Vaccines, Dermatology, Antivirals and CNS portfolios. We also saw good momentum in the growth of new products that were launched in recent years. Sales growth was constrained due to raw material supply shortages for a few major products due to import restrictions. These have now been resolved and should positively impact sales in 2008.

Net Sales
12,000 10,000

Rs. in million

8,000 6,000 4,000 2,000 0

6,993

8,101

8,867

9,417

10,088

10,611

2002

2003

2004

2005

2006

2007

30

The export business grew by 19.4% to Rs 256 million. Major export markets include Afghanistan and Sri Lanka. Consumer Healthcare product sales decreased by 24.5% in this period, however product improvements and investments in product promotion coupled with a renewed distribution setup should be able to bring overall improvement in the business during 2008. The Animal Health portfolio maintained a positive trend and achieved sales of Rs 99 million. The gross margin for the year was 37.25 % compared to 38.33% in 2006. This is due to higher inflation and increased raw and packing material prices. However operational excellence and cost containment initiatives continue in manufacturing operations, commercial and procurement to mitigate rising costs. Selling, marketing and distribution expenses increased by 15%. Administrative expenses increased by 11%. Increases under these heads reflect the impact of overall general inflation. Other operating income was recorded at Rs 639 million, increasing by Rs 143 million mainly due to income from pension fund receivable. Profit before tax of Rs. 2,659 million, was achieved during the year reflecting an increase of 1% from previous year. Net profit for the year after accounting for tax charges of Rs. 988 million amounted to Rs. 1,671 million.
Rs. in million

Profit after Tax

2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0

1,814 1,471 1,026 542

1,665

1,671

2002

2003

2004

2005

2006

2007

The Company continues to use its strong cash flows to make the required levels of investments in business necessary to sustain long term growth. Capital expenditure in this year was Rs. 646 million (2006: Rs. 472 million) of which a significant proportion relates to the new Penicillin manufacturing facility. The Company commissioned this manufacturing facility in S.I.T.E Karachi this year. The total cost incurred on the project is Rs 432 million and it will provide higher quality, efficiency and flexibility in manufacturing operations of our largest products.

Capital Expenditure
700 600 500

646 472

Rs. in million

400 300 200 100 0

189

247 172

265

2002

2003

2004

2005

2006

2007

31

The Cash position recorded as at December 31, 2007 was Rs. 4,253 million reflecting a decline of Rs 414 million mainly due to increased dividend payouts and capital expenditure. The Company has maintained its history of good return and payout to shareholders. The Board of Directors in its meeting held on February 22, 2008 proposed a cash dividend of Rs. 7.50 (2006: Rs 8.0)

Companys sustained business success. The Companys market capitalization has increased over the last 5 years from Rs 4 billion in 2002 to Rs 33 billion as at December 31, 2007. Future outlook and Challenges We continue to see good progress in the launching of new products, which will be able to create value for our shareholders in the future and provide new and affordable healthcare solution to patients. An area of particular focus for the company in Pakistan is the area of preventive healthcare & vaccines. GSK is the worlds leading developer and manufacturer of vaccines. The potential to cost effectively prevent disease and protect health in Pakistan is significant, and the company sees this as an area of great opportunity for adding value to the healthcare sector in the country. The pharmaceutical industry in Pakistan has great potential for growth. However, its sustained success depends on a regulatory environment which is able to balance the interests of this research based industry, with the need for affordable healthcare. Prices of pharmaceutical products have now remained unchanged since 2001 and there has been no offset given to account for the adverse impact of increasing inflation (particularly in energy and fuel costs), raw and packing material costs and devaluation. This is clearly unsustainable for any business and a price increase is now essential if this industry is to develop in the future.

Payout to Shareholders
2,200 1,700

341 273 218 121 101 303 2002 510 2003 612 2004 874 2005 1,092 2006 1,280 2007 146

Rs. in million

1,200 700 200 (300)

Cash Dividend

Bonus Shares

per share. This is in addition to the interim issue of 1 bonus share for every four shares held (25%) which took place in August 2007. Over the last few years, payout as well as shareholder value has increased significantly as a result of

Market Capitalisation
35,000 30,000 25,000

32,837

Rs. in million

20,000 15,000 10,000 5,000

-

20,350 13,916 4,278 2002 2003 2004 2005 15,817

21,559

2006

2007

32

Intellectual Property The protection of intellectual capital and property is important to ensure returns for the very substantive costs of researching and commercializing new treatments. 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 industry and also lead to a quality and researchoriented culture which is vital for the future progress of this industry. Acknowledgment The companys sustained success has been due to the strong commitment and dedication of its employees. At GlaxoSmithKline, the best people do their best work with great enthusiasm and commitment

and produce phenomenal results in the face of many challenges. On behalf of the Board I would like to acknowledge the contribution of all the companys employees towards the continued success of company. Throughout the year, industrial relations remained cordial and GSK is committed to maintain a good working environment where employee contributes their best as a team reflecting a common spirit.

M. Salman Burney Chairman / Chief Executive Karachi February 22, 2008

33

Statement of Compliance with the Code of Corporate Governance

for the year ended December 31, 2007
This statement is being presented to comply with the Code of Corporate Governance contained in the listing regulations of Karachi and Lahore Stock Exchanges for the purpose of establishing a framework of good governance, whereby a listed company is managed in compliance with the best practices of corporate governance. The Company has applied the principles contained in the Code as follows: 1. The Company encourages representation of independent non-executive directors and representation of minority interests on its Board of Directors. At present, the board includes two non-executive directors one of whom represents minority shareholders interests. 2. The directors have confirmed that none of them is serving as a director in more than ten listed companies including this company, except for Mr. Tariq Iqbal Khan representing NIT, who has been specifically exempted by the Securities and Exchange Commission of Pakistan for holding directorship in more than ten listed companies. 3. All the resident directors of the Company are registered as taxpayers and none of them has defaulted in payment of any loan to a banking company, a DFI or a NBFI or, being a member of Stock Exchange, has been declared as a defaulter by that Stock Exchange. 4. The Company has a vision/ mission statement and overall corporate strategy. All policies of the Company are governed by the Corporate Governance Charter which has been approved by the Board. 5. The Company has prepared a Statement of Ethics and Business Practices which has been signed by all the directors and employees of the Company. 6. One casual vacancy occurred in the Board of Directors during the year ended December 31, 2007. 7. The powers of the Board have been duly exercised and decisions on material transactions, including appointment and determination of remuneration and terms and conditions of employment of CEO and other executive directors have been taken by the Board, and significant matters are documented by a resolution passed by the Board. 8. The meetings of the Board were presided over by the Chairman and the Board met at least once in every quarter. Written notices of the Board meetings, along with the agenda were circulated at least seven days before the meetings. The minutes of the meetings were appropriately recorded and circulated. 9. There was no new appointment of CFO or Company Secretary during the year. 10. All the directors on the Board are fully conversant with their duties and responsibilities as directors of corporate bodies. The Board had previously arranged an orientation course of the Code of Corporate Governance for its directors to apprise them of their role and responsibilities. 11. The directors report for this year has been prepared in compliance with the requirements of the Code and fully describes the salient matters required to be disclosed. 12. The financial statements of the Company were duly endorsed by the CEO and CFO before the approval of the Board. 13. The directors, CEO and executives do not hold any interest in the shares of the Company other than that disclosed in the pattern of shareholding. 14. The Company has complied with all the corporate and financial reporting requirements of the Code.

34

REPORT

15. The Audit Committee has been in existence since May 2002. It comprises of three members, of whom two are non-executive directors including the chairman of the committee. 16. The Board has outsourced the internal audit function to Ford Rhodes Sidat Hyder & Co. who are considered suitably qualified and experienced for the purpose and are conversant with the policies and procedures of the Company and they are involved in the internal audit function on a full time basis. 17. The meetings of the audit committee were held at least once in every quarter prior to approval of interim 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 the Quality Control Review Program of the Institute of Chartered Accountants of Pakistan, that they or any of the partners of the firm, their spouses and minor children

do not hold shares of the Company and that the firm and all its partners are in compliance with International Federation of Accountants (IFAC) guidelines on code of ethics as adopted by the Institute of Chartered Accountants of Pakistan. 19. The statutory auditors or the persons associated with them have not been appointed to provide other services except in accordance with the listing regulations and the auditors have confirmed that they have observed IFAC guidelines in this regard. 20. We confirm that all other material principles contained in the code have been complied with.

M. Salman Burney Chairman / Chief Executive Karachi February 22, 2008

REPORT

35

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 Companys 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 Boards 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 Companys 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, 2007.

A. F. Ferguson & Co. Chartered Accountants Karachi February 22, 2008

36

REPORT

Auditors Report to the Members

We have audited the annexed balance sheet of GlaxoSmithKline Pakistan Limited as at December 31, 2007 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 companys 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) (b) in our opinion, proper books of account have been kept by the company as required by the Companies Ordinance, 1984; 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; the expenditure incurred during the year was for the purpose of the company's business; and the business conducted, investments made and the expenditure incurred during the year were in accordance with the objects of the company;

(ii) (iii) (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, 2007 and of the profit, its cash flows and changes in equity for the year then ended; and 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.

(d)

A. F. Ferguson & Co. Chartered Accountants Karachi February 22, 2008

REPORT

37

Balance Sheet
as at December 31, 2007
Note 2007 Rupees 000 SHARE CAPITAL AND RESERVES Authorised capital 250,000,000 (2006: 150,000,000) ordinary shares of Rs. 10 each Issued, subscribed and paid-up capital Reserves 3 4 2006

2,500,000 1,706,719 6,410,922 8,117,641

1,500,000 1,365,375 6,171,543 7,536,918

NON-C CURRENT LIABILITIES Staff retirement benefits - staff gratuity Deferred taxation 5 6 23,192 262,458 285,650 CURRENT LIABILITIES Trade and other payables Taxation 7 1,698,374 62,844 1,761,218 1,598,432 105,374 1,703,806 66,057 137,041 203,098

CONTINGENCIES AND COMMITMENTS

8 10,164,509 9,443,822

M. Salman Burney Chairman / Chief Executive

Ghulam Mustafa Aziz Chief Financial Officer

38

Note

2007 Rupees 000

2006

NON-C CURRENT ASSETS Fixed assets - property, plant and equipment Long-t term loans to employees Long-t term deposits Investments CURRENT ASSETS Stores and spares Stock-in-trade Trade debts Loans and advances Trade deposits and prepayments Accrued return on investments and bank deposits Refunds due from the government Other receivables Investments Cash and bank balances 17 18 11 19 12 13 14 15 16 107,199 2,277,175 116,847 81,039 84,348 109,851 14,898 378,071 98,229 4,252,745 7,520,402 64,996 2,195,407 84,697 64,589 76,420 189,829 39,430 49,416 99,100 4,666,470 7,530,354 11 9 10 2,236,720 53,755 6,808 346,824 1,774,449 35,786 6,808 96,425

10,164,509

9,443,822

The annexed notes 1 to 38 form an integral part of these financial statements.

M. Salman Burney Chairman / Chief Executive

Ghulam Mustafa Aziz Chief Financial Officer

39

Profit and Loss Account

for the year ended December 31, 2007
Note 2007 Rupees 000 2006

Net sales Cost of goods sold Gross profit Selling, marketing and distribution expenses Administrative expenses Other operating expenses Other operating income Operating profit Financial charges Profit before taxation Taxation Profit after taxation

20 21

10,610,882 (6,658,753) 3,952,129

10,088,247 (6,221,581) 3,866,666 (1,053,388) (436,821) (221,662) 496,390 2,651,185 (19,316) 2,631,869 (966,906) 1,664,963

22 23 24 25

(1,210,818) (486,721) (223,912) 639,415 2,670,093

26

(11,550) 2,658,543

27

(988,018) 1,670,525

Earnings per share

28

Rs. 9.79

Rs. 9.76

The annexed notes 1 to 38 form an integral part of these financial statements.

M. Salman Burney Chairman / Chief Executive

Ghulam Mustafa Aziz Chief Financial Officer

40

Cash Flow Statement

for the year ended December 31, 2007

Note 2007 Rupees 000 2006

CASH FLOW FROM OPERATING ACTIVITIES Cash generated from operations Staff gratuity paid Taxes paid (Increase)/Decrease in long-term loans to employees Decrease in long-term deposits Net cash from operating activities CASH FLOW FROM INVESTING ACTIVITIES Fixed capital expenditure Proceeds from sale of operating assets Investments purchased Investments encashed Return received on investments Net cash used in investing activities CASH FLOW FROM FINANCING ACTIVITIES Dividend paid Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 19 19 (1,086,652) (413,725) 4,666,470 4,252,745 (869,186) 676,320 3,990,150 4,666,470 (646,101) 36,385 (346,394) 100,000 32,147 (823,963) (471,772) 26,404 200,000 25,000 (220,368) 29 2,512,355 (91,020) (906,476) (17,969) _ 1,496,890 3,087,966 (129,550) (1,196,524) 3,782 200 1,765,874

The annexed notes 1 to 38 form an integral part of these financial statements.

M. Salman Burney Chairman / Chief Executive

Ghulam Mustafa Aziz Chief Financial Officer

41

Statement of Changes in Equity

for the year ended December 31, 2007
Share capital Share premium Capital reserve Exchange loss on issue of shares Reserve arising on amalgamation For issue of bonus shares Rupees 000 Fair value reserve General reserve Unappropriated profit Total

Balance at January 1, 2006 Final dividend for the year ended December 31, 2005 @ Rs 8.00 per share Transfer to reserve for issue of bonus shares Issue of 1 bonus share for every 4 shares held Profit after taxation for the year ended December 31, 2006 Surplus on revaluation of available-for-sale investments Balance at December 31, 2006 Final dividend for the year ended December 31, 2006 @ Rs 8.00 per share Transfer to reserve for issue of bonus shares Issue of 1 bonus share for every 4 shares held Profit after taxation for the year ended December 31, 2007 Surplus on revaluation of available-for-sale investments

1,092,300

1,409

375,563

(11,481)

3,999,970

1,280,192

6,737,962

273,075

(873,840) (273,075)

(873,840) -

273,075

(273,075)

1,664,963

1,664,963

1,365,375

1,409

375,563

7,833 (3,648)

3,999,970

1,798,240

7,833 7,536,918

341,344

(1,092,300) (341,344)

(1,092,300) -

341,344

(341,344)

1,670,525

1,670,525

2,498

2,498

Balance at December 31, 2007

1,706,719

1,409

375,563

(1,150)

3,999,970

2,035,121

8,117,641

The annexed notes 1 to 38 form an integral part of these financial statements.

M. Salman Burney Chairman / Chief Executive

Ghulam Mustafa Aziz Chief Financial Officer

42

Notes to and Forming Part of the Financial Statements

for the year ended December 31, 2007
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

The principal accounting policies applied in the preparation of these financial statements are set out below. 2.1 Basis of preparation Statement of compliance These financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board as are notified under the Companies Ordinance, 1984, provisions of and directives issued under the Companies Ordinance, 1984. In case requirements differ, the provisions or directives of the Companies Ordinance, 1984 shall prevail. Critical accounting estimates and judgements 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 which have been disclosed in the respective notes to the financial statements are: i) Provision for retirement benefits ii) Impairment of property, plant and equipment iii) Provision for obsolete and slow moving stock iv) Provision for doubtful receivables v) Taxation Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. There have been no critical judgments made by the company's management in applying the accounting policies that would have effect on the amounts recognised in the financial statements. Recent accounting developments Standard and amendment effective in 2007 IAS 1 (Amendment), 'Presentation of Financial Statements - Capital Disclosures', is mandatory for the company's accounting period beginning on or after January 1, 2007. It introduces new disclosure relating to company's objectives, policies and processes for managing capital. Adoption of this amendment only impacts the format and extent of the disclosure presented in note 34 to the financial statements.

43

The Securities & Exchange Commission of Pakistan has directed the application of IFRS 2 - "Share-based Payment" issued by the International Accounting Standards Board to be followed with regard to the preparation of financial statements. Standards interpretations effective in 2007 but not relevant There are other accounting standards and new interpretations that are mandatory for accounting periods beginning on or after January 1, 2007 but are considered not to be relevant and have no significant effect to the company's operations and are therefore not detailed in these financial statements. Standards, amendment and interpretations not yet effective but relevant Following accounting standard, amendment and interpretations to approved accounting 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', issued in September 2007 revises the existing IAS 1 and requires apart from changing the names of certain financial statements, presentation of transactions with owners in the statements of changes in equity and with non-owners in the Comprehensive Income statement. The revised standard will be effective from January 1, 2009. Adoption of the above standard will only impact the presentation of the financial statements. IAS 23 (Amendment), 'Borrowing costs' (effective from January 1, 2009). It requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use) as part of the cost of that asset. The option of immediately expensing those borrowing costs will be withdrawn. IFRIC 11 - 'IFRS 2 - Group and treasury share transaction', (effective from March 1, 2007). IFRIC 11 provides guidance on how share-based transactions involving group companies shares are accounted for in the stand alone financials of the subsidiary companies. IFRIC 13 'Customer loyalty programs' (effective from 1 July 2008). IFRIC 13 clarifies that where goods and services are sold together with a customer loyalty incentive (for example, loyalty points or free products), the arrangement is multiple - element arrangement and the consideration receivable from the customer is allocated between the components of the arrangement using fair values. IFRIC 14, 'IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction' (effective from 1 January 2008). IFRIC 14 provides guidance on assessing the limit in IAS 19 on the amount of pension asset or liability may be affected by a statutory or contractual minimum funding requirement. 2.2 Overall valuation policy 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. Contributions to the funded gratuity schemes are based on actuarial recommendations. The latest actuarial valuations of the schemes were carried out as at December 31, 2007 using the Projected Unit Credit method.

44

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 funds 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 gratuity schemes. The company has discontinued the pension scheme effective January 1, 2007. In this respect, a Supplemental Trust Deed was executed by the Trustees and approved by the Commissioner of Income Tax, under which the beneficiaries of the scheme, based on actuarial recommendation, would either be paid a lump sum amount or an annuity would be provided to them through an insurance arrangement. Accordingly, based on an actuarial recommendation, the loss arising due to additional benefits to nonpensioner beneficiaries (i.e. employees currently in service) amounting to Rs. 94.71 million has been recognised as a settlement loss and the amount of actuarial gain as a consequence of discontinuance of pension scheme amounting to Rs 222.05 million has been recognised as income in these financial statements. The Pension Fund will be wound up in due course after the liabilities have been paid and assets of the Fund are realised. 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 all 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. 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.

45

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 values and useful lives 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 thousand 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-f for-s 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. Available for sale investments are initially recognised at fair value plus transaction cost and subsequently recognised at fair value. 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 lower of cost using moving average method and estimated recoverable amount. Items in transit are valued at cost comprising invoice value plus other charges incurred thereon. Provision is made for items which are obsolete or slow moving. 2.10 Stock-i in-t trade These are valued at 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 necessarily 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. 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.

46

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 statements 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-U UP CAPITAL

Ordinary shares of Rs. 10 each 2007 2006 5,386,825 26,951,523 5,386,825 Shares allotted for consideration paid in cash 26,951,523 Shares allotted for consideration other than cash

2007 2006 Rupees 000 53,868 269,515 1,383,336 1,706,719 53,868 269,515 1,041,992 1,365,375

138,333,496 104,199,127 Shares allotted as bonus shares 170,671,844 136,537,475

3.1

As at December 31, 2007 Setfirst Limited UK and its nominees held 134,453,588 (2006: 107,562,871) shares. The ultimate parent of the company is GlaxoSmithKline plc, UK.

47

2007 Rupees 000

2006

4.

RESERVES
Capital reserves Share premium Exchange loss on issue of shares Reserve arising on amalgamation 1,409 9 375,563 376,981 Fair value reserve - note 4.1 General reserve Unappropriated profit (1,150) 3,999,970 2,035,121 6,410,922 1,409 9 375,563 376,981 (3,648) 3,999,970 1,798,240 6,171,543

4.1

This represents deficit arising on revaluation of available-for-sale investments as follows: 2007 Rupees 000 Deficit on revaluation (1,769) (5,612) 2006

Deferred tax

619 (1,150)

1,964 (3,648)

48

5.

STAFF RETIREMENT BENEFITS

Funded gratuity

2007 Funded pension Rupees 000 66,057 48,155 (91,020) 23,192 574,654 (529,756) 44,898 (21,706) 23,192 (42,151) (127,349) 169,500 158,469 37,138 (129,550) 66,057 482,634 (372,849) 109,785 (43,728) 66,057 Funded gratuity

2006 Funded pension

5.1

Movement in liability / (asset) Balance at January 1 Charge / (Reversal) for the year (note - 5.4) Payments to the fund Amount transferred to other receivable Balance at December 31

(30,909) (11,242) (42,151) 656,351 (920,556) (264,205) 222,054 (42,151)

5.2

Balance sheet reconciliation as at December 31 Present value of obligations Less: Fair value of assets Unrecognised actuarial (loss) / gain

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 Current service cost Interest cost Prior years service cost Actuarial loss Benefits paid Settlement loss Settlement of liabilities Balance at December 31 5.3.2 The movement in the fair value of plan assets during the year is as follows: Balance at January 1 Expected return on plan assets Actuarial gain Employer contributions Benefits paid Settlement of liabilities Amount transferred to other receivable Balance at December 31 5.4 Charge / (Reversal) for the year Service cost Interest cost Expected return on assets Net actuarial gain recognised during the year Recognition of prior years service cost Recognition of actuarial gain Settlement loss

482,634 34,596 48,528 2,504 25,082 (18,690) 574,654

656,351 94,705 (751,056) -

428,947 20,280 38,168 23,080 (27,841) 482,634

595,498 20,589 53,279 14,585 (27,600) 656,351

372,849 37,473 47,141 90,983 (18,690) 529,756 34,596 48,528 (37,473) 2,504 48,155

920,556 (751,056) (169,500) (222,054) 94,705 (127,349)

240,920 21,310 8,910 129,550 (27,841) 372,849 20,280 38,168 (21,310) 37,138

854,090 75,625 18,441 (27,600) 920,556 20,589 53,279 (75,625) (9,485) (11,242)

49

2007 Funded gratuity Funded pension

2006 Funded gratuity Funded pension

Rupees 000 5.5 5.6 Actual return on plan assets Principal actuarial assumptions Expected return on plan assets (% per annum) Expected rate of increase in salaries (% per annum) Expected rate of increase in pension (% per annum) Discount factor used (% per annum) Retirement age (years) 84,614 10 10 10 60 N/A N/A N/A N/A N/A N/A 30,220 10 10 10 60 94,066 10 10 5 10 60

As per actuarial recommendation, the expected return on plan assets was determined by considering the expected risk adjusted returns available on the assets underlying the current investment policy. 2007 Funded gratuity % 5.7 Plan assets Plan assets are comprised of the following: Equity & Mutual Funds Bonds Others Funded pension % Funded gratuity % 2006 Funded pension %

48.17 29.78 22.05 100.00

N/A N/A N/A N/A

33.68 61.55 4.77 100.00

20.05 73.28 6.67 100.00

5.8 5.9

For the year ending December 31, 2008 expected contribution to funded gratuity schemes would be Rs 42.44 million. Comparison for five years Funded gratuity scheme Fair value of plan assets Present value of defined benefit obligation Deficit Experience loss / (gain) on plan liabilities Experience (gain) on plan assets 529,756 (574,654) (44,898) 25,082 (47,141) 372,849 (482,634) (109,785) 23,080 (8,910) 240,920 (428,947) (188,027) 11,884 (11,846) 218,087 (373,435) (155,348) (20,026) (6,932) 215,387 (392,094) (176,707) (4,685) (6,808) 2007 2006 2005 Rupees 000 2004 2003

50

2007 Rupees 000

2006

6.

DEFERRED TAXATION
Credit balances arising in respect of: Accelerated tax depreciation allowances 289,326 177,840

Debit balances arising in respect of: Provision for staff gratuity Provision for doubtful debts Provision for slow moving and obsolete stock Provision for slow moving and obsolete stores and spares Provision for doubtful government receivables Deficit on revaluation of investments 7,077 886 6,987 5,664 5,635 619 (26,868) 262,458 22,985 311 9,699 5,181 659 1,964 (40,799) 137,041

7.

TRADE AND OTHER PAYABLES

Creditors Bills payable - Related parties - Others Accrued liabilities Royalty and technical fee payable - Note 7.1 Advances from customers Contractors' earnest / retention money Taxes deducted at source and payable to statutory authorities Workers' Profits Participation Fund note 7.2 Workers Welfare Fund Central Research Fund Unclaimed dividend Others 72,845 212,689 76,212 1,006,798 122,777 60,909 15,257 2,533 7,801 54,256 26,854 24,857 14,586 1,698,374 99,552 380,000 78,674 775,232 76,747 44,889 12,952 4,072 11,339 54,859 26,584 19,209 14,323 1,598,432

7.1

These include Rs 96.6 million (2006: Rs 56.09 million ) due to an associated company - Glaxo Group Limited - UK.

51

2007 7.2 Workers' Profits Participation Fund At the beginning of the year Allocation for the year note 24 Interest on funds utilised in Company's business note 26 Less: Amount paid to the Funds Trustees At the end of the year Rupees 000 11,339 142,802 154,141 419 154,560 146,759 7,801

2006

14,708 141,366 156,074 370 156,444 145,105 11,339

8.

CONTINGENCIES AND COMMITMENTS

8.1 a) b) Contingencies Claims against the Company not acknowledged as debt 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 respective 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 decisions 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, 2007 amounted to Rs 69.51 million (December 31, 2006: Rs 137.88 million). 2007 Note 2006 Rupees 000 9.1 9.5 1,959,774 276,946 2,236,720 1,354,712 419,737 1,774,449 289,033 77,614

9.

FIXED ASSETS - property, plant and equipment

Operating assets Capital work-in-progress

52

9.1

Operating Assets
Cost as at January 1, 2007 Additions/ (Disposals) Cost as at December 31, 2007 Accumulated depreciation/ amortisation as at January 1, 2007 Depreciation / Amortisation for the year / (on disposals) Accumulated depreciation / amortisation as at December 31, 2007 Impairment loss as at December 31, 2007 (Note 9.4) Net book Rate of value as at depreciation/ December amortisation 31, 2007 %

Rupees 000 Freehold land Leasehold land Buildings on freehold land Buildings on leasehold land Plant and machinery 1,648,153 423,624 (52,262) Furniture and fixtures 86,030 23,495 (827) 108,698 60,958 5,282 (748) 65,492 180 43,026 10 2,019,515 908,255 83,773 (40,857) 951,171 54,148 1,014,196 5 to 10 524,809 208,405 733,214 159,930 12,518 172,448 27,156 533,610 2.5 70,605 142 70,747 29,390 938 30,328 40,419 2.5 174 52,937 174 52,937 12,516 1,653 14,169 174 38,768 2.5 to 10

Vehicles

203,802

67,360 (29,076)

242,086

96,456

27,434 (18,143)

105,747

136,339

25

Office equipments

368,506

65,866 (2,719)

431,653

240,074

40,764 (2,663)

278,175

236

153,242 10 to 33.33

December 31, 2007

2,955,016

788,892 (84,884)

3,659,024

1,507,579

172,362 (62,411)

1,617,530

81,720

1,959,774

December 31, 2006

2,799,124

235,572 (79,680)

2,955,016

1,425,941

152,766 (71,128)

1,507,579

92,725

1,354,712

53

9.2

Reconciliation of opening and closing Net Book Value (NBV)

Cost Accumulated Impairment depreciation/ loss amortisation (Note 9.4) As at January 1, 2007 NBV Cost of additions during the year NBV of disposals during the year Depreciation/ Amortisation for the year Reversal of Impairment loss / on disposals* (Note 9.4) NBV as at December 31, 2007

Rupees 000 Freehold land 174 174 174

Leasehold land

52,937

(12,516)

40,421

(1,653)

38,768

Buildings on freehold land

70,605

(29,390)

41,215

142

(938)

40,419

Buildings on leasehold land

524,809

(159,930)

(27,156)

337,723

208,405

(12,518)

533,610

Plant and machinery

1,648,153

(908,255)

(65,153)

674,745

423,624

(11,405)

(83,773)

1,241 9,764*

1,014,196

Furniture and fixtures

86,030

(60,958)

(180)

24,892

23,495

(79)

(5,282)

43,026

Vehicles

203,802

(96,456)

107,346

67,360

(10,933)

(27,434)

136,339

Office equipments

368,506

(240,074)

(236)

128,196

65,866

(56)

(40,764)

153,242

December 31, 2007

2,955,016 (1,507,579)

(92,725) 1,354,712

788,892

(22,473)

(172,362)

11,005 1,959,774

54

9.3

The following items of operating assets were disposed of during the year:
Cost Accumulated depreciation Impairment loss Book value Sale proceeds Mode of disposal Particulars of purchaser

Description

Rupees 000 Office equipments Vehicles 65 292 451 451 451 464 464 550 550 555 555 555 555 560 560 560 609 621 849 849 879 985 985 1,003 1,158 1,288 18 19 116 144 246 464 102 116 116 138 464 464 464 555 116 246 64 98 171 171 171 325 325 385 385 388 388 388 388 348 365 305 151 217 594 594 231 689 689 249 749 902 18 18 41 50 86 325 67 41 41 48 325 325 325 388 41 87 1 194 280 280 280 139 139 165 165 167 167 167 167 212 195 255 458 404 255 255 648 296 296 754 409 386 1 75 94 160 139 34 75 75 90 139 139 139 167 75 159 139 212 212 212 210 104 322 167 139 139 139 149 425 167 410 525 292 212 212 725 305 305 525 289 386 315 217 266 263 256 263 222 271 264 322 219 227 262 343 272 291 Company policy Company policy " " " " " " " " " " " " " " " " " " " " " " " " Tender " " " " " " " " " " " " " " " Mr. Farooq Gogan - Ex Executive Mr. Qaiser Aziz - Executive Mr. Javed Akhtar - Executive Mr. Khalid M Sethi - Executive Mr. Wajid Ali Qureshi - Executive Mr. Atiq-ur-Rehman -Ex-Executive Mr. Muhammad Tariq - Executive Mr. M. Tanveer Aslam - Executive Mr. S. M. Jalali - Executive Dr. Jamil Akhtar - Executive Mr. Fazal ul Aziz Durrani - Executive Mr. Javed Aslam - Ex-Executive Ms. Nadia Hussain - Executive Mr. Khawaja Abdul Hameed - Executive Mr. Qamaruddin Khan - Ex-Executive Mr. S.M. Ali Hasani - Ex-Executive Ms. Zainab Chagla - Executive Mr. Maqbool ur Rehman - Executive Mr. Ashiq Hussain - Executive Ms. Fahim Sultana - Executive Mr. Sohail Mirza - Ex-Executive Haji Muhammad Hanif - Executive Ms. Naila Hassan - Ex-Executive Mr. Rizwanullah Qureshi Ex-Executive Mr. Imtiaz Ahmed - Ex-Executive Syed Muied Ahmed - Executive Mr. Islam Khan, 3E-92,Block R, North Nazimabad, Karachi Mr. Sultan Hasan, A-908, Block 12, F.B.Area, Gulberg, Karachi. " " " " Mr. Bashir Ahmed, W-S/3 Block II, Clifton, Karachi. " Mr. Malik A Khalid, A-19,,Block I, North Nazimabad, Karachi. " " " " " Mr. Zahid Qadri, R-536, Sector 15/A-4, Bufferzone Karachi. Mr. Nadeem ur Rehman, E-14, KDA Centre View Appartment, Sector 15-A/1,Bufferzone Karachi.

55

Description

Cost

Accumulated depreciation

Impairment loss

Book value

Sale proceeds

Mode of disposal

Particulars of purchaser

Rupees 000 464 325 139 258 Tender Mr. Nadeem ur Rehman, E-14, KDA Centre View Apartment, Sector 15-A/1, Bufferzone, Karachi " " " " " " Mr. Altaf Hussain, A-427,Sector 4D, Islam Nagar, Karachi. Mr. Kammal Ahmed Siddiqui, A-223, Block D, North Nazimabad, Karachi. Mr. Muhammad Akbar, E-30, Al-Rizwan Appartment Block 14, Gulshan-e-Iqbal, Karachi Mr. Ovais Gaziani, A149, Block 18, Gulshan-e-Iqbal, Karachi Mr. Zahid Qadri, R-536,Sector 15-A-4, Bufferzone, Karachi. Mr. Rashid ul Hameed H,2-28 III, Nazimabad, Karachi. Mr. Hakeem Khan, B-49, Sector 11B, North, Karachi. EFU General Insurance Limited " GlaxoSmithKline Limited, Bangladesh M/S. Hafiz Brothers & Co. Shahdara, Lahore M/S. M B Dyer & Chemicals Lahore M/S. Ravi Chemical Complex Lahore M/s. Synergy Pharmaceuticals (Pvt.) Limited Lahore

464 464 464 464 464 464 464 464 464

325 325 325 325 325 325 325 325 325

139 139 139 139 139 139 139 139 139

285 267 267 283 246 277 280 209 213

" " " " " " " " "

560 560 689 727 849 464 Plant & Machinery 3,812 18,576 1,660 845 170 Aggregate amount of assets disposed of having book value less than Rs 50,000 each Plant and machinery Furniture and fixtures Office equipments Assets scrapped * Plant and machinery

392 392 688 727 536 266 2,865 10,154 1,279 557 110

613 8,422 381 288 60

168 168 1 313 198 334 -

354 379 427 336 700 405 1,225 2,199 1,000 693 80

" " " " Insurance Claim " Negotiation Tender " " "

22,065 827 2,654

21,451 748 2,599

614 79 55

14,378 418 11

5,134 84,884

4,441 62,411

9,764

693 12,709

36,385

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

56

9.4

Impairment loss Buildings on lease hold land Plant and machinery Furniture and fixtures Office equipments Total 2007 Total 2006

Rupees 000 As at January 1 (Reversal)/Charge during the year Reversal on disposals As at December 31 27,156 27,156 65,153 (1,241) (9,764) 54,148 180 180 236 236 2007 9.5 Capital work-i in-p progress Civil work Plant and machinery Furniture and fixtures Office equipments Advances to contractors and suppliers 92,725 (1,241) (9,764) 81,720 53,618 40,392 (1,285) 92,725 2006

Rupees 000

95,865 170,747 841 9,493 276,946

117,899 267,717 13,037 8,224 12,860 419,737

10.

LONG-T TERM LOANS - secured, considered good

10.1 Reconciliation of the carrying amount of loans to executives and other employees: 2007
Executives Noninterest bearing Other Employees Interest bearing Other Employees Non-iinterest bearing Total Executives Noninterest bearing

2006
Other Other Employees Employees Interest Non-interest bearing bearing Total

Rupees 000 Balance at January 1 Disbursements Repayments Balance at December 31 Current portion included in note 15 704 2,404 (1,382) 1,726 (1,187) 539 1,625 59 59,802 63,879 62,131 66,342 577 1,036 (909) 704 (482) 222 1,976 1,049 67,580 33,260 70,133 35,345

(1,060) (38,733) (41,175) 624 84,948 87,298

(1,400) (41,038) (43,347) 1,625 59,802 62,131

(333) (32,023) (33,543) 291 52,925 53,755

(1,099) (24,764) (26,345) 526 35,038 35,786

57

10.2 The loans have been given in accordance with the terms of employment for purchase of house, motor cars, motor cycles, computers and for the purpose of 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% per annum (2006: 5% to 8% per annum). 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 3.00 million (2006: Rs 1.57 million). 2007 2006 Rupees 000 445,053 98,229 346,824 195,525 99,100. 96,425

11.

INVESTMENTS - available-f for-s sale

Less: Current portion

Pakistan Investment Bonds - note 11.1

11.1 Pakistan Investment Bonds are held by company's banker for safe custody. The yield of these bonds is 9.7% to 9.9% per annum and these bonds will be maturing between October 2008 to May 2011. 2007 Rupees 000 2006

12.

STORES AND SPARES

Stores Spares

1,275 122,106 123,381

1,719 80,108 81,827 16,831 64,996

Less: Provision for slow moving and obsolete items

16,182 107,199

13.

STOCK-I IN-T TRADE

Raw and packing materials including in transit Rs. 263.01 million (2006: Rs. 218.85 million) Work-in-process Finished goods including in transit Rs. 136.01 million (2006: Rs. 122.61 million) 998,302 118,537 1,250,190 2,367,029 Less: Provision for slow moving and obsolete items 89,854 2,277,175 13.1 Stock-in-trade includes Rs. 96.49 million (2006: Rs. 98.13 million) held with third parties. 13.2 The above balances include items costing Rs. 42.66 million (2006: Rs 50.73 million) valued at net realisable value of Rs. 35.46 million (2006: Rs. 46.04 million). 783,241 188,306 1,255,365 2,226,912 31,505 2,195,407

58

2007

Rupees 000

2006

14. TRADE DEBTS

Considered good GSK Trading Services Limited - Related party Others Considered doubtful 9,125 107,722 2,903 119,750 Less: Provision for doubtful debts 2,903 116,847 4,770 79,927 1,010 85,707 1,010 84,697

14.1 The maximum aggregate amount due from related party at the end of any month during the year was Rs 12.81 million (2006: Rs 8.33 million). 2007 Rupees 000 2006

15.

LOANS AND ADVANCES - considered good

Loans due from: Executives Other employees

Note 15.1

1,187 32,356 33,543

482 25,863 26,345 20,210 18,034 64,589

Advances to employees Advances to suppliers

17,575 29,921 81,039

15.1 These represent current portion of loans referred to in note 10. 2007 Rupees 000 2006

16.

TRADE DEPOSITS AND PREPAYMENTS

Trade deposits Prepayments Staff pension fund Others 68,829 15,519 84,348 13,749 42,151 20,520 76,420

59

2007

2006 Rupees 000

17.

REFUNDS DUE FROM THE GOVERNMENT

Custom duty and sales tax considered good considered doubtful Less: Provision for doubtful receivables

14,898 18,465 33,363 (18,465) 14,898

39,430 18,465 57,895 (18,465) 39,430

18.

OTHER RECEIVABLES
Due from related parties note 18.1 GlaxoSmithKline Services Unlimited, UK GlaxoSmithKline Limited, Bangladesh GlaxoSmithKline Export Limited, UK GSK Services Corporation SB R&D Upper Merion Due from staff provident fund Due from pension fund Claims recoverable from suppliers Others 24,335 6,871 1,024 1,419 8,224 593 323,712 4,644 7,249 378,071 22,045 1,563 2,225 642 11,990 10,951 49,416

18.1 The maximum aggregate amount due from related parties at the end of any month during the year was Rs 366.18 million (2006: Rs 25.83 million). 2007 2006 Rupees 000

19.

CASH AND BANK BALANCES

With banks on deposit accounts on current accounts Cash in hand

4,222,967 24,689 5,089 4,252,745

4,640,971 21,471 4,028 4,666,470

19.1 At December 31, 2007 the rates of mark-up on PLS savings accounts and on term deposit accounts range from 0.5% to 2.75% (2006: 0.5% to 2.5%) and 7.75 % to 11.6 % (2006: 9% to 11.6%) per annum respectively.

60

2007

20.

NET SALES
Gross sales Local Export Less: Commissions, returns, discounts and rebates Sales tax

Rupees 000

2006

10,528,472 256,330 10,784,802 160,963 12,957 10,610,882

10,025,453 214,612 10,240,065 137,243 14,575 10,088,247

21.

COST OF GOODS SOLD

Raw and packing materials consumed Manufacturing charges to third party Stores and spares consumed Salaries, wages, benefits and staff welfare - notes 21.1 and 21.2 Fuel and power Rent, rates and taxes Royalty and technical fee Insurance Repairs and maintenance Training expenses Travelling and entertainment Vehicle running Depreciation / Amortisation (Reversal of) / charge for impairment Provision for slow moving and obsolete stock charged (Reversal of) / Provision for slow moving and obsolete stores and spares charged-net Canteen expenses Laboratory expenses Communication and stationery Security expenses Other expenses Opening stock of work-in-process Closing stock of work-in-process Cost of goods manufactured Opening stock of finished goods Purchase of finished goods Closing stock of finished goods Cost of samples shown under selling, marketing and distribution expenses 4,074,237 99,996 21,980 651,229 165,032 8,439 128,463 47,621 92,831 2,362 9,404 8,611 103,387 (1,241) 61,903 (648) 50,681 19,538 7,838 4,273 20,496 5,576,432 188,306 (118,537) 5,646,201 1,255,365 1,083,946 7,985,512 (1,250,190) (76,569) 6,658,753 4,057,514 78,554 24,154 775,250 152,482 9,288 126,822 42,252 93,011 1,237 12,753 6,563 90,946 40,392 21,648 151 45,134 15,658 8,493 2,389 15,507 5,620,198 212,401 (188,306) 5,644,293 878,741 1,026,701 7,549,735 (1,255,365) (72,789) 6,221,581

61

21.1 Salaries, wages, benefits and staff welfare include Rs 29.07 million and Rs 19.03 million (2006: Rs 12.79 million and Rs 17.11 million) in respect of gratuity schemes and contributory provident fund respectively. 21.2 Salaries, wages, benefits and staff welfare is net of recovery of Rs 57.98 million (2006: Nil) from pension fund as disclosed in note 2.3.1. 2007 2006 Rupees 000

22.

SELLING, MARKETING AND DISTRIBUTION EXPENSES

Salaries, wages, benefits and staff welfare notes 22.1, 22.2 and 22.3 Handling, freight and transportation Advertising Sales promotion Travelling and entertainment Vehicle running Depreciation / Amortisation Canteen expenses Rent, rates and taxes Training expenses Fuel and power Publication and subscriptions Insurance Repairs and maintenance Stationery Communication Security expenses Provision for doubtful debts Other expenses 509,837 86,844 66,727 303,519 101,478 28,649 21,412 635 6,617 1,974 9,580 13,108 6,905 8,206 6,617 14,484 7,143 2,186 14,897 395,321 86,339 59,768 298,272 92,624 21,742 18,844 461 6,371 2,276 8,008 12,937 7,684 5,506 7,557 12,733 2,769 885 13,291

1,210,818

1,053,388

22.1 Salaries, wages, benefits and staff welfare include staff severance cost of Rs 111.8 million (2006: Nil). 22.2 Salaries, wages, benefits and staff welfare include Rs 16.60 million and Rs 13.37 million (2006: Rs 9.42 million and Rs 10.99 million) in respect of defined benefit plans and contributory provident fund respectively. 22.3 Salaries, wages, benefits and staff welfare is net of recovery of Rs 45.39 million (2006: Nil) from pension fund as disclosed in note 2.3.1.

62

2007 Rupees 000

2006

23.

ADMINISTRATIVE EXPENSES
Salaries, wages, benefits and staff welfare notes 23.1, 23.2 and 23.3 Travelling and entertainment Vehicle running Depreciation / Amortisation Canteen expenses Rent, rates and taxes Training expenses Publication and subscriptions Insurance Repairs and maintenance Stationery Legal and professional charges Auditors remuneration note 23.4 Donations note 23.5 Communication Security expenses Other expenses [net of recovery from related parties of Rs 78.87 million (2006: Rs 38.97 million)] 264,758 7,195 9,872 47,563 2,918 6,500 16,754 5,843 4,536 29,622 10,095 15,361 9,627 21,568 20,940 4,417 9,152 234,933 12,820 8,180 42,976 3,620 18,509 11,850 2,296 3,586 20,285 8,606 16,793 8,086 14,581 18,531 3,740 7,429

486,721

436,821

23.1 Salaries, wages, benefits and staff welfare include staff severance cost of Rs 53.5 million (2006: Rs 19.42 million). 23.2 Salaries, wages, benefits and staff welfare include Rs 2.25 million and Rs 6.47 million (2006: Rs 14.93 million and Rs 5.54 million) in respect of defined benefits plans and contributory provident fund respectively. 23.3 Salaries, wages, benefits and staff welfare is net of recovery of Rs 23.99 million (2006: Rs 11.24 million) from pension fund as disclosed in note 2.3.1.

63

2007 Rupees 000 23.4 Auditors' remuneration Audit fee Fee for review of half yearly financial statements, special certifications and others Taxation services Out-of-pocket expenses 2,500 4,385 2,034 708 9,627 23.5 Donations

2006

2,200 2,805 2,767 314 8,086

Donations include a sum of Rs 653 thousand and 892 thousand (2006: Rs 200 thousand and Nil) paid to Concern for Children Trust, B/63, Estate Avenue, S.I.T.E, Karachi and Trust for Health & Medical Sciences respectively in which Mr. Salman Burney - Chairman / Chief Executive, Mr. Ghulam Mustafa Aziz, Mr. Shahid Mustafa Qureshi and Ms. Talat A. Naseer - Directors, are the trustees. 2007 Rupees 000 2006

24.

OTHER OPERATING EXPENSES

Workers' Profits Participation Fund note 7.2 Workers' Welfare Fund Central Research Fund 142,802 54,256 26,854 223,912 141,366 53,712 26,584 221,662

25.

OTHER OPERATING INCOME

Income from financial assets Return on investments Income on deposit accounts Income on receivable from pension fund Income from non-f financial assets Gain on disposal of operating assets Others Scrap sales Liabilities no longer payable written back Insurance commission Service fee Others 34,800 398,105 154,212 23,676 9,724 14,736 3,944 218 639,415 22,140 419,471 19,137 12,650 2,373 13,542 1,948. 5,129 496,390

64

2007 Rupees 000

2006

26.

FINANCIAL CHARGES
Amortisation of premium on investments Interest on Workers' Profits Participation Fund - note 7.2 Bank charges Exchange loss - net 709 419 8,386 2,036 11,550 2,150 370 8,327 8,469 19,316

27.

TAXATION
Current for the year prior years Deferred 877,946 (14,000) 124,072 988,018 27.1 Relationship between tax expense and accounting profit Profit before taxation Tax at the applicable rate of 35% (2006: 35%) Tax effect of permanent differences Effect of final tax regime Reversal of prior years tax 2,658,543 930,490 3,125 68,403 (14,000) 988,018 2,631,869 921,154 10,503 50,249 (15,000). 966,906 944,373 (15,000). 37,533 966,906

28.

EARNINGS PER SHARE

Profit for the year after taxation Number of ordinary shares outstanding at the end of year (in thousands) note 28.1 Basic earnings per share 1,670,525 170,672 Rs. 9.79 1,664,963 170,672 Rs. 9.76

28.1 Number of ordinary shares outstanding at December 31, 2006 has been increased to reflect the bonus shares issued during the year. 28.2 A diluted earnings per share has not been presented as the company does not have any convertible instruments in issue as at December 31, 2006 and 2007 which would have any effect on the earnings per share if the option to convert is exercised.

65

2007 Rupees 000

2006

29.

CASH GENERATED FROM OPERATIONS

Profit before taxation Add / (Less): Adjustments for non-cash charges and other items Depreciation / Amortisation Return on investments (Reversal of) / charge for impairment Gain on disposal of operating assets Provision for staff gratuity Amortisation of premium on investments 2,658,543 2,631,869

172,362 (34,800) (1,241) (23,676) 48,155 709 161,509

152,766 (22,140) 40,392 (19,137) 37,138 2,150 191,169 2,823,038

Profit before working capital changes Effect on cash flow due to working capital changes (Increase) / Decrease in current assets Stores and spares Stock-in-trade Trade debts Loans and advances Trade deposits and prepayments Accrued return on term deposits Refunds due from the government Other receivables

2,820,052

(42,203) (81,768) (32,150) (16,450) (7,928) 82,631 24,532 (328,655) (401,991) 94,294 (307,697) 2,512,355

(12,119) (222,454) (19,816) (1,808) (13,828) (126,065) (2,740) (29,999) (428,829) 693,757 264,928 3,087,966

Increase in trade and other payables

66

30.

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 2007 2006 Directors 2007 2006 Executives 2007 2006

Rupees 000 Managerial remuneration Bonus Retirement benefits House rent Utilities Medical expenses Others 9,923 13,367 2,037 3,742 831 116 601 30,617 Number of person (s) 1 8,573 11,039 1,692 3,385 752 79 524 26,044 1 14,745 13,363 3,286 6,164 1,370 216 788 39,932 4 10,356 12,026 1,360 4,315 959 92 599 29,707 3 111,333 50,784 23,601 43,348 9,633 3,134 2,498 244,331 111 79,114 49,192 14,317 31,836 7,075 2,422 2,330 186,286 80

In addition to the above, fee to two non-executive Directors during the year amounted to Rs 52.5 thousand (2006: Rs 26 thousand). 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 7.6 million, Rs 4.6 million and Rs 8.5 million (2006: Rs 5.5 million, Rs 5.3 million and Rs 14.62 million) respectively on completion of qualifying period of service, based on share value of ultimate parent company.

67

2007 Rupees 000

2006

31.

TRANSACTIONS WITH RELATED PARTIES

Relationship Nature of transactions 860,503 58,693 2,174,456 53,200 78,873 3,944 1,545 1,255 688,402 59,222 1,923,251 35,674 38,969 1,948. 200 89

Holding company: Dividend paid Associated companies: a. Royalty paid b. Purchase of goods, materials and services c. Sale of goods and services d. Recovery of expenses from related party e. Service fee f. Donation g. Sale of operating asset Staff retirement funds: Expense charged for retirement benefits plans

86,797

59,439

Key management personnel: a. Salaries and other employee benefits b. Post employment benefits

106,271 8,889

80,082 4,785

The related parties balances as at December 31, 2007 are included in trade and other payables, trade debts and other receivables respectively.

32.

RUNNING FINANCE UNDER MARK-U UP ARRANGEMENTS

The facilities for running finance available from various banks amounted to Rs 560 million (2006: Rs 506.6 million). The rate of mark-up ranges from one month KIBOR plus 0.5% to three month KIBOR plus 0.5% (2006: from one month KIBOR plus 0.5% to three month KIBOR plus 0.5%). 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 (2006: Rs 10 million). These facilities carry mark-up at 1% (2006: 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, 2007 amounted to Rs 1.72 billion (2006: Rs 1.77 billion) of which unutilised balances at the year end amounted to Rs 960.6 million (2006: Rs 746.5 million).

68

33.

FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES

(i) Financial assets and liabilities
Interest bearing Maturity up to one year Maturity after one year Total Non-i interest bearing Maturity up to one year Rupees '000 Maturity after one year Total Total

Financial Assets Loans and advances to employees Deposits Investments Trade debts Accrued return on investments and bank deposits Other receivables Cash and bank balances December 31, 2007 December 31, 2006 Financial liabilities Trade and other payables December 31, 2007 December 31, 2006

333 98,229 4,222,967 4,321,529 4,741,170

291 346,824 347,115 96,951

624 445,053 4,222,967 4,668,644 4,838,121

50,785 68,829 116,847 109,851 378,071 29,778 754,161 408,646

53,464 6,808 60,272 42,068

104,249 75,637 116,847

104,873 75,637 445,053 116,847

109,851 109,851 378,071 378,071 29,778 4,252,745 814,433 5,483,077 450,714 5,288,835

1,546,021 1,546,021 1,456,689

- 1,546,021 1,546,021 - 1,546,021 1,546,021 - 1,456,689 1,456,689

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

69

(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, 2007 amounted to Rs 288.90 million (2006: Rs 458.67 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.

34.

CAPITAL RISK MANAGEMENT The company's objectives when managing capital are to safeguard the company's ability to continue as a going concern so that it can continue to provide adequate returns for shareholders and benefits for other stakeholders and to maintain an optimal returns on capital employed. The current capital structure of the company is equity based with no financing through borrowings.

35.

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.

36.

DIVIDEND
The Board of Directors in its meeting held on February 22, 2008 proposed a cash dividend of Rs 7.50 per share (2006: Rs 8.0 per share) amounting to Rs 1,280.04 million (2006: Rs 1,092.30 million).

37.

CORRESPONDING FIGURES
Prior year's figures have been reclassified for the purpose of better presentation. Changes made during the year are as follows: Reclassification from component Other receivable Customs duty and sales tax refundable Other receivable Provision for doubtful receivables Reclassification to component Refunds due from the government Refunds due from the government Provision for doubtful receivables Rupees '000 57,895

18,465

38.

DATE OF AUTHORISATION FOR ISSUE

These financial statements were authorised for issue on February 22, 2008 by the Board of Directors of the company.

M. Salman Burney Chairman / Chief Executive

Ghulam Mustafa Aziz Chief Financial Officer

70

Form 34 Pattern of Shareholding

Number of Shareholders From Shareholding To Total Shares Held

858 1,118 831 1,056 264 103 56 33 17 14 8 11 10 4 9 2 4 1 5 2 1 2 2 2 2 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 4,434

1 101 501 1,001 5,001 10,001 15,001 20,001 25,001 30,001 35,001 40,001 45,001 50,001 55,001 60,001 65,001 70,001 75,001 80,001 85,001 90,001 95,001 100,001 105,001 115,001 135,001 155,001 190,001 195,001 205,001 250,001 260,001 290,001 395,001 430,001 535,001 665,001 705,001 5,945,001 6,230,001 6,370,001 134,450,001

100 Shares 500 Shares 1,000 Shares 5,000 Shares 10,000 Shares 15,000 Shares 20,000 Shares 25,000 Shares 30,000 Shares 35,000 Shares 40,000 Shares 45,000 Shares 50,000 Shares 55,000 Shares 60,000 Shares 65,000 Shares 70,000 Shares 75,000 Shares 80,000 Shares 85,000 Shares 90,000 Shares 95,000 Shares 100,000 Shares 105,000 Shares 110,000 Shares 120,000 Shares 140,000 Shares 160,000 Shares 195,000 Shares 200,000 Shares 210,000 Shares 255,000 Shares 265,000 Shares 295,000 Shares 400,000 Shares 435,000 Shares 540,000 Shares 670,000 Shares 710,000 Shares 5,950,000 Shares 6,235,000 Shares 6,375,000 Shares 134,455,000 Shares

33,673 315,865 545,228 2,442,828 1,846,199 1,265,362 974,674 749,751 463,050 457,062 305,380 466,243 472,393 213,508 530,122 123,636 266,653 70,916 391,515 165,129 89,806 186,657 196,296 206,209 214,157 235,438 136,093 156,250 190,181 197,682 206,157 251,400 262,357 294,743 397,518 434,672 537,747 666,545 707,976 5,945,881 6,233,421 6,371,883 134,453,588 170,671,844

REPORT

71

Categories of Shareholders
(a) Sr. Categories of No. Shareholders 1 2 3 4 5 6 7 8 Individuals Investment Companies Insurance Companies Joint Stock Companies Financial Institutions Associated Company Central Depository Company (b) Others (see below) Number of Shareholders 2,295 4 2 11 3 1 2,113 5 4,434 Others: i Mohsin Trust ii The Al-Malik Charitable Trust iii Securities Exchange Commission of Pakistan iv Punjabi Saudagar Co-operative Society v The Anjuman Wazifa Sadat-o-Momineen Pakistan Shares Held 5,143,819 2,222 6,234 19,952 22,187 134,453,588 30,993,479 30,363 170,671,844 Percentage (%) 3.02 0.00 0.00 0.01 0.01 78.78 18.16 0.02 100.00

1 1 1 1 1 5

17,283 2,718 1 218 10,143 30,363

0.01 0.00 0.00 0.00 0.01 0.02

(b)

Categories of Account holders and Sub-Account holders as per Central Depository Company of Pakistan as at December 31, 2007 Number of Shareholders 2,006 20 12 52 12 3 1 7 2,113 Shares Held 6,631,875 2,175,048 7,587,897 334,609 13,876,944 90,187 3,375 293,544 30,993,479 Percentage (%) 3.89 1.27 4.45 0.20 8.13 0.05 0.00 0.17 18.16

Sr. Categories of No. Shareholders 1 2 3 4 5 6 7 8 Individuals Investment Companies Insurance Companies Joint Stock Companies Financial Institutions Modarbas Foreign Company Others (see below)

Others: i Trustees Mohammad Amin WAKF Estate ii Trustees Saeeda Amin WAKF iii Trustees Kandawala Trust iv The Pakistan Memon Educational & Welfare Society v Managing Committee Karachi Zorthosti Banu Mandal vi Trustees Mrs. Khorshed H. Dinshaw & Mr. Hosh vii Trustees D.N.E. Dinshaw Charity Trust

1 1 1 1 1 1 1 7

67,500 38,750 44,657 46,897 12,210 35,437 48,093 293,544

0.04 0.02 0.02 0.03 0.01 0.02 0.03 0.17

72

REPORT

Shareholding information
Categories of Shareholders No. of Shareholders No. of Shares Held Holding company: Setfirst Limited U.K. N.I.T. and I.C.P. : Investment Corporation of Pakistan National Bank of Pakistan (Trustee Department) Directors, CEO and their spouses and minor children: Mr. M. Salman Burney Mr. Shahid Mustafa Qureshi Dr. Muzaffar Iqbal Mr. Rafique Dawood Executives Public sector companies and corporation: Banks, Development Finance Institutions, Non-Banking Finance Institutions, Insurance Companies, Modarabas and Mutual Funds. Shareholders holding 10% or more voting interest: Setfirst Limited U.K.

134,453,588

2 3

320 12,605,329

1 1 1 1 6

3,125 3 1 1 2,713

52

11,158,445

134,453,558

Distribution of Shares
9% 4% Holding company Individuals 7% Insurance companies Financial Instituions Others 1%

79%

REPORT

73

Contact Details
Factories Karachi
35, Dockyard Road, West Wharf, Karachi-74000 Telephones: 2315478-82, 2316071-73 and 2202701-82 Fax: 2311120 and 2314898 94, Deh Landhi, Karachi-75120 Telephones: 5015040-44 Fax: 5015515 F-268, S.I.T.E., Near Labour Square, Karachi-75700 Telephones: 2570665-69 and 2564355-65 Fax: 2572613 and 2564373

Distribution / Sales offices Karachi

F/268, S.I.T.E., Near Labour Square, Karachi- 75700 Telephones: 2564355-65, 2570665-69, 2574120-23, 2572200 and 2564366 Fax: 2570119

Sukkur

Plot No. 77/80, Block-B, Friends Cooperative Housing Society, Akwut Nagar, Airport Road, Sukkur Telephones: 5630668, 5630144 and 5632177 Fax: 5630755

Multan

Lahore

18.5 km, Ferozepur Road, P.O. Box No. 244, Lahore. Telephones: 5811931-35 Fax: 5820821

Islam-ud-din House, Mehmood Kot, Bosan Road, Multan. Telephones: 6222061-63 and 6221730-33 Fax: 6222064

Lahore

Cordeiro House, Plot No. 27, Kot Lakhpat Industrial Estate, Kot Lakhpat, Lahore Telephones: 5111061-64 and 5111066-69 Fax: 5111065 and 5111067

Islamabad

Aleem House, Plot No. 409, Sector I 9, Industrial Area, Islamabad Telephones: 4435701-03 4435695 and 4435589 Fax: 4433706 and 4433708

Peshawar

DSouza House, Nasirpur, Near Abid Flour Mills, G.T. Road, Peshawar. Telephones: 2261451-52 and 2650115-16 Fax: 2261457

74

REPORT