1

Vision Statement
To be a market leader providing quality footwear and allied products. To strive
for excellence and global recognition by continuous improvement, innovation,
dedication and growth.

Mission Statement
To be a result oriented and profitable Company by consistently
improving market share, quality, diversity, availability, presentation,
reliability and customer acceptance.

To emerge as a growth oriented concern ensuring optimum return and

value addition to its shareholders.

To ensure cost consciousness in decision-making and operations

without compromising the commitment to quality.

To create an efficient resource management and conducive business

environment. Evolving an effective leadership by creating a highly
professional and motivated management team fully equipped to meet
any challenge.

To keep abreast with modern technology and design to optimize

production and enhance brand image to attain international recognition
for the companys products.

To adopt appropriate safety rules and environment friendly policies.

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HISTORY
Three college friends, Ch. Nazar Muhammad, Ch. Muhammad Hussain and Mian
Muhammad Saeed founded Service Industries in 1941 at a small scale at Lahore. At
that time, they only manufactured handbags and some other sports goods. Due to
their dedication and hard work, the business flourished remarkably and they were
supplying their products to every corner of India before partition of Indo- Pak. Almost
all departmental stores in Mumbai, Madras, Calcutta, Lahore and Karachi were
selling their products.

It was engaged in making travel goods at that time. After Independence in 1947, they
started to make Army boots and tarpaulin for Defense forces. Then company entered
into civil market by manufacturing shoes in their newly built factory in Gulberg
Lahore. In 1954, company opened its first outlet of shoes at Mall road Lahore.

In the meantime, a tannery Unit named Hilal Tannery had already been established
in Gujrat to provide export quality leather for shoes factory. In 1963, second shoe
factory in Gujrat was set up. The company entered into export business in 1957 and
for the last three decades, Service is the largest exporter of footwear from Pakistan.
SIL exports its products to different countries of Europe like United Kingdom,
Germany, Netherlands, Sweden and Italy.

Due to excellent quality, the company awarded President Export Trophy in 1968
and Pride of Performance Trophy in 1977. In 1988, Service group opened a new
shoe-manufacturing unit in Muridke, which is the most modern in Pakistan.
 3

SERVICE GROUP
Service Group is well known for its products and comprised of four companies of
various kinds and sized. Service Industries Limited is the parent company and others
are sister concerns. At the moment, service group consist of following units:

Service Industries Limited (Parent Company): Dealing with

manufacturing and exports of footwears, manufacturing of tyres, tubes and
defense related projects.

Hilal Tanneries Limited: Manufacturing of export quality leather for SIL

products.

Dar-us-Salaam Textile Mills: Dealing with manufacturing of export quality

yarn.

Service Sales Corporation: Dealing with retail and wholesale of the

footwear products in local market.

BOARD OF DIRECTORS
Ch. Ahmad Saeed (Chairman)

Ch. Shahid Hussain (Chief Executive Officer)

Mr. Muhammad Ijaz Butt

Mr. Muhammad Akram

Mr. Shahid Hussain Kardar

Mr. Riaz Ahmad

Mr. Asif Jamil (Rep. Of NIT)

Mr. Anis Wahab Zuberi (Rep. Of NIT)

 4

Directors Report to Shareholders

Business review
Alhamdo lillah the company has achieved a healthy sales growth in almost all
segments of the companys business. The company has been successful in the
efficient utilization of its resources, which has cushioned the impact of steep increase
in raw material prices, financial charges and other operating costs. A significant
improvement in profitability was thus achieved.

Footwear division
The company has been successful in achieving better profit margins. Footwear sales
at Rs. 2,342 million have increased by Rs. 406 million. Exports sales grew by 27%
and local sales by 17%. It reflects the confidence reposed by our customers in our
consistent quality, customer service and dedication to meet delivery commitments.
This is very heartening when we take into consideration serve competition posed by
the cheap import of footwear from Far Eastern countries much of which is either
subsidized by the country of export or is under-invoiced. The company has been
drawing attention of the government towards this menace regularly.

Tyre & tube division

Sales of tyre and tube division have increased by 19.5% over last year. The
company has placed strong emphasis on customer services especially to OEMs.
Distribution network has been made more efficient through rationalization of
distributors territories. We have introduced tubes for cars and light trucks to
supplement our already existing product line.

We are making major investment ion new plant for production of new quality of tyres
and tube. We will keep on doing so in the year 2006 and 2007.

The global phenomenon of increase in petro-based raw materials and natural rubber
had a strong impact on out profitability. This impact was absorbed largely by
improving our efficiency and some increase in prices.
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GOALS & OBJECTIVES

GOAL
The ultimate goal of the Service Industries Limited is to deliver the tyres (motor cycle
& cycle) and shoes to the general consumers to their maximum satisfaction. And its
goal is being accomplished through retailing. Thus in the field of consumer
marketing, retailing is the front line, the final step and also the marketing system for
producers. It is the retailer who takes the temperature of the consumer and gather
information for future marketing strategies. By retail, we mean all activities and
services, at a reasonable profit for the use of general consumer.

OBJECTIVES
Basic concern is to satisfy customer
To provide good job opportunities and satisfaction to people
To provide better quality products to consumers with low price
To be ahead of its competitors
To make optimum use of the physical and financial resources to increase
productivity
Never be satisfies with the level of quality, always strive for continuous
improvement using latest techniques
Employees are assets and as important as external customers.

BUSINESS AREAS
It sells all the varieties of tyres and shoes countrywide. It operations independently
just like the other associated companies operation. It sells the shoes to Service
Sales Corporation (SSC). SSC is a sole agent of Service Industry to buy and sell
shoes locally. Service Sales Corporation has its own marketing network in the whole
country. Its sales are carried out through its wholesale depots and retain shops that
are located in famous trade centers in different cities and towns.
 6

FUNCTION
Sales policies are considered to be the backbone of an organization, because all the
functions of the company are dependent upon this policy. It can start the production
of a certain product with full capacity if it has planed attractive sales policies.

Service industry limited has also developed some sales policies to run its business
efficiently.

Product policies
While deciding about the product policies service industries considered the following
things:-
Product line decision
In the product line the major decision is the expansion of product line or the
changes in the product mix which consists of the product lines. The marketing
division of the Service Industries has to check what is the relation of new
product to its existing product line. On the other hand it also has to check that
what will be the effect of introducing the new product upon the existing
products line or the company image.

The expansion in product line, in Service Industries, is such that it can

introduce a new product without pruning any product from the product line. Or
the company may introduce a new product while prune another product from
the product line. There are some reasons for the pruning of a product from
this product line. One reason may be that the product is not producing the
desired profits.

Package decision
The package decision about the product is another important area. Many
marketers have called packaging as the fifth P of marketing. In Service
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Industries, zonal managers do the packaging. They call the designers to make
the package design and select the best out of the total design.

Branding decision
Branding decision is also one of the most important decisions in the
marketing. Service Industries has branded its products by the name of
Servis.
Style and design of product
Another way to product distinctiveness is through style and design. Some
companies stand out for design distinctiveness. Service Industries is also one
of these companies because it has its own styles and designs. In service
industries the styles and designs are made with the help of local purchase
officers who are responsible for making new design.
 8

REVIEW OF PAST PERFORMANCE

THROUGH FINANCIAL
STATEMENTS

Financial Highlights:

2005 2004

Sales revenue Rs. Million 3405.19 2842.64

Profit before tax Rs. Million 74.34 37.13

Profit after tax Rs. Million 52.26 21.78

No. of shares outstanding (000s) 12029 12029

Earning per share Rupees 4.34 1.81

Dividend Rs /Share 2.00 1.5

Shareholders Equity Rs. Million 555.23 523.81

Current ratio 1.21 1.2

Debt: Equity ratio 37:63 31:69

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BALANCE SHEET
AS AT DECEMBER 31, 2005
Equity & liabilities 2005 2004
(Rupees in Thousands)

Share Capital & Reserves

Share capital 120,288 120,288

Reserves 384,355 378,201

Unappropriated profit 50,588 25,326

555,231 523,815

Non Current Liabilities

Long term loans 190,000 110,000

Liabilities against assets subject to finance lease 75,361 30,130

Deferred liabilities 23,709 25,723

Long term deposits 350 50

289,420 165,903

Current Liabilities

Short term borrowings 839,736 790,713

Current portion:

Long term loans 32,500 72,500

Liabilities against assets subject to finance lease 22,080 27,225
Trade and other payables 571,437 502,337
Provision for taxation 17,077 14,218

1,482,830 1,406,993

2,327,481 2,096,711
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Assets 2005 2004

(Rupees in Thousands)

Fixed Assets

Property, plant & equipment 396,281 309,696

Fixed assets subject to finance lease
102,077 70,077
Capital work in progress
7,106 1,162
505,414 380,935

Long Term Investment 7,200 10,053

Long Term Deposits 17,336 12,260

Current Assets

Stores, spares & loose tools 13,395 10,741

Stock in trade 778,765 727,099
Trade debts 785,172 734,982
Advances, deposits, prepayments & receivables 215,442 215,630
Cash & bank balances 4,757 5,011
1,797,531 1,693,463

2327481 2096711
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Profit and loss account

For the year ended December 31, 2005

2005 2004

(Rupees in Thousands)

Sales 3,405,185 2,842,640

Cost of sales 2,936,875 2,512,476

Gross profit 468,310 330,164

Operating expenses

Selling & distribution expenses 115,012 89,689

Administrative expenses 163,049 139,786
278,061 229,475

Operating profit 190,249 100,689

Other operating income 8,151 6,658

198,400 107,347

Financial expenses 116,075 64,485

Other operating expenses 7,989 5,736

124,064 70,221

Profit Before Taxation 74,336 37,126

Taxation 22,077 15,343

Profit after Taxation 52,259 21,783

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Cash flow statement

For the year ended December 31, 2005
2005 2004
(Rupees in thousands)

CASH FLOW FROM OPERATING ACTIVITIES

Cash generated from operations 190,065 69,517
Financial charges paid (96,637) (63,345)
Taxes paid (14,949) (13,715)
Gratuity paid (10,111) (8,615)
W.P.P.F. & W.W.F. paid (2,300) (1,302)

Net cash from/ (used in) operating activities 66,068 (17,460)

CASH FLOW FROM INVESTING ACTIVITIES

Purchase of property, plant & equipment (109,334) (37,378)
Proceeds from sale of property, plant & equipment 5,533 2,081
Security deposits (5077) 2,735
Sale proceeds from sale of shares 66 --

Net cash (used in) investing activities (108,812) (32,562)

CASH FLOW FROM FINANCING ACTIVITIES

Increase in long term deposits 300 ---
Lease rentals paid (28,983) (21,197)
Increase in short term borrowings 49,024 2,752
Increase in long term loans 40,000 82,500
Dividend paid (17,851) (11,945)

Net cash from financing activities 42,490 52,110

Net increase/ (decrease) in cash & cash equivalent (254) 2,088

Cash & cash equivalent at the beginning of the year 5,011 2,923

Cash & cash equivalents at the end of the year 4,757 5,011
 13

ORGANIZATIONAL CHART

CHIEF EXECUTIVE

Director Director
(Safety Products) (Export & Administration)

Manager Manager
Rag Department Export Department

Manager
Establishment Department

Manager
HRM Department

Manager Manager Finance/ Manager

Import Department Accounts Department Marketing Department
 14

ORGANIZATIONAL STRUCTURE
Organizational structure is more than boxes on the chart. It is a pattern of interaction
and coordination that links. Technology and human components work together to
ensure that organization accomplishes its purpose.

Some characteristics of ideal organizational structure called Bureaucracy by Max

Weber is found in the organizational structure of the SIL as follows:

Position arranged in a hierarchy

Each lower office is under the control and supervision of a higher one. This
bureaucratic principle helps the management of SIL to control over every
member in the structure.

A system of abstract rules

A continuous organization of official functions should be bound by rules. This
bureaucratic principle helps the management of SIL to ensure uniformity and
coordination of effort.

In this age of complex, highly conflicting relationships, advanced technology and

empowered employees; Max Weber bureaucratic model is only the historical starting
point, not the end, of the organizational analysis.

VERTICAL STRUCTURE ANALYSIS

Vertical analysis concentrates on centralization versus decentralization and on flat
versus span of control structuring.

Centralization versus Decentralization

The SIL centralization and decentralization can be discussed under three heads.
1) Geographical
Geographical centralization means that the organization has all its operations
under one roof. Geographical decentralization means the dispersion of
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organization operations through the country. SIL has its operating office in
Lahore and Karachi, which show that it is geographically decentralized.

2) Functional
An organization has separate department that performs such as selection or
training for others is called centralized organization and if the various
functional departments (for example; marketing, production and finance)
handle their own human resources functions then it is considered
decentralized organization. In SIL, functional level is centralized.

3) Delegation
Centralization and decentralization commonly refers to delegation of decision
making command. Within the company, there is centralization to a greater
exent.

Flat versus Span of control

In SIL, the structure of the organization is tall with a few members at each level. As a
result there is narrow span of control and supervisors have close control over their
subordinates.

HORIZONTAL STRUCTURE ANALYSIS

Horizontal structural analysis is concerned with organizing one level of the hierarchy.
The concept of Departmentalized and of line and staff represent this approach.

Departmentalization
SIL has a functional departmentalized structure. The greatest single advantage of
functional departmentalization is that it incorporates the positive aspects of
specialization. It also leads to greatest efficiency and the most economical utilization
of employees.

Line & Staff concept of organization

Persons at the management level are in line while others persons are in staff.
 16

ORGANIZATIONAL HIERARCHY

Functional Level

Chief Executive

Department Heads

Managers

Executives / Officers

Supervisors

Office Assistants
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ORGANIZATION MANAGEMENT
PLANNING
Planning and distribution department is the most important department of Service
Industries Limited. Planning and distribution department serves as a link between the
factories and market. The planning and distribution officer has to be well aware of
this diverse geographical layout especially the type of articles of footwear preferred
by the people of each region.

ORGANIZING
As planning is a crucial management function that charts major organizational
directions. Nevertheless, even the most carefully devised plan at the strategic,
tactical and operational levels mean little if an organization does not have effective
means for carrying them out. That is where organizing comes into play. In fulfilling
the organizing function, managers allocate and arrange resources in way that
enables plans to be achieved successfully. In the process, the organizing function
provides a valuable tool for fostering innovation and facilitating needed change.

LEADING
Promotion policies
The company also motivates its employees by promoting them to higher level
jobs after specific period. For example, an employee working as a helper is
promoted to the assistant supervisor after specific period.

Bonuses
The company also motivates its employees by giving them bonuses. These
bonuses depend on yearly profits of the company. Usually they give the
bonuses once a year according to the wages and the salaries of the workers.
 18

Competitors
When Service Industries was started, market was monopolized by foreign
brands at the time. Now no doubt Service Industries is captured 15% of the
total market share at Pakistani demand.

Linkage with banking system

The company has to import the raw material from foreign countries. For this
purpose they need the letters of credit from different banks. So, they have
strong linkage with banks.
Economical environment
The economic environment of Pakistan is not good. Their purchasing power is
going to low & low day by day so Service Industries are trying his best to
capture maximum share in the market by providing comparatively cheap & by
giving a lot of attentions on the advertisement.

CONTROLLING
Quality Improvement Circles
The basic goal of the company is to provide a quality at new product to their
customers. To satisfy their objective, they check the quality at every process. They
have a specific unit for checking the quality of product and finally, they check the
quality of the products in quality control laboratory.

Quality In Product
Product quality and reliability are the hallmarks of all Service Industries
products manufactured and marked by Service Industries. Understanding
specific customer needs and satisfying these with good value products, the
company has earned the reputation of a professional enterprises engaged in
he manufacturing of quality products.
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Quality In People
From the chief executive to the shop floor all personal working in Service
Industries are dedicated professionals, experts in their field and fully
committed to the goals of quality and service of the company. Their
engineering and supervisory staff include gradate engineers and polytechnic
qualified operators at all levels of productions and quality control. All the sales
stag is qualified and trained for specific tasks. A number of engineers and sale
executive have experience in foreign markets and freely share their expertise
and knowledge with their less fortunate challenges.

Quality In Service And Commitment To The Customers

Keeping in mind their over-riding commitment to all customer Service
Industries pays particular attention to the quality of after sales support to
dealers and service to their customers. A comprehensive network of over-500
authorized Service Industries retail price shops, dealers, cut price shops,
agencies etc, is fully geared to meet all customers needs.

ISO 9002 Certification

To meet the challenges and opportunities in the international textile trade and
out compete with companys major competitors, Dar Es Salaam Textile Mills
Ltd. (DTM) is striking for excellence by adopting the best quality management
practices to maintain consistent quality for its customers.
Company made significant innovations for value addition and are continuously
striving for improvement. Consequent to company commitment to Total
Quality Management, new systems are being effectively implemented, and
weaknesses are highlighted during regular assessments to eradicate system
inefficiencies.

DTMs Management Systems are ISO 9002 Certified, the most efficacious
international AOQC Moody certified it, recently Lloyds Register of Quality Assurance
 20

(LRQA) has approved the company for the manufacture of 100% Cotton Yarn to the
following Quality Management System Standards:-

ISO 9002: 1994

EN ISO 9002: 1994
BS EN ISO 9002: 1994
PS: ISO 9002: 1994

In regards to defining the policy on quality, the top management of Service Industries
has clearly defined:

QUALITY POLICY
1. To meet or exceed customers requirements regarding quality of the product
consistently.
2. Deliver the products to the customers on time in all circumstances.
3. To provide the best quality products available in its class.
4. To incorporate emerging technological advances and improved process
controls to remain at the forefront of quality.
5. To ensure complete familiarity of each employee of the above policy and a
categorical recognition of their role in achieving these objectives.
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WHO IS REPORTING TO WHOM

MANAGER
Reporting To:
o Managing Director/ Chief Executive

MANAGER FINANCE/ACCOUNTS
Reporting To:
o Chief Executive
Reporting Staff:
o Deputy Manager Account
o Assistant Manager Finance
Major Functions:
o Handle all accounts and finance matters of Service Industries.

o Discuss important matters related to Accounts Department with M.D.

o Deal with the leasing companies for lease arrangements.

o Handling tax matters with tax consultants.

o Export refinances matters handling including submission of various

documents to the bank.

o Preparation of daily bank report of Quota & Rebate account.

o Deal with bank and check daily bank report.

o Approval of all vouchers.

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DEPARTMENTS
An organization is a set of people who strive together, move the organization in one
direction in order to reach the destination and finally achieve the objects and goals.
High profitability, high market share and high growth rate are those common
objectives every organization strives for. All this requires clear difference of
distinctive tasks and allocating these tasks to different groups of employees to be
performed separately.

For this purpose every organization establishes several set of employees for number
of activities allocated by the top management. These groups of employees are
nominated as departments. Every organization has several departments that are
assigned specific duties and tasks. These groups are not left without proper system
but hierarchy of employees is made.

SIL maintain an excellent array of different departments. These departments have

systematically arranged that facilitate the processes of achieving goals. Every
department performs its duties in collaboration with other departments, which results
in strong and viable management system. The employees of every department are
very well aware of his job responsibilities and the required performance.

The departments of SIL are as follows:-

Administration Department

HRM Department

Accounts/ Finance Department

Marketing Department
 23

ADMINISTRATION DEPARTMENT
OBJECTIVES:

To work in association with other departments.

Ensure proper working atmosphere of office staff
Deal with office administration and security ( office layout, transport,
communication services, maintenance of office records)
Deal with property matters
Attend to court cases
Deal with rent and lease matters, litigation

FUNCTIONS:

This department has been assigned the tasks that seem to be very menial but retain
much importance. Operations of the department are discussed as follows:

Insurance
The stock of the company is insured as well as the company insures
employees. This department is also liable to pay the premium of insurance
regularly. This way safety measures are provided to employees and stock as
well. A part from stock and employees the fixed asset of the company like
furniture & fixture all are insured.

Renovation
One major duty included in this department is related to renovation. All the
dealing of related to these matters comes under this department. Fixed assets
sold and their complaints every thing responsibility lies on the shoulders of the
department.
 24

Law related policies

This department also deals with matters of government policies. The
department personnel handle all sorts of cases. They are also responsible for
conflicts resolving between employees, they have to be aware that no unions
should start working which disturb the working patterns of the company.

Check and Balances

One big responsibility on the shoulders of this department is that they have
proper check on employees so that companys facilities are not misused. They
have to decide and then check that no one uses more rights than what he has
been granted. All bills (Fuel, Telephone, Electricity, Entertainment, Renovation
and other Expenses) are signed by the head of the department.

Unions
There are no unions in this organization. Reason behind this is that
employees are provided with friendly environment to work. Management takes
good care of its employees so no need for union arises. There is also no
union in all factories of service industries.

HRM DEPARTMENT

Objectives

To provide and maintain Human Resources of requisite competency

To meet business execution needs of the company
To ensure that HR policies are harmonized with the Business Objectives
To properly manage employees
To resolve conflicts among employees and provide good working environment

Functions:
Operations of this department are discussed as follows:
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Staffing
Staffing (includes recruiting, selecting, hiring and firing of employees) is
among the skills that become more important as the complexity and overall
level of performance organization increases. Staffing functions performed in
SIL
Forecasting HR needs within the company keeping the organizations
goals in view
Gathering employees information
Projecting availability and requirement of Human Resource

Both external and internal recruitment takes place in SIL by different methods
as follows

Methods
In-House Advertisement
Advertisements
Applicants Databank
Employee Referrals
Interviews
Selection Tests

Staffing success is having right person in right position rather than simply
filling a position. New employees are hired whenever there are vacant
positions.

Human Resource Information System

When any employee is selected by top management then details regarding
his recruitment date, his personal information, his rank (executive or non-
executive) and even his termination are maintain by the department. In this
way it is acting upon as an information pool for management. It works as
 26

controlling authority as it also maintains the attendance register. The

attendance is marked twice a day. Punch card machines are used for
attendance keeping. Attendance of every employee is stored in main
computer. This little work determines the actual salary of every employee.

Job Compensation And Rewards Management

Salary/Wages, Health Insurance, Group Life Insurance, Perk, Provident Fund,
Bonus, Leave Fare Assistant, Paid Leaves etc. all these lay in the field of
compensation and rewards management in SIL these rewards and job
compensation are given to employees for keeping their morale high. 30%
discount is given to its employees on Service all products.

Training And Development

Several changes were made in the organizational hierarchy; new positions
were created and mostly were filled up with existing employees, external
hiring is also taken in account for those positions where professionals were
missing. SIL usually provides a comprehensive orientation session to the
employees about company culture its functions, history of the organizations
and locations. However, his/her immediate supervisor provides orientation
about his/her specific job duties. Where required, SIL also sends its
employees to their factories located at Muridke and Gujrat for training
purposes.

Performance Management
Performance management includes job evaluation and descriptions.

Job Evaluation
The major duty of HR department includes evaluating different jobs
according to their tasks, ranks, positions, salaries etc with respect to
their value and worth to the organization. Jo evaluation is used to
establish or maintain the credibility and acceptability of a grading
 27

system. Job evaluation can be used as a basis for job matching and
external pay comparisons.
.
Job Descriptions
HR department is responsible for listing out the general tasks or
functions of every job. Typically, it also includes describing the position
and his immediate supervisor whom he has to report. Specifications
related to job such as the qualifications needed by the person and
deciding pay/salary range for that position.

ACCOUNTS DEPARTMENT
Objectives
To make financial transactions possible
To provide the picture of financial condition of the company
To record every necessary accounts
To recommend the essential modification regarding financial policies
To forecast the economic condition of the company under existing
circumstances
Functions
The main function of this department is that any financial transaction occurs is under
the supervision of this department. They have to deal with different banks,
companies for making transactions possible. Maintaining and recording every
financial transaction and the statistical data is in effect, a backbone of the company.
Every activity including marketing, production or managerial requires a certain
amount of financing without which nothing can be implemented and completed.
Hence this department, like other departments, performs equally important tasks and
assignments. There are some particular accounts, which are recorded and
maintained by this department.

1. Personal Accounts
 28

Each and every employees recruitment date, their designation, their period of
work and their job responsibilities are different from each other. So the salary,
allowances and other social facilities provided by the company vary on
account of this difference. Hence, this department in several categories is
taken care of with due attention. Accounts department is responsible for
recording and maintaining every individuals information. Their data regarding
salaries, period on job, grade and categories of employees are totally
maintained by this department. Thus in other words this department works as
the information pool of the company. It provides the complete information to
top management about every individual and management uses this data for
making decisions regarding their promotion, change in salary or even
termination. The personal accounts not only include workers and employees
but the top management and directors of the company.

2. Recording Of Salaries
Salary is cost to the company and reward for the services of every employee
rendered to the company. Salary is the potent bond between company and
employee. Motivation, job satisfaction and extent of productivity heavily hinge
upon the monetary reward. A part from the salary itself, the timing of it
payment and regularity in this process also have a profound effect on the
reduction of undesirable behaviors of employees.

3. Loan Account
Companys one of highly motivating facility is to provide the loan to the
company employees. This loan is advanced for different purposes. Some
loans are advance to provide a car to the employee and others may lend for
house construction or any other task. A part from these conditional loans,
unconditional loans are also advanced that vary from employee to employee.
Workers and non-executives are provided with lower amount of loans while
executives can enjoy higher amount of loans.
The recording of the loans is also another very important work of the
department. Total data regarding the obtaining of current loan as well as past
 29

loan is maintained. This allows the company to check those employees

applications that had already enjoyed the facility. It also helps organization to
keep safe itself from providing over amount to the employees.

4. Sales Maintaining Account

Along with employee related accounts, it also records some business
accounts like sales accounts. The total sale of the company, total cost of
current year, profit earned that year. This lays foundation for the decision
making about all the business units.

5. Financial Charges
Every company does some of its operations by receiving loans form the
financial institutions. These institutions may be banks; leasing companies or
other companies like insurance etc. These firms provide services to the
organization in requital of some monetary pay off. This pay off may be termed
as interest, premium etc. financial charges encompass all these expenditures.
Taking loan is very technical work. The utilization of make it sure that loan
must be expended on productive activities. All financial charges of SIL are
recorded in this department. The interest payable to banks, leasing and other
charges like insurance premiums are maintained under the account
department.

MARKETING DEPARTMENT
The goal of advertising is better approached by setting some specific objectives. Of
course, specific objectives will be determined by the companys overall marketing
strategies especially the strategies related to the firms promotional programmed.
Some general objects of the company which are considered seriously while
allocating the resources towards advertising are as:

Objectives

To create an image of the product among consumers

 30

To boost up and enhance the sales through persuasion process

To maximize the profit
To meet the competition effectively
To increase the market share
To attract more and more customers

Functions

Sales head retail

Sales head retail is responsible for developing and running the countrys
operations where they are making good profits. Sales head retail is
empowered enough to take its decisions independently, to large extent. Sales
head retail can make decisions to what kink of target market they are going to
tap, what kink of business is the organization going to capture, as how to run
the operation smoothly and accurately.

Product development
The responsibility of this department includes developing full range of
products. This is done through keen observation of the market, competitors,
future needs of customers and also an eye on international market. If the
product developers fail to produce products desired by the customers then
there is no chance for increase in sales however sales can go down. SIL has
divided year in two seasons.

o Winter

o Summer

The developers have to develop new ranges for coming season much early
so that production can takes place and shoes are available on retail shops on
time. They have to focus in mind future trends and make product ranges
according to the future needs of people. They are acting as trend makers.

Range developers
 31

It is very difficult to develop product range. Lots of efforts is required to

develop new articles. Developers should be well aware of the market which
articles are already present in the market, what are the demands of the
market, which articles were kick out from the market, fast moving brands etc.
they have to decide which thread should be used in that article, which sole
should be used, should shoe be narrow or wider in shape, will leather or
synthetic be used and other things related to manufacturing of the shoes.

Designers
Designers are people who actually design the shoe. Put in their efforts and
innovation in designing the shoe. Developers will tell them the idea about the
shoe and designers will actually design the shoe. Developers shapes the idea
of developers into real form. Design includes cutting, stitching, sole pasting
and other things related to shoe. The new design o he shoe must be
distinguished from those already present in the market therefore it needs
innovation.

Sourcing
Sourcing mean negotiating with parties on price. Source personnel decide
from which source they have to deal to generate maximum profit. Sourcing
personnel has to deal with parties on material used in manufacturing of the
particular article and also negotiating on cost coming on that article.
Negotiating on article is very crucial stage because if the cost of article SIL
pay is more than the competitors pay of same design articles, then the
product has very low probability to be successful. Suppose a shoe
manufactured by service cost them Rs. 450 and its retail price is Rs. 550. The
same design shoe locally made present in market at retail price about Rs.350
then definitely people will go to purchase that shoe rather than the Service
shoe. Therefore sourcing plays a critical role.

Imports
In SSC more emphasis in now given to imports as compared to last few
years. The reason behind this is that greater margin can be generated
 32

through imports. Large pool of products is imported from China others were
from Vietnam, Thailand and Germany. China is the main source much of the
orders were placed with parties of China. Merchandising manager handles all
these imports, he meets with parties, see their product quality, tell them own
specifications and settle prices with them.

Strength
Highly Qualified Management

One of the most salient advantages SIL has its highly qualified, competent and
experienced management. All heads of departments are quipped with theoretical
knowledge along with vast part of experience of getting things done properly.

Excellent Managerial Policies

A part form highly qualified management, policies and practices are very progressive
and growth-ridden. Every personnel form top to bottom are bound to abide the rules
and regulations lay down by the board of directors. Promotions, recognition of
employees and respect for every one is the strong pillars of organizational culture.

Loyal Employees
The company is enjoying another strong benefit that hardly few companies enjoy that
is employees loyalty. Every organization does it best to hinder the employees from
leaving the job. If turnover rate is high then it had negative impact upon profitability
and vise versa.

Self Motivated Work Force

SIL enjoys another excellent competitive advantage that it has got self motivated
workforce. People at SIL take on responsibility as their duty not as burden. They
embrace every assignment whole heartedly and strain every nerve to accomplish it.
 33

Brands Strength
The brands of the service industries have a good strength. Their brands like Don
Carlos, Liza, Skooz, Toz, Calza and cheetah are competing with the other
competitor, which are included Bata Pakistan, Hush Puppies, Ihsan shoes
etc. Due to quality and reasonable price which is increasing the brand
strength and customers reliability on the service brands. Innovation in
brands also strength

Production Units
They have two production units.
Service Shoes Industries Limited, Muridke.
Most of local (Don Carlos, Liza all ranges, Skooz, Toz) and export articles are
produced in Muridke Unit

Service Shoes Industries Limited, Gujrat.

Local articles like (Duke, Calza, Cheetah etc.) and many articles of exports
are produced at Gujrat Unit.

Cost Department
Only few companies in the world has cost department and service is one of them
who has independent cost department. Cost department control over per unit cost
with all aspects such as material cost, labour cost, and rates control by bill
verification. Cost department never compromise on quality they bear their own
rejection but they did not deliver low quality shoe to the customer that is the cause of
their effective and efficient management.

Advanced Technology
They have advanced technology and computerized plants and machinery in
production process. The computerized machinery and plats using at Service in the
production process are not having any other organization, even, BATA Pakistan have
not such kind of machinery and technology. The computerized machinery and plants
has the approximately value of Rs. 10000000 each.
 34

Pu Products
The major production of service industry is in Pu sole. They import Pu material from
ICI chemical, France. Pu material is very lightweight sole. By wearing Pu sole we
feel bear footed. They are leader in market in Pu product. They also have introduced
the direct injection that reduces the cost of production.

Employees Education Opportunities

Service also provides education facilities to its staff. Higher education is encouraged
for valuable increase in his staff education that up the moral of the organization and
make better/positive changes within the organization. And lead to introduce new
techniques of production.

Tannery
They have their own tannery for meeting the urgent requirements of orders. If they
purchase all the leather from outsider parties then there will be a possibility to delay
in dispatch in leather order that can be reason of delay in order dispatch.

Weaknesses
Advertisement
Now a day electronic and print media play very important role in success of any
organization. Through media we can increase revenue for many times. As they are
popular through out the country they have not proper planning regarding to
advertisement. Like their big competitor Bata Pakistan they have not proper way to
advertisement on TV & Internet.

No Job Rotation
Leading companies pursues the strategy of job rotation in which one employee is
posted at different position after elapsing certain period of time. SIL does not follow
this strategy yet. The managers are appointed in particular department forever. In
case any employee abandons the job due to particular reason there becomes pause
in the department that creates some intensive problem
 35

Little Empowerment
The management of SIL is highly centralized and almost every decision is taken at
top management. Lack of authority is found to take independent decision by middle
managers. Most of companies execute the policy of deregulation of authority that
plays an important role in satisfaction of consumers. In this direction because
motivation level of employees hinges greatly upon the autonomy of personnel.

Opportunities
E-Market Development

Service has the opportunities of establishing and exploring new market like Internet
market. Service has introduced the e- shops where customer can buys shoes & tyres
and tubes with out any botheration. It has given new dimension in sales of products
and also a way of introducing company and its products internationally.

Joint Venture

In today business to improve the efficiency of their product and to attain new
technology firms made joint venture with each other. It is also made for research and
to compete with the large firms. Keeping in view this service has made joint venture
with LEVIS and NIKE. This will open new window for service in international market
and in expanding business.

Changing Customer Preferences

This modern world is the world of continuous changes. Innovation in products is they
key element of businesses for their survival. Customers taste changing day by day.
To meet the requirement of customers and taste there is a need of continuous
introduction of variety. Services industry has the opportunity to grasp market by
 36

bringing innovation in their design and services. Service captures a huge share of
local market by providing their products according to customer taste.

Entering New Segments of Markets

SIL is considered as the shoes & tyres and tubes of motorcycles for some particular
and limited market. Pakistan is one of the most profitable market that consist of huge
number market segments. So, Service has a great opportunity to enter in the new
market segments. They should concentrate on entering new market segment of
ladies shoes and new coming motorcycle companies like Ghani motorcycles, Super
Asia motorcycles companies. Large revenue can be generated from this market
segment.

Threats
Competitors
Service is facing the threat in shape of new competitors in footwear market. The
competitors are both local and multinational companies. In local market Service
Industries is competing with local shoe manufacturer. In multinational competitors
Service has to compete with BATA the giant in shoe industry and other international
brands like HUSH PUPPIES. China and India are also the new threats in todays
market for services.

Price War with Competitors

Todays world is the world of competition and to compete with the competitors
companies rapidly changes their price strategy. Organizations set their prices
according to their competitors to survive in the market. In shoe market service have
the price war with BATA, and other local competitors. Now service also has price war
with china. In price war the firm who control their cost of production and provide their
products at cheap prices can one this war.

Rebate Reduction
Rebate is the subsidy which government provides to exporters to enhance exports. If
Rebate has reduced which increases cost of production due to which company has
to face tough competition. Since last two years government has reduces rebate from
 37

12% to 5 %, which increase the cost of production. Due to which service industry
facing tough competition.

Increase in Taxes
There are many types of taxes which service industry has to face imposed by
Government. There is high rate of taxes due to which it increases the expenses and
cost of production. Mainly taxes imposed by government are sales tax, income tax
etc.

Increase in Rate of Duties

Government has also increased the rate import and exports duties, which is also a
threat for service because it increases the rate of raw material and cost of
production. The rate of duties is 25% while rebate has reduced to 5%. There is high
freight cost.

Political Instability

Pakistan is a country that politically not stable. There is no stable government from
last 55 years. This has a great impact on industrialists and investors. Service
industry has threat due to political instability because in instable government there is
rapid change in laws, rules and regulations.

WTO Regime

WTO means world trade organization. It is an international organization responsible

for global rules governing trade among nations. It ensures trade free and smoothly. It
was established in 1995. Due to WTO regime service have to face many hardships
in shoe industry because it increase the number of competitors. And also reduce the
share in shoe market. The main threats due to WTO are china and India as they
provide their product at low price because of cheap labor.

Economic Threat

The service industries have to face economic threats. The first economic threat is the
high prices of electricity. There are no subsidies for the service. Another threat is the
rate of inflation, which causes the rise in prices of things. In recent years oil prices
 38

have gone up due to which it has increased the transportation cost which increase
the cost of production.

MARKETING STRATEGIES
The marketing mix is a strategic combination of four variables.

Product

Pricing

Placement

Promotion

Each of these ingredients is closely interrelated with the other variables in the mix.
The development of a successful marketing strategy depends upon the effective
combination of these four elements. As the ingredients are interrelated with each
other so the decision in one area is definitely going o affect the other. Thus the
management must select the combination of these, which will best be adapted to the
environment.

Service Industries is surrounded by the stiff competition thus, cannot be said

monopolists. A well-known name Bata is major competitor of Service. Both of these,
Bata and Service have to face the local cottage industry, which has a big market
share i.e., 80% of the total market. Service share is 9% while Bata has a share of
11% of the total local market.
 39

In such circumstances the companys main intention is to sell those products which
are accepted by the consumer due to their quality and price. Management of service
industries has a keen eye in seeking different pricing strategies to compete in the
market. Thus, a mixture of different strategies is being made to serve the consumers.
Following are the major policies, which the management prefers.

Unit Pricing
Unit price means to sell the products on fixed price. In this case no bargaining
is made. Service has developed unit pricing system for its retail chain stores.

Odd Pricing
This is just a psychological approach; after following different techniques, the
company fix odd prices just to ensure the customers that they are not paying
full rupee. For example, instead of Rs. 126, Rs. 125.95 is printed on shoes.
However this policy is not in the favor of customers because most of them
never take back their balancing paisa.

Discount & Allowances

Discount and allowances result in a deduction from the base price. The
deduction may be in different types e.g. reduced price, free merchandise or
advertising allowances etc.

a) Quantity Discount
When the sales exceed a specific limit, the dealers and wholesales are
given some quantity discount. It is also a technique for sale promotion.
In this way clients are encouraged.

b) Cash Discount
 40

A cash discount is a deduction granted to buyers for paying their bills

within a specific period of time. The discount is computed on the net
amount due. This type of discount is generally, given to dealers etc.

c) Trade Discount
Trade discount, sometimes called functional discounts. These are
reductions from the list price offered to buyers in payment for marketing
functions that they will perform. Wholesalers are given 16% discount
(in case of an article of Rs. 200). On an article of more than Rs.200/-
18% discount is given. A class dealers are further given 7% and B
class dealers are given 6% discount.

d) Price Discount
Sometimes, general consumers are given price discount for limited
articles. As a matter of fact it is the companys policy to get rid of old
designs and dead stock articles. But these discounts are offered
sometimes to encourage the sales. For this purpose service industries
arranges clearance sales when it feels necessary. Discount in those
clearance sales is offered from 10% to 30%.
 41

PROJECTS UNDERTAKEN DURING

INTERNSHIP

BANK RECONCILIATION STATEMETN

First of all, Mr. Khalid told me about the procedure of bank reconciliation of service
industries. I have learnt to prepare bank reconciliation statement in first three weeks
of my internship in Service Industries Limited. Bank Reconciliation is a schedule
explaining any differences between the balance shown in the bank statement and
the balance shown in the depositors (SIL) accounting record. Cash is the most liquid
asset and most subject to theft and fraud. It is therefore essential to have a system
of accounting procedures and records that will maintain adequate control over cash.

Each month, accounts department of SIL prepares bank reconciliation to verify that
these independent sets of record are in arrangement.

STEPS IN PREPARING BANK RECONCILIATION

 42

Individual deposits listed on the bank statement are compared with

unrecorded deposits appearing in the preceding periods reconciliation and
with deposit receipt or other records of deposits. Deposits not recorded by the
bank are added to the bank balance.
Paid checks are compared with outstanding checks appearing on the
preceding periods reconciliation and with checks recorded. Checks issued
that have not been paid by the bank are outstanding and are deducted from
the bank balance.
Bank credit memorandums are compared to entries in the journal. For
example, a bank would a credit memorandum for a note receivable and
interest that it collected for a customer. Credit memorandums that have not
been recorded are added to the book balance.
Bank debit memorandums are compared to entries recording cash payments.
For example, a bank normally issues debit memorandums for service charges
and check printing charges. A bank also issues debit memorandums for not-
sufficient-funds checks. Debit memorandums that have not been recorded are
deducted from the book balance.
Errors discovered during the preceding steps are listed separately on the
reconciliation. For example, if the depositor has recorded an amount
incorrectly, the amount of the error should be added to or deducted from the
book balance.
To complete the process, all items that reconcile the book balance to the
adjusted amount of cash need to be journalized so they are posted to the
cash ledger account. This is necessary so the records are updated.

ANALYSIS OF FINANCIAL RATIOS

Financial ratios are useful indicators of a firms performance and financial situation.
Most ratios can be calculated from information provided by the financial statements.
Financial ratios can be used to analyze trends and to compare the firms financials to
those of other firms. In some cases, ratio analysis can predict future bankruptcy.
 43

Financial ratios can be classified according to the information they provide. The
following types of ratios frequently are used by me during the internship analysis:

o Liquidity ratios
o Asset turnover ratios

o Financial ratios

o Profitability ratios

o Dividend policy ratios

Liquidity Ratios

Liquidity ratios provide Information about a firms ability to meet its short-term
financial obligations. They are of particular interest to those extending short-term
credit to the firm. Two frequently used liquidity ratios are the current ratio and the
quick ratio.

Current assets
Current ratio = ---------------------------------
Current liabilities

1797531
= ----------------------- = 1.21
1482830

Current assets - inventory

Quick ratio = ------------------------------------------
Current liabilities

1797531- 778765
= --------------------------------- = 0.69
1482830

Analysis

o Short term investors prefer a high current ratio since it reduces their risk but
the current ratio of Service Industries is very low which should be near about
2. And it can be improve by the reducing their current liabilities and increase
 44

in most liquidate assets such as bank balance, cash in hand and marketable
securities.
o Quick also include all the item of current ratios except inventory because
inventory may include many items that are difficult to liquidate quickly and that
have uncertain liquidation value. The quick ratio of Service Industries is also
low because it should be equal to the current liabilities.

Asset Turnover Ratio

Asset turnover ratio Indicate of how efficiently the firm utilizes its assets. Two
commonly used asset turnover ratios are Receivables Turnover and Inventory
Turnover

Accounts receivable x 365

Receivable turnover in days = --------------------------------------------
Credit sales

785172 x 365
= ------------------------- = 84 days
3405185

Another major asset turnover ratio is inventory turnover. The inventory turnover often
is reported as the inventory period, which is the number of days worth of inventory
on hand, calculated as follows:

Inventory x 365
Inventory turnover in days = --------------------------------
Cost of goods sold

778765 x 365
= ------------------------- = 97 days
2936875

Analysis

o Receivable turnover is an indicator of how quickly the firm collects its

accounts relievable. The average collection period of Service Industries is 84
days which is much delayed time for the recovery of the dues. And there is
need of reducing the collection days.
o Inventory turnover is days are 97 days which mean service industries near
about purchase 4 times inventory in a year for running their operations.

Financial Leverage Ratios

 45

Financial leverage ratios provide an indication of the long-term solvency of the firm.
Unlike liquidity ratios that are concerned with short-term assets and liabilities,
financial leverage ratios measure the extent to which the firm is using long term debt.

Debt-to-total asset ratio:

Total debt
Debt ratio = ---------------------- x 100
Total assets

1772250
= -------------------- x 100 = 76.14 %
2327481

Debt to equity ratio:

Total debt
Debt equity ratio = ----------------------------------
Shareholders equity

1772250
Debt equity ratio = -------------------- x 100 =
555231

Interest coverage ratio:

Earning before interest and taxes

Interest coverage ratio = ----------------------------------------------------
Interest expenses

190249
Interest coverage ratio = ------------------- = 1.64
116075

Analysis
o Debt-to-total asset ratio highlights the relative importance of debt financing to
the firm by showing the percentage of the firms assets that is supported by
debt financing.

Profitability ratios:
Profitability ratio offer several different measures of the success of the firm at
generating profits.

Gross profit margin:

 46

Gross profit
Gross profit margin = ---------------------------- x 100
Sales

468310
= -------------------- x 100 = 13.75 %
3405185

Return on assets:

Profit after tax

Return on assets = ---------------------------- x 100
Total assets

52259
= --------------------- x 100 = 2.25 %
2327481

Return on equity:

Profit after tax

Return on equity = ------------------------------------ x 100
Shareholders equity

52259
Return on equity = ------------------ x 100 = 9.4 %
555231

Earning per share:

Net profit after tax

Earning per share = --------------------------------
No. of shares issued

52259
Earning per share = ------------------ = Rs. 4.34
12029

Dividend policy ratios:

Dividend policy ratios provide insight into the dividend policy of the firm and the
prospects for future growth. Two commonly used ratios are the Dividend Yield and
Payout Ratio.
 47

Dividend yield:

Dividend per share

Dividend yield = ---------------------------------
Share price

Recommendation:

The company must reduce its operating expenses in order to compete in the
market on price basis because operating expenses are controllable factor.
Footwear industry is highly fashion industry; hence SIL must improve the
efficiency of the product development in order to bring new design and style in
the market to satisfy the consumers.

The advertisement of the company is a little bit weakening area. The company
must increase its advertising budget so that it can create a favorable image in
the minds of company. The advertisement to some extend must me according
to comparison purpose of the product is better than their competitor because
if their competitor first start the trend of comparing the products with other
 48

then the company will be more in trouble and will be in the position to stay in
the market for longer.

Company must pay a continuous attention to the quality of the products so

that competitors may not surpass it.

The company must seek new market segments, as it is operating in the highly
potential market of Pakistan.

Internet is a broad medium so they should also improve their e- business.

They should increase their exports all over the world through participate expo
festivals.