On behalf of the Board of Directors, I would like to present the 36th audited financial statements of Saudi Pak Industrial and Agricultural Investment Company Limited as well as consolidated accounts together with Auditors’ Report to Members and the Directors’ Report for the year ended December 31, 2017. The share of profit/loss Saudi Pak Leasing Company Ltd (SPLC) being an associated company, was not accounted for in the Holding Company’s consolidated financial statements for the year ended December 31, 2017 for which specific exemption has been obtained from the Securities & Exchange Commission of Pakistan (SECP).
During the period under review, Pakistan’s economy
continued to maintain its growth momentum for the
4th year in a row with GDP growing at 5.3 percent in
FY2017 which is the highest in eight years. Despite
global economic slowdown economic growth in
Pakistan accelerated on the cumulative impact of
the government’s macroeconomic and structural
reform program, low oil prices, improved security and
planned infrastructure investment tied to China Pakistan
Economic Corridor (CPEC). Further stable PKR parity
also helped in keeping the CPI inflation under control.
The average CPI inflation fell from 8.62 percent in FY
2014 to 4.2 percent during FY 2017. SBP decreased the
policy rate to a historically low level of 5.75 percent which
is the lowest rate in last 45 years reflecting significantly
improved macroeconomic conditions towards the end
of FY 2017.
KSE-100 crossed a record high of 53,127 points while as at December 31, 2017 it was closed at 40,471 points. Demand for credit is gradually strengthening at the back of low interest rate environment. However, business environment remains competitive with pressure on loan pricing and margins as large commercial banks divert their resources towards project finance business given substantially reduced returns on Govt. Treasury Bills.
Company maintained its strategy as per the approved
business plan. Focus remained on core project finance
business which witnessed growth of 2.4 percent despite
increased competition from commercial banks. Capital
Market positions were reconfigured with high dividend
yielding equities in view of low interest rate environment.
Given higher inflation expectations going forward and
expected increase in discount rate, Company offloaded
a substantial portion of its investments in Govt. Securities
and capitalized on trading opportunities in Capital
markets to book handsome capital gains. Overall this
strategy proved to be very successful enabling the
company to far exceed its budgeted profit targets.
Despite a massive reduction in discount rate previously Net Interest Margin higher by 17.2 percent from the budgeted target largely cushioned by efficient management of resources and 2.4 percent increase in project finance business. Income from capital market operations was recorded at Rs. 350.42 million (Capital Gain: Rs. 131.20 million; Dividend Income: Rs. 219.22 million) as compared to Rs. 243.89 million booked last year. Similarly Company booked capital gains of Rs. 205.41 million from available gains in Govt. securities as against Rs. 317.14 million booked last year. Company posted a pre-tax profit of Rs. 859.91 million i.e. 12.9 percent higher than the budgeted figure. After tax profit increased by 31.8 percent to Rs 627.32 million as all business segments out performed. This result was achieved despite prudent non cash impairment charge of Rs. 482.75 million made against diminution in the value of quoted stocks. Overall this is an extremely commendable achievement.
The shareholder’s equity increased by 7.2 percent to Rs. 10,631.64 million as at December 31, 2017. Turnaround in Company’s overall risk profile including operating results and financial flexibility was reconfirmed by our Credit Rating Agency JCR-VIS who maintained Company’s Long Term entity rating to AA+ and short term to A1+ with stable outlook.
Future prospects for Pakistan’s economy remains bright. GDP growth is expected to accelerate to 5.5 percent during FY 2018 based on better growth prospects in advanced and developing economies alike, a continued revival in world trade volumes, and continued improvement in the security and business environment. The main impetus for industry and services growth will be expanded CPEC infrastructure investments, other energy investments, and government development expenditure. Agriculture should expand by trend rates. Rising domestic demand fueled by economic expansion is expected to stoke inflation in FY2018. However, projection for 4.8 percent inflation could stand given continued central bank policy vigilance, a muted increase in global oil prices, and some expected easing of global food prices.
2018 being election year is likely to be more challenging with regards to economic and fiscal consolidation and economic growth. Saudi Pak shall continue to play its assigned role to contribute to the economic progress of the country with major focus on project financing in corporate, infrastructure and SME through a combination of prudent debt financing, equity investments and money market operations.
In the end I would like to express on my behalf and on behalf of the Board our sincere gratitude to the joint venture partners, the Kingdom of Saudi Arabia and the Islamic Republic of Pakistan for their unwavering support and State Bank of Pakistan as well as Securities Exchange Commission of Pakistan for their professional guidance. I am also thankful to the Board Members for their valuable contributions. Further, I congratulate and express my deep pride in the Saudi Pak’s team for this excellent performance.
Mohammed W. Al-Harby