Directors' Report to the Shareholders
The Directors are pleased to present their Report together with Company’s audited financial statements for six months ended December 31, 2009.

Operating Results & Performance Overview Company achieved sales of Rs. 5.203 billion during six months ended December 31, 2009 which were marginally lower than corresponding period’s sales of Rs. 5.547 billion. Profit after taxation of Rs. 161 million grew more than 16% over previous six months figure of Rs. 138 million. This performance is noteworthy especially in view of prevailing non-conducive business conditions. Comparative figures, although, have been reported for the year ended June 30, 2009 but for better understanding figures of corresponding six months have also been reported wherever necessary, in this report.

In order to match the seasonal business cycle with the accounting year, Company has adopted calendar year as its accounting year whereby the year-end will not fall in the peak season. As such these accounts have been prepared for six months ended December 31,2009 after

obtaining necessary approvals from relevant authorities. Summary of the results is as under :

Economic Analysis & Company’s Contribution
Pakistan has been facing both economic and political instability in parallel to the global financial crisis. Turbulent political and security situation coupled with inflation, trade deficit, adverse balance of payment, circular debt, poor performance of state enterprises and stock market have remained the key indicators of Pakistan’s economy. Lately, Political, Security and Economic indicators are seen taking a positive turn and given the resilience demonstrated by this country in the past, we are confident that this turnaround should continue. GDP growth is likely to achieve the target of 3.3 per cent for the year and gradual recovery is underway.

During the period under review, with IMF’s program in place and support from multilateral lending agencies, country’s foreign exchange reserves have been strengthening after going through a worst period in the previous year, but the much needed confidence from domestic as well as foreign investors in the country’s economy remained weak. This was probably due to instability in political as well security situation together with internal financial woes like liquidity constraints, circular debt, unabated inflation, negative growth of large scale manufacturing sector and slow down in growth of services sector. Robust growth of agricultural sector despite worries about availability of water and healthy foreign remittances from overseas Pakistanis are contributing in achieving the GDP growth target.

On top of all above was internal strife and intensification of domestic security challenge which caused an extremely high cost to the economy both in terms of direct cost of war against extremism and in terms of knock-on effect on investment inflows and market confidence.

Continued international support through IMF’s and other programs, reduction in the current account deficit mainly due to lower oil prices together with growing foreign remittances have caused foreign exchange reserves to cross US$ 14 billion mark. Relative calm in security situation, silver lining in the agricultural sector and recent positive developments on the political front have given rise to a positive sentiment. Stock exchange is bouncing back to win confidence of investors. Bumper wheat, cotton and other crops, with good price received by farmers has given them enough disposable income to purchase goods and services and hence boost economy. As such the outlook at the end of year is encouraging for companies to do a good business during the next year.

Power Division
The gap in demand and supply of energy in the country is on the rise for quite a while resulting into severe load management. This requires huge input from Government and Private sector on the generation side in different forms such as thermal, hydel, coal and wind. Funding aspect of fuel supply and the circular debt issue also results into less than optimum capacity utilization of the generation facilities. Commensurate investment in the distribution network is also required without which it is deteriorating day by day due to increasing load on old and worn out electrical distribution equipment.

Although financial institutions like ADB and World Bank have stepped in, however, the pace of implementation is lower than plans envisaged. Increased pace in the implementation would play a pivotal role in the improvement of electrical distribution network.

Keeping in view the challenges in this area, few years ago the company embarked upon a major program of enhancing its capabilities to design and manufacture state of the art electrical distribution equipment in the country. We by the Grace of God, are market leaders in the field of distribution transformers and have taken a leap in this direction by setting up a new state of the art manufacturing facility for production of new generation of distribution transformers. This has commenced production during the period under review.

An estimate of the benefits of replacing the existing population of distribution transformers in the country by the newly designed transformers reveals a minimum saving of 450 MWs of power in addition to bringing the much needed reliability and stability in the distribution system. Hence with a very modest investment by electrical utility companies, not only the electrical shortage can be covered, sizeable additional revenue to utilities can be generated. The resultant stability in the system will also enhance the life and productivity of the electrical goods in domestic and industrial usage.

Power division manufactures distribution & power transformers, switchgears, energy meters and is involved in construction of grid stations and power networks on EPC basis. Share of the power division in the overall sales of the Company during six months ended December 31, 2009 amounted to PKR 2.226 billion.

The Company has also diversified its power division business by establishing an Engineering Procurement and Construction (EPC) division which has recognized itself as a major player in the construction of 132KV grid stations on EPC basis. Recently PEL was awarded its first 220KV sub-station construction contract. Over the years, PEL electrical equipment has been used in numerous power projects of national importance within Pakistan.

Distribution Transformers
Setting up of the new manufacturing facility has given a technological edge to the Company over its competitors not only within the country but also in the entire Middle East and North African region. The new site is 20 Km away from the present factory on Ferozepur Road and has commenced production during the period under review. The new designs, in addition to achieving more market penetration on the basis of lower transformation losses, increased strength to sustain over loading, ensure smooth power supply, enhanced life and low after sale service will also provide reduction in variable manufacturing costs.

Parallel to building the required hardware and the manufacturing facilities, investments have been made in acquiring and strengthening the necessary software and human resource in the engineering design, manufacturing, quality control and marketing & sales areas. Adequately experienced professionals from local as well as foreign organizations with Pakistani and European nationalities are part of our core teams.

As part of our continuing R & D activities, we also have acquired technologies and developed in-house dry type and smart transformers for specialized applications.

Power Transformers
PEL established its power transformers division in 2005 and has become the leading manufacturer of power transformers in Pakistan capable to produce 132KV power transformers and have started to contribute to revenues and profitability of the company.

The volumetric growth in this area has been exemplary over the past few years. This has been based on recognition of electrical distribution companies that only improved distribution networks can bring efficiencies in the system and availability of stable energy for the final consumer.

After completing the full range 132Kva transformers, your company is now in process of acquisition of technology for production of 220 KV Power Transformers. Educational order for 250 MVA, 220 KV Power Transformer is expected from WAPDA soon.

After setting up a solid base of successful performance in Pakistan, we have started export of this product to African and European Markets.

Energy Meter
The cash machine of Electric Utility Companies is in the process of change from Electro Mechanical to Digital Meters. The features of digital metering include time of the day, maximum demand indication, remote access, two way communication and a number of other features that make this equipment a smart product. It also enjoys the confidence of the consumer with respect to its reliability and accuracy.

PEL had anticipated this new trend and had timely acquired proven technology. Hence we are able to meet the demand for single and three phase applications by in-house production. The business in this product is showing healthy signs in terms of revenue and profitability and enhanced utilization of production capacities.

Switchgear
Switchgear business during the current period remained constant due to moderate demand from both private sector as well as from WAPDA. Since implementation of programs funded by World Bank and ADB are on the rise, we are expecting more orders from public sector.

PEL manufactures MV & LV switchgears for indoor & outdoor installations which comply all requirements of significant international standards & regulations. PEL share in market for switchgear including MV metal clad switchgear cubicles, MV Pad Mounted Transformers, Kiosk Type Substations, LV Power Factor improvement plants, Motor control centers & bus tie duct remained stable due to better management of customer relation. Due to World Bank and ADB financing to WAPDA we are expecting more sales as compared to this period. Marketing efforts to accelerate sales to private sector, WAPDA & also KESC market are well underway.

EPC Contracting
With restructuring of power sector in Pakistan and increase in economic, commercial and industrial activity, more and more power utilities and other customers demanded high value packaged solutions for their transmission systems and enterprise electrification requirements. To meet this demand PEL established an Engineering Procurement and Construction division. PEL EPC Division consists of human resource with high academic qualifications and experience of local as well as global markets. The EPC division delivers custom designed and built solutions in following areas.
• 132kV and 220kV grid stations for power utility companies.
• 132kV and 11kV substations for industrial and commercial customers.
• Integration of private captive power generation plants into utility network for sale of their surplus power to utility companies.
• Electrification of housing projects and industrial parks

Business overview - Appliances division

Among other reasons, increase in sales of home appliances can be attributed to increase in disposable income of farmers from agricultural products. For instance, according to Economic survey of Pakistan, the disposable income of farmers has grown from Rs. 288 billion in 2003 (for wheat, cotton, rice & sugarcane) to Rs. 900 billion in 2009. With availability of this additional money, demand of home appliances have gained momentum and have come within reach of farmers. Refrigerator for example in addition to preservation of food ensures availability of cool water.

Demand for electrical goods in Pakistan, despite energy crisis and inflationary pressure, is on the rise again and is mainly attributable to shift of majority of home appliances products from ‘Luxury’ to ‘Necessity’ cadre. We are seeing a shift in demand of ACs from urban to rural areas whereas similar shift in demand has already been witnessed for last 5 to 7 years in Refrigerators with total market increasing from 200,000 to over 1 million units. Similar trend was observed in Microwave ovens and Washing machines.

Despite shortage of power and load shedding, surge in demand and sales of air conditioners is seen. This is due to the fact that consumers have buying power for this product and want to use air conditioners even for smaller durations when power supply is there.

Raw material costs increased in last six months on account of both, in Forex rates as well as in C & F prices. Increase in other fixed costs were also observed following inflationary trend while energy costs i.e. electricity & generator running costs went up sharply due to ongoing power crisis. Consequently selling prices of our appliances products during current period had to be increased but increase was less than what It was during corresponding period when Pak rupee was devalued substantially.
Assigning of distributorship rights of LG products in Pakistan has started to yield positive results. The addition of LG brand implies that PEL will have two leading brands in both the categories of home appliances and air conditioners with minimal products directly competing with each other. This synergy of brands will bring technologically superior products to the customer at competitive prices.

Refrigerators:
Consumer demand for Refrigerators remained steady despite unfavorable economic conditions during last six months and we are pleased to report that we achieved our six monthly targets of this product. In view of increase in raw material prices and energy crisis, much against our will, we had to increase selling prices of Refrigerators and we are satisfied to note that these increases were absorbed by the market.

Economical models introduced last year were continued to be well received by the market and have become a permanent part of our Refrigerator range. By offering single price strategy, we have gained huge confidence of our customers which has brought uniformity of pricing across the country.

We are planning to introduce new range in Refrigerators offering new features in attractive designs and colors. We have also strengthened our R & D team to upgrade the existing line up and play a vital role in bringing new series to the market.

Forecast for forthcoming season appears to be conducive for our business and with the onset summer and , increased consumer demand, we are confident in achieving our annual targets.

Air Conditioners:
Air conditioners sold well in the last six months and we are pleased to inform that Company achieved its budgeted sales figures of the period. With the induction of new models, we now offer wide range of choice to our customers at competitive prices. The launch of LG products, especially, air conditioner, will give us an edge and will also compliment PEL brand with the same group of dealers used for primary sales.

The outlook for the next six months appears to be promising as demand for the next six months is anticipated to grow due to increasing temperature in Pakistan. Aggressive advertising and in-store branding has added to enhance consumer perception of PEL brand.

Deep Freezers:
The ability to produce tailor made B2B projects has helped in securing orders from corporate sector. This segment has become permanent feature to our deep freezer business with repeat orders. Proven quality of our products and our prompt after sales service has also helped us to maintain and develop stronger relation with our valuable corporate customers.

Meanwhile, we also intend to increase our dealer network in this category by offering new models to customers at competitive prices.

Other Domestic Appliances
This category includes Microwave ovens, Water dispensers and Washing machines which compliment the home appliances range of the Company. PEL emphasizes on each product category through product campaigns, in-time availability & focusing on shop share. Microwave was the most highlighted in this category which is offered with new & attractive designs for the consumers. PEL has increased Microwave product range by offering different sizes and models meeting varying requirement of our customers. New art flower designs in Microwave range will be shortly added to our Microwave range. In addition, we have launched economical models in water dispenser category to meet the growing customer needs.

LG Electronics
LG Electronics is one of the world’s top companies in Home Appliances, and as mentioned in our last annual review, company has acquired distribution rights for its domestic appliances and air conditioners.

Sales for Split ACs constitutes more than 70% of total LG business and majority of split ACs sale takes place in summer. For the forthcoming season, we have planned to introduce innovative and attractive models which includes Art Cool, Jet Cool & Exceed. Combined with contemporary technological characteristics, modern designs, the split air conditioner series is a must for luxury and healthy living. The new series includes MF (multi-flow) condenser which is 30% lighter, with longer life & energy efficiency due to the new multi-flow technology.

LG Refrigerator is known across the globe for its technologically advanced features like green ion door cooling system, vitamin plus, bio shield. LG refrigerator series promises to store things with healthy preservation to keep food fresh and in good health so that you can be healthy.

The flagship model of LG refrigerators, the side-by-side fridge features premium styling, a soft-touch LED control panel, and easy access to the foods you reach for most. Inside are plenty of adjustable shelves, bins and drawers, a “Moisture Balance Crisper” for longer lasting veggies, even digital controls which react instantly to fluctuations in temperature.

LG is always at the forefront of advanced technology with special emphasis on healthcare. New and attractive models were also introduced in other products of LG like Solar Dom in Mircowave category which uses light wave cooking instead of conventional microwaves and is 40% energy efficient. LG Washing Machine has unique feature of Inverter Direct Drive motor which offers energy efficiency & comes with a ten year warranty.

Future Outlook
PEL is geared towards addressing and meeting the expectation of our customer for quality products in both domestic appliances and electrical equipments. With achievement of higher deletion levels, a source of import substitution, the Company is effectively contributing towards saving of valuable foreign exchange of the country. PEL future performance will be based on cost savings, increased sales and high operating efficiencies. Various steps have already been introduced with the objective of generating sustainable earnings by focusing on different operational areas and business diversifications.
As a successful business enterprise, PEL continues to attract great numbers of diverse and talented people in every discipline. As a corporation, we are committed to greater diversity in our workforce and the competitive edge.

Pakistan’s economy is also expected to grow largely on account of population, utilization of natural resources, potential of agricultural products and competitive edge it has towards manufacturing of goods at lesser costs. We are confident that PEL is well positioned to realize its potential by taking advantage from the expected growth in the economy as our capabilities are alligned with the priority of our customers both in power as well as in appliances division.

Dividend and equity
Stock dividend @ 10% has been declared out of capital reserves for the period ended December 31, 2009.

Transactions with Related Parties
Transactions with related parties were made at arm’s length prices determined in accordance with the comparable uncontrolled price method. The Company has fully complied with the best practices on Transfer Pricing as contained in the relevant rules and regulations.

Material Changes
The annexed financial statements have been prepared for six months ended December 31, 2009 as the Company changed its accounting year from June 30th to December 31st . The said change was made after obtaining necessary approvals from relevant authorities.

There have been no other material change since June 30, 2009 and the Company has not entered into any commitment which would affect its financial position at the date.

Statement of Ethics and Business Practices
The Board has adopted the statement of Ethics and Business Practices. All employees have been informed of this statement and are required to observe these rules of conduct in relation to customers, suppliers and regulations.

Earnings per Share
Basic Earnings per Share works out to Rs. 1.28 (June 2009 : 1.97).

Operating and Financial Data:
The key operating and financial data for six years is annexed.

Corporate Governance – Statement of Directors' Responsibilities
In compliance of the Code of Corporate Governance, we give below the statements on Corporate and Financial Reporting Framework:

• The financial statements, prepared by the management of the Company, present fairly its state of affairs, the result of its operations, cash flows and changes in equity
• Proper books of account of the Company have been maintained
• Appropriate accounting policies have been consistently applied in the preparation of financial statements and accounting estimates are based on reasonable and prudent judgment.
• International Accounting Standards, as applicable in Pakistan, have been followed in preparation of financial statements and any departure there from has been adequately disclosed.
• The system of internal control is sound in design and has been effectively implemented and monitored.
• There are no significant doubts upon the Company’s ability to continue as a going concern.
• There has been no material departure from the best practices of corporate governance, as detailed in the listing regulations.
• Value of investments of Provident Fund as on December 31, 2009 is Rs. 305 million.
• The Board of Directors presently comprises 10 individuals, out of which Five are independent non executive directors while four are working executive directors and one executive director as Managing Director of the company.
• Board Meetings
  Meetings of the board of directors are held regularly to take notice of the results of corporate operations and their management and to make decisions concerning company’s business activities.Meetings also take place to consider business trends and operational plans of the company.
  During the period under review, Board of Directors held two meetings on October 8, 2009 and October 30, 2009. Attendance by each director during these meetings was as follows:
  

Pattern of shareholding
The information under this head along with information under clause XIX (i) and (j) of the Code of Corporate Governance is annexed.

Auditors and their Report
M/s Yousaf Adil Saleem & Company, Chartered Accountants, Lahore, retires and being eligible, has offered them for re-appointment. As suggested by the Audit Committee, the Board of Directors has recommended their re-appointment as auditors of the Company for the year ending December 31, 2010, at a fee to be mutually agreed.

Acknowledgement
We take this opportunity to thank all our customers, shareholders, bankers, employees, CBA and workers for their continued help, support and guidance.

On behalf of the Board