Our Strategy moves on...

I am delighted to update you on the performance of Escorts Investment Bank during the Financial Year July 2005 ~ June 2006.

The easy part first

Once again, I am reminded that there are two parts of this exercise – the easy part and the difficult one. The easy part is to place before you. The Financial Highlights of the period under review - nothing remarkable about the format, which you may by now find standard. I find it easy, as operations of Financial Institutions are well documented and there exists a widely agreed upon definition of results and measures of success. Therefore, I will let the Figures speak for themselves and let you be the judge and the jury.

However what I find remarkable is that Culture of Discipline, which has worked in concert, to bring to you progressive and sustained growth consistently, quarter - after - quarter and year - after - year. The difficult part comes when I attempt to depict before you the picture of this Culture of Discipline.

Let me follow the habit of tackling the easy part first, and let you look at the Financial Highlights.

The Financial Year under review has been another record-breaking year for Escorts Investment Bank, demonstrating the strength and flexibility of our Strategy. The year was characterized by continued growth and strong transaction flows across most of our businesses. Substantial volume growth, optimized margins, vigilant cost control and strict capital discipline enabled us to deliver another set of enviable results, displayed in the table below. Through a clear focus on return led growth, we were able to maintain the high rate of Return on Capital Employed, despite the anticipated shrinkage due to rising funding costs. It also implies that we are in good shape to deliver profitable growth in future.

Financial Highlights (As at June 30, 2006)

Our Strategy moves on...

In today’s dynamic financial world, organizations are constantly evolving. Team working is rapidly becoming the preferred practice as traditional corporate hierarchies have given way to flat, multi-skilled working methods. Escorts Investment Bank, under a new Executive Management, since the start of the year 2002, has recognized and appreciated the twin demands of increased efficiency and high productivity. The Bank has undergone radical change, under its current Five-year Business Plan Escorts Beyond 2001.

The Camaraderie ~ Facilitate-Inspire-Implement

A question that never ceases to intrigue my mind is: What really distinguishes successful organizations from the rest? The answer is not likely to be found in the formal management structures and organizational hierarchies. Like most institutions, Escorts Investment Bank also has an Organogram that dictates the formal hierarchy and functional layout of a Divisional set-up. Yet I am increasingly convinced that the Bank’s success comes from something else. Something that is far less formal - something abstract that no Organogram can depict. It is the camaraderie, between different individuals and informal groups, which has been the real driver of success.

Formally, we too have a Cross-functional Executive Committee that heads the Team. However equally effective, and sometimes more productive, are different Business Teams that utilize their expertise in their particular fields and those Cross- functional Groups that exist at different levels. Then there are Hot Groups that come together temporarily to tackle creative tasks. (Incidentally, the credit, for the theme, content and layout of this year’s Annual Report, goes to one such group). Support Teams (the unsung soldiers) provide the much needed back-up services. The Project Team handles specific issues and the Finance Team looks after the Financial Control. In a nutshell, various departments that traditionally worked in isolation, now work closely together, at all levels, to pool their expertise. 

Last but not the least, the Change Management Team takes a detached view of the whole value chain and manages the Perpetual Change and Constant Improvement Process. (Change Management at Escorts was the subject of a Case Study by LUMS and I enjoyed the privilege of making my Presentation to their MBA students and members of the faculty, at their Business Leaders @ LUMS Forum).

Rigorous and Relentless ~ not Ruthless

In a fiercely competitive marketplace, delivering better and better results requires rigorous and relentless efforts on the part of the Team. Yet sustainable success is most likely to be achieved by only those institutions that take the broadest view of their responsibilities. Therefore, in pursuit of higher and higher levels of value creation for our shareholders, we have remained absolutely and totally committed to Good Corporate Governance and Best Business Practices.

What we do is important but not as important as, how we do it!

Investor confidence rests on three factors namely:

• Corporate Governance

• Financial Information that is transparent, accurate and timely, and

• A System of checks and balances.

Capital Formation is encouraged only by maintaining trust in each of these.

Realizing the moral imperative of responsible corporate citizenship and with the objective of inculcating the above values, last May, we joined hands with IFC – World Bank Group, to hold a Conference on Corporate Governance. The interest invoked by the Conference was reflective of a positive change in the corporate thinking in Pakistan.

Progressive and Proactive ~ yet Prudent

A progressive and proactive approach to business has resulted in enhancing the Brand Visibility of the Bank and its Products and Services, yielding higher revenues. The resounding vote of confidence cast by an ever-increasing number of satisfied and loyal customers is our most valued asset.

At the same time, strong Prudential Risk Management, based on Risk Identification and Risk Management rather than Risk Avoidance, has been a key to the Bank’s success. We have a systematic approach to managing risk with emphasis on all risks, including but not limited to market risk, credit risk, liquidity risk, operational risk and legal compliance and documentation risk. This will remain a key area of management focus, in the future also.

Our results for the last few years amply demonstrate that, in the long run, Prudence and Profitability are not mutually exclusive, rather compliment each other.

Four and a half years of Escorts Beyond 2001!

Following are the Highlights of our Repositioning for Growth Initiative:

• Shareholders’ Equity increased from Rs. 216 million to Rs. 760 million, of which Rs. 324 million have been added through retained earnings during this period;

• Rs. 132 million were paid out as cash dividends (excluding the proposed Cash Dividend of 20%);

• Market Capitalization increased from Rs. 100 million to Rs. 706 million;

• The Deposit base increased from Rs. 281 million to Rs. 1,480 million;

• Resources under management (excluding equity) increased from Rs. 414 million to Rs. 4,131 million;

• Balance Sheet size increased from Rs. 708 million to Rs. 4,875 million;

• Total Annual Revenues increased from Rs. 98 million to Rs. 716 million;

• Earnings per share increased from Paisa 3 to Rs. 4.44;

• Return on Capital Employed increased from 0.32 % to 28.62 %;

• The JCR – VIS Credit Rating improved from “BBB” to “A”, for Medium to Long Term and from “A - 2” to “A – 1”, for Short Term.

Writing the Next Chapter ~ Escorts Towards 2012

The last half-decade including the year under review has been a very challenging yet exciting and rewarding period for me, and the whole team at Escorts. We shall be concluding five years of Escorts Beyond 2001, next year.

The conceptual framework of next Five-year Plan, Escorts Towards 2012 is already taking shape and would be focused on the following Objectives:

• Aligning ourselves to the spirit and functionality of the new NBFC Structure, in a comprehensive manner, taking full advantage of the Enabling Regulatory Environment;

• Placing our Products and Services upfront at new fully equipped Branch Premises, at competitive locations, in all the major cities of Pakistan;

• Building Franchise and Brand Promotion;

• Corporate and Consumer Leasing in custom tailored packages.

• Supplementing our Institutional and Retail Brokerage Services with Margin Finance with the aim of  Taking Capital Markets to the People and serving as a Role Model for Corporate Brokerage Businesses, in terms of a transparent and responsible culture of regulatory compliance;

• Introducing Housing Finance Services, under our newly acquired License;

• Launching an Asset Management Company as a Subsidiary of Escorts Investment Bank;

• Offering at least two Country Specific Corporate Advisory Services, namely,

• Merhaba Turkiye ~ Business Forum and;

• Bonjour France ~ Forum d'affaires

Before I conclude, I would like to add a few words, in my capacity as the current Chairman of The Investment Banks Association of Pakistan. The NBFC Structure as designed and regulated by the Securities and Exchange Commission of Pakistan (SECP) has created an atmosphere that now enables, inspires and encourages the Investment Banks of the country to play their role of providing the much required high-end services. The Draft of the Revised Version of the NBFC Rules 2003 has been proposed by the SECP after extensive consultative sessions with the stakeholders and is a positive step in the right direction. I take this opportunity to thank the SECP for their business friendly, progressive and facilitative approach to the Regulatory Reform Process.

I would also like to place on record my sincere thanks to the Chairman and the Board of Directors of our Bank for their guidance and support.

Finally, I would like to record by utmost respect and appreciation for each and every member of The Team that, once again, made it all happen.

Sincerely,

Rashid Mansur
President & CEO

September 15, 2006