TABLE OF CONTENTS Corporate Information 6-7 Board of Directors 8-13 Chairman’s Review 14 A Few Words from the Chief Executive 15 Notice of Annual General Meeting 16-17 Directors’ Report to the Shareholders 18-22 Statement of Compliance with Listed Companies (Code of Corporate Governance) Regulations, 2017 23-25 Financial Highlights 26-27 Performance Overview 28-29 Pattern of Shareholding Form 34 30-33 Independent Auditors’ Review Report 34 Auditors’ Report to the Members 35-39 Statement of Financial Position (Balance Sheet) 40-41 Statement of Profit or Loss 42 Statement of Comprehensive Income 43 Statement of Changes in Equity 44 Statement of Cash Flows 45 Notes to the Financial Statements 46-89 Information Message "JamaPunji" 90 Form of Proxy in English 91-92 Form of Proxy in Urdu 93-94 Directors’ Report in Urdu 95-97 Notice of Annual General Meeting in Urdu 98-99 NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that the 52nd Annual General Meeting of shareholders of Fauji Foods Limited will be held on Wednesday, March 27, 2019 at 11:00 a.m. at Pearl Continental Hotel, Lahore to transact the following business: 1. To confirm the minutes of the Extraordinary General Meeting held on November 26, 2018. 2. To receive, consider and adopt the audited accounts for the year ended December 31, 2018 and the reports of the Directors and the Auditors thereon. 3. To appoint auditors for ensuing period till next AGM and to fix their remuneration. 4. To transact any other business as may be placed before the meeting with permission of the Chairman. CLOSURE OF SHARE TRANSFER BOOKS The Share Transfer Books of the Company will be closed from March 21, 2019 to March 27, 2019 (both days inclusive) for the purpose of holding the AGM. By Order of the Board Lahore. Brig Zahid Nawaz Mann (Retd) January 29, 2019 Company Secretary NOTES: 1. A member of the Company entitled to attend and vote at the General Meeting may appoint a person/ representative as proxy to attend and vote in place of member at the meeting. Proxies in order to be effective must be received at Company's registered office duly stamped and signed not later than 48 hours before the time of holding meeting. A member cannot appoint more than one proxy. Attested copy of shareholder's CNIC must be attached with the proxy form. 2. The CDC/sub account holders are required to follow the under mentioned guidelines as laid down by Securities and Exchange Commission of Pakistan contained in Circular No. 1 of 2000 dated 26 January, 2000: (a) For attending the meeting Ii. In case of individuals, the account holder or sub-account holder shall authenticate his/her identity by showing his / her original national identity card or original passport at the time of attending the meeting. ii. In case of corporate entity, the Board of Directors' resolution / power of attorney with specimen signature of the nominee shall be produced at the time of meeting. (b) For appointing proxies Ii. In case of individuals, the account holder or sub-account holder shall submit the proxy form as per the above requirement. ii. The proxy form shall be witnessed by the two persons whose names, addresses and CNIC numbers shall be mentioned on the form. iii. Attested copies of CNIC or the passport of the beneficial owners and the proxy shall be furnished with the proxy form. 16 iv. The proxy shall produce his/her original CNIC or original passport at the time of the meeting. v. In case of corporate entity, the Board of Directors' resolution/power of attorney with specimen signature shall be submitted to the Company along with proxy form. 3. Members are requested to promptly notify any change in their addresses to the Share Registrar of the Company, i.e., M/s Corplink (Pvt.) Limited, Wings Arcade, 1-K, Commercial, Model Town, Lahore. Consent for Video Conference Facility Members can also avail video conference facility in Karachi and Islamabad. In this regard please fill the following and submit to registered address of the Company 10 days before holding the general meeting. If the Company receives consent from members holding in aggregate 10% or more shareholding residing at geographical location, to participate in the meeting through video conference at least 10 days prior to the date of meeting, the Company will arrange video conference facility in that city subject to availability of such facility in that city. The Company will intimate members regarding venue of video conference facility at least 5 days before the date of general meeting alongwith complete information necessary to enable them to access such facility. I/We,_________________________________________ of ________________________, being a member of Fauji Foods Limited, holder of ____________________ Ordinary Share(s) as per Register Folio / CDC Account No __________________ hereby opt for video conference facility at __________________. Signature of member (Signatures and names of the Chief Executive and Directors) 17 DIRECTORS' REPORT TO THE SHAREHOLDERS The Board of Directors' of Fauji Foods Limited are pleased to present the directors' report along with the audited financial statements for the year ended December 31, 2018. Principal activities: Fauji Foods Limited, a majority owned Company of Fauji Fertilizer Bin Qasim Limited (50.59% shareholding) and Fauji Foundation (12.75 % shareholding) is engaged in processing and marketing of dairy products, juices and jams. The Company's brand 'Nurpur' is one of the oldest and highly recognizable brand in Pakistan. Operations during the year: The Company remained on course of its growth strategy and commitment towards excellence and continued to achieve numerous milestones, still the year under review remains a mix of good and not so good events for Dairy Industry that had an impact on Company operational and financial performance. The Operational results of the Company grew on improved milk processing, efficient capacity utilization, enhanced product distribution and brand presence. The addition of new Tea Whitener brands like TAZA along with re-branding and re-packaging of its premier pasteurized milk as Doodh, the Company continued to deliver its promise to the consumers of providing quality dairy products, and also help complimenting sales growth. On the external front, The Company also faced adverse impact in UHT milk segment due to Honorable Supreme Court order on packaged UHT milk at the start of the year. On subsequent retesting of the milk the Honorable Supreme Court reversed the said order, in favor of the Company. Impact of that order still felt on UHT sales over the remaining year. Overall dairy sector growth also declined due to negative perception created in the media about packaged milk and Tea Whiteners. Despite these tough conditions the Company has continued to capture and improve its market share. The net turnover during the year 2018 recorded a growth of 16% compared with 2017. Consolidation of classes of shares: In the 51st Annual General Meeting held on March 26, 2018, Member's approved through special resolution merging of voting and non-voting shares of the Company into one class and increased authorized capital to 700,000,000 ordinary shares of Rs 10 each. Financial performance: The Company achieved turnover of Rs. 8,094 million compared to Rs. 7,000 million in the comparative year. Loss after taxation in the reported year is Rs. 2,849 million as compared to Rs. 2,288 million in the comparative year. The Loss per Share thereby is Rs. 5.39 as compared with Rs. 9.22 in the comparative year. The increase in net losses are due to higher cost incurred in relation to input costs of raw materials owing to fluctuations in foreign currency exchange rates, and finance costs owing to increase in policy rate by the State Bank of Pakistan. Moreover, inability of Industry and Company to increase prices of certain products despite increase in its processing cost, including impact of change in Input costs and additional Regulatory Duty and high availability of low priced loose milk through informal sector also contributed to losses. Management has undertaken various initiatives like efficient management of input costs, increasing production scales, securing new working capital lines, etc. We expect that these steps together with increased sales will contribute significantly towards the profitability of the Company in the future. Acquisition intent by Inner Mongolia Yili Industrial Group Company Limited On July 31, 2018, Inner Mongolia Yili Industrial (Yili), a Chinese state owned corporation showed its interest in acquisition of 51% stake in Fauji Foods Limited. Fauji group management and other party has commenced legal and due diligence formalities in this regard. Management will keep apprising all stakeholders of developments in this matter through prompt Stock Exchange announcements. 18 Future outlook: Pakistan's economy continues to grow positively, led by growth in the manufacturing and services sectors and recovery in agricultural sector. Higher domestic demand and improvement in China Pakistan Economic Corridor backed infrastructural development is expected to provide further impetus to the growth momentum. In the coming period, expected rebounds in the commodity prices, weakening of the local currency, change in policy rate by the SBP may exert momentary pressure, however, the general outlook of Pakistan's economy remains positive Board confidence remains high in the growth potential of Pakistan's dairy market. Dairy industry is expected to recover from negative campaign and it is expected to show growth in the future and regain the market share lost to loose milk segment. The Board is also confident about the future growth of the Company to deliver quality products while keeping a strong focus on innovation and operational excellence. Current capacity enhancement will enable it to contribute as key market player of the dairy industry.