Waves Homes Appliance : Transmission of Annual Report for the Year Ended 31 December 2023

Waves Home Appliances Limited (WAVESAPP)
Table of Contents
1.	CORPORATE INFORMATION	3
2.	CHAIRMAN REVIEW	4
2.1	Message from Chairman	4
3.	DIRECTORS' REPORT	5
3.1	Operating Results	5
3.2	Financial Analysis	5
3.3	Overview	6
3.4	Risks, Uncertainties and Mitigations	9
3.5	Environment, Health & Safety (EHS)	10
3.6	Corporate Social Responsibilities	11
3.7	Investment in Human Capital	11
3.8	Adequacy of Internal Control	11
3.9	Best Practices of Corporate Governance	12
3.10	External Auditors	15
3.11	Acknowledgements	15
4.	CORPORATE VALUE STATEMENTS	16
4.1	Corporate Values	16
4.2	Corporate Objectives & Strategies	21
5.	HISTORY OF WAVES HOME APPLIANCES LIMITED	22
5.1	Brief History and Holding Company	22
6.	PRODUCT, QUALITY MANAGEMENT AND DISTRIBUTION	25
6.1	Products	25
6.2	Quality Management	26
6.3	Geographical Presence & Distribution	26
7.	OTHER INFORMATION	27
7.1	PATTERN OF SHAREHOLDING	27
8.	INDEPENDENT AUDITOR REVIEW REPORT	31
9.	STATEMENT OF COMPLIANCE	32
10.	NOTICE OF ANNUAL GENERAL MEETING	35
11.	PAST YEARS FINANCIAL POSITION AND PERFORMANCE	43
12.	ANNUAL FINANCIAL STATEMENTS	44

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Waves Home Appliances Limited (WAVESAPP)

1.	CORPORATE INFORMATION
BOARD OF DIRECTORS*
1.	Mr. Haroon Ahmad Khan	Chief Executive Officer
2.	Mr. Moazzam Ahmad Khan	Non-Executive Director
3.	Mrs. Nighat Haroon Khan	Non-Executive Director
4.	Mr. Hamza Ahmad Khan	Non-Executive Director
5.	Mr. Tajammal Hussain Bokharee	Independent Director
6.	Mr. Khalid Azeem	Executive Director
7.	Mr. Muhammad Zafar Hussain	Chairman/Independent Director
AUDIT COMMITTEE*
1.	Mr. Tajammal Hussain Bokharee	Chairman/Independent Director
2.	Mr. Moazzam Ahmad Khan	Non-Executive Director
3.	Mr. Hamza Ahmad Khan	Non-Executive Director
4.	Mr. Khurram Zahoor	Secretary
HR & REMUNERATION COMMTTEE*
1.	Mr. Muhammad Zafar Hussain	Chairman/Independent Director
2.	Mr. Hamza Ahmad Khan	Non-Executive Director
3.	Mr. Moazzam Ahmad Khan	Non-Executive Director
4.	Mr. Haroon Ahmad Khan	Executive Director
5.	Mr. Khurram Zahoor	Secretary
CHIEF FINANCIAL OFFICER	COMPANY SECRETARY
Mr. Muhammad Usman	Mr. Khurram Zahoor
HEAD OF INTERNAL AUDITOR	LEGAL ADVISOR
Mr. Waleed Afzal	Law Wings, Advocates & Solicitors
EXTERNAL AUDITORS	SHARE REGISTRAR
Rizwan and Company	Corplink (Private) Limited
Chartered Accountants
RESISTERED OFFICE	REGISTRATION NUMBER
9-KM Multan Road, Lahore	CUIN 0020624
PH. No. 042-35415421-5,35421502-4
UAN: 042-111-31-32-33
BANKERS
National Bank of Pakistan	Habib Bank Limited
Bank Al Falah Limited	MCB Bank Limited
JS Bank Limited
CONTACT INFORMATION
UAN: 042-111-31-32-33,	Email: [e-mail]
042-35415421-5,042-35421502-4	Website: www.waves.net.pk

* Election of the Board of Directors and Committees reformation was held on 25 November 2023

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Waves Home Appliances Limited (WAVESAPP)

2. CHAIRMAN REVIEW

2.1 Message from Chairman

We are pleased to present Annual Audited Financial Statements for the year ended 31 December 2023 on behalf of the Board of Directors of Waves Home Appliances Limited (WAVESAPP or the Company). These are the second Audited Financial Statements after the sanction of the Scheme of Arrangement by and between Waves Corporation Limited (WAVES or the Holding Company) and the Company, duly sanctioned by the honorable Lahore High Court, Lahore (the Court) on 27 May 2022. Through the Scheme the home appliances business of WAVES was acquired by the Company and resultantly became a subsidiary of WAVES.

The Board is responsible for overall management of the Company and to carry out its fiduciary duties with a sense of objective judgment in the best interest of the Company and its stakeholders

The Board has seven (7) directors including two (2) nonexecutive, two (2) independent including one (1) female director and two (2) executive directors. The Directors have rich and varied experience in the fields of business, finance, banking and regulations. The Board provides strategic direction as well as guidance to the Management.

The Board evaluated its own performance and its committees in order to facilitate and enable the Board members to play an effective role as a coordinated team for the ongoing success of the Company. During the year election of directors were held and the directors were appointed. The Board has well-diversified and experienced members with core competencies, knowledge and skills relevant to the Company's business. WAVESAPP follows the best practices relating to corporate governance and other related regulatory requirements. The Board held meetings during the period to review and approve periodic financial statements, annual business plan/budgets including capital expenditures, status of remaining formalities pursuant to the sanction of Scheme in respect, approving related party transactions, approving bank borrowings and other matters requiring Board attention. The Board provides strategic direction as well as guidance to the Management.

Over the years, WAVES brand leadership has strived to adapt a transparent and conducive business environment, by demonstrating respect and fairness in all our efforts and the adaptability of WAVES brand to face the macro and micro-economic challenges during the year 2023. We expect this effort to continue in the coming years.

We would like to conclude by extending our gratitude and thanks to the Directors for their energy, knowledge, advice, and earnest contributions towards the betterment of the Company and maintain their momentum in future in the best interest of the Company and its shareholders.

Chairman

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Waves Home Appliances Limited (WAVESAPP)

3. DIRECTORS' REPORT

On behalf of the Board of Directors of Waves Home Appliances Limited (WAVESAPP or the Company), we are pleased to present the Directors' Report together with Audited Financial Statements of the Company for the year ended 31 December 2023, together with the Auditors' reports thereon.

3.1 Operating Results

Following are the Key Performance Indicators (KPI) of separate financials of Waves Home Appliances Limited during the year ended 31 December 2023:

		Re-stated
	FY 23	FY 22
	Rs. in 000'	Rs. in 000'
Gross Revenue	5,061,929	8,956,449
Net Revenue	4,176,119	7,422,503
Gross Profit	1,037,052	1,454,318
Operating Profit	516,431	678,459
Profit before Tax	142,711	129,129
Profit for the period	115,717	13,127
Earnings per share	0.43	0.05

Based on the financial results in view of the tough current economic conditions the Board of Directors do not recommend any pay-out to the shareholders of the Company.

3.2 Financial Analysis

The Gross Profit for the year is 24.8% whereas in the previous year was 19.6%, which has shown improvements due to substantial increase in the market prices. The sales have reduced as compared to the previous year because of tough economic and financial challenges. The operating profit as a percentage of sales has increased to 12% as compared to 9% in the previous period. The overall net profit margin has substantially increased as compared to the previous year mainly due to better working capital management, costs optimization, better gross profit margins.

On the financial position, overall equity has increased to PKR 7,615 million from PKR 7,338 million. The total non-current assets have increased from PKR 8,362 million to PKR 10,484 million. The non-current liabilities have remained at the same level, however, there had been slight increase in the current liabilities by 3%.

In the corresponding year, the present value of payable to holding company was erroneously recorded from the Effective Date of merger instead of Sanction of the Scheme. Similarly, the minimum tax was erroneously recognized on the basis of group level taxation instead on proportionate basis. These errors have been corrected for the previous period to provide more transparent information to the users of the financial statements.

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Waves Home Appliances Limited (WAVESAPP)

Owing to the tough economic and financial challenges the Board had requested the holding company to defer the principal repayment of PKR 2.0 billion for a further period of 2 years from the expiry of its current term on 17 May 2024. This payable of PKR 2.0 billion was created pursuant to the sanction of Scheme of Arrangement by the honorable Lahore High Court, Lahore for demerger of home appliances business from the holding company to the company. Upon extension of principal payment, will provide leverage to the company to divert its cash flows towards the enhancement of its operations. The return/profit payable to the holding company shall be based on the average borrowing cost of the holding company. The principal/return shall be paid/settled with the holding company in a manner to be discussed and agreed with the Board of Directors of both Holding Company and the Company.

3.3 Overview

Principle Activities and Development

The principal line of business of the Company shall include to carry on the business of designing, manufacturing, processing, assembling, distribution, trading, repairing, reconditioning, importing, exporting, buying or dealing in all kinds of domestic consumer appliances and other light engineering products. The Company carries a legacy of the WAVES brand (Naam he kafi hai) for almost half a century and the SINGER brand's presence in the country for over 100 years. "WAVES" is a leading brand in the market of home appliances and is one of the most recognizable brands in Pakistan. It is the market leader in deep freezers with over 5 decades of experience

The Company is listed on Pakistan Stock Exchange Limited (PSX) and has recently changed the symbol of the Company Waves Home Appliances Limited from "WHALE" to "WAVESAPP". This change is required since the home appliances business of WAVES brand was transferred from Waves Corporation Limited to Waves Home Appliances Limited. The term "APP" refers to the word "Appliances" appearing in the Company's business. The appliances include Deep Freezers, Visa Coolers, Refrigerators, Air Conditioners, Washing Machines, Microwaves, Water Dispenser etc.

The appliances' manufacturing plant will be moved to a new purpose‐built larger factory for which land has already been purchased and construction is already underway. Progress on the construction of the new factory is continuing but at a slower pace owing to the economic and financial challenges. However, upon completion it will be the one of the state-of-the-art factory for home appliances products.

The Company is operating a nationwide set-up of warehouses in cities such as Karachi, Lahore, Gujranwala, Peshawar, Multan, etc., large network of dealers, after-sales service centers and service workshops. The Company's sales infrastructure is comparable to any other leading Home Appliance Company operating within Pakistan.

"WAVES" is a leading brand of the Company in the market of home appliances and is one of the most recognizable brands in Pakistan. It is the market leader in deep freezers with over 5 decades of experience. Waves is the only appliances manufacturer that is exclusively engaged in the manufacture of home appliances, with no other business interests on its balance sheet with the status of a publicly listed company. With the completion of under construction state of the art, brand new manufacturing facility the company will offer enhanced quality and process efficiency. Waves is the only appliances manufacturer in Pakistan with an associated sales network (WavesPlus) that operates 120 outlets nationwide through a group company. WAVES has captured considerable

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Waves Home Appliances Limited (WAVESAPP)

market share in the corporate segment producing products for corporate clients such as Coca- Cola, Pepsi, etc. holding a market share of approx. 80%.

Economic Analysis

Pakistan encountered an imminent economic challenge, attributed to insufficient macroeconomic management, escalating global commodity prices, tightening global monetary policies, devastating flooding in 2022, and political instability. In the backdrop of soaring inflation and waning confidence, coupled with critically low reserves, the International Monetary Fund (IMF) sanctioned a new StandBy Arrangement (SBA) program in July 2023. The resolute execution of the program, including sustained fiscal discipline, adjustments in energy tariffs, and the maintenance of high policy rates, facilitated fresh official external inflows early in the fiscal year. Consequently, there was a relaxation of import control measures and a marginal improvement in confidence levels. However, although the recovery has been broad-based, it remains in its early stages and insufficient to alleviate poverty, with growth projected to reach only 1.8 percent in FY24 (Source: World Bank).

Following the General Elections on 8th February, the new government assumes office with anticipation of implementing a dynamic strategy and vision to rejuvenate the economy and build upon the progress achieved in the past six months. Recent measures have successfully restored market confidence, resulting in an upsurge in economic activity. Notably, GDP growth rebounded to 2.1% recently, following two consecutive quarters of negative growth. This growth was widespread, with the agriculture sector recording a 5% expansion and manufacturing activity showing a 2.5% increase recently. The removal of import bans and other restrictions has alleviated supply constraints, further stimulating economic activity. Recent data indicates a robust performance in the manufacturing sector, with large-scale manufacturing witnessing rise over previous period. The anticipated GDP growth is projected to reach approximately 3%, driven by heightened manufacturing output and increased crop production, particularly cotton.

of Finance, Pakistan).

A clearly defined, ambitious, and credible economic reform agenda is imperative to diminish uncertainty and instill confidence. Despite this, risks persist, and critical policy barriers to sustainable economic advancement remain challengeable. There's a deficiency in policy reserves and debt levels remain high and foreign exchange reserves are tightly constrained. Without substantial structural reforms, the current policy framework suggests subdued growth prospects, characterized by persistently low investment, ongoing external imbalances necessitating continued management measures. Absent significant reforms, meaningful poverty alleviation is unlikely in the foreseeable future. A more robust medium-term recovery necessitates the implementation of substantial reforms.

Industry Overview

The agriculture sector in Pakistan is experiencing stronger growth compared to the previous year, contributing to improved food security and employment prospects. Favorable climatic conditions have facilitated timely wheat sowing for the Rabi season 2023-24, aiming for a production target of

32.12 million tons. Farm tractor production and sales have surged significantly, indicating positive momentum in the agricultural machinery sector. The Large-Scale Manufacturing (LSM) sector exhibited a slight increase, with positive growth observed in 12 out of 22 sectors. Inflation remains high but is anticipated to decrease in the coming months, with relief measures such as the Ramzan Relief package in place to support the vulnerable segments of society. Despite improved revenue growth and a surplus in the primary balance, fiscal pressures persist due to higher interest payments, resulting in a fiscal deficit of 2.3% of GDP. The trade balance has improved, leading to

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Waves Home Appliances Limited (WAVESAPP)

a narrowing of the Current Account deficit, supported by an increase in exports and foreign investment inflows. Workers' remittances have decreased slightly, but a significant year-on-year increase was observed in January 2024. The Monetary Policy Committee (MPC) has maintained the policy rate at 22.0%, anticipating a decline in inflation in the upcoming months. Overall, positive trends are noted in key economic indicators, with expectations of further momentum in the coming year, contingent on the continued implementation of prudent economic policies.

Future Outlook / Growth Strategy

The specter of economic instability is waning as concerted efforts to rejuvenate various sectors gain traction. Encouragingly, the real sector is witnessing significant growth, eliciting a favorable market reaction and indications of recovery. Both the stability of the Pakistani Rupee (PKR) and the sustained positive performance of the Pakistan Stock Exchange (PSX) reflect a conducive atmosphere for economic activity. While the overall pace of expansion may be gradual, notable enhancements in key economic indicators bode well for an optimistic GDP outlook in FY2024

Since the manufacturing of home appliances is a technology-intensive business and requires technical know-how and R&D comparable with that of the global players, local companies must either heavily invest in developing such R&D and technical teams or alternatively join hands with one of the global players already looking to enter the country. The time lag in these two options clearly pushes all the local companies to join hands with the foreign players or face stiff competition. To position the Company for becoming a part of the network of the Global Player, the Company has completed corporate reorganization creating a dedicated listed company involved solely in the manufacturing and sales of domestic appliances under the WAVES brand name.

Waves Home Appliances strives to stay at the cutting edge of ERP solutions. We have recently transitioned to SAP B1, a leading ERP system that ensures data transparency and operating efficiency. We have also secured the ISO 9001:2015, 14001:2015, and 45001:2018 certifications upholding high standards of quality for our products, safeguarding the health and safety of our workers, and complying with the international norms of environmental protection. We are also a supplier of The Coca-Cola Company and successfully achieved a green-rating in SGP (Supplier Guiding Principles and Human Rights Policy Assessment). In addition to these, we are continuously engaged in the upskilling and professional training of our labor force and company management. As the next step, the Company is at an advanced stage of modernizing and expanding its manufacturing facility by relocating to a larger area allowing all infrastructural and expansion requirements.

The anticipated inflation trend for the upcoming month indicates a decline, attributed to improved crop yields and consistent commodity supply. Additionally, favorable conditions for input resources are expected to bolster Rabi crop production. Despite a slowdown in specific sectors, industrial activity remained positive. Despite the implementation of restrictive monetary and fiscal policies, optimism prevails due to improved cyclical conditions in Pakistan's export markets, supporting a steady economic recovery. Stabilization measures promoting business confidence, along with exchange rate stability, contribute to a positive economic outlook for Pakistan despite prevailing challenges. Going forward as the economy strengthens, the operations of the Company will improve and all the returns accruing to the Company will in turn form part of the returns to its shareholders.

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Waves Home Appliances Limited (WAVESAPP)

3.4 Risks, Uncertainties and Mitigations

Your Company recognizes that risk is an integral part of business and is committed to managing the risks proactively and efficiently. Your Company periodically assesses risks, in the internal and external environment and incorporates risk mitigation plans in its strategy and business/operational plans. Every risk is carefully looked into, as in some of the cases post-analysis it may lead to a new business opportunity.

Your Company has a well-defined risk management framework in place. The risk management framework works at various levels from top to bottom across the enterprise. These levels form the strategic defense cover of the Company's risk management. Your Company's Risk Management Committee monitors and reviews the risk mitigation plan

Key Business Risks

Operational excellence - These are risks associated with internal factors, administrative and operational procedures like employee turnover, supply chain disruption, IT system shutdowns or control failures.

Branding/Innovation Risk - Risk that applies to innovative areas of your business such as product research and to cope up with latest market trends and product innovation.

Mitigants

• Your Company has initiated vendor rationalization, emphasis on in-house manufacturing and scorecard evaluation of vendors has been put in place.
• Your Company has put in place a quality and process improvement program across the Company, including strategic vendors, during the period with progress being tracked at regular Management reviews.
• Your Company has put in place a centralized marketing structure during the period, thereby strengthening its consumer insight process and filling up competency gaps in the concerned function.
• Company's research and development department has been strengthened and is continuously looking into and implementing product innovation strategies.

Organization Excellence - Ability to attract and retain the right talent may lead to your Company's inability to achieve organization's goals.

Liquidity Risk- is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset

• Your Company has put in place Succession Planning framework mapping career development and progression opportunities for suitable employees and thereby ensuring talent retention
• Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities. Due to dynamic nature of the business, the Company maintains flexibility in funding by maintaining committed credit lines

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Waves Home Appliances Limited (WAVESAPP)

Credit Risk- Credit risk represents the risk of a loss if the counterparties fail to perform as contracted.

Price Risk- with new entrants in the market, there is a likelihood of price competition which might squeeze margins.

Competitive Risk- Increasing entrants making their way into the plastic industry.

Regulatory Risk- Imposition/enhancement of duties, taxes, levies and other conditions may adversely affect the operations.

3.5 Environment, Health & Safety (EHS)

available. The Company's liquidity management involves projecting cash flows and considering the level of liquid assets necessary to meet these, monitoring statement of financial position liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans

• The risk is mitigated by applying individual credit limits and by securing the majority of trade debts against bank guarantees and inland letter of credit. The credit risk arising on account of acceptance of these bank guarantees is managed by ensuring that the bank guarantees are issued by banks of reasonably high credit ratings as approved by the Board of Directors.
• The Company is constantly sourcing competitive suppliers, improving its technology, efficiency and productivity. Also, since it has in-house capability to develop products with fast turnaround time, that by itself obviates possibilities of competition affecting the Company.
• The Company's diversified product line and unique dealer plus retail sale structure and technical expertise makes it adequately prepared to face these challenges.
• New levies go across the board, so we stay competitive

We are committed to achieve excellence in health, safety, and the environment across our business. We prioritize the safety of our employees and work hard to provide a positive environment, good health, and safety culture, particularly at our manufacturing facilities while vigilantly fulfilling our environmental duties and responsibilities. Our Company gives importance to the occupational safety and health of our workers. We maintain a safe working environment and takes responsibility for the health and wellbeing of our staff and stakeholders. The company actively trains all employees to ensure their safety at both the workplace and beyond. Besides, our manufacturing, distribution, and retail operations have developed SOPs that seek to reduce the risk of accidents.

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