DIRECTORS' REVIEW OF ACCOUNTS FOR
THE YEAR ENDED JUNE 30, 2005

We are pleased to present your company’s consolidated and individual audited accounts for the year ended June 30, 2005. The consolidated accounts include the Company’s Farmacia venture, which was a wholly owned division in FY 2003 and thus a part of the Company’s P&L statements, but has since been converted into a 98% owned partnership.
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Industry Scenario

The operating environment for the pharmaceutical industry remained stable during the year under review, although a slight erosion in the rupee value, coupled with increased domestic inflation, led to a reduction in overall margins for the industry. Demand growth for pharmaceuticals experienced a slight dip during the year, but continued to remain strong at 12% during the year (Source: IMS Pharmaceutical Index, Quarter II, 2005), compared to 13% during FY 2004.

Your Company’s performance

We are glad to report that your Company’s Net Sales increased by 31% during the year under review to reach a level of Rs. 655.762 Million, compared to Rs. 500.931 Million the year before. Consolidated Net Sales for the year - including Farmacia Sales - grew by 15% to Rs. 730.067 Million (2004: Rs. 637.475 Million). This dilution in growth reflects the reduction in sales resulting from Farmacia’s restructuring and subsequent closure of its unprofitable branches (Farmacia’s Net Sales declined from Rs. 138.649 Million in 2004 to Rs. 74.305 Million for the year under review). However, we are glad to report that despite lower revenues, Farmacia contributed handsomely to your Company’s bottom line. The Company’s share of profit from Farmacia for the year amounted to Rs. 4.834 Million, compared to a loss of Rs. 3.129 Million during the previous year.

Gross Profit (GP) of your company improved by 23% during the year under review, from Rs. 305.038 Million during FY 2004 to Rs. 376.253 Million at the close of FY 2005.

The Company’s Overall operating expenses during the year increased by 15%, from 150.550 Million during the previous year to Rs. 173.238 Million during the year under review.

Selling and distribution costs, the largest component of Operating Costs, increased by 13% to Rs. 137.687 Million. Your Company continued to expand its promotional activities in the area of continuing medical education (CME) during the year. We arranged symposia with international speakers on the topics of portal hypertension, liver disease and cancer. With your Company’s support, a highly successful workshop was held in June, 2005 at Shaikh Zayed Hospital by a leading hepatologist from Germany, during which a patient of liver cancer was treated using a new technique called Radiofrequency Ablation for the first time in Pakistan. Through such value-added activities, your Company will Inshallah continue to make a substantial and meaningful contribution in providing the knowledge and medical tools for the treatment of life threatening diseases in Pakistan.

Profit before Taxation of your Company for the year amounted to Rs. 215.453 Million. This figure includes a one-time addition of Rs. 13.847 Million derived from the sale of surplus land at Nowshera and Gadoon. After a provision for taxation of Rs. 61.888 Million (2004: Rs 47.714 Million), and other government levies of Rs. 12.108 Million, the Net Profit of your company for the year under review stands at Rs. 153.566 Million, an improvement of 52% over the Net Profit of Rs. 100.955 Million achieved during the previous year.

The Earnings per Share (EPS) of your Company for the year ended June 30,2005, on its increased paid up capital after issue of bonus shares stand at Rs. 19.87. The pro rata

equivalent (basic) EPS during the last year corresponds to Rs. 13.06 per 10-Rupee Share.

Dividend
In view of this year’s financial performance, the Board of Directors is pleased to recommend a final cash dividend of 55% i.e. Rs. 5.50 per 10-rupee share, as well as a stock dividend (bonus shares) @ 30% i.e. three shares for every ten shares held. Added to the interim cash dividend of 25% declared earlier during the year, this would amount to a total payout of 110% for the year ended June 30, 2005.

Future Scenario
As mentioned in last year’s report, your Company has acquired a 26 acre green-field site in the vicinity of Raiwind in Lahore for the future expansion of its manufacturing base. We are pleased to inform you that in December, 2004, we reached an agreement with our principals, the Bagó Group of Argentina, to set up the first biotech pharmaceutical plant in Pakistan, for the manufacture of medicines to treat Hepatitis and Cancer, at an approximate initial cost of Rs. 300 Million. This plant is Inshallah scheduled to come online in 2007. We are hopeful that through this investment, your company will be able to not only substantially increase its market share domestically and make the country self-sufficient in the treatment of Hepatitis and Cancer, but will also be able to leverage the Bagó Group’s global presence to develop a significant export base in the years to come.

Regulatory Environment

It is the prime responsibility of the private sector to explore new avenues of economic growth, and it is the Government’s duty to provide an enabling environment that fosters private enterprise. As mentioned in previous reports, our industry is fully capable of meeting the challenges posed by the WTO regime and the South Asian Free Trade

Accord (SAFTA), provided the Government creates a freer regulatory environment and sufficient support to the local industry. We hope that the proposed Drug Regulatory Authority promotes accelerated drug registrations for local companies and deregulates pricing in cases where sufficient number of products exist to ensure free market competition.

Summary of Financial Results

Summary of consolidated Financial Results for the last six years is shown on page 2

Statement under Section 236 of the Companies Ordinance, 1984

The Board of Directors of Ferozsons Laboratories Limited are pleased to state as follows:

(a) The financial statements prepared by the Management of the Company present fairly its state of affairs, the results of its operations, cash flow and changes in equity.
(b) Proper books of account of the Company have been maintained.
(c) Appropriate Accounting Policies have been consistently applied in preparation of the Company’s financial statements and accounting estimates are based on reasonable and prudent judgment.
(d) International Accounting Standards as applicable in Pakistan have been followed in preparation of Financial Statements and departure from them, if any, has been adequately disclosed.
(e) The system of internal control is sound in design and has been effectively implemented and monitored.
(f) There are no significant doubts upon the Company’s ability to continue as a going concern.

(g) There has been no material departure from the practices of Corporate Governance as detailed in the Listing Regulations.

Board Meetings
Information regarding Board Meetings held during the year ended June 30, 2005 is enclosed.

Auditors
The Company’s Auditors Messrs Taseer Hadi Khalid & Co, Chartered Accountants stand retired and have offered themselves for reappointment. The Audit Committee of the Board has recommended their re-appointment to the Board.

Pattern of Shareholding
The Statement indicating the number of shareholders and their categories forming the pattern of shareholding is annexed.

Provident Fund
A statement as to the value of investments of Provident Fund, based on their respective audited accounts is as under:

Defence Saving Certificates Rs. 19,904,400
National Investment Trust Rs. 22,456,042
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Total Rs. 42,360,442
The Company does not operate gratuity and pension funds.

Affirmation
It is once again our privilege to thank the company staff and workers at all levels for their hard work, dedication and professionalism, without which these results would not have been possible.

For and on Behalf of the Board of Directors
(Mrs. Akhter Khalid Waheed)
Chairperson & Chief Executive

August 30, 2005

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