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Relationship: ABBOTT LABORATORIESCounterparty: Abbott Laboratories (Pak) Ltd AAC Number: 50675dClient Status: Global Clients Presentation No: 2007-0198Last Decision Date: May 06 UCR: 2AGIC:4507 KMV EDF: n.aLine of Business: Manufacture of basic

pharmaceutical products

Ratings: ST LT Date of Rating

Outlook S&PMoodysFitch IBCAInnovest

Nature of RequestAnnual review of the counterparty, outlining recent business/financial performance for the FYE Nov 06, requesting renewalof existing facilities at UCR 2.

The CompanyHistory: Public limited concern. Established in 1948, Abbott Laboratories is majority owned by parent/associated concernsto the extent of ~79% with the remaining divided between FIs, companies and various individuals. Pls note that during the

current year shareholding of Abbott Lab Ltd and Abbott Equity Holdings Ltd has been transferred to Abbott AsiaInvestments Ltd UK. However, the ultimate holding company is Abbott Int USA.Business/Business Risks: Primarily involved in manufacture/sale of pharmaceutical/diagnostic products (imported) with themajority product categories comprising of antibiotics, analgesics, vitamins and nutritional products. The pharmaceuticaldivision is engaged in manufacture, import and marketing of research based products registered with the Ministry of Healthwhile the diagnostic division represents import, manufacture and marketing of diagnostic, consumer healthcare, nutritionaland hospital products. Also note that Abbott Lab is currently involved in toll manufacturing arrangements for other

pharmaceutical companies namely Organon, Wyeth etc. Total import volume of USD 35-40 mln with 80:20 split betweencontracts/LC. Key raw materials/finished goods are procured from parent/affiliates (80%) and third party suppliers (20%)against contracts and LCs (sight) basis respectively. On the sales side, majority sales (~95%) are made through an internaldistribution network on cash basis with institutional sales are made out on 30-90 day credit terms.Key risk associated with the business is the price controls imposed by the GoP. The absence of any price increase puts

pressure on margins following devaluation of PKR against major currencies (USD/EUR etc) as the multinational pharmacompanies operating in the country are dependent on imports (raw materials/finished goods) from parent/affiliates. The risk is mitigated to some extent via companys competitive advantages realised via access to parent R&D/technology andstrong/established product pipeline along with companys strong ability to introduce new/high margins products.Management: Considered strong. The 7 member Board of Directors comprises of 4 parent nominees ensuring control over the local managements strategic decision making. Additionally, monitoring of operating/financial performance is done viamonthly reporting to the Head Office. The senior management comprises of well qualified professionals with strong

business knowledge and industry experience. AA maintains well-stratified contact with senior/middle level management.Our primary contact is Mr. Razzak Fathani- Treasurer & Co Secretary.Industry / Industry Risks: The pharmaceutical sector of Pakistan comprises of over 650 entities with operating licenses fromMinistry of Health. Fragmented nature of the industry as ~15 companies (both local/MNC) control 45% market share. Theaggregate market size is estimated to be ~ PKR 75-80 bln with an estimated annual CAGR of 12%. Given a number of global mergers and acquisitions the number of multi and transnational companies is on a decline and the same is reflected inPakistan. As a result, the foreign multinationals face stiff competition from the local players on account of a) introduction of close substitutes of branded products at relatively lower prices, b) popularity of the toll manufacturing concept creatingopportunities for the national companies who have proved to be fully competent to undertake such manufacturing. The

primary hurdle faced by the local pharmaceutical sector is that the industry remains regulated in nature by the GoP viaMinistry of Health (MoH). All product (essential/life saving and over the counter drugs) prices and drug registrations aredetermined by MoH. Additionally, advertising/marketing is governed by the GoP.Competition: Key multinational pharma players include Glaxo Smith Kline (12.1% SOM 1), Abbott Laboratories (5.6%),Aventis Pharma (4.9%) and Novartis Pharma (4.7%). Abbott Laboratories (5.6% SOM) fares well on the following a)established product portfolio (market leadership in various product categories), b) access to parent R&D, technology and c)ability to introduce new high-margin product pipeline.

Exposure Horizon: Not proposed.

1 Share of Market

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Relationship Economics (supported by LPT)

Current ProposedEconomic Capital 11,584 5,823Expected Loss 643 452Economic Profit 12,765 11,620

Credit RAROC 72.22% 156.41%Relationship RAROC 117.66% 206.10%

Relationship Economics: Healthy RAROC is on account of incremental LC volume anticipated during the year. NCIcomprises of income from fx fee and term/savings deposits.AA Position within Lending Group: Abbott Lab. is a profitable relationship with strong cross-sell annuity income as AA isrecipient of large volume of low-solvency ancillary business. Given that we have just facilitated some regulatory approvalsfor the company in a record time, our position as core bank is further strengthened. Accordingly the company has agreed to"Grow" with AA and increase our share of import wallet which is presently 14%. Our main competitors are SCB (with 34%of import volume) followed by HSBC and Deutche Bank. We will also present various cash management solutions such thatrevenue stream increases without deployment of capital.

LGD class:

Facility Existing Calculated Final/Proposed CommentsD2 E3 I3 E3 Given cash surplus nature of the customer, facility is

primarily in use for LC facility. In line with LGDcalculator and LPT guidelines for trade facilities.

D4 L3 L3 L3 In line with LGD calculator and guidelines for unsecured facilities.

D6 L3 L3 L3 In line with LGD calculator and LPT guidelines for unsecured facilities.

Summary Financial Analysis (see Notes to Financials)

Financial Highlights: In PKR mln; Fiscal year-end November

Balance Sheet FY 05 FY 06 Profit & Loss FY 05 FY 06Total Assets 4,129 5,036 Turnover/Sales 5,227 5,914Net Worth 3,412 4,242 EBITDA 1,507 1,524Total Debt - - EBITDA Margin (%) 29% 26%Contingent Liabilities 1,480 952 Net Profit/Loss 961 999Current Ratio 4.18x 4.75x Total Debt/EBITDA - -Net Worth/T.A. 0.83x 0.84x EBIT / Net Interest - -

Following analysis is based on full-year financials for the period ended Nov 06:Profitability: Reduction in EBITDA margins by 300 bps is primarily on account of absence of any price increase allowed bythe government resulting in continued inflation and higher input costs. The company posted net profit of PKR 999 mln (FY05: PKR 962 mln) with net margin of 17%.Liquidity: Robust liquidity as current ratio increased to 4.75x (FY 05: 4.18x). Details of ST banking lines attached in the

Appendix.Capital Structure: Well-capitalised balance sheet on account nil gearing at year-end. Also note that equity ratio improvedto 84%.Cash Flow/Debt Service: Improvement in NOFF to PKR 930 mln (FY 05: PKR 778 mln) is mainly on account of lower inventory requirements for the FYE 06. This was sufficient to meet discretionary/non-discretionary expenses.

Attached are the 1 st Qtr 06 results:

1st Qtr Results 1 st Qtr 07 1 st Qtr 06Sales 1,525 1,289Gross Profit (Gross Margins) 552 (36%) 575 (45%)

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Profit Before Tax 310 334Qtr 07 FY 06

Current Ratio 3.61x 4.76xGearing - -Prospects: For the 1 st Qtr Feb 07, company reported sales revenue of PKR 1,525 mln (14% higher than the corresponding

period in FY 05) due to volume increases. The companys existing pharma and nutritional product portfolio continued to

show strong demand. Gross margins were impacted primarily on account of higher product import costs to meet demand asthe company shut down its tablet plant post completion of its expansion/upgradation project. Profit-before tax declined toPKR 310 mln (1 st Qtr FY 06: PKR 334 mln) primarily on account of reduced gross margins. However, companys

performance/profitability remains dependent on new product introductions as well as smooth market access. Given thatAbbott has historically performed well in both areas complimented by access to parents R&D and technical support, weexpect sales growth of 10-12% with net profit margin to improve as well.

Risk Analysis

RISKS MITIGANTS Price regulation risk- Pressure on margins given cap on prices by GoP resulting in cost increases not being passedon in a timely manner.

Common risk across the industry and is partially mitigated bya) periodical price increase allowed by the government, b)continuos introduction of new products and c) prudent cost

control followed by the local management.Competition risk Strong competition from both themultinationals and fast growing local pharmaceuticalcompanies, resulting in reduction in market share.

Largely mitigated by the following: 1) market leadership position in antibiotics, vitamins and nutritional products 2)nation-wide distribution network, 3) high-tech/R&D andsuperior quality products with lesser competition from thelow quality generics.

Devaluation risk PKR against major currencies therebyincreasing the cost of imported raw materials.

Mitigated by the fact that the company books forward cover in order to hedge against possible devaluation.

UCR Proposal: Propose to maintain existing UCR 2; in line with GRACE rating. Pls note that subjectives remainunchanged as per the last approved presentation.

Also note that during the FY 06 the company continued its healthy financial performance as witnessed via sales growth,strong current ratio and nil gearing.

RecommendationBased on the above, we recommend for approval.

Sign Off by:Credit Portfolio Management

Annexes AttachedGRACE Executive Summary Y

Notes to Financial Statements YCorporate Rating Sheet (GRACE) YOrganigram/Group Structure NLoan Pricing Tool and advice (provided by PMG) if required YClient Management Advice NKMV EDF Graph (optional) YS&P or Moodys Research (optional) NAAB Equity Research (optional) NInnovest Report (if required) NESRMU Advice (if required) NOther Product Advices (specify) N

AppendicesAppendix 1: Shareholding StructureAppendix 2: Pharmaceutical market share for 2006

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Appendix 3: Banking Facilities of Abbott Laboratories Pakistan

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Relationship: ABBOTT LABORATORIES U.S.ACounterparty: Abbott Laboratories (Pakistan) LtdACC Number: 50675dPresentation No: 2007-0198

Financial AnalysisAudited financials for the FYE Nov 06 analysed below. Auditors A. F Ferguson (good repute) has provided an unqualifiedopinion on subject financials. Overall the financials can be classified as strong on account of increasing profitability,robust current ratio and a well capitalised balance sheet following nil gearing.

Compliance with Prudential Regulations as of FYE Nov 06 is as follows:Ratio Actual RequiredCurrent Ratio 4.75x 1.00xFunded Liabilities/Equity - 4.00x

Non Funded L iabilities/Equity 0.17x 10.00x

Profit & Loss-(Strong)- Sales growth of ~13% on y-o-y basis to PKR 5,914 mln (FY 05: PKR 5,227 mln) is primarily volume driven in the

wake of strong field force productivity coupled with overall strong demand of antibiotics, cough/cold, vitamins andnutritional product- Ensure.- Gross margins remained in line with last year. Pls note that in the absence of any price increase by the governmentsince 2001, margins of pharma companies are being adversely affected on account of inflationary pressures coupledwith depreciation of PKR against key European currencies resulting in higher input costs.- Salaries/wages increased to 17% of sales (FY 05: 15% of sales) in line with inflation coupled with higher pensioncharge during the FY under review. Other expenses remained in line with last year.- The company remained cash surplus during the FY 06 and met its working capital requirements via internal cashgeneration- resultant ST borrowing and interest expense remained nil at year-end. Other financial income amounting toPKR 66 mln (FY 05: PKR 8 mln) represents interest income on deposits and investments.- The company reported net profit of PKR 999 mln (FY 05: PKR 962 mln) with PKR 374 mln reported as dividend-to be paid out subsequent to year-end.

Balance Sheet- (Strong)- Gross fixed assets increased to PKR 2,761 mln (FY 05: PKR 2,381 mln) primarily on account of the completion of the1st phase of the plant upgradation and expansion project coupled with installation of electricity generation equipment.The electricity generation equipment has been installed to meet the companys enhanced electricity requirements in linewith plant capacity expansion.

- Inventory levels increased marginally to PKR 1,256 (FY 05: PKR 1,218 mln). The company maintained adequateinventory during the FY under review to meet product demand therefore, lower imports at year-end.

- Group company receivables increased marginally to PKR 23 mln (FY 05: PKR 19 mln). This represents payments fromassociated undertakings on account of export sales coupled with reimbursement of expenses for providing services.

- Accounts receivable increased to PKR 198 mln (FY 05: PKR 138 mln) on account of strong field force productivity toensure growth in sales.

- Other receivables increased to PKR 296 mln (FY 05: PKR 131 mln) - this pertains to taxation recoverable from thestatutory authorities. Other current assets- an aggregation of various heads declined to PKR 182 mln (FY 05: PKR 241mln) comprising of loans/advances, stores & spares and accrued profit.

- Cash and bank deposits increased to PKR 1,609 mln (FY 05: PKR 1,161 mln) - and represents 45% of the currentassets of the company.

- Deferred taxation amounted to PKR 44.1 mln (FY 05: PKR 21 mln) in line with higher capex during the FY under review.

- Group company payables declined to PKR 153 mln (FY 05: PKR 212 mln) in line with lower inventory imported atyear-end. Accounts payable remained in line with last year.

- Other current liabilities increased to PKR 402 mln (FY 05: PKR 304 mln) mainly on account of higher accruedliabilities. Accruals comprising of workers profit participation funds, welfare funds and sales tax amounted to PKR 157mln (FY 05: PKR 145 mln).

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Cash Flow- (Strong)Increase in NOFF to PKR 930 mln (FY 05: PKR 778 mln) is primarily on account of lower inventory requirements duringthe FYE 06. This was sufficient to meet discretionary and non-discretionary payments. Capex was entirely financed throughinternal sources.

Contingencies & Commitments: Contingent liabilities included tax related claims for PKR 160.8 mln, outstanding bank

guarantees for PKR 50.8 mln and outstanding letters of credit for PKR 351 mln; commitments for capex stood at PKR 23.8mln while that of fx contracts amounted to PKR 205.04 mln.