KTM Leather (Pvt.) Ltd. (hereinafter referred to as “KTM” or “the Company”) is a Private Limited enterprise engaged in the leather industry. The Company was originally established as a partnership firm in 1935 under the name Khawaja Tanneries (Pvt.) Limited. In 1961, its legal status was formally changed to that of a Private Limited Company, reflecting its growth and organizational restructuring.

KTM is a part of the Mahmood Group, a diversified conglomerate in Pakistan that traces its origins to the tannery business founded in 1935 by Mr. Khawaja Muzaffar Mahmood. Over the decades, the Group has expanded beyond leather into a wide range of industries, including textiles, food and poultry, restaurants, power generation, equity investments, and real estate. This broad diversification has enabled Mahmood Group to strengthen its business resilience, leverage its core expertise, and take advantage of emerging opportunities, thereby establishing itself as one of the country’s prominent business enterprises with a significant role in Pakistan’s economic development.

KTM Leather (Pvt.) Ltd. is principally engaged in the manufacturing of a wide range of leathers, processing raw hides of cow and buffalo through crust and finished stages. In 2017, the Company expanded its operations by establishing a leather shoe manufacturing division with a production capacity of approximately 2,000 pairs per day, offering both open and closed designs. This move into footwear production diversified the Company’s portfolio, enabling it to broaden its product offerings, access new markets, and strengthen its position as a competitive player within the leather industry.

Mahmood Group maintains full ownership of KTM Leather (Pvt.) Ltd., with shareholding distributed among family members and an associated Company. The ownership is divided among three brothers: Mr. Muhammad Ilyas, the Chairman, holds 2.8%; Mr. Muhammad Younas holds 28%; and the late Mr. Iqbal’s 28% stake is further allocated among his five family members. In addition, the Chairman’s two sons, Mr. Mehr Ali and Mr. Muhammad Qasim, each hold 12.8%. An associated Company, Masood Model Ginning Factories (Pvt.) Ltd., holds a 16% share. This closely held yet diversified ownership structure ensures strong family control, coherence in strategic decision-making, and reinforces the Company’s stability and long-term vision.

The Mahmood Group is planning to establish a formal holding structure for KTM Leather (Pvt.) Ltd. as part of its long-term strategic vision. This initiative is designed to enhance organizational stability by consolidating ownership and governance under a structured framework. A holding structure will allow the Group to streamline operations, optimize resource allocation, and strengthen financial management, thereby improving the Company’s resilience against market fluctuations and industry challenges. In addition, the Group intends to document a succession plan, ensuring clarity in leadership transitions and safeguarding continuity across generations. By formalizing succession, the Company reduces uncertainty, provides confidence to stakeholders, and secures a smooth transfer of responsibilities. This forward-looking approach reflects best practices in corporate governance, aligning the Company with modern standards of transparency, accountability, and sustainability. Ultimately, these measures reinforce KTM Leather’s ability to adapt, grow, and maintain its position as a competitive player in the leather industry while securing its long-term success.

The Khawaja Family has operated for several decades, earning recognition as one of Pakistan’s largest exporters, particularly through its contributions in the leather industry. Over time, the Mahmood Group—which originated from these family-led operations—has significantly broadened its scope, evolving into a diversified conglomerate. Today, the Group maintains a strong presence across multiple sectors, including textiles, leather, food and poultry, restaurants, power generation, equity investments, and real estate. This strategic expansion reflects a deliberate effort to leverage existing expertise and resources across industries, thereby enhancing market presence and driving sustained growth. By entering diverse fields, the Mahmood Group has demonstrated adaptability and a commitment to innovation, positioning itself as a key player in Pakistan’s economic landscape while ensuring resilience against market fluctuations.

The Mahmood Group maintains a strong financial profile, supported by a substantial equity base and a diversified portfolio of investments. This solid foundation underscores the Cponsors’ capacity to provide financial support to KTM Leather (Pvt.) Ltd. whenever required, ensuring stability and confidence in the Company’s operations. In addition to its established businesses, the Group is planning to diversify further by entering the vegetable and fruit export market. This strategic initiative is intended to strengthen the Group’s presence in the global agricultural sector, building on its existing expertise in food and related industries while tapping into new growth opportunities. By expanding into agricultural exports, the Group aims to enhance its competitive edge, broaden its international reach, and create new revenue streams. This move also reflects a commitment to sustainable growth and adaptability, positioning the Group to respond effectively to changing market dynamics. With its robust financial base and forward-looking diversification strategy, Mahmood Group is well-placed to reinforce its long-term resilience and contribute meaningfully to Pakistan’s economic development.

The Board of Directors of KTM consists of four members, including the Chairman, Mr. Muhammad Ilyas. While this structure reflects continuity and long-standing leadership, it is characterized by the absence of independent directors and a strong dominance of the sponsoring family. Such concentration of control can limit the diversity of perspectives and reduce the effectiveness of governance practices. Furthermore, all directors have been associated with the Board for over two decades.

Mr. Muhammad Ilyas, the Chairman of KTM, brings over four decades of experience in the leather and tannery industry, providing continuity and seasoned leadership. Similarly, Mr. Muhammad Mehr Ali, the Chief Executive Officer, has accumulated 16 years of professional experience, contributing modern perspectives and operational expertise. Both individuals have held key positions in various local corporate bodies in Pakistan, which has broadened their exposure to diverse business practices and governance structures. Collectively, the Board possesses extensive knowledge of the tannery industry, complemented by a range of experiences across different sectors. This combination of long-standing industry expertise and broader corporate involvement provides the Company with a strong foundation for decision-making. However, while the depth of experience ensures stability and consistency, the lack of independent directors and limited diversity in perspectives may restrict innovation and alignment with evolving corporate governance standards. Balancing continuity with fresh insights could further strengthen the Board’s effectiveness and adaptability in a changing business environment.

The Board of Directors of KTM meets on a quarterly basis in compliance with the regulatory framework. Attendance at these meetings is consistently strong, which enhances the Board’s effectiveness by ensuring that all members are actively engaged in discussions and decision-making. The proceedings are carefully documented, with minutes recorded in detail to provide transparency and accountability. While these practices reflect a commitment to regulatory adherence and structured governance, there remains scope for improvement. For example, introducing more diverse perspectives, strengthening oversight mechanisms, and adopting modern governance practices could further optimize the Board’s decision-making processes. Enhancing governance in this way would not only improve strategic outcomes but also align the Company more closely with evolving corporate standards, reinforcing long-term sustainability.

During FY25, the Company auditors 'M/S. Yousaf Adil Chartered Accountants' expressed an unqualified audit opinion on the financial statements for the year ended June 30th, 2025.

KTM operates under a well-defined organizational structure that supports efficiency and accountability. At the first tier, operations are divided into seven broad departments: (i) KTM Leather Wing, (ii) Accounts & Taxation, (iii) Human Resources (HR), (iv) Management Information Systems & Information Technology (MIS & IT), (v) Internal Audit, (vi) Administration, and (vii) KTM Footwear Wing. Each department has clearly established lines of responsibility, ensuring that roles are distinct and functions are properly managed. This structured approach allows the Company to maintain operational discipline, improve coordination among departments, and strengthen internal controls. By segregating responsibilities, KTM minimizes overlap, enhances transparency, and ensures that specialized expertise is applied to each area of the business. The inclusion of both traditional functions (such as Accounts and HR) and modern support systems (such as MIS & IT and Internal Audit) reflects the Company’s commitment to balancing legacy operations with contemporary governance practices. Overall, the organizational framework provides a solid foundation for effective management and long-term growth.

Overall management control of KTM rests with Mr. Muhammad Mehr Ali, son of Chairman Mr. Muhammad Ilyas, who serves as the Chief Executive Officer (CEO). With 16 years of professional experience, Mr. Mehr Ali brings strategic vision and operational expertise, under which the Company has achieved notable growth and innovation. His leadership has been instrumental in shaping financial strategies, strengthening compliance with regulatory standards, and driving organizational development. Financial management is overseen by Mr. Mehmood Ahmad, the Chief Financial Officer (CFO), with over 12 years of experience in finance and accounting, Mr. Mehmood Ahmad has played a critical role in maintaining the Company’s financial health. His expertise ensures effective resource allocation, robust internal controls, and adherence to accounting standards, thereby reinforcing the Company’s stability and long-term sustainability.

KTM is supported by a highly qualified and experienced management team that continues to strengthen the Company’s capabilities while expanding its presence both locally and internationally. Each management function is clearly defined and well-organized, enabling the Company to operate efficiently and achieve its strategic objectives. This structured approach ensures that every team member understands their role and responsibilities, fostering accountability and alignment with organizational goals. By encouraging collaboration and a culture of continuous improvement, the Company empowers its employees to perform at their best. This not only drives innovation and operational excellence but also enhances adaptability in a competitive market environment. The emphasis on teamwork, professional development, and clear communication channels positions KTM  to sustain growth, maintain high standards, and reinforce its reputation as a resilient and forward-looking enterprise in the leather industry.

KTM currently operates on an Oracle-based ERP solution, version R-12.2.9, which provides integrated support for its core business processes and financial management. To further strengthen its technological capabilities, the management entered into a contract with System Haus, a Brazilian vendor, to acquire a bespoke leather production software known as “Antara.” This specialized solution was implemented and went live effective July 1, 2022, marking a significant step in modernizing the Company’s operations. The adoption of Antara reflects KTM’s commitment to leveraging technology for improved efficiency, transparency, and industry-specific customization. By combining a globally recognized ERP system with tailored production software, the Company has enhanced its ability to monitor processes, optimize resource utilization, and maintain compliance with international standards. This dual-system approach positions KTM to achieve greater operational excellence and remain competitive in both local and international markets.

The Company adheres to a balanced and environment-friendly growth strategy across all its operations, embracing sustainable principles that minimize environmental impact while upholding the interests of social stakeholders. As part of its commitment to sustainability, the Company has installed a state-of-the-art Waste Water Treatment Plant by Italprogetti Spa. Additionally, the Company has been awarded various ISO certifications, ensuring the highest standards of overall quality and excellence in its practices. In FY25, the Company's "Eco-Tan" initiative gained significant traction. KTM is also set to introduce new chrome-free and metal-free leather solutions to establish even higher benchmarks in sustainable production. KTM also achieved an impressive ~99% physical traceability in LWG certification in FY25.

Pakistan’s leather industry is a cornerstone of the national economy, renowned for its rich heritage and global reputation for quality. The sector is divided into five major segments: tanned leather, apparel and clothing, gloves, footwear, and other leather products. Together, these divisions drive exports and create significant employment opportunities. Known for exceptional craftsmanship and adherence to strict quality standards, Pakistan’s leather goods remain highly sought after both domestically and internationally. Despite economic challenges, the industry has demonstrated resilience and adaptability, positioning itself to strengthen Pakistan’s role in the global leather market. In terms of export share, leather apparel and clothing contributed approximately ~29%, while gloves accounted for around ~37%, and tanned leather added ~17%. Collectively, these three categories represented ~82% of total leather exports. Footwear, although holding substantial potential due to trade tensions between the United States and China and Pakistan’s GSP status in Europe, has struggled to achieve growth. Overall, the leather industry’s export performance in the most recent year showed improvement. Despite steady growth in livestock production, the output of hides and skins has not kept pace, revealing significant untapped potential. Contributing factors include elevated meat prices, which affect consumer demand, and losses caused by viral diseases such as the lumpy virus, which impacted a large number of animals. Additionally, the high costs associated with processing hides into finished leather products remain a persistent challenge for the industry.

KTM currently exports to 56 countries, building long-term partnerships with international associates and strengthening its global footprint. In FY25, the Company secured its position as one of Pakistan’s largest leather exporters, supported by an average selling price above the national industry benchmark. However, despite these achievements, FY25 proved to be a challenging year. The downturn was largely driven by the global economic slowdown, which reduced demand and weakened overall performance, as well as domestic monetary policy adjustments. High interest rates increased financing costs, placing pressure on cash flows and straining liquidity. This situation reflects the dual reality faced by KTM: on one hand, its strong international presence and competitive pricing highlight market strength; on the other, external economic conditions and domestic financial constraints expose vulnerabilities that require careful management. Moving forward, prudent financial planning, diversification, and operational efficiency will be essential to sustaining growth and reinforcing resilience in a volatile global environment. Pakistan’s leather sector as a whole has also been affected by global market conditions, leading to reduced profit margins. For more than a decade, the industry has struggled with policy-related challenges, which have been further complicated by recent economic pressures. In response, KTM remains committed to maintaining sustainability within this difficult climate. To support this goal, the Company has introduced several economic and technological measures, including the installation of PP drums, increasing the proportion of chemicals registered on the ZDHC platform, and implementing water reuse practices. These initiatives reflect KTM’s dedication to innovation, efficiency, and sustainable operations, even in the face of industry-wide challenges.

During FY25, KTM reported topline revenues of PKR 3,817mln, reflecting a modest year-over-year increase of ~1.2% compared to PKR 3,773mln in FY24. Despite this overall growth, export sales remained nearly stagnant, declining slightly from PKR 3,452mln in FY24 to PKR 3,224mln in FY25. This minor contraction underscores the challenges faced in international markets. The Company’s major business line, tanned leather, was the most affected division within the sector. Over recent years, Pakistan’s tanned leather exports have experienced a continuous decline, driven by global demand shifts, rising competition from alternative materials, and tightening environmental regulations in key markets. Although there was some recovery last year, these structural pressures continue to weigh on performance, highlighting the vulnerability of traditional leather exports to external market dynamics. In contrast, domestic sales showed strong momentum. Local revenues rose sharply from PKR 320mln in FY24 to PKR 593mln in FY25, marking a considerable increase in demand within the Pakistani market. This growth demonstrates KTM’s ability to capture opportunities at home, balancing the stagnation in exports. Looking ahead, KTM is expanding its portfolio by partnering with global brands to drive both export volumes and profit margins. The Company has secured licensing agreements for the “Green House Polo” and “Aldo” footwear brands, with plans to scale production to ~1mln pairs annually by FY27. This initiative is expected to add approximately USD 15mln to KTM’s annual revenue. While topline growth reflects resilience, the stagnation in exports and the broader sector downturn emphasize the need for strategic diversification, innovation in product offerings, and stronger market positioning. Addressing these challenges will be critical for sustaining long-term competitiveness and reducing risks associated with reliance on traditional leather exports.

In FY25, KTM reported a slight decline in gross margin to ~24%, compared to ~26% in FY24. The operating profit margin remained stable at around ~13%, reflecting consistent operational efficiency despite external challenges. Notably, the net profit margin improved to ~0.7% in FY25, compared to negative ~1.4% in FY24, indicating a return to profitability. However, this improvement was modest due to decreased finance cost in FY25. Moving forward, strategies such as cost optimization, debt restructuring, and diversification of revenue streams can help the Company regain momentum, strengthen margins, and ensure sustainable growth in a volatile economic environment.

KTM is committed to establishing a sustainable presence in both domestic and international markets. The Company continues to invest in advanced technologies and modern machinery to enhance efficiency, streamline production, and strengthen competitiveness. Recent upgrades, including the installation of a Lime Split Machine and a Toggle Machine, have improved capacity and reduced bottlenecks, reflecting KTM’s dedication to innovation and long-term sustainability. KTM has collaborated with the world’s top 20 tanners to develop Eco-Tan, a biodegradable leather product that naturally decomposes into plant material after use. Certified in September 2022, this pioneering initiative underscores KTM’s role as the only tannery in Pakistan among the world’s top 25 to introduce such eco-friendly leather. The Company is actively partnering with leading global brands to integrate this sustainable product line. KTM’s laboratory has earned accreditation from BLC and is ranked 64th among 1,000 labs worldwide within the International Testing Affiliation Laboratories. The Company also holds multiple certifications and memberships, including: 1) Leather Working Group (LWG) – Gold Rating 2) BLC Membership 3) SATRA Membership 4) Leather Naturally 5)  Business Social Compliance Initiative (BSCI) – A Rating 6) Social Accountability (SA 8000:2014) 7) ISO 9001:2015, ISO 14001:2015, ISO 45001:2018, ISO 17025:2017 8) Zero Discharge of Hazardous Chemicals (ZDHC) – 100% Compliant 9) Higg Index FEM – Verified Score 86% Higg 10) Index FSLM – Verified Score 86.7% 11) Inditex Green to Wear (GTW) – B Rating 12) Inditex Social – A Rating  13) Customs Trade Partnership Against Terrorism (C-TPAT). In September 2022, KTM launched its Seating Division (Upholstery Finished Line), securing a first-mover advantage in upscale leather for premium sofa finishes. Starting with a target of 1 million square feet in FY-23, the Company aims to expand to 6 million square feet annually by FY-26, generating an additional USD 7.2 million in revenue. Upcoming projects of the Company includes; 1. Gelatin Production (FY-26): Derived from raw hide trimmings, gelatin will serve food, pharmaceutical, and cosmetic industries. 2. Safety Shoe Production Line (FY-26): With a PKR 300 million investment, operations are set to targeting USD 15 million in footwear exports by end of FY26 3. Denim Market Expansion: With global denim production rising and increasing investment in Pakistan, KTM anticipates strong growth opportunities in both domestic and export markets.

In FY25, KTM  experienced an increase in gross working capital days to ~237 days, compared to ~221 days in FY24. This rise was primarily driven by an extension in the average inventory period, which grew to around ~168 days from ~161 days in the prior year, alongside an increase in trade payable days. Additionally, average receivable days rose to about ~69 days, up from ~60 days in FY24. Despite these shifts, the Company’s net working capital cycle improved slightly, reducing to ~70 days from ~73 days in FY24. This trend reflects a mixed outcome: while longer inventory and receivable periods indicate slower turnover and delayed cash inflows, the extension in trade payables provided some relief by offsetting working capital pressures. The slight reduction in the net cycle suggests that the Company managed to balance its cash conversion process more effectively, even amid operational challenges.

In FY25, KTM generated free cash flows from operations (FCFO) of PKR 590mln, reflecting an improvement compared to FY24, largely driven by higher EBITDA (FY24: PKR 555mln). The Company’s interest coverage ratio stood at around ~1.5x in FY25, up from ~1.1x in FY24, indicating a stronger ability to meet financing costs from operating earnings. Meanwhile, the core-debt coverage ratio was recorded at ~1.7x in FY25. Moving forward, maintaining healthy cash flows, optimizing capital structure, and managing debt obligations will be critical to sustaining financial flexibility and supporting long-term growth.

In FY25, KTM maintained a leveraged capital structure, with a leveraging ratio of ~62%, compared to ~63% in FY24. Over the past three years, the ratio has remained relatively stable, fluctuating within the range of ~62% to ~65%, reflecting a consistent reliance on debt financing. A significant portion of this debt consists of short-term borrowings, which accounted for about ~88% in FY25 (FY24: ~84%), sourced primarily from various commercial banks. This financing mix highlights both strengths and risks: while short-term borrowings provide flexibility and immediate liquidity, they also expose the Company to refinancing pressures and interest rate volatility. The high proportion of short-term debt underscores the importance of prudent cash flow management and careful monitoring of financial obligations.