Interwood Mobel (Private) Limited, hereinafter referred to as ‘Interwood Mobel’ or ‘the Company’, is a private limited company incorporated under the Companies Ordinance, 1984 (now the Companies Act, 2017). The Company’s registered office is located at Building No.43-C Bukhari Commercial Lane No.11, Phase-VI, DHA, Karachi.

Interwood Mobel (Private) Limited was founded by Mr. Farooq Ahmed Malik and began operations in 1974 with a modest workshop in Lahore. Over the years, the Company has significantly expanded its operations by investing in state-of-the-art machinery and automating production lines, ensuring high-quality manufacturing processes and efficiency. Initially, the Company’s primary focus was on accepting and executing contractual jobs, which helped establish its reputation for reliability and excellence in the industry. However, since 2002, Interwood Mobel has successfully diversified its business profile by entering the retail market. This strategic shift has allowed the Company to reach a broader customer base, strengthen its brand presence, and drive sustained growth. Today, Interwood Mobel stands as a leader in the furniture and interior solutions industry, known for its innovative designs, quality craftsmanship, and customer-centric approach.

The Company is actively involved in the manufacture and sale of high-quality furniture and allied items. The head office and production facility are strategically consolidated at a single location on Sultan Mehmood Road, Lahore, ensuring streamlined operations and efficient management. Interwood Mobel operates one company-owned retail outlet in Karachi and four rented outlets strategically located in key cities, including two in Lahore and two in Islamabad. These outlets serve as prime touchpoints for direct consumer engagement and brand visibility. In addition to its own retail outlets, Interwood Mobel has successfully established a robust presence in other major cities such as Multan, Hyderabad, and Quetta through an extensive dealer network. This network enables the Company to reach a broader customer base and cater to diverse market needs both locally and globally. Through continuous investment in state-of-the-art technology and production processes, Interwood Mobel maintains high standards of craftsmanship and design, ensuring that every product meets the expectations of its discerning clientele.

The majority shareholding of Interwood Mobel (Private) Limited, ~99.9%, is held by the Farooq family. Mr. Farooq Ahmed, the Founder, owns ~17%, while his wife, Ms. Ghazala Farooq, holds ~16%. Their sons, Mr. Omar Farooq and Mr. Ali Farooq, each own ~33% of the Company’s shareholding. The remaining shareholding, roughly 0.1%, is distributed among other close relatives of the family.

The ownership structure of Interwood Mobel (Pvt.) Limited is regarded as stable, with no anticipated changes in the near future. This stability is a result of the significant involvement of the Farooq family, who hold nearly all of the Company’s shares. The family’s deep-rooted commitment to the business ensures that the strategic vision and operational goals remain consistent.

The sponsors of Interwood Mobel (Private) Limited are recognized for their strong business acumen, backed by more than forty years of extensive industry knowledge. Their long-standing presence and remarkable positioning in the furniture and interior solutions industry have been pivotal to the Company’s success.

Given that, Interwood Mobel is a standalone entity, its financial strength is primarily evaluated based on the financial profiles of its sponsors and their demonstrated willingness to support the business. The sponsors are considered to possess adequate financial resources and have consistently shown a strong commitment to underpinning the Company’s financial stability.

The Board of Directors of the Company consists of four members, including the Chairman and three executive directors. The board is entirely dominated by the sponsoring family, which signifies a lack of independent oversight. This concentration of control within the family can limit the diversity of perspectives and independent judgment necessary for robust governance.

The Company’s members boast strong profiles, characterized by significant technical expertise and specialization in various domains, including production, retail, and furniture manufacturing. Their combined experience and knowledge enable the Company to excel in its operations and maintain high standards of quality and innovation.

The Board has established an Audit Committee to enhance governance and oversight. This committee comprises four members who bring diverse expertise and perspectives to their roles. The Audit Committee meets bi-annually to review the Company’s financial reporting, internal controls, and risk management processes. To enhance board effectiveness and governance practices, it would be beneficial to introduce independent directors who can provide impartial oversight and bring varied expertise to the table. Such a move would not only strengthen the governance framework but also improve decision-making processes, risk management, and strategic planning, ultimately leading to enhanced accountability and sustainable growth for the Company.

Reanda Haroon Zakaria Aamir Salman Rizwan & Co., Chartered Accountants, serve as the external auditors for the Company. This esteemed firm holds a QCR rating from ICAP and is classified under category 'B' by the State Bank of Pakistan (SBP), reflecting their high standards and credibility. For the period ended June 30th, 2024, the auditors expressed an unqualified audit opinion on the Company’s financial statements. This signifies that the financial statements fairly and accurately represent the Company’s financial position in accordance with the applicable accounting standards.

The organizational structure of Interwood Mobel (Private) Limited is meticulously defined across eight key departments: Operations, Sales & Marketing, Accounts, Internal Audit, and others. Each of these departments, with the exception of Internal Audit, reports directly to the Chief Executive Officer (CEO), ensuring a streamlined and cohesive management approach. The Internal Audit department operates independently, providing unbiased oversight and ensuring compliance with internal controls and regulations. The General Manager of Operations oversees several critical functions, including supply chain management, pre-production, production, plant maintenance, and information technology. This centralized leadership within the operations domain enhances efficiency and ensures that all production-related activities are well-coordinated and aligned with the Company's strategic objectives. However, the positions of Chief Financial Officer (CFO) and Chief Operating Officer (COO) remain unfilled. It is recommended to include professional and experienced resources in these roles to further strengthen the Company’s management structure and support its growth ambitions.

The management team at Interwood Mobel (Private) Limited is composed of highly experienced individuals, each representing a diverse and robust skill set. Mr. Omar Farooq, the Chief Executive Officer, holds a BSc in Furniture Design and Manufacturing and has been a dedicated member of the Company for the past 25 years. His extensive knowledge and expertise in furniture design and manufacturing have been instrumental in driving the Company’s innovation and growth. Mr. Omar Farooq is ably supported by a professional management team that brings a wealth of experience and specialized skills to the table. This team includes experts in various fields such as operations, finance, marketing, and human resources, ensuring that all aspects of the Company’s operations are managed efficiently and effectively. The team’s collaborative approach and commitment to excellence have been key factors in the Company’s sustained success and ability to adapt to market changes.

To ensure efficient operations, Interwood Mobel (Private) Limited has established three key management committees: the Procurement Committee, the Supply Chain Committee, and the Human Resources Committee. Each of these committees is chaired by the Chief Executive Officer, ensuring strategic alignment and cohesive decision-making across all facets of the organization. The committees are composed of relevant department heads, bringing together specialized expertise and fostering collaborative leadership.

In 2017, the Company implemented SAP Business One as its Enterprise Resource Planning (ERP) system. This advanced ERP solution significantly enhances the flow of information across the organization, ensuring seamless communication and data integration. Additionally, it facilitates the efficient generation of reports required by management, enabling informed decision-making and strategic planning. The deployment of SAP Business One underscores the Company’s commitment to leveraging cutting-edge technology to drive operational excellence and continuous improvement.

The Company has established a robust control environment, supported by its Internal Audit and Health, Safety, and Environment (HSE) departments. The Internal Audit department conducts a variety of tests and activities to identify potential vulnerabilities and implement corrective measures. These activities are performed on a monthly basis across the Company’s factories and showrooms throughout Pakistan. The HSE department works diligently to safeguard the Company’s operations from uncertainties and mitigate risks associated with operational, environmental, and financial factors. This rigorous approach ensures that the Company’s processes are continuously monitored and enhanced, thereby protecting assets and maintaining high standards of compliance and governance. The comprehensive efforts of the Internal Audit and HSE departments highlight the Company’s commitment to maintaining a secure and efficient operational environment.

In FY24, Pakistan’s nominal GDP was ~PKR 99.5 trillion (FY23: PKR 79.6 trillion), with real terms growth of ~2.52% year-over-year (YoY) (FY23: ~-0.22% growth). Industrial activities contributed ~17.8% (FY23: ~18.4%) to the GDP, while manufacturing activities accounted for ~12.0% (FY23: ~11.9%) of the total GDP. The Furniture sector, classified as a Large-Scale Manufacturing (LSM) industrial component, had a weight of around 0.51% in the Quantum Index of Manufacturing (QIM) in FY24. The sector experienced a significant increase of ~23.1% YoY during 9MFY24. The furniture industry in Pakistan is predominantly unstructured, with numerous small to medium-sized players creating a highly competitive environment with many unregulated entities. This intense competition among informal players results in a dynamic yet challenging market landscape. Local demand is met through both local production and imports, with demand linked to consumers' disposable income and replacement or new orders from businesses for office furniture. As of June 2024, average inflation stood at ~23.4% (SPLY: ~29.4%), while in the first four months of FY25, it was recorded at ~8.7% (SPLY: ~28.5%). With decreasing inflation levels and a policy rate reduction to ~15% in November 2024, revenues are expected to increase. Lower finance costs and a stable currency could also lead to higher margins. The organized segment of the sector primarily consists of players targeting high-end customers. These companies have strong brand identities and operate large retail outlet chains. Prominent players include Interwood Mobel, Habitt Furniture, National Furniture, and Chen One. These companies cater to the premium market, offering a range of high-quality, sophisticated furniture products linked to the real estate sector. In FY24, the decline in the real estate sector posed challenges for high-end furniture manufacturers. Overall, the sector is expected to perform well in FY25 with a recovery in the real estate sector, due to increasing export potential, decreasing reliance on imported furniture, declining interest rates, and inflation. However, the supply of wood could become a problem for producers due to Pakistan’s low forest cover and increased regulations to preserve trees.

Interwood Mobel (Private) Limited maintains a formidable position in the market, bolstered by its state-of-the-art production plant and exceptional manufacturing capabilities. This advanced infrastructure enables the Company to consistently deliver high-quality products, reinforcing its reputation for excellence. While Interwood Mobel does not face direct competition from any single entity, it encounters area-specific and product-specific competition from a myriad of small to medium-sized players. These competitors, although numerous, struggle to match the scale and sophistication of Interwood Mobel’s operations. This distinctive competitive advantage allows Interwood Mobel to remain a leading force in the industry, continually setting benchmarks for quality and innovation.

The Company generates its revenues from five main product categories: office furniture, home furniture, kitchens, wardrobes, doors, and others. The revenue stream is fairly concentrated, with office and home furniture accounting for the majority of sales. Currently, office furniture is the major contributor, representing ~40% of the revenue followed by home furniture at ~23%, Doors at ~14.49% and others. According to the management accounts for FY24, the Company’s top line reached ~PKR 4,932mln (FY23: ~PKR 4,818mln), reflecting a modest growth of ~2.4% YoY. The retail section once again emerged as the primary contributor, followed by corporate sector and then dealers.

In FY24, the Company’s gross margin slightly increased to ~38.3% from ~36.6% in FY23, primarily driven by inflated prices. The operating margin also saw an uptick, reaching ~22.9% in FY24 compared to ~18.8% in the previous fiscal year, reflecting enhanced operational efficiency and cost management. However, the Company’s profit before tax declined in FY24 compared to the prior year, largely due to increased finance costs. This decline underscores the impact of the higher cost of borrowings on the Company’s overall profitability. Despite this, the net profit margin showed an improvement, rising to ~4.1% in FY24 from ~2.3% in FY23. This improvement was mainly attributed to favorable tax adjustments, which offset some of the negative impacts of the increased finance costs. Going forward, sustaining these improved margins will be critical for the Company’s financial health.

Interwood is Pakistan’s leading furniture store, specializing in producing modern furniture using high-tech manufacturing techniques that make it affordable for all segments of society. The Company is dedicated to continuously raising the standards of design, durability, and quality, ensuring it delivers optimal products. With decades of experience in the furniture industry, Interwood provides affordable wooden furniture at the best prices in Pakistan. Looking ahead, Interwood will continue to focus on large-scale projects for luxury buildings and corporate clients to drive revenue growth. Additionally, the Company is consistently working to enhance its e-commerce capabilities to better serve the growing online market.

Interwood Mobel’s working capital is primarily driven by its inventory levels, which are maintained to meet customer demand. In FY24, the Company’s inventory days increased to ~333 days, up from ~304 days in FY23. This indicates a longer period for inventory turnover, which may impact liquidity. The Company benefits from advance payments from customers, resulting in trade receivable days standing at roughly 54 days in FY24, compared to ~51 days in FY23. This positive cash flow aspect helps in managing operational costs more effectively. Consequently, the gross working capital days extended to ~387 days in FY24, from about 355 days in the previous year. On the other hand, the Company’s trade payable days also increased, reaching ~67 days in FY24, up from ~58 days in FY23. As a result, the net working capital days stood at ~320 days in FY24, compared to ~296 days in the prior fiscal year. This increase signifies a higher amount of capital tied up in the operational cycle, which can affect the Company’s liquidity and operational efficiency. Additionally, Interwood Mobel’s short-term trade leverage increased to ~18.0% in FY24, from ~12.3% in FY23, indicating sufficient capacity to secure further borrowings for working capital requirements.

During FY24, Interwood Mobel reported an increase in Free Cash Flow from Operations (FCFO) to ~PKR 1,429mln, up from ~PKR 1,160mln in FY23. This growth was primarily driven by a reduction in taxes. However, finance costs rose significantly to ~PKR 980mln in FY24, compared to ~PKR 734mln in the previous fiscal year, due to increased total borrowings. As a result, the interest coverage ratio again experienced a modest decline to 1.5x in FY24 from 1.6x in FY23 (FY22: 2.4x). Meanwhile, the debt coverage ratio remained stable at 0.9x in FY24, consistent with FY23 (FY22: 1.0). The stability in the debt coverage ratio highlights the Company’s capacity of timely repayment of financial obligations, although the decline in the interest coverage ratio suggests a need for more effective leverage management.

In FY24, Interwood Mobel’s leveraging increased, with the leverage ratio rising to ~35.3% from ~32.7% in FY23. This increase reflects a rise in total borrowings, which amounted to ~PKR 4,301mln in FY24, up from ~PKR 3,731mln in the previous fiscal year. The uptick in leverage was driven by both short-term and long-term borrowings to meet working capital requirements and complete large-scale projects, with short-term borrowings constituting ~68% of the total borrowings. This shift underscores the Company’s strategic approach to financing its operations and growth initiatives while maintaining a balanced capital structure.