Habib Construction Services Limited (‘‘the Company’’ or ‘‘HCS’’) was incorporated in 2009 and subsequently converted into a Public Limited (Unlisted) Company on July 15, 2016. The registered office of the Company is located at 15-A, G-1, Johar Town, near Doctor’s Hospital, Lahore.

HCS was incorporated in 2009 by a group of experienced industry professionals. Within six months, the company achieved the prestigious C-A (No Limit) license from the Pakistan Engineering Council, establishing its eligibility to undertake large-scale infrastructure projects. Since inception, HCS has built a strong reputation for timely project execution, cost efficiency, and dependable partnerships with both clients and vendors. The company’s portfolio spans motorways, expressways, highways, airports, bridges, and underpasses, reflecting its capability to manage diverse and technically demanding projects. At the helm of HCS is Mr. Shahid Saleem, its co-founder and Chief Executive Officer, who brings over three decades of experience in Pakistan’s construction sector. Under his leadership, the company has expanded significantly, delivering landmark projects that have reinforced its position as a trusted and leading infrastructure developer in Pakistan.

The Company undertakes diverse infrastructure development works across Pakistan, with an operational focus on highways, bridges, underpasses, flyovers, airports, and other civil engineering projects. Notable projects completed by the Company include the Lahore Ring Road, 2x2.5 MW Hydel Power Project at Chashma, Bahria Grand Hotel, civil works for Benazir Bhutto International Airport, Beijing Underpass in Lahore, Kalma Chowk Underpass and Flyover, Cavalry Ground Underpass, and the Metro Bus projects in Islamabad, Lahore, and Multan. These projects highlight HCS’s ability to execute large and technically demanding assignments, strengthening its position in Pakistan’s construction industry.

HCS is owned by 31 shareholders. A majority stake of around 52% is held by the two directors, Mr. Shahid Saleem and Mr. M. Shabbir, while the remaining shares have been distributed among members of the management. This structure was designed to extend ownership to employees, fostering a sense of commitment and belonging across the organization.

HCS has maintained a stable ownership structure since inception, with majority control vested in Mr. Shahid Saleem and consistent leadership provided by the directors. The distribution of shares among management further aligns employee interests with the Company’s long-term success, reinforcing stability and reducing the likelihood of abrupt changes in governance.

HCS benefits from the long-standing association of its shareholders and directors, each bringing extensive knowledge of the construction industry. Their collective experience, supported by an employee-shareholding structure, ensures continuity in leadership, informed decision-making, and a deep understanding of industry dynamics, which underpin the Company’s sustained growth and stability.

The sponsors of HCS possess adequate financial strength, with their ownership stake concentrated solely in the construction business. This focused exposure reduces the risk of financial diversion and ensures alignment with the Company’s long-term performance. Their support has been evident through personal guarantees in the past, while HCS’s equity participation in Malir Expressway Limited and Shajar Roads Limited reflects the sponsors’ capacity to engage in large-scale infrastructure projects.

The Company is overseen by a three-member Board of Directors, all of whom hold executive roles. This structure ensures continuity in leadership and alignment with management. However, there remains room for improvement in governance practices, particularly through the potential inclusion of independent directors to strengthen oversight and broaden strategic perspective.

The Board comprises qualified professionals with extensive experience in the construction industry. Mr. Saleem Shahid, Chief Executive Officer, brings over three decades of industry expertise. He is supported by Mr. Mohammad Shabir, an actuary by profession responsible for operational oversight, and Mr. Mohsin, a Fellow Chartered Accountant with more than 20 years of experience in financial management. Collectively, the Board’s diverse expertise provides strategic direction and supports the sustainable growth of the Company.

HCS has constituted two Board Committees – the Audit Committee and the Human Resource & Remuneration Committee – to ensure effective oversight of management policies and the Company’s operations. While attendance at Board and Committee meetings has been recorded, the documentation f formal minutes and independent oversight mechanisms present areas for further strengthening.

Malik Haroon Shahid Safder & Co., Chartered Accountants, the external auditors of the Company, have issued an unqualified opinion on the financial statements for the year ended June 30, 2024. The audit of FY25 is currently in progress.

The Company has a detailed organizational structure with operations segregated into six departments: (i) Engineering, (ii) Information Technology, (iii) Contract Management, (iv) Surveyor, (v) Construction Management, and (vi) Finance. Clear lines of responsibility are defined for each department, ensuring effective functional oversight and accountability.

Mr. Shahid Saleem, Chief Executive Officer and one of the founding members of HCS, has over 31 years of diversified experience with leading private sector construction companies and provides strategic leadership to the organization. Supporting him, the senior management team comprises three Project Managers, each with more than 25 years of experience in the construction sector, including over a decade with HCS. They report directly to the CEO and are assisted by a technical team primarily consisting of planning engineers and site in-charges.

The Company does not have formal management committees in place; however, senior management convenes meetings on a need basis for discussions and decision-making. In addition, management regularly reviews MIS-based reports, which support informed and timely decisions.

HCS utilizes ERP software, customized for the construction industry by BE-Tech, to manage its operations. The system facilitates monitoring of receivables, payables, general ledger, accounts, and related functions.

The Company has internal control systems and procedures in place to support operational efficiency and reliability of reporting. Oversight is further reinforced by the dual role of employees as shareholders, which enhances accountability and alignment of interests with the Company’s long-term objectives.

The Public Sector Development Program (PSDP) for FY24 experienced a year-on-year (YoY) increase of approximately 30.7%, reaching PKR 950 billion. A specic allocation has been made for the Construction and Transport sectors under both Current and Development Expenditure on the Revenue Account. The total allocation for these sectors stands at PKR 40.5 billion for Current Expenditure and PKR 39.1 billion for Development Expenditure. Compared to the previous scal year (SPLY), these allocations have seen slight adjustments, with the gures for Construction and Transport last year being PKR 30.2 billion and PKR 55.2 billion, respectively. In addition to infrastructure projects, there is a growing demand for hydel-based power plants aimed at improving the energy mix, with funding being provided by multilateral agencies.

HCS, a public unlisted company, ranks among the leading infrastructure developers in Pakistan. The Company is one of only ~156 firms (1.6% of over 10,000 registered with PEC) holding the prestigious “CA” category license, enabling participation in large-scale projects. While the sector is generally less formalized, HCS has adopted a corporate structure with employee-shareholders, though the Board remains predominantly sponsor-led. With experienced leadership and technical depth, HCS competes with major players such as FWO, Descon Engineering, and Habib Rafiq (Pvt) Limited, maintaining a strong reputation for timely and quality project execution.

HCS’s revenue is project-driven, generated through contracts executed independently as well as through joint ventures, primarily in the road and building sectors. The continuity of revenue is closely linked to the availability and execution of infrastructure projects in the country. As of FY25, the Company has approximately 16 ongoing projects with a total value of PKR 84bln, including its share in joint ventures, of which the Company’s direct share is around PKR 55bln. Work on approx. PKR 15bln worth of projects has been halted or is progressing slowly due to contractor-related issues. During FY25, projects worth nearly PKR 25bln were successfully completed, while around PKR 30bln is expected to be realized in the upcoming period from ongoing projects. In addition, bidding for new projects is actively underway, and the prospective pipeline is considered healthy, providing visibility for medium-term revenue generation. For FY24, the Company recorded revenue of approximately PKR 17bln. Revenue growth and continuity are influenced by macroeconomic conditions, including inflation and interest rates, which have historically impacted construction activity and project execution. With the recent easing of the policy rate, sector activity is expected to revive, likely translating into increased project mobilization in the coming periods.

The construction industry remains highly fragmented, with numerous players offering comparable services. Despite a challenging economic environment and intense competition, HCS reported an improvement in profitability. Gross margins rose to 14.3% in 1HFY25 (1HFY24: 13.4%; FY24: 12.3%), while PBIT margins increased to 13.2% (1HFY24: 11.8%; FY24: 9.5%). Net profit margins also recovered to 5.1%, compared to 3.3% in 1HFY24 and 0.8% in FY24. The margin gains reflect the Company’s ability to sustain profitability through improved cost management, operational efficiencies, and a better selection of medium- to short-tenure projects that provide quicker turnaround and cash flow visibility.

Besides its core construction business, which benefits from a healthy project pipeline supporting revenue and financial sustainability, HCS holds strategic equity investments in unlisted public companies, providing additional income streams and diversification. The Company has a 7.02% equity stake in Shajar Roads Limited and a 6% stake in Malir Expressway Limited, both held for strategic purposes. These holdings complement the Company’s core operations, enhancing medium-term revenue visibility and supporting financial stability.

HCS manages its working capital primarily through customer receipts, supplemented by a small portion of short-term borrowings. The Company also maintains substantial exposure to non-funded facilities, such as performance guarantees, which are critical for project execution. During 1HFY25, receivables increased to PKR 2,904mln (FY24: 1,773mln), resulting in gross working capital days of 72 (FY24: 45 days). Payables rose to PKR 3,136mln (FY24: 2,276mln), which offset the higher receivables and reduced net working capital days to 2 (FY24: 5 days). Short-term borrowings increased modestly to PKR 179mln from PKR 133mln in FY24.

During 1HFY25, the Company's Free Cash Flow from Operations (FCFO) saw a slight increase, reaching PKR 569mln compared to PKR 532mln in SPLY (FY24: PKR 673mln). Due to improved earnings and cash flows, coverage ratios also improved during the current period. The coverage ratio, calculated as FCFO to Finance Cost, stood at 38.7x, up from 34.1x in 1HFY24 (FY24: 21.7x).

The Company’s leverage stood at 5% in 1HFY25, in line with previous practice (FY24: 4.8%). Consistent with industry norms, HCS maintains low leverage, with most exposures in the form of unfunded lines such as Letters of Guarantee. Short-term borrowings are occasionally utilized to manage liquidity pressures but remain modest relative to the equity base of PKR 6,197mln. The funding profile is predominantly short-term, with short-term borrowings accounting for 97.8% of total borrowings in 1HFY25 (FY24: 97%).