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PAK SUZUKI MOTOR CO. LIMITED

ANNUAL REPORT 1997

CONTENTS

Company Profile

COMPANY INFORMATION

BOARD OF DIRECTORS

Hirofumi Nagao

Chairman & Chief Executive

Capt. (Retd) Bashir Ahmed

Director

S. G. Abbas

Director

Razi-ur-Rehman Khan

Director

Osamu Iizuka

Director

Qaiser Sultan

Director

Katsumi Saruta

Director

Yoshio Saito

Director

COMPANY SECRETARY

Abdul Hamid Bhombal

AUDITORS

Sidat Hyder Qamar Maqbool & Co.

Chartered Accountants

BANKERS

Deutsche Bank AG

Habib Bank Limited

Habib Credit & Exchange Bank Limited

Muslim Commercial Bank Limited

National Bank of Pakistan

The Bank of Tokyo-Mitsubishi Limited

LEGAL ADVISORS

Syed Qamaruddin Hassan

Industrial Relations Advisor

Orr Dignam & Company

Advocates & Legal Consultants

REGISTERED OFFICE

DSU-13, Pakistan Steel Industrial Estate,

Bin Qasim,

Karachi.

REGISTRAR

Ferguson Associates (Pvt) Limited

State Life Building l-A,

I.I. Chundrigar Road,

Karachi

NOTICE OF MEETING

Notice is hereby given that the Fourteenth Annual General Meeting of the shareholders of Pak Suzuki

Motor Company Limited will be held at Avari Towers, Fatima Jinnah Road, Karachi on Wednesday December

17, 1997 at 2.00 p.m. to transact the following business:

1. To confirm the minutes of Extra Ordinary General Meeting held on February 16, 1997.

2. To receive, consider and adopt the audited accounts of the Company for the year ended June 30,

1997 together with Directors' and Auditors' reports thereon.

3. To approve payment of cash dividend to the shareholders @ Rs. 2/- (20%) per share of Rs. 10/-

each.

4. To appoint auditors and fix their remuneration for the year ending June 30, 1998.

SPECIAL BUSINESS

5. To pass the following Special Resolution with or without modifications>

"That the Company be and is hereby authorised to invest Rs. 1.5 million for 150,000 shares of Rs.

10/- each in the share capital of Automotive Testing & Training Centre (Private) Limited representing

9.6774% of the total equity."

6. To consider any other business with the permission of the Chair.

Notes:

1. The share transfer books of the company shall remain closed from December 9, 1997 to December

17, 1997 (both days inclusive) for entitlement of Dividend and no transfer will be accepted for

registration during this period.

2. A member entitled to attend and vote at this meeting may appoint another person as his/her proxy

to attend the meeting and vote for him/her. Proxies in order to be effective must be received by

the Company not less than 48 hours before the meeting.

3. Shareholders are requested to notify the change in their address, if any, immediately to our Registrar

Ferguson Associates (Pvt.) Limited, State Life Building l-A, I. I. Chundrigar Road, Karachi.

STATEMENT UNDER SECTION 160 OF THE COMPANIES ORDINANCE, 1984

Automotive Testing & Training Centre (Private) Limited is a laboratory for testing of locally developed

components. The authorised capital is Rs. 30.00 million divided into 3,000,000 shares of Rs. 10/- each.

The issued capital is Rs. 15.5 million. The Company has ten shareholders who are automobile manufacturers

in Pakistan.

The Company is an associated Company since one of the directors of Pak Suzuki Motor Company Limited

is also a director of Automotive Testing & Training Centre (Private) Limited.

HIGHLIGHTS OF THE ACCOUNTS

FOR THE YEAR ENDED JUNE 30, 1997

Increase/ (Decrease)

1997

1996

Amount

(Rupees in thousand)

Production volume (units)

30,513

28,040

2,473

8.8

Sales volume (units)

29,067

28,217

850

3.0

Net sales

7,710,453

7,904,301

(193,848)

(2.5)

Gross profit

661,118

917,709

(256,591)

(28.0)

as a % of net sales

8.6

11.60

(3.0)

Expenses

- Selling & admin.

175,502

145,239

30,263

20.8

- Financial & other

charges

90,621

127,644

(37,023)

(29.0)

- Total

266,123

272,883

(6,760)

(2.5)

as a % of net sales

3.5

0.00

Other income

90,425

98,435

(8,010)

(8.1)

as a % of net sales

1.2

0.00

Provision for diminution in market

value of WAPDA Bonds

82,500

100.0

Profit before taxation

402,920

743,261

(340,341)

45.8

as a % of net sales

5.20

9.40

(4.2)

Profit after taxation

391,390

574,502

183,112

(31.c5)

as a % of net sales

5.1

7.3

2.2

Stocks

2,001,691

1,694,591

307,100

18.1

as a % of net sales

26.00

21.40

4.60

number of days stock held

104

inventory turn over ratio

3.5

4.1

(0.6)

Cash and bank balances

374,327

489,922

(115,595)

(23.6)

Advances from customer

464,257

905,018

(440,761)

(48.7)

Pending orders

13,336

28,204

(14,868)

(52.7)

Shareholders' equity

1,374,440

1,081,313

391,390

36.2

Debt Equity ratio

3:97

13:87

Current ratio

1.06:1

1.04:1

Profit per share

7.96

11.70

Break-up value per share

27.97

22.00

Number of permanent

employees

- Officers

230

225

(5)

(2.1)

- Staff/workers

319

327

(8)

(2.5)

- Total

549

552

(3)

(0.4)

CHAIRMAN'S REVIEW

I am pleased to present my review on the

performance of the Company for the year ended

June 30, 1997.

PRODUCTION

The production volume increased by 8.8% from

28,040 units of last year to 30,513 units during the

year under review. The capacity utilization

improved to 61% from 56% recorded last year.

Further capacity could not be utilized due to

lower demand.

OPERATING RESULTS

The Company earned net profit after tax of Rs.

391.390 million against Rs. 574.502 million earned

last year.

The sales volume increased to 29,067 units from

28,217 units of last year. The drop in sales revenue

from Rs. 7,904.301 million to Rs. 7,710.453 million

despite of increase in sales volume was due to

shift in product-mix. Higher sales of Potohar and

Margalla were achieved last year as compared to

the current year sales.

In the Federal Budget for 1996-97, the Government

increased the rates of custom duties, sales tax and

capital value tax. These fiscal measures adversely

affected demand and the Company could not sell

its projected volumes.

Gross profit as a percentage of sales declined

from 11.6% in the preceding year to 8.6%. In

absolute terms the gross profit decreased by Rs.

256.591 million (28%). The decline in profitability

was due to the fact that Company did not pass on

the full impact of increase in rates of custom

duties and sales tax in order to maintain sales

volume.

The selling and administration expenses increased

from Rs. 145.239 million in the preceding year to

Rs. 175.502 million and as a percentage of sales

from 1.84% to 2.28%. The main factors which

contributed to the increase were increase in

salaries, utilities, repair & maintenance,

advertising, sales promotion and the effect of

extending warranty period.

Other income reduced from Rs. 98.435 million of

the previous year to Rs. 90.425 million due to

decreased bank deposits. Financial and other

charges declined from Rs. 127.644 million of last

year to Rs. 90.621 million due to decrease in rebate

to customers on pending booking of vehicles and

lower contribution to workers' profit participation

fund.

During the year the market value of WAPDA

Bonds (Third Issue) shown in current assets fell

below cost. Consequently in compliance to

International Accounting Standard, Company had

to provide for diminution in its value. In view of

brought forward tax losses, Company provided

only for turnover tax on account of current

taxation. If there had not been unabsorbed brought

forward tax losses, the provision for current

taxation would have been Rs. 120 million and

accordingly net profit after tax would have

reduced to Rs. 271 million.

MARKETING

The economic recession in the country emerging

in the first half of the accounting year resulted in

a sluggish market for all commodities including

automobiles. The Company however did succeed

in increasing sales volume by 3% this year. This

was achieved through aggressive advertising and

sales promotion strategies implemented during

the year. The management is very much concerned

about the un-utilized production capacity because

of lower demand. Higher volumes are necessary

for economies of scales. The management is

aggressively exploring export markets to utilize

idle capacity.

The management is aware of the competition

which Company products may face with the entry

of new automobile assemblers and products. The

Company's slogan for the year was "Customer

Satisfaction". During the year Company had

launched Free Service Campaigns all over the

country.

On the eve of Golden Jubilee of Pakistan,

Company introduced the upgraded model of

Margalla Car with a totally revamped interior

and a modified exterior.

PERSONNEL

Management and employees relations continued

to remain cordial and industrial peace prevailed

during the year. The new charter of demand by

the CBA has been submitted to the management

after the expiry of previous agreement and a

negotiated settlement has been concluded.

ECONOMIC CONTRIBUTION

Despite adverse factors, the Company maintained

its distinctive position as a leading contributor in

the automobile industry to the public exchequer.

The duties and taxes paid and the foreign exchange

saved by Company in its last five years of

operations have been as follows:-

Year

Duties

* Foreign

and

exchange

taxes

saving

(Rupees in million)

1992-93

1,475

1,581

1993-94

1,157

1,033

1994-95

1,804

1,581

1995-96

2,600

2,555

1996-97

3,448

2,539

* Based on actual import of CKD

FUTURE PROSPECT & CONCLUSION

The company would strive to maintain its

profitability in the coming year. However

devaluation of the rupee and Government policies

would play a vital role in this achievement.

The Company's key objective continue to remain.

- To provide automobiles of international

quality at reasonable prices.

- To improve skills of employees by imparting

training and inculcating in them a sense of

participation; and

- To abide by the deletion policy of the

Government, achieve maximum

indigenisation and promote the automobile

vending industry.

In conclusion, I on behalf of the Board and

shareholders would like to express my

appreciation to the management, executives,

workers, dealers, vendors and Suzuki experts for

their efforts and contribution to the affairs of the

Company. My sincere gratitude also goes to all

the government agencies for their continued

support and encouragement.

DIRECTORS' REPORT

1. The Directors of the Company take pleasure in submitting their report with audited

accounts of the Company, together with Auditors' Report thereon, for the year ended

June 30, 1997.

2. ACCOUNTS

(Rs. in 000)

Profit after taxation

391,390

Unappropriated profit brought forward

5,999

----------

Profit available for appropriation

397,389

Less: Appropriation

Transfer to General Reserve

295,000

Proposed cash dividend @ 20%

98,263

----------

393,263

----------

Unappropriated profit carried forward

4,126

==========

3. CHAIRMAN'S REVIEW

The Chairman's review on page 7 to 9 deals with the year's activities and the

directors of the Company endorse the contents of the same.

4. PATTERN OF SHAREHOLDINGS

The pattern of shareholdings is given on page 41.

5. BOARD CHANGES

5.1 Mr. Abdul Latif Uqaili and Col. (Retd.) Mir Saadatullah retired as directors

on the expiry of their terms on February 6, 1997.

5.2 Mr. Yoshio Saito was elected as director w.e.f. February 7, 1997.

6. AUDITORS

Messrs Sidat Hyder Qamar Maqbool & Co., Chartered Accountants retire and being

eligible offer themselves for appointment as the auditors of the Company for the

year 1998.

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of Pak Suzuki Motor Company Limited as at

30 June 1997 and the related profit and loss account and statement of changes in financial

position, together with the notes forming part thereof, for the year then ended and we state

that we have obtained all the information and explanations which to the best of our knowledge

and belief were necessary for the purposes of our audit and, after due verification thereof,

we report that:

(a) in our opinion, proper books of account have been kept by the Company as required

by the Companies Ordinance, 1984;

(b) in our opinion:

(i) the balance sheet and profit and loss account together with the notes thereon have

been drawn up in conformity with the Companies Ordinance, 1984 and are in

agreement with the books of account and are further in accordance with accounting

policies consistently applied;

(ii) the expenditure incurred during the year was for the purpose of the Company's

business; and

(iii) the business conducted, investments made and the expenditure incurred during

the year were in accordance with the objects of the Company;

given to us, the balance sheet, profit and loss account and the statement of changes

in financial position, together with the notes forming part thereof, give the information

required by the Companies Ordinance, 1984 in the manner so required and respectively

give a true and fair view of the state of the Company's affairs as at 30 June 1997 and

of the profit and the changes in financial position for the year then ended; and

(d) in our opinion, zakat deductible at source under the Zakat and Ushr Ordinance, 1980

was deducted by the Company and deposited in the Central Zakat Fund established

under Section 7 of that Ordinance.

Sidat Hyder Qamar Maqbool & Co.

Karachi: November 14, 1997

Chartered Accountants

BALANCE SHEET

AS AT JUNE 30, 1997

NOTE

1997

1996

(Rupees in thousand)

SHARE CAPITAL AND RESERVES

Authorised share capital

150,000,000 (1996: 150,000,000) ordinary

shares of Rs. 10/- each

1,500,000

==========

Issued, subscribed and paid-up share capital

491,312

Reserves

879,002

584,002

Unappropriated profit

4,126

5,999

----------