| Honda Atlas Cars (Pakistan) Ltd |
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| Annual
Report 1998 |
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| CONTENTS |
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| Company
Information |
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| Notice
of Meeting |
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| Chairman's
Review |
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| Chronicle
of Events |
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| Directors'
Report |
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| Auditors'
Report to the Members |
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| Balance
Sheet |
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| Profit
and Loss Account |
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| Cash
Flow Statement |
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| Notes
to the Accounts |
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| Pattern
of Shareholding |
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| COMPANY
INFORMATION |
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| THE
BOARD OF DIRECTORS |
Mr. Yusuf H. Shirazi |
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(Chairman) |
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Mr. Satoshi Okamoto |
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(Chief Executive) |
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Mr. Aamir H. Shirazi |
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Mr. Hiromi Mizutani |
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Mr. Jawaid Iqbal Ahmed |
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Mr. Kanji Kashiwagi |
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Mr. Tatsunari Tanaka |
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| COMPANY
SECRETARY |
Hafiz Muhammad Hanif |
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| AUDITORS |
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A.F. Ferguson & Co., |
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Chartered Accountants |
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| LEGAL
ADVISORS |
Cornelius, Lane &
Mufti |
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Sattar & Sattar |
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| BANKERS |
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ABN Amro Bank |
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ANZ Grindlays Bank |
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Askari Commercial Bank
Ltd. |
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Citibank N.A. |
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Deutsche Bank |
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Muslim Commercial Bank
Ltd. |
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The Bank of
Tokyo-Mitsubishi Ltd. |
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| REGISTERED
OFFICE |
1-McLeod Road, Lahore. |
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Ph: (042) 7225015-17 |
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Fax: (042) 7233518 |
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| FACTORY |
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43 Km, Multan Road, |
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Manga Mandi, Lahore. |
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Ph: (042) 5750011-17 |
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Fax: (042) 5750020,
5765071 |
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E-mail:
honda@brain.net.pk |
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| NOTICE
OF MEETING |
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| Notice
is hereby given that 6th Annual General Meeting of shareholders of Honda
Atlas Cars |
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| {Pakistan}
Limited will be held on Tuesday, December 08, 1998 at 2:30 p.m. at 1-Mcleod
Road, |
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| Lahore
to transact the following business: |
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| 1.
To confirm the minutes of the last Annual General Meeting held on December
15, 1997. |
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| 2.
To receive, approve and adopt the audited accounts for the year ended June
30, 1998 together |
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| with
the Directors' and Auditors' reports thereon. |
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| 3.
To approve cash dividend @ 10% (i.e. Re 1/- for every ordinary share of Rs.
10/-) for the |
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| financial
year ended June 30, 1998 as recommended by the Directors. |
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| 4.
To appoint Auditors for the year ended June 30, 1999 and fix their
remuneration. M/s A.F. |
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| Ferguson
& Co., Chartered Accountants, the present auditors of the company, retire
and |
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| being
eligible, offer themselves for re-appointment. |
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| 5.
To transact any other business with permission of the Chair. |
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By order of the Board |
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| November
16, 1998 |
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(Hafiz Muhammad Hanif) |
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| Lahore |
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Vice President & Company Secretary |
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| Notes: |
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| 1.
The share transfer books of the company will remain close from November 27,
1998 to |
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| December
08, 1998 (both days inclusive). |
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| 2.
A member entitled to attend and vote at the Annual General Meeting is
entitled to appoint |
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| another
member as a proxy and vote on his/her behalf. Proxies in order to be
effective must |
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| be
received at the Registered Office of the Company not less than 48 hours
before the time of |
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| the
meeting. |
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| 3.
The shareholders are requested to notify the company immediately of the
change in their |
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| address,
if any. |
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| CHAIRMAN'S
REVIEW |
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| It
gives me great pleasure to present to you |
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| the
Sixth Annual Report and review of the |
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| performance
of the company for the year |
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| ended
June 30, 1998. |
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| The Economy |
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| The
year under review was full of challenges |
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| on
both the domestic and international fronts. |
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| On
the domestic front, the country faced |
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| constitutional
issues of extraordinary nature |
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| which
affected the flow of normal economic |
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| activity.
On the international front, foreign |
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| investment
was affected - partly due to the |
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| internal
situation and mainly due to the |
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| economic
crises affecting Latin American, |
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| Russian
and the South East Asian countries' |
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| economies
resulting into the shying away of |
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| investment
from the international capital |
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| markets. |
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| On
the other hand, Pakistan's economic |
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| performance
over the last few years has been |
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| marked
by a deceleration in economic activity, |
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| deterioration
in budgetary and current account |
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| deficits
and inflation. In order to reinvigorate |
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| economic
growth the Government took some |
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| measures.
It introduced economic reforms |
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| based
on both supply and demand side |
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| economics.
To improve revenue collection, |
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| general
sales tax regime was relaunched at |
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| the
retail level which partially increased the |
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| 'Tax Net'. The effect
of these policy measures |
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| will
however take some time to yield the |
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| desired
results. |
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| Towards
the year end, Pakistan opted for |
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| nuclear
detonation on 28th May 1998 following |
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| India's
nuclear tests on 11th May 1998. It let |
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| to
economic sanctions by the developed |
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| countries.
The international loan giving |
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| agencies
put their shutters down. |
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| Consequently,
foreign currency accounts were |
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| frozen,
rupee was devalued by 4.4% making |
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| it
14.1% for the full fiscal year and a two-tier |
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| foreign
exchange regime was introduced. |
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| Despite
the worsening situation, the economic |
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| indicators
for the year were quite satisfactory, |
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| The
GDP grew by 5.4% as against 1.3% last |
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| year,
agricultural sector grew by 5.9% and the |
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| manufacturing
sector by 7.0%. The large-scale |
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| manufacturing
sector registered a growth of |
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| 6.2%.
The transport and communication sector |
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| recorded
a growth of 8.8%. Fixed investment |
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| increased
by 65% and national savings |
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| increased
to 15% of GNP from the 11.3% of |
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| last year. |
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| The
Automobile Industry 1997-98 |
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| During
the first half of the year the activity in |
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| the
car industry was relatively low. The major |
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| reasons
were imposition of CVT @ 6.25%, both |
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| for
tax and non-tax payers, 8.7% rupee |
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| devaluation
and rate of import duty @ 40% on |
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| CKD
announced in the last budget. The |
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| Government
came out with an Auto Package |
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| early
in the second half, to support the Car |
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| Industry.
The new cars were exempted from |
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| levy
of CVT, the import duty was reduced from |
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| 40%
to 35%, tariff protection on CBU vis-a-vis |
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| local
cars and ban on import of reconditioned |
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| cars
were announced. In addition long term |
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| measures
to promote vending industry and |
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| concessions
of import of high technology were |
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| also
announced. The car makers in response |
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| reduced
the prices which helped the industry |
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| to
increase volume. The production during |
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| the
second half of the year rose to 16,754 units, |
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| 10%
more than 15,253 units produced in the |
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| last
corresponding period. The total units of |
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| cars
produced during the year stood at 4,070 |
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| against
3,944 of the last year. This helped and |
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| increased
volume and eventually the company |
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| profits.
I record appreciation of the |
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| Government
for such welcome measures. |
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| Company
Performance |
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| Sales
during the year under review rose to |
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| Rs.
2.763 billion compared to Rs. 2.556 billion |
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| of
previous year, up about 8%. Unit-wise sale |
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| increased
to 4,339 cars compared to 3,747 cars |
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| last
year, up 16%. Cost down measures were |
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| effectively
exercised. The administrative & |
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| selling
expenses were Rs. 75.972 million |
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| against
Rs. 111.798 million, down by 32.05% |
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| from
the last year. The financial expenses were |
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| also
reduced to Ks. 74.924 million from |
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| Rs.
108.546 million of last year, down by |
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| 30.970/0.
Other income went up to Rs. 10.890 |
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| million
from Rs. 4.425 million of last year, up |
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| 146%.
The profit after tax improved to Rs. |
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| 158.179
million compared to Rs. 48.065 million |
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| of
the previous year which was a combined |
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| result
of internal efficiencies, cost reduction, |
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| better
cash and inventory management and |
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| improved
quality, quality being first in Honda |
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| as
the customer's satisfaction. |
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| Your
company contributed a sum of |
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| Rs.
828.966 million to the Government revenue |
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| in
the form of Sales tax, Income tax, Customs |
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| duties
and other charges which forms 30% of |
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| sales.
Since its inception it has paid Rs. 3,431 |
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| million
as revenue to Government exchequer. |
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| 59%
of total employees pay taxes on income |
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| and wealth. |
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| Deletion |
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| Your
company continued to follow the |
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| Industry
Specific Deletion Program set by the |
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| Government.
It has achieved the proposed |
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| localization
target of 38% until June 98 which |
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| saved
about Rs. 150 million in the financial |
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| year.
Last year this saving was Rs. 92.930 |
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| million.
Since inception the total savings is |
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| about
Rs 400 million. The company has |
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| developed
54 vendors who are supplying |
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| more
than 673 locally manufactured parts of |
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| 'Honda
Civic' and 'Honda City' Cars. Last year |
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| the
company was getting 625 local parts from |
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| 47
vendors. To help achieve the deletion |
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| targets
set by the Government, the company |
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| has
assisted the local vendors in quality |
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| assurance
and to enter into joint ventures and |
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| technical
assistance with vendors in Japan. |
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| Now
these vendors need Government's |
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| encouragement,
such as, duty free import of |
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| raw
materials to boost indeginization with |
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| competitive
advantage in cost. Your company |
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| aims
at a higher percentage of deletion than |
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| set
by the Government from time to time. |
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| Plastic
Parts Paint Shop |
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| During
the year under review, the company |
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| by
utilizing the local facilities developed and |
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| commissioned
a new shop for painting of |
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| plastic
parts like bumper, front grill, wheel trim, |
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| license
garnish, door mirrors etc, which until |
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| now
were being painted in the main paint |
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| ship.
Addition of this shop has further |
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| improved
the finishing quality of plastic parts. |
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| Year
2000 Problem |
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| Your
company has taken measures against |
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| "Millenium
Bug". Certain software systems |
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| have
been changed and are in Test Run phase. |
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| Other
major applications have been planned |
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| to
be changed by September 1999. |
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| Human
Resource |
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| Your
company believes in development of |
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| human
resource. It lays emphasis on training |
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| programs
and enriching NHC - KAIZEN |
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| activities.
In the year 1997-98, out of total 344 |
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| Associates,
109 associates received in-house |
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| training
and 13 associates from various cadres |
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| received
training for a total of 50 weeks from |
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| Japan,
Thailand and Philippine. An eight- |
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| member
team participated in the 7th NHC Asia- |
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| Oceania
Convention held in India, 6-10 Oct. |
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| 1997
and a four members team attended the |
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| NHC
convention in Japan, 22-28 Oct. 1997. |
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| The
associates of your company enjoy their |
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| work
and career in an ideally peaceful |
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| atmosphere,
denoting respect for human |
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| beings
and equal treatment and opportunities |
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| for
every member for advancement. |
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| The
company relies on the 3S's, i.e., small, |
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| smart
and speedy company, and the 3E's, i.e., |
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| economy,
efficiency and effectiveness to meet |
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| the
challenges of the future. Our hallmark |
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| continues
to be our reliance on human |
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| resource
development through education and |
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| training. |
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| Community
Care |
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| It
has been our practice to share prosperity |
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| with
the community where your factory is |
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| located
through getting supplies for the daily |
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| needs,
employing local people and investing |
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| in
education for their children etc. During the |
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| year,
a primary school in Manga Mandi village |
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| was
completely renovated and adequately |
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| equipped. |
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| Promoting
auto engineering sector |
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| Engineering
industry and particularly the auto |
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| engineering
historically has been developed |
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| through
protection world wide. It is continuing |
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| even
now all over the world. The more recent |
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| development
is the world emphasis on |
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| regionalism,
nationalism and protectionism. |
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| America
has joined NAFTA. The role of the |
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| ECC
has been expanded through setting up |
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| the
European Union, which aims at regional |
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| development
through regional protection - |
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| localization
and import restrictions: |
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| Localization
is Honda Policy too. In UK, the |
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| automobile
must have 85% of value addition |
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| in
order to be entitled for marketing at |
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| concessional
incentives, otherwise it suffers |
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| from
import restrictions. In USA with all its |
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| pronounced
free economy, an automobile unit |
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| was
heavily penalized for not localizing as |
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| agreed.
The cheaper Yen bothers the world |
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| over
and specially the USA. Further, Auto |
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| Engineering
is exempt from WTO operations. |
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| Pakistan's
emphasis on self-reliance in this |
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| respect
is thus well within the world practices. |
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| Pakistan
also must develop its industry in an |
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| appropriate
manner. |
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| It
is with localization now more than ever |
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| before
that costs are reduced. The localization |
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| thus
must be encouraged, discouraging roll |
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| backs,
use of imported components through |
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| commercial
imports including smuggled and |
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| those
imported through Afghan Transit Trade. |
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| Government
emphasis on linking foreign |
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| exchange
savings with deletion is thus a step |
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| in
the right direction. |
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| The
vending industry which comprises over |
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| 400
units is operating at only 300/0 of its |
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| capacity.
This industry must work on full |
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| capacity.
No more CBU import of any |
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| automotive
vehicle of whatsoever nature may |
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| be
allowed for whatsoever scheme of things. |
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| Their
inconsistency in this respect has led quite |
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| a
few units to close to say the least, some |
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| units
have directly been closed for some years |
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| and
foreign investments withdrawn due to |
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| withdrawal
of protection as originally allowed. |
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| Protection
level recently lowered in case of |
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| such
units thus be restored in line with the |
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| world
trends including USA, UK, Malaysia and |
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| India.
Long term funding is scarce. The |
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| Government
must provide long term funds |
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| for
development of the industry and 30% |
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| margin
requirements for LCs and dual |
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| exchange
system must be done away with in |
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| case
of import of materials and components |
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| for
the industry in order to reduce costs and |
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| increase
volumes, among others, encouraging |
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| economy
of scale leading to self-reliance. |
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| New
sanctions of any new entrants must be |
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| in
accordance with the Government policy of |
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| deletion
that has been already decided - i.e., |
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| new
entrants to start from the deletion already |
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| achieved.
No roll back be allowed. |
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| Honda's
50th anniversary celebrations |
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| Honda
Motor Co. Ltd Japan celebrated its 50th |
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| anniversary
in October 98. President and CEO |
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| of
your company, Mr. S. Okamoto, Mr. Aamir |
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| H.
Shirazi, Director, Mr. Hafiz M. Hanif, Vice |
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| President
with other members joined the |
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| celebrations.
Mr. Aamir H. Shirazi, on behalf |
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| of
Pakistan, congratulated Honda Motor |
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| Company.
He expressed appreciation for |
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| Honda's
achievements and contributions in |
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| development
of unique Honda technology. He |
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|
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| thanked
Honda for a unique distinction of |
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| 3
Joint Ventures between Atlas Group and |
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| Honda
Motor Company in Cars, Motorcycles |
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| and
Power Products. |
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| Mr.
Nobuhiko Kawamoto, President & CEO |
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| of
Honda Motor Co. Ltd. who joined the |
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| inaugural
ceremony of your car plant, retired |
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| after
8 successful years with great honors. Mr. |
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| Hiroyuki
Yoshino has succeeded him. In his |
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| first
message he announced the guidelines for |
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| the
next 50 years: "Creation of pleasure by |
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| focusing
on the value of leading at all times; |
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| Enhance
the pleasure by promoting |
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| localization
of our business in all corners of |
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| the
world; and seek solutions to society's |
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| problems
that will allow such pleasure to be |
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| enjoyed
by the future generations and to |
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| further
positive social developments". |
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| I
thank Mr. Kawamoto for his great |
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| achievements
as the President of Honda. I |
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| welcome
Mr. Yoshino- I wish, under his |
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| leadership,
a new era of great success globally. |
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| Personnel |
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| Mr.
Kanji Kashiwagi, the first President and |
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| Chief
Executive Officer of your company |
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| returned
to Japan in May 1998 after leading |
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| your
company for over five years. I appreciate |
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| the
contribution made by him in setting-up |
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| the
plant in record time and building a |
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| foundation
for future growth of the company. |
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| Mr.
Kashiwagi has been promoted as the |
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| General
Manager and posted in the South |
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| Asian
Division, including Pakistan. It augurs |
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| well
for us. |
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| I
welcome his successor, Mr. Satoshi Okamoto, |
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| who
has worked since September '96 as |
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| Director
Marketing of your company. |
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| Mr.
Okamoto, brings with him 20 years varied |
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| experience
of working in Japan and overseas |
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| including
America. He has a record of |
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| successes.
I wish him all the success in his |
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| new
position. |
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|
| (Great
are those who do things, impossible) |
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| Acknowledgement |
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| I
thank Honda Motor Company for their |
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| assistance
in the growth of the company. I |
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| also
thank the Government, the members of |
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| the
Board of Directors, bankers, shareholders, |
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| the
Chief Executive Officer and his team and |
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| all
associates, vendors, dealers, and customers |
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| for
their help, support and assistance. |
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|
Yusuf H. Shirazi |
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| CHRONICLE
OF EVENTS |
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|
| Aug 05
1992 |
|
Joint venture agreement
signed with Honda |
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| Nov 04
1992 |
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Incorporation of Honda
Atlas Cars (Pak) Ltd. |
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| Feb 10
1993 |
|
Certificate of
Commencement of Business |
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| Apr 17
1993 |
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Ground breaking ceremony |
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| July 1993 |
|
Rupee devalued by 7% |
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| Mar 31
1994 |
|
Completion of civil work
and installation of Plant & equipment |
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| Apr 01
1994 |
|
Technical Assistance
Agreement signed with HMC |
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| May 05
1994 |
|
First car rolling out
ceremony held |
|
| July 13 1994 |
Mr. N. Kawamoto,
President Honda Motor Co., Japan, visited |
|
| July 13 1994 |
Inauguration by President
of Pakistan |
|
| July 16 1994 |
Commercial Production
Started |
|
| Oct 10
1994 |
|
Public issue of shares |
|
|
| June 22 1995 |
New warehousing facility
added |
|
| July 20 1995 |
5,000th car rolling out
ceremony held |
|
| Oct 29
1995 |
|
Rupee devalued by 7% |
|
|
| Jan 10-11-1996 |
New Civic '96 launched at
Karachi & Lahore |
|
| Aug 11
1996 |
|
10,000th car rolling out
ceremony held |
|
| Sep 10
1996 |
|
Rupee devaluation of
3.65% |
|
| Oct 22
1996 |
|
Rupee devalued by 8.5% |
|
|
| Dec 30
1996 |
|
10% cash dividend
declared at 4th AGM of shareholders |
|
| Jan 22-23 1997 |
Launching of Honda City
at Karachi & Lahore |
|
| Mar 28
1997 |
|
Sales Tax reduced from
18% to 12.5% |
|
| Oct 15
1997 |
|
Devaluation of Rupee by
8.71% |
|
| Dec 15
1997 |
|
5% bonus shares approved
at 5th AGM |
|
| June 26 1998 |
Devaluation of Rupee by
4.4% |
|
|
|
|
|
|
|
| DIRECTORS'
REPORT |
|
|
| The
directors have pleasure in presenting the annual report of the company
together with the |
|
| audited
accounts and the Auditors' Report thereon for the year ended June 30, 1998. |
|
|
|
|
| Financial
results are as follows: |
|
|
|
|
|
|
|
|
|
|
Year to June |
Year to June |
|
|
|
|
|
30, 1998 |
30, 1997 |
|
|
|
|
|
Rupees |
Rupees |
|
|
|
|
| Profit
before tax for the year |
|
158,179,106 |
19,902,044 |
|
| Taxation |
|
|
- |
(28,162,957) |
|
|
|
---------- |
---------- |
|
| Profit
after tax |
|
|
|
158,179,106 |
48,065,001 |
|
| Un-appropriated
profit brought forward |
|
646,734 |
581,733 |
|
|
|
|
|
---------- |
---------- |
|
| Profit
available for appropriation |
|
|
158,825,840 |
48,646,734 |
