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Honda Atlas Cars (Pakistan) Limited
Annual Report 2001
Contents
Company Information
Notice of Meeting
Chairman's Review
Financial Highlights
Chronicle of Events
Directors' Report
Auditors' Report to the Members
Balance Sheet
Profit and Loss Account
Cash Flow Statement
Statement of Changes in Equity
Notes to the Accounts
Pattern of Shareholding
Company Information
THE BOARD OF DIRECTORS		Mr. Yusuf H. Shirazi
		(Chairman)
		Mr. Mamoru Suwama
		(President / CEO)
		Mr. Aamir H. Shirazi
		Mr. Hiromi Mizutani
		Mr. Jawaid Iqbal Ahmed
		Mr. Motohide Sudo
		Mr. Takashi Otsuki
COMPANY SECRETARY		Mr. Raffat Iqbal
AUDITORS		A.F. Ferguson & Co.,
		Chartered Accountants
LEGAL ADVISOR		Cornelius, Lane & Mufti
BANKERS		ABN, AMRO Bank
		Askari Commercial Bank Ltd.
		Citibank N.A.
		Deutsche Bank AG
		Habib Bank Ltd.
		Muslim Commercial Bank Ltd.
		National Bank of Pakistan
		Standard Chartered Grindlays Bank Ltd.
		The Bank of Tokyo-Mitsubishi Ltd.
		United Bank Ltd.
REGISTERED OFFICE		1-McLeod Road, Lahore.
		Ph: (042) 7225015-17
		Fax: (042) 7233518
FACTORY		43 Km, Multan Road,
		Manga Mandi, Lahore.
		Ph: (042) 5871100-09, (04951) 384263-70
		Fax: (042) 5877711-12
		E-mail: info@honda.com.pk
		Web site: www.honda.com.pk
Notice of Meeting
Notice is hereby given that 9th Annual General Meeting of shareholders of Honda Atlas
Cars (Pakistan) Limited will be held on Monday, November 26, 2001 at 2:30 p.m.
at 1-Mcleod Road, Lahore to transact the following business:
1. To confirm the minutes of the last Annual General Meeting held on
December 04, 2000.
2. To receive, approve and adopt the audited accounts for the year ended June 30, 2001
together with the Directors' and Auditors' reports thereon.
3. To approve cash dividend @ 20% for the year ended June 30, 2001 as recommended by
the Directors.
4. To appoint Auditors for the year ended June 30, 2002 and fix their remuneration.
M/s A.F. Ferguson & Co., Chartered Accountants, the present auditors of the company,
retire and being eligible, offer themselves for re-appointment.
5. To transact any other business with permission of the Chair.
				By order of the Board
November 02, 2001				(Raffat Iqbal)
Lahore				Vice President & Company Secretary
Notes:
1. The share transfer books of the company will remain close from November 15, 2001 to
November 25, 2001 (both days inclusive).
2. A member entitled to attend and vote at the Annual General Meeting is entitled to
appoint another member as a proxy and vote on his/her behalf. Proxies in order to be
effective must be received at the Registered Office of the Company not less than 48
hours before the time of the meeting.
3. Any individual Beneficial Owner of CDC, entitled to attend and vote at this meeting,
must bring his/her NIC or passport to prove his/her identity and in case of Proxy must
enclose an attested copy of his/her NIC or Passport. Representatives of corporate
members should bring the usual documents required for such purpose.
4. The shareholders are requested to notify the company immediately of the change in
their address, if any.
Chairman's Review
It gives me great pleasure to present you the
Annual Audited Accounts and Review on
performance of the Company for the year
ended June 30, 2001.
THE ECONOMY
Pakistan's growth performance during the fiscal
year 2000-01 suffered from an unprecedented
drought. The situation not only worsened but
also engulfed the entire country causing
damage to agriculture and the overall
economic growth.
GDP was targeted to grow by 4.5% with
agriculture and manufacturing, sharing 2.6%
and 5.9% respectively. Real growth was,
however, around 3%. Major contribution to
GDP growth was by the manufacturing sectors
particularly the automobile and textile sectors.
The greatest set-back came from the agriculture
sector which declined at negative 0.7%.
Consequently, the value added in agriculture
also registered a decline of 2.5% as against
growth of 6.1% last year. Major crops like
cotton, wheat, sugarcane, and rice also
witnessed decline in production by 10.5%. Since
agriculture, electricity and gas distribution
account for almost 30% of GDP, any significant
decline in these sectors heavily affects the
overall GDP growth. A positive achievement
of the outgoing year, however, has been the
lower inflation rate of 4.7% against the targeted
rate of 6.0%. Another significant achievement
of the year was the sharp reduction in the
overall fiscal deficit of 5.3% or Rs. 185.7 billion.
This is the lowest fiscal deficit over the last decade.
The persistence of large fiscal deficit associated
with the build-up of public debt has been major
source of macroeconomic imbalance in
Pakistan. This legacy is attributed to a host of
factors, chiefly leakage in revenue collection
and widespread financial indiscipline with
ineffective accountability. Frequent changes in
the monetary & fiscal policies have created
imbalances. Growing debt servicing over the
years has also made the fiscal adjustment more
difficult. Pakistan's public debt burden of US $
31 billion is much higher than that of many
developed and developing countries. However,
with the government's multi-dimensional
approach, one can hopefully look forward to
better results!
IMF's acceptance of economic measures taken
by the Government is no less an achievement,
which facilitated another round of external debt
rescheduling. The approval of the third tranche
of US$ 133 million by IMF under the standby
facility agreement also adds support to the
lenders' confidence and growing satisfaction
with the country's economic measures and their
viability. Also the government's emphasis on
the export target of US$ 10.66 billion, an
increase of 3.4% over last year's US$ 10.31
billion will certainly help reduce the trade deficit
of US$ 1.52 billion.
In order to promote investment and achieve
sustainable growth, the utmost need, however,
is a stable macroeconomic environment where
the key elements include low inflation, sustainable
budget deficit, realistic exchange rates,
appropriate real interest rates and consistency in
economic, fiscal and other related policies.
THE AUTOMOBILE INDUSTRY
Automobile industry, as one, however, showed
positive growth despite the overall economic
recession during the year under review. Except
for tractors, buses and trucks, the entire
automobile sector showed marked
improvement. A total of 39,573 cars were
produced against 32,461 cars in the
corresponding year, up 21.9%. The sales were
recorded at 39,167 units against 31,759 units,
up 23.3%. This growth was attributed, among
others, due to increase in sales through leasing
and other financing schemes which contributed
about 40% as compared to about 25% during
the last year. However, there was no substantial
growth in the 1300cc category cars and above
which stood at 17,664 units during the year
against 17,326 units last year, up 1.9% only. The
comparison of autos production is shown below:
Particulars		2001	2000	Incr/	%age
				(Decr)
Cars		39,573	32,461	7,112	21.91%
Motorcycles		108,850	86,959	21,891	25.17%
Tractors		31,635	34,559	(2,924)	- 8.46%
Buses, trucks & LCVs		9,662	9,409	253	2.69%
		------------------	------------------	------------------	------------------
Total		189,720	163,388	26,332	16.12%
		==========	==========	==========	==========
Honda Cars		5,824	4,744	1,080	22.77%
		==========	==========	==========	==========
					Source: PAMA
Despite low growth in 1300cc category cars,
the production of Honda vehicles stood highest
during seven years of the company at 5,824
units, 22.8% higher than the last year's 4,744
units. Accordingly, the company also posted
higher sales at 6,001 units, up 24.7% as
compared with the last year's 4,812.
On March 22, the company launched a new
Honda Civic, both in 1500cc and 1600cc
categories cars with G-Force Control
Technology, Flat Rear Floor and Anti-lock
Breaking System (ABS Breaks) both with
Manual and Progressive Shift Management
Technology (PROSMATEC) transmissions. The
public response has been overwhelming. The
company posted 51.6% growth in sales for the
4th quarter at 1,976 units compared 1,303 units
in the 3rd quarter of the current year. The new
model has helped the company to improve its
sales and the market share from 27.4% in the year
2000 to 33.0% in the year 2001 in the category of
1300cc and above, a commendable
improvement since its late entry in the market
during 1995.
THE COMPANY PERFORMANCE
The company maintained steady progress
during the year. The sales increased to Rs. 4.485
billion for the year as compared with Rs. 3.507
billion in the corresponding period of last year,
up 27.9%. The cost of sales was also at Rs.
4.060 billion, up 29.4%. The gross profit
improved to Rs. 424.991 million against Rs.
368.724 million in the last year. However, the
gross profit margin was lower at 9.5% than
10.5% of the corresponding period last year.
The reasons for fall was depreciation of Rupee
against Dollar at 21.8%, increase in technical
assistance fee at Rs. 11.883 million which was
borne to impart in-house and abroad training
of company associates at the time of launching
of the new model. The general administration
and selling expenses also increased to Rs.
170.420 million during the year as compared
to Rs. 107.626 million during the last year,
mainly due to increase in royalty at Rs. 63.629
million against last year's Rs. 21.403 million and
launching & advertising expenses of new Civic
model at Rs. 8.152 million. The company
maintained effective control over financial
charges, which were further brought down to
Rs. 1.656 million during the year at Rs 2.494
million as against last year. The other income
also improved from Rs 53.136 million of the
last year to Rs. 63.050 million, up 18.7%.
The profit before tax earned during the year
was Rs. 294.729 million as compared to Rs.
290.498 million in the preceding year, an
increase of 1.5%. Whereas the profit after tax
posted an increase of 6.9% at Rs. 204.471 million
as compared to Rs. 191.286 million in the
previous year, the profit after tax margin was
4.6% during the year as against 5.5% in the last
year. The earnings per share after tax for the
current year was Rs. 4.87 as compared to
Rs. 4.55 in June 2000. The book value per share
stood at Rs. 30.01 against Rs. 27.14 in the
previous year. The after tax return on equity
was 17.0% as compared to 17.6% in the last year.
The directors have recommended a dividend
of Rs. 2/- per share (20%) for the year, thus
maintaining a fair record of paying continuous
dividend to its shareholders since 1996.
The company contributed a sum of Rs. 1.540
billion towards government exchequer on
account of Custom duty, Sales tax, Income tax
and other government levies during the year.
Since 1994, the company has contributed a sum
of Rs. 6.9 billion towards government treasury.
During the year, the company laid down the
foundation for construction of Body 8: Paint
Training Center. The purpose of this project is
to give in-house training to body and paint staff
of dealerships to improve their knowledge and
hands on training & technical skills. The
estimated cost of the plant and building is Rs.
7.000 million and will be completed by October
2001. This will also act as a model Body &
Paint 'Training Center for our dealers to
improve their own workshop facilities to
attract more customers.
Since the manpower is growing with the
increase in production, the company has started
expansion in canteen facilities. The existing
canteen is being extended and renovated with
an investment of Rs. 5.000 million to cater the
needs of associates.
TRAINING & DEVELOPMENT
By the end of the current financial year, the
manpower has increased by 73 associates since
start of the commercial production in 1994. This
includes 2 Chartered Accountants, 1 ACMA, 3
C.A / ACMA Inter, 23 MBAs and other post
graduates, 25 engineers, 35 graduates and 73
diploma holders.
In order to maintain the standard of quality of
product, the company continued emphasis on
training and development of human resource
to improve technical skills and expertise of the
personnel. Eleven associates from various
departments were sent abroad for different
technical training courses in Japan, Thailand
and Philippines. Apart from this, the associates
improved their skills through job rotation and
a number of in-house training sessions and
refreshers. A number of sales training
workshops were held in Karachi and Lahore
for training and development of dealers' sale
staff. On the eve of launching of new Civic
model, dealers' technician staff was also
trained in order to keep update their after sale
service skills.
DELETION
Agreement on Trade Related Investment
Measures - TRIMs - has come into focus and
the WTO in its recent decision has granted a
two years extension after expiry of the
transitional period allowed to some countries
including Pakistan. With a view to further
liberalize trade, the WTO Trade body has asked
the government to submit a response to TRIMs,
if further extension is desired by any member
country. The Government of Pakistan is
believed to be working out a strategy to protect
its interests.
The Auto Industry - Pakistan Association of
Automotive Parts & Accessories Manufacturers
- PAPAAM - and Pakistan Automotive product
Manufacturers Association - PAMA - has also
represented that in Pakistan situation the
automotive sector does not come under the
purview of the above agreement and, even if
it is applicable, extension is necessary to give
fillip to the industry.
A vendors' convention was held at Lahore in
which all vendors and suppliers of the country
participated. The main objective of the
convention was to focus on deletion policy,
foreign exchange savings and local costs, as
well as, production facilities, delivery, quality
of parts & transfer of technology. The plan for
development and improvements of future parts
was discussed at length and acknowledged
the quality systems and performance of vendors
and suppliers.
Your company is following the government's
deletion program - Industry Specific Deletion
Program - ISDP. There are 79 vendors who are
manufacturing 436 parts for Civic and 456 parts
for City models. Our Vendor Development
Department has been working closely with our
vendors and suppliers for improvement and
development of new pans in accordance with
the local laws and rules to their best abilities.
(There is a world, beyond this world!)
PERSONNEL
Mr. Satoshi Okamoto who joined the company
in September 1996, returned to Japan after
serving the company for four and half years,
first as General Manager/Director Marketing
and then as President/CEO. I thank Mr. Satoshi
Okamoto for the contribution made by him
and wish him all the good luck in his new
duties in Indonesia. His successor Mr. Mamoru
Suwama brings with him 25 years' experience
of working in Japan and overseas, including
Australia. I wish him all the success in his new
assignment. Mr. Maqsood Ahmed Basraa,
General Manager Logistics, returned to Atlas
Group after serving the company for four and
half years. He is succeeded by Mr. Sardar Abid
Ali Khan as new General Manager, Logistics.
I would like to thank all of them for their
contribution towards the growth of the company.
FUTURE OUTLOOK
The economy suffered huge losses due to
drought conditions in many parts of the country
during the year. Pakistan economy faces serious
challenges in the coming years too, among
them being the risk emanating from a variety
of internal & external sources. The major
problem is to restore business confidence and
build a sound basis for economic growth.
Effective economic reforms are needed across
a wide range of sectors. The added risk is the
implication of the December 1999 Supreme
Court decision regarding the implementation
of the Shariah Code to all financial transactions.
Your company has been maintaining
consistently good performance year after
year. Despite the recent drought, which badly
affected the agriculture and consequently the
overall economy, it was commendable that
your company achieved a growth of 27.9%
in sales this year. Likewise the market share
was increased from 27.4% to 33.0%. We are
aiming to increase it further in accordance
with the image of Honda in this country
through quality of management, quality of
product and quality of service.
These achieve