Atlas Honda Limited - Annual Reports

For business information, annual reports, laws, ordinances, regulations and articles.

Atlas Honda Limited

Annual Report 2001

Mission Statement

To be a dynamic, profitable and growth oriented company through market leadership,

excellence in quality and service adding value to the shares and maximizing exports.

To give attractive return to business associates, share-holders as per their expectations

and market value and employees according to their abilities and performance, and to be

good corporate citizen to fulfill its social responsibilities.

Contents

COMPANY INFORMATION

BOARD OF DIRECTORS

Chairman

Yusuf H. Shirazi

Chief Executive Officer

Saquib H. Shirazi

Directors

Aamir H. Shirazi

Firasat Ali

(representing National Investment Trust Ltd.)

Istaqbal Mehdi

(representing National Investment Trust Ltd.)

Motohide Sudo

(representing Honda Motor Company Ltd.)

Sanaullah Qureshi

Sherali Mundrawala

Takemi Ishikawa

(representing Honda Motor Company Ltd.)

Company Secretary

Suhail Ahmed

GROUP EXECUTIVE COMMITTEE

Chairman

Aamir H. Shirazi

Members

Frahim Ali Khan

Iftikhar H. Shirazi

Jawaid Iqbal Ahmed

Saquib H. Shirazi

Saleem Ahmed

Secretary

Theresa Dias

GROUP PERSONNEL COMMITTEE

Chairman

Yusuf H. Shirazi

GROUP AUDIT COMMITTEE

Chairman

Sanaullah Qureshi

COMPANY MANAGEMENT

Chief Executive Officer

Saquib H, Shirazi

Technical Director

Takemi Ishikawa

General Manager Marketing

Nurul Huda

General Manager Finance

Suhail Ahmed

General Manager Production

Amir Awan

General Manager Engineering

Sardar Akhtar Khan

General Manager Human Resources

Maqsood A. Basraa

General Manager IT

Mushtaq Alam

General Manager Logistics

Talha Saad

Auditors

Hameed Chaudhri & Co.

Chartered Accountants

Legal Advisors

Mohsin Tayebaly & Co.

Tax Advisors

Mahmood Law Associates

Bankers

Credit Agricole Indosuez

Deutsche Bank AG

Emirates Bank International P.J.S.C.

Habib Bank Limited

Muslim Commercial Bank Limited

National Bank of Pakistan

The Bank of Tokyo-Mitsubishi Limited

United Bank Limited

Lending Institutions

Atlas Investment Bank Limited

Muslim Commercial Bank Limited

Saudi Pak Industrial and Agricultural

Investment Company (Pvt) Limited

Registered Office

1-McLeod Road, Lahore-54000

Tel: (92-42) 7225015-17, 7233515-17 Fax: (92-42) 7233518

Email: ahl@lhr. atlasgrouppk.com

Factories

F-36, Estate Avenue, S.I.T.E., Karachi-75730

Tel: (92-21) 2575561-65 Fax: (92-21) 2563758

Email: ahl@ahlkhi.atlasgrouppk.com

26-27 KM, Lahore-Sheikhupura Road, Sheikhupura-39321

Tel: (92-4931) 6655-57, (92-42) 7222222 Fax: (04931) 6563

Email: ahlskp@ahlhr. atlasgrouppk.com

Branch Offices

Azmat Wasti Road, Multan

Tel: (92-61) 540054, 540028, 571989 Fax: (92-61) 541690

Room 9, 2nd Floor, Sunny Plaza, Chandni Chowk,

Murree Road, Rawalpindi. Tel: (92-51) 4418115, 4455328

Fax: (92-51) 4418115

Show Room

West View Building, Preedy Street, Saddar, Karachi.

Tel: (92-21) 7720833, 7727607

Spare Parts Division

F-36, Estate Avenue, S.I.T.E., Karachi-75730

Tel: (92-21) 2575561-65 Fax: (92-21) 2563758

Warranty & Training Centres

7-Pak Chambers, West Wharf Road, Karachi. Tel: (92-21) 2310142

28 Mozang Road, Lahore. Tel: (92-42) 6375360

Azmat Wasti Road, Multan. Tel: (92-61) 540028

NOTICE OF ANNUAL GENERAL MEETING

The Thirty-seventh Annual General Meeting of the company will be held on Thursday, 04 October 2001 at 10.30

a.m. at 1- Mcleod Road, Lahore to transact the following Business:

1. To confirm the Minutes of the Annual General Meeting held on 14 December 2000.

2. To receive and adopt the Audited Accounts of Atlas Honda Limited together with the Directors' and Auditors'

reports for the year ended 30 June 2001.

3.a To consider and approve the Cash Dividend @ 40% and Bonus Shares issue @ 40% (Two bonus shares for

every five shares held) for the year ended 30 June 2001 as recommended by the Board of Directors.

3.b To consider and if thought fit, pass with or without modification the following resolutions as Ordinary

Resolutions:

(i) Resolved "that a sum of Rs. 58,390,904 out of company's profit be capitalized for issuing 5,839,090 fully

paid ordinary shares of Rs. 10/- each as bonus shares to be allotted to those shareholders whose names

stand in the register of members at the close of business on 26 September 2001 in the proportion of two

shares for every five shares held by a member. The said shares shall rank pari passu with the existing

shares of the company as regards future dividends, and all other respects."

(ii) Further resolved "that in the event of any member holding shares which are less than the number of

which one bonus share is decided to be issued or in excess by exact multiple thereof the Directors be

and are hereby authorized to combine them and to sell the bonus shares so combined in the stock market

and to pay the proceeds of sales thereof when realized to a charitable institution approved under the

Income Tax Ordinance, 1979."

(iii) Further resolved "that for the purpose of giving effect to the foregoing the Directors be and are hereby

authorized to give such directions as may be necessary and as they deem fit to settle any question or

any difficulties that may arise in the distribution of the new bonus shares in the payment of the sale

proceeds of the fractions."

4. To appoint the Auditors for the year 2001 - 2002 and to fix their remuneration.

5. To transact such other ordinary business as may be placed before the meeting with the permission of the

chair.

Special Business

6. To consider and if thought fit, to pass with or without modification the following resolutions as Ordinary

Resolutions:

RESOLVED "that the Authorized Capital of the company be and is hereby increased from Rs. 200,000,000/-

(Rupees two hundred million) divided into 20,000,000 ordinary shares of Rs. 10/- each to Rs. 400,000,000/

(Rupees four hundred million) divided into 40,000,000 ordinary shares of Rs. 10/- each."

FURTHER RESOLVED "that figures and words Rs. 200,000,000/- (Rupees two hundred million) divided into

20,000,000 ordinary shares of Rs. 10/- each appearing in the Clause V of the Memorandum of Association

and in Article 6 of the Article of Association of the company to read as Rs. 400,000,000 (Rupees four hundred

million) divided into 40,000,000 ordinary shares of Rs. 10/- each to reflect the change for the increase in

the Authorized Capital."

BY ORDER OF THE BOARD

Lahore: 12 September, 2001

SECRETARY

N.B. Shareholders are requested to take note of the following:

BOOK CLOSURE:

1. The share transfer book of the company will be closed from 27 September 2001 to 04 October 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 to attend 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 appointed for the meeting.

3. No person shall act as proxy unless he is member of the Company.

4. Signature of the shareholder on Proxy Application must agree with the specimen signature registered with

the Company. Appropriate revenue stamp should be affixed on the Proxy Application.

5. For the convenience of the shareholder a Proxy Application format is attached with this report.

6. Shareholders are requested to immediately notify the company of any change in their addresses.

7. Any individual Beneficial Owner of the Central Depository Company, entitle to vote at this meeting must

bring his/her National Identity Card with him/her to prove his/her identity and in case of proxy, must enclose

an attested copy of his/her National Identity Card. Representative of corporate members should bring the

usual documents required for such purpose.

Statement under Section 160(1)Co) of the Companies Ordinance, 1984

It has been decided by the Board of Directors to increase the Authorized Capital of the Company. The purpose

to increase the Authorized Capital is to provide opportunities for the growth in the company's business in

order to increase the profitability and returns to shareholders.

TEN YEARS GROWTH AT A GLANCE

(Rupees in million)

Years

2001

2000

1999

1998

1997

1996

1995*

1994

1993

1992

Sales

4704.5

3397.5

3424.9

3423.5

3498.1

3092.5

2139.7

1836.5

1940.2

1655.5

Gross Profit

458.4

352.9

396.8

424.5

396.8

338.4

160.7

176.8

151.3

141.2

Profit Before Tax

202.9

101.9

180.9

190.9

188.6

176.1

31.4

18.7

17.7

7.9

Profit After Tax

117.8

60.2

123.4

125.6

124.9

101.5

20.6

11.5

13.4

(0.4)

Share Capital

145.9

132.7

120.6

109.7

Share Holders' Equity

644.4

585.0

554.0

481.7

392.6

287.5

204.2

211.9

200.5

187.1

Fixed Assets - Net

450.6

490.3

366.7

379.4

374.9

270.8

289.2

296.7

319.5

340.7

Total Assets

1487.2

1491.3

1225.2

1537.9

1208.5

1039.7

788.3

757.2

852.6

833.7

Dividend

Cash

400%

200%

35%

25%

15%

Stock

400%

10%

Ratios:

Profitability (%)

Gross Profit

9.7%

10.4%

11.6%

12.4%

113.0%

10.9%

7.5%

9.6%

7.8%

8.5%

Profit Before Tax

4.3%

3.0%

5.3%

5.6%

5.4%

5.7%

1.5%

1.0%

0.9%

0.5%

Profit After Tax

2.5%

1.8%

36.0%

3.7%

3.6%

3.3%

1.0%

0.6%

0.7%

Return To Shareholders

R.O.E.-Before Tax

31.5%

17.4%

32.7%

39.6%

48.0%

61.3%

15.5%

8.8%

4.2%

R.O.E.-After Tax

18.3%

10.3%

22.3%

26.1%

31.8%

35.3%

10.1%

5.4%

6.7%

(0.2%)

E.P, S,-After Tax (Rs.)

8.07

4.12

8.45

8.60

9.41

8.41

1.71

0.95

1.22

(0.04)

Activity

Sales To Total Assets

3.16

2.28

2.80

2.23

2.89

2.97

2.71

2.43

2.28

1.99

Sales To Fixed Assets

10.44

6.93

9.34

9.02

9.33

11.42

7.40

6.19

6.07

4.86

Liquidity/Leverage

Current Ratio

1.48

1.45

1.64

1.31

1.21

1.10

101.00

1.05

1.06

0.98

Break up value

per share

44.14

40.07

37.95

33.00

29.58

23.83

16.92

17.57

18.28

17.06

Long Term Debts To

Equity (Times)

0.13

0.25

0.19

0.30

0.26

0.17

0.38

0.44

0.66

0.65

Total Liabilities

To Equity (Times)

1.31

1.43

1.21

2.19

2.08

2.62

2.86

2.57

3.25

3.46

* Annualized

CHAIRMAN'S REVIEW

It is my pleasure to present to you the 37th Annual

Report and Review of the performance of your Company

for the year ended 30 June 2001.

THE ECONOMY

Pakistan's growth performance during the fiscal year

2000-01 suffered from an unprecedented drought. The

situation not only worsened but engulfed the entire

country causing serious 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

sector particularly the automobile and textile sectors.

The greatest set back came from the agriculture sector

which declined to 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

than targeted inflation rate of 4.7% against the targeted

rate of 6%. 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 the 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 Rs.3,198 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 need of the poor 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.

MARKETING OVERVIEW

During the year the economy picked up with an

appreciable liquidity in the market. Last year's wheat

crop was supported with better prices offered by the

government to the growers. This improved the liquidity

available to the motorcycle customers during the first

quarter of the current financial year. As a result, your

company was able to generate 25% more sales compared

to the first quarter of the previous financial year. This

growth in sales helped your company to absorb the

effect of massive devaluation and to pass on a minimum

possible price increase to the end-users.

Marketing activities of your company remained effective,

encashing fully the increased liquidity available in the

market. One of the most successful and timely activities

was the CD70 MMC launch in October 2000. The latest

version of the CD70 model proved to be successful,

with the changed modifications meeting the needs and

aspirations of the customer. As a result, your company

was able to adhere 80% more sales in the second

quarter and 30°/0 more sales in the third quarter over

the corresponding period last year. However, the fourth

quarter was affected due to the water crisis and the

low-level purchase of the available wheat stock at the

pre-announced government support price.

Another major activity carried out during the year was

the Dealers Convention. These were held at Karachi,

Lahore & Multan simultaneously. The uniqueness of

these conventions were very important. Your company's

new Chief Executive Officer, who was introduced at

these conferences to dealers, outlined the future vision

of the company with regard to the potential of the

motorcycle business in the coming years. The top

management made many more market visits than usual,

befitting the changing situation. This not only led to

a closer personal interaction with dealers but also

provided an opportunity of sharing views on the

country's economic situation. It also served as a source

of motivation for the dealers as well as attaining

customer feed back for the company's marketing

strategies. With all these efforts, your company was

able to generate the highest ever sales of more than

78,000 units, which accounts for 33% growth over last

year, an all time record of Atlas Honda sales.

In the market, your company faced competition from

both Japanese and Chinese brands of motorcycles.

Keeping in view the consistent success of our 4-stroke

product, one Japanese competitor, who is involved in

2-stroke technology launched a 4-stroke 110cc

motorcycle. The other competitors also introduced

various sales promotional schemes for customers.

Market size on the whole grew to 115,000 units as

compared to last year's 86,959 units. In the growing

market, your company achieved a land mark by growing

its market share from 64% to 70%, which reflects the

confidence of customers in Atlas Honda motorcycles.

It also reflects the continued success of the marketing

policies of your management.

This continued success of your company has always

been due to its edge in terms of policies - product,

quality and price. Your company has always been the

"trend setter" for the industry. In this respect, your

company introduced a new concept of the "5S"

dealership i.e. Sales, Service, Spare Parts, Second hand

motorcycle Exchange & Special (Credit) sales - all

under one roof. Particularly, this new concept is aimed

at increasing the over-all market size of the industry.

To attain "Customer Satisfaction" and building

confidence, your company had direct interaction with

over 5000 Honda users by launching "Customer

Education Programme" which is the first of its kinds.

To impart technical know-how and update knowledge

about the product, your company conducted Training

Programmes for service dealers and general mechanics.

Factory visits for service dealers and general mechanics

were also arranged to show quality measures taken at

different stages of production. Free check-up camps

were held to increase customers' confidence in the

company and its dealers. Warranty facility has been

extended to many new towns and the number of

antenna dealers has also been increased.

The spare parts business has become more active in

line with the increase in the sales of motorcycles. Your

company launched indigenized motorcycle pistons in

collaboration with Allwin Engineering Industries Limited,

a sister company engaged in part making, which were

highly accepted by Honda users due to their quality

and competitive price.

INDIGENIZATION

Atlas Honda has maintained its leadership in the area

of transfer of technology. The company successfully

ensured speedy transfer of intellectual property rights

from well known Japanese companies like Toyo Denso

(and Uehara Nameplate) for indigenization of Switch

Assembly Light and Switch Assembly Winker, and

Uehara Nameplate for gold plated emblems. The project

of Switch Assemblies has been completed on line

within the original plan of cost of Rs.34 million through

the establishment of in-house manufacturing facilities

at the Karachi plant, whereas technology for emblems

production has been transferred to the local vendor.

The planned deletion target i.e. 4.4002% in CD70 and

2.0659% in CG125 was successfully achieved including

development of Forgings Crankshaft R/L CD70 & CG125

through the locally available technology. The company

plans to continue to indigenize hi-tech components

like CDI, drum assembly gear shift, and shock absorbers'

components through transfer of know-how from

Japanese companies i.e. Shindengen, Assumitech, and

Showa Corporation. Spindle Assembly Gear Shift and

other components shall be produced through the

refinement of local technology. The company also

plans to manufacture Cylinder Head CD70 & CG125,

a key component of 4-stroke technology, through the

establishment of in-house manufacturing facilities at

an overall cost of Rs.150 million. A MOU has already

been signed between Honda Motor Company Japan

and Atlas Honda Limited Pakistan. Machines &

equipments shall be available in April 2002 at site for

installation, commissioning, and testing for the

subsequent mass production in June 2002.

COMPANY OPERATIONS

The Sales revenue for the year increased to Rs.4.7

billion in the current year compared to Rs.3.4 billion

from last year, up 38.5%. The profit before tax increased

to Rs.202.9 million as against Rs.101.9 million of the

previous year. The gross profit was down to 9.74%

against 10.38%. The main reason for the decrease in

gross profit was 23% depreciation of rupee during the

year. The total cost-push was not passed onto the

customer in order not to curtail market growth. As a

result, this year the market size expanded by 32%.

The operating expenses increased by 18.4% to Rs.235.6