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Atlas Battery Limited

Annual Report 1999

CONTENTS

COMPANY INFORMATION

Chairman

Yusuf H. Shirazi

Directors

Aitzaz Shahbaz

M. Iwai

M. Habib-ur-Rahman

Shahid Anwar

Iftikhar H. Shirazi

Vazeer Ali

Chief Executive

Vazeer Ali

Secretary

Shahabuddin Ahmed Siddiqui

General Manager (Tech)

M. Khalid Jilani

Chairman Group Personnel Committee

Yusuf H. Shirazi

Chairman Group Audit Committee

Sanaullah Qureshi

Auditors

Hameed Chaudhri & Co.

(Chartered Accountants)

Bankers

National Bank of Pakis tan

Muslim Commercial Bank

Societe Generale

The French and International Bank

Bank of Tokyo-Mitsubishi Limited

Registered Office (Factory)

D/181, Central Avenue, S. I. T.E., Karachi.

GROUP EXECUTIVE COMMITTEE

Chairman

Yusuf H. Shirazi

Members

Jawaid Iqbal Ahmed

Frahim Ali Khan

Iftikhar H. Shirazi

Aamir H. Shirazi

Saquib H. Shirazi

Secretary

Amjad Hussain

NOTICE OF MEETING

Notice is hereby given that the Annual General Meeting of the Shareholders of the Company will

be held at 09. O0 a.m. on Tuesday, December 21, 1999 at Adamjee House, 8th Floor, I.I. Chundrigar

Road, Karachi to transact the following business:

ORDINARY B USINES S

1. To confirm Minutes of the Extraordinary General Meeting held on May 20, 1999.

2. To consider and adopt the audited accounts of the company for the year ended June 30, 1999

together with the Directors' and Auditors' Report thereon.

3. To consider and approve the recommendation of Directors for payment of dividend at the rate

of 40% (Rs. 4/- per share) for the year ended June 30, 1999.

4. To appoint Auditors for the year 1999-2000 and fix their remuneration.

5. To transact any other business with the permission of the Chair.

SPECIAl BUSINESS

6. To approve the remuneration of the Chief Executive and the working Director.

A statement'under section 160 of the Companies Ordinance, 1984 pertaining to the Special'

Business referred to above is annexed to this Notice of Meeting.

By Order of the Board

Karachi: November 01, 1999

Company Secretary

Notes:

i. The Share Transfer Books of the Company will remain closed from December 15, 1999 to December

21, 1999 (both days inclusive). Transfers received in order at the registered office of the company by

December 14, 1999 will be in time for the purpose of entitlementfor payment of the dividend to the transferee.

ii. A member entitled to attend and vote at the 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 meeting.

iii. The members are requested to please communicate to the company any change in their

mailing address immediately.

STATEMENT UNDER SECTION 160 OF THE COMPANIES ORDINANCE 1984 REGARDING

SPECIAL BUSINESS AS GIVEN IN THE NOTICE OF MEETING:

This statement is annexed to the notice of the 33rd Annual General Meeting of the Shareholders

of Altlas Battery Limited to be held on December 21, 1999 and sets out the material facts concerning

the following Special Business to be transacted at the meeting for approval of shareholders.

REMUNERATION OF CHIEF EXECUTIVE AND THE WORKING DIRECTOR

A total amount of Rs. 7.2 million will be proposed as the aggregate remuneration Of the Chief

Executive and the Working Director of the Company, in the form of following resolution.

"RESOLVED that the Company hereby authorises the holding of offices of profit and payment as

remuneration to Mr. Vazeer All, Chief Executive and Mr. Iftikar H. Shirazi, Working Director, not

exceeding in the aggregate Rs. 7.2 million per annum for the year ending June 30, 2000 together with

other benefits as per Company policy"

The Chief Executive and the Working Director are interested in the remuneration payable to them.

FIVE YEARS AT GLANCE

(Rs. In million)

1995

1995-96

1996-97

1997-98

1998-99

6 Months

STATISTICS

Sales

121.97

339.58

366.10

443.41

499.32

Gross Profit

29.31

76.79

73.89

93.32

107.67

Profit before tax

8.57

27.22

18.18

31.46

36.21

Profit after tax

5.22

18.33

10. 64

21.09

24.39

Paid up share capital

23.00

24.73

Reserves and unappropriated profit

20.15

32.73

40.50

52.45

66.95

Shareholders' equity

43.15

55.73

63.50

77.17

9,168

Long term debt

14.05

12.58

10.90

10.94

24.87

Fixed assets - Net

45.44

49.93

56.12

65.33

83.57

Total assets

162.79

198.29

199.52

213.92

260.26

DIVIDEND (%)

Cash

15.00

25.00

12.50

30.00

40.00

Stock

7.50

RATIOS

Gross Profit to Sales (%)

24.03

22.61

20.18

2,104

21.56

N . P . before tax to Sales (%)

7.03

8.01

4.97

7. 1 7

7.25

Return on equity before tax (%)

19.88

48.84

28.63

40.76

39.50

Return on equity after tax (%)

12.10

32.89

16.76

27.33

26.61

Earning per share before tax (Rs.)

3.73

11.83

7.90

12.72

14.64

Earning per Share after tax (Rs.)

2.27

7.97

4.63

8.53

987

Breakup value per share (Rs.)

18.76

24.23

27.61

31.21

37.08

Current ratio

1.24:1

1.17:1

1.21:1

1.28:1

CHAIRMAN'S REVIEW

It is my great pleasure to present the 33rd

Annual Report of your company for the year

ended June 30, 1999 and review its

performance.

THE ECONOMY

The adverse backlash of the nuclear

explosions of last year was quite marked as

the economy witnessed a continuous slump

during the year under review. The first half

was completely dominated by the effects of

the sanctions imposed by G-7 with respect to

inflow of foreign loans and aid packages. The

foreign currency reserves hit rock bottom as

the country slipped .into a worst ever economic

crisis with almost no investment taking place

in the country. The economy was also affected

by the slow down of the global economic

activity particularly in South East Asia.

During the second half of the year under

review, things however began to look better

with the easing of sanctions and the

successful negotiation of the Government with

the foreign donors and lending agencies which

resulted in rescheduling of existing debts and

the resumption of fresh funds inflow. The

Government also embarked on the path of ad-

justment and reforms and a series of wide

ranging measures were taken; these included

rolling back of several measures taken after

the economic sanctions. However, before the

economy could actually get back on the track

to recovery, the momentum was hampered by

the worsening of the Indo-Pak relationship due

to the Kargil conflict.

The GDP registered a meagre growth of 3.1%

during the year as against 4.3% of last year.

Exports were 11.7% lower than last year.

Value addition in the manufacturing sector

was also below expectations at 4.7% during

the year as against an impressive 7.9% last

year. The economic sanctions, discouragement

of imports, uncertain economic environment

and lower demand for exports due to global

economic recession adversely affected the

growth in this sector. The agricultural sector

also suffered a set back due to unfavourable

weather conditions. It registered a meagre

growth of O.35% as against 3.8% of the previ-

ous year. National savings declined to 11.1%

of GNP as compared with 14.2% last year. Only

the service sector showed improvement: it

recorded a growth of 4.1% compared to a

growth of 3.2% during the previous year. Net

foreign private investment inflows stood at USS

300.7 million during July-March, 1998-99 as

against USS 639.9 million in the comparable

period last year, a sizeable decline indeed.

THE BATTERY INDUSTRY

The battery industry in Pakistan however was

somewhat not effected by the adverse impact

of the economic situation due mainly to

somewhat curbed smuggling and under

invoicing to a certain extent and due to dual

exchange rate and other government actions.

The Industry had a healthy growth of 12.3%

as compared to 10.5% in the previous year.

The Government supported policies towards

the tractor industry and the engineering

sectors relating to automobiles thus has had

a salutary effect on the battery industry. Your

company's sales growth was 13.7% as against

12.3% of the industry.

OPERATIONAL RESULTS

Your company posted a saies revenue of

Rs.499.3 million for the year under review as

compared to Rs. 443.4 million in the

corresponding year, up 12.6%, on account of

volume growth, price increase and better sales

mix. The Gross Profit ratio was 21.6% as

against 21.0% in the previous year. The fierce

market competition, under-invoiced imports,

re-plating and smuggling did not allow us to

fully pass on the total cost increases to the

customers and the company had to absorb a

part of it. Thus the volume increase could not

contribute fully to the Gross Profit and some

incremental advantage was lost.

Administration, selling and distribution

expenses for the year were Rs.60.8 million

compared to Rs.52.8 million in the preceding

year. These expenses as ratio of sales were

12.2% as against 11.9% in the corresponding

year. The operating profit at Rs.46.9 million

was 15.6% more than last year's profit of

Rs. 40.6million.

The financial expenses for the year stood at

Rs.9.9 million against Rs.8.6 million in the

previous year. The major factor of increase in

the financial cost was mark-up of Rs.2.2

million on long term loan borrowed for

expansion which was essential for the

sustained growth of your company. The net

profit before tax for the year improved to

Rs. 36.2 million against Rs.31.5 million in the

previous year up by 15.0%.

The company paid total taxes at Rs. 189.9

million or 38.0% of sales as against Rs. 155.0

million last year.

A refund of an amount of Rs. 1.3 million is

pending 'payment from the Income Tax

Department.

The company was setup in 1966 with a paid

up capital of Rs. 3.0 million which has grown

to Rs. 24.7 million. The total equity is at

Rs. 91.7 million which includes reserves and

un-appropriated profit of Rs. 66.9 million.

During this period your company made Right

issue at par of Rs. 10.0 million in 1990. It

has paid cash dividend of Rs. 43.6 million and

Bonus at Rs. 11.7 million (market value 35.2

million) against the shareholders investment

of Rs. 13.0 million.

CAPACITY EXPANSION

In order to further improve the productivity,

efficiency, quality and remove the..capacity

constraints, the company had embarked on an

expansion plan. For financing this expansion

the company has obtained medium term loans,

with machinery having arrived and is under

installation. Production is expected to

commence by the end of March 2000.

WORLD REGULATORY ORGANIZATIONS

Any business activity is directly related to the

national business environment. Automotive

industry plays a critical role in the

development of the economy. Being a

signatory to the World Trade Organization,

and following other such World Regulatory

Organizations in this respect, Pakistan is

obliged to make certain changes in the laws

relating to Trade Policy, custom vatuationand

other trade related matters which are

effecting country's local trade, finance and

industry. These changes basically aim at

further liberalization of trade and are to be

implemented from the year 2000. These will

have a great bearing on the automotive

business too. The Ministry of Commerce,

Government of Pakistan, is of the view that a

major change is expected in the

concessionary regime replacing it with the

tariff incentives driven regime which may

affect local trade and industry - as it is! ·

Yae kahan kee dosti hain ka dost banay hainn nasah

(It so happens when friends turn unfriendly!)

This agreement was signed by the Ministry of

Commerce on behalf of the Government of

Pakistan. Obviously, neither any debate was

curried out, nor any consultation made which

is the norm in such major decisions. In most

countries of the world, private sector is

associated with such decision making of great

importance. No such due diligence was made

at any quarters. The private sector did not even

know that such an agreement was signed - in

1995 ! On the contrary, the private sector was,

at the same time, being encouraged to invest

and in fact, coerced with compulsory

localization programs involving huge

investment in automotive industry, where your

company supplies batteries in bulk without a

concessionary regime.

However, the Ministry of Industries,

Government of Pakistan, duly supported by an ....

expert view on WTO, believe on continuing with

the existing policy. The Ministry has thus

approached the WTO in this respect. The

Ministry' s approach, if implemented, will have

afar-reaching effect on the trade and other

related industries as a whole. Some countries

have recently obtained such extensions and

exceptions. Whatever the case, there is a need

to protect the huge investment made in this

behalf in the industry, in the larger interest of

the country.

It is generally felt by the automotive sector and

various other trade bodies also that Pakistan

like other developing countries should take up

such matters that hurt its industry and trade

at the next round of WTO multilateral trade

negotiations particularly as according to

Andy Rowel, a well known economic writer

"WTO represents 1% of I (0.01%) of the

richest corporations and individuals in the

world ....… and last decade saw increase of

wealth 70 to 85% in the richest 20 countries

as against 2% decline in the 20 poorest

countries of the world". The World Bank Chief,

James Wolfensohn, further reinforces to say

"...the searing image of desperation,

hopelessness and decline - of people who once

had hope, but will have it no more..." if the present

globalization of economy persists in its present

form!

Further, The Wall Street Journal of November

12-13, 1999 in its editorial wrote:" .. Michel

Camdessus .… has given us all something

serious to talk about .… Not least is just what

is the proper role of the International Monetary

Fund .… in the past year, individuals calling

for the abolition of the IMF have included

George Shultz, William Simon and Walter

Wriston .… their utter seriousness about

maintaining a sound system of global

finance and trade .… the truth is that the IMF,

in its current exalted incarnation, deserves a

sober reassessment from its primary funding

members of its ability to perform that function

…. The IMF also needs to get rid of its bias

toward devaluation, which is supposed to

"revive" exports even as the inevitable,

resulting inflation quickly diminishes the

resident population' s incomes and assets.

Impoverishing people in this way is morally

indefensible and politically unsustainable ....

All this needs a thoughtful consideration in

the interest of the world economy, itself.

HUMAN RESOURCES

The Group Personnel Committee headed by the

Chairman is continuously working to make

personnel policies which will carryforward to

the new millenium. Atlas Group of which your

company is a constituent member believes that

it is through motivated employees that the

company can sustain growth and good governance.

The Group believes in that it is the

intellectual capital which leads to the

sustained growth. The human resource

development has been the hallmark of the

Atlas Group. The Group has thus engaged

Hay's management consultants for job

evaluations to enable the Group to restructure

among others, compensation for employees

according to their contribution in meeting the

company's objectives. Performance bonus has

been introduced as also Group Medical Scheme

for self and families.

The charter of demands has been settled.

Consequently working hours have been

increased resulting in increased capacity and

productivity.

84 persons earned Long Service Awards

during the year.

FUTURE OUTLOOK

Globalization of the economy, as it is, is

being widely questioned. It thus needs

harmonization in the interest of the world

economy as a whole. The next WTO meeting

being held in USA must address this issue and

I hope developing countries generally and

Pakistan particularly will be given a

thoughtful consideration.

The Government has encouraged a team of

representatives of the Private Sector to join

their discussion with their official delegation

for the deliberations on WTO at the WTO

meeting at Seattle., USA.

Internally, recession is expected to persist and

the growth will be adversely affected

including through smuggling and re-plating.

There will be a fierce competition and all

existing players will make all efforts to retain

or improve their market share. All this will

create greater pressure on cost-push, working

capital and on profit.

The future of the entire industry and of your

company thus will depend very much on

economic revival and prosperity in the

country, which can be achieved through

consistent long term economic policies in

harmony with the global approach dovetailed

with national priorities.

However, your company will exercise control

on rejections, wastages and general expenses,

effective utilization of resources and for

better quality of product for customers'

satisfaction. Your company with expanded

capacity, improved productivity and quality is

ready to meet the challenges and the endeavor

of the management will be to deliver an

improved performance to the satisfaction of

stakeholders in the company as a whole:

Apni dunyia aap pahda kar agar zandoo main hai.

(In self reliance lies the survival!)

ACKNOWLEDGEMENT

I thank the Board of Directors, Group

Executive Committee members, the Chief

Executive Officer, Mr. Vazeer Ali, his team and

all members of the staff and workers of the

company for their dedicated efforts and

valuabte contribution. I also thank the Japan

Storage Battery Company, our Joint Venture

partners for their technical support and the

CBA for their positive role and valuable

contribution.

I am also thankful to the shareholders, banks,

and financial institutions for the confidence

reposed in us and their help and support

extended to the company.

YUSUF H. SHIRAZI

DIRECTORS' REPORT

The Directors have pleasure in presenting 33rd Annual Report together with the Audited

Accounts and Auditors Report thereon for the year ended June 30, 1999.

Financial results are as follows:

Rs. In 000

1998

1999

Profit before taxation

36,208

31,458

Provision.for taxation

Current

9, 500

10,236

Prior Year

351

Deferred

1,964