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Atlas Honda Limited
	(Annual Report 1995-96)
	CONTENTS
Corporate Data				2
Notice of Annual General Meeting				4
Chairman's Review				5
Listed Companies Distributions				9
Directors' Report				10
Auditors' Report to the Members				11
Balance Sheet				12
Profit & Loss Account				13
Statement of Changes in Financial Position				14
Notes to the Accounts				16
Pattern of Shareholding				34
Proxy Application
	CORPORATE DATA
BOARD OF DIRECTORS:
CHAIRMAN
Mr. Yusuf H. Shirazi
DIRECTORS
Mr. Aamir H. Shirazi
Mr. Sherali Mundrawala
Mr. Aitzaz Shahbaz
Mr. Satoshi Toshida
Mr. Takemi Ishikawa
Mr. Sheikh Jahangir
Company Secretary
Mr. Saleem Ahmed
GROUP EXECUTIVE COMMITTEE:
CHAIRMAN
Mr. Yusuf H. Shirazi
MEMBERS
Mr. Aamir H. Shirazi
Mr. Frahim Ali Khan
Mr. Iftikhar H. Shirazi
Mr. Jawaid Iqbal Ahmed
Secretary
Mr. Amjad Hussain
GROUP PERSONNEL COMMITTEE:
CHAIRMAN
Mr. Nasim S. Mirza
GROUP AUDIT COMMITTEE
CHAIRMAN
Mr. Sanaullah Qureshi
COMPANY MANAGEMENT
CHIEF EXECUTIVE OFFICER
Mr. Aamir H. Shirazi
TECHNICAL DIRECTOR
Mr. Takemi Ishikawa
DIRECTOR FINANCE
Mr. Saleem Ahmed
GENERAL MANAGER MARKETING
Mr. Nurul Hoda
GENERAL MANAGER HUMAN RESOURCES
Mr. Zamir Haider
AUDITORS:
Hameed Chaudhri & Co.
Chartered Accountants
LEGAL ADVISORS:
Mohsin Tayebaly & Co.
TAX ADVISORS:
Mahmood Law Associates
BANKERS & LENDING INSTITUTIONS:
BANKERS
Bank of Tokyo-Mitsubishi Limited
Banque Indosuez
Deutsche Bank AG
Emirates Bank International Limited
Muslim Commercial Bank Limited
National Bank of Pakistan
United Bank Limited
LENDING INSTITUTIONS
National Investment Trust Limited
National Development Finance Corporation
REGISTERED & HEAD OFFICE:
1-McLeod Road, Lahore-54000
Tel: (92-42) 7225015-17, 7233515-17
Fax: (92-42) 7233518
FACTORIES:
KARACHI
F-36, Estate Avenue, S.I.T.E.,
Karachi-75730
Tel: (92-21) 2575561-65
Fax: (92-21) 2563758
SHEIKHUPURA
26-27 KM, Lahore-Sheikhupura Road,
Sheikhupura-39321
Tel: (92-4931) 6655-57, (92-42) 7222222
Fax: (92-342) 354111
BRANCH OFFICES:
MULTAN OFFICE
Azmat Wasti Road, Multan
Tel: 31990, 571989, 72028
RAWALPINDI OFFICE
Room 9, 2nd Floor
Sunny Plaza, Chandni Chowk,
Murree Road, Rawalpindi
Tel: 455328
Fax: 847928
SHOW ROOM
West View Building,
Preedy Street, Saddar, Karachi.
Tel: 7720833, 7727607
SPARE PARTS DIVISION
D-181/A, Shershah Road,
S.I.T.E., Karachi
Tel: 2561615-16, 293929-30
WARRANTY & TRAINING CENTRES
7-Pak Chambers,
West Wharf Road, Karachi.
Tel: 2310142
10-C, Main Road,
Gulshan-e-Ravi, Lahore
Tel: 7463108
Azmat Wasti Road,
Multan
Tel: 72028
	NOTICE OF ANNUAL GENERAL MEETING
The Thirty Second Annual General Meeting of the Company will be held on Monday, 2 December
1996 at 10.30 A.M. at 1-McLeod Road, Lahore to transact the following business:
1. To confirm the Minutes of the Thirty First Annual General Meeting held on 26 December, 1995
and Extra-Ordinary General Meeting held on 18 March, 1996.
2. To consider and adopt the Audited Accounts of Atlas Honda Limited together with the
Directors' and Auditors' reports for the year ended 30 June, 1996.
3.(a) To consider and approve the recommendation of Directors for a dividend of 15%
(Rs. 1.50 per share ) for the year ended 30 June , 1996 and for 10% Bonus issue
(One fully paid-up share for every ten shares held.)
(b) To consider and, if thought fit, pass with or without modification(s) the following:
Ordinary Resolution:
(i) "Resolved that a sum of Rs. 12,064,237 out of Company's Profits be capitalized for
issuing 1,206,423 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 20 November, 1996 in the proportion of one share for every ten
shares held by a member. The said shares shall rank pari passu with the existing shares
of the company as regards future dividends, & 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
& 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 Auditors for the year 1996-97 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.
N.B. Shareholders are requested to take note of the following:
BOOK CLOSURE
The share transfer book of the Company will be closed from 21 November, 1996 to 2 December,
1996 (both days inclusive).
PROXY
1. 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.
2. No person shall act as proxy unless he is member of the Company.
3. Signature of shareholder on Proxy Application must agree with the specimen signature
registered with the Company. Appropriate revenue stamp should be affixed on the Proxy
Application.
4. For the convenience of the shareholders a Proxy Application format is attached with
this report.
5. Shareholders are requested to immediately notify the Company of any change in their
addresses.
	CHAIRMAN'S REVIEW
I have great pleasure to welcome you to the
32nd Annual General Meeting of the Company
and to present the Annual Accounts for the year
ended 30th June, 1996.
THE INDUSTRY
Conditions in the Motorcycle Industry were
generally favourable during the period under
review. There was growth in the demand. The
market size increased from 76,000 units to
116,000 during 1995-96. These figures include
those of three new entrants: two Chinese and
one Turkish. The size of the market could have
been larger, but for the 7% devaluation of the
currency and the 10% regulatory duty imposed
during the second quarter of the year under
review including the impact of the subsequent
Federal Budget 1996-97 which amounted to
Rs.1,950, the total price on an average went up
by Rs.6,300 per motorcycle during the year. With
the arrival of the cotton crop, liquidity improved
in the market and the Industry saw an upswing
in the demand at the retail level. The growth to
a large extent was confined to the cotton growing
areas of upper Sindh and Southern Punjab. The
large business centres of the country did not
perform as well.
In order to compete in the market, your Company
continued to focus on its competitive advantage
of having the biggest production capacity and
the largest network of the motorcycles, parts
and service dealers. The production flow
remained smooth and stocks were freely
available, especially during the peak season.
Your Company revamped the dealer network
and redesigned dealer shops in order to
emphasize customer friendliness and service
during the year. Dealers' value added selling
technique was introduced, emphasizing the
advantages of 4-stroke Honda technology, best
fuel economy, maintenance free and environment
friendly engine. It resulted into our (CD) 70 CC
selling at prices higher than those of 80 CC and
100 CC motorcycles belonging to the competing
brands. Our (CG)125 CC reinforced our market
strategy of selling quality product at higher prices
together with the (CD) 70CC. The Company
maintained its leadership, as in the past, with a
market share of 58% during the year.
OPERATING RESULTS
The Company's sales for the year ended 30 June
1996 were a record Rs.3.092 billion against
Rs.1.879 billion of 1994-95 showing a substantial
growth of 64.56%. The profit before tax was also
a record Rs.176.077 million against the preceding
year's profit of Rs. 24.5 million. The gross profit
ratio for the year stood at 10.94% against 8.72%
of the preceding year.
Those increases were made possible by the
Company's cost control measures, with a stable
dollar-yen exchange rate and a higher volume.
Marketing expenses increased from Rs. 55.100
million of 1994-95 to Rs.71.717 million in line
with increase in sales by 46% to 64,860 units
against 44,390 units in the previous year. Through
better cash and inventory management, financial
expenses for the year under review were reduced
to Rs. 36.136 million from Rs.56.200 million of
1994-95 showing a reduction of 35.70%. Your
Company achieved ROE of 35.29% and EPS of
Rs. 8.41% after tax.
Your Company was set up in 1964 with a paid
up capital of Rs. 2 million. The paid up capital
now is Rs.120.642 million. The reserves including
un-appropriated profits are at Rs.166.889 million;
the total equity stands at Rs.287.531 million. The
bonus issues stand at Rs.66.586 million and a
right issue at Rs. 52.120 million. The equity of
Rs. 287.531 million is after payment of cash
dividend of Rs.92.676 million by June, 1996. The
current value of the share is quoted at Rs.27.00
inspite of the depressed Stock Exchanges.
The Atlas Group's equity, of which your Company
is a constituent member, stand at Rs.1,751.625
million on June 1996: the bonus issues are at
Rs.170.317 million and right issues at Rs.126.895
million. The cash dividends paid are at
Rs.195.931 million.
EXPORT
Export opportunities were also developed during
the year. A team visited Bangladesh, Nepal, Sri
Lanka, the Middle East and Central Asian States,
all territories which Honda has allowed us for
export. The initial efforts have been quite
encouraging. It is a matter of satisfaction that
Honda recognizes the Company's product as of
the same quality as that of Japan, and as such,
has allowed our exports under the brand name
of "HONDA".
MARKET EXPANSION
Our economic planners continue to rely upon
devaluation as the only policy measure to jump
start the economy and perhaps also hold the
notion that exports are highly price elastic. In
retrospect, however, devaluation has thus far
failed to help control deficit financing, reduce
balance of payment deficit and minimize inflation.
In fact, Pakistan's economy which depends on
import of wheat, edibles, kitchen consumables,
such as, a'aloo dual and mirch-masala (i.e.
potatoes, pulses, and spices); as also imports
of plant, machinery and equipment; spare parts
and industrial raw materials finds itself further
burdened by the monumental external and
internal debt and an ever increasing cost of living.
The successive devaluations coupled with the
withdrawal of all subsidies on utilities has thus
far resulted in considerable cost push pressures.
Our economic solution lies in hi-tech investment,
hi-tech production, hi-tech employment and value
added exports. The solution also lies in reducing
the revenue expenditure, and in the expansion
of demand and supply rather than resorting to
devaluation which increases the cost of
production, resulting in cost increases which
shrink markets, curtailing customer's buying
power. According to the World Bank's own report
in 35 out of 46 countries the recipe of the IMF
has failed. A little success in others, mostly small
countries has been quite marginal. This IMF
recipe has also resulted in contracting the markets
in Pakistan particularly for lower and middle
classes using motorcycles. But for successive
devaluations and lack of hi-tech investment
and production and export, the motorcycle market
should have been about 500,000 units according
to an estimate built upon the growing middle
class, against a little over 100,000 units now. It
is high time that we have the right approach,
which expand markets and provides for less
costly necessities like cycles and motorcycles,
a phenomenon in all the growth oriented
economies now in the world.
HIGH TAX INCIDENCE
Inspite of the fact that a motorcycle is the common
man's transport, it continues to attract one of the
highest tax incidence. The customers today pay
approximately Rs. 16,500 to Rs.20,000 or about
30% of the retail price to Government in the
shape of taxes which is indeed a high levy for a
man of modest means. A part from heavy taxes
on import, 5% deduction of presumptive tax at
source is really harsh. Recent 8.5% devaluation,
2% pre-inspection charges on import further
escalated the cost of motorcycle by Rs. 3,000.
In the region, where the prices are cited as
cheaper than in Pakistan, all such taxes are
nominal. The sale tax ranges from 5% to 7.5%.
There is no presumptive tax and incentives for
investment are income based and export oriented.
The present market for 2 wheelers in India is
now about 2.2 million i.e. 22 times that of Pakistan.
The Government has undertaken a study to
examine these issues, but has been silent on it
since receiving it. It is high time that we rationalize
taxes on the means of a common man's transport.
In case of the Motorcycle Industry, all taxes
should not be more than those in the region, if
not less. In order to make the motorcycle more
affordable for the common man, the Government
may, at least, consider reducing sales tax from
the existing high rate of 18% down to 5%, abolish
the regulatory duty of 10%, allow raw materials
import at zero rate of duty, no deduction of tax
at source on presumptive income and exempt
spare pads locally made from taxes as was the
case before the Federal Budget 1996-97.
Cost pressures on account of high taxation and
other factors in the past have led to an increase
in the price of motorcycles and thus squeezed
the market. (By the regional standards of per
capita motorcycles sales, our market size as
suggested above, should be ten motorcycles for
one car i.e. about 500,000 units against the
existing volume of about 100,000 units). We are
a nation of 131 million people. Only lower and
stable tax incentives, a hi-tech export based
investment policy, and an apt marketing strategy
will expand markets, enhance prosperity and
create high revenues for the Government
exchequer: Nothing else !
DELETION POLICY
Your Company has a policy of pursuing
indigenization of components in order to reduce
reliance on imports, reduce exposure to exchange
rate fluctuations for ultimate price stabilization
and develop broad based technology. Your
Company has already done much in this respect.
Currently it is focused on developing joint ventures
and technical ties between local part makers with
their Japanese counterparts. Some of these
technical assistance agreements between
Japanese and Pakistani vendors have been
arranged and others are in the offing.
For in-house manufacturing, your Company has
undertaken the deletion of Gear Sets at a total
investment of Rs.210.00 million. Our Japanese
friends will provide suppliers credit on the total
machinery & equipment being imported at a cost
of Rs.110.00 million. The balance of the cost will
be met locally. Honda has played a pivotal role
in this project by extending full cooperation,
guidance and help in terms of planning, arranging
finances and technical support.
In order to strengthen the engineering industry,
vendor development and a regulated tax regime,
protection through tariff measures, among others,
and duty free import of raw materials will have
to be established. In developed countries deletion
programs were implemented aggressively to
achieve their present extremely envious industrial
status. We strongly feel that we need to push
deletion programs in the country so as to achieve
fuller deletion in comparative circumstances
without resorting to the IMF advice of tariff based
incentive only without monitored protection which
in turn will result in a set back to the deletion
program.
ATLAS PHILOSOPHY AND
FUTURE OUTLOOK
Atlas believes in slow, but steady consistent
growth. We have travelled a long way to achieve
what it is today. Steady growth based on sound
management practices has been the hallmark
of the Atlas Group. It firmly believes in what
William G.Jordan said:
"Everything that is greater in life is the
product of slow growth; the greater and higher,
the nobler the work, the slower the growth,
the surer is its lasting success. Mushrooms
attain their furl power in a night; Oaks require
decades."
Leaning backward we look forward to the future
with optimism and expect an expanded market.
However, the fiscal year 1996-97 is fraught with
rupee devaluation, cost increases and all round
inflation. Therefore, local internal operational
efficiency, particularly in production and general
cost controls together with Honda's help in such
circumstances will be imperative. Your Company
has already recognised these issues and will
continue to focus on excellence in the product
quality, market strategy and overall good
management so as to maintain the leading market
share.
There is a lot of talk of opening of trade with
India, an economy many times larger and more
incentive based than ours. We thus have to take
a very cautious and calculated approach. Let us
be discreet in such matters; Otherwise, Pakistan's
economy may suffer considerably. Due
safeguards must be ensured for continued
investment in indigenous industry, increased
employment, and higher export opportunities
particularly in the engineering industry.
ACKNOWLEDGEMENT
Mr. Aamir H. Shirazi, the Chief Executive Officer,
has built a strong team of managers and
workers. They have achieved record sales, profit,
ROE and EPS for the Company despite many
constraints. They have set the pace for future
growth particularly emphasizing priority to higher
deletion in which a major investment has been
undertaken. It is with local deletion that the market
will expand and prices will stabilize and immune
to the ever diminishing rupee value.
At Atlas Honda there is a cohesive team, real
organisation builders and good strategies; and,
as such, harvesting rich dividends:
(The waves are in the sea, not out of the sea!)
I must also acknowledge the contribution made
by Mr. H. Nakagawa, Technical Director, now
recalled by Honda after completing his term with
meritorious accomplishment. He contributed
immensely to the Production Systems and
methods , productivity , deletion and quality
assurance. Without his contribution the plants at
Karachi and Sheikhupura would not have been
at the high level as they are today. Mr. Nakagawa
has been replaced by Mr. T. Ishikawa as the new
Technical Director. Mr. Ishikawa has rich and
varied experience of the type now needed by
Atlas-project development, productivity and cost
control in the present internal and external setting,
systems and methods for in-house and out-house
production and, more so, fostering vendor to
vendor reinforcement of relations in Japan and