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Pak Suzuki Motor Co. Limited

(Annual Report 1996)

Company Profile

COMPANY INFORMATION

BOARD OF DIRECTORS

Hirofumi Nagao

Chairman & Chief Executive

Capt. (Retd) Bashir Ahmed

Director

S. G. Abbas

Director

Razi-ur-Rehman Khan

Director

Abdul Latif Uqaili

Director

Osamu Iizuka

Director

Qaiser Sultan

Director

Katsumi Saruta

Director

Col. (Retd) Mir Saadatullah

Director

COMPANY SECRETARY

Abdul Hamid Bhombal

AUDITORS

Sidat Hyder Qamar Maqbool & Co.

Chartered Accountants

BANKERS

Deutsche Bank AG

Habib Bank Limited

Habib Credit & Exchange Bank Limited

Muslim Commercial Bank Limited

National Bank of Pakistan

National Development Finance Corporation

The Bank of Tokyo-Mitsubishi Limited

LEGAL ADVISORS

Syed Qamaruddin Hassan

Industrial Relations Advisor

Orr Dignam & Company

Advocates & Legal Consultants

REGISTERED OFFICE

DSU-13, Pakistan Steel Industrial Estate,

Bin Qasim,

Karachi.

REGISTRAR

Ferguson Associates (Pvt) Limited

State Life Building l-A,

I.I. Chundrigar Road,

Karachi

NOTICE OF MEETING

Notice is hereby given that the Thirteenth Annual General Meeting of the shareholders of

Pak Suzuki Motor Company Limited will be held at Avari Towers, Fatima Jinnah Road,

Karachi on Thursday November 21, 1996 at 3.00 p.m. to transact the following business:

1. To confirm the minutes of Twelfth Annual General Meeting held on December 24, 1995.

2. To receive, consider and adopt the audited accounts of the Company for the year ended

June 30, 1996 together with directors' and auditors' reports thereon.

3. To approve payment of cash dividend to the shareholders @ Re. 0.70 (7%) per share

of Rs. 10/- each.

4. To appoint auditors and fix their remuneration for the year ending June 30, 1997.

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

Notes:

1. The share transfer books of the company shall remain closed from November 14, 1996

to November 21, 1996 (both days inclusive) for entitlement of Dividend and no transfer

will be accepted for registration during this period.

2. A member entitled to attend and vote at this meeting may appoint another person as

his/her proxy to attend the meeting and vote for him/her. Proxies in order to be effective

must be received by the Company not less than 48 hours before the meeting.

3. Shareholders are requested to notify the change in their addresses, if any, immediately

to our Registrar Ferguson Associates (Pvt.) Limited, State Life Building l-A, I. I. Chundrigar

Road, Karachi.

HIGHLIGHTS OF THE ACCOUNTS

FOR THE YEAR ENDED JUNE 30, 1996

Increase / (Decrease)

1996

1995

Amount

(Rupees in thousand)

Net sales

7,904,301

5,703,785

2,200,516

38.60

Sales volume (units)

28,217

25,336

2,881

11.40

Gross profit

917,709

297,753

619,956

208.20

as a % of net sales

11.6

5.2

6.40

Expenses

-- Selling & admin.

145,239

97,812

47,427

48.50

-- Financial & other

charges

127,644

182,748

(55,104)

(30.2)

-- Total

272,883

280,560

(7,677)

(2.7)

as a % of net sales

3.5

4.90

(1.4)

Other income

98,435

92,199

6,236

6.80

as a % of net sales

1.2

1.60

(0.4)

Profit before taxation

743,261

22,828

720,433

as a % of net sales

9.4

0.40

9.00

Profit/(loss) after taxation

574,502

(5,918)

580,420

as a % of net sales

7.3

(0.1)

7.40

Production volume (units)

28,040

22,202

5,838

26.30

Stocks

1,694,591

1,532,472

162,119

10.60

as a % of net sales

21.40

26.90

(5.5)

number of days stock held

103

(15)

inventory turn over ratio

4.10

3.50

Cash and bank balances

489,922

455,508

34,414

7.60

Advances from customers

905,018

2,063,957

(1,158,939)

(56.2)

Pending orders

28,204

44,869

(16,665)

(37.1)

Shareholders' equity

1,081,313

541,203

540,110

99.80

Debt Equity ratio

13:87

33:67

Current ratio

1.04:1

0.92:1

Profit/(1oss) per share

11.70

(0.12)

Break-up value per share

22.00

11.02

Number of permanent

employees -- Officers

225

221

1.80

-- Staff/workers

327

319

2.50

-- Total

552

540

2.20

CHAIRMAN'S REVIEW

I am pleased to present annual report for the year

ended June 30, 1996.

OPERATING RESULTS

The Company earned net profit after tax of

Rs. 574.502 million against net loss of

Rs. 5.918 million incurred in the previous year.

Gross profit increased significantly from

Rs. 297.753 million to Rs. 917.709 million.

The increase in profitability resulted from

implementation of phase-wise increase of vehicle

prices after lifting of price controls in June 1994.

The company increased prices in phases so that

the market could absorb prices as reflected in last

year's annual report. This policy eventually paid-

off and the company, indeed turned the corner.

Sales revenues increased substantially from

Rs. 5.7 billion to 7.9 billion and sales volume

increased from 25,336 units of last year to 28,217

units in the current year.

Selling and administration expenses increased

from Rs. 97.812 million to Rs. 145.239 million and

as a percentage of sales from 1.71% to 1.84%. The

main factors which contributed to the increase

were salaries, depreciation, conveyance &

travelling and advertising & sales promotion. In

view of higher inflationary pressures on the

economy and competition in the automobile

industry, the Company had to incur more on

advertising and sales promotion.

Other income improved from Rs. 92.199 million

to Rs. 98.435 million. Financial and other charges

decreased from Rs. 182.748 million to Rs. 127.644

million. The drop in financial and other charges

was due to the improvement in liquidity as a

result of issue of right shares in May 1995,

improvement of profitability and decrease in

pending booking of vehicles.

In view of brought forward tax losses, Company

provided only for turnover tax on account of

current taxation. If there had not been un-absorbed

brought forward tax losses, the provision for

current taxation would have been Rs. 252 million

and accordingly net profit after tax would have

reduced to Rs. 363 million.

MARKETING

The company was able to sell practically all

vehicles produced during the year in a depressed

market. This was achieved through aggressive

advertising and sales promotion strategies

implemented during the year. The management

is aware of the competition which Company

products may face with the entry of new

automobile assemblers and products.

PRODUCTION

The production volume increased drastically by

26%. During the year 28,040 units were produced

against 22,202 units produced in the previous

year. The production level was below production

capacity. The under utilization of capacity was

mainly attributable to erratic supply and quality

problems of some vendorised parts.

PERSONNEL

Labour management relations continued to

remain cordial and industrial peace prevailed

during the year. The CBA served a new charter of

demand for the period July 1996 to June 1998. The

management commenced negotiations with the

CBA.

DELETION

The Company has been following the deletion

programme approved by the Government and

is making all endeavours to continue to meet

the deletion targets for future years. In October

1995, the Government of Pakistan constituted

the Engineering Development Board on which

Pak Suzuki is also represented. The objective

of the Board is to review deletion programmes

to make them Industry Specific in order to

accelerate pace of indigenisation. Pak Suzuki

would continue to assist vendor industry to

enhance its technological levels to international

standards at economically viable prices.

Possibilities of technical co-operation/

collaboration with the Japanese vendors are being

explored and encouraged. Technical assistance

wherever necessary continues to be provided

to local vendors for acquiring high technology.

ECONOMIC CONTRIBUTION

Despite adverse factors, the Company maintained

its distinctive position as a leading contributor in

the automobile industry to the public exchequer.

The duties and taxes paid and the foreign exchange

saved by Company in its last five years of

operations are as follows:

Year

Duties

Foreign

and

exchange

taxes

savings

(Rupees in million)

1991-92

1,768

1,619

1992-93

1,475

1,581

1993-94

1,157

1,033

1994-95

1,804

1,581

1995-96

2,600

2,555

WASTE WATER TREATMENT PLANT

In compliance with Government's policy to control

environment pollution, the Company set up it's

waste water treatment plant at a cost of Rs. 40

million. The treatment plant commenced

operation in June 1996.

EQUITY/INVESTMENT OF SUZUKI MOTOR

CORP. JAPAN

Subsequent to June 1996, PACO in compliance

with Government's policy of dis-investment sold

its remaining shareholding to Suzuki Motor

Corporation, Japan (SMC) in accordance with the

terms o f Joint Venture Agreement between PACO

and SMC entered into in June 1982. As a result, the

Joint Venture Agreement came to an end.

Presently SMC's shareholding in the company

stands at 72.8%. Since privatization SMC brought

in foreign investment equivalent to Pak Rs. 991.75

million.

CONCLUSION/PROSPECTS

The Regulatory Duty on imports imposed in

October 1995 was not abolished by the

Government as earlier programmed. On the other

hand, the Government increased custom duties

on cars as well as sales tax on all products through

the 1996-97 budget. The imposition of Capital

Value Tax (CVT) on vehicles upto 1000 cc for

non-tax payers and enhanced rates for those

above 1000 cc have seriously affected sales and

production. The outcome of this levy has tangibly

depressed demand. As a result sales volume in

the first quarter of 1996-97 dropped as compared

to the preceding quarter. The company has urged

the Government through Pakistan Automotive

Manufacturers Association (PAMA) to review

and rationalise the sliding scale of CVT, since

this is an obstacle to the growth of the industry

and the economy.

Company's key objectives continue to remain:

-- To provide automobiles of international

quality at reasonable prices.

-- To improve skills of employees by imparting

training and by inculcating in them a sense

of participation; and

-- To abide by the deletion policy of the

Government, achieve maximum

indigenisation and promote the automobile

vending industry.

I thank the Company's management, executives,

workers, dealers, vendors and the experts of

Suzuki Motor Corporation for their efforts and

valuable contribution to the affairs of the

Company. I am also grateful to the Federal and

Provincial governments for their continued

support and guidance.

DIRECTORS' REPORT

The Directors of the Company take pleasure in submitting their report with audited

accounts of the Company, together with auditors' Report thereon, for the year ended

June 30, 1996.

ACCOUNTS

(Rs. in 000)

Profit after taxation

574,502

Accumulated loss brought forward

(534,111)

---------

Profit available for appropriation

40,391

Less: Appropriation

Proposed cash dividend @ 7%

34,392

---------

Unappropriated profit carried forward

5,999

==========

3. CHAIRMAN'S REVIEW

The Chairman's review on page 7 to 9 deals with the year's activities and the

directors Of the Company endorse the contents of the same.

4. PATTERN OF SHAREHOLDINGS

The pattern of shareholdings is given on page 43.

5. BOARD CHANGES

5.1 Mr. Javed Burki resigned as Chairman and Director consequent to termination

of the Joint Venture Agreement between SMC Japan and PACO as a result

of disinvestment of shares by PACO.

5.2 Mr. Hirofumi Nagao has been appointed as Chairman in place of Mr. Javed

Burki.

5.3 Mr. Razi-ur-Rehman Khan replaced Mr. Asadullah Sheikh who resigned.

6. AUDITORS

Messrs Sidat Hyder Qamar Maqbool & Co., Chartered Accountants retire and being

eligible offer themselves for appointment as the auditors of the Company for the

year 1997.

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of Pak Suzuki Motor Company Limited as at

30 June 1996 and the related profit and loss account and statement of changes in financial

position, together with the notes forming part thereof, for the year then ended and we state

that we have obtained all the information and explanations which to the best of our knowledge

and belief were necessary for the purposes of our audit and, after due verification thereof,

we report that:

(a) in our opinion, proper books of account have been kept by the Company as required

by the Companies Ordinance, 1984;

(b) in our opinion:

(i) the balance sheet and profit and loss account together with the notes thereon have

been drawn up in conformity with the Companies Ordinance, 1984 and are in

agreement with the books of account and are further in accordance with accounting

policies consistently applied;

(ii) the expenditure incurred during the year was for the purposes of the Company's

business; and

(iii) the business conducted, investments made and the expenditure incurred during

the year were in accordance with the objects of the Company;

given to us, the balance sheet, profit and loss account and the statement of changes

in financial position, together with the notes forming part thereof, give the information

required by the Companies Ordinance, 1984 in the manner so required and respectively

give a true and fair view of the state of the Company's affairs as at 30 June 1996 and

of the profit and the changes in financial position for the year then ended; and

(d) in our opinion no zakat was deductible at source under the Zakat and Ushr Ordinance,

1980.

BALANCE SHEET

AS AT JUNE 30, 1996

1996

1995

NOTE

(Rupees in thousand)

SHARE CAPITAL AND RESERVES

Authorised share capital

150,000,000 (1995: 50,000,000) ordinary

shares of Rs. 10/- each

1,500,000

500,000

=========

Issued, subscribed and paid-up share capital

491,312

Reserves

584,002

Unappropriated profit/(loss)

5,999

(534,111)

---------

Shareholders' equity

1,081,313

541,203

LIABILITIES

Deferred taxation

19.2

126,000

Long-term liabilities

402,463

779,264

Current liabilities

2,896,613