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ATLAS BATTERY LIMITED
ANNUAL REPORT 1997
		Atlas Battery Limited
		MISSION STATEMENT
		To achieve Market Leadership through
		Technological Edge, distinguished by Quality,
		Service and Customers' Satisfaction,
		emphasis on employees Long Term Welfare and
		ensure adequate Return to Shareholders.
		Be a Good Corporate Citizen.
		Contributing to development of the Society and
		the Country through Harmonised Endeavour.
Contents
Company Information
Notice of Meeting
Chairman's Review
Directors' Report
Five Years at a Glance
Graphic Illustration
Auditors' Report
Balance Sheet
Profit & Loss Account
Cash Flow Statement
Notes to the Accounts
Atlas Group Companies
Pattern of Shareholding
Company Information
Chairman
Yusuf H. Shirazi
Directors
Aitzaz Shahbaz			M. Iwai
M. Habib-ur-Rahman			Shahid Anwar
Iftikhar H. Shirazi			Vazeer All
Chief Executive
Vazeer Ali
Secretary
M. Atta Karim
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 Pakistan
Muslim Commercial Bank Limited
Credit Agricole Indosuez
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 10.00 a.m. on Wednesday, December 17, 1997 at 8th Floor,
Adamjee House, I.I. Chundrigar Road, Karachi to transact the following business:
ORDINARY BUSINESS
1. To confirm Minutes of the Last Annual General Meeting held on December23, 1996.
2. To consider and adopt the audited accounts of the company for the year ended
June30, 1997 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 12.5% (Rs. 1.25pershare)for the year ended June 30, 1997.
4. To consider and if thought fit pass with or without modification the following as Ordinary
Resolution.
4.1 "Resolved that a sum of Rs. 1,725,000 out of the free reserves of the company be capitalised
for issuing 172,500fully 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 December 08, 1997~@ 7.5% in the proportion of three Ordinary Shares for
every forty shares held. The said shares shall rank pari passu with the existing shares of
the company as regards future dividend, and in all other respects.
4.2 "Resolved further that the bonus shares entitlement infractions be consolidated and sold by
the Directors on the Stock Exchange and proceeds thereof, be distributed to the respective
shareholders according to their entitlement.
5. To appoint Auditors for the year 1997-98 and fix their remuneration.
6. To transact any other business with the permission of the Chair.
Notes:
1. The Share Transfer Books of the Company will remain closed from December 09,
1997 to December 17, 1997 (both days inclusive). Transfers received in order at
the registered office of the company by December08, 1997 will be in time for the
purpose of entitlement for payment of the dividend to the transferee.
2. 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.
3. 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:
1. The Directors have recommended to issue 172, 500 Bonus Shares of Rs. 10/- each by capitalizing
Rs. 1,725,000from the profit of the company.
Chairman's Review
It gives me great pleasure to present to you
the 31st Annual Report and review the
performance of your Company for the year
ended June 30, 1997.
THE ECONOMY
The Fiscal Year 1996-97 was one of the
most difficult years in the economic history
of Pakistan. Most economic indicators
showed a declining trend. During the year,
the GDP growth was 3.1%, a drop against
the growth of 6.4% during 1995-96.
Agriculture, the largest contributing sector,
showed a negligible growth of O. 7% as
against 5..3% in the preceding year. The
growth of the manufacturing sector was
1.8% compared with 4.4% during the last
year. The large scale manufacturing
registered a decline of 1.4%. Heavy
taxation, high prices of raw materials,
escalating cost of loans and high utility
charges were the main reasons which
impeded the growth of the industrial sector.
Despite the imposition of additional taxes
of Rs. 40.8 billion in the Budget 1996-97
and a further Rs. 13.0 billion through
another tax packages announced in
October 1996, the fiscal deficit widened to
6.2% of GDP as against the Budget target
of 4.0%. Inflation during the year increased
to 11.6%. The rupee devalued by 15%,
utility tariffs increased by 6.25% and
revision in sales tax from 15% to 18%
increased the cost of production. The high
deficit financing at 6.3% contributed
substantially to the inflationary impact of
11.6%. As a result, the balance of payment
came under pressure during the year. The
exports decreased by 5.4%, imports
decreased by 1.479/0 and the trade deficit
increased to $ 3.37 billion.
The slowdown of the economy was also
reflected in the quantum index numbers for
import of machinery and transport
equipment. In the first three quarters of
1995-96, the index numbers were 344.5,
206.6 and 247.3for the respective quarters.
These figures were drastically down for
1996-97 and stood at 191.1, 186.4 and
146.5 respectively. The general wholesale
price index and the general consumer price
index kept rising and stood at 207. 76 and
196.96 respectively (base: 1990-91=100).
THE GROUP PERFORMANCE
The Atlas Group, of which your company is
a constituent member relies on intellectual
capital. Harmonizing human capital,
owners capital and market capital - the
Group image at the government, business
and international levels, remaining within
the bounds of law, morality and good
practices, is one of entrepreneurial brand
equity.
The Atlas Group is a diversified group
dealing in engineering, financial services,
trading, office equipment and information
technology. It consists of seven public
limited companies quoted on the stock
exchanges in Pakistan and six private
limited companies (vide annexure). Atlas
shareholder equity has grown to Rs. 2.0
billion over the years; assets have
increased to over Rs. 8.0 billion; personnel
strength is over 2500 and sales have
crossed the Rs.8 billion mark. The Group
paid taxes of Rs. 2.4 billion during the year
being 30% of the total turnover and your
Company's share of Rs. 168.0millionbeing
46% of the company's total sales, quite a
high percentage!
The total paid-up capital of the seven listed
companies stood at Rs. 855 million and free
reserves and surplus stood at Rs. 903
million: the total equity in listed companies
stood at Rs. 1,758 million. The break-up
value per share of Rs. 10/- worked out to
Rs. 20.56. Out of these seven companies,
two companies have been rated 'A+' and
three 'A' by the credit rating and other
evaluating agencies. Your company is
rated 'A+'. Your company is also ranked
46th among 5 77 industrial companies
(total 782 companies) listed on the Karachi
Stock Exchange.
The seven companies, set up at different
times - the earliest in 1963 with a paid up
capital of Rs. 2.0 million and the latest in
1993 with a paid up capital of Rs. 400.0
million - have paid cash dividend of
Rs. 244.28 million and bonus of Rs. 166.55
million (market value Rs. 404.43 million)
against the paid-up capital of Rs.855.15
million upto the year under review.
Your Company was set up in 1968 with a
paid up capital of Rs. 3.0 million which has
grown to Rs. 23.0 million. The total equity
is Rs. 63.50 million which includes reserves
and unappropriated profit of Rs. 40.50
million. During this period, the Company
made a right issue of Rs. 10.0 million at
par in 1989. It has issued bonus shares
of Rs. 10.0 million (market value Rs. 37.25
million @ Rs. 37.25 per share) and paid
cash dividend of Rs. 26.28 million upto
June, 1997 against the shareholders'
investment of Rs. 13.0 million.
THE BATTERY INDUSTRY
The state of the country' s economy had its
adverse impact on the organised sector of
the Battery Industry as well, which for the
first time, recorded a decline of 6%. General
economic recession, uncertain political
conditions, higher taxes on locally
manufactured batteries, reduction in duties
on imported batteries, influx of batteries
through the Afghan Trade Transit
Agreement without payment of Government
duties and taxes, unabated smuggling and
wide spread replating, which does not come
under the tax net, were the reasons for the
negative growth.
The Battery Industry is also facing the
anomaly of double taxation to the extent
that the excise duty is payable on the
battery as well as on some of its
components of in-house production, such
as, separators, which is one of the essential
battery components. Additionally, levy of
sales tax on raw materials at import stage
involves larger working capital, leading to
increase in financial cost.
These factors are rendering the Battery
Industry uncompetitive and causing loss
not only to the local manufacturers but also
to the Government revenue in the form of
reduced duties and taxes, which otherwise
would be a source of income to its
exchequer. The Government should take
remedial measures to correct the situation
and save the decline of revenue from the
organised taxes and duties paying Battery
Industry sector.
The installed capacity of the industry in
the organized sector is 1,350,000 units.
The unorganized sector is not less than 40%
of the total capacity. Irregular imports
through currently reduced duty and taxes,
continued under-invoicing, imports through
Afghan Trade and the production of the
so called cottage industry are in addition.
THE COMPANY'S RESULTS
Despite the economic recession and the
problems faced by the Battery Industry as
already stated, your Company achieved
sales ofrs.366.1 million against Rs.339.6
million in the preceding year, up by 7.8%,
as a result of price increase in the first
quarter of 1996-97 and a better sales mix.
The gross profit to sales ratio was lower
by 2.4% as compared to the last year.
Continuous cost push due to international
increase in prices of major raw materials,
devaluation of the Rupee and other
inflationary factors' impact led to an
increase in cost of sales by 11.2%, which
could not be passed on to the customers
due to the highly competitive nature of the
market. Thus, the gross profit margin
reduced to 20.2% of sales as compared to
22.6% in the preceding year.
The administration and selling expenses
as a percentage to sales were contained
at 12.1% as against 12.2% in the previous
year. Financial expenses increased to
Rs. 12.0 million as compared to Rs. 7.2
million in the preceding year. This was due
to the increase in the value of inventories,
owing to higher input cost, increase in
credit sales to Defence, Government
Institutions and OEM. Income tax
deduction at source in excess of actual tax
liability was to the tune of Rs.4.8 million
in addition to Rs. 1.8 million tied up in
appeals or pending appeal, which is
refundable.
All these factors have eroded our profit
margin. Thus, the profit before tax went
down to Rs. 18.2 million, compared to
Rs.27.2 million in the preceding year.
Inspite of this, the return on equity of your
Company stood at 28.6%for the year which
is higher than the other companies in this
sector and also the Battery Industry
average of 18.0%. The total industry equity
of the organized sector is Rs. 288 million
including your Company' s Rs. 63.5 million.
The average industry EPS was Rs. 4.55
against Rs. 7.90 of your Company.
HUMAN RESOURCE
Investment in people and human resource
development in the Atlas Group is a
continuous and self sustaining process. We
send people for higher education and
training to such institutions as Harvard
Business School, Stanford, Wharton School
of Finance and Economics, INSEAD,
Claremont, IMD, Notre Dame, Eton College,
IBA, LUMS and PIM. All the members of
our senior management team have had
exposure to these institutions. Others have
had exposure to various other institutions
related to their field of interest and
technology in and outside the country.
The Group manpower includes 152
employees with service of over 25 years,
232 with over 20 years, 575 with over 15
years, and 753 with over 10 years service.
Among them, 153 are postgraduates, 493
graduates and the rest diploma holders,
intermediates, matriculates and skilled
workers. Group employees turnover is
around 5%.
Your CEO Mr. Vazeer Ali attended a
'Directors course' at INSEAD and Mr. M.
Atta Karim, Secretary attended PIM's
"Advanced Management Programme".
Mr. Khalid Jilani, General Manager Plant,
together with Mr. Y. Morita, Japanese expert
stationed at Karachi, carried out a
comparative study of productivity,
innovation and value addition at another
JV of JSB - our principal JV Partners - in
Indonesia. Some others attended several
on and off the job training programmes.
The continued training of our personnel at
various levels improves the quality of
management and results in the creation of
a great resource which we can use
elsewhere within the Group as well.
Qualified and trained personnel are indeed
a great strength of the Company.
FUTURE OUTLOOK
There has been another devaluation of
8.71%, the single largest during the last
25 years after the 57% devaluation in
1972. It is now Rs.44.05 to the US dollar,
gradually increasing from Rs.3.35 in 1953.
On the other hand, against the Japanese
Yen, the value of the US dollar fell by 75%
within the last 25 years between 1971 and
1995 i.e. from 349 to 90 Yen. The German
Mark appreciated against the Yen in the
same 25 years period to 100from 64. The
US dollar is now equal to 121 Yen: A year
ago it was stronger at 112 Yen.
Some economists and planners however
seem to insist that devaluation is the only
way of improving Pakistan's economy.
Strong Yen, Mark or Dollar have never
bothered the economies of these countries
so much so as the Pakistan Rupee does
the Pakistan economy. India and
Bangladesh are following a different
path. Earlier - immediately after the
independence of Indian Sub Continent - it
was India that devalued its currency and
Pakistan did not. India has been able to
bring down inflation rate to 2.5% against
our double digit inflation rate. Indiaisnow
to bring down interest rates substantially
to boost economic growth to 7% this year.
Our industry is handicapped by several
factors including heavy interest rates while
our competitors enjoy low interest rates
among other comforts and incentives. It
seems, as long as Pakistan sustains high
inflation, devaluation from time to time will
remain inevitable. But when the exportable
surplus is small, its import content heavy
and too little value-added exports,
devaluation will not bring us any
deliverance.
Historically devaluation has had inverse
impact. According to the State Bank's
figures from 1992-93 to 1996-97, the
average annual devaluation of 10.11% led
to an annual increase in exports of 6.69%.
On the other hand, imports increased
annually by 10.37%, expenditure by
11.24% and trade imbalance by 22.14%.
Revenues increased by 9.37% while CPI
and WPI increased by 9.26% and 11.13%
respectively. Debt repayments increased by
geometrical ratios, so that the country had
to do more borrowings in order to repay the
debt than for any development expenditure.
Debt repayment is also now more than our
defence expenditure.
In addition, there is a trend towards
reduction of markup rates which will also
help to decrease the inflation rate and
strengthen the purchasing power of the
customers. The economic packages of the
Government are emphasizing supply side
economics which will also help the economy
to steer itself towards better productivity
leading to overall improvements in the
vital areas of performance. Levy of 3%
sales tax at the retail stage by January'98
will allow the Company to get more
adjustment of the input sales tax. However,
the latest 8.71% rupee devaluation in
addition to the normal adjustment of 0.5%
earlier, against the US dollar will result in
a counter productive cost push and high
inflationary pressures in a country where
over 90% industrial units depend on
imported raw materials.
Nevertheless, your Company is determined
to face these challenges. I am also
confident that the management will handle
the challenges successfully. Some
measures to meet with the situation would
be the streamlining of the management
structure, waste and claim control and cost
cutting -fixed overheads, financial, selling,
general and administrative expenses.
Overall, we will rely more on our '3Es'
approach of "economy, efficiency and
effectiveness" duly harmonized with our
'3Rs' emphasis on "respect, recognition and
reward for our employees.
(There is a world, beyond a world)
ACKNOWLEDGEMENT
I wish to place on record the Board's
appreciation for the Group Executive
Committee, the CEO and his team for their
dedication, hard work and commitment for