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HONDA ATLAS CARS (PAKISTAN) LTD
Annual Report 1997
CONTENTS
Company Information
Notice of Meeting
Chairman's Review
Chronicle of Events
Directors' Report
Auditors' Report to the Members
Balance Sheet
Profit and Loss Account
Cash Flow Statement
Notes to the Accounts
Pattern of Shareholding
COMPANY INFORMATION
THE BOARD OF DIRECTORS
Mr. Yusuf H. Shirazi		(Chairman)
Mr. Kanji Kashiwagi		(Chief Executive)
Mr. Aamir H. Shirazi
Mr. Hiromi Mizutani
Mr. Jawaid lqbal Ahmed
Mr. Satoshi Okamoto
Mr. Tatsunari Tanaka
COMPANY SECRETARY
Hafiz Muhammad Hanif
EXECUTIVE COMMITTEE
Mr. Kanji Kashiwagi		(President)
Hafiz Muhammad Hanif		(Vice President)
Mr. Hiromi Mizutani		(Vice President)
Mr. Aamir H. Shirazi		(Director)
AUDITORS
A.E Ferguson &. Co.,
Chartered Accountants
LEGAL ADVISORS
Corlenius, Lane & Mufti
Sattar & Sattar
BANKERS
ABN Amro Bank
ANZ Grindlays Bank
Citibank N.A.
Deutsche Bank
Muslim Commercial Bank Limited
The Bank of Tokyo-Mitsubishi Limited
REGISTERED OFFICE
1-Mcleod Road, Lahore
Phone: (042) 7225015-17
Fax: (042) 7233518
FACTORY
43 Km, Multan Road,
Manga Mandi,
Lahore.
Phone: (042) 5750011-17
Fax:    (042) 5750020
NOTICE OF FIFTH ANNUAL GENERAL MEETING
Notice is hereby given that 5th Annual General Meeting of the shareholders of Honda Atlas Cars
(Pakistan) Limited will be held on Monday, 15th December, 1997 at 2.30 pan. at 1-Mcleod Road,
Lahore to transact the following business:
1. To confirm the minutes of the Extra Ordinary General meeting held on April 30, 1997.
2. To receive, approve and adopt the audited accounts for the year ended June 30, 1997 together
with the Directors' and Auditors' reports thereon.
3. To consider and approve the recommendation of directors for issue of 5% bonus shares and to
consider and, if thought fit, pass with or without modification(s) the following:
Ordinary Resolution:
(i) "Resolved that a sum of Rs. 20,000,000 out of Company's Profits be capitalized for issuing
2,000,000 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
December 07, 1997 m the proportion of five share for every hundred 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) The members entitled to a fraction of a share shall be given sale proceeds of their fractional
entitlement, for which purpose the fractions shall be consolidated into whole shares and
sold in the stock market.
(iii) The Directors be and are hereby authorized and empowered to give effect to this resolution
and to do or cause to be done all acts, deeds and things that may be necessary or required
for issuance, allotment and distribution of Bonus Shares".
4. To appoint Auditors for the year ending June 30, 1998 and fix their remuneration. M/s A.E
Ferguson & Co., Chartered Accountants, the present auditors of the company, retire and being
eligible, offer themselves for re-appointment.
5. To transact any other business with permission of the Chair.
November 22, 1997
Lahore.
NOTES:
1. The share transfer books of the company will remain close from December 8, 1997 to
December 15, 1997 (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 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 of the
meeting.
3. The shareholders are requested to notify the company immediately of the change in their address,
if any.
CHAIRMAN'S REVIEW
It gives me great pleasure to welcome you at the
5th Annual General Meeting of shareholders of
the Company and present you the Annual report
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
trend of decline. During the year, the GDP
growth was 3.1%, a decline against the growth
of 6.4% during 1995-96. Agriculture, the largest
contributing sector, showed a negligible growth
of 0.7% 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, escalation. g 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 budgeted
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%
had corresponding 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 1.47% and the
trade deficit increased to $ 3.37 billion.
The slowdown of the economy 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 247.3 for 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) effecting the consumer's
purchasing power drastically
THE AUTOMOBILE INDUSTRY
The total registered automotive vehicles plying
on the roads in Pakistan are about 3,263,000
which include 604,000 motorcars. According to
an official estimate there are irregular imports
of 75,000 cars in the country and an average of
4,000 cars imported yearly by residents abroad
on account of transfer of residence. Starting from
the British and European and followed by the
Anglo-American cars, the country has clearly
decided in favour of the Japanese cars. The
country gave an exclusive right in 1983 to one
of the Japanese car manufacturers to make a total
local car within Pakistan. This exclusiveness
however gave way in favour of another Japanese
car manufacturer in 1992. These two Japanese
makers focused on indigenous production of cars
upto 1300cc. Honda decided to enter the market
and launched its car in the second half of 1994
with a 1500cc Civic. The first full production
year of the three Japanese cars in 1995 led to a
production of 26,185 units. From 1984 to 1997
the total Japanese cars locally produced were
327,347, an average of 23,382 cars yearly and
36,782 cars since 1994 when Honda entered in
the market. Honda share by June, 97 was 13,332
units - 4,840 in 1995, 4,548 in 1996 and 3,944
in 1997 (vide Table I) remaining always number
one in its category of car.
Table I
PRODUCTION OF LOCALLY PRODUCED AUTOMOBILES
CATEGORIES		TOTAL	1990	1991	1992	1993	1994	1995	1996	1997	TOTAL	TOTAL
		1984-89									1990-97	1984-97
Below 1000CC		83,024	20,306	20,434	22,532	17,979	7,061	6,880	16,291	21,061	132,544	215,568
1000CC		4,019	5,872	5,766	6,382	5,169	4,104	4,690	7,532	8,253	47,768	51,787
1300CC		--	--	--	--	5,947	8,405	9,775	9,895	8,025	42,047	42,047
1400CC		--	--	--	--	--	--	--	--	320	320	320
1500CC		--	--	--	--	--	--	4,840	3,492	1,630	9,962	9,962
1600CC		--	--	--	--	--	--	--	1,056	1,774	2,830	2,830
Subtotal		87,043	26,178	26,200	28,914	29,095	19,570	26,185	38,266	41,063	235,471	322,514
%Growth		--	--	0.10%	10.40%	0.60%	(32.7%)	33.80%	46.10%	7.30%	6.60%
Light Comm.		--	--	--	--	--	--	--	1,803	3,030	4,833	4,833
Vehicles,		----------	----------	----------	----------	----------	----------	----------	----------	----------	----------	----------
TOTAL		87,043	26,178	26,200	28,914	29,095	19,570	26,185	40,069	44,093	240,304	327,34
		----------	----------	----------	----------	----------	----------	----------	----------	----------	----------	----------
%Growth		--	--	0.10%	10.4%	0.60%	(32.7%)	33.8%	53.00%	10.00%	7.70%	--
HONDA		--	--	--	--	--	--	4,840	4,548	3,944	13,332	13,332
The investment made in the automobile
industry is of Rs 5.344 billion including foreign
equity of Rs 1.532 billion. The industry has
manufacturing facility of 110,000 cars per
annum. The automotive industry contributes an
amount of about Rs 7.233 billion to the
government revenue annually besides saving a
foreign exchange of US$ 95.5 million per year.
Honda's contribution in government revenue
was Rs 851 million in 1994-95, Rs 891 million
in 1995-96 and Rs 860 million in 1996-97: Total
Rs 2,602 million. The industry is operating at a
capacity utilization of 40% and has created more
than 800 vendors for the local manufacture of
parts and components, thus providing job
opportunities to 400,000 peoples.
The passenger car industry in this country has
great prospects. The Pakistani population is
about 140 million people. At the present rate of
cars on the roads, the average comes to be 232
persons per car which is far below the normal
standard of 109 persons per car among the
developing countries, particularly the South East
Asia and the developed world where the average
is 8 persons per car. There has been a growth in
passenger cars in the country which were 87,043
for the period 1984-1989 and grew to 240,304
including light commercial vehicles during the
period 1990 to 1997 at an average growth rate
of 7.7% in eight years or 31.1% since 1994 when
Honda entered in the market. Since 1984
Japanese cars total is 327,347 for the period
1984-1997 which include 4,833 light
commercial vehicles. As stated above, the cars
otherwise imported at 75,000 units or imported
through transfer of residence every year at about
4,000 units are in addition. That shows an
obvious optimism for the car industry for the
future growth potential in this country.
As far as Honda Atlas is concerned, as soon as it
came into production in July 94 the
Government Sector restricted purchase of cars
upto 1300cc. It, thus, deprived Honda of about
1/3rd of the total market potential. After
persistently pursuing the government to accept
1500cc Civic for Government use, which was
compatible in all respect of quality and price co-
efficiency, with the 1300cc cars that the
Government had decided to buy for itself,
Honda was constrained to introduce a 1300cc
car - 'City' in the first half of 1997.
Entry of the Honda Atlas car had a healthy
its full impact during this period. It was followed
impact on the car industry on the whole from
product improvement to customer satisfaction,
price co-efficiency and profitability. The
competition led to a genera[ promotion of the
economic situation. With this 1300cc model,
industry - product innovation, after sales
service, spread of dealers network and
availability of the parts, etc. Generally the
profitability improved. The Industry sales, for
cars. With the addition of Honda 'City', the
example, improved from Rs 9.7 billion in 1993
to Rs 14.8 billion in 1996. The GP margin
of large government, corporate and private
respectively increased from 2.90% to 11.28%,
sector customers who have limitation of engine
ROE from (10.91%) to 30.41% and EPS from
Rs (1.52) to Rs 5.74. Honda Atlas, starting
during the second half of 1994 earned an ROE
of 4.22% and EPS Rs 0.52 in 1994 which
increased to an ROE of 27.02% and EPS Rs 5.03
during 1996. The industry's ROE was 30.41% and
EPS 5.74 during the later year-1996 (Table II).
Table II
FINANCIAL HIGHLIGHTS OF THE HONDA VIZ-A-VIZ THE INDUSTRY
:Rs. in million		1993		1994		1995		1996		1997 (Half year)
		Industry	Honda#	Industry	Honda*	Industry	Honda**	Industry	Honda	Industry	Honda
Paid-up Capital		1,031.66	--	1,431.66	400.00	1,677.31	400.00	1,677.31	400.00	1,677.31	400.00
Equity		1,434.27	--	1,649.32	496.99	2,395.68	583.41	3,166.29	744.58	3,611.29	820.22
Sales		9,669.67	--	10,036.01	1,051.92	11,059.84	1,486.45	14,823.63	2,783.23	7,153.18	1,301.34
GP Margin (%)		2.90	--	3.36	9.01	6.68	9.86	11.28	12.71	11.07	13.93
ROE (%)		(10.91)	--	(9.34)	4.22	5.52	14.81	30.41	27.02	12.32	9.22
EPS		(1.52)	--	(1.08)	0.52	0.79	2.16	5.74	5.03	2.65	1.89
# Not in production
* Commercial production started in July'94 and year ended on Dec'94
** Six months figure because of change 0f financial year
While the full year results of the companies are
awaited it appears that the GP margin during
the first six months of the industry was at 11.07%
against Honda's GP margin of 13.93%. Industry
ROE was 12.32% against Honda's ROE of 9.22%
and Industry EPS was Rs 2.65 against Honda's
EPS of Rs 1.89 (Table II). During the second
half Honda Atlas GP margin further fell to
4.34%, ROE (3.48%) and EPS Rs (0.69) as
elaborated in Table III. The fall was basically
due to the fact that the Government restriction
to buy cars upto 1300cc, thus excluding Honda
Atlas cars from 1/3rd of the total market, had
its full impact during this period. It was followed
by the recession, national election and its
aftermath, successive devaluation and
adjustment and re-adjustment of the country's
economic situation. With this 1300cc model,
however, 'Honda Atlas' has now confirmed its
position as a leading passenger car manufacturer
by producing in the range of 1.3, 1.5 & 1.6 liter
car. With the addition of Honda 'City', the
company re-assured its capability to satisfy needs
of large government, corporate and private
sector customers who have limitation of engine
capacity and/or price. The demand for Honda
City has started to increase now and this model
is preferred over other cars in its category due to
its high quality, high technical specifications and
availability in popular colours and due to its
high performance in its range of products.
COMPANY PERFORMANCE
HACPL was set up in 1993. It started operations
in second half of 1994 with a paid up capital of
Rs 400 million. The total equity now stands at
Rs 792.65 million in 1997, an annual growth of
24.1%, quite in keeping with Honda Atlas
growth pattern. During this period, the sales
increased respectively from Rs 1,051.92 million
to Rs 2,556.49 million i.e. at an average growth
rate of 8% and the GP increased from 9.01% to
9.22%, the ROE increased from 4.22% to 6.06%
and the EPS from Rs 0.52 to Rs 1.20 while the
ROE and EPS in 1996 were 27.02% and
As seen from the table No. III, the first half of
Rs 5.03 (Vide Table III):
Table III
PERFORMANCE DATA
Rs. in million						1996-97
		1994*	1995**	1995-96	(lst half)	(2nd half)	Cumulative
Paid-up Capital		Rs.400.00	Rs.400.00	Rs.400.00	Rs.400.00	Rs.400.00	Rs.400.00
Equity		496.99	583.41	744.58	820.22	792.65	792.65
Sales		1,051.92	1,486.45	2,783.23	1,301.34	1,255.15	2,556.49
P.B.T.		26.56	94.30	215.89	82.65	(62.75)	19.90
P.A.T.		20.99	86.42	201.17	75.~3	(27.56)	48.07
G.P. Margin (%)		9.01	9.86	12.71	13.93	4.34	9.22
ROE (%) (A.T.)		4.22	14.81	27.02	9.22	(3.48)	6.06
EPS (B.T.)		0.66	2.36	5.40	2.07	(1.57)	0.50
EPS (A.T.)		0.52	2.16	5.03	1.89	(0.69)	1.20
* Commercial production started in July'94 and year ended on Dec'94
** Six months figure because 0f change of financial year
During the year under review on the whole, there
was a major devaluation of rupee by 8.5% in
Oct'96 in addition to 3.65% in Sep'96. This
affected production cost by about Rs 50,000 -
60,000 per car. Due to the unfavourable market
situation the company absorbed the maximum
amount and passed on only Rs 20,000 - 30,000
per car to the customers - in Nov'96. Besides this,
the poor cotton crop and political uncertainty
in the second quarter had a considerable adverse
impact on the market. With the establishment
of new government in Feb'97 speculation about
the downward revision of taxes and duties
mounted until end of the third quarter and
seriously affected the sales. The economic relief
package was announced on 20th March, 1997.
In the tariff structure, the government waived off
10% regulatory duty on the import of CKD but
at the same time it was offset by increase of custom
duty from 30% to 40%. However, the government
reduced the General Sales Tax (GST) from 18%
to 12.5% thus giving the net benefit of 5.5% to
the customers. Your company again passed on the
the customers. Your company again passed on the
but the diminishing purchasing power of the
customers shifted them to the smaller and cheaper
cars of lesser quality and price.
As seen from the table No. III, the first half of
the year 1996-97 however went quite in line
with the past performance recording a profit of
Rs 82.65 million. The sales increased to Rs
1,301.34 million against Rs 1,031.89 million of
the corresponding period, GP to 13.93% from
13.29% and ROE and EPS respectively from
9.44% and Rs 1.52 to 9.22% and Rs 1.89 against
the corresponding six month. It was, however,
the second half of 1996-97 that could not cope
pace with the first half resulting into a loss of Rs
62.745 million. The year's total net profit before