Indus Motor Company Limited - Annual Reports

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Indus Motor Company Limited

Annual Report 2000

CONTENTS

Toyota's Guiding Principles

COMPANY INFORMATION

BOARD OF DIRECTORS

Mr. Ali S. Habib

Chairman

Mr. Yutaka Arae

Vice Chairman

Mr. Farhad Zulficar

Chief Executive Officer

Mr. Mohamedali R. Habib

Director

Mr. Tokuichi Uranishi

Director

Mr. Masaru Kato

Director

Mr. Kersi Kapadia

Director

COMPANY SECRETARY

Mr. Shahid Mahmood Khan

Bankers

ABN Amro Bank

American Express

ANZ Grindlays Bank plc

Askari Commercial Bank

Bank of Tokyo-Mitsubishi, Ltd.

Credit Agricole Indosuez

Emirates Bank International Ltd.

Faysal Bank Ltd.

Habib Bank AG Zurich

Habib Bank Limited

Hong Kong & Shanghai Banking Corporation

Metropolitan Bank Limited

Muslim Commercial Bank Ltd.

National Bank of Pakistan

Societe Generale

Standard Chartered Bank

Union Bank Ltd.

Auditors

M/s. Ford, Rhodes, Robson, Morrow

Chartered Accountants

1st Floor, Finlay House,

I. I. Chundrigar Road, Karachi

Legal Advisors

M/s. A. K. Brohi & Co.

M/s. Mansoor Ahmed Khan & Co.

M/s. Mahmud & Co.

Registered Office

14, Bangalore Town Housing Society,

Main Shahrah-e-Faisal, Karachi.

Registrar

M/s. Noble Computer Services (Pvt) Ltd.

14, Bangalore Town Housing Society,

Main Shahrah-e-Faisal, Karachi.

Factory

Plot No. NWZ/1/P-1,

Port Qasim Industrial Estate,

Bin Qasim, Karachi.

FIVE YEARS AT A GLANCE

2000

1999

1997

1996

1998

(Rupees in '000)

Vehicles sales (units)

11,944

11,249

9,295

8,100

8,125

Turnover-net

8,246,268

6,957,876

4,973,991

4,538,220

4,136,100

Profit before taxation

280,230

501,310

271,702

226,286

221,024

Taxation

107,976

250,021

124,538

76,082

33,789

Profit after taxation

172,254

251,289

147,164

150,204

187,235

Number of employees

643

625

611

598

546

Earnings per share

(in Rupees)

2.19

3.20

1.87

1.91

2.38

Contribution to National Exc

2,867,667

2,508,616

1,784,135

1,759,323

1,257,578

DIRECTORS' REPORT

The Directors of Indus Motor Company Limited take pleasure in presenting this Report, together with the

Accounts of the Company for the year ended June 30, 2000 and recommend the following

appropriations:

Note

2000

1999

(Rs. in '000)

OPERATING RESULTS

Profit before taxation

280,230

501,310

Taxation - Current

53,476

177,972

- Prior

(4,500)

11,138

- Deferred

59,000

60,911

------------

107,976

250,021

------------

PROFIT AFTER TAXATION

172,254

251,289

Unappropriated profit brought forward

971

------------

172,314

252,260

APPROPRIATIONS

Dividend-proposed @ 15% (1999:20%)

117,900

157,200

Transfer to revenue reserve

54,000

95,000

------------

171,900

252,200

------------

Unappropriated profit carried forward

414

==========

Auditors

The auditors, Messrs, Ford, Rhodes, Robson, Morrow, retire at the conclusion of the 11th Annual

General Meeting and being eligible, offer themselves for re-appointment.

Chairman's Review

The Directors of the Company endorse the contents of the chairman's Review dealing with the

Company activities which is included in the Annual Report and forms an integral part of the Directors'

Report.

Year 2000 Compliance

The Company is Y2K compliant.

Earnings Per Share (EPS)

The Earnings Per Share is Rs. 2.19.

Pattern of Shareholding

The Pattern of Shareholding of the Company as at June 30, 2000 is given on page 40.

Karachi

September 22, 2000

Farhad Zulficar

Yutaka Arae

Chief Executive Officer & Director

Vice Chairman & Director

CHAIRMAN'S REVIEW

BISMILLAH HIR REHMAN NIR RAHIM

To this, the 11th Annual General Meeting of Indus Motor Company, the first to fall in the new

millennium, I welcome you all and am happy to present to you the report on your Company's

performance for the year ended 30 June, 2000. The Directors are pleased to recommend a cash

dividend of 15% for the year, after allocating a part of the profits to the Company's reserves.

The Company's operations resulted in gross profit of Rs. 544 million and net profit after tax of Rs. 172

million, after providing for current and deferred taxation of Rs. 112 million. There was a cost

increase brought on by the appreciation of the Yen and gross profit margin decreased by 4%

compared to previous year. This was inevitable, as the highly competitive nature of the automobile

market did not allow all cost increases to be fully absorbed in the price.

OPERATIONS and MARKETING

Meeting the challenges of the new millennium, your company entered the small car segment of

the market and began commercial production of the Daihatsu cuore in March, 2000. To celebrate

the occasion, a colorful ceremony was held at the plant at Port Qasim, which was attended by

distinguished dignitaries including Mr. I. Shingu, President of Daihatsu, and other representatives

of Toyota Motor Corporation, Toyota Tsusho Corporation and Daihatsu Motor Company Ltd.

The guests included bankers, government officials, potential customers and others.

Subsequently, sales launches were held at Karachi and Lahore. This launch proved to be

another significant step in the history of your company. We are pleased to say that the initial

market response to the Daihatsu cuore has been extremely positive and customers feedback

regarding the quality and overall performance of the car has been excellent.

In anticipation of the launch of the Daihatsu Cuore, training schools were

established in Karachi, Lahore and Islamabad. These schools

were set up to provide technical training for skilled workers and

to create a support system catering to after sales service

for the Cuore at dealerships.

Modern training equipment and material was donated by your

Company to the Government College of Technology and

Education - Lahore, under the T-TEP Education Program of

Toyota Motor Corporation.

Instructors at the school received intensive training for both Daihatsu and Toyota vehicles.

The long-term goal for this school is to modernize and improve education in auto technology.

This ultimately will ensure the availability of properly trained technicians for the industry.

Significantly, your Company has achieved the highest sales

volume to date during the year 1999-2000, marking a

propitious beginning to the new millennium. This was the result

of several factors including the introduction of the new-look

Corolla in July last year, the new model of Hilux in

September, and the sales launch of Cuore in April.

Your Company has maintained a healthy market share which was 53% in the Toyota range of

vehicles and 47% in the Hilux commercial category. Market share remained

high inspire of increased competition and the introduction of new products. Enduring

customer loyalty has led to the sale of over 50,000 vehicles from the beginning of

production till May 2000. These successes were directly the result of an innovative marketing

strategy with respect to new product variants and aggressive leasing campaigns, which helped your

company achieve its volume goals.

DEALERSHIP NETWORK

With the introduction of Daihatsu, the company's existing seventeen 3-S dealerships were

expanded and modified so as to cater to both Daihatsu as well as Toyota vehicles. To meet the

growing need, ten more 3-S outlets of the same high standard were added. Overall now, with

twenty-seven dealership outlets, your company is able to offer prompt maintenance facilities for both

Toyota and Daihatsu vehicles. This has also had the benefit of increasing sales volumes and

revenues, while also ensuring that the vehicles have a longer life and higher resale value.

SPARE PARTS

Warehouse modification was also attended to as pad of the ground-work preparation for the

Daihatsu Cuore. The new product necessitated adjustments in respect of spare parts, and the

company warehouse was therefore expanded and delivery systems improved and updated to meet

added requirements. Stocking systems were re-worked to ensure that dealerships maintained

enough stocks to meet demand. In addition, procedures were streamlined to ensure

nationwide accessibility and delivery of spare pads from the central pads warehouse at Karachi

within 24 to 36 hours.

Recently the government has taken bold steps to document the economy and discourage

smuggling. This positive stance has lead to a reduction in the availability of smuggled parts and

an increase in the sale of genuine parts which are duty paid. Government action in this area will

boost sales of genuine parts and further increase government revenue. The steps taken by the

government in this field have been welcomed, as this will restrict sales of non-revenue earning

smuggled parts, and encourage revenue-generating sales.

HUMAN RESOURCE DEVELOPMENT

A cornerstone of human resources development, our annual Kaizen convention is a morale boosting

exercise that acknowledges and honours staff members and vendors who make significant

contributions by boosting efficiency, improving productivity and quality and adding to cost saving.

This event is based on the Japanese system of continuous improvement. The convention was held

in July this year, and Dr. Ata-ur-Rehman, Minister for Science & Technology was our special guest.

The convention was widely attended by vendors, members from educational institutions and

corporations. The winning teams received awards, and as customary, the first prize winners will be

sent to attend the Toyota Kaizen Convention in Japan.

Human resource development is an on-going process, but this was intensified and diversified to

meet the demands of Daihatsu Cuore. Special training aimed at improving selling skills were

directed at dealers focusing on the features of Cuore. Vendor training was also expanded to

include production skills for Daihatsu parts. Engineers and technicians involved in production

were sent for on-the-job training to Daihatsu Motors in Japan in order to be able to meet quality

standards of Cuore vehicles.

PRODUCT DEVELOPMENT & QUALITY ASSURANCE

Your company was faced with the immediate challenge of increasing production capacity and

reducing operation costs while operating in a single shift. Also, production of Cuore was to begin

with over 40 per cent local content. Your company proved itself equal to this challenge and on a

single shift basis, plant capacity increased from 10,000 to 15,000 units. Simultaneously, deletion

targets set by the Engineering Development Board for Toyota vehicles has also been met. Toyota,

Daihatsu and Indus engineers pooled resources and worked together single-mindedly to meet

these goals without any compromise on quality.

GOVERNMENT POLICY

Inspite of political and economic uncertainty that faced the country, the policies of the government

with regard to this industry remained consistent and the guidance of the Engineering Development

Board led to a growth in investments in the industry.

The WTO Agreement is being reviewed by the Engineering Development Board and new policies

are being formulated to sustain government support and maintain the current local program

which has already proved to be successful. The first goal of the government is to continue the

current localization policy for a period of 5 years or alternatively to continue to support the industry

through a tariff based system. We are confident that the government will take measures to ensure

the long-term development of the industry which will contribute to the economic well-being of the

nation.

FUTURE OUTLOOK

It is estimated that the total revenue paid by automobile manufacturers during 1999-2000 was

over Rs. 7 billion. Inspite of the depressed economic scenario, the Auto Industry has

continued to expand, creating new jobs and contributing to government revenues. Countries

like Thailand whose population size is just half of ours, boast of volumes of over 500,000 vehicles

per annum, whereas we list only 50,000 units in Pakistan. This industry has the potential to

generate jobs and be a huge employer. If encouraged with incentives, the benefits will fall to

the government by way of revenue generation.

With several constraints and such uncertain economic conditions, new entrants in the market and

increased competition, your company has continued to grow by way of capacity utilization and sales

volumes. The Corolla is firmly entrenched in the market and together with the Hilux model change,

launch of the Daihatsu Cuore and expansion of the dealer network, your Company is well prepared to

meet the challenges of the new millennium.

We thank the customers of Toyota and Daihatsu, our dealers, vendors, staff members and team

members for their trust, support and commitment. We extend special thanks to the government, in

particular the Ministry of Industries and Ministry of Commerce, and the Engineering Development Board

as well as our bankers for their sustained support.

We thank Allah for his blessings and pray for greater success.

Ali S. Habib

Chairman

AUDITORS' REPORT TO THE MEMBERS

W e have audited the annexed balance sheet of INDUS MOTOR COMPANY LIMITED as at June

30, 2000 and the related profit and loss account and the 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 accounts have been kept by the company as required by the

Companies Ordinance, 1984;

(b) in our opinion:

(i) the balance sheet and the 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 accounts and are further in accordance with accounting policies consistently

applied;

(ii) the expenditure incurred during the year was for the purpose 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;

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 June 30, 2000 and of the profit and the changes in financial position for the

year then ended; and

(d) in our opinion Zakat deductible at source under the Zakat and Ushr Ordinance, 1980wasdeducted

by the Company and deposited in the Central Zakat Fund established under section 7 of that

Ordinance.

Karachi

Ford, Rhodes, Robson, Morrow

Dated: September 22, 2000

Chartered Accountants

BALANCE SHEET

AS AT JUNE 30, 2000

Note

2000

1999

(Rs. in '000)

ASSETS

NON-CURRENT ASSETS

Fixed assets - Tangible

Operating fixed assets at cost

less accumulated depreciation

1,254,360

958,644

Capital work-in-progress

1,607

108,477

------------

1,255,967

1,067,121

Long-term investment

1,200

1,875

Long-term loans

687

Long-term deposits

3,304

5,925

CURRENT ASSETS

Stores and spares

60,334

86,033

Stock-in-trade

1,022,652

856,419

Trade debts

582,738

443,899

Loans, advances and prepayments

211,803

129,952

Other receivables

28,542

24,768

Cash and bank balances

322,499

488,294

------------

2,228,568

2,029,365

------------

TOTAL ASSETS

3,489,726

3,104,371

==========

EQUITY AND LIABILITIES

SHARE CAPITAL AND RESERVES

Share Capital

Authorised

100,000,000 (1999:100,000,000)

1,000,000

Ordinary shares of Rs. 10 each

==========

Issued, subscribed and paid-up

78,600,000 Ordinary shares of

Rs. 10 each fully paid in cash

786,000

Reserves

764,414

710,060

------------

NON-CURRENT LIABILITIES

1,550,414

1,496,060

Long-term loans

238,301

324,683

Deferred taxation

169,911

110,911

CURRENT LIABILITIES

Current maturities of long term loans

86,382

14,268

Short term running finances

141,314

406,343

Creditors, accrued and other liabilities

1,185,504

594,906

Proposed dividend

117,900

157,200

------------

1,531,100

1,172,717

CONTINGENCIES AND COMMITMENTS

------------

TOTAL EQUITY AND LIABILITIES

3,489,726

3,104,371

==========

The annexed notes form an integral part of these accounts.

Farhad Zulficar

Yutaka Arae

Chief Executive Officer & Director

Vice Chairman & Director

PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED JUNE 30, 2000

2000

1999

Note

(Rs. in '000)

SALES - net

8,246,268

6,957,876

Cost of sales

7,701,927

6,222,077

------------

GROSS PROFIT

544,341

735,799

Administration and selling expenses

251,349

227,522

------------

OPERATING PROFIT

292,992

508,277

Financial charges

34,409

47,006

Other charges

22,618

41,320

------------

57,027

88,326

235,965

419,951

Other income

44,265

81,359

------------

PROFIT BEFORE TAXATION

280,230

501,310

PROVISION FOR TAXATION

Current

53,476

177,972

Prior

(4,500)

11,138

Deferred

59,000

60,911

------------

107,976

250,021

------------

NET PROFIT FOR THE YEAR