Honda Ar 2014 Complete

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PEOPLE. PROCESS. PRODUCTIVITY. Annual Report 2014 Honda Atlas Cars (Pakistan) Limited Annual Report for the year ended March 31, 2014 PEOPLE. PROCESS. PRODUCTIVITY. As one of the pioneering manufacturing companies, Honda is dedicated towards bringing joy to the customers through its innovative solutions and trailblazing technologies. On our cover this year, we celebrate our dynamic and gifted workforce – who are the reason behind Honda’s remarkable success. It is our people whose creative talent and uninhibited tenacity has helped us pave the way for the future – making our processes not only highly productive but also deeply meaningful. 1 2 Annual Report for the year ended March 31, 2014 Annual Report for the year ended March 31, 2014 CONTENTS Vision Statement................................................................................... 05 Company Information........................................................................... 06 Board of Directors................................................................................. 08 Organization Chart................................................................................ 10 Corporate Governance Organization Chart.......................................... 12 Business Principles.............................................................................. 14 Chronicle of Events............................................................................... 16 Pattern of Shareholding....................................................................... 18 Chairman’s Review............................................................................... 20 Directors’ Report.................................................................................. 28 Corporate Social Responsibility........................................................... 32 Statement of Compliance with Code of Corporate Governance.......... 36 Auditors’ Review Report to the Members............................................. 38 Year at a Glance.................................................................................... 39 Revenue Application............................................................................. 40 Value Added and its Distribution.......................................................... 41 Financial Highlights.............................................................................. 42 Horizontal Analysis............................................................................... 44 Vertical Analysis.................................................................................... 45 Auditors’ Report to the Members......................................................... 47 Balance Sheet....................................................................................... 48 Profit and Loss Account........................................................................ 50 Statement of Comprehensive Income.................................................. 51 Statement of Changes in Equity........................................................... 52 Cash Flow Statement............................................................................ 53 Notes to the Financial Statements....................................................... 54 Notice of Annual General Meeting....................................................... 89 Form of Proxy........................................................................................ 91 Dealers’ Network.................................................................................. 93 3 4 Annual Report for the year ended March 31, 2014 Annual Report for the year ended March 31, 2014 VISION STATEMENT Striving to be a Company that society wants to exist by sharing joys with people throughout the world. Creating products that maximize the joy of customers, with speed, affordability and low CO2. 5 6 Annual Report for the year ended March 31, 2014 COMPANY INFORMATION Board of Directors Executive Committee Mr. Yusuf H. Shirazi Mr. Takeharu Aoki Mr. Hisatada Tachi Mr. Sardar Abid Ali Khan Chairman Mr. Takeharu Aoki President / CEO Mr. Aamir H. Shirazi Mr. Hisatada Tachi Mr. Kazuhisa Hirota Mr. M. Naeem Khan Mr. Tatsuo Sato Company Secretary Mr. Sardar Abid Ali Khan Chief Financial Officer Mr. Ahmad Umair Wajid Audit Committee Mr. Aamir H. Shirazi Chairman Mr. Takeharu Aoki Mr. Hisatada Tachi Mr. Kazuhisa Hirota Mr. M. Naeem Khan Mr. Hamood-ur-Rahman Secretary Human Resource and Remuneration Committee Mr. Aamir H. Shirazi Chairman Mr. Takeharu Aoki Mr. Hisatada Tachi Mr. Kazuhisa Hirota Mr. M. Naeem Khan Head of Internal Audit Mr. Hamood-ur-Rahman Auditors M/s A. F. Ferguson & Company Chartered Accountants Annual Report for the year ended March 31, 2014 Legal Advisor Cornelius, Lane & Mufti Bokhari Aziz & Karim Bankers Citibank N.A Deutsche Bank AG Faysal Bank Limited Habib Bank Limited MCB Bank Limited National Bank of Pakistan Soneri Bank Limited Standard Chartered Bank (Pakistan) Ltd. The Bank of Tokyo-Mitsubishi UFJ, Ltd. United Bank Limited Registered Office Regional Offices 1-Mcleod Road, Lahore, Pakistan. Tel: +92 42 37225015-17 Fax: +92 42 37233518 Lahore Office: 1-XX, Phase III, DHA Tel: +92 42 35694851-3, Fax: +92 42 35694854 Share Registrar M/s Hameed Majeed Associates HM House, 7-Bank Square, Lahore, Pakistan Tel: + 92 42 37235081-82 Factory 43 Km, Multan Road, Manga Mandi, Lahore, Pakistan Tel: +92 42 35384671-80 Fax: +92 42 35384691-92 E-mail: [email protected] Karachi Office: C-149, KDA Scheme No. 1 Street H, Karsaz Road Tel: +92 21 34854973 Fax: +92 21 34854974 Web Site www.honda.com.pk m.honda.com.pk www.facebook.com/hacpl 7 8 Annual Report for the year ended March 31, 2014 BOARD OF DIRECTORS Mr. Yusuf H. Shirazi Chairman Mr. Shirazi is a Law graduate (LLB) with BA (Hons) and JD (Diploma in Journalism) from Punjab University and AMP Harvard. He served the financial services of the Central Superior Services of Pakistan for eight years. He is the author of five books including ‘Aid or Trade’ adjudged by the Writers Guild as the best book of the year and continues to be a columnist, particularly on economy. Mr. Shirazi is the Chairman of Atlas Group, which, among others, has joint ventures with Honda, GS Yuasa and MAN. He has been the President Karachi Chamber of Commerce and Industries for two terms. He has been the founder member of Karachi Stock Exchange, Lahore Stock Exchange and International Chamber of Commerce and Industry. He has been on the Board of Harvard Business School Alumni Association and is the Founder President of Harvard Business School Club of Pakistan. He has been a visiting Faculty Member at National Defense University, Navy War College and National School of Public Policy. He has been on the Board of Governors of LUMS, GIK and FC College (Chartered University), and Pakistan Institute of Management. Previously he also served, among others, on the Board of Fauji Foundation Institute of Management and Computer Sciences (FFIMCS) and Institute of Space Technology - Space & Upper Atmosphere Research Commission (SUPARCO). Mr. Takeharu Aoki President & CEO Mr. Aoki is President & Chief Executive Officer (CEO) of Honda Atlas Cars (Pakistan) Limited. He has been associated with Honda Motor Company Limited, Japan for last 25 years and has rich experience of Sales & Marketing. He started his professional career in 1989. Mr. Takeharu Aoki has been working with different Honda ventures around the world. He has been extensively involved in Sales & Marketing and Global Product Planning of automobiles. He has significant experience of working in United Kingdom (UK), Canada and France. In his previous assignment, he was working as Divisional Manager, Asia Oceania Sales Division in Honda Motor Company Limited, Japan. Mr. Aamir H. Shirazi Director Mr. Aamir is the President of Atlas Group. He graduated from Claremont Mckenna College, California and completed his OPM from Harvard Business School. He was the Chief Executive of Atlas Honda Limited for over 10 years. He was also appointed as professional director on the Board of Lahore Stock Exchange for two consecutive terms by the Securities & Exchange Commission of Pakistan. He has been Honorary Consul General of Japan, Lahore since 2002. Annual Report for the year ended March 31, 2014 Mr. Hisatada Tachi Director/VP Production Mr. Tachi has been associated with Honda Motor Company Limited for last 32 Years. He joined Honda in 1982 and began his career in Assembly Department at Honda Suzuka plant in Japan. Mr. Tachi has vast experience in the Automobile, having worked with Honda ventures in China. In previous assignment, he has worked as Department Manager of Assembly Division at Honda, Suzuka plant and Production Planning Office in overseas area. He is currently working as Director/Vice President Production of Honda Atlas Cars (Pakistan) Limited since March 2014. Mr. Kazuhisa Hirota Director Mr. Hirota has been associated with Honda Motor, Japan for last 27 years. He has vast experience of Accounting and Finance Division, working in Honda Motor, Japan and different Honda ventures and subsidiaries in China & Thailand. He has worked as Manager in Honda Automobile (China) and Deputy General Manager in Honda Motor (China) Investment Co., Limited for eight years. Currently, he is working as Director of Asian Honda Motors Co., Limited, President of Honda Leasing Thailand Co., Limited and General Manager for Regional Operations, Planning Office, Honda Motor, Japan. He joined Honda Atlas Cars (Pakistan) Limited as Board member from April 2014. Mr. M. Naeem Khan Director Mr. Khan is an AMP from Harvard Business School, Boston, USA, a fellow member of The Institute of Chartered Accountants of Pakistan and a member of The Institute of Chartered Accountants in England & Wales. His association with the Atlas Group extends to over 21 years in various capacities. He has exposure in oil marketing, food, investment banking and capital markets. Mr. Tatsuo Sato Director Mr. Sato has been associated with Honda Motor Company Limited, Japan for last 23 years. He is currently General Manager of Automobile Business in Asia Oceania Region. Before taking over his current responsibilities, he was Manager, Production Control in Japan. He has been in charge of Global Honda Automobile supply chain management not only in Asia/ Japan but also in USA and Europe. 9 10 Annual Report for the year ended March 31, 2014 ORGANIZATION CHART Board of Directors Takeharu Aoki Sardar Abid Ali Khan HR & Administration Logistic Finance Internal Audit Maqsood-urRehman IT Sales & Marketing After Sales Ayaz Hafeez Nadeem Azam Sami Shafi Imran Farooq Syed Waseem Hassan Ahmad Umair Wajid Tariq Rashid M.Numan Ali M. Aamer Sh. Wajid Subhani M. Rafi M. Scheraz Mawiz Akhtar M. Afzal Hamood ur Rahman Imran Naseem M. Arshad Javaid Imran Haider Annual Report for the year ended March 31, 2014 Board of Directors President & CEO Vice President Division/ Department General Manager Sr. Manager Manager Dy. Manager 11 Hisatada Tachi CEQ Shojiro Iga Production Planning Production Quality Control M Ashraf M. Sohail Nawaz Shojiro Iga Vice CEQ Basharat Ali Rana Pur/QD Asif Mahmood PC Amir Nazir ISO Asia Saif Ali PE Jamshaid Tahir WE/PA Aneel Anwar Spec/NMC WE M. Nauman Shahid Khatak MA/ENGG Zulfiqar Ali QC M. Ajmal Mirza Mehtab Baig Pur QD QC VQ/MQ BP Javed Iqbal Shafique Ahmad M. Aslam Khan Ayaz Liaqat Mujahid Yasin Ghafoor A. Qaiser AE/AF Press Shop PO Inject/PO Paint Fayyaz Ahmad Abdul Waheed M. Khalid A.Q Abbasi 12 Annual Report for the year ended March 31, 2014 CORPORATE GOVERNANCE ORGANIZATION CHART Board of Directors Code of Conduct President / CEO Director level policy Audit Committee Executive Committee CEO/President, VP(P), VP(A) Internal Audit Corporate Governance Secretariat Divisional/Functional level policy Compliance Risk Management Information System Effective Operation/ Governance Sales & Marketing After Sales Logistics Finance IT HR & Administration Production Production Planning Quality Control Individual level code of conduct HR & Remuneration Committee Front Division for Corporate Governance improvement suggestions Individual associates Audit Annual Report for the year ended March 31, 2014 13 14 Annual Report for the year ended March 31, 2014 BUSINESS PRINCIPLES Honda Motor Co., Limited Japan Honda Atlas Cars (Pakistan) Limited Priority Standards of Conduct Corporate Philosophy Corporate Philosophy Maintaining a global viewpoint, we are dedicated to supplying products of the highest quality yet at a reasonable price for worldwide customers satisfaction. 1. Dynamic manufacturing and marketing of prestigious products to the entire satisfaction of customers. 1. Safety: There can be no production without safety. Management Policy 1. Proceed always with ambition and youthfulness. 2. Respect sound theory, develop fresh ideas and make the most effective use of time. 3. Enjoy your work and encourage open communications. 4. Strive constantly for a harmonious flow of work. 5. Be ever mindful of the value of research and endeavor. 2. Create ideal working environment for continuous development of products and personnel. 3. Provide adequate return to shareholders and fulfill corporate civic obligations. Management Policy 1 Respect for all – man has priority over machine. 2. Man is the key in controlling i.e. machines, methods and materials. 3. Follow 3S spirit i.e. small, smart and speed. 4. Believe in 3A “Hands on Approach” i.e. be on Actual Spot, look at the Actual Spot and confront the Actual Situation. 5. Be a good corporate citizen; assume a responsible role in community. 2. Quality: To achieve complete customers satisfaction by focusing on smart teamwork, meeting all applicable legal and regulatory requirements & continually improving our strategies and goals. 3. Productivity: With safety and quality each of us will strive to excel the performance in all fields of our activities i.e Production Divisions, Sales & Marketing, After Sales, Finance, Logistics, IT and HR & Administration Division. Human Resources and Succession Plan Human Resources Policy is to hire young, fresh, energetic and active associates to meet the existing and future workforce requirements and providing its associates maximum opportunities for internal mobility through personal training and development to enable them to take higher positions. Annual Report for the year ended March 31, 2014 Human Resource Division has succession plan for each key job/ area to make sure the continuity of operations in the relevant division and to fill the temporary/permanent vacancy. Quality Policy 1. Recognize the impacts of our activities, Products and Services on environment; 2. Formulate objectives and targets for pollution prevention, environmental impacts mitigation and resource conservation as far as technically feasible; We at Honda Atlas Cars (Pakistan) Limited, strive for supplying top quality Honda cars to get ultimate customers satisfaction accomplished by focusing on: 3. Operate in compliance with applicable legal and other requirements with the commitment to preserve global environment; • Smart team work. • Meeting all applicable legal and regulatory requirements. 4. Create awareness and understanding about environmental issues amongst our associates; • Continually improving our strategies and goals. Environment Policy Honda Atlas Cars (Pakistan) Limited, being a responsible member of society considers the preservation of the global environment as a crucial concern. Our environmental philosophy is firmly based on the following Principles: 5. Commitment to continual improvement of the environmental performance and review of the environmental management system to ensure its suitability, adequacy and effectiveness; 6. Keep Public and other interested parties informed on our environmental performance, if deemed necessary. Safety, Health and Environment Honda Atlas Cars (Pakistan) Limited conducts its business responsibly and in a way to make sure health, safety and protection from environmental aspects of its associates and the society. We implement and maintain the programs that provide reasonable assurance that the business will do the following: 1. To comply with all applicable Government and internal health, safety and environmental requirements; 2. Design facilities and conduct operations in a way that avoids risk to human health, safety and the environment; 3. To examine and communicate the known hazards of operations with relevant health, safety and environmental protection information to potentially affected persons. Operating Principles 1. Always keep the deadline. 2. Never make excuses. 3. Team work. 15 Annual Report for the year ended March 31, 2014 21 22 Launching of CBU model of Honda Accord Rolling out of 100,000th car 23 24 25 Visit of Launching of New model of New Model of Mr. Takeo Fukui, Honda Civic President & Honda City launched in CEO Honda 1800 cc Motor Co. Ltd., Japan 10th October 1994 16th July 1994 Commercial Production commenced Public issue of shares 27th November 10 2010 20th July 2008 27th August 2007 Inauguration Visit of by President of Mr. N. Kawamoto, Pakistan President Honda Motor Co. Ltd., Japan 09 31st January 08 2009 13th July 1994 13th July 07 31st December First car rolling out ceremony held 2006 Technical Assistance Agreement signed with Honda Motor Co. Ltd. Japan 29th July Completion of Civil Work and installation of Plant & Equipment 2006 06 1994 26th May 1994 1st April 1994 31st March 1994 05 7th July 14th January 2006 Incorporation Ground of Honda Atlas breaking Cars (Pakistan) ceremony held Limited 04 2006 17th April 03 21st December 11th August Joint venture agreement signed with Honda Motor Co. Ltd. Japan 1993 4th November 02 2005 01 1992 5th August 1992 CHRONICLE OF EVENTS 2005 16 26 27 28 29 30 Capacity enhancement to 50,000 units per annum achieved Issue of 100% right shares Launching of New Model of Honda Accord & CRV Launch of 3rd Generation Honda City Inauguration of first 1-S Spare Parts Dealership 15th September 2003 13th September 2003 23rd August 2003 22nd March 2001 20th January 2000 13th April 1999 28th January 1999 1st October 1998 22nd January 1997 10th January 1996 Annual Report for the year ended March 31, 2014 19th December ISO 14001 Certification achieved 2013 Rolling out of 50,000th car 10th December New model of Honda City launched 2013 Launching of new Honda Civic model 10th December Launch of new City model with PGM-Fi technology 2013 ISO 9002 certification achieved 15th June Civic VTi Oriel launched First sunroof Car in Pakistan 2013 Honda Motor Company’s 50th anniversary 17th April Honda City launched 2013 New Civic-96 launched 18th September 20 2012 19 12th July 18 2012 17 2nd May 16 2012 15 29th April 14 2012 13 1st March 12 2012 11 31 32 33 34 35 36 37 38 39 40 Launching of New Model of Honda CRV Rolling out of 100,000th Honda City Launch of Honda City Aspire 1.3 Rolling out of 200,000th car Launching of New Honda Civic Model Launch of Honda City Aspire 1.5 Launch of New Model of Honda Accord Celebration of 20th Anniversary of the Company Visit of Mr. Takanobu Ito President of Honda Motor Co. Ltd., Japan Launch of Hybrid Model Honda CRZ 17 18 Annual Report for the year ended March 31, 2014 PATTERN OF SHAREHOLDING as on March 31, 2014 Number of Shareholdings Shareholders From To 1763 1 - 100 653 101 - 500 916 501 - 1000 945 1001 - 5000 151 5001 - 10000 47 10001 - 15000 41 15001 - 20000 20 20001 - 25000 15 25001 - 30000 11 30001 - 35000 12 35001 - 40000 2 40001 - 45000 13 45001 - 50000 4 50001 - 55000 4 55001 - 60000 3 65001 - 70000 3 70001 - 75000 3 75001 - 80000 2 80001 - 85000 2 85001 - 90000 6 95001 - 100000 1 105001 - 110000 2 115001 - 120000 1 125001 - 130000 1 135001 - 140000 4 145001 - 150000 2 155001 - 160000 1 160001 - 165000 1 165001 - 170000 2 175001 - 180000 2 195001 - 200000 1 340001 - 345000 1 360001 - 365000 1 405001 - 410000 1 475001 - 480000 1 615001 - 620000 1 845001 - 850000 1 965001 - 970000 1 980001 - 985000 1 2480001 - 2485000 1 2680001 - 2685000 1 3535001 - 3540000 1 10600001 - 10605000 1 32515001 - 32520000 1 72825001 - 72830000 4,647 Total Number of Share Held Percentage of Total Capital 75,705 252,795 817,806 2,337,017 1,205,806 611,970 753,327 476,000 416,460 361,214 449,666 87,500 645,500 218,000 233,000 203,700 218,160 239,000 162,500 174,500 599,500 107,000 234,925 130,000 136,500 595,700 313,600 160,010 165,920 354,121 400,000 343,500 364,705 410,000 480,000 617,000 850,000 967,000 981,500 2,482,754 2,684,500 3,535,489 10,601,650 32,517,000 72,828,000 142,800,000 0.05 0.18 0.57 1.64 0.84 0.43 0.53 0.33 0.29 0.25 0.31 0.06 0.45 0.15 0.16 0.14 0.15 0.17 0.11 0.12 0.42 0.07 0.16 0.09 0.10 0.42 0.22 0.11 0.12 0.25 0.28 0.24 0.26 0.29 0.34 0.43 0.60 0.68 0.69 1.74 1.88 2.48 7.42 22.77 51.00 100.00 CATEGORIES OF SHAREHOLDERS Sr Category No. 1 Individuals 2 Joint Stock Companies 3 Financial Institutions 4 Insurance Companies 5 Modarabas 6 Mutual Funds 7 Foreign Company 8 Investment Company 9 Pension Funds 10 Others No. of Shareholders Shares Held Percentage of Total Capital 4,566 39 5 2 1 12 1 5 8 8 4,647 13,866,237 1,599,412 3,036,040 1,260,000 25,000 6,054,659 72,828,000 43,123,420 648,102 359,130 142,800,000 9.71 1.12 2.13 0.88 0.02 4.24 51.00 30.20 0.45 0.25 100.00 19 Annual Report for the year ended March 31, 2014 SHAREHOLDING INFORMATION as on March 31, 2014 as required under the Code of Corporate Governance Categories No. of Shareholders Shares held Associated Companies M/s Honda Motor Co. Ltd. Japan + 1 72,828,000 M/s Shirazi Capital (Pvt.) Limited + 1 32,517,000 M/s Shirazi Investments (Pvt.) Limited + 1 10,602,650 M/s Atlas Insurance Limited 1 850,000 170 Mutual Funds M/S First Capital Mutual Fund 1 Golden Arrow Selected Stocks Fund Limited 1 10,000 CDC - Trustee Unit Trust of Pakistan 1 981,500 CDC - Trustee JS Aggressive Asset Allocation Fund 1 21,000 CDC - Trustee Nafa Stock Fund 1 617,000 CDC - Trustee Nafa Multi Asset Fund 1 149,500 CDC - Trustee JS Pension Savings Fund - Equity Account 1 99,500 CDC - Trustee Nafa Islamic Multi Asset Fund 1 107,000 CDC - Trustee JS Islamic Pension Savings Fund-Equity Account 1 130,000 CDC - Trustee Nafa Asset Allocation Fund 1 343,500 CDC - Trustee First Capital Mutual Fund 1 60,000 National Bank of Pakistan - Trustee Department NI(U)T Fund 1 3,535,489 # Directors, CEO, their Spouse and Minor Children Mr. Yusuf H. Shirazi 1 Mr. Takeharu Aoki 1 * Mr. Aamir H Shirazi 1 # Mr. Hisatada Tachi 1 * Mr. Muhammad Naeem Khan 1 500 Mr. Shigeki Takane 1 * Mr. Tatsuo Sato 1 * 8 39,990 39 1,599,412 18 4,122,912 4,559 14,184,877 Executives Public Sector Companies & Corporations Banks, Development Finance Institutions, Non-Banking Finance Companies, Insurance Companies, Takaful, Modarabas and Pension Funds Sharehoders holding 5% or More Voting Rights Others TOTAL: 4,647 142,800,000 Note: + The above mentioned associated companies have 5% or more voting rights. # Mr. Yusuf H. Shirazi and Mr. Aamir H. Shirazi hold 500 qualification shares. The ultimate ownership remains with M/s. Shirazi Investments (Pvt) Limited. * The shareholding of Honda Motor Co. Limited, Japan inlcudes 4 directors holding 525 shares each (Total 2100) in the name of Mr. Takeharu Aoki, Mr. Hisatada Tachi, Mr. Shigeki Takane and Mr. Tatsuo Sato in the capacity of i ts nominee directors. The ultimate ownership remains with Honda Motor Co., Limited, Japan. 20 Annual Report for the year ended March 31, 2014 CHAIRMAN’S REVIEW Annual Report for the year ended March 31, 2014 It gives me great pleasure to present you the Annual Report for the year ended March 31, 2014 ECONOMY The country has experienced an allround improvement in the economy. Major indicators have generally followed healthy trends. Foreign exchange reserves surged to USD 10.09 billion. This was due to strong growth in remittances, inflows from IMF and receipts from multilateral and bilateral sources. It also paved the way for recovery of Pak Rupee, which appreciated sharply by 6.5% against the US Dollar during last quarter. The fluctuation of exchange rate had volatile impact on financials of the Company. The timely materialization of Eurobond receipts, Coalition Support Fund (CSF) inflows and 3G/4G license auctions proceeds will bring further stability to the exchange rate. On the external front, exports went up by 6% in comparison to imports which increased by 1% only. Resultantly, the current account deficit narrowed down to 1.2% of GDP at USD 2.02 billion. These improvements kept the momentum going in the capital market. Accordingly, KSE 100 index crossed the level of 29,000 points, taking annualized returns to 29.3%. The restoring macroeconomic balance, together with declining inflation allowed SBP to maintain policy rate at 10%. On the other hand, challenges on the fiscal side continue to weigh on the economy. The persistent lower tax to GDP ratio resulted in accumulation of local debt. Resultantly, the government missed the borrowings target set by IMF. However, fiscal consolidation measures such as revision in power tariffs, tax rate rationalization and subsidy reduction are expected to keep fiscal deficit within budgeted limits. Given the easing pressures on economy, the country is well placed to achieve the GDP growth of 4.4%. AGRICULTURE The performance of agricultural sector continued to remain divergent. Heavy rains, floods and lower area under cultivation significantly affected the cotton crop. This was partly compensated by production gains in sugarcane and rice crop on account of improved acreage. Also, marginal increase in support prices as against rising input costs continued to restrain the liquidity of farmers. However, likely productivity gains from wheat production and increase in agriculture credit disbursements will contribute positively towards the overall agriculture GDP. LARGE SCALE MANUFACTURING (LSM) LSM posted better growth of 6.7% during the year. Overall, food, fertilizer, oil, steel and paper performed well. Improved power supply, investments in alternate energy sources, increased lending to private sector and capacity enhancements supported the revival. Textiles gained benefit from grant of GSP plus status by European Union, while petroleum refinery output continued its robust growth. The improved manufacturing performance will also spur retail and trade activities. AUTOMOBILE INDUSTRY The automobile industry remained subdued throughout the year and experienced decline of 5.8% in production during the twelve months period of April 2013 to March 2014. During this period, a total of 121,200 units were produced against 128,685 units, in the same period of last year. The sales also decreased correspondingly to 120,107 units against 129,685 units, last year. Out of the three segments, production of cars up to 800cc category reduced by 11.9%, and that of vehicles from 21 22 Annual Report for the year ended March 31, 2014 801cc~1000cc category reduced by 9.4%, whereas production in the 1300cc and above category remained stagnant. The relaxation in conditions for import of reconditioned cars resulted in influx of imported-used cars and adversely hit the demand of local OEMs, particularly the lower segment. Despite all-out efforts of the industry, investments in capacity expansion & localizations, growth has remained sluggish in last couple of years. YOUR COMPANY Despite the negative growth in the industry, your Company continued to prosper and registered increase of 19.8% in its production and 23.3% in sales over the same period of last year. ‘Civic’ maintained its status of “Luxury Car” and its market share improved from 53% to 62% in its own segment. Honda City and Honda City Aspire combined also improved market share from 23% to 28% over the same period, last year. Overall in 2013-14, the market share of the Company improved from 32% in last year to 38% in the 1300cc & above segment of the industry. The production and sales of 23,223 units and 23,310 units respectively Production and Sale Production Sale (Units) 25,000 25,000 20,000 20,000 15,000 15,000 10,000 10,000 5,000 0 2010 2011 2012 2013 Honda Sale and Market Share 2014 Honda Sales Honda Share (1300 cc & Above) Units / Percentage 25,000 40% 20,000 35% 15,000 30% 10,000 25% 5,000 20% 0 15% 2010 2011 2012 2013 2014 was the second highest in the 21 years operational history of the Company; and highest in last seven years! The capacity utilization, on single shift basis, increased from 78% to 93% in the year under review. ‘Honda Accord’ which carries the pedigree of its predecessor, and with improvements has brought it closer to perfection. The new model offers many advance features, enhancing comfort, safety and style. NEW MODELS AND MARKETING In December 2013, the Company launched its first sports hybrid Honda CR-Z. The car offers ideal balance of technology, design and performance In June 2013, the Company launched the premium luxury model of 23 Annual Report for the year ended March 31, 2014 to give ultimate driving experience to sports car-enthusiasts. Sale and Gross Profit/(loss) Net Sales Gross Profit / (loss) (Rupees in million) 40,000 At the start of current year, the Company launched an environment campaign “You Buy a Honda, We Plant a Tree”. During the year, the Company sold more than 23,300 units and on behalf of its customers, planted same number of trees all over the country at parks, clubs, schools and road side with the help of Honda Dealers. The exchange rate remained volatile during the year and it moved both ways. Following more than 6% recovery of Pak rupee in last quarter, the Company reduced retail prices of Honda City by Rs 40,000 and Honda Civic and Honda City Aspire by Rs 30,000 to pass on the benefit of currency appreciation to its customers. Brand presence was assured through participating in different prestigious golf tournaments, display of cars at prominent events and media campaign. All these efforts helped to achieve the sales target for the year. FINANCIALS The Company had been struggling for last couple of years to overcome 3,000 35,000 2,500 30,000 2,000 25,000 1,500 20,000 1,000 15,000 500 10,000 0 5,000 0 (500) 2010 2011 2012 2013 Finance Cost & Other Income 2014 Finance Cost Other Income (Rupees in million) 500 400 300 200 100 0 2010 2011 the financial crises and get back on the track of sustainable and consistent growth. Our associates– our most vibrant asset, management and business partners made commendable efforts to make this a memorable year for the Company. Their persistent efforts to increase capacity utilization and cost rationalization contributed 2012 2013 2014 considerably towards this success. The hard-work paid handsome dividends and the Company registered record sales revenue, highest gross profit, record profit before tax and net profit – highest ever in its 21 years operational history! For the year 2013-14, the Company earned net profit of Rs 1,073.7 million 24 Annual Report for the year ended March 31, 2014 against Rs 244.3 million in the same period of last year. The earnings per share improved to Rs 7.52 from Rs 1.71 and return on equity was ever highest, at 78.7%. Share Value Break up Value Market Value (Rupees) 60 25,000 50 20,000 40 15,000 Net sales for the year were Rs 39,153.2 million against Rs 30,274.6 million in the same period, last year. Gross profit improved to Rs 2,857.2 million from Rs 1,447.1 million. The GP margin improved to 7.3%. The administrative and selling expenses also increased from Rs 420.6 million to Rs 627.6 million mainly due to advertising and promotion expenses and wages & compensation. In absolute terms, administrative and selling expenses increased marginally to 1.6% from 1.4% of sales. Other income improved by 26.8% to Rs 270.5 million due to better liquidity and efficient treasury management. Financial charges reduced by 80.1% to Rs 38.1 million, whereas other expenses also declined by 30.3%. The profit before tax improved to Rs 2,097.2 million from Rs 524.8 million, whereas profit after tax was Rs 1,073.6 million compared to Rs 244.3 million last year. 30 10,000 20 10 0 2010 2011 2012 2013 2014 2012 2013 2014 Contribution to National Exchequer (Rupees in million) 15,000 12,000 9,000 6,000 3,000 0 2010 2011 PKR to USD and JPY Movement Rs to $ Movement Rs to ¥ Movement (Rupees) 110 1.2 1.1 100 1.0 90 0.9 The Company’s cost structure is largely based on imports of CKD, spare parts & raw material from Japan, Thailand and other regions making it more sensitive to exchange rate fluctuations. Whilst the exchange rate remained stable in the first quarter, however in the second and third quarter, due to unprecedented speculations in the money market the Pak Rupees depreciated to Rs 106.5 to one US$. However, with timely intervention by government, speculative trading was effectively curbed and by the end of March 2014 exchange rate had narrowed to Rs 98 to one US$. 80 0.8 2010 2011 2012 The Company continued to make significant contribution towards national exchequer and has been one of the highest tax paying companies of Atlas Group. During the year, the Company paid Rs 13.7 billion towards government revenue in the form of custom duty, sales tax, income tax and other government levies. Now, total contributions towards government exchequer stand at Rs 92.3 billion since start of commercial production in 1994. 2013 2014 In view of the improved demand of our products in last three years and to maintain cost effectiveness, the Company had gradually increased its daily production from 80 to 90 units during previous year. The year under review saw further optimization where production was increased to 96 units. This is planned to further improve to 100 units per day by the end of first quarter of 2014-15. Annual Report for the year ended March 31, 2014 20TH ANNIVERSARY CELEBRATIONS The Company celebrated its 20th Anniversary on 10th December, 2013. A grand event was organized at factory to celebrate the occasion. The guest of honor was Mr. Takanobu Ito, the President of Honda Motor, Japan, who was accompanied by Mr. Hiroshi Kobayashi, President Asian Honda and Managing officer of Honda Motor Japan and Mr. Yoshiyuki Matsumoto, Managing officer Honda Motor, Japan, all of whom had especially flown to Lahore to participate in the celebrations. The event was attended by Honda dealers, vendors, bankers, distinguished corporate customers and all associates of the Company. Chairman and CEO welcomed the guests, followed by address of Mr. Takanobu Ito, President and Chief Executive Officer of Honda Motor, Japan who acknowledged & appreciated the long association and commitment of the business partners towards success of the Company. Shields and mementos were presented to the dealers, vendors and bankers associated with the Company for last 20 years. Shields were also presented to Company associates who had completed 20 years’ service with the Company. 25 26 Annual Report for the year ended March 31, 2014 VENDORS CONFERENCE The Company is steadily moving towards self-reliance and setting challenging targets for localization of future models. To share this future business strategy with our vendors who are an integral part of our business expansion plans, a vendor conference was held on October 31, 2013 in Lahore which was attended by all vendors. By way of encouragement and motivation, shields and awards were presented to the distinguished vendors on their outstanding performance in Quality, Cost, Delivery and Management areas. FUTURE PROSPECTS Moving forward, achieving sustainability in macro-economic fundamentals will remain a key challenge. The return of Pakistan to the international bond market after a period of seven years is a strong indication of the economic revival. However, long term stability calls for consistent increase in the foreign direct investment and fiscal revenues. The on-going peace process will further bring stability in the law & order situation, a vital to attract the foreign investments. Structural reforms are required for widening the tax base and gradual phasing out of subsidies. Privatization of loss-making companies will reduce financial burden on the economy. However, security problems and energy challenges will remain biggest impediment to the industrial growth. Agriculture, being the largest employer, will remain the driving force for the long-term economic growth. Encouragement in agri-credit disbursements, adequate support prices and improved acreage could help in resurgence of this sector. The automobile industry will remain sluggish in the coming quarters, unless a long term vision and policy is set for its consistent growth. In last year, despite the decline in the automobile market, the Company successfully managed 23% sales growth and improved its market share. For this year, the key challenge for the Company will be to consolidate its financial stability with advanced technology, improved market share, better model line-up, efficient after sales back-up and optimum operational efficiency. without valuable contributions from our dealers, vendors, bankers, shareholders and strong belief of our valued customers in the product of the Company. I would also thank Honda Motor and Atlas Group, who have completed 20 years of strategic alliance and look forward to strengthening the business relationship for a sustainable and prosperous future. Yusuf H. Shirazi Chairman (It is acclaimed to be a great year) CHANGES ON THE BOARD During the year, Mr. Akio Takemoto, Vice President Production & Director, completed his tenure of service and returned back to Honda Motor, Japan. Mr. Hisatada Tachi replaced him as new Vice President Production and Director. During his brief period, Mr. Takemoto successfully contributed towards process improvement, production optimization and cost savings. Similarly Mr. Shijeki Takane was succeeded by Mr. Kazuhisa Hirota as new Director on the HACPL Board. The Board appreciates the contribution of outgoing directors and welcomes new members on the Board. ACKNOWLEDGMENT On behalf of the Board, I appreciate the strong commitment and leadership of Mr. Takeharu Aoki, President and CEO, in turning around the Company and for the excellent results for the year. This success would not have been possible Lahore, May 15, 2014 Annual Report for the year ended March 31, 2014 27 28 Annual Report for the year ended March 31, 2014 DIRECTORS’ REPORT Annual Report for the year ended March 31, 2014 The directors feel pleasure to present you the Annual Audited Financial Statements for the year ended March 31, 2014, together with the Auditors’ Report thereon. Financial results for the year are as follows: Rupees in thousand 2014 2013 Profit before tax for the year 2,097,246 524,817 Taxation (1,023,576) (280,530) Profit after tax 1,073,670 244,287 Other comprehensive loss for the year (4,284) (7,437) Accumulated loss brought forward (Restated) (182,166) (376,176) Accumulated profit / (loss) 887,220 (139,326) Transfer to general reserves (450,000) - Proposed dividend 30% (2013: 3%) (428,400) (42,840) (878,400) (42,840) 8,820 (182,166) 7.52 1.71 Appropriations *: Accumulated profit / (loss) carried forward Earnings per share – basic and diluted (Rupees) * The Board of Directors has proposed these appropriations, which are not reflected in the financial statements in compliance with the Fourth schedule of the Companies Ordinance 1984. The current year has been extremely good for the Company and set the records of highest sales revenue, gross profit, profit before tax and net profit. Company first time crossed the marks of Rs 2 billion and Rs 1 billion of profit before tax and profit after tax, respectively. The sales remained consistent throughout the year and the Company achieved its target by selling 23,310 units in 2013-14. It was second highest unit sales in the 21 years’ operations of the Company, and highest sales in last seven years. The all-round operational efficiency remained key focus and the Company effectively executed the cost control measures to maximize the profitability. The share price gradually increased from Rs 29.00 per share in April 2013 to Rs 55.15 per share by the end of March 2014. Now the challenge is to keep the momentum of this year and achieve the set target for 2014-15. 29 30 Annual Report for the year ended March 31, 2014 CORPORATE AND FINANCIAL REPORTING FRAMEWORK In compliance with the provisions of the listing regulations of Stock Exchanges, the Board members are pleased to place the following statements on record: • The financial statements for the year ended March 31, 2014 present fairly its state of affairs, the results of its operations, cash flow and changes in equity; • Proper books of accounts have been maintained; • Appropriate accounting policies have been consistently applied in preparation of financial statements for the year ended March 31, 2014 and accounting estimates are based on reasonable and prudent judgment; • International Financial Reporting Standards (IFRS), as applicable in Pakistan, have been followed in preparation of financial statements; • The systems of internal control is sound in design and has been effectively implemented and monitored; • There are no significant doubts about the Company’s ability to continue as a going concern; • There has been no material departure from the best practices of corporate governance, as detailed in listing regulations as on March 31, 2014; • The book values of investments held by Employees Provident Fund and Employees Gratuity Fund as on March 31, 2014 were Rs. 230.2 million and Rs. 148.3 million respectively. • The key operating and financial data for last ten years is given in this report. BOARD MEETINGS During the year under review, four meetings of the Board of Directors were held from April 01, 2013 to March 31, 2014. The attendance of the Board members was as follows: Sr. Name of Director No 1. 2. 3. 4. 5. 6. 7. No of Meetings attended Mr. Yusuf H. Shirazi Mr. Takeharu Aoki Mr. Akio Takemoto Mr. Aamir H. Shirazi Mr. Muhammad Naeem Khan Mr. Shigeki Takane Mr. Tatsuo Sato Mr. Sardar Abid Ali Khan (Company Secretary) Mr. Ahmad Umair Wajid (CFO) 4 4 4 3 4 4 4 The leave of absence was granted to the members not attending the Board meetings. allowances and other benefits as per terms of their employment, for the year ending March 31, 2015. During the year, two nominee directors of Honda Motor Company Limited, Japan were replaced. Mr. Tatsuo Sato succeeded Mr. Yuishi Fukuda on the Board on April 1, 2013 whereas Mr. Hisatada Tachi succeeded Mr. Akio Takemoto on March 1, 2014. To fulfill the requirement of qualification shares, 525 nominee shares were transferred in the name of new directors. President/CEO will be paid an amount of Rs. 14.5 million (2013-14: Rs 11.6 million) and one full-time director will be paid an amount of Rs. 13.5 million (2013-14: Rs 17.7 million for one director), which includes allowances and other benefits as per terms of their employment, for the year ending March 31, 2015. There was no other reported transaction of sale or purchase of shares of the Company by Directors, Company Secretary, Chief Financial Officer (CFO) and their spouses or minor children during the period under review. The Board approved remuneration of Chairman (Non-executive) and Company Secretary at Rs. 26.0 million and Rs. 19.0 million (201314: Rs 22.39 million and Rs 16.49 million) respectively, which includes AUDIT COMMITTEE Audit Committee comprises of five members, including three nonexecutive directors. The Chairman of the Committee is Non-Executive Director. During the year, Audit Committee held eight meetings, each before the Board of Directors meeting to review the financial statements, internal audit reports and compliance of the Corporate Governance requirements. These meetings included meeting with external auditors before and Annual Report for the year ended March 31, 2014 after completion of audit for the year March-2014 and other statutory meeting as required by the CCG. HUMAN RESOURCE & REMUNERATION COMMITTEE Following the amendments in the Code 2012, the Board formed Human Resource & Remuneration Committee which consist of five members. As required, the Chairman of the HR&R Committee is a NonExecutive director. The Committee holds meetings to discuss the matters falling under the terms of reference of the Committee. HONDA CODE OF CORPORATE GOVERNANCE The Company continued to comply with the requirements of the Honda Code of Corporate Governance (HCG), based on the fundamental corporate philosophy of Honda. CHAIRMAN’S REVIEW The accompanied Chairman’s review deals with the performance of the Company during the year and future outlook. The directors of the Company endorse the contents of the review. HOLDING COMPANY M/s Honda Motor Company Limited is the holding company with 51% shares and is incorporated in Japan. STATEMENT OF COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE The Company has fully complied with the requirements of the Code of Corporate Governance as contained in the Listing Regulation of the Stock Exchanges. A statement to this effect is annexed with this report. PATTERN OF SHAREHOLDING The pattern of shareholding as on March 31, 2014 and its disclosure, as required by the Code of Corporate Governance is annexed with this report. AUDITORS As recommended by the Audit Committee, the present auditors Messer’s A. F. Ferguson & Co., Chartered Accountants, retire and being eligible, offer themselves for re-appointment for the year ending March 31, 2015. For and on behalf of The Board of Directors Takeharu Aoki President/CEO Lahore, May 15, 2014 31 32 Annual Report for the year ended March 31, 2014 CORPORATE SOCIAL RESPONSIBILITY Honda strive “to be a company that society wants to exist”. Through our product manufacturing, sourcing of raw materials, sell them and presence of our product as a source of mobility, we impact the society in many ways. To be good corporate citizen and to ‘giving back to the society’, Honda has taken different initiatives for community welfare. FREE MEDICAL CAMP In rural areas, generally good medical facilities are very rare. The vicinity of the Company, Manga Mandi and its surroundings is a backward area and lacks basic infrastructure. The Company arranged three one-day free medical camps in Manga Mandi village, Sham ki Bhattian and Bath village. Company doctors, lady doctor and paramedical staff attended the patients and provided them free medical advices and medicines. In three medical camps, a large number of patients were given treatment. BLOOD DONATION CAMP Honda Atlas Cars (Pakistan) Limited, with association of Fatmid Foundation arranged blood donation camp at factory. Fatmid Foundation is involved in free medical assistance to more than 6,000 children suffering from thalassemia, Hemophilia and other blood related disorders. The associates were volunteers for this noble cause and a total of 87 bottles were collected. President of the Company, Mr. Takeharu Aoki and Vice President, Mr. Akio Takemoto also donated their blood. Annual Report for the year ended March 31, 2014 SCHOOL RENOVATION, SHOES DONATION & INFRASTRUCTURE The Company strives to contribute to societal welfare through improvement in basic facilities infrastructure of a local primary school for boys in Manga Mandi. Moreover, the community living around our factory are poor people engaged in daily labor, factory workers and farmers. Most of the primary class students attend school bare-footed or with slippers, even in a few degree temperature of winter. The Company arranged & distributed school shoes for all students of the primary school. The Company also improved an OffMultan Road pathway, leading to 5 villages adjacent to our factory. The deteriorated road conditions were unsafe for traffic movement. The same were improved for smooth flow of vehicles and residents of the area. “You Buy a Honda, We Plant a Tree” Honda has always been at the forefront of innovation & development of environment friendly products. The Company launched a campaign of “You buy a Honda, We plant a Tree” at the start of current year. The idea was to contribute and promote green & healthy environment for our future generations. The Company planted a tree on behalf of our customers for every Honda car sold during 2013-14. A total of 23,300 trees were planted throughout Pakistan. ASSOCIATES WELFARE Our associates are most valuable assets of the Company. We always strive to provide them safe, vibrant and lively working environment where they can fulfill their jobs with complete peace of mind. 33 34 Annual Report for the year ended March 31, 2014 LONG SERVICE REWARDS ENERGY CONSERVATION Your Company is committed to ensure that the individuals developing our products and components are provided safe & responsible working conditions, and are treated with dignity & respect. We believe in long term relationship with the organization and recognize associates who complete 10 years’ and 20 years’ service with the Company. This year, 60 associates were rewarded with long service rewards. Commemorating shields and gifts were presented to the associates. During the year, the Company has installed Solar Energy Panels for energy conservation & to reduce the electricity burden. Initially, Company has shifted its office and conference rooms on solar panels. The successful implementation will help Company to extend this facility to other production offices and facilities in the coming years. SPORTS EVENTS Every year, the Company arranges sport tournaments for recreation & entertainment of associates and to provide an environment where all associates can enjoy without any stress and job pressure. During the year, we arranged inter-departmental Cricket & Soccer tournaments. The associates enthusiastically participated in the events, in a healthy and competitive environment. The winners & runner up teams were presented with Shields, along with player of the final awards. FAMILY DAY At Honda, we consider all associates and their families as ‘Honda Family’ and every year we celebrate ‘Family Day’. On March 16, 2014, we observed ‘Family Day’ and all associates & their family members were invited to the celebrations. Company arranged different fun activities for children like magic show, puppet show, jugglers show, jumping castles, food stalls, face painting and mehndi stalls. On the other hand, after lunch, families were entertained with music program, comedy show and many surprise gifts were distributed through lucky draws. The fun-filled gathering further strengthened the associates bonding with the Company. Annual Report for the year ended March 31, 2014 35 36 Annual Report for the year ended March 31, 2014 STATEMENT OF COMPLIANCE with the Code of Corporate Governance This statement is being presented to comply with the Code of Corporate Governance contained in Regulation No. 35 of listing regulations of Karachi, Lahore & Islamabad Stock Exchanges for the purpose of establishing a framework of good governance, whereby a listed company is managed in compliance with the best practices of corporate governance. The Company has applied the principles contained in the Code of Corporate Governance in the following manner: 1. The Company encourages the representation of independent non-executive directors on its Board of Directors. At present the Boards includes: * Executive Directors Mr. Takeharu Aoki Mr. Hisatada Tachi Non-Executive Directors Mr. Yusuf H. Shirazi Mr. Aamir H. Shirazi Mr. Muhammad Naeem Khan Mr. Shigeki Takane Mr. Tatsuo Sato Independent Director * Currently the Board do not have any independent director. Since last election of directors was held on April 26, 2012 and at the time of implementation of Code of Corporate Governance 2012, the Company had already initiated the process for election of director. Therefore, the Company will adhere with this clause at the time of next election of directors due in 2015. Moreover, there is no representation of minority shareholders on the Board. 2. The directors have confirmed that none of them is serving as a director in more than ten listed companies, including this Company. 3. All the resident directors of the Company are registered as taxpayers and none of them has defaulted in payment of any loan to a banking company, a DFI or an NBFI or, being a member of stock exchange, has been declared as a defaulter by that stock exchange. 4. Two casual vacancies occurred on the Board of Directors from April 01, 2013 to March 31, 2014 and were filled up by the Directors within 14 days thereof. 5. The Company has prepared a “Code of Conduct” and has ensured that appropriate steps have been taken to disseminate it throughout the Company along with its supporting policies and procedures. 6. The Board has developed a vision/mission statement, overall corporate strategy and significant policies of the Company. A complete record of particulars of significant policies along with the date on which they were approved or amended has been maintained. 7. All the powers of the Board have been duly exercised and decisions on material transactions, including appointment and determination of remuneration and terms and conditions of employment of the Chief Executive Officer (CEO), other executive and non-executive directors, have been taken by the board/shareholders. 8. The meetings of the Board were presided over by the Chairman and the Board met at least once in every quarter. Written notices of the Board meetings, along with agenda and working papers, were circulated at least seven days before the meetings. The minutes of the meetings were appropriately recorded and circulated. 9. So far all the three local directors are qualified regarding directors training program, however, due to the recent transfer of foreign director who was scheduled to attend this training, we are trying to arrange this training for newly appointed director – in spite of language difficulty for experienced Japanese directors. 10. Company provided information to foreign resident directors of their duties and responsibilities. Annual Report for the year ended March 31, 2014 Other directors of the Company, being directors of other local companies have adequate exposure of corporate matters and are already aware of their duties and responsibilities. 11. There was no change in the position of Company Secretary, Chief Financial Officer (CFO) & Head of Internal Audit during the year. 12. The directors’ report for the year ended March 31, 2014 has been prepared in compliance with the requirements of the Code of Corporate Governance applicable as on March 31, 2014 and fully describes the salient matters required to be disclosed. 13. The financial statements of the Company were duly endorsed by CEO and CFO before approval of the Board. 14. The directors, CEO and executives do not hold any interest in the shares of the Company other than that disclosed in the pattern of shareholding. 15. The Company has complied with all the corporate and financial reporting requirements of the Code of Corporate Governance. 16. The Board has already formed an Audit Committee in its meeting on June 07, 2002. It comprises of five members of whom three are non-executive directors including the Chairman of the Committee. 17. The meetings of the Audit Committee were held at least once every quarter prior to the approval of interim and final results of the Company as required by the Code. The Board has already approved the terms of references of the committee on April 15, 2003 for compliance. 18. The Board has formed an HR and Remuneration Committee. It comprises of five members, of whom three are non-executive directors and the chairman of the Committee is a Non-Executive director. 19. The board has set up an effective internal audit function manned by suitably qualified and experienced personnel who are conversant with the policies and procedures of the Company and are involved in the internal audit function on full time basis. 20. The statutory auditors of the Company have confirmed that they have been given a satisfactory rating under the quality control review program of the Institute of Chartered Accountants of Pakistan (ICAP), that they or any of the partners of the firm, their spouses and minor children do not hold shares of the Company and that the firm and all its partners are in compliance with International Federation of Accountants (IFAC) guidelines on Code of ethics as adopted by Institute of Chartered Accountants of Pakistan (ICAP). 21. The statutory auditors or the persons associated with them have not been appointed to provide other services except in accordance with the listing regulations and the auditors have confirmed that they have observed IFAC guidelines in this regard. 22. The ‘closed period’, prior to the announcement of interim / final results and business decisions which may materially affect the market price of company’s securities, was determined and intimated to directors, employees and stock exchanges. 23. Material/price sensitive information has been disseminated among all market participants at once through stock exchanges. 24. We confirm that all other material principles enshrined in the Code of Corporate Governance 2012 have been complied with. Takeharu Aoki President / CEO Lahore: April 25, 2014 37 38 Annual Report for the year ended March 31, 2014 AUDITORS’ REVIEW REPORT TO THE MEMBERS on Statement of Compliance with the Code of Corporate Governance We have reviewed the enclosed Statement of Compliance with the best practices contained in the Code of Corporate Governance (the ‘Code’) prepared by the Board of Directors of Honda Atlas Cars (Pakistan) Limited (the ‘Company’) for the year ended March 31, 2014 to comply with the requirements of Listing Regulation No. 35 of the Karachi, Lahore and Islamabad Stock Exchanges where the Company is listed. The responsibility for compliance with the Code is that of the Board of Directors of the Company. Our responsibility is to review, to the extent where such compliance can be objectively verified, whether the Statement of Compliance reflects the status of the Company’s compliance with the provisions of the Code and report if it does not and to highlight any non – compliance with the requirements of the Code. A review is limited primarily to inquiries of the Company’s personnel and review of various documents prepared by the Company to comply with the Code. As a part of our audit of the financial statements we are required to obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. We are not required to consider whether the Board of Directors’ statement on internal control covers all risks and controls or to form an opinion on the effectiveness of such internal controls, the Company’s corporate governance procedures and risks. The Code requires the Company to place before the Audit Committee, and upon recommendation of the Audit Committee, place before the Board of Directors for their review and approval its related party transactions distinguishing between transactions carried out on terms equivalent to those that prevail in arm’s length transactions and transactions which are not executed at arm’s length price and recording proper justification for using such alternate pricing mechanism. We are only required and have ensured compliance of this requirement to the extent of the approval of the related party transactions by the Board of Directors upon recommendation of the Audit Committee. We have not carried out any procedures to determine whether the related party transactions were undertaken at arm’s length price or not. Based on our review, nothing has come to our attention which causes us to believe that the Statement of Compliance does not appropriately reflect the Company’s compliance, in all material respects, with the best practices contained in the Code as applicable to the Company for the year ended March 31, 2014. Further, we highlight the instance of non – compliance with the requirement of the Code as reflected in the paragraph 9 of the Statement of Compliance which states that the training of a recently appointed foreign director has not been conducted. The Company is in process of arranging this training. A.F. Ferguson & Co. Chartered Accountants Lahore: May 15, 2014 Engagement Partner: Muhammad Masood Annual Report for the year ended March 31, 2014 YEAR AT A GLANCE Rupees in million 2014 2013 Sales 39,153 30,275 Gross profit 2,857 1,447 Operating profit 2,135 716 Profit before tax 2,097 525 Profit after tax 1,074 244 Dividend 428 43 Shareholders’ equity 2,391 1,365 Capital expenditure 239 466 Total assets 12,317 15,146 Working capital (1,043) (3,180) 17 10 Break up value per share Rs Market value per share 55 29 Rs in million Rs 13,750 10,664 Units produced Units 23,223 19,387 Units sold Units 23,310 18,915 Manpower (including contractual) Nos 1,122 1,003 ¥ 104.00 94.00 Rs to $ Rs 98.53 98.57 Rs to ¥ Rs 0.95 1.05 Contribution to national exchequer Exchange rates at year end ¥ to $ Share Price Movement PKR to JPY Movement (Pak Rupees) (Pak Rupees) 60 1.2 50 1.1 40 1.0 30 0.9 20 10 0.8 Apr 2013 May 2013 Jun 2013 Jul 2013 Aug 2013 Sep 2013 Oct 2013 Nov 2013 Dec 2013 Jan 2014 Feb 2014 Mar 2014 PKR to THB Movement Apr 2013 May 2013 Jun 2013 Jul 2013 Aug 2013 Sep 2013 Oct 2013 Nov 2013 Aug 2013 Sep 2013 Oct 2013 Nov 2013 Dec 2013 Jan 2014 Feb 2014 Mar 2014 PKR to USD Movement (Pak Rupees) (Pak Rupees) 3.5 120 3.4 110 3.3 100 3.2 90 3.1 3.0 80 Apr 2013 May 2013 Jun 2013 Jul 2013 Aug 2013 Sep 2013 Oct 2013 Nov 2013 Dec 2013 Jan 2014 Feb 2014 Mar 2014 Apr 2013 May 2013 Jun 2013 Jul 2013 Dec 2013 Jan 2014 Feb 2014 Mar 2014 39 40 Annual Report for the year ended March 31, 2014 REVENUE APPLICATION Rupees in thousand 2014 Revenue Gross sales Other income Total Application Product Cost Cost of sales (excluding employees’ remuneration and government levies) Other costs Operating expenses (excluding employees’ remuneration) Dealers’ commission Financial charges Employees Employees’ remuneration WPPF Government WWF Sales tax and excise duties Custom duties Income tax Shareholders Dividend Retained in Business Profit retained Total Application Product cost Other costs Employees Government Shareholders Profit retained Total 2013 46,459,546 270,548 46,730,094 35,706,199 213,434 35,919,633 30,371,695 24,333,803 571,819 666,174 38,075 1,276,068 723,641 504,995 190,967 1,419,603 789,792 112,589 902,381 504,077 28,415 532,492 41,945 6,640,118 5,400,641 1,023,576 13,106,280 15,063 4,926,600 4,167,255 280,530 9,389,448 428,400 42,840 645,270 46,730,094 201,447 35,919,633 % 65% 3% 2% 28% 1% 1% 100% % 68% 4% 1% 26% 0.1% 1% 100% 2013 2014 (Percentage) (Percentage) Product Cost (65%) Product Cost (68%) Other Cost (3%) Other Cost (4%) Employees (2%) Employees (1%) Government (28%) Government (26%) Shareholders (1%) Shareholders (0.1%) Profit retained (1%) Profit retained (1%) Annual Report for the year ended March 31, 2014 VALUE ADDED AND ITS DISTRIBUTION Rupees in thousand 2014 Value Added Net sales Other income Cost of sales (excluding employees’ remuneration) Operating expenses (excluding employees’ remuneration) Finance cost Total Distribution To Government WWF Income tax To Employees Employees’ remuneration WPPF To Shareholders Dividend Retained In Business Profit retained Total Distribution Government Employees Shareholders Retained in business Total 2014 2013 39,153,254 270,548 (35,772,336) (571,819) (38,075) 3,041,572 30,274,604 213,434 (28,501,058) (723,641) (190,967) 1,072,372 41,945 1,023,576 1,065,521 15,063 280,530 295,593 789,792 112,589 902,381 504,077 28,415 532,492 428,400 42,840 645,270 3,041,572 201,447 1,072,372 % 35% 30% 14% 21% 100% % 28% 49% 4% 19% 100% 2013 (Percentage) (Percentage) Government (35%) Government (28%) Employees (30%) Employees (49%) Shareholders (14%) Retained in Business (21%) Shareholders (4%) Retained in Business (19%) 41 42 Annual Report for the year ended March 31, 2014 FINANCIAL HIGHLIGHTS 2014 2013 2012 39,153 2,857 2,135 2,097 1,074 428 30,275 1,447 716 525 244 43 16,600 (44) (347) (499) (532) - 1,428 2,391 239 8,150 3,041 56 12,317 (1,043) 2,391 1,428 1,365 466 7,957 3,503 43 15,146 (3,180) 1,365 1,428 1,128 397 8,202 3,668 110 9,489 (3,622) 1,294 7.3 5.5 5.4 2.7 4.8 2.4 1.7 0.8 (0.3) (2.1) (3.0) (3.2) 0.9 0.5 - 5.2 0.8 0.4 - 11.1 0.6 0.2 0.2 8.4 3.2 12.9 8.9 56.1 29.2 41 2.0 8.6 8.0 3.7 2.3 46 1.7 4.5 5.3 (2.3) (2.5) 69 57.2 111.7 57.2 14.7 7.5 7.3 3.00 39.9 18.4 42.1 19.6 3.7 1.7 17.1 0.30 17.6 (28) (35.6) (37.9) (3.5) (3.7) (3.0) - - 17 55 13,750 23,223 23,310 1,122 10 29 10,664 19,387 18,915 1,003 8 11 6,281 11,040 11,406 934 104 98.53 0.95 94 98.57 1.05 82 90.75 1.11 Profit and Loss Account Sales Rupees in million Gross profit / (loss) Rupees in million Operating profit / (loss) Rupees in million Profit / (loss) before tax Rupees in million Profit / (loss) after tax Rupees in million Dividend Rupees in million Balance Sheet Share capital Rupees in million Shareholders’ equity Rupees in million Capital expenditure Rupees in million Fixed assets - at cost Rupees in million Fixed assets - net Rupees in million Non current liabilities Rupees in million Total assets Rupees in million Working capital Rupees in million Capital employed Rupees in million Significant Ratios Profitability Gross profit / (loss) margin % Operating profit / (loss) margin % Profit / (loss) before tax % Profit / (loss) after tax % Liquidity Current ratio Times Quick ratio Times Long term debt to equity Times Total liabilities to equity Times Activity Total assets turnover Times Fixed assets turnover Times Stock turnover ratio Times Interest cover (BT) Times Interest cover (AT) Times Number of days stock Days Earnings Return on capital employed % Return on equity (BT) % Return on equity (AT) % Earnings / (loss) per share (BT) Rs. Earnings / (loss) per share (AT) Rs. Price earning ratio (AT) Times Dividend per ordinary share Rs. Dividend pay out ratio % Other Information Break up value per share Rs. Market value per share Rs. Contribution to national exchequer Rs in M Units produced Units Units sold Units Manpower (including contractual) Nos. Exchange rates at year end date ¥ to $ ¥ Rs to $ Rs. Rs to ¥ Rs. * Bonus shares # Issue of 100% right shares Annual Report for the year ended March 31, 2014 2011 2010 2009 2008 2007 2006 2005 22,026 199 (93) (245) (298) - 15,854 (240) (533) (988) (852) - 14,150 177 (400) (622) (402) - 14,715 627 297 64 75 - 17,055 100 (176) (482) (265) - 25,639 1,168 1,180 1,134 705 294 * 16,587 283 265 259 162 95 1,428 1,677 55 7,821 3,945 417 10,573 (2,816) 2,511 1,428 1,976 29 7,786 4,594 1,333 8,946 (2,125) 3,476 1,428 2,828 2,129 7,783 5,406 1,500 9,942 (1,685) 4,328 714 2,441 2,521 5,832 4,341 1,958 8,305 (225) 4,982 420 2,705 1,833 3,535 2,359 672 9,174 473 3,705 420 2,094 273 1,740 694 11,793 588 2,094 0.9 (0.4) (1.1) (1.4) (1.5) (3.4) (6.2) (5.4) 1.3 (2.8) (4.4) (2.8) 4.3 2.0 0.4 0.5 0.6 (1.0) (2.8) (1.6) 4.6 4.6 4.4 2.7 1.7 1.6 1.6 1.0 0.7 0.2 0.5 6.3 0.6 0.2 0.8 4.5 0.7 0.2 0.5 3.5 0.8 0.2 0.2 2.1 0.9 0.2 1.0 3.4 1.1 0.4 0.4 3.4 1.1 0.7 5.6 2.1 5.6 7.6 (0.6) (1.0) 48 1.8 3.5 6.1 (1.2) (0.9) 60 1.4 2.6 6.1 (1.8) (0.8) 60 2.2 3.7 6.5 1.3 1.3 56 2.1 3.9 4.9 (0.6) 0.1 74 2.8 10.9 6.7 25.5 16.2 54 1.4 23.9 6.7 44.4 28.2 54 (10.0) (13.4) (16.3) (1.7) (2.1) (4.8) - - (21.8) (41.1) (35.5) (6.9) (6.0) (2.7) - - (10.0) (20.5) (13.3) (4.4) (2.8) (4.3) - - 1.7 2.3 2.6 0.5 0.5 88.0 - - (6.1) (18.7) (10.3) (6.8) (3.7) (15.7) - - 24.3 47.3 29.4 27.0 16.8 6.7 7.0 41.7 15.5 12.9 8.0 6.2 3.9 19.0 2.3 58.6 1,428# 3,230 188 5,979 4,010 500 6,817 (652) 3,730 12 10 8,229 16,440 16,467 975 14 16 6,316 11,980 12,344 857 20 12 6,452 12,780 12,502 955 23 44 4,958 15,080 15,604 946 34 58 6,213 18,240 18,709 1,034 64 112 8,481 31,476 30,719 1,198 50 74 6,371 20,040 20,056 1,032 83 85.50 1.03 94 84.18 0.90 98 80.45 0.82 100 62.77 0.63 117 60.85 0.52 118 60.10 0.51 108 59.50 0.55 43 44 Annual Report for the year ended March 31, 2014 HORIZONTAL ANALYSIS 2014 2013 2012 2011 2010 2009 2014 vs 2013 2013 vs 2012 2012 vs 2011 2011 vs 2010 2010 vs 2009 R u p e e s i n t h o u s a n d % % % % % BALANCE SHEET EQUITY AND LIABILITIES SHARE CAPITAL AND RESERVES Issued, subscribed and paid up capital Reserves Unappropriated profit / (Accumulated loss) NON-CURRENT LIABILITIES Long-term finances - secured Gratuity Deferred revenue CURRENT LIABILITIES Current portion of long-term finances Short term borrowings - secured Accrued mark-up Trade and other payables ASSETS NON-CURRENT ASSETS Property, plant and equipment Intangible assets Capital work-in-progress Long term loans and advances Long term deposits Deferred taxation CURRENT ASSETS Stores and spares Stock-in-trade Short term investments Advances, prepayments and other receivables Cash and bank balances 1,428,000 76,000 887,220 - - (736.79) - (69.54) (74.65) - (54.51) 83.65 - (60.86) (64.95) (22.20) 112.58 416,667 1,333,333 1,500,000 - - - - - - - 17.42 143.94 (100.00) 43.35 100.00 (80.00) 100.00 - (68.75) - - (11.11) - - - 83,334 416,667 166,667 - - - - - - 2,151,601 13,790 91,986 65,496 4,302 37,400 75,048 9,856,245 13,646,869 8,102,678 8,058,598 5,432,738 3,387,594 - - (85.01) (27.78) (100.00) - 40.45 68.42 (80.00) - 1,422.45 0.55 150.00 - (88.50) 48.33 100.00 (100.00) (50.17) 60.37 - 44,425 11,709 1,428,000 1,428,000 76,000 249,500 (139,326) (549,676) - 37,834 4,800 12,317,389 15,146,163 83,333 26,393 - 1,428,000 1,428,000 1,428,000 548,500 1,401,500 1,801,500 (299,307) (853,855) (401,655) 9,489,058 10,573,427 8,945,783 9,942,088 (18.68) 59.62 (10.26) 18.19 (10.02) 4,445,810 125,988 21,813 33,896 4,042 802,914 5,190,535 195,830 19,226 31,503 4,042 571,214 (14.38) (38.07) 934.66 41.90 - (62.29) 3.07 147.59 (97.79) 9.85 - (9.64) (15.37) (35.23) 3,008.07 0.96 - 24.52 (13.47) (30.93) (47.52) (1.07) - 15.42 (14.35) (35.66) 13.46 7.60 40.56 0.48 (10.65) (100.00) 18.93 (33.40) 3.13 51.10 100.00 33.14 4,186.00 5.75 (17.12) - 26.91 (90.51) (12.63) 47.82 - 27.28 958.85 19.06 (21.15) 14.71 300.48 9,942,088 (18.68) 59.62 (10.26) 18.19 (10.02) 39,153,254 30,274,604 16,599,608 22,026,109 15,854,142 14,149,646 (36,296,009) (28,827,522) (16,643,607) (21,826,799) (16,093,687) (13,973,144) 2,857,245 1,447,082 (43,999) 199,310 (239,545) 176,502 29.33 25.91 97.45 82.38 73.20 (3,388.90) (24.64) (23.75) (122.08) 38.93 35.62 (183.20) 12.05 15.18 (235.72) 2,873,067 3,355,778 3,255,755 86,431 139,556 56,366 81,293 7,857 355,812 52,772 37,189 33,855 4,042 4,042 4,042 393,238 1,042,794 1,154,027 116,205 115,646 3,852,540 4,311,552 - 491,680 2,503,651 2,105,102 2,354,150 3,534,967 12,317,389 15,146,163 3,847,016 87,023 11,448 33,532 4,042 926,746 112,139 106,039 121,368 101,942 2,853,523 3,443,054 2,329,161 2,954,091 - - - - 1,581,062 1,245,786 978,745 853,218 82,477 868,741 82,046 20,487 9,489,058 10,573,427 8,945,783 PROFIT AND LOSS ACCOUNT Sales Cost of sales Gross profit / (loss) Distribution and marketing costs Administrative expenses Other operating income Other operating expenses Profit / (loss) from operations Finance cost Profit (loss) before taxation Taxation Profit / (loss) after taxation (340,556) (287,026) 270,548 (364,890) (218,707) (201,908) 213,434 (524,117) (130,550) (158,943) 204,456 (217,842) (139,185) (171,729) 83,977 (64,945) (124,916) (136,131) 26,368 (58,628) (190,088) (139,749) 64,844 (311,025) 55.71 42.16 26.76 (30.38) 67.53 27.03 4.39 140.60 (6.20) (7.45) 143.47 235.43 11.42 26.15 218.48 10.77 (34.29) (2.59) (59.34) (81.15) 2,135,321 715,784 (346,878) (92,572) (532,852) (399,516) 198.32 (306.35) 274.71 (82.63) 33.37 (38,075) 2,097,246 (190,967) 524,817 (151,926) (498,804) (152,255) (244,827) (455,128) (987,980) (222,769) (622,285) (80.06) 299.61 25.70 (205.22) (0.22) 103.74 (66.55) (75.22) 104.30 58.77 (1,023,576) 1,073,670 (280,530) 244,287 (33,409) (532,213) (53,625) (298,452) 135,780 (852,200) 220,452 (401,833) 264.87 339.51 739.68 (145.90) (37.70) 78.32 (139.49) (64.98) (38.41) 112.08 Annual Report for the year ended March 31, 2014 VERTICAL ANALYSIS 2014 2013 2012 2011 2010 R u p e e s i n t h o u s a n d 2014 % 2013 % 2012 % 2011 % 2010 % 11.59 0.62 7.20 9.43 0.50 (0.92) 15.05 2.63 (5.79) 13.51 5.19 (2.83) 15.96 15.67 (9.54) BALANCE SHEET EQUITY AND LIABILITIES SHARE CAPITAL AND RESERVES Issued, subscribed and paid up capital Reserves Unappropriated profit / (Accumulated loss) NON-CURRENT LIABILITIES Long-term finances - secured Gratuity Deferred revenue CURRENT LIABILITIES Current portion of long-term finances Short term borrowings - secured Accrued mark- up Trade and other payables ASSETS NON-CURRENT ASSETS Property, plant and equipment Intangible assets Capital work-in-progress Long term loans and advances Long term deposits Deferred taxation CURRENT ASSETS Stores and spares Stock-in-trade Short term investments Advances, prepayments and other receivables Cash and bank balances 1,428,000 76,000 887,220 - 44,425 11,709 1,428,000 76,000 (139,326) - 37,834 4,800 1,428,000 1,428,000 1,428,000 249,500 548,500 1,401,500 (549,676) (299,307) (853,855) 416,667 1,333,333 - - - - - 0.36 0.10 - 0.25 0.03 0.88 0.28 - 3.94 - - 14.90 - - - 83,334 416,667 166,667 - - - - - 13,790 91,986 65,496 4,302 37,400 9,856,245 13,646,869 8,102,678 8,058,598 5,432,738 - - 0.11 80.02 - - 0.61 90.10 0.88 - 0.69 85.39 3.94 - 0.04 76.22 1.86 0.42 60.73 12,317,389 15,146,163 83,333 26,393 - 9,489,058 10,573,427 8,945,783 100.00 100.00 100.00 100.00 100.00 2,873,067 3,355,778 86,431 139,556 81,293 7,857 52,772 37,189 4,042 4,042 393,238 1,042,794 3,255,755 56,366 355,812 33,855 4,042 1,154,027 4,445,810 125,988 21,813 33,896 4,042 802,914 23.33 0.70 0.66 0.43 0.03 3.19 22.16 0.92 0.05 0.25 0.03 6.88 34.31 0.59 3.75 0.36 0.04 12.16 36.38 0.82 0.11 0.32 0.04 8.76 49.70 1.41 0.24 0.38 0.05 8.98 116,205 115,646 3,852,540 4,311,552 - 491,680 2,503,651 2,105,102 2,354,150 3,534,967 112,139 106,039 121,368 2,853,523 3,443,054 2,329,161 - - - 1,581,062 1,245,786 978,745 82,477 868,741 82,046 0.94 31.28 - 20.33 19.11 0.76 28.47 3.25 13.90 23.34 1.18 30.07 - 16.66 0.87 1.00 32.56 - 11.78 8.22 1.36 26.04 10.94 0.92 3,847,016 87,023 11,448 33,532 4,042 926,746 PROFIT AND LOSS ACCOUNT 12,317,389 15,146,163 8,945,783 100.00 100.00 100.00 100.00 100.00 Sales Cost of sales Gross profit / (loss) 39,153,254 30,274,604 16,599,608 22,026,109 15,854,142 (36,296,009) (28,827,522) (16,643,607) (21,826,799) (16,093,687) 2,857,245 1,447,082 (43,999) 199,310 (239,545) 100.00 (92.70) 7.30 100.00 (95.22) 4.78 100.00 (100.27) (0.27) 100.00 (99.10) 0.90 100.00 (101.51) (1.51) Distribution and marketing costs (340,556) Administrative expenses (287,026) Other operating income 270,548 Other operating expenses (364,890) Profit / (loss) from operations 2,135,321 Finance cost (38,075) Profit (loss) before taxation 2,097,246 Taxation Profit / (loss) after taxation (1,023,576) 1,073,670 9,489,058 10,573,427 (218,707) (201,908) 213,434 (524,117) (130,550) (158,943) 204,456 (217,842) (139,185) (171,729) 83,977 (64,945) (124,916) (136,131) 26,368 (58,628) (0.87) (0.73) 0.69 (0.93) (0.72) (0.67) 0.70 (1.73) (0.79) (0.96) 1.23 (1.31) (0.63) (0.78) 0.38 (0.29) (0.79) (0.86) 0.17 (0.37) 715,784 (346,878) (92,572) (532,852) 5.45 2.36 (2.09) (0.42) (3.36) (190,967) 524,817 (151,926) (498,804) (152,255) (244,827) (455,128) (987,980) (0.10) 5.36 (0.63) 1.73 (0.92) (3.00) (0.69) (1.11) (2.87) (6.23) (280,530) 244,287 (33,409) (532,213) (53,625) (298,452) 135,780 (852,200) (2.61) 2.74 (0.93) 0.81 (0.20) (3.21) (0.24) (1.35) 0.86 (5.38) 45 46 Annual Report for the year ended March 31, 2014 FINANCIAL STATEMENTS for the year ended March 31, 2014 Annual Report for the year ended March 31, 2014 AUDITORS’ REPORT TO THE MEMBERS We have audited the annexed balance sheet of Honda Atlas Cars (Pakistan) Limited (the ‘Company’) as at March 31, 2014 and the related profit and loss account, statement of comprehensive income, statement of changes in equity and cash flow statement 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. It is the responsibility of the Company’s management to establish and maintain a system of internal control, and prepare and present the above said statements in conformity with the approved accounting standards and the requirements of the Companies Ordinance, 1984. Our responsibility is to express an opinion on these statements based on our audit. We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the above said statements are free of any material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the above said statements. An audit also includes assessing the accounting policies and significant estimates made by management, as well as, evaluating the overall presentation of the above said statements. We believe that our audit provides a reasonable basis for our opinion and, after due verification, 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 except for the changes as stated in note 4.1 to the annexed financial statements with which we concur; 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; c) in our opinion and to the best of our information and according to the explanations given to us, the balance sheet, profit and loss account, statement of comprehensive income, statement of changes in equity and cash flow statement together with the notes forming part thereof conform with approved accounting standards as applicable in Pakistan, and, 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 March 31, 2014 and of the profit, total comprehensive income, changes in equity and its cash flows for the year then ended; and d) in our opinion, Zakat deductible at source under Zakat and Ushr Ordinance, 1980 (XVII of 1980), was deducted by the Company and deposited in the Central Zakat Fund established under section 7 of that Ordinance. A.F. Ferguson & Co. Chartered Accountants Lahore: May 15, 2014 Engagement Partner: Muhammad Masood 47 48 Annual Report for the year ended March 31, 2014 BALANCE SHEET as at March 31, 2014 Rupees in thousand Note 2014 2013 Re-stated 2012 Re-stated EQUITY AND LIABILITIES SHARE CAPITAL AND RESERVES Authorized share capital 200,000,000 (2013: 200,000,000) ordinary shares of Rs 10 each Issued, subscribed and paid up share capital 142,800,000 (2013: 142,800,000) ordinary shares of Rs 10 each 5 Reserves 6 Accumulated profit / (loss) NON-CURRENT LIABILITIES Long term finance - secured Deferred liabilities 7 Deferred revenue CURRENT LIABILITIES Current portion of long term finance Short term borrowings - secured 8 Accrued mark up 9 Trade and other payables 10 CONTINGENCIES AND COMMITMENTS 11 2,000,000 2,000,000 2,000,000 1,428,000 76,000 887,220 2,391,220 1,428,000 76,000 (139,326) 1,364,674 1,428,000 249,500 (549,676) 1,127,824 – 44,425 11,709 56,134 – 37,834 4,800 42,634 83,333 26,393 – 109,726 – – 13,790 9,856,245 9,870,035 – – 91,986 13,646,869 13,738,855 83,334 – 65,496 8,102,678 8,251,508 12,317,389 15,146,163 9,489,058 The annexed notes 1 to 43 form an integral part of these financial statements. Annual Report for the year ended March 31, 2014 Rupees in thousand Note ASSETS NON-CURRENT ASSETS Property, plant and equipment 12 Intangible assets 13 Capital work-in-progress 14 Long term loans and advances 15 Long term deposits Deferred taxation 16 CURRENT ASSETS Stores and spares 17 Stock-in-trade 18 Trade debts 19 Loans, advances, prepayments and other receivables 20 Short term investments 21 Cash and bank balances 22 Yusuf H. Shirazi Chairman 2014 2013 Re-stated 2012 Re-stated 2,873,067 86,431 81,293 52,772 4,042 393,238 3,490,843 3,355,778 139,556 7,857 37,189 4,042 1,042,794 4,587,216 3,255,755 56,366 355,812 33,855 4,042 1,154,027 4,859,857 116,205 3,852,540 – 115,646 4,311,552 – 112,139 2,853,523 – 2,503,651 – 2,354,150 8,826,546 2,105,102 491,680 3,534,967 10,558,947 1,581,062 – 82,477 4,629,201 12,317,389 15,146,163 9,489,058 Takeharu Aoki Chief Executive 49 50 Annual Report for the year ended March 31, 2014 PROFIT AND LOSS ACCOUNT for the year ended March 31, 2014 Rupees in thousand Note Sales 23 Cost of sales 24 Gross profit Distribution and marketing costs 25 Administrative expenses 26 Other income 27 Other expenses 28 Profit from operations Finance cost 29 Profit before taxation Taxation 30 Profit after taxation Earnings per share - basic and diluted (Rupees) 34 The annexed notes 1 to 43 form an integral part of these financial statements. Yusuf H. Shirazi Chairman 2014 2013 39,153,254 (36,296,009) 2,857,245 30,274,604 (28,827,522) 1,447,082 (340,556) (287,026) 270,548 (364,890) (721,924) 2,135,321 (218,707) (201,908) 213,434 (524,117) (731,298) 715,784 (38,075) 2,097,246 (190,967) 524,817 (1,023,576) 1,073,670 (280,530) 244,287 7.52 1.71 Takeharu Aoki Chief Executive 51 Annual Report for the year ended March 31, 2014 STATEMENT OF COMPREHENSIVE INCOME for the year ended March 31, 2014 Rupees in thousand Note 2014 2013 Profit after taxation Other comprehensive loss Items that may be reclassified subsequently to profit or loss Items that will not be subsequently reclassified to profit or loss: Remeasurement of net defined benefit liability Deferred tax on remeasurement of net defined benefit liability Total comprehensive income for the year The annexed notes 1 to 43 form an integral part of these financial statements. Yusuf H. Shirazi Chairman Re-stated 1,073,670 244,287 – – (6,591) 2,307 (4,284) 1,069,386 (11,441) 4,004 (7,437) 236,850 Takeharu Aoki Chief Executive 52 Annual Report for the year ended March 31, 2014 STATEMENT OF CHANGES IN EQUITY for the year ended March 31, 2014 Rupees in thousand Share capital Share premium General reserve Accumulated profit / (loss) Total Balance as on April 01, 2012 - As previously reported 1,428,000 76,000 173,500 (532,520) 1,144,980 – – – (17,156) (17,156) 1,428,000 76,000 173,500 (549,676) 1,127,824 – – – 244,287 244,287 – – – (7,437) (7,437) Total comprehensive income for the year – – – 236,850 236,850 Transfer from general reserve – – (173,500) 173,500 – 1,428,000 76,000 – (139,326) 1,364,674 Profit for the year – – – 1,073,670 1,073,670 Other comprehensive loss for the year – – – (4,284) (4,284) Total comprehensive income for the year – – – 1,069,386 1,069,386 – – – (42,840) (42,840) 1,428,000 76,000 – 887,220 2,391,220 Effect of change in accounting policy as referred to in note 4.1.1 Balance as on April 01, 2012 - Restated Profit for the year Other comprehensive loss for the year - Restated - refer note 4.1.1 Balance as on March 31, 2013 - Restated Transactions with owners, recognized directly in equity Cash dividend for the year ended March 31, 2013 @ Rs. 0.30 per share Balance as on March 31, 2014 The annexed notes 1 to 43 form an integral part of these financial statements. Yusuf H. Shirazi Chairman Takeharu Aoki Chief Executive Annual Report for the year ended March 31, 2014 CASH FLOW STATEMENT for the year ended March 31, 2014 Rupees in thousand Note Cash flows from operating activities Cash generated from operations 31 Finance cost paid Employees’ retirement benefits and other obligations paid Net increase in loans to employees Income tax paid Royalty paid Increase in deferred revenue Net cash (used in) / generated from operating activities Cash flows from investing activities Purchase of property, plant and equipment Purchase of intangible assets Proceeds from sale of property, plant and equipment Interest received Net cash used in investing activities Cash flows from financing activities Repayment of long term finances Dividend paid Net cash used in financing activities Net (decrease) / increase in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 32 The annexed notes 1 to 43 form an integral part of these financial statements. Yusuf H. Shirazi Chairman 2014 2013 7,752 (50,126) (38,648) (21,788) (688,684) (751,855) 6,909 (1,536,440) 5,681,383 (160,991) (27,653) (5,273) (729,194) (413,392) 4,800 4,349,680 (177,865) (95,779) 17,502 162,809 (93,333) (362,695) (69,249) 58,544 134,566 (238,834) – (42,724) (42,724) (1,672,497) 4,026,647 2,354,150 (166,667) (9) (166,676) 3,944,170 82,477 4,026,647 Takeharu Aoki Chief Executive 53 54 Annual Report for the year ended March 31, 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended March 31, 2014 1. Legal status and nature of business Honda Atlas Cars (Pakistan) Limited (the ‘Company’) is a public limited company incorporated in Pakistan on November 4, 1992. The Company is a subsidiary of Honda Motor Co., Ltd., Japan. The Company’s ordinary shares are listed on the Karachi, Islamabad and Lahore Stock Exchanges. The registered office of the Company is situated at 1-Mcleod Road, Lahore. Its principal activities are assembling and progressive manufacturing and sale of Honda vehicles and spare parts. The Company commenced commercial production from July 1994. 2. 2.1 2.2 2.2.1 2.2.2 Basis of preparation These financial statements have been prepared in accordance with the requirements of the Companies Ordinance, 1984 (the ‘Ordinance’) and the approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board and Islamic Financial Accounting Standards (IFAS) issued by Institute of Chartered Accountants of Pakistan as are notified under the Ordinance, provisions of and directives issued under the Ordinance. Wherever the requirements of the Ordinance or directives issued by Securities and Exchange Commission of Pakistan differ with the requirements of IFRS or IFAS, the requirements of the Ordinance or the requirements of the said directives prevail. Initial application of standards, amendments or an interpretation to existing standards The following amendments to existing standards have been published that are applicable to the Company’s financial statements covering annual periods, beginning on or after the following dates: Amendments to published standards effective in current year Certain standards, amendments and interpretations to approved accounting standards are effective for accounting periods beginning on April 01, 2013 but are considered not to be relevant or to have any significant effect on the Company’s operations and are, therefore, not detailed in these financial statements except for the amendments as explained below: - Amendments to IAS 1, ‘Financial statement presentation’ regarding other comprehensive income, emphasises on the requirement for entities to group items presented in other comprehensive income (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently (reclassification adjustments). The application of the amendment has not affected the results or net assets of the Company as it is only concerned with presentation and disclosures. - IAS 19 (revised) ‘Employee Benefits’ has eliminated the corridor approach and requires to calculate finance cost on net funding bases. The Company has applied this change in accounting policy retrospectively in accordance with IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’ and recorded unrecognized actuarial losses net of taxes associated with retirement benefit plan by adjusting the opening balance of unappropriated profit and retirement benefit for the prior years presented. Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Company There are certain standards, amendments to the approved accounting standards and interpretations that are mandatory for the Company’s accounting periods beginning on or after April 01, 2014 but are considered not to be relevant or to have any significant effect on the Company’s operations and are, therefore, not detailed in these financial statements. Annual Report for the year ended March 31, 2014 3. Basis of measurement 3.1 These financial statements have been prepared under the historical cost convention as modified by the revaluation of certain financial instruments at fair value and recognition of certain employee retirement benefits at present value. 3.2 a) b) c) 3.3 4. 4.1 The Company’s significant accounting policies are stated in note 4. Not all of these significant policies require the management to make difficult, subjective or complex judgments or estimates. The following is intended to provide an understanding of the policies the management considers critical because of their complexity, judgment and estimation involved in their application and their impact on these financial statements. Estimates and judgments are continually evaluated and are based on historical experience, including expectations of future events that are believed to be reasonable under the circumstances. These judgments involve assumptions or estimates in respect of future events and the actual results may differ from these estimates. The areas involving higher degree of judgments or complexity or areas where assumptions and estimates are significant to the financial statements are as follows: Employee retirement benefits The Company uses the valuation performed by an independent actuary as the present value of its retirement benefit obligations. The valuation is based on assumptions as mentioned in note 4.1. Provision for taxation The Company takes into account the current income tax law and the decisions taken by appellate authorities. Instances where the Company’s view differs from the view taken by the income tax department at the assessment stage and where the Company considers that its views on items of material nature is in accordance with law, the amounts are shown as contingent liabilities. Useful lives and residual values of property, plant and equipment The Company reviews the useful lives and residual values of property, plant and equipment on regular basis. Any change in estimates in future years might affect the carrying amounts of respective items of property, plant and equipment with a corresponding effect on the depreciation charge and impairment. Change in accounting estimate The Company, during the year, has reviewed the useful lives of its property, plant and equipment and intangible assets. This has resulted into revision of useful lives of certain items of plant and machinery and intangible assets from five years to four years. Such a change has been accounted for as a change in an accounting estimate in accordance with IAS 8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’. Had there been no change in the accounting estimate, the profit before tax for the year ended March 31, 2014 would have been higher by Rs 37.46 million and carrying value of property, plant and equipment and intangible assets as at that date would have been higher by Rs 29.93 million and Rs 7.54 million respectively. Consequently, due to the above change in accounting estimate, future profits before tax would increase by Rs 37.46 million. Summary of significant accounting policies The significant accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented unless otherwise stated. Employees’ retirement benefits and other obligations The main features of the schemes operated by the Company for its employees are as follows: 55 56 Annual Report for the year ended March 31, 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended March 31, 2014 4.1.1 Defined benefit plan The Company operates a funded defined benefit gratuity scheme for all its permanent employees. Under the scheme, gratuity is payable on the basis of last drawn basic salary at the following rates: Service in the Company Per completed year of service 0 - 4 years and 364 days Nil 5 - 9 years and 364 days 15 days 10 years or more 30 days Contributions under the scheme are made to this fund on the basis of actuarial recommendation at the rate of 6.5% (2013: 6.7%) per annum of basic salary and are charged to profit and loss account. The latest actuarial valuation for the scheme was carried out as at March 31, 2014. The actual return on plan assets represents the difference between the fair value of plan assets at the beginning of the year and as at the end of the year after adjustments for contributions made by the Company as reduced by benefits paid during the year. The amount recognized in balance sheet represents the present value of the defined benefit obligation as reduced by the fair value of the plan assets. The future contribution rate of the plan includes allowances for deficit and surplus. Projected Unit Credit Method, using the following significant assumptions, is used for valuation of this scheme: Discount rate 12.5% per annum Expected increase in eligible pay 11.5% per annum Expected rate of return on plan assets 12.5% per annum The expected mortality rates assumed are based on the EFU 61-66 mortality table. The Company is expected to contribute Rs 21.29 million to the gratuity fund in the next year. IAS 19 (Revised) ‘Employee Benefits’ amends the accounting for the Company’s defined benefit plan. The revised standard has been applied retrospectively in accordance with the transition provisions of the standard. The impact of the adoption of IAS 19 (revised) has been in the following areas: Effects of change in accounting policy are as follows: Rupees in thousand As at March 31, 2013 As at March 31, 2012 Before As Re - Before As Re - restatement re-stated statement restatement re-stated statement Deferred Liabilities Deferred taxation Accumulated loss – 1,029,553 (114,733) (37,834) 1,042,794 (139,326) (37,834) 13,241 (24,593) – 1,144,790 (532,520) (26,393) 1,154,027 (549,676) (26,393) 9,237 (17,156) Annual Report for the year ended March 31, 2014 Effect on other comprehensive income: Rupees in thousand As at March 31, 2013 As at March 31, 2012 Before As Re - Before As Re - restatement re-stated statement restatement re-stated statement 4.1.2 4.1.3 4.2 Actuarial losses recognized - net of tax – 7,437 7,437 – 17,156 17,156 The effect of the change in accounting policy on the statement of cash flows was immaterial. Accumulating compensated absences Accruals are made annually to cover the obligation for accumulating compensated absences on the basis of accumulated leaves and the last drawn salary and are charged to profit. Defined contribution plan The Company operates a defined contributory provident fund for all its permanent employees. Contributions are made equally by the Company and the employees at the rate of 10% per annum of the basic salary subject to completion of minimum qualifying period of service as determined under the rules of the fund. Taxation Current Provision for current tax is based on the taxable income for the year determined in accordance with the prevailing law for taxation of income. The charge for current tax is calculated using prevailing tax rates or tax rates expected to apply to the profit for the year if enacted. The charge for current tax also includes adjustments, where considered necessary, to provision for taxation made in previous years arising from assessments framed during the year for such years. 4.3 Deferred Deferred tax is accounted for using the balance sheet liability method in respect of all temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of the taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, unused tax losses and tax credits can be utilized. Deferred tax is calculated at the rates that are expected to apply for the year when the differences reverse based on tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the profit and loss account, except in the case of items credited or charged to other comprehensive income or equity in which case it is included in other comprehensive income or equity. Property, plant and equipment Property, plant and equipment except for freehold land are stated at cost less accumulated depreciation and any identified impairment loss. Freehold land is stated at cost less any identified impairment loss. Depreciation on all items of property, plant and equipment except for freehold land and model specific plant and machinery is charged to income applying the diminishing balance method so as to write off the depreciable amount of an asset over its useful life. Depreciation on model specific plant and machinery is provided on a straight line basis so as to write off the depreciable amount of an asset over the life of the model. Depreciation is being charged at the rates given below: 57 58 Annual Report for the year ended March 31, 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended March 31, 2014 4.4 Buildings on freehold land Plant and machinery Furniture and office equipment Vehicles Tools and equipments Computers Rate 5% 15% to 25% 20% 20% 20% 35% Depreciation on additions to property, plant and equipment is charged from the month in which an asset is available for use while no depreciation is charged for the month in which the asset is disposed off. The assets’ residual values and useful lives are continually reviewed by the Company and adjusted if impact on depreciation is significant. The Company’s estimate of the residual value of its property, plant and equipment as at March 31, 2014 has not required any adjustment. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 4.6). Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repair and maintenance costs are charged to income during the period in which they are incurred. The profit or loss on disposal or retirement of an asset represented by the difference between the sale proceeds and the carrying amount of the asset is recognized as an income or expense. Intangible assets Intangible assets, which are stated at cost less accumulated amortization and any identified impairment loss, represent the cost of licenses for the right to manufacture Honda vehicles in Pakistan, technical drawings of certain components and software licenses. Amortization is charged to income on the straight line method so as to write off the cost of an asset over its estimated useful life. Amortization on additions is charged from the month in which an asset is available for use while no amortization is charged for the month in which the asset is disposed off. Amortization is charged at the annual rates given below: Rate License fees and drawings Computer software The assets’ useful lives are continually reviewed by the Company and adjusted if impact on amortization is significant. 20% to 33.33% 20% to 33.33% An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 4.6). Annual Report for the year ended March 31, 2014 4.5 Capital work-in-progress Capital work-in-progress is stated at cost less any identified impairment loss. All expenditure connected with specific assets incurred during installation and construction period are carried under capital work-inprogress. These are transferred to operating fixed assets as and when these are available for use. 4.6 Impairment of non-financial assets The Company assesses at each balance sheet date whether there is any indication that property, plant and equipment and intangible assets may be impaired. If such indication exists, the carrying amounts of such assets are reviewed to assess whether they are recorded in excess of their recoverable amounts. Where carrying values exceed recoverable amounts, assets are written down to their recoverable amounts and the differences are recognized in income currently. 4.7 Financial assets 4.7.1 Classification The Company classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, available for sale and held to maturity. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at the time of initial recognition. a) b) c) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. A financial asset is classified as held for trading if acquired principally for the purpose of selling in the short term. Assets in this category are classified as current assets if expected to be settled within twelve months, otherwise, they are classified as non-current. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than twelve months after the balance sheet date, which are classified as non-current assets. Loans and receivables comprise loans, advances, deposits and other receivables and cash and cash equivalents in the balance sheet. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose off the investments within twelve months from the balance sheet date. d) Held to maturity Financial assets with fixed or determinable payments and fixed maturity, where management has the intention and ability to hold till maturity are classified as held to maturity and are stated at amortized cost. 4.7.2 Recognition and measurement All financial assets are recognized at the time when the Company becomes a party to the contractual provisions of the instrument. Regular purchases and sales of investments are recognized on trade-date; the date on which the Company commits to purchase or sell the asset. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value and transaction costs 59 60 Annual Report for the year ended March 31, 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended March 31, 2014 are expensed in the profit and loss account. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held to maturity investments are carried at amortized cost using the effective interest rate method. 4.8 Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the profit and loss account in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognized in the profit and loss account as part of other income when the Company’s right to receive payments is established. Changes in the fair value of securities classified as available-for-sale are recognized in other comprehensive income. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognized in equity are included in the profit and loss account as gains and losses from investment securities. Interest on available-for-sale securities calculated using the effective interest method is recognized in the profit and loss account. Dividends on available-for-sale equity instruments are recognized in the profit and loss account when the Company’s right to receive payments is established. The fair values of quoted investments are based on current prices. If the market for a financial asset is not active (and for unlisted securities), the Company measures the investments at cost less impairment in value, if any. The Company assesses at each balance sheet date whether there is an objective evidence that a financial asset or a group of financial assets is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss is removed from equity and recognized in the profit and loss account. Impairment losses recognized in the profit and loss account on equity instruments are not reversed through the profit and loss account. Impairment testing of trade debts and other receivables is described in note 4.18. Financial liabilities All financial liabilities are recognized at the time when the Company becomes a party to the contractual provisions of the instrument. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in respective carrying amounts is recognized in the profit and loss account. 4.9 Offsetting of financial assets and financial liabilities Financial assets and financial liabilities are offset and the net amount is reported in the financial statements only when there is a legally enforceable right to set off the recognized amount and the Company intends either to settle on a net basis or to realize the assets and to settle the liabilities simultaneously. 4.10 Stores and spares Usable stores and spares are valued principally at weighted average cost, while items considered obsolete are carried at nil value. Items in transit are valued at cost comprising of invoice value and other incidental charges paid thereon. Annual Report for the year ended March 31, 2014 4.11 Stock-in-trade Stock of raw materials, except for those in transit, work-in-process and finished goods are valued at the lower of weighted average cost and net realizable value. Items in transit are valued at cost comprising of invoice value and other incidental charges paid thereon. Cost of raw materials and trading stock comprises of the invoice value plus other charges paid thereon. Cost of work-in-process and finished goods includes cost of direct materials, labour and appropriate portion of manufacturing overheads. 4.12 Net realizable value signifies the estimated selling price in the ordinary course of business less costs necessarily to be incurred in order to make the sale. Borrowings Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost, any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the profit and loss account over the period of the borrowings using the effective interest method. Finance costs are accounted for on an accrual basis and are reported under accrued mark up to the extent of the amount remaining unpaid. Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date. 4.13 Foreign currency transactions and translation a) Functional and presentation currency Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the Company operates (the functional currency). The financial statements are presented in Pak Rupees, which is the Company’s functional and presentation currency. b) 4.14 Transactions and balances Foreign currency transactions are translated into Pak Rupees using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the profit and loss account. Revenue recognition Revenue is recognized when it is probable that the economic benefits will flow to the Company and the revenue can be measured reliably. Revenue is measured at the fair value of the consideration received or receivable on the following basis: Sales of vehicles and spare parts are recognized as revenue when goods are dispatched and invoiced to the customers. Return on deposits is accrued on a time proportion basis by reference to the principal outstanding and the applicable rate of return. 4.15 Borrowing costs Borrowing costs are recognized as an expense in the period in which these are incurred except to the extent of borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. Such borrowing costs are capitalized as part of the cost of that asset up to the date of its commissioning. 61 62 Annual Report for the year ended March 31, 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended March 31, 2014 4.16 Provisions Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. 4.17 Long term deposits 4.18 These are stated at cost which represents the fair value of consideration given. Trade debts and other receivables are recognized initially at invoice value, which approximates fair value, and subsequently measured at amortized cost using the effective interest method, less provision for doubtful debts. A provision for doubtful debts is established when there is objective evidence that the Company will not be able to collect all the amount due according to the original terms of the receivable. The provision is recognized in the profit and loss account. When a trade debt is uncollectible, it is written off against the provision. Subsequent recoveries of amounts previously written off are credited to the profit and loss account. 4.19 Trade debts and other receivables Trade and other payables Trade and other payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. Exchange gains and losses arising on translation in respect of liabilities in foreign currency are added to the carrying amount of the respective liabilities. 4.20 Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Short term borrowings are shown in current liabilities on the balance sheet. 4.21 4.22 4.23 4.24 Dividend Dividend distribution to the members is recognized as a liability in the period in which it is approved by the members. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors of the Company that makes strategic decisions. Share capital Ordinary shares are classified as equity and recognized at their face value. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax. Deferred revenue Amount received on account of sale of extended warranty is recognized initially as deferred revenue and credited to the profit and loss account in the relevant period covered by the warranty. Annual Report for the year ended March 31, 2014 5. Issued, subscribed and paid up share capital 2014 2013 Number of Shares 2014 2013 Rupees in thousand 111,400,000 111,400,000 Ordinary shares of Rs 10 each 1,114,000 1,114,000 fully paid in cash 31,400,000 31,400,000 Ordinary shares of Rs 10 each issued 314,000 314,000 as fully paid bonus shares 142,800,000 142,800,000 1,428,000 1,428,000 72,828,000 (2013: 72,828,000) ordinary shares of the Company are held by Honda Motor Co., Ltd., Japan, the holding Company. Ordinary shares of the Company held by associated undertakings as at year end are as follows: Number of Shares 2014 Atlas Insurance Limited Shirazi Investments (Private) Limited Shirazi Capital (Private) Limited 850,000 10,602,650 32,517,000 43,969,650 2013 850,000 10,602,650 32,517,000 43,969,650 Rupees in thousand Note 2014 2013 6. Reserves Movement in and composition of reserves is as follows: Capital Share premium 6.1 76,000 76,000 Revenue General reserve - At the beginning of the year – 173,500 - Transferred to accumulated loss – (173,500) – – 76,000 76,000 6.1 This reserve can be utilized by the Company only for the purposes specified in Section 83(2) of the Ordinance. 63 64 Annual Report for the year ended March 31, 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended March 31, 2014 Rupees in thousand 2014 7. 2013 Re-stated Deferred liabilities The amounts recognized in the balance sheet are as follows: Present value of defined benefit obligation 193,099 Fair value of plan assets (148,674) Closing net liability 44,425 Opening net liability 37,834 Current service cost 13,875 Net interest on defined benefit liability 4,161 Net remeasurements for the year 6,591 Payments to fund during the year (18,036) Closing net liability 44,425 The movement in the present value of defined benefit obligation is as follows: Opening value of defined benefit obligation 162,057 Current service cost 13,875 Interest cost 17,826 Benefits paid during the year (9,011) Remeasurements on obligation 8,352 Closing value of defined benefit obligation 193,099 The movement in the fair value of plan assets is as follows: Opening fair value of plan assets 124,223 Expected return on plan assets 13,665 Contributions 18,036 Benefits paid during the year (9,011) Remeasurements on fair value of plan assets 1,761 Closing fair value of plan assets 148,674 Plan assets are comprised as follows: Debt 84,493 Mutual funds 24,755 Cash 39,426 148,674 The actual return on the plan assets during the year was Rs 15.43 million (2013: Rs 13.17 million). 162,057 (124,223) 37,834 26,393 13,013 4,427 11,441 (17,440) 37,834 124,443 13,013 17,174 (4,436) 11,863 162,057 98,050 12,747 17,440 (4,436) 422 124,223 19,855 16,612 87,756 124,223 Annual Report for the year ended March 31, 2014 Comparison of present value of defined benefit obligation, the fair value of plan assets and the surplus or deficit of gratuity fund for five years is as follows: Rupees in thousand As at March 31 Present value of defined benefit obligation Fair value of plan assets Deficit Experience adjustment: - on obligation - on plan assets 8. 2014 2013 2012 2011 2010 (193,099) 148,674 (44,425) (162,057) 124,223 (37,834) (124,443) 98,050 (26,393) (96,980) 74,238 (22,742) (80,769) 67,490 (13,279) 4% 1% 7% 0% 4% 0% 6% -6% -5% 7% Short term borrowings - secured Short term borrowings available from commercial banks under mark up arrangements amount to Rs 4,740 million (2013: Rs 4,740 million). The rates of mark up range from 10.78% to 11.09% per annum (2013: 9.96% to 10.36%) on the balances outstanding. The aggregate short term borrowings are secured by first pari passu hypothecation charge over current assets of the Company. Of the aggregate facility of Rs 2,505 million (2013: Rs 2,506 million) for opening letters of credit, the amount utilized at March 31, 2014 was Rs 41.47 million (2013: Rs 23.96 million). Of the aggregate facility of Rs 400 million (2013: Rs 400 million) for guarantees, which is available as a sub-limit of the above mentioned facility for short term borrowings, the amount utilized at March 31, 2014 was Rs 85.21 million (2013: Rs 36.58 million). Rupees in thousand Note 9. Accrued mark up Accrued mark up on: Short term borrowings - secured Advances from customers 10. Trade and other payables Creditors 10.1 Accrued liabilities Bills payable 10.2 Deposits against display cars 10.3 Accumulating compensated absences 10.4 Advances from customers 10.5 License fee, technical fee and royalties 10.6 Provision for custom duties Unclaimed dividends Punjab sales tax payable Withholding tax payable Workers’ welfare fund Workers’ profit participation fund 10.7 Others 2014 2013 595 13,195 13,790 272 91,714 91,986 546,462 324,837 5,390,132 1,292,778 37,424 1,697,366 232,713 32,169 4,896 63,464 20,827 57,008 112,589 43,580 9,856,245 789,934 90,407 7,280,000 1,175,652 31,302 3,863,576 258,630 32,169 4,780 39,654 1,480 15,063 28,415 35,807 13,646,869 65 66 Annual Report for the year ended March 31, 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended March 31, 2014 10.1 Creditors include amount due to related parties of Rs 36.09 million (2013: Rs 21.67 million). 10.2 10.3 Bills payable include amount due to related parties of Rs 5,375.51 million (2013: Rs 7,261.71 million). These represent interest free deposits from dealers against display cars and are repayable on demand. Rupees in thousand 10.4 10.5 10.6 Accumulating compensated absences Opening balance Accrual for the year Payments made during the year Closing balance 11.1 Contingencies Note Workers’ profit participation fund Opening balance Provision for the year 28 Interest for the year Payments during the year Closing balance Contingencies and commitments (ii) 19,917 21,598 (10,213) 31,302 License fee, technical fee and royalties include amount of Rs 230.28 million (2013: Rs 255.80 million) due to related parties. 11. (i) 31,302 26,734 (20,612) 37,424 2013 Advances from customers include Rs 1,665.73 million (2013: Rs 3,793.49 million) against the sale of vehicles including sales tax. These advances carry mark up at the rate of 9.96% per annum (2013: 9.21% per annum), being the weighted average rate of three months’ market treasury bills as at the end of the year, in accordance with the directive issued by the Engineering Development Board, Government of Pakistan on September 17, 2002. The mark up is calculated and payable on demand of customer, if vehicles are delivered after sixty days from the receipt of such advances. Rupees in thousand 10.7 2014 2014 28,415 112,589 19 (28,434) 112,589 2013 – 28,415 – – 28,415 Claims against the Company not acknowledged as debt amount to Rs 9.79 million (2013: Rs 9.79 million). As the management is confident that the matter would be settled in its favour, consequently, no provision has been made in these financial statements in respect of the above mentioned disputed liabilities. In the previous years, the Company received notices from custom authorities for payment of custom duty and sales tax in respect of certain components of Honda Cars imported during prior years. Custom authorities interpreted that Completely Built Unit (CBU) rate of duty was applicable on such components and thus raised a demand of Rs 110 million. It included Rs 96 million on account of custom duty and Rs 14 million on account of sales tax. The Company approached custom authorities on the grounds that the components specified in the above mentioned notices included certain components which were duly appearing in the indigenization program of the Company for the relevant period. Hence, CBU rate of duty was not applicable on import of these components. The Company has made a provision of Rs 32 million against the total demand of Rs 110 million. Annual Report for the year ended March 31, 2014 As the management is confident that the matter would be settled in its favour, consequently, no provision for the balance amount has been made in these financial statements in respect of the above mentioned notices. (iii) Custom, Excise and Sales Tax Appellate Tribunal (Appellate Tribunal) endorsed the demand of Rs 1,105.04 million earlier raised against the Company on account of custom duty, sales tax and income tax on the grounds that ‘license fee’ and ‘royalty’ paid to M/s Honda Motor Co., Ltd., Japan was includable in the ‘import value’ of ‘completely knocked down’ kits of vehicles assembled by the Company and parts thereof. The Company further agitated the matter before honourable Lahore High Court that is pending adjudication. In this respect, interim relief has been extended by honourable Court and the Custom authorities have been refrained from enforcing the recovery of the amount adjudged against the Company. No provision on this account has been made in these financial statements as the Company’s management considers that its stance is founded on meritorious grounds and relief will be secured from higher appellate fora. In this respect, it is the Company’s contention that subject amount of ‘royalty’ and ‘license fee’ were relatable to the Company’s manufacturing facilities and not the goods imported by it and hence such amounts cannot be considered as part and parcel of import value. In addition to above, another demand of Rs 110.93 million, raised on substantially similar grounds in respect of imports affected during the period from June 2008 to March 2009, have been endorsed by Collector (Appeals) and the Company has preferred an appeal before Appellate Tribunal against such demand. In this respect also, based on Company’s request, interim relief has been extended to the Company by honourable High Court and the Custom authorities have been refrained from enforcing the recovery of the amount adjudged against the Company. While Appellate Tribunal is not likely to extend any relief on this account due to its earlier decision on the matter, the liability on this account has not been recognized in these financial statements as management expects a relief from higher appellate fora, as explained above. Similarly, the Company has preferred an appeal before Appellate Tribunal against another demand of Rs 523.72 million endorsed by Collector (Appeals) on substantially similar grounds in respect of imports affected during the period from April 2009 to December 2010. While Appellate Tribunal is not likely to extend any relief on this account due to its earlier decision on the matter, the liability on this account has not been recognized in these financial statements as management expects a relief from higher appellate fora, as explained above. 11.2 Commitments in respect of (i) (ii) Letters of credit and purchases for capital expenditure amounts to Rs 0.62 million (2013: Nil). Letters of credit and purchases, other than capital expenditure, amounts to Rs 1,068.43 million (2013: Rs 687.13 million). 67 68 Annual Report for the year ended March 31, 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended March 31, 2014 12. Property, plant and equipment Rupees in thousand 2014 Freehold land Buildings on freehold land Plant and machinery Furniture and Vehicles office equipment Tools and equipments Computers Total 417,319 1,956,350 4,822,601 114,677 189,104 79,913 66,061 7,646,025 – 758,518 3,296,870 78,107 55,880 53,988 46,884 4,290,247 417,319 1,197,832 1,525,731 36,570 133,224 25,925 19,177 3,355,778 417,319 1,197,832 1,525,731 36,570 133,224 25,925 19,177 3,355,778 324 27,901 19,673 63,425 33,811 15,976 161,110 At April 01, 2013 Cost Accumulated depreciation Net Book Value Year ended March 31, 2014 Opening net book value Additions at cost – Disposals Cost – – 5,608 1,338 29,642 1,343 8,476 46,407 Accumulated depreciation – – 5,411 1,201 14,994 1,275 8,221 31,102 – – 197 137 14,648 68 255 15,305 Depreciation for the year Closing net book value – 59,900 508,065 9,405 33,331 7,982 9,833 628,516 417,319 1,138,256 1,045,370 46,701 148,670 51,686 25,065 2,873,067 417,319 1,956,674 4,844,894 133,012 222,887 112,381 73,561 7,760,728 – 818,418 3,799,524 86,311 74,217 60,695 48,496 4,887,661 417,319 1,138,256 1,045,370 46,701 148,670 51,686 25,065 2,873,067 Freehold land Buildings on freehold land Plant and machinery 417,319 1,954,366 4,701,669 103,769 142,725 79,807 52,354 7,452,009 695,506 3,254,810 72,902 73,083 56,524 43,429 4,196,254 417,319 1,258,860 1,446,859 30,867 69,642 23,283 8,925 3,255,755 417,319 1,258,860 1,446,859 30,867 69,642 23,283 8,925 3,255,755 – 1,984 526,531 14,176 116,409 9,493 15,720 684,313 At March 31, 2014 Cost Accumulated depreciation Net Book Value Rupees in thousand 2013 Furniture and Vehicles office equipment Tools and equipments Computers Total At April 01, 2012 Cost Accumulated depreciation Net Book Value - Year ended March 31, 2013 Opening net book value Additions at cost Disposals Cost – – 405,599 3,268 70,030 9,387 2,013 490,297 Accumulated depreciation – – 405,210 2,718 41,090 7,773 1,923 458,714 – – 389 550 28,940 1,614 90 31,583 Depreciation for the year Closing net book value – 63,012 447,270 7,923 23,887 5,237 5,378 552,707 417,319 1,197,832 1,525,731 36,570 133,224 25,925 19,177 3,355,778 417,319 1,956,350 4,822,601 114,677 189,104 79,913 66,061 7,646,025 758,518 3,296,870 78,107 55,880 53,988 46,884 4,290,247 1,197,832 1,525,731 36,570 133,224 25,925 19,177 3,355,778 At March 31, 2013 Cost Accumulated depreciation Net Book Value – 417,319 Annual Report for the year ended March 31, 2014 12.1 Plant and machinery includes dies and moulds having book value of Rs 138.68 million (2013: Rs 267.75 million) which are in possession of various vendors of the Company as these dies and moulds are used by the vendors for producing certain parts for supply to the Company. Rupees in thousand Note 2014 12.2 The depreciation charge has been allocated as follows: Cost of sales 24 Distribution and marketing costs 25 Administrative expenses 26 12.3 2013 590,689 13,742 24,085 628,516 523,962 10,856 17,888 552,707 Disposal of property, plant and equipment Rupees in thousand Particulars of assets Sold to Cost Furniture and office equipments Vehicles Plant and machinery Tools and equipments Computers Employee Aamir H. Shirazi 2014 Accumulated Book depreciation value Sale proceeds Mode of disposal 26 17 9 9 As per Company policy Assets written off 1,312 1,184 128 – Assets written off Employees Yusuf H. Shirazi Aamir H. Shirazi Tariq Rashed Muhammad Nauman Muhammad Rafi Syed Waseem Hasan Aneel Anwar Muhammad Ajmal Jamshaid Tahir Abdul Qudoos Abbasi Ishtiaq H Bokhari (Ex- employee) Adeel Bokhari (Ex- employee) 3,215 3,432 1,452 1,452 1,452 1,365 1,365 1,365 1,559 1,548 2,051 1,540 2,133 2,277 963 963 963 661 661 661 329 232 361 257 1,082 1,155 489 489 489 704 704 704 1,230 1,316 1,690 1,283 1,154 1,178 461 461 470 695 695 695 1,222 1,345 1,645 1,372 As per Company policy -do- -do- -do- -do- -do- -do- -do- -do- -do- -do- -do- Outsiders Izhar Construction Abdul Qadir Atlas Insurance 3,432 3,000 1,414 2,297 1,863 373 1,135 1,137 1,041 3,488 1,206 1,400 Auction -do- Insurance claim Assets written off 5,608 5,411 197 32 26 Assets written off 1,311 Assets written off Employee Mahmood Ullah (Ex- employee) – Assets written off 6 6 As per Company policy 1,249 62 – Assets written off 8,476 8,221 255 – Assets written off 46,407 31,102 15,305 17,502 69 70 Annual Report for the year ended March 31, 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended March 31, 2014 Rupees in thousand Particulars of assets Sold to Cost Furniture and office equipments Vehicles Plant and machinery Tools and equipments Computers Employees Amjad Ali Khan (Ex-employee) Ishtiaq Hussain Bokhari (Ex-employee) 2013 Accumulated Book depreciation value Sale proceeds Mode of disposal 32 44 17 17 15 27 14 28 As per Company policy Auction 128 95 33 45 -do- Assets written off 3,064 2,589 475 – Assets written off Employees Amjad Ali Khan (Ex-employee) Basharat Ali Rana Sohail Nawaz Zulfiqar Ali M Ashraf Asif Mehmood Amir Nazir Imran Farooq Ayaz Mahmood (Ex-employee) Ahmad Umair Wajid Maqsood ur Rehman Ishtiaq H Bokhari (Ex-employee) Ayaz Hafeez Nadeem Azam 1,451 1,310 1,788 1,644 1,431 1,310 1,352 1,310 1,305 1,710 1,562 1,644 1,430 1,311 744 867 695 639 947 867 599 867 897 602 939 639 947 868 707 443 1,093 1,005 484 443 753 443 408 1,108 623 1,005 483 443 671 444 1,113 1,037 486 444 737 444 417 1,121 665 1,037 486 444 As per Company policy -do- -do- -do- -do- -do- -do- -do- -do- -do- -do- -do- -do- -do- Outsiders Muhammad Uzair Sajid Latif Rizwan Hafeez Butt Farhan Rashid Farhan Makhdoom Khan Abdul Majid Muhammad Shahbaz Khan Bilal Farooq Asif Aman Muhammad Iqbal Mirza M. Zia ul Hassan Ali Haider Sarwar Naseem Asim Majeed Shehryar Abbas Baloch Amir Saeed Bhatti Naveed Ahmad Javed Sarwar Qureshi Muhammad Ammar Muhammad Sarwar Akbar Khan Nosheen Iqbal 8,855 886 5,378 1,296 886 2,592 1,296 1,265 1,265 4,751 951 861 886 447 1,430 765 1,353 1,430 1,176 380 435 3,165 4,012 614 4,106 709 614 1,418 709 506 506 3,324 738 628 609 347 956 649 395 956 1,005 264 408 1,993 4,843 272 1,272 587 272 1,174 587 759 759 1,427 213 233 277 100 474 116 958 474 171 116 27 1,172 7,644 671 4,160 809 800 2,010 970 1,207 1,165 5,030 990 815 862 392 1,385 710 1,390 1,410 1,006 411 322 3,380 Auction -do- -do- -do- -do- -do- -do- -do- -do- -do- -do- -do- -do- -do- -do- -do- -do- -do- -do- -do- -do- -do- 1,342 397,662 1,302 397,662 691 6,852 Auction -do- 5,203 5,086 117 388 1,392 1,160 232 – 181 101 80 160 Assets written off 9,206 7,672 1,534 – Assets written off Assets written off 2,013 1,923 90 – Assets written off 490,297 458,714 31,583 58,544 Outsider Bagh Ali Outsiders Hamza Ijaz Pak Traders Atlas Copco Pakistan (Pvt) Limited Assets written off Outsider Omer Jibran 40 - Negotiation Assets written off Negotiation Annual Report for the year ended March 31, 2014 13. Intangible assets Rupees in thousand 2014 License fees & drawings Computer softwares Total At April 01, 2013 Cost Accumulated amortization Net Book Value 300,721 162,532 138,189 2,120 753 1,367 302,841 163,285 139,556 Year ended March 31, 2014 Opening net book value Additions Amortization for the year Closing net book value 138,189 4,797 57,370 85,616 1,367 – 552 815 139,556 4,797 57,922 86,431 At March 31, 2014 Cost Accumulated amortization Net Book Value 305,518 219,902 85,616 2,120 1,305 815 307,638 221,207 86,431 Rupees in thousand 2013 License fees & drawings Computer softwares Total At April 01, 2012 Cost Accumulated amortization Net Book Value 387,888 331,818 56,070 6,603 6,307 296 394,491 338,125 56,366 Year ended March 31, 2013 Opening net book value Additions Disposals Cost Accumulated amortization Amortization for the year Closing net book value 56,070 128,613 296 1,275 56,366 129,888 215,780 215,780 – 46,494 138,189 5,758 5,758 – 204 1,367 221,538 221,538 – 46,698 139,556 300,721 162,532 138,189 2,120 753 1,367 302,841 163,285 139,556 At March 31, 2013 Cost Accumulated amortization Net Book Value 71 72 Annual Report for the year ended March 31, 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended March 31, 2014 13.1 The amortization charge has been allocated as follows: Rupees in thousand Note 2014 2013 Cost of sales Distribution and marketing costs Administrative expenses 24 25 26 57,143 127 652 57,922 46,267 169 262 46,698 543 20,349 3,720 56,681 81,293 52 900 6,905 – 7,857 14. Capital work-in-progress Plant and machinery Civil works Other tangible assets Intangible assets 15. Long term loans and advances Loans to employees - considered good - Executives 15.1 - Others Receivable within one year - Executives - Others 20 42,150 31,219 73,369 21,056 30,525 51,581 (9,637) (10,960) (20,597) 52,772 (4,887) (9,505) (14,392) 37,189 15.1 Executives Opening balance Disbursements during the year Repayments during the year 21,056 33,876 54,932 (12,782) 42,150 14,057 11,730 25,787 (4,731) 21,056 Loans to employees comprise of staff welfare loan, associate loan and car loan. Staff welfare loans carry interest at the rate of 10.5% per annum (2013: 10% per annum) and are recoverable within a period of 7 years commencing from the date of disbursement through monthly deductions from salaries. Associate loans are interest free and are repayable between 2 to 4 years. Car loans carry interest ranging from 1% to 4% per annum and are recoverable within a maximum period of 6 years commencing from the date of disbursement through monthly deductions from salaries. All of these loans are secured against retirement benefits of employees and their guarantors and are granted to the employees of the Company in accordance with their terms of employment. The maximum aggregate amount due from executives at the end of any month during the year was Rs 42.80 million (2013: Rs 24.26 million). Annual Report for the year ended March 31, 2014 Rupees in thousand Note 2014 2013 Re-stated 16. Deferred taxation Deferred tax is calculated in full on temporary differences under the balance sheet liability method using a tax rate of 35% Deferred tax asset as at April 01 1,042,794 1,154,027 Credited to other comprehensive income 2,307 4,004 Charged to profit and loss account for the year 30 (651,863) (115,237) Deferred tax asset as at March 31 393,238 1,042,794 The deferred tax asset comprises of temporary differences arising due to: Accelerated tax depreciation (328,649) (454,863) Unused tax losses carried forward 695,079 1,473,157 Deferred liabilities 15,549 13,241 Others 11,259 11,259 393,238 1,042,794 16.1 The Company has not recognized deferred tax asset in respect of the tax credit available under section 113 of the Income Tax Ordinance, 2001 of Rs 622.75 million (2013: 520.70 million) in view of the management’s estimate that sufficient taxable temporary differences may not be available to utilize these tax credits before these are set to expire. 17. Stores and spares Most of the items of stores and spares are of interchangeable nature and can be used as machine spares or consumed as stores. Accordingly, it is not practicable to distinguish stores from spares until their actual usage. Spares amounting to Rs 7.87 million (2013: Rs 9.75 million) are in the possession of various vendors which relate to the dies and moulds. Rupees in thousand 18. Stock-in-trade Raw materials including in transit Rs 1,089.23 million (2013: Rs 1,591.10 million) Work in process Finished goods - Own manufactured - Trading stock including in transit Rs 37.5 million (2013: Rs 47.82 million) 18.1 18.2 18.3 2014 2013 2,175,022 345,226 2,716,283 288,108 901,424 430,868 940,662 366,499 3,852,540 4,311,552 Raw materials amounting to Rs 130.09 million (2013: Rs 87.92 million) are in the possession of various vendors of the Company for further processing into parts to be supplied to the Company. Finished goods at sale value amounting to Rs 838.79 million (2013: Rs 742.17 million) are in the possession of various dealers as consignment stock for display at dealerships. The above balances include items costing Rs 82.86 million (2013: Rs 2,189.76 million) valued at their Net Realizable Value (NRV) amounting to Rs 79.45 million (2013: Rs 2,178 million). 73 74 Annual Report for the year ended March 31, 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended March 31, 2014 Rupees in thousand Note 2014 2013 19. Trade debts - unsecured Considered good – – Considered doubtful 16,142 16,142 Provision for doubtful debts (16,142) (16,142) – – – – 20. Loans, advances, prepayments and other receivables Current portion of loans to employees 15 20,597 14,392 Advances - considered good: - to employees 20.1 311 300 - to suppliers and contractors 245,741 236,396 246,052 236,696 Due from related parties - considered good 20.2 7,106 37,519 Recoverable from government authorities: - Income tax 1,577,882 1,260,911 - Sales tax 576,927 447,920 - Custom duty 39,098 39,098 2,193,907 1,747,929 Prepayments 6,739 5,417 Profit receivable on bank deposits 14,945 17,949 Other receivables - considered good 20.3 14,305 45,200 2,503,651 2,105,102 20.1 Included in advances to employees is an amount of Nil (2013: Rs 0.21 million) due from the chief executive and Rs 0.27 million (2013: Rs 0.11 million) due from executives. Rupees in thousand 20.2 Due from related parties - considered good Honda Motor Co., Ltd., Japan Honda Automobile (Thailand) Company Limited Honda Cars Philippines, Inc. Honda Trading Corporation, Japan Honda Auto parts Manufacturing (M) SDN. BHD, Malaysia Asian Honda Motor Company, Thailand Honda Malaysia SDN. BHD. Malaysia P.T. Honda Prospect Motor Indonesia Honda Parts Manufacturing Corporation Philippines P.T. Honda Precision Parts Manufacturing, Indonesia American Honda Motor Co., Inc 2014 1,123 4,933 – 62 424 221 214 66 – 63 – 7,106 2013 3,448 12,477 27 18 391 20,979 22 15 23 – 119 37,519 20.2.1 These are in the normal course of business and are interest free. 20.3 Other receivables include an amount of Rs 0.88 million (2013: Rs 1.22 million) due from Atlas Insurance Limited, a related party. It is in the normal course of business and is interest free. Annual Report for the year ended March 31, 2014 21. Short term investments This represents investment in Market Treasury Bills of Government of Pakistan which has been disposed off during the current year. Rupees in thousand Note 2014 2013 22. Cash and bank balances At banks on : - Current accounts 6,765 7,805 - Deposit accounts 22.1 2,345,741 3,525,320 2,352,506 3,533,125 Cash in hand 1,644 1,842 2,354,150 3,534,967 22.1 Balances in deposit accounts bear mark up which ranges from 7.00% to 9.40% (2013: 6.00% to 9.12%) per annum. Rupees in thousand 23. 2014 2013 Sales Sales - Own manufactured goods Sales tax Commission to dealers Discounts to customers Sales - Trading goods Sales tax Commission to dealers 44,892,630 (6,431,876) (663,024) – 37,797,730 34,286,981 (4,727,087) (501,565) (29,030) 29,029,299 1,566,916 (208,242) (3,150) 1,355,524 39,153,254 1,448,248 (199,513) (3,430) 1,245,305 30,274,604 75 76 Annual Report for the year ended March 31, 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended March 31, 2014 Rupees in thousand Note 24. Cost of sales Raw material consumed Stores and spares consumed Salaries, wages and benefits 24.1 Fuel and power Insurance Travelling and vehicle running Freight and handling Repairs and maintenance Technical assistance Depreciation on property, plant and equipment 12.2 Amortization on intangible assets 13.1 Royalty Canteen subsidy Other expenses Opening stock of work-in-process Closing stock of work-in-process Cost of goods manufactured Own work capitalized Cost of damaged cars Opening stock of finished goods Closing stock of finished goods Cost of sales - Own manufactured Cost of sales - Trading goods 24.1 33,027,802 120,181 523,673 139,530 40,355 78,527 27,803 33,855 23,861 590,689 57,143 678,482 25,868 2,727 35,370,496 288,108 (345,226) (57,118) 35,313,378 (24,756) (14,109) 35,274,513 940,662 (901,424) 39,238 35,313,751 982,258 36,296,009 2013 26,474,350 114,071 326,464 104,389 41,049 64,028 64,174 20,800 23,078 523,962 46,267 680,579 19,791 1,258 28,504,260 323,572 (288,108) 35,464 28,539,724 (79,902) (4,668) 28,455,154 334,006 (940,662) (606,656) 27,848,498 979,024 28,827,522 Salaries, wages and benefits include following amounts in respect of gratuity: Current service cost Net interest on defined benefit liability 2014 8,309 2,491 10,800 7,346 2,499 9,845 In addition to above, salaries, wages and benefits include Rs 13.51 million (2013: Rs 11.64 million) on account of provident fund contributions. Annual Report for the year ended March 31, 2014 Rupees in thousand Note 2014 25. Distribution and marketing costs Salaries, wages and benefits 25.1 96,458 Fuel and power 3,615 Insurance 6,328 Travelling and vehicle running 17,234 Freight and handling 13,097 Repairs and maintenance 9,376 Printing and stationery 6,887 Warranty costs 18,938 Advertising and sales promotion 134,344 Depreciation on property, plant and equipment 12.2 13,742 Amortization on intangible assets 13.1 127 Training expenses 3,487 Canteen subsidy 2,067 Free service claims 5,768 Rent, rates and taxes 5,574 Other expenses 3,514 340,556 25.1 Salaries, wages and benefits include following amounts in respect of gratuity: Current service cost Net interest on defined benefit liability 2,154 647 2,801 2013 63,843 3,241 5,108 13,959 11,321 5,218 4,990 20,632 61,631 10,856 169 1,577 1,539 3,504 5,363 5,756 218,707 2,043 695 2,738 In addition to above, salaries, wages and benefits include Rs 3.00 million (2013: Rs 2.63 million) on account of provident fund contributions. Rupees in thousand Note 26. Administrative expenses Salaries, wages and benefits 26.1 Fuel and power Insurance Travelling and vehicle running Repairs and maintenance Printing and stationery Communications Postage Advertising Auditors’ remuneration 26.2 Legal and professional charges Depreciation on property, plant and equipment 12.2 Amortization on intangible assets 13.1 Fees and subscription Canteen subsidy Security expenses Other expenses 2014 169,661 5,446 5,092 25,560 9,231 3,859 4,121 4,502 7,985 8,442 8,298 24,085 652 1,576 3,877 2,389 2,250 287,026 2013 113,770 5,994 4,403 24,025 4,167 3,477 3,447 4,109 1,837 5,110 4,029 17,888 262 1,478 3,774 2,085 2,053 201,908 77 78 Annual Report for the year ended March 31, 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended March 31, 2014 Rupees in thousand 2014 2013 26.1 Salaries, wages and benefits include following amounts in respect of gratuity: Current service cost 3,412 3,624 Net interest on defined benefit liability 1,023 1,233 4,435 4,857 In addition to above, salaries, wages and benefits include Rs 4.39 million (2013: Rs 4.03 million) on account of provident fund contributions. Rupees in thousand Note 26.2 Auditors’ remuneration The charges for professional services include the following in respect of auditors’ services for: Statutory audit Half yearly review Taxation services Royalty audit, certificates for remittance of foreign currency and sundry services Out of pocket expenses 27. Other income Income from financial assets: Profit on bank deposits Profit on loans to employees Gain on financial asset at fair value through profit or loss - Realized - Un-realized Income from non-financial assets: Profit on disposal of property, plant and equipment Profit on advances to suppliers Liabilities no longer payable written back Freight income Others 28. Other expenses Workers’ welfare fund Workers’ profit participation fund 10.7 Exchange loss Loss on scrap assets 2014 2013 1,245 350 5,437 1,150 300 2,922 964 446 8,442 375 363 5,110 148,155 4,332 141,550 3,705 18,499 – 18,499 170,986 – 2,180 2,180 147,435 2,197 7,318 62,018 21,900 6,129 99,562 270,548 26,961 4,929 1,999 25,712 6,398 65,999 213,434 41,945 112,589 207,296 3,060 364,890 15,063 28,415 480,639 – 524,117 Annual Report for the year ended March 31, 2014 Rupees in thousand Note 29. Finance cost Interest and mark up on: - Long term finances - Short term borrowings - Advances from customers - Workers’ profit participation fund Bank charges 30. Taxation Current - For the year - Prior years Deferred 16 %age 30.1 Tax charge reconciliation Numerical reconciliation between the average effective tax rate and the applicable tax rate. Applicable tax rate as per Income Tax Ordinance, 2001 Tax effect of: - change in prior years’ tax - change in tax rate - minimum tax not carried forward - tax credit allowed - lower tax rates / final tax regime and others Other rounding off differences Average effective tax rate charged to profit and loss account 2014 2013 – 16,530 17,399 19 4,127 38,075 15,491 65,178 106,811 – 3,487 190,967 368,541 3,172 371,713 651,863 1,023,576 165,293 – 165,293 115,237 280,530 2014 2013 34.00 35.00 0.15 1.00 16.12 (0.30) (2.21) 0.05 14.81 48.81 – – 34.45 (10.21) (5.79) – 18.45 53.45 79 80 Annual Report for the year ended March 31, 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended March 31, 2014 Rupees in thousand Note 2014 31. Cash generated from operations Profit before taxation Adjustments for: Depreciation on property, plant and equipment Profit on disposal of property, plant and equipment Profit on bank deposits Profit on advances to suppliers Profit on loans to employees Liabilities no longer payable written back Finance cost Provision for employees’ retirement benefits and other obligations Amortization on intangible assets Royalty Working capital changes 31.1 2013 2,097,246 524,817 628,516 (2,197) (148,155) (7,318) (4,332) (62,018) 33,948 44,770 57,922 765,780 (3,396,410) 7,752 552,707 (26,961) (141,550) (4,929) (3,705) (1,999) 187,480 39,038 46,698 589,336 3,920,451 5,681,383 31.1 Working capital changes Decrease / (Increase) in current assets - Stores and spares - Stock-in-trade - Loans, advances, prepayments and other receivables (Decrease) / Increase in current liabilities - Trade and other payables (559) 459,012 (78,377) 380,076 (3,507) (1,458,029) 57,418 (1,404,118) (3,776,486) (3,396,410) 5,324,569 3,920,451 32. Cash and cash equivalents Cash and bank balances Short term investments 2,354,150 – 2,354,150 3,534,967 491,680 4,026,647 33. Remuneration of Chief Executive, Directors and Executives The aggregate amount charged in the financial statements for the year for remuneration, including certain benefits to the chief executive, certain directors and other executives of the Company is as follows: Rupees in thousand Chief Executive 2014 2013 Directors 2014 2013 Executives 2014 2013 Managerial remuneration House rent and utilities Bonus Reimbursement of medical expenses Employees’ retirement benefits Other allowances and expenses Number of persons 33.1 559 2,251 – 167 – 8,086 11,063 613 1,453 – 22 – 6,053 8,141 1 1 8,266 5,985 7,331 – 2,055 16,869 40,506 2 7,577 83,482 5,408 46,790 1,364 70,173 – 1,044 1,943 18,110 7,323 20,391 23,615 239,990 2 82 73,644 41,096 14,952 939 16,427 13,231 160,289 80 The Chief Executive, certain directors and executives of the Company are provided with free use of Company maintained cars and furnished accommodation. Annual Report for the year ended March 31, 2014 34. Earnings per share 2014 34.1 Basic earnings per share 34.2 Net profit for the year Weighted average number of ordinary shares Basic earnings per share 35. 2013 Rupees in thousand Number in thousand Rupees 1,073,670 142,800 7.52 244,287 142,800 1.71 Diluted earnings per share A diluted earnings per share has not been presented as the Company does not have any convertible instruments in issue as at March 31, 2014 and March 31, 2013 which would have any effect on the earnings per share if the option to convert is exercised. Operating segments Management monitors the operating results of its business segments separately for the purpose of making decisions about resource allocation and performance assessment. Operating segments are reported in a manner consistent with internal reporting provided to the Chief Operating Decision Maker (CODM). Segment performance is generally evaluated based on certain key performance indicators including business volume and gross profit. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. 35.1 The management has determined the operating segments based on the reports reviewed by the CODM that are used to make strategic and business decisions. (a) Manufacturing (b) This segment relates to the sale of locally manufactured cars and parts. This segment relates to the trading of Completely Built Units (CBUs) and parts. 35.2 Segment information Trading Rupees in thousand Manufacturing 2014 2013 Trading 2014 2013 2014 Total 1,355,524 1,245,305 39,153,254 2013 Segment revenue Segment expenses 37,797,730 29,029,299 - Cost of sales Gross profit 30,274,604 (35,313,751) (27,848,498) (982,258) (979,024) 2,483,979 1,180,801 373,266 266,281 2,857,245 1,447,082 Distribution and marketing costs (340,556) (218,707) Administrative expenses (287,026) (201,908) Other income 270,548 213,434 Other expenses (364,890) (524,117) Finance cost (38,075) (190,967) Profit before taxation 2,097,246 524,817 Taxation (1,023,576) (280,530) Profit after taxation 1,073,670 244,287 (36,296,009) (28,827,522) 81 82 Annual Report for the year ended March 31, 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended March 31, 2014 35.2.1 Segment wise assets and liabilities are not being reviewed by the CODM. 36. Financial risk management 36.1 Financial risk factors The Company’s activities expose it to a variety of financial risks: market risk (including currency risk, price risk, fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. The Company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Company’s financial performance. Risk management is carried out by the Company’s finance department under policies approved by the Board of Directors. The Company’s finance department evaluates and hedges financial risks based on principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk and investment of excess liquidity, provided by the Board of Directors. (a) Market risk (i) Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Currency risk arises mainly from future commercial transactions or receivables and payables that exist due to transactions in foreign currencies. The Company is exposed to currency risk arising from various currency exposures, primarily with respect to the United States Dollar (USD), Japanese Yen (JPY) and Thai Baht (THB). Currently, the Company’s foreign exchange risk exposure is restricted to the amounts receivable / payable from / to foreign entities. The Company’s exposure to currency risk is as follows: (In thousand) 2014 2013 Cash and bank balances - USD 781 65 Other receivables - USD 38 251 Trade and other payables - USD (53,052) (70,946) Net exposure - USD (52,233) (70,630) Other receivables - JPY 1,156 3,270 Trade and other payables - JPY (139,812) (263,591) Net exposure - JPY (138,656) (260,321) Other receivables - THB 793 2,925 Trade and other payables - THB (15,994) (18,737) Net exposure - THB (15,201) (15,812) If the functional currency, at reporting date, had weakened / strengthened by 1% against the USD, JPY and THB with all other variables held constant, the impact on post tax profit for the year would have been Rs 34.64 million (2013: Rs 47.39 million) lower / higher, mainly as a result of exchange losses / gains on translation of foreign exchange denominated financial instruments. 83 Annual Report for the year ended March 31, 2014 (ii) Price risk (iii) The Company is neither exposed to equity securities price risk nor commodity price risk. Interest rate risk represents the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Cash flow and fair value interest rate risk The Company’s interest rate risk arises from short term investments. Short term investments held at fair value through profit or loss expose the Company to cash flow interest rate risk. At the balance sheet date, the interest rate profile of the Company’s significant interest bearing financial instruments was: Rupees in thousand Fixed rate instruments Financial assets 2014 2013 Long term loans and advances Short term investments Cash at bank - deposit accounts Financial liabilities 73,369 – 2,345,741 2,419,110 – 51,581 491,680 3,525,320 4,068,581 – Net exposure 2,419,110 4,068,581 Floating rate instruments Financial assets – – Financial liabilities – – Net exposure – – Fair value sensitivity analysis for fixed rate instruments As at March 31, 2014, if market interest rates had been 0.1% higher / lower with all other variables held constant, post-tax profit for the year would have been higher / lower by Rs 1.30 million (2013: Rs 0.32 million). Cash flow sensitivity analysis for variable rate instruments (b) As at March 31, 2014, the Company does not hold any variable rate financial instruments. Credit risk represents the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Credit risk of the Company arises from deposits with banks, trade debts, investments, loans and advances and other receivables. (i) Credit risk Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was as follows: 84 Annual Report for the year ended March 31, 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended March 31, 2014 Rupees in thousand 2014 Long term deposits Loans, advances and other receivables Balances with banks 2013 4,042 29,250 2,352,506 2,385,798 4,042 63,149 3,533,125 3,600,316 The credit risk on liquid funds is limited because the counter parties are banks with reasonably high credit ratings. The Company believes that it is not exposed to major concentration of credit risk as its exposure is spread over a significant number of counter parties. (ii) Credit quality of financial assets The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rate: Banks Rating Short term Long term Rating Agency Citibank N.A. P-2 A3 Moody’s Deutsche Bank A.G. A-1 A S&P Faysal Bank Limited A1+ AA PACRA Habib Bank Limited A-1+ AAA JCR-VIS MCB Bank Limited A1+ AAA PACRA National Bank of Pakistan A-1+ AAA JCR-VIS Soneri Bank Limited A1+ AA- PACRA Standard Chartered Bank (Pakistan) Limited A1+ AAA PACRA The Bank of Tokyo - Mitsubishi UFJ, Limited A-1 A+ S&P United Bank Limited A-1+ AA+ JCR-VIS (c) 2014 2013 Rupees in thousand 226,970 3,541 1,632 357 101,886 1,518 1,274,459 167,444 890 1,880 316 74,436 1,151 2,134,796 238,880 94,110 502,049 1,213 2,352,506 1,052,603 5,499 3,533,125 Due to the Company’s long standing business relationships with these counterparties and after giving due consideration to their strong financial standing, management does not expect non-performance by these counter parties on their obligations to the Company. Accordingly, the credit risk is minimal. Liquidity risk Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The Company manages liquidity risk by maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. Furthermore, the holding company, Honda Motor Co., Ltd., Japan, through its associated company has provided liquidity support to the Company in form of credit payments on some of the CKD material supplies. At March 31, 2014, the Company had Rs 4,740 million available borrowing limits from financial institutions and Rs 2,354.15 million cash and bank balances. The table below analyzes the Company’s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows as the impact of discounting is not significant. Annual Report for the year ended March 31, 2014 Rupees in thousand One to five years More than five years At March 31, 2014 Rupees in thousand Less than one year Accrued mark up Trade and other payables Carrying amount 13,790 7,872,822 7,886,612 Carrying amount 13,790 7,872,822 7,886,612 – – – Less than one year One to five years – – – More than five years At March 31, 2013 Accrued mark up Trade and other payables 91,986 9,666,512 9,758,498 91,986 9,666,512 9,758,498 – – – 36.2 Fair value estimation The different levels for fair value estimation used by the Company have been explained as follows: - - - – – – Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). The Market Treasury Bills held by the Company are included in Level 1. The Company does not hold any instruments which can be included in Level 2 and Level 3 as on March 31, 2014. The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The quoted market price used for financial assets held by the Company is the current bid price. The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value a financial instrument are observable, those financial instruments are classified under level 2. If one or more of the significant inputs is not based on observable market data, the financial instrument is classified under level 3. The Company has no such type of financial instruments as on March 31, 2014. The carrying values of all financial assets and liabilities reflected in the financial statements approximate their fair values. Fair value is determined on the basis of objective evidence at each reporting date. 85 86 Annual Report for the year ended March 31, 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended March 31, 2014 36.3 Financial instruments by categories Rupees in thousand As at March 31, 2014 Assets as per balance sheet Long term loans and advances Long term deposits Loans, advances and other receivables Cash and bank balances As at March 31, 2013 Assets as per balance sheet Long term loans and advances Long term deposits Loans, advances and other receivables Investments Cash and bank balances At fair value through profit or loss – – – – – - - - 491,680 - 491,680 Rupees in thousand Financial liabilities at amortized cost Liabilities as per balance sheet Accrued mark up Trade and other payables Loans and Total receivables 73,369 4,042 36,356 2,354,150 2,467,917 73,369 4,042 36,356 2,354,150 2,467,917 51,581 4,042 100,668 - 3,534,967 3,691,258 51,581 4,042 100,668 491,680 3,534,967 4,182,938 2014 13,790 7,872,822 7,886,612 2013 91,986 9,666,512 9,758,498 36.4 Capital risk management The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to provide returns for members and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to members, issue new shares and other measures commensurating to the circumstances. The Company monitors the capital structure on the basis of gearing ratio. However as at March, 31 2014 and March 31, 2013 there are no borrowings and the entire capital is represented by equity as shown in the balance sheet. 37. Transactions with related parties The related parties comprise holding company, fellow subsidiaries, associated undertakings, key management personnel and post employment benefit plan. The Company in the normal course of business carries out transactions with various related parties. Amounts due from and to related parties are shown under receivables and payables. Other significant transactions with related parties are as follows: Annual Report for the year ended March 31, 2014 Rupees in thousand 38. Holding Company Other related parties Total For the year ended March 31, 2014 Purchase of goods Purchase of property, plant and equipment Purchase of intangible assets Sale of goods Insurance premium Insurance claims Royalty Technical assistance and training charges Expense charged to post retirement benefits Key management personnel 3,702,504 – 50,091 – – – 757,171 881 – – 16,332,391 3,934 1,057 64,288 271,357 27,862 4,300 22,676 38,937 126,574 20,034,895 3,934 51,148 64,288 271,357 27,862 761,471 23,557 38,937 126,574 For the year ended March 31, 2013 Purchase of goods Purchase of property, plant and equipment Purchase of intangible assets Sale of goods Insurance premium Insurance claim Royalty Technical assistance and training charges Expense charged to post retirement benefits Key management personnel 4,393,272 16,825 77,004 – – – 583,091 2,864 – – 12,889,245 155,838 – 106,087 230,405 12,241 2,940 25,991 35,749 80,082 17,282,517 172,663 77,004 106,087 230,405 12,241 586,031 28,855 35,749 80,082 Plant capacity and actual production Number Motor vehicles Capacity Production 2014 2013 2014 50,000 50,000 23,223 2013 19,387 The Company has a capacity of producing 50,000 motor vehicles per annum on double shift basis. Under utilization of capacity was due to lower demand of certain products. 2014 2013 39. Number of employees Total number of employees as at March 31 771 709 Average number of employees during the year 756 703 87 88 Annual Report for the year ended March 31, 2014 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS for the year ended March 31, 2014 Rupees in thousand 2014 2013 40. Disclosures relating to Provident Fund (i) (ii) (iii) (iv) Size of the Fund Cost of investments made Percentage of investments made Fair value of investments 230,248 189,281 89.61% 206,332 193,435 159,190 88.43% 171,050 Break up of investments Special accounts in a scheduled bank Term Finance Certificates Government securities Listed securities 42,952 25,419 78,763 59,198 17,062 20,093 83,441 50,454 2014 2013 % age of size of the Fund 41. 42. 43. Break up of investments Special accounts in a scheduled bank Term Finance Certificates Government securities Listed securities 18.65% 11.04% 34.21% 25.71% 8.82% 10.39% 43.14% 26.08% The figures for 2014 are based on the un-audited financial statements of the Provident Fund. Investments out of Provident Fund have been made in accordance with the provisions of section 227 of the Ordinance and the rules formulated for this purpose. Date of authorization for issue These financial statements were authorized for issue on May 15, 2014 by the Board of Directors of the Company. Events after the balance sheet date The Board of Directors have proposed a final cash dividend for the year ended March 31, 2014 of Rs 3.0 (2013: Rs 0.30) per share, amounting to Rs 428.4 million (2013: Rs 42.84 million) and a transfer of Rs 450.0 million to General reserve at their meeting held on May 15, 2014 for approval of the members at the Annual General Meeting to be held on June 26, 2014. These financial statements do not include the effect of the above appropriations which will be accounted for in the period in which they are approved. Corresponding figures Corresponding figures have been re-arranged and reclassified, wherever necessary, for the purposes of comparison. However, no significant re-arrangements have been made. Yusuf H. Shirazi Chairman Takeharu Aoki Chief Executive Annual Report for the year ended March 31, 2014 NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that 22nd Annual General Meeting of shareholders of Honda Atlas Cars (Pakistan) Limited will be held on Thursday, June 26, 2014 at 10:30 a.m. at Faletti’s Hotel, 24-Egerton Road, Lahore to transact the following business: 1. To confirm the minutes of the Annual General Meeting held on Thursday June 27, 2013; 2. To approve and adopt the annual audited financial statements for the year ended March 31, 2014 together with the Directors’ and Auditors’ reports thereon; 3. To approve cash dividend @ 30% (Rs 3/- per share) for the year ended March 31, 2014 as recommended by the Board of Directors; 4. To appoint Auditors for the next financial year and fix their remuneration. Special business: 5. To approve the additional remuneration of Chairman & Executive directors for the year 2013-14 and remuneration for the year 2014-15 and adopt the following special resolution: “Resolved that the additional remuneration of Chairman (Non-Executive) of Rs. 4.89 million, President/CEO for Rs 0.06 million and one full time working director amounting for Rs 1.21 million for the year ended March 31, 2014 be and is hereby approved.” “Resolved that the remuneration of Chairman (Non-Executive) amounting to Rs. 26.0 million, President/CEO of Rs. 14.5 million and one full-time director amounting to Rs. 13.5 million, which includes allowances and other benefits, as per terms of their employment for the year ending March 31, 2015 be and is hereby approved.” 6. To transact any other business with permission of the Chairman. By order of the Board Sardar Abid Ali Khan Vice President & Company Secretary Lahore: June 05, 2014 NOTE: 1. The share transfer books of the Company will remain closed from June 17, 2014 to June 26, 2014 (both days inclusive). 2. A member entitled to attend and vote at the Annual General Meeting may appoint another member as a proxy to attend and vote on his/her behalf. The proxy forms must be received at Registered Office of the Company duly stamped, signed and witnessed; not later than 48 hours before the time of the meeting. 89 90 Annual Report for the year ended March 31, 2014 NOTICE OF ANNUAL GENERAL MEETING 3. Any individual Beneficial Owner of Central Depository Company of Pakistan Ltd. (CDC), entitled to attend and vote at this meeting, must bring his/her CNIC or passport along with CDC account number to prove his/ her identity and in case of proxy must enclose attested copy of his/her CNIC or passport. Representatives of corporate members should bring the usual documents required for such purpose. 4. Members are requested to immediately inform company’s share registrar “M/s Hameed Majeed Associates, HM-House, 7-Bank Square, Lahore.” of any change in their address. 5. Members are requested to provide copy of their CNIC or passport (in case of foreigner) unless it has been provided earlier enabling the Company to comply with the relevant laws. Statement under section 160(1)(b) of the Companies Ordinance 1984; As per requirements of the new Code of Corporate Governance 2012 and Articles of Association of the Company, approval of Chairman’s remuneration is required as ‘non-executive director’ from shareholders. Further remuneration of two executive directors is also required to be approved by Shareholders. The remuneration of Chairman and executive directors has already been approved by the board of directors in their meeting held on May 15, 2014. There is no specific interest of the directors in this special resolution, except that mentioned therein. Annual Report for the year ended March 31, 2014 FORM OF PROXY Secretary, Honda Atlas Cars (Pakistan) Ltd., 1-Mcleod Road, Lahore, I/We of being member(s) of Honda Atlas Cars (Pakistan) Ltd., having Folio No. / CDC Participant I.D No. and having hereby appoint Mr./Ms number of shares, of who is also a member of the Company having Folio No. / CDC Participant I.D No. and number of shares, as my/our proxy in my/our absence to attend and vote for me/us on my/our behalf at the 22nd Annual General Meeting of the Company to be held on Thursday, June 26, 2014 at 10:30 a.m. at Faletti’s Hotel, 24-Egerton Road, Lahore and at any adjournment thereof. Signed this day of 2014. Witness 1: Signed: Signature of Shareholder Name: Signature of shareholder should match the specimen signature registered with the Company Address: CNIC / Passport No. Witness 2: Signed: Name: Affix Rs. 5/Revenue stamp here Address: CNIC / Passport No. NOTES: 1. A member entitled to attend and vote at the Annual General Meeting of the Company is entitled to appoint a proxy to attend and vote instead of his/her. No person shall act, as a proxy who is not a member of the Company except that a corporation may appoint a person who is not a member. 2. The instrument appointing a proxy shall be in writing under the hand on the appointer or his constituted attorney or if such appointer is a corporation or company, under the common seal of such corporation or company. 3. The Form of Proxy, duly completed, must be deposited at Company’s registered office, 1-Mcleod Road, Lahore not less than 48 hours before the time of holding the meeting. 91 92 Annual Report for the year ended March 31, 2014 AFFIX CORRECT POSTAGE Secretary, Honda Atlas Cars (Pakistan) Ltd., 1-Mcleod Road, Lahore. Annual Report for the year ended March 31, 2014 93 AUTHORIZED SALES, SERVICE & SPARE PARTS 3S DEALERS Karachi Honda Shahrah-e-Faisal 13 Banglore Town, Main Shahrah-e-Faisal. Phone: (021) 34382356, 34382399, 34527474, 34527575, 34547113-6, 34527070 Fax: (021) 34526758 Honda Defence 67/1, Korangi Road, Near HINO Circle. Phone: (021) 35805291-4 Fax: (021) 35389648 Honda SITE C-1, Main Manghopir Road, SITE. Phone: (021) 32577411-2, 32564926, 32570301, 32587037 Fax: (021) 32577412 Honda South 1-B/1, Sec. 23, Korangi Industrial Area. Phone: (021) 35050251-4 Fax: (021) 35064599 Honda Drive In 118-C, Main Rashid Minhas Road. Phone: (021) 34992832-7, 34992824-5 Fax: (021) 34992823 Honda Fort 32 Queens Road. Phone: (042) 36314162-3, 36309062-3, 36376062-3, 36313925 Fax: (042) 36361076 Honda Point Main Defence Road. Phone: (042) 35700994-7 Fax: (042) 35700993 Honda Gateway 15-Km Multan Road. Phone: (042) 111 333 789 Fax: (042) 37511075 Islamabad Honda Classic 179, Korangi Road, I-10/3, Industrial Area. Phone: (051) 4438801-6 Fax: (051) 4436446 Rawalpindi Honda Centre 300 Peshawar Road. Phone: (051) 5125181-5, 111 300 123 Fax: (051) 5125186 Honda Quaideen 233-A-2, PECHS. Phone: (021) 34556071-3, 34556510-12 Fax: (021) 34554644 Multan Hyderabad Honda Breeze 63 Abdali Road. Phone: (061) 4588871-3, 4547484 Fax: (061) 4588874 Honda Palace Shahbaz Town, Main Jamshoro Road. Phone: (0223) 667178-9, 667032 Fax: (0223) 667519 Faisalabad Honda Faisalabad East Canal Road. Phone: (041) 8731741-4 Fax: (041) 8524029 Honda City Sales 75-B, Block L, Gulberg III, Ferozpur Road. Phone: (042) 35841100-04 Fax: (042) 35841107 Honda Chenab 123 JB Raja Wala, Green View Colony, Akbarabad. Phone: (041) 2603449, 2603349 Fax: (041) 2603549 Lahore Sargodha Honda Citrus Fields 7-Km Lahore Road. Phone: (048) 3226087 Fax: (048) 3226589 Gujranwala Honda Gujranwala Main G.T. Road, Near Maudiala Morr. Phone: (055) 3893481-3 Fax: (055) 3893484 Sialkot Honda Falcon 1-Km, Daska Road. Phone: (052) 3252000, 3251251-4 Fax: (052) 3563203 Mirpur Honda Empire Mirpur Mian Muhammad Road, Quaid-e-Azam Chowk. Phone: (05827) 451501-3 Fax: (05827) 451500 Peshawar Honda North Main University Road, Near Sham Hotel. Phone: (091) 5854901, 5700807-8 Fax: (091) 5854753 94 Annual Report for the year ended March 31, 2014 2S DEALERS Karachi Nazimabad Honda 1-J8/B Muslim League Quarter, Main Road Nazimabad No.1. Phone: 021-36603336, 36603337 Fax: 021-6606444 Sukkur 1S DEALERS Samnabad Honda Plot No.29/30 - 21 Acre Scheme Samnabad. Phone: 042-37530563, 37530579 Fax: 042-37522099 Gujrat Ghansham Motors Hussaini Road, Near Gurdwara. Phone: 071-5617683 Shahbaz Motor Workshop Near Science College, G T Road. Phone: 053-3523511 Fax: 053-3514511 Rahim Yar Khan Faisalabad Pak Saudi Motors Adda Khanpur, Near Shamim Petrolium Service. Phone: 068-5887300 Fax: 068-5887363 Bahawalpur Bahawalpur Motors Bindra pully Multan Road. Phone: 062-2886900 Fax: 062-2886900 Multan Ahmad Auto Care 1-Irshad Colony, Industrial State Road. Phone: 061-6538112, 8130005 Fax: 061-6536311 Lahore Cavalry Motors 18 Cavalry Ground, Commerical Area. Phone: 042-36663117, 36666537 Fax: 042-36610117 Johar Town Honda 892-R-1 Main Boulevard Johar Town. Phone: 042-35291712, 35291771 Fax: 042-35313366 Aabpara Honda Aabpara Market, 16 Wahdat Road. Phone: 042-35866932 Fax: 042-35865131 Jahangir Motor Garage Jaranwala Road. Phone: 041-8710616, 8541097 Fax: 041-8738786 G.M. Autos 21/1 Jail Road, Civil Lines. Phone: 041-2641925, 2409394 Fax: 041-2641925 Rawalpindi Three Star Motor Workshop Sitara Market Chaklala Scheme No. 3. Phone: 051-5591219, 5591599 Fax: 051-5480990 Meher Motors 445-Meherabad, Peshawar Road. Phone: 051-5462464 Fax: 051-5480990 Islamabad Rafique Autos 8A, Khayaban-e-Suharwardy, G-6/1. Phone: 051-2827527 Fax: 051-2825026 Okara Modern Autos Near Depalpur Chowk, Depalpur Road. Phone: 044-2528335 Karachi Sugoi Sunset Parts Center Plot No. 12-C, 12th Commercial Street, Phase II Extension D.H.A. Phone: 021-35312766 Fax: 021-35312768 Lahore Sugoi Parts Center Shop No. 4-6 Shamyl Center, 4-Montgomery Road. Phone: 042-36370121 Fax: 042-36375900 Sugoi Defence Parts Center Shop No. 1 Corner 26/26 Main Walton Road. Phone: 042-36626987 Fax: 042-36626989 Rawalpindi Sugoi Potohar Parts Center State Life Building, Kashmir Road Saddar. Phone: 051-5580263-64 Fax: 051-5580266 Multan Sugoi Multan Parts Center 103/9 Iqbal Plaza Opp. RTO Office, Near Feasta Garden, LMQ Road. Phone: 061-4586160-61 Fax: 061-4571962 Honda Atlas Cars (Pakistan) Limited 43-KM Multan Road, Manga Mandi, Lahore www.honda.com.pk www.facebook.com/hacpl [email protected]