Atlas Honda Limited

Atlas Honda Limited

VISION

Market leader in the motorcycle industry,

emerging as a global competitive centre
of production and exports.

MISSION

A dynamic, profitable and growth oriented

company through market leadership,
maximizing export and excellence in quality
and service; to ensure attractive returns to
equity holders; reward employees according
to their abilities and performance; to foster
a network of researchers and engineers
ensuing unique contributions to the
development of the industry; customers
satisfaction and protection of the
envoirnment by producing emission
friendly green products and to remain a
good corporate citizen fulfilling its social
responsibilities in all respects.
 Annual Report 2005

STRATEGIC GOALS

Customers
Our Customers are the reason and the source of our business. It is
our joint aim with our dealers to ensure that our customers enjoy
the highest level of satisfaction from use of Honda Motorcycles.

Quality
To ensure that our products and services meet the set standards of
excellence.

Local Manufacturing
To be the industry leader in indigenization of motorcycle parts.

Technology
To develop and maintain distinct business advantages through
continuous induction of improved hard and soft technologies.

Shareholders
To ensure health and viability of business and thus safeguarding
shareholders interest by maximizing profit. Payment of regular
satisfactory dividends and adding value to the shares.

Employees
To enhance and continuously up-date each member’s capabilities
and education and to provide an environment which encourages
practical expression of the individual potential in goal directed team
efforts and compensate them attractively according to their abilities
and performance.

Corporate Citizen
To comply with all Government laws and regulations, to maintain
a high standard of ethics in all operations and to act as a responsible
member of the community.
 SAFETY RIDING
CAMPAIGN

KEY SAFETY RIDING

PRINCIPLES
A Helmet protects your head.

Wear it when you ride.

Ride according to the signals and signposts.

Ride according to the ‘keep left’ principle.

Stay within the prescribed speed limit.

Apply both brakes at the same time.

 Atlas Honda Limited

CONTENTS

Company Information 1

Notice of 41st Annual General Meeting 4

Shareholders Information 7

Ten Years at a Glance 9

Graphical Presentation 11

Statement of Value Addition and its Distribution 12

Chairman’s Review 13

Directors’ Report 21

Statement of Compliance with The Code of Corporate Governance and Transfer Pricing 24

Auditors’ Review Report 26

Auditors’ Report to the Members 27

Balance Sheet 28

Profit & Loss Accounts 29

Cash Flow Statement 30

Statement of Changes in Equity 31

Notes to Financial Statements 32

Pattern of Shareholding 58

Atlas Group Companies 60

Proxy Application
 Annual Report 2005

COMPANY INFORMATION

BOARD OF DIRECTORS

Chairman Yusuf H. Shirazi

Chief Executive Officer Saquib H. Shirazi

Directors Motohide Sudo

Nurul Hoda

Sanaullah Qureshi

Sherali Mundrawala

Toshitsugu Kaneko

Yoshitaka Kitamura

Company Secretary Zaryab Tarique

GROUP EXECUTIVE COMMITTEE

President Aamir H. Shirazi

Members Frahim Ali Khan

Iftikhar H. Shirazi

Jawaid Iqbal Ahmed

Saquib H. Shirazi

Secretary Theresa Dias

GROUP HUMAN RESOURCE COMMITTEE

Chairman Yusuf H. Shirazi

Members Aamir H. Shirazi

Bashir Makki

GROUP SYSTEMS & TECHNOLOGY COMMITTEE

Chairman Iftikhar H. Shirazi

Members Mushtaq Alam

Zia Ullah Begg

Secretary Sarfraz Hassan

1
 Atlas Honda Limited

COMPANY INFORMATION

AUDIT COMMITTEE

Chairman Sanaullah Qureshi

Members Sherali Mundrawala
Nurul Hoda
Head of Internal Audit Aamir Shakoor Khan
Secretary Ashfaq Ahmad

MANAGEMENT COMMITTEE

Chief Executive Officer Saquib H. Shirazi

Vice President Marketing Nurul Hoda
Vice President Technical Toshitsugu Kaneko
Chief Financial Officer Suhail Ahmed
General Manager Plants M. Amir Awan
General Manager Engineering Sardar Akhtar Khan
General Manager Development Yoshitaka Kitamura
General Manager Quality Assurance Lt. Col. (R) Sultan Ahmed
General Manager Human Resources Raffat Iqbal
General Manager Information Technology Mushtaq Alam
General Manager Logistics Talha Saad
G. M. Corporate Affairs & Management Audit Maqsood A. Basraa

AUDITORS Hameed Chaudhri & Co.

LEGAL ADVISORS Mohsin Tayebaly & Co.

TAX ADVISORS Ford Rhodes Sidat Hyder & Co.

BANKERS Atlas Investment Bank Limited

Bank Al-Habib Limited
Deutsche Bank AG
Habib Bank Limited
MCB Bank Limited
National Bank of Pakistan
NDLC - IFIC Bank Limited
Standard Chartered Bank
The Bank of Tokyo-Mitsubishi Limited
Union Bank Limited
United Bank Limited

2
 Annual Report 2005

COMPANY INFORMATION

LENDING INSTITUTIONS Habib Bank Limited

MCB Bank Limited

National Bank of Pakistan

The Bank of Tokyo-Mitsubishi Limited

Union Bank Limited

REGISTERED OFFICE 1-McLeod Road, Lahore-54000

Tel : (92-42) 7225015-17, 7233515-17

Fax : (92-42) 7233518, 7351119

E-mail : [email protected]

Website: www.atlashonda.com.pk

FACTORIES F-36, Estate Avenue, S.I.T.E., Karachi-75730

Tel : (92-21) 2575561-65 Fax : (92-21) 2563758

E-mail : [email protected]

26-27 KM, Lahore-Sheikhupura Road, Sheikhupura-39321

Tel : (92-563) 406501-8, (92-42) 7222222

Fax : (92-563) 406009

E-mail : [email protected]

BRANCH OFFICES Azmat Wasti Road, Multan

Tel : (92-61) 540054, 540028, 571989 Fax : (92-61) 541690

140-B, Satellite Town Scheme, Murree Road, Rawalpindi

Tel : (92-51) 4418115, 4455328 Fax : (92-51) 4418115

SHOW ROOM West View Building, Preedy Street, Saddar, Karachi

Tel : (92-21) 7720833, 7727607

SPARE PARTS DIVISION D-181/A, S.I.T.E., Karachi-75730

Tel : (92-21) 2576690

WARRANTY & TRAINING CENTRES 7-Pak Chambers, West Wharf Road, Karachi

Tel : (92-21) 2310142

28 Mozang Road, Lahore Tel : (92-42) 6375360, 6305231

Azmat Wasti Road, Multan Tel : (92-61) 540028

3
 Atlas Honda Limited

NOTICE OF 41ST ANNUAL GENERAL MEETING

Notice is hereby given that the forty first Annual General Meeting of the members of Atlas Honda Limited will be
held on Thursday, October 13, 2005, at 10:30 a.m., at 1-McLeod Road, Lahore, to transact the following business:

ORDINARY BUSINESS

1. To confirm Minutes of the Extraordinary General Meeting held on March 21, 2005.
2. To receive, consider and adopt the Audited Financial Statements of the Company for the year ended June 30,
2005 together with the Directors' and Auditors' Reports thereon.
3. To appoint auditors and fix their remuneration for the year ending June 30, 2006. The present auditors
M/s Hameed Chaudhri & Co., Chartered Accountants, retire and being eligible, offer themselves for reappointment.
4. To consider and approve the cash dividend of Rs. 6.0 per share i.e. 60% for the year ended June 30, 2005 as
recommended by the Board of Directors.

SPECIAL BUSINESS

5. To consider and approve the bonus shares issue @ 40% (two bonus shares for every five shares held) for the
year ended June 30, 2005 as recommended by the Board of Directors.

To consider and, if thought fit, to pass with or without modification the following resolutions as Ordinary Resolutions:

(i) RESOLVED "that a sum of Rs. 102,184,080 out of Company's profit be capitalized for issuing 10,218,408
fully paid ordinary shares of Rs. 10/- each as bonus shares to be allotted to those shareholders whose
names stand in the register of members at the close of the business on October 05, 2005 in the proportion
of two bonus shares for every five shares held by a member. The said shares shall rank pari passu with
the existing shares of the Company as regard future dividend and all other respects."

(ii) FURTHER RESOLVED "that all the fractional Bonus Shares shall be combined and the Directors be and
are hereby authorized to combine and sell the fractional shares so combined in the Stock Market and pay
the proceeds of sales thereof when realized to a charitable institution approved under the Income Tax
Ordinance, 2001."

6. To consider and, if thought fit, to pass the following resolutions to increase the Authorized Capital of the
Company from Rs. 400,000,000/- (Rupees Four Hundred Million) to Rs. 1,000,000,000/- (Rupees One Billion)
as 'Special Resolution':

(i) RESOLVED "that the Authorized Capital of the Company be and is hereby allowed to increase from
Rs. 400,000,000/- to Rs 1,000,000,000/- by creation of 60,000,000 new ordinary shares of Rs. 10/- each."

(ii) FURTHER RESOLVED "that the above mentioned amendment to the Memorandum and Articles of Association
of the Company be and is hereby allowed to be altered by substituting the figures and words
Rs. 400,000,000/- (Rupees Four Hundred Million), divided into 40,000,000 Ordinary Shares of Rs. 10/- each
appearing in clause V of the Memorandum of Association and clause 6 of the Articles of Association with

4
 Annual Report 2005

the words and figures Rs. 1,000,000,000/- (Rupees One Billion), divided into 100,000,000 ordinary shares of
Rs. 10/- each by creation of 60,000,000 ordinary shares of Rs. 10/- each."

(iii) FURTHER RESOLVED "that the Chief Executive Officer of the Company be and is hereby authorized and
empowered to give effect to the resolutions as mentioned above and to do or cause to be done all acts,
deeds and things that may be necessary or required for the increase in the Authorized Capital of the Company."

7. To consider and approve the following resolutions as special resolutions for the enhancement of Directors' Fee
for attending the Board of Directors Meeting as recommended by the Board:

(i) RESOLVED "that the fee payable to Directors for attending Board Meeting be and is hereby raised from
Rs. 500/- (Rupees five hundred only) to Rs. 10,000/- (Rupees ten thousand only).”

(ii) FURTHER RESOLVED "that the above mentioned amendment to the Articles of Association of the Company
be and is hereby allowed to be altered by substituting the figures Rs. 500/- appearing in clause 113 of
the Articles of Association with the figures Rs. 10,000/-."

8. To consider and, if thought fit, approve the following resolutions as special resolutions for the amendment in
maximum time allowed by the Articles of Association of the Company for the closure of share transfer register.
As per Stock Exchanges Listing Regulations the maximum time for closure of share transfer register of the
Company is 15 days hence the Articles of Association of the Company is proposed to be amended by substituting
the word thirty in clause 48 with the word fifteen.

(i) RESOLVED "that share transfer register shall not be closed for a period longer than fifteen (15) days as
required by the Listing Regulations be and is hereby approved."

(ii) FURTHER RESOLVED "that the above mentioned amendment to the Articles of Association of the Company
be and is hereby allowed to be altered by substituting the word thirty appearing in clause 48 of the Articles
of Association with the word fifteen."

A statement under section 160(1)(b) of the Companies Ordinance, 1984 pertaining to the Special Business
referred to above is annexed to this Notice of Meeting.

OTHER BUSINESS

9. To transact any other business as may be placed before the meeting with the permission of the Chair.

By Order of the Board

Karachi: September 21, 2005 Zaryab Tarique

Company Secretary

5
 Atlas Honda Limited

NOTES:
i) The register of members of the Company will remain closed from October 06, 2005 to October 13,
2005 (both days inclusive).
ii) A member entitled to attend and vote at this meeting may appoint another member as his proxy to
attend and vote on his/her behalf. The instrument appointing a Proxy and the power of attorney or
other authority under which it is signed or a notarized/certified copy of the power of attorney must
be received at the registered office of the Company duly stamped, signed and witnessed not later than
48 hours before the time fixed for the meeting.
iii) No person shall act as proxy unless he/she is member of the Company.
iv) Signature of the shareholder on Proxy Application must agree with the specimen signature registered
with the Company. Appropriate revenue stamp should be affixed on the Proxy Application.
v) Shareholders whose shares are deposited with Central Depository Company (CDC) are requested to
bring their Computerized National Identity Card (CNIC) along with their CDC account number for
verification. In case of corporate entity, the Board of Directors' resolution / power of attorney with
specimen signatures of the nominee shall be produced (unless it has been provided earlier) at the time
of the meeting.
vi) Members are requested to notify any change in their registered addresses immediately.
vii) Members are requested to provide by mail or fax, photocopy of their CNIC or Passport, if foreigner,
(unless it has been provided earlier) to enable the Company to comply with the relevant laws.
viii) For the convenience of shareholders a Proxy Application Format is attached with this report.

STATEMENT UNDER SECTION 160(1)(b) OF THE COMPANIES ORDINANCE, 1984

This statement is annexed to the notice of the Forty First Annual General Meeting of Atlas Honda Limited to
be held on October 13, 2005 at which certain special business is to be transacted. The purpose of this statement
is to set forth the material facts concerning such special business.

ITEM NO. 5 OF THE AGENDA

The Board of Directors has recommended to the members of the Company to declare dividend by way of
issue of fully paid bonus shares @ 40% for the year ended June 30, 2005 and thereby capitalize a sum of
Rs. 102,184,080/-.

ITEM NO. 6 OF THE AGENDA

It has been recommended by the Board of Directors to increase the Authorized Capital of the Company. The
purpose to increase the Authorized Capital is to provide opportunities for the growth in the company's business
in order to increase the profitability and returns to shareholders. The directors are not interested in this business
except as shareholders of the Company.

ITEM NO.7 OF THE AGENDA

Presently the Directors of the Company are eligible to a fee for attending the meeting of the Board of Directors
of Rs. 500/- per meeting. It is now proposed that the fee payable to Directors of the Company to attend the
Board meetings shall be enhanced to Rs. 10,000/- per meeting.

ITEM NO.8 OF THE AGENDA

As per Stock Exchanges Listing Regulations the maximum time for closure of share transfer register of the
Company is 15 days hence the Articles of Association of the Company is proposed to be amended by substituting
the word thirty in clause 48 with the word fifteen.

6
 Annual Report 2005

SHAREHOLDERS’ INFORMATION

Registered and Shares Registration Office: Annual General Meeting

1-McLeod Road, Lahore-54000 Date: October 13, 2005
Tel: 92-42-7225015-17 Time: 10:30 A.M.
92-42-7233515-17 Venue: Registered Office at
Fax: 92-42-7233518, 92-42-7351119 1-Mcleod Road
Lahore-54000
Listing on Stock Exchanges
Atlas Honda Limited is listed on Karachi and Lahore Financial Calendar
Stock Exchanges. Audited annual results for year ended June 30, 2005:
First half of September
Listing Fees
The annual listing fees for the financial year 2004- Mailing of annual report:
05 have been paid to the Karachi and Lahore stock Second half of September
exchanges and Central Depository Company within
the prescribed time limit. Annual General Meeting:
First half of October
Stock Code
The stock code for dealing in equity shares of Atlas Unaudited first quarter financial results:
Honda Limited at KSE and LSE is ATLH. Second half of October

Shares Registrar Unaudited second quarter financial results:

All work relating to physical transfer, transmission, Second half of February
splitting and consolidation of share certificates, payment
of dividend, issue of bonus share certificates and Unaudited third quarter financial results:
fractional amount, issue of duplicate/re-validated dividend Second half of April
warrants, issue of duplicate share certificates, etc. is
done at the registered office of the Company. The Dividend Announcement
Company has online connectivity with Central Depository The board of directors of the Company has proposed
Company of Pakistan Limited (CDC). For assistance, a cash dividend of Rs. 6.0 per share (60%) and bonus
shareholders may contact the registered office. shares @ 40% (two bonus shares for every five shares
Contact person: held) for the financial year ended June 30, 2005,
Mr. Sarfraz Mufti subject to approval by the shareholders of the
Tel: 92-42-7225015-17 Company at the annual general meeting.
92-42-7233515-17 Dividend paid for the previous year ended June 30,
Fax: 92-42-7233518, 92-42-7351119 2004 was cash dividend Rs. 7.50 per share (75%) and
Bonus shares issue at 25% (one bonus share for every
Statutory Compliance
four shares held).
During the year your company has complied with
all applicable provisions, filed all returns/forms
Dates of Book Closure
and furnished all relevant particulars as required
under the Companies Ordinance, 1984 and allied The register of members and shares transfer
rules, the Securities and Exchange Commission of books of the Company will remain closed from
Pakistan (SECP) Regulations and the listing October 06, 2005 to October 13, 2005 (both days
requirements. inclusive).

7
 Atlas Honda Limited

Date of Dividend Payment and Bonus Shares issue entitled to appoint a proxy, who ought to be a
The payment of dividend and issue of bonus shares, member of the company.
upon declaration by the shareholders at the The instrument appointing a proxy (duly signed by
forthcoming annual general meeting, will be made the shareholder appointing that proxy) should be
on or after October 14, 2005 deposited at the registered office of the company not
Last year your company dispatched cash dividend less than forty eight hours before the time fixed for
and bonus shares within 48 hours after approval the meeting.
from the shareholders at the annual general
meeting. Website of the Company
Your company is operating website
Payment of Dividend www.atlashonda.com.pk containing updated
Cash dividends are paid through dividend warrants information regarding the company. The website
addressed to the shareholders whose names appear contains the financial results of the company together
in the register of members at the date of book closure. with company’s profile, the Atlas group philosophy
Shareholders are requested to deposit those warrants
and products of the company.
into their bank accounts.

Market Price Data

Share Transfer System
The following table shows the month-wise share
Share transfers received by the company are registered
price of the company in the Karachi and Lahore Stock
within 30 days from the date of receipt, provided the
Exchanges:
documents are complete in all respects.
Karachi Stock Lahore Stock
General Meeting Exchange Exchange
Pursuant to section 158 of the Companies Ordinance,
Months High Low High Low
1984, Company holds a General Meeting of
July 04 204.15 175.00 204.15 175.00
shareholders at least once in a year. Every shareholder
August 04 265.00 202.50 265.00 202.50
has a right to attend the General Meeting. The notice
September 04 290.00 212.00 294.45 210.00
of such meeting is sent to all shareholders at least 21
October 04 238.45 201.00 238.75 201.00
days before the meeting and also advertised in at
least one English and Urdu newspaper having November 04 231.90 203.00 234.80 203.00

circulation in the province in which the Karachi and December 04 230.00 200.00 230.00 200.00
Lahore Stock Exchanges are situated. January 05 254.00 229.00 254.00 229.00
February 05 250.00 230.00 250.00 230.00
Proxies March 05 250.00 232.00 250.00 232.00
Pursuant to Section 161 of the Companies Ordinance, April 05 290.00 240.00 290.00 240.00
1984 and according to the Memorandum and Articles May 05 328.00 274.00 328.00 274.00
of Association of the Company, every shareholder June 05 305.00 291.00 305.00 291.00
of the company who is entitled to attend and vote
at a general meeting of the company can appoint Change of Address
another member as his/her proxy to attend and vote All registered shareholders should send information
instead of him/her. Every notice calling a general on changes of addresses (if any) at the Registered
meeting of the company contains a statement that Office of the Company mentioned above.
a shareholder entitled to attend and vote is also

8
 Annual Report 2005

TEN YEARS AT A GLANCE

(Rupees in million)
YEARS 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996

Condensed Balance Sheet

Assets
Non Current Assets
Fixed assets 1,888.7 1,405.6 566.1 536.0 450.7 490.3 366.7 379.4 374.9 270.8
Other non current assets 36.7 15.1 15.7 22.5 22.6 16.0 20.1 21.3 17.7 21.7
Current Assets:
Inventory 1,794.1 1,429.6 650.2 500.3 569.0 443.5 410.0 494.6 572.8 511.7
Investment & bank balances 1,842.6 751.5 1,021.0 406.8 159.3 252.4 186.2 441.0 75.3 5.8
Other current assets 529.2 510.1 404.1 366.0 285.6 217.1 242.2 201.7 167.8 229.6

Total Assets 6,091.3 4,111.9 2,657.1 1,831.6 1,487.2 1,419.3 1,225.2 1,538.0 1,208.5 1,039.7

Equity & Liabilities

Share capital 255.5 204.4 204.4 204.4 146.0 146.0 146.0 146.0 132.7 120.6
Reserves 1,822.8 1,441.3 872.2 587.9 498.4 439.0 408.0 335.7 259.9 166.9
Non current liabilities 1,129.5 584.1 172.3 113.8 156.8 208.7 160.1 190.0 140.0 75.5
Current Liabilities:
Creditors & provisions 2,364.4 1,570.1 990.0 591.0 476.4 394.0 336.1 507.7 420.1 424.3
Other current liabilities 519.1 312.0 418.2 334.5 209.6 231.6 175.0 358.6 255.8 252.3

Total Equity & Liabilities 6,091.3 4,111.9 2,657.1 1,831.6 1,487.2 1,419.3 1,225.2 1,538.0 1,208.5 1,039.7

Condensed Profit & Loss Account

Sales 14,120.8 9,948.1 6,977.4 5,524.0 4,704.5 3,397.4 3,424.9 3,423.5 3,498.1 3,092.5
Cost of sales 12,776.7 8,713.9 5,949.6 4,788.5 4,246.1 3,044.5 3,027.8 2,999.0 3,101.3 2,754.0

Gross profit 1,344.1 1,234.2 1,027.8 735.5 458.4 352.9 397.1 424.5 396.8 338.4
Operating expenses 445.2 360.2 360.0 322.4 237.8 199.0 179.8 173.9 159.3 126.1
Operating profit 898.9 874.0 667.8 413.1 220.6 153.9 217.3 250.6 237.5 212.3
Other charges (net of other income) (40.1) 31.5 16.9 18.6 17.7 52.1 36.0 59.7 48.9 36.2

Profit before tax 939.0 842.5 650.9 394.5 202.9 101.8 181.3 190.9 188.6 176.1
Taxation 308.5 297.8 223.5 124.0 85.1 41.7 57.6 65.3 63.7 74.6

Profit after taxation 630.5 544.7 427.4 270.5 117.8 60.1 123.7 125.6 124.9 101.5

Profitability Ratios

Gross profit (%) 9.5 12.4 14.7 13.3 9.7 10.4 11.6 12.4 11.3 10.9
Profit before tax (%) 6.6 8.5 9.3 7.1 4.3 3.0 5.3 5.6 5.4 5.7
Profit after tax (%) 4.5 5.5 6.1 4.9 2.5 1.8 3.6 3.7 3.6 3.3
Return on capital employed (%) 20.9 26.4 35.9 32.5 16.7 8.8 20.7 23.0 25.6 32.2
Interest cover ratio Times 10.4 28.1 17.2 11.2 3.6 2.0 3.2 2.6 4.0 3.8

9
 Atlas Honda Limited

TEN YEARS AT A GLANCE

YEARS 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996

Return to Shareholders

ROE - before tax (%) 45.2 51.2 60.5 49.8 31.5 17.4 32.7 39.6 48.0 61.2
ROE - after tax (%) 30.3 33.1 39.7 34.1 18.3 10.3 22.3 26.1 31.8 35.3
EPS - after tax Rs. 24.7 21.3 16.7 10.6 4.6 2.4 4.8 4.9 4.9 4.0
Price Earning Ratio Times 12 8 5 4 5 8 4 6 6 7
Market Price (June30) Rs. 305 175.0 80.0 40.1 25.0 19.3 19.3 30.0 31.0 27.0
Break up Value per Share Rs. 81.4 64.4 42.1 31.0 25.2 22.9 21.7 18.9 15.4 11.3

Dividend
Cash dividend Rs. 6.0 7.5 7.0 6.0 4.0 2.0 3.5 2.5 1.5 1.5
Stock dividend Rs. 4.0 2.5 - - 4.0 - - - 1.0 1.0
Dividend yield (%) 3.3 5.7 8.8 15.0 32.0 10.4 18.2 8.3 8.1 9.3
Dividend pay out (%) 40.5 37.5 33.5 45.3 99.2 48.6 41.3 29.0 26.6 29.7

Asset Utilization

Total assets turnover Times 2.3 2.4 2.6 3.0 3.2 2.4 2.8 2.2 2.9 3.0
Fixed assets turnover Times 7.5 7.1 12.3 10.3 10.4 6.9 9.3 9.0 9.3 11.4
Inventory turnover Times 7.1 6.1 9.1 9.6 7.5 6.9 7.4 6.0 5.4 5.4
Debtor turnover Times 101.1 141.5 140.4 33.2 109.9 85.6 122.8 216.1 186.4 50.9
Capital employed turnover Times 4.7 4.8 6.5 7.0 7.3 5.8 6.2 7.1 8.9 10.8

Working Capital Cycle

Inventory holding period Days 46 44 35 40 43 51 55 65 64 57

Trade debtors period Days 3 2 6 7 3 4 2 2 4 5
Creditors period Days 55 49 47 41 36 43 52 58 49 50

Working capital cycle Days (6) (3) (6) 6 10 12 5 9 19 12

Liquidity/ Leverage

Current Ratio Times 1.44 1.43 1.47 1.38 1.48 1.46 1.64 1.31 1.21 1.10

Long Term debts to Equity Times 0.4 0.3 0.1 0.1 0.1 0.3 0.2 0.3 0.3 0.2

Total Liabilities to Equity Times 1.9 1.8 1.5 1.3 1.3 1.4 1.2 2.2 2.1 2.6

10
 Annual Report 2005

GRAPHICAL PRESENTATION

300,000 Sales Growth 287,184 Market value vs Break up value

250,000
350
305
200,000 190,395 300

250
Units

150,000

Rupees
200 175
117,209
150
100,000 90,064
78,122 100 80 81
64
58,597 40 42
50 19 23 25 25 31
50,000
0

0 2000 2001 2002 2003 2004 2005

2000 2001 2002 2003 2004 2005 Market value Breakup value

Dividend and Payout Profit before and after taxes

12 120
1,000 938.9
99% 842.4
10 100

8 7.5 80 650.9 630.4

Rupees in million

6.0
Distribution

Payout %

544.7
Rupees

6 4.0 7.0 60
49% 500 427.7
394.5
45% 38% 41%
4 34% 40
270.4
202.9
2 4.0 6.0 20 101.9 117.7
2.5 4.0 60.1
2.0
0 0 0
2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004 2005

Cash dividend Stock dividend Dividend payout Profit before tax Profit after tax

Share Capital and Reserves EBITDA

2,000

1,600 11.26 11.26 12

Rupees in million

1,500 1,400
9.03 10.94 10
1,200
1,823

1,406
Rupees in million

8
1,000
Percentage

1,000 5.96
1,120
1,441

800 6
6.47
872 600
763

4
500 588
498 400
499

439 2
200
304
203

146 146 204 204 204 256

0 0 0
2000 2001 2002 2003 2004 2005 2000 2001 2002 2003 2004 2005

Share Capital Reserves EBITDA* EBITDA %

*Earnings before interest, tax, depreciation and amortization

11
 Atlas Honda Limited

STATEMENT OF VALUE ADDITION AND ITS DISTRIBUTION

2005 2004
(Rupees in 000’s)
WEALTH GENERATED
Total revenue - gross 16,947,681 11,476,158
Material & services (excluding duites) (10,745,132) (7,054,851)

6,202,549 100.00% 4,421,307 100.00%

WEALTH DISTRIBUTED
To Government
Sales tax, income tax, import duty &
workers’ welfare fund 4,514,166 72.78% 3,183,670 72.01%

To Employees
Salaries, benefits and related cost 594,579 9.59% 417,691 9.45%

To Providers of Capital
Dividend/Bonus to shareholders 255,460 4.12% 204,368 4.62%
Markup on borrowed funds 40,669 0.66% 11,713 0.26%
296,129 4.78% 216,081 4.88%
Retained with the business
Depreciation 422,679 6.81% 263,483 5.96%
Retained profit 374,996 6.04% 340,382 7.70%
797,675 12.85% 603,865 13.66%

6,202,549 100.00% 4,421,307 100.00%

WEALTH DISTRIBUTION

7.70%

0.66% 5.96%
6.81% 0.26%
6.04%
4.62%
4.12%

9.45%
9.59%

72.78% 72.01%

To Government To Employees To Shareholders To Lenders Depreciation Retained profit

12
 Annual Report 2005

of GDP. Consequently, per capita income rose 13%

to US$736.

Imports during 2005 increased 32% to US$20.6 billion

compared to US$15.6 billion during the last year. The
exports increased 17% to US$14.4 billion from US$12.3
billion in the previous year. As a result, the trade
deficit soared by 89% to US$6.2 billion as against
US$3.2 billion, last year. This was mainly the result
of higher oil import bill due to higher oil prices and
import of further textile machinery.

The stock market witnessed volatility: it touched

highest level of 10,300 and then went down sharply
- more than 3,000 points, within 15 days. Daily
average volumes during the last 52 weeks fell by
11% to 344 million shares, as compared to 387 million
shares last year. It is still going through ups and
downs mainly due to lack of in-depth knowledge
CHAIRMAN'S REVIEW of market mechanism and introduction of reform
strategy.
It is my pleasure to present to you the 41st Annual
Report and Review of the performance of the company Performance of the KSE-100 Index
for the year ended June 30, 2005. 400 8000
350 7000
300 6000
Shares in Million

KSE 100 Index

THE ECONOMY 250 5000
200 4000
150 3000
100 2000
Pakistan economy maintained its growth during the 50 1000

fiscal year 2004-05 - on account of second generation 0

1999 2000 2001 2002 2003 2004 2005
0

reforms - liberal policies towards foreign investors, Volume* KSE-100 Index

privatization and geopolitical harmony. *Volume represents average turnover of the year

The GDP registered growth of 8.4%, as compared to MONETARY DEVELOPMENTS

6.4%, last year. The agriculture saw a growth of 7.5%
mainly due to adequate rainfall, upward revision of During the fiscal year, Pakistan had to face serious
support prices of various crops, subsidy to fertilizer difficulties in managing the cost of unprecedented
and availability of credit to farmers. The manufacturing rise in oil prices. In order to shield its domestic
registered a growth of 12.5%. The automobile, consumers and industries from higher oil prices, the
telecommunications, textile and cement were the key government absorbed a fiscal burden of Rs. 50 billion
factors in pushing the manufacturing sector upward in the year 2004-05. The surge in the international
to over 18%, a unique achievement. Improvement oil price, coupled with an unprecedented rise in the
was also witnessed in services sector, which grew price of some commodities, sparked inflationary
7.9%. Investment gained a stronger footing at 15.3% pressures in the economy.

13
 Atlas Honda Limited

Inflation for the year, as a result, doubled to 9.28% demand-supply gaps and the related difficulties, the
compared to 4.57%, last year. This led the Central medium to long run implication for the country, if
Bank to tighten the Monetary Policy. It raised interest properly managed, is the much desired quantum leap
rates sharply. The benchmark 6-month T-Bill cut off in the industrialization of the economy. Growth rates
yields during the year rose 575 basis points to 7.98% in the year 2004-5 have ranged from 50% for
as against 2.23% at the end of last year. The weighted motorcycles to 40% for cars and tractors.
average lending rates increased 148 basis points to
7.97% in May 2005 compared to 6.49% at the end of Following are the relevant production figures relating
fiscal year 2003-04. The money supply grew 17% to the automobile industry, as a whole, for the year
leading the private sector to raise credit off-take to under review:
Rs.400 billion.
Particulars 2000 2001 2002 2003 2004 2005

Foreign remittances rose 9% to US$4.2 billion from

Cars 32,461 39,573 40,601 62,893 98,461 126,403
US$3.87 billion previously: Foreign Direct Investment
Motorcycles 98,000 112,000 128,000 185,000 340,000 500,000
(FDI) rose to US$1.52 billion, up 60% over last year’s
Tractors 34,559 31,635 23,801 26,240 35,770 43,200
level of US$0.95 billion. These inflows helped in Buses, trucks & LCVs 9,409 9,662 11,275 15,773 19,100 30,557
offsetting the negative impact of the trade deficit Total 174,429 192,870 203,677 289,906 493,331 700,160
through containing the overall balance of payments
deficit to US$0.93 billion. This also helped the rupee’s Since this was the third year of above 25% growth for
stability vis-à-vis other currencies, particularly the US the industry, there is an urgent need to maintain the
Dollar: the average exchange rate during the year consistency in policies. Unfortunately, when economic
stood at Rs.59.5/US$ against Rs.57.6/US$, last year. issues are dealt with political solutions, industry suffers.
In view of the State Bank’s inflation target for the The reduction in CBU tariffs and the permission to
fiscal year, 2005-06, set at 8% against 9.27% recorded allow second-hand cars with a higher depreciation
this year, it is anticipated that interest rates in the advantage in the budget and trade policy have shaken
near future may change - perhaps marginally. the confidence to some degree. It is important to
retrieve the situation as soon as possible and keep
AUTOMOTIVE INDUSTRY the flow of investment in capacity expansions on
schedule. Any hesitancy will create even greater shocks.
During the year, the automotive industry had another
year of high growth on the back of rising demand. The automotive industry requires a long-term horizon.
Even though interest rates increased sharply, the The trade and import argument always gives a short-
demand for consumer finance did not see any respite. term attraction but usually at the cost of long-term
In fact, people in general are getting used to the role national interest. The textiles industry apart, the one
of leverage in the purchase of consumer durables. industry that is really becoming the backbone of the
The emerging middle class in the urban areas is economy is the automotive sector. With over 60
especially taking advantage of the various products OEMs, 1000 suppliers, a network of 10,000 distributors
being offered by the financial institutions. The custom- and dealers and an additional 100,000 employed at
tailored financial solutions are giving the first time the mechanic level, there is no industry that is
purchasers the much needed affordability and providing a greater opportunity for revenue generation,
purchasing power. The manufacturers, in turn, are employment and technical skills as the automotive
seeing unprecedented consumer appetite for their industry. It is high time the perception of the industry
products. While in the short run, it has created is changed. Most of the work will have to be done

14
 Annual Report 2005

by the industry itself but some level of recognition they do, nevertheless, add to industry capacity, which
must also come from all the quarters concerned. now exceeds over a million units. Unlike the car
segment, there is no demand-supply gap in the
MOTORCYCLE INDUSTRY motorcycle segment. In fact, due to the excess supply
conditions in the so called “Chinese segment”, there
The motorcycle sector has matured into an industry is currently a vicious price war taking place with no
in its own right. With over 50 brands now available Chinese brand really able to make a profit. Every
in the market, the consumer has a vast choice from week an “old” Chinese drops out to be replaced by
which he can select. The five leading and recognized another uninformed “new” Chinese brand at the cost
manufacturers in the organized sector have continued of valued foreign exchange creating in the process
to follow the policies of the government in all respects a junk yard of unserviceable bikes - of use to none.
and are good corporate citizens. Amongst them, they Your company is keeping a close eye on the overall
produced over 400,000 of the 500,000 motorcycles activity and I am pleased to say that it is quick to
sold during the year. respond whenever required.

Motorcycles market size vis-à-vis Honda market share COMPANY PERFORMANCE

500,000 500,000

400,000 During the year under review, the company had to

340,000
deal with various challenges that come with high
300,000 Sales in Units
287,184 growth. It had to bring in second and third shifts
185,000
200,000
112,000 128,000 190,395 wherever needed, ensure timely supply of parts
98,000
100,000
90,064
117,209 with the appropriate quality and cost, induct nearly
78,122
58,597
0
2000 2001 2002 2003 2004 2005
1000 new associates, launch a new model and lay
down the groundwork for the launch of SAP, its
Honda market share Motorcycles market size
ERP solution.
They contributed Rs. 6 billion to the exchequer and
now employ 10,000 directly and nearly 100,000 New Models
through their vendors. About the remaining players,
the less said the better! Unfortunately, so far, the Price rationalization in September 2004 was followed
government has had limited success in its effort to by the much awaited product launch of CD100 in
curb the menace of smuggling and under-invoicing, October. CD100 launch was the result of an
in fact more of assembly than manufacture - “pass unprecedented level of joint study of Honda R&D
through” -which plagues the industry and is a big and the local AHL team. Over two years of cooperation
threat to its future growth! resulted in the launch of the first of several planned
introductions from the company. Since it was the first
During the year an investment of over Rs. 6 billion launch of a fully localized product, there has been
has been committed in the motorcycle sector, with good learning experience for all concerned. In its six
Atlas Honda and its supply chain alone investing months of production, the sale of nearly 17,000 is no
over Rs. 4.0 billion in capacity enhancement and small achievement.
localization. Unfortunately, most of the investment
made by the new entrants is in land and an assembly Suffice to say, customers expectations from the
line at most. This adds no value and in fact misleads company are growing and Atlas Honda, in turn, is
the customers and the government alike. While Atlas trying to meet them. As a result, effective July 1st,
Honda does not view them as sustainable competitors, the company has created a new “Customer Care” unit

15
 Atlas Honda Limited

within its marketing department. The mandate of this limited. With the increased production capability
unit is to focus on customer expectations, education, coming on line, the company is in a better position
safety riding and anticipation of future demands. to serve the overseas customers for the year
The department would be supported in its activities 2005-6. Another development that holds tremendous
by the already existing service and spare parts export promise is the discontinuation in Japan and
departments to give the customer experience of total the shifting to Pakistan of the total production capability
satisfaction. of the CD 70 motorcycle. As a result, Pakistan will
be the sole manufacturer of this model globally. If
As a further reinforcement to last year’s media well marketed, it holds a great deal of promise for
advertising campaign of “Maien tae Honda e laisaan” worldwide exports. In this regard, the company is
slogan, another equally successful in discussion with Honda Motor to realize CD70’s
slogan, this time for CD100, “So Da Sodai” maximum export potential.
Proved a huge hit. Atlas Honda’s pull
strategies are proving to be an important part of its Localization
product awareness and appeal. I am also pleased
to inform that, for the second year in succession. The company maintained its pace of localization
Atlas Honda’s promotional activities received the during the year under review. Bottom Case, Case
“Best Campaign” of the year award by the Advertising Damper and Ignition coil production facilities are
Association of Pakistan. already in operation. Regular production has also
now commenced in the Fuel Cock Assembly project
The technical abilities of the service department came established through the technical support of Keihin,
into sharp focus during the development and launch Japan. The company was able to conclude a
of the new induction – Honda CD-100. Comparatively technology transfer agreement with DENSO TRIM,
higher technical publications like the Shop Manual, Japan for the localization of another hi-tech electrical
Parts Manual, Engine Exploded View Chart, Owners component, namely, ACG Magneto Assembly. The
Manual and Salient Features Chart for the new model induction of ACG would add to Atlas Honda’s existing
were developed completely indigenously without in-house strength in the manufacture of electrical
any technical assistance from any quarter. The components. Switch Assembly and Ignition Coil are
department also managed the technical training of already important in-house projects.
the largest after sales service network in the industry
for the new model. A major achievement of the 92 Deletion Progress
90
department has been the restructuring of the warranty
90.10
89.59

88
88.75
88.60

parts supply system. The system has been restructured 86

86.96
86.37

86.00

84
so that it can accommodate the needs of the growing
Percentage

83.18

82
82.76

sales and expanding after sales network. 80

81.00
78.92

78
76
77.07

Exports 74
74.65

72
70
2000 2001 2002 2003 2004 2005
A 31 percent growth in exports to overseas markets
CD 70 CG 125 CD 100
on a year on year basis was far less than the potential
this segment offers. The demand from overseas Two additional in-house projects for the localization
markets during the year remained high but due to of Drum Assembly and Cam Shaft are also underway.
the limited production capacity, exports remained Machines and equipments for production of Drum

16
 Annual Report 2005

are being installed through the technology support Atlas Group but also for customers, vendors, investors
of Atsumitech, Japan and the trial production will and workers from all over the country who attended
start from October, 2005. Order for the procurement the ceremony.
of high quality machine tools including Cam Milling
for Cam Shaft machining has been placed and the
initial trial run of equipments in Japan has been
completed. The facility would be available in Pakistan
for mass-production by December. As a result of the
above commitments, Atlas Honda would also become
the leading company for the Machining of Ferro-
Castings. Such a facility is not available anywhere
else in Pakistan.

Expansion Project

In the last five years, there has been a tremendous Supply Chain
growth in the motorcycle market. Keeping this in
mind, the company believes that timely expansion Atlas Honda is focused on maximizing localization,
of its facilities would be in the long-term interest of as else where. In pursuit of this goal, 175 vendors
all the stakeholders. Taking the opportunity to are actively engaged with the company. Your company
modernize and upgrade, the company decided last is steadily bridging the gap between the vendor’s
year to put up a new factory, adjacent to its current production volumes with that of the company itself.
facility in Sheikhupura. To share the company’s vision and future strategies,
periodic vendor meetings are being held. These help
Capital Expenditure Vs Fixed Assets (WDV)
boost the vendors’ confidence and provide them with
2,000 1,889 training & development opportunities both locally as
1,405
well as abroad. For example, recently eight selected
1,500
vendors were sent to Thailand on a study tour of a
Rs. in million

1,114
1,000 914
sheet metal automotive vendor.
490 536 566
500 451
186
36
178 134 Information Technology
0
2000 2001 2002 2003 2004 2005

Capital Expenditure Fixed Assets (WDV) The company is in the process of developing and
upgrading its management information system.
To mark the ground breaking ceremony of the new Realizing the importance of information technology
plant, the Prime Minister, Mr. Shaukat Aziz, graced as well as achieving operational efficiency, your
the occasion by visiting the site in October 2004. This company has made a significant investment to
was the second time in three years that the Prime implement SAP, an ERP system. SAP, in turn, will
Minister agreed to visit. Earlier, he had inaugurated enhance the company’s system capacity in terms of
the engine plant as the Finance Minister. This shows improved response times and ensuring the regular
his resolve and commitment to encourage the country’s reporting on progress and efficiency. In a fast
industrial growth, especially in the motorcycle sector. changing business environment, the successful
The Prime Minister’s visit was indeed a source of implementation of an ERP system will prove to be
great encouragement not only for the company and a sustainable competitive advantage.

17
 Atlas Honda Limited

Financial Results department’s activities. Due to introduction of the

new model - CD-100 sales promotional activities
The year 2004-05 was a difficult year as far as were, therefore, at a higher level. Due to the growth
financial planning was concerned. Raw material in units, the expenses related to packing &
prices globally reached an unprecedented high. forwarding also increased. Service department also
Utility and oil prices became dearer without any enhanced the activities by holding service camps
respite in sight. Interest rates and inflation went at various places.
way beyond the budgeted forecast. Under such
trying circumstances, the company still achieved The increase in interest rates led to the increase
commendable results. in financial cost at Rs.68.1 millions as against
Rs. 20.1 millions in the last corresponding period.
Sales, Gross profit & Profit after tax
Some burden was also due to the additional
16,000 1,600 long-term loans obtained by the company for
14,000 1,400
the targeted investment in expansion and
Gross Profit & Profit after tax
14.120

12,000 1,200
localization.
Rs. in million
Rs. in million

10,000 1,000
9.948
Sales

8,000 800

Out of total profit of Rs. 631.9 million available for

6.977

6,000 600
5.524

4,000 400
appropriation for the year, your directors have
4.704
3.397

2,000 200

0 0 proposed a cash dividend of Rs. 6.0 per share and

2000 2001 2002 2003 2004 2005 bonus share @ 40% (two bonus shares for every
Sales Gross profit Profit after tax
five shares held), absorbing Rs. 255.4 million. The
remaining balance of Rs. 376.5 million is being
Improved profitability was largely due to the carried forward to the reserves in order to comfortably
volume benefit generated by the sale of 287,184 carry out the proposed investment, production &
motorcycles as compared to 190,395 units in the export.
corresponding period of 2004, reflecting growth
of 51 percent. During the year, the company’s Dividend & Earnings Per Share
24.7
revenue increased to Rs. 14.12 billion as compared 12 25
21.3
to Rs. 9.94 billion last year, showing a growth of 10 20
16.7
42 percent. The gross profit decreased to 9.52
Distribution Rupees

8
15
percent from 12.41 percent as compared to last 6.0
Rupees

4.0 7.5
6
year, due to the price rationalization policy of the 10.6 10
4
company. The net impact of the policy was 6.0
7.0

2.4 4.6 5
2
compensated by an increase in sales volume, cost 4.0 2.5 4.0
2.0
rationalization and benefits of localization. As a 0
2000 2001 2002 2003 2004 2005
0

result, the company earned highest ever profit after Cash Dividend Stock Dividend Earnings Per Share

tax of Rs. 630.4 million as against Rs. 544.7 million

for the previous year. Treasury operation

The operating expenses for the year under review Surplus funds during the year were invested in high
were Rs. 445.3 million as compared to Rs. 360.2 yielding deposits and mutual funds. The primary
millions in the last corresponding period. The focus of the company was to invest its surplus funds
increase is largely due to the expansion in every efficiently. The returns earned by the company on

18
 Annual Report 2005

its treasury activity were outstanding with a contribution

Net change in cash and cash equivalents
of over 10% of the total profits.
478 (768)
2,200

2,000
Contribution to the national exchequer-Your
1,800
1,495
Company paid taxes to the national exchequer 1,600

amounting to Rs. 4.5 Billion, the highest ever, on 1,400 1,432

Rupees in million
account of sales tax, income tax and custom duties 1,200

1,000
as against Rs. 3.18 Billion contributed last year. 800

Payment of these taxes was more than 7.5 times the 600

net after tax earnings. The Company’s contribution 400

227
200
to the national economy by way of value addition
0
this year amounts to Rs. 6.2 billion – 72.78 percent Cash &
cash
Cash flow
from
Cash flow
from
Cash flow
from
Cash &
cash
equivalents operating financing investing equivalents
of net receipts from operations 40.3 percent higher July 1, 2004 activities activities activities June 30, 2005

as compared to last year. The Group, of which Atlas

Honda is a constituent member, paid taxes of Rs. 12 Human Resources
billion which is almost 2 percent of the government
total revenues. One of the group performance criteria Your company believes that when the organization
is how much a group entity contributes to the Govt. grows, the employees should also grow. During the
exchequer – as a social responsibility. year under review, 19 employees were sent abroad
for training, 13 associates were sent on ATLAS-LUMS
Sales vs Government Taxes Diploma in Business Management which is an 18
15,000 14,120
months residence course at intervals - conducted at
LUMS. Two were encouraged to do Executive MBA.
10,000
9,948 Mr. Maqsood Basra won acceptance to the prestigious
Rs. in million

6,977 management development program at the Harvard

5,524
5,000
4,704 4,514 Business School. Regular in-house and external
3,397 3,184
1,318 1,508
1,963 trainings – managerial grid - were also arranged for
1,137
0 associates. The company’s long term and short term
2000 2001 2002 2003 2004 2005
growth and operational needs are dovetailed with
Sales Government Taxes
individual associates’ growth plan. Hence, succession
planning and potential assessment exercise up to the
Cash Flow managers’ level was carried out during the year under
review. At the floor level, outstanding performances
The cash flow generated through the operating by the associates were regularly acknowledged in
activities was Rs. 1,494.7 million in 2005 as compared the form of ALAMAYAR awards and educational trips
with Rs. 551.7 million during 2004. Net income after abroad.
tax increased to Rs. 630.4 million in 2005 from
Rs. 544.7 million in 2004, reflecting higher volume At both the plants, the Charter of Demands with the
and localization impact. C.B.A. was amicably settled within a minimum
allocated time frame, resulting in enhanced capacity
Cash flow in 2005 has mainly been deployed for capital and productivity. The concept of a Green factory is
expenditure (Rs. 913.6 million), debt repayment also being focused. To create a good and healthy
(Rs. 120.0 million) and dividends paid (Rs. 151.5 million). environment, 150 new trees were planted. Green

19
 Atlas Honda Limited

belts and new lawns have been developed all around Future overall success for the company will be
the factories. driven by increasing sales volume, saving costs,
induction of new technology and localization. Since
In order to strengthen your company, a new
the future prospects of the economy in general
department has been created to deal with Corporate
look promising, the company is well poised to take
Affairs and Management Audit of the company. A
seasoned General Manager is being entrusted with advantages of these encouraging developments
the job. He will lead the effort on behalf of the and therefore continue its strategy of balanced
industry to create a new policy framework for the growth.
industry as a whole. The creation of the new policy
framework, namely, the Tariff Based System, will
be extremely important for the next phase of
(Those with foresight will continue to
investment in the automobile industry. Additionally,
Mr. Raffat Iqbal has re-joined your company as build a new stronger & sounder.)
General Manager HR & Administration, after having
served in Honda Atlas Cars (Pakistan) Ltd - a sister ACKNOWLEDGEMENT
company - as Vice President for more than five
years. He brings with him vast management
I would like to thank Honda Motor Company Ltd.,
experience which will be useful in the company’s
Japan for their continued support in implementing
next phase of growth.
the expansion project and cooperation in maintaining
The tradition of Family Day functions is very popular high standards of excellence. I also thank our bankers,
amongst the associates and their families. This year Shareholders, Dealers, Vendors, Board of Directors,
Family Days were held at both the plants again,
Group President, Mr. Aamir H. Shirazi, the Group
which were well attended by the families of the
Director Engineering, Mr. Jawaid Iqbal Ahmed, the
associates. In recognition of the long association with
CEO, Mr. Saquib H. Shirazi and his team – all staff
the company, 40 associates were given long service
awards. 4 associates were also presented with Gold and associates for their countless hours of work to
Medals on eve of their retirement. build an even greater company in order to serve our
valued customers better.
FUTURE OUTLOOK

On behalf of the Board, I would like to acknowledge

The upward momentum in the economic growth
the contributions made by Mr. Koji Nakazono , the
reflects the stability and growth in all sectors of
the economy. The reduction in tariff rates, director who resigned from the Board during the
liberalization and the global image of Pakistan has year, and welcome Mr. Motohide Sudo who has
resulted in substantial growth in foreign investment replaced the outgoing director.
and exports. At the same time, there are significant
challenges that can be a threat if not addressed
timely. The company is faced with a great cost
increase problem due to the continuous rise in
input raw materials especially steel prices, rubber
and POL products. Karachi: September 09, 2005 Yusuf H. Shirazi

20
 Annual Report 2005

Directors’ Report

The directors of your company take pleasure in presenting their report together with the Audited Accounts and
Auditors' Report thereon for the year ended June 30, 2005.

Financial Results
The financial results of your company for the year ended June 30, 2005 under review are summarized as follows:

2005 2004
(Rupees in ‘000)

Profit before taxation 938,965 842,487

Taxation
Current 283,800 192,000
Prior Years 409 (763)
Deferred 24,300 106,500
308,509 297,737
Profit after taxation 630,456 544,750
Unappropriatedprofit brought forward 1,508 1,126
Available for appropriation 631,964 545,876
Appropriation:
Transfer to General Reserve 375,000 340,000
Cash Dividend 60% (2004: 75%) 153,276 153,276
Reserve for issue of bonus shares 102,184 51,092
630,460 544,368

Unappropriatedprofit carried forward 1,504 1,508

Earnings per Share

Basic earnings per share after tax is Rs.24.68 (2004 : Rs. 21.32).

Dividend

Directors proposed cash dividend at the rate of Rs. 6.0 per share i.e. 60% and bonus shares issue @ 40% (two bonus
share for every five shares held).

Chairman's Review

The Chairman's review included in the Annual Report deals inter alia with the performance of the company for
the year ended June 30, 2005 and future prospects. The directors endorse the contents of the review.

Board of Directors

The Board comprises of five Executive and three Non-Executive directors. All the non executive directors are
independent from management. During the year, Mr. Koji Nakazono resigned from the Board effective June 22,
2005, in his place, Mr. Motohide Sudo was appointed by the Board.

During the year the Board re-appointed the Chairman and Chief Executive Officer (CEO). The Board approved the
remuneration of the Chairman at Rs. 9.5 million, CEO at Rs. 9.5 million and three Directors at Rs. 6.0 million. Bonus
and other benefits like free transportation, telephone facility, medical expenses etc. as per company's policy for
the year 2005-2006. Furnished accommodation, inclusive of utilities will also be provided to two Directors. The
Company also makes contributions to the gratuity and provident funds for the Chairman, CEO and one director.

21
 Atlas Honda Limited

During the year five Board meetings were held, the attendance of the directors and number of their directorships
in listed companies, including Atlas Honda Limited (AHL), are set out below.
S. No. Name of Directors Attendance Number of directorships in listed
companies, including AHL
1 Mr. Yusuf H. Shirazi (retired & re-elected) 5 6
2 Mr. Saquib H. Shirazi (retired & re-elected) 5 4
3 Mr. Sherali Mundrawala (retired & re-elected) 5 2
4 Mr. Sanaullah Qureshi (retired & re-elected) 4 4
5 Mr. Nurul Hoda (retired & re-elected) 5 1
6 Mr. Toshitsugu Kaneko (retired & re-elected) 3 2
7 Mr. Yoshitaka Kitamura (retired & re-elected) 3 1
8 Mr. Koji Nakazono
(Resigned effective June 22, 2005) - -
9 Mr. Motohide Sudo
(Appointed effective June 22, 2005) - 2

Auditors
The present Auditors M/s Hameed Chaudhri & Co., retire and being eligible, offer themselves for re-appointment.
The Audit Committee has recommended their re-appointment as auditors of the Company for the year 2005-06.

Compliance with the Code of Corporate Governance & Transfer Pricing

The requirements of the Code of Corporate Governance & Transfer Pricing set out by the Karachi and Lahore Stock
Exchanges in their Listing Rules, relevant for the year ended June 30, 2005 have been complied with. The directors
confirm the compliance of Corporate Governance & Transfer Pricing and statements to these effects are annexed.

Audit Committee
The Audit Committee was established to assist the directors in discharging their responsibilities towards company.
Audit Committee's responsibilities includes, reviewing reports of the company's financial results, monitoring internal
audit functions and compliance with relevant statutory requirements, to assist the Board in discharging its responsibilities
for safeguarding of Company's assets, development and implementation of effective internal control system.

The committee consists of three members. Majority of members including Chairman of the Committee are non-
executive directors.

The Audit Committee meets at least four times in a year and additional meetings can be convened by the Chairman
of the Committee whenever necessary.

During the year four Audit Committee meetings were held and attended as follows:

Mr. Sanaullah Qureshi, Chairman 4

Mr. Sherali Mundrawala, Member 4
Mr. Nurul Hoda, Member 4

Group Executive Committee

The Group Executive Committee is responsible for setting overall corporate objectives and strategies, identifying
opportunities, monitoring group business strategies and plans, and developing its group members as leaders of
their respective fields.

Group Human Resource Committee

The Group Human Resource Committee determines the remuneration package for the management staff. The
Committee has also the responsibility to create and maintain conducive work environment that instills trust and
ensures respect, fair treatment, development opportunities and grooming and make succession plan for all employees.

Group Systems & Technology Committee

The Group System and Technology Committee is responsible to provide an insight towards the various technological
aspects of information systems. The objective of the Committee is to introduce leading edge technology and IT
initiative to automate information delivery and accessibility of data for enhancement of time and cost efficiency.
22
 Annual Report 2005

Management Committee

The Management Committee acts at the operating level in an advisory capacity to the CEO, providing recommendations
relating to the business and other corporate affairs. The Committee has responsibility for reviewing and forwarding
long-term plans, capital and expense budget development and stewardship of business plans. The committee is
also responsible for maintaining healthy environment within and outside the company through its environment
friendly products.

Pattern of Shareholding

The pattern of shareholding of the company is annexed.

Communication

Communication with the shareholders is given a high priority. Annual, half yearly and quarterly reports are
distributed to them within the time specified in the Companies Ordinance, 1984. The company also has a web site
(www.atlashonda.com.pk), which contains up to date information of the company's activities.

Code of Corporate Governance

n The financial statements, prepared by the management of the company, fairly present its state of affairs, the
results of its operations, cash flows and changes in equity.

n The company has maintained proper books of account.

n Appropriate accounting policies have been consistently applied in preparation of financial statements and
accounting estimates are based on reasonable and prudent judgment.

n International Accounting Standards, as applicable in Pakistan, have been followed in preparation of financial
statements.

n The system of internal control is sound in design and has been effectively implemented and monitored. The
process of monitoring internal controls will continue as an ongoing process with the objective to further
strengthen the controls and bring improvements in the system.

n There is no doubt about the company's ability to continue as a going concern.

n There has been no material departure from the best practices of corporate governance, as detailed in the listing
regulations.

n A summary of key operating and financial data of the company is annexed.

n Information about taxes and levies is given in notes to the accounts.

n The Company operates a contributory provident fund scheme for all employees and Defined benefit gratuity
fund scheme for its management/non-management employees. The value of investments based on their
respective audited accounts are as follows

Provident Fund Rs. 215.29 million (as at June 30, 2005)

Gratuity Funds:
Management Staff Rs. 53.05 million (as at June 30, 2005)
Non-Management Staff Rs. 25.41 million (as at June 30, 2005)

On behalf of the Board of Directors

Saquib H. Shirazi
Karachi: September 09, 2005 Chief Executive Officer
23
 Atlas Honda Limited

STATEMENTS OF COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE

AND TRANSFER PRICING

A. Statement of compliance with the Code of Corporate Governance

The Board is committed to maintain the high standards of corporate governance. The directors are pleased to state
that the company is in compliance with the Code of Corporate Governance (Code) as required by the Stock
Exchanges Listing Regulations. The following statement is being presented in compliance with the best practices
of corporate governance.

The company has applied the principles contained in the Code in the following manner:

1. The directors have confirmed that none of them is serving as a director in more than ten listed companies,
including this company.

2. Directors, except Mr. Sanaullah Qureshi who purchased 100 shares during the year, CEO, CFO, Company
Secretary and their spouse and minor children have made no transactions of company's shares during the
year.

3. All the resident directors of the Company are registered as taxpayers and none of them has defaulted in
payment of any loan to banking company, a DFI or an NBFI or, being a member of stock exchange, has been
declared as a defaulter by the stock exchange.

4. Executive directors of the company are not in excess of 75% of total number of directors.

5. The company has adopted a ‘Statement of Ethics and Business Practices’, which has been signed by directors
and employees of the Company.

6. The Board has developed the vision and mission statement, overall corporate strategy and significant policies
of the company. A complete record of particulars of significant policies along with the dates on which they
were approved or amended has been maintained.

7. All the powers of the Board have been duly exercised and decision on material transactions, including
appointment and determination of remuneration and terms and conditions of employment of the CEO and
other Executive Directors, have been taken by the Board.

8. The meetings of the Board were presided over by the Chairman and, in his absence, by a director elected
by the Board for this purpose and the Board met a 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. The Board has set-up an effective internal audit function manned by suitable experienced personnel who
are conversant with the policies and procedures of the Company and are involved in the internal audit function
on a full time basis.

24
 Annual Report 2005

10. The Company had conducted an orientation course for its directors to apprise them of their duties, responsibilities
and to update them with recent amendments in applicable laws.

11. One casual vacancy had occurred in the Board during the period under review which had been duly filled
up.

12. The appointment of the Company secretary including his remuneration and terms & conditions of employment
has been approved by the board.

13. The directors' report for the year has been prepared in compliance with the requirements of the Code and
fully describes the salient matters required to be disclosed.

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 financial statements of the Company were duly endorsed by CEO and CFO before approval of the
Board.

16. The company has complied with all the corporate and financial reporting requirement of the Code.

17. The statutory auditors of the Company have confirmed that they have been given a satisfactory rating under
the quality control review programme of the Institute of Chartered Accountants of Pakistan, 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 the Institute of Chartered Accountants of Pakistan.

18. The statutory auditors or the persons associated with them have not been appointed to provide other services
except in accordance with the listing regulations.

19. We confirm that all other material principles contained in the Code have been complied.

B. Statement of Compliance with the Best Practices on Transfer Pricing

The company has fully complied with the Best Practices of Transfer Pricing as contained in the Listing Regulation
of the Stock Exchanges.

On behalf of the Board of Directors

Saquib H. Shirazi
Karachi: September 09, 2005 Chief Executive Officer

25
 Atlas Honda Limited

REVIEW REPORT TO THE MEMBERS ON STATEMENT OF COMPLIANCE WITH

BEST PRACTICES OF CODE OF CORPORATE GOVERNANCE

We have reviewed the Statement of Compliance with the best practices contained in the Code of Corporate
Governance prepared by the Board of Directors of Atlas Honda Limited to comply with the Listing Regulation
No. 37 (Chapter XI) of the Karachi Stock Exchange and clause 40 (Chapter XIII) of the Lahore Stock Exchange
where the Company is listed.

The responsibility for compliance with the Code of Corporate Governance 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 of Corporate Governance and report if it does not. A review is limited primarily to
inquiries of the Company personnel and review of various documents prepared by the Company to comply
with the Code.

As part of our audit of 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 have
not carried out any special review of the internal control system to enable us to express an opinion as to
whether the Board's statement on internal control covers all controls and the effectiveness of such internal
controls.

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 of Corporate Governance as applicable to the Company for the year ended
June 30, 2005.

HAMEED CHAUDHRI & CO.

Karachi: September 12, 2005 CHARTERED ACCOUNTANTS

26
 Annual Report 2005

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed Balance Sheet of ATLAS HONDA LIMITED as at 30 June 2005 and the related profit
and loss account, cash flow statement and statement of changes in equity 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 change as explained
in note 5 to the accounts with which we concur:

(ii) the expenditure incurred during the year was for the purpose of 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, cash flow statement and statement of changes in equity 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 30 June 2005 and of the profit, its cash flows and
changes in equity for the year then ended; and

(d) in our opinion zakat deductible at source under Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was deducted
by the company and deposited in the Central Zakat Fund established under Section 7 of that Ordinance.

HAMEED CHAUDHRI & CO.

Karachi: September 09, 2005 CHARTERED ACCOUNTANTS

27
 Atlas Honda Limited

BALANCE SHEET
AS AT JUNE 30, 2005 Note 2005 2004
(Rupees in ‘000)
ASSETS
NON CURRENT ASSETS
Fixed assets 7 1,888,736 1,405,606
Intangible assets 8 18,725 1,525
Long term investments 9 - -
Long term loans and advances 10 12,172 9,246
Long term deposits and prepayments 11 5,784 4,317
CURRENT ASSETS
Stores, spares & loose tools 12 226,540 144,582
Stock in trade 13 1,567,530 1,285,043
Trade debts 14 139,701 70,322
Loans and advances 15 37,296 27,094
Trade deposits and Prepayments 16 6,802 14,126
Other Receivables 17 343,704 398,260
Accrued mark-up / interest 18 1,734 335
Investment - Available for sale 19 410,241 524,388
Bank balances 20 1,432,363 227,094
4,165,911 2,691,244
TOTAL ASSETS 6,091,328 4,111,938
EQUITY AND LIABILITIES
Capital and Reserves
Authorised Capital
40,000,000 Ordinary Shares of Rs. 10/- each 400,000 400,000
Issued, Subscribed & Paid-up Capital 21 255,460 204,368
Reserves & Unappropriated profit
Reserves 22 1,190,809 1,235,485
Unappropriated profit 631,964 205,876
1,822,773 1,441,361
Shareholders' Equity 2,078,233 1,645,729
NON CURRENT LIABILITIES
Long Term Loans - secured 23 933,019 415,000
Deferred Liabilities
Provision for gratuity 24 4,730 4,382
Compensated leave absences 25 27,988 25,269
Deferred taxation 26 163,800 139,500
196,518 169,151
CURRENT LIABILITIES
Trade and other payables 27 2,347,211 1,567,597
Accrued mark-up / interest 28 17,281 2,461
Short term borrowings 29 - -
Current portion of long term loans 30 231,981 120,000
Provision for taxation 31 287,085 192,000
2,883,558 1,882,058
CONTINGENCIES & COMMITMENTS 32
TOTAL EQUITY AND LIABILITIES 6,091,328 4,111,938
The annexed notes form an integral part of the financial statements.

Yusuf H. Shirazi Saquib H. Shirazi Sherali Mundrawala

Chairman Chief Executive Officer Director

28
 Annual Report 2005

PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED JUNE 30, 2005
Note 2005 2004
(Rupees in ‘000)

SALES 33 14,120,847 9,948,094

COST OF SALES 34 12,776,676 8,713,899

GROSS PROFIT 1,344,171 1,234,195

DISTRIBUTION COST 35 302,252 241,651

ADMINISTRATIVE EXPENSES 36 143,018 118,546

445,270 360,197

OPERATING PROFIT 898,901 873,998

OTHER OPERATING INCOME 37 171,513 51,442

1,070,414 925,440

FINANCE COST 38 68,050 20,094

OTHER OPERATING EXPENSES 39 63,399 62,859

PROFIT BEFORE TAX 938,965 842,487

TAXATION
Current year 31 283,800 192,000
Prior years 31 409 (763)
Deferred 26.1 24,300 106,500

308,509 297,737

PROFIT AFTER TAX 630,456 544,750

BASIC EARNINGS PER SHARE 40 24.68 21.32

The annexed notes form an integral part of the financial statements.

Yusuf H. Shirazi Saquib H. Shirazi Sherali Mundrawala

Chairman Chief Executive Officer Director

29
 Atlas Honda Limited

CASH FLOW STATEMENT

FOR THE YEAR ENDED JUNE 30, 2005 Note 2005 2004
(Rupees in ‘000)

CASH FLOWS FROM OPERATING ACTIVITIES 41 1,494,696 551,668

CASH FLOWS FROM INVESTING ACTIVITIES

Capital Expenditure (913,672) (1,114,129)

Investments (744,878) (997,127)
Sale proceeds of fixed assets 8,367 10,512
Sale proceeds of investments 878,511 499,464
Markup / interest received on deposits 25,254 29,072
Software development / acquisition cost (21,431) (1,701)

Cash used in investing activities (767,849) (1,573,909)

Net cash flow before financing activities 726,847 (1,022,241)

CASH FLOWS FROM FINANCING ACTIVITIES

Repayment of long term loan (120,000) (130,184)

Long term loan received 750,000 500,000
Repayment of lease rentals - (253)
Dividend paid (151,578) (141,454)

Net cash generated from financing activities 478,422 228,109

Increase / (Decrease) in cash & cash equivalent 1,205,269 (794,132)

Cash and cash equivalent as at July 1 227,094 1,021,226

Cash and cash equivalent as at June 30 1,432,363 227,094

The annexed notes form an integral part of the financial statements.

Yusuf H. Shirazi Saquib H. Shirazi Sherali Mundrawala

Chairman Chief Executive Officer Director

30
 Annual Report 2005

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED JUNE 30, 2005
(Rupees in ‘000)
Capital Reserves Revenue Reserves Unrealized gain/(loss)
Share Share Gain on General Unappro- on available on hedging Total
Capital Premium Sale of Reserve priated for sale instruments
Land Profit investments cash flow hedge

Balance as at June 30, 2003-as previously stated 204,368 39,953 165 831,000 1,126 - - 1,076,612
Effect of change in accounting policy (Note 5)-
Proposed dividend - - - - 143,058 - - 143,058

Balance as at June 30, 2003 (Restated) 204,368 39,953 165 831,000 144,184 - - 1,219,670

Profit for the year - - - - 544,750 - - 544,750

Dividend - - - - (143,058) - - (143,058)

Increase in fair value of available for

sale investments - - - - - 20,167 - 20,167

Transfer to general reserve - - - 340,000 (340,000) - - -

Unrealized gain on remeasurement of

forward foreign exchange contracts - - - - - - 4,200 4,200

Balance as at June 30, 2004 (Restated) 204,368 39,953 165 1,171,000 205,876 20,167 4,200 1,645,729

Profit for the year - - - - 630,456 - - 630,456

Dividend - - - - (153,276) - - (153,276)

Issue of bonus shares 51,092 - - - (51,092) - - -

Net gain removed from equity and reported

in net profit for the period - - - - - (49,940) (4,200) (54,140)

Net Increase in fair value of available for

sale investments - - - - - 16,605 - 16,605

Unrealized loss on remeasurement of

forward foreign exchange contracts - - - - - - (7,141) (7,141)

Balance as at June 30, 2005 255,460 39,953 165 1,171,000 631,964 (13,168) (7,141) 2,078,233

The annexed notes form an integral part of the financial statements.

Yusuf H. Shirazi Saquib H. Shirazi Sherali Mundrawala

Chairman Chief Executive Officer Director

31
 Atlas Honda Limited

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED JUNE 30, 2005

1. CORPORATE INFORMATION

Atlas Honda Limited (the Company) was incorporated as a public limited company on October 16,
1962 and its shares are listed on Karachi and Lahore Stock Exchanges in Pakistan. Its registered office is
located at 1-Mcleod Road, Lahore. The manufacturing / assembly facilities of the Company are located at
Karachi and Sheikhupura, with branches / warranty and training centres at Karachi, Multan, Lahore, and
Rawalpindi. The Company is principally engaged in progressive manufacture and sales of motorcycles and auto
parts. The company employed 992 persons (2004: 903 persons) at the balance sheet date.

2. STATEMENT OF COMPLIANCE

These financial statements have been prepared in accordance with approved accounting standards as applicable
in Pakistan and the requirements of Companies Ordinance, 1984. Approved accounting standards comprise of
such International Accounting Standards as notified under the provisions of the Companies Ordinance, 1984.
Wherever, the requirements of the Companies Ordinance, 1984 or directives issued by the Securities and
Exchange Commission of Pakistan (SECP) differ with the requirements of these standards, the requirements
of the Companies Ordinance, 1984 or the requirements of the said directives take the precedence.

3. BASIS OF PREPARATION

The financial statements are presented in Pak Rupees, rounded to the nearest thousand. The financial statements
have been prepared on historical cost basis except measurement of investments available-for-sale, derivatives
at fair values and staff gratuity which is being valued at present value.

4. APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved by the Board of Directors and authorized for issue on September 9, 2005.

5. CHANGE IN ACCOUNTING POLICIES

During the year the Company has changed the following policies consequent to the substitution of Fourth
Schedule to the Companies Ordinance, 1984 by the Securities & Exchange Commission of Pakistan (SECP):

a) Recognition of Dividend proposed subsequent to the year end (Note 27.5).

b) Capitalization of exchange differences (Note 6.10).

6. SIGNIFICANT ACCOUNTING POLICIES

6.1 Employee Benefits

Defined Benefit Plan

The Company operates funded gratuity scheme for its management and non management staff.

Contributions under the schemes are made on the basis of actuarial valuation and are charged to Profit
and Loss account. The valuation of both the schemes was carried out on June 30, 2005 using the "Projected
Unit Credit Method".

The amount recognized in the balance sheet represents the present value of the defined benefit obligation
as adjusted for unrecognized transitional liability and as reduced by the fair value of the plan assets.

32
 Annual Report 2005

Cumulative net unrecognized actuarial gain and loss at the end of the previous year which exceed 10%
of the greater of present value of the Company's obligation and fair value of plan assets are amortized
over the remaining service of employees expected to receive benefits.

Defined Contribution Plan

The Company operates defined contribution plan (i.e. recognized provident fund scheme) for its employees.
Equal monthly contributions at the rate of 11 per cent of the basic salary are made to the fund both by
the Company and employees. The assets of the fund are held separately under the control of trustees.

Employee Compensated Absences

Employee entitlements to annual leave are recognized when they accrue to employees. A provision is
made for the estimated liability for annual leave as a result of services rendered by employees up to the
balance sheet date.

6.2 Trade and other payables

Trade and other payables are stated at their cost.

6.3 Taxation

Current year
Provision for current year's taxation is based on taxable income at the current rates of taxation after taking
into account tax credits and tax rebates available, if any, or the minimum tax liability determined under
section 113 of the Income Tax Ordinance, 2001, whichever is higher.

Deferred tax
Deferred tax is provided using the liability method on all temporary differences at the balance sheet date
between the tax bases of assets and liabilities and their carrying amount for financial statements reporting
purposes. Deferred tax liabilities are generally recognized for all taxable temporary differences.

Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable
that taxable profit will be available against which the deductible temporary differences, unused tax losses
and tax credits can be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply when the asset
is realized or the liability is settled, based on the tax rates that have been enacted or substantially enacted
at the balance sheet date.

6.4 Property, plant & equipment

Owned and leased assets

Property, plant & equipment are stated at cost less accumulated depreciation and impairment losses, if
any. Property, plant & equipment acquired by way of finance lease are stated at an amount equal to
the lower of its fair value and the present value of the minimum lease payments at the inception of the
lease less accumulated depreciation and impairment losses.

Capital work in progress is stated at cost accumulated upto the balance sheet date.

Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down
immediately to its recoverable amount.

Normal repairs and maintenance are charged to expenses as and when incurred. Major renewals and
replacements are capitalized. Gains or losses on disposal or retirement of Property, plant & equipment
are determined as the difference between the sales proceeds and the carrying amount of asset and are
included in the profit and loss account.

33
 Atlas Honda Limited

Depreciation
Depreciation is charged to income on straight line method except Plant & machinery, Vehicles, Leased
hold land and Building on leasehold land whereas depreciation on Plant & machinery, Vehicles, Leased
hold land and building on leasehold land is charged to income on the basis of reducing balance method
without considering extra shift workings. Full year's depreciation is charged on additions during the year
while no depreciation is charged in the year of disposal.

The depreciation method and useful lives of items of property, plant & equipment are reviewed periodically
and altered if circumstances or expectations have changed significantly. Any change is accounted for as
a change in accounting estimate by changing the depreciation charge for the current and future periods.

6.5 Intangible Assets

Intangible assets are stated at cost less accumulated amortization and impairment losses, if any. Cost
associated with developing or maintaining computer software programs are recognized as an expense.
Costs that are directly associated with identifiable and unique software products controlled by the Company
and will probably generate economic benefits exceeding costs beyond one year, are recognized as
Intangible assets. Direct costs include staff cost, costs of the software development team and an appropriate
portion of relevant overheads.

Expenditure which enhances or extends the performance of computer software programs beyond their
original specifications is recognized as a capital improvement and added to the original cost of the software.
Computer software development costs recognized as assets are amortized using the straight-line method
over a period of two years.

6.6 Leases

Finance leases, which transfer to the Company, substantially all the risks and benefits incidental to
ownership, are capitalized at the inception of the lease at the fair value of the leased asset or, if lower,
at the present value of the minimum lease payments. Lease payments are apportioned between the finance
charges and reduction of lease liability so as to achieve a constant rate of interest on the remaining balance
of the liability. Finance charges are charged directly against income.

6.7 Investments - Available for sale

Investments including investment in associates held by the company are classified as available for sale
and are stated at fair value, with any resultant gain or loss being recognized directly in equity. Until the
investments are sold or disposed off, or until the investments are determined to be impaired, at that time
cumulative gain or loss previously reported in the equity is included in income.

6.8 Stores, spares and loose tools

Stores, spares and loose tools are stated at lower of cost and net realizable value. The cost of inventory
is based on weighted average cost. Items in transit are stated at cost accumulated to balance sheet date.

6.9 Stock-in-trade

These are valued at lower of weighted average cost and net realizable value. Cost of Raw materials and
Components represent invoice values plus other charges paid thereon. Cost in relation to Work in process
and Finished goods represent direct cost of raw materials, wages and appropriate manufacturing overheads.
Goods in transit are valued at cost accumulated upto balance sheet date.

34
 Annual Report 2005

6.10 Trade debts and other receivables

These are originated by the company and are stated at cost less provisions for any uncollectible amount.
An estimate is made for doubtful receivables when collection of the amount is no longer probable. Debts
considered irrecoverable are written off.
6.11 Foreign Currency Translation

Transactions in foreign currencies are initially recorded at the rates of exchange ruling on the dates of
the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated into
Pak Rupees at the exchange rates prevailing on the balance sheet date. In order to hedge its exposure
to foreign exchange risks, the company enters into forward exchange contracts. Such transactions are
translated at contracted rates. During the current year, the Company in pursuance of substituted Fourth
Schedule to the Companies Ordinance, 1984, has changed its accounting policy with respect to capitalization
of exchange differences. Previously exchange differences on foreign currency loans utilized for acquisition
of fixed assets were capitalized and all other differences were charged to income.

The Company now charges all exchange differences to Profit & Loss Account. The change in policy has
no effect on the amounts reported for the current year and corresponding year. All exchange differences
are included in the Profit and Loss Account.

6.12 Revenue Recognition

- Sales of goods are recorded when goods are delivered and title has passed on to the customers.

- Interest income is accrued on a time basis, by reference to the principal outstanding and the interest
rate applicable.

- Dividend income from investments is recognized when the Company's right to receive dividend has
been established i.e. book closure date of the company declaring dividend.

6.13 Borrowing Cost

Borrowing cost directly attributable to the acquisition, construction or production of qualifying assets,
which are assets that necessarily take a substantial period of time to get ready for their intended use are
added to the cost of those assets, until such time as the assets are substantially ready for their intended
use. All other borrowing costs are charge to income in the period in which they are incurred.

6.14 Provisions

Provisions are recognized when the company has a present legal or constructive obligations as a result
of past events and it is probable that an outflow of resources will be required to settle the obligation,
and a reliable estimate can be made of the amount of obligation.

6.15 Warranty

The Company recognizes the estimated liability to repair or replace damaged part of products still under
warranty at the balance sheet date. The provision is based on the ratio of warranty claims during the year
to previous year's sales.

6.16 Financial Instruments

Financial assets
The company's principal financial assets are cash & bank balances, trade debtors, advances, loans and
investment-available-for-sale.

35
 Atlas Honda Limited

Financial liabilities
Financial liabilities are classified according to the substance of the contractual arrangements entered into.
Significant financial liabilities include long term loans, short term borrowings, Trade and other payables.
These are stated at nominal value.

6.17 Cash and cash equivalents

For the purpose of cash flow statement, cash and cash equivalents comprise of cash and bank balances.

6.18 Interest / Mark-up bearing loans and borrowings

Loans and borrowings are recorded at the proceeds received, net of direct issue costs, if any. Finance
charges are accounted for on accrual basis and are added to the carrying amount of the instrument to
the extent that they are not settled in the periods in which they arise.

6.19 Impairment

An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable
amount. Impairment losses are recognized in the profit and loss account.

6.20 Related Party Transactions

All transactions with related parties are carried out by the Company at arm's length prices.

6.21 Derivative Financial Instruments

In certain cases, the Company uses forward foreign exchange contracts and Currency options to hedge
its risk associated primarily with foreign currency fluctuations relating to purchases of raw materials and
fixed assets from overseas suppliers. These contracts (except those having immaterial financial impact)
are included in the balance sheet at fair value and any resultant gain or loss is recognized in the Statement
of Changes in Equity and subsequently adjusted against the value of raw materials and fixed assets. The
fair value of forward foreign exchange contracts are included in "Other receivables" in case of favorable
contracts and "Trade and other payables" in case of unfavorable contracts. The fair values of forward
foreign exchange contracts are calculated by reference to current forward foreign exchange rates with
similar maturity profiles.

6.22 Carry Over Transactions

Securities purchased under an agreement to resell (reverse repo) are included as receivable against carry
over transactions. All carry over transactions are accounted for on settlement date. The difference between
purchase and sale price is treated as income from carry over transactions in the Profit and Loss account
and is recognized over the terms of transactions.

36
 Annual Report 2005

7. FIXED ASSETS 2005 2004

Note (Rupees in ‘000)

Property, plant and equipment 7.1 1,715,768 1,345,297

Capital work in progress 7.5 172,968 60,309
1,888,736 1,405,606

7.1 Property, plant and equipment

Cost Depreciation
As at As at As at As at W.D.V.
July 01, June 30, July 01, For the June 30, June 30, Rate
Particulars 2004 Additions Disposals* 2005 2004 Year Disposals* 2005 2005 %
( R u p e e s i n ‘ 0 0 0 )
Owned Assets
Freehold Land 5,112 - - 5,112 - - - - 5,112 -
Leasehold Land 33,855 - - 33,855 4,809 726 - 5,535 28,320 2.5
Building on freehold land 76,010 36,702 144 112,568 23,673 8,902 127 32,448 80,120 10
Building on leasehold land 38,315 7,853 - 46,168 25,006 2,116 - 27,122 19,046 10
Plant & machinery 1,489,832 446,404 1,889 1,934,347 462,707 147,308 1,447 608,568 1,325,779 10
Dies & jigs 337,723 219,932 1,208 556,447 227,736 219,929 1,184 446,481 109,966 50
Factory equipment 27,005 25,680 - 52,685 11,030 9,129 - 20,159 32,526 20
Office equipment 11,256 4,021 500 14,777 6,070 2,066 361 7,775 7,002 20
Computers & accessories 27,927 8,433 239 36,121 19,949 6,116 189 25,876 10,245 25
Furniture & fixtures 5,537 4,196 445 9,288 2,854 1,472 294 4,032 5,256 20
Fixture & equipment 1,300 - - 1,300 1,226 19 - 1,245 55 20
Electric & gas fittings 58,615 12,890 201 71,304 29,719 9,797 181 39,335 31,969 20
Vehicles 85,353 34,902 13,334 106,921 37,868 15,074 6,314 46,628 60,293 20
Service equipment 389 - - 389 285 25 - 310 79 20
TOTAL - 2005 2,198,229 801,013 17,960 2,981,282 852,932 422,679 10,097 1,265,514 1,715,768
2004 1,171,242 1,056,590 29,603 2,198,229 607,920 263,483 18,471 852,932 1,345,297

* Includes assets written off

- Addition to Plant & machinery includes Rs. NIL (2004: Rs. 776 thousand) of borrowing costs capitalized
during the year.

- Lease in respect of two plots is under execution. 2005 2004

Note (Rupees in ‘000)
7.2 Allocation of depreciation

Cost of goods manufactured 34.1 410,569 253,784

Administrative expenses 36 12,110 9,699
422,679 263,483

7.3 Certain dies and moulds costing Rs. 65,937 thousand (2004: Rs. 57,262 thousand) are held with Electro
Polymers (Private) Limited, Pak Polymer (Private) Limited, Sigma Industries (Private) Limited, Syed Bhais
(Private) Limited, Zahoor Die Casting Company, Pakistan Machine Tool Factory (Private) Limited and
Allwin Engineering Industries Limited (Associated company) for production of components to be supplied
to the Company.

37
 Atlas Honda Limited

7.4 Disposal of Fixed Assets

(Rupees in ‘000)
Cost Accumulated W.D.V. Sales Profit/ Mode of
Assets Depreciation Proceeds (Loss) disposal Particulars of Buyers

Plant & machinery

Air conditioner UAT 16 345 262 83 55 (28) Auction Saifullah Engineers, 105-Raja Market, Garden Town, Lahore
Injection Moulds & Dies 1,439 1,092 347 27 (320) Auction Saifullah Engineers, 105-Raja Market, Garden Town, Lahore

Office Equipment
Photocopier Machine 315 231 84 75 (9) Negotiation Shirazi Trading Company, Nadir House,
I. I.Chundrigar Road, Karachi, (Associated Company)
Computers & Accessories
Computers 100 50 50 79 29 Insurance Claim Muslim Insurance Company Limited, Bank Square, The Mall,
Lahore (Associated Company),
Vehicle
CG 125 69 14 55 59 4 Company Policy Mian Manzoor Hussain, Ex-employee
CG-125 69 - 69 62 (7) Insurance Claim Muslim Insurance Company Limited, Bank Square, The Mall,
Lahore (Associated company)
CG-125 69 14 55 38 (17) Negotiation HH Autos, Shop # 6, Akber Road, Saddar, Karachi
CG-125 69 14 55 38 (17) Negotiation HH Autos, Shop # 6, Akber Road, Saddar, Karachi
CD-70 51 - 51 45 (6) Company Policy Adeel Abbas, Employee
Honda City 958 192 766 827 61 Insurance claim Muslim Insurance Company Limited, Bank Square, The Mall,
Lahore (Associated Company).
Honda City 807 291 516 516 - Negotiation Shirazi Trading Company, Nadir House, I. I.Chundrigar Road
Karachi (Associated Company)
Honda Civic 940 555 385 385 - Company Policy Maqsood A. Basraa, Employee
Suzuki Cultus 224 - 224 224 - Company Policy Riaz Butt, Employee
Suzuki Cultus 437 213 224 224 - Company Policy Jamil A. Khan, Employee
Suzuki Cultus 437 213 224 224 - Company Policy Zaheer Minhas, Employee
Suzuki Mehran 339 228 111 139 28 Company Policy M. Sarfaraz Mufti, Employee
Honda Civic 1,242 447 795 961 166 Company Policy Mr. Jawaid H. Malik, Ex-employee
Suzuki Cultus 532 314 218 219 1 Company Policy Mr. Habib Uddin Baqai, Employee
Diahatsu Coure 399 144 255 253 (2) Insurance claim Muslim Insurance Company Limited, Bank Square, The Mall,
Lahore, (Associated Company)
Suzuki Margalla 453 334 119 352 233 Tender Mohammad Haleem Ur Rehman, C-66/1, Block -B, Gulshan-
e-Jamal, Karachi
Honda City 812 292 520 520 - Company Policy Shirazi Investments (Pvt.) Limited, 8th Floor, Adamjee House,
Karachi, (Associated Company)
Diahatsu Coure 419 247 172 173 1 Company Policy Waqar Matloob, Employee
Diahatsu Coure 439 259 180 180 - Company Policy Irshad Ahmed, Employee
Honda Civic 945 558 387 390 3 Company Policy Mushtaq Alam, Employee
Honda Civic 945 558 387 390 3 Company Policy Talha Saad, Employee
Items having book value less than Rs. 50,000 5,106 3,575 1,531 1,912 381

Total 17,960 10,097 7,863 8,367 504

7.5 Capital work in progress 2005 2004

(Rupees in ‘000)
Plant and Machinery 137,497 53,771
Advances to contractors / suppliers:
Building 18,643 1,992
Dies & jigs 410 953
Factory Equipment 8,570 569
Vehicles 4,153 2,585
Computer & accessories 3,695 439
172,968 60,309
8. INTANGIBLE ASSETS
Cost Amortization W.D.V.
As at As at As at As at
July 01, June 30, July 01, For the June 30, June 30,
Particulars 2004 Additions 2005 2004 Year 2005 2005
( R u p e e s i n ‘ 0 0 0 )
Computer software licenses 6,380 6,810 13,190 4,855 4,231 9,086 4,104
ERP under development - 14,621 14,621 - - - 14,621
2005 6,380 21,431 27,811 4,855 4,231 9,086 18,725
2004 4,680 1,700 6,380 2,892 1,963 4,855 1,525

38
 Annual Report 2005

Note 2005 2004

(Rupees in ‘000)
9. LONG TERM INVESTMENTS
Available-for-sale
Unquoted
Arabian Sea Country Club Limited
200,000 (2004: 200,000) ordinary shares of Rs. 10 each. 2,000 2,000
Less: Impairment in the value of investment 2,000 2,000
- -

Automotive Testing & Training Centre (Private) Limited

50,000 (2004: 187,500) ordinary shares of Rs. 10 each 9.1 500 1,875
Less: Impairment in the value of investment 500 1,875
- -
- -

9.1 As a result of transformation of shares of Automotive Testing & Training Centre (Private) Limited into
Engineering Development Board, the company has voluntarily surrendered 73.33 % of its holding to
the Board. The surrender of investment did not have any impact on the profit, as the investment has
already been fully provided.

10. LONG TERM LOANS AND ADVANCES

Considered Good

Due from:
Executives 10.1 885 401
Non executives 20,983 14,879
21,868 15,280
Less: Installments recoverable within twelve months:
Executives 551 88
Non executives 9,145 5,946
9,696 6,034
12,172 9,246

10.1 Reconciliation of loans and advances to executives

Balance at beginning of the year 401 489

Disbursement 696 -
1,097 489
Less: Repayment during the year 212 88
885 401

10.2 Car / Motorcycle loans given to employees including executives are in accordance with the Company's
policy. The loans are repayable in equal monthly installments within a maximum period of four years.
The loans are secured against car / motorcycles which are registered in the name of the Company.

10.3 The maximum amount due from executives at the end of any month was Rs. 977 thousand
(2004: Rs. 489 thousand).

11. LONG TERM DEPOSITS AND PREPAYMENTS

Considered Good
Deposits 5,483 4,317
Prepayments 301 -
5,784 4,317

39
 Atlas Honda Limited

Note 2005 2004

(Rupees in ‘000)
12. STORES, SPARES & LOOSE TOOLS

Consumables stores 49,302 36,205

Maintenance spares 59,680 39,284
Tools 123,967 60,474
Stores in transit (inter factories: Karachi / Sheikhupura) 884 13,681
233,833 149,644
Less: Provision for slow moving stores 7,293 5,062
226,540 144,582

13. STOCK IN TRADE

Raw materials & components:

In hand 869,729 544,126
With third parties 34,591 45,193
In transit (inter factories: Karachi / Sheikhupura) 17,805 25,070
922,125 614,389
Work in Process 194,049 150,463

Finished Goods:
Motorcycles 29,702 18,181
Spare parts 86,134 53,966
115,836 72,147
Goods in transit 335,520 448,044
1,567,530 1,285,043

13.1 Stock-in-trade and trade debtors upto a maximum amount of Rs. 1,255 million (2004: Rs. 1,255 million)
are under hypothecation as security for the Company’s short term finances (Note 29).

14. TRADE DEBTS

Considered Good
Export - Secured 23,453 18,851
Local - Unsecured 116,248 51,471
139,701 70,322

14.1 The bank has lien on export bills / contracts upto a maximum amount of Rs. 30 million (2004: Rs. 29.18
million) against foreign currency financing (Note 13.1 & Note 29).

15. LOANS AND ADVANCES

Loan and advances to non executive employees 1,893 4,754

Advances to employees for expenses

- unsecured, Considered Good 15.1 2,003 1,645
Advances to suppliers, contractors and others
- unsecured, Considered Good 15.2 23,704 14,661
Current portion of car / motorcycle loans 10 9,696 6,034
37,296 27,094

15.1 Advances to employees for expenses include amount due from executives Rs. 22 thousand (2004: NIL).

15.2 Maximum amounts due from associated companies at the end of any month during the year was Rs.
NIL (2004: Rs. 1,534 thousand).

40
 Annual Report 2005

Note 2005 2004

(Rupees in ‘000)
16. TRADE DEPOSITS AND PREPAYMENTS

Trade deposits 4,020 6,591

Prepayments 2,782 7,535
6,802 14,126
17. OTHER RECEIVABLES

Unrealized gain on remeasurement of

forward foreign exchange contracts - 4,200
Receivable from Government:
- Income tax deducted at source / paid in advance 183,022 263,530
- Advance Sales Tax - Motorcycles 143,817 93,766
- Raw Materials 2,533 17,000
Other receivables 17.1 14,332 19,764
343,704 398,260

Other receivable- Considered doubtful 615 619

344,319 398,879

Provision for doubtful receivable 615 619

343,704 398,260

17.1 Other receivables include Rs. 13,768 thousand (2004: Rs. 19,550 thousand) duty draw back receivable
from Collector of Customs.

18. ACCRUED MARK-UP / INTEREST

Interest accrued on savings deposit accounts 1,734 335

19. INVESTMENTS - AVAILABLE FOR SALE

No of Units
2005 2004

Related parties:

Atlas Stock Market Fund 198,390 - 111,771 -

Atlas Income Fund 183,196 - 100,010 -
Atlas Fund of Funds 7,941,000 - 78,616 -
Others:
United Money Market Fund - 1,494,440 - 157,043
UTP - Income Fund - 195,196 - 105,064
Pakistan Stock Market Fund 603,316 - 69,442 -
Pakistan Income Fund 919,751 4,811,613 50,402 262,281
410,241 524,388

41
 Atlas Honda Limited

Note 2005 2004

(Rupees in ‘000)
20. BANK BALANCES

Cash with banks:

In current account 167,506 117,058
In savings deposit accounts 1,264,857 110,036

1,432,363 227,094

21. ISSUED, SUBSCRIBED & PAID-UP CAPITAL

No. of ordinary shares

of Rs. 10 each
2005 2004

6,352,748 6,352,748 Fully paid-up in cash 63,528 63,528

18,933,972 13,824,768 Issued as fully paid bonus shares 189,339 138,247
259,300 259,300 Issued against consideration other than cash 2,593 2,593

25,546,020 20,436,816 255,460 204,368

21.1 The holders of ordinary shares are entitled to receive dividends as declared from time to time and are
entitled to one vote per share at meetings of the Company. All shares rank equally with regard to
company's residual assets.

21.2 On October 02, 2004 a capitalization issue of one bonus shares for every four shares held resulted in
an increase in issued capital of Rs. 51,092 thousands.

21.3 13,658,670 (2004: 10,879,537) ordinary shares of Rs. 10/- each were held by associated companies at
the year end.

22. RESERVES Note 2005 2004

(Rupees in ‘000)

Capital Reserves 40,118 40,118

General Reserve 1,171,000 1,171,000
Unrealized (loss) / gain on remeasurement (20,309) 24,367

1,190,809 1,235,485

23. LONG TERM LOAN-SECURED

Banking companies:
Bank of Tokyo - Mitsubishi Limited 23.1 225,000 -
Habib Bank Limited 23.2 150,000 200,000
MCB Bank Limited 23.3 213,019 -
National Bank of Pakistan - (Loan I) 23.4 125,000 175,000
National Bank of Pakistan - (Loan II) 23.5 200,000 -
Union Bank Limited 23.6 20,000 40,000

933,019 415,000

42
 Annual Report 2005

Note 2005 2004

(Rupees in ‘000)

23.1 Bank of Tokyo - Mitsubishi Limited

Balance at beginning - -
Disbursed during the year 250,000 -
Less: Repaid during the year - -
250,000 -
Less: Installments due within the following
twelve months 30 25,000 -
225,000 -

(a) The Company has arranged a loan amounting to Rs. 250 million from Bank of Tokyo -
Mitsubishi Limited to finance expansion and capacity enhancement of the company.

(b) The loan is repayable in 10 half yearly installments commencing on January 05, 2006 and
ending on April 20, 2010.

(c) The loan carries mark up at the base rate plus 50 basis points. Base rate has been defined
as average rate of ASK SIDE of the six months KIBOR. Base rate will be set at the beginning
of each six months period for profit presently 8.39 percent per annum due at the end of
the six month period.

(d) The loan is secured against a first equitable mortgage charge ranking pari passu on immovable
properties of the company, first ranking pari passu charge by way of hypothecation of
fixed assets of the company and a demand promissory note.

23.2 Habib Bank Limited Note 2005 2004

(Rupees in ‘000)

Balance at beginning 250,000 -

Disbursed during the year - 250,000

Less: Repaid during the year 50,000 -

200,000 250,000
Less: Installments due within the following
twelve months 30 50,000 50,000
150,000 200,000

(a) The Company has arranged a loan amounting to Rs. 250 million from Habib Bank Limited
to finance capital expenditure program.

(b) The loan is repayable in 10 half yearly installments commencing on October 08, 2004 and
ending on April 08, 2009.

(c) The loan carries mark up at the base rate plus 125 basis points with a Cap of 5.85 percent
and no floor. Cap to be effective for the first two years from the date of disbursement after
which there will be no Cap and the rate will be completely floating. Base rate has been
defined as six months treasury bills. Base rate will be set at the beginning of each six months
period for profit presently 5.85 percent per annum due at the end of the six months period.

(d) The loan is secured against first parri passu charge on the fixed assets of the Company.

43
 Atlas Honda Limited

Note 2005 2004

(Rupees in ‘000)

23.3 MCB Bank Limited

Balance at beginning - 40,184

Disbursed during the year 250,000 -
Less: Repaid during the year - 40,184
250,000 -
Less: Installments due within the following
twelve months 30 36,981 -
213,019 -

a) MCB Bank Limited has sanctioned a loan amounting to Rs. 250 million to finance expansion
and capacity enhancement of the company.

b) The loan is repayable in 10 half yearly installments commencing on September 27, 2005 and
ending on March 28, 2010.

c) The loan carries mark up at the base rate plus 50 basis points. Base rate has been defined
as average rate of ASK SIDE of the six months KIBOR. Base rate will be set at the beginning
of each six months period for profit presently 7.14 percent per annum due at the end of
the six month period.

d) The loan is secured against a first equitable mortgage charge ranking pari passu on immovable
properties of the company, a first ranking pari passu charge by way of hypothecation of
fixed assets of the company and a demand promissory note.

23.4 National Bank of Pakistan - (Loan I) Note 2005 2004

(Rupees in ‘000)

Balance at beginning 225,000 -

Disbursed during the year - 250,000

Less: Repaid during the year 50,000 25,000

175,000 225,000
Less: Installments due within the following
twelve months 30 50,000 50,000
125,000 175,000

(a) National Bank of Pakistan has sanctioned a loan amounting to Rs. 500 million to finance
expansion and capacity enhancement of the Company out of which the Company has
withdrawn Rs. 250 million.

(b) The loan is repayable in 10 half yearly installments commencing on June 28, 2004 and ending
on December 28, 2008.

(c) The loan carries mark up base rate plus 125 basis points with a cap of 5.85 percent and no
floor. Cap to be effective for the first two years from the date of disbursement after which
there will be no cap and the rate will be completely floating. Base rate has been defined
as six month treasury bills. Base rate will be set at the beginning of each six months period
for profit presently 5.85% per annum due at the end of the six months period.

(d) The loan is secured against first mortgage charge ranking parri passu on immovable
properties of the company, first ranking parri passu charge by way of hypothecation of
all fixed assets of the company and a demand promissory note.

44
 Annual Report 2005

Note 2005 2004

(Rupees in ‘000)
23.5 National Bank of Pakistan - (Loan II)

Balance at beginning - -
Disbursed during the year 250,000 -

Less: Repaid during the year - -

250,000 -
Less: Installments due within the following
twelve months 30 50,000 -

200,000 -

a) National Bank of Pakistan has sanctioned loan amounting to Rs.250 million to finance
expansion and capacity enhancement of the company.

b) The loan is repayable in 10 half yearly installments commencing on September 30, 2005 and
ending on March 31, 2010.

c) The loan carries mark up at the base rate plus 50 basis points. Base rate has been defined
as average rate of ASK SIDE of the six months KIBOR. Base rate will be set at the beginning
of each six months period for profit presently 7.17 percent per annum due at the end of
the six month period.

d) The loan is secured against a first mortgage charge ranking pari passu on immovable
properties of the company and first ranking pari passu charge by way of hypothecation
of all fixed assets of the company.

23.6 Union Bank Limited Note 2005 2004

(Rupees in ‘000)

Balance at beginning 60,000 80,000

Less: Repaid during the year 20,000 20,000
40,000 60,000
Less: Installments due within the following
twelve months 30 20,000 20,000
20,000 40,000

(a) The Company has arranged Demand Finance amounting to Rs. 100 million from Union Bank
Limited for import of machinery.

(b) The Demand Finance is repayable in 10 half yearly installments commenced on January 04,
2003 and ending on June 25, 2007.

(c) The Demand Finance carries mark up at the rate of 0.75 percent over Treasury Bills to be
fixed on six monthly basis, presently 8.73 percent.

(d) The Demand Finance is secured against first mortgage charge ranking parri passu on
immovable properties of the company, first ranking parri passu charge by way of
hypothecation of all fixed assets of the company and a demand promissory note.

45
 Atlas Honda Limited

Note 2005 2004

(Rupees in ‘000)

24. PROVISION FOR GRATUITY

Balance at beginning 4,382 23,948

Add: Provision for the year 24.2 4,730 6,617

9,112 30,565

Less : Payments during the year 4,382 26,183

24.1 4,730 4,382

24.1 The amount included in the balance sheet arising from the Company's obligation in respect of its defined
benefit retirement benefit plan is as follows:

Management Non-management Total

Funded
Note 2005 2004 2005 2004 2005 2004
(Rupees in 000’s)

Present value of defined benefit

obligation (actuarial liability) 74,118 62,225 22,507 21,101 96,625 83,326
Fair value of plan assets (53,048) (48,752) (27,250) (24,756) (80,298) (73,508)
Payable to /(Receivable from)
associated companies in respect
of transferees 122 - - - 122 -
Unrecognized actuarial gain / (loss) (16,812) (10,989) 5,093 5,553 (11,719) (5,436)

Balance at end 4,380 2,484 350 1,898 4,730 4,382

Net Liability at the beginning of the year 2,484 (1,793) 1,898 25,741 4,382 23,948
Charge for the year 4,380 4,277 350 2,340 4,730 6,617
Contributions (2,484) - (1,898) (26,183) (4,382) (26,183)

Net liability at the end of the year 4,380 2,484 350 1,898 4,730 4,382

24.2 The expense is recognized in the following line items in the income statement:

Cost of sales 34.4 1,752 1,625 350 2,340 2,102 3,965

Distribution cost 35.2 660 728 - - 660 728
Administrative expenses 36.2 1,968 1,924 - - 1,968 1,924

4,380 4,277 350 2,340 4,730 6,617

Principal actuarial assumptions at the balance sheet date for:

Discount rate 9% 8% 9% 8%
Future salary increases 8% 7% 8% 7%
Return on investment 9% 8% 9% 8%

46
 Annual Report 2005

Note 2005 2004

(Rupees in ‘000)

25. COMPENSATED LEAVE ABSENCES

Balance at beginning 25,269 22,915

Add: Provision for the year 3,386 3,094
28,655 26,009
Less : Payments during the year 667 740
27,988 25,269

26. DEFERRED TAXATION

The liability for deferred taxation comprises of

timing differences relating to:

Deferred credit arising in respect of

accelerated tax depreciation allowance 182,902 153,159

Deferred debit arising in respect of

various provisions (19,102) (13,659)

163,800 139,500

26.1 The movement for the year in the Company's net deferred tax position was as follows:

Balance at beginning 139,500 33,000

Increase in deferred tax liabilities 29,777 99,476
Decrease in deferred tax assets (5,477) 7,024
Charge to income for the year 24,300 106,500
163,800 139,500

27. TRADE AND OTHER PAYABLES

Trade creditors 648,528 472,090

Accrued liabilities 27.1 420,227 260,791
Provision for warranty 27.2 9,500 5,500
Customers advances & credit balances 1,151,884 749,991
Advance for scrap sales - 420
Retention money 761 1,463
Withholding tax payable - 1,145
Sales tax payable 23,260 3,313
Workers' Profit Participation Fund 27.3 50,433 45,531
Workers' Welfare Fund 27.4 19,026 17,174
Unrealized loss on remeasurement of Forward Foreign
Exchange Contracts 7,141 -
Unclaimed dividend 27.5 8,395 6,696
Other liabilities 27.6 8,056 3,483

2,347,211 1,567,597

47
 Atlas Honda Limited

27.1 Accrued liabilities include marking fees amounting to Rs. 30,009 thousands payable to Pakistan Standard
and Quality Control Authority.
Note 2005 2004
(Rupees in ‘000)
27.2 Provision for Warranty

Balance at beginning 5,500 7,000

Provided during the year 4,000 -
9,500 7,000
Paid / reversed during the year - 1,500
9,500 5,500

27.3 Workers' Profit Participation Fund

Balance as at beginning 45,531 35,324

Add : Interest credited 4,131 2,775
49,662 38,099
Less : Payment made during the year 49,297 37,763
365 336
Contributions for the year @ 5% 50,068 45,195
50,433 45,531

The Company retains the allocation to this fund for its business operation till the amount is paid to the
fund together with interest at the prescribed rates under the Act.

27.4 Workers' Welfare Fund Note 2005 2004

(Rupees in ‘000)

Balance at beginning 17,174 13,295

Paid during the year 10,470 12,345
6,704 950
Charge for the current year 19,026 17,174
(Adjustment) / Prior year (6,704) (950)
12,322 16,224
19,026 17,174

27.5 Unclaimed dividend

Dividends 8,366 6,686

Bonus fractions 29 10
8,395 6,696

The Securities and Exchange Commission of Pakistan has substituted the Fourth Schedule to the
Companies Ordinance, 1984 which is effective from the financial year ending on or after July 5, 2004.
This has resulted in the change in accounting policy pertaining to recognition of dividend declared

48
 Annual Report 2005

subsequent to the year end. As per new policy the proposed dividend remains included in the revenue
reserves until finally approved by the shareholders. Previously the dividend proposed by the board
of directors was accounted for as current liability. The change in accounting policy has been accounted
for retrospectively and the comparative information has been restated in accordance with the benchmark
treatment specified in International Accounting Standard 8 "Net Profit or Loss for the Period, Fundamental
Errors and Changes in Accounting Policies". Had there been no change in the accounting policy, the
unappropriated profit carried forward would have been lower by Rs. 204.368 million and the dividend
payable and reserve for issue of Bonus shares would have been higher by Rs. 153.276 million and
Rs. 51.092 million respectively. The effect of the change in accounting policy has been reflected in
the Statement of Changes in Equity. The change in accounting policy has not resulted in any change
in the profit for the periods.

The board of directors have proposed a cash dividend at the rate of Rs. 6.0 (2004: Rs.7.5) per share and
bonus shares issue at the rate of 40% i.e. two bonus shares for every five shares held (2004: 25% i.e. one
bonus share for every four shares held), amounting to Rs.255.460 million at their meeting held on September
09, 2005 for approval of the members at the Annual General Meeting to be held on October 13, 2005.
These financial statements do not reflect this dividend payable as explained above.

27.6 Other liabilities include vehicle deposits / installments under company vehicle policy amounting to
Rs. 2,925 thousands (2004: 2,509 thousands).

2005 2004
(Rupees in ‘000)

28. ACCRUED MARK-UP ON BANK LOANS

Accrued mark-up on long term loans 16,037 1,778

Accrued mark-up on short term finances 1,244 683

17,281 2,461

29. SHORT TERM BORROWINGS

Balance at begining and at end - -

The Company has facilities for short-term running finance under mark-up arrangements amounting to Rs. 735
million (2004: Rs. 755 million). The facilities carry mark-up at the rate of Re 0.1721 to Re 0.2241 (2004:
Re. 0.0822 to Re. 0.1370) per thousand per day on daily product basis. These facilities are secured against joint
hypothecation charge on stocks-in-trade and trade debts amounting to Rs. 1,255 million (2004: Rs. 1,255 million).
These facilities are expiring on various dates by March 31, 2006. The markup on running finance facilities is
payable on quarterly basis.

The facility for opening letters of credit and guarantees as at June 30, 2005 amounted to Rs. 1,975 million (2004:
Rs. 1,160 million) of which the amount remaining unutilized at the year-end was Rs. 1,068 million (2004: Rs.
650 million).

The facility for post shipment export refinance as at June 30, 2005 amounted to Rs. 15 million (2004: Rs. 15
million). This facility is secured against lien on export bills / contract. The Company has facility for foreign
currency finance amounting to Rs. 30 million (2004: Rs. 29.18 million) which is secured against lien on export
bills / contracts.

49
 Atlas Honda Limited

Note 2005 2004

(Rupees in ‘000)

30. CURRENT PORTION OF LONG TERM LOANS

Bank of Tokyo - Mitsubishi Limited 23.1 25,000 -

Habib Bank Limited 23.2 50,000 50,000
MCB Bank Limited 23.3 36,981 -
National Bank of Pakistan - (Loan I) 23.4 50,000 50,000
National Bank of Pakistan - (Loan II) 23.5 50,000 -
Union Bank Limited 23.6 20,000 20,000
231,981 120,000

31. PROVISION FOR TAXATION

Balance at beginning 192,000 220,000

Add: Provision made during the year
Current year 283,800 192,000
Prior year 409 (763)
284,209 191,237

Less: Payment during the year 189,124 219,237

287,085 192,000

31.1 The charge for the year can be reconciled to the profit as per the income statement as follows:

Profit before tax 938,965 842,487

Tax at the applicable income tax rate 35.00% 328,638 294,870

Tax effect of expenses that are not deductible in

determining taxable profit as under:
Gratuity 0.03% 322 (6,827)
Leave encashment 0.04% 393 824
Depreciation -3.51% (32,955) (107,126)
Gain on disposal of fixed assets 0.04% 359 217
Other 0.91% 8,511 11,173
Gain on sale of investment -1.97% (18,488) -
Effect of difference in tax rates under normal
assessment and presumptive tax regime -0.14% (1,306) (1,131)
Effect of difference in tax rates under normal
assessment and tax on dividend for companies -0.18% (1,674) -

30.22% 283,800 192,000

The income tax assessments of the Company have been finalized upto and including Tax Year 2004 (income
year ended June 30, 2004).

32. CONTINGENCIES & COMMITMENTS

CONTINGENCIES

32.1 Cases have been filed against the Company by some former employees claiming approximately Rs. 2.0
million in aggregate. These cases are pending in the High Court of Sindh, National Industrial Relation
Commission and the Sindh Labour courts. The management is confident that the outcome of these cases
will be in the Company's favor.

50
 Annual Report 2005

Note 2005 2004

(Rupees in ‘000)
32.2 Guarantees

Issued by bank 44,553 49,026

Guarantees are issued to Collector of Customs and Government institutions and shall be released on
delivery of motorcycles. These are issued under normal operations.

COMMITMENTS
Confirmed letters of credit relating to raw materials 799,653 466,950
Plant and equipment 103,032 45,354
Forward foreign exchange contracts 485,558 219,122

33. SALES - NET

Motorcycles & spare parts 16,855,150 11,455,782

Less: Trade discount & commission 78,982 30,281
Sales Tax 2,655,321 1,477,407
14,120,847 9,948,094

Commission to associated company on export sales amounting to Rs. 6,164 thousand (2004: Rs. 4,781 thousand)
is included in trade discount.

34. COST OF SALES

Stock at beginning 72,147 58,312

Cost of goods manufactured 34.1 12,449,391 8,471,838

Purchases 370,974 255,896
12,820,365 8,727,734
12,892,512 8,786,046
Stocks at end 13 115,836 72,147
12,776,676 8,713,899

34.1 Cost of goods manufactured

Work in process at beginning 150,463 80,942

Raw materials & components consumed 34.2 10,451,061 7,310,958
Direct labour 34.3 146,778 103,235
Technical Director's Remuneration 44.1 953 1,064
Salaries, wages & benefits 34.4 241,769 136,045
Stores consumed 232,153 146,207
Light, heat & water 98,665 67,782
Insurance 25,105 17,932
Rent, rates & taxes 5,276 4,256
Repair & maintenance 84,817 31,495
Royalty 613,402 345,833
Technical assistance 96,476 65,728
Traveling, conveyance and entertainment 30,376 24,517
Postage & telephone 8,613 6,209
Printing & stationery 6,274 2,589
Vehicle running 5,415 3,256
Depreciation 7.2 410,569 253,784
Canteen 22,491 14,852
Newspapers, magazines & subscription 1,114 982
Staff training 7,839 3,423
Intangible assets amortized 3,388 958
Other manufacturing expenses 443 254
12,643,440 8,622,301
Work in Process at end 13 194,049 150,463
12,449,391 8,471,838

51
 Atlas Honda Limited

Note 2005 2004

(Rupees in ‘000)

34.2 Raw material & components consumed

Stock at beginning 614,389 290,977

Purchases 34.5 10,758,797 7,634,370
11,373,186 7,925,347

Stock at end 13 922,125 614,389

10,451,061 7,310,958

34.3 Direct labour and salaries & benefits include Rs. 6,951 thousand (2004: Rs. 6,139 thousand) in respect
of provident fund contributions.

34.4 The following amounts have been charged to cost of sales during the year in respect of gratuity schemes:

Current service cost 2,066 1,892

Interest costs 3,516 2,584
Expected return on Plan Assets (3,419) (511)
Amortization of gain (61) -
2,102 3,965

34.5 Purchases include custom duty rebates net-off aggregating Rs.10,027 thousand (2004: Rs.16,283 thousand).

35. DISTRIBUTION COST

Directors’ remuneration 44.1 11,562 10,960

Salaries & benefits 35.1 51,378 40,900
Traveling, conveyance, entertainment & vehicle running 18,261 20,624
Rent, rates & taxes 4,178 3,665
Advertisement & publicity 104,873 83,342
Repairs & maintenance 1,353 929
Gas & electricity 1,082 1,217
Freight & forwarding 63,543 48,190
Printing & stationery 3,083 1,485
Postage & telephone 7,937 5,207
Sales promotion 13,030 9,299
Services charges 18,753 13,078
Insurance 1,619 1,653
Newspapers, magazines & subscription 250 353
Others 1,350 749
302,252 241,651

35.1 Salaries and benefits include Rs. 2,175 thousand (2004: Rs. 1,843 thousand) in respect of provident fund
contributions.

35.2 The following amounts have been charged to distribution cost during the year in respect of gratuity:

Current service cost 461 462

Interest costs 688 494
Expected return on Plan Assets (549) (228)
Amortization of loss 60 -
660 728

52
 Annual Report 2005

Note 2005 2004

(Rupees in ‘000)
36. ADMINISTRATIVE EXPENSES
Directors' Remuneration 44.1 6,170 6,156
Directors' meeting fee 44.2 5 5
Salaries & benefits 36.2 81,765 71,356
Traveling, conveyance & entertainment 10,562 11,314
Rent, rates & taxes 3,039 2,983
Insurance 1,791 1,755
Repairs & maintenance 4,421 3,390
Legal & professional charges 2,434 714
Gas & electricity 986 1,198
Fees & subscription 1,618 1,707
Postage & telephone 5,058 3,099
Printing & stationery 1,369 1,236
Vehicle running 2,532 1,804
Training expense 4,259 441
Depreciation 7.2 12,110 9,699
Donation 36.3 3,000 170
Intangible assets amortized 843 1,006
Others 1,056 513
143,018 118,546
36.1 Salaries and benefits include Rs. 3,233 thousand (2004: Rs. 2,894 thousand) in respect of provident fund
contributions.
36.2 The following amounts have been charged to administration expenses during the year in respect of
gratuity schemes:
Current service cost 1,374 1,223
Interest costs 2,052 1,306
Expected return on Plan Assets (1,636) (605)
Amortization of loss 178 -
1,968 1,924
36.3 Donations include Rs. 3,000 thousand (2004: 100 thousand) paid to Atlas Foundation (formerly Shirazi
Foundation). Mr. Yusuf H. Shirazi, Chairman and Mr. Saquib H. Shirazi, Chief Executive Officer are on
the Board of the Foundation.
37. OTHER OPERATING INCOME
Income from financial assets:
Interest on Deposits:
Associated Company 23,614 16,010
Others 3,039 11,263
26,653 27,273
Dividend Income 5,579 -
Income from carry over transactions 54,656 -
Gain on sale of investments 52,822 6,558
Exchange gain 747 785
Income from non financial assets:
Other income 88 253
Scrap sales 30,464 16,573
Gain on sale of fixed assets 7.4 504 -
171,513 51,442
38. FINANCE COST
Interest / mark-up on:
Short term loans 5,748 1,212
Long term loans 34,921 10,501
Workers' profit participation fund 27.3 4,131 2,775
Other financial charges 14,287 5,606
Exchange risk fee 8,963 -
68,050 20,094

53
 Atlas Honda Limited

Note 2005 2004

(Rupees in ‘000)

39. OTHER OPERATING EXPENSES

Auditors' remuneration 39.1 1,009 820

Loss on sale of fixed assets - 620
Workers' profit participation fund 27.3 50,068 45,195
Workers' welfare fund 27.4 12,322 16,224
63,399 62,859

39.1 Auditor's Remuneration

Audit fee 369 335

Provident fund /Workers' profit participation fund
audit and certification 581 432
Out of pocket expenses 59 53
1,009 820
40. EARNINGS PER SHARE

Basic earnings per share

Earnings for purposes of basic earnings per share
(Profit after tax) 630,456 544,750
Weighted average number of ordinary shares
for the purposes of basic earnings per share 25,546,020 25,546,020
Basic earnings per share - Rupees 24.68 21.32

There is no dilutive effect on basic earning per share of the company.

41. CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax 938,965 842,487

Adjustment for:
Depreciation 422,679 263,483
Foreign exchange gain (747) (785)
Gain on sale of investment (52,822) (6,558)
Interest income (26,653) (27,273)
Interest expense 40,669 11,713
Amortization 4,231 1,964
Provision for employee compensated absences 3,386 3,094
Gratuity provision 4,730 6,617
(Gain) / loss on sale of fixed assets (504) 620
Operating profit before working capital changes 1,333,934 1,095,362

Working capital changes:

(Increase)/decrease in current assets
Stores, spares & loose tools (81,958) (51,715)
Stock in trade (282,487) (727,763)
Trade debtors (69,379) (20,703)
Loans and advances (10,202) (12,522)
Trade deposits and prepayments 7,324 (53,949)
Other receivables (30,152) (2,932)
Increase in current liabilities (466,854) (869,584)
Trade and other payables 770,773 595,901
Cash generated from operations 1,637,853 821,679

Interest paid (25,101) (10,529)

Income taxes paid (including tax deducted at source) (108,615) (233,183)
Gratuity paid (4,381) (26,183)
Compensated absences paid (667) (740)
Long term loans and advances (2,926) 357
Long term deposits and prepayments (1,467) 267
Cashflow from operating activities 1,494,696 551,668

54
 Annual Report 2005

42. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES

The Company's income and operating cash flows are substantially independent of changes in market interest rates.
The Company presently has no significant interest-bearing assets. The Company's exposure to interest rate risk
and the effective rates on its financial assets and liabilities as of June 30, 2005 are summarized as follows:
(Rupees in ‘000)
2005 2004
Interest bearing Non-Interest bearing
Maturity Maturity Maturity Maturity
upto one after one Sub-total upto one after one Sub-total Total Total
year year year year
Financial assets

Long term loans and

advances - - - 9,696 12,172 21,868 21,868 15,280
Long term deposits - - - - 5,483 5,483 5,483 4,317
Trade debtors - - - 139,701 - 139,701 139,701 70,322
Loans and advances - - - 37,296 - 37,296 37,296 27,094
Trade deposits - - - 4,020 - 4,020 4,020 6,591
Other receivables - - - 14,332 - 14,332 14,332 23,964
Accrued mark-up / interest - - - 1,734 - 1,734 1,734 335
Short term investments 410,241 - 410,241 - - - 410,241 524,388
Bank balances 1,264,857 - 1,264,857 167,506 - 167,506 1,432,363 227,094

1,675,098 - 1,675,098 374,285 17,655 391,940 2,067,038 899,385

Financial liabilities

Long term loan 231,981 933,019 1,165,000 - - - 1,165,000 535,000

Trade and other payables - - - 2,304,925 - 2,304,925 2,304,925 1,572,378
Accrued mark-up / interest 17,281 2,461

231,981 933,019 1,165,000 2,322,206 - 2,304,925 3,469,925 2,109,839

On-balance sheet gap 1,443,117 (933,019) 510,098 (1,947,921) 17,655 (1,912,985) (1,402,887) (1,210,454)

2005 2004
42.1 Effective interest rate % %

Assets
Short term investments 9.70 to 10 4.8 to 9.0
Cash at bank 2.0 to 5.0 0.60 to 2.75

Liabilities
Long term loan 5.85 to 8.73 3.41 to 9.0

55
 Atlas Honda Limited

42.2 Concentration of credit risks

The Credit risk represents the accounting loss that would be recognized at the reporting date if counter
parties failed to perform as contracted. Out of the total financial assets, following amount of financial
assets are subject to credit risk:
2005 2004
(Rupees in ‘000)

2,067,038 899,385

The company believes that it is not exposed to major concentration of credit risk. To manage exposure
to credit risk, the company applies credit limits to its customers.

42.3 Foreign Risk Management

The Company is exposed to foreign exchange risk arising from various currency exposures primarily
with respect to Japanese Yen. The Company uses forward exchange contracts, to hedge their exposure
to foreign currency risk in the local reporting currency.

42.4 Fair value of the financial instruments

The carrying value of all the financial instruments reflected in the financial statements approximates their
fair values.

42.5 Rates on short term finances are effectively fixed.

42.6 Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding
through an adequate amount of committed credit facilities. Due to effective cash management and planning
policy, the Company aims at maintaining flexibility in funding by keeping committed credit lines available.

2005 2004
(Rupees in ‘000)
43. RELATED PARTY TRANSACTIONS

Sales 15,749 14,368

Fixed assets sold 1,528 4,273
Purchases 2,461,160 2,042,565
Fixed assets purchased 90,407 189,809
Royalty 584,622 321,619
Export commission 4,112 4,781
Technical Fees 48,404 54,030
Interest income 5,823 16,010
Lease rental payment - 1
Brokerage fees 4,837 24
Rent of premises 8,477 6,880
Insurance premium 71,498 60,898
Insurance claim 8,236 781
Donation 3,000 100
Actual reimbursement of expenses - net 2,432 3,622

All transactions were carried out on commercial terms and conditions and were valued at arm's length price.
Reimbursement of expenses were on actual basis. Remuneration and benefits to key management personnel
under the terms of their employment are given in note 44.1.

56
 Annual Report 2005

44. DIRECTORS' AND EXECUTIVES' REMUNERATION

44.1 The aggregate amounts charged in the accounts for remuneration including certain benefits to the
Chairman, Chief Executive Officer, working Directors and Executives of the company were as follows:

Chairman Chief Executive Officer Directors Executives

2005 2004 2005 2004 2005 2004 2005 2004
Remuneration 3,326 3,326 4,219 4,368 2,878 2,903 21,048 17,338
Rent and Utilities 1,197 1,198 1,926 1,573 967 815 9,826 6,242
Bonus 887 887 1,223 1,165 586 521 5,483 4,054
Provident Fund & Gratuity 293 293 404 384 193 172 1,998 1,526
Medical and Others 107 92 21 123 - - 190 140
Reimbursement of Expenses 360 360 - - 98 - - -

Total 6,170 6,156 7,793 7,613 4,722 4,411 38,545 29,300

Number of Persons 1 1 1 1 3 3 19 14

The Chairman, the Chief Executive Officer, three directors and two ex-patriate executives are provided with
free use of company maintained cars and telephones at residences. Two directors and two ex-patriate
executives are also provided with furnished accommodation.

44.2 Remuneration to other directors

Aggregate amount charged in the accounts for the year for fees to two directors was Rs. 5 thousand
(2004: Rs 5 thousand).

45. PLANT CAPACITY

The production capacity of the plant cannot be determined as this depends upon relative proportion of various
types of motorcycles and motorcycle components produced.

46. CORRESPONDING FIGURES

Consequent to the substitution of the Fourth Schedule to the Companies Ordinance, 1984 as described in Note
5, certain reclassifications and rearrangements have been made in prior year's balances which mainly include
reclassification of corresponding figures. The significant change occured in disclosure requirements related to
executives wherever required in these financial statements due to the change in definition of 'Executives'.
During the year employee compensated absences are also reclassified from current liabilities to deferred liabilities.

Yusuf H. Shirazi Saquib H. Shirazi Sherali Mundrawala

Chairman Chief Executive Officer Director

57
 Atlas Honda Limited

PATTERN OF SHAREHOLDING
AS AT JUNE 30, 2005
No. of Shareholders Shareholdings Total Shares held
332 From 1 To 100 10,756
172 From 101 To 500 43,780
83 From 501 To 1,000 59,322
192 From 1,001 To 5,000 471,562
39 From 5,001 To 10,000 270,357
21 From 10,001 To 15,000 243,154
4 From 15,001 To 20,000 72,929
3 From 20,001 To 25,000 67,189
3 From 25,001 To 30,000 85,650
1 From 30,001 To 35,000 30,131
3 From 35,001 To 40,000 114,220
2 From 40,001 To 45,000 83,714
2 From 50,001 To 55,000 104,545
2 From 55,001 To 60,000 112,489
1 From 75,001 To 80,000 78,305
1 From 85,001 To 90,000 85,883
1 From 110,001 To 115,000 112,526
1 From 135,001 To 140,000 139,209
1 From 170,001 To 175,000 173,270
1 From 185,001 To 190,000 188,825
1 From 250,001 To 255,000 253,940
1 From 720,001 To 725,000 724,268
1 From 855,001 To 860,000 856,231
4 From 2,055,001 To 2,060,000 8,229,363
1 From 3,990,001 To 3,995,000 3,993,294
1 From 8,940,001 To 8,945,000 8,941,108
874 25,546,020

CATEGORIES OF SHAREHOLDERS SHARES HELD PERCENTAGE

Directors, CEO their spouse and minor children 8,311,443 32.54
** Associated Companies, undertakings and related parties 13,658,670 53.47
NIT and ICP 140,214 0.55
Banks, Development Finance Institutions, - 0.00
Non-Banking Finance Institutions
* Insurance Companies -
Modarabas and Mutual Funds - 0.00
** Shareholders holding 10% -
General Public:
Local 2,530,145 9.90
Foreign -
Others:
Corporate Law Authority (SECP) 1 0.00
Joint Stock Companies 37,612 0.15
Cooperative Society 242 0.00
Trusts 11,462 0.04
JPMorgan Chase Bank 856,231 3.35
25,546,020 100.00

Note : Included in Associated Companies

* Muslim Insurance Co. Ltd. 724,268 shares
** Honda Motor Company Ltd. 8,941,108 shares, Shirazi Investments (Pvt) Ltd. 3,993,294 shares

58
 Annual Report 2005

PATTERN OF SHAREHOLDING
ADDITIONAL INFORMATION
AS AT JUNE 30, 2005

No. of
Shareholders Category Shares held Percentage

Associated Companies, Undertakings and related Parties:

Muslim Insurance Company Limited 724,268 2.84
Shirazi Investments (Pvt) Limited 3,993,294 15.63
Honda Motor Company Limited 8,941,108 35.00

13,658,670 53.47

NIT and ICP:

National Bank Of Pakistan Trustee Depptt. 139,209 0.55
Investment Corporation Of Pakistan 1,005 0.00

140,214 0.55

Directors, CEO and their Spouses and minor children

Mr.Yusuf H.Shirazi & Associates 6,250,328 24.47
Mr. Saquib H. Shirazi (CEO) 2,057,340 8.05
Mr. Sanaullah Qureshi 100 0.00
Mr. Sherali Mundrawala 3,675 0.02

8,311,443 32.54

Executives - -

Public Sector Companies and Corporations - -

Banks, Development Finance Institutions,
Non-Banking Finance Institutions, Insurance
Companies, Modaraba and Mutual Funds. - -

Individuals 2,530,145 9.90

Others 905,548 3.54

Total 25,546,020 100.00

Shareholders holding 10% or more voting interest

Shirazi Investments (Pvt) Limited 3,993,294 15.63
Honda Motor Company Limited 8,941,108 35.00
Details of Trading in the shares by Directors

Name No. of Shares Date of Price per

Purchased Purchase Share
Mr. Sanaullah Qureshi 100 03-06-2005 300.25

59
 Atlas Honda Limited

ATLAS GROUP COMPANIES

Year of Establishment/
Acquisition*

Shirazi Investments (Private) Limited 1962

Atlas Honda Limited 1962

Atlas Battery Limited 1966

Shirazi Trading Company (Private) Limited 1973

Muslim Insurance Company Limited 1980*

Allwin Engineering Industries Limited 1981*

Atlas Investment Bank Limited 1990

Honda Atlas Cars (Pakistan) Limited 1992

Honda Atlas Power Product (Private) Limited 1997

Total Atlas Lubricants Pakistan (Private) Limited 1997

Atlas Asset Management Limited 2002

60
The Secretary
Atlas Honda Limited,
1-Mcleod Road,
Lahore.

PROXY FORM

I/We _________________________________________________________________________________________
of ___________________________________________________________________________________________
being member(s) of Atlas Honda Limited and holder(s) of ____________________________________________
Ordinary Shares as per Register Folio No. ________________________________________________ hereby
appoint
____________________________________________________________________________________________

of ___________________________________________________________________________________________
or failing him __________________________________________________________________________________
of ___________________________________________________________________________________________
as my/our Proxy to attend, act and vote for me/us and on my/our behalf at the 41st Annual General Meeting
of the company to be held at the Registered Office of the Company at 1-Mcleod Road, Lahore, on Thursday,
October 13, 2005 at 10.30 a.m. and at every adjournment thereof.

As witness my/our hand this ______________________ day of ____________________________________2005

signed by the Said ___________________________________________________________ in the presence of

(Witness)

Affix
Revenue
(Signature must agree with the Stamp
specimen signature registered
with the Company) Signature

NOTE:
Proxies, in order to be effective, must be received at the company’s Registered Office not less than 48 hours
before the meeting and must be duly stamped, signed and witnessed.
 AFFIX
POSTAGE

The Secretary
Atlas Honda Limited
1 - McLeod Road,
Lahore – 54000

Fold Here Fold Here

Fold Here Fold Here