Vision Statement

Annual Report for the year ended March 31, 2012 5

Vision Statement

Striving to be a company that society wants to exist by sharing joys with people throughout the world. Creating products that maximize the joy of customers,

with speed, affordability and low CO2 6 Honda Atlas Cars (Pakistan) Limited

Company Information

The Board of Directors Audit Committee

Mr. Yusuf H. Shirazi - Chairman Mr. Aamir H. Shirazi - Chairman Mr. Takeharu Aoki - President/CEO Mr. Takeharu Aoki Mr. Aamir H. Shirazi Mr. Akio Takemoto Mr. Akio Takemoto Mr. M. Naeem Khan Mr. M. Naeem Khan Mr. Shigeki Takane Mr. Shigeki Takane Mr. Hamood-ur-Rahman - Secretary Mr. Yuishi Fukuda Head of Internal Audit Company Secretary Mr. Hamood-ur-Rahman Mr. Sardar Abid Ali Khan Auditors Chief Financial Officer M/s A. F. Ferguson & Company Mr. Ayaz Mahmood Chartered Accountants

Executive Committee Legal Advisor Mr. Takeharu Aoki Cornelius, Lane & Mufti Mr. Sardar Abid Ali Khan Bokhari Aziz & Karim Mr. Akio Takemoto Annual Report for the year ended March 31, 2012 7

Bankers Factory Citibank N.A. 43 Km, Multan Road, Deutsche Bank AG Manga Mandi, Lahore Faysal Bank Ltd. Ph: (042) 35384671-80 Habib Bank Ltd. Fax: (042) 35384691-92 E-mail: [email protected] MCB Bank Ltd. National Bank of Pakistan Regional Offices Soneri Bank Ltd. Standard Chartered Bank (Pakistan) Ltd. Lahore Office The Bank of Tokyo-Mitsubishi UFJ, Ltd. 1-XX, Phase III, DHA United Bank Ltd. Ph: (042) 35694809, 35693992

Registered Office Karachi Office 1-Mcleod Road, Lahore C-149, KDA Scheme No.1 Ph: (042) 37225015-17 Street H, Karsaz Road Fax: (042) 37233518 Ph: (021) 34854973 Fax: (021) 34854974 Share Registrar Web Site M/s Hameed Majeed Associates www.honda.com.pk HM House, 7-Bank Square, Lahore. Tel: 042-37235081-82 8 Honda Atlas Cars (Pakistan) Limited

Board of Directors

Mr. Yusuf H. Shirazi Mr.Takeharu Aoki Mr. Akio Takemoto Chairman President & CEO Director / VP Production

Mr. Shirazi is a Law Lahore Stock Exchange Mr. Aoki is President & Mr. Takemoto has been graduate (LLB) with BA and International Chief Executive Officer associated with Honda (Hons) and JD (Diploma in Chamber of Commerce (CEO) of Honda Atlas Motor Company Ltd., Journalism) from Punjab and Industry. He has been Cars (Pakistan) Ltd. He Japan for more than 36 University and AMP on the Board of Harvard has been associated years. He joined Honda in Harvard. He served the Business School Alumni with Honda Motor 1976 and began his career financial services of the Association and is the Company Ltd., Japan for in Quality Control Division Central Superior Services Founder President of last 23 years and has at Company’s Kumamoto of Pakistan for eight Harvard Business School rich experience of Sales Plant in Japan. years. He is the author Club of Pakistan. He has & Marketing. He started of five books including been a visiting Faculty his professional career in Mr. Takemoto has ‘Aid or Trade’ adjudged Member at National 1989. vast experience in by the Writers Guild as Defense University, Navy the Motorcycle and the best book of the year War College and National Mr. Takeharu Aoki has Automobile industry, and continues to be a School of Public Policy. He been working with having worked with columnist, particularly on has been on the Board of different Honda ventures Honda ventures in Italy economy. Governors of LUMS, GIK around the world. He has & Turkey. In his previous and FC College (Chartered been extensively involved assignment, he has Mr. Shirazi is the University), and Pakistan in Sales & Marketing and worked as Department Chairman of Atlas Group, Institute of Management. Global Product Planning Manager at Automobile which among others, Previously he also served, of automobiles. He has Production Planning has joint ventures with among others on the significant experience Office in Honda Motor Honda, GS Yuasa and Board of Fauji Foundation of working in United Company Ltd., Japan. He MAN. He has been Institute of Management Kingdom (UK), Canada and is presently Director / the President Karachi and Computer Sciences France. In his previous Vice President Production Chamber of Commerce (FFIMCS) and Institute of assignment, he was of Honda Atlas Cars and Industries for two Space Technology - Space working as Divisional (Pakistan) Ltd. terms. He has been & Upper Atmosphere Manager, Asia Oceania the founder member of Research Commission Sales Division in Honda Karachi Stock Exchange, (SUPARCO). Motor Company Ltd., Japan. Annual Report for the year ended March 31, 2012 9

Mr. Aamir H. Shirazi Mr. Shigeki Takane Mr. M. Naeem Khan Mr. Yuishi Fukuda Director Director Director Director

Mr. Aamir is the Mr. Takane has been Mr. Khan is an AMP Mr. Fukuda has been President of Atlas Group. associated with Honda from Harvard Business associated with Honda He graduated from Motor Company Ltd., School, Boston, USA, a Motor Company Ltd., Claremont Mckenna Japan from last 31 years. fellow member of The Japan from last 25 years. College, California and Currently he is Director Institute of Chartered He is currently General completed his OPM of Asian Honda Motor Accountant Pakistan and Manager Automobile from Harvard Business Company Ltd. in Thailand. a member of the Institute Business in Asia Oceania School. He was the Chief of Chartered Accountants Region. Executive of Atlas Honda He started his career in in England & Wales. His Limited for over 10 years. Finance Division. After association with the Before taking over his He was also appointed that his career expansion Atlas Group extends to current responsibilities, as professional director started from Thailand, over twenty years in he was President of on the Board of Lahore Belgium, Germany and various capacities. He has Honda Deutschland Stock Exchange for two then to China. He has exposure in oil marketing, GmbH, Germany as well consecutive terms by the worldwide business food, investment banking as Honda Belgium N.V., Securities & Exchange experience. He also and capital markets. Honda Netherlands B.V. Commission of Pakistan. worked as General and Honda Nordic AB He has been Honorary Manager Tax Office with in Sweden. He has vast Consul General of Japan, Honda Motor Company experience of automobile Lahore since 2002. Ltd., Japan. industry. 10 Honda Atlas Cars (Pakistan) Limited

Organization Chart

Board of Directors President / CEO Vice President General Manager Senior Manager Manager Aoki Deputy Manager Division / Department

Finance Marketing EDP After Sales

Ayaz Sami (AGM)

Ayaz Nadeem

Mawiz/ Umair Afzal Ishtiaq

Rao Arshad Aamer / Imran Naseem/ Scheraz Imran Haider

Abid

HR & Admin Logistics

Maqsood

Imran

Tariq / Waseem/ Wajid Nauman

Takemoto

Manufacturing Production

Ashraf Sohail

PC/PD QD/QC Purchasing MA/Eng. WE PA Press/PO AF/AE/VQ

Asif Basharat

Zulfiqar

Rafi/Asia / Ajmal/ Jamshaid / Nauman / Javaid / Aneel/ Fayyaz/ Mehtab Aslam Amir Khalid Mujahid Annual Report for the year ended March 31, 2012 11

Corporate Governance (Organization Structure)

Board of Directors

Audit Committee Code of Conduct

President / CEO

Director Level Policy Executive Committee Internal Audit

Corporate Govrnance Secretariat Effective Risk Information Opration/ Compliance Management System Governance Audit

Marketing

Finance

After Sales

Divisional/ Logistics Functional Level Policy

Production

Manufacturing

EDP

Front Division for Corporate Govern- HR & Admin ance Improvement & Suggestions

Individual Level Individual Code of Conduct Associates 12 Honda Atlas Cars (Pakistan) Limited

Business Principles

From Left to Right: Mr. Ayaz Hafeez (GM Marketing), Mr. Ayaz Mahmood (CFO), Mr. Sohail Nawaz (GM Production), Mr. Sardar Abid Ali Khan (VPA/ Co. Secretary), Mr. Maqsood-ur-Rahman (GM Logistics), Mr. Sami Shafi (AGM After Sales), Mr. Muhammad Ashraf (GM Manufacturing)

HONDA MOTOR CO., LTD. JAPAN 3) Follow 3S spirit i.e. small, smart and speed. CORPORATE PHILOSOPHY 4) Believe in 3A “Hands on Approach” i.e. be on Actual Maintaining a global viewpoint, we are dedicated to Spot, look at the Actual Spot and confront the Actual supplying products of the highest quality yet at a Situation. reasonable price for worldwide customer satisfaction. 5) Be a good corporate citizen; assume a responsible role in community. MANAGEMENT POLICY PRIORITY STANDARDS OF CONDUCT 1) Proceed always with ambition and youthfulness 1) Safety: There can be no production without safety. 2) Respect sound theory, develop fresh ideas and make the most effective use of time 2) Quality: To achieve complete customer satisfaction by focusing on smart team work, meeting all 3) Enjoy your work and encourage open communications applicable legal and regulatory requirements & 4) Strive constantly for a harmonious flow of work continually improving our strategies and goals. 5) Be ever mindful of the value of research and endeavor 3) Productivity: With safety and quality each of us will strive to excel the performance in all fields of HONDA ATLAS CARS (PAKISTAN) LIMITED our activities i.e. Production Divisions, Marketing CORPORATE PHILOSOPHY & Planning, After Sales Service, Finance, Import, Purchase & Logistics and Human Resources & 1) Dynamic manufacturing and marketing of prestigious Administration etc. products to the entire satisfaction of customers 2) Create ideal working environment for continuous HUMAN RESOURCES AND SUCCESSION PLAN development of product and personnel Human Resources Policy is to hire young, fresh, energetic 3) Provide adequate return to shareholders and fulfill and active associates to meet the existing and future corporate civic obligations workforce requirements and providing its associates maximum opportunities for internal mobility through MANAGEMENT POLICY personal training and development to enable them to 1) Respect for all – man has priority over others. take higher positions. 2) Man is the key in controlling i.e. machines, methods and materials. Annual Report for the year ended March 31, 2012 13

4) Create awareness and understanding about environmental issues among our associates; 5) Commitment to continual improvement of the Human Resource Division has to have succession environmental performance and review of the plan for each key job/area to make sure the continuity environmental management system to ensure its of operations in the relevant division and to fill the suitability, adequacy and effectiveness; temporary/permanent vacancy. 6) Keep public and other interested parties informed on our environmental performance, if deemed QUALITY POLICY necessary. We, at Honda Atlas Cars (Pakistan) Limited, strive for supplying top quality Honda Cars to get complete SAFETY, HEALTH AND ENVIRONMENT Customer Satisfaction. We accomplish this by: Honda Atlas Cars (Pakistan) Limited conducts its • Smart Team Work business responsibly and in a way to make sure health, • Meeting all applicable legal and regulatory safety and protection from environmental aspects of its requirements associates and the society. We implement and maintain • Continually improving our strategies and goals the programs that provide reasonable assurance that the business will do the following: ENVIRONMENT POLICY 1) To comply with all applicable government and internal Honda Atlas Cars (Pakistan) Limited, being responsible health, safety and environmental requirements member of the society considers the preservation of the global environment as a crucial concern. 2) Design facilities and conduct operations in a way that avoids risk to human health, safety and the Our environmental philosophy is firmly based on the environment following principles: 3) To examine and communicate the known hazards 1) Recognize the impacts of our activities, products and of operations with relevant health, safety and services on environment; environmental protection information to potentially 2) Formulate objectives and targets for pollution affected persons prevention, environmental impacts mitigation and resource conservation as far as technically feasible; OPERATING PRINCIPLES 3) Operate in compliance with applicable legal & other 1) Always keep the deadline requirements with the commitment to preserve 2) Never make excuses global environment; 3) Teamwork 14 Honda Atlas Cars (Pakistan) Limited

Chronicle of Events

August 05 - 1992 Joint venture agreement signed with Honda Motor Co. Ltd., Japan

November 04 - 1992 Incorporation of Honda Atlas Cars (Pakistan) Limited

April 17 - 1993 Ground breaking ceremony held

March 31 - 1994 Completion of Civil Work and installation of Plant & Equipment

April 01 - 1994 Technical Assistance Agreement signed with Honda Motor Co. Ltd., Japan

May 26 - 1994 First car rolling out ceremony held

July 13 - 1994 Inauguration by President of Pakistan

July 13 - 1994 Visit of Mr. N. Kawamoto, President Honda Motor Co. Ltd., Japan

July 16 - 1994 Commercial production commenced

October 10 - 1994 Public issue of shares

January 10-11 - 1996 New Civic-96 launched

January 22-23 - 1997 Honda City launched

October 1-6 - 1998 Honda Motor Company’s 50th anniversary

January 28 - 1999 VTi Oriel launched

April 13 - 1999 ISO 9002 certification achieved

January 20 - 2000 Launch of new City model with PGM-Fi technology

March 22 - 2001 Launching of new Honda Civic model Annual Report for the year ended March 31, 2012 15

August 23 - 2003 New model of Honda City launched

September 13 - 2003 Rolling out of 50,000th car

September 15 - 2003 ISO 14001 Certification achieved

August 11 - 2005 Launching of CBU model of Honda Accord

December 21 - 2005 Rolling out of 100,000th car

January 14 - 2006 Launching of New Model of Honda City

July 07 - 2006 Visit of Mr. Takeo Fukui, President & CEO Honda Motor Co. Ltd., Japan

July 29 - 2006 New model of Honda Civic launch in 1800cc

December 31 - 2006 Capacity enhancement to 50,000 units per annum achieved

August 27 - 2007 Issue of 100% right shares

July 20 - 2008 Launching of New Model of Honda Accord & CRV

January 31 - 2009 Launch of 3rd Generation Honda City

November 27 - 2010 Inauguration of first 1-S Spare Parts Dealership

March 01 - 2012 Launching of New Model of Honda CRV

April 12 - 2012 Inauguration of New 3S Dealership in Lahore

April 29 - 2012 Rolling out of 100,000th Car of Honda City

May 02 - 2012 Launch of Honda City Aspire 16 Honda Atlas Cars (Pakistan) Limited

Authorized Sales, Service & Spare Parts (3S) Dealers

KARACHI LAHORE FAISALABAD

Honda Shahrah-e-Faisal Honda City Sales Honda Faisalabad 13-Banglore Town, 75 B, Block L, Gulberg III, East Canal Road. Main Shahrah-e-Faisal Ferozepur Road. Tel: (041) 8731741-4 Tel: (021) 34527070, 34527373, Tel: (042) 35841100-06 Fax: (041) 8524029 34547113-6 Fax: (042) 35841107 Fax: (021) 34526758 Honda Chenab Honda Fort 123 JB Raja Wala Green View Colony. Honda Defence 32 Queens Road. Tel: (041) 2603449, 2603549 67/1, Korangi Road Near HINO Circle. Tel: (042) 36314162-3 5500897, 5508297 Tel: (021) 35805291-4 36309062-3, 36313925 Fax: (041) 2603349 Fax: (021) 35805294 Fax: (042) 36361076 PESHAWAR Honda Site Honda Point Honda North C 1, Main Manghopir Road, SITE. Main Defence Road. Main University Road. Tel: (021) 32577411-2, 32564926 Tel: (042) 35700994-5 Tel: (091) 5854901, 5700807, 5700808 32570301, 32569381 Fax: (042) 35700993 Fax: (091) 5854753 Fax: (021) 32577412, 32565056 Honda Gateway MIRPUR A.K. Honda South 15 - Km, Multan Road, 1 B/1, Sec. 23, Korangi Industrial Area. Tel: (042) 111 333 789 Honda Empire Tel: (021) 35050251-4 Fax: (042) 37511075 Mian Muhammad Road, Fax: (021) 35064599 Quaid-e-Azam Chowk. MULTAN Tel: (058274) 51501,1032701 Fax: (058274) 51500 Honda Drive In Honda Breeze 118 C, Rashid Minhas Road. 63 Abdali Road. Tel: (021) 34992832-7, 34992824 GUJRANWALA Tel: (061) 4588871-3 Fax: (021) 34992825 4548881, 4542862 Honda Gujranwala Fax: (061) 4588874 G.T. Road. Honda Quaideen Tel: (055) 3893481-3 233-A-2, PECHS. SIALKOT Fax: (055) 3893484 Tel: (021) 34556071-3, 34556510-12 Honda Falcon Fax: (021) 34554644 SARGODHA Pakki Kotli, Daska Road. Honda Citurs Fields ISLAMABAD Tel: (052) 3252000 Fax: (052) 3563203 7-Km Lahore Road. Honda Classic Tel: (048) 3225186-87 Plot 179, I 10/3, HYDERABAD Fax: (048) 3226589 Industrial Area Tel: (051) 4438801-06 Honda Palace Fax: (051) 4436446 Shahbaz Town, Jamshoro Road.

RAWALPINDI Tel: (0223) 642032, 641178,-79 Fax: (0223) 641519 Honda Centre 300, Peshawar Road. Tel: (051) 5564525-8 Fax: (051) 5564524 Annual Report for the year ended March 31, 2012 17

Authorized Service & Spare Parts (2S) Dealers

KARACHI SAHIWAL FAISALABAD Deinfa Motors Saboor Motor Workshop Jahangir Motor Garage 6-8,12th Commercial Street Yadgar Road Jaranwala Road Phase II Ext. D.H.A Tel: (040) 4228100 Tel: (041) 8710616, 8541097 Tel: (021) 35886356-9 OKARA G.M. Autos Saeed Auto Workshop Modern Autos 21/1, Civil Lines 1-J8/B Muslim League Quarter Near Depalpur Chowk Jail Road Main Road Nazimabad No.1 Depalpur Road Tel: (041) 2641925, 2409394 Tel: (021) 36603336, 36603337 Tel: (044) 2528335 SARGODHA Saqib Autos LAHORE Sargodha Modern Auto Workshop 9/423 Darakshan Society Kwik Motors Pul 47, University Road Kala Board, Malir Main boulevard Defence Tel: (048) 3212130 Tel: (021) 34401465 Tel: (042) 35723918 ISLAMABAD Auto-Tech Motors Electro Wheels Rafique Autos D-154, Block-5, F B Area 23-Askari Flats Market 8-A, G-6/1-1 Near Zia ud Din Hospital Sarfraz Rafiqi Road, Cantt. Khayaban-e-Suharwardy Tel: (021) 32008853 Tel: (042) 36664980 Tel: (051) 2827527

SUKKAR Cavalry Motors RAWALPINDI Ghansham Motors 18-Cavalry Ground Meher Motors Hussaini Road, Near Gurdwara Commerical Area 445-Meherabad Tel: (071) 5617683 Tel: (042) 36663117, 36666537 Peshawar Road Tel: (051) 5462464 RAHIM YAR KHAN Mehar Motor Engineers Pak Saudi Motors 892-R-1 Main Boulevard Three Star Motor Workshop Adda Khanpur Johar Town Sitara Market Chaklala Near Shamim Petroleum Service Tel: (042) 35291712, 35291771 Scheme No.3 Tel: (068) 5887300 Tel: (051) 5591219, 5591599 Shafi Autos BAHAWALPUR 5-Lawrance Road AZAD KASHMIR Bahawalpur Motors Tel: (042) 36305016, 36365016 Adeel Autos Bindra Pully, Multan Road Lower Plate, Neelum Road Tel: (062) 2886900 Aabpara Motors Muzaffarabad Aabpara Market Tel: (058810) 44881 MULTAN 16 Wahdat Road Ahmad Auto Care Tel: (042) 35866932 MARDAN 293/A, Nadirabad Mardan Motors Sher Shah Road Samnabad Motors Charsada Road Tel: (061) 8130005 Plot No. 29-30, Tel: (0937) 872059 21 Acre Scheme Samnabad VEHARI Tel: (042) 37530563, 37530579 Qazi Motors Multan Road GUJRAT Tel: (067) 3362496 Shahbaz Motor Workwshop Near Science College BUREWALA G.T. Road Ghulami Motor Workshop Tel: (053) 3523511 Multan Road Tel: (067) 3354778

Authorized Spare Parts (1S) Dealers

LAHORE KARACHI RAWALPINDI Sugoi Parts Center Sugoi Sunset Parts Center Sugoi Potohar Parts Center Shop No. 4-6, Shamyl Center Plot No. 12-C, 12th Commercial Street State Life Building, 4 Montgomery Road Phase II Extension D.H.A Kashmir Road, Saddar Tel: (042) 36370121 Tel: (021) 35312766 Tel: (051) 5580263-64

Sugoi Defence Parts Center Sugoi Star Parts Center MULTAN Shop No. 1 Corner 26/26 Main G-1, Rimpa Plaza, Sugoi Multan Parts Center Walton Road, Lahore Cantt. M.A. Jinnah Road 103/9 Iqbal Plaza Opp. RTO Office, Tel: (042) 36626987 Tel: (021) 32710140 Near Feasta Garden LMQ Road Tel: (061) 4586160-61 18 Honda Atlas Cars (Pakistan) Limited

Pattern of Shareholding as on March 31, 2012

Number of Shareholding Total %age of paid Shareholders From To Shares held up capital 1803 1 - 100 82,790 0.06 756 101 - 500 282,844 0.20 1031 501 - 1000 916,365 0.64 1082 1001 - 5000 2,529,796 1.77 176 5001 - 10000 1,335,087 0.93 38 10001 - 15000 470,731 0.33 32 15001 - 20000 567,131 0.40 19 20001 - 25000 438,658 0.31 6 25001 - 30000 170,135 0.12 13 30001 - 35000 433,138 0.30 12 35001 - 40000 443,750 0.31 3 40001 - 45000 130,999 0.09 4 45001 - 50000 195,424 0.14 4 50001 - 55000 206,337 0.14 2 55001 - 65000 123,747 0.09 1 65001 - 70000 66,200 0.05 1 70001 - 75000 70,960 0.05 2 75001 - 80000 156,000 0.11 1 80001 - 85000 84,250 0.06 2 90001 - 95000 181,575 0.13 3 95001 - 100000 300,000 0.21 2 100001 - 150000 248,929 0.17 1 155001 - 160000 155,600 0.11 2 160001 - 170000 325,930 0.23 1 195001 - 200000 200,000 0.14 1 245001 - 250000 250,000 0.18 1 260001 - 265000 264,958 0.19 1 365001 - 370000 369,799 0.26 1 395001 - 400000 400,000 0.28 1 445001 - 450000 449,900 0.32 1 845001 - 850000 850,000 0.60 1 850001 - 855000 853,595 0.60 1 1345001 - 1350000 1,345,835 0.94 1 2410001 - 2415000 2,412,597 1.69 1 4005001 - 4010000 4,008,989 2.81 1 5530001 - 5535000 5,533,401 3.87 1 10600001 - 10605000 10,602,650 7.42 1 32515001 - 32520000 32,517,000 22.77 1 72825001 - 72830000 72,828,000 51.00 5,011 142,800,000 100.00

Categories of Shareholders Sr. Shares %age of Description No. of Shareholders No. held paid up capital 1 Individuals 4,939 14,785,213 10.35 2 Joint Stock Companies 45 664,462 0.47 3 Financial Institutions 6 3,787,487 2.65 4 Insurance Companies 5 3,002,801 2.10 5 Investment Companies 6 43,225,149 30.27 6 Mutual Funds 2 4,009,159 2.81 7 Pension Funds 2 175,600 0.12 8 Foreign Company 1 72,828,000 51.00 9 Others 5 322,129 0.23 Total 5,011 142,800,000 100.00 Annual Report for the year ended March 31, 2012 19

Shareholding Information as on March 31, 2012 as required under the Code of Corporate Governance

No. of Shares Categories shareholders held Associated Companies M/s Honda Motor Co. Ltd. Japan + 1 72,828,000 M/s Shirazi Capital (Pvt.) Ltd. + 1 32,517,000 M/s Shirazi Investments (Pvt.) Ltd. + 1 10,602,650 M/s Atlas Insurance Ltd. 1 850,000

Mutual Funds M/S First Capital Mutual Fund 1 170 National Bank Of Pakistan-Trustee Department NI(U)T Fund 1 4,008,989

Directors, CEO, Their Spouse and Minor Children

Directors & CEO Mr. Yusuf H. Shirazi Chairman 1 # Mr. Takeharu Aoki President/ CEO 1 * Mr. Aamir H. Shirazi Director 1 # Mr. M. Naeem Khan Director 1 500 Mr. Shigeru Yamazaki Director 1 * Mr. Takashi Nagai Director 1 * Mr. Yukimitsu Miyagi Director 1 *

Executives 2 21,290

Public Sector Companies & Corporations 45 664,462

Banks, Development Finance Institutions, Non-Banking Finance Companies, Insurance Companies, Takaful, Modarabas 16 6,222,387 and Pension Funds

Sharehoders Holding 5% or More Voting Rights +

Others 4,935 15,084,552

Total 5,011 142,800,000

Note: + The above mentioned associated companies have 5% or more voting rights.

# Mr. Yusuf H. Shirazi and Mr. Aamir H. Shirazi hold 500 qualification shares. The ultimate ownership remains with M/s Shirazi Investments (Pvt) Ltd.

* The shareholding of Honda Motor Co. Ltd., Japan includes 4 directors holding 525 shares each (Total 2100) in the name of Mr. Takeharu Aoki, Mr. Yukimitsu Miyagi, Mr. Shigeru Yamazaki and Mr. Takashi Nagai in the capacity of its nominee directors. The ultimate ownership remains with Honda Motor Co., Ltd. Japan.

Annual Report for the year ended March 31, 2012 21

Chairman’s Review

banking system to finance fiscal gap, thus, crowding out private sector lending.

Agriculture The agriculture sector’s performance was less than expected with a repeat of floods which inundated a significant portion of Country’s Southern region. Further, rising costs of energy and fertilizers, together with the lower prices for major crops eroded liquidity of farmers. However, the productivity gains due to increase in area under cultivation of major kharif crops (cotton, rice, sugarcane) allowed agriculture sector to post meagre growth of 1.2% over the last year.

Large Scale Manufacturing Large Scale Manufacturing (LSM) managed to post growth of 2.3% which is reflective of the lower base of last year. Overall, consumer goods industries performed well and contributed positively to the index. This was due to high worker’s remittances, improved agriculture output and fiscal support. However, worsening energy crisis I am pleased to present the 20th Annual Report of the continued to plague production activities. This perhaps Company for the year ended March 31, 2012. is the time to call for the improved government action to ensure sustained growth in LSM sector for a thriving Economy economy. The economy has been under pressure in recent years. Japan and Thailand Disasters However, it has shown resilience and is expected to grow by 3.5% to 4.0% in FY12. This is on the back of The current year has been very challenging for the a reasonable performance of service and agriculture automobile industry which witnessed two natural sectors. The inflationary pressures continued to wane disasters. In March 2011, an unprecedented earthquake and CPI registered at 10.8% on Y-o-Y basis. In line with and tsunami hit north-eastern part of Japan and as a lower inflation numbers, SBP reduced policy rate by 200 result many of the Honda Plants were closed immediately. basis points to 12 percent in order to revive private sector Parts supply was disrupted and company’s production investments. Foreign reserves remained relatively stable suffered for a couple of weeks in April-May 2011. However at USD 16.51 billion despite payments to International soon, the production facilities were restored and Honda, Monetary Fund (IMF). Remittances remained a corner Japan resumed production in May 2011. The company stone of reserves with collection of USD 9.7 billion as made necessary adjustments to its production plan to compared to USD 8.0 billion of last year. On revenue front, achieve targets for the year and production increased by FBR was able to collect Rs. 1,266 billion in 9 months of 7.2% in second quarter ending September 2011. FY12, an increase of 25% on Y-o-Y basis. Unfortunately, heavy rains and floods hit Thailand in the On the other hand, external side depicts bleak outlook beginning of third quarter which severely affected Honda on the back of rising current account deficit. Trade deficit Automobile Thailand and its many vendors causing them increased to USD 10.5 billion in the first half of FY12 to close their production plants. As a result, your company as imports, primarily driven by high oil price, outpaced had to stop production again for a couple of months due exports. These imbalances at the external front and to non-availability of parts. Production however resumed absence of investment inflows pushed the local currency in March 2012, by resourcing parts from Honda in Turkey to a record low level. Further, the provisional estimates of and China. Therefore, company’s annual production and fiscal deficit suggest the likely breach of targeted deficit sales remained lower than initial targets for the year for FY12. As a result, government is relying on domestic 2011-12. 22 Honda Atlas Cars (Pakistan) Limited

Chairman’s Review

Automobile Industry The automobile industry grew by 5.6% despite the impact of aforementioned disasters, depreciation of Pak Rupee and inflation. Annual production is gradually moving towards its highest of 164,000 units, achieved five years ago. A recovery despite such adverse factors shows that this industry has enormous potential which can drive the economic engine alone, provided consistent and industry friendly policies are in place. On the other hand issues like tariff rationalization with other countries of the region, under invoicing, limited consultation with OEM on free trade agreements should be resolved in order to maintain investor’s confidence.

The total industry production for the financial year ended March 31, 2012 was 143,161 units against 135,904 units for last year, up by 5.3%. Sales also improved to 142,861 units against 135,278 units for last year, up 5.6%. Cars up to 800cc registered growth of 19.8%, cars having engine capacity from 1000cc to 1299cc posted growth of 12.6%, whereas 1300cc & above category showed decline of 7.4%. The quarterly production of auto industry is as follows: Annual Report for the year ended March 31, 2012 23

2010-11 Category Q1 Q2 Q3 Q4 Total Incr/(Decr) 45,212 Upto 800cc 11,964 10,867 14,588 16,744 54,163 19.80% 25,017 801cc to 1299cc 6,518 6,005 6,985 8,654 28,162 12.57% 65,675 1300cc & above 14,620 16,286 13,949 15,981 60,836 -7.37% 135,904 Total 2011-12 33,102 33,158 35,522 41,379 143,161 5.3% Total 2010-11 35,034 31,713 31,239 37,918 135,904 % increase/ (decrease) -5.51% 4.56% 13.71% 9.13% 5.34% Source: PAMA

During the year under review, your company produced produced 2,425 units and 1,140 units respectively because 11,040 units. Sales were 11,406 units. Decline in production of non availability of parts due to flood in Thailand. The was severe in third and fourth quarters where company quarterly production figures for last year are given below:

Years Q1 Q2 Q3 Q4 Total Honda 2011-12 3,222 4,253 2,425 1,140 11,040 Honda 2010-11 3,960 3,967 3,801 4,712 16,440 % increase/ (decrease) -18.6% 7.2% -36.2% -75.8% -32.8% 24 Honda Atlas Cars (Pakistan) Limited

Chairman’s Review

Market Share

35%

30% 31% 29%

25% 25% 23% 20% 19% 15%

In the federal budget for the year 2011-12, government 10% reduced sales tax from 17% to 16% and Special Excise Duty (SED) of 2.5% was abolished. These changes were 5% welcomed by the industry and had positive impact on the market as industry production increased by 7.1% and 0% 2008 2009 2010 2011 2012 16.5% in next two quarters ending Sep-11 and Dec-11. Company passed on the advantage to the customers by reducing prices on all variants of Honda Civic and Sales revenue for the year decreased by 24.6% at Honda City. Rs 16,599.6 million against Rs 22,026.1 million in the corresponding period last year. Cost of sales were Rs 16,643.6 million, resulting in gross loss of Rs 44.0 Production and Sales (Units) million against gross profit of Rs 199.3 million, last 18,000 year. This was because production and sales volume saw a decrease of 32.8% & 30.7% respectively, due to 15,000 factors mentioned above, and current volumes were not 16,467 16,440 15,604

15,080 sufficient to absorb fixed expenses. Further, Pak Rupee depreciated against US$ and Japanese ¥, production cost 12,000 remained under pressure and the complete impact could 12,780 12,502 12,344 11,980 11,406 not be passed on to the customers. 11,040 9,000 In second half of the year, the company focused on

6,000 cost down efforts and curtailed unproductive expenses to ease pressure on cash flow. Resultantly, running administrative and selling expenses were reduced by 3,000

– 2008 2009 2010 2011 2012 Production Sales

Financial Results The company started 2011-12 with progressive financial results for first and second quarters, whereby it managed to absorb the impact of Japan tsunami and posted gross and operating profits. However, operations were discontinued for a couple of months after Thailand floods, which eroded gross and operating profit margins in last quarter and the company ended up with loss before tax of Rs 498.8 million. Annual Report for the year ended March 31, 2012 25

Fixed Assets Depreciation (PKR in million) (PKR in million)

800 10,000 756 700

8,000 654 600 638 8,202 7,821 7,786 7,783 500 6,000 522 464

5,979 5,406 400 4,594 4,000 4,010 300 3,945 3,668

2,000 200

100 – 2008 2009 2010 2011 2012 – Fixed Assets - Cost Fixed Assets - Net 2008 2009 2010 2011 2012

6.9% to Rs 289.5 million against Rs 310.9 million in the During the year, the company contributed Rs 6.28 billion last year. Other income increased to Rs 204.4 million towards the government revenue in the shape of custom against Rs 84.0 million last year, mainly from return on duty, sales tax and other government levies. Now, since bank deposits due to better cash flow in the first half incorporation, the company has paid accumulated of the year. Other charges increased to Rs 217.8 million amount of Rs 67.93 billion to the government exchequer. mainly due to exchange rate impact on payable balance of Suppliers Credit Facility, availed from Honda subsidiary company on parts purchases. The loss from operations increased to Rs. 346.9 million. Financial charges remained at Rs. 151.9 million.

Thus, loss before tax for the year was Rs 498.8 million against Rs 244.8 million in last year. The loss after tax was Rs 532.2 million against Rs 298.4 million last year.

Finance Cost (PKR in million)

500

450 455

400

350

300

250 234

200 223

150 152 152 100

– 2008 2009 2010 2011 2012 26 Honda Atlas Cars (Pakistan) Limited

Chairman’s Review

Changes on the Board With annual Human Resource changes in Honda Motor Company, three directors representing HMC were Contribution to National Exchequer (PKR in million) changed. Mr. Yukimitsu Miyagi, who served as Vice

9,000 President Production for more than four and half years returned to Japan and Mr. Akio Takemoto succeeded him 8,000 as Vice President Production. Mr. Shigeru Yamazaki and 8,229 Mr. Takashi Nagai were replaced by Mr. Yuishi Fukuda 7,000 and Mr. Shigeki Takane respectively. Further, Mr. Jawaid 6,000 Iqbal Ahmed who had been associated as director since 6,452 6,316 6,281 the inception of the company also retired & Mr. M. Naeem 5,000 Khan has joined as his successor. The Board appreciate

4,000 4,958 the contributions made by the out-going directors and welcomes the new directors on the Board. 3,000 Future Outlook 2,000 Under the prevailing circumstances, outlook for 2012 1,000 remains challenging. The risk to macroeconomic stability

– stems from external sector and the continued weakness 2008 2009 2010 2011 2012 on the fiscal side. In terms of real sector, there has been improvement for last couple of months. The government Annual Report for the year ended March 31, 2012 27

PKR to USD Movement PKR to JPY Movement Pak Rupees Pak Rupees

95 1.2 91 1.1 90 1.1 1.0 86 85 84 1.0

80 0.9 80 0.9 0.8 75 0.8

70 0.7

0.6 65 0.6 63 60 0.5 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012

must work together with all stakeholders to take decisive JPY to USD Movement Japanese Yen action of broadening revenue mobilization, restructuring 105 of public sector enterprises and providing solution to the worsening energy crises. On the other hand, government 100 100 98 should target early realization of planned foreign financial inflows to mitigate uncertainty at external account. 95 94 Agriculture, a core contributor of revival with 25% share 90 in the economy, will remain the nucleus of economic growth. Reasonable support price, improved acreage in 85 83 major crops and timely financial support by government 82 to farmers will assist in moving the economic cycle at a 80 higher pace. However, depreciating rupee and political 2008 2009 2010 2011 2012 instability will keep a check on the progress.

Acknowledgement The automobile industry is steadily moving up for last three years, combating all internal and external challenges. I heartily applaud the Japanese and Thai nations for The increase in automobile loan disbursement by 46.4% in their marvellous efforts in recovering from the natural the first half of the year will further push demand in the disasters. I take pride in Atlas Group & Honda partnership industry in the coming quarters. and would like to acknowledge their continued help and support to the company. I would also like to thank our The company has been focusing on the revamping valued customers, dealers, vendors, financial institutions the financial position and have positive prospects for and shareholders for their continued support to the improved financial results next year. We will keep focus company. I also thank Mr. Takeharu Aoki, President on improving all-round efficiency, controlling running & CEO, who is working hard to overcome the difficult expenses, innovation in product line-up and excellent situation with his able leadership and support from his after sales back up for customer satisfaction. dedicated team.

(Let us do better and better)

Yusuf H. Shirazi Chairman Lahore, May 14, 2012 28 Honda Atlas Cars (Pakistan) Limited

Directors’ Report as on March 31, 2012

From Left to Right: Mr. M. Naeem Khan (Director), Mr. Aamir H. Shirazi (Director), Mr. Takeharu Aoki (CEO), Mr. Yusuf H. Shirazi (Chairman), Mr. Akio Takemoto (Director & Vice President), Mr. Sardar Abid Ali Khan (Vice President & Company Secretary), Mr. Ayaz Mahmood (CFO)

The directors feel pleasure to present you the Annual Audited Financial Statement for the year ended March 31, 2012, together with the Auditors’ Report thereon. Financial results for the year are as follows:

2012 2011 (Rupees in thousand)

Loss before tax for the year (498,804) (244,827) Taxation (33,409) (53,625) Loss after tax (532,213) (298,452) Accumulated loss brought forward (307) (855) Accumulated loss (532,520) (299,307) Appropriations *: Transfer from general reserves 173,500 299,000 Proposed dividend (2011: Nil) - - 173,500 299,000 Accumulated loss carried forward (359,020) (307) Loss per share – basic and diluted (Rupees) (3.73) (2.09)

* The Board of Directors has proposed these appropriations, which are not reflected in the financial statements in compliance with the Fourth schedule of the Companies Ordinance 1984. Annual Report for the year ended March 31, 2012 29

Despite the supply disruption caused by unprecedented • The financial statements for the year ended March earthquake and tsunami in Japan, the company 31, 2012 present fairly its state of affairs, the results continued its efforts and posted profit before tax in the of its operations, cash flow and changes in equity; first half of the year. However, second half of the year was hit by devastating floods in Thailand, which severely • Proper books of accounts have been maintained; affected company’s supply-chain and as a consequence • Appropriate accounting policies have been production had to be discontinued for couple of months consistently applied in preparation of financial in third and fourth quarters of the year. statements for the year ended March 31, 2012 and accounting estimates are based on reasonable and The effect of supply disruption was reflected in overall prudent judgment; production and sales which declined by 32.8% and 30.7% respectively and the Company incurred loss after tax of • International Financial Reporting Standards (IFRS), Rs. 532.2 million for the year ended March 31, 2012. as applicable in Pakistan, have been followed in preparation of financial statements; During forced closure, the company focused on customer retention and cost reduction measures, which resulted • The systems of internal control is sound in design and in increase in customer advances and reduced SGA as has been effectively implemented and monitored; compared to last year. The company also paid long term • There are no significant doubts about the company’s loans of Rs. 667 million thereby reducing the finance ability to continue as a going concern; cost on long term loans. However, the holding company through its associated company, continued to extend • There has been no material departure from the best liquidity support in the form of credit payment on some practices of corporate governance, as detailed in of CKD material supplies. listing regulations as on March 31, 2012;

Corporate and Financial Reporting Framework • The book values of investments held by Employees Provident Fund and Employees Gratuity Fund as on In compliance with the provisions of the listing regulations March 31, 2012 were Rs. 161.79 million and Rs. 98.39 of Stock Exchanges, the Board members are pleased to million respectively. place the following statements on record: • The key operating and financial data for last ten years is given in this report.

Board Meetings 30 Honda Atlas Cars (Pakistan) Limited

Directors’ Report as on March 31, 2012

Board Meetings The leave of absence was granted to the members not attending the Board meeting. During the year under review, four meetings of the Board of Directors were held from April 01, 2011 to March 31, Further, following the changes in the Board of Directors, 2012. The attendance of the Board members was as 500 shares were purchased by Mr. M. Naeem Khan and follows: 525 shares each were transferred in the name of Mr. Shigeki Takane, Mr. Yuishi Fukuda and Mr. Akio Takemoto Sr. No of Meetings on April 01, 2012. There was no other reported transaction No Name of Director attended by Directors, Company Secretary, Chief Financial Officer 1. Mr. Yusuf H. Shirazi 4 (CFO) and their spouses or minor children except 2. Mr. Takeharu Aoki 4 mentioned there above. 3. Mr. Aamir H. Shirazi 4 4. Mr. Muhammad Naeem Khan # 3 The Board approved remuneration of Chairman and 5. Mr. Jawaid Iqbal Ahmed # - Company Secretary at Rs. 16.0 million and Rs. 11.2 million 6. Mr. Shigeru Yamazaki * - (2012: Rs 13.50 million and Rs 9.45 million) respectively, 7. Mr. Takashi Nagai * - which includes allowances and other benefits as per 8. Mr. Yukimitsu Miyagi * 4 terms of their employment, for the year ending March 31, Mr. Sardar Abid Ali Khan 2013. (Company Secretary) 4 Mr. Ayaz Mahmood President/CEO will be paid an amount of Rs. 10.0 million (CFO) 4 (2012: Rs 7.5 million) and one full-time director will be paid an amount of Rs. 10.0 million (2012: Rs 16.65 million # Mr. Jawaid Iqbal Ahmed retired and Mr. M. Naeem Khan joined as his successor on June 14, 2011. for one directors), which includes allowances and other * Mr. Shigeru Yamazaki, Mr. Takashi Nagai and Mr. Yukimitsu Miyagi benefits as per terms of their employment, for the year retired and Mr. Shigeki Takane, Mr. Yuishi Fukuda and Mr. Akio ending March 31, 2013. Takemoto joined as their successors respectively from April 01, 2012. Annual Report for the year ended March 31, 2012 31

Audit Committee Statement of Compliance with the Code of Corporate Governance The Audit Committee held eight meetings during the year under review, each before the Board of Directors The company has fully complied with the requirements meeting to review the financial statements, internal audit of the Code of Corporate Governance as contained in the reports and compliance of the Corporate Governance Listing Regulation of the Stock Exchanges. A statement requirements. These meetings included meeting with to this effect is annexed with this report. external auditors before and after completion of audit and other statutory meetings as required by the code of Pattern of Shareholding corporate governance. The pattern of shareholding as on March 31, 2012 and Honda Code of Corporate Governance its disclosure, as required by the Code of Corporate Governance is annexed with this report. The company continued to comply with the requirements of the Honda Code of Corporate Governance (HCG), based Auditors on the fundamental corporate philosophy of Honda. The present auditors Messer’s A. F. Ferguson & Co., Chairman’s Review Chartered Accountants, retire and being eligible, offer themselves for re-appointment. As suggested by the Audit The accompanied Chairman’s review deals with the Committee, the Board of Directors has recommended their performance of the company during the year and future re-appointment as auditors of the Company for the year outlook. The directors of the company endorse the ending March 31, 2013. contents of the review. For and on behalf of Holding Company The Board of Directors

M/s Honda Motor Company Limited is the holding company with 51% shares and is incorporated in Japan.

Takeharu Aoki President/Chief Executive Officer

Lahore, May 14, 2012 32 Honda Atlas Cars (Pakistan) Limited

Statement of Compliance with the Code of Corporate Governance

This statement is being presented to comply with the 4. One casual vacancy occurred in the Board of Code of Corporate Governance in the listing regulations Directors from April 01, 2011 to March 31, 2012 of Karachi, Lahore & Islamabad Stock Exchanges for the was filled up by the Directors within 30 days purpose of establishing a framework of good governance, thereof. whereby a listed company is managed in compliance with 5. The company has prepared a ‘Statement of Ethics the best practices of corporate governance. and Business Practices’ which has been signed by all the directors and employees of the company. The company has applied the principles contained in the Code in the following manner: 6. The Board has developed a vision statement, overall corporate strategy and significant policies 1. The company encourages the representation of the company. A complete record of particulars of independent non-executive directors on its of significant policies along with the date on Board of Directors. As on March 31, 2012, the which they were approved or amended has been Board included four independent non-executive maintained. directors. However, there is no representation of minority shareholders on the Board. 7. All the powers of the Board have been duly exercised and decisions on material transactions, 2. The directors have confirmed that none of them including appointment and determination of is serving as a director in more than ten listed remuneration and terms and conditions of companies, including this company. employment of the Chief Executive Officer (CEO) and other executive directors, have been taken by 3. All the resident directors of the company are the Board. registered as taxpayers and none of them has defaulted in payment of any loan to a banking 8. The meetings of the Board were presided over by company, a DFI or a NBFI or, being a member of the Chairman and the Board met at least once stock exchange, has been declared as a defaulter in every quarter. Written notices of the Board by that stock exchange. meetings, along with agenda and working papers, Annual Report for the year ended March 31, 2012 33

were circulated at least seven days before the are involved in the internal audit function on full meetings. The minutes of the meetings were time basis. appropriately recorded and circulated. 18. The statutory auditors of the company have 9. The company provided information to confirmed that they have been given satisfactory foreign resident directors of their duties and rating under the quality control review program of responsibilities. Other directors of the company, the Institute of Chartered Accountants of Pakistan, being directors of other local companies have that they or any of the partners of the firm, their adequate exposure of corporate matters and are spouses and minor children do not hold shares of already aware of their duties and responsibilities. the company and that the firm and all its partners are in compliance with International Federation of 10. There was no change in the position of company Accountants (IFAC) guidelines on code of ethics as Secretary, Chief Financial Officer (CFO) and Head adopted by Institute of Chartered Accountants of of Internal Audit during the year. Pakistan. 11. The directors’ report for the year ended March 31, 19. The statutory auditors or the persons associated 2012 has been prepared in compliance with the with them have not been appointed to provide requirements of the Code of Corporate Governance other services except in accordance with the listing applicable as on March 31, 2012 and fully describes regulations and the auditors have confirmed that the salient matters required to be disclosed. they have observed IFAC guidelines in this regard. 12. The financial statements of the company were 20. We confirm that all other material principles duly endorsed by CEO and CFO before approval of contained in the Code have been complied with. the Board.

13. 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.

14. The company has complied with all the corporate (Takeharu Aoki) and financial reporting requirements of the Code. President / CEO

15. The Board has already formed an Audit Committee Lahore, May 14, 2012 in its meeting on June 07, 2002. It comprises of five members of whom three are non-executive directors including the Chairman of the Committee.

16. The meetings of the Audit Committee were held at least once every quarter prior to the approval of interim and final results of the company as required by the Code. The Board has already approved the terms of references of the committee on April 15, 2003 for compliance.

17. The Board has set up an effective internal audit function manned by suitably qualified and experienced personnel who are conversant with the policies and procedures of the company and 34 Honda Atlas Cars (Pakistan) Limited

Auditors’ Review Report to the Members on Statement of Compliance with Best Practices of Code of Corporate Governance

requires the company to place before the Board of Directors for their consideration and approval related party transactions distinguishing between transactions carried out on terms equivalent to those that prevail in arm’s length transactions and transactions which are not executed at arm’s length price recording proper justification for using such alternate pricing mechanism. Further, all such transactions are also required to be separately placed before the audit committee. We are only required and have ensured compliance of requirement to the extent of approval of related party transactions by the Board of Directors and placement of such transactions before the audit committee.

We have reviewed the Statement of Compliance with We have not carried out any procedures to determine the best practices contained in the Code of Corporate whether the related party transactions were undertaken Governance prepared by the Board of Directors of Honda at arm’s length price or not. Atlas Cars (Pakistan) Limited (‘company’) to comply with the Listing Regulations No. 35 of the Karachi, Lahore and Based on our review, nothing has come to our attention Islamabad Stock Exchange, where the company is listed. which causes us to believe that the Statement of Compliance does not appropriately reflect the company’s

The responsibility for compliance with the Code of compliance, in all material respects, with the best Corporate Governance is that of the Board of Directors practices contained in the Code of Corporate Governance of the company. Our responsibility is to review, to the as applicable to the company for the year ended March extent where such compliance can be objectively verified, 31, 2012. 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 A. F. Ferguson & Co. the company to comply with the Code. Chartered Accountants Lahore: May 14, 2012

As part of our audit of financial statements we are Engagement Partner: Muhammad Masood required to obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. We are not required to consider whether the Board’s statement on internal control covers all risks and controls, or to form an opinion on the effectiveness of such internal controls, the company’s corporate governance procedures and risks.

Further, Sub-Regulation (xiii a) of Listing Regulation 35 notified by The Karachi Stock Exchange (Guarantee) Limited vide circular KSE/N-269 dated January 19, 2009 36 Honda Atlas Cars (Pakistan) Limited

Year at a Glance

2012 2011 (Rupees in million)

Sales 16,600 22,026 Gross (loss) / profit (44) 199 Operating loss (347) (93) Loss before tax (499) (245) Loss after tax (532) (298) Shareholders’ equity 1,145 1,677 Capital expenditure 397 55 Total assets 9,480 10,573 Working capital (3,622) (2,816)

Break up value per share Rs 8 12 Market value per share Rs 11 10 Contribution to national exchequer Rs in million 6,281 8,229 Units produced Units 11,040 16,440 Units sold Units 11,406 16,467 Manpower Nos 934 975

Exchange rate at year end date JPY to USD ¥ 82.10 83.01 PKR to USD Rs 90.75 85.50 PKR to JPY Rs 1.11 1.03

PKR to USD Movement PKR to JPY Movement

95 1.25

1.15 90 1.05 85 0.95

80 0.85 Jun-10 Jun-11 Jun-10 Jun-11 Sep-10 Sep-11 Dec-10 Dec-11 Sep-10 Sep-11 Dec-10 Dec-11 Mar-11 Mar-12 Mar-10 Mar-10 Mar-11 Mar-12

Cumulative Production Units Cumulative Sales Units

17,500 17,500 15,000 15,000 12,500 12,500 10,000 10,000 7,500 7,500 5,000 5,000 2,500 2,500 0 0 Jul Jul Jan Jun Oct Apr Sep Dec Feb Jan Jun Aug Oct Nov Mar Apr Sep Dec Feb May Aug Nov Mar May 2011 2012 2011 2012 Annual Report for the year ended March 31, 2012 37

Revenue Application

2012 2011 March 31, 2012 (Rupees in thousand)

Revenue 71% Sales 19,769,285 26,472,067 Other income 204,456 83,977

Total 19,973,741 26,556,044

Application -3%

Product Cost Cost of sales 14,093,776 18,018,212 (excluding employees’ 26% remuneration and 4% 2% government levies)

Other costs Product cost Other costs Employees Operating expenses 365,718 230,196 Government Revenue shortfall (excluding employees’ remuneration) Dealers’ commission 304,826 438,269 Financial charges 151,926 152,255 822,470 820,720 March 31, 2011 Employees Employees’ remuneration 402,706 373,376 68%

Government WWF - 2,130 Sales tax and excise duties 2,864,851 4,007,689 Custom duties 2,288,742 3,578,744 Income tax 33,409 53,625 -1% 5,187,002 7,642,188

Revenue shortfall (532,213) (298,452)

29% Revenue 19,973,741 26,556,044 3% 1%

Application (%) Product cost Other costs Employees Product cost 71 68 Government Revenue shortfall Other costs 4 3 Employees 2 1 Government 26 29 Revenue shortfall -3 -1 100 100 38 Honda Atlas Cars (Pakistan) Limited

Financial Highlights

Mar-12 Mar - 11 Mar - 10 Mar - 09 Mar - 08 Mar - 07 Mar - 06 Mar - 05 Mar - 04 Mar - 03**

Sales Rs in M 16,600 22,026 15,854 14,150 14,715 17,055 25,639 16,587 9,358 4,901 Gross (loss) / profit Rs in M (44) 199 (240) 177 627 100 1,168 283 756 567 Operating (loss) / profit Rs in M (347) (93) (533) (400) 297 (176) 1,180 265 622 476 (Loss) / profit before tax Rs in M (499) (245) (988) (622) 64 (482) 1,134 259 620 476 (Loss) / profit after tax Rs in M (532) (298) (852) (402) 75 (265) 705 162 409 346 EBITDA Rs in M 136 537 290 120 776 312 1,192 320 706 495 Proposed dividend Rs in M ------294 95 179 147

Share capital Rs in M 1,428 1,428 1,428 1,428 1,428 714 420 420 420 420 Shareholders’ equity Rs in M 1,145 1,677 1,976 2,828 3,230 2,441 2,705 2,094 1,932 1,702 Capital expenditure Rs in M 397 55 29 2,129 188 2,521 1,833 273 275 71 Fixed assets - at cost Rs in M 8,202 7,821 7,786 7,783 5,979 5,832 3,535 1,740 1,512 1,256 Fixed assets - net Rs in M 3,668 3,945 4,594 5,406 4,010 4,341 2,359 694 600 461 Non current liabilities Rs in M 83 417 1,333 1,500 500 1,958 672 - - - Total assets Rs in M 9,480 10,573 8,946 9,942 6,817 8,305 9,174 11,793 6,999 2,985 Working capital Rs in M (3,622) (2,816) (2,125) (1,685) (652) (225) 473 588 1,262 1,206 Capital employed Rs in M 1,228 2,094 3,309 4,328 3,730 4,399 3,377 2,094 1,932 1,702

Profitability

Gross (loss) / profit margin % (0.3) 0.9 (1.5) 1.2 4.3 0.6 4.6 1.7 8.1 11.6 Operating (loss) / profit margin % (2.1) (0.4) (3.4) (2.8) 2.0 (1.0) 4.6 1.6 6.7 9.7 (Loss) / profit before tax % (3.0) (1.1) (6.2) (4.4) 0.4 (2.8) 4.4 1.6 6.6 9.7 (Loss) / profit after tax % (3.2) (1.4) (5.4) (2.8) 0.5 (1.6) 2.8 1.0 4.4 7.1

Liquidity

Current ratio Times 0.6 0.7 0.6 0.7 0.8 0.9 1.1 1.1 1.2 1.9 Quick ratio Times 0.2 0.2 0.2 0.2 0.2 0.2 0.4 0.7 0.9 1.2 Long term debt to equity Times 0.1 0.5 0.8 0.5 0.2 1.0 0.4 - - - Total liabilities to equity Times 8.3 6.3 4.5 3.5 2.1 3.4 3.4 5.6 3.6 1.8

Activity

Total assets turnover Times 1.8 2.1 1.8 1.4 2.2 2.1 2.8 1.4 1.3 1.6 Fixed assets turnover Times 4.5 5.6 3.5 2.6 3.7 3.9 10.9 23.9 15.6 10.6 Stock turnover ratio Times 5.3 7.6 6.1 6.1 6.5 4.9 6.7 6.7 6.5 4.6 Interest cover (BT) Times (2.3) (0.6) (1.2) (1.8) 1.3 (0.6) 25.5 44.4 272.1 943.2 Interest cover (AT) Times (2.5) (1.0) (0.9) (0.8) 1.3 0.1 16.2 28.2 179.6 686.4 Number of days stock Days 69 48 60 60 56 74 55 54 56 79

Earning

Return on capital employed % (32.0) (11.0) (22.3) (10.0) 1.8 (6.8) 25.8 8.1 22.5 21.5 Return on equity (BT) % (35.3) (13.4) (41.1) (20.5) 2.2 (18.7) 47.2 12.8 34.1 29.7 Return on equity (AT) % (37.7) (16.3) (35.5) (13.3) 2.6 (10.3) 29.4 8.1 22.5 21.6 (Loss) / earning per share (BT) Rs. (3.5) (1.7) (6.9) (4.4) 0.5 (6.7) 27.0 6.2 14.8 11.3 (Loss) / earning per share (AT) Rs. (3.7) (2.1) (6.0) (2.8) 0.5 (3.7) 16.8 3.9 9.7 8.2 Dividend per ordinary share Rs. ------7.0 2.3 4.3 3.5 Dividend pay out ratio % ------41.7 58.3 43.7 42.5

Break up value per share Rs. 8 12 14 20 23 34 64 50 46 41 Market value per share Rs. 11 10 16 12 44 58 112 74 89 55 Contribution to national exchequer Rs in M 6,281 8,229 6,316 6,452 4,958 6,213 8,481 6,371 3,782 1,713 Units produced Units 11,040 16,440 11,980 12,780 15,080 18,240 31,476 20,040 11,586 6,113 Units sold Units 11,406 16,467 12,344 12,502 15,604 18,709 30,719 20,056 11,750 5,923 Manpower Nos. 934 975 857 955 946 1,034 1,198 1,032 625 477

Exchange rates at year end date JPY to USD ¥ 82 83 94 98 100 118 117 107 104 120 PKR to USD Rs. 90.75 85.50 84.18 80.45 62.77 60.85 60.10 59.50 57.55 57.90 PKR to JPY Re. 1.11 1.03 0.90 0.82 0.63 0.52 0.51 0.55 0.55 0.48

# Issue of 100% right shares - * Bonus shares - ** March-03 - Data for 9 months Annual Report for the year ended March 31, 2012 39

Mar-12 Mar - 11 Mar - 10 Mar - 09 Mar - 08 Mar - 07 Mar - 06 Mar - 05 Mar - 04 Mar - 03**

Share capital Rs in M 1,428 1,428 1,428 1,428 1,428 # 714 420 420 420 420 Shareholders’ equity Rs in M 1,145 1,677 1,976 2,828 3,230 2,441 2,705 2,094 1,932 1,702 Capital expenditure Rs in M 397 55 29 2,129 188 2,521 1,833 273 275 71 Fixed assets - at cost Rs in M 8,202 7,821 7,786 7,783 5,979 5,832 3,535 1,740 1,512 1,256 Fixed assets - net Rs in M 3,668 3,945 4,594 5,406 4,010 4,341 2,359 694 600 461 Non current liabilities Rs in M 83 417 1,333 1,500 500 1,958 672 - - - Total assets Rs in M 9,480 10,573 8,946 9,942 6,817 8,305 9,174 11,793 6,999 2,985 Working capital Rs in M (3,622) (2,816) (2,125) (1,685) (652) (225) 473 588 1,262 1,206 Capital employed Rs in M 1,228 2,094 3,309 4,328 3,730 4,399 3,377 2,094 1,932 1,702

Profitability

Liquidity

Activity

Earning

Return on capital employed % (32.0) (11.0) (22.3) (10.0) 1.8 (6.8) 25.8 8.1 22.5 21.5 Return on equity (BT) % (35.3) (13.4) (41.1) (20.5) 2.2 (18.7) 47.2 12.8 34.1 29.7 Return on equity (AT) % (37.7) (16.3) (35.5) (13.3) 2.6 (10.3) 29.4 8.1 22.5 21.6 (Loss) / earning per share (BT) Rs. (3.5) (1.7) (6.9) (4.4) 0.5 (6.7) 27.0 6.2 14.8 11.3 (Loss) / earning per share (AT) Rs. (3.7) (2.1) (6.0) (2.8) 0.5 (3.7) 16.8 3.9 9.7 8.2 Dividend per ordinary share Rs. ------7.0 * 2.3 4.3 3.5 Dividend pay out ratio % ------41.7 58.3 43.7 42.5

# Issue of 100% right shares - * Bonus shares - ** March-03 - Data for 9 months 40 Honda Atlas Cars (Pakistan) Limited

Horizontal Analysis

2012 2011 2010 2009 2008 2007 2012 2011 2010 2009 2008 vs vs vs vs vs 2011 2010 2009 2008 2007 (Rupees in thousand) (Percentage) BALANCE SHEET

EQUITY AND LIABILITIES

SHARE CAPITAL AND RESERVES Issued, subscribed and paid up capital 1,428,000 1,428,000 1,428,000 1,428,000 1,428,000 714,000 - - - - 100.00 Reserves 249,500 548,500 1,401,500 1,801,500 1,727,000 1,991,000 (54.51) (60.86) (22.20) 4.31 (13.26) (Accumulated loss) / unappropiated profit (532,520) (299,307) (853,855) (401,655) 74,678 (264,332) 77.92 (64.95) 112.58 (637.85) (128.25)

NON-CURRENT LIABILITIES Long-term finances - secured 83,333 416,667 1,333,333 1,500,000 500,000 1,958,334 (80.00) (68.75) (11.11) 200.00 (74.47)

CURRENT LIABILITIES Current portion of long-term finances 83,334 416,667 166,667 - - 583,333 (80.00) 150.00 100.00 - (100.00) Short term running finances - secured - - - 2,151,601 - - - - (100.00) 100.00 - Accrued mark up 65,496 4,302 37,400 75,048 32,029 39,627 1,422.45 (88.50) (50.17) 134.31 (19.17) Trade and other payables 8,102,678 8,058,598 5,432,738 3,387,594 3,055,037 3,283,155 0.55 48.33 60.37 10.89 (6.95) 9,479,821 10,573,427 8,945,783 9,942,088 6,816,744 8,305,117 (10.34) 18.19 (10.02) 45.85 (17.92)

ASSETS

NON-CURRENT ASSETS Property, plant and equipment 3,255,755 3,847,016 4,445,810 5,190,535 3,864,527 4,082,955 (15.37) (13.47) (14.35) 34.31 (5.35) Intangible assets 56,366 87,023 125,988 195,830 64,636 65,903 (35.23) (30.93) (35.66) 202.97 (1.92) Capital work-in-progress 355,812 11,448 21,813 19,226 80,746 191,842 3,008.07 (47.52) 13.46 (76.19) (57.91) Long term loans and advances 33,855 33,532 33,896 31,503 29,050 28,105 0.96 (1.07) 7.60 8.44 3.36 Long term deposits 4,042 4,042 4,042 4,042 4,091 4,091 - - - (1.20) - Deferred taxation 1,144,790 926,746 802,914 571,214 338,165 251,008 23.53 15.42 40.56 68.92 34.72

CURRENT ASSETS Stores and spares 112,139 106,039 121,368 101,942 83,101 50,316 5.75 (12.63) 19.06 22.67 65.16 Stock-in-trade 2,853,523 3,443,054 2,329,161 2,954,091 1,612,696 2,704,946 (17.12) 47.82 (21.15) 83.18 (40.38) Loans, advances, prepayments and other receivables 1,581,062 1,245,786 978,745 853,218 507,852 706,092 26.91 27.28 14.71 68.01 (28.08) Cash and bank balances 82,477 868,741 82,046 20,487 231,880 219,859 (90.51) 958.85 300.48 (91.16) 5.47 9,479,821 10,573,427 8,945,783 9,942,088 6,816,744 8,305,117 (10.34) 18.19 (10.02) 45.85 (17.92)

PROFIT AND LOSS ACCOUNT

Sales 16,599,608 22,026,109 15,854,142 14,149,646 14,715,495 17,055,115 (24.64) 38.93 12.05 (3.85) (13.72) Cost of sales (16,643,607) (21,826,799) (16,093,687) (13,973,144) (14,088,001) (16,955,181) (23.75) 35.62 15.18 (0.82) (16.91) Gross (loss) / profit (43,999) 199,310 (239,545) 176,502 627,494 99,934 (122.08) (183.20) (235.72) (71.87) 527.91

Distribution and marketing costs (130,550) (139,185) (124,916) (190,088) (209,677) (214,889) (6.20) 11.42 (34.29) (9.34) (2.43) Administrative expenses (158,943) (171,729) (136,131) (139,749) (139,163) (147,274) (7.45) 26.15 (2.59) 0.42 (5.51) Other operating income 204,456 83,977 26,368 64,844 23,589 150,585 143.47 218.48 (59.34) 174.89 (84.34) Other operating expenses (217,842) (64,945) (58,628) (311,025) (4,975) (64,514) 235.43 10.77 (81.15) 6,151.76 (92.29) (302,879) (291,882) (293,307) (576,018) (330,226) (276,092) 3.77 (0.49) (49.08) 74.43 19.61

(Loss) / profit from operations (346,878) (92,572) (532,852) (399,516) 297,268 (176,158) 274.71 (82.63) 33.37 (234.40) (268.75)

Finance cost (151,926) (152,255) (455,128) (222,769) (233,651) (305,491) (0.22) (66.55) 104.30 (4.66) (23.52)

(Loss) / profit before taxation (498,804) (244,827) (987,980) (622,285) 63,617 (481,649) 103.74 (75.22) 58.77 (1,078.17) (113.21)

Taxation (33,409) (53,625) 135,780 220,452 11,393 217,109 (37.70) (139.49) (38.41) 1,834.93 (94.75)

(Loss) / profit after taxation (532,213) (298,452) (852,200) (401,833) 75,010 (264,540) 78.32 (64.98) 112.08 (635.70) (128.36) Annual Report for the year ended March 31, 2012 41

Vertical Analysis

2012 2011 2010 2009 2008 2012 2011 2010 2009 2008

(Rupees in thousand) (Percentage) BALANCE SHEET EQUITY AND LIABILITIES

SHARE CAPITAL AND RESERVES Issued, subscribed and paid up capital 1,428,000 1,428,000 1,428,000 1,428,000 1,428,000 15.06 13.51 15.96 14.36 20.95 Reserves 249,500 548,500 1,401,500 1,801,500 1,727,000 2.63 5.19 15.67 18.12 25.33 (Accumulated loss) / unappropiated profit (532,520) (299,307) (853,855) (401,655) 74,678 (5.62) (2.83) (9.54) (4.04) 1.10

NON-CURRENT LIABILITIES Long-term finances - secured 83,333 416,667 1,333,333 1,500,000 500,000 0.88 3.94 14.90 15.10 7.33

CURRENT LIABILITIES Current portion of long-term finances 83,334 416,667 166,667 - - 0.88 3.94 1.86 - - Short term running finances - secured - - - 2,151,601 - - - - 21.64 - Accrued mark up 65,496 4,302 37,400 75,048 32,029 0.69 0.04 0.42 0.75 0.47 Trade and other payables 8,102,678 8,058,598 5,432,738 3,387,594 3,055,037 85.47 76.22 60.73 34.07 44.82 9,479,821 10,573,427 8,945,783 9,942,088 6,816,744 100.00 100.00 100.00 100.00 100.00

ASSETS

NON-CURRENT ASSETS Property, plant and equipment 3,255,755 3,847,016 4,445,810 5,190,535 3,864,527 34.34 36.38 49.69 52.21 56.69 Intangible assets 56,366 87,023 125,988 195,830 64,636 0.59 0.82 1.41 1.97 0.95 Capital work-in-progress 355,812 11,448 21,813 19,226 80,746 3.75 0.11 0.24 0.19 1.18 Long term loans and advances 33,855 33,532 33,896 31,503 29,050 0.36 0.32 0.38 0.31 0.43 Long term deposits 4,042 4,042 4,042 4,042 4,091 0.04 0.04 0.05 0.04 0.06 Deferred taxation 1,144,790 926,746 802,914 571,214 338,165 12.08 8.76 8.98 5.75 4.96

CURRENT ASSETS Stores and spares 112,139 106,039 121,368 101,942 83,101 1.18 1.01 1.35 1.03 1.22 Stock-in-trade 2,853,523 3,443,054 2,329,161 2,954,091 1,612,696 30.10 32.56 26.03 29.71 23.66 Loans, advances, prepayments and other receivables 1,581,062 1,245,786 978,745 853,218 507,852 16.68 11.78 10.95 8.58 7.45 Cash and bank balances 82,477 868,741 82,046 20,487 231,880 0.87 8.22 0.92 0.21 3.40 9,479,821 10,573,427 8,945,783 9,942,088 6,816,744 100.00 100.00 100.00 100.00 100.00

PROFIT AND LOSS ACCOUNT

Sales 16,599,608 22,026,109 15,854,142 14,149,646 14,715,495 100.00 100.00 100.00 100.00 100.00 Cost of sales (16,643,607) (21,826,799) (16,093,687) (13,973,144) (14,088,001) (100.27) (99.10) (101.51) (98.75) (95.74) Gross (loss) / profit (43,999) 199,310 (239,545) 176,502 627,494 (0.27) 0.90 (1.51) 1.25 4.26

Distribution and marketing costs (130,550) (139,185) (124,916) (190,088) (209,677) (0.79) (0.63) (0.79) (1.34) (1.42) Administrative expenses (158,943) (171,729) (136,131) (139,749) (139,163) (0.96) (0.78) (0.86) (0.99) (0.95) Other operating income 204,456 83,977 26,368 64,844 23,589 1.23 0.38 0.17 0.46 0.16 Other operating expenses (217,842) (64,945) (58,628) (311,025) (4,975) (1.31) (0.29) (0.37) (2.20) (0.03) (302,879) (291,882) (293,307) (576,018) (330,226) (1.82) (1.32) (1.85) (4.07) (2.24)

(Loss) / profit from operations (346,878) (92,572) (532,852) (399,516) 297,268 (2.09) (0.42) (3.36) (2.82) 2.02

Finance cost (151,926) (152,255) (455,128) (222,769) (233,651) (0.92) (0.69) (2.87) (1.57) (1.59)

(Loss) / profit before taxation (498,804) (244,827) (987,980) (622,285) 63,617 (3.00) (1.11) (6.23) (4.40) 0.43

Taxation (33,409) (53,625) 135,780 220,452 11,393 (0.20) (0.24) 0.86 1.56 0.08

(Loss) / profit after taxation (532,213) (298,452) (852,200) (401,833) 75,010 (3.21) (1.35) (5.37) (2.84) 0.51 Annual Report for the year ended March 31, 2012 43

Auditors’ Report to the Members

We have audited the annexed balance sheet of Honda Atlas Cars (Pakistan) Limited (‘company’) as at March 31, 2012 and the related profit and loss account, statement of comprehensive income, statement of changes in equity and cash flow statement together with the notes forming part thereof, for the year then ended and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of our audit.

It is the responsibility of the company’s management to establish and maintain a system of internal control, and prepare and present the above said statements in conformity with the approved accounting standards and the requirements of the Companies Ordinance, 1984. Our responsibility is to express an opinion on these statements based on our audit.

We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the above said statements are free of any material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the above said statements. An audit also includes assessing the accounting policies and significant estimates made by management, as well as, evaluating the overall presentation of the above said statements. We believe that our audit provides a reasonable basis for our opinion and, after due verification, we report that:

(a) in our opinion, proper books of account have been kept by the company as required by the Companies Ordinance, 1984;

(b) in our opinion:

(i) the balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity with the Companies Ordinance, 1984, and are in agreement with the books of account and are further in accordance with accounting policies consistently applied;

(ii) the expenditure incurred during the year was for the purpose of the company’s business; and

(iii) the business conducted, investments made and the expenditure incurred during the year were in accordance with the objects of the company;

(c) in our opinion and to the best of our information and according to the explanations given to us, the balance sheet, profit and loss account, statement of comprehensive income, statement of changes in equity and cash flow statement together with the notes forming part thereof conform with approved accounting standards as applicable in Pakistan, and, give the information required by the Companies Ordinance, 1984, in the manner so required and respectively give a true and fair view of the state of the company’s affairs as at March 31, 2012 and of the loss, total comprehensive loss, changes in equity and its cash flows for the year then ended; and

(d) in our opinion no Zakat was deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980).

A. F. Ferguson & Co. Chartered Accountants Lahore: May 14, 2012

Name of Engagement partner: Muhammad Masood 44 Honda Atlas Cars (Pakistan) Limited

Balance Sheet as at March 31, 2012

2012 2011 Note (Rupees in thousand)

EQUITY AND LIABILITIES

SHARE CAPITAL AND RESERVES

Authorized share capital 200,000,000 (2011: 200,000,000) ordinary shares of Rs 10 each 2,000,000 2,000,000

Issued, subscribed and paid up share capital 142,800,000 (2011: 142,800,000) ordinary shares of Rs 10 each 5 1,428,000 1,428,000 Reserves 6 249,500 548,500 Accumulated loss (532,520) (299,307) 1,144,980 1,677,193 NON-CURRENT LIABILITIES

Long-term finances - secured 7 83,333 416,667

CURRENT LIABILITIES

Current portion of long term finances 7 83,334 416,667 Short term running finances - secured 8 - - Accrued mark up 9 65,496 4,302 Trade and other payables 10 8,102,678 8,058,598 8,251,508 8,479,567

CONTINGENCIES AND COMMITMENTS 11

9,479,821 10,573,427

Annual Report for the year ended March 31, 2012 45

2012 2011 Note (Rupees in thousand)

ASSETS

NON-CURRENT ASSETS

Property, plant and equipment 12 3,255,755 3,847,016 Intangible assets 13 56,366 87,023 Capital work-in-progress 14 355,812 11,448 Long term loans and advances 15 33,855 33,532 Long term deposits 4,042 4,042 Deferred taxation 16 1,144,790 926,746 4,850,620 4,909,807

CURRENT ASSETS

Stores and spares 17 112,139 106,039 Stock-in-trade 18 2,853,523 3,443,054 Trade debts 19 - - Loans, advances, prepayments and other receivables 20 1,581,062 1,245,786 Cash and bank balances 21 82,477 868,741 4,629,201 5,663,620

9,479,821 10,573,427

The annexed notes 1 to 39 form an integral part of these financial statements.

Yusuf H. Shirazi Takeharu Aoki Chairman Chief Executive 46 Honda Atlas Cars (Pakistan) Limited

Profit and Loss Account for the year ended March 31, 2012

2012 2011 Note (Rupees in thousand)

Sales 22 16,599,608 22,026,109 Cost of sales 23 (16,643,607) (21,826,799) Gross (loss) / profit (43,999) 199,310

Distribution and marketing costs 24 (130,550) (139,185) Administrative expenses 25 (158,943) (171,729) Other operating income 26 204,456 83,977 Other operating expenses 27 (217,842) (64,945)

(302,879) (291,882)

Loss from operations (346,878) (92,572)

Finance cost 28 (151,926) (152,255) Loss before taxation (498,804) (244,827)

Taxation 29 (33,409) (53,625)

Loss after taxation (532,213) (298,452)

Loss per share - basic and diluted (Rupees) 32 (3.73) (2.09)

The annexed notes 1 to 39 form an integral part of these financial statements.

Yusuf H. Shirazi Takeharu Aoki Chairman Chief Executive Annual Report for the year ended March 31, 2012 47

Statement of Comprehensive Income for the year ended March 31, 2012

2012 2011 (Rupees in thousand)

Loss after taxation (532,213) (298,452) Other comprehensive income for the year - - Total comprehensive loss for the year (532,213) (298,452)

The annexed notes 1 to 39 form an integral part of these financial statements.

Yusuf H. Shirazi Takeharu Aoki Chairman Chief Executive 48 Honda Atlas Cars (Pakistan) Limited

Statement of Changes in Equity for the year ended March 31, 2012

Share Share General Accumulated capital premium reserve loss Total (R u p e e s i n t h o u s a n d )

Balance as on April 01, 2010 1,428,000 76,000 1,325,500 (853,855) 1,975,645 Loss for the year - - - (298,452) (298,452) Other comprehensive income for the year - - - - - Total comprehensive loss for the year - - - (298,452) (298,452) Transfer from general reserve - - (853,000) 853,000 - Balance as on March 31, 2011 1,428,000 76,000 472,500 (299,307) 1,677,193 Loss for the year - - - (532,213) (532,213) Other comprehensive income for the year - - - - - Total comprehensive loss for the year - - - (532,213) (532,213) Transfer from general reserve - - (299,000) 299,000 - Balance as on March 31, 2012 1,428,000 76,000 173,500 (532,520) 1,144,980

The annexed notes 1 to 39 form an integral part of these financial statements.

Yusuf H. Shirazi Takeharu Aoki Chairman Chief Executive Annual Report for the year ended March 31, 2012 49

Cash Flow Statement for the year ended March 31, 2012

2012 2011 Note (Rupees in thousand)

Cash flows from operating activities

Cash generated from operations 30 1,083,418 2,154,912 Finance cost paid (90,732) (185,353) Employees’ retirement benefits and other obligations (31,055) (26,586) Net increase in loans to employees (1,878) (196) Income tax paid (430,020) (114,383) Royalty paid (412,243) (387,507)

Net cash generated from operating activities 117,490 1,440,887

Cash flows from investing activities

Purchase of property, plant and equipment (369,331) (54,686) Purchase of intangible assets (27,472) - Proceeds from sale of property, plant and equipment 9,711 11,687 Interest received 150,009 55,481

Net cash (used in)/ generated from investing activities (237,083) 12,482

Cash flows from financing activities

Repayment of long term finances (666,667) (666,666) Dividend paid (4) (8)

Net cash used in financing activities (666,671) (666,674) Net (decrease)/increase in cash and cash equivalents (786,264) 786,695 Cash and cash equivalents at the beginning of the year 868,741 82,046 Cash and cash equivalents at the end of the year 21 82,477 868,741

The annexed notes 1 to 39 form an integral part of these financial statements.

Yusuf H. Shirazi Takeharu Aoki Chairman Chief Executive 50 Honda Atlas Cars (Pakistan) Limited

Notes to and Forming Part of the Financial Statements for the year ended March 31, 2012

1. Legal status and nature of business Honda Atlas Cars (Pakistan) Limited (the company) is a public limited company incorporated in Pakistan on November 4, 1992. The company is a subsidiary of Honda Motor Co., Ltd., Japan. The company’s ordinary shares are listed on the Karachi, Islamabad and Lahore Stock Exchanges. The registered office of the company is situated at 1-Mcleod Road, Lahore. Its principal activities are assembling and progressive manufacturing and sale of Honda vehicles and spare parts. The company commenced commercial production from July 1994.

2. Basis of preparation 2.1 These financial statements have been prepared in accordance with the requirements of the Companies Ordinance, 1984 (the Ordinance) and the approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board and Islamic Financial Accounting Standards (IFAS) issued by Institute of Chartered Accountants of Pakistan as are notified under the Companies Ordinance, 1984, provisions of and directives issued under the Companies Ordinance, 1984. Wherever the requirements of the Companies Ordinance, 1984 or directives issued by Securities and Exchange Commission of Pakistan differ with the requirements of IFRS or IFAS, the requirements of the Companies Ordinance, 1984 or the requirements of the said directives prevail.

2.2 Initial application of standards, amendments or an interpretation to existing standards The following amendments to existing standards have been published that are applicable to the company’s financial statements covering annual periods, beginning on or after the following dates:

2.2.1 Amendments to published standards effective in current year New and amended standards and interpretations mandatory for the first time for the financial year beginning on or after April 01, 2011 that are either not relevant to the company’s current operations (although they may affect the accounting for future transactions and events) or do not have a significant impact on the company’s financial statements other than certain additional disclosures, are as follows:

- IFRS 7 (Amendments), ‘Financial Instruments’, emphasizes the interaction between quantitative and qualitative disclosures about the nature and extent of risks associated with financial instruments.

- IAS 1, ‘Presentation of financial statements’ (Amendments), now requires an entity to present an analysis of other comprehensive income for each component of equity, either in the statement of changes in equity or in the notes to the financial statements. The company has preferred to present this analysis in the statement of changes in equity.

- IAS 24 (Revised), ‘Related Party Disclosures’, issued in November 2009. It supersedes IAS 24, ‘Related Party Disclosures’, issued in 2003. The revised standard clarifies and simplifies the definition of a related party and removes the requirement for government-related entities to disclose details of all transactions with the government and other government-related entities.

- IAS 32 (Amendment), ‘Classification of rights issues’, issued in October 2009. The amendment addresses the accounting for rights issues that are denominated in a currency other than the functional currency of the issuer. Provided certain conditions are met, such rights issues are now classified as equity regardless of the currency in which the exercise price is denominated. Previously, these issues had to be accounted for as derivative liabilities.

Annual Report for the year ended March 31, 2012 51

- IFRIC 14 (Amendment); ‘Prepayments of a minimum funding requirement’. The amendments correct an unintended consequence of IFRIC 14, ‘IAS 19 – The limit on a defined benefit asset, minimum funding requirements and their interaction’. Without the amendments, entities are not permitted to recognize as an asset some voluntary prepayments for minimum funding contributions.

- IFRIC 19, ‘Extinguishing financial liabilities with equity instruments’. The interpretation clarifies the accounting by an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability (debt for equity swap). It requires a gain or loss to be recognized in profit or loss, which is measured as the difference between the carrying amount of the financial liability and the fair value of the equity instruments issued. If the fair value of the equity instruments issued cannot be reliably measured, the equity instruments should be measured to reflect the fair value of the financial liability extinguished.

2.2.2 Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the company The following amendments and interpretations to existing standards have been published and are mandatory for the company’s accounting periods beginning on or after April 01, 2012 or later periods, and the company has not early adopted them, however, these are not expected to have any material impact on the company’s financial statements:

- IFRS 7, ‘Disclosures on transfers of financial assets’ (Amendment), issued on October 08, 2010. The new disclosure requirements apply to transferred financial assets. An entity transfers a financial asset when it transfers the contractual rights to receive cash flows of the asset to another party. The amendments will promote transparency in the reporting of transfer transactions and improve users’ understanding of the risk exposures relating to transfers of financial assets and the effect of those risks on an entity’s financial position, particularly those involving securitization of financial asset. These amendments are effective for the financial reporting periods commencing on April 01, 2012.

- IFRS 9, ‘Financial Instruments’, addresses the classification, measurement and derecognition of financial assets and financial liabilities. The standard is not applicable until January 01, 2013 but is available for early adoption. This is the first part of a new standard on classification and measurement of financial assets and financial liabilities that will replace IAS 39, ‘Financial Instruments’ Recognition and measurement’. IFRS 9 has two measurement categories: amortized cost and fair value. All equity instruments are measured at fair value. A debt instrument is measured at amortized cost only if the entity is holding it to collect contractual cash flows and the cash flows represent principal and interest. For liabilities, the standard retains most of the IAS 39 requirements. These include amortized-cost accounting for most financial liabilities, with bifurcation of embedded derivatives. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. This change will mainly affect financial institutions. There will be no impact on the company’s accounting for financial liabilities, as the new requirements only affect the accounting for financial liabilities that are designated at fair value through profit or loss, and the company does not have any such liabilities.

- IFRS 10, ‘Consolidated Financial Statements’, applicable from January 01, 2013, builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess.

52 Honda Atlas Cars (Pakistan) Limited

Notes to and Forming Part of the Financial Statements for the year ended March 31, 2012

- IFRS 11, ‘Joint Arrangements’, applicable from January 01, 2013, is a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement rather than its legal form. There are two types of joint arrangement: joint operations and joint ventures. Joint operations arise where a joint operator has rights to the assets and obligations relating to the arrangement and hence accounts for its interest in assets, liabilities, revenue and expenses. Joint ventures arise where the joint operator has rights to the net assets of the arrangement and hence equity accounts for its interest. Proportional consolidation of joint ventures is no longer allowed. The company will apply this standard from April 01, 2013.

- IFRS 12, ‘Disclosures of interests in other entities’. This standard includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The standard is not applicable until April 01, 2013 but is available for early adoption.

- IFRS 13, ‘Fair value measurement’. This standard provides a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs or US GAAP. The standard is not applicable until April 01, 2013 but is available for early adoption.

- IAS 1, ‘Financial statement presentation’ (Amendment). The main change resulting from this amendment is the requirement for entities to group items presented in Other Comprehensive Income (OCI) on the basis of whether they are potentially recycled to profit or loss (reclassification adjustments). The amendment does not address which items are presented in OCI. The company will apply these amendments from April 01, 2013.

- IAS 12, ‘Income Taxes’ (Amendments). These are applicable on accounting periods beginning on or after January 01, 2012. IAS 12, ‘Income taxes’, currently requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. It can be difficult and subjective to assess whether recovery will be through use or through sale when the asset is measured using the fair value model in IAS 40, ‘Investment Property’. This amendment therefore introduces an exception to the existing principle for the measurement of deferred tax assets or liabilities arising on investment property measured at fair value. As a result of the amendments, SIC 21, ‘Income taxes − recovery of revalued non-depreciable assets’, will no longer apply to investment properties carried at fair value. The amendments also incorporate into IAS 12 the remaining guidance previously contained in SIC 21, which is withdrawn. The company will apply these amendments from April 01, 2012.

- IAS 19, ‘Employee Benefits’ (Amendment). The amendment will eliminate the corridor approach and calculate finance costs on a net funding basis. The amendments are not applicable until April 01, 2013 but is available for early adoption.

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the company.

3. Basis of measurement 3.1 These financial statements have been prepared under the historical cost convention except for recognition of certain employee retirement benefits at present value.

3.2 The company’s significant accounting policies are stated in note 4. Not all of these significant policies require the management to make difficult, subjective or complex judgments or estimates. The following is intended to provide an understanding of the policies the management considers critical because of their complexity, judgment and estimation involved in their application and their impact on these financial statements. Annual Report for the year ended March 31, 2012 53

Estimates and judgments are continually evaluated and are based on historical experience, including expectations of future events that are believed to be reasonable under the circumstances. These judgments involve assumptions or estimates in respect of future events and the actual results may differ from these estimates. The areas involving higher degree of judgments or complexity or areas where assumptions and estimates are significant to the financial statements are as follows: a) Employee retirement benefits The company uses the valuation performed by an independent actuary as the present value of its retirement benefit obligations. The valuation is based on assumptions as mentioned in note 4.1. b) Provision for taxation The company takes into account the current income tax law and the decisions taken by appellate authorities. Instances where the company’s view differs from the view taken by the income tax department at the assessment stage and where the company considers that its views on items of material nature is in accordance with law, the amounts are shown as contingent liabilities. c) Useful life and residual values of property, plant and equipment The company reviews the useful lives of property, plant and equipment on regular basis. Any change in estimates in future years might affect the carrying amounts of respective items of property, plant and equipment with a corresponding effect on the depreciation charge and impairment.

4. Summary of significant accounting policies The significant accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented unless otherwise stated.

4.1 Employees’ retirement benefits and other obligations The main features of the schemes operated by the company for its employees are as follows:

4.1.1 Defined benefit plan The company operates a funded defined benefit gratuity scheme for all its permanent employees. Under the scheme, gratuity is payable on the basis of last drawn basic salary at the following rates:

Service in the company Per completed year of service 0 - 4 years and 364 days Nil 5 - 9 years and 364 days 15 days 10 years or more 30 days

Contributions under the scheme are made to this fund on the basis of actuarial recommendation at the rate of 6.4% (2011: 6.1%) per annum of basic salary and are charged to profit and loss account. The latest actuarial valuation for the scheme was carried out as at March 31, 2012.

The actual return on the plan assets during the year was Rs 9.52 million (2011: Rs 3.61 million). The actual return on plan assets represents the difference between the fair value of plan assets at the beginning of the year and as at the end of the year after adjustments for contributions made by the company as reduced by benefits paid during the year.

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

54 Honda Atlas Cars (Pakistan) Limited

Notes to and Forming Part of the Financial Statements for the year ended March 31, 2012

The future contribution rate of the plan includes allowances for deficit and surplus. Projected Unit Credit Method, using the following significant assumptions, is used for valuation of this scheme:

Discount rate 13% per annum Expected increase in eligible pay 15% per annum Expected rate of return on plan assets 13% per annum

The company is expected to contribute Rs 17.44 million to the gratuity fund in the next financial year.

The company’s policy with regard to actuarial gains / losses is to follow minimum recommended approach under IAS 19 “Employee Benefits”.

4.1.2 Accumulating compensated absences Accruals are made annually to cover the obligation for accumulating compensated absences on the basis of accumulated leaves and the last drawn salary and are charged to profit.

4.1.3 Defined contribution plan The company operates a defined contributory provident fund for all its permanent employees. Contributions are made equally by the company and the employees at the rate of 10% per annum of the basic salary subject to completion of minimum qualifying period of service as determined under the rules of the fund.

4.2 Taxation Current Provision for current tax is based on the taxable income for the year determined in accordance with the prevailing law for taxation of income. The charge for current tax is calculated using prevailing tax rates or tax rates expected to apply to the profit for the year if enacted. The charge for current tax also includes adjustments, where considered necessary, to provision for taxation made in previous years arising from assessments framed during the year for such years.

Deferred Deferred tax is accounted for using the balance sheet liability method in respect of all temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of the taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which the deductible temporary differences, unused tax losses and tax credits can be utilized.

Deferred tax is calculated at the rates that are expected to apply to the year when the differences reverse based on tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the income statement, except in the case of items credited or charged to equity in which case it is included in equity.

4.3 Property, plant and equipment Property, plant and equipment except for freehold land are stated at cost less accumulated depreciation and any identified impairment loss. Freehold land is stated at cost less any identified impairment loss.

Annual Report for the year ended March 31, 2012 55

Depreciation on all items of property, plant and equipment except for freehold land and model specific plant and machinery is charged to income applying the diminishing balance method so as to write off the depreciable amount of an asset over its useful life. Depreciation on model specific plant and machinery is provided on a straight line basis so as to write off the depreciable amount of an asset over the life of the model. Depreciation is being charged at the rates given below.

Rate Buildings on freehold land 5% Plant and machinery 15% to 20% Furniture and office equipment 20% Vehicles 20% Tools and equipments 20% Computers 35%

The assets’ residual values and useful lives are continually reviewed by the company and adjusted if impact on depreciation is significant. The company’s estimate of the residual value of its property, plant and equipment as at March 31, 2012 has not required any adjustment.

The company continually assesses at each balance sheet date whether there is any indication that property, plant and equipment may be impaired. If such indication exists, the carrying amounts of such assets are reviewed to assess whether they are recorded in excess of their recoverable amount. Where carrying values exceed the respective recoverable amount, assets are written down to their recoverable amounts and the resulting impairment loss is recognized in profit and loss account for the year. The recoverable amount is the higher of an assets’ fair value less costs to sell and value in use. Where an impairment loss is recognized, the depreciation charge is adjusted in the future periods to allocate the assets’ revised carrying amount over its estimated useful life.

Depreciation on additions to property, plant and equipment is charged from the month in which an asset is available for use while no depreciation is charged for the month in which the asset is disposed off.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. All other repair and maintenance costs are charged to income during the period in which they are incurred.

The profit or loss on disposal or retirement of an asset represented by the difference between the sale proceeds and the carrying amount of the asset is recognized as an income or expense.

4.4 Intangible assets Intangible assets, which are stated at cost less accumulated amortization and any identified impairment loss, represent the cost of licenses for the right to manufacture Honda vehicles in Pakistan, technical drawings of certain components and software licenses.

Amortization is charged to income on the straight line method so as to write off the cost of an asset over its estimated useful life. Amortization on additions is charged from the month in which an asset is available for use while no amortization is charged for the month in which the asset is disposed off. Amortization is charged at the annual rates given below. 56 Honda Atlas Cars (Pakistan) Limited

Notes to and Forming Part of the Financial Statements for the year ended March 31, 2012

Rate License fees & drawings 20% to 25% Computer software 20% to 25%

The assets’ useful lives are continually reviewed by the company and adjusted if impact on amortization is significant. The company’s estimate of the useful life of its intangible assets as at March 31, 2012 have not required any adjustment.

The company continually assesses at each balance sheet date whether there is any indication that intangible assets may be impaired. If such indication exists, the carrying amounts of such assets are reviewed to assess whether they are recorded in excess of their recoverable amount. Where carrying values exceed the respective recoverable amount, assets are written down to their recoverable amounts and the resulting impairment loss is recognized in profit and loss account for the year. The recoverable amount is the higher of an assets’ fair value less costs to sell and value in use. Where an impairment loss is recognized, the amortization charge is adjusted in the future periods to allocate the assets’ revised carrying amount over its estimated useful life.

4.5 Capital work-in-progress Capital work-in-progress is stated at cost less any identified impairment loss. All expenditure connected with specific assets incurred during installation and construction period are carried under capital work-in-progress. These are transferred to operating fixed assets as and when these are available for use.

4.6 Financial assets 4.6.1 Classification The company classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, available for sale and held to maturity. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at the time of initial recognition.

a) Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. A financial asset is classified as held for trading if acquired principally for the purpose of selling in the short term. Assets in this category are classified as current assets if expected to be settled within twelve months, otherwise, they are classified as non-current.

b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than twelve months after the balance sheet date, which are classified as non-current assets. Loans and receivables comprise advances, deposits and other receivables and cash and cash equivalents in the balance sheet.

c) Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investments within twelve months from the balance sheet date.

Annual Report for the year ended March 31, 2012 57

d) Held to maturity Financial assets with fixed or determinable payments and fixed maturity, where management has the intention and ability to hold till maturity are classified as held to maturity and are stated at amortized cost.

4.6.2 Recognition and measurement All financial assets are recognized at the time when the company becomes a party to the contractual provisions of the instrument. Regular purchases and sales of investments are recognized on trade-date – the date on which the company commits to purchase or sell the asset. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value and transaction costs are expensed in the profit and loss account. Financial assets are derecognized when the rights to receive cash flows from the assets have expired or have been transferred and the company has transferred substantially all the risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held to maturity investments are carried at amortized cost using the effective interest rate method.

Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are presented in the profit and loss account in the period in which they arise. Dividend income from financial assets at fair value through profit or loss is recognized in the profit and loss account as part of other income when the company’s right to receive payments is established.

Changes in the fair value of securities classified as available-for-sale are recognized in other comprehensive income. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognized in equity are included in the profit and loss account as gains and losses from investment securities. Interest on available-for-sale securities calculated using the effective interest method is recognized in the profit and loss account. Dividends on available-for-sale equity instruments are recognized in the profit and loss account when the company’s right to receive payments is established.

The fair values of quoted investments are based on current prices. If the market for a financial asset is not active (and for unlisted securities), the company measures the investments at cost less impairment in value, if any.

The company assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss is removed from equity and recognized in the profit and loss account. Impairment losses recognized in the profit and loss account on equity instruments are not reversed through the profit and loss account. Impairment testing of trade debts and other receivables is described in note 4.17.

4.7 Financial liabilities All financial liabilities are recognized at the time when the company becomes a party to the contractual provisions of the instrument.

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in respective carrying amounts is recognized in the profit and loss account.

58 Honda Atlas Cars (Pakistan) Limited

Notes to and Forming Part of the Financial Statements for the year ended March 31, 2012

4.8 Offsetting of financial assets and financial liabilities Financial assets and financial liabilities are offset and the net amount is reported in the financial statements only when there is a legally enforceable right to set off the recognized amount and the company intends either to settle on a net basis or to realize the assets and to settle the liabilities simultaneously.

4.9 Stores and spares Usable stores and spares are valued principally at weighted average cost, while items considered obsolete are carried at nil value. Items in transit are valued at cost comprising of invoice value and other incidental charges paid thereon.

4.10 Stock-in-trade Stock of raw materials, work-in-process and finished goods are valued at the lower of weighted average cost and net realizable value. Cost of raw materials and trading stock comprises of the invoice value plus other charges paid thereon. Cost of work-in-process and finished goods includes cost of direct materials, labour and appropriate portion of manufacturing overheads.

Net realizable value signifies the estimated selling prices in the ordinary course of business less costs necessarily to be incurred in order to make the sale.

4.11 Borrowings Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost, any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the profit and loss account over the period of the borrowings using the effective interest method. Finance costs are accounted for on an accrual basis and are reported under accrued mark up to the extent of the amount remaining unpaid.

Borrowings are classified as current liabilities unless the company has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date.

4.12 Foreign currency transactions and translation a) Functional and presentation currency Items included in the financial statements of the company are measured using the currency of the primary economic environment in which the company operates (the functional currency). The financial statements are presented in Pak Rupees, which is the company’s functional and presentation currency.

b) Transactions and balances Foreign currency transactions are translated into Pak Rupees using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the profit and loss account.

4.13 Revenue recognition Revenue is recognized when it is probable that the economic benefits will flow to the company and the revenue can be measured reliably.

Sales of vehicles and spare parts are recognized as revenue when goods are dispatched and invoiced to the customers.

Annual Report for the year ended March 31, 2012 59

Return on bank balances is accrued on a time proportion basis by reference to the principal outstanding and the applicable rate of return.

4.14 Borrowing costs Borrowing costs are recognized as an expense in the period in which these are incurred except to the extent of borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset. Such borrowing costs are capitalized as part of the cost of that asset up to the date of its commissioning.

4.15 Provisions Provisions are recognized when the company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.

4.16 Long term deposits These are stated at cost which represents the fair value of consideration given.

4.17 Trade debts and other receivables Trade and other receivables are measured at original invoice amount less an estimate made for doubtful receivable balances based on the review of all outstanding amounts at the balance sheet date. Bad debts are written off when identified.

4.18 Trade and other payables Trade and other payables are measured at cost which is the fair value of the consideration to be paid in future for goods and services received, whether or not billed to the company.

4.19 Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Short term running finances are shown in current liabilities on the balance sheet.

4.20 Dividend Dividend distribution to the members is recognized as a liability in the period in which it is approved by the members.

4.21 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Board of Directors of the company that makes strategic decisions.

4.22 Share capital Ordinary shares are classified as equity and recognized at their face value. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax. 60 Honda Atlas Cars (Pakistan) Limited

Notes to and Forming Part of the Financial Statements for the year ended March 31, 2012

2012 2011 (Rupees in thousand)

5. Issued, subscribed and paid up share capital

2012 2011 (Number of shares)

111,400,000 111,400,000 Ordinary shares of Rs 10 each 1,114,000 1,114,000 fully paid in cash

31,400,000 31,400,000 Ordinary shares of Rs 10 each issued 314,000 314,000 as fully paid bonus shares

142,800,000 142,800,000 1,428,000 1,428,000

72,828,000 (2011: 72,828,000) ordinary shares of the company are held by Honda Motor Co., Ltd., Japan, the holding company.

Ordinary shares of the company held by associated undertakings as at year end are as follows:

2012 2011 (Number of shares)

Atlas Insurance Limited 850,000 850,000 Shirazi Investments (Private) Limited 10,602,650 10,602,650 Shirazi Capital (Private) Limited 32,517,000 32,517,000 43,969,650 43,969,650

2012 2011 Note (Rupees in thousand)

6. Reserves Movement in and composition of reserves is as follows: Capital Share premium 6.1 76,000 76,000

Revenue General reserve - At the beginning of the year 472,500 1,325,500 - Transferred to profit and loss account (299,000) (853,000) 173,500 472,500 249,500 548,500

6.1 This reserve can be utilized by the company only for the purposes specified in Section 83(2) of the Companies Ordinance, 1984. Annual Report for the year ended March 31, 2012 61

2012 2011 Note (Rupees in thousand)

7. Long-term finances - secured The Bank of Tokyo - Mitsubishi UFJ, Limited 7.1 166,667 333,334 Standard Chartered Bank (Pakistan) Limited 7.2 - 500,000 166,667 833,334

Current portion shown under current liabilities (83,334) (416,667) 83,333 416,667

7.1 It carries mark up at six months’ Karachi Inter-Bank Offered Rate (KIBOR) plus 1.25 percent per annum and is payable semi annually. It is secured by first pari passu equitable mortgage charge over all the current and future immovable assets of the company amounting Rs 667 million and is repayable in two equal semi annual installments ending April 30, 2013. The effective mark up rate charged during the year is 14.86% per annum.

7.2 This has been repaid during the year and it carried markup at six months’ KIBOR plus 1.20 percent per annum. It was secured by first pari passu equitable mortgage charge over all the current and future immovable assets of the company amounting Rs 667 million. The effective mark up rate charged during the year is 14.92% per annum.

8. Short term running finances - secured Short term running finances available from commercial banks under mark up arrangements amount to Rs 4,240 million (2011: Rs 4,240 million). The rates of mark up range from 12.79% to 13.45% per annum on the balances outstanding. The aggregate short term running finances are secured by first pari passu hypothecation charge over current assets of the company.

Of the aggregate facility of Rs 2,428 million (2011: Rs 2,375 million) for opening letters of credit, the amount utilized at March 31, 2012 was Rs 75.97 million (2011: Rs 42.82 million).

Of the aggregate facility of Rs 400 million (2011: Rs 400 million) for guarantees, which is available as a sub- limit of the abovementioned facility for running finances, the amount utilized at March 31, 2012 was Rs 12.29 million (2011: Nil).

2012 2011 (Rupees in thousand)

9. Accrued mark up Accrued mark up on: Long term finances - secured 121 321 Short term running finances 308 3,981 Advances from customers 65,067 - 65,496 4,302 62 Honda Atlas Cars (Pakistan) Limited

Notes to and Forming Part of the Financial Statements for the year ended March 31, 2012

2012 2011 Note (Rupees in thousand)

10. Trade and other payables Creditors 10.1 347,891 396,705 Accrued liabilities 70,691 23,174 Bills payable 10.2 2,801,104 5,390,887 Deposits against display cars 10.3 1,144,974 1,071,914 Workers’ welfare fund - 2,130 Employees’ retirement benefits and other obligations 10.4 19,917 23,060 Advances from customers 10.5 3,559,031 920,722 License fee, technical fee and royalties 10.6 54,236 141,118 Provision for custom duties 10.7 32,169 32,169 Unclaimed dividends 4,789 4,793 Federal excise duty payable 3,859 13,794 Withholding tax payable 22,224 8,650 Others 41,793 29,482 8,102,678 8,058,598

10.1 Creditors include amount due to related parties of Rs 18.04 million (2011: Rs 34.21 million). These are in the normal course of business and are interest free.

10.2 Bills payable include amount due to related parties of Rs 2,792.23 million (2011: Rs 5,384.33 million). These are in the normal course of business and are interest free.

10.3 These represent interest free deposits from dealers against display cars and are repayable on demand.

2012 2011 Note (Rupees in thousand)

10.4 Employees’ retirement benefits and other obligations Accumulating compensated absences 10.4.1 19,917 23,060 Staff gratuity 10.4.2 - - 19,917 23,060 10.4.1 Accumulating compensated absences Opening balance 23,060 20,210 Accrual for the year 13,099 17,667 Payments made during the year (16,242) (14,817) Closing balance 19,917 23,060

10.4.2 Staff gratuity The amounts recognized in the balance sheet are as follows:

Present value of defined benefit obligation 124,443 96,980 Fair value of plan assets (98,050) (74,238) Deficit 26,393 22,742 Un-recognized actuarial loss (26,393) (22,742) Net liability as at March 31 - -

Annual Report for the year ended March 31, 2012 63

2012 2011 (Rupees in thousand)

Net liability as at April 01 - - Charge to profit and loss account 14,813 11,769 Payments to fund during the year (14,813) (11,769) Net liability as at March 31 - -

The movement in the present value of defined benefit obligation is as follows:

Present value of defined benefit obligation as at April 01 96,980 80,769 Current service cost 10,925 9,804 Interest cost 12,607 9,692 Benefits paid (524) (8,628) Actuarial loss 4,455 5,343 Present value of defined benefit obligation as at March 31 124,443 96,980

The movement in the fair value of plan assets is as follows:

Fair value of plan assets as at April 01 74,238 67,490 Expected return on plan assets 9,651 8,099 Contributions 14,813 11,769 Benefits paid (524) (8,628) Actuarial loss (128) (4,492) Fair value of plan assets as at March 31 98,050 74,238

Plan assets are comprised as follows:

Debt 31,812 24,854 Mutual funds 30,144 37,371 Cash 36,094 12,013 98,050 74,238

Comparison of present value of defined benefit obligation, the fair value of plan assets and the surplus or deficit of gratuity fund for five years is as follows: 2012 2011 2010 2009 2008 (R u p e e s i n t h o u s a n d )

Present value of defined benefit obligation (124,443) (96,980) (80,769) (69,824) (55,306) Fair value of plan assets 98,050 74,238 67,490 47,251 55,758 (Deficit) / surplus (26,393) (22,742) (13,279) (22,573) 452 Experience adjustment: - on obligation 4% 6% -5% 5% 6% - on plan assets 0% -6% 7% -41% 6%

10.5 Advances from customers include Rs 3,440.92 million (2011: Rs 887.42 million) against the sale of vehicles including sales tax and excise duty. These advances carry mark up at the rate of 11.74% per annum, being the weighted average rate of three months’ market treasury bills as at the end of the year, in accordance with the directive issued by the Engineering Development Board, Government of Pakistan on September 17, 2002. The mark up is calculated and payable on demand of customer, if vehicles are delivered after sixty days from the receipt of such advances. 64 Honda Atlas Cars (Pakistan) Limited

Notes to and Forming Part of the Financial Statements for the year ended March 31, 2012

10.6 License fee, technical fee and royalties include amount of Rs 53.57 million (2011: Rs 140.20 million) due to related parties. 2012 2011 (Rupees in thousand)

10.7 Provision for custom duties Opening balance 32,169 32,169 Provision for the year - - Closing balance 32,169 32,169

11. Contingencies and commitments 11.1 Contingencies (i) Claims against the company not acknowledged as debt by the company amount to Rs 9.79 million (2011: Rs 9.79 million). As the management is confident that the matter would be settled in its favour, consequently, no provision has been made in these financial statements in respect of the above mentioned disputed liabilities.

(ii) In the previous years, the company received notices from custom authorities for payment of custom duty and sales tax in respect of certain components of Honda Cars imported during prior years. Custom authorities interpreted that Completely Built Unit (CBU) rate of duty was applicable on such components and thus raised a demand of Rs 110 million. It included Rs 96 million on account of custom duty and Rs 14 million on account of sales tax.

The company approached custom authorities on the grounds that the components specified in the above mentioned notices included certain components which were duly appearing in the indigenization program of the company for the relevant period. Hence, CBU rate of duty was not applicable on import of these components. The company has made a provision of Rs 32 million against the total demand of Rs 110 million. As the management is confident that the matter would be settled in its favour, consequently, no provision for the balance amount has been made in these financial statements in respect of the above mentioned notices.

(iii) Custom, Excise and Sales Tax Appellate Tribunal (Appellate Tribunal) endorsed the demand of Rs 1,105.04 million earlier raised against the company on account of custom duty, sales tax and income tax on the grounds that ‘license fee’ and ‘royalty’ paid to M/s Honda Motor Co., Ltd., Japan was includable in the ‘import value’ of ‘completely knocked down’ kits of vehicles assembled by the company and parts thereof.

The company further agitated the matter before honourable Lahore High Court that is pending adjudication. In this respect, interim relief has been extended by honourable Court and the Custom authorities have been refrained from enforcing the recovery of the amount adjudged against the company. No provision on this account has been made in these financial statements as the company’s management considers that its stance is founded on meritorious grounds and relief will be secured from higher appellate fora. In this respect, it is the company’s contention that subject amount of ‘royalty’ and ‘license’ fee were relatable to the company’s manufacturing facilities and not the goods imported by it and hence such amounts cannot be considered as part and parcel of import value.

In addition to above, another demand of Rs 110.93 million, raised on substantially similar grounds in respect of imports affected during the period from June 2008 to March 2009, have been endorsed by Collector (Appeals) and the company has preferred an appeal before Appellate Tribunal against such demand. In this respect also, based on company’s request, interim relief has been extended to the company by honourable High Court and the Custom authorities have been refrained from enforcing the recovery of the amount adjudged against the company. While Appellate Tribunal is not likely to extend any relief on this account due to its earlier decision on the matter, the liability on this account has not been recognized in these financial statements as management expects a relief from higher appellate fora, as explained above.

Similarly, the company is in the process of availing the available legal remedy i.e., [filing of an appeal before Collector (Appeals)] against another demand of Rs 523.72 million adjudged by Custom authorities on substantially similar grounds in respect of imports affected during the period from April 2009 to December 2010. While Collector (Appeals) is not likely to extend any relief on this account due to its earlier decisions on the matter, the liability on this account has not been recognized by the management in these financial statements for the reasons discussed above.

11.2 Commitments in respect of (i) Letters of credit and purchases for capital expenditure amounts to Rs 52.31 million (2011: Nil).

(ii) Letters of credit and purchases, other than capital expenditure, amounts to Rs 732.54 million (2011: Rs 407.63 million). Annual Report for the year ended March 31, 2012 65

12. Property, plant and equipment 2012 Freehold Buildings on Plant and Furniture and Vehicles Tools and Computers Total land freehold land machinery office equipment equipments (Rupees in thousand) At April 01, 2011 Cost 417,319 1,954,366 4,687,653 99,590 132,676 74,787 49,306 7,415,697 Accumulated depreciation - 629,250 2,713,443 67,377 67,073 51,394 40,144 3,568,681 Net Book Value 417,319 1,325,116 1,974,210 32,213 65,603 23,393 9,162 3,847,016 Year ended March 31, 2012 Opening net book value 417,319 1,325,116 1,974,210 32,213 65,603 23,393 9,162 3,847,016 Additions at cost - - 14,016 5,727 22,825 5,020 3,716 51,304 Disposals Cost - - - 1,548 12,776 - 668 14,992 Accumulated depreciation - - - 1,029 9,180 - 563 10,772 - - - 519 3,596 - 105 4,220 Depreciation for the year - 66,256 541,367 6,554 15,190 5,130 3,848 638,345 Closing net book value 417,319 1,258,860 1,446,859 30,867 69,642 23,283 8,925 3,255,755 At March 31, 2012 Cost 417,319 1,954,366 4,701,669 103,769 142,725 79,807 52,354 7,452,009 Accumulated depreciation - 695,506 3,254,810 72,902 73,083 56,524 43,429 4,196,254 Net Book Value 417,319 1,258,860 1,446,859 30,867 69,642 23,283 8,925 3,255,755

2011 Freehold Buildings on Plant and Furniture and Vehicles Tools and Computers Total land freehold land machinery office equipment equipments (Rupees in thousand) At April 01, 2010 Cost 417,319 1,951,128 4,654,760 99,834 127,304 74,493 46,206 7,371,044 Accumulated depreciation - 559,606 2,165,918 59,887 57,351 46,209 36,263 2,925,234 Net Book Value 417,319 1,391,522 2,488,842 39,947 69,953 28,284 9,943 4,445,810 Year ended March 31, 2011 Opening net book value 417,319 1,391,522 2,488,842 39,947 69,953 28,284 9,943 4,445,810 Additions at cost - 3,238 36,519 613 20,596 905 3,180 65,051 Disposals Cost - - 3,626 857 15,224 611 80 20,398 Accumulated depreciation - - 3,410 494 5,762 547 74 10,287 - - 216 363 9,462 64 6 10,111 Depreciation for the year - 69,644 550,935 7,984 15,484 5,732 3,955 653,734 Closing net book value 417,319 1,325,116 1,974,210 32,213 65,603 23,393 9,162 3,847,016 At March 31, 2011 Cost 417,319 1,954,366 4,687,653 99,590 132,676 74,787 49,306 7,415,697 Accumulated depreciation - 629,250 2,713,443 67,377 67,073 51,394 40,144 3,568,681 Net Book Value 417,319 1,325,116 1,974,210 32,213 65,603 23,393 9,162 3,847,016

12.1 Plant and machinery includes dies and moulds having book value of Rs 262.58 million (2011: Rs 395.18 million) which are in possession of various vendors of the company.

2012 2011 Note (Rupees in thousand)

12.2 The depreciation charge has been allocated as follows: Cost of sales 23 607,572 621,567 Cost of sales - Trading goods 23.2 10,377 10,377 Distribution and marketing costs 24 7,303 8,120 Administrative expenses 25 13,093 13,670 638,345 653,734 66 Honda Atlas Cars (Pakistan) Limited

Notes to and Forming Part of the Financial Statements for the year ended March 31, 2012

12.3 Disposal of property, plant and equipment 2012

Particulars of assets Sold to Cost Accumulated Book Sale Mode of depreciation value proceeds disposal

(Rupees in thousand) Furniture and office equipments Employee Jawaid Iqbal Ahmad (ex-director) 26 13 13 13 As per company policy

Outsiders Khawaja Ghulam Ali 492 360 132 52 Auction Rana Sohail Anjum 1,030 656 374 262 -do-

Vehicles Employee Jawaid Iqbal Ahmad (ex-director) 3,215 1,553 1,662 1,766 Employees car sale scheme

Outsiders M/s Argosy Enterprises 1,626 1,399 227 1,310 Auction Kamran Ahmad 1,609 1,294 315 1,403 -do- Syed Qamar Ali Rizvi 764 615 149 785 -do- Muhammad Ammar 951 675 276 907 -do- Shaukat Mahmood 2,314 2,260 54 523 -do- Abdul Jabbar 1,430 837 593 1,435 -do- M/s Atlas Insurance Limited 867 547 320 900 Insurance claim

Computers Outsider M/s Brain Net 668 563 105 355 Negotiation 14,992 10,772 4,220 9,711

2011 Particulars of assets Sold to Cost Accumulated Book Sale Mode of depreciation value proceeds disposal

(Rupees in thousand) Plant and machinery 3,626 3,410 216 - Assets written off

Furniture and office equipments Employees Syed Ishtiaq H. Bokhari 32 10 22 22 As per company policy Various employees 825 484 341 478 Auction

Vehicles Employees Zulfiqar Ali 1,452 366 1,086 1,031 Employees car sale scheme Sohail Nawaz 1,311 581 730 737 -do- Syed Ishtiaq H. Bokhari 1,452 367 1,085 1,031 -do- Muhammad Afzal 1,452 367 1,085 1,031 -do- Syed Ali Nasir (ex-employee) 1,452 366 1,086 1,050 -do- Kashif Mustafa Khan (ex-employee) 1,310 593 717 723 -do- Asad Murad (ex-employee) 1,430 689 741 746 -do- Khalid Mahmood (ex-employee) 1,452 479 973 919 -do-

Outsiders M/s Argosy Enterprises 1,430 620 810 1,522 Negotiation M/s Argosy Enterprises 1,053 714 339 869 -do- Atiq Ur Rehman 1,430 620 810 1,528 -do-

Tools and equipments 611 547 64 - Assets written off Computer 80 74 6 - Assets written off 20,398 10,287 10,111 11,687 Annual Report for the year ended March 31, 2012 67

13. Intangible assets 2012 License fees & Computer Total drawings softwares (Rupees in thousand) At April 01, 2011 Cost 386,753 6,603 393,356 Accumulated amortization 300,396 5,937 306,333 Net Book Value 86,357 666 87,023 Year ended March 31, 2012 Opening net book value 86,357 666 87,023 Additions 1,135 - 1,135 Amortization for the year 31,422 370 31,792 Closing net book value 56,070 296 56,366 At March 31, 2012 Cost 387,888 6,603 394,491 Accumulated amortization 331,818 6,307 338,125 Net Book Value 56,070 296 56,366

2011 License fees & Computer Total drawings softwares (Rupees in thousand) At April 01, 2010 Cost 386,753 6,603 393,356 Accumulated amortization 262,270 5,098 267,368 Net Book Value 124,483 1,505 125,988 Year ended March 31, 2011 Opening net book value 124,483 1,505 125,988 Amortization for the year 38,126 839 38,965 Closing net book value 86,357 666 87,023 At March 31, 2011 Cost 386,753 6,603 393,356 Accumulated amortization 300,396 5,937 306,333 Net Book Value 86,357 666 87,023

13.1 The amortization charge has been allocated as follows: 2012 2011 Note (Rupees in thousand)

Cost of sales 23 31,604 38,796 Distribution and marketing costs 24 169 169 Administrative expenses 25 19 - 31,792 38,965 68 Honda Atlas Cars (Pakistan) Limited

Notes to and Forming Part of the Financial Statements for the year ended March 31, 2012

2012 2011 Note (Rupees in thousand)

14. Capital work-in-progress Plant and machinery 324,054 11,448 Civil works 1,469 - Other tangible assets 3,952 - Intangible assets 26,337 - 355,812 11,448

15. Long term loans and advances Loans to employees - considered good - Executives 15.1 14,057 14,021 - Others 32,251 30,409 46,308 44,430 Receivable within one year - Executives (3,238) (2,436) - Others (9,215) (8,462) (12,453) (10,898) 33,855 33,532 15.1 Executives Opening balance 14,021 11,222 Disbursement during the year 7,462 15,280 21,483 26,502 Repayments during the year (7,426) (12,481) 14,057 14,021

Loans to employees comprise of staff welfare loan and associate loan.

Staff welfare loans carry interest at the rate of 11% per annum and are recoverable within a period of 7 years commencing from the date of disbursement through monthly deductions from salaries and are secured against retirement benefits of employees and their guarantors. All the loans are granted to the employees of the company in accordance with their terms of employment.

Associate loans are interest free and are repayable between 2 to 4 years. These loans are secured against retirement benefits of employees and their guarantors. All the loans are granted to the employees of the company in accordance with their terms of employment.

The maximum aggregate amount due from executives at the end of any month during the year was Rs 17.32 million (2011: Rs 18.70 million).

Annual Report for the year ended March 31, 2012 69

2012 2011 Note (Rupees in thousand)

16. Deferred taxation Deferred tax is calculated in full on temporary differences under the liability method using a tax rate of 35% Deferred tax asset as at April 01 926,746 802,914 Credited to profit and loss account for the year 29 218,044 123,832 Deferred tax asset as at March 31 1,144,790 926,746

The deferred tax asset comprises of temporary differences arising due to: Accelerated tax depreciation (430,252) (560,544) Unused tax losses carried forward 1,563,783 1,476,031 Others 11,259 11,259 1,144,790 926,746

16.1 The company has not recognized deferred tax asset in respect of the tax credit available under section 113 of the Income Tax Ordinance, 2001 of Rs 510.04 million (2011: Rs 434.15 million) in view of the management’s estimate that sufficient taxable temporary differences may not be available to utilize these tax credits before these are set to expire.

17. Stores and spares Most of the items of stores and spares are of interchangeable nature and can be used as machine spares or consumed as stores. Accordingly, it is not practicable to distinguish stores from spares until their actual usage.

Spares amounting to Rs 13.66 million (2011: Rs 14.71 million) are in the possession of various vendors.

2012 2011 Note (Rupees in thousand)

18. Stock-in-trade Raw materials including in transit Rs 296.89 million (2011: Rs 1,525 million) 18.1 1,798,242 2,171,943 Work in process 323,572 308,017 Finished goods - Own manufactured 18.2 334,006 674,739 - Trading stock including in transit Rs 91.94 million (2011: Rs 57.17 million) 397,703 288,355 2,853,523 3,443,054

18.1 Raw materials amounting to Rs 68.34 million (2011: Rs 53.16 million) are in the possession of various vendors of the company. 18.2 Finished goods at sale value amounting to Rs 271.28 million (2011: Rs 653.52 million) are in the possession of various dealers. 18.3 The above balances include items costing Rs 1,573.53 million (2011: Rs 512.44 million) valued at their Net Realizable Value (NRV) amounting to Rs 1,463.09 million (2011: Rs 492.21 million). The NRV write down expense of Rs 90.2 million has been charged to cost of sales. 70 Honda Atlas Cars (Pakistan) Limited

Notes to and Forming Part of the Financial Statements for the year ended March 31, 2012

2012 2011 Note (Rupees in thousand)

19. Trade debts - unsecured Considered good - - Considered doubtful 16,142 16,142 Provision for doubtful debts (16,142) (16,142) - -

- -

20. Loans, advances, prepayments and other receivables Current portion of loans to employees 15 12,453 10,898 Advances - considered good: - to employees 20.1 160 638 - to suppliers and contractors 359,479 247,656 359,639 248,294 Due from related parties - considered good 20.2 28,314 3,452 Recoverable from government authorities: - Income tax 697,010 518,432 - Sales tax and special excise duty 425,842 398,265 - Custom duty 39,098 39,098 1,161,950 955,795

Prepayments 5,322 7,414 Profit receivable on bank deposits 2,331 7,800 Other receivables - considered good 20.3 11,053 12,133 1,581,062 1,245,786

20.1 Included in advances to employees is an amount of Rs 0.05 million (2011: Nil) due from the chief executive and Rs 0.11 million (2011: Rs 0.09 million) due from executives. 2012 2011 (Rupees in thousand)

20.2 Due from related parties - considered good Honda Motor Co., Ltd., Japan 14,297 1,178 Honda Automobile (Thailand) Company Limited 10,734 1,599 Honda Trading Asia Company Limited Thailand 10 24 Honda Cars Philippines, Inc. 8 25 Honda Trading Corporation, Japan - 99 Honda Auto parts Manufacturing (M) SDN. BHD, Malaysia - 68 Asian Honda Motor Company, Thailand 3,244 459 Honda Malaysia SDN. BHD. Malaysia 7 - PT Honda Precision Parts Manufacturing Indonesia 14 - 28,314 3,452

Annual Report for the year ended March 31, 2012 71

20.2.1 These are in the normal course of business and are interest free.

20.3 Other receivables include an amount of Rs 3.13 million (2011: Rs 1.18 million) due from, Atlas Insurance Limited, a related party. It is in the normal course of business and is interest free.

2012 2011 Note (Rupees in thousand)

21. Cash and bank balances At banks on : - Current accounts 845 4,441 - Saving accounts [including USD 61,359 (2011: USD 95,858)] 21.1 80,323 862,220 81,168 866,661 Cash in hand 1,309 2,080 82,477 868,741

21.1 Balances in saving accounts bear mark up which ranges from 5.00% to 10.75% per annum.

2012 2011 (Rupees in thousand)

22. Sales Sales - Own manufactured goods 18,545,211 25,241,087 Sales tax (2,579,520) (3,598,669) Excise duty (111,480) (232,319) Commission to dealers (303,196) (436,119) Discounts to customers (19,675) - 15,531,340 20,973,980

Sales - Trading goods 1,243,749 1,230,980 Sales tax (173,851) (176,701) Commission to dealers (1,630) (2,150) 1,068,268 1,052,129 16,599,608 22,026,109 72 Honda Atlas Cars (Pakistan) Limited

Notes to and Forming Part of the Financial Statements for the year ended March 31, 2012

2012 2011 Note (Rupees in thousand)

23. Cost of sales Raw material consumed 13,960,643 19,373,596 Stores and spares consumed 50,653 74,563 Salaries, wages and benefits 23.1 261,089 229,843 Fuel and power 62,841 68,684 Insurance 33,729 32,016 Travelling and vehicle running 45,264 50,963 Freight and handling 15,974 18,981 Repairs and maintenance 11,146 10,404 Technical assistance 21,917 26,720 Depreciation on property, plant and equipment 12.2 607,572 621,567 Amortization on intangible assets 13.1 31,604 38,796 Royalty 344,190 464,458 Canteen subsidy 10,420 12,244 Other expenses 1,040 832 15,458,082 21,023,667 Opening stock of work-in-process 308,017 265,139 Closing stock of work-in-process (323,572) (308,017) (15,555) (42,878) Cost of goods manufactured 15,442,527 20,980,789 Own work capitalized (12,943) (16,988) Cost of damaged cars (2,935) (3,428) 15,426,649 20,960,373 Opening stock of finished goods 674,739 650,786 Closing stock of finished goods (334,006) (674,739) 340,733 (23,953) Cost of sales - Own manufactured 15,767,382 20,936,420 Cost of sales - Trading goods 23.2 876,225 890,379 16,643,607 21,826,799

23.1 Salaries, wages and benefits include following amounts in respect of gratuity:

2012 2011 (Rupees in thousand)

Interest cost for the year 7,751 5,379 Current service cost 6,716 5,441 Actuarial loss for the year 573 206 Expected return on plan assets (5,933) (4,495) 9,107 6,531

In addition to above, salaries, wages and benefits include Rs 10.08 million (2011: Rs 8.30 million) on account of provident fund contributions. Annual Report for the year ended March 31, 2012 73

23.2 It includes depreciation charge of Rs 10.38 million (2011: Rs 10.38 million) 2012 2011 Note (Rupees in thousand)

24. Distribution and marketing costs Salaries, wages and benefits 24.1 53,361 50,970 Fuel and power 3,692 3,291 Insurance 4,280 4,540 Travelling and vehicle running 11,499 11,638 Freight and handling 9,892 11,808 Repairs and maintenance 3,384 2,863 Printing and stationery 2,522 3,666 Warranty costs 4,390 5,127 Advertising 16,617 21,971 Depreciation on property, plant and equipment 12.2 7,303 8,120 Amortization on intangible assets 13.1 169 169 Training expenses 1,410 129 Canteen subsidy 1,249 1,135 Free service claims 3,861 4,005 Rent, rates and taxes 5,228 6,107 Other expenses 1,693 3,646 130,550 139,185

2012 2011 (Rupees in thousand)

24.1 Salaries, wages and benefits include following amounts in respect of gratuity: Interest cost for the year 1,902 1,537 Current service cost 1,649 1,555 Actuarial loss for the year 141 59 Expected return on plan assets (1,456) (1,285) 2,236 1,866

In addition to above, salaries, wages and benefits include Rs 2.45 million (2011: Rs 2.27 million) on account of provident fund contributions.

74 Honda Atlas Cars (Pakistan) Limited

Notes to and Forming Part of the Financial Statements for the year ended March 31, 2012

2012 2011 Note (Rupees in thousand)

25. Administrative expenses Salaries, wages and benefits 25.1 88,255 92,563 Fuel and power 5,986 5,465 Insurance 3,292 3,361 Travelling and vehicle running 19,881 17,589 Repairs and maintenance 2,568 5,030 Printing and stationery 3,029 2,582 Communications 3,649 4,108 Postage 2,065 2,479 Advertising 320 968 Auditors’ remuneration 25.2 4,535 9,572 Legal and professional charges 3,404 6,771 Depreciation on property, plant and equipment 12.2 13,093 13,670 Amortization on intangible assets 13.1 19 - Fees and subscription 2,066 718 Canteen subsidy 2,753 2,758 Security expenses 1,841 2,193 Other expenses 2,187 1,902 158,943 171,729

25.1 Salaries, wages and benefits include following amounts in respect of gratuity: Interest cost for the year 2,954 2,776 Current service cost 2,560 2,808 Actuarial loss for the year 218 107 Expected return on plan assets (2,262) (2,319) 3,470 3,372

In addition to above, salaries, wages and benefits include Rs 3.74 million (2011: Rs 3.22 million) on account of provident fund contributions.

2012 2011 (Rupees in thousand)

25.2 Auditors’ remuneration The charges for professional services include the following in respect of auditors’ services for: Statutory audit 1,075 1,000 Half yearly review 275 250 Taxation services 2,369 7,521 Royalty audit, certificates for remittance of foreign currency and sundry services 440 255 Out of pocket expenses 376 546 4,535 9,572

Annual Report for the year ended March 31, 2012 75

2012 2011 Note (Rupees in thousand)

26. Other operating income Income from financial assets: Profit on bank deposits 129,306 57,756 Profit on loans to employees 4,168 3,884 Realized gain on investments 42,442 - 175,916 61,640 Income from non-financial assets: Profit on disposal of property, plant and equipment 5,491 1,576 Profit on advances to suppliers 11,066 1,544 Liabilities no longer payable written back 2,141 - Others 9,842 19,217 28,540 22,337 204,456 83,977

27. Other operating expenses Workers’ welfare fund - 2,130 Donations - 2,607 Exchange loss 217,842 60,208 217,842 64,945

28. Finance cost Interest and mark up on: - Long term finances 62,047 136,224 - Short term borrowings 10,983 14,774 - Advances from customers 77,552 63 Bank charges 1,344 1,194 151,926 152,255

29. Taxation Current - For the year 205,497 193,584 - Prior years 45,956 (16,127) 251,453 177,457 Deferred 16 (218,044) (123,832) 33,409 53,625 76 Honda Atlas Cars (Pakistan) Limited

Notes to and Forming Part of the Financial Statements for the year ended March 31, 2012

2012 2011 (% age)

29.1 Tax charge reconciliation Numerical reconciliation between the average effective tax rate and the applicable tax rate. Applicable tax rate as per Income Tax Ordinance, 2001 (35.00) (35.00) Tax effect of: - change in prior years’ tax 10.03 (6.59) - minimum tax not carried forward 34.19 79.07 - lower tax rates / final tax regime and others (2.52) (15.58) 41.70 56.90 Average effective tax rate charged to profit and loss account 6.70 21.90

2012 2011 Note (Rupees in thousand)

30. Cash generated from operations Loss before taxation 498,804 (244,827) Adjustment for: Depreciation on property, plant and equipment 638,345 653,734 Profit on disposal of property, plant and equipment (5,491) (1,576) Profit on bank deposits (129,306) (57,756) Profit on advances to suppliers (11,066) (1,544) Profit on loans to employees (4,168) (3,884) Liabilities no longer payable written back (2,141) - Finance cost 151,926 152,255 Provision for employees’ retirement benefits and other obligations 27,912 29,436 Amortization on intangible assets 31,792 38,965 Royalty 312,900 422,234 Working capital changes 30.1 571,519 1,167,875 1,083,418 2,154,912

30.1 Working capital changes Decrease/ (increase) in current assets - Stores and spares (6,100) 15,329 - Stock-in-trade 589,531 (1,113,892) - Loans, advances, prepayments and other receivables (160,612) (321,852) 422,819 (1,420,415) Increase in current liabilities - Trade and other payables 148,700 2,588,290 571,519 1,167,875 Annual Report for the year ended March 31, 2012 77

31. Remuneration of Chief Executive, Directors and Executives The aggregate amount charged in the financial statements for the year for remuneration, including certain benefits to the chief executive, certain directors and other executives of the company is as follows:

Chief Executive Directors Executives 2012 2011 2012 2011 2012 2011 (Rupees in thousand)

Managerial remuneration 774 1,551 8,421 7,849 60,411 48,023 House rent and utilities 1,487 1,889 5,696 5,340 33,638 26,224 Bonus - - 643 572 6,202 5,012 Reimbursement of medical expenses - - 938 1,002 1,107 900 Employees’ retirement benefits - - 1,897 1,640 13,149 9,767 Other allowances and expenses 1,501 8,167 14,414 9,125 8,553 7,365 3,762 11,607 32,009 25,528 123,060 97,291

Number of persons 1 1 2 2 64 56

31.1 The Chief Executive, certain directors and executives of the company are provided with free use of company maintained cars and furnished accommodation.

2012 2011

32. Loss per share

32.1 Basic loss per share Net loss for the year Rupees in thousand (532,213) (298,452) Weighted average number of ordinary shares Number in thousand 142,800 142,800 Basic loss per share Rupees (3.73) (2.09)

32.2 Diluted loss per share There is no dilution effect on the loss per share of the company as the company has no such commitments.

33. Operating segments Management monitors the operating results of its business segments separately for the purpose of making decisions about resource allocation and performance assessment. Operating segments are reported in a manner consistent with internal reporting provided to the Chief Operating Decision Maker (CODM). Segment performance is generally evaluated based on certain key performance indicators including business volume and gross profit.

Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

33.1 The management has determined the operating segments based on the reports reviewed by the CODM that are used to make strategic and business decisions.

(a) Manufacturing This segment relates to the sale of locally manufactured cars and spare parts.

78 Honda Atlas Cars (Pakistan) Limited

Notes to and Forming Part of the Financial Statements for the year ended March 31, 2012

(b) Trading This segment relates to the trading of CBU’s and spare parts.

33.2 Segment information Manufacturing Trading Total 2012 2011 2012 2011 2012 2011 (Rupees in thousand)

Segment revenue 15,531,340 20,973,980 1,068,268 1,052,129 16,599,608 22,026,109 Segment expenses - Cost of sales (15,767,382) (20,936,420) (876,225) (890,379) (16,643,607) (21,826,799) Gross (loss) / profit (236,042) 37,560 192,043 161,750 (43,999) 199,310

Distribution and marketing costs (130,550) (139,185) Administrative expenses (158,943) (171,729) Other operating income 204,456 83,977 Other operating expenses (217,842) (64,945) Finance cost (151,926) (152,255) Loss before taxation (498,804) (244,827) Taxation (33,409) (53,625) Loss after taxation (532,213) (298,452)

33.2.1 Segment wise assets and liabilities are not being reviewed by the CODM.

34. Financial risk management

34.1 Financial risk factors The company’s activities expose it to a variety of financial risks: market risk (including currency risk, price risk, fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. The company’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the company’s financial performance.

Risk management is carried out by the company’s finance department under policies approved by the board of directors. The company’s finance department evaluates and hedges financial risks based on principles for overall risk management, as well as policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk and investment of excess liquidity, provided by the board of directors.

(a) Market risk

(i) Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Currency risk arises mainly from future commercial transactions or receivables and payables that exist due to transactions in foreign currencies.

The company is exposed to currency risk arising from various currency exposures, primarily with respect to the United States Dollar (USD), Japanese Yen (JPY) and Thai Baht (THB). Currently, the company’s foreign exchange risk exposure is restricted to the amounts receivable / payable from / to foreign entities. The company’s exposure to currency risk is as follows:

Annual Report for the year ended March 31, 2012 79

2012 2011 (In thousand)

Cash and bank balances - USD 61 96 Other receivables - USD 38 36 Trade and other payables - USD (29,615) (59,439) Net exposure - USD (29,516) (59,307)

Other receivables - JPY 427 1,005 Trade and other payables - JPY (64,329) (267,390) Net exposure - JPY (63,902) (266,385)

Other receivables - THB 211 312 Trade and other payables - THB (22,504) (13,384) Net exposure - THB (22,293) (13,072)

If the functional currency, at reporting date, had weakened / strengthened by 1% against the USD, JPY and THB with all other variables held constant, the impact on loss after taxation for the year would have been Rs 18.30 million (2011: Rs 34.98 million) higher / lower, mainly as a result of exchange losses / gains on translation of foreign exchange denominated financial instruments. Currency risk sensitivity to foreign exchange movements has been calculated on a symmetric basis.

(ii) Price risk The company is neither exposed to equity securities price risk nor commodity price risk.

(iii) Cash flow and fair value interest rate risk As the company has no significant interest-bearing assets, the company’s income and operating cash flows are substantially independent of changes in market interest rates.

The company’s interest rate risk arises from long term and short term borrowings. Borrowings obtained at variable rates expose the company to cash flow interest rate risk.

The company analyzes its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions and alternative financing. Based on these scenarios, the company calculates the impact on profit and loss of a defined interest rate shift. The scenarios are run only for liabilities that represent the major interest-bearing positions.

At the balance sheet date, the interest rate profile of the company’s significant interest bearing financial instruments was: 80 Honda Atlas Cars (Pakistan) Limited

Notes to and Forming Part of the Financial Statements for the year ended March 31, 2012

2012 2011 (Rupees in thousand)

Fixed rate instruments Financial assets Long term loans and advances 46,308 44,430 Cash at bank - savings accounts 80,323 200,000 126,631 244,430 Financial liabilities - - Net exposure 126,631 244,430

Floating rate instruments Financial assets Cash at bank - savings accounts - 662,220

Financial liabilities Long-term finances - secured (166,667) (833,334)

Net exposure (166,667) (171,114)

Fair value sensitivity analysis for fixed rate instruments The company does not account for any fixed rate financial assets and liabilities at fair value through profit or loss. Therefore, a change in interest rate at the balance sheet date would not affect profit or loss of the company.

Cash flow sensitivity analysis for variable rate instruments At March 31, 2012, if interest rates on long term borrowings had been 1% higher / lower with all other variables held constant, post-tax loss for the year would have been Rs 2.60 million (2011: Rs 6.33 million) higher / lower, mainly as a result of higher / lower interest expense on floating rate borrowings.

At March 31, 2012, if interest rates on short term borrowings had been 1% higher / lower with all other variables held constant, post-tax loss for the year would have been Rs 0.52 million (2011: Rs 0.68 million) higher / lower, mainly as a result of higher / lower interest expense on floating rate borrowings.

(b) Credit risk Credit risk represents the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. Credit risk of the company arises from deposits with banks, trade debts, investments, loans and advances and other receivables.

(i) Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was as follows: 2012 2011 (Rupees in thousand)

Long term deposits 4,042 4,042 Loans, advances and other receivables 13,384 19,933 Balances with banks 81,168 866,661 98,594 890,636

The credit risk on liquid funds is limited because the counter parties are banks with reasonably high credit ratings. The company believes that it is not exposed to major concentration of credit risk as its exposure is spread over a significant number of counter parties. Annual Report for the year ended March 31, 2012 81

(ii) Credit quality of major financial assets The credit quality of company’s bank balances can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rate:

Banks Rating Rating 2012 2011 Short term Long term Agency (Rupees in thousand)

Askari Bank Limited A1+ AA PACRA 1 1 Citibank N.A. A-1 A+ S&P 36,462 206,716 Deutsche Bank A.G. A-1 A+ S&P 199 10,070 Faysal Bank Limited A1+ AA PACRA 731 287 Habib Bank Limited A-1+ AA+ JCR-VIS 171 424 MCB Bank Limited A1+ AA+ PACRA 32,130 105,092 National Bank of Pakistan A-1+ AAA JCR-VIS 37 109 Soneri Bank Limited A1+ AA- PACRA 4,936 329,780 Standard Chartered Bank (Pakistan) Limited A1+ AAA PACRA 3,868 4,702 The Bank of Tokyo - Mitsubishi UFJ, Limited A-1 A+ S&P 1,998 208,999 United Bank Limited A-1+ AA+ JCR-VIS 635 481 81,168 866,661

Due to the company’s long standing business relationships with these counterparties and after giving due consideration to their strong financial standing, management does not expect non-performance by these counter parties on their obligations to the company. Accordingly, the credit risk is minimal.

(c) Liquidity risk Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.

The company manages liquidity risk by maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. Furthermore, the holding company, Honda Motor Co., Ltd., Japan, through its associated company has provided liquidity support to the company in form of credit payments on some of the CKD material supplies. At March 31, 2012, the company had Rs 4,240 million available borrowing limits from financial institutions and Rs 82.48 million cash and bank balances.

The table below analyzes the company’s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows as the impact of discounting is not significant.

2012 Carrying Less than One to More than amount one year five years five years (Rupees in thousand)

Long-term finances - secured 166,667 83,334 83,333 - Accrued mark up 65,496 65,496 - - Trade and other payables 4,485,395 4,485,395 - - 4,717,558 4,634,225 83,333 -

82 Honda Atlas Cars (Pakistan) Limited

Notes to and Forming Part of the Financial Statements for the year ended March 31, 2012

2011 Carrying Less than One to More than amount one year five years five years (Rupees in thousand)

Long-term finances - secured 833,334 416,667 416,667 - Accrued mark up 4,302 4,302 - - Trade and other payables 7,081,133 7,081,133 - - 7,918,769 7,502,102 416,667 -

34.2 Fair value estimation The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. However, the company does not hold any quoted financial instrument.

The financial instruments that are not traded in active market are carried at cost and are tested for impairment according to IAS 39 ‘Financial Instruments: Recognition and Measurement’.

The carrying amount less impairment provision of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the company for similar financial instruments.

34.3 Financial instruments by categories Loans and receivables 2012 2011 (Rupees in thousand)

Assets as per balance sheet Long term loans and advances 46,308 44,430 Long term deposits 4,042 4,042 Loans, advances and other receivables 41,698 23,385 Cash and bank balances 82,477 868,741 174,525 940,598

Financial liabilities at amortized cost 2012 2011 (Rupees in thousand)

Liabilities as per balance sheet Long-term finances - secured 166,667 833,334 Accrued mark up 65,496 4,302 Trade and other payables 4,485,395 7,081,133 4,717,558 7,918,769

34.4 Fair values of financial assets and liabilities The carrying values of all financial assets and liabilities reflected in the financial statements approximate their fair values. Fair value is determined on the basis of objective evidence at each reporting date.

Annual Report for the year ended March 31, 2012 83

34.5 Capital risk management The company’s objectives when managing capital are to safeguard the company’s ability to continue as a going concern in order to provide returns for members and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the company may adjust the amount of dividends paid to members, issue new shares and other measures commensurating to the circumstances. The company monitors the capital structure on the basis of gearing ratio. This ratio is calculated as borrowings divided by total capital employed. Borrowings represent long term loans obtained by the company. Total capital employed includes equity as shown in the balance sheet plus borrowings. The gearing ratio as at year ended March 31, 2012 and March 31, 2011 are as follows:

2012 2011

Borrowings Rupees in thousand 166,667 833,334 Total capital employed Rupees in thousand 1,311,647 2,510,527 Gearing ratio Percentage 13 33

35. Transactions with related parties The related parties comprise holding company, fellow subsidiaries, associated undertakings, key management personnel and post employment benefit plan. The company in the normal course of business carries out transactions with various related parties. Amounts due from and to related parties are shown under receivables and payables. Other significant transactions with related parties are as follows:

Holding Other related Total company parties (Rupees in thousand)

For the year ended March 31, 2012 Purchase of goods 3,106,693 5,265,524 8,372,217 Purchase of property, plant and equipment - 235,209 235,209 Sale of goods - 85,155 85,155 Insurance premium - 138,351 138,351 Insurance claims - 7,145 7,145 Royalty 311,323 727 312,050 License fee 18,180 - 18,180 Technical assistance and training charges 11,159 19,971 31,130 Expense charged to post retirement benefits - 31,079 31,079 Key management personnel - 75,819 75,819

For the year ended March 31, 2011 Purchase of goods 3,788,956 9,240,650 13,029,606 Purchase of property, plant and equipment 1,615 101 1,716 Sale of goods - 59,590 59,590 Insurance premium - 174,881 174,881 Insurance claim - 9,573 9,573 Royalty 419,900 990 420,890 License fee - - - Technical assistance and training charges 8,884 15,170 24,054 Expense charged to post retirement benefits - 25,584 25,584 Key management personnel - 72,616 72,616

All transactions with related parties have been carried out on mutually agreed commercial terms and conditions.

84 Honda Atlas Cars (Pakistan) Limited

Notes to and Forming Part of the Financial Statements for the year ended March 31, 2012

36. Plant capacity and actual production

Capacity Production 2012 2011 2012 2011 Number Number Number Number

Motor vehicles 50,000 50,000 11,040 16,440

The company has a capacity of producing 50,000 motor vehicles per annum on double shift basis. Under utilization of capacity was due to lower demand of certain products and supply chain disruption experienced by the company.

37. Date of authorization for issue These financial statements were authorized for issue on May 14, 2012 by the Board of Directors of the company.

38. Events after the balance sheet date The board has recommended following appropriation: 2012 2011 (Rupees in thousand)

Transfer to profit and loss account from general reserve 173,500 299,000

39. Corresponding figures Corresponding figures have been re-arranged and reclassified, wherever necessary, for the purposes of comparison. However no significant re-arrangements have been made.

Yusuf H. Shirazi Takeharu Aoki Chairman Chief Executive Annual Report for the year ended March 31, 2012 85

Notice of Annual General Meeting

Notice is hereby given that 20th Annual General Meeting of shareholders of Honda Atlas Cars (Pakistan) Limited will be held on Thursday, June 28, 2012 at 10:30 a.m. at Park Plaza Hotel, 107-B3, M.M. Alam Road, Gulberg-III, Lahore to transact the following business:

1. To confirm the minutes of the Extra Ordinary General Meeting held on April 26, 2012.

2. To approve and adopt the annual audited financial statements for the year ended March 31, 2012 together with the Directors’ and Auditors’ reports thereon.

3. To appoint Auditors for the next financial year and fix their remuneration.

Special business:

4. To approve the remuneration of Chairman & executive directors for the year 2012-13 and adopt the following special resolution:

“Resolved that the remuneration of Chairman amounting to Rs. 16.0 million, CEO and an executive director for Rs 10 million each, which includes allowances and other benefits, for the year ending March 31, 2013 be and is hereby approved.”

5. To transact any other business with permission of the Chairman.

By order of the Board

(Sardar Abid Ali Khan) Vice President & Company Secretary Lahore: June 06, 2012

NOTE:

1. The share transfer books of the company will remain closed from June 21, 2012 to June 28, 2012 (both days inclusive).

2. A member entitled to attend and vote at the Annual General Meeting may appoint another member as a proxy to attend and vote on his/her behalf. The proxy forms must be received at Registered Office of the Company duly stamped, signed and witnessed; not later than 48 hours before the time of the meeting. 86 Honda Atlas Cars (Pakistan) Limited

Notice of Annual General Meeting

3. Any individual Beneficial Owner of Central Depository Company of Pakistan Ltd. (CDC), entitled to attend and vote at this meeting, must bring his/her CNIC or passport along with CDC account number to prove his/her identity and in case of proxy must enclose attested copy of his/her CNIC or passport. Representatives of corporate members should bring the usual documents required for such purpose.

4. Members are requested to immediately inform company’s share registrar “M/s Hameed Majeed Associates, HM-House, 7-Bank Square, Lahore.” of any change in their address.

5. Members are requested to provide copy of their CNIC or passport (in case of foreigner) unless it has been provided earlier enabling the company to comply with the relevant laws.

Statement under section 160(b) of the Companies Ordinance 1984; As per requirements of the new Code of Corporate Governance 2012 and Articles of Association of the Company, approval of Chairman’s remuneration is required as ‘non-executive director’ from shareholders. Further remuneration of two executive directors is also required to be approved by Shareholders. The remuneration of Chairman and executive directors has already been approved by the board of directors in their meeting held on May 14, 2012.

There is no specific interest of the directors in this special resolution, except that mentioned above. Annual Report for the year ended March 31, 2012 87

Form of Proxy

Secretary, Honda Atlas Cars (Pakistan) Ltd., 1-Mcleod Road, Lahore, Lahore

I/We of

being member(s) of Honda Atlas Cars (Pakistan) Ltd., having Folio No. / CDC Participant I.D No. and having number of shares, hereby appoint Mr./Ms of who is also a member of the company having Folio No. / CDC Participant I.D No. and number of shares, as my/our proxy in my/our absence to attend and vote for me/us on my/our behalf at the 20th

Annual General Meeting of the Company to be held on Thursday, June 28, 2012 at 10:30 a.m. at Park Plaza Hotel, 107-B3,

M.M. Alam Road, Gulberg-III, Lahore and at any adjournment thereof.

Signed this day of 2012.

Signature of Shareholder Witness 1:

Signed:

Name:

Address:

CNIC / Passport No. Affix Rs. 5/- Revenue stamp Witness 2: here

Signed:

Name: Signature of shareholder should Address: match the specimen signature registered with the Company CNIC / Passport No.

NOTES: 1. A member entitled to attend and vote at the Annual General Meeting of the Company is entitled to appoint a proxy to attend and vote instead of his/her. No person shall act, as a proxy who is not a member of the Company except that a corporation may appoint a person who is not a member. 2. The instrument appointing a proxy shall be in writing under the hand on the appointer or his constituted attorney or if such appointer is a corporation or company, under the common seal of such corporation or company. 3. The Form of Proxy, duly completed, must be deposited at Company’s registered office, 1-Mcleod Road, not less than 48 hours before the time of holding the meeting. 88 Honda Atlas Cars (Pakistan) Limited

AFFIX CORRECT POSTAGE

Secretary, Honda Atlas Cars (Pakistan) Ltd., 1-Mcleod Road, Lahore.