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First Equity Modaraba 
Annual Report 1996
Managed by:
Premier Financial Services (Private) Limited
CRESCENT GROUP
First Equity Modaraba is committed to strive for excellence in all
areas of its activity
We view our business objective of providing distinctive financial products and services 
that promote commerce and industry within the context of our overall objective of 
contributing to the nation's prosperity.
CORPORATE INFORMATION
Modaraba Company 
Premier Financial Services (Private) Limited
Board of Director
Mazhar Karim
Nadeem Maqbool
Shaukat Shafi
Maqbul Ahmad
Mohammad Arshad
Zahid Bashir
Fakhir A Rahman Chief Executive
Company Secretary 
Adil A. Ghaffar
Registered Office
3rd Floor, The Cotton Exchange
I.I. Chundrigar Road, Karachi.
Business Office
407, The Cotton Exchange
I.I. Chundrigar Road, Karachi.
Tel: 2433281-4
Fax: 2433280
Auditors
Khalid Majid Husain Rahman
Chartered Accountants
Registrars
Khalid Majid Husain Rahman
Chartered Accountants
First Floor
Modern Motors House
Beaumont Road, Karachi.
Tel: 5685693, 5685785
Fax: 5688834
General Counsel
Mohsin M. Tayebaly & Co.
Advocates & Legal Consultants
Bankers
Citibank N.A.
Crescent Investment Bank Ltd.
Habib Bank AG Zurich
Metropolitan Bank Ltd.
The Bank of Khyber
United Bank Ltd.
BUSINESS INFORMATION
First Equity Modaraba is able to assist with:
Financing under morabaha/musharaka agreements
Equity issue underwriting and placement
Leasing arrangements
Project Financing arrangements
Trading of commodities locally and internationally
For further information on how we may help in the above areas, or perhaps design a
specific solution, please contact:
Manager Credit and Marketing
407, The Cotton Exchange
I.I. Chundrigar Road
Karachi.
Tel : 2433281-4
Fax : 2433280
INVESTOR INFORMATION
For all enquiries and processing related to certificates of First Equity Modaraba (including
verification of signatures, registration of transfers, lost/duplicate certificates etc.) please
contact the Registrars:
Khalid Majid Husain Rahman
Chartered Accountants
First Floor
Modern Motors House
Beaumont Road, Karachi.
Tel: 5685693, 5685785
Fax: 5688834
However, if necessary, matters may be referred to the Company Secretary at our business
address.
REPORT OF THE DIRECTORS OF THE MODARABA COMPANY
The Directors of Premier Financial Services (Private) Limited, the management
company of FIRST EQUITY MODARABA, present their report and the audited
financial statements of the Modaraba for the year ended June 30, 1996. In
compliance with the Finance Act, 1995 the accounting date of the Modaraba was
changed from December 31 to June 30 last year. Consequently, the comparative
figures in the financial statements are for the six months ended June 30, 1995.
Financial Results
The full year results are in line with the expectation at the half year. The after tax
Re 1 earning per certificate is only marginally better than the annualised profit
and loss account comparative. While clearly low in absolute terms, the results
should be viewed relative to other modarabas and the larger financial sector. This
aspect is more fully covered in later sections of this report.
Profit and Reserves
Rupees
Profit for the year after tax is 26,119,432
which together with unappropriated profit
brought forward of 1,173,620
---------- ---------- ---------- ---------- ---------- ---------- ----------
makes available for appropriation 27,293,052
from which the Directors have decided to
transfer to special reserve 5,225,000
pay a cash dividend of 19,665,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
24,890,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
and carry forward as unappropriated profit 2,403,052
Performance and Policies
We believe that our investors expect and deserve a full account of our stewardship.
Our reports, therefore, endeavour to share our policy and perceptions to facilitate
objective decision making
Since commencement of operations in 1992, we have expressed concern at our
business environment. This was based on the economic conditions on the one
hand, and the framework for modarabas on the other.
It is fact that modarabas have now effectively lost all incentives initially available.
It is also fact that all restrictions on our business continue. Indeed, the regulatory
requirements are multiplying and our fears about the economy are being
confirmed. This is the context in which we evaluate our performance.
REPORT OF THE DIRECTORS OF THE MODARABA COMPANY
Although there is only a modest profit distribution for the year, the investors'
interest has been fully protected. This is evidenced by
orderly reduction in equity investments enabled by appropriate provisioning
Policies;
timely change of accounting date with a 21.5% cash dividend for the
resultant eighteen months period a year ago; and
book value per certificate in excess of Rs. 10.80 after all necessary
provisioning and the current profit distribution.
There have been no cash calls in the form of right issues. Profit distribution levels
required of modarabas have prevented reserves creation and have diluted
earnings. While this past imbalance requires correction, we also have to be
mindful of investor expectations in the short term.
Regulation and Taxation
Development in both areas are negative. Untenable interpretations of taxation
laws and new duties and taxes have aggravated difficulties. The significance of
these matters has compelled individual and collective recourse to the courts. As
the issues affect both mobilisation and deployment of funds, proper planning
becomes critical yet more difficult.
Regulatory developments include mandatory cash reserves and credit ratings.
Both of these will add to cost with no benefit apparent. Restrictions on bank
lending to modarabas are likely to further squeeze the sector.
The deep discount at which modaraba certificates are priced is reflective of
investor perception. The managers have been made the convenient scapegoats. It
is forgotten that the managers and sponsors are the largest single investors in
each modaraba. Not being responsible for the post flotation taxation and
regulatory turnaround, their predicament is greater than others. Instead of being
allowed to focus on managing the change, they are somehow deemed liable for
the downturn. Their input continues to be largely disregarded in the policy
making with obvious consequences.
It is unfortunate that the demonstrated potential of this sector should be so                                     t~
systematically dismantled. The policy makers have been urged to level the playing                                     ~..~'~!
field for modarabas. A continuation of unilateral action, though well intentioned,                                    i!~~?
will eventually defeat even the most persistent managers. With two modarabas                                     ~
having announced exit plans, others may well follow. In the worst cases, where                                     ~i~!
modarabas are unable to recoup losses as going concerns, investors will suffer.
Prospects
Given the present uncertainties, our paramount concern is to preserve our equity.
Expansion of business in size and scope, an obvious priority, is dependent on
bankable opportunities. We are fortunate in not having high cost leveraging or tax
depreciation reversals to compel compromises.
Acknowledgments
We mourn the recent passing away of Mr. N.M. Uquaili, our Chairman, and
acknowledge a debt of gratitude to him. He was a founding father of our national
financial and economic system and a source of wisdom and inspiration to us. We
shall miss Mr. Uquaili as we progress along the way shown by him.
We are grateful for the support of our investors, business associates and
employees. We are also thankful for the guidance and co-operation received from
our regulators.
Auditors
The present auditors, Khalid Majid Husain Rahman, Chartered Accountants,
have consented to their re-appointment for the year ending June 30, 1997. The
Directors have confirmed their appointment subject to the required official
approval.
On behalf of the Board
FAKHIR A RAHMAN
Chief Executive
AUDITORS' REPORT TO THE CERTIFICATE HOLDERS
We have audited the annexed Balance Sheet as at June 30, 1996 and the related
Profit and Loss Account and Statement of Changes in Financial Position together
with the Notes to the Accounts for the year ended June 30, 1996 of First Equity
Modaraba which are Modaraba Company's [Premier Financial Services (Private)
Limited] representation and we state that we have obtained all the information
and explanation which we required and, after due verification thereof, we report
that:
(a) in our opinion, proper books of account have been kept by the Modaraba
Company in respect of First Equity Modaraba as required by the Modaraba
Companies and Modaraba (Floatation and Control) Ordinance, 1980, and
Modaraba Companies and Modaraba Rules, 1981;
(b) in our opinion, the Balance Sheet and the Profit and Loss Account have
  been drawn up in conformity with the Modaraba Companies and
  Modaraba (Floatation and Control) Ordinance, 1980, and Modaraba
  Companies and Modaraba Rules, 1981; and
(c) in our opinion and to the best of our information and according to the
explanations given to us:
(i) the Balance Sheet and the related Profit and Loss Account and
  Statement of Changes in Financial Position, which are in agreement
  with the books of account, exhibit respectively a true and fair view of
  the state of the Modaraba's affairs as at June 30, 1996 and the profit
  and changes in the financial position for the year ended on that date;
(ii) Zakat deductible at source under the Zakat and Ushr Ordinance, 1980,
  has been deducted by the Modaraba and deposited in the Central
  Zakat Fund established under section 7 of that Ordinance; and
(iii) the business conducted, investments made and expenditure incurred
  by the Modaraba are in accordance with the objects, terms and
  conditions of the Modaraba.
Khalid Majid Husain Rahman
Chartered Accountants
BALANCE SHEET
AS AT JUNE 30, 1996
1996 1995
Note Rupees Rupees
Capital and Reserves
Authorised capital
30,000,000 modaraba
certificates of Rs. 10 each 300,000,000 300,000,000
----------- -----------
Issued, subscribed and paid-up capital 3 262,200,000 262,200,000
Reserves 4 21,155,052 14,700,620
----------- -----------
283,355,052 276,900,620
Current Liabilities
Musharaka obligations - 45,000,000
Creditors, accrued expenses
and other liabilities 5 5,514,853 15,517,999
Profit distribution 19,665,000 56,373,000
Unclaimed profit distribution 3,965,232 -
Provision for taxation 4,300,000 -
----------- -----------
33,445,085 116,890,999
----------- -----------
316,800,137 393,791,619
=========== ===========
1996 1995
Note Rupees Rupees
Tangible Fixed Assets 6 135,600 248,400
Deferred Costs 7 1,126,474 2,309,102
Investments 8 53,089,901 104,697,338
Current Assets
Morabaha receivables 9 144,993,086 161,826,696
Musharaka receivables - 20,000,000
Stock-in-trade 10 11,540,260 47,142,760
Advances, deposits, prepayments
and other receivables 11 38,769,587 3,296,649
Cash and bank balances 12 67,145,229 54,270,674
----------- -----------
262,448,162 286,536,779
----------- -----------
316,800,137 393,791,619
=========== ===========
The annexed notes form an integral part of these accounts.
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED JUNE 30, 1996
Six Months
June 30, Ended June
1996  30, 1995
Note Rupees Rupees
Income 13 50,878,442 28,717,088
Expenditure
Operating expenses 14 6,445,041 2,154,163
Profit on musharaka obligations 6,972,026 3,202,603
----------- -----------
13,417,067 5,356,766
----------- -----------
37,461,375 23,360,322
Provision for diminution in value of
investments (4,000,000) (10,177,660)
----------- -----------
33,461,375 13,182,662
Modaraba Company's management fee 3,041,943 1,198,424
----------- -----------
Profit before Taxation 30,419,432 11,984,238
Taxation 4,300,000 -
----------- -----------
Profit after Taxation 26,119,432 11,984,238
Unappropriated profit brought forward 1,173,620 4,699,382
----------- -----------
Profit available for appropriation 27,293,052 16,683,620
Appropriations
Special reserve 5,225,000 2,400,000
Profit distribution @ 7.5% (1995: @ 5.00%) 19,665,000 13,110,000
----------- -----------
24,890,000 15,510,000
----------- -----------
Unappropriated profit carried forward 2,403,052 1,173,620
=========== ===========
The annexed notes form an integral part of these accounts.
STATEMENT OF CHANGES IN FINANCIAL POSITION
(CASH FLOW STATEMENT)
FOR THE YEAR ENDED JUNE 30, 1996
Six Months
June 30, Ended June 
1996 30, 1995
Rupees Rupees
Cash Flows from Operating Activities
Profit for the year before tax 30,419,432 11,984,238
Adjustments for :
----------- -----------
Depreciation 112,800 56,400
Amortisation of deferred costs 1,182,628 591,726
Provision for diminution in
value of investments 4,000,000 10,177,660
Loss / (profit) on sale of investments 59,785 (1,799,192)
Dividend income (451,065) (2,928,010)
----------- -----------
4,904,148 6,098,584
----------- -----------
35,323,580 18,082,822
(Increase)/decrease in current assets
----------- -----------
Morabaha receivables 16,833,610 (26,251,614)
Musharaka receivables 20,000,000 15,000,000
Stock-in-trade 35,602,500 (47,142,760)
Advances, deposits, prepayments
and other receivables (35,472,998) (896,458)
----------- -----------
36,963,172 (59,290,832)
(Decrease)/increase in current liabilities
Creditors, accrued expenses
and other liabilities (10,003,146) 2,643,518
----------- -----------
Net Cash from / (used in) Operating
Activities Carried forward 62,283,606 (38,564,492)
STATEMENT OF CHANGES IN FINANCIAL POSITION
(CASH FLOW STATEMENT)
FOR THE YEAR ENDED JUNE 30, 1996
Six Months
June 30, Ended June 
1996 30, 1995
Rupees Rupees
Net Cash from / (used in) in operating
Activities Brought forward 62,283,606 (38,564,492)
Cash Flows from Investing Activities
Dividend income 451,065 2,928,010
(Loss) / profit on sale of investments (59,785) 1,799,192
Decrease / (increase) in investments 47,607,437 (12,455,618)
----------- -----------
Net Cash from / (used in) Investing Activities 47,998,717 (7,728,416)
Cash Flow from Financing Activities
(Decrease) / increase in musharaka obligations (45,000,000) 15,000,000
Dividend paid (52,407,768)
----------- -----------
Net Cash (used in ) / from financing Activities  (97,407,768) 15,000,000
----------- -----------
Net increase / (decrease) in cash and bank balances 12,874,555 (31,292,908)
Cash and bank balances at the
beginning of the year 54,270,674 85,563,582
----------- -----------
Cash and bank balances at the
end of the year 67,145,229 54,270,674
=========== ===========
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED JUNE 30, 1996
1. Legal Status and Nature of Business
First Equity Modaraba was formed under the Modaraba Companies and Modaraba
(Floatation and Control) Ordinance, 1980 and the Rules framed thereunder and is
managed by Premier Financial Services (Private) Limited.
The Modaraba is a perpetual, multipurpose modaraba able to undertake a variety
of fund and fee based activities. These include trading, manufacturing, equity
investment and their financing and facilitation.
The Modaraba is listed on Karachi, Lahore and Islamabad Stock Exchanges.
2. Significant Accounting Policies
2.1 Accounting convention
These financial statements have been prepared under the historical cost
convention.
2.2 Fixed assets and depreciation
Fixed assets are stated at cost less accumulated depreciation. Depreciation is
charged to income applying the straight line method whereby the cost of an
asset is written off over its estimated useful life. Normal repairs and
maintenance are charged to income as and when incurred. Gains and losses on
disposal of assets are taken to the profit and loss account.
2.3 Deferred costs
Expenses incurred in connection with the floatation and capital enhancement
of the Modaraba are being written off over a period of five years on a
proportionate basis as the benefit of these expenses will be derived over an
extended period of time.
2.4 Investments
(a) Investments are stated at cost and provisions are made for permanent