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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 |
|
