| FIRST EQUITY MODARABA |
|
|
|
|
|
|
|
|
| ANNUAL
REPORT 1997 |
|
|
| CONTENTS |
|
|
| REPORT
OF THE DIRECTORS |
|
| AUDITORS'
REPORT TO THE CERTIFICATE HOLDERS |
|
| BALANCE
SHEET |
|
| PROFIT
AND LOSS ACCOUNT |
|
| STATEMENT
OF CHANGES 1N FINANCIAL POSITION |
|
| NOTES
TO THE ACCOUNTS |
|
| PATTERN
OF CERTIFICATE HOLDING |
|
| CORPORATE
INFORMATION |
|
| BUSINESS
AND INVESTOR INFORMATION |
|
|
|
|
|
| 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, 1997. |
|
|
| Financial
Results |
|
| The
full year profit before tax, management fee and provisions shows some
improvement |
|
| over
the annualised half year. The net earnings per certificate of Rs. 1.56 are
also higher |
|
| than
last year's Re I per certificate. Although improved and superior in relative
terms, our |
|
| performance
remains constrained by extraneous factors. These are more fully covered in |
|
| later
sections of this report. |
|
|
| Profit
and Reserves |
|
|
|
|
Rupees |
|
|
| Profit
for the year after tax is |
|
40,970,766 |
|
| which
together with unappropriated |
|
| profit
brought forward of |
|
2,403,052 |
|
|
|
|
| makes
available for appropriation |
|
43,373,818 |
|
| from
which the Directors have decided to |
|
|
|
|
| transfer
to special reserve |
|
8,195,000 |
|
|
|
|
| pay
a cash dividend of |
|
34,086,000 |
|
|
|
|
42,281,000 |
|
|
|
|
| and
carry forward as unappropriated profit |
|
1,092,818 |
|
|
| Business
Environment and Performance |
|
| The
state of our economy and of the financial sector is no secret. While no
sector could |
|
| completely
escape the fallout, much of the modarabas' adversity was avoidable. |
|
| Unfortunately,
our taxation and regulatory regime remains discriminatory. In spite |
|
| detailed
submissions to various concerned quarters, the required rationalisations have
failed |
|
| to
materialise. The relevant issues are detailed in our past reports. |
|
|
| Our
previous reports will also show that we had correctly anticipated what has
now come |
|
| to
pass. The defensive strategies adopted not only ensured our survival but also
regular |
|
| and
reasonable investor returns. |
|
|
| The
Pakistan Credit Rating Agency (PACRA), recognising the strength and
performance |
|
| of
the Modaraba, has assigned it a B3 rating. Although we believe the rating to
be highly |
|
| conservative,
PACRA has confirmed that only two modarabas rank ahead of us. |
|
|
| Our
opposition to credit rating of modarabas, in principle, is on record. In
spite of our own |
|
| quality
having been endorsed, we maintain our position. Credit ratings, reserve and
liquidity |
|
| requirements
are meaningless without direct access to public non-equity funds. The
taxation |
|
| and
regulatory regime for modarabas is discriminatory and outdated. This must
change if |
|
| modarabas
are to realise their potential. Without a level playing field, credit ratings
and |
|
| the
like might as well be post mortems. |
|
|
| Prospects |
|
| Multilateral
assistance to Pakistan has been committed and major structural reforms |
|
| launched.
In the short term, the process will be slow and painful. Perseverance,
though, |
|
| should
lead to economic recovery over an extended period. |
|
|
| The
outlook for modarabas, however, will remain gloomy unless the suggested
reforms |
|
| are
undertaken and rules of the game made fair. Resource mobilisation must be
facilitated
~)~~ |
| and
tax exemptions categorically restored as for mutual funds. Investment and
commercial |
|
| banks
must not be allowed to undertake leasing business.
~J)/~ |
|
| The
structural adjustments have brought their own paradoxes to the financial
market place. |
|
| Dollarisation
and rates for public money offered by banks, DFI's, leasing companies and |
|
| national
savings schemes are all on the rise. This race is likely to be joined by
quality |
|
| corporates
issuing commercial paper. On the other hand, lending rates are tending
lower,
~ |
| particularly
for our quality customers. This move could accelerate as the major local
banks |
|
| and
DFI's downsize, restructure portfolios and turnaround. |
|
|
| Major
industrial sectors remain under pressure, though agro-based manufacturing is |
|
| indicating
recovery. Capital investment and employment prospects are lagging. This |
|
| scenario
translates into poor lending and leasing prospects, consumer and corporate,
in |
|
| the
short term. Spreads available on commercial borrowing and the attached risk
make it |
|
| uneconomical
for modarabas. Return on equity will face pressure. |
|
|
| We,
therefore, are considering enhancing our capital market activities in the
expectation |
|
| of
improved corporate profitability. Asset acquisition possibilities are also
being evaluated. |
|
| Our
guiding light, however, will remain the preservation and creation of investor
value. |
|
|
| Acknowledgments |
|
| We
acknowledge the hard work and dedication of our employees and the support of
our |
|
| business
associates and investors. We also appreciate the guidance and co-operation
received |
|
| from
our regulators. They have our full support and good wishes in their efforts
at reform. |
|
|
| Auditors |
|
| The
present auditors Khalid Majid Husain Rahman, Chartered Accountants, have
consented |
|
| to
their re-appointment for the year ending June 30, 1998. The Directors have
confirmed |
|
| their
appointment subject to the required official approval. |
|
|
|
| AUDITORS'
REPORT TO THE CERTIFICATE HOLDERS |
|
|
| We
have audited the annexed Balance Sheet as at June 30, 1997 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, 1997 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; |
|
|
| (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, 1997 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 |
|
| Karachi:
Nov 3, 1997 |
|
Chartered Accountants |
|
|
|
|
|
| BALANCE
SHEET AS AT JUNE 30, 1997 |
|
|
|
|
1997 |
1996 |
|
|
Note |
Rupees |
Rupees |
|
|
|
|
| Authorized
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 |
28,039,818 |
21,155,052 |
|
|
|
|
---------- |
---------- |
|
|
|
|
|
290,239,818 |
283,355,052 |
|
|
|
|
| Creditors,
accrued expenses |
|
|
| and
other liabilities |
|
5 |
6,338,843 |
5,514,853 |
|
|
|
|
| Profit
distribution |
|
|
34,086,000 |
19,665,000 |
|
| Unclaimed
profit distribution |
|
|
5,659,156 |
3,965,232 |
|
| Provision
for taxation |
|
|
5,516,325 |
4,300,000 |
|
|
|
|
---------- |
---------- |
|
|
|
|
51,600,324 |
33,445,085 |
|
|
|
|
---------- |
---------- |
|
|
|
|
|
341,840,142 |
316,800,137 |
|
|
|
|
========== |
========== |
|
|
|
|
| Tangible
Fixed Assets |
|
6 |
34,001 |
135,600 |
|
| Deferred
Costs |
|
7 |
396,401 |
1,126,474 |
|
| Investments |
|
8 |
41,970,922 |
53,089,901 |
|
|
|
|
| Morabaha
receivables |
|
9 |
155,978,526 |
144,993,086 |
|
| Stock-in-trade |
|
10 |
46,977,923 |
11,540,260 |
|
|
|
|
| Advances,
deposits, prepayments |
|
|
| and
other receivables |
|
11 |
15,058,975 |
38,769,587 |
|
|
|
|
| Cash
and bank balances |
|
12 |
81,423,394 |
67,145,229 |
|
|
|
|
---------- |
---------- |
|
|
|
|
299,438,818 |
262,448,162 |
|
|
|
|
---------- |
---------- |
|
|
|
|
|
341,840,142 |
316,800,137 |
|
|
|
|
=========== |
=========== |
|
|
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
| PROFIT
AND LOSS ACCOUNT FOR THE YEAR ENDED JUNE 30, 1997 |
|
|
|
|
1997 |
1996 |
|
|
Note |
Rupees |
Rupees |
|
|
|
|
| Income |
|
|
|
13 |
48,572,203 |
50,878,442 |
|
| Expenditure |
|
|
|
|
---------- |
---------- |
|
| Operating
expenses |
|
|
14 |
7,504,361 |
6,445,041 |
|
| Profit
on musharaka obligations |
|
- |
6,972,026 |
|
|
|
|
---------- |
---------- |
|
|
|
7,504,361 |
13,417,067 |
|
|
|
---------- |
---------- |
|
|
|
41,067,842 |
37,461,375 |
|
| Provision
for diminution in value of |
|
|
| investments |
|
|
|
9,500,000 |
(4,000,000) |
|
|
|
|
---------- |
---------- |
|
|
|
50,567,842 |
33,461,375 |
|
| Modaraba
Company's management fee |
|
4,597,076 |
3,041,943 |
|
|
|
---------- |
---------- |
|
| Profit
before Taxation |
|
|
45,970,766 |
30,419,432 |
|
| Taxation |
|
|
5,000,000 |
4,300,000 |
|
|
|
---------- |
---------- |
|
| Profit
after Taxation |
|
|
40,970,766 |
26,119,432 |
|
| Unappropriated
profit brought forward |
|
2,403,052 |
1,173,620 |
|
|
|
---------- |
---------- |
|
| Profit
available for appropriation |
|
43,373,818 |
27,293,052 |
|
|
|
|
---------- |
---------- |
|
| Appropriations |
|
|
|
|
|
| Special
reserve |
|
|
8,195,000 |
5,225,000 |
|
| Profit
distribution @ 13.0% (1996' @ 7.50%) |
|
34,086,000 |
19,665,000 |
|
|
|
|
|
---------- |
---------- |
|
|
|
|
|
42,281,000 |
24,890,000 |
|
|
|
|
|
---------- |
---------- |
|
| Unappropriated
profit carried forward |
|
1,092,818 |
2,403,052 |
|
|
|
|
|
========== |
========== |
|
|
|
|
|
|
|
| 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, 1997 |
|
|
|
|
|
1997 |
1996 |
|
|
|
|
Rupees |
Rupees |
|
| Cash
Flows from Operating Activities |
|
|
|
| Profit
for the year before taxation |
|
|
45,970,766 |
30,419,432 |
|
| Adjustments
for: |
|
|
|
---------- |
---------- |
|
| Depreciation |
|
|
|
101,599 |
112,800 |
|
| Amortisation
of deferred costs |
|
|
730,073 |
1,182,628 |
|
| Provision
for diminution in |
|
|
|
| value
of investments |
|
|
|
(9,500,000) |
4,000,000 |
|
|
|
|
|
|
|
| Loss
on sale of investments |
|
|
3,367,096 |
59,785 |
|
| Dividend
income |
|
|
|
(2,306,667) |
(451,065) |
|
|
|
|
|
---------- |
---------- |
|
|
|
|
|
(7,607,899) |
4.904,148 |
|
|
|
|
|
---------- |
---------- |
|
|
|
|
|
38,362,867 |
35,323,580 |
|
| (Increase)/decrease in current
assets |
|
|
|
|
| Morabaha
receivables |
|
|
|
(10,985,440) |
16,833,610 |
|
| Musharaka
receivables |
|
|
|
- |
20,000,000 |
|
| Stock-in-trade |
|
|
|
(35,437,663) |
35,602,500 |
|
| Advances,
deposits, prepayments |
|
|
|
| and
other receivables |
|
|
|
23,710,612 |
(35,472,938) |
|
|
|
|
|
---------- |
---------- |
|
|
|
|
|
(22,712,491) |
36,963,172 |
|
| (Decrease)
/ increase in current liabilities |
|
|
| Creditors,
accrued expenses |
|
|
|
| and
other liabilities |
|
|
|
823,990 |
(10,003,146 |
|
|
|
|
|
|
| Income
tax paid |
|
|
|
(3,783,675) |
|
|
|
|
|
---------- |
---------- |
|
|
|
|
|
(2,959,685) |
(10,003,146) |
|
| Net
cash from operating activities |
|
|
---------- |
---------- |
|
|
Carried
forward |
|
12,690,691 |
62,283,606 |
|
|
|
========== |
========== |
|
|
|
|
|
|
| STATEMENT
OF CHANGES IN FINANCIAL POSITION |
|
| (CASH
FLOW STATEMENT) |
|
| FOR
THE YEAR ENDED JUNE 30, 1997 |
|
|
|
|
|
1997 |
1996 |
|
|
|
|
Rupees |
Rupees |
|
| Net
Cash from Operating |
|
|
|
| Activities |
|
Brought forward |
12,690,691 |
62,283,606 |
|
|
|
|
| Cash
Flows from Investing Activities |
|
|
|
| Dividend
income |
|
|
|
2,306,667 |
451,065 |
|
| Loss
sale of investments |
|
|
|
(3,367,096) |
(59,785) |
|
| Decrease
in investments |
|
|
|
20,618,976 |
47,607,437 |
|
|
|
|
|
---------- |
---------- |
|
| Net
Cash from Investing Activities |
|
|
19,558,550 |
47,998,717 |
|
| Cash
Flows from Financing Activities |
|
|
|
|
|
|
| Decrease
in musharaka obligations |
|
- |
(45,000,000 |
|
| Dividend
paid |
|
(17,971,076) |
(52,407,768 |
|
|
|
---------- |
---------- |
|
| Net
Cash used in Financing Activities |
|
(17,971,076) |
(97,407,768) |
|
|
|
---------- |
---------- |
|
| Net
increase in cash and bank balances |
|
14,278,165 |
12,874,555 |
|
|
|
|
| Cash
and bank balances at the |
|
|
|
| beginning
of the year |
|
67,145,229 |
54,270,674 |
|
|
|
|
| Cash
and bank balances at the |
|
---------- |
---------- |
|
| end
of the year |
|
81,423,394 |
67,145,229 |
|
|
|
========== |
========== |
|
|
|
|
|
|
|
|
| NOTES
TO THE ACCOUNTS FOR THE YEAR ENDED JUNE 30, 1997 |
|
|
| 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
lnvestments |
|
|
| (a)
Investments are stated at cost and provisions are made for permanent |
|
| diminution
in value, if any. |
|
|
| (b)
Gains and losses on disposal of investments are taken to the profit |
|
| and
loss account. |
|
|
|
| 2.5
Stock-in-trade |
|
|
|
|
| Stock-in-trade
is stated at the lower of average cost and net realisable value. |
|
| Stock
in transit is valued at cost comprising invoice values plus other |
|
| charges
paid thereon. Net realisable value signifies the estimated selling |
|
| price
in the ordinary course of business less costs necessarily to be incurred |
|
| to
make the sale. |
|
|
| 2.6
Revenue recognition |
|
|
| (a)
Income from musharaka transactions is recognised on the basis of |
|
| pro-rata
accrual of the estimated profit earned during the year. |
|
|
|
|
| (b)
Income from morabaha transactions is recognised on the basis of |
|
| pro-rata
accrual of profit earned during the year. |
|
|
|
|
| (c)
Sales are recognised when goods are identified for despatch and |
|
| invoiced. |
|
|
|
| (d)
Dividend income is recognised when the right to the dividend is established. |
|
|
| (e)
Commission and fee income is recognised when received. |
|
|
| (f)
Profit on PLS deposits is recognised on accrual basis. |
|
|
| 2.7
Taxation |
|
|
|
|
| Provision
for current taxation is made on taxable income at applicable tax |
|
| rates
after- taking into account tax rebates and credits available, if any. |
|
|
|
|
| Deferred
taxation is accounted for on all material timing differences using the |
|
| liability
method. |
|
|
|
|
| 3.
Issued, Subscribed and Paid-up Capital |
|
|
|
|
| Fully
paid modaraba certificates of Rs. 10 each. |
|
|
| 1996 |
1997 |
|
|
1997 |
1996 |
|
| Number |
Number |
|
|
Rupees |
Rupees |
|
| 20,000,000 |
20,000,000 |
Issued for cash |
200,000,000 |
200,000,000 |
|
|
|
|
Issued as bonus |
|
| 6,220,000 |
6,220,000 |
certificates |
62,200,000 |
62,200,000 |
|
| ---------- |
---------- |
|
---------- |
---------- |
|
| 26,220,000 |
26,220,000 |
|
262,200,000 |
262,200,000 |
|
| ========== |
========== |
|
========== |
========== |
|
|
| 4. Reserves |
|
|
|
|
Special |
Unappropriated |
|
|
|
reserve |
profit |
|
|
|
Rupees |
Rupees |
|
|
| At
beginning of the year |
|
18,752,000 |
2,403,052 |
21,155,052 |
14,700,620 |
|
|
|
|
|
|
| Transfer
from / (to) |
|
|
|
| profit
and loss account |
|
8,195,000 |
(1,310,234) |
6,884,766 |
6,454,432 |
|
|
|
|
---------- |
---------- |
---------- |
---------- |
|
| At
end of the year |
|
26,947,000 |
1,092,818 |
28,039,818 |
21,155,052 |
|
|
|
|
========== |
========== |
========== |
========== |
|
|
|
|
| The
specia1 reserve is created and held in compliance with the regulations for |
|
| Non-Bank
Financial Institutions. |
|
|
| 5.
Creditors, Accrued Expenses and |
|
|
1997 |
1996 |
|
| Other
Liabilities |
|
|
Rupees |
Rupees |
|
|
|
|
| Creditors |
|
|
|
3,11,868 |
1,289,337 |
|
| Accrued
expenses |
|
|
|
550,009 |
562,461 |
|
| Due
to associated undertakings |
|
|
5,476,966 |
3,663,055 |
|
|
|
|
|
---------- |
---------- |
|
|
|
|
|
6,338,843 |
5,514,853 |
|
|
|
========== |
========== |
|
| 6.
Tangible Fixed Assets |
|
|
|
|
|
|
|
|
| Motor
vehicles |
|
|
|
|
|
|
| Cost
at beginning and end of the year |
|
|
564,000 |
564,000 |
|
| Accumulated
depreciation |
|
|
|
(529,999) |
(428,400) |
|
|
|
|
|
---------- |
---------- |
|
| Book
value at end of the year |
|
|
34,001 |
135,600 |
|
|
|
|
|
|
|
| Depreciation
charged during the |
|
|
---------- |
---------- |
|
| year
@ 20% per annum |
|
|
|
101,599 |
112,800 |
|
|
|
========== |
========== |
|
| 7.
Deferred Costs |
|
|
|
|
|
|
|
|
| Listing
and registration fees |
|
|
1,203,757 |
1,203,757 |
|
| Advertising
and promotion expenses |
|
|
1,242,184 |
1,242,184 |
|
| Certificate
issue expenses |
|
|
2,224,469 |
2,224,469 |
|
| Other
floatation expenses |
|
|
1,242,732 |
1,242,732 |
|
|
|
|
|
---------- |
---------- |
|
|
|
|
|
5,913,142 |
5,913,142 |
|
| Amortisation
to date |
|
|
|
(5,516,741) |
(4,786,668) |
|
|
|
---------- |
---------- |
|
