| FIRST FIDELITY LEASING MODARABA |
|
|
|
|
|
|
|
| ANNUAL
REPORT 1997 |
|
|
| CONTENTS |
|
|
| Corporate
Information |
|
| Directors'
Report and Chief Executive's Review |
|
| Auditors'
Report to the Certificate Holders |
|
| Balance
Sheet |
|
| Profit
and Loss Account |
|
| Statement
of Sources and Application of Funds |
|
| Notes
to the Accounts |
|
| Pattern
of Certificate Holdings |
|
|
| COMPANY
INFORMATION |
|
|
| Board
of Directors |
|
Mr. Rashid Mansur |
|
|
|
|
(Chairman) |
|
|
|
|
|
|
Mr. Wasim-ul-Haq Osmani |
|
|
|
(Chief Executive) |
|
|
| Corporate
Secretary |
|
Mr. Imran Hameed |
|
|
|
|
| Auditors |
|
|
Riaz Ahmad & Company |
|
|
|
|
Chartered Accountants |
|
|
|
|
| Legal
Advisor |
|
Cornelius, Lane &
Mufti |
|
|
|
|
Advocate & Solicitors |
|
|
|
|
| Bankers |
|
|
Muslim Commercial Bank
Limited |
|
|
|
|
Union Bank Limited |
|
|
|
|
Habib Bank A.G. Zurich |
|
|
| Modaraba
Company |
|
Fidelity Capital
Management (Private) |
|
|
|
|
Limited (wholly owned
subsidiary of |
|
|
|
|
Fidelity Investment Bank
Limited) |
|
|
|
|
| Principal
Place of Business |
97-A, Aziz Avenue, Canal
Bank, |
|
|
|
|
Lahore. |
|
|
|
|
| Registrars |
|
|
Hameed Majeed Associates |
|
|
|
|
7-Bank Square, H.M. House |
|
|
|
|
The Mall, Lahore. |
|
|
| DIRECTORS'
REPORT & CHIEF EXECUTIVE'S REVIEW |
|
|
| Directors
have pleasure in submitting the 6th Annual Report of the Modaraba together
with |
|
| the
Audited Accounts and Auditors' Report thereon for the year ended June 30,
1997. |
|
|
| In
recent years, economic growth in Pakistan has followed a distinct cycle of
ups and downs. |
|
| The
current cycle appears to have touched bottom in 1996-97 with real GDP growth
rate |
|
| touching
a low of 3.1% as compared to 4.6% in 1995-96. Both agriculture and industrial |
|
| growth
rates have declined. Agriculture growth has suffered because of poor cotton
crop due |
|
| to
bad weather conditions. Industrial growth has declined due to poor economic
management |
|
| and
political instability. Fiscal policies by the previous government were termed
to be negative |
|
| for
growth. Excessive taxes were levied on those sectors which already were
paying taxes, |
|
| since
this was felt as an easy option for revenue collection. This resulted in
short-term benefits -~ |
|
| accruing
at the cost of long term viability.
~:~:~.~~ |
|
| The
trade deficit during the year 1996-97 amounted to US $ 3.370 billion as
against US $ 3.097 |
|
| billion
in 1995-96. The large trade deficit had placed extra pressure on government
which |
|
| resorted
to heavy borrowing from the banking system. As a result SBP had to restrict
Money |
|
| Supply
Growth to private sector. This resulted in a liquidity crunch in the market.
Interest rates |
|
| had
gone soaring high. |
|
|
| High
interest rates trigger high inflation and escalation in industrial input
costs. Products become |
|
| uncompetitive
for export and also don't compete with imported items. As a direct result of
above |
|
| factors
profitability of companies had declined and share prices fell. Investors'
sentiment had |
|
| turned
so negative that apart from some of the selected scrips, investors were not
ready to put |
|
| their
funds in the Capital Market. The KSE-100 index declined from 1703 level as at
June 30, |
|
| 1996
to 1566 level as at June 30, 1997, still this was not a true reflection of
the decline. Had the |
|
| structure
of the KSE-100 index not been changed due to inclusion of 100% weightage of
shares |
|
| of
Pakistan Tele Communication Corporation Limited, decline in index would have
been much |
|
| more.
The market throughout the year had worked in a narrow band of highly liquid
shares. |
|
|
| In
view of dismal performance of capital market, funds invested by the Modaraba
in Capital |
|
| Market
have provided minimal return. Values of many scrips have gone much below
their NAVs. |
|
| There
seems to be a general feeling in the market that values have touched the
bottom and an |
|
| upturn
is overdue. Notwithstanding this general perception, as a matter of prudence
the |
|
| management
has decided to make a further provision of Rs. 16.65 million for diminution
in value |
|
| of
investments. |
|
|
| The
Modaraba has earned a net profit before tax of Rs. 12.45 million for the year
as compared |
|
| to
Rs. 14.89 million last year. The lower net profit is because of the
non-performance of |
|
| Capital
Market Portfolio and provision for diminution in value of investments of Rs.
16.65 |
|
| million
(1996 Rs. 11.12 million) made in these accounts as referred above. |
|
|
|
| FUTURE
PROSPECTS |
|
|
| For
businesses to grow it is necessary that economic conditions and business
climate is |
|
| conducive.
The present government has realized the gravity of the situation and there
has |
|
| been
a noticeable change in its policies at least, which now seem to be more
industry friendly. |
|
| The
overall business confidence is marginally high thanks to the supply side
economic |
|
| measures
taken by the government. It is hoped that with no increase in utility
charges, declining |
|
| inflation
and cost of funds, businesses might show some recovery in coming periods but
it |
|
| will
take time before a sustained economic growth is achieved. As the general
conditions of |
|
| the
economy improve we are confident that with the commitment and capabilities of
our |
|
| team
we will be able to make greater profits. |
|
|
| In
the meantime, the Modaraba is in the process of restructuring its Capital
Market Portfolio |
|
| which
primarily involves sale of such scrips where Modaraba can made significant
cash |
|
| inflow
for re-investment in other income generating avenues. |
|
|
| APPROPRIATION |
|
|
| The
Board of Directors have made following appropriation:- |
|
|
|
|
Rupees |
|
|
| Net
profit after taxation for the year |
5,263,955 |
|
| Un-appropriated
profit brought forward |
13,368,705 |
|
|
|
|
---------- |
|
| Profit
available for appropriation |
|
18,632,660 |
|
|
| Transfer
to special reserve as per requirement |
|
| of
rule 3 (a) of NBFI Circular No. 1 |
1,052,791 |
|
| dated
December 5, 1991 |
|
|
|
| Transfer
to general reserve |
|
15,000,000 |
|
|
|
|
---------- |
|
|
|
|
16,052,791 |
|
|
|
|
---------- |
|
| Un-appropriated
profit carried forward |
2,579,869 |
|
|
========== |
|
|
| Directors
keeping in view the prudent approach and to give Modaraba more strength have |
|
| decided
to transfer Rs. 15,000,000 to general reserve. |
|
|
|
|
| AUDITORS |
|
|
|
|
|
| The
present Auditors Messrs. Riaz Ahmed & Co. Chartered Accountants retire
and being |
|
| eligible
offer themselves for re-appointment. |
|
|
|
|
| CHIEF
EXECUTIVE |
|
|
|
|
| Mr.
Rashid Mansur, Chief Executive Officer of the Modaraba had resigned on August
01, |
|
| 1997.
The Board has appointed Mr. Wasim-uI-Haq Osmani as Chief Executive Officer of
the |
|
| Modaraba
in his place. |
|
|
| Before
I conclude, I would like to place on record my sincere thanks to the
executives and all |
|
| employees
of your Modaraba who have shown dedication and put in concerted efforts
during |
|
| the
period under review. |
|
|
|
|
FIRST FIDELITY LEASING MODARABA |
|
|
|
FINANCIAL STATEMENTS |
|
|
|
FOR THE YEAR ENDED |
|
|
|
JUNE 30, 1997 |
|
|
|
| AUDITORS'
REPORT TO THE CERTIFICATE HOLDERS |
|
|
| We
have audited the annexed balance sheet as at 30 June 1997 and the related
profit |
|
| and
loss account and statement of sources and application of funds together with
the |
|
| notes
to the accounts for the year ended 30 June 1997 of FIRST FIDELITY LEASING |
|
| MODARABA
which are modaraba company's [Fidelity Capital Management (Private) |
|
| Limited]
representation and we state that we have obtained all the information and |
|
| explanations
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 Fidelity Leasing Modaraba as required by the |
|
| Modaraba
Companies and Modarabas (FIoatation and Control) Ordinance, |
|
| 1980,
and Modaraba Companies and Modarabas 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 Modarabas |
|
| (FIoatation
and Control) Ordinance, 1980, and Modaraba Companies and |
|
| Modarabas
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
sources and application of funds, 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 30 June 1997 and the profit and the changes in |
|
| the
sources and application of funds 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 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. |
|
|
|
| BALANCE
SHEET |
|
| AS
AT JUNE 30, 1997 |
|
|
|
|
1997 |
1996 |
|
|
Note |
Rupees |
Rupees |
|
|
|
|
| CAPITAL
AND RESERVES |
|
|
|
|
|
|
| Authorised
capital |
|
|
|
| 30,000,000
modaraba certificates |
|
|
| of
Rupees 10 each |
|
|
300,000,000 |
300,000,000 |
|
|
|
|
========== |
========== |
|
|
|
|
|
|
| Issued,
subscribed and paid up capital |
3 |
206,333,990 |
206,333,990 |
|
|
|
|
| Reserves
and surplus |
|
|
|
|
|
|
| Capital
reserve |
|
4 |
14,693,231 |
13,640,440 |
|
| Revenue
reserve-General |
|
|
15,000,000 |
|
| Unappropriated
profit |
|
|
2,579,869 |
13,368,705 |
|
|
|
|
---------- |
---------- |
|
|
|
|
238,607,090 |
233,343,135 |
|
|
|
|
| LONG
TERM DEPOSITS |
|
5 |
12,216,488 |
12,083,355 |
|
|
|
|
|
| DEFERRED
TAXATION |
|
|
1,000,000 |
1,800,000 |
|
|
|
|
| CURRENT
LIABILITIES |
|
|
|
|
|
|
|
|
|
6 |
4,995,700 |
-- |
|
|
7 |
2,040,307 |
3,580,760 |
|
| Provision
for taxation |
|
11,690,660 |
3,700,000 |
|
|
|
---------- |
---------- |
|
|
|
18,726,667 |
7,280,760 |
|
| CONTINGENCIES
AND COMMITMENTS |
|
|
-- |
-- |
|
|
|
|
---------- |
---------- |
|
|
|
|
270,550,245 |
254,507,250 |
|
|
|
|
|
========== |
========== |
|
|
|
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
|
1997 |
1996 |
|
|
Note |
Rupees |
Rupees |
|
|
|
|
| TANGIBLE
FIXED ASSETS |
|
|
|
|
|
|
| Operating
assets in own use |
|
8 |
998,020 |
1,750,340 |
|
| Operating
assets given on lease |
|
9 |
85,347,179 |
102,153,590 |
|
|
|
|
---------- |
---------- |
|
|
|
|
86,345,199 |
103,903,930 |
|
|
|
|
| DEFERRED
COST |
|
|
- |
191,204 |
|
| INVESTMENTS |
|
10 |
33,823,823 |
74,326,511 |
|
| CURRENT
ASSETS |
|
|
|
|
|
|
| Current
portion of long term |
|
|
|
|
|
|
|
|
| musharika
finance |
|
|
- |
5,999,479 |
|
| Morabaha
finances |
|
11 |
53,718,009 |
10,500,000 |
|
| Other
receivables |
|
12 |
39,617,549 |
23,433,325 |
|
| Cash
in hand and bank balances |
|
13 |
57,045,665 |
36,152,801 |
|
|
|
|
---------- |
---------- |
|
|
|
|
150,381,223 |
76,085,605 |
|
|
|
|
---------- |
---------- |
|
|
|
|
270,550,245 |
254,507,250 |
|
|
|
|
========== |
========== |
|
|
|
|
| PROFIT
AND LOSS ACCOUNT |
|
| FOR
THE YEAR ENDED JUNE 30, 1997 |
|
|
|
Note |
1997 |
1996 |
|
|
|
Rupees |
Rupees |
|
|
|
|
| REVENUES |
|
|
|
|
|
|
|
|
|
| Lease
rentals |
|
39,741,993 |
33,784,897 |
|
| Profit
on morabaha/musharika finances |
|
4,307,505 |
5,395,856 |
|
| Other
income |
|
14 |
8,612,275 |
6,833,301 |
|
|
|
|
---------- |
---------- |
|
|
|
|
52,661,773 |
46,014,054 |
|
|
|
|
| OPERATING
EXPENSES |
|
15 |
21,580,502 |
17,720,596 |
|
| FINANCIAL
AND OTHER CHARGES |
|
16 |
17,381,194 |
11,910,577 |
|
|
|
|
---------- |
---------- |
|
|
|
|
38,961,696 |
29,631,173 |
|
|
|
|
---------- |
---------- |
|
|
|
|
13,700,077 |
16,382,881 |
|
|
|
|
|
| MODARABA
COMPANY'S MANAGEMENT FEE |
|
1,245,462 |
1,489,353 |
|
|
|
---------- |
---------- |
|
| PROFIT
BEFORE TAXATION |
|
12,454,615 |
14,893,528 |
|
| PROVISION
FOR TAXATION |
|
17 |
7,190,660 |
5,500,000 |
|
|
|
|
---------- |
---------- |
|
| PROFIT
AFTER TAXATION |
|
5,263,955 |
9,393,528 |
|
|
|
|
|
| UNAPPROPRIATED
PROFIT BROUGHT FORWARD |
|
13,368,705 |
5,853,883 |
|
|
|
|
---------- |
---------- |
|
| PROFIT
AVAILABLE FOR APPROPRIATION |
|
|
18,632,660 |
15,247,411 |
|
| APPROPRIATIONS |
|
|
| Transfer
to: |
|
|
---------- |
---------- |
|
| Special
reserve |
|
4 |
1,052,791 |
1,878,706 |
|
| General
reserve |
|
|
15,000,000 |
- |
|
|
|
|
---------- |
---------- |
|
|
|
|
16,052,791 |
1,878,706 |
|
|
|
|
---------- |
---------- |
|
| UNAPPROPRIATED
PROFIT |
|
2,579,869 |
13,368,705 |
|
|
|
|
|
|
========== |
========== |
|
|
|
|
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
| STATEMENT
OF SOURCES AND APPLICATION OF FUNDS |
|
| FOR
THE YEAR ENDED JUNE 30, 1997 |
|
|
|
|
|
1997 |
1996 |
|
|
|
|
Rupees |
Rupees |
|
|
|
|
| CASH
FLOWS FROM OPERATING ACTIVITIES |
|
|
|
|
|
| Cash
generated from/used by operations |
|
(37,083,731) |
13,258,069 |
|
| Long
term advances and deposits - Net |
|
5,999,479 |
10,487,715 |
|
| Lease
rentals |
|
|
|
23,985,644 |
19,748,102 |
|
| Profit
paid on musharika finances |
|
|
(114,931) |
(1,221,721) |
|
| Profit
received on morabaha/ |
|
|
|
|
| musharika
finances |
|
|
|
4,615,174 |
7,972,255 |
|
|
|
|
|
---------- |
---------- |
|
| NET
CASH FLOWS FROM OPERATING ACTIVITIES |
|
(2,598,365) |
50,244,420 |
|
| CASH
FLOWS FROM INVESTING ACTIVITIES |
|
|
| Dividend
received |
|
|
|
797,240 |
695,848 |
|
| Provision
for diminution in the value of investments |
16,645,707) |
(11,116,676) |
|
| Investment
sold |
|
|
|
40,502,688 |
22,580,701 |
|
| Lessees
security deposits |
|
|
133,133 |
2,356,107 |
|
| Sale
proceeds of leased assets sold |
|
|
702,194 |
498,175 |
|
| Sale
proceeds of own assets sold |
|
|
460,000 |
- |
|
| Fixed
assets acquired-Own use |
|
|
(44,300) |
(81,768) |
|
| Fixed
assets -Leased out |
|
|
(2,382,333) |
(25,194,400) |
|
|
|
|
---------- |
---------- |
|
| NET
CASH FLOWS FROM INVESTING ACTIVITIES |
|
23,522,915 |
(10,262,013) |
|
| CASH
FLOWS FROM FINANCING ACTIVITIES |
|
|
|
| Dividend
paid |
|
|
|
(31,686) |
(40,479,591) |
|
|
|
|
---------- |
---------- |
|
| NET
INCREASE/9DECREASE) IN CASH |
|
|
20,892,864 |
(497,184) |
|
| AND
CASH EQUIVALENT |
|
|
|
|
|
|
|
| CASH
AND CASH EQUIVALENT AT THE |
|
|
36,152,801 |
36,649,985 |
|
| BEGINNING
OF THE YEAR |
|
|
|
|
|
|
|
| CASH
AND CASH EQUIVALENT AT |
|
|
---------- |
---------- |
|
| THE
END OF THE YEAR |
|
|
|
57,045,665 |
36,152,801 |
|
|
|
|
========== |
========== |
|
|
|
|
|
|
|
1997 |
1996 |
|
|
|
Rupees |
Rupees |
|
| CASH
GENERATED FROM / USED BY OPERATIONS |
|
|
| Profit
before taxation |
|
12,454,615 |
14,893,528 |
|
| Adjustment
for non-cash charges and |
|
| other
items: |
|
|
| Provision
for diminution in the value |
|
| of
investments |
|
16,645,707 |
11,116,676 |
|
| Depreciation |
|
18,753,250 |
14,015,439 |
|
| Amortization
of deferred costs |
|
191,204 |
382,412 |
|
| Profit
on morabaha/musharika finances |
364,032 |
405,556 |
|
| Dividend
income |
|
(797,240) |
(695,848) |
|
| Profit
on morabaha/musharika finances |
(4,307,505) |
(5,395,856) |
|
| (Gain)/Ioss
on sale of fixed assets |
|
69,920 |
- |
|
| Lease
rentals |
|
(39,741,993) |
(33,784,898) |
|
|
| Working
capital changes |
|
|
(40,715,721) |
12,321,060 |
|
|
|
|
|
---------- |
---------- |
|
|
|
|
|
(37,083,731) |
13,258,069 |
|
|
========== |
========== |
|
| WORKING
CAPITAL CHANGES |
|
|
| (Increase)/decrease
in current assets |
|
|
| Morabaha
finances |
|
|
(43,218,009) |
29,584,574 |
|
| Musharika
finances |
|
|
- |
21,000,000 |
|
| Other
receivables |
|
|
(735,544) |
1,297,724 |
|
|
|
|
---------- |
---------- |
|
|
|
|
(43,953,553) |
51,882,298 |
|
| Increase/(decrease)
in current liabilities |
|
|
|
|
|
---------- |
---------- |
|
| Short
term finances |
|
|
4,995,700 |
(40,000,000) |
|
| Creditors,
accrued and other liabilities |
(1,757,868) |
819,200 |
|
| Management
company fee |
|
|
- |
(380,438) |
|
|
|
|
---------- |
---------- |
|
|
|
|
3,237,832 |
(39,561,238) |
|
|
|
|
---------- |
---------- |
|
|
|
|
(40,715,721) |
12,321,060 |
|
|
========== |
========== |
|
|
|
|
| NOTES
TO THE ACCOUNTS |
|
| FOR
THE YEAR ENDED JUNE 30, 1997 |
|
|
| 1.
LEGAL STATUS AND NATURE OF BUSINESS |
|
|
| First
Fidelity Leasing Modaraba was formed under the Modaraba Companies and |
|
| Modarabas
(Floatation and Control) Ordinance, 1980 and the Rules framed |
|
| thereunder
and is managed by Fidelity Capital Management (Private) Limited. The |
|
| Modaraba
commenced its business operations from 05 December, 1991. It is listed |
|
| on
all the stock exchanges in Pakistan. |
|
|
| The
Modaraba is a perpetual, multipurpose and multidimensional Modaraba and is |
|
| primarily
engaged in the business of leasing, musharika and morabaha financing, |
|
| investment
in marketable securities and other related business. |
|
|
| 2.
SIGNIFICANT ACCOUNTING POLICIES |
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|
|
|
| 2.1
Overall valuation policy |
|
|
| These
accounts have been prepared under the historical cost convention. |
|
|
| 2.2
Tangible fixed assets |
|
|
| 2.2.1
Assets in own use and depreciation. |
|
|
| Operating
fixed assets are stated at cost less accumulated depreciation. |
|
| Depreciation
is charged to income applying the reducing balance method |
|
| whereby
the cost of an asset is written off over its estimated useful life. Full |
|
| year's
depreciation is charged on additions while no depreciation is charged |
|
|
| Maintenance
and normal repairs are charged to income as and when incurred. |
|
| Gain/loss
on disposal of fixed assets are included in income currently. |
|
|
| 2.2.2
Assets given on lease and depreciation |
|
|
| Leased
assets are stated at cost less accumulated depreciation. Depreciation |
|
| is
charged to in come applying annuity method whereby the cost of an asset |
|
| less
salvage value is written off over its lease period. In respect of additions |
|
| and
disposals during the year, depreciation is charged proportionately to the |
|
| period
of the leases. |
|
|
| 2.3
Investments |
|
|
| Investments
are valued at cost. Full provision is made against permanent |
|
| diminution
in the value of investments. |
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|
|
|
|
| 2.4
Revenue recognition |
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| Profit
on morabaha and musharika finances is recognized on accrual basis, |
|
| calculated
on number of days funds for which were utilized. |
|
| Lease
rentals are recognized as income when due on a systematic basis over |
|
| the
lease period. Front end fee is taken to income on receipt basis. |
|
| Profit
or loss on sale of investments is accounted for in the year in which |
|
| arises.
Dividend income is recognized on receipt basis. |
|
|
| Profit
on bank deposit is recognised on time proportion basis taking into |
|
| account
period of deposit and rate of return applicable thereon. |
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|
| 2.5
Taxation |
|
|
| Provision
for current taxation is based on taxable income at current rates of |
|
| taxation
after taking into account tax credits receivable. |
|
|
| The
Modaraba accounts for deferred taxation on all major timing differences, |
|
| using
the liability excluding the tax effect of those timing differences which are |
|
| not
likely to reverse in the foreseeable future. |
|
|
| 2.6
Deferred cost |
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| Deferred
costs are amortized over a period of five years. |
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|
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|
1997 |
1996 |
|
|
|
|
|
Rupees |
Rupees |
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| 3.
ISS |
