| First Leasing Corporation Limited. |
|
|
|
|
|
|
|
|
| Annual
Report 1997 |
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|
| CONTENTS |
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| Company
Information |
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| Notice
of Meeting |
|
| Chairman's
Review |
|
| Directors'
Report to the Operational Review |
|
| Auditors'
Report to the Members |
|
| Balance
Sheet |
|
| Profit
and Loss Account |
|
| Cash
Flow Statement |
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| Notes
to the Accounts |
|
| Pattern
of Shareholding |
|
| Categories
of Shareholders |
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| COMPANY
INFORMATION |
|
| BOARD
OF DIRECTORS |
|
AUDITORS |
|
| Mr.
Khurshid Hadi |
|
Ford, Rhodes, Robson,
Morrow |
|
| Chairman |
|
Chartered Accountants |
|
|
| Mr.
Shahid Shaikh |
|
LEGAL ADVISORS |
|
| Chief
Executive |
|
Orr Digham & Co.
Advocates |
|
|
| Mr.
Jahangir Siddiqui |
|
REGISTRAR AND SHARE |
|
| Director |
|
TRANSFER OFFICE |
|
|
THK Associates (Pvt)
Limited |
|
| Mr.
Rashid Zahir |
|
Ground Floor, |
|
| (Nominee
Director |
|
Shaikh Sultan Trust
Building No. 2 |
|
| Saudi
Pak Industrial & Agricultural |
Beaumont Road, Karachi. |
|
| Investment
Co. (Pvt) Limited) |
|
Tel. No. 5688808, 5685805 |
|
|
| Mr.
Abdullah Rafi |
|
BANKERS |
|
| (Nominee
Director |
|
Allied Bank of Pakistan
Limited |
|
| Muslim
Commercial Bank Limited) |
|
Bank of America |
|
|
Credit Agricole Indosuez |
|
| Mr.
Abid Aziz |
|
Emirates Bank
International |
|
| (Nominee
Director |
|
Habib Bank Limited |
|
| Pak
Libya Holding Company |
|
Muslim Commercial Bank
Limited |
|
| (Pvt)
Limited) |
|
National Bank of Pakistan |
|
|
Standard Chartered Bank |
|
| Mr.
A.K.M. Sayeed |
|
The Bank of Khyber |
|
| (Nominee
Director |
|
The Hong Kong and
Shanghai Banking |
|
| National
Investment Trust) |
|
Corporation Limited |
|
|
| COMPANY
SECRETARY |
|
| Mr.
Zahid Ali H. Jamali |
|
|
| REGISTERED
AND HEAD OFFICE |
|
| 5th
Floor, Block C, Finance & Trade Centre |
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| Shahrah-e-Faisal,
Karachi-74400. |
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| Tel.
5661843 - 49 Fax. 5685329 |
|
|
| BRANCH
OFFICES |
|
| 5th
Floor, Davis Hytes |
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| Davis
Road, Lahore |
|
|
| 1st
Floor, State Life Building |
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| The
Mall, Peshawar. |
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|
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| NOTICE
OF MEETING |
|
|
|
| Notice
is hereby given that the Fifth Annual General Meeting of First Leasing
Corporation Limited will be ~ |
|
| held
at FTC Auditorium, Finance & Trade Centre, Shahrah-e-Faisal, Karachi on
Monday December 1, 1997 at |
|
| 12
noon to transact the following business: |
|
|
| Ordinary
Business |
|
|
| 1.
To confirm the minutes of the Fourth Annual General Meeting held on September
18, 1996. |
|
|
| 2.
To receive, consider and adopt the audited accounts together with the
Directors' and Auditors' Report for |
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| the
year ended June 30, 1997. |
|
|
| 3.
To consider and approve cash dividend of 16% as recommended by the Board, as
final dividend for the |
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| year
ended June 30, 1997. |
|
|
| 4.
To appoint Auditors and fix their remuneration. The present Auditors, Messrs.
Ford, Rhodes, Robson, |
|
| Morrow,
Chartered Accountants retire and being eligible have offered themselves for
reappointment. |
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|
| Special
Business |
|
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| 5.
To approve the remuneration of an additional working director of the company. |
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| 6.
Any other business with the permission of the Chair. |
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|
| Karachi:
November 8, 1997 |
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| Notes: |
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|
| 1.
The share transfer books of the company will remain closed from November 28,
1997 to December 7,' 1997 |
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| (both days inclusive). |
|
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| 2.
A member entitled to attend, speak and vote at the meeting is entitled to
appoint a proxy to attend, speak |
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| and vote for him/her. |
|
|
| 3.
An instrument of proxy and the power of Attorney or other authority (if any)
under which it is signed or |
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| a notarially certified copy of such power
of authority, in order to be valid, must be deposited at the regis- |
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| tered office of the company not less than
48 hours before the time of the meeting. |
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| 4.
Members are requested to notify any change in their address immediately. |
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| STATEMENT
UNDER SECTION 160(1) OF THE COMPANIES ORDINANCE, 1984 |
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| 1.
Approval is being sought to fix the remuneration of an additional Working
Director. |
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| This
statement under Section 160 of the Companies Ordinance, 1984 is annexed to
the Notice of the |
|
| Annual
General Meeting of First Leasing Corporation Limited to be held on December
01, 1997 and sets |
|
| out
material facts concerning the special business to be transacted at the
meeting. |
|
|
| The
shareholders' approval will be sought for the payment of remuneration and the
provision of certain |
|
| facilities
to an additional Working Director as recommended by the Board of Directors of
the Company. |
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| For
this purpose, it is proposed that the following resolution be passed as
ordinary resolution, namely: |
|
|
| "RESOLVED
THAT an additional Working Director of the Company be and is hereby
authorised to draw |
|
| as
remuneration gross aggregate monthly sum not exceeding Rs. 150,000 (Rupees
one hundred and fifty |
|
| thousand
only) as determined by the Board of Directors. The Working Director will also
be provided |
|
| perquisites,
with annual bonus, provident fund and leave as per company rules and
regulations in force |
|
| from
time to time during his term of office. |
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|
|
| CHAIRMAN'S
REVIEW |
|
| Shareholders
hardly need further reminder of the persistent political maelstrom that
prevailed throughout |
|
| the
period under review. It is axiomatic that political change creates economic
inertia that has a more |
|
| immediate
impact on the financial sector than on any other section of business
activity. Even today planning |
|
| for
future business activity, for growth and for investment, is tampered by
concern over the political |
|
| landscape. |
|
|
| Poor
economic performance during the 1996-97 period put the macroeconomic targets
beyond reach and the |
|
| structural
reforms introduced by the interim government of November 1996 that staved
default through |
|
| short-term
borrowings, were super-imposed by the new Muslim League government in a major
shift in |
|
| strategy.
There is presently a perception of commitment to the economic agenda of
fiscal discipline and |
|
| economic
growth but the goal is nowhere in sight. Gross domestic investment,
value-added in the industrial |
|
| sector,
export performance and investment in infrastructure and in the social sectors
leave little room for |
|
| complacency.
This is the environment in which the financial sector has to survive let
alone flourish. The need |
|
| of
the day is for predictable, even boring, political stability and judicial
management of the economy. The |
|
| hope
is that the control on government bank borrowings, pruning of government
expenditure, the |
|
| privatization
of management of public sector assets as an integral component of prudent
monetary and fiscal |
|
| policy
will permit the achievement of the most fundamental job of controlling
inflation. |
|
|
| For
the financial sector, above all for the embryonic leasing industry, the
menace of debt recovery continues |
|
| to
dominate. Despite the glare of publicity on the subject and the strengthening
of the regulation over default, |
|
| efficient
financial intermediation will only be achieved once effective measures in
cases of wanton escape |
|
| from
responsibility are taken against delinquent borrowers. The leasing industry
itself needs to collaborate |
|
| even
more to improve procedures for recovery of assets and their subsequent resale
and re-lease. |
|
|
| The
leasing sector has attracted some of the best professional talent and has
developed a capability for |
|
| efficient
financial intermediation. Its future relevance will depend on its ability to
raise long-term capital that |
|
| reflect
its risk maturity profile. In this regard, we at First Leasing will continue
to be the catalyst in |
|
| developing
corporate relationships that will permit access to such funds, much as we
have been in the area |
|
| of
operating leases and joint-venture vendor leasing. We believe that our focus
on business basics - sound |
|
| professional
management, prudence and innovation will continue to serve our shareholders
interests, |
|
| especially
when this difficult economic environment takes a dynamic turn. ~ |
|
|
|
Khurshid Hadi |
|
|
Chairman |
|
|
|
| DIRECTORS'
REPORT AND OPERATIONAL REVIEW |
|
|
| The
Directors are pleased to present the fifth annual report together with the
audited accounts for the year |
|
| ended
June 30, 1997. |
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|
| MANAGEMENT
STRATEGY |
|
|
| The
period under review has been one of consolidation rather a drive for growth.
The Board's strategic |
|
| decision
in this regard was implemented and the opportunity was taken to focus on
"risk management |
|
| strategies
and new product development". |
|
|
| Our
objective however is to be a prominent financial intermediary with
significant corporate finance delivery |
|
| capabilities.
Accordingly during this period we have maintained the staffing and training
requirements that |
|
| are
needed to support this objective. We believe that whilst lease ticket sizes
are being lowered in the short |
|
| term,
we need to maintain our specialization in high ticket leases and the
operating lease arena. We expect to |
|
| ride
this period of uncertainty and be prepared to take advantage of the eventual
recovery on the economic |
|
| front. |
|
|
| The
lessons learned in earlier years from the operating lease experience matured
into a strategic alliance with |
|
| Caterpillar's
local agent in a joint venture relating to the rental of Caterpillar
generators. Another agreement |
|
| has
been forged with Gestetner in respect of their desk top publishing equipment.
Further vendor based |
|
| arrangements
are presently under study and we expect to expand this line of activity in
years to come. |
|
|
| Last
year's decision to sell all non strategic equity investments and retain only
the investment in Bankers |
|
| Equity
Limited is being implemented gradually. As at 30th June 1997 investments with
a book value of |
|
| Rs.
36.67 million were realised. Subsequent to the year end further investments
of Rs. 8.80 million have been |
|
| disposed.
These funds are now available for our core leasing business. |
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|
| OPERATING
RESULTS OF THE COMPANY |
|
|
| The
accompanying charts reflect our diversified lease portfolio over various
industry segments and the asset |
|
| mix: |
|
|
| First
Leasing earned a pre-tax profit of Rs. 46.24 million and the recommended
appropriation thereof is as |
|
| follows: |
|
|
1997 |
1996 |
|
|
12 months |
18 months |
|
|
Rupees in million |
|
|
| income
from finance lease operations |
|
180.26 |
208.80 |
|
| Loss
from operating leases |
|
(0.25) |
(0.04) |
|
| Corporate
finance & treasury operations |
|
19.18 |
7.88 |
|
| Capital
gains / (losses) |
|
(1.76) |
2.76 |
|
|
---------- |
---------- |
|
|
197.43 |
219.40 |
|
| Operating
cost |
|
151.19 |
174.01 |
|
|
---------- |
---------- |
|
| Operating
profit |
|
46.24 |
45.39 |
|
| Provision
for taxation |
|
3.89 |
5.28 |
|
|
---------- |
---------- |
|
|
42.35 |
40.11 |
|
|
|
|
| Unappropriated
profit brought forward |
|
17.57 |
13.91 |
|
|
---------- |
---------- |
|
|
59.92 |
54.02 |
|
|
| APPROPRIATIONS |
|
| Special
reserve |
|
8.47 |
8.02 |
|
| Dividend
16% (1996: 20%) |
|
43.65 |
28.43 |
|
|
---------- |
---------- |
|
|
52.12 |
36.45 |
|
|
---------- |
---------- |
|
| Unappropriated
profit carried forward |
|
7.80 |
17.57 |
|
|
========== |
========== |
|
|
| The
historical trend in respect of growth and profitability is set out below: |
|
|
|
12 months to |
12 months to |
18 months |
12 months |
|
|
31st December |
31st December |
to 30th June |
to 30th June |
|
|
1993 |
1994 |
1996 |
1997 |
|
|
| Rupees
in million |
|
| Net
investment in leases |
286.30 |
532.30 |
855.65 |
908.65 |
|
| Income
from leasing |
43.80 |
83.80 |
208.80 |
180.26 |
|
| Operating
profit |
30.40 |
34.40 |
45.39 |
46.24 |
|
|
| DIVIDENDS |
|
| The
Board acknowledges the right of the shareholders to a constant and regular
stream of cash flows arising |
|
| from
their investments. In this regard management is directed to maximise yield on
shareholders' equity and |
|
| plan
a systematic cash flow to the shareholders and have recommended a Cash
Dividend of 16% for the year |
|
| ended
June 30, 1997. |
|
|
| AUDITORS |
|
| The
auditors Ford, Rhodes, Robson, Morrow, Chartered Accountants retire and being
eligible offer |
|
| themselves
for re-appointment. |
|
|
| ACKNOWLEDGMENTS |
|
| Subsequent
to the year-end several changes have taken place in the composition of the
Board. Mr. Masoud |
|
| Naqvi,
pursuant to a worldwide KPMG policy in partner's participation on outside
Boards resigned in |
|
| October
1996. He has been replaced by Mr. Arshad Nawab, currently Executive Director
in the Company. Mr. |
|
| Abid
Aziz nominee of Pak Libya resigned and was replaced by Mr. Ramadan Haggiagi.
To the outgoing |
|
| directors
the Board wishes to acknowledge their fine contribution to the company since
its formation and |
|
| their
presence on the Board will be severely missed. We welcome the new members and
look forward to their |
|
| counsel
and support. |
|
|
| The
Board thanks the staff for their efforts and the commitment demonstrated in
effectively implementing |
|
| the
policies of the company. The Board also acknowledges the support of its
institutional and individual |
|
| lenders
and depositors for their continued confidence in the financial strength and
the management of the |
|
| Company
and is grateful to the Corporate Law Authority, State Bank of Pakistan,
Leasing Association of |
|
| Pakistan
and other regulatory bodies for their cooperation and assistance in resolving
issues affecting the |
|
| leasing
sector in general and the company in particular. |
|
|
|
For and on behalf of the
Board |
|
|
|
Shahid Shaikh |
|
| Karachi:
23rd October, 1997 |
|
Chief Executive |
|
|
|
| AUDITORS'
REPORT TO THE MEMBERS |
|
|
| We
have audited the annexed balance sheet of FIRST LEASING CORPORATION |
|
| LIMITED
as at June 30, 1997 and the related profit and loss account 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 and, after
due |
|
| verification
thereof, 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 and the |
|
| cash
flow statement, together with the notes forming part thereof, 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 June 30, 1997 and of the profit and of the cash flows for the year |
|
| then
ended; and |
|
|
| d)
in our opinion Zakat deductible at source under the Zakat and Ushr Ordinance, |
|
| 1980
was deducted by the company and deposited in the Central Zakat Fund |
|
| established
under section 7 of that Ordinance. |
|
|
| Karachi - |
|
|
FORD, RHODES, ROBSON,
MORROW |
|
| October
23, 1997 |
|
Chartered Accountants |
|
|
|
|
| BALANCE
SHEET AS AT JUNE 30, 1997 |
|
|
|
1997 |
1996 |
|
|
Note |
Rupees |
Rupees |
|
|
|
|
|
| FIXED
ASSETS-tangible |
|
3 |
31,781,916 |
25,413,812 |
|
| INVESTMENT
IN LEASES |
|
|
|
| lnstalment
contract receivables |
|
1,145,039,208 |
1,052,366,058 |
|
| Less:
Unearned Income |
|
(236,385,535) |
(196,715,336) |
|
|
---------- |
---------- |
|
| Net
investment in leases |
|
908,653,673 |
855,650,722 |
|
| Less:
Current portion of net investment in leases |
|
(365,058,171) |
(353,842,182) |
|
|
---------- |
---------- |
|
|
543,595,502 |
501,808,540 |
|
| LONG-TERM
FINANCE |
|
4 |
7,112,608 |
7,112,608 |
|
|
|
---------- |
---------- |
|
|
|
550,708,110 |
508,921,148 |
|
| Less:
Provision for lease losses and doubtful receivables |
5 |
(26,196,352) |
(14,903,669) |
|
|
|
---------- |
---------- |
|
|
|
524,511,758 |
494,017,479 |
|
| LONG-TERM
ADVANCES |
|
6 |
5,402,712 |
|
|
| LONG-TERM
INVESTMENTS |
|
7 |
59,967,955 |
59,967,955 |
|
| DEFERRED
COSTS |
|
8 |
1,716,178 |
2,080,074 |
|
|
|
|
|
| CURRENT
ASSETS |
|
|
|
| Current
portion of net investment in leases |
|
365,058,171 |
353,842,182 |
|
| Current
maturity of long-term advances |
|
6 |
273,549 |
|
|
| Short-term
and Morabaha finance |
|
9 |
56,385,600 |
63,000,000 |
|
| Advance,
deposite, prepayments and other receivables |
10 |
43,778,309 |
25,099,290 |
|
| Investment
in marketable securities |
|
11 |
16,602,913 |
44,227,942 |
|
| Cash
and bank balances |
|
12 |
79,074,458 |
18,363,569 |
|
|
|
---------- |
---------- |
|
|
561,173,000 |
504,532,983 |
|
|
---------- |
---------- |
|
|
1,184,553,519 |
1,086,012,303 |
|
|
========== |
========== |
|
| SHARE
CAPITAL AND RESERVES |
|
| Authorised |
|
| 50,000,000
ordinary shares of Rs. 10 each |
|
500,000,000 |
500,000,000 |
|
|
========== |
========== |
|
| Issued,
subscribed and paid-up capital |
|
13 |
272,782,340 |
154,320,670 |
|
| Reserves |
|
14 |
47,056,888 |
48,348,505 |
|
|
|
---------- |
---------- |
|
| Shareholders'
equity |
|
319,839,228 |
202,669,175 |
|
|
| LONG-TERM
FINANCES UNDER |
|
| MUSHARIKA
ARRANGEMENTS |
|
15 |
98,397,694 |
97,614,188 |
|
| LONG-TERM
FINANCES |
|
16 |
194,256,381 |
302,502,376 |
|
| OBLIGATIONS
UNDER FINANCE LEASE |
|
17 |
5,879,864 |
- |
|
| LONG-TERM
DEPOSITS AND LIABILITIES |
|
18 |
120,021,899 |
92,320,946 |
|
| CURRENT
LIABILITIES |
|
|
|
|
| Current
maturity of long-term liabilities |
|
19 |
195,284,746 |
83,680,943 |
|
| Proposed
dividend |
|
|
43,645,174 |
28,432,067 |
|
| Other
current liabilities |
|
20 |
207,228,533 |
278,792,608 |
|
|
|
---------- |
---------- |
|
|
|
446,158,453 |
390,905,618 |
|
| COMMITMENTS |
|
21 |
-- |
-- |
|
|
---------- |
---------- |
|
|
1,184,553,519 |
1,086,012,303 |
|
|
========== |
========== |
|
| The
annexed notes form an integral part of these accounts. |
|
| The
auditors' report is annexed hereto. |
|
|
|
| PROFIT
AND LOSS ACCOUNT |
|
| FOR
THE YEAR ENDED JUNE 30, 1997 |
|
|
|
1997 |
1996 |
|
|
(12 months) |
(18 months) |
|
|
Note |
Rupees |
Rupees |
|
|
| INCOME |
|
| Income
from finance lease operations |
|
22 |
180,255,582 |
208,797,169 |
|
| Loss
from operating leases |
|
23 |
(247,670) |
(39,177) |
|
| Corporate
finance and treasury operations |
|
24 |
19,180,226 |
7,882,707 |
|
| (Loss)
/ gain on marketable securities |
|
(1,756,410) |
2,766,786 |
|
|
---------- |
---------- |
|
|
197,431,728 |
219,407,485 |
|
|
| EXPENDITURE |
|
| Direct
cost of leases |
|
96,097 |
307,795 |
|
| Financial
and bank charges |
|
25 |
114,185,680 |
125,485,462 |
|
| Selling,
general and administrative expenses |
|
26 |
27,169,208 |
36,827,008 |
|
| Provision
for diminution in value of investments |
|
(1,550,655) |
5,425,948 |
|
| Provision
for lease losses and doubtful receivables |
|
11,292,683 |
5,968,375 |
|
|
---------- |
---------- |
|
|
151,193,013 |
174,014,588 |
|
|
---------- |
---------- |
|
| Operating
profit |
|
46,238,715 |
45,392,897 |
|
| Provision
for taxation - current year |
|
2,517,341 |
2,288,014 |
|
|
- prior years |
|
1,367,817 |
2,988,652 |
|
|
|
|
---------- |
---------- |
|
|
3,885,158 |
5,276,666 |
|
|
---------- |
---------- |
|
| Profit
after tax |
|
42,353,557 |
40,116,231 |
|
| Unappropriated
profit brought forward |
|
17,572,606 |
13,911,688 |
|
|
---------- |
---------- |
|
|
59,926,163 |
54,027,919 |
|
|
| Appropriations: |
|
| Transfer to special reserve |
|
8,470,711 |
8,023,246 |
|
| Dividend
Ca) 16% (1996: 20%) |
|
43,645,174 |
28,432,067 |
|
|
---------- |
---------- |
|
|
52,115,885 |
36,455,313 |
|
|
---------- |
---------- |
|
| Unappropriated
profit carried forward |
|
7,810,278 |
17,572,606 |
|
|
========== |
========== |
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
| CASH
FLOW STATEMENT |
|
| For
THE YEAR ENDED JUNE 30, 1997 |
|
|
1997 |
1996 |
|
|
(12 months) |
(18 months) |
|
|
Rupees |
Rupees |
|
| CASH
FLOW FROM OPERATING ACTIVITIES |
|
|
| Profit
for the year before taxation |
|
46,238,715 |
45,392,897 |
|
|
| Adjustments
for: |
|
| Depreciation
on fixed assets |
|
7,857,142 |
5,651,757 |
|
| Amortization
of deferred costs |
|
1,272,288 |
1,629,841 |
|
| Provision
for lease losses and doubtful receivables |
|
11,292,683 |
5,968,375 |
|
| Loss
on transfer of long-term investments to |
|
|
|
| short-term
marketable securities |
|
-- |
3,015,625 |
|
| Provision
for diminution in value of investments |
|
(1,550,655} |
2,410,323 |
|
| (Profit)/loss
on sale of fixed assets |
|
(23,413} |
(64,538) |
|
| Finance/mark-up
expenses |
|
113,452,657 |
124,471,080 |
|
| Investment
income |
|
(16,901,703) |
(5,387,336) |
|
|
---------- |
---------- |
|
|
115,398,999 |
137,695,127 |
|
|
---------- |
---------- |
|
| Operating
profit before working capital changes |
|
161,637,714 |
183,088,024 |
|
|
| Decrease/(Increase)
in current assets |
|
| Short-term
finances |
|
6,614,400 |
(42,315,580) |
|
| Short-term
investments |
|
29,175,684 |
(26,466,668) |
|
| Advances,
deposits, prepayments and |
|
|
|
| other
receivables |
|
(18,679,019) |
(17,757,805) |
|
|
