| FIRST UDL MODARABA |
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| Annual
Report 1997 |
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| CONTENTS |
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| Corporate Information |
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| Directors'
Report |
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| Auditors' Report |
|
| Balance
Sheet |
|
| Profit and Loss Account |
|
| Statement
of Changes in Financial Position |
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| Notes to the Accounts |
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| Pattern of Certificate Holding |
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|
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| CORPORATE
INFORMATION |
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|
|
| MODARABA
COMPANY |
UDL Modaraba Management
(Private) Limited |
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|
| BOARD
OF DIRECTORS |
Abdul Malik |
|
Chairman |
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|
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|
Khalid Malik |
Chief Executive |
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|
Rashid Abdulla |
Director |
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|
|
Tausif Ahmed Hashmi |
Director |
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|
Farooq Ahmad Bhatty |
Director |
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|
- Nominee Crescent |
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|
Investment Bank Limited |
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|
A.W. Rahi |
|
Managing Director |
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| COMPANY
SECRETARY |
Zubair Razzak Palwala |
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| AUDITORS |
|
Sidat Hyder Qamar Maqbool
& Co. |
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|
Chartered Accountants |
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| BANKERS |
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Muslim Commercial Bank
Ltd. |
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|
Habib Bank Limited |
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Citibank N.A. |
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ANZ Grindlays Bank Ltd. |
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Security Investment Bank
Ltd. |
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|
Orix Investment Bank
Pakistan Ltd. |
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|
Al Faysal Investment Bank
Ltd. |
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| REGISTRAR |
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Gangjees Investment &
Finance Consultants |
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|
513 Clifton Centre,
Khayaban-e-Roomi, |
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|
Kehkashan, Block-5
Clifton, Karachi |
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| REGISTERED
OFFICE |
N.I.C. Building, 1st
Floor, Abbasi Shaheed Road, |
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Off Shahrah-e-Faisal
Karachi, |
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| DIRECTORS'
REPORT |
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| The
Board of Directors of UDL Modaraba Management (Private) Limited have pleasure
in |
|
| presenting
the sixth annual report of First UDL Modaraba together with the audited
financial |
|
| statements
for the year ended June 30, 1997. |
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| 1.
Operating Results |
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| Summarized
results for the year under report: |
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|
|
Rupees |
|
|
|
|
('000') |
|
|
|
|
|
| - Profit for the year after tax |
|
25,329 |
|
|
| - Transfer to Statutory
reserve |
|
(5,066) |
|
|
|
|
|
|
|
Profit |
20,263 |
|
|
| -
Unappropriated loss brought forward |
|
(35,646) |
|
|
|
|
|
|
|
-------- |
|
|
| -
Accumulated Loss carried forward |
|
|
(15,383) |
|
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|
|
|
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|
======== |
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| 2. Review of Operations |
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| Your
Modaraba earned a profit of Rs. 25.33 million as against loss of Rs. 44.18
million |
|
| reported
last year. The Modaraba has posted this profit after providing fully on
conservative basis |
|
| for
doubtful debts, diminution in the value of short term investments, taxation
and after charging |
|
| off
share of profit payabte to International Finance Corporation (IFC) on Income
Notes. The |
|
| turn-around
in the Modaraba's profitability reflects that the diversification plans,
implemented |
|
| last
year by the management of your Modaraba, has started paying off handsomely. |
|
|
| Pursuing
the diversification plans, the equity investment portfolio was further
reduced by |
|
| Rs.
54.0 million during the year with a view for diverting the funds to leasing
activities of the |
|
| Modaraba, |
|
|
| As
regards operations of the Modaraba, the management continues to focus on
leasing as |
|
| its
principal line of business. New leases worth over Rs. 203.0 million were
written during the year. |
|
| Thus
gross lease asset portfolio of your Modaraba increased to Rs, 564.0 million
at prime cost, |
|
| while
the written down value amounted to Rs, 425.54 million at the close of the
year. |
|
|
| Looking
at the past performance and keeping in view the hardship situation, as |
|
| highlighted
in the following paragraphs, the Directors feel satisfied with the
performance and |
|
| operating
results of your Modaraba during the year under report. |
|
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| 3. Future Outlook |
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| Modaraba,
being a Non-Banking Financial Institution (NBFI), essentially falls in the
category |
|
| of
a financial intermediary. Accordingly, its growth potential directly relates
to the prospects of |
|
| overall
business climate which in turn depend on economic conditions of the country,
fiscal |
|
| policies
of the government and development in the capital markets. Unfortunately,
economic |
|
| conditions
of the country continue to drag from bad to worse. SBP's Annual Report for
1996/97 |
|
| has
termed the year "one of the most difficult and disappointing year in the
economic history ~i~~ |
|
| of
the country". For the first time, manufacturing sector posted a negative
growth while the ~~!~i |
|
|
| performance
of other sectors was utterly poor. The bad performance of the economy coupled |
|
| with
huge deficit and hyper inflation seriously impacted the business climate
rendering financial |
|
| intermediaries
to operate in conditions tougher than before, However, structural reforms |
|
| announced
and drastic steps taken by the new government to improve the country's
economy |
|
| have
started showing positive indicators, but it would be a long way to reverse
the trend. |
|
|
| Modaraba
sector continues to tailspin in search of a new equilibrium since 1992/93
when |
|
| its
tax exemption, a balancing incentive, was withdrawn and further, the
modarabas were |
|
| classified
as NBFIs without however changing their status of Mutual Funds/Unit Trusts
under the |
|
| Modaraba
Ordinance. Unfortunately, they are neither enjoying full status of NBFIs nor
the |
|
| benefits
of Mutual Funds, in fact the worst of both. Modarabas have no access to
public deposits |
|
| like
other NBFIs, nor have they been restored tax exemption as given to Mutual
Funds in the |
|
| Finance
Act 1997/98. In fact Modarabas are denied a level play field. Deep discount
in the |
|
| values
of Modaraba Certificates on the stock exchanges is reflective of investors'
negative |
|
| perception. |
|
|
| The
point has been forcefully taken up with concerned quarters of the government
through |
|
| the
forum of Modaraba Association of Pakistan (MAP). Drastic and radical changes
in the |
|
| Modaraba
Laws have been recommended by Corporate Law Reforms Commission (CLRC) and |
|
| Corporate
Law Authority (CLA). It is hoped these reforms would soon be adopted to bring
about |
|
| redressal
to modarabas' longstanding woes. |
|
|
| Central
Excise Duty (CED) imposed last year on leasing and musharika transactions,
which |
|
| was
contested by your Modaraba directly as well as through MAP has, however, been
withdrawn |
|
| by
the government. This is a positive development. |
|
|
| An
over-regulatory environment created by dual-monitoring by SBP and CLA has
been |
|
| softened.
Monitoring of modarabas has now been centralised with CLA. |
|
|
| Based
on the factors, highlighted above, credit and leasing has become extremely |
|
| challenging
business and, accordingly, the management of your Modaraba has taken greater |
|
| proactive
stance to meet the challenge. Guided by cautious & prudent credit
standards and |
|
| pursuing
professional dynamism, your Modaraba is well-positioned to take full
advantage of |
|
| positive
development at micro-level with better operational results in the years to
come. |
|
|
| 4.
Auditors |
|
| The
present auditors, M/s. Sidat Hyder Qamar Maqbool & Co., Chartered
Accountants, are |
|
| due
for retirement, and being eligible, offer themselves for reappointment for
the year 1997-98. |
|
|
| 5.
Acknowledgment |
|
| The
Directors wish to place on record their appreciation and thanks to
certificate holders |
|
| for
their continued confidence in the Modaraba, to the authorities for their
guidance and to all |
|
| the
members of management and staff for their dedication and hard work. |
|
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|
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|
On behalf of the Board, |
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|
|
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|
Sd/- |
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|
KHALID MALIK |
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|
| Karachi:
October 30, 1997 |
|
Chief Executive |
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|
|
|
| AUDITORS'
REPORT TO THE CERTIFICATE HOLDERS |
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| We
have audited the annexed balance sheet as at 30 June 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 30 June 1997 of FIRST UDL MODARABA, which are Modaraba |
|
| company's
[UDL Modaraba 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 UDL 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 30 |
|
| June
1997; and the profit and the cash flows for the year ended on that date; |
|
|
| (ii)
no zakat was deductible at source under the Zakat and Ushr Ordinance, 1980;
and |
|
|
| (iii)
the business conducted, investments made and expenditure incurred by the |
|
| Modaraba
are in accordance with the objects, terms and conditions of the |
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| Modaraba. |
|
|
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| We
wish to emphasize that the Modaraba has pursued the currently prevailing
practice |
|
| and
form of documenting Morabaha and Musharika transactions. These documents, are
in |
|
| accord
with the approval of the Religious Board. The execution of such Morabaha and
Musharika |
|
| transactions
need to be brought in greater conformity with the spirit of such documents. |
|
|
|
|
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|
Sd/- |
|
| Karachi:
October 30, 1997 |
|
SIDAT HYDER QAMAR MAQBOOL
& CO |
|
|
|
|
Chartered Accountants |
|
|
|
|
|
|
| BALANCE
SHEET AS AT JUNE 30, 1997 |
|
|
|
NOTE |
1997 |
1996 |
|
|
| Capital
and Reserves |
|
|
|
|
|
| Capital |
|
|
|
|
|
|
| Authorised |
|
|
|
|
|
|
| 50,000,000
(1996: 50,000,000) Modaraba |
|
|
|
|
| Certificates
of Rs, 10/- each |
|
|
500,000,000 |
500,000,000 |
|
|
|
|
============ |
============ |
|
|
| Issued,
subscribed and paid-up |
|
3 |
263,865,890 |
263,865,890 |
|
|
|
|
|
|
|
| Statutory
reserve |
|
4 |
27,657,487 |
22,591,623 |
|
|
| Accumulated
loss |
|
|
(15,383,245) |
(35,646,699) |
|
|
|
|
|
12,274,242 |
(13,055,076) |
|
|
|
|
|
------------ |
------------ |
|
|
|
|
|
276,140,132 |
250,810,814 |
|
|
| Redeemable
capital - Secured |
|
5 |
424,206,737 |
370,606,737 |
|
|
| Security
deposits |
|
|
57,288,606 |
43,498,294 |
|
|
|
|
|
|
|
| Current
Liabilities |
|
|
|
|
|
| Short-term
Musharika and Morabaha payble |
6 |
15,240,412 |
28,857,773 |
|
|
| Creditors,
accrued and other liabilities |
7 |
39,945,899 |
31,990,196 |
|
|
| Due
to associated companies |
|
|
2,586,372 |
4,183,790 |
|
|
| Taxation |
|
|
217,143 |
1,139,285 |
|
|
|
|
|
57,989,826 |
66,171,044 |
|
|
|
|
|
|
|
|
| Contingencies |
|
8 |
- |
- |
|
|
|
|
------------ |
------------ |
|
|
|
|
Rupees |
815,625,301 |
731,086,889 |
|
|
|
|
|
============ |
============ |
|
|
|
|
|
NOTE |
1997 |
1996 |
|
|
| Fixed
Assets - Tangible |
|
|
|
|
|
| Assets
in own use |
|
9 |
4,520,032 |
5,205,689 |
|
|
| Assets
leased out |
|
10 |
425,541,247 |
308,700,728 |
|
|
|
|
|
|
|
|
| Long-term
deposits and deferred costs |
11 |
3,784,904 |
5,134,443 |
|
|
| Long-term
investments |
|
12 |
96,460,972 |
178,852,524 |
|
|
| Venture
capital |
|
|
- |
2,700,000 |
|
|
|
|
|
|
|
|
| Current
Assets |
|
|
|
|
|
| Short-term
investments |
|
13 |
8,007,050 |
41,591,906 |
|
|
| Trade
debts |
|
14 |
84,377,843 |
74,649,645 |
|
|
| Musharika
and Morabaha receivables |
|
15 |
21,671,420 |
7,312,510 |
|
|
| Advances,
deposits, prepayments and |
|
|
|
|
| other
receivables |
|
16 |
23,098,126 |
22,857,121 |
|
|
| Cash
and bank balances |
|
17 |
148,163,707 |
84,082,323 |
|
|
|
|
|
285,318,146 |
230,493,505 |
|
|
|
|
------------ |
------------ |
|
|
| Auditors'
Report Annexed |
|
Rupees |
815,625,301 |
731,086,889 |
|
|
|
|
|
|
============ |
============ |
|
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
| KHALID
MALIK |
|
FAROOQ A.BHATTY |
|
A.W. RAHI |
|
|
| Chief
Executive |
|
Director |
|
|
Director |
|
|
| UDL
Modaraba Management |
UDL Modaraba Management |
|
UDL Modaraba Management |
|
| (Private)
Limited |
|
(Private) Limited |
|
(Private) Limited |
|
|
|
|
| PROFIT
AND LOSS ACCOUNT |
|
| FOR
THE YEAR ENDED JUNE 30, 1997 |
|
|
|
|
|
NOTE |
1997 |
1996 |
|
|
| Revenue
from: |
|
|
|
| Leasing
operations |
|
18 |
160,428,466 |
51,386,789 |
|
|
| Morabahas |
|
|
1,553,475 |
1,917,506 |
|
|
| Musharikas |
|
|
1,712,085 |
5,256,436 |
|
|
| Investments |
|
19 |
51,407,950 |
3,757,702 |
|
|
| Trading |
|
|
|
(1,600,000) |
|
|
| Other
sources |
|
20 |
1,963,624 |
338,847 |
|
|
|
|
|
------------ |
------------ |
|
|
|
|
|
217,065,600 |
61,057,280 |
|
|
| Expenditure |
|
|
|
|
|
| Administrative
expenses |
|
21 |
16,400,488 |
14,315,461 |
|
|
| Amortization
on assets leased out |
|
10 |
86,115,949 |
32,661,083 |
|
|
| Financial
charges |
|
22 |
68,156,803 |
21,865,093 |
|
|
|
|
|
170,673,240 |
68,841,637 |
|
|
|
|
|
------------ |
------------ |
|
|
|
|
46,392,360 |
(7,784,357) |
|
|
| Provision
for: |
|
|
|
|
| Diminution
in the value of investments |
|
(7,430,110) |
(29,352,927) |
|
|
| Doubtful
debts |
|
(10,000,000) |
(6,723,899) |
|
|
|
|
( 17,430,110) |
(36,076,826) |
|
|
|
|
|
------------ |
------------ |
|
|
|
|
28,962,250 |
(43,861,183) |
|
|
| Modaraba
Company's management fee |
|
(2,632,932) |
- |
|
|
|
|
|
------------ |
------------ |
|
|
| Profit/(loss)
before taxation |
|
26,329,318 |
(43,861,183) |
|
|
| Taxation |
|
(1,000,000) |
(319,317) |
|
|
|
|
|
------------ |
------------ |
|
|
| Profit
/ (loss) after taxation |
|
25,329,318 |
(44,180,500) |
|
|
| Transferred
to statutory reserve |
|
|
(5,65,864) |
- |
|
|
|
|
|
------------ |
------------ |
|
|
|
|
20,263,454 |
(44,180,500) |
|
|
| Unappropriated
(loss) / profit brought forward |
|
(35,646,699 |
8,533,801 |
|
|
|
|
|
------------ |
------------ |
|
|
| Accumulated
loss carried forward |
|
Rupees |
(15,383,245) |
(35,646,699) |
|
|
|
============ |
============ |
|
|
| The
annexed notes form an integral part of these accounts, |
|
|
|
| KHALID
MALIK |
|
FAROOQ A.BHATTY |
|
A.W.RAHI |
|
|
| Chief
Executive |
|
Director |
|
Director |
|
|
| UDL
Modaraba Management |
UDL Modaraba Management |
|
UDL Modaraba Management |
|
| (Private)
Limited |
|
(Private) Limited |
|
(Private) Limited |
|
|
|
|
|
|
|
|
|
|
|
| STATEMENT
OF CHANGES IN FINANCIAL POSITION |
|
| FOR
THE YEAR ENDED JUNE 30, 1997 |
|
|
|
1997 |
1996 |
|
|
| CASH
FLOW FROM OPERATNG ACTIVITIES |
|
|
|
| Profit
/ (loss) before taxation |
26,329,318 |
(43,861,183) |
|
|
|
|
|
| Adjustment
at non cash items |
|
|
|
| Depredation
on own assets |
|
|
1,512,707 |
1,506,798 |
|
|
| Amortization
on assets leased out |
|
|
86,115,949 |
32,661,083 |
|
|
| Amortization
of deferred costs |
|
|
1,473,636 |
1,839,523 |
|
|
| (Gain)/Ioss
on sale of fixed assets |
|
|
|
| - own assets |
|
|
|
(226,062) |
(143,973) |
|
|
| - assets leased out |
|
|
|
78,918 |
109,572 |
|
|
| Dividend
income |
|
|
|
(1,705,394) |
(1,514,466) |
|
|
|
|
|
|
------------ |
------------ |
|
|
|
|
|
|
113,579,072 |
(9,402,646) |
|
|
| (Increase)
/ decrease In operating assets |
|
|
|
| Stock-in-trade |
|
|
- |
17,600,000 |
|
|
| Trade
debts |
|
|
(9,728,198) |
(50,619,868) |
|
|
| Musharika
receivables |
|
|
(14,358,910) |
48,339,679 |
|
|
| Short-term
investments |
|
|
33,584,856 |
(41,591,906 |
|
|
| Advances,
deposits, prepayments and other receivables |
(499,755) |
(13,110,986 |
|
|
|
|
|
|
8,997,993 |
(39,383,081 |
|
|
| Increase/(decrease) in current liabilities |
I |
|
|
|
| Short-term
Musharika and Morabaha |
|
|
(13,617,361) |
(72,349,948) |
|
|
| Creditors,
accrued and other liabilities |
|
7,955,703 |
(33,813,497) |
|
|
| Due
to associated companies |
|
|
(1,597,418) |
2,048,683 |
|
|
|
|
|
|
(7,259,076) |
(104,114,762) |
|
|
|
|
|
|
------------ |
------------ |
|
|
| Net
cash flow from operating activities |
|
115,317,989 |
(152,900,489) |
|
|
| Income
tax paid |
|
|
(1,922,142) |
(1,805,032) |
|
|
|
|
------------ |
------------ |
|
|
| Net
cash flow from operating activities after tax |
|
113,395,847 |
(154,705,521) |
|
|
|
|
|
|
|
|
|
|
| CASH
FLOW FROM INVESTING ACTIVITIES |
|
|
| Purchase
of fixed assets |
|
|
|
| -
own assets |
|
|
(1,883,589) |
(956,105) |
|
|
| -
assets leased out |
|
|
(203,222,468) |
(287,958,390) |
|
|
| Venture
capital |
|
|
2,700,000 |
-- |
|
|
| Long-term
deposits |
|
|
(124,097) |
(4,601,836) |
|
|
| Long-term
investments |
|
|
82,391,553 |
(144,010,358) |
|
|
| Proceeds
from sale of fixed assets |
|
|
|
|
|
| -
own assets |
|
|
1,119,000 |
175,000 |
|
|
| -
assets leased out |
|
|
660,000 |
2,333,646 |
|
|
| Dividend
received |
|
|
1,654,826 |
3,377,441 |
|
|
|
|
|
------------- |
------------- |
|
|
| Net
cash flow from investing activities |
|
(116,704,775) |
(431,640,602) |
|
|
|
| CASH
FLOW FROM FINANCING ACTIVITIES |
|
|
| Redeemable
capital |
|
53,600,000 |
343,300,000 |
|
|
| Proceeds
/ (repayment) of Morabaha |
|
|
- |
228,767,235 |
|
|
| Long-term
security deposits |
|
13,790,312 |
39,784,621 |
|
|
| Net
cash flow from financing activities |
|
67,390,312 |
611,851,856 |
|
|
|
|
|
------------- |
------------- |
|
|
| Net
cash flow after financing activities |
|
64,081,384 |
25,505,733 |
|
|
| Cash
and bank at the beginning of the year |
|
84,082,323 |
58,576,590 |
|
|
|
------------- |
------------- |
|
|
| Cash
and bank at the end of the year |
Rupees |
148,163,707 |
84,082,323 |
|
|
|
============= |
============= |
|
|
|
|
|
|
|
|
| KHALID
MALIK |
|
FAROOQ A.BHATTY |
|
A.W.RAHI |
|
| Chief
Executive |
|
Director |
|
|
Director |
|
| UDL
Modaraba Management |
UDL Modaraba Management |
|
UDL Modaraba Management |
|
| (Private)
Limited |
|
(Private) Limited |
|
(Private) Limited |
|
|
|
|
|
|
|
|
|
| NOTES
TO THE ACCOUNTS |
|
| FOR
THE YEAR ENDED JUNE 30,1997 |
|
| 1. LEGAL STATUS AND NATURE OF
BUSINESS |
|
|
| First
UDL Modaraba was formed under the Modaraba Companies and Modaraba |
|
| (Floatation
and Control) Ordinance, 1980 and the Rules framed thereunder and is |
|
| managed
by UDL Modaraba Management (Private) Limited. It is a perpetual, multipurpose |
|
| and
multidimensional Modaraba and is engaged in providing finance on Morabaha and |
|
| Musharika
arrangements, leasing, commodity trading and trading in listed and
non-interest |
|
| bearing
securities. |
|
|
| 1. SIGNIFICANT ACCOUNTING
POLICIES |
|
|
|
|
| Overall
valuation policy |
|
|
|
|
| These
accounts have been prepared on the basis of historical cost convention. |
|
|
|
|
| 2.2
Staff retirement benefits |
|
|
|
|
| The
Modaraba operates approved Provident Fund Scheme covering all its employees |
|
| who
are eligible under the scheme. Equal monthly contributions are made by the |
|
| Modaraba
and the employees to the Fund. |
|
|
| 2.3
Fixed assets |
|
|
| 2.3.1
Assets in own use 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. Full year's depreciation is charged on |
|
| additions
while no depreciation is charged on assets disposed off during the year. |
|
|
|
|
| Maintenance
and normal repairs are charged to income as and when incurred. |
|
| Gains
and losses on disposal of fixed assets are included in income currently. |
|
|
| 2.3.2
Assets leased out and amortization |
|
|
| Leased
assets are stated at-cost less accumulated amortization. Amortization is |
|
| charged
to income applying the annuity method whereby the depreciable values |
|
| of
assets are amortized over the lease period. |
|
|
|
|
| Profit
or loss on disposal of leased assets is included in income currently. |
|
|
|
|
| 2.4 Deferred |
|
