| First Habib Bank Modaraba |
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| Annual
Report 2001 |
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| CONTENTS |
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| Product
Range & Lease Portfolio |
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| Corporate
Information |
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| Chairman's
Review |
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| Auditors' Report |
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| Balance Sheet |
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| Profit
and Loss Account |
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| Cash
Flow Statement |
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| Notes
to the Accounts |
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| FHBM
- Five Years at a glance |
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| Notice
of Annual Review Meeting |
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| Pattern
of Certificate Holding |
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| PRODUCT
RANGE |
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| * Leasing |
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| * Morabaha |
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| * Musharika |
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| *
Portfolio Management/Underwriting/ |
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| Financial
Advisory Services |
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| CORPORATE
INFORMATI'ON |
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| BOARD
OF DIRECTORS |
ZAKIR MAHMOOD |
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Chairman |
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KHALEEQ KAYANI |
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|
Director |
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SOHAIL MALIK |
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|
Director |
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NAEEM IQBAL |
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Director |
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SAEED UDDIN KHAN |
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|
Chief Executive |
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| COMPANY
SECRETARY |
MUHAMMAD AMIN CHHOTANI |
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| AUDITORS |
|
M/s. FORD RHODES ROBSON
MORROW |
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|
Chartered Accountants |
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| BANKERS |
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HABIB BANK LIMITED |
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Corporate Branch, Karachi |
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| LEGAL
ADVISOR |
MUHAMMAD ARIF ZIA |
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|
Advocate |
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| SHARES
REGISTRAR |
M/s. T.H.K. ASSOCIATES
(PVT) LIMITED |
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|
Ground Floor, Shaikh
Sultan Trust |
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Building No. 2, Beaumont
Road, Karachi-75530 |
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Tel: 5689021 &
5686658 |
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Fax: 5685681 |
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| REGISTERED
OFFICE |
18-Habib Bank Plaza, |
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I.I. Chundrigar Road,
Karachi-75650. |
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Tel: 2412294, 2410967,
2418000 |
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Ext. 2257 & 2354 |
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Fax: 2411860 |
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| CHAIRMAN
REVIEW |
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| By
the Grace of Allah, your Modaraba has successfully completed a |
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| decade
of operations. On behalf of the Board of Directors of Habib Bank |
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| Financial
Services (Pvt.) Limited, the Managers of Modaraba, I feel |
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| immense
pleasure in presenting to you the 10tn Annual Report of First |
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| Habib
Bank Modaraba (FHBM) together with audited accounts for the |
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| financial
year ended 30th June 2001. |
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| 2001
was an extremely difficult year as in the backdrop of a combination of
different |
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| factors
FHBM posted a Net Profit of Rs. 54.3 Mn as against 1%s. 104.4 Mn in the
preceding |
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| year.
Downturn in the economy, increasing price competition from large size
financial |
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| sector
players having adequate low cost resources and the Government policy of
allowing |
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| commercial
banks to enter into the leasing business, which is the principal activity of |
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| your
Modaraba, led to severe strains on its ability to generate fresh good quality
business |
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| and
increase revenues. The management is fully cognizant of the future challenges
and |
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| Business
Plans / Strategy to successfully meet the same is in place. Prudent risk
management |
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| demands
that provisions wherever necessary be made for potential losses to strengthen |
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| the
balance sheet. During 2001 a more stringent view of some previously
rescheduled |
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| large
leases was taken in line with the Prudential Regulations. Similarly
impairment of |
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| the
equity investment portfolio due to adverse trends in stock markets was also
taken |
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| into
consideration. Accordingly, Provisions amounting to 1%s.33.6 Mn have to be
booked |
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| during
the year on account of leases and equity investments. Your management has all |
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| along
strived to keep effective cost controls and a check over nonproductive
expenditure. |
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| Thus
the administrative cost barring Legal & Professional charges and
Depreciation |
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| expenses
increased by only 5.1% during the year under review. |
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| FINANCIAL
RESULTS |
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| Financial
results for the year 2001 are summarized below:- |
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|
(In Rupees) |
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|
|
2001 |
2000 |
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| Total
Operating Income |
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|
250,248,561 |
273,211,303 |
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| Less:
Operating Exp. |
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|
195,971,652 |
162,434,005 |
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| Profit
before Taxation |
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|
54,276,909 |
110,777,298 |
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| Provision
for Taxation |
|
|
-- |
6,368,263 |
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| Net
Profit for the year |
|
|
54,276,909 |
104,409,035 |
|
| Unappropriated
Profit B/F |
|
|
9,157,607 |
559,956 |
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| Profit
available for distribution |
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|
63,434,516 |
104,968,991 |
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|
| APPROPRIATIONS |
|
| Transfer
to Statutory Reserve |
|
|
5,427,691 |
10,440,904 |
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| Proposed
Dividend @14.50 % (2000: 21.5%) |
|
57,575,440 |
85,370,480 |
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| Balance
Carried Forward |
|
|
431,385 |
9,157,607 |
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| DIVIDEND |
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| The
Board is pleased to announce a cash dividend of 14.5% to the Modaraba
Certificate holders |
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| for
the period ended on 30th June 2001 subject to deduction of Zakat and
withholding |
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| tax
at source, wherever applicable. The break up value of your Modaraba
Certificate now |
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| stands
at Rs. 12.40 as against the face value of Rs.10. (2001: Rs 12.49). |
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| OPERATING
RESULTS |
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| The
operating income of FHBM decreased by 8.4% from Rs. 273.211 Million in the |
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| preceding
year to Rs. 250.249 million in the year under review due to income reversals |
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| on
account of rescheduled leases and sluggish business activity. However,
shortfall in |
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| lease
rentals was partially compensated by an increase in dividend income and
return |
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| on
PLS saving accounts. The income is derived totally through Islamic modes of
financing. |
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| In
2001, the amortization expenses increased by 7.3% on account of higher amount
of |
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| leases
terminated during the year (2001: Rs.115.6 Mn, 2000: Rs. 12.6 Mn ). |
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| FUTURE
OUTLOOK |
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| In
2001 some financial issues impacting upon the future sustainable improved
profitability |
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| have
been largely addressed. The economic environment has lately improved due to
higher |
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| production
of major crops and assistance from multilateral financial institutions, which |
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| accompanied
with the GOP plans for phased introduction of Islamic banking in Pakistan |
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| offers
good future prospects. We, however, believe that FHBM needs repositioning to
meet |
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| the
emerging challenges as a leading provider of Shariah based financial
products. Going |
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| forward,
we intend to focus on developing a market niche for Riba free products,
writing |
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| leases
to prime quality clients as the main line of business alongwith other modes
such |
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| as
Musharika, Morabaha etc, broadening our portfolio by carefully entering into
consumer |
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| leasing,
improving systems and processes in line with best industry standards and
finally |
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| ensuring
high value to all our stakeholders. The next 12 months will be challenging |
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| necessitating
decisions that will help us achieve our profitability goals in terms of
increasing |
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| revenues
and containing expenses. |
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| AUDITORS |
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| The
present auditors M/s. Ford Rhodes Robson Morrow, Chartered Accountants are
due |
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| for
retirement and being eligible have offered themselves for re-appointment. |
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| The
Board has approved their re-appointment for the period July 2001 to June
2002. |
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| ACKNOWLEDGEMENTS |
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| The
Board wishes to record its appreciation of the valuable contribution of Mian
Abdus |
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| Salam
(outgoing Director) and welcomes Mr. Saeed Uddin Khan on the Board. |
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| The
Board also wishes to place on record its appreciation for the continued
support and |
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| guidance
provided by Securities & Exchange Commission of Pakistan, Registrar
Modaraba |
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| Companies,
State Bank of Pakistan, Leasing Association of Pakistan and Modaraba |
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| Association
of Pakistan, from time to time. |
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| At
the same time the Board appreciates the dedication and hard work put in by
the |
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| Management
and all staff members of FHBM and HBFSL and look forward to their |
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| continued
loyalty in the coming years. |
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| Finally
the Board extends its gratitude and appreciation to the shareholders who have |
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| remained
committed to FHBM. |
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On behalf of the Board |
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|
ZAKIR MAHMOOD |
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|
Chairman |
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| AUDITORS'
REPORT TO THE CERTI'FICATE HOLDERS |
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| We
have audited the annexed Balance Sheet as at June 30, 2001 and the related
Profit |
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| and
Loss Account and the Cash Flow Statement together with the notes to the
accounts |
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| for
the year ended June 30, 2001 of FIRST HABIB BANK MODARABA which are modaraba |
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| company's
(Habib Bank Financial Services (Private) Limited) representation and we state |
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| that
we have obtained all the information and explanations which we required and
after |
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| due
verification thereof, we report that: |
|
|
| (a)
In our opinion, proper books of account have been kept by the modaraba
company |
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| in
respect of FIRST HABIB BANK MODARABA as required by the Modaraba Companies |
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| and
Modaraba (Floatation and Control) Ordinance, 1980 and Modaraba Companies |
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| and
Modaraba Rules, 1981; |
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| (a)
In our opinion, the Balance Sheet and the Profit and Loss Account have been
drawn |
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| up
in conformity with the Modaraba Companies and Modaraba (Floatation and |
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| Control)
Ordinance, 1980, and Modaraba Companies and Modaraba Rules, 1981; and |
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| (c)
In our opinion and to the best of our information and according to the
explanations |
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| given to us; |
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| (i)
the Balance Sheet and the related Profit and Loss Account and the Cash Flow |
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| Statement,
which are in agreement with the books of account, exhibit respectively |
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| a
true and fair view of the state of the Modaraba's affairs as at June 30, 2001 |
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| and
of the Profit and Cash Flows for the year ended on that date; |
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| (ii)
Zakat deductible at source under the Zakat and Ushr Ordinance, 1980, has |
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| been
deducted by the Modaraba and deposited in the Central Zakat Fund, |
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| established
under section 7 of that Ordinance; and |
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|
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| (iii)
the business conducted, investments made and expenditure incurred by the |
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| Modaraba
are in accordance with the objects, terms and conditions of the |
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| Modaraba. |
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| Karachi |
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|
FORD, RHODES, ROBSON MORROW |
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| November
03, 2001 |
|
Chartered Accountants |
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| BALANCE
SHEET AS AT JUNE 30, 2001 |
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|
Note |
2001 |
2000 |
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|
|
Rupees |
Rupees |
|
| ASSETS |
|
|
| NON-CURRENT
ASSETS |
|
| Fixed
assets - tangible |
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| Assets
given on lease |
|
3.1 |
377,783,681 |
528,450,062 |
|
| Assets
in own use |
|
3.2 |
165,266 |
390,597 |
|
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|
|
------------------ |
------------------ |
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|
|
|
377,948,947 |
528,840,659 |
|
| Long
term investments |
|
4 |
16,916,016 |
14,696,920 |
|
|
|
|
|
|
| Long
term deposit |
|
5 |
600,000 |
600,000 |
|
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|
|
------------------ |
------------------ |
|
|
|
|
395,464,963 |
544,137,579 |
|
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|
|
| CURRENT
ASSETS |
|
|
|
| Short
term investments |
|
6 |
41,691,875 |
20,182,429 |
|
| Morabaha
finances |
|
7 |
2,000,000 |
2,000,000 |
|
| Lease
rentals receivable |
|
8 |
60,760,470 |
86,263,233 |
|
| Prepayments
and other receivables |
9 |
5,941,283 |
4,582,974 |
|
| Bank balances |
|
10 |
150,776,493 |
36,384,297 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
261,170,121 |
149,412,933 |
|
|
|
------------------ |
------------------ |
|
| TOTAL
ASSETS |
|
656,635,084 |
693,550,512 |
|
|
|
|
========== |
========== |
|
|
|
|
| EQUITY
AND LIABILITIES |
|
| CAPITAL
AND RESERVES |
|
| Certificate
capital |
|
| Authorised
- 50,000,000 |
|
| (2000:
50,000,000) |
|
|
| Certificates
of Rs. 10 each |
|
|
500,000,000 |
500,000,000 |
|
|
|
|
========== |
========== |
|
| Issued,
subscribed and paid-up |
|
11 |
397,072,000 |
397,072,000 |
|
| Reserves |
|
|
20 |
95,406,506 |
98,705,037 |
|
|
|
|
------------------ |
------------------ |
|
|
492,478,506 |
495,777,037 |
|
|
| NON-CURRENT
LIABILITIES |
|
| Deferred liability |
|
|
12 |
43,276,850 |
59,087,497 |
|
|
| CURRENT
LIABILITIES |
|
| Current
maturity of deferred liability |
12 |
18,581,047 |
13,248,400 |
|
| Accrued
and other liabilities |
|
13 |
27,152,867 |
21,313,411 |
|
| Provision
for taxation-net |
|
12,327,172 |
13,060,623 |
|
| Unclaimed
profit distribution |
|
5,243,202 |
5,693,064 |
|
| Proposed
profit distribution |
|
57,575,440 |
85,370,480 |
|
|
|
|
------------------ |
------------------ |
|
|
120,879,728 |
138,685,978 |
|
|
------------------ |
------------------ |
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| TOTAL
EQUITY AND LIABILITIES |
|
656,635,084 |
693,550,512 |
|
|
|
========== |
========== |
|
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| The
annexed notes form an integral part of these accounts. |
|
|
|
Saeed Uddin Khan |
|
Naeem Iqbal |
|
Sohail malik |
|
|
Chief executive |
|
Director |
|
Director |
|
|
|
|
|
| PROFIT
AND LOSS ACCOUNT FOR THE YEAR ENDED JUNE 30, 2001 |
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|
|
Note |
2001 |
2000 |
|
|
|
|
Rupees |
Rupees |
|
|
|
|
| OPERATING
INCOME |
|
14 |
250,248,561 |
273,211,303 |
|
|
|
| OPERATING
COSTS |
|
| Depreciation
on leased assets |
|
|
150,110,679 |
139,907,725 |
|
| Administrative
expenses |
|
15 |
6,218,432 |
5,531,604 |
|
| Financial
charges |
|
16 |
46,229 |
3,351,979 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
156,375,340 |
148,791,308 |
|
|
------------------ |
------------------ |
|
|
|
93,873,221 |
124,419,995 |
|
|
|
|
| Other charges |
|
17 |
33,565,544 |
1,334,108 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
60,307,877 |
123,085,887 |
|
|
| Modaraba
company's management fee |
|
(6,030,768) |
(12,308,589) |
|
|
|
------------------ |
------------------ |
|
| PROFIT
BEFORE TAXATION |
|
54,276,909 |
110,777,298 |
|
|
| Taxation
- prior years |
|
-- |
(6,368,263) |
|
|
------------------ |
------------------ |
|
| PROFIT AFTER TAXATION |
|
54,276,909 |
104,409,035 |
|
|
|
| UNAPPROPRIATED
PROFIT BROUGHT FORWARD |
9,157,607 |
559,956 |
|
|
|
|
------------------ |
------------------ |
|
| PROFIT
AVAILABLE FOR APPROPRIATION |
|
63,434,516 |
104,968,991 |
|
|
|
| APPROPRIATIONS |
|
| Transfer
to statutory reserve |
|
| @
10% (2000: 10%) |
|
|
(5,427,691) |
(10,440,904 |
|
| Proposed
Profit distribution |
|
|
|
|
| @
14.5% (2000: 21.5%) |
|
|
(57,575,440) |
(85,370,480) |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
(63,003,131) |
(95,811,384) |
|
|
------------------ |
------------------ |
|
| UNAPPROPRIATED
PROFIT CARRIED FORWARD |
431,385 |
9,157,607 |
|
|
|
|
========== |
========== |
|
| BASIC
EARNINGS PER CERTIFICATE |
18 |
1.37 |
2.63 |
|
|
========== |
========== |
|
|
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
Saeed Uddin Khan |
|
Naeem Iqbal |
|
Sohail malik |
|
|
Chief executive |
|
Director |
|
Director |
|
|
|
| CASH
FLOW STATEMENT FOR THE YEAR ENDED JUNE 30, 2001 |
|
|
|
Note |
2001 |
2000 |
|
|
|
|
Rupees |
Rupees |
|
|
| CASH
FLOWS FROM OPERATING ACTIVITIES |
|
| Net
Profit before taxation |
|
|
54,276,909 |
110,777,298 |
|
| Adjustment
of non-cash and other items |
19 |
176,380,925 |
134,259,578 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
230,657,834 |
245,036,876 |
|
|
| Changes
in working capital |
|
| Decrease/(increase)
in current assets |
|
7,905,054 |
(17,087,138) |
|
| Increase
in creditors, accrued |
|
|
|
| and
other liabilities |
|
6,230,365 |
12,387,808 |
|
|
|
------------------ |
------------------ |
|
|
|
244,793,253 |
240,337,546 |
|
|
| Financial
charges paid |
|
|
(437,138) |
(3,469,313) |
|
| Income tax paid |
|
|
(733,451) |
(136,720) |
|
| Customer
security deposit received |
|
1,170,400 |
16,588,200 |
|
|
|
|
------------------ |
------------------ |
|
| Net
cash from operating activities |
|
|
244,793,064 |
253,319,713 |
|
|
| CASH
FLOWS FROM INVESTING ACTIVITIES |
|
| Purchase
of fixed assets - Lease out |
|
(11,092,698) |
(178,701,018) |
|
|
- Owned |
|
(49,250) |
(114,500) |
|
| Investments
in shares/securities-net |
|
(38,577,184) |
(7,659,103) |
|
| Morabaha
finance |
|
-- |
544,300 |
|
| Dividend
received |
|
5,138,606 |
1,694,554 |
|
|
|
------------------ |
------------------ |
|
| Net
cash used in investing activities |
|
(44,580,526) |
(184,235,767) |
|
|
| CASH
FLOWS FROM FINANCING ACTIVITIES |
|
| Profit paid |
|
(85,820,342) |
(59,510,275) |
|
|
|
------------------ |
------------------ |
|
| NET
INCREASE IN CASH |
|
|
|
| AND
CASH EQUIVALENTS |
|
114,392,196 |
9,573,671 |
|
|
|
|
|
|
| CASH
AND CASH EQUIVALENTS |
|
|
|
| AT
BEGINNING OF THE YEAR |
|
|
36,384,297 |
26,810,626 |
|
|
|
|
|
|
| CASH
AND CASH EQUIVALENTS |
|
------------------ |
------------------ |
|
| AT
END OF THE YEAR |
|
10 |
150,776,493 |
36,384,297 |
|
|
|
|
========== |
========== |
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
Saeed Uddin Khan |
|
Naeem Iqbal |
|
Sohail Malik |
|
|
Chief executive |
|
Director |
|
Director |
|
|
|
| NOTES
TO THE ACCOUNTS FOR THE YEAR ENDED JUNE 30, 2001 |
|
|
| 1.
LEGAL STATUS AIFD NATURE OF BUSINESS |
|
| First
Habib Bank Modaraba is a multi-purpose, perpetual Modaraba formed under |
|
| the
Modaraba Companies and Modarabas (Floatation and Control) Ordinance, 1980, |
|
| and
the rules framed thereunder and is managed by Habib Bank Financial Services |
|
| (Private)
Limited, a wholly owned subsidiary of Habib Bank Limited. The Modaraba |
|
| is
currently engaged in various modes of Islamic funding and other related
business. |
|
| It
is listed on the Karachi, Lahore and Islamabad Stock Exchanges. |
|
|
| 2.
SIGMFICANT ACCOUNTING POLICIES |
|
|
|
|
| 2.1
Accounting convention |
|
| These
accounts have been prepared under the historical cost convention. |
|
|
|
|
| 2.2
Revenue recognition |
|
|
|
|
|
|
| (i)
Lease rentals are recognised as income on a systematic basis over the |
|
| lease
period without considering grace period if any. |
|
|
|
|
|
| (ii)
Profit from Morabaha transactions are recognised on pro-rata accrual |
|
| basis,
calculated on number of days funds were utilised. |
|
|
|
| (iii)
Dividend income is recognised when the right to the dividend is established. |
|
|
| (iv)
Return on deposits with banks is recognised as income on an accrual |
|
| basis. |
|
|
| 2.3 Fixed assets |
|
|
|
|
| (i)
Assets given on lease and depreciation |
|
|
| All
lease transactions are accounted for as operating leases. |
|
|
|
|
| Leased
assets are stated at cost to the Modaraba less accumulated |
|
| depreciation.
Depreciation is charged to income applying the annuity |
|
| method
whereby the cost of an asset less salvage value is written off over |
|
| the
lease period, which is considered to be the estimated useful life of |
|
| the
asset. Depreciation on additions and disposals during the year is |
|
| charged
proportionately from the date of commencement and to the date |
|
| of
maturity respectively. |
|
|
|
| (ii)
Assets in own use and depreciation |
|
| These
are stated at cost less accumulated depreciation. Depreciation is |
|
| charged
to income applying the annuity method whereby the cost of an |
|
| asset
is written-off over its estimated useful life. Full year's depreciation |
|
| is
charged on additions during the year whereas no depreciation is |
|
| charged
in the year of disposal. |
|
|
| Maintenance
and normal repairs are charged to income as and when |
|
| incurred.
Gain or loss on disposal of assets is included in income currently. |
|
|
| 2.4 Investments |
|
|
| Long
term investments are stated at moving average cost. Provision is made |
|
| for
decline other than temporary, if any, in the value of these investments. |
|
| Short
term investments are carried at lower of moving average cost and market |
|
| value
determined on an individual investment basis. |
|
|
| Gain
or loss on disposal of investments, if any, is included in income currently. |
|
|
| 2.5 Taxation |
|
|
| As
per the current tax law, income from non-trading modarabas is exempt |
|
| from
income tax provided that they distribute ninety percent cash dividend |
|
| to
certificate holders out of current years total profit after reducing
mandatory |
|
| reserves.
On this premise, no provision with respect to current and deferred |
|
| taxation
has been made in the accounts for the assessment year 2001-2002. |
|
|
|
|
| 2.6
Trade debts and receivables |
|
| Provision
is made for trade debts and receivables considered doubtful. |
|
|
| 3.
FIXED ASSETS-TANGIBLE |
|
|
|
|
| 3.1 Assets given on lease |
|
|
|
|
COST |
|
DEPRECIATION |
|
|
|
|
Charge/ |
|
Book |
|
|
|
As at |
|
As at |
As at |
(adjustment) |
As at |
value |
|
|
|
July 1, |
Additions/ |
June 30, |
July 1, |
for the |
June 30, |
as at |
|
| Description |
|
2000 |
(Disposals) |
2001 |
2000 |
year |
2001 |
June 30, 2001 |
|
|
|
|
Rupees |
|
Rupees |
|
Rupees |
