| First Fidelity Leasing Modaraba |
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| Annual
Report 1999 |
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| CONTENTS |
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| Company
Information |
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| Directors'
Report |
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| Auditors'
Report to the Certificate Holders |
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| Balance Sheet |
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| Profit
and Loss Account |
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| Statement
of Sources and Application of Funds |
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| Notes
to the Accounts |
|
| Pattern
of Certificate Holdings |
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|
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| COMPANY
INFORMATION |
|
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| Board
of Directors |
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| Chairman |
|
Mr. Javaid B. Sheikh |
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| Chief Executive |
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Mr. Wasim-UI-Haq Osmani |
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| Directors |
|
Mr. Masood Akbar |
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|
Mr. Arshad I. Khan |
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| Corporate
Secretary |
Mr. Imran Hameed |
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| Auditors |
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Riaz Ahmad & Company |
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|
Chartered Accountants |
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| Legal Advisor |
|
Cornelius, Lane &
Mufti |
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|
Advocates &
Solicitors |
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|
|
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| Bankers |
|
Muslim Commercial Bank
Limited |
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|
Habib Bank A.G. Zurich |
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|
Union Bank Limited |
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|
Gulf Commercial Bank
Limited |
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| Modaraba
Company |
Fidelity Capital
Management (Private) |
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|
Limited (wholly owned
subsidiary of |
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|
Fidelity Investment Bank
Limited) |
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| Principal
Place of Business |
97-A, Aziz Avenue, Canal
Bank, |
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Lahore-54660 |
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| Registrars |
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Hameed Majeed Associates |
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H.M. House, 7-Bank
Square, |
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|
The Mall, Lahore. |
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| DIRECTORS'
REPORT |
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| The
Directors have pleasure in submitting the 8th Annual Report of the Modaraba
together with the |
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| audited
accounts and the auditors' report for the year ended June 30, 1999. |
|
|
| During
the year the overall business environment continued to remain subdued.
Sluggish growth in |
|
| industrial
production and a disappointing cotton crop thwarted all hopes of a recovery
in economic |
|
| growth.
Real GDP growth was well below the target. Overall, financing gap of the
country jumped to |
|
| over
Rs 3.0 billion as compared to a figure of less than Rs 1.0 billion in
previous three years. All this |
|
| happened
after May 1998 nuclear testing. Fulfilling a conditionality of IMF, the
government finally |
|
| abolished
the dual exchange rate mechanism by opting market based floating exchange
rate from |
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| May
19, 1999. The indirect depreciation of the rupee was done to bring about an
improvement in the |
|
| trade
account. This also provided some relief to foreign currency account holders.
The Government |
|
| of
Pakistan investigations into IPPs started in February 1998 to weed out
corrupt practices and in this |
|
| particular
case to reduce power tariffs have continued till now without any final
result. |
|
|
| The
investors' confidence remained at the lower web. Although KSE index improved
from 880 |
|
| points
in June 30, 1998 to 1055 points as at June 30, 1999, the increase was on the
back of few |
|
| large
volume blue-chips. In the near future, there is hardly any hope of a reversal
in the recessionary |
|
| conditions
prevailing at stock market for the last five years. |
|
|
| Despite
subdued business environment, the Modaraba during the year earned a profit
after taxation |
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| of
Rs 25.25 million as compared to Rs 15.01 million earned last year. The
increase in profit over |
|
| last
year is 68%. The leased assets have increased from Rs 105.23 million to Rs
133.53 million |
|
| registering
a growth of 27% over last year. Adequate provisions have been made in the
accounts |
|
| against
doubtful lease rentals which stand at Rs 19.91 million. Similarly adequate
provisions have |
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| been
made against capital market portfolio which stand at Rs 13.29 million. The
provision is more |
|
| than
enough to absorb any effects of permanent diminution in the value of
investments. |
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|
| FUTURE
OUTLOOK |
|
| We
have been saying in the past that future growth of businesses depend on
economic revival in |
|
| the
country. Economic revival can only be achieved through continuation of good
and predictable |
|
| economic
policies for a longer period of time. Unfortunately this has not been the
case in the past |
|
| and
immediate present. Balance of payment deficit for the current fiscal year
looms larger in view |
|
| of
increase in international crude oil prices and sanctions by international
agencies, in view of |
|
| recent
military take over of the government, Although international agencies stance
seems to become |
|
| softened,
it is not certain how far they can lend assistance to the present regime. |
|
|
| The
measures taken by the present government for recovery of stuck-up loans and
government |
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| dues,
though are commendable, they will have a snow ball effect on already
susceptible businesses |
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| which
may be closed due to debt burden and non availability of fresh working
capital loans. If this |
|
| happens
this will have a negative impact on economic growth. The government realising
the situation |
|
| is
likely to announce an economic package in the middle of December 1999, One
expects that to |
|
| provide
a real impetus to the industry not only a good package should be announced,
it should also |
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| be
implemented in its letter and spirit. It is hoped that issue of IPPs will
also be resolved so as to |
|
| bring
stability in the stock market and rebuild local investors and multilateral
agencies confidence. |
|
| It
is imperative to first rebuild local investors' confidence, since only a
stable stock market can bring |
|
| back
foreign investors. Good cotton crop news is a silver lining in the dark and
can lead a revival of |
|
| textile
industry the backbone of Pakistan economy. |
|
|
| As
said earlier though growth of the Modaraba depends on an economic revival,
the Modaraba is |
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| continuously
trying to improve its inherent strengths through diversification. The
Modaraba has focused |
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| on
small borrowers to take benefit of low percentage of default by these
borrowers. The Modaraba |
|
| experience
in this category is very good and we intend to pursue this more aggressively
in the year |
|
| 2000.
The government loan recovery drive has also brightened chances of early
recovery of stuck-up |
|
| leases
of Modaraba. The recoverable amount will also be invested in small and medium
sized morabaha |
|
| and
lease finances. Modaraba has also sought long term funding lines from
financial institutions. |
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| Application
of corresponding amounts in business is also likely to add to Modaraba profit
margins. |
|
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|
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| Y
2K PROBLEM |
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|
|
| The
Y 2K Compliance has been achieved through up-gradation/replacement of
computer hardware |
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| and
installation of new Computer Software. Directors are confident that the
Modaraba's internal |
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| operations
will not be disrupted due to this issue. A contingency plan has been made to
take care |
|
| of
any unforeseen event at the time of Millennium changeover. |
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|
|
| APPROPRIATION |
|
| The
Board has made the following appropriations: |
|
|
|
Rupees |
|
|
|
|
|
|
| Net
profit after taxation for the year |
|
25,246,572 |
|
| Un-appropriated
profit brought forward |
|
861,243 |
|
|
|
|
------------------ |
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| Profit
available for appropriation |
|
|
26,107,815 |
|
|
|
|
| Transfer
to special reserve as per requirement of rule 3(a) |
|
| of
NBFI Circular No.1 dated December 05, 1991 |
|
5,049,314 |
|
| Transfer
to Final Dividend payable account Rs 1 per certificate |
|
20,633,399 |
|
|
|
|
------------------ |
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|
|
|
25,682,713 |
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|
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|
------------------ |
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| Un-appropriated
profit carried forward |
|
425,102 |
|
|
========== |
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|
| DECLARATION
OF DIVIDEND |
|
|
|
| The
Directors are pleased to announce a final dividend of 10% i.e. Rs 1 per
certificate for the year |
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| ended
June 30, 1999. The Certificate Transfer Books of the Modaraba will remain
closed from |
|
|
|
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| January
01, 2000 to January 11, 2000 (both days inclusive) for determination of
dividend entitlement. |
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| AUDITORS |
|
|
|
| The
present auditors Messrs. Riaz Ahmad & Co., Chartered Accountants, being
due for retirement, have |
|
| offered
themselves for re-appointment for the year ending June 30, 2000. Subject to
approval by the Registrar |
|
| of
Modaraba Companies & Modarabas, their appointment has been confirmed by
the Board. |
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| CERTIFICATE
HOLDING PATTERN |
|
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| A
statement reflecting the pattern of certificate holding is attached to the
Annual Report. |
|
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| In
the end, I conclude by reaffirming the Management's commitment to a prudent
approach based |
|
| on
high standards of professional ethics and moral integrity with a note of
thanks to all the staff |
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| members
of the Modaraba. |
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|
For and on behalf of the |
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|
|
Board of Directors |
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| Lahore |
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|
JAVAID B. SHEIKH |
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| December
09, 1999 |
|
Chairman |
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|
|
| AUDITORS'
REPORT TO THE CERTIFICATE HOLDERS |
|
|
| We
have audited the annexed Balance Sheet as at 30 June 1999 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 1999 of FIRST FIDELITY LEASING
MODARABA which are modaraba |
|
| company's
(Fidelity Capital Management [Private] Limited) representation and we state
that we |
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| 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
Modaraba |
|
| (Floatation
and Control) Ordinance, 1980, and Modaraba Companies and Modaraba Rules, |
|
| 1981; and |
|
|
|
|
| (b)
in our opinion, the Balance Sheet and the Profit and Loss Account have been
drawn up in |
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| conformity
with the Modaraba Companies and Modaraba (Floatation and Control) Ordinance, |
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| 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
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 |
|
| 1999
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 |
|
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| deducted
by the Modaraba and deposited in the Central Zakat Fund established under |
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| section
7 of that Ordinance; and |
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|
|
|
|
|
| iii)
the business conducted, investments made and expenditure incurred by the
Modaraba |
|
| are
in accordance with the objects, terms and conditions of the Modaraba. |
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|
|
| LAHORE |
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|
|
RIAZ AHMAD & CO. |
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| Dated:
December 10, 1999 |
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|
Chartered Accountants |
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|
|
| BALANCE
SHEET AS AT JUNE 30, 1999 |
|
|
|
|
1999 |
1998 |
|
|
Note |
Rupees |
Rupees |
|
|
|
|
| EQUITY
AND LIABILITIES |
|
|
|
|
|
|
| CAPITAL
AND RESERVES |
|
|
| Authorized
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 |
22,744,991 |
17,695,677 |
|
| Revenue
reserve-General |
|
|
5,000,000 |
5,000,000 |
|
| Unappropriated
profit |
|
|
425,102 |
861,243 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
234,504,083 |
229,890,910 |
|
|
|
|
| NON-CURRENT
LIABILITIES |
|
|
|
| Finance
under morabaha arrangement |
|
5 |
17,062,089 |
-- |
|
| Long
term deposits |
|
6 |
12,106,719 |
11,998,053 |
|
| Deferred
taxation |
|
|
-- |
1,000,000 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
|
29,168,808 |
12,998,053 |
|
|
|
|
| CURRENT
LIABILITIES |
|
|
|
| Current
portion of long term finance and deposits |
|
7 |
5,746,375 |
269,300 |
|
| Accrued
and other liabilities |
|
8 |
2,771,293 |
1,888,609 |
|
| Provision
for taxation |
|
|
-- |
4,972,688 |
|
| Dividend
payable |
|
|
20,633,399 |
23,728,409 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
29,151,067 |
30,859,006 |
|
| CONTINGENCIES
AND COMMITMENTS |
|
|
-- |
-- |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
292,823,958 |
273,747,969 |
|
|
|
|
========== |
========== |
|
|
| ASSETS |
|
|
|
|
|
|
| NON-CURRENT
ASSETS |
|
|
|
| Tangible
fixed assets |
|
9 |
134,031,365 |
105,378,114 |
|
| Investments |
|
10 |
35,925,297 |
35,925,297 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
169,956,662 |
141,303,411 |
|
|
|
|
| CURRENT
ASSETS |
|
|
|
|
| Finances
under morabaha arrangements |
|
11 |
36,618,009 |
42,218,009 |
|
| Advances,
deposits, prepayments and |
|
|
|
| other
receivables |
|
12 |
27,724,427 |
28,600,652 |
|
| Cash
and bank balances |
|
13 |
58,524,860 |
61,625,897 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
122,867,296 |
132,444,558 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
292,823,958 |
273,747,969 |
|
|
|
|
========== |
========== |
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
|
JAVAID B. SHAIKH |
WASIMUL-OSMANI |
ARSHAD I. KHAN |
|
|
Chairman |
|
Chief Executive |
|
Director |
|
|
|
| PROFIT
AND LOSS ACCOUNT |
|
| FOR
THE YEAR ENDED JUNE 30, 1999 |
|
|
|
|
1999 |
1998 |
|
|
Note |
Rupees |
Rupees |
|
|
|
|
| REVENUES |
|
|
|
|
| Lease rentals |
|
|
46,960,444 |
21,344,328 |
|
| Profit
on morabaha finances |
|
|
7,442,404 |
9,766,860 |
|
| Other income |
|
14 |
11,537,202 |
11,530,520 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
65,940,050 |
42,641,708 |
|
| OPERATING
COST |
|
|
| Depreciation
on assets leased out |
|
|
30,714,299 |
12,284,518 |
|
| Administrative
and general expenses |
|
15 |
4,803,029 |
4,073,515 |
|
| Financial
and other charges |
|
16 |
3,632,297 |
11,750,223 |
|
|
|
|
------------------ |
------------------ |
|
|
|
39,149,625 |
28,108,256 |
|
|
|
------------------ |
------------------ |
|
|
|
26,790,425 |
14,533,452 |
|
| MODARABA
COMPANY'S MANAGEMENT FEE |
|
|
2,435,493 |
1,321,223 |
|
|
|
|
------------------ |
------------------ |
|
| PROFIT
BEFORE TAXATION |
|
|
24,354,932 |
13,212,229 |
|
| PROVISION
FOR TAXATION |
|
17 |
891,640 |
1,800,000 |
|
|
|
|
------------------ |
------------------ |
|
| PROFIT
AFTER TAXATION |
|
|
25,246,572 |
15,012,229 |
|
| UNAPPROPRIATED
PROFIT BROUGHT FORWARD |
|
861,243 |
2,579,869 |
|
|
|
|
|
|
------------------ |
------------------ |
|
| PROFIT AVAILABLE FOR
APPROPRIATION |
|
|
26,107,815 |
17,592,098 |
|
|
|
|
| APPROPRIATIONS |
|
|
| Transferred
to statutory reserve |
|
5,049,314 |
3,002,446 |
|
| Transferred
from general reserve |
|
-- |
(10,000,000) |
|
| Final
dividend Rs. 1.00 per certificate |
|
|
|
| (1988:
Rs. 1.15 per certificate) |
|
20,633,399 |
23,728,409 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
|
25,682,713 |
16,730,855 |
|
|
|
|
------------------ |
------------------ |
|
| UNAPPROPRIATED
PROFIT CARRIED FORWARD |
|
425,102 |
861,243 |
|
|
|
|
========== |
========== |
|
| EARNINGS
PER CERTIFICATE |
|
19 |
1.22 |
0.73 |
|
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
JAVAID B. SHEIKH |
|
WASIM-UL-HAQ OSMANI |
|
ARSHAD I. KHAN |
|
|
Chairman |
|
Chief Executive |
|
Director |
|
|
|
| STATEMENT
OF SOURCES AND APPLICATION OF FUNDS |
|
| FOR
THE YEAR ENDED JUNE 30, 1999 |
|
|
|
|
|
|
1999 |
1998 |
|
|
|
|
|
Rupees |
Rupees |
|
|
|
|
| CASH
FLOWS FROM OPERATING ACTIVITIES |
|
| Cash
generated from operations |
|
8,286,744 |
12,704,008 |
|
| Lease rentals |
|
|
42,592,423 |
14,669,023 |
|
| Profit
paid on musharika finances |
|
-- |
(332,275) |
|
| Profit
paid on morabaha finances |
|
(3,073,932) |
|
|
| Profit
received on morabaha finances |
|
7,462,564 |
9,786,592 |
|
| Income tax paid |
|
|
(14,146) |
(8,005,914) |
|
|
|
------------------ |
------------------ |
|
| NET
CASH FLOWS FROM OPERATING ACTIVITIES |
|
55,253,653 |
28,821,434 |
|
|
|
|
| CASH
FLOWS FROM INVESTING ACTIVITIES |
|
|
| Dividend
received |
|
1,073,967 |
457,229 |
|
| Sale
proceeds from sale of shares/certificates |
|
390 |
6,618,297 |
|
| Lessees
security deposits |
|
2,018,666 |
50,865 |
|
| Proceeds
from sale of leased assets |
|
2,738,353 |
3,325,983 |
|
| Proceeds
from sale of own assets |
|
1,000 |
815,628 |
|
| Fixed
assets acquired - Own use |
|
(472,800) |
-- |
|
| Fixed
assets acquired - Leased out |
|
(61,761,960) |
(35,493,400) |
|
|
|
------------------ |
------------------ |
|
| NET
CASH USED IN INVESTING ACTIVITIES |
|
(56,402,384) |
(24,225,398) |
|
|
|
|
|
| CASH
FLOWS FROM FINANCING ACTIVITIES |
|
|
| Finances
under morabaha arrangement - Obtained |
|
24,692,000 |
-- |
|
| Finances
under morabaha arrangement - Repaid |
|
(4,062,836) |
-- |
|
| Dividend paid |
|
|
(22,581,470} |
(15,804) |
|
|
|
------------------ |
------------------ |
|
| NET
CASH USED IN FINANCING ACTIVITIES |
|
(1,952,306) |
(15,804) |
|
|
|
|
|
| NET
INCREASE/(DECREASE) IN CASH |
|
|
| AND
CASH EQUIVALENT |
|
(3,101,037) |
4,580,232 |
|
|
|
|
|
|
| CASH
AND CASH EQUIVALENT AT THE |
|
|
|
| BEGINNING
OF THE YEAR |
|
61,625,897 |
57,045,665 |
|
|
|
|
| CASH
AND CASH EQUIVALENT AT |
|
|
------------------ |
------------------ |
|
| THE
END OF THE YEAR |
|
58,524,860 |
61,625,897 |
|
|
|
========== |
========== |
|
|
|
|
|
|
1999 |
1998 |
|
|
|
|
|
Rupees |
Rupees |
|
|
|
|
| CASH
GENERATED FROM OPERATIONS |
|
|
| Profit
before taxation |
|
24,354,932 |
13,212,229 |
|
| Adjustment
for non-cash charges and other items: |
|
|
|
|
|
| Provision
for diminution in the value of |
|
|
| investments
and doubtful lease rentals receivable |
|
251,492 |
11,636,411 |
|
| Depreciation |
|
|
30,836,039 |
12,327,880 |
|
| Profit
paid on morabaha finances |
|
3,265,649 |
-- |
|
| Profit
on musharika finance obtained |
|
-- |
83,174 |
|
| Dividend
income |
|
(1,073,967) |
(457,229) |
|
| Profit
on morabaha finances given |
|
(7,442,404) |
(9,766,860) |
|
| (Gain)/loss
on sale of fixed assets |
|
6,117 |
(21,042) |
|
| (Gain)
on sale of shares/certificates |
|
(390) |
(698,342) |
|
| Lease rentals |
|
|
(46,960,444) |
(21,344,328) |
|
| Fixed
assets discarded |
|
-- |
12,037 |
|
| Working
capital changes |
|
5,049,720 |
7,720,078 |
|
|
|
------------------ |
------------------ |
|
|
|
8,286,744 |
12,704,008 |
|
|
|
|
========== |
========== |
|
|
|
|
|
|
| WORKING
CAPITAL CHANGES |
|
|
|
|
|
|
|
| (Increase)/decrease
in operating assets |
|
|
| Finances
under morabaha arrangements |
|
5,600,000 |
11,500,000 |
|
| Advances,
deposits, prepayments and other receivables |
|
(22,850) |
918,476 |
|
|
|
------------------ |
------------------ |
|
|
|
5,577,150 |
12,418,476 |
|
|
|
|
| Increase/(decrease)
in operating liabilities |
|
|
| Short
term finances |
|
-- |
(4,995,700) |
|
| Accrued
and other liabilities |
|
(527,430) |
297,302 |
|
|
|
------------------ |
------------------ |
|
|
|
(527,430) |
(4,698,398) |
|
|
|
------------------ |
------------------ |
|
|
|
5,049,720 |
7,720,078 |
|
|
|
|
========== |
========== |
|
|
|
JAVAID B. SHEIKH |
|
WASIM-UL-HAQ OSMANI |
|
ARSHAD I. KHAN |
|
|
Chairman |
|
Chief Executive |
|
Director |
|
|
|
|
| NOTES
TO THE ACCOUNTS |
|
| FOR
THE YEAR ENDED JUNE 30, 1999 |
|
|
| 1.
LEGAL STATUS AND NATURE OF BUSINESS |
|
| First
Fidelity Leasing Modaraba was formed under the Modaraba Companies and
Modaraba |
|
| (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, multi-purpose and multi-dimensional 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 |
|
|
|
|
|
|
|
| 2.1
Accounting convention |
|
|
|
| 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 reduc |
