20000401

Brief

recordings

- BY SCANNER -

Modarabas

First Constellation Modaraba

Year Ended June 30, 1999

Overview.........

The Modaraba has posted profit after taxation at Rs 4.46 million which is slightly lower than preceding year's figure of Rs 5.53 million and announced cash dividend at 5.5%. The Modaraba has a commendable record of profit-distribution without break since inception. In the Annual Report of the Modaraba the names of the Chairman and Chief Executive have not been disclosed. In the list of Directors of the Modaraba company, four names of directors have been maintained. Among then the names R.A. Sattar and Mohammad Zain is mentioned with a footnote, "induction communicated to the concerned for assets." The Modaraba, should have indicated, for the knowledge of its stakeholders, about the names of Chairman/Chief Executive and the circumstances under which the two names were inducted. After all Modaraba is Sharia'a based institution and it should take the certificate holders into confidence.

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First Constellation Modaraba was listed at Karachi Stock Exchange in 1992. The Modaraba is a perpetual, multi-purpose and multi-dimensional Modaraba registered under the Modaraba companies and Modaraba (floatation and control) Ordinance 1980 and the rules framed there under and is managed by Constellation Management Company (Private) Limited.

The Modaraba claims to be engaged in the business of leasing, Morabaha and allied business activities including securities services of non-interest bearing securities and other related Sharia'a based business.

The external auditors of Constellation Modaraba have popped up a comment which normally all the auditors raise while reporting about the treatment of accounting for operating leases by Modarabas. This has something to do about maintaining accounts of operating lease business.

In fact it comes under the scope of finance lease under the International Accounting Standard. In this case the renowned Chartered Accountancy firm Hyder Bhimji & Co., has also reported the same issue to the certificate holders of the Modaraba.

"And we report that (a) The Modaraba has recorded lease transactions as operating leases due to reasons explained in note 2.2 to the accounts. Whereas if these lease were financial leases the International Accounting Standard 17 'Accounting to Leases', would have applied."

The note No. 2.2 clarifies "fixed assets: Assets leased out and amortisation: The Modaraba records of all leasing transactions as operating leases which is the norm and practice of all Modarabas in Pakistan. The treatment is reflective of the standard lease agreements approved for Modaraba by the Religious Board and are consistent with the principles of Islamic Sharia'a. The concept of finance lease as envisaged by International Accounting Standard 17 does not exist in Islamic Sharia'a.

Leased assets are stated at cost less accumulated amortisation. Amortisation is charged to income, applying the straight line method whereby the cost of an asset less salvage value is written off over its initial lease period."

In case of Constellation Modaraba it appears that the core business of leasing has been abandoned. The company has leased out asset in the sum of only Rs 1.75 million which works out to only 1.6% of the total assets. On the other hand the income generated from the leasing business is also very small which is in the sum of Rs 0.57 million.

This is a highly liquid balance sheet as Rs 88.20 million has been kept in short term placements. The Modaraba generated amount of Rs 10.56 million from investments. This amount is 19.9% higher than the last year's investment income of Rs 8.81 million.

The Modaraba's portfolio of investment in the marketable securities, both on long term and short term basis, amounts to Rs 13.53 million (1997-98: Rs 18.73 million) reflecting 27.76% decline compared to the preceding year's.

The short term investment in securities were in the sum of Rs 9.53 million at cost. But after provision for diminution in the value of securities, the short term portfolio is reduced to Rs 2.68 million at the level of the market value on the last date of the financial year under review. Almost all the shares have been carried over from the previous year when the market value of the share was Rs 6.7 million. In this portfolio the Modaraba also holds shares worth between Rs 500 thousand to Rs 900 thousand of good companies. These scrips are of listed companies such as Security Investment Bank, BSJ Siddique, Crescent Leasing Union, Pak Synthetic, Mari Gas and Fauji Fertilizer.

The long term investment portfolio, which is in the sum of Rs 19.81 million at cost, has been reduced to Rs 10.86 million after diminution in the market value.

The Modaraba is note taking any long term business decisions because of economic conditions. It posted after tax profit at Rs 4.5 million and declared dividend at 5.5%.

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Performance Statistics (Million Rupees)

June 30 1999 1998

Capital & Liabilities.........

Paid-up Capital: 64.62 64.62

Reserves & Profit: 1.21 4.46

Equity: 65.83 69.08

Security Deposits on Financing: 1.16 0.98

Current Liabilities: 44.07 40.81

Assets.........

Fixed Assets - Own Use: 0.16 0.46

Assets - Leased Out: 1.75 2.28

L.T. Investments: 10.86 15.90

Current Assets: 98.29 92.23

Total Assets: 111.06 110.87

Revenue, Profit & Payout.........

Revenue.........

Income from Investments: 10.56 8.10

Income from Leasing Operations: 0.57 2.84

Other Income: 0.81 1.47

Gross Revenue: 11.94 12.41

Profit Before Taxation: 4.46 5.53

Profit After Taxation: 4.46 4.33

Dividend Cash 5.5% (1998: 5%): 3.55 3.23

Financial Ratios.........

Certificate Price (Rs) 30/3/2000: 1.50 -

Book Value Per Share (Rs): 10.19 10.69

Price/Book Value Ratio: 0.15 -

Debt/Equity Ratio: 0:100 0:100

Current Ratio: 2.23 2.26

Net Profit to Gross Revenue (%): 37.35 34.89

EPS (Rs): 0.69 0.67

Price/Earning Ratio: 2.17 -

R.O.E. (%): 6.78 6.27

R.O.A. (%): 4.06 3.91

R.O.C.E. (%): 6.65 6.18

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Modaraba Information.........

Modaraba Company: Constellation Management Company (Pvt) Ltd. Directors of Modaraba Company: Mohammad Yousuf Memon, R.A. Sattar, Mohammad Zakaria, Mohammad Zain. Registered Office: Trade Centre, I.I. Chundrigar Road, Karachi.