20000327

Brief

recordings

- BY SCANNER -

Modarabas

First Confidence Modaraba

Year Ended June 30, 1999

Overview.........

The Modaraba is a multipurpose Modaraba. Its financial assets comprise investment in leases at Rs 63.18 million (1997-98: Rs 64.49 million) stock-in-trade at Rs 9.67 million (1997-98: Rs 4.30 million), marketable securities at Rs 6.14 million (1997-98: Rs 4.17 million) and small amount in Musharaka arrangement to the extent of Rs 50 thousand. Income from leasing business is exempted from tax while the profit from trading is taxable under in separate income block under presumptive tax regime. The Modaraba's gross revenue at Rs 15.90 million was 10.6% higher but net profit at Rs 3.14 million declined by 59.1% as compared to previous year's. Major cause of drastic decline in net profit was high tax provision. Pre-tax profit was 71.7% higher at Rs 14.31 million as compared to previous year's Rs 8.33 million. The Modaraba declared cash dividend at 7% (1997-98: 10%) and paid management company fee at Rs 1.4 million.

--------------

First Confidence Modaraba (FCM) is a multipurpose, perpetual Modaraba registered under the Modaraba Companies and Modaraba (Floatation and Control) Ordinance 1980 and the rules framed thereunder. FCM is managed by Confidence Modaraba Management (Private) Ltd, a company incorporated in Pakistan under the Companies Ordinance, 1984 and registered with the Register Modaraba and Modaraba Companies.

FCM's 10-rupee certificates are quoted on the stock exchange as FCM was listed at Karachi Stock Exchange in 1992. At present the share is trading at Rs 5.50 per certificate.

The Modaraba is primarily engaged in leasing of plant, machinery, motor vehicles, computers, furniture and equipments etc., Morabaha and Musharaka financing, commodity trading, investment in marketable securities (non-interest bearing) and other related Sharia'a based business.

During the period under review the Modaraba's net investment in lease finance was in the sum of Rs 63.18 million and this figure is very close to the last year's amount of Rs 64.5 million. The lease portfolio comprised 57.9% of total assets as compared to 65.7% in the preceding year's.

The Directors of the Modaraba's management company have reported that they are writing hallmark leases on selective basis and recovery of rentals continue to remain excellent and that the Modaraba did not write off or faced any bad debt problem since the commencement of the leasing business.

The directors have set their sight to utilise most of the Modaraba funds in leasing business. Chief Executive, Haji Mohammad had some reflection on the future prospects of leasing business in his Report,

"The distinct advantages and efficient approval process, has made leasing an attractive source of financing for industrial and corporate sectors. Large as well as small companies have taken advantages of lease financing. Lease finance accounts for hefty amount of total private fixed capital expenditure in the country. This indicates that there exists substantial scope for lease business.

However, the growth of the leasing sector is fundamentally dependent upon the continued availability of resources and leasing (businesses) are expected to receive considerable attention as the corporate debt market evolves."

During the period under review, the Modaraba posted income from leasing operations at Rs 11.64 million (1997-98: Rs 10.76 million). This income posted 10.81% growth over preceding year's and comprised 73.16% of the gross revenue of Rs 15.90 million. Last year the share of leasing income was 74.9% of gross revenue of Rs 14.37 million. This year gross revenue registered 10.65 growth over the preceding year's. So the growth in leasing income has outpaced the growth in the gross revenue.

The Modaraba provides asset on leasing arrangements to its customers under the lease agreements as approved by the Religious Board. These leases are recorded in the books of accounts as "finance lease" in accordance with International Accounting Standard 17.

Under the 'finance method' of the recognition of lease revenue, the excess of aggregate lease rentals and the estimated residual value over the cost of leased assets, is taken to income over the term of lease applying the annuity method so as to produce a constant rate of return on the net investment in lease.

The relevant note annexed to the account reported that the effective rate of profit on lease portfolio was 21%.

"In accordance with section 102(E) of Part-1 of second schedule of the Income Tax Ordinance, 1979, as amended by the Finance Act, 1999, any income, not being income from trading activity, of a Modaraba has been completely exempted from tax, for any assessment year commencing on or after the first day of July 1999 provided that not less than 90% of its total, in a year are distributed to its certificate holders" as mentioned in the annexed note.

The other significant segment of the business of the Modaraba is trading from which the Modaraba generated trading profit at Rs 2.84 million which constituted 17.9% of gross revenue and recorded growth at 120.1% over preceding year's trading profit of Rs 1.29 million. Stock-in-trade in the sum of Rs 9.67 million increased by 2.24% over preceding year's Rs 4.30 million.

It has been also mentioned in the Finance Act 1999, that the income of Modaraba on account of trading shall be taxed as a separate block of income under the presumptive tax regime.

The Modaraba posted earning per certificate at Rs 0.52 (1997-98: Rs 1.27) and paid dividend at Rs 0.70 per certificate.

--------------

Performance Statistics (Million Rupees)

June 30 1999 1998

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

Paid-up Capital: 60.50 60.50

Reserves & Profit: 10.17 11.26

Equity: 70.67 71.76

Security Deposit on Leases: 4.82 6.17

Current Liabilities: 33.56 20.17

Assets.........

Fixed Assets - Own Use: 0.83 0.93

Net Investment in Lease Finance: 44.38 45.02

Current Assets: 63.84 52.15

Total Assets: 109.05 98.10

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

Revenue.........

Income from Leasing Operations: 11.64 10.76

Trading Profit: 2.84 1.29

Other Revenue: 1.42 2.32

Gross Revenue: 15.90 14.37

Profit Before Taxation: 14.31 8.33

Profit After Taxation: 3.14 7.69

Dividend Cash 7% (1998: 10%): 4.23 6.05

Financial Ratios.........

Certificate Price (Rs) 14/3/2000: 5.50 -

Book Value Per Share (Rs): 11.68 11.86

Price/Book Value Ratio: 0.47 -

Debt/Equity Ratio: 0:100 0:100

Current Ratio: 1.90 2.58

Net Profit to Gross Revenue (%): 19.74 53.51

EPS (Rs): 0.52 1.27

Price/Earning Ratio: 10.58 -

R.O.E. (%): 4.44 10.72

R.O.A. (%): 2.88 7.83

R.O.C.E. (%): 4.15 9.86

--------------

Company information: Modaraba Company: Confidence Modaraba Management (Private) Ltd. Chief Executive: Haji Mohammad. Directors: Mohammad Saleem Adam, Naveed Altaf, Mohammad Nasir. Registered Office: 6th Floor, Al-Falah Court, I.I. Chundrigar Road, Karachi-74200. Phone: 2634249-51, 2635011-13. Fax: 2631310.