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Pak-Gulf Leasing Company  Limited
Annual Reports 2002
CONTENTS
Company Information
Mission Statement.
Notice of Annual General Meeting
Directors' Report to the Shareholders
Statement in compliance with Code XIX of the Code of Corporate Governance...
Auditor's review report to members on Statement of Compliance with best
practices of Code of Corporate Governance
Auditor's Report to the Shareholders
Balance Sheet.
Profit and Loss Statement
Cash Flow Statement.
Statement of Changes in Equity
Notes to the Accounts
Pattern of Shareholding
Categories of Shareholders
Company Information
Board of Directors
Mr. Sohail Inam Ellahi		Chairman
Mr. Fawad S. Malik		Vice Chairman
Mr. A. B, Shahid		M.D, & CEO
Mr. Inam Ellahi Shaikh		Director
Mr. Shaheed H. Gaylani		Director
Mr. Shaikh Aftab Ahmed		Director
Mr. Sheikh Mohammad Jawed		Director
Mr. Yousuf Jan Mohammad		Director
Auditors
M/s. Taseer Hadi Khalid & Company
Chartered Accountants
Sheikh Sultan Trust Building No. 2,
Beaumont Road,
Karachi.
Tel # : 5671761-3, 5685847
Fax # : 5685095
Company Secretary
Mr. S. Azfar Ali Baqvi
Audit Committee
Mr. Sohail Inam Ellahi	Chairman
Mr. Fawad S. Malik	Member & Secretary
Mr. Shaikh Aftab Ahmed	Member
Mr. Sheikh Mohammad Jawed	Member
Senior Management
Mr. A. B. Shahid
Managing Director & Chief Executive
Mr. S. Azfar Ali Baqvi
Chief Accounting Officer
Mr. Sheikh M. Asghar
Chief Manager Marketing
Mr. S. Farhan Abbass
Manager Marketing
Credit Rating Agency
JCR-VIS Credit Rating Co. Ltd.
Entily rating:
- BBB for medium to long term
- A-3 for short term
- outlook stable
Legal Advisor
M/s. Mohsin Tayebaly & Company
2nd Floor, Dime Centre,
BC-4, Block # 9, Kehkashan, Clifton,
Karachi.
Tel #: 538077, 571653, 5872690
Fax #: 5870240, 5870468
Bankers
ABN AMRO Bank N.V.
Askari Commercial Bank
Bank AI-Falah Ltd.
Muslim Commercial Bank Ltd.
National Bank of Pakistan.
PICIC Commercial Bank Ltd.
Standard Chartered Grindlays Bank pie
Union Bank
Registered / Share Transfer Office
Pak-Gulf Leasing Company Limited
THE FORUM:
Room # 125-127, First Floor,
G-20, Block # 9, P. 0. Box # 12215,
Main Khayaban-e-Jami, Clifton,
Karachi-75600.
Tel #: 5820301, 5820965, 5820966, 5824401
Fax #: 5820302
E-mail: pgl@cyber.net.pk
Mission Statement
The Company will:
Aim to gain the confidence of all its stakeholders by earning
a credible reputation for being an innovative enterprise that
is prepared to change in the best interests of its stakeholders.
Continually monitor structural changes in the various sectors
of the economy, and accordingly alter the Company's busi
ness strategy to benefit from the emerging opportunities.
Focus on changing customer needs and strive to improve
tangible and intangible returns to its customers by providing
service and satisfaction at par with the best in the industry,
which would be reflected in prompt risk evaluation and facility
disbursement procedures and practices.
Consciously share, and remain part of all initiatives by the
leasing industry to play a positive role in the evolution of small
and medium size enterprises to expand the country's indus
trial base and support economic growth, higher employment,
and a better future for all.
Notice of Annual General Meeting
Notice is hereby given that the 9th Annual General Meeting of Pak-Gulf Leasing Company Limited, will
be held at the Company's Registered Office at THE FORUM, Room Nos. 125 - 127, First Floor,
G-20 Block # 9, Main Khayaban-e-Jami, Clifton, Karachi-75600, on Saturday, October 26, 2002 at 03.30 p.m.
to transact the following business:
Ordinary Business
1)    To Confirm the minutes of the 8th Annual General Meeting held on December 29, 2001.
2)    To receive, consider and adopt the audited accounts of the company for the year ended June
30, 2002 together with Director's and Auditors' Report thereon.
3)    To consider and pass the following resolution:
"Resolved that 3,000,000 Right Shares of Rs. 10 each amounting to total par value of Rs. 30,000,000
million be issued by the company at a discount of 30% (discount of Rs. 3 per share), subject
to the company obtaining requisite SECP approval. Subject to availability of SECP approval for
flotation of the Right Shares, the Right Shares' entitlement of the members will be determined
on the basis of their shareholding as on Friday, October 18, 2003."
4)    To appoint External Auditors of the company for the year July 01, 2002 to June 30, 2003 and
fix their remuneration. The present Auditors M/s. Taseer Hadi Khalid & Company, Chartered
Accountants retire, and being eligible, offer themselves for re-appointment.
5)    To transact any other business with the permission of the Chair.
By order of the Board
Syed Azfar Ali Baqvi
Company Secretary
Karachi: September 30, 2002
Notes:
1.    The Share Transfer Register of the Company will remain closed from October 19, 2002 to October
26, 2002 (both days inclusive) and no transfer of shares will be made during the period the Register
is closed.
2.    A member entitled to attend, speak, and vote at the Company's General Meeting is entitled to appoint
a proxy to attend, speak, and vote on his/her behalf. A company or corporation may, by means of a
resolution of its Board of Directors appoint a person as its proxy, who is not a Member of the Company.
A proxy must, however, be a member of the Company that appoints him/her as its proxy. Proxy Forms
can be obtained from the Registered office of the Company.
3.    An instrument of proxy and the power of attorney or other authority, if any, under which it is signed
or, in order to be valid, notarially certified copy of the power of attorney must be deposited at the
Registered Office of the Company not less than 48 hours before the time of the General Meeting.
4.    Members are requested to notify changes in their address, if any, to the Company's Share Transfer
Office at THE FORUM, Room Nos. 125 - 127, First Floor, G-20, Block # 9, Main Khayaban-e-Jami,
Clifton, Karachi-75600.
Directors' Report
Dear Shareholders,
We are pleased to present to you the 6"' Annual Report of
the company for the year ending 30"' June 2002.
Review of operations
During the year under review, balance sheet footing of your
company rose from Rs.187.8 million in 2000-01 to Rs. 264.7
million reflecting 40.9% growth. During the year, 138 fresh
leases worth Rs. 119.8 million were written. Besides the
leases, at the close of the year, the company also had on
its books advance payments against leases amounting to
Rs. 12.53 million. Together with the leases written, the
business booked during the year amounted to Rs. 132.3
million compared to 109 leases amounting to Rs. 96 written
last year reflecting a rise of 37.8% in overall business. After
accounting for leases maturing during the year, the net lease
portfolio expanded from Rs.162 million in 2000-01 to
Rs. 209.5 million representing a rise of 29.3%. Gross revenue
for the year amounted to Rs. 25.6 million representing 3.0%
increase over last year, and 3.64% rise in pre-tax profit
compared to 1.45% last year.
Results				30-Jun-02	30-Jun-01
Revenue				25,605	24.857
Expenditure				11,088	10.852
Profit before taxation & provision
for lease losses				14,516	14.005
Provision for possible lease losses				1,047	-
Provision for taxation				1,702	2.324
Profit after taxation				11,767	11.681
Un-appropriated profit brought forward				9,693	0.348
Adjustment due change in
accounting policy				30.7	—
Profit available for appropriation				21,491	12,029
Appropriations:
Transfer to statutory reserves				2,353	2,336
Transfer to Reserve for Issue
of Right Shares				18.1	-
Total appropriations				20,453	2,336
Un-appropriated profit
carried forward				1.038	9.693
Directors' Report
Administrative Expen"-
Although growth in pre-tax profit was higher compared to
the last year, the primary reason for low growth in profit
ability was the fact that company performance during the
first and second quarters was marred by the general slump
in the economy made worse by the events of September
11, 2001. However, it bounced back significantly and 91.77%
of the business for the year was booked in the last two
quarters. It is worth mentioning that the present Chief
Executive took over charge from his predecessor in Sep
tember 2001. The momentum generated in the last two
quarters has put the company on a sound footing. Based
on our current form as well as the hope that the economic
downturn will not become more severe than it is, the com
pany should register much higher growth in business next
year.
The fact that the company maintained its post-tax profit slightly
above last year's level is significant in view of the fact that,
out of abundant caution, this year your company has cre
ated a General Provision of over Rs. 1.047 million for any
future lease losses. Besides, much higher level of business
activity in the second half of the year resulted in increased
outlay on utilities, communications, transport, administra
tion and maintenance. The cost impact was accentuated by
the recent increases in utility charges. Finally, additional
expenses were incurred on floatation of Right Shares. It is
therefore significant that in spite of adverse business sen
timent and additional expenses, the company improved its
post-tax profit. Equally important is the fact that expansion
in leasing portfolio was achieved at an improved rate of
profitability despite aggressive entry by Commercial Banks
in the leasing business. In these trying times, however, your
company's management has kept in perspective the need
to ensure the health of its portfolio by concentrating on sectors
in which it has leasing expertise.
Your company continues to follow a judicious credit policy
and observes close monitoring procedures to contain the
incidence of over due rentals. The result of this cautious
approach is reflected in the good health of the lease port
folio of your company.
The economy in 2001-02
Investment growth remains slow as investors are still get
ting to grips with the fiscal disciplinary reforms the govern
ment introduced during the last two years. They are also
taking their time in adjusting to the frequent interest rate
fluctuations, which they were not used to. GDP growth, and
a pronounced revival of investor confidence have therefore
not been visible. A clear indication of that was the consis
tent fall in consumer imports throughout the year under review,
and low growth in the large-scale manufacturing sector. Tight
fiscal discipline resulted in lower public sector investment,
and impacted downstream private sector investment growth.
This trend also reduced consumer purchasing power and
caused a consequent decline in demand.
Low private sector investment growth had an understandable adverse impact on the leasing sector.
While industrial asset leasing rose slightly because of imports of plant and equipment, bulk of the growth
was in vehicle leasing, a large part of which was accounted for by vehicle price increases, not as much
in the number of units leased because the aggressive vehicle leasing posture of commercial banks
squeezed the share of leasing companies in this sector aside from the unhealthy market practices it
gave rise to prompting the government to reduce duty on import of used vehicles.
Future prospects for the economy
Pakistan is slowly recovering from the adverse impact of the Afghan war, which is reflected in the continuing
uncertainty in the business sector. Pressure on the external sector has been offset partly by re-sched
uling/re-profiling of external debt, as also the stabilization of the exchange value of the Rupee. Sec
ondly, to support the industry as a whole, SBP has rapidly cut the Discount Rate, which initially was
too rapid for the financial services sector to transmit down the line given Pakistan's decades old culture
of borrowing and lending on fixed-rates. It may have a positive impact on the investment climate if the
culture of borrowing and lending on floating rates gains credibility.
Rapid cuts in the Discount Rate between October 27, 2001 and January 22, 2002 totaling 3% initially,
proved destabilizing for the financial sector as a whole, especially the leasing sector. In the wake of
this development, while lessees expected an equally rapid fall in IRR, leasing companies found it hard
to raise funds to finance leases at rapidly falling rates. During this trying period, advantage was clearly
shifted to the big banks, and not surprisingly, during this period they launched ambitious leasing cam
paigns.
Given their high cost structures, commercial banks are still finding it hard to lend to the corporate sector
at rates that can afford them the high spreads they need to remain profitable. A logical response of
the corporate sector has been a surge in the issue of TFCs to avoid the high intermediation costs of
the banking sector. Quite understandably therefore, there has been a visible shift to high yield consumer
finance business by the banking industry. Most commercial banks are gearing themselves up to serve
this market. Given their large networks, they should be able to do so with reasonable success, and
may help lift the sagging consumer demand.
The permission allowing banks to undertake consumer financing will shift the major share of this market
to the banking sector thereby forcing the leasing sector to strive for a bigger share in equipment fi
nancing. Pending their privatization, the shrinking role of DFIs is also forcing the industrial sector to
look to the leasing companies for financing its high-ticket plant and equipment needs - a void the leasing
sector may be able to fill only partially given its present equity and resource base. Besides, it calls for
familiarity with the sourcing, supply, demand, and pricing of a wider variety of industrial technology,
and adopting a more sophisticated approach to risk assessment necessitating a shift in the risk as
sessment profile of the leasing sector. It remains to be seen how successfully the leasing sector responds
to this challenge.
Profit rates on deposits may not continue to fall given their impact on small savers. Your company's
management therefore intends to benefit from the current lower rates to expand its business base through
competitive pricing. It is confident that in spite of the visible prospects of lower economic growth, and
competition from the banking sector that is most likely to stiffen, your company will do well in the ensuing
financial year.
Dividend Policy
The Directors have come to the conclusion that in order to expand the operations of the company, it
is imperative that the company retains its post-tax profits to expand its equity base. Accordingly, the
Directors propose to transfer R.s 18.100 million of un-appropriated profit to the "Reserve for Issue of
Bonus Shares". In doing so, it will also ensure fulfilling the SECP requirement of raising Company equity
to Rs. 200 million within the current year, and be positively in a position to declare a handsome dividend
next year.
Equity Enhancement
The understanding reached with Securities & Exchange Commission (SECP) provided for enhancing
Company equity to Rs. 200 million in two phases. Last year, your Company successfully floated Right
Shares with a face value of Rs. 40,000,000 at a discount of 30%. Subscription to these shares was
completed on May 10, 2002. In the second phase, it is proposed to float 3,000,000 Right Shares with
a face value of Rs. 30,000,000 at a discount of 30%. In response to our request to this effect, SECP
have sought certain clarifications subject to the satisfactory provision of which the request may be approved.
With the floatation of the second tranche of Right Shares, and together with the Statutory Reserves
and the profits retained in the Reserve for Issue of Bonus Shares, your Company will fulfill the requirement
of raising its equity to Rs. 200 million as soon as formalities relating to floatation of the proposed Rights
Issue are completed. Given the increase, in its equity, and continued availability of requisite lines of
credit from its valued bankers, your company should be able to substantially increase its lease portfolio
and profitability in the coming financial year.
Credit Rating
JCR-VIS has revised upwards the entity rating of your company to BBB for medium to long-term outlook,
and A-3 for the short-term. The outlook of these rating has been classified as stable. A positive outlook
had been assigned to the ratings in March 2002 in view of the move to fulfill minimum capital requirement.
JCR-VIS has noted with satisfaction the successful issuance of Right Shares in the first phase of the
plan.
Statement in compliance with the Code of Corporate Governance
To the best of our knowledge and belief, we confirm correctness of the following information in compliance
with Code No. XIX of the Code of Corporate Governance of the SECP:
Directors' Report
a.    Financial statements prepared by the management of the company present fairly its state of
affairs, the result of its operations, cash flows and changes in equity.
b.    Proper books of account of the listed company have been maintained.
c.    Appropriate accounting policies have been consistently applied in preparation of financial statements
and the accounting estimates presented in the report are based on reasonable and prudent judgment.
d.    IAS standards, as applicable in Pakistan, were followed in preparation of the financial statements,
and there was no departure from these standards.
e.    The system of internal control is sound in design, and has been effectively implemented and
monitored. An Internal Audit Committee consisting of Mr. Sohail Inam Ellahi, Director & Chairman,
Mr. Sheikh Muhammad Jawed, Director, and Mr. Shaikh AftabAhmed, Director, has been formed.
Mr. Fawad S. Malik, Director & Vice Chairman will act as its Secretary.