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Lease Pak Limited
Annual Report 1998
CONTENTS
COMPANY IN FORMATION
NOTICE OF ANNUAL GENERAL MEETING
DIRECTORS' REPORT
BALANCE SHEET
PROFIT AND LOSS ACCOUNT
NOTES TO THE ACCOUNTS
PATTERN OF SHAREHOLDING
COMPANY INFORMATION
CHAIRMAN MIAN MISBAH UR REHMAN
PRESIDENT & CEO M.T. FAROOQUI
DIRECTORS MR. M. SALEEM SHEIKH
MR. ABDUL REHMAN
MIAN SHUJA-UR-REHMAN
MR. TARIQ REHMAN
C.M. SALEEM CHEEMA
AGHA NAJEEB RAZA
COMPANY SECRETARY AGHA NAJEEB RAZA
AUDITORS FORD, RHODES, ROBSON, MORROW
CHARTERED ACCOUNTANTS
BANKERS ALLIED BANK OF PAKISTAN LIMITED
UNION BANK LIMITED
MUSLIM COMMERCIAL BANK LIMITED
NATIONAL DEVELOPMENT FINANCE CORPORATION
GULF COMMERCIAL BANK LIMITED
LEGAL ADVISORS CORNELIUS LANE & MUFTI ADVOCATES & SOLICITORS
MOHAMMAD AZEEM MALIK - ADVOCATE
SHARE REGISTRARS M/S. SOFTLINK (PVT) LIMITED
REGISTERED OFFICE & HEAD OFFICE 11-C, MAIN GULBERG, LAHORE
TEL: 092-042-5764631-5764641-5756358
FAX: 092-042-5713080
Email:Iqlpak@brain.net.pk
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the 7th Annual General Meeting of Lease Pak Limited will be held at its Registered Office
at 11-C, Main Gulberg, Lahore on Thursday 31st December, 1998 at 10:30 A.M. to transact the following
business:
(1) To Confirm the Minutes of the 6th Annual General Meeting held on 2nd December, 1997.
(2) To receive and adopt the Audited Accounts of the Company for the year ended 30th June, 1998 together with
Directors' and Auditors' Report thereon.
(3) To approve interim cash dividend at the rate 10% as final dividend.
(4) To appoint auditors of the Company for 1998-99 and fix their remuneration. The present auditors M/s Ford,
Rhodes, Robson, Morrow, Chartered Accountants retire and being eligible offer themselves for reappointment.
(5) To transact any other business with the permission of the Chair.
By order of the Board
Lahore AGHA NAJEEB RAZA
Dated: 7th December, 1998 Company Secretary
Notes:
1. The share transfer books of the Company will remain closed from December 25, 1998 to December 31,
1998 (both days inclusive).
2. A member of the Company entitled to attend and vote may appoint another member as his/her proxy to
attend and vote instead of him/her. Proxies must be received at the Registered Office of the Company not less
than 48 hours before the time of holding the meeting.
3. Members are advised to lodge shares for transfer at the office of our registrars M/S Softlink (Pvt) Limited,
Wings Arcade, 1-K (Commercial), Model Town, Lahore.
4. Members are requested to notify any change in their address immediately to the Share
Registrar of the Company.
DIRECTORS' REPORT
The Board of Director is pleased to present this annual report together with audited financial statements of your
company for the year ended 30 June 1998.
FINANCIAL RESULTS
 (Rupees in thousand)
1997 1998
Revenue 98,795 82,424
Expenditure (86,391) (69,661)
Provision - stock Portfolio (5,047) -
Provision doubtful receivables (1,665) -
---------- ----------
Profit before taxation 5,692 12,763
Provision for taxation 1,000 700
---------- ----------
Profit after taxation 4,692 12,063
Unappropriated profit brought forward 10,752 2,142
---------- ----------
Profit available for appropriations 15,444 14,205
---------- ----------
Appropriations:
Interim dividend @ 10% 12,000 -
Transfer to capital reserve 940 2,413
Reserves for contingencies 2,460 1,040
---------- ----------
Unappropriated profit carry forward 44 10,752
========== ==========
Increase in Capital
The company increased its capital by Rs. 13.2 million. These shares were issued to M/s. Itochu Corporation of
Japan which is one of the largest business houses of Japan.
Dividend
The Board of Directors approved an interim dividend @ 10% which is the final dividend for the year and has been
distributed.
Stock Market Portfolio
The capital market continued its decline and closed at 880 points in June 1998. A provision of Rs.5.0 million has
been made in the financial statements to partially cover diminution in the value of stock portfolio.
The Economy
The unprecedented turmoil and uncertainty in the state economy adversely affected the prospects in all sectors. The
restrictions on foreign exchange placed by State Bank of Pakistan towards close of the financial year further
inhibited growth. The economic indicators so far predict a declining trend and deeper recession and this situation
has not only restricted the new leases but also slowed down the recovery of past rentals. To cope with this situation,
the management has taken steps to limit the likely adverse impact on the financial performance of the Company.
Operating Performance
In adverse economic conditions and specific difficulties faced by leasing industry, your company has been able to
sustain a nominal growth within selective segments of the market. The policy of developing the lease investment in
small and medium enterprises was maintained. The exposure of lease portfolio did not exceed 22% in any single
sector.
During the year under review, the gross revenue increased to Rs.98.8 million from Rs. 82.4 million in the previous
year, thus recording a nominal increase of 19.8%. However, the profit before provisions and tax declined to Rs.
12.4 million from Rs. 12.8 million, mainly due to increase in financial cost by 29.6%.
The Company has decided to start making provisions for diminution in value of its slack portfolio as well as for
rentals which are doubtful of recovery. Resultantly, the profit after provisions and tax is reduced 1o Rs. 4.69 million
as against Rs. 12.06 million during previous year, a decline of 61.1%.
The net investment in lease finance increased by 14.56% from Rs.403 million previously to Rs.462 million at the
close of current year. The company continued with the policy of diversifying its marketing mix in sector as well as
asset exposure and the investment in plant and machinery was rationally reduced to 80% of the 1otal portfolio at the :
end of the current year from 84% in the previous year.
During the year, the company was able to mobilize additional resources amounting to Rs. 100 million in the form of
long term loans, Musharika arrangements and certificates of investment.
The total assets as of June 30, 1998 were Rs. 613 million recording on increase of Rs. 70.5 million or 13% over
previous year.
Company Outlook
Lease Pak is a medium sized growth Company which commenced its operation only five years ago and has
recorded a progressive increase in the size of its assets base. However, the present economic conditions require
careful analysis of company's operations. An effective survival strategy calls for a renewed vigor and vision in the
company to foster value added activities and possible alliance building within the industry. In order to achieve the
challenging objectives and goals in front of the company, your Board of Directors have initialed the change
management program. A critical element of the new strategy is in diversification of operations 1o include financial
services and project development functions while at the same time consolidating the gains in the core business of
leasing. The company is making modest investment in restructuring which would position it better to formulate and
implement an action plan which ensures the viability of operations in the immediate future and a fair return to the
shareholders on their investment in the medium term. The risk management and human resource development will be
the prime objectives in front of the management which we intend to put in place in minimum possible time. The next
12-18 months are going to be difficult but particularly challenging as the company seeks enhancement in the
quality of its assets while at the same lime aiming at a selective growth in its operations and overall leverage.
The Millennium Bug
The company has addressed the year 2000 compliance issue in relation to the Computer
hardware and software. The year 2000 compliance has already been ensured in most of the
modules being used by the Company.
Acknowledgements
We wish to acknowledge the support of lending institutions, investors, shareholders who have shown confidence
and extended warm cooperation throughout the year. We also like to thank the Corporate Law Authority and the
State Bank of Pakistan for providing guidance and support as needed.
Finally, we would like to place on record our appreciation for the dedicated work put in by the management and
staff of the company.
For and on behalf of the Board of Directors
M.T. Farooqui
President & CEO
AUDITORS' REPORT TO THE MEMBERS
We have audited the annexed Balance Sheet of Lease Pak Limited as at June 30, 1998 and the related profit and
loss account and statement of sources and application of funds, together with the notes forming part thereof, for the
year then ended and we state that we have obtained all the information and explanations which to the best of our
knowledge and belief were necessary for the purposes of our audit and, after due verification thereof, we report that:
(a) in our opinion, proper books of account have been kept by the Company as required by the Companies
Ordinance, 1984;
(b) in our opinion-
(i) the balance sheet and profit and loss account together with the notes thereon have been drawn up in
conformity with the Companies Ordinance, 1984 and are in agreement with the books of account and
are further in accordance with accounting policies consistently applied;
ii) the expenditure incurred during the year was for the purposes of the Company's business; and
(iii) the business conducted, investments made and the expenditure incurred during the year were in accor-
dance with the objects of the Company;
(c) in our opinion and to the best of our information and according to the explanations given to us, the balance
sheet, profit and loss account and the statement of sources and application of funds, together with the notes
forming part thereof, give the information required by the Companies Ordinance, 1984 in the manner so
required and respectively give a true and fair view of the state of the Company's affairs as at June 30, 1998
and of the profit and the changes in sources and application of funds for the year then ended; and
(d) in our opinion, Zakat deductible at source under the Zakat and Ushr Ordinance, 1980, was deducted by the
Company and deposited in the Central Zakat Fund established under Section 7 of that Ordinance.
Lahore Ford, Rhodes, Robson, Morrow
8-Dec-98 Chartered Accountants
BALANCE SHEET AS AT JUNE 30, 1998
Notes 1998 1997
Rupees Rupees
CAPITAL AND LIABILITIES
SHARE CAPITAL AND RESERVES
Authorised
30,000,000 (1997: 30,000,000)
ordinary shares of Rs. 10/- each 300,000,000 300,000,000
========== ==========
Issued, subscribed and paid-up 4 133,201,800 120,000,000
Reserves
Capital reserve 5 7,639,000 6,699,000
Reserve for contingencies 6 6,500,000 4,040,000
Unappropriated profit 44,236 10,751,848
---------- ----------
14,183,236 21,490,848
REDEEMABLE CAPITAL 7 55,220,000 -
LONG TERM LOANS 8 103,440,269 75,000,001
OBLIGATION UNDER ASSETS SUBJECT TO FINANCE LEASE 9 2,768,809 243,532
DEPOSIT ON LEASE CONTRACTS 10 71,997,084 48,616,256
DEFERRED LIABILITY 11 759, 801 -
CERTIFICATES OF INVESTMENT 12 - 78,000,000
CURRENT LIABILITIES
Current maturity of redeemable capital 48,000,000 -
Current maturity of long term loans 31,708,398 58, 166,666
Current maturity of obligations under
assets subject to finance lease 1,134,656 205,566
Current maturity of deposits on lease contract 5,437,913 4,829,476
Current maturity of Certificates of Investment - 22,000,000
Short term Certificates of Investment 13 45,000,000 54,000,000
Short term finances 14 66,759,256 11,939,866
Redeemable capital 15 12,592,000 27,800,000
Accrued and other liabilities 16 20,800,811 19,648,731
Unclaimed dividend 204,475 134, 139
Income Tax payable 177,111 770,639
---------- ----------
231,814,620 99,495,083
CONTINGENCIES AND COMMITMENTS 17 - -
---------- ----------
613,385,619 542,845,720
========== ==========
PROPERTY AND ASSETS
TANGIBLE FIXED ASSETS 18 15,431,860 12,484,828
NET INVESTMENT IN LEASE FINANCE 19
Minimum lease payments receivable 536,831,707 479,182,239
Add: Residual Value 84,744,987 55,572,890
---------- ----------
Gross lease payments receivable 621,576,694 534,755,129
Less: Unearned finance income 159,264,328 131,186,803
---------- ----------
Net investment in lease finance 462,312,366 403,568,326
Less: Current maturity of net investment in lease finance 114,880,071 120,164,628
Less: Provision for doubtful receivables 768,090 -
---------- ----------
346,664,205 283,403,698
LONG TERM INVESTMENTS 20 37,282,496 40,482,242
LONG TERM ADVANCES 21 4,902,816 2,863,378
LONG TERM DEPOSITS AND DEFERRED COSTS 22 5,627,467 7,510,128
CURRENT ASSETS
Current maturity of net investment in lease finance 19.1 114,692,484 120,164,628
Short term finance considered good 23 35,300,000 52,200,000
Advances, deposits, prepayments
and other receivables 24 28,351,611 8,276,904
Short term investments 25 1,000,100 525,000
Accrued income 26 21,727,102 14,243,535
Cash and bank balances 27 2,405,478 691,379
---------- ----------
203,476,775 196,101,446
---------- ----------
613,385,619 542,845,720
========== ==========
The annexed notes form an integral part of these accounts.
President & CEO Director
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED JUNE, 30, 1998
Notes 1998 1997
Rupees Rupees
REVENUE
Income from leasing operations 28 86,766,663 68,515,106
Income from bank deposits 335,488 336,779
Income an long term investments 29 983,151 1,402,556
Other income 30 10,709,260 12,169,942
---------- ----------
98,794,562 82,424,383
EXPENDITURE
Return on borrowings and financial charges 31 70,290,582 54,222,578
Administrative and operating expenses 32 15,029,417 14,620,320
Amortization of deferred costs 22.1 1,069,784 818,749
---------- ----------
86,389,783 69,661,647
---------- ----------
PROFIT BEFORE PROVISIONS AND TAX 12,404,779 12,762,736
---------- ----------
Provision for diminution in value of shares 5,046,990 -
Provision for doubtful debts 1,665,401 -
---------- ----------
6,712,391 -
---------- ----------
PROFIT BEFORE TAX 5,692,388 12,762,736
PROVISION FOR TAXATION
Prior years 85,273 (57,323)
Current year 914,727 757,323
---------- ----------
1,000,000 700,000
---------- ----------
PROFIT AFTER TAX 4,692,388 12,062,736
UNAPPROPRIATED PROFIT BROUGHT FORWARD 10,751,848 2,142,112
---------- ----------
PROFIT AVAILABLE FOR APPROPRIATIONS 15,444,236 14,204,848
APPROPRIATIONS
Interim dividend @ 10% (1997: Nil) 12,000,000 -
Transfer to capital reserve 940,000 2,413,000
Reserve for contingencies 2,460,000 1,040,000
---------- ----------
15,400,000 3,453,000
---------- ----------
UNAPPROPRIATED PROFIT CARRIED FORWARD 44,236 10,751,848
========== ==========
The annexed notes form an integral part of these accounts.
President & CEO Director
STATEMENT OF SOURCES AND APPLICATION
OF FUNDS (CASH FLOW)
FOR THE YEAR ENDED JUNE 30, 1998
Notes 1998 1997
Rupees Rupees
Net cash from operating activities A 26, 125,872 9,185,342
Cash flow from investing activities
Purchase of fixed assets (4,997,900) (399,000)
Sale proceeds on disposal of fixed assets 257,607 -
Investment in lease finance (136,083,325) (162,131,323)
Repayment of investment in lease finance 77,339,285 51,724,987
Long term investments (1,847,244) 8,799
Long term advances-disbursed (3,975,696) (238,923)
Long term advances-recovered 1,853,768 334,313
Long term deposits and deferred cost (2 805,700) (4,804,000)
---------- ----------
Net cash from investing activities (70,259,205) (115,505,147)
Cash flow from financing activities
Share capital 13,201,800 -
Redeemable capital 3,220,000 -
Long term loans acquired 1,982,000 (6,833,333)
Marginal deposit on lease arrangements 24,650,110 20,241,031
Marginal deposit on lease arrangements- adjusted (660,845) (4,416,319)
Obligation under finance lease - acquired 4,318,975 -
Obligation under. finance lease repaid (864,608) (1,215,181)
Certificates of Investment issued - 100,000,000
Certificates of Investment-repaid - (1,500,000)
---------- ----------
Net cash used in financing activities 45,847,432 106,276,198
---------- ----------
Net increase/(decrease)in cash and cash equivalents 1,714,099 (43,607)
Cash and cash equivalents at the beginning of the year 691,379 734,986
Cash and cash equivalents at the end of the year B 2,405,478 691,379
========== ==========
President & CEO Director
NOTES TO THE STATEMENT OF SOURCES
AND APPLICATION OF FUNDS (CASH FLOW)
FOR THE YEAR ENDED JUNE 30, 1998
1998 1997
Rupees Rupees
A. Cash flow from operating activities
Net profit before tax 5,692,388 12,762,736
Adjustments for:
Depreciation 1,897,255 1,461,237
(Gain)/loss on fixed assets (103,994) -
Provision for doubtful debts 1,665,401 -
Provision for permanent diminution
against long term investments 5,046,990 -
Provision for gratuity 759, 801 -
Amortization of deferred costs 4,658,811 3,579,505
---------- ----------
13,924,264 5,040,742
---------- ----------
Operating profit before working capital changes 19,616,652 17,803,478 .~'~
:,
(Increase)/decrease in:
Short term finance 16,900,000 17,050,000)
Advances, deposits, prepayments and
other receivables (20,672,391) 8,229,475
Short term investments (475,100) (525,000)
Accrued income (7,483,567) 10,924,984)
---------- ----------
(11,731,058) 20,270,509)
Increase/(decrease) in:
Short term Certificates of Investment (9,000,000) 13,110,000
Short term finances 54,819,390 (28,034,609)
Redeemable capital (15,208,000) 8,794,116
Accrued and other liabilities 1,152,080 18,275,000
---------- ----------
31,763,470 12,144,507
---------- ----------
Dividend paid (11,929,664) (93,579)
Income tax paid (1,593,528) (398,555)
---------- ----------
(13,523,192) (492,134)
---------- ----------
Net cash from operating activities 26,125,872 9,185,342
========== ==========
B - CASH AND CASH EQUIVALENTS
Cash and cash equivalents included in cash flow statement comprise only cash and bank
balances as appearing in balance sheet.
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED JUNE 30, 1998
1. LEGAL STATUS AND NATURE OF BUSINESS
The Company was incorporated in Pakistan as a public limited company on September 18, 1991 and is
listed on the Karachi, Lahore and Islamabad Stock Exchanges. It essentially carries on the business of leasing.
It is classified as a Non-Banking Financial Institution by the State Bank of Pakistan under the Banking Companies
Ordinance, 1962.
2. COMPLIANCE WITH IAS
These accounts comply with International Accounting Standards in all material respects.
3. SIGNIFICANT ACCOUNTING POLICIES
3.1 Accounting Convention
The financial statements are prepared under the historical cost convention.
3.2 Tangible Fixed Assets and Depreciation
Owned
Fixed assets for own use are stated at cost less accumulated depreciation. Depreciation on these assets
is calculated applying the straight line method whereby the cost of assets is written off over their estimated
useful lives.
Depreciation on fixed assets is charged proportionately from the month of acquisition upto the month
prior to deletion. Maintenance and normal repairs are charged to income as and when incurred, major
improvements are capitalized. Gain/(Loss)on disposal of fixed assets is taken to income currently.
Leased
Leased assets held under finance lease are stated a! cost less accumulated depreciation of the rates and
basis applicable to company owned assets. The outstanding obligations under the lease less finance
charges allocated to future periods are shown as liability. The finance charges are calculated at the interest
rate implicit in the lease and are expensed.
3.3 Employees' Retirement Benefits
The Company operates recognised contributory provident fund for all it's permanent employees and
contributions are made by the Company and the employees in accordance with the employment rules.
The Company also operates an unfunded gratuity scheme for all it's permanent employees and contributions
are made by the Company in accordance with the employment rules.
3.4 Deferred Costs
These are being amortized over a period of five years beginning with the year of incurrance thereof.
Funds arrangement fee is being amortized over the loan period which is less than five years.
3.5 Investments
Long term Investments
These are stated at moving average cost of the respective entities shares/certificates. However, provision
is made for permanent impairment, if any, on an individual scrip basis. Profit or loss on sale of investment
is taken to income currently.
3.6 Revenue Recognition
The Company follows the "Financing Method" to recognize the income on finance leases. The unearned
finance income i.e., the excess of aggregate lease rentals and the residual value over the cost of the
leased asset is amortized to income over the lease term by applying the annuity method to produce a
constant rate of return on the net cash investment in the lease. Whereby expectation of ultimate recovery
is uncertain, the revenue recognition 1o that extent is postponed till the actual collection thereof.
Dividend income from quoted entities is recognized when right to receive is established.
Income on government securities is recognized by prorata accruals of the differential in costs and
maturity values and/or the coupon role applicable.
Income from short term finance/morabaha is recognized on a time proportion basis.
Project examination, consultancy, commitment and other charges are taken to income when realised.
3.7 Taxation
Current
Income for the purpose of computing current taxation is determined under the provision of the tax law
whereby lease income received or receivable are deemed to be income. Provision for taxation is thus
based on income determined in accordance with the requirements of the tax law.
Deferred
The Company accounts for deferred taxation expense using the liability method on all significant timing
differences which are expected to reverse within the next three years.
3.8 Foreign Currencies
Transactions in foreign currencies are accounted for in rupees at the rate prevailing on the date of the
transaction. Assets and liabilities in foreign currencies are translated into rupees at the rate of exchange
prevailing at the balance sheet date except for liabilities covered under risk exchange coverage scheme
which are translated at the respective booked rates. Exchange difference, if any, arising from translation
at year end is taken to profit and loss account.
1998 1997
Rupees Rupees
4. ISSUED, SUBSCRIBED AND PAID-UP CAPITAL
13,320,180 (1997: 12,000,000)
ordinary shares of Rs. 10/- each
fully paid up in cash 133,201,800 120,000,000
========== ==========
5. SPECIAL RESERVE
Opening Balance 6,699,000 4,286,000
Transferred from profit and loss account 940,000 2,413,000
---------- ----------
7,639,000 6,699,000
========== ==========
This represents special reserve created under Rule-3 of SBP's Rules of Business (Prudential
Regulations) for Non-Banking Financial Institutions.
6. RESERVE FOR CONTINGENCIES
Opening Balance 4,040,000 3,000,000
Transferred from profit and loss account 2,460,000 1,040,000
---------- ----------
6,500,000 4,040,000
========== ==========
This reserve has been created against net investment in lease portfolio to meet unforeseeable future losses.
7. REDEEMABLE CAPITAL
Redeemable Capital under Musharika arrangements 103,220,000 -
Less: Current maturity 48,000,000 -
---------- ----------
55,220,000 -
========== ==========
The Company has arranged medium tern funds under musharika arrangement from a DFI, modaraba and an individual.
The provisional rate of return ranges from 18% to 21% per annum, however, final share in the profit between the Company
and the investors is in the same ratio as their respective contributions.
The redeemable capital is unsecured, non-participatory and non-convertible, except that the facility from modaraba is
secured by specific charge on leased assets of the company.
Period of musharika ranges from two to four year subject to renewal with the mutual consent of the parties.
1998 1997
Rupees Rupees
8. LONG TERM LOANS- SECURED
Commercial banks (Note: 8.1) 90,148,667 133,166,667
Investment banks (Note: 8.2) 30,000,000 -
DFI (Note: 8.3) 15,000,000 -
---------- ----------
135,148,667 133,166,667
Less: Current maturity 31,708,398 58,166,666
---------- ----------
103,440,269 75,000,001
========== ==========
8.1 These represent four demand finance facilities with sanctioned amount of Rs. 145.15 million, for financing
the company's operations. Mark-up ranges from 19% 1o 20% per annum, payable semi annually/quarterly/
monthly. Period of loan ranges from 2 to 3 years and repayable in equal, unequal half yearly, quarterly
and monthly installments. These are secured against specific leased assets and assignment of the lease
rentals of the company.
8.2 These represent two morabaha finance facilities with sanctioned amount of Rs. 30 million, for financing the
company's operations. Mark-up ranges from 19% to 20% per annum. Both the facilities are repayable n
12 equal quarterly installments inclusive of mark up. These are secured against specific leased assets.
8.3 This represents investment facility with a sanctioned amount of Rs. 15 million, for financing the company s
operations. It carries mark up @ 20.50% per annum. The facility is repayable in 12 equal quarterly
installments inclusive of mark-up. The facility is secured against specific leased assets.
9. OBLIGATION UNDER ASSETS SUBJECT TO FINANCE LEASE
The rate of interest used as the discounting factor (i.e. implicit in the lease) is between 17% to 21% per annum. The
amounts of future payments and the periods during which they fall clue are:
1998 1997
Rupees Rupees
Year ending June 30,
1998 - 265,440
1999 1,796,020 272,680
2000 1,523,340 -
2001 1,523,340 -
2002 389,798 -
---------- ----------
5,232,498 538,120
Less: Unamortized future finance charges 1,329,033 89,022
---------- ----------
3,903,465 449,098
Less: Current maturity 1,134,656 205,566
---------- ----------
2,768,809 243,532
========== ==========
The lease rentals are payable in monthly installments. The amount of rentals payable in 1999 and 2001 include
the amount of salvage value adjustable at the end of the lease term. The lease agreements carry renewal option
at the end of lease period but do not contain option to obtain ownership of the leased assets. There are no financial
restrictions in the lease agreements.
10. MARGINAL DEPOSITS ON LEASE ARRANGEMENTS
1998 1997
Rupees Rupees
Marginal deposits on lease arrangements 77,434,997 53,445,732
Less: Current maturity 5,437,913 4,829,476
---------- ----------
71,997,084 48,616,256
========== ==========
These represent interest free security deposits received against lease contracts and are adjustable/repayable at
the expiry of their respective lease periods.
11. DEFERRED LIABILITIES
This represents provision for gratuity.
12. CERTIFICATES OF INVESTMENT
Certificates of Investment - 100,000,000
Less: Current maturity - 22,000,000
---------- ----------
- 78,000,000
========== ==========
These represent amounts accepted by the company from depositors in accordance with the permission to issue
registered certificates of investment granted by the Corporate Law Authority.
Opening balance of COIs has been converted into long term redeemable capital, at the option of the depositors
(Note: 7).
13. SHORT TERM CERTIFICATES OF INVESTMENT.
These represent amounts accepted by the company from depositors in accordance with the permission to issue
registered certificates of investment granted by the Corporate Law Authority.
These certificates are for a period ranging from three months to one year and the return is paid on predetermined
rates as negotiated with respective customers.
14. SHORT TERM FINANCES
Short term finances from:
Investment bank and others- unsecured (Note 14.1) 60,000,000 1,939,866
Investment bank- secured (Note 14.2) 5,000,000 10,000,000
Commercial bank- secured (Note 14.3) 1,759,256 -
---------- ----------
66,759,256 11,939,866
========== ==========
14.1  These represent short term placements for a period of three months. The rates of mark-up range from 19% to 20.90% per annum.
14.2 This represents a discount promissory note facility for a period of three months. It carries mark-up @ 20.50% per annum. It
is secured by way of charge on specific leased assets of the company and assignment of lease rentals.
14.3 This represents a running finance facility and is secured against hypothecation of specific leased assets. The facility carried
mark up @ 20% per annum.
15. REDEEMABLE CAPITAL
The Company has arranged short term funds under musharika arrangements from individual investors for the
operations of the company. The provisional rate of return ranges from 17% to 20% per annum, however, final
share in profit between the company and investors is in the same ratio as their respective contributions.
The redeemable capital is unsecured, non participatory and non convertible.
Period of musharika ranges from three months to one year subject to renewal with the mutual consent of the
parties.
16. ACCRUED AND OTHER LIABILITIES
1998 1997
Rupees Rupees
Accrued mark up on secured long term loans 5,554,054 3,768,135
Accrued mark up on secured short term finances 1,414,068 55,346
Accrued profit on redeemable capital 3,648,977 631,502
Accrued mark up on certificates of investment 5,724,183 12,490,243
Accrued liabilities 490,116 1,393,160
Other liabilities 3,969,413 1,310,345
---------- ----------
20,800,811 19,648,731
========== ==========
17. CONTINGENCIES AND COMMITMENTS
a) Contingencies
Tax demand of Rs. Nil (1997: Rs.400,000) in respect of prior years.
b) Commitments
-Commitment for leases approved but not disbursed to clients was Rs. Nil (1997: Rs. 7,830,000).
18. TANGIBLE FIXED ASSETS
COST DEPRECIATIONS
------------------------------------------------------------------------- Book Value
As at As at Charge As at
July 01, Additions/ June 30, Accumulated for the Rate June 30,
1997 (Deletions) 1998 year % 1998
----------------------------------------------------------------------------------------
(Rupees)
----------------------------------------------------------------------------------------
Freehold land 10,127,500 - 10,127,500 - - - 10,127,500
Furniture and fixtures 1,289,305 118,400 1,319,605 546,908 130,383 10 772,697
(88,100)
Office equipment 2,140,495 553,525 2,319,320 1,400,628 425,246 20 918,692
(374,700)
Vehicles 917,017 1,825,000** 568,420 567,952 141,131 25 468
(2,173,597)
------------------------------------------------------------- -----------
14,474,317 2,496,925 14,334,845 2,515,488 696,760 11,819,357
(2,636,397)
ASSETS SUBJECT TO
FINANCE LEASE
Vehicles 2,785,500 4,325,975 5,286,475 1,673,972 1,200,495 25 3,612,503
(1,825,000)
------------------------------------------------------------- -----------
17,259,817 6,822,900 19,621,320 4,189,460 1,897,255 15,431,860
(4,461,397)
============================================================= ===========
1997 16,860,817 399,000 17,259,817 4,774,989 1,461,237 12,484,828
============================================================= ===========
18.1 (**)Additions to vehicles represent transfer from leased assets at the completion of lease terms.
18.2 Particulars of disposal of fixed assets:
--------------------------------------------------------------------------------------------------------
Original Accumulated Sale Profit Mode of Particulars of purchaser
Cost amortisation Book value proceeds (Loss) disposal
--------------------------------------------------------------------------------------------------------
( R u p e e s )
--------------------------------------------------------------------------------------------------------
Future and fixture 38,100 14,606 23,494 23,494 - Company Mr. C.M. Saleem Cheema
policy (Chief Executive)
Furniture and fixtures 50,000 50,000 28,750 28,750 - Company Mr. Liaquat Ali Naz
policy (Ex-Executive Vice President)
Office equipment 161,900 123,809 38,091 38,091 - Company Mr. C.M. Saleem Cheema
policy (Chief Executive)
Office equipment 150,000 105,000 45,000 45,000 - Company Agha Najeeb Raza
policy (Executive Director)
Office equipment 50,000 37,908 12,092 12,092 - Company Mr. Liaquat Ali Naz
policy (Ex-Executive Vice President)
Office equipment 12,800 6,614 6,186 1,500 (4,686) Insurance New jubilee Insurance
claim
Vehicles 1,023,597 1,023,597 - 51,180 51,180 Company Mr. C.M. Saleem Cheema
policy (Chief Executive)
Vehicle 575,000 575,000 - 28,750 28,750 Company Agha Najeeb Raza
policy (Executive Director)
Vehicle 575,000 575,000 - 28,750 28,750 Company Mr. Liaquat Ali Naz
------------------------------------------------------------- policy (Ex-Executive Vice President)
2,636,397 2,482,784 153,613 257,607 103,994
=============================================================
19. NET INVESTMENT IN LEASE FINANCE
1998 1997
Rupees Rupees
19.1 Current maturity of net investment in lease finance 114,880,071 120,164,628
Less: Provision for doubtful debts 187,587 -
---------- ----------
114,692,484 120,164,628
========== ==========
19.2 The lease rentals receivable in the next financial year
on the existing lease portfolio 197,733,966 180,921,836
========== ==========
19.3 Leases and advances in excess of 20% of paid up capital and free reserves
Following are the parties to whom net investment in lease finance exceeded 20% i.e. Rs.26,649,207
(1997: Rs. 26, 150,370) of the paid-up capital and free reserves of the company:
Group name
Hashoo group 37,733,615 46,196,839
Nasim Saigol group 29,467,961 -
Pakland Cement Limited 43,347,634 34,650,816
Atta group 30,037,331 -
19.4 Year end balance of net investment in lease finance to associated undertakings is Rs. 1,958,049 (1997:
Rs. 2, 892,273).
19.5 Maximum balance of net investment in lease finance due from associated undertakings at the end of any
month during the year was Rs. 2,587,O31(1997: Rs. 3,376,869).
20. LONG TERM INVESTMENTS- at cost
Investment in Listed Companies/Modarabas/Mutual Funds 37,282,496 40,482,242
========== ==========
    No. of shares/
 Modaraba Certificates        Average cost
1998 1997 1998 1997
Rupees Rupees
NAME OF COMPANY
ASSOCIATED UNDERTAKINGS
Soneri Bank Limited 16,598 13,800 622,990 622,990
ICC Textile Mills Ltd. 50,500 50,500 374,530 374,530
OTHERS
MUTUAL FUND
Growth Mutual Fund Limited 88,500 88,500 1,658,475 1,658,475
ICP S.E.M.F 63,300 21,100 2,259,675 1,837,675
Tri Star Mutual Fund Limited 10,000 10,000 178,405 178,405
First Capital Mutual Fund Ltd.                    5,000 5,000 - -
MODARABAS
1st Fidelity Lease Modaraba 9,900 9,900 178,050 178,050
(Formerly First Nishat Modaraba)
First Tri Star Modaraba 25,500 25,500 489,670 489,670
(Managed by: A.R.T Modaraba
Management (Pvt)Ltd.)
First Islamic Modaraba 100,000 100,000 1,000,000 1,000,000
Long Term Venture Capital Modaraba (*) 70,000 70,000 858,350 858,350
First Punjab Modaraba 5,040 5,040 73,296 73,296
LEASING COMPANIES
Askri Leasing Limited 6,000 5,000 183,750 183,750
National Development Leasing
Corporation Ltd. (*) 30,334 28,890 955,880 955,880
National Asset Leasing Corporation Limited 89,600 89,600 1,703,638 1,703,638
Paramount Leasing Limited 2,000 2,000 20,000 20,000
Pakistan Industrial Leasing Corporation Ltd. 10,900 10,900 541,020 541,020
Saudi Pak Leasing Company Ltd.
(Formerly Standard Chartered Mercantile
Leasing Company Limited) 17,416 15,833 789,366 789,366
Union Leasing Limited 34,200 28,500 750,530 750,530
INVESTMENT CO. & BANKS
First Capital Securities Corporation Limited 27,500 25,000 836,900 836,900
First International Investment Bank Limited 11,900 11,900 443,130 443,130
Al Towfeek Investment Bank Limited 15,000 15,000 711,375 711,375
Askri Commercial Bank Limited 37,701 35,901 1,406,205 1,406,205
Bank Al-Habib Limited 11,511 10,010 461,364 461,364
Crescent Investment Bank Limited 4,400 4,400 256,300 256,300
International Investment and
Financial Services Ltd. 21,500 21,500 593,500 593,500
Metropolitan Bank Limited 11,250 9,000 443,475 443,475
Schon Bank Limited 35,000 35,000 775,300 775,300
Union Bank Limited 29,109 29,109 1,048,450 1,048,450
TEXTILE SPINNING
Nishat Chunian Mills Limited 72,240 72,240 1,690,290 1,690,290
Umer Fabrics Ltd 23,616 23,616 511,575 511,575
Taj Textile Mills Limited 77,175 73,500 1,304,375 1,304,375
TEXTILE COMPOSIT
Nishat Mills Limited (Formerly: Nishat Tek Ltd.) 7,116 13,200 620,709 620,709
TEXTILE WEAVING
Shahtaj Textile Mills Limited 22,000 22,000 226,920 226,920
Mohib Exports Limited 50,000 23,500 409,978 409,978
SYNTHETIC & RAYON
Dhan Fibers Limited 50,000 50,000 900,100 900,100
Ibrahim Fibres Limited 2,000 2000 23,700 23,700
SUGAR
Haseeb Waqas Sugar Mills Limited 60,500 60,500 1,100,120 1,100,120
CEMENT
Fecto Cement Limited 7,500 7,500 473,550 473,550
Maple Leaf Cement Factory Limited 77,662 77,662 4,750,950 4,750,950
FUEL AND ENERGY
Sui Northern Gas Pipe Lines Limited 19,173 6,673 482,806 227,831
Elahi Electric Company Ltd. 50,000 50,000 1,082,500 1,082,500
CABLES AND ELECTRIC GOODS
Pak Elektron Limited 6,875 6,875 730,750 730,750
CHEMICALS AND PHARMACEUTICALS
Engro Chemical Limited 20,700 18,000 2,681,500 2,681,500
Fauji Fertilizers Company Limited 100 100 8,570 8,570
ICI Pakistan Limited 125,000 141,000 3,196,364 3,947,950
Ravi Alkalis Limited 50,000 50,000 500,000 500,000
FFC Jordan 110,000 5,000 2,021,105 99,250
---------- ----------
42,329,486 40,482,242
Less: Provision for permanent diminution 5,046,990 -
---------- ----------
37,282,496 40,482,242
========== ==========
20.1 The aggregate market value of above quoted investment at year end was Rs. 10,643,548
(1997: Rs. 16,547,222)
20.2 The company's holding does not exceed 10% of the equity of any investee company.
20.3 All the shares/certificates have a face value of Rs. 10/- each except for those marked (*) which have
a face value of Rs. 5/-each.
20.4 Part of the investments have been made to comply with SBP's Rules of Business
(Prudential Regulations) for Non-Banking Financial Institutions.
1998 1997
Rupees Rupees
21. LONG TERM ADVANCES- Considered good
Advances to:
- Chief Executive 4,512,840 2,990,832
- Executives 753,265 118,142
- Other Employees 76,794 111,997
---------- ----------
5,342,899 3,220,971
Less: Installments recoverable within one year 440,083 357,593
---------- ----------
4,902,816 2,863,378
========== ==========
No loan is outstanding for more than three years.
Maximum amount due at the end of any month during the year from Chief Executive and executives was
Rs.747,407(1997: Rs.3, 118,877) and Rs.2,077,986 (1997: Rs. 244,854).
Advance to Chief Executive represents house building loan given in accordance with his terms of appointment
and is repayable in 168 equal monthly installments at interest rate 7.5% per annum. This advance is approved
by Corporate Law Authority as required under section 195 of the Companies Ordinance, 1984.
Advances to employees represent personal loans given in accordance with the Employees Service Rules and
are repayable in accordance therewith.
22. LONG TERM DEPOSITS AND DEFERRED COSTS
Deposits against assets subject to finance lease 278,750 96,050
Office security deposit 250,000 250,000
Deferred cost (Note 22.1) 5,161,517 7,197,328
---------- ----------
5,690,267 7,543,378
Less: Current portion of deposit on lease contracts 62,800 33,250
---------- ----------
5,627,467 7,510,128
========== ==========
22.1 Deferred Cost
Opening Closing
balance balance
01.07.1997 Additions Amortized 30.06.1998
Rs. Rs. Rs. Rs.
Preliminary expenses 39,067 - 39,067 -
Share issue expenses 1,209,232 - 984,280 224,952
Others 106,422 - 46,437 59,985
-------------------------------------------------
1,354,721 - 1,069,784 284,937
Fund arrangement fee 5,842,607 2,623,000 3,589,027 4,876,580
-------------------------------------------------
7,197,328 2,623,000 4,658,811 5,161,517
=================================================
The above expenditure is carried forward as it confers the benefit of the same to future years.
Amortisation of funds arrangement fee Rs. 3,589,027(1997: Rs.2,760,756) has been classified under "Return an borrowings
and financial charges"
1998 1997
Rupees Rupees
23. SHORT TERM FINANCE
Finance under buy back agreement (Note: 23.1) 300,000 17,200,000
Finance under buy-back agreement (Note: 23.2) 18,000,000 18,000,000
Other finance (Note: 23.3) 17,000,000 17,000,000
---------- ----------
35,300,000 52,200,000
========== ==========
23.1 The Company's terms of financing under buy-back agreements vary between periods of 90 to 365
days with the Company having a right to demand immediate repayment of the entire balance of
purchase price. The markup rate for buy-back agreement range from 20% to 25% p.a. These are
secured by demand promissory notes, hypothecation of stocks, pledge of listed companies shares,
certificates of investment and personal guarantees of the directors of the respective Ioanee companies.
23.2 The Company entered into Musharika agreement with a Modaraba for two years of time. The company,
upon the request of the modaraba has extended the agreement by another year. Provisional role of
return is 24% per annum. This is secured by demand promissory note and letter of hypothecation.
23.3 This represents short term fund placement with an investment bank and carries markup@ 23% per
annum.
24. ADVANCES, DEPOSITS, PREPAYMENTS AND
OTHER RECEIVABLES 1998 1997
Rupees Rupees
Current maturity of long term advances to:
Chief Executive 270,563 191,496
Executives 108,132 97,564
Other employees 61,388 68,533
Current maturity of deposit on lease contracts  (Note: 22) 62,800 33,250
Short term deposit (Note 24.1) 13,048,400 -
Prepayments 242,884 77,666
Lease rentals receivable (Note 24.2) 10,442,076 4,130,540
Advance rent 81,755 47,614
Advance fund arrangement fee 1,407,665 3,474,515
Other receivables 2,625,948 155,726
---------- ----------
28,351,611 8,276,904
========== ==========
24.1 It represents earnest money deposited with Metropolitan Corporation Lahore against "Solid Waste
Management Project", which is in the process of finalization.
1998 1997
Rupees Rupees
24.2 LEASE RENTALS RECEIVABLES
Lease rentals receivable 14,151,800 4,130,540
Less: Provision for doubtful receivable 709,724 -
---------- ----------
10,442,076 4,130,540
========== ==========
25. SHORT TERM INVESTMENTS
This represents investment in Federal Investment Bonds to comply with SBP's Rules of Business (Prudential
Regulations) for Non-Banking Financial Institutions. These carry mark up @15% per annum receivable half
yearly.
26. ACCRUED INCOME
This represents income accrued on advances, FIBs and bank deposits, accounted for on a prorata basis
of the respective transaction.
27. CASH AND BANK BALANCES
Cash in hand 44,325 29,413
Cash at bank
PLS deposit accounts 1,920,255 52,804
Current accounts (Note: 27.1) 440,898 609,162
---------- ----------
2,405,478 691,379
========== ==========
27.1 This includes Rs. 410,000 (1997: Rs. 410,000) deposited with State Bank of Pakistan as required by
SBP's Rules of Business (Prudential Regulations)for NBFIs.
28. INCOME FROM LEASING OPERATIONS
Return on lease contracts 85,339,994 65,725,764
Front end fee 1,081,812 1,387,411
Commitment and other fees 185,000 222,765
Miscellaneous lease income 159,857 1,179,166
---------- ----------
86,766,663 68,515,106
========== ==========
29. INCOME ON LONG TERM INVESTMENTS
Profit on sale of quoted investments 164,819 324,951
Dividend income 818,332 1,077,605
---------- ----------
983,151 1,402,556
========== ==========
30. OTHER INCOME
Markup on long term finance 3,909,999 4,320,485
Markup on short term finance 6,211,009 7,682,297
Markup on loan to Chief Executive 3,234,080 155,910
Profit/(loss) on sale of fixed assets 103,994 -
Miscellaneous income 160,850 11,250
---------- ----------
10,709,260 12,169,942
========== ==========
31. RETURN ON BORROWINGS AND FINANCIAL CHARGES
Markup on long term loans 22,016,656 24,231,637
Markup on short term borrowing 13,128,385 1,040,471
Profit on redeemable capital 15,867,321 2,190,216
Return on Certificates of Investment 14,707,898 23,632,550
Financial charges against assets subject to finance lease 750,306 246,867
Amortisation of funds arrangement fee (Note: 22.1) 3,589,027 2,760,756
Bank charges and others 230,989 120,081
---------- ----------
70,290,582 54,222,578
========== ==========
32. ADMINISTRATIVE AND OPERATING EXPENSES
Salaries, allowances and benefits 7,199,876 6,522,334
Rent 800,433 696,034
Repair and maintenance 278,949 361,468
Utilities 289,087 262,874
Travelling and conveyance 528,654 1,073,443
Vehicle running and maintenance 761,022 844,748
Legal and professional charge (Note: 32.1) 315,400 307,000
Registrar services 70,245 54,000
Telephone and postage 916,678 831,497
Printing and stationery 436,559 353,606
Insurance 730,769 598,046
Fees and subscriptions 415,585 705,692
Entertainment 135,931 155,399
Depreciation (Note: 18) 1,897,255 1,461,237
Donations (Note: 32.2) 5,000 12,500
Advertisements 81,767 37,722
Penalty Note: 32.3) - 13,650
Other expenses 166,207 329,070
---------- ----------
15,029,417 14,620,320
========== ==========
1998 1997
Rupees Rupees
32.1 Legal and professional charges includes auditors'
remuneration and expenses as follows:
Audit fee 75,000 50,000
Out of pocket expenses 10,000 7,500
---------- ----------
85,000 57,500
========== ==========
32.2 The Directors of the company or their spouse had no interest in any of the donees.
32.3 This represents penalty imposed by State Bank of Pakistan for late submission of statistical returns.
33. TAXATION
33.1 Company's tax assessments have been finalised upto assessment year 1996-97 (Accounting year ended
June 30, 1996). Tax losses, subject to assessment by the Tax Department, which are available for carrying
forward as at June 30, 1998, amount to Rs. 110 million (approx.) ((1997: Rs. 131 million (approx.))
33.2 Deferred taxation arising due to timing differences computed under the liability method is estimated at Rs.
46 million, for the year Rs. 1 million (1997: Rs. 45 million, for the year Rs. 10 million). The liability for
deferred taxation is not likely to reverse within the next three years, therefore, no provision has been made
there against.
1998 1997
Rupees Rupees
34. SUMMARY OF TRANSACTIONS WITH
ASSOCIATED UNDERTAKING
Lease facilities provided - 8,277,531
Lease rentals recovered 918,404 4,912,441
35. REMUNERATION OF CHIEF EXECUTIVE, DIRECTORS AND EXECUTIVES
-------------------------------------------------------------------------
   Chief Executive          Director       Executives
1998 1997 1998 1997 1998 1997
-------------------------------------------------------------------------
( R u p e e s )
-------------------------------------------------------------------------
Managerial remuneration 720,000 720,000 480,000 480,000 904,359 1,074,600
Bonus 60,000 60,000 40,000 40,000 64,500 89,550
House rent allowance 324,000 324,000 216,000 216,000 406,961 483,570
Utilities/others 70,261 48,023 104,614 83,158 83,692 92,018
Reimbursement of
medical expenses 59,094 59,898 39,348 40,000 84,117 86,509
Residential telephone
expenses reimbursed 25,897 29,072 67,627 36,356 25,382 21,587
-------------------------------------------------------------------------
1,259,252 1,240,993 947,589 895,514 1,569,011 1,847,834
=========================================================================
Number 1 1 1 1 5 4
=========================================================================
- No fees were paid to directors for attending Board meetings (1997: Rs. Nil)
- The Chief Executive, Director and Executives are also provided with free use of company maintained
cars.
36. GENERAL
- All figures have been rounded off to the nearest rupee.
- Previous year's figures have been rearranged wherever necessary for the purpose of comparison.
President & CEO Director
PATTERN OF SHAREHOLDING
AS AT JUNE 30, 1998
No. of     Shareholding Total
Shareholders From To Shares Held
8 1 100 800
106 101 500 47400
187 501 1000 184600
219 1001 5000 581700
46 5001 10000 354700
14 10001 15000 179000
9 15001 20000 165000
2 20001 25000 45000
2 25001 30000 56000
1 30001 35000 31500
1 35001 40000 40000
3 45001 50000 145500
1 65001 70000 70000
2 75001 80000 158000
1 80001 85000 82000
1 95001 100000 100000
1 100001 105000 104600
1 150001 155000 151500
1 155001 160000 156000
1 165001 170000 170000
3 175001 180000 540000
1 195001 200000 200000
1 200001 205000 201000
2 210001 215000 424000
2 220001 225000 446500
1 225001 230000 230000
1 250001 255000 255000
1 355001 360000 360000
1 430001 435000 433700
1 440001 445000 440500
1 495001 500000 500000
2 585001 590000 1175000
1 595001 600000 600000
1 600001 605000 602000
1 960001 965000 965000
1 1320001 1325000 1320180
1 180001 1805000 1804000
---------- ----------
629 13320180
========== ==========
CATEGORY WISE
Categories of Shareholders Number Shares Held Percentage
INDIVIDUALS 606 8667800 65.072
INVESTMENT COMPANIES 6 1853700 13.916
INSURANCE COMPANIES 1 200 0.001
JOINT STOCK COMPANIES 5 85000 0.638
FINANCIAL INSTITUTIONS 3 1103300 8.282
MODARABA COMPANIES 4 11000 0.082
LEASING COMPANIES 2 54000 0.405
OTHERS 2 1545180 11.600
---------- ---------- ----------
TOTAL: 629 13320180 100.000
========== ========== ==========
OTHERS
ASSOCIATION - - -
ABANDONED PROPERTY - - -
GOVERNMENT AUTHORITIES - - -
MODARABAS MANAGEMENTS - - -
'NON-RESIDENT - - -
FOREIGN COMPANY 1 1320180 9.911
TRUST 1 225000 1.689
---------- ---------- ----------
TOTAL: 2 1545180 11.600
========== ========== ==========
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