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Network Leasing Corporation Limited
Annual Report 1998
CONTENTS
Management
Directors' Report
Operational Review
Auditors' Report
Financial Statements
Pattern of Shareholding
Company Information
Notice of the Annual General Meeting
MANAGEMENT
Board of Directors
Mohammed Elias Sattar
Musaret Siddiqi
Emile HJ Groot Nominee, FMO (Netherlands Development
Finance Company)
Khurshid Hadi Nominee, First Leasing Corporation Limited
Samina Hamid Khan Nominee, Crescent Investment Bank Limited
Hanif A. Sattar
Abdul Qayyum Bux
Yusuf A. Sattar
Asif Siddiqi
Executive Management
Asif Siddiqi FCA Managing Director & CEO
Yusuf A. Sattar FCMA Executive Director - Finance
Musaret Siddiqi FCA Executive Director - Operations
DIRECTORS' REPORT
TO THE SHAREHOLDERS
Your directors have pleasure in presenting to the shareholders the results and the Annual
Report for the year ended June 30, 1998.
Financials
The operating profit for the year ended June 30, 1998 was Rs. 8,364,603. Your directors
propose that profits be appropriated as under:
1998 1997
Rupees Rupees
Operating profit 8,364,603 10,223,540
Taxation - (net) (260,738) (311,364)
--------------- ---------------
Profit after tax 8,103,865 9,912,176
Unappropriated profit brought forward 7,956,542 33501
--------------- ---------------
16,060,407 9,945,677
Appropriations:
Transfer to special reserve (1,620,773) (1,989,135)
Dividend:
Interim paid (10%) (10,000,000) --
Final -- --
--------------- ---------------
Unappropriated profit carried forward 4,439,634 7,956,542
========== ==========
The reason for decrease in the profit for the year under review is as follows:
* the World Bank loan disbursements which started during the year, were made on a
reimbursement basis. This necessitated obtaining fundings at higher markup rates than
being charged by the World Bank, which resulted in additional financial charges
amounting to Rs. 2,397,560. All temporary borrowings have however been repaid. The
benefit of the long term World Bank loan will be reflected in the next year's results.
Year 2000 computer problem
In accordance with the CLA's directive, we are reviewing the entire software. Since the
company started operations in 1995, our computer consultants advise us that systems
developed had a built-in provision for the year 2000. However, we are thoroughly examining
all programmes to determine if any measures would be necessary.
Auditors
The retiring auditors Messrs Ford Rhodes Robson Morrow, Chartered Accountants,
being eligible, offer themselves for re-appointment.
Shareholding pattern
A statement reflecting the pattern of shareholding is attached to the Annual Report.
Acknowledgment
The directors wish to place on record their appreciation for the hard work put in and the
dedication displayed by the staff and the management in performance of their duties.
OPERATIONAL REVIEW
Overview
Network Leasing was formed to provide lease financing and developmental support
services to micro enterprises and cottage industries as its main business.
These enterprises form a vital part of the country's economy. They produce goods
and services for the vast majority of the people and at the same time provide
employment opportunities in urban as well as in rural areas.
Providing credit facilities to this sector is considered to be a sound economic and
business strategy, since it affords the financing institution the opportunity to spread
its risk over a considerably large number of clients, with small exposures.
We are happy to report that our micro leasing operations have progressed
reasonably well. During the month of June 98, disbursements were curtailed due
to the prevailing economic and political situation but normal operations were
resumed again in July 98. We are hopeful that in not too distant a future, the
economic environment in the country would begin to change for the better and we
will continue to expand our outreach for serving the micro enterprises.
Leasing Operations
We started our operations with the fishermen off the coastal areas, where we
financed small fishing boats. We then went to the rural areas and financed the
small farmers for acquiring tractors and agricultural implements. We are now
operational on a country wide scale.
Our clients include cottage industrial units, primary and secondary schools in lower
income areas, small hospitals and clinics, service and repair workshops, small
stores, upcoming professionals such as doctors, lawyers and engineers, small
fishermen and small farmers.
Health and education have been identified as the two key areas which not only
effect the present but coming generations as well. Consequently, considerable
efforts are directed towards these sectors in all lower income areas. Women and
children are the main beneficiaries in these sectors. As mentioned earlier, our
portfolio includes primary schools, high schools, technical training institutes, clinics,
maternity homes and small hospitals.
The separate Women Division established last year is now functioning reasonably
satisfactorily.
Training of the programme officers has been a handicap, as the staff turnover in
this department is higher than normal. The work is undoubtedly tough and therefore
it is difficult to retain the young ladies.
Our endeavor during the period has been to reach the women at the grass root level.
We have succeeded to a certain extent by extending our reach to the main cities and
surrounding villages, but this process will take time since we accord high priority to the
clients' income generating capabilities in order to make the operation sustainable.
Our normal requirement for financing is that the lessee must have been in business
for 3 years. In case of Women Enterprises, this requirement is relaxed. Less than
3 years old and even new businesses are considered for financing. The recovery
rate so far is satisfactory.
Geographical Coverage
During the period under review, regular visits were made by our senior executives
as well as the programme officers to the villages and semi-urban areas in Sindh,
Punjab and NWFP.
The Lahore office has now been functioning for over a year and is generating
sufficient proposals each month. We have kept the disbursements at a low level in
order to see the recovery pattern, which so far has been reasonably satisfactory.
The Peshawar office is now in the process of being re-inforced and activated further
as we have received the CLA's permission.
Peshawar and the surrounding sub-urban areas and the villages offer good potential
for micro leasing. The response we have had so far is encouraging and in the
coming months we hope to increase our activity in the NWFP.
Since we started our operations from Karachi, a large number of our clients are
urban based. The cottage and small industries are in the sub-urban areas and
agriculture and fisheries based clients are rural. As we expand our outreach to
more agricultural based activities, the proportion of the rural clients will increase.
During the period under review, a considerable amount of time was spent by the
senior and middle management on identifying areas and products for rural micro
leasing. Pilot projects have already been started with the leasing of tube well and
other small agriculture related implements.
Institutional Development
The internal systems and control for monitoring the clients were further
strengthened during the period. Since the number of clients had increased, a
number of tasks that were previously done manually, had to be computerised.
Special emphasis was laid on the recovery systems and client monitoring. In-house
expertise on the legal matters and procedures was improved by developing a legal
section. Due to the increase in the number of clients, the number of late payers
and problem cases naturally increased. In order to cope with that, additional staff
was hired and trained.
Support and Training of the Clients
Assisting the client in preparing the financial statements is now standardized.
Our staff prepare the client's financial statements for the last 3 years, with the
help of the information and figures provided by the client. This procedure is followed
in each and every case where the clients cannot prepare the statements
themselves. In cases where the clients have a little knowledge but have not prepared
the accounts, our staff help them prepare the statements.
Some basic documents for clients on cash handling, costing and marketing have
been prepared but we have not had the time to start the training courses. We hope
to do that in the next financial year.
Recoveries
The rental recovery continue to be satisfactory. The overdue rental position of
over 3 months on 30 June 98, according to the Prudential Regulations was 0.44%
of the total portfolio. The provision for potential lease losses was however increased
as a prudent measure.
Most of the over dues are with prior arrangement, such as the fishermen and
some primary schools, and are recoverable eventually. There were 2 willful default
cases. Both lessees have been take to the banking court. We are reasonably hopeful
that in the end the amounts will be recovered. In five other cases the assets were
repossessed and sold in the open market.
Resource Mobilisation
In September 1997, the World Bank started our participation in the Microenterprise
10 year loan. The validity of the Loan expired on 31 March 1998. We have utilized
US$ 1.7 million. The Asian Development Bank Loan (FSIL) disbursements started
in October 1998. This is a 15 years loan with a 3 year grace period. Locally, we
have obtained a term loan from Oman International Bank.
Liaison with other Microcredit Institutions
* Grameen Bank- Bangladesh
Due to the kindness of Professor Muhammad Yunus, the founder of Grameen
Bank, we have established a learning relationship with this profoundly humane
institution.
We have made several visits to Grameen Bank at the invitation of Professor
Muhammad Yunus.
Meeting the Grameen members in the villages is an extremely fulfilling yet
humbling experience. In the process, we learnt a great deal about the Grameen
methodology, systems and procedures.
* Microcredit Summit
"The time has come to recognize microcredit as a powerful tool in the struggle
to end poverty and economic dependence.
We have assembled to launch a global campaign to reach 100 million of the
world's poorest families, especially the women of those families, with credit for
self-employment and other financial and business services, by the year 2005."
This declaration was adopted at' the first ever Microcredit Summit held in
Washington DC in February 1997. The Summit goal is supported by the World
Bank, the regional Development Banks, the UN agencies, the US and other
governments and private commercial and humanitarian institutions.
It was heartening to see the thousands of delegates from some 124 countries,
so enthusiastically committed to the goal of the Summit.
Efforts have already been initiated by the World Bank, the UN and other
development institutions to mobilise the sum of US$ 22 billion needed to provide
credit to the 100 million poorest families around the world.
We were again invited to attend the first follow-up Microcredit meeting held in
New York in June 1998. Mr. Yusuf Sattar represented the company.
Network Leasing is a member of the Council of Practitioners of the Microcredit
Summit Secretariat, Washington, DC.
* DFID (The British Government) is supporting a newly established micro leasing
company in Tanzania. Through the Springfield Development Centre, England,
it invited Network Leasing to provide operational advice to the Tanzanian
company. DFID have appreciated the humble contribution made by NLC.
* St. Mary's University of Maryland USA, is conducting a study on micro finance
and is using NLC as one of the examples of micro credit delivery system.
* SDC (the Government of Switzerland) in its quarterly development journal
published in Geneva, have featured NLC's micro leasing operations as one of
the main events.
Input at the Policy Level
* The Pakistan Development Forum 1998 meetings were held in Islamabad this
year instead of the usual venue, Paris. The World Bank Group (including IFC)
presided over the meeting which was attended by the IMF, the Asian
Development Bank, the European, the U.S. and the Japanese Government
representatives as well as the Government of Pakistan.
The World Bank Group had kindly invited Network Leasing to participate in the
deliberations of the meetings. Mr. Asif Siddiqi represented the company and
presented a paper on micro enterprise development. The paper was distributed
among the participants through the kind courtesy of SDC (the Government of
Switzerland).
Acknowledgement with gratitude
We deeply value the kindness and greatly appreciate the support extended to us
by the sponsoring institutions, the other institutional equity holders and the lenders.
We also acknowledge with deep gratitude the participation of the thousands of
small shareholders in our venture. Our special thanks to our clients, for it is they
who we owe our operations to and the service of whom is our objective.
We are grateful to SDC (the Government Switzerland), the World Bank Group, the
Asian Development Bank and the Ministry of Finance, the Government of Pakistan
for their kindness and the support extended to us.
We take this opportunity to thank the Corporate Law Authority for their continued
support and understanding. Our thanks also to the State Bank of Pakistan for their
valuable advice and guidance.
AUDITORS' REPORT TO THE MEMBERS
We have audited the annexed balance sheet of Network Leasing Corporation Limited
as at June 30, 1998 and the related profit and loss account and cash flow statement,
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 the 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 purpose of the
company's business; and
(iii) the business conducted, investments made and the expenditure incurred
during the year were in accordance 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 cash flow
statement, 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 of the cash flows for the year then ended; and
(d) in our opinion 7akat deductible at source under the Zakat and Ushr Ordinance,
1980 was deducted by the company and deposited in the Central 7akat Fund
established under section 7 of that Ordinance.
sd/-
Karachi Ford Rhodes Robson Morrow
October 27, 1998 Chartered Accountants
BALANCE SHEET AS AT JUNE 30, 1998
Note 1998 1997
Rupees Rupees
TANGIBLE FIXED ASSETS 3 16,103,559 13,122,339
INVESTMENT IN LEASES
Minimum lease payments receivable 202,001,408 168,267,152
Residual value of leased assets 31,202,912 19,424,790
--------------- ---------------
Installment contract receivable 233,204,320 187,691,942
Unearned finance income (44,972,065) (40,708,906)
--------------- ---------------
Net investment in leases 188,232,255 146,983,036
Less: Current maturity of net investment in leases (73,845,024) (53,418,443)
--------------- ---------------
114,387,231 93,564,593
Less: Provision for potential lease losses 4 (1,882,323) (1,102,373)
--------------- ---------------
112,504,908 92,462,220
LONG TERM DEPOSITS 5 294,505 199,490
DEFERRED COSTS 6 1,370,369 3,177,473
CURRENT ASSETS
Current maturity of net investment in leases 73,845,024 53,418,443
Short term investments 7 700,000 700,000
Advances, deposits, prepayments and
other receivables 8 15,796,524 7,329,612
Cash and bank balances 9 15,169,263 13,184,263
--------------- ---------------
105,510,811 74,632,318
--------------- ---------------
235,784,152 183,593,840
========== ==========
SHARE CAPITAL AND RESERVES
Share capital 10 100,000,000 100,000,000
Reserves 11 10,557,918 12,454,053
--------------- ---------------
110,557,918 112,454,053
LONG TERM FINANCES 12 69,869,437 28,408,119
OBLIGATIONS UNDER FINANCE LEASE 13 347,608 18,554
LONG TERM DEPOSITS 14 24,500,543 17,319,237
CURRENT LIABILITIES
Current maturity of long term liabilities 15 23,907,598 15,672,397
Short term running finances 16 -- 4,161,404
Creditors, accrued and other liabilities 17 6,408,081 4,744,546
Unclaimed dividend 192,967 815,530
--------------- ---------------
30,508,646 25,393,877
COMMITMENTS 18 --------------- ---------------
235,784,152 183,593,840
========== ==========
The annexed notes form an integral part of these accounts
The auditors' report is annexed hereto
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED JUNE 30, 1998
Note 1998 1997
Rupees Rupees
INCOME
Income from leasing operations 19 35,135,742 29,475,036
Other Income 20 2,295,908 2,188,004
--------------- ---------------
37,431,650 31,663,040
EXPENDITURE
Direct cost of leases 3,339,141 1,864,996
Administrative and operating expenses 21 13,332,620 11,100,035
Financial charges 22 9,708,471 6,196,275
Amortization of deferred costs 1,807,104 1,807,111
Provision for potential lease losses 879,711 471,083
--------------- ---------------
29,067,047 21,439,500
--------------- ---------------
Operating profit for the year 8,364,603 10,223,540
Taxation
Current 521,683 311,364
Prior (260,945) --
--------------- ---------------
260,738 311,364
--------------- ---------------
PROFIT FOR THE YEAR 8,103,865 9,912,176
Unappropriated profit brought forward 7,956,542 33,501
--------------- ---------------
Profit available for appropriation 16,060,407 9,945,677
Appropriations
Transfer to special reserve 1,620,773 1,989,135
Interim dividend 10% (1997: Nil) per share 10,000,000 --
--------------- ---------------
11,620,773 1,989,135
--------------- ---------------
Unappropriated profit carried forward 4,439,634 7,956,542
========== ==========
The annexed notes form an integral part of these accounts
CASH FLOW STATEMENT
FOR THE YEAR ENDED JUNE 30, 1998
1998 1997
Note Rupees Rupees
CASH FLOW FROM OPERATING ACTIVITIES
Cash generated from operations 1 16,444,646 26,644,172
Income tax paid (4,298,461) (654,026)
Interest / mark-up paid (7,104,607) (5,362,392)
Interest / mark-up received 880,127 2,222,219
Long term deposits (66,650) (46,175)
--------------- ---------------
(10,589,591) (3,840,374)
--------------- ---------------
Net cash generated from operating activities 5,855,055 22,803,798
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of fixed assets (4,881,897) (1,836,203)
Sale proceeds of fixed assets 172,900 106,400
Purchase of short term investments -- (2,826,000)
Sale proceed of short term investments -- 3,342,000
Net investment in lease - net of repayments (41,249,21 9) (20,724,908)
Deferred costs -- (141,389)
--------------- ---------------
Net cash (used in) investing activities (45,958,216) (22,080,100)
CASH FLOW FROM FINANCING ACTIVITIES
Long term finance obtained 57,930,808 12,000,000
Long term finance repaid (11,441,682) (8,087,699)
Short term advance given (334,750) (3,116,250)
Obligations under finance lease obtained 750,000 --
Obligations under finance lease repaid (413,019) (168,456)
Long term deposits obtained 10,380,771 6,223,657
Dividend paid (10,622,563) (9,184,470)
--------------- ---------------
Net cash (used in)/generated from financing activities 46,249,565 (2,333,218)
--------------- ---------------
Net (decrease) / increase in cash and cash equivalents 6,146,404 (1,609,520)
Cash and cash equivalent as at the beginning of the year 9,022,859 10,632,379
--------------- ---------------
Cash and cash equivalent as at the end of the year 2 15,169,263 9,022,859
========== ==========
NOTES TO CASH FLOW STATEMENT
FOR THE YEAR ENDED JUNE 30, 1998
1998 1997
Rupees Rupees
1. Cash generated from operations
Profit for the year before taxation 8,364,603 10,223,540
Adjustment for:
Depreciation on fixed assets 1,763,006 1,318,072
Amortization on deferred costs 1,807,104 1,807,111
Provision for potential lease losses 779,950 471,083
(Gain) on disposal of fixed assets (35,229) (26,307)
Interest / mark-up expense 9,530,662 6,126,325
Interest / mark-up income (966,763) (1,454,609)
Income on short term securities -- (516,000)
--------------- ---------------
12,878,730 7,725,675
--------------- ---------------
Operating profit before working capital changes 21,243,333 17,949,215
(Increase)/decrease in current assets
Short term investment -- 10,000,000
Advances, deposits, prepayments and
other receivables (4,036,167) (1,643,772)
--------------- ---------------
(4,036,167) 8,356,228
Increase/(decrease) in current liabilities
Creditors, accrued and other liabilities (762,520) 338,729
--------------- ---------------
(4,798,687) 8,694,957
--------------- ---------------
16,444,646 26,644,172
========== ==========
2. Cash and cash equivalents
Cash and bank balance 15,169,263 13,184,263
Short term running finance -- (4,161,404)
--------------- ---------------
15,169,263 9,022,859
========== ==========
NOTES TO THE ACCOUNTS
FOR THE YEAR ENDED JUNE 30, 1998
1. The company and its operations
The company was incorporated in Pakistan on August 19, 1993. Commercial
operation effectively began in January 1995. The company is listed on the
Karachi, Lahore and Islamabad Stock Exchanges and is principally engaged in
lease financing of assets.
2. Significant accounting policies
2.1 Accounting convention
These accounts have been prepared under historical cost convention.
2.2 Revenue recognition
Lease income
The company follows the financing method in accounting for recognition of
lease income. Under this method the unearned lease income, that is the
excess of aggregate lease rental and estimated residual value over the
cost of leased asset, is taken to income over the term of lease. A portion
of unearned lease income approximating the costs incurred in writing the
lease, is taken to "income from leasing" at the time of execution of the
lease. The remainder of unearned lease income is taken to income over
the term of the lease, so as to produce a systematic return on net investment
in leases.
Income pertaining to the period falling between rentals due and the year
end is recognised on an accrual basis.
Other income
Return on bank deposits, PLS accounts, saving accounts, certificates of
investments and front end fee are recognized on an accrual basis.
2.3 Taxation
Current
Income for the purpose of computing current taxation is determined under
the provisions of income 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 income
tax law.
Deferred
The company accounts for deferred taxation using the liability method on
timing differences arising from using different methods in the recognition
of lease income for tax and accounting purposes, as well as for all other
significant timing differences. However, deferred taxation is not provided
with respect of those timing differences where it can be established with
reasonable probability that these timing differences will not reverse in the
foreseeable future.
2.4 Fixed assets and depreciation
Owned
Fixed assets are stated at cost less accumulated depreciation. Depreciation
is charged to income applying the straight line method, whereby the cost of
an asset is written-off over its useful life at the rates specified in the note 3 to
the accounts. Major renewals during the year are capitalized.
Leased
Fixed assets acquired through finance lease are included as tangible fixed
assets. The outstanding obligations under lease, less finance charges
allocated to future periods are shown as a liability. The financial charge is
calculated at the mark-up rate implicit in the lease. Depreciation is charged at
the rates which are used for the owned assets.
2.5 Deferred costs
Deferred costs are amortized over a period of five years from the period of
their incurrence, except for arrangement fees for leases which are amortized
over the term of the lease.
2.6 Provision for potential lease losses
The provision for potential lease losses is maintained at a level which, in the
judgement of the management, is adequate to provide for potential losses on
lease portfolio that can be reasonably anticipated.
2.7 Staff retirement benefits
The company operates a contributory provident fund for all its confirmed
employees. Contributions are made by the company and the employees in
accordance with the rules of the fund.
2.8 Short term investments
These are stated at lower of cost and market value.
2.9 Foreign currency translations
Assets and liabilities in foreign currencies are translated into Rupees at the
rates of exchange prevailing at the balance sheet date. Exchange gains and
losses are included in income currently.
3. Tangible Fixed Assets
Cost as at Cost as at Rate Accumulated Depreciation Adjustments Accumulated Written
July 1, Additions/ June 30, depreciation charge on transfer/ depreciation down value
1997 Disposals Adjustments 1998 as at for the year (Disposals) as at
July 1, 1997 June 30, 1998
Rupees Rupees Rupees Rupees % Rupees Rupees Rupees Rupees Rupees
OWNED
Office Premises 7,560,085 1,828,500 -- 9,388,585 2.5 248,752 224,858 -- 473,610 8,914,975
Leasehold Improvements 880,538 122,394 -- 1,002,932 10 187,927 92,783 -- 280,710 722,222
Plant & Machinery -- 524,000 -- 524,000 10 -- 30,567 -- 30,567 493,433
(for lease and resale)
Furniture & Fixtures 2,285,643 629,908 -- 2,915,551 10 415,500 265,655 -- 681,155 2,234,396
Computer Equipment 1,206,314 313,645 -- 1,519,959 20 296,735 281,571 -- 578,306 941,653
Office Equipment 568,564 47,450 148,500 764,514 10 119,272 63,123 48,262 230,657 533,857
Motor Vehicles 2,468,367 666,000 275,000 3,234,767 20 941,602 560,342 165,000 1,630,015 1,604,752
(174,600) (36,929)
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
14,969,511 4,131,897 423,500 19,350,308 2,209,788 1,518,899 213,262 3,905,020 15,445,288
(174,600) (36,929)
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
LEASED
COMPUTER EQUIPMENT 139,850 -- -- 139,850 20 53,609 27,970 -- 81,579 58,271
OFFICE EQUIPMENT 148,500 -- (148,500) -- 10 37,125 11,137 (48,262) -- --
MOTOR VEHICLES 275,000 750,000 (275,000) 750,000 20 110,000 205,000 (165,000) 150,000 600,000
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
563,350 750,000 (423,500) 889,850 200,734 244,107 (213,262) 231,579 658,271
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1998 15,532,861 4,881,897 -- 20,240,158 2,410,522 1,763,006 -- 4,136,599 16,103,559
(174,600) (36,929)
=========================================================================================================================
1997 13,803,058 1,836,203 -- 15,532,861 1,118,757 1,318,072 (26,307)  2,410,522 13,122,339
(106,400)
=========================================================================================================================
3.1 The following owned assets were disposed off during the year:
Net
Description Cost Accumulated book Sale Gain on Mode of
depreciation value proceeds disposal disposal Particulars of buyers
Rupees Rupees Rupees Rupees Rupees
MOTOR VEHICLES
Honda CD- 70 55,400 23,083 32,317 55,400 23,083 Insurance EFU General Insurance Ltd.
Claim Karachi.
Honda CD- 70 59,000 9,833 49,167 59,000 9,833 Insurance EFU General Insurance Ltd.
Claim Karachi.
Suzuki Shogun 60,200 4,013 56,187 58,500 2,313 Insurance EFU General Insurance Ltd.
Claim Karachi.
------------------------------------------------------------------------------------------------
174,600 36,929 137,671 172,900 35,229
============================================================
Note 1998 1997
Rupees Rupees
4. Provision for potential lease losses 1,882,323 1,102,373
========== ==========
A general provision for potential lease losses has been made in accordance with the
accounting policies stated in note 2.6. No specific provision is required, however, to comply
with State Bank of Pakistan's Prudential Regulations governing Non-Banking Financial
Institutions, an amount of Rs. 1,079,501 (1997: Rs. 563,603) has been allocated towards
the provision required by the Prudential Regulations.
5. Long term deposits
Security deposits 170,080 150,080
Lease key money 88,985 56,335
Other deposits 49,425 35,425
--------------- ---------------
308,490 241,840
Less: Current maturity of lease key money (13,985) (42,350)
--------------- ---------------
294,505 199,490
========== ==========
6. Deferred costs
Registration fee and company formation expenses 315,840 315,840
Equity placement, arrangement and administration fee 585,628 585,628
Underwriters' commission 1,928,850 1,928,850
Brokers' and bankers' commission 752,614 752,614
Share issue expense 1,507,180 1,507,180
Net pre-operating expenses 1,234,265 1,234,265
Arrangement fee for leases 1,062,947 1,062,947
--------------- ---------------
7,387,324 7,387,324
Less: Amortization - todate (6,016,955) (4,209,851)
--------------- ---------------
1,370,369 3,177,473
========== ==========
The above costs have been carried forward as they confer benefits to future years.
Note 1998 1997
Rupees Rupees
7. Short term investments
Government securities 7.1 700,000 700,000
========== ==========
7.1 These represent Federal Investment Bonds which have been purchased to comply
with the relevant provisions of the State Bank of Pakistan's rules governing
Non-Banking Financial Institutions. The rate of return on these bonds is 15% per annum.
8. Advances, deposits, prepayments and
other receivables
Advances - considered good
To staff for expenses 56,887 33,274
Income tax - net 4,123,372 85,648
Other 8.1 3,451,000 3,116,250
--------------- ---------------
7,631,259 3,235,172
Deposits
Current maturity of lease key money 5 13,985 42,350
Others 1,250 1,250
--------------- ---------------
15,235 43,600
Prepayments 2,117,107 1,404,004
Other receivables
Accrued income/return on
Short term investments 20,137 20,137
PLS accounts 275,363 188,727
--------------- ---------------
295,500 208,864
Reimbursable expenses 8.2 5,428,910 2,400,000
Others 308,513 37,972
--------------- ---------------
6,032,923 2,646,836
--------------- ---------------
15,796,524 7,329,612
========== ==========
8.1 This represents payment of processing fee for obtaining a long term loan. The
amount will be transferred to deferred costs (note 6) and appropriately treated
once the loan has been granted. If the loan is not granted the amount will be refunded.
8.2 This represents expenses recoverable from a development agency on account
of small and micro enterprise training.
1998 1997
Rupees Rupees
9. Cash and bank balances
At banks
on current accounts 1,526,041 1,293,283
on PLS accounts 1,265,904 1,200,293
on special account with SBP 50,000 50,000
on foreign currency saving account 12,302,942 10,615,170
--------------- ---------------
15,144,887 13,158,746
Cash in hand 24,376 25,517
--------------- ---------------
15,169,263 13,184,263
========== ==========
10. Share capital
Authorised capital
20,000,000 ordinary shares of Rs. 10 each 200,000,000 200,000,000
========== ==========
Issued, subscribed and paid-up capital
10,000,000 ordinary shares of Rs. 10 each
fully paid up in cash 100,000,000 100,000,000
========== ==========
Under the terms of the loan agreement, Swiss Agency for Development and Cooperation
(SDC), a development agency, has an option to convert at any time during the period
of five years from the date of full disbursement of the loan an aggregate amount of
upto Rs. 10,000,000 of the principal amount of the loan into fully paid-up shares of the
company ranking pari passu in all respects with the shares already issued by the
company at the time of the exercise of the option. In terms of the investment, the
shares are to be issued to the agency, at the break-up value per share of the company
at the time when the option for conversion is exercised by the agency (See note 12.2).
11. Reserves
Capital reserve
Special reserve 11.1
Balance at beginning of the year 4,497,511 2,508,376
Transfer from profit and loss account 1,620,773 1,989,135
--------------- ---------------
Balance at end of the year 6,118,284 4,497,511
Revenue reserve
Unappropriated profit 4,439,634 7,956,542
--------------- ---------------
10,557,918 12,454,053
========== ==========
11.1 The special reserve represents profit set aside as required under the relevant
provision of State Bank of Pakistan's rules governing Non-Banking Financial
Institutions.
Note 1998 1997
Rupees Rupees
12. Long term finances - secured
Local currency loans
From The World Bank 12.1 47,930,808 --
From a development agency and a
financial institution
Swiss Agency for Development and
Co-operation(SDC) 12.2 16,875,000 119,687,500
Pak Libya Holding Company (Pvt.) Ltd. 12.3 5,845,621 8,391,468
--------------- ---------------
22,720,621 28,078,968
From banking companies
ANZ Grindlays Bank 12.4 1,250,000 3,750,000
ANZ Grindlays Bank 12.5 3,499,999 5,833,333
Oman International Bank SAOG 12.6 3,749,999 5,000,000
Oman International Bank SAOG 12.7 10,000,000 --
--------------- ---------------
18,499,998 14,583,333
--------------- ---------------
89,151,427 42,662,301
Less: Current maturity (19,281,990) (14,254,182)
--------------- ---------------
69,869,437 28,408,119
========== ==========
12.1 The World Bank has extended the micro enterprise loan through Bankers Equity
Limited (BEL).The mark-up on the above loan in 14% per annum. BEL is paid a
guarantee commission of 2% per annum. Each drawdown is repayable in equal
semi-annual installments in ten years with a grace period for the principal of
three years with payments commencing from 2 September, 2000. The loan is
secured by a floating charge over the company's assets.
12.2 This has been obtained from Swiss Agency for Development and Co-operation
on a sale and repurchase agreement for financing leases to small and micro
entrepreneurs with a sale price of Rs. 22,500,000 and a purchase price of
Rs. 30,178,125. The loan is secured by hypothecation charge on company's
specific leased assets and related receivables. The facility is repayable in 8
equal semi-annual installments which commenced from March 15, 1997. The
development agency has the option to convert part of its loan into equity as
explained in note 10.
12.3 This has been obtained from Pak Libya Holding Company (Pvt.) Ltd. on a sale
and repurchase agreement for financing leasing operations of the company with
a sale price of Rs. 10,000,000 and a purchase price of Rs. 15,143,360. The
loan is secured by floating charge on company's specific leased assets and
related receivables. The facility is repayable in 14 unequal quarterly installments
which commenced from October 15, 1996.
12.4 This has been obtained from ANZ Grindlays Bank on a sale and repurchase
agreement for financing leasing operations of the company with a sale price of Rs.
7,500,000 and a purchase price of Rs. 9,732,124. The loan is secured by registered
hypothecation charge on company's specific leased assets and related receivables.
The facility is also secured by a demand promissory note and is repayable in 6
equal semi-annual installments which commenced from May 13, 1996.
12.5 This has been obtained from ANZ Grindlays Bank on a sale and repurchase
agreement for financing leasing operations of the company with a sale price of Rs.
7,000,000 and a purchase price of Rs. 9,080,055. The loan is secured by registered
hypothecation charge on company's specific leased assets and related receivables.
The facility is also secured by a demand promissory note and is repayable in 6
equal semi-annual installments which commenced from May 26, 1997.
12.6 This has been obtained from Oman International Bank SAOG on a sale and
repurchase agreement for financing leasing operations of the company with a
sale price of Rs. 5,000,000 and a purchase price of Rs. 6,798,058. The loan is
secured by registered hypothecation charge on company's specific leased assets
and related receivables. The facility is also secured by a demand promissory
note and is repayable in 12 equal quarterly installments which commenced from
October 31, 1997.
12.7 This has been obtained from Oman International Bank SAOG on a sale and
repurchase agreement for financing leasing operations of the company with a sale
price of Rs. 10,000,000 and a purchase price of Rs. 13,364,908.The loan is secured
by a registered hypothecation charge on the company's specific leased assets and
related receivables. The facility is also secured by a demand promissory note and is
repayable in 12 equal quarterly installments commencing from November 30,1998.
13. Obligations under finance lease
The aggregate future minimum lease payments to which the company is
committed under the lease agreement and the period in which they will
become due are as follows:
1998 1997
Years ending June 30, Rupees Rupees
1998 -- 253,406
1999 322,889 1 8,629
2000 379,260 --
--------------- ---------------
702,149 272,035
Less: Finance charges allocated to future periods (114,135) (21,003)
--------------- ---------------
588,014 251,032
Less :Current maturity (240,406) (232,478)
--------------- ---------------
347,608 18,554
========== ==========
These obligations represent acquisition of equipment under finance lease facility.
The rate of mark-up implicit in the lease payments is 21% per annum. These are
secured by the security deposits and are repayable in 36 equal monthly installments.
At the end of the lease the ownership of the asset shall be transferred to the company
on payment of residual value amounting to Rs.88,985 (1997: Rs. 56,335).
Note 1998 1997
Rupees Rupees
14. Long term deposits - secured
Lease key money 28,885,745 18,504,974
Less :Current maturity (4,385,202) (1,185,737)
--------------- ---------------
24,500,543 17,319,237
========== ==========
These represent non interest bearing security deposits received against
lease contracts and are repayable/adjustable at the expiry/termination of
the respective lease,
15. Current maturity of long term liabilities
Current maturity of
Long term finances 12 19,281,990 14,254,182
Obligations under finance lease 13 240,406 232,478
Long term deposits 14 4,385,202 1,185,737
--------------- ---------------
23,907,598 15,672,397
========== ==========
16. Short term running finances m -- 4,161,404
========== ==========
A facility has been obtained from Muslim Commercial Bank Ltd. for short term working
capital requirement of the company. The aggregate facility of Rs. 4,500,000
(1997: Rs. 4,500,000) carries a mark-up at the rate of 0.570 paisas per thousand per
day (1997:0.570 paisas per thousand per day) calculated on a daily product basis
payable quarterly. The facility is secured by a registered first hypothecation charge on
the company's specific leased assets and related receivables, a demand promissory
note and personal guarantees of the directors. The facility expires on March 31,1999.
A facility has been obtained form Oman International Bank SAOG for short term working
capital requirement of the company. The aggregate facility of Rs. 4,000,000
(1997: Rs. 4,000,000) carries a mark-up at the rate of 0.493 paisas per thousand per
day (1997:0.493 paisas per thousand per day). The facility is secured by a registered
first hypothecation charge on the company's specific leased assets and related
receivables and a demand promissory note. The facility expires on April 30, 1999.
Note 1998 1997
Rupees Rupees
17. Creditors, accrued and other liabilities
Creditors 112,014 458,398
Mark-up accrued on secured finances
Long term finances 3,558,843 1,180,439
Short term finances 53,063 5,412
--------------- ---------------
3,611,906 1,185,851
Payable to NLCL Employees Provident fund 78,846 57,466
Lease rentals received in advance 2,415,796 2,570,789
Withholding tax payable 25,665 160,331
Other liabilities 163,854 311,711
--------------- ---------------
6,408,081 4,744,546
========== ==========
18. Commitments
for lease financing 230,560 445,000
========== ==========
19. Income from leasing operations
Income from lease contracts 35,135,742 29,155,655
Front end fee -- 319,381
--------------- ---------------
35,135,742 29,475,036
========== ==========
20. Other income
Return on deposit accounts -- 376,988
Return on PLS accounts 497,671 669,229
Return on foreign currency saving account 364,092 171,687
Return on short term investments 105,000 236,705
Gain on disposal of fixed assets 35,229 26,307
Gain on sale of short term investments -- 516,000
Exchange gain 1,293,916 191,088
--------------- ---------------
2,295,908 2,188,004
========== ==========
Note 1998 1997
Rupees Rupees
21. Administrative and operating expenses
Salaries and benefits 6,950,682 5,336,529
Staff welfare and training 181,539 130,201
Depreciation 1,763,006 1,318,072
Rent, rates and taxes 371,120 367,571
Travelling, conveyance & vehicle running expenses 1,301,990 1,333,955
Utilities 739,013 607,869
Entertainment 171,574 255,709
Fee and subscriptions 139,704 143,147
Printing and stationery 489,212 551,911
Postage and courier 149,987 129,768
Legal and professional charges 369,573 352,851
Auditors' remuneration 21.1 113,286 142,703
Office repairs and maintenance 390,439 271,039
Advertisement and promotional expenses 73,216 27,317
Insurance 79,078 65,049
State Bank of Pakistan penalties -- 11,000
Other expenses 49,201 55,344
--------------- ---------------
21.2 13,332,620 11,100,035
========== ==========
21.1 Auditors' remuneration
Audit fee 75,000 65,000
Special audit fee -- 50,000
Tax consultancy fee 17,000 1 9,000
Corporate Service 15,700 --
Other Services -- 1,500
Out of pocket expenses 5,586 7,203
--------------- ---------------
11 3,286 142,703
========== ==========
21.2 These are stated net of Rs. 1,928,910 (1997: Rs. 3,012,039) representing
Rs. 900,000 (1997: Rs. 1,362,039) recovered and Rs. 1,928,910 (1996: Rs. 1,650,000)
recoverable on account of small and micro enterprise training and development costs.
22. Financial charges
Mark-up on secured finances
Long term finances 8,679,888 5,458,846
Short term finances 22.1 705,608 609,844
--------------- ---------------
9,385,496 6,068,690
Mark-up on finance lease 145,166 57,635
Bank charges and commission 177,809 69,950
--------------- ---------------
22.2 9,708,471 6,196,275
========== ==========
22.1 This includes Rs. 339,241 (1997' Rs. 279,811) as mark-up incurred on short
term finances obtained under a musharika agreement from a financial institution.
22.2 These are stated net of Rs. 2,000,000 (1997 · Rs. 750,000) recoverable on
account of small and micro enterprise training and development costs.
23. Deferred taxation
Deferred taxation arising due to timing differences computed under the liability
method is estimated at Rs. 8.666 million (1997: Rs. 7.129 million) of which
Rs. 1.538 million (1 997' Rs. 3.590 million) is in respect of the current year.
The liability for deferred taxation is no likely to reverse in the foreseeable future
and accordingly, no provision for deferred taxation has been made in these
accounts.
24. Remuneration of the Chief Executive, Executive Directors and other Executives
The aggregate amount of expenditure included in the accounts for the year in respect
of remuneration, including benefits to the chief executive, executive directors and
other executives of the company are as follows ·
1998 1997
Chief Executive Other Chief Executive Other
executive directors executives Total executive directors executives  Total
Rupees Rupees Rupees Rupees Rupees Rupees Rupees  Rupees
Managerial Remuneration 648,000 1,400,000 797,658 2,845,658 648,000 1,240,000 478,140 2,366,140
Allowances 312,000 700,000 381,342 1,393,342 312,000 620,000 214,860 1,146,860
Contributory Provident Fund 64,800 140,000 79,764 284,564 64,800 124,000 45,021 233,821
----------------------------------------------------------------------------------------------------------------------------------------------------------
1,024,800 2,240,000 1,258,764 4,523,564 1,024,800 1,984,000 738,021 3,746,821
----------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Persons 1 3 5 9 1 3 2 6
================================================================================================
The chief executive, executive directors and other executives are also entitled to use company
maintained cars and perquisites in accordance with the terms of their employment. All
executives are covered for medical and life insurance. Remuneration of Rs. Nil
(1997 · Rs. 1,500 )was paid to a director for attending board meetings.
1998 1997
Rupees Rupees
25. Transactions with associated undertaking
Short term deposit - advanced -- 5,000,000
Short term deposit - recovered -- 9,000,000
Return on deposit accounts -- 376,988
Arrangement fee -- 141,389
Dividend paid 1,084,200 1,084,200
The transactions with associated undertakings are in the normal course of business
at contracted rates and terms determined in accordance with market rates.
26. General
26.1 Corresponding figures of the previous year have been rearranged
wherever necessary for the purpose of comparison.
26.2 Figures have been rounded off to the nearest Rupee.
PATTERN OF SHAREHOLDING AS AT JUNE 30, 1998
Number Share Total
of holding Shares
Shareholders From To Held
85 1 -- 100 8,500
2067 101 -- 500 1,032,300
35 501 -- 1000 33,800
45 1001 -- 5000 143,100
17 5001 -- 10000 152,600
2 10001 -- 15000 27,000
7 15001 -- 20000 120,500
1 20001 -- 25000 21,000
1 30001 -- 35000 31,000
1 40001 -- 45000 42,500
5 45001 -- 50000 248,400
2 60001 -- 65000 125,200
2 75001 -- 80000 152,000
1 80001 -- 85000 85,000
1 95001 -- 100000 100,000
1 130001 -- 135000 132,500
2 245001 -- 250000 500,000
1 495001 -- 500000 500,000
1 535001 -- 540000 539,500
1 540001 -- 545000 542,500
2 660001 -- 665000 1,328,700
1 845001 -- 850000 850,000
1 995001 -- 1000000 1,000,000
1 1040001 -- 1045000 1,042,500
1 1240001 -- 1245000 1,241,200
--------------- ---------------
2284 10,000,000
========== ==========
Categories Number Total
of of Share- Shares Percentage
Shareholders holders Held
Individual 2271 4,132,800 41.33
Investment Companies 5 3,109,700 31.10
Insurance company 1 4,500 0.05
Joint Stock Companies 3 260,500 2.60
Financial Institutions 3 1,642,500 16.42
Foreign Bank 1 850,000 8.50
--------------- --------------- ---------------
2284 10,000,000 100.00
========== ========== ==========
COMPANY INFORMATION
Registered and Head Office
301 - 302 Gul Tower,
I. I. Chundrigar Road,
Karachi-74000,
Pakistan.
Telephones: 242-4655, 242-4616, 242-4639
Telefax: (92-21) 242-5366, 244-3547
e-mail" micleas@cyber. net.pk
micleas @ ibm. net
World Wide Web : http://www members.xoom.com/microleasing
Lahore Office 67-A/2, Gulberg III, Lahore.
Telephone: (042) 575-0429
Telefax: (042) 571-1919
Peshawar Office 203-206, Block 'B' City Towers,
Jamrud Road, Peshawar.
Telephone: (091) 43401
Telefax: (091) 840178
Lenders and Bankers
The World Bank
The Asian Development Bank
Swiss Agency for Development & Cooperation
Muslim Commercial Bank
ABN-AMRO Bank
ANZ Grindlays Bank
Oman International Bank
Bank of America
Standard Chartered Bank
Auditors
Ford Rhodes Robson Morrow
Chartered Accountants
Legal Advisors
K. Salahuddin
Advocates
High Court & Supreme Court
Stock Exchange Consultants
Sirajuddin Cassim
Stock Brokers and Corporate Consultants
NOTICE OF THE ANNUAL GENERAL MEETING
Notice is hereby given that the Fifth Annual General Meeting of Network Leasing Corporation
Limited will be held at Beach Luxury Hotel, Moulvi Tamizuddin Khan Road, Karachi, on
Monday 30 November 1998, at 11:00 a.m. to transact the following business:
1. To confirm the Minutes of the Fourth Annual General Meeting held on 25 November 1997.
2. To receive, consider and adopt the Audited Accounts of the Company for the year
ended 30 June 1998 together with the Directors' and Auditors' Reports thereon.
3. To appoint auditors and fix their remuneration. The present auditors, Ford Rhodes
Robson Morrow, Chartered Accountants, retire and being eligible, offer themselves
for re-appointment.
4. To transact any other business with the permission of the Chairman.
Notes:
a) The Share Transfer Books of the Company will remain closed from 23
November, 1998 to 30 November, 1998 (both days inclusive).
b) A member entitled to attend and vote at the meeting may appoint another
member as his/her proxy to attend and vote on his/her behalf. Proxies,
in order to be effective, must be received at the Registered Office of the
Corporation duly stamped, signed and witnessed, not later than 48 hours
before the meeting.
c) Members are requested to notify any changes in their addresses
immediately.
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