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Orix Leasing Pakistan Limited
Annual Report 1998
CONTENTS
COMPANY INFORMATION
ORIX CORPORATION, JAPAN - GROUP PROFILE
ASSOCIATED COMPANIES
FINANCIAL HIGHLIGHTS OF THE COMPANY
NOTICE OF MEETING
REPORT OF THE DIRECTORS
AUDITORS' REPORT
FINANCIAL STATEMENTS OF THE COMPANY
PATTERN OF SHAREHOLDING
ORIX GROUP DIRECTORY
COMPANY INFORMATION
BOARD OF DIRECTORS
Mr. Yoshihiko Miyauchi (alternate Mr. Takafumi Kanda) Chairman
Mr. Shakirullah Durrani Vice Chairman
Mr. Takashi Koizumi (alternate Mr. Nagaaki Esaki)
Mr. Takeshi Sato (alternate Mr. Yuki Ohshima)
Sayed Muzafar Ali Shah
Mr. Shaheen Amin
Mr. Mohammad Qamrul Haq
Mr. Humayun Murad Chief Executive
COMPANY SECRETARY
Mr. Ramon Alfrey - ACA
BANKERS AND LENDING INSTITUTIONS
Banks
ABN-AMRO Bank
AI-Faysal Investment Bank Limited
American Express Bank Limited
Allied Bank of Pakistan Limited
ANZ Grindlays Bank Limited
Citibank N.A.
Citicorp Investment Bank Pakistan Limited
Credit Agricole Indosuez
Crescent Investment Bank Limited
Deutsche Bank A.G.
Faysal Bank Limited
First International Investment Bank Limited
Habib Bank Limited
Muslim Commercial Bank Limited
Oman International Bank SAOG
Standard Chartered Bank
Societe Generale, The French and International Bank
The Bank of Tokyo - Mitsubishi Limited
United Bank Limited
DFIs AND LENDING INSTITUTIONS
Asian Development Bank
F. M. O., The Netherlands
International Bank for Reconstruction and Development
International Finance Corporation
Pakistan Kuwait Investment Company (Private) Limited
Saudi Pak Industrial & Agricultural Investment Company (Private) Limited
AUDITORS
Sidat Hyder Qamar Maqbool & Co., Chartered Accountants
LEGAL ADVISORS
Mansoor Ahmad Khan & Co.
Walker Martineau Saleem
REGISTRAR AND SHARE TRANSFER OFFICE
Noble Computer Services (Private) Limited
2nd Floor, Al-Manzoor Building,
Dr. Ziauddin Ahmed Road, Karachi.
REGISTERED OFFICE & HEAD OFFICE
Overseas Investors Chamber of Commerce Building,
Talpur Road, Karachi-74000
Tel: 2426020-9 Fax: 2425897
E-mail: olp@orix-pak.com
BRANCH OFFICES AT
Lahore
State Life Building, Sir Aga Khan III Road (Davis Road), Lahore-54000.
Tel: 6369946, 6301527, 6302620, 6304258, 6301866 and 6302897
Fax: 6305024
Faisalabad
2nd Floor, Sitara Towers, Bilal Chowk, Civil Lines, Faisalabad.
Tel: 633926 and 633811-3 Fax: 633927
Sialkot
1st Floor, Goolam Kadir Arcade, Aziz Shaheed Road, Sialkot Cantt.
Tel: 260767, 260616 and 260877
Fax: 269548
Peshawar
1st Floor, State Life Building, The Mall, Peshawar.
Tel: 279789 and 278647
Fax: 273389
Universal Access Number (UAN): 111-24 24 24
ORIX CORPORATION, JAPAN - GROUP PROFILE
ORIX Corporation is Japan's leading diversified financial services company. Since
establishment in April 1964, the company has played a pioneering role in introducing
leasing services not only in Japan, but also in 21 countries overseas. ORIX dominates the
Japanese leasing industry with a total asset base of US$ 41.8 billion. ORIX emphasizes
innovation in products and services and greater geographical diversification to keep ahead of
market requirements and ensure corporate development.
BUSINESS OPERATIONS
The Company's operations encompass a comprehensive range of advanced financial services
which include direct leases, installment loans, rentals, securities brokerage, venture capital,
futures and option trading, commodities funds, life insurance and real estate related activities.
Japan has been facing a recessionary trend in recent years and in response to the changing
economic scenario, ORIX has worked to enhance its profitability by continuing to expand its
marketing network, strengthen its customer base and increase its level of specialization in
areas of expertise. Greater emphasis is being placed on Operating lease of transportation
equipment including aircrafts, automobiles and marine vessels. ORIX currently has a fleet of
three Boeing 737 and 23 Airbus 320 medium range aircrafts. In addition to its own fleet, ORIX
remains one of the major players in aircraft financing.
ORIX is expanding its marketing activities to individuals while maintaining its corporate
operations. In September 1997, ORIX introduced a new range of directly marketed life
insurance, known as "ORIX Direct", which is targeted towards individual customers. ORIX also
established a "Personal Financial Services" team to promote development of ORIX's personal
financial services. In April 1998, ORIX acquired Yamaichi Trust and Bank Ltd. for broadening
the ORIX Group's range of financial services further and equipping it with settlement and trust
banking capabilities.
INTERNATIONAL NETWORK OF ORIX
ORIX Corporation has spread through wholly owned subsidiaries and joint investment with
financial institutions and other business interest overseas. At present, the network covers 21
countries and comprises of 45 companies. There are 16 wholly owned subsidiaries outside
Japan, which are located in USA, UK, Ireland, Hong Kong, Singapore, Taiwan, Australia, and
New Zealand. Recent additions to the network are Banc One Mortgage Capital Markets, LLC,
a joint venture of ORIX and BANC ONE CORP, which is engaged in securitization and
servicing of loans secured by commercial property. In 1997, ORIX also established a wholly
owned specialist automobile lessor in Brazil by the name of ORIX Auto Locadora Ltda. A
recent inclusion in the ORIX Group of Australia is "Ranger Truck Rental and Leasing Pty. Ltd",
a truck rental concern.
FINANCIAL HIGHLIGHTS
ORIX Group, Japan
(For the year ended March 31)
         Translation into
Japanese Yen (millions)  U.S. Dollars (thousands)
1998 1997 1998 1997
Total Revenues 489,015 411,343 3,668,805 3,086,770
Income before taxes 38,412 36,889 288,184 276,820
Net Income 23,731 19,044 178,040 142,908
Shareholders' Investment 313,821 308,584 2,354,423 2,315,653
Total Assets 5,574,309 5,089,975 41,820,909 38,195,820
Note: The dollar amounts above represent translations of Japanese Yen at an exchange rate of
¥133.29 to US $1.
ORIX'S PRINCIPAL ACTIVITIES
DIRECT FINANCING LEASES
Information-Related and Office Equipment Automobiles
Industrial Equipment Marine Vessels
Construction and Civil Engineering Machinery Aircraft
Commercial Services Equipment
OPERATING LEASES
Measuring and Analytical Equipment Aircraft
Information-Related Equipment Real Estate
Automobiles Marine Vessels
INSTALLMENT LOANS
Corporate Finance Housing Loans
Card Loans
OTHER OPERATIONS
Life Insurance Real Estate Development & Brokering
Securities Brokerage Leisure Facility & Golf Course Management
Trust Banking Training Facilities Management
Securities Investment Hotel Management
Venture Capital Investment Commodities Funds
Futures and Options Trading Professional Baseball Team
Insurance Agency Services Environmental Services
Ship Management Computer Software Development
ASSOCIATED COMPANIES
OVERSEAS JOINT VENTURES
1. Oman ORIX Leasing Company SAOG (OOL)
Established in September 1994, OOL provides lease financing services for moveable assets
such as motor cars, equipment for construction, earth moving, transportation and information
technology and plant and machinery. Lessees include individuals, small and medium sized
companies and large subcontractors operating in various industrial sectors. ORIX Leasing
Pakistan Limited (OLP) holds 20% of OOL's equity and provides management support.
For the year ended December 1997, OOL's profit before tax increased to Rial Omani (RO)
355,833 (Pak Rs. 41.72 million) over last year's RO 230,576 (Pak Rs. 27.03 million) and
declared a cash dividend of 10%. Gross lease receivables stood at RO 13 million (Pak
Rs. 1.5 billion) as compared to RO 8.8 million (Pak Rs. 1billion) at the end of the previous year.
OOL continues to grow rapidly and for the half year ended June 30, 1998 profit before tax
rose to RO 260,096 (Pak Rs. 30.5 million) from RO 142,581 (Pak Rs. 16.7 million) in the
comparative period last year.
The Company's business focus is to concentrate on leasing and hire purchase financing. OOL
has also started operating leases on a limited scale. The market in Oman offers good
opportunity with an expected GDP growth rate of 5% and commencement of various large
projects relating to production of petrochemicals, fertilizers and wastewater.
2. ORIX Leasing Egypt SAE (OLE)
Following the success of OOL in Oman, ORIX Corporation and OLP established their second joint
venture leasing company in the Middle Eastern Region in Egypt. OLP holds 23% of OLE's capital
and provides management support. The company was incorporated in June 1997, with a paid up
capital of Egyptian Pounds 20 million and is a pioneer of the leasing industry in Egypt.
OLE became profitable in its first six months of operations. The company pursues a policy of
targeting small and medium sized enterprises and disbursements are mainly for manufacturing
related equipment. Potential for leasing in Egypt is bright as the government is eager to
promote industries in a fast expanding economy and medium-term credit is scarce.
JOINT VENTURE IN PAKISTAN
ORIX Investment Bank Pakistan Limited (OIB)
OIB is a joint venture sponsored by ORIX Corporation, Japan, International Finance
Corporation, Asian Finance and Investment Corporation (an affiliate of Asian Development
Bank) and other major financial institutions in Pakistan. The Bank is primarily engaged in
providing a range of investment banking products which include corporate advisory services,
project packaging, structuring and placement of capital market debt products, issuance and
discounting of bankers acceptance and treasury operations. As at December 31, 1997, OIB
had a total asset base of Rs. 1.3 billion and a networth of Rs. 211 million while deposits stood
at Rs. 707 million.
FINANCIAL HIGHLIGHTS OF THE COMPANY AS AT JUNE 30, 1998
(Rupees in thousands)
1994 1995 1996 1997 1998
Gross lease receivables 2,406,518 3,535,871 4,752,997 5,281,276 5,017,030
Total lease disbursements 1,051,872 1,559,699 ' 1,957,318 1,725,997 1,473,827
Rents received 778,342 1,040,187 1,446,490 1,596,027 1,897,277
Gross income 320,943 466,777 656,982 782,225 839,083
Profit before tax 60,578 112,983 166,536 157,097 133,894
Shareholders' equity 197,412 570,505 685,872 749,188 820,859
Earning per share (in Rs.) 7.33 6.61 9.22 8.20 6.45
Dividends:
Cash 20% 35% 45% 45% 20%
Bonus 10% 0% 0% 0% 25%
Total 30% 35% 45% 45% 45%
NOTICE OF MEETING
Notice is hereby given that the twelfth Annual General Meeting of the Company will be held at
Overseas Investors Chamber of Commerce Building, Talpur Road, Karachi on Thursday,
November 12, 1998 at 9:00 am to transact the following business:
ORDINARY BUSINESS:
1. To receive, consider and adopt the audited accounts together with the Directors' and
Auditors' Report for the year ended June 30, 1998.
2. To approve the payment of cash dividend to the Shareholders at the rate of Rs. 2/- per
share of Rs. 10/- each for the year ended June 30,1998.
3. To appoint Auditors and fix their remuneration. The present Auditors Messrs. Sidat
Hyder Qamar Maqbool & Co., Chartered Accountants, retire and being eligible, offer
themselves for re-appointment.
SPECIAL BUSINESS:
4. To consider and if approved, pass the following resolution:
"Resolved:
i) That a sum of Rs. 40,277,380/- be capitalised out of the free reserves of the
Company and applied for the issue of 4,027,738 ordinary shares of Rs. 10/- each
and allotted as fully paid up bonus shares to the members of the Company, who are
registered in the books of the Company as at the close of business on November 4,
1998, in the proportion of two shares for every eight shares held and that such new
shares shall rank pari-passu with existing ordinary shares of the Company but shall
not be eligible for dividend in respect of the year ended June 30, 1998.
ii) Further resolved that in the event of any member holding shares which are not an
exact multiple of eight, the Directors be and are hereby authorised to consolidate
all such fractions of bonus shares and sell them in the market and distribute the net
proceeds amongst the Shareholders in proportion to their respective entitlement."
5. To transact any other business with permission of the Chair.
STATEMENT UNDER SECTION 160(1)(b) OF THE COMPANIES ORDINANCE, 1984.
The Directors are of the view that the Company's financial position justifies the capitalisation of
Rs. 40,277,380/- from unappropriated profits and reserves of the Company to enable a bonus
issue in proportion of two shares for every eight shares held.
Notes:
i) The Register of Members of the Company will be closed from November 5, 1998 to
November 12, 1998 (both days inclusive). Dividend will be paid to those Shareholders
whose names appear on the Register of Members as at the close of business on
November 4, 1998.
ii) A Member entitled to attend and vote at the General Meeting of Members is entitled to
appoint a proxy to attend and vote on his behalf. A proxy need not be a Member of the
Company.
iii) The instrument appointing a proxy and the power of attorney or other authority under
which it is signed or a notarially certified copy of the power of attorney must be
deposited at the registered office of the Company at least 48 hours before the meeting.
A form of proxy is enclosed. Shareholders are requested to notify any change of
address immediately.
REPORT OF THE DIRECTORS
The Directors are pleased to present the twelfth Annual Report together with the audited
accounts of the Company for the year ended June 30, 1998.
FINANCIAL RESULTS
Rupees
Net profit for the year after charging all expenses,
including allowance for potential lease losses: 133,893,569
Less: Taxation 30,000,000
---------------
103,893,569
Unappropriated profit brought forward 4,643,293
---------------
108,536,862
Appropriations:
Transfer to General Reserve 30,000,000
Transfer to reserve for issue of bonus shares 40,277,380
Cash Dividend 32,221,906
---------------
102,499,286
---------------
Unappropriated profit carried forward 6,037,576
DIVIDEND
The Directors recommend a cash dividend of 20% (1997: 45%) and a bonus issue of two
shares for every eight shares held.
REVIEW OF OPERATIONS
The past twelve months saw economic turmoil develop in East Asia and affect many
countries in the region. In Pakistan the expected turnaround in the economy did not
materialise and problems compounded in the aftermath of nuclear tests in May 1998. The
combined effect of deteriorating international and domestic economic conditions eroded
business confidence in the Country and consequently investment in industries declined.
The business growth achieved by your Company in the first half of the year was not
sustained in the second half and total volume of new leases for the year amounted to Rs.
1.47 billion, lower by 15% from the corresponding figure of 1997. New rent receivables of
Rs. 2.0 billion were added in comparison to Rs. 2.5 billion in the previous year. Lease
income showed a moderate increase of 3.5% to Rs. 714 million. Shrinking volume,
narrowing margins and a sharp increase in finance costs resulted in a 15% fall in profit
before tax of Rs. 133.9 million (1997: Rs. 157 million). Consequently, earnings per share
reduced from Rs. 8.20 last year to Rs. 6.45. The profit for the year includes dividend income
of Rs. 4.7 million received from Oman ORIX Leasing Company SAOG, an associated
Company.
Financial charges increased by 13% to Rs. 537 million reflecting higher cost of new loans
which replaced old borrowings. Selling, general and administrative expenses were higher
by 15% at Rs. 115 million mainly due to inflationary impact. General provision for potential
bad leases is a safeguard against future unforeseen losses. The charge for the year is Rs.
28.1 million and the total accumulated provision represents 3.85% of the net exposure on
rent receivables. Despite the weak business conditions in which receipts of lease rents
slowed in some cases, the Company received Rs. 1.9 billion in rent recoveries against Rs.
1.6 billion last year.
Demand for industrial machinery continued to decline and accounted for 30% of the total
lease disbursements. Motor cars and commercial vehicles share rose to 61% and the
balance was utilised for computer and office equipment leases. Instalment loans under
consumer finance maintained their share of business and the Company commenced short-
term rentals of equipment under operating lease contracts. Financial assistance was
provided to 1,022 businesses, majority of which were small and medium sized enterprises,
which represent the core customer base of the Company. The lease portfolio of Rs. 5.0
billion is well balanced and the highest exposure to any sector is 18 %.
FUNDING
The Company continues to have adequate funding commitments to meet its business
requirements. New medium-term loans of Rs. 440 million were obtained during the year
from domestic financial institutions and banks.
At the last AGM, shareholders had agreed to a TFC issue of Rs. 410 million with attached
share warrants exchangeable with 4.1 million shares at Rs. 45 each. In March 1998 tax
exemptions on TFCs available to institutional investors were withdrawn. Simultaneously,
the sharp decline of the stock market also affected the Company's share price which fell
below the offer price of Rs. 45 for the proposed share warrants. In view of the market
realities, the Board of Directors decided to defer the TFC issue. Since the need to increase
capital to a minimum of Rs. 200 million is met by the proposal to issue Bonus shares, the
Directors do not contemplate issuing share warrants with future issues of TFCs.
Loans from multilateral lending institutions have been the main source of the Company's
funding due to the advantage of medium to long-term repayment periods and fixed rates of
funding costs. The Company has an excellent record with major multilateral institutions and
hopes to continue this relationship on a long-term basis. In the aftermath of the economic
sanctions imposed on the Country, remittance of foreign currency payments has been
restricted. At the time of writing this Report, two installments due to an international
institution could not be remitted due to lack of permission for payment in foreign currency.
To fulfill its obligation, the Company has deposited the equivalent amount in Rupees in a
segregated account pending official permission, which is expected in the near future.
CREDIT RATING
The Pakistan Credit Rating Agency (PACRA) maintained the Company's credit rating of
A1+ and A1 for short and long term debt based on the results for the year to June 30, 1997.
The Company continues to enjoy the highest rating for both categories in the leasing sector.
ASSOCIATED COMPANIES
Oman ORIX Leasing Company SAOG (OOL) in which your Company holds 20% equity and
provides management support, declared improved results for the year ended December 31,
1997 with profit for the year increasing from Rial Omani 230,576 (Rs. 27 million) in 1996 to
Rial Omani 355,833 (Rs. 41.7 million). The Company has total assets of Rial Omani
13,126,933 (Rs. 1.5 billion) and enhanced the dividend from 7.5% to 10% for 1997.
Business conditions in Oman are good and OOL is expanding at a robust pace.
ORIX Leasing Egypt (OLE) started operations in November 1997. Your Company holds
23% of OLE's equity and provides management support. OLE has established a good
business base and results to date are satisfactory. The Egyptian economy is performing
well and OLE is well placed to avail business opportunities which will increase as the
concept of leasing, which is new in Egypt, becomes familiar.
ORIX Investment Bank Pakistan Limited (OLD) earned a profit before tax of Rs. 7.1 million
in its half year of operations to December 31, 1997 and the bank continues to concentrate
on maintaining a high quality loan portfolio while seeking to improve fee based income from
advisory services. As experienced by other financial institutions in Pakistan, OIB's business
is also impacted by the slow economic conditions prevailing in the Country.
FUTURE PROSPECTS
The future economic conditions remain unclear at present and your Company's strategy will
be to maintain business at existing levels while ensuring that it has sufficient funding to
meet increased demand in the event of a turnaround in the economy. The newly introduced
operating lease business together with the Company's existing consumer finance
operations will help to mitigate stagnation to some extent in the core business of finance leasing.
The Company continues to explore opportunities for investment in the Middle East region
through joint ventures in countries where leasing has good prospects.
DIRECTORS
Mr. Rauf Ahmad Shamsi, a founding shareholder and Director of the Company expired on
October 24, 1997. The late Mr. Shamsi had made an invaluable contribution to the
Company's development since inception and his wisdom and guidance will be missed by
the Company.
Mr. Shaheen Amin, General Manager Oman ORIX Leasing Company SAOG, has filled the
vacancy created by the passing away of Mr. Shamsi. Sayed Muzafar Ali Shah, Chairman of
State Life Insurance Corporation (SLIC) succeeded Mr. Muizuddin Ahmed on the Board
due to the latter's transfer from SLIC. Mr. Yoshiaki Ishida, Deputy President, ORIX
Corporation of Japan relinquished his seat on the Board in favour of Mr. Takashi Koizumi,
Managing Director of International Operations of ORIX Corporation. Mr. Mohammad Aslam,
Chief Executive of ORIX Investment Bank Pakistan Limited and a Director of the Company,
has been transferred to an ORIX Group Company abroad. Mr. Mohammad Qamrul Haq,
General Manager of the Company incharge of Marketing, has been appointed Director to fill
the vacancy created by Mr. Aslam's transfer.
The Directors place on record their appreciation of the services of Mr. Yoshiaki Ishida, Mr.
Muizuddin Ahmad and Mr. Mohammad Aslam and welcome Mr. Takashi Koizumi, Sayed
Muzafar Ali Shah, Mr. Shaheen Amin and Mr. Mohammad Qamrul Haq on the Board.
HOLDING COMPANY