Natover lease & Refinance Limited - Annual Report 2003

Natover Lease & Refinance Limited.

Annual Reports 2003

"NATOVER, as a Non-Banking Finance Company (NBFC) engaged

in the business of Supply of Money principally through Leasing,

Shall continue on its path of creative innovation.

Its transition from True' Lessor to 'Range' Lessor,

addition of ancillary financial services,

geographically expanding net work,

and accumulated skill and experience

will ensure achievement of its goal to become

a Wholesome and versatile finance house.

Company Information

Notice of Meeting

Statement of Compliance

Review of Compliance

Auditors' Report

Balance Sheet

Profit and Loss Account

Cash Flow Statement

Statement of Changes in Equity

Notes to the Accounts

Pattern of Shareholding

Branch Network.

Board of Directors:

Syed Zahid Hasan

Chairman

Mr. Khalid Latif

Director

Syed Dilawar Abbas

Director

Brig. (Retd.) M. Zareef Malik

Director

Mr. Hassan All Fadoo

Director

Mr. Shahid Anwar

N.I.T. Nominee

Mr. Nadeem H. Shaikh

Chief Executive / Director

Company Secretary:

Shahzad Ali ACA

Registered Office:

140, 17th East Street,

Off Main Korangi Road,

Phase-1, Defence Housing

Authority, Karachi.

Tel: (021)5893881-3

E.mail.nlrlho@brain.net.com

Head Office:

2^nd Floor, 75-West,

Eagle Plaza, Fazal-e-Haq Road,

Blue Area, Islamabad.

Tel: (051) 2201532, 2206729

Fax: (051) 2206238,

E.mail.natover@isb.paknet.net.pk

Auditors:

M/s Hyder Bhimji & Company

Chartered Accountants

Legal Advisors:

Mr. Muhammad Aslam Arain

Mr. M.S. Qureshi

Registrar & Shares

M/s. Technology Trade (Pvt) Ltd

Transfer Officer

1st Floor, Westland Trade Centre,

Opp. Flyover, Shaheed-e-Millat Road,

Karachi - 75350

Tel: (021) 4313205, 4313206

Fax: (021) 4313207

NOTICE is hereby given that the 18^th Annual General Meeting of NATOVER LEASE & REFINANCE LIMITED will be held

on Thursday October 09, 2003 at 10:00 a.m. at the Registered Office of the Company at 140,17^th East Street, Off Main

Korangi Road, Phase I, Defence Housing Authority, Karachi, to transact the following business:

ORDINARY BUSINESS:

1. To confirm the minutes of the Annual General Meeting held on 25* October 2002.

2. To receive, consider and adopt the Audited Accounts together with the Directors'and Auditors'Report thereon

for the year ended 30^th June 2003.

3. To Confirm cash dividend @ Rupees 1.50 per share of 15,000,000 15% Preference Shares under the terms

thereof forthe year ended on 30^th June 2003.

4. To appoint Auditors for the year 2003 2004 and to fix their remuneration. The present Auditors, M/s. Hyder

Bhimji & Co. Chartered Accountants, retire and being eligible, offer themselves for reappointment.

SPECIAL BUSINESS:

5. SPECIAL RESOLUTION

To increase the Authorized capital form Rs.400 million to Rs.700 million and if approved, to pass, with or without

modification, the following Special Resolution:

"RESOLVED AS A SPECIAL RESOLUTION THAT the Authorized Share capital of the Company be enhanced

from Rs. 400,000,0007- (Rupees Four Hundred Million) to Rs. 700,000,000 (Rupees Seven Hundred Million)

and the following resolution for amendments in the relevant clauses of Capital in the Memorandum and Articles

of Association be and are hereby approved:

RESOLVED THAT the words and figures "Rs. 400,000,000/- (Rupees Four Hundred Million) divided into

10,000,000 ordinary shares of Rs.10/- each and 30,000,000 preference shares of Rs. 10/- each" as appearing

in Clause V of the Memorandum of Association be substituted by the words and figures "Rs. 700,000,000/-

(Rupees Seven Hundred Million) divided into 10,000,000 (Ten Million) ordinary shares of Rs.10/- each and

60,000,000 (Sixty Million) preference shares of Rs. 10/- each.

RESOLVED THAT the words and figures "Rs. 400,000,000/= (Rupees Four Hundred Million) divided into

10,000,000 ordinary shares of Rs.10/- each and 30,000,000/- Preference shares of Rs. 10/- each" as appearing

in Article - 5 of the Articles of Association be substituted by the words and figures "Rs. 700,000,0007- (Rupees

Seven Hundred Million) divided into 10,000,000 (Ten Million) ordinary shares of Rs.10/- each and 60,000,000

(Sixty Million) Preference Shares of Rs. 10/- each.

FURTHER RESOLVED THAT the Chief Executive Officer and Company Secretary be and are hereby

authorized to take all necessary steps for compliance of all the legal requirements in above behalf."

6. To transact any other business with the permission of the chair.

By Order of the Board

KARACHI: 18^th September 2003

(SHAHZADALI)

Company Secretary

NOTES:

1. The Shares Transfer Books of the Company will remain closed from 02"" October 2003 to 09^th October 2003

(both days inclusive).

2. 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. The instrument appointing a proxy must be received at the Company's

Registered Office not less than 48 hours before the time of holding of the meeting.

3. Any individual Beneficial Owner of the Central Depository Company's accounts, entitled to vote at this

meeting must bring his / her National Identity Card with him / her to prove his / her identity and in case of

proxy, must enclose an attested copy of his / her National Identity Card. Representative of corporate

members should bring the usual documents required for such purpose.

Dear shareholders,

The Directors of the Company are pleased to present before you the Annual Report together with

the Company's audited financial statements with notes thereon and Auditors' Report for the year

ended 30^th June 2003:

Rupees

Profit before taxation for the year ended June 30, 2003

25,632,811

Less: Provision for taxation - Current

350,000

- Prior Year

-317,655

- Deferred

800,000

832,345

Profit after taxation

24,800,466

Dividend on 15% preference shares

22,500,000

Profit available for appropriation

2,300,466

Transferred to statutory reserve

460,093

Profit after appropriation

1,840,373

Accumulated loss brought forward

-17,092,976

Accumulated loss carried forward

-15,252,603

Earning per ordinary share

0.44

REVIEW OF OPERATIONS

AI-Hamdo-lillah, despite challenges like placid economy, unfair competition and the absence of

entrepreneurial vitality in business at large, the performance of the company has been satisfactory.

The operations of the company expanded for the year under review, the investment in hire

purchase/morahaba financing showed growth of 15 % from Rs. 94.33 million to Rs. 108.32 million.

Although substantial decrease of 68 % was recorded in financial charges being the effect of

preference shares, the administrative expenses however, registered an inevitable but reasonable

rise of 13.9%.

The gross income posted an increase of 23 % from Rs.50.60 million to Rs.62.03 million, profit after

tax-depicted increase of 411 % that is from Rs.4.85 million to Rs. 24.80 million, once again due to

preference stock. After payment of preferred dividend @ of 15 % and transfer the profit to statutory

stood at Rs. 1,84 million which brought down the accumulated loss to Rs.15.25 million from

Rs.17.09 million. The basic earning per ordinary share stood at Rs. 0.44.

DIVIDEND

Preference Dividend; Under the terms thereof, the Directors have confirmed cash dividend @

Rs.1.50 per share to the preference share holders for the year ending June 30, 2003.

Ordinary Dividend; The Directors have decided to pass over the dividend to ordinary share for the

current year.

FUTURE OUT LOOK

Despite considerable improvement in major economic indicators like GDP growth, current account

surplus, foreign exchange reserves and reduction in foreign and domestic debt, the economy has

yet to show perceptible improvement in investment activity. Generation of employment

opportunities is essential for prosperous economy, as production requires consumption, which in

turn invigorates demand for credit. The measures for tight fiscal discipline and other reforms

launched more than three years ago by the Authorities, perhaps too much too soon for a country

such as ours, have only resulted in scant public sector investment, which has adversely impacted

down stream private sector investment. The Banking and Finance sector, instead of directing its

energies towards encouraging corporate sector enterprise, appears to have presently opted for

rather an easier course, and focused on consumer finance business.

In keeping with its tradition of survival, Natover as a full range lessor, has taken initiatives to create

new avenues by seeking business opportunities in un-conventional and innovative areas of

business. By aggressively pursuing its specialty, the operating lease wherein by adding risk and

service to supply of money, it has always managed to compete the Company expects to broaden

nationally its relationship base in the area of small and medium indigenous enterprise.

EQUITY ENHANCEMENT

In response to the opportunity presented by the NBFC Rules 2003 to expand its range of financial

activities, the Company has initiated the process to increase its authorized as well as paid up

capital. The company plans to expand its existing pool of issued capital from existing Rs. 202.50

million to Rs. 400 million and authorized capital from present Rs.400 million to Rs. 700 million during

next financial year.

CODE OF CORPORATE GOVERNANCE

To the best of our knowledge and belief, we confirm correctness of the following information in

compliance of Code of Corporate Governance.

• Financial statements prepared by the management of Natover Lease & Refinance

Limited present fairly its state of affairs, the result of its operations, cash flows and

changes in equity.

• Proper books of account of the Natover Lease & Refinance Limited have been

maintained.

• Appropriate accounting policies have been consistently applied in preparation of

financial statements except for the changes as stated in Notes 2.3, 2.9 and 2.11. The

accounting estimates presented in the report are based on reasonable and prudent

judgment.

• International Accounting Standards, as applicable in Pakistan and relevant directive

from the regulatory authority have been followed in preparation of the financial

statements and there was no departure from these standards.

• The system of internal control is sound in design, and has been effectively

implemented and monitored.

• There are no significant doubts upon the ability of the Company to continue as a

going concern.

• The Board of Directors has formed the audit committee consisting of following

members:

1. Syed Zahid Hassan

Chairman

2. Mr. Khalid Latif

Member

3. Mr. Nadeem H. Shaikh

Member

4. Mr. Farokh Niaz

Committee Secretary

• There has been no material departure from the best practices of corporate

governance, as detailed in the listing regulations.

• Pattern of shareholding (name-wise as per the categories specified in the code of

Corporate Governance) is included as an annexure at the end of the report.

• KEY FINANCIAL DATA OF THE LAST SIX YEARS:

2003

2002

2001

2000

1999

1998

Amount in

Rupees

AUTHORISED CAPITAL

400,000,000

100,000,000

ORDINARY SHARE CAPITAL

52,500,000

PREFRENCE SHARE CAPITAL

150,000,000

ORDINARY SHAREHOLDERS'

EQUITY

48,445,381

46,144,915

45,046,049

43,604,400

44,621,589

44,584,323

TOTAL EQUITY

198,445,381

196,144,915

45,046,049

43,604,400

44,621,589

44,584,323

TOTAL ASSETS

353.253,639

272,038,244

234,226,713

183,353,227

126,754,672

122,768,825

NET INVESTMENT IN LEASE

156,999,210

128,646,078

133,543,170

73,435,148

57,857,624

78,172,152

INCOME FROM LEASING

34,377,899

35,567,444

33,292,981

21,738,402

18,502,322

21,072,559

TOTAL REVENUE

62,032,794

50,595,609

41,333,173

26,230,571

24,413,598

21,826,114

PROFIT BEFORE TAXATION

25,632,811

5,653,866

2,351,649

3,840,311

-14,466,154

-10,157,776

TAXATION

-832,345

-805,000

-910,000

(950,0000

14,533,420

640,000

PROFIT AFTER TAXATION

24,800,466

4,848,866

1,441,649

2,890,311

67,266

-9,517,776

EARNING PER SHARE

0.438

0.209

0.275

0.551

0.013

-1.813

Rs.1.5/share

DIVIDEND PER SHARE

Rs.0.75/share

'Preference dividend

per share

• The directors, CEO, CFO, Company Secretary and their spouse and minor children have no

interest in the shares of the Company except for as stated in pattern of shareholding and

they carried out no trade in the share of the Company except forthe following:

Share holdina as at 30^th June

SyedZahid Hasan Chairman

2,500

2,600

100

Mr. Nadeem H. Shaikh - C.E.O.

1,460,771

1,580,717

119,946

MEETING OF THE BOARD OF THE DIRECTORS

Four meetings of the Board of Directors of the Company were held on 26^th September 2002, 28"

October 2002,27^th February 2003, and 28^th April 2003.

Following was the attendance of the Directors:

Name of Director

No. of Meetings Attended

SyedZahid Hassan

Mr. Khalid Latif

Syed Dilawar Abbas

Brig. (Retd) M. Zareef Malik

Mr. Hasan AliFadoo

Mr. Manzoor A. Sheikh

Mr. Nadeem H. Shaikh

After the year-end Mr. Manzoor A. Sheikh, nominee director- representing NIT resigned and has

been succeeded by Mr. Shahid Anwar. The Board places on record its appreciation forthe valuable

contribution made by Mr. Manzoor A. Shaikh during his tenure to the progress of the Company.

TRANSACTIONS WITH ASSOCIATED UNDERTAKINGS

The transactions undertaken with related parties are disclosed in Note 39 to the financial

statements. These transactions have been ratified by the audit committee and approved by the

Board of the directors and it is hereby certified that the Company has:

• recorded all transactions with related parties undertaken during the financial year on arm's

length price using valuation modes, as admissible, in the best interests of the Company in

the books of account of the Company and the Record of Related Party Transactions;

• duly filed with the Commission all required periodic returns in respect of related parties,

which completely and fully disclosed all related parties and transactions with those related

parties during the financial year;

• provided all the aforesaid information, together with the minutes of the board of Directors

meeting wherein the valuation policy and the related party transactions were approved and

the decisions of the Audit Committee ratifying the related party transactions, to the statutory

auditorforthe purposes of the audit; and

• that the statutory auditors of the Company have made no adverse remarks with regard to

the above and the transfer pricing policy of the Company in their audit report on the financial

Statements for the year uder review.

AUDITORS

The present auditors, M/s. Hyder Bhimji & Company - Chartered Accountants are due to retire and

being eligible, offer themselves for reappointment for the year 2003-2004.

ACKNOWLEDGMENTS

On the occasion of 20^th Anniversary of Natover Lease, I on behalf of the Board would like to express

our gratitude to all those who assisted the management to achieve this milestone and place on

record our deep appreciation to all the staff member, specially who joined us twenty years ago and

are still with us.

For and on behalf of the Board

Karachi SyedZahid Hasan

September 15,2003 (Chairman)

This statement is being presented to comply with the Code of Corporate Governance contained in

Listing Regulation No. 37 of the Karachi Stock Exchange and 36 of the Listing Regulations of the

Islamabad Stock Exchange for the purpose of establishing a framework of good governance,

whereby a listed company is managed in compliance with the best practices of corporate

governance.

The Company has applied the principles contained in the Code in the following manner:

1. The Company encourages representation of independent non-executive directors and

directors representing minority interests on its Board of Directors. At present the Board

includes 6 independent non-executive directors including one nominee director

representing NIT.

2. The directors have confirmed that none of them is serving as a director in more than ten

listed companies, including this Company.

3. To the best of our knowledge all the resident directors of the Company are registered as

taxpayers and none of them has defaulted in payment of any loan to a banking company, a

DPI or an NBFC or, being a member of a stock exchange, has been declared as a defaulter

by that stock exchange.

4. No casual vacancies occurred in the Board during the year. However, after the year-end

Mr. Manzoor A. Sheikh, nominee director - representing NIT resigned and has been

succeeded by Mr. Shahid Anwar in due time.

5. The Company has prepared a "statement of ethics and business practices", which has been

signed by all the directors and employees of the Company.

6. The Board has developed a vision/mission statement, overall corporate strategy and

significant policies of the Company. A complete record of particulars of significant policies

along with the dates on which they were approved or amended has been maintained.

7. All the powers of the Board have been duly exercised and the Board has taken decisions

on material transactions, including appointment and determination of remuneration and

terms and conditions of employment of CEO.

8. The meetings of the Board were presided over by the Chairman and the Board met at least

once in every quarter Written notices of the Board meetings, along with agenda, were

circulated at least seven days before the meetings. The minutes of the meetings were

appropriately recorded and circulated.

9. The Board arranged an orientation program for its directors during the year to apprise

them of their duties and responsibilities.

10. The Board has approved the appointment of the Company Secretary and CFO, including

his remuneration and terms and conditions of employment, as determined by the CEO.

There was no change of head of internal audit department during the year.

11. The directors' report for this year has been prepared in compliance with the requirements

of the Code and it fully describes the salient matters required to be disclosed.

12. The financial statements of the Company were duly endorsed by the CEO and the CFO

before approval by the Board.

13. The directors, CEO and executives do not hold any interest in the shares of the Company

otherthan that disclosed in the pattern of shareholding.

14. The Company has complied with all the corporate and financial reporting requirements of

the Code.

15. The Board has formed an audit committee. It comprises three members, two of whom are

non-executive directors including the chairman of the committee. It has overseen an

effective expansion of internal audit function.

16. The meetings of the audit committee were held at least once every quarter prior to

approval of interim and final results of the Company as required by the Code. The terms of

reference of the committee have been formulated and advised to the committee for

compliance.

17. The statutory auditors of the Company have confirmed that they have been given a

satisfactory rating under the quality control review program of the Institute of Chartered

Accountants of Pakistan, and that they or any of the partners of the firm, their spouses and

minor children do not hold shares of the Company and that the firm and all its partners are

in compliance with International Federation of Accountants (IFAC) guidelines on code of

ethics as adopted by institute of Chartered Accountants of Pakistan.

18. The statutory auditors or the persons associated with them have not been appointed to

provide other services except in accordance with the listing regulations and the auditors

have confirmed that they have observed IFAC guidelines in this regard.

19. We confirm that all other material principles contained in the Code have been complied

with.

Karachi NADEEM H.SHAIKH

September 15, 2003 (CHIEF EXECUTIVE)

REVIEW REPORT TO THE MEMBERS ON

STATEMENT OF COMPLIANCE WITH BEST

PRACTICES OF CODE OF CORPORATE GOVERNANCE

We have reviewed the Statement of Compliance with the best practices contained in the Code of

Corporate Governance prepared by the Board of Directors of Natover Lease & Refinance Limited

to comply with the Listing Regulation No. 37 of the Karachi Stock Exchange (Guarantee) Limited

and Regulation No. 36 of the Islamabad Stock Exchange (Guarantee) Limited where the Company

is listed.

The responsibility for compliance with the Code of Corporate Governance is that of the Board of

Directors of the Company. Our responsibility is to review, to the extent where such compliance can

be objectively verified, whether the Statement of Compliance reflects the status of the Company's

compliance with the provisions of the Code of Corporate Governance and report if it does not. A

review is limited primarily to inquiries of the Company personnel and review of various documents

prepared by the Company to comply with the Code.

As part of our audit of financial statements we are required to obtain an understanding of the

accounting and internal control systems sufficient to plan the audit and develop an effective audit

approach. We have not carried out any special review of the internal control system to enable us to

express an opinion as to whether the Board's statement on internal control covers all controls and

the effectiveness of such internal controls.

Based on our review nothing has come to our attention, which causes us to believe that the

Statement of Compliance does not appropriately reflect the Company's compliance, in all material

respects, with the best practices contained in the Code of Corporate Governance.

HYDERBHIMJI&CO.

Chartered Accountants

Karachi: September 15,2003

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of NATOVER LEASE & REFINANCE LIMITED as ;

June 30, 2003, and the related profit and loss account, cash flow statement and statement of changes i

equity together with the notes forming part thereof for the year then ended and we state that we hav

obtained all the information and explanations which, to the best of our knowledge and belief, were necessat

forthe purposes of ouraudit.

It is the responsibility of the Company's management to establish and maintain a system of internal centre

and prepare and present the above said statements in conformity with approved accounting standards an

the requirements of the Companies Ordinance, 1984. Our responsibility is to express an opinion on thes

statements based on ouraudit.

We conducted our audit in accordance with the auditing standards as applicable in Pakistan. Thes

standards require that we plan and perform the audit to obtain reasonable assurance about whether th

above said statements are free of any material misstatement. An audit includes examining, on a test bash

evidence supporting the amounts and disclosures in the above said statements. An audit also include

assessing accounting policies and significant estimates made by management, as well as, evaluating th

overall presentation of the above said statements. We believe that ouraudit provides a reasonable basis fc

our opinion and after due verification, we report that:

a) in our opinion, proper books of accounts have been kept by the Company as required by theCompanie

Ordinance, 1984;

b) inouropinion:

i) the balance sheet and profit and loss account together with the notes thereon have been drawn up i

conformity with the Companies Ordinance, 1984, and are in agreement with the books of accounl

and are further in accordance with accounting policies consistently applied except for the change

as stated in note 2.3, 2.9 and 2.11 to the accounts with which we concur;

ii) the expenditure incurred during the year was forthe purpose of the Company's business; and

iii) the business conducted, investments made and expenditure incurred during the year were i

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, th

balance sheet, profit and loss account, cash flow statement and statement of changes in equity togethe

with the notes forming part thereof conform with approved accounting standards as applicable i

Pakistan, and, give the information required by the Companies Ordinance, 1984, in the manner s

required and respectively give a true and fair view of the state of the Company's affairs as at June 3(

2003, and of the profit, its cash flows and changes in equity forthe yearthen ended; and

d) in our opinion, Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980

was deducted by the Company and deposited in the Central Zakat Fund established under Section 7 (

that ordinance.

HYDERBHIMJI&CO.

Chartered Accountants

Karachi: September 15,2003

BALANCE SHEET

2003

2002

NOTE

Rupees

Share Capital & Reserves

Authorized Capital

400,000,000

Paid-up Capital and Reserves

Preference Shares - paid-up capital

150,000,000

Ordinary Shares - paid-up capital

52,500,000

Statutory Reserve

4,135,484

3,675,391

Capital Reserve - Share Premium Account

6,250,000

General Reserve

812,500

Accumulated Loss

-15,252,603

-17,092,976

Ordinary Shareholders' Equity

48,445,381

46,144,915

Total Equity

198,445,381

196,144,915

Certificates of Investment (COIs) & Security

Payment Notes (SPNs)

25,000

325,000

Redeemable Capital - Secured

10,387,015

1,441,050

Deferred Liability - Staff Retirement Benefits

1,221,000

656,080

Security Deposits

9,494,794

7,689,110

Advance Against Shares /

Subscription-Cum-Financing

33,218,579

4,914,408

CURRENT LIABILITIES

Current Portion of :

-COIs&SPN

43,818,181

5,545,000

- Redeemable Capital

10,942,609

13,508,657

- Security Deposits

5,006,263

6,245,019

Short Term Finance

12,500,000

28,219,605

Creditors, Accrued & Other Liabilities

4,795,750

3,034,892

Unclaimed Dividend

549,067

564,508

Preference Dividend Payable

22,500,000

3,750,000

100,111,870

60,867,681

352,903,639

272,038,244

MEMORANDUM ITEMS

Contingencies & Commitments

AS AT JUNE 30, 2003

2003

2002

NOTE

Rupees

Fixed Assets

Operating Assets - Tangible

Assets Plying for Hire

48,674,891

34,319,200

Assets in own use

21,961,796

10,145,955

70,636,687

44,465,155

Capital Work in Progress

20,000,000

33,825,000

Investment in Leases, Hire Purchase and

Morabaha Financing

57,319,472

39,558,821

Deferred Taxation

12,700,000

13,500,000

Long Term Investments

1,891,914

1,443,708

Long Term Deposits & Prepayments

1,294,223

689,190

Current Assets

Current Portion of Lease, HP Receivables

and Morabaha Financing

50,004,848

53,768,057

Lease Assets - Idle Stock

3,901,417

1,876,500

Fixed Income Securities - Trading Stock

78,784,400

53,195,000

Short Term Financing

15,145,832

10,678,953

Rentals Receivable

5,112,341

3,475,717

Advances, Pre-Payments and Other Receivables

8,975,485

11,777,113

Cash & Bank Balances

27,137,020

3,785,030

189,061,343

138,556,370

352,903,639

272,038,244

NOTE : Rentals due in the following 12 months under operating leases as at June 30, 2003 amounts to

Rs. 15,611,776 (2002 : Rs. 16,012,134)

PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED JUNE 30, 2003

2003

2002

NOTE

Rupees

Rental Income

19,780,755

21,114,477

Hire Purchase and Morabaha Income

14,597,144

14,452,967

Ancillary Financial Services Income

25,466,844

13,077,266

Other Income

2,188,053

1,946,437

62,032,796

50,591,147

Less: Expenses :

-Operating

13,399,488

13,600,885

-Administrative

17,802,249

15,624,069

-Financial

5,198,248

15,712,327

36,399,985

44,937,281

Profit before Taxation

25,632,811

5,653,866

Taxation

832,345

805,000

Profit after Taxation

24,800,466

4,848,866

Dividend on 1 5% Preference Shares

22,500,000

3,750,000

Profit Available for Appropriation

2,300,466

1,098,866

Transferred to Statutory Reserve

460,093

969,773

Profit after Appropriation

1,840,373

129,093

Accumulated Loss Brought Forward

-17,092,976

-17,222,069

Accumulated Loss Carried Forward to Balance Sheet

-15,252,603

-17,092,976

Basic Earning per Ordinary Share

0.44

0.21

NOTE: The annexed notes form an integral part of these financial statements.

NADEEM H. SHAIKH SYED ZAHID HASAN

( CHIEF EXECUTIVE ) ( CHAIRMAN )

Karachi

September 15, 2003

CASH FLOW STATEMENT

FOR THE YEAR ENDED JUNE 30, 2003

2003

2002

Rupees

Cash flows from operating activities

25,632,811

5,653,866

Profit before taxation

Adjustments for :

14,308,083

14,319,288

Depreciation

-566,136

4,462

(Surplus) / diminution in value of Investments

713,950

78,917

Provision for staff retirement benefits

-2,016,160

-2,635,034

Gain on disposal of assets

38,072,548

17,421,499

Operating Profit before working capital changes

Decrease / (Increase) in rental receivables, advances,

1,336,665

-5,138,266

prepayments and other receivables

-13,997,442

-9,153,550

Investment in lease / HP / morabaha

22,977,712

-12,174,784

Decrease / (Increase) in Idle lease stock & securities stock

-4,466,879

-1,317,010

Increase in short term financing

566,928

942,061

Increase in deposits from customers

-15,719,605

-19,155,708

Decrease in short term finance

1,760,858

698,815

Increase in creditors, accrued and other liabilities

-7,541,763

-45,298,442

Cash used in operating activities

-204,006

-305,000

Taxation paid

-149,030

Payment of staff retirement benefits

-7,894,799

-45,603,442

Net cash used in operating activities

Cash flows from investing activities

-29,608,285

(38,426,309)1

Addition in fixed assets

7,943,937

6,657,270

Proceeds from sale of fixed assets

-605,033

6,400,000

(Increase) / decrease in Long term deposits & prepayments

-448,206

-152,000

Increase in Long term Investments

-22,717,587

-25,521,039

Net cash used in investing activities

Cash flows from financing activities

37,973,181

-68,445,244

Receipts / (Repayment) against COIs & SPN

28,304,171

-2,544,585

Increase / (decrease) in subscription-cum-Financing

150,000,000

Increase in paid up capital

-3,765,441

-51,339

Dividend paid

6,379,917

-28,560,252

Receipts / (repayment) against NRN

68,891,828

50,398,580

Net cash from financing activities

76,351,990

-3,304,402

Net increase / (decrease) in cash and cash equivalents

3,785,030

7,089,432

Cash and cash equivalents at July 01 , 2002 / 2001

80,137,020

3,785,030

Cash and Cash equivalents at June 30, 2003 / 2002 A

A.- Cash and Cash equivalents at June 30, 2003 / 2002

27,137,020

3,785,030

Cash and bank balances

53,000,000

Term deposit receipts

80,137,020

3,785,030

NOTE: The annexed notes form an integral part of these financial statements.

NADEEM H. SHAIKH

( CHIEF EXECUTIVE )

STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED JUNE 30, 2003

CAPITAL

STATUTORY

GENERAL

ACCUMULATED

TOTAL

CAPITAL

RESERVE

LOSS

EQUITY

Rupees

Balance as at July 01 , 2001

52,500,000

6,250,000

2,705,618

812,500

-17,222,069

45,046,049

Increase in paid-up capital

150,000,000

Profit for the year

4,848,866

1 5% Preference dividend

-3,750,000

Transfer to statutory reserve

969,773

-969,773

Balance as at June 30, 2002

202,500,000

6,250,000

3,675,391

812,500

-17,092,976

196,144,915

Profit for the year

24,800,466

15% Preference dividend

-22,500,000

Transfer to statutory reserve

460,093

-460,093

Balance as at June 30, 2003

202,500,000

6,250,000

4,135,484

812,500

-15,252,603

198,445,381

NOTE: The annexed notes form an integral part of these financial statements.

NADEEM H. SHAIKH SYED ZAHID HASAN

( CHIEF EXECUTIVE ) (CHAIRMAN)

Karachi

September 15, 2003

NOTES TO THE ACCOUNTS

FOR THE YEAR ENDED JUNE 30, 2003

1 STATUS AND NATURE OF BUSINESS

Incorporated in Pakistan on December 20, 1984 as a Private Limited Company, Natover was converted into Public Limited

Company on September 25, 1988 It is listed on the Karachi & Islamabad Stock Exchanges and is classified as Non

Banking Finance Company ("NBFC"). The principal business of the Company is leasing, and as a full range lessor, its

product portfolio includes finance lease, Hire purchase and cancelable operating lease of all permissible assets. Its ancillary

business includes trading in fixed income securities and other financial services.

2 SIGNIFICANT ACCOUNTING POLICIES

2.1 Statement of Compliance

The financial statements have been prepared in accordance with the approved accounting standards, as applicable in

Pakistan and requirements of the Companies Ordinance, 1984. Approved accounting standards comprise of such

International Accounting Standards (lASs) as notified under the provisions of Companies Ordinance, 1984. Wherever the

requirements of the Companies Ordinance, 1984 or directives issued by Securities and Exchange Commission of Pakistan

(SECP) differ with the requirements of these standards, the requirements of the Companies Ordinance, 1984 or the

requirements of the said directives take precedence

2.2 Accounting Convention

These financial statements have been prepared under the historical cost convention, except that certain financial

instruments have been included at fair value in accordance with the recognition / measurement criteria mentioned in the

relevant international accounting standards applicable to such instruments.

2.3 Taxation

2.3.1 Current

The provision for current taxation is based on taxable income at current rates of taxation after considering admissible tax

credit, rebates it any, or minimum tax liability at half percent of turnover, whichever is higher.

2.3.2 Deferred

During the current year, the Company has changed its accounting policy in respect of deferred taxation. The change has

been made to comply with the requirements of the revised International Accounting Standard -12 : "Income Taxes" which

became applicable for financial periods beginning on or after January 1, 2002. Accordingly, deferred tax is now recognized

on all major temporary differences between the carrying amount for financial reporting purposes and the amounts used for

taxation purposes. Until last year, the Company accounted for deferred taxation on all material timing differences using the

liability method. The change in accounting policy did not have any material effect on the profit and loss account for the year.

2.4 Fixed Assets - Tangible

These are stated at cost less accumulated depreciation Depreciation is charged to income applying straight-line method at

the rates specified in Note 13 No depreciation is charged on the assets in the month of acquisition while full month's

depreciation is charged in the month of disposal

Maintenance and normal repairs are charged to income as and when incurred Major renewals and replacements are

capitalized. Profit or loss on disposal of fixed assets is included in current income.

Capital Work in progress is stated at Cost.

2.5 Lease Assets - Idle Stock

Assets acquired for the purpose of lease / H.P, and held for delivery to clients, are stated at cost.

Lease assets when returned or re-possessed are transferred to lease assets - idle stock. Idle assets pertaining to operating

lease are stated at written down value at the time of such transfer and idle assets pertaining to Finance lease and H.P. are

presented at amount receivable from client. Profit or loss on disposal of idle assets is included in current income.

2.6 Leasing Operations

The aggregate lease receivables less unearned income are recorded as net investment in leases in case of Hire Purchase

and Finance Lease. Assets leased under the terms of operating lease are stated as provided in Note 2.4, above.

2.7 Revenue Recognition

Rental income from assets on operating lease is recognized on accrual basis.

The unearned income portion of the aggregate lease contract receivables is taken into income over the term of lease

commencing with the month of execution, on a pattern reflecting a generally constant rate of return on net investment

outstanding.

Profit on morabaha and short term financing is accrued on time proportion basis.

Interest income is recognized on accrual basis.

Dividend income is recorded when the right to receive is established.

Income from reverse repurchase transactions is recognized on a time proportion basis.

Capital gains or losses on sale of investments are taken to income in the period in which they arise.

Processing/ front end fees, commitment fee, commission and penal charges are taken to income when realized.

2.8 Provision for Potential Lease Losses

Provision for doubtful receivables is made as required by relevant legislation and which in the judgment of the management

is sufficient to provide for any potential lease losses The recognition of annual charge and reversal of such amount is taken

through the profit and loss account.

2.9 Investments

During the current year, the Company has changed its accounting policy in respect of investments. The change has been

made to comply with the requirements of IAS -39 : "Financial Instruments : Recognition and Measurement" which became

applicable from the current year. Accordingly, investments are recognized as mentioned below. Until last year, the Company

used to account for the investments at fair value and charged the resultant amount to profit and loss account. The change in

accounting policy did not have any material effect on the profit and loss account for the year.

2.9.1 Investments Held for Trading

Investments which are acquired principally for the purpose of generating a profit from short term fluctuations in the price or

dealer's margin are classified as held for trading. These are stated at their fair values with any resulting gains or losses

recognized directly in the profit and loss account.

2.9.3 Investments Available for Sale

These represent the investments in equity instruments (including listed securities) and other securities which are stated at

their fair values with any resulting gains or losses recognized directly in profit and loss account. The fair value of these

investments is determined on the basis of year end bid prices.

2.10 Securities Purchased and Sold under Resale / Repurchase Agreement

The Company enters into transactions of repurchase (Repo) and resale (Reverse Repo) of securities (including

Government Securities) at contracted rates for specific periods of time. Securities sold under repurchase obligations and

securities purchased under resale obligations are recorded as liabilities and assets respectively. The differential in sale/

purchase price and resale/ repurchase price is accrued and recorded as cost / return earned.

2.11 Staff Retirement Benefits

The Company operates an un-funded Gratuity Scheme for all it's employees on completion of prescribed period of service.

To comply with the requirements of IAS -19, "Employee benefits" Company has changed its policy and now the provision is

made as per actuarial valuation of the scheme. The actuarial valuation of scheme was conducted on June 30, 2003. The

valuation uses the Projected Unit Credit Actuarial Cost Method and a discount rate of 6% per annum. It assumes that

salaries will increase by 5 % per annum. Previously, annual provision was made to cover the obligation. The effect of

change in policy and it's recognition is specified in Note 7.

2.12 Offsetting

A financial asset and financial liability is off-set and the net amount is reported in the balance sheet if the Company has a

legal enforceable right to set-off the transaction and also intends either to settle on a net basis or to realize the asset and

settle the liability simultaneously. Corresponding income on the assets and charge on the liability is also set-off.

2.13 Cash and Cash Equivalents

Cash and cash equivalents are carried in the balance sheet as provided in Note 2.2 above. Cash equivalents are highly

liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant risk of

changes in value.

2.14 Foreign Currency Transactions

Foreign currency transactions are translated into Pak Rupees at the exchange rates prevailing on the date of transaction.

Assets and liabilities in foreign currencies are translated into Pak Rupees at the exchange rates prevailing at the balance

sheet date. Exchange differences are taken to profit and loss account

2.15 Provision

Provision is recognized when the Company has a present legal or constructive obligation as a result of past events and it is

probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be

made.

2.16 Financial Instruments

Financial instruments include investments receivables, cash and bank balances, creditors and others liabilities. The

particular recognition methods adopted are disclosed in the individual policy statements associated with each item.

2.17 Borrowing Costs

The borrowing costs including interests are charged to profit and loss account in the year in which they are incurred .

2003

2002

Rupees

3 AUTHORIZED CAPITAL

30,000,000 (2002 : 30,000,000) Preference Shares

of Rs.10/-each.

300,000,000

10,000,000 (2002 : 10,000,000) Ordinary Shares

of Rs.10/-each.

100,000,000

400,000,000

3.1 To exercise it's options to expand the product portfolio as now allowed under the NBFC rules, the Company has

commenced the process to increase the authorized capital to Rs. 700.00 million.

2003

2002

Rupees

4 ISSUED, SUBSCRIBED AND PAID-UP CAPITAL

15,000,0007- (2002 : 15,000,000) 15% Preference

Shares of Rs. 10 /-each issued for cash.

150,000,000

4,750,000 (2002 : 4,750,000) Ordinary Shares

of Rs. 10 /-each issued for cash.

47,500,000

500,000 (2002 : 500,000) Ordinary Shares of

Rs. 10 /-each issued as Bonus Shares.

5,000,000

52,500,000

202,500,000

4.1 The Company has initiated the required procedure to issue further 15 million preference shares in tranches. The issue of

first tranche is expected by December 2003.

2003

2002

Rupees

5 CERTIFICATES OF INVESTMENT &

SECURITY PAYMENT NOTES - UNSECURED

Certificates of Investment (COIs) Issued to:

- Directors, Shareholders, Friends and Family members

25,000

3,845,000

- Insurance Companies & Other Institutions

300,000

1,325,000

5.1

325,000

5,170,000

Security Payment Notes (SPNs) Issued to:

- Directors, Shareholders, Friends and Family members

700,000

- Insurance Companies & Other Institutions

43,518,181

5.2

43,518,181

700,000

43,843,181

5,870,000

Less : Issued for less than one year

43,818,181

5,545,000

Issued for one year and more

25,000

325,000

5.1 The Company has a scheme of registered Certificates of Investment for resource mobilization. The term of Certificates

ranges from three months to five years and expected rate of return is at an average of 15% p.a

5.2 Security Payment Notes are issued by the Company in transactions which are based upon a trade in Fixed Income

Securities i.e. Government Guaranteed Bonds or Notes or Other Securities of similar nature. Expected rate of return is at an

average of 11% p.a.(2002 :15% p.a.)

2003

2002

Rupees

6 REDEEMABLE CAPITAL - SECURED

Natover Rental Notes

21,329,624

14,949,707

Less: Current portion

-10,942,609

-13,508,657

10,387,015

1,441,050

6.1 Natover Rental Note ("NRN") is based on the rental income of an individual and distinct lease in the Company's portfolio

and is shariah compliant. It has a specific charge on the leased out asset of the Company as security which is identified on

the Certificate. The net rental is shared as income with the investor in agreed proportion. At disposal of the leased assets,

the proceeds are shared in the same proportion along-with accumulated capital allowances as the investment in specific

lease carries.

7 DEFERRED LIABILITY - STAFF RETIREMENT BENEFITS

7.1 The Company operates an un-funded Gratuity Scheme for all it's employees on completion of prescribed period of service.

7.2 To comply with the requirements of IAS -19, "Employee benefits" Company has changed its policy and now the provision is

made as per actuarial valuation of the scheme. The actuarial valuation of scheme was conducted on June 30, 2003. The

valuation uses the Projected Unit Credit Actuarial Cost Method and a discount rate of 6% per annum. It assumes that

salaries will increase by 5 % per annum. Previously, annual provision was made to cover the obligation. The effect of

change in policy and it's recognition is below mentioned: