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Network Leasing Corporation Limited
Annual Reports 2003
CONTENTS
Company Information
Vision / Mission Statement
Directors' Report
Key Financial and Operational Data
Statement of Compliance with the Code of Corporate Governance
Notice of the Annual General Meeting
Auditors' Report on compliance of the Code of Corporate Governance
Auditors' Report
Balance Sheet
Profit and Loss Account
Cash Flow Statement
Statement of Changes in Equity
Notes to the Accounts
Pattern of Shareholding
Disclosure to Pattern of Shareholding
Consolidated Account of Network Leasing Corporation Ltd. and its Subsidiary
Auditors' Report
Balance Sheet
Profit & Loss Account
Cash Flow Statement
Statement of Changes in Equity
Notes to the Accounts
COMPANY INFORMATION
Board of Directors
Mr. Mohammed Elias Mr. Abdul Qayyum Bux
Ms. Musaret Siddiqi Mr. Yusuf A. Sattar
Mr. Hanif A. Sattar Mr. Asif Siddiqi
Mr. Mohammad All
Company Secretary
Mr. M. Nadeem Ahmed
Audit Committee
Mr. Hanif A. Sattar Chairman
Mr. Mohammed Elias Member
Mr. Abdul Qayyum Bux Member
Registered & Head Office 301-302, Gul Tower,
I.I. Chundrigar Road, Karachi-74000, Pakistan.
Telephone (92-21) 242-4616, 242-4655
Telefax (92-21) 242-5366, 244-3547
e-mail mtcleas@nlcl.net
Web http//www.nlcl.net
Lahore Office 67-A/2, Gulberg III, Lahore.
Telephone (042) 575-0429, 575-9758
Telefax (042)571-1919
Peshawar Office 2nd Floor, Fawad Plaza,
University Road, Peshawar.
Telephone (091)570-3470
Telefax (091)570-3470
Lenders and Bankers The World Bank
The Asian Development Bank
Swis agency for Development and cooperation
United Bank Limited
ABN-Amro Bank
Muslim Commercial Bank
Oman International Bank
Habib Bank Limited
Allied Bank of Pakistan Limited
Pakistan Poverty Alleviation Fund
Deutsche Bank Microcredit Development Fund
Auditors Muniff Ziauddin & Co., Chartered Accountants
Member LA. International
Legal Advisors Mehrab Gul, Advocates
Share Transfer Office C&K Management Associates (Pvt.) Ltd.
404, Trade Tower, Abdullah Haroon Road, Karachi.
VISION / MISSION STATEMENT
OF NETWORK LEASING CORPORATION LIMITED
To endeavor to establish itself as an jnstitution that caters to the
financial and development needs of micro and small enterprise (MSB).
To endeavor to create an environment in the country's financial sector,
whereby MSEs are seen as an opportunity rather than an unacceptable
risk, thereby discharging its duty as a responsible corporate citizen.
To ensure that the interests of the shareholders and all other stakeholders
are safeguarded.
DIRECTORS' REPORT
Your directors have pleasure in presenting to the shareholders the results and the Annual Report
for the year ended June 30, 2003.
Financials
The operating profit for the year ended June 30, 2003 was Rs. 22,274,140 while the profit after
tax for the year was Rs.21,245,683. The after tax profit for the year ended June 30, 2002 was Rs.
11,482,500.00
With regard to the company's profitability, yours directors are confident that with the expected
stabilization of the economic conditions and decline in financial cost, the profitability of your company
will improve further during the financial year ending June,2004.
The profit is proposed to be appiopriated as under:
June June
2003 2002
Operating profit 22,274,140 10,826,212
Taxation -1,028,457 656,288
Profit after tax 21,245,683 11,482,500
Unappropriated profit brought forward 18,834,856 9,648,856
Profit available for appropriation 40,080,539 21,131,356
Appropriation:
Transfer to statutory reserve 4,249,137 2,296,500
Proposed dividend @ 10% per share (2002: Nil) 17,500,000 -
-21,749,137 -2,296,500
unappropriated proilt carried rorwara 18,331,402 18,834,356
Earning per share - basic and diluted 1.21 1.14
Dividend
The Board of Directors have recommended a 10% cash dividend for the year ended 30th June
2003
Directors
Dr. Mahfooz AN and Mr. Abid Aziz retired in July 2003 and Mr. Mohammad AN was elected for a
period of 3 years from 1st August 2003. The Board welcomes Mr. Mohammad AN and wishes to
put on record the services rendered by Dr. Mahfooz AN and Mr. Abid Aziz.
Operational Review
Overview
On 30th June 2003, the company completed its 8th year of full operations. Despite competition
from other financial institutions, with everyone's suppprt and understanding, the company has
managed to make steady progress. The business during the period under review was better than
previous year. We hope to expand outreach further during the current year.
Leasing Operations
Jn accordance with our mission, teasing to small and micro enterprises has been progressing
reasonably well on a nationwide basis.
Health and education have been 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
Jow income areas. Women and children are the main beneficiaries in these sectors. 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 outreach 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 maintain our recovery rate.
Geographical Coverage
During the period under review, regular visits were made by our senior executives as well as the
program officers to the villages and semi-urban areas in Sindh, Punjab and NWFP.
Support and Training to MSEs
Assisting the client in preparing the financial statements remain 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 clients. This procedure is followed in each and every case where the
clients cannot prepare the statements themselves. In case where the clients have a little knowledge
but have not prepared the accounts, our staff help them to prepare the statements.
Recoveries
The rental recovery continues to be satisfactory. The overdue rental position was 4.35% of the total
portfolio.
Most of the over dues are with prior arrangement, and are recoverable eventually. There were
some willful default cases. These lessees have been taken to the banking court. We are reasonably
hopeful that in the end the amounts will be recovered. In other cases the assets were repossessed.
Resource Mobilization
During the year we mobilized Rs. 340 million from various financial institutions.
Other Developments
The second issue of TFC's of Rs. 300 million is under process. Due to decline in the mark-up rates,
the advisors and arrangers are revising the rates downwards and are finalizing the arrangements
with the investors. The issue is likely to be completed by end October 2003.
Through the Microfinance Institutions Ordinance 2001, the government has allowed the private
sector to establish Microfinance Banks. In view of your company's pioneering the role in the
development of microfinance in country, the company has applied to the State Bank of Pakistan
for a licence to establish Network Microfinance Bank.
The acquisition of Technology Ventures (Private) Limited, the management company of First Mehran
Modaraba was completed in December 2002.
Corporate Governance
As required under the Code of Corporate Governance, the Board of Director states that:
The Financial Statements prepared by the management of the Company present fairly the state
of affairs of the company, the results of its operations, cash flow statement and statement of changes
in equity.
Proper books of accounts of the company havefceen maintained.
Accounting policies as stated in the notes to the accounts have been consistently applied in
preparation of financial statements and accounting estimates are based on reasonable & prudent
Judgement.
International Accounting Standards, as applicable in Pakistan have been followed in preparation
of the financial statements.
The system of Internal Control is sound in design and has been effectively implemented and
monitored.
There is no doubt about the Company's ability to continue as a going concern.
There have not been any material departure from the best practices, as detailed in the listing
regulations.
The value of investment of the Employee's Provident Fund as on 31 December 2002 was
Rs. 3,088,400.
No payment has remained outstanding on account of any taxes, duties, levies and charges.
A statement showing Company's shares bought and sold by its Directors, Chief Executive Officer, Chief
Financial Officer, Company Secretary and minor family members is annexed as Annexure I (Page 8);
a statement showing attendance of Board meetings is annexed as Annexure II (Page 8) and Pattern
of Shareholding as required by the Companies Ordinance, 1984 is annexed as Annexure III (Page 39).
The key operating and financial data has been given in a summarized form on Page 9.
Maintenance of Website
As per SECP circular number 13 dated May 13, 2003, the company already maintains its website
disclosed in company information.
Report on Implementation of transfer pricing policy
The Company has:
(i) recorded all transactions with related parties undertaken during the financial year on arm's
length price using valuation methods, as admissible, in the best interests of the Company,
in the books of account of the Company and the Record of Related Party Transactions;
(ii) duly filed with the Commission all required periodic return? in respect of related parties
and transactions with those related parties during the financial year;
(iii) provided all the aforesaid information, together with the minutes of the Board of Directors
meetings where in 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 auditor for the purposes of the audit; and
The statutory auditors of the Company have made no adverse remarks with regard to the
above and the transfer pricing of the Company in their audit report on the financial statements
for the year under review.
Auditors
The retiring auditors M/s. Muniff Ziauddin & Co., Chartered Accountants, being eligible, offer
themselves of re-appoifrtment.
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.
We are grateful to FMO, SDC (the Government of Switzerland), the World Bank Group, the Asian
Development Bank, the Detusche Bank Microcredit Development Fund, the Ministry of Finance
and all lending institutions for their continued support.
We owe special gratitude to our shareholders and the clients for their kindness and support.
We take this opportunity to thank the Securities & Exchange Commission of Pakistan and the State
Bartk of Pakistan for tfieir support and understanding.
Mohammed Elias
Chairman
Karachi
25th September, 2003
(ANNEXURE I)
Statement showing shares bought and sold by directors, CEO, CFO
Company Secretary and The minor family members
from 1st July 2002 to 30th June 2003
S. No. Name Designation Shares Shares
bought sold
1 Mr. Asif Siddiqi Chief Executive - -
2 Mr. Mohammed Elias Chairman - -
3 Ms. Musaret Siddiqi Director - -
4 Mr. Yusuf A. Sattar Director - -
5 Mr. Hanif A. Sattar Director - -
6 Dr. Mehfooz AN Director - -
7 Mr. Abdul Qayyum Bux Director - -
8 Mr. Abid Aziz Nominee Director - -
9 Mr. M. Nadeem Ahmed Chief financial Officer & _ _
Company Secretary
10 Minor family members - - -
(ANNEXURE II)
Statement showing attendance of Board meetings
Meeting of the Board of Directors from
1st July 2002 to 30th June 2003
S. No. Name Designation Attended Leave
Granted
1 Mr. Mohammed Elias Chairman 4 -
2 Mr. Asif  Siddiqi Chief Executive 4 -
3 Ms. Musaret Siddiqi Director 4 -
4 Mr. Yusuf A. Sattar Director 1* 3
5 Mr. Hahif A. Sattar Director 4 -
6 Dr. Mehfooz Aii Director - 4
7 Mr. Abdul Qayyum Bux Director 4 -
8 Mr. Abid Aziz Nominee Director 1 3
*via teleconference
KEY FINANCIAL AND OPERATIONAL DATA
AT A GLANCE
2003 2002 2001 2000 1999 1998
Rupees Rupees Rupees Rupees Rupees Rupees
Total assets 981,064 895,969 649,973 496,459 338,377 235,784
Investment in leases 614,148 531,115 451 ,850 356,615 258,966 188,232
Provision against lease portfolio 10,167 9,020 8,751 2,337 2,331 1,882
Equity 209,173 205,427 118,944 113,335 113,182 110,557
Long term finances 130,263 160,781 150,432 164,627 151,254 69,869
Current assets 472,378 470,532 314,236 248,654 149,684 105,511
Current liabilities 404,789 364,540 228,614 179,411 43,604 30,509
Income 140,397 103,608 97,360 68,559 47,249 37,431
Taxation 1,028 -656 -4,481 2,430 5,545 261
Profit after tax 21,246 11,483 5,609 7,652 2,624 8,103
Dividend 17,500 - - 7,500 - 10,000
EPS (Rs.) 1.21 1.14 0.56 0.77 0.26 0.81
Disbursements 323,033 239,365 224,972 199,660 155,985 94,108
STATEMENT OF COMPLIANCE WITH THE CODE OF
CORPORATE GOVERNANCE
This statement is being presented to comply with the Code of Corporate Governance contained
in the Regulation No. 37 of listing regulations of Karachi Stock Exchange (Guarantee) Limited,
Regulation No. 40 of listing regulations of Lahore Stock Exchange (Guarantee) Limited, Regulation
No. 36 of listing regulations of Islamabad Stock Exchange (Guarantee) Limited, for the purpose
of establishing 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 three non-executive directors and one director representing minority shareholders.
2.          The directors have confirmed that none of them is serving as a director in more than ten
listed companies, including the company.
3.          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 NBFI or, being
a member of a stock exchange, has been declared as a defaulter by that stock exchange.
4.          No casual vacancy occurred in the Board during the year.
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 particular of significant policies
along with the dates on which they were approved or amended has been maintained.
8.          The meetings of the Board were presided over by the Chairman and the Board met a't
least once in every quarter. Written notices of the Board meetings, along with agenda and
working papers, were circulated at least seven days before the meetings. The minutes
were appropriately recorded and circulated.
9.          The Board arranged one orientation course for its directors during the year to apprise
them of their duties and responsibilities.
10.        The Board has approved appointment of CFO, Company Secretary and Head of Internal
Audit, including their remuneration and terms and conditions of employment, as determined
by the CEO.
11.        The directors' report for this year has been prepared in compliance with the requirements
of the Code and fully describes the salient matters required to be disclosed.
12.        The financial statements of the Company were duly endorsed by CEO and CFO before
approval of the Board.
13.        The directors, CEO and executives do not hold any interest in the shares of the Company
other 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 director including the chairman of the committee.
16.        The meeting of the audit committee were held at least once every quarter prior to approval
of interim and final results of the company and S3 required by the Code. The terms of
reference of the committee have been formed and advised to the committee for compliance.
17.        The Board has set-up an effective audit function with employees who are considered
suitably qualified and experienced for the purpose and are conversant with the policies
and procedures of the Company and they are involved in the internal audit function a full
time basis.
18.        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, 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.
19.        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.
20.        We confirm that all other material principles contained in the Code have been complied
with.
NOTICE OF THE ANNUAL GENERAL MEETING
Notice is hereby given that the Tenth Annual General Meeting of Network Leasing Corporation
Limited will be held at Beach Luxury Hotel, Moulvi Tamizuddin Khan Road, Karachi,
on Wednesday, 22nd October, 2003 at 3:00 P.M. to transact the following business:
1.        To confirm the minutes of Extra Ordinary General Meeting of the Company held on
24th July 2003.
2.        To receive, consider and adopt the Audited Accounts of the Company for the year
ended 30 June 2003, together with Directors' and Auditors' Reports thereon.
3.        To appoint auditors and fix their remuneration. The present auditors, Muniff Ziauddin
& Co., Chartered Accountants, retire and being eligible, offer themselves for reappointment.
4.        To approve the payment of cash dividend of 10% per share for the year ended 30 June
2003
5.        To transact any other business with the permission of the Chairman.
By Order of the Board
M. Nadeem Ahmed
Company Secretary
Karachi: 26th September, 2003.
Notes:
a)       The Share Transfer Books of the Company will be closed from 16 October, 2003 to 22
October, 2003 (both days inclusive). The Share transfer office of the company is located
at 404, Trade Tower, Abdullah Haroon Road, Karachi. (Phone No. 568-7839 and 568-5930.)
Transfers received at the registered office at the close of business on 15 October 2003 will
be treated in time.
b)       A member entitled to attend and vote at the annual general meeting may appoint another
memoer 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 Company located at 301-302, Gul Tower,
T.I. Churidrigar Road, Karachi, (Phone No. 242-4655 and 242-4616) 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.
d)       Account holders and sub-account holders book entry securities of the Company in Central
Depository Company of Pakistan Limited, who wish to attend the Annual General Meeting,
are requested to bring original National Identity Card for identification purpose and will in
addition, have to follow the guidelines as laid down in circular no. 1 of 2000 dated January
26, 2000 of the Securities and Exchange Commission of Pakistan (SECP) for attending the
meeting.
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 as applicable to the Company for the year ended June 30, 2003, prepared
by the Board of Directors of Network Leasing Corporation Limited to comply with the Listing
Regulation No. 37 of the Karachi Stock Exchange (Guarantee) Limited, Listing Regulation No. 40
(Chapter XIII) of the Lahore Stock Exchange (Guarantee) Limited and Listing 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 the 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 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 statements on internal control cover 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 as applicable
to the Company for the year ended June 30, 2003.
KARACHI:                                                                                                    Muniff Ziauddin & Co.
AUDITORS' REPORT TO THE MEMBERS
We have audited the annexed balance sheet of NETWORK LEASING CORPORATION LIMITED
as at 30 June 2003 and the related profit and loss account, cash flow statement and statement
of changes in equity together with the notes forming part thereof, for the year then ended and we
state that we have obtained all the information and explanation which, to the best of our knowledge
and belief, were necessary for the purposes of our audit.
It is the responsibility of the company's management to establish and maintain a system of internal
control, and prepare and present the above said statements in conformity with the approved
accounting standards and the requirements of the Companies Ordinance, 1984. Our responsibility
is to express an opinion on these statements based on our audit.
We conducted our audit in accordance with the auditing standards as applicable in Pakistan. These
standards require that we plan and perform the audit to obtain reasonable assurance about whether
the above said statements are free of any material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the above said statements.
An audit also includes assessing the accounting policies and significant estimates made by
management, as well as, evaluating the overall presentation of the above said statements. We
believe that our audit provides a reasonable basis for our opinion and, after due verification, we
report that:
(&}       in our opinion, proper books of account have been kept by the company as required by
the Companies Ordinance, 1984;
(b)        in our opinion:
(i) the balance sheet and profit and loss account together with the notes thereon have
been drawn up in conformity with the Companies Ordinance, 1984, and are in
agreement with the books of account and are further in accordance with accounting
policies consistently applied;
(ii) the expenditure incurred during the year was for the 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;
(d)        in our opinion nc Zakat was deductible at source under the Zakat and Ushr Ordinance,
1980
KARACHI:                                                                                              Muniff Ziauddin & Co.
24th September, 2003                                                                    CHARTERED ACCOUNTANTS
BALANCE SHEET AS AT JUNE 30, 2003
2003 2002
Note Rupees Rupees
ASSETS
Tangible fixed assets 3 75,714,410 58,991,483
Investment in leases 4
Net investment in leases 614,148,118 531,114,964
Current maturity of net investment in leases -261,682,401 -238,049,919
352,465,717 293,065,045
Long term investments 5 22,461,628 6,685,000
Long term loans and advances 6 19,231,563 20,839,551
Long term deposits and deferred costs 7 29,930,267 36,719,189
Deferred taxation 21 8,881,773 8,881,773
Current assets 8 472,378,345 470,786,769
TOTAL ASSETS 981,063,703 895,968,810
SHARE HOLDERS' EQUITY AND LIABILITIES
Share capital and reserves
Authorized capital
30,000,000 ordinary shares of Rs. 10/- each 300,000,000 300,000,000
Issued, subscribed and paid-up capital 9 175,000,000 175,000,000
Reserves 34,172,629 30,426,946
Shareholders' equity 209,172,629 205,426,946
Redeemable capital 10 149,910,000 99,900,000
Long term loans and finances 11 130,263,353 160,781,057
Deposits on lease contracts 12 86,929,005 65,319,951
Current liabilities 13 404,788,716 364,540,856
Commitments 14 - -
TOTAL EQUITY AND LIABILITIES 981,063,703 895,968,810
The annexed notes form an integral part of these accounts
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED JUNE 30, 2003
2003 2002
Note Rupees Rupees
INCOME
Income from lease operations 15 90,149,957 87,850,023
Investment income 16 43,835,194 10,515,582
Other income 17 6,412,340 5,242,252
140,397,491 103,607,857
EXPENDITURE
Direct cost of leases 6,767,296 4,650,565
Administrative and operating expenses 18 25,918,797 21,768,376
Financial charges 19 75,639,981 55,259,390
Amortization of deferred costs 6,745,500 1,878,305
Provision and write offs on lease and other receivables 20 3,051,777 9,225,009
-118,123,351 -92,781,645
Profit before taxation 22,274,140 10,826,212
Taxation 21 -1,028,457 656,288
Profit after taxation 21,245,683 11,482,500
Unappropriated profit brought forward 18,834,856 9,648,856
Profit available for appropriation 40,080,539 21,131,356
Appropriations
Transfer to statutory reserve 4,249,137 2,296,500
Proposed dividend @ 10% per share (2002: Nil) 17,500,000 -
-21,749,137 -2,296,500
Unappropirated profit carried forward 18,331,402 18,834,856
Earnings per share - basic and diluted 22 1.21 1.14
The annexed notes form an integral part of these accounts
Mohammed Elias                                                            As if Siddiqi
Chairman                                                                   Chief Executive
CASH FLOW STATEMENT FOR THE YEAR ENDED JUNE 30, 2003
2003 2002
Note Rupees Rupees
CASH FLOW FROM OPERATING ACTIVITIES
Cash generated from operations 23 69,540,598 60,516,968
Income tax paid -1,454,985 -1,086,408
Interest / mark-up paid -75,753,336 -49,923,246
Interest / mark-up received 18,369,070 9,101,081
Net investment in leases - net of repayments -84,180,316 -79,533,682
Deposits on lease contracts - net 24,894,536 20,183,369
Long term loans, advances and deposits 303,298 -20,503,305
-117,821,733 -121,762,191
Net cash (used) by operating activities -48,281,135 -61,245,223
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of fixed assets -24,477,123 -17,625,630
Sale pioceeds of fixed assets 418,730 34,500
Gain on sale of securities 32,643,312 2,635,168
Acquisition of subsidiary -8,525,378 -
Purchase of long term investment -7,251,250 -
Sale/(purchase) of short term investments 55,149,980 -72,717,255
Net cash provided/(used) by investing activities 47,958,271 -87,673,217
CASH FLOW FROM FINANCING ACTIVITIES
Increase in capital _ 75,000,000
Redeemable capital - net of repayment 74,960,000 -40,000
Long term loans and finances - net of repayment -16,529,617 47,109,957
Short term loans and finances - net of repayment -75,400,000 99,300,000
Certificate of investment 5,000.00 -
Advances repaid / (given) 10,488,973 -17,988,973
Dividend paid -1,382 -9,921
Deferred costs - -26,548,333
Net cash (used)/provided by financing activities -1,482,026 176,822,730
Net (decrease)/increase in cash and cash equivalents -1,804,890 27,904,290
Cash and cash equivalent as at the beginning of the year 14,702,715 -13,201,575
Cash and cash equivalent as at the end of the year 12,897,825 14,702,715
Cash and cash equivalent comprise of:
Cash and bank balances 8.3 82,662,739 59,568,678
Short term running finances 13.3 -69,764,914 -44,865,963
12,897,825 14,702,715
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED JUNE 30, 2003
2003 2002
Note Rupees Rupees
SHARE CAPITAL 9
Balance at beginning of the year 175,000,000 100,000,000
Increase in share capital - 75,000,000
Balance at end of the year 175,000,000 175,000,000
Capital Reserves
Statutory reserve
Balance at beginning of the year 11,592,090 9,295,590
Appropriation during the year 4,249,137 2,296,500
Balance at end of the year 15,841,227 11,592,090
Revenue Reserves
Unappropriated profit
Balance at beginning of the year 18,834,856 9,648,856
Profit for the year 21,245,683 11,482,500
Transfer to statutory reserve -4,249,137 -2,296,500
Proposed dividend @ 10% per share (2002: Nil) -17,500,000 -
Balance at end of the year 18,331,402 18,834,856
SHARE HOLDERS' EQUITY 209,172,629 205,426,946
The annexed notes form an integral part of these accounts
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED JUNE 30, 2003
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 all of the Stock Exchanges of the country and
is principally engaged in lease financing of assets, which is conducted through offices in Karachi,
Lahore and Peshawar. The company is classified as a Non- Banking Financial Company (NBFC)
by the Securities and Exchange Commission of Pakistan (SECP).
2.   SIGNIFICANT ACCOUNTING POLICIES
2.1      Basis of preparation
These financial statements have been prepared in accordance with the requirements of
the Companies Ordinance, 1984 and approved International Accounting Standards as
applicable in Pakistan.
2.2      Accounting convention
These accounts have been prepared under the historical cost convention except for
short term investment held for trading which are stated at fair value as explained in note
2.9.
2.3     Revenue recognition
Finance 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 the lease. A portion of unearned lease income approximating the costs
incurred in writing the lease is taken to "income from lease operations" 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 periods falling between rentals due and the year end
is recognized on an accrual basis.
Operating lease income
Rental income from assets given on operating lease is recognized on accrual basis
over the lease period.
Other income
All other income is recognized on an accrual basis.
2.4     Taxation
Current
Income for the purpose of computing current taxation is determined under the provisions
of income tax law whereby lease rental received or receivable by the company 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
Deferred tax is calculated using the liability method on all temporary differences at the
balance sheet date, between the tax bases of the assets and liabilities and their carrying
amounts. Deferred tax assets are recognized for all deductible temporary differences
to the extent that it is probable that the temporary differences will" reverse and sufficient
taxable income will be available against which the temporary difference can be utilized.
The carrying amount of all deferred tax assets is reviewed at each balance sheet date
and reduced to the extent that it is no longer probable that sufficient taxable profits will
be available to allow all or part of the deferred tax assets to be utilized.
Deferred -tax assets and liabilities are measured at the tax rates that are expected to
apply to the period when the asset is realized or the liability is settled, based on the tax
rates (and tax laws) that have been enacted at the balance sheet date.
2.5      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 note 3 to the accounts. No depreciation is
charged on land acquired for head office building. In respect of additions and deletions
of assets during the year, depreciation is charged from the month of acquisition and upto
the month preceding the deletion respectively.
Gains and losses on disposal of fixed assets are taken to profit and loss account.
Normal repairs and maintenances are charged to income as and when incurred. Major
renewals and improvements are capitalized and the assets so replaced, if any, are retired.
Operating lease assets
Operating lease assets are stated at cost less accumulated depreciation. Depreciation
is charged to income applying straight line method, whereby the cost of an asset is
written - off over its useful life at the rates specified in note 3 to the accounts.
Normal repairs and maintenances are charged to income as and when incurred. Major
renewals and improvements are capitalized and the assets so replaced, if any, are retired.
2.6      Deferred costs
Costs relating to increase in share capital, issue of right shares and issuance of term
finance certificates are amortized over a period of five years from the date of their
incurrence.
Costs incurred for hedging mechanism on foreign currency loans are amortized over
the term of the respective loan.
2.7      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 the lease portfolio
that can reasonably be anticipated.
2.8      Employees benefits
Defined contribution plan
The company operates a contributory provident fund for all its confirmed employees,
for which equal monthly contributions are made by both the company and the employees
at 10% of basic pay in accordance with the rules of the fund.
2.9      Investments
Long term investment
Investment held to maturity are stated at amortized cost less impairment losses in
accordance with accounting policy explained in note 2.12.
Short term investment
Investment held to maturity are stated at amortized cost less impairment losses in
accordance with accounting policy explained in note 2.12.
Investment held for trading is stated at fair value, wW"i any resultant gain or loss recognized
in the profit and loss account.
The fair value of investment held for trading is quoted at the bid price at the balance
sheet date.
Investment in subsidiary
Subsidiary company is a company which is controlled by the company or in which the
company owns more than-50% of voting power. Investment in subsidiary company
is carried at cost.
2.10    Foreign currency translations
Transactions in foreign currencies are accounted for in rupees at the rate of exchange
prevailing on the date of the transaction. Monetary assets and liabilities in foreign
currencies are translated into rupees at the rates of exchange prevailing at the balance
sheet date. Realized and unrealized exchange gains and losses are dealt within the
profit and loss account.
2.11    Financial instruments
Financial assets
Financial assets comprise of net investment in leases, long and short term investments,
long and short term loans / advances and cash and bank balances. Net investment in
leases are stated at their nominal value as reduced by appropriate provision for potential
lease losses which can be reasonably anticipated, while other financial assets are stated
at cost except investments held for trading.
2.12    Impairment of assets
The carrying amounts of the assets are reviewed at each balance sheet date to determine
any indication of impairment. If any indication exists, the asset's recoverable amount is
estimated. An impairment loss so recognized in the profit and loss account whenever
the carrying amount of an asset exceeds its recoverable amount.
2.13   Transfer pricing
Transactions with related parties and associated undertaking of the company are at arm's
length prices determined in accordance with 4th Schedule of the Companies Ordinance,
1984 methods as approved by Board of Directors. The related parties and associated
undertakings comprise parent company, Modaraba management company, Modaraba,
major shareholder, chief executive, directors and key management personnel and their
family members.
3. TANGIBLE FIXED ASSETS
COST DEPRECIATION
Description Written down value
As at Additions As at June As at Charge As at June as at June
July 1,2002 (disposals) 30, 2003 Rate July 1,2002 for the year 30, 2003 30, 2003
Rupees Rupees Rupees % Rupees Rupees Rupees Rupees
Owned
Office premises 9,388,585 - 9,388,585 2.5 1,412,470 234,715 1,647,185 7,741,400
Leasehold land 18,710,000 18,710,000 0 - - 18,710,000
(for head office building)
Leasehold improvements 1,055,671 175,000 1,230,671 10 692,812 109,945 802,757 427,914
Furniture and fixtures 4,921,679 832,507 5,754,186 10 2,222,168 535,201 2,757,369 2,996,817
Computer equipment 3,359,988 1,363,456 4,273,488 20 2,259,560 535,392 1,913,315 2,360,173
-949.956 -881,637
Office equipment 1,235,688 680.83 1,916,518 10 509,810 148,821 658,631 1,257,887
Motor vehicles 6,266,596 2,215,330 7,605,619 20 4,353,618 943.782 4,623,302 2,982,317
-876.307 -674.098
26,228,207 24,477,123 48,879,067 11,450,438 2,507,856 12,402,559 36,476,508
-1,826.26 -1,555.74
For operating lease
Machinery and equipment 48,948^120 - 48,948,120 10 5,105,656 4,894,812 10,000,468 38,947,652
Motor vehicles 405,000 - 405,000 20 33,750 81,000 114,750 290,250
49,353,120 - 49,353,120 5,139,406 4,975,812 10,115,218 39,237,902
2003 75,581,327 24,477,123 98,232,187 16,589,844 7,483,668 22,517,777 75,714,410
-1,826.26 -1,555,735
58,000,997 17,625,630 75,581,327 10,974,970 5,642,809 16,589,844 58,991,483
-45,300 -27.935
3.1 The following owned assets were disposed off during the year:
Description Cost Accumulated depreciation Net bock value Sale proceeds Gain/(loss) on disposal Mode of disposal Particulars of the buyers
Rupees Rupees Rupees Rupees Rupees
Computers 949,956 881,637 68,319 - -68,319 Scrape
Motor Vehicles
Honda Civic E-0036 442,666 375,353 67,313 210,000 142,687 Negotiation Dr. Faheem Ahmed
31-A, Block-2, P.E.C.H.S., Karachi.
Hero Honda KAR-3464 31.6 49,020 2,580 21,000 18,420 Negotiation Shadab Autos
Shop-6, Akber Road, Karachi.
Hero Honda KAR-9367 51,610 32,652 18,948 21,000 2,052 Negotiation Shadab Autos
Shop-6, Akber Road, Karachi.
Hero Honda KAR-2349 52,100 26,920 25,180 21,000 -4.18 Negotiation Shadab Autos
Shop-6, Akber Road. Karachi.
Suzuki Shogun KAR-492 68.662 68,661 1 21,000 20,999 Negotiation Shadab Autos
Shop-6, Akber Road, Karachi.
Suzuki Shogun KCT-8105 68,662 68.661 1 21,000 20,999 Negotiation Shadab Autos
Shop-6. Akber Road, Karachi.
HondaCD70L-1106 70,517 26,981 43,536 63,000 19,464 Insurance Claim EFU General Insurance Co.
213, 2nd floor, EFU House,
M.A. Jinnah Road, Karachi.
Suzuki KAV-7835 70,500 25,850 44,650 40,730 -3,920 Insurance Claim EFU General Insurance Co.
213, 2nd floor, EFU House,
M.A. Jinnah Road, Karachi.
2003 1,826,263 1,555,735 270,528 418,730 148,202
2002 45,300 27,935 17,365 34,500 17,135
2003 2002
4. INVESTMENT IN LEASES Note Rupees Rupees
Minimum lease payments receivable
Residual value of leased assets 604,327,819 546,001,751
Instalment contract receivable 117,910,576 91,364,903
Less: 4.1 722,238,395 637,366,654
Unearned finance income
Provision for potential lease losses -97,922,867 -97,231,442
4.2 -10,167,410 -9,020,248
Net investment in leases -108,090,277 -106,251,690
4.1  Instalment contract receivable 4.3 614,148,118 531,114,964
Due within one year
Due after one year but not later than 5 years 271,250,799 281,239,877
450.987.596 356,126.78
722,238,395 637,366,654
4.2 A general provision for potential lease losses has been made in accordance with the
accounting policy stated in note 2.7. No specific provision is required. However to comply
with the Prudential Regulation for Non-Banking Finance Companies, an amount of
Rs. 8,450,675 (2002: Rs. 4,996,627) has been allocated towards the provision required
by the said Rules.
4.3 Net investment in leases 2003 2002
Due within one year Note Rupees Rupees
Due after one year uut not later than 5 years 261,682,401 238,049,919
352,465,717 293,065,045
614,148,118 531,114,964
The leases made by the company are subject to a term of 3 - 5 years and a security deposit
is obtained generally upto 10% at the time of disbursement. The company insures the
leased assets in its favour and requires lessees to maintain certain financial ratios. Additional
lease rentals are chargeable on delayed payments. The rate of return implicit in the lease
ranges from 10.50% to 22% (2002: 15% to 24%).
..... 2003 2002
5.  LONG TERM INVESTMENTS Note Rupees Rupees
Certificates of investment
Bankers Equity Limited
Escorts Investment Bank Limited 5.1 6,685,000 6,685,000
5.2 7,251,250 -
Investment in subsidiary company 13,936,250 6,685,000
5.3 8,525,378 -
22,461,628 6,685,000
5.1 This 5 years certificate with a maturity value of Rs. 15,509,200/- has been obtained from Bankers
Equity Limited (BEL) as a precondition for obtaining a guarantee to the Government of Pakistan to
secure repayment of a long term loan from the Asian Development Bank. BEL is under liquidation
but is still administering the Asian Development Bank and the World Bank loan. In order to secure
its investment, the Company has witheld payments to BEL for guarantee commissions and administration
fees, which as on 30 June 2003, amounted to Rs. 8,199,217/-. Such witheld payments will amount
approximately to rs 16.815 million by the time the 2 loan are repaid. The company has obtained a 
legal opinion on this matter
5.2  This has been obtained from Escorts Investment Bank Limited for a term of 2 years. The
certificate has a maturity value of Rs. 8,411,450 after 2 years. The certificate is under lien
as per note 11.7.
5.3  Technology Ventures (Pvt.) Ltd. (the management company of First Mehran Modaraba) is
the subsidiary of the Company and is incorporated in Pakistan on December 18,1989 as
a Private Limited Company under the Companies Ordinance, 1984. It was acquired by
Network Leasing Corporation Ltd. in December 2002. The Company holds 97.50% alongwith
management control, out of total paid-up capital of the subsidiary of 500,000 fully paid
ordinary shares of Rs. 10/- each.
2003 2002
Subsidiary Note Rupees Rupees
Technology Ventures (Private) Limited
487,500 (2002: Nil) fully paid ordinary shares of Rs. 10/- each
Equity held 97.50% (2002: Nil)
Value of investment based on the net assets shown in the audited
accounts as at June 30, 2003 Rs. 5,524 million (2002:Nil) 8,525,378 ____________
The above investments are carried at cost. If the Investment has been accounted for using the
"Equity Method", the value of investment on the basis of latest available audited accounts for the
year ended June 30, 2003 of the investee and their effects on the profit and loss account would
have been as follows:-
Value of investment underequity method  Rupees Effect on Profit Rupees
Technology Ventures (Private) Limited 8,848,454 323,076
2003 2002
Note Rupees Rupees
6. LONG TERM LOANS AND ADVANCES
Loans - secured, considered good
To executives 1,251,940 1,021,670
To staff 199,315 434,685
6.1 1,451,255 1,456,355
Current portion 8.2 -436,260 -362,028
6.1.1 1,014,995 1,094,327
Advances-secured, considered good
Network Leasing Employees Share Trust 6.2 19,745,224 20,000,000
Current portion 8.2 (1.528.656) -254.776
18,216,568 19,745,224
19,231,563 20,839,551
6.1 These represent house loans to staff which are repayable in 60 monthly instalments
and carry mark-up at the rate of 33% of the latest audited cost of funds on reducing
balance. The loans are secured by equitable mortgage and deposit of title deeds of the
property.
Maximum amount outstanding at the end of any month during the year against loan to
executives was Rs. 1,353,371 (2002: Rs. 1,085,120).
2003 2002
Note Rupees Rupees
6.1 .1   Outstanding for periods exceeding three years - -
Other 1,014,995 1,094,327
1,014,995 1,094,327
6.2 The company has approved an Employees' Share Ownership Scheme for all its confirme
employees in accordance with section 95(2) of the Companies Ordinance, 1984. Tru
is registered with the Registrar of Trust. The Trust has subscribed for shares and he
these shares in the Trust for and on behalf of the employees of the company until maturi
of the scheme. The advance is repayable within fifteen years starting from May 2003 wi
a one year of grace period.
2003 2002
Note Rupees Rupees
7.  LONG TERM DEPOSITS AND DEFERRED COSTS
Deposits
Security deposits 245,080 195,080
Other deposits 220,853 314,275
465,933 509,355
Deferred costs 7.1 29,464,334 36,209,834
29,930,267 36,719,189
2003 2002
Note Rupees Rupees
7.1  Deferred costs
Increase in authorized share capital 250,000 250,000
Deferred hedging costs 10,237,495 10,237,495
TFC floatation expenses 3,516,618 3,516,618
Shares discount and right issue expenses 26,548,333 26,548,333
40,552,446 40,552,446
Amortized to-date -11,088,112 -4,342,612
29,464,334 36,209,834
2003 2002
Note Rupees Rupees
8. CURRENT ASSETS
Current maturity of net investment in leases 4 261,682,401 238,049,919
Short term investments 8.1 70,750,275 125,900,255
Advances, deposits, prepayments and other receivables 8.2 57,282,930 47,267,917
------- Cash and bank balances 8.3 82,662,739 59,568,678
472,378,345 470,786,769
2003 2002
Note Rupees Rupees
8.1  SHORT TERM INVESTMENTS
Held to maturity investments
Short term placements 8.1.1 30,000,000 10,000,000
Federal investment bond - 700,000
Certificate of investment - 6,000,000
30,000,000 16,700,000
Held for trading investments
Government securities
Pakistan investment bonds - 67,400,455
Units of National Investment Trust (NIT) - 27.830.000
- 95,230,455
Open-end fund 8.1.2 2,543,750 I -
2,543,750 -
Quoted - Term finance certificates 8.1.3
AL-Noor Sugar Mills Limited 9,641,775 8,746,500
Dawood Leasing Company Limited-1 5,950,000 5,223,300
Dawood Leasing Company Limited-2 6,050,000 -
PTA Pakistan Limited 5,015,000 -
Atlas Investment Bank Limited 4,793,250 -
Muslim Commercial Bank Limited 630,000 -
Dewan Salman Fibre Limited 976,500 -
Jahangir Siddiqui & Co. Limited 5,150,000 -
38,206,525 13,969,800
70,750,275 125,900,255
8.1.1 This represents placement of fund with different financial institutions under letter of
placement. The rate of return on above placement is ranging from 10.00% to 11.30%
(2002: 10%) per annum.
This represents investment made in Dawood Money Market Fund (DMMF), managed by
Pakistan Venture Capital Limited, an asset management company registered under the
Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003. DMMF
is divided into units having a face value of rupees 100/- each with a minimum investment
size of Rs. 5.000/-. The units shall be issued on the basis of their net asset value (NAV),
which shall form the base for determining the offer and repurchase price. DMMF is an
open-end fund. It shall offer and redeem units on a continuing basis.
8.1.3    Quoted-Term finance certificates (TFCs).
2003 2002
Mlarket Value Cost Market Value Cost
Rupees Rupees Rupees Rupees
8.1.3.1 AI-Noor Sugar Mills Limited 9,641,775 9,058,875 8,746,500 8,746,500
8.1.3.2 Dawood Leasing Company Ltd.1 5,950,000 5,000,000 5,223,300 5,000,000
8.1.3.3 Dawood Leasing Company Ltd.2 6,050,000 5,000,000 - -
8.1.3.4 PTA Pakistan Limited 5,015,000 4,997,000 - -
8.1.3.5 Atlas Investment Bank Limited 4,793,250 4,371,496 - -
8.1.3.6 Muslim Commercial Bank Limited 630,000 499,900 - -
8.1.3.7 Dewan Salman Fibre Limited 976,500 898,920 - -
8.1.3.8 Jahangir Siddiqui & Co. Limited 5,150,000 5,000,000 - -
38,206,525 34,826,191 13,969,800 13,746,500
8.1.3.1  These represent 2900 (2002: 2,000) certificates having a face value of Rs. 5,000 each.
These term finance certificates carry a floating rate of mark-up receivable half yearly
in arrears, subject to a minimum of 16.5% per annum and a maximum of 18.5% per
annum and will be fully mature in November 2005.
8.1.3.2 These represent 1000 (2002: 1,000) certificates having a face value of Rs. 5,000 each.
These term finance certificates carry a floating rate of mark-up receivable half yearly
in arrears, subject to a minimum of 13.5% per annum and a maximum of 17.5% per
annum and will mature lump sum in March 2006.
8.1.3.3 These represent 1000 (2002: Nil) certificates having a face value of Rs. 5,000 each.
These term finance certificates carry a floating rate of mark-up receivable half yearly
in arrears, subject to a minimum of 12.25% per annum and a maximum of 16.25% per
annum and will mature lump sum in July 2007.
8.1.3.4 These represent 1000 (2002: Nil) certificates having a face value of Rs. 5,000 each.
These term finance certificates carry a floating rate of mark-up receivable half yearly
in arrears, subject to a minimum of 16% per annum and a maximum of 19% per annum
and will be fully mature in August 2006.
8.1.3.5 These represent 1050 (2002: Nil) certificates having a face value of Rs. 5,000 each.
These term finance certificates carry a specific rate of mark-up receivable half yearly
in arrears, subject to 15% per annum and  will be fully mature in September 2005.
8.1.3.6 These represent 100 (2002: Nil) certificates having a face value of Rs. 5,000 each.
These term finance certificates carry a floating rate of mark-up receivable half yearly
in arrears, subject to a minimum of 11.75% per annum and a maximum of 15.75% per
annum and will be mature in February 2008.
8.1.3.7 These represent 360 (2002: Nil) certificates having a face value of Rs. 5,000 each.
These term finance certificates carry a specific rate of mark-up receivable half yearly
in arrears, subject to a 19% per annum and will be mature in May 2004.
8.1.3.8 These represent 1000 (2002: Nil) certificates having a face value of Rs. 5,000 each.
These term finance certificates carry a floating rate of mark-up receivable half yearly
in arrears, subject to a minimum of 7.5% per annum and a maximum of 13% per annum
and will be fully mature in April 2008.
2003 2002
Note Rupees Rupees
8.2 ADVANCES, DEPOSITS, PREPAYMENTS
AND OTHER RECEIVABLES
Advances - considered good