Pak Gulf Leasing Company Limited
Annual Reports 2003
CONTENTS
Company information
Mission Statement
Notice of the Annual General Meeting
Chairman's Review
Directors' Report to the Shareholders,
Certification in respect of Transfer Pricing
Statement in compliance with the Code of Corporate Governance.
Auditors' Review report to members on statement of compliance
with best practices of Code of Corporate Governance
Auditors' Report to the shareholders
Balance Sheet
Profit & Loss Statement
Cash Flow Statement
Statement of Changes in Equity
Notes to the Accounts
Pattern of Shareholding
Categories of Shareholders
Company Information
Board of Directors			Auditors
Mr. Sohail Inam Ellahi		Chairman	M/s. Taseer Hadi Khalid & Company
Mr. Fawad S. Malik		Vice Chairman	Chartered Accountants
Mr. A. B. Shahid		M.D. & CEO	Sheikh Sultan Trust Building No. 2,
Mr. Inam Ellahi Shaikh		Director	Beaumont Road,
Mr. Shaheed H. Gaylani		Director	Karachi.
Mr. Shaikh Aftab Ahmed		Director	Tel # : 5671761-3, 5685847
Mr. Sheikh Mohammad Jawed		Director	Fax # : 5685095
Mr. Yousuf Jan Mohammad		Director
			Legal Advisor
Company Secretary
			M/s. Mohsin Tayebaly & Company
Mr. S. Azfar All Baqvi			2nd Floor, Dime Centre,
			BC-4, Block # 9, Kehkashan, Clifton,
			Karachi.
Audit Committee			Tel #: 538077, 571653, 5872690
			Fax #: 5870240, 5870468
Mr. Sohail Inam Ellahi		Chairman
Mr. Fawad S. Malik		Member & Secretary
Mr. Shaikh Aftab Ahmed		Member
Mr. Sheikh Mohammad Jawed		Member	Bankers
			Askari Commercial Bank
Senior Management			Bank AI-Falah Ltd.
			Muslim Commercial Bank Ltd.
Mr. A. B. Shahid			National Bank of Pakistan.
Managing Director & Chief Executive			PICIC Commercial Bank Ltd.
			Standard Chartered Grindlays Bank pic
Mr. S. Azfar All Baqvi			Union Bank
Chief Accounting Officer
Mr. Sheikh M. Asghar
Chief Manager Marketing			Registered / Share Transfer Office
Mr. S. Farhan Abbass			Pak-Gulf Leasing Company Limited
Manager Credit & Marketing			THE FORUM:
			Room # 125-127, First Floor,
Credit Rating Agency			G-20, Block # 9, P. 0. Box # 12215,
JCR-VIS Credit Rating Co. Ltd.			Main Khayaban-e-Jami, Clifton,
			Karachi-75600.
Entity rating:			Tel #: 5820301,   5375985-87, 5824401
-   BBB  for medium to long term			Fax #: 5820302
-   A-3 for short term			E-mail: pgl@cyber.net.pk
-   outlook stable
Mission Statement
The Company will:
•     Aim to gain the confidence of all its stakeholders by earning
a credible reputation for being an innovative enterprise that
is prepared to change in the best interests of its stakeholders.
•     Continually monitor structural changes in the various sectors
of the economy, and accordingly alterthe Company's business
strategy to benefit from the emerging opportunities.
•     Focus on changing customer needs and strive to improve
tangible and intangible returns to its customers by providing
service and satisfaction at par with the best in the industry,
which would be reflected in prompt risk evaluation and facility
disbursement procedures and practices.
•     Consciously share, and remain part of all initiatives by the
leasing industry to play a positive role in the evolution of small
and medium-size enterprises to expand the country's industrial
base and support economic growth, higher employment, and
a better future for all.
Notice is hereby given that the 10th Annual General Meeting of Pak-Gulf Leasing Company Limited, will
be held at the Company's Registered Office at THE FORUM, Room Nos. 125 - 127, First Floor, G-20,
Block # 9, Main Khayaban-e-Jami, Clifton, Karachi-75600, on October 29th, 2003 at 2.00 p.m. to transact
the following business:
Ordinary Business
1)       To confirm the minutes of the 9th Annual General Meeting held on October 26, 2002.
2)       To receive, consider and adopt the Audited Accounts of the Company for the year ended June
30, 2003 together with Director's and Auditors' Report thereon.
3)       To approve, as recommended by the Directors in their meeting held on Thursday, the September
18, 2003, the payment of cash dividend @ 7.5% i.e. Rs. 0.75 per share for the year ended June
30, 2003.
4)       To appoint External Auditors of the company for the year July 01, 2003 to June 30, 2004 and
fix their remuneration. The present Auditors M/s. Taseer Hadi Khalid & Co., Chartered Accountants
retire, and being eligible, offer themselves for re-appointment.
5)       To transact any other business with the permission of the Chair.
By Order of the Board
Syed Azfar Ali Baqvi
Company Secretary
Karachi: September 30th, 2003
Notes:
1.       The Share Transfer Register of the Company will remain closed from October 20th, 2003 to
October 29th, 2003 (both days inclusive) and no transfer of shares will be made during the
period the Register is closed.
2.       A member entitled to attend, speak, and vote at the Company's General Meeting is entitled to
appoint a proxy to attend, speak, and vote on his/ her behalf. A company or corporation may,
by means of a resolution of its Board of Directors appoint a person as its proxy, who is not a
Member of the Company. A proxy must, however, be a member of the Company that appoints
him/her as its proxy. Proxy Forms can be obtained from the Registered office of the Company.
3.       An instrument of proxy and the power of attorney or other authority, if any, under which it is
signed or, in order to be valid, notarially certified copy of the power of attorney must be deposited
at the Registered Office of the Company not less than 48 hours before the time of the General
Meeting.
4.        Members are requested to notify changes in their address, if any, to the Company's Share Transfer
Office at THE FORUM, Room Nos. 125 - 127, First Floor, G-20, Block # 9, Main Khayaban-e-
Jami, Clifton, Karachi-75600.
Dear Shareholders,
The Directors of your company are presenting a review of the operating results of your company
during 2002-03 in the following pages of this report. The results are impressive because they were
achieved in an intensely competitive environment and rapidly changing economic and regulatory scenario,
which I will try to summarize in the following paragraphs.
Impact of fiscal discipline on the economy in 2002-03
Growth in leasing depends on the pace at which investment in capital assets expands. In Pakistan,
investment growth remains slow as various economic sectors adjust their strategies to the fiscal disciplinary
reforms the government introduced during the last three years. Besides, they are also trying to adjust
to interest rate fluctuations for which there are few hedging options available. Tight fiscal discipline
has prevented investment in infrastructure, which has impacted downstream private sector investment
and growth in employment. This trend continues to impact purchasing power and demand. GDP growth,
and a credible revival of investor confidence have therefore been slow.
Low private sector investment had an impact on the leasing sector. While industrial asset leasing
rose as a result of import of mostly used plant and equipment, its benefits could not be shared by
thfrleasing-sector because initial depreciation earlier allowed on leasing used equipment, was abruptly
withdrawn by GBR in 2002-03, limiting leasing sector's traditional profitability thereon. It was restored
only in June 2003. Bulk of the growth was therefore in vehicle leasing, a large part of which was
accounted for by higher prices, not as much in the number of units leased. Even in this segment
the aggressive leasing posture adopted by commercial banks squeezed the share of leasing companies
and gave rise to unhealthy market practices that continue unabated.
Commercial banking sector, which remains flush with cheap liquidity, forced the leasing sector to
accept a decline in its profitability. Given banks' massive resource mobilization infrastructure and
inflow of cheap foreign funds in the aftermath of 9/11, they enjoy a clear edge over leasing companies.
This scenario rendered the financial services sector an uneven playing field - a factor ignored for
sometime in spite of representations by leasing companies.
Impediments to demand creation
Although it was hoped that profit rates on bank deposits would not fall further (given their adverse
impact on small savers and criticism thereof in the national press) that trend continues. This trend
will eventually have its impact on consumer demand because most savers are now getting a negative
real rate of return on their savings, which, in due course, will erode their purchasing power, and their
ability to invest in durable assets. Given their cost structures, large commercial banks are finding
it hard to lend to the corporate sector, which initially responded by large TFC issues to replace expensive
bank borrowing. As a consequence, banks are shifting to high yielding consumer finance. Most banks
are gearing up to serve this sector. Given their network reach, they can lift demand in a wide spectrum
of consumers products provided pricing of their consumer loans is right.
Housing sector holds out a promise
A positive new development has been the resurgence of housing finance in a wider spectrum of the
financial services sector. Undoubtedly, housing is the sector that holds the key to reviving and expanding
the base for practically every industry but the absence of interest rate hedging mechanisms and
uncertainties connected with predicting long-term interest rates will prevent its growth at a pace necessary
for building confidence in this sector and creating opportunities for investment construction-related
industries. This is a critical issue that needs to be addressed by the financial services sector and
its regulators. Uninitiated ordinary home buyers are still not prepared to borrow on floating rates
because, given the uncertainties being created by the impending WTO regime change, survival of
their employers, and hence their continuing in their present jobs. They are uncertain about their employment
situation, future remuneration, their capacity to save and their long-term ability to repay housing loans.
Nevertheless, housing finance holds out bright prospects if these uncertainties can be allayed. The
substantially lower cost of borrowing and the opening up of new venues (commercial banks) for obtaining
financing facilities can boost this all important sector with positive spillovers for a wide variety of
industries.
Future challenges for the leasing sector
To a great extent, Pakistan has recovered from the adverse impact of the Afghan and Iraq wars.
Pressure on external sector too has been offset by the re-profiling of Pakistan's external debt and
stabilization of the exchange value of the Pak Rupee. But uncertainty rooted in the unpredictable
impact of WTO regime change, is worrying the business sector. While exporters have to concentrate
on meeting progressively stiffer international quality standards, the prospects of inflow of cheaper
imports, is a challenge that the domestic industry has face up to. There has been a visible move
towards modernization of plants and equipment to face up to this challenge, which augurs well for
the leasing sector.
To support the industry in this endeavour, SBP announced a further hefty cut in its Discount Rate
in November 2002 which the financial services sector initially found difficult to transmit down the line
given Pakistan's decades old culture of borrowing and lending on fixed-rates. It will have a positive
impact on investment climate as the culture of dealing on floating rates gains pace, though the paucity
of yardstick market rates for pegging floating loan rates credibly will continue to distort loan pricing
by the banking sector. In the wake of cuts in the Discount Rate (frequent by Pakistan's standards),
lessees expect a rapid fall in IRR. Leasing companies find it hard to raise funds to finance leases
at continuously falling rates because banks, that are themselves leasing in a big way, do not relish
the idea of lending a helping hand to their competitors. The advantage has clearly shifted to the big
banks, and not surprisingly, they continue to launch ambitious vehicle leasing campaigns.
Allowing banks to undertake consumer financing has shifted a large share of this market to the banking
sector thereby forcing the leasing sector to strive for a bigger share in equipment financing. The
shrinking role of DFIs is forcing the industrial sector to look to leasing companies for financing high-
ticket plant and equipment needs - a void the leasing sector may be able to fill only partly given
its resource base. Besides, it calls for familiarity with the sourcing, supply, and pricing of a wider
variety of industrial technology, and adopting a sophisticated approach to risk assessment. It remains
to be seen whether the leasing sector responds to this challenge appropriately. Your company has
taken a lead in this direction by augmenting its capabilities for risk assessment, and catering to the
needs of the industrial sector on a gradually increasing scale.
Your company also benefited from lower rates to expand its business base through competitive pricing
i.e. by passing on bulk of this advantage to the lessees rather than pocketing it. This is the only way
forward if businesses are to grow - by increasing prosperity at the widest possible scale, which we
consider to be the sole justification for the existence of business and industry. That is why, in spite
of the odds that are likely to become tougher, your company will do well in the ensuing financial year
by sharing the benefits of falling rates with its valued lessees.
Sohail Inam Ellahi
Chairman
Karachi: September 18, 2003
Dear Shareholders,
The Directors are pleased to present to you the 7th Annual
Report of the company for the year ending 30»> June 2003.
In spite of tougher competition, high interest rate volatility,
and the unfortunate trend of pre-mature termination of
contractual legal obligations by lessees, 2002-03 was a
better year for your company. During the year, balance
sheet footing of your company expanded from Rs. 264.7
million in 2001-02 to Rs. 365.8 million reflecting 38%
overall growth. During the year, 271 fresh leases worth
Rs. 207.4 million were written. Besides leases, at year-
end, the company also had on its books advance payment
against leases amounting to Rs. 3 million. Together with
the leases written, the business booked during the year
amounted to Rs. 210.4 million comparedjo Rs. 132.33
transacted last year reflecting a rise of 59% in overall
business. After accounting for leases that matured during
the year, the lease portfolio expanded from Rs. 208.5
million in 2001-02 to Rs. 314.9 million representing a rise
of 51%. Gross revenue for the year amounted to Rs. 38.6
million representing 50.8% increase over last year, and
28.8% rise in net profit compared to 3.64% last year.
Results					June 30, 2003	Mune 30, 2002
Revenue					38.626	25.605
Expenditure					20.527	11.089
Provision for possible lease losses					0.536	1.047
Profit before taxation					17.563	13.469
Provision for taxation					2.035	1.191
Profit after taxation					15.528	12.278
Un-appropriated profit brought forward					0.527	8.702
Profit available for appropriation					16.055	20.