Gray's Leasing Limited - Annual Reports

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Grays Leasing Limited

Annual Report 2001

CONTENTS

COMPANY INFORMATION

BOARD Of DIRECTORS

Mr. Harold John Gray

Chairman

Mr. Khawar Anwar Khawaja

Vice Chairman

Mr. Abdul Rashid Mir

Chief Executive

Mr. Paul Douglas Gray

Mr. Ronald George Blake

Mr., Muhammad Tahir Butt

Mr. Khurram Anwar Khawaja

Mr. Saeed Ahmad Jabal

Mr. Muhammad Farooq

Mrs. Nuzhat Khawar Khawaja

AUDITORS

Riaz Ahmad & Company

Chartered Accountants

8-Mail Mansion, 30 Shahrah-e-Quaid-e-Azam,

Lahore - 54000 - Pakistan

Tel: (042) 7233324-26

Fax :(042) 7235762

E-mail: sarfrazm@paknet4.ptc.pk.

MANAGEMENT CONSULTANT

Sarfraz Mahmood (Pvt) Ltd.

CORPORATE SECRETARY

Mr. Abdul Ghaffar

LEGAL ADVISOR

Akhtar Saeed & Company

REGISTERED AND HEAD OFFI

41-A, Lawrence Road, Lahore,

Tel: (042) 6372159-61

Fax: (042) 6371898

E-mail: gll@nexlinx.net.pk

BANKERS

Standard Chartered Grindlays Bank

The Bank of Khyber

Bank Alfalah Ltd,

The Bank of Punjab.

Askari Commercial Bank Ltd,

Muslim Commercial Bank Ltd.

Faysal Bank Ltd.

First Women Bank Ltd.

Prime Commercial Bank Ltd.

Habib Bank Ltd.

NOTICE OF THE 6TH ANNUAL GENERAL MEETING

Notice is hereby given that the 6th Annual General Meeting of the Company will be held on December 10, 2001 at

11.00 a.m. at the Registered Office of the Company located at 41-A, Lawrence Road, Lahore to transact the following

business:

1. to confirm the minutes of 5th Annual General Meeting held on December 21, 2000;

2. to receive, consider and adopt the audited accounts of the company for the year ended June 30, 2001

together with Directors' and Auditors' reports thereon;

3. to approve the payment of cash dividend @ 10% (Re. 1/- per share) as recommended by the directors for

the year ended June 30, 2001;

4. to appoint auditors and to fix their remuneration. The present Auditors Messrs. Riaz Ahmad & Company,

Chartered Accountants, retire and being eligible, offer themselves for re-appointment;

5. to transact any other business with the permission of the chair.

BY THE ORDER OF THE BOARD

ABDUL GHAFFAR

Lahore: November 12, 2001

(COMPANY SECRETARY)

NOTES:

1. The members register will remain closed from December 02, 2001 to December 10, 2001 (both days

inclusive). Transfer received at the registered office by the close of business hours on December 01, 2001

will be treated in time for the entitlement of dividend.

2. A member entitled to attend and vote at the meeting may appoint another member as his/her proxy to

attend, speak and vote at the meeting. The instrument of proxy in order to be effective must be received at

the Registered Office of the Company not later than 48 hours before the meeting;

3. Members are requested to immediately notify the change in address, if any;

4. CDC account holders will have to follow the following guidelines for attending the meeting ·

i) In case of individuals, the account holders, sub account holders and the person whose securities

are in group account and their registration details are uploaded as per the regulations, shall

authenticate his/her identity by showing original I.D. card or passport at the time of attending the

meeting. The shareholders registered on CDS are also requested to bring their participants I.D.

numbers and account number in CDS.

ii) In case of corporate entity, the Board of Directors' resolution/power of attorney with specimen

signature of the nominee shall be produced (unless provided earlier) at the time of meeting.

DIRECTORS' REPORT TO THE SHAREHOLDERS

It gives me immense pleasure to present the sixth annual report together with the audited accounts of your company for the year

ended 30th June, 2001.

OPERATING RESULTS

The operating results of the company for the year are as under:

RUPEES

Total revenue

73,863,618

Total expenses

44,910,680

------------------

Profit before tax

28,952,938

Provision for taxation

1,221,610

------------------

Profit after tax

27,731,328

Un-appropriated profit brought forward

1,904,567

------------------

Profit available for appropriation

29,635,895

Appropriations:

Transfer to statutory reserve

(6,500,000)

Transfer to reserve for deferred taxation

(8,000,000)

Proposed dividend @ 10 %

(15,000,000

------------------

(29,500,000)

------------------

Un-appropriated profit

135,895

==========

Earnings per share

2.51

==========

REVIEW OF OPERATIONS

Although the economic scenario has remained almost same as previous year, the company succeeded to achieve its budgeted

target for the year ended 30, June 2001. During the year, we transacted business worth rupees 307.7 million comprising 250

leases as compared to rupees 205.6 million placed in 249 leases during the preceding year; growth being 50 percent. Gross

investment in finance leases as at 30· June 2001 stands at rupees 634.317 million against rupees 459.782 million on 30· June

2000 while the net investment stands at rupees 508.834 million on 30, June 2001 against rupees 370.129 million the last year-

growth during this year has been 37.5 percent as against 26.05 percent during the preceding year.

The graph given below shows a consistent growth pattern attained by the company since its inception.

The gross revenue from operations was rupees 73.864 million (rupees 58.035 million in 2000) and net profit before and after tax

was rupees 28.953 million and rupees 27.731 million respectively as compared to rupees 25.660 million and rupees 24.750

million during the preceding year.

Our majore emphasis still remains on small to medium size leases; with selected blue chip companies and a blend of assets with

high degree of concentration on industrial expansion and growth. This year too, almost half of our business represents lease

financing of plant and machinery to various industrial sectors for strengthening their productive assets base through balancing,

modernization and expansion.

The ratios of the asset-wise portfolio have almost been maintained by the company as reflected above. Although a minor

shift/increase of 2 percent has taken place in case of transport vehicles, the net investment in plant and machinery as on 30th June

2001 again stands at 52 percent as it was last year. This has only been made possible through focusing our activity on country's

industrial base as per our policy which is amply substantiated by the fact that 50 percent of lease disbursements during 2000-01 relate

to industrial plant, machinery and equipments as shown in the graph given below.

At the same time, we have also been careful about management of all risks we are exposed to. The primary function is to

manage credit risk which is all the more important in the prevailing macro environment. We operate under strict criteria and all

leases are carefully screened by our Credit Evaluation Department, Executive Committee and the Senior Management. Risk

diversification is also ensured by maintaining a balanced sectoral exposure. The sector-wise analysis of our lease portfolio has

been given hereunder which shows that the maximum investment in any one sector stands at 27.57 percent in textiles and its made

ups as compared to last year's 24.91 percent in this sector.

The sector-wise break-up of the portfolio can also be seen in note 25.5 to the audited accounts for the year under review.

CREDIT RATING

The credit rating of the company was upgraded by a notch last year. The surveillance of these ratings is under process by JCR-

VIS and they have indicated to upgrade these ratings at least by another notch this year as well.

RESOURCE MOBILIZATION

In addition to the equity funds amounting to rupees 50 million against right issue received during May-June 2001, the company

also succeeded in managing a blend of medium and short term funds to finance lease operations. Apart from a three years credit

line for rupees 25 million from Askari Commercial Bank Limited and a similar one from Faysal Bank Limited negotiated since last

annual report, sufficient amount of cheaper funds has also been obtained from various financial institutions which enabled the

company to keep the average cost of funding quite compatible with our placements. Raising of funds through Certificates of

Investment has just been started while a plan for a reasonable float of Term Finance Certificates is also under consideration.

Human resource development is an equally important area. To develop a team of dedicated and devoted professionals, we have very

recently engaged a number of persons, mostly at the very entry level, who are undergoing appropriate training in various fields

according to our future requirements.

THE ECONOMY AND THE LEASING SECTOR

The economy

The economic crisis emanated from a series of adversities like fallout of South Asia, sanctions as a consequence of Pakistan's

nuclear test, freezing of foreign currency accounts, the IPP issue, ever increasing debt burden, shyness of foreign direct

investment, and above all, the lack of good governance and political uncertainty, has further aggravated because of the drastic

decline in country's exports and other related trading activities as an aftermath of the tragedy of 11th September which sent

shivers to the global economy.

Although, the International Community has assured to help Pakistan out of this mess and the most difficult era of its history, a

lot depends on the ensuing political situation and the eventual outcome of the Afghan campaign. The other factor that matters

would be the economy of importing countries; the world economy is presently in recession; war is not the best cure for all

economic ills, even if the countries waging it do have plenty of resources in their kitty. It would require some years to recover

from the impact of global recession and this period will weigh very heavy on Pakistan.

The ailment of the financial sector is also one of the major deterrents to economic growth of the country. Over the past few

years, the trade and industry has been witnessing phenomenal reduction in outreach of financial services. The sources of long-

term finance have almost dried up due to lack of banks' ability to undertake risk in long-term projects because of scarcity of

ample funds (an obvious outcome of low level of savers' interest and confidence) and weaknesses in the legal and institutional

infrastructure that supports development of a healthy financial sector.

The current economic scenario thus requires State's attention and intervention at large; economy has to be grossly restructured

to put the things to their right path; concerted effort at all levels is must to end the spin.

The leasing sector

A well-functioning financial system significantly contributes towards economic growth. In Pakistan, the banking sector

unfortunately could not perform well and support any growth -oriented pattern of socio-economic activity and the dreams of

making the country a "Welfare State" all ended in a smoke. For different reasons, the development financing institutions (DFI's)

that were created for this very purpose, also failed in achieving their objective and have collapsed so badly. The emergence of

the Leasing Sector is thus aimed at filling the gap and providing for the much needed financial support not only to the industrial

and corporate sectors but also to socio-economic welfare of the public at large.

Over last couple of years, the leasing sector has grown rapidly and proved to be an alternate source of finance to all sects of the

society. The sector currently has rather greater potentials as all other sources of medium to long-term funds have almost dried

up. But restoration of confidence of the masses of savers is an essential pre-requisite for which much work has yet to be done

through state intervention.

FUTURE OUTLOOK

The share of the leasing sector in the total private fixed capital expenditure in Pakistan still remains below 10 percent as

compared to about 40 percent in the developed countries. Moreover, the dearth of medium and long-term funding by banks will

obviously increase the leasing potentials in the country. The leasing concept, being closest to the tenets of Islam, will be

increasingly accepted in the coming days.

GRAYS LEASING LIMITED

Grays leasing has gained an excellent reputation in the market and, being a keen observer of the changing scenario, will

consolidate and concentrate on its corporate goals without compromising on quality and ethical standards.

We are also increasing our branch net-work and will, Insha Allah, succeed to generate quite a fair volume of business and add

value to the investment of our stakeholders.

DIVIDEND AND RIGHT ISSUE

In consistence with our previous practice and in line with our key objectives and corporate policy, the board of directors has

proposed 10 percent cash dividend as compared to 15 percent cash dividend declared last year. In fact, the proposed dividend

of rupees 15 million for the year under review is equal to the dividend declared for the year ended 30th June 2000. In percentage

terms, it has however been diluted due to increase in paid-up capital by rupees 50 million through right issue of shares;

subscription received just in the month of June 2001. We are confident to continue this policy in future as well.

To enhance the equity base and ensure an early compliance of rule 7(3) of the Leasing Companies Rules, the board of directors

has proposed a right issue of 3 million shares of rupees 10 each at par which will be offered in accordance with the instructions

from the Securities and Exchange Commission of Pakistan.

AUDITORS

The present auditors Messrs Riaz Ahmad and Company, Chartered Accountants, retire and being eligible, offer themselves for

re-appointment.

PATTERN OF SHAREHOLDING

A statement showing pattern of shareholding in the company as on 30th June 2001 is given herewith.

ACKNOWLEDGMENT

I would like to thank the banks and financial institutions for their support, the clients who provided us opportunity to serve them

and company employees at all levels for their dedicated efforts.

ON BEHALF OFTHEBOARD

ABDUL RASHID MIR

Lahore: 5th November, 2001

Chief Executive

AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of GRAYS LEASING LIMITED as at 30 June 2001 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 explanations 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:

(a) in our opinion, proper books of account have been kept by the company as required by the Companies Ordinance,

1984;

(b) in our opinion:

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

the Companies Ordinance, 1984, and are in agreement with the books of account and are further in accordance with

accounting policies consistently applied;

ii) the expenditure incurred during the year was for the purpose of the company's business; and

iii) the business conducted, investments made and the expenditure incurred during the year were in accordance with the

objects of the company;

(c) in our opinion and to the best of our information and according to the explanations given to us, the balance sheet, profit

and loss account, cash flow statement and statement of changes in equity together with the notes forming part thereof

conform with approved accounting standards as applicable in Pakistan, and, give the information required by the

Companies Ordinance, 1984, in the manner so required and respectively give a true and fair view of the state of the

company's affairs as at 30 June 2001 and of the profit, its cash flows and changes in equity for the year then 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 of that Ordinance.

RIAZ AHMAD & COMPANY

LAHORE: November 6, 2001

Chartered Accountants

BALANCE SHEET AS AT JUNE 30 2001

NOTE

2001

2000

Rupees

EQUITY AND LIABILITIES

SHARE CAPITAL AND RESERVES

Authorized share capital

20,000,000 ordinary shares of

Rupees 10 each

200,000,000

==========

Issued, subscribed and paid

up share capital

150,000,000

100,000,000

Capital reserve

47,500,000

33,000,000

Revenue reserve

135,895

1,904,567

------------------

197,635,895

134,904,567

NON-CURRENT LIABILITIES

Redeemable capital

622,234,251

38,000,000

Liabilities against assets subject to

finance lease

9,916,621

17,252,911

Long term security deposits

648,264,991

40,924,648

Deferred taxation

15,000,001

1,500,000

Employees' retirement gratuity

1,115,702

788,268

------------------

130,657,288

82,938,207

CURRENT LIABILITIES

Current portion of non-current liabilities

190,339,361

36,362,675

Short term finances

1,520,000,001

130,700,400

Accrued and other liabilities

127,443,291

103,303,811

Proposed dividend

15,000,000

Provision for taxation

11,058,027

2,111,840

------------------

199,836,292

194,505,296

CONTINGENCIES AND COMMITMENTS

------------------

528,129,475

412,348,070

==========

The annexed notes form an integral part of these accounts.

CHIEF EXECUTIVE

ASSETS

NON-CURRENT ASSETS

Tangible fixed assets

Operating fixed assets

4,060,533

4,428,293

Capital work-in-progress

3,965,000

------------------

Net investment in finance leases

8,025,533

4,428,293

Lease payments receivable

545,897,407

397,259,332

Guaranteed residual value of

leased assets

88,419,757

62,523,199

------------------

Gross investment in leases

634,317,164

459,782,531

Less: Unearned finance income

125,482,711

89,653,782

------------------

Net investment in finance leases

508,834,453

370,128,749

Less: Current portion

201,306,259

163,743,812

------------------

307,528,194

206,384,937

Long term investment

115,530

900,638

Long term deposits and

deferred cost

498,751

871,344

------------------

316,168,008

212,585,212

CURRENT ASSETS

Current portion of net investment

in finance leases

2,013,062,591

163,743,812

Less: Provision for doubtful receivables

2,246,929

635,965

------------------

Advances, deposits, prepayments

199,059,330

1,631,078,471

and other receivables

10,486,808

17,827,790

Bank balances

2,415,329

18,827,221

------------------

211,961,467

199,762,858

------------------

528,129,475

412,348,070

==========

DIRECTOR

Profit and Loss Account for the year ended 30 June 2001

NOTE

2001

2000

Rupees

REVENUE

Income from lease financing

72,547,979

57,303,764

Other income

1,315,639

731,046

------------------

73,863,618

58,034,810

EXPENDITURE

Administrative and other operating expenses

12,867,262

11,624,151

Financial and other charges

30,432,454

20,251,888

Provision for doubtful receivables

1,610,964

498,634

------------------

44,910,680

32,374,673

------------------

PROFIT BEFORE TAXATION

28,952,938

25,660,137

PROVISION FOR TAXATION

Current year

1,058,027

910,000

Prior year

163,583

------------------

1,221,610

910,000

------------------

PROFIT AFTER TAXATION

27,731,328

24,750,137

UNAPPROPRIATED PROFIT

BROUGHT FORWARD

1,904,567

1,454,430

------------------

PROFIT AVAILABLE FOR APPROPRIATION

29,635,895

26,204,567

APPROPRIATIONS

Transfer to statutory reserve

(6,500,000)

(5,000,000)

Transfer from general reserve

15,000,000