20000104

Brief recordings

BY SCANNER

Leasing Companies

Dawood Leasing Company Limited

Year Ended June 30, 1999

Overview

The company was incorporated in the province of Sindh in June 1994. It was listed at the stock exchange in the same year. At present the share in the company is trading at Rs 5 at 50% discount to its par value. In its 5 year of operation the company declared cash dividend in three years which included the year under review. This year the profit payout announcement is at 10% as compared to 12.5% in other two years. the balance sheet of the company remained fighting fit despite enhanced bank borrowings and slightly diminished equity base. It has excellent debt to equity ratio at 58:42 and current ratio at 1.32. The company has acquired two Modaraba companies and has large stake in the only venture financing company whose management is also following the guidelines of the sponsors of Dawood Leasing. Total Revenue, total lease income are the highest in the company's history.

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The company completed its 5th year of operation and with that its shareholders' equity increased to Rs 300.63 million in the financial year 1998-1999 from Rs 267.92 million in 1995. During FY 1998-99, the period under review, total asset crossed one billion rupees threshold for the first time hitting the asset base of Rs 1.521 billion. This figure reflects 67.59% rise over preceding year's figure of Rs 0.908 billion and 346.76% increase over total assets posted in its first year of operation in 1995 at Rs 0.341 billion. The magnitude of expansion in a such a short period is commendable.

The year under review was the year of varied threats for the leasing sector and at the same time an year of opportunity for Dawood Leasing Company Ltd. (DCL). The Chairman and CEO of DCL has shared his insights of some of the threats about which following bullet points can be read as under.

".ÑÊconstant decline in spreads due to competition;

".ÑÊscarcity of good quality borrowers;

".ÑÊcontinuous erosion of tax shield due to dearth of investment activity;

".ÑÊintrusion of other players into the leasing business;

".ÑÊnon execution of decrease issued by the courts and

".ÑÊdelays and default sin rental recoveries.

"The persistent downturn in economy played havoc particularly with financial institutions and some of these corporate bodies came for sale by their sponsors. Hence the leadership in DCL appear to have designed their strategy of buying out such enterprises at unimaginable low but affordable price. In this scenario, DCL found immense opportunity to realise the corporate mission of expanding the basket of financial product and services.

During the financial year under review, the 2.50 million (paid-up capital) DCL successfully closed the acquisition deal of the Modaraba company of a Rs 100 million (paid-up fund) a relatively older Modaraba. After the balance sheet date of the account under review, DCL also acquired the Modaraba company of another Modaraba with Rs 56.25 million paid-up capital.

The acquisition spree of DCL did not stop there as DCL acquired 30% stake in the only listed venture financing company in the country and that too sponsored by Asian Development Bank. The visionary entrepreneur, Chairman & CEO, Rafique Dawood a scion of great conglomerate Ñ Dawood Group rejoiced and came out with these conclusions.

"With these acquisitons Dawood Leasing will be able to offer to clients a wide-range of financial services ranging from leasing, equity investments, underwriting, Morabaha and Musharika financing."

The expansion in its balance sheet size can be ascribed mainly due to increase in bank borrowings. Because other sources of finance such as equity base and deposit base of certificates of investment substantially contracted.

The expansion in both long term and short term borrowings is colossal. These resources enriched the company for the massive expansion in lease and Morabaha finance portfolios as well these resources apparently also empowered the company for the leverage buy-outs of shares in its subsidiaries and associates as mentioned before.

During the period under review, the company's net investment in lease finance at Rs 1036.38 million (FY 1997-98: Rs 791.63 million) shot up by 30.9% over the preceding year's.

Total investment in subsidiary and associates amounted to Rs 45.79 million.

Short term investments amounted to Rs 189.80 million (1997-98: Rs 75.51 million) and increased by 151% over preceding year's. This portfolio, comprised US Dollar Bonds for Rs 115.91 million, Marketable Securities at Rs 29.85 million, Federal Investment Bonds (10 years) at Rs 4 million and placements and deposits at Rs 40.03 million.

The opening balance in the account of provision for diminution in value of investments was in the sum of Rs 12.07 million. During the year, this balance was reduced to Rs 9.04 million because of reversal/provisioning of the amount of Rs 3.03 million which was written back.

On the other hand the balance sheet remained substantially liquid as depicted by the current ratio at 1.32. Also current asset account is awash with large cash and bank balances which announced to Rs 111.04 million as compared to only Rs 2.39 million in the preceding year.

The major component of long term loan emanated from local commercial and investment banks, which aggregated to Rs 343.93 million. Another borrowing of Rs 124.36 million came from Asian Development Bank against the approved facility of US $ 6.66 million draw down of US $ 2.459 million.

The company's total revenue at Rs 163.2 million total lease income at Rs 154.05 million and profit before taxation at Rs 35.29 million increase by 15.47%, 15.51% and 25.77% respectively over the preceding year's. Total revenue and income from lease operations were the highest in the company's history. But the pre-tax profit was only third highest. the net profit at Rs 19.94 million which produced EPS at Rs 0.80. The company announced cash dividend at Rs one per share.

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Performance Statistics (Million Rupees)

June 30 1999 1998

Capital & LiabilitiesÉÉÉ

Paid-up Capital: 250.00 250.00

Reserves & Profit: 50.63 55.69

Shareholders' Equity: 300.63 305.69

L.T. Debts: 419.33 102.53

L.T. Cert/Investment: 11.40 37.30

Security/Deposits on Leases: 99.15 85.25

Deferred Liabilities: 29.86 16.52

Current Liabilities: 660.62 360.29

AssetsÉÉÉ

Fixed Assets Ñ Tangible: 23.80 17.64

Net Investment in Lease Finance: 576.09 434.66

L.T. Investments: 45.79 Ñ

L.T. Loans: 1.72 1.93

Other Non Current Assets: 0.30 Ñ

Current Assets: 873.29 453.35

Total Assets: 1,520.99 907.58

Revenue, Profit & PayoutÉÉÉ

Lease Income: 154.05 133.36

Return on Deposits & Investments: 8.74 7.55

Gain on Sale of Securities: 0.14 0.38

Other Income: 0.28 0.05

Total Revenue: 163.21 141.34

Total Expenditure: 127.92 113.28

Profit Before Taxation: 35.29 28.06

Profit After Taxation: 19.94 10.17

Dividend Cash 10% (1998: Nil): 25.00 Ñ

Financial RatiosÉÉÉ

Share Price (Rs) 28/12/99: 5.00 Ñ

Book Value Per Share (Rs): 12.02 12.22

Price/Book Value Ratio: 0.42 Ñ

Debt/Equity Ratio: 58:42 25:75

Current Ratio: 1.32 1.26

Leasing Income/Total Income (%): 94.39 94.39

Net Profit/Total Income (%): 12.21 7.20

Net EPS (Rs): 0.80 0.40

Price/Earning Ratio: 6.25 Ñ

R.O.E. (%): 6.63 3.33

R.O.A. (%): 1.31 1.12

R.O.C.E. (%): 2.22 1.76

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Company information: Chairman & Chief Executive: Rafique Dawood. Directors: Dr. Najeeb Samie (Nominee SLIC); Asadullah Khawaja (Nominee ICP); Nasim Beg (NIT), Bashir A. Sheikh (AL Faysal Inv. Bank). Company Secretary: Syed Jamal Macdi. Registered office & Head Office: 5-B, Lakson Square Building, Sarwar Shaheed Road, Karachi-74200. Phone: 5687778, Fax: 5685830. email: dtc@khi.compol.com Website N.A. Branch Office: Beverly Centre, Jinnah Avenue, Islamabad-44000.