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Modarabas

B.R.R. International Modarbas

Year Ended June 30, 1999

Overview.....................

The year under review was the first year after the merger as B.R.R. Second Modaraba and Equity International Modaraba merged. Total assets of B.R.R. International Modaraba reached Rs 2.234 billion. Certificate holders' equity increased to Rs 0.661 billion and gross revenue peaked at Rs 0.653 billion. Both leased asset at book value and disbursement for fresh leases decreased. Long term investment portfolio at Rs 0.937 billion remained by far the largest component of total asset and posted substantial rise of Rs 189.7 million over preceding year's. While risk is great in this portfolio, reward is wafer-thin and large provision has been booked. The IFC has provided financing to the Modaraba to the extent of US $15 million against Income Notes agreements duly secured by way of hypothecation of the assets covered by each Income Note lease and the assignment of all Income Note lease receivable in favour of IFC. Net profit of the Modaraba increased to Rs 66.36 million by 44% and the Modaraba declared cash dividend at 11 percent.

B.R.R. International Modaraba is a multipurpose, perpetual Modaraba. It is managed by B.R.R. Investments (Private) Limited, a company incorporated in the province of Sindh and is one of the constituent members of the renowned conglomerate Dawood Group.

The 10-rupee certificates in the Modaraba are quoted at stock exchanges in Karachi and Lahore. The core business of the Modaraba is leasing of assets. It is also engaged in the deployment of funds in Musharakas, Morabahas, equity participation, short term investments and trading of marketable securities.

During FY 1998-99, its revenue centres were lease rentals, income from morabaha transactions income from hire purchase arrangements, rentals from lockers and custodial services, dividend income, gain on sale of investments, income on foreign currency certificates of investments (COI's), income on rupee certificates of investments, etc.

Modarbas are regulated by the Registrar of Modarabas and Modarabas companies under the Security Exchange Commission of Pakistan, Ministry of Finance. Modarabas are classified by State Bank of Pakistan as Non Banking Financial Institutions (NBFI's) and are required to set aside statutory reserves in accordance with the State Bank of Pakistan Regulations for NBFI's.

The Modaraba was listed at Karachi Stock Exchange in 1985. In terms of equity and total assets, it may be considered to rank among large modarabas.

The certificate holders equity has swelled to Rs 0.661 billion which works out to 137% of the paid-up capital at Rs 481.93 million. The balance sheet size is in the sum of Rs 2.34 billion. The external sources of finance are redeemable capital, long and short term morabaha financing, working capital finance and customers deposits.

For redeemable capital (secured) the Modaraba has entered into Income Notes agreements with International Finance Corporation U.S.A. (IFC). Under these agreements the IFC subscribed and paid in full for Income Notes of aggregate face value of US $15 million.

The Income Notes are repayable in six equal semi annual instalments which will commence from September 30, 2002 and the last instalment will be payable by June 15, 2005.

The IFC has the option to convert into modaraba certificates at a price equivalent to the book value per modaraba certificate upto 20% of the full initial value of each Income Note subscribed by IFC.

The IFC shall participate in the profits of the Modaraba by way of an Income Notes rate which has been linked to the profit participation per modaraba certificate subject to the modaraba having made profits in the financial year.

Both the arrangements are secured by way of hypothecation of assets by each Income Note lease and the assignment of all Income Note lease receivables in favour of IFC.

Morabaha finance has been availed from a financial institution and these arrangements have been secured by way of lien on foreign currency certificates of investment, hybothecation of leased assets and future rentals receivable.

Leased assets in the Modaraba amounted to Rs 818 million but decreased by 12.3% as compared to the preceding year's Rs 933.34 million.

Income from lease rentals at Rs 527.54 million reflected increase by 13.08% over the preceding year's Rs 466.49 million.

The directors informed that the year under review was the first complete year after merger. There had been merger of B.R.R. Second Modaraba and Equity International Modaraba.

It is also reported that disbursement during the year, on account of new leases declined substantially as the management continued its focus on recovery drive and followed low key and low risk policy for fresh leases. During the year under review, the disbursements for leases were in the sum of Rs 240.4 million as compared to Rs 390.4 million which means there was 38.4% decline. With the size of total 2.23 billion in total assets, the disbursement is too modest. It is a common approach to maximise lease profit with new leases. Because new leases yield more profit than old leases.

As regards future course of action, Chairman Siddique Dawood informed, "your modaraba will continue to maintain its consolidated position and spread exposure over a broad spectrum of proven track based clients. We also aim to serve strongly established multinational companies, where through margins are slender, rental payments are assured.

We are examining the feasibility of using the vault to provide custodial services for central depository company. We are looking at new investment possibilities. We are also examining investment in a company providing data services to USA."

During the year net profit of the Modaraba Substantially improved which translates into the Earning Per Certificate (EPC) at Rs 1.38 as compared to EPC of last year at Rs 0.96. In line with last year, the cash dividend was announced at Rs 1.10 per certificate which entailed disbursement of large amount of Rs 53.01 million. However, the payout is modest as compared to other fixed income securities in the financial market. This modarba being a leading Sharia'a based financial institution should set example of just reward for investment.

Performance Statistics (Million Rupees)

June 30 1999 1998

Capital & Liabilities

Paid-up Capital 481.93 481.93

Reserves & Profit 179.35 166.00

Equity 661.28 647.93

L.T. Debts 1072.46 991.66

Customers' Security Deposit 112.03 116.81

Current Liabilities 388.89 479.16

Assets

Fixed Assets - Own Use. 71.45 74.47

Fixed Assets Ñ Leased Out 818.02 933.34

L.T. Investments 936.82 747.13

L.T. Morabaha Finance 9.32 1.01

Other Non Current Assets 0.65 2.07

Current Assets 398.40 477.54

Total Assets 2,234.66 2,235.56

Revenues, Profit & Payout

Lease Rentals 527.54 466.49

Income On Morabaha Transactions 3.86 1.87

Income From Hire Purchase Agreements 0.52 0.45

Rentals From Lockers & Custodial Services 12.66 14.40

Income: Dividend & Investment Sales 2.13 0.44

Exchange Gain 12.53 3.62

Income From COI's 70.59 50.51

Other Income 24.01 18.24

Gross Revenue 653.84 556.02

Total Expenditure & Mgmt. Fee 584.43 499.93

Profit Before Taxation 69.41 56.09

Profit After Taxation 66.36 46.09

Dividend Cash 11% (1998: 11%) 53.01 53.01

Financial Ratios

Share Price (Rs) 23/2/2000 6.60 Ñ

Book Value Per Share (Rs) 13.72 13.44

Price/Book Value Ratio 0.48 Ñ

Debt/Equity Ratio 62:38 60:40

Current Ratio 1.02 1.00

Net Profit to Gross Revenue (%) 10.15 8.29

E.P.C. (Rs) 1.38 0.96

Price/Earning Ratio 4.78 Ñ

R.O.E. (%) 10.03 0.96

R.O.A. (%) 2.97 2.06

R.O.C.E. (%) 3.59 2.62

COMPANY INFORMATION:

MODARABA COMPANY: B.R.R. Investments (Private) Limited.

Chairman: Siddique Dawood.

Chief Executive: Safdar Rashid.

Directors: Mansoorul Arfin/Charles David Blackmore.

Registered Office & Head Office: Dean Arcade Block-8, Kehkeshan, Clifton Karachi-75600.

Phone: NA, Fax: NA, E-mail: NA.