First Credit and Investment Bank Ltd.

Transcription

1 Annual Report 2008

2 Vision Be a preferred investment bank enhancing value for the stakeholders and contributing to the National goals. Mission Statement Contributing through innovative financing and investment in quality portfolio, advisory services delivered in an environment of trust and customer confidence supported by a team of professionals.

3 C O N T E N T S Company Information...03 Notice of Annual General Meeting...04 Directors Report...05 Auditors Report...08 Balance Sheet...09 Profit & Loss Account...11 Cash Flow Statement...12 Statement of Changes in Equity...13 Notes to the Accounts...14 Pattern of Shareholding...36 Form of Proxy...

4 COMPANY INFORMATION BOARD OF DIRECTORS: Mr. Shahid Anwar Khan Ch. Abdul Qadeer Dr. Asif A. Brohi Mr. Najib Tariq Mr. Wajahat A. Baqai Mr. Hamad Rasool Mr. Mohammad Imran Malik (Chairman) (President & Chief Executive) AUDIT COMMITTEE: Mr. Najib Tariq Mr. Wajahat A. Baqai Mr. Hamad Rasool COMPANY SECRETARY: Mr. Muhammad Mohsin Ali AUDITORS: LEGAL ADVISOR: BANKERS: SHARE REGISTRAR: M. Yousuf Adil Saleem & Co. Chartered Accountants Zahid Hamid - Advocate Allied Bank Limited Askari Commercial Bank Limited Atlas Bank Limited First Women Bank Limited Habib Bank Limited MCB Bank Limited National Bank of Pakistan United Bank Limited THK Associates (Pvt.) Limited Ground Floor, State Life Building-3 Dr. Ziauddin Ahmed Road, Karachi P.O. Box No Ph. # +92 (21) Fax # +92 (21) HEAD OFFICE / REGISTERED OFFICE: 2nd Floor, Sidco Avenue Centre, Stratchen Road, Karachi Pakistan. Ph. # : , , Fax. # : , LAHORE BRANCH: WEBSITE: Ground Floor, Office # 2, 83-A-E/1 Main Boulevard, Gulberg III, Lahore. Ph. # : +92 (42) Fax. # : +92 (42) info@fcibank.com.pk 3

5 NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that 19 th Annual General Meeting of the shareholders of First Credit and Investment Bank Limited will be held on Wednesday, October 29, 2008 at 7:00 p.m. at PIIA (Pakistan Institute of International Affairs) Auditorium, Aiwan-e-Saddar Road, Karachi to transact the following business: 1. To confirm the minutes of the Extra Ordinary General Meeting held on April 23, To receive, consider and adopt the audited financial statements of the Company together with the Auditors and Directors reports thereon for the year ended June 30, To appoint the statutory auditors for the year ending June 30, 2009 and fix their remuneration. 4. To transact any other business with the permission of the Chair. By Order of the Board Dated : October 07, 2008 Muhammad Mohsin Ali Company Secretary Notes: 1. The share transfer books of the Company will remain closed from October 22, 2008 to October 29, 2008 (both days inclusive). 2. A member entitled to attend and vote at the Meeting may appoint a proxy in writing to attend the meeting who shall have such rights as respects attending, speaking and voting at the meeting as are available to a member. A proxy need not be a member of the Company. 3. In order to be effective, proxy form must be received at the office of our Registrar not later than forty eight (48) hours before the meeting, duly signed, stamped and witnessed by two persons with their names, address, CNIC numbers and signatures. 4. In case of individuals, attested copies of CNIC or passport of the beneficial owners and the proxy shall be furnished with the proxy form. 5. In case of the proxy by a corporate entity, Board of Directors resolution/ power of attorney and attested copy of CNIC or passport of the proxy shall be submitted alongwith the proxy form. 6. Accountholders and sub-accountholders holding book entries securities of the Company in the Central Depository Company of Pakistan Ltd, who wish to attend the meeting, are requested to bring their original CNIC with copies thereof duly attested for identification purpose. 7. The shareholders are requested to timely notify any change in their addresses to our Registrar office. 4

6 DIRECTORS REPORT TO THE MEMBERS On behalf of the Board of Directors, I am pleased to present to you 19th Annual Report of the First Credit and Investment Bank Ltd alongwith the audited financial statements and Auditors Report for the year ended June 30, Quotation of the Company s Shares on Karachi Stock Exchange In keeping with the requirements of SECP, Investment Banks are required to have a minimum equity of Rs.500 million by end June 30, By June 30, 2009 their minimum equity should be Rs.700 million. By June 30, 2010 minimum equity is required to be Rs.1,000 million. Accordingly, the Company decided to raise the paid up capital to Rs.650 million by a fresh issue of Rs.250 million to the general public, by issue of 25 million ordinary shares (par value Rs.10 each). The process of Initial Public Offering was completed in August 2008 and now the Company s paid up capital stands at Rs.650 million. Broadening its shares ownership, the listing of shares at the Stock Exchange shall strengthen confidence to the depositors and other stakeholders in the Company. This would also facilitate raising of funds at relatively lower cost. Economic Scenario The country faces many challenges particularly of poverty, unemployment, trade deficit, galloping prices, especially of commodities and energy, health services, quality education, deteriorating law & order situation, lower savings rate when compared to GDP, deficient power and communication infrastructure, despite claims of good economic progress in the past few years. The problems have compounded with the rise in international oil prices, exchange rate adversity and fall in foreign exchange reserves of the country. Tackling these challenges would require huge funding coupled with concerted efforts of all the stakeholders including the government by way of prudent planning, phasing and implementation of projects in all spheres of life. This process is expected to offer lot of opportunities to the populace as well as to the investment banks. To restore macroeconomic stability the government has introduced several measures through the Federal & Provincial Budget and the Trade Policy Now that a democratically elected Government is in power, faster addressing of the issues is expected. Considering the risk related to rising external current account, fiscal deficits and worsening inflation outlook, the State Bank of Pakistan has further tightened the monetary policy and raised its discount rate to 13 % effective July 30, Minimum rate on saving bank accounts has also been fixed at 5%. Capital Market The Stock Market has witnessed downward trend by the year ended June 30, KSE 100 Share Index that stood at 13,772 at the end of June 2007 plummeted to 12,289 by the end of June Total market capitalization over the period also decreased from Rs.4,019 billion to Rs.3,778 billion. On August 28, 2008 the KSE Board decided to freeze the floor at 9,144 based on closing prices of scrips on August 27, The floor was reviewed on September 25, KSE Board, however, ruled to keep it in place for the time being. Improvement of the situation on borders of the country coupled with measures to usher political stability are major factors that can promise stability to the capital market. Prevailing economic situation coupled with disturbances in northern areas of the country is adversely affecting the sentiments of the investors. KSE 100 Share Index fell to 9,190 on September 24, 2008 with corresponding market capitalization at Rs.2,849 billion. Financial Results Financial results of the Company for are summarized below. Comparative data for has also been provided: Rs. in million Year ended June 30, 2008 June 30, 2007 Total Revenue Profit before taxation Profit after taxation Shareholders equity Total assets 1, , Earning per share Basic & diluted (Rs.) Total assets of the Company as of June 30, 2008 were 1,729.2 million as compared to Rs.2,058.5 million as of June 30, 2007, a decline of Rs million. This decline was mainly due to lack of viable investment opportunities especially in the capital and money markets of the country. The spreads were low vis-a-vis corresponding risks in the available investment avenues. Taking cognizance of such factors your management 5

7 instead of falling prey to temptation of increasing balance sheet footings and short term profitability, reduced volume of its exposure in the stock market and slowed down new loan approvals. Funds were invested in short term placements with financial institutions of repute and in Term Finance Certificates to ensure continuity of regular income. Your Board is happy to report that this strategy paid off and now the Company has flexibility as well as liquidity to invest in more secure and profitable avenues during the following year ending June 30, Further, it is satisfying to note the Company does not have any Non-Performing Loan on its books. The reduced total assets, as explained above, also resulted in decline in total revenue (from Rs.Rs million to Rs million), profit before tax (from Rs.57.4 million to Rs.24.9 million) and profit after tax (from Rs.55.7 million to Rs.16.0 million) for the two corresponding years. Dividend Dividend policy is a mix of offering competitive returns to the shareholders, improving credit rating of the Company and allowing availability of adequate funds to meet its future expansion plans. In view of the fall in profitability and increase in year-end paid-up capital, the Directors recommend to skip dividend for the current year. Credit Rating JCR-VIS Credit Rating Company vide its report dated October 01, 2007, has assigned the Company a credit rating of BBB+ (Triple B Plus) - Long Term and A2 (A Two) - Short Term. The Board is conscious to provide support to the Company for improving its credit rating. Audit Committee and Internal Controls Audit Committee of the Board comprises the following three non-executive directors which continuously watches its operations and financial health: l Mr. Najib Tariq l Mr. Wajahat A. Baqai l Mr. Hamad Rasool The Audit Committee eyes the company s internal control system. It receives Internal Audit reports on regular basis and promptly takes actions called for. The system of internal control is considered sound in design. It is effectively implemented and monitored. The Committee remains on the look out of measures for continuous improvement in the operating systems of the Company. Code of Corporate Governance As stated earlier, the Company has been listed at the Karachi Stock Exchange with effect from August 21, Inclusion of Statement of Compliance with the Code of Corporate Governance in the Company s annual report for the year ending June 30, 2008 is not mandatory. However, the directors are pleased to report that: a. The financial statements, prepared by the management of the Company, fairly present its state of affairs, the result of operations, cash flows and changes in equity. b. Proper books of account of the Company are maintained. c. Appropriate accounting policies are consistently applied in preparation of financial statements and accounting estimates are based on reasonable and prudent judgment. d. International Accounting Standards, as applicable in Pakistan, are followed in the preparation of financial statements and any departure therefrom is duly disclosed. e. The system of internal control is sound in design. It has been effectively implemented and monitored. f. The Board is satisfied that the company is doing well and there is no concern as regards going concern under the code. g. There has been no material departure from the best practices of corporate governance. h. Key operating and financial data of last six years is included in Company s Reports to the stakeholders. i. There are no statutory payment on account of taxes, duties, levies and charges which are outstanding as on June 30, 2008 except for those disclosed in the financial statements. j. A statement as to the value of investments of provident, gratuity and pension funds, based on their respective audited accounts is given in the notes to the financial statements. k. No material changes and commitments affecting the financial position of the Company has occurred between the end of the financial year and the date of this report. l. Reasons for significant deviations from last year in operating results / profits and reasonable prospects of the future profitability have been discussed in this report. Key Operating and Financial Data The key operating and financial data of the company for the last six years is as under: 6

8 in million Year ended June, Total Revenue Profit before taxation Profit after taxation Shareholders equity Total assets 1,729 2,058 1,764 1,346 1, Earning per share (Rs.) Future Outlook & Strategy The listing of shares on Karachi Stock Exchange in August 2008 has provided challenges and opportunities for future growth of the Company. The Company has now at its disposal the additional funds raised through the Initial Public Offering (IPO), existing liquidity as mentioned earlier and enough space for gearing. Equipped with these resources, past satisfactory operating performance, strong financial position, reputed sponsors, the Company is now poised to grow in great strides in the investment banking arena. To meet the growth needs, the Company will require improvements in its infrastructure like more office space, more professionals and branch network. Company will diversify its operations geographically as well as in terms of its products and services. In this direction Company s Lahore branch is expected to be operational in near future. Human Resources The Company realizes that its human resources are its real strength. The Company has a qualified and experienced management team. The Company is an equal opportunity employer. In order to meet the challenges of its future growth and in view of higher mobility in the financial sector, the Company will strive to hire suitable professionals and retain them by offering better working conditions and improved emoluments over the period of their services. To sharpen their professional skills, the executives and other staff will be encouraged to participate in seminars, workshops and training sessions organized by various institutions. Board Meetings During the year , four Board meetings were held, in which directors attendance was as follows: Auditors Name of Director No. of meetings attended Mr. Shahid Anwar Khan 4 Ch, Abdul Qadeer 3 Dr. Asif A. Brohi 3 Mr. Najib Tariq 4 Mr. Wajahat A. Baqai 4 Mr. Hamad Rasool 4 Mr. Mohammad Imran Malik 4 The present auditors, M/s. M. Yousuf Adil Saleem & Co., Chartered Accountants, retire. Being eligible they offer for re-appointment during the year ending June 30, Pattern of Shareholding The Pattern of Shareholding including categories of Shareholders of the Company as on June 30, 2008 is annexed. National Bank of Pakistan (NBP) and the Water and Power Development Authority (WAPDA) continue as the two major shareholders. However, after issue of fresh capital to the public, share of NBP and WAPDA stands diluted 30.77% each in the Company s paid-up. The balance 38.46% shareholding is with the general public. Acknowledgement The Board would like to express its sincere thanks and gratitude to the customers for their patronage. Special thanks are offered to the Government of Pakistan, the Securities and Exchange Commission of Pakistan, the State Bank of Pakistan and the Karachi Stock Exchange for their continued support and guidance. The Board also takes the opportunity to thank the shareholders for their continued trust and the employees for their dedication and commitment. By Order of the Board Chief Executive / President 7

9 AUDITORS REPORT TO THE MEMBERS We have audited the annexed balance sheet of First Credit and Investment Bank Limited (the Company) as at June 30, 2008 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, 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 by the Company; ii. iii. the expenditure incurred during the year was for the purpose of the Company s business; and 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 June 30, 2008 and of the profit, its cash flows and changes in equity for the year then ended; and d. in our opinion, no zakat was deductible at source under the Zakat and Ushr Ordinance, Karachi. M. YOUSUF ADIL SALEEM & CO. Chartered Accountants Date: 29 th, September

10 BALANCE SHEET Note ASSETS NON-CURRENT ASSETS Property and equipment 4 9,512,448 12,478,012 Intangible asset 5 217,577 - Long-term investments 6 629,687, ,866,800 Long-term loans 7 14,147,066 11,629,401 Long-term finances 8 74,262, ,200,884 Long-term placements 9-175,000,000 Long-term security deposits 1,000,000 1,005,200 CURRENT ASSETS 728,826, ,180,297 Short-term investments 10 48,506,017 52,281,638 Short-term finances ,145, ,150,715 Short-term placements ,000,000 35,000,000 Current portion of - long-term loans 7 1,923,777 1,465,219 - long-term finances 8 55,908, ,796,925 Markup/interest accrued 13 21,941,814 14,959,225 Advances, prepayments and other receivables 14 45,746,949 6,863,442 Advance taxation - net 14,284,786 14,619,721 Cash and bank balances 15 13,969,198 25,186,903 1,000,426,738 1,279,323,788 TOTAL ASSETS 1,729,253,424 2,058,504,085 CHIEF EXECUTIVE OFFICER 9

11 AS AT JUNE 30, Note EQUITIES & LIABILITIES SHARE CAPITAL AND RESERVES Authorized capital 75,000,000 (2007: 50,000,000) Ordinary shares of Rs. 10 each 750,000, ,000,000 Issued, subscribed and paid-up capital ,000, ,581,700 Reserves ,981, ,319, ,981, ,901,052 DEFICIT ON REVALUATION OF INVESTMENTS - NET 18 (7,799,739) (6,391,553) NON-CURRENT LIABILITIES Long-term loans 19 87,500, ,333,331 Deferred liability ,593 Long-term certificate of deposit 21 1,800,000 - CURRENT LIABILITIES 89,300, ,017,924 Short-term borrowings ,965, ,000,000 Short-term running finance ,810,781 99,995,000 Current portion of long-term loans ,833, ,166,667 Short-term certificates of deposit ,200, ,200,000 Accrued markup 25 18,539,016 16,465,433 Accrued expenses and other liabilities 26 8,423,513 55,149,562 COMMITMENTS 27 1,089,771,792 1,301,976,662 TOTAL EQUITY AND LIABILITIES 1,729,253,424 2,058,504,085 The annexed notes from 1 to 37 form an integral part of these financial statements. 0 DIRECTOR 10

12 PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED JUNE 30, Note INCOME Income from term finances and funds placements ,548,286 77,757,400 Income from investments 29 62,084, ,061,909 Fees and commission 30 3,463,164 7,089,917 Other income 209,821 1,376, ,306, ,286,091 EXPENDITURE Finance cost ,461, ,521,933 Administrative and operating expenses 32 39,328,366 29,859, ,789, ,381,750 36,516,837 57,904,341 Unrealized loss on held-for-trading investments 10.2 (8,266,637) (526,892) Provision for permanent diminution in value of investments 6.4 (3,327,228) - PROFIT BEFORE TAXATION 24,922,972 57,377,449 Provision for taxation 33 (8,884,483) (1,704,081) PROFIT FOR THE YEAR 16,038,489 55,673,368 (Restated) EARNINGS PER SHARE - BASIC AND DILUTED The annexed notes from 1 to 37 form an integral part of these financial statements. CHIEF EXECUTIVE OFFICER DIRECTOR 11

13 CASH FLOW STATEMENT FOR THE YEAR ENDED JUNE 30, Note A) CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxation 24,922,972 57,377,449 Less: Dividend income (5,320,122) (11,766,652) Adjustments for: Depreciation 3,482,946 2,274,042 Amortization 6,153 - Provision for the gratuity 659,577 1,089,417 Loss / (Gain) on disposal of property and equipment 10,499 (478,802) Provision for permanent diminution in value of investments 3,327,228 - Unrealized loss on held-for-trading investments 8,266, ,892 15,753,040 3,411,549 Operating cash flows before working capital changes 35,355,890 49,022,346 (Increase) / decrease in current assets Short-term investments (4,491,016) 440,639,151 Short-term finances 581,004,998 (852,121,715) Short-term placements (365,000,000) 295,000,000 Markup/interest accrued (6,982,589) 1,648,095 Advances, prepayments and other receivables (38,374,269) 2,292, ,157,124 (112,541,675) Increase / (decrease) in current liabilities Accrued and other liabilities (46,726,049) (192,565,520) Accrued markup 2,073,583 8,167,167 Short-term borrowings (159,034,850) 48,121,725 (203,687,316) (136,276,628) Cash generated from operations (2,174,302) (199,795,957) Security deposits received / (paid) 5,200 (785,150) Gratuity contribution paid (1,853,408) (1,753,153) Income tax paid (8,549,548) (6,340,324) (10,397,756) (8,878,627) Net cash used in operating activities (12,572,058) (208,674,584) B) CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property and equipment (584,831) (8,880,567) Acquisition of intangible asset (223,730) - Proceeds from disposal of property and equipment 56, ,397 Long-term investments - net (199,555,928) 78,871,933 Long-term placements 175,000,000 (175,000,000) Dividend income received 5,320,122 11,766,652 Long-term finances 163,827,048 (56,103,073) Long-term loans (2,976,223) (10,306,699) Net cash from /(used in) investing activities 140,863,408 (158,736,357) C) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term loan - 50,000,000 Repayments of long-term loan (129,166,666) (129,166,665) Short-term running finance 149,815,781 (50,005,000) Certificates of deposit (148,200,000) 505,700,000 Dividend paid (11,958,170) - Net cash (used in) / from financing activities (139,509,055) 376,528,335 Net (decrease) / increase in cash and cash equivalents (11,217,705) 9,117,394 Cash and cash equivalents at the beginning of the year 25,186,903 16,069,509 Cash and cash equivalents at the end of the year 13,969,198 25,186,903 The annexed notes from 1 to 37 form an integral part of these financial statements. CHIEF EXECUTIVE OFFICER DIRECTOR 12

14 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED JUNE 30, 2008 Reserves Capital reserve Revenue reserve Issued, Reserve for Statutory Unappropriated subscribed and issue of reserve profit Total paid-up capital bonus shares... ()... Balance as at July 1, ,984, ,150, ,093, ,227,684 Changes in equity for the year 2007 Bonus shares issued for the year ended June 30, 2006 declared subsequent to year 15% 15,597, (15,597,600) - Transfer from reserve for issue of bonus shares - (250) Profit for the year ,673,368 55,673,368 Transfer to statutory reserve ,200,000 (11,200,000) - Balance as at June 30, ,581, ,350, ,969, ,901,052 Changes in equity for the year 2008 Bonus shares issued for the year ended June 30, 2007 declared subsequent to year 234.5% 280,418, (280,418,300) (0) Profit for the year ,038,489 16,038,489 Cash dividend for the year ended June 30, 2007 declared subsequent to year Re. 1 per Ordinary share (11,958,170) (11,958,170) Transfer to statutory reserve - - 3,207,698 (3,207,698) - The annexed notes from 1 to 37 form an integral part of these financial statements. 400,000, ,557,698 43,423, ,981,371 CHIEF EXECUTIVE OFFICER DIRECTOR 13

15 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, LEGAL STATUS AND OPERATION First Credit and Investment Bank Limited (the Company) was incorporated in Pakistan on August 31, 1989 as a public limited company under the name of First Credit and Discount Corporation Limited. Subsequently, the name of the Company was changed to First Credit and Investment Bank Limited. The registered office of the Company is situated at 2nd floor, Sidco Avenue Centre, Stractchen Road, R.A. Lines, Karachi, Pakistan. The Company is an associated undertaking of Water and Power Development Authority (WAPDA) and National Bank of Pakistan (NBP). The Company is licensed to undertake business of investment finance services as a Non-Banking Finance Company (NBFC) under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 (the NBFC Rules) issued by the Securities and Exchange Commission of Pakistan (SECP) [previously described under SRO 585 (1) /87 dated July 13, 1987 issued by the Ministry of Finance, Government of Pakistan]. The medium to long term credit rating of the Company rated by JCR-VIS Credit Rating Company Limited is 'BBB+' with a positive outlook. Short term rating of the bank is 'A-2'. Subsequent to year end, on July 10, 2008, the Company has been listed on the Karachi Stock Exchange. 2. STATEMENT OF COMPLIANCE 2.1 These financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board as are notified under the Companies Ordinance, 1984, the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 (the NBFC Rules), the Non-Banking Finance Companies and Notified Entities Regulations, 2007 (the NBFC Regulations) and the directives issued by the Securities and Exchange Commission of Pakistan (SECP). Wherever the requirements of the Companies Ordinance 1984, the NBFC Rules, the NBFC Regulations or the directives issued by SECP differ with the requirements of IFRS, the requirements of the Companies Ordinance 1984, the NBFC Rules, the NBFC Regulations or the directives issued by the SECP prevail. The SECP has deferred the applicability of International Accounting Standard (IAS) 39, 'Financial Instruments: Recognition and Measurement' and International Accounting Standard (IAS) 40, 'Investment Property' through Circular No. 19 dated August 13, 2003 to Non-Banking Finance Companies (NBFCs) providing investment finance services, discounting services and housing finance services. Accordingly, the requirements of these standards have not been considered in the preparation of these financial statements. The SECP has also deferred the application of Regulation 23 of the NBFC Regulations in respect of the classification and determination of provisioning requirement for non-performing assets (including disbursements against loans and advances and lease finance) through its circular No. 17 dated December 18, However, the classifications and provisioning requirements against non-performing assets have been considered in accordance with the regulation 7 of the prudential regulations applicable on NBFCs operating in Pakistan. Accordingly, the requirements of the above regulation have not been considered in the preparation of these financial statements. 2.2 Basis of preparation These financial statements have been prepared under the historical cost convention, except for the measurement of certain financial instruments at fair value and retirement benefits which are measured at present value. The financial statements are presented in Pak, which is the Company s functional and presentation currency. 2.3 Standards, interpretations and amendments to published approved accounting standards effective in 2007 Amendments to International Accounting Standard (IAS) 1 - Presentation of financial statements - Capital Disclosures, introduces certain new disclosures about the level of the company s capital and how the company manages its capital. Adoption of this amendment has only resulted in additional disclosures which have been set out in note 16.3 to these financial statements. Other new standards, amendments and interpretations that are mandatory for accounting periods 14

16 beginning on or after July 1, 2007 and are not considered relevant or do not have any significant effect on the company s operations, are not detailed in these financial statements. 2.4 Standards, interpretations and amendments to published approved accounting standards that are not yet effective: The following standards, amendments and interpretations of approved accounting standards, are effective for accounting periods beginning from the dates specified below are either not relevant to the Company s operations or are not expected to have a significant impact on the Company s financial statements other than increased disclosures in certain cases: IAS 1 - Presentation of Financial Statements - effective from the period beginning on or after January 1, 2009 (Revised September 2007) IAS 23 - Borrowing Costs (Revised March 2007) effective from the period beginning on or after January 1, 2009 IAS 27 (Revised) - Consolidation and Separate effective from the period beginning on or after January 1, 2009 Financial Statements IFRS 3 (Revised) - Business Combinations effective from the period beginning on or after July 1, 2009 IFRS 7 - Financial Instruments: Disclosures effective from the period beginning on or after April 28, 2008 IFRS 8 - Operating Segments effective from the period beginning on or after January 1, 2009 IFRIC 12 - Services Concession Arrangements effective from the period beginning on or after January 1, 2008 IFRIC 13 - Customer Loyalty Programme effective from the period beginning on or after July 1, 2008 IFRIC 14 - IAS 19 - The Limit on a Defined Benefit effective from the period beginning on or after January 1, 2008 Asset, Minimum Funding Requirements and their Interaction IFRIC 15 - Agreements for the Construction of Real effective from the period beginning on or after January 1, 2009 Estate IFRIC 16 - Hedges of a Net Investment in a Foreign effective from the period beginning on or after October 1, 2008 Operation 2.5 Critical accounting estimates and judgements The preparation of financial statements in conformity with approved accounting standards requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions and judgements are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the result of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods. The areas where various assumptions and estimates are significant to Company's financial statements or where judgements were exercised in application of policies are as follows: - Provision for taxation - Classification of investments 3. SIGNIFICANT ACCOUNTING POLICIES 3.1 Property and equipment These are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is charged to income using the straight line method whereby the cost of an asset is written-off over its estimated useful life at rates specified in note 4 to the financial statements. In respect of additions and disposals during the year, depreciation is charged from the month of acquisition and up to the month preceding the disposal respectively. 15

17 The carrying amounts are reviewed at each balance sheet date to assess whether they are recorded in excess of their recoverable amounts, and where carrying value exceeds estimated recoverable amount, assets are written down to their estimated recoverable amount. Maintenance and normal repairs are charged to profit and loss account as and when incurred. Gains and losses on disposal of property and equipment, if any, are taken to profit and loss account currently. 3.2 Intangible assets Intangible assets are stated at cost less accumulated amortization and accumulated impairment losses, if any. The cost of intangible asset is amortized over its estimated useful life, using straight line method at rate specified in note 5 to the financial statements. 3.3 Investments The Company determines the appropriate classification of its investments at the time of purchase and classifies these investments as held-for-trading, held-to-maturity or available-for-sale. These are initially recognised at cost, being the fair value of the consideration given, including the acquisition cost. Held-for-trading Investments which are acquired principally for the purpose of generating a profit from short-term fluctuations in price or dealer s margin or are securities included in a portfolio in which a pattern of short-term profit taking exists, are classified as held-for-trading. Held-for-trading investments are measured at subsequent reporting dates at fair value and unrealized gains and losses are included in the profit and loss account for the year. Held-to-maturity Investments with fixed or determinable payments and fixed maturity where management has both the positive intent and ability to hold to maturity are classified as held-to-maturity. These investments are measured at amortized cost. Amortized cost is calculated taking into account any discount or premium on acquisition by using the effective interest rate method. Available-for-sale Available-for-sale investments are either designated in this category or they do not fall under the held-for-trading or held-to-maturity categories. After initial recognition, available-for-sale investments are measured at subsequent reporting dates at fair value. Unrealised gains or losses arising from changes in the fair value of available-for-sale investments is taking to surplus / (deficit) on revaluation of investments account and is shown separately in the balance sheet below shareholder's equity. Subsequent to initial recognition, investments in quoted securities are marked to market, in accordance with the guidelines contained in the State Bank of Pakistan's BSD Circular No. 20 dated August 04, 2004 using rates quoted on Stock Exchange. Unquoted investments are carried at cost less accumulated impairment losses, if any, in accordance with the above mentioned circular. Impairment of investments is recognised when there is a permanent diminution in their values. Provision for impairment in value of investment, if any, is taken to the profit and loss account. 3.4 Trade date accounting All purchases and sale of investments are recognised at trade date. Trade date is a date on which the Company commits to purchase or sell an asset. 3.5 Derivatives Derivative instruments held by the Company generally comprise of future and forward contracts in the capital and money markets. These are stated at fair value at the balance sheet date. The fair value of the derivative is equivalent to the unrealised gain or loss from marking to market the derivative using prevailing market rates at the balance sheet date. Derivatives with positive market values (unrealised gains) are included in other assets and derivatives with negative market values (unrealised losses) are included in other liabilities in the balance sheet. The corresponding gains and losses are included in the profit and loss account. 16

18 3.6 Securities under repurchase and reverse repurchase agreements Transactions of repurchase / reverse repurchase of investment securities are entered into at contracted rates for specified periods of time and are accounted for as follows: Repurchase agreements Securities sold with a simultaneous commitment to repurchase at a specified future date (repo) continue to be recognised in the balance sheet and are measured in accordance with accounting policies for investments. The counterparty liability for amounts received under these agreements is included in borrowings from banks / NBFCs. The difference between sale and repurchase price is treated as mark-up on borrowings from banks / NBFCs and accrued over the life of the repo agreement. Reverse repurchase agreements Securities purchased with a corresponding commitment to resell at a specified future date (reverse repo) are not recognised in the balance sheet. Amounts paid under these agreements are recorded as fund placements. The difference between purchase and resale price is treated as return from fund placements with financial institutions and is accrued as income over the life of the reverse repo agreement. 3.7 Continuous Funding System (CFS) Transactions Receivable against CFS transactions are recorded at the fair value of the consideration given. The CFS transactions are accounted for on the settlement date. The difference between the purchase and sale price is treated as income from CFS transactions in the profit and loss account and is recognized over the term of the respective transaction. 3.8 Term finance / Credit facilities Term finances originated by the Company are stated net of provision for losses on such assets. The specific provision for bad and doubtful loans, if any, is determined in accordance with the requirements of the Prudential Regulations for NBFCs. Loans are written off when there is no realistic prospect of recovery. 3.9 Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purpose of cash flow statement, cash and cash equivalents consist of cash and bank balances Taxation Current The provision for current taxation is based on taxable income at current tax rates after taking into account tax credits, rebates and exemptions available, if any or minimum taxation at the rate of one-half percent of the turnover whichever is higher. However, for income covered under final tax regime, taxation is based on applicable tax rates under such regime. The charge for current tax also includes adjustments where necessary relating to prior years which arise from assessments framed / finalised during the year. Deferred Deferred tax is recognised using the liability method in respect of all temporary differences at the balance sheet date between the tax base of assets and liabilities and their carrying amounts used for financial reporting purposes. Deferred tax asset is recognized for all deductible temporary differences and tax losses, if any, to the extent that it is probable that the temporary differences will reverse in the future and the taxable profits will be available against which the temporary differences and tax losses can be utilized. The carrying amount of deferred tax asset 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 the deferred tax asset 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 that have been enacted at the balance sheet date. 17

19 3.11 Staff retirement benefits Defined benefit plan The Company operates an approved gratuity fund for all its eligible employees. Provisions are made to cover the obligations under the schemes on the basis of actuarial assumptions using "Projected Unit Credit" method. Actuarial gains and losses are recognized in the balance sheet using 10% Corridor approach and are amortized over the expected average remaining lives of the employees. The significant actuarial assumptions are stated in note 20 to these financial statements. Defined contribution plan: The Company also operates a recognized contributory provident fund for all of its regular employees. Equal monthly contributions are made, both by the Company and the employees to the fund at the rate of 10% of basic salary Return on certificates of deposit Return on certificates of deposit (CODs) issued by the Company is recognised on a time proportionate basis taking into account the relevant CODs issue date and final maturity date Provisions Provisions are recognized when the Company has a present legal or constructive obligation as a result of past event and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate Accrued and other liabilities Accrued and other liabilities are measured at cost which is the fair value of the consideration to be paid in the future for goods and services received whether billed to the Company or not Dividend Stock and cash dividend declared subsequent to balance sheet date are considered as non-adjusting event and are not recorded in financial statements of the current year Revenue recognition a) Income on term finances and funds placements is recognised on a time proportion basis taking into account the principal / net investment outstanding and applicable rates of profit thereon except in case of classified loans on which income is recognised on receipt basis. Interest / mark-up on rescheduled / restructured advances and investments is recognised in accordance with the guidelines given in the Non Banking Finance Companies and Notified Entities Regulations b) Return on government securities and term finance certificates is recognised on an accrual basis. c) Dividend income on equity investments is recognised when the right to receive the same is established. d) Income from fees, commission and brokerage is recognised, when such services are provided Financial instruments Financial assets and liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument and de-recognised when the Company loses control of the contractual rights that comprise the financial asset and in case of financial liability when the obligation specified in the contract is discharged, cancelled or expired Offsetting of financial assets and financial liabilities Financial assets and financial liabilities are offset and the net amount is reported in the financial statements only when the Company has a legally enforceable right to set-off the recognised amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. 18

20 4. PROPERTY AND EQUIPMENT COST ACCUMULATED DEPRECIATION W.D.V. As at As at As at Depreciation Depreciation As at As at PARTICULARS July 1, Additions Deletion June 30, July 1, for the on June 30, June 30, Rate year Disposal % R U P E E S Furniture and fixtures 1,315,716 59,089 (194,870) 1,179, , ,728 (194,870) 549, , Office equipment 2,145,452 40,785-2,186, , ,441-1,068,007 1,118, Computers 2,197, ,697 (335,595) 2,286,310 1,157, ,650 (268,146) 1,368, , Air conditioners 759,089 23, , ,118 73, , , Vehicles 11,128,512 37,060-11,165,572 2,890,746 2,231,404-5,122,150 6,043, Leasehold improvements 665, ,218 11, , , , June 30, ,211, ,831 (530,465) 18,265,561 5,733,183 3,482,946 (463,016) 8,753,113 9,512,448 COST ACCUMULATED DEPRECIATION W.D.V. As at As at As at Depreciation Depreciation As at As at PARTICULARS July 1, Additions Deletion June 30, July 1, for the on June 30, June 30, Rate year Disposal % R U P E E S Furniture and fixtures 1,133, ,920 (37,007) 1,315, , ,903 (37,007) 589, , Office equipment 1,945, ,025 (348,500) 2,145, , ,055 (348,500) 657,566 1,487, Computers 1,627, ,183 (250,585) 2,197, , ,716 (250,585) 1,157,133 1,040, Air conditioners 588, , , ,805 47, , , Vehicles 5,986,400 6,457,832 (1,315,720) 11,128,512 2,410,902 1,358,968 (879,124) 2,890,746 8,237, Leasehold improvements - 665, ,218-11,087-11, , June 30, ,282,440 8,880,567 (1,951,812) 18,211,195 4,974,357 2,274,042 (1,515,216) 5,733,183 12,478, INTANGIBLE ASSET COST ACCUMULATED DEPRECIATION W.D.V. As at As at As at Depreciation Depreciation As at As at PARTICULARS July 1, Additions Deletion June 30, July 1, for the on June 30, June 30, Rate year Disposal % R U P E E S Software license - 223, ,730-6,153-6, , June 30, , ,730-6,153-6, , LONG-TERM INVESTMENTS Held-to-maturity - Term finance certificates / Sukuk - Unquoted ,102,940 51,235,297 - Government securities - PIB s 168,758, ,775,764 Available-for-sale 369,860, ,011,061 - Term finance certificates - Quoted ,832, ,981,605 - Term finance certificates - Pre IPO ,000,000 10,000,000 - Investment in shares - Quoted ,227,783 47,654,997 - Investment in mutual funds ,766,528 30,219,137 - Investment in preference shares - Quoted 15,000,000 15,000, ,826, ,855, ,687, ,866,800 19

21 6.1 Term finance certificates / Sukuk - Unquoted Number of Certificates Investee Company Cost Market value Cost Market value Chaudhry Sugar Mills Limited 352, ,940 1,235,297 1,235,297 3,000 - Gharibwal Cement Limited 15,000,000 15,000, ,400 - Engro Chemical Pakistan Limited 12,000,000 12,000, ,000 10,000 Pak Electron Limited 50,000,000 50,000,000 50,000,000 50,000, Trakker (Private) Limited 8,750,000 8,750, ,000 - New Allied Electronics Industries Limited 40,000,000 40,000, ,000 - Amtex Limited 25,000,000 25,000, ,000 - Eden Housing Limited 50,000,000 50,000, ,102, ,102,940 51,235,297 51,235, Term finance certificates - Quoted Number of Certificates Investee Company Cost Market value Cost Market value ,245 7,245 Searle Pakistan Limited 27,157,883 27,157,883 36,210,510 36,210,510 4,000 4,000 Azgard Nine Limited 19,980,000 22,036,000 19,988,000 19,988,000-1,000 Trust Leasing Corporation Limited ,807,500 3,018,060 2,903 2,903 Trust Leasing Corporation Limited -2 7,257,500 7,257,500 10,160,500 10,160, Ittehad Chemicals Limited , ,259 10,261 10,261 Naimat Basil Oil & Gas 20,276,557 20,276,557 31,335,042 31,335, Pakistan Services Limited 107, , , ,234 1,000 1,000 Jahangir Siddiqui & Company Limited 4,997,000 4,997,000 4,999,000 4,999,000 79,776,018 81,832, ,771, ,981,605 Add: Surplus on revaluation 2,056, ,560-81,832,018 81,832, ,981, ,981, Term finance certificates - Pre IPO Number of Certificates Investee Company Cost Market value Cost Market value ,000 Gharibwal Cement Limited ,000,000 10,000,000 10,000 - Dewan Cement Limited 50,000,000 50,000, ,000,000 50,000,000 10,000,000 10,000,000 20

22 6.4 Investment in shares - Quoted Number of Shares Investee Company Cost Market value Cost Market value , ,000 Bosicor Pakistan Limited 2,668,172 1,608,000 2,668,172 2,130,000 10,500 10,500 Dewan Farooq Motors Ltd. (note 6.4.1) 375,200 72, , ,950-65,000 Dewan Salman Fibers Limited , ,750 6,282 43,409 Fauji Fertilizer Company Ltd. 380, ,234 5,507,665 5,263, , ,250 First Constellation Modaraba (note 6.4.1) 806, , , ,938-45,000 First National Equities Limited - - 2,403,587 1,692,000 85,000 85,000 The Hub Power Company Ltd. 3,682,120 2,431,000 3,682,120 3,119,500 60,000 60,000 Karachi Electric Supply Corp. (note 6.4.1) 693, , , , ,000 50,000 Maple Leaf Cement Limited 2,561,511 1,091,000 1,283,756 1,220,000 6,550 6,550 Nishat Chunian Limited (note 6.4.1) 642, , , ,618-8,000 National Refinery Limited - - 2,842,168 2,728,000 28,000 72,600 Oil & Gas Development Company Ltd. 3,511,818 3,482,080 9,105,642 8,697,480 50,000 50,000 Pakistan Inter l Airlines (note 6.4.1) 1,030, ,000 1,030, ,500 4,500 17,500 Pakistan Oil Fields Limited 1,497,115 1,641,780 5,822,113 5,547, , ,900 PICIC Growth Fund 5,466,009 3,372,963 5,466,009 4,796,220-30,000 PICIC Investment Fund , ,500 43,500 38,500 Siddique Sons Tin Plate 2,508, ,419 2,331,333 1,245, Sui Northern Gas Pipelines Limited - - 2,986 3,325-2,500 Sui Southern Gas Company Limited ,210 64, ,000 Standard Chartered Bank Limited - - 7,010,791 6,989, , ,000 Telecard Limited (note 6.4.1) 1,707, ,800 1,707,928 1,365,000 27,532,032 17,227,783 54,741,577 47,654,997 Provision for permanent diminution in value of investments (note 6.4.1) (3,327,228) ,204,804 17,227,783 54,741,577 47,654,997 Less: Deficit on revaluation (6,977,021) - (7,086,580) - 17,227,783 17,227,783 47,654,997 47,654, The cost of investment of these shares has been provided to the extent of their market values as at the balance sheet date. 6.5 Investment in mutual funds Number of Units Investee Company Cost Market value Cost Market value ,666 - Nafa Stock Fund 5,000,000 4,123, ,005,371 - Nafa Cash Fund 20,910,576 21,611, ,306 52,072 AMZ Plus Income Fund 10,000,000 10,012,489 5,000,000 5,835,338 44,271 - AMZ Plus Stock Fund 5,000,000 4,042, ,000 - Namco Income Fund 8,000,000 8,000, ,419 90,045 Dawood Money Market Fund 10,000,000 10,017,523 10,000,000 10,017,496 91,840 - Dawood Islamic Fund 10,000,000 10,139, ,949 - Nafa Multi Asset Fund 5,000,000 4,565, ,000,000 - Nafa Islamic Multi Fund 10,000,000 9,536, ,473,467 1,473,467 Namco Balanced Fund 14,734,670 13,717,978 14,734,670 14,366,303 98,645,246 95,766,528 29,734,670 30,219,137 (Deficit) / surplus on revaluation (2,878,718) - 484,467-95,766,528 95,766,528 30,219,137 30,219,137 21