C
ontents
02 Corporate Information
04 Vision / Mission and Corporate Strategy
06 Notice of Annual General Meeting
08 Directors' Report
11 Statement of Shares Purchase & Sale by Directors
12 Board Meetings Attendance Statement
15 Statement of Compliance with Code of Corporate Governance
18 Auditors' Review Report on Corporate Governance
19 Auditors' Report to the Members
20 Balance Sheet
22 Profit & Loss Account
23 Cash Flow Statement
24 Statement of Changes in Equity
25 Notes to the Financial Statements
15 Form of Proxy
C
ompany
Board of Directors
Samad A. Habib
(Chairman)
Ahmed Reza
(CEO and Managing Director)
Muhammad Yousuf Ahmed
Muhammad Rafiq Jangda
Abdullah A. Rahman
Abdul Majid M. Siddique
Syed Hasan Jafri
Audit Committee
Abdul Majid M. Siddique
(Chairman)
Muhammad Yousuf Ahmed
Syed Hasan Jafri
Company Secretary
Haroon Usman
Chief Financial Officer
Muhammad Rafiq Jangda
Auditors
Rahman Sarfaraz Rahim Iqbal Rafiq
Chartered Accountants
Legal Advisors
Bawaney & Partners
information
Information
Bankers
Allied Bank Ltd.
Arif Habib Rupali Bank Ltd.
Atlas Bank Ltd.
Bank Al Habib Ltd.
Bank Al Falah Ltd.
Habib Bank Ltd.
Habib Metropolitan Bank Ltd.
KASB Bank Ltd.
Mybank Ltd.
MCB Bank Ltd.
PICIC Commercial Bank Ltd.
Soneri Bank Ltd.
The Bank of Punjab
United Bank Ltd.
Registered Office
60-63, Karachi Stock Exchange Building
Stock Exchange Road, Karachi - 74000
Phones: 2415213-15
Fax No.: 2416072 - 2429653
E-mail: ahl@arifhabibltd.com
Research and Corporate Finance
Pardesi House, 2/1, R.Y. 16,
Old Queens Road Karachi-74000
Phone: 2460717-19 Fax No: 2470496
E-mail: corporate_finance@arifhabib.com.pk
E-mail: equities_research@arifhabib.com.pk
Web: www.arifhabibltd.com
Registrar & Share Transfer Office
Technology Trade (Pvt.) Ltd.
Dagia House, 241-C,
Block-2, P.E.C.H.S.
Off: Shahrah-e-Quaideen, Karachi.
Ph: 4391316-7 Fax: 4391318
To be the leading full-service securities brokerage and
corporate finance company in Pakistan known for its
unmatched client service capacity, voluntary
adherence to the highest ethical standards and
insistence on global best practices at all times.
To provide the fullest range of first-rate, value-additive,
brokerage, investment advisory and corporate finance
services to clients, fair treatment to all stakeholders,
superior returns to the shareholders, and to make a
meaningful contribution to the development and
growth of the capital markets in particular and the
country’s economy in general.
Introduction to the
Corporate Strategy Document
Arif Habib Limited's (AHL) corporate strategy shall always be driven by the tenets recorded in its
Vision and Mission Statements. Indeed, the Board of Directors, the management and the staff of
AHL all agree that for a corporate business strategy to succeed in the long run-and by implication
command ownership by all stakeholders-it must be consistent with the objectives of the company.
Cohesion, then, must exist between the corporate goals and the business strategy at all times. With
the foregoing in mind, AHL has identified the following principal cornerstones for its strategy:
a Prudent investment in service capacity, keeping in mind the ever-changing market dynamics,
client needs and the opportunity-set.
a Client-first approach: all clients must get value for their money; without exception, they must
receive the fastest and the best service.
a Set the standards: voluntarily set, and adhere to, the highest standards of professional conduct;
this will also assure peace of mind and fair treatment for all stakeholders.
a Value-approach: efficiencies, appropriate risk management measures and pricing strategies
should enable profitable operations and good shareholder returns in all market scenarios.
a The big picture: the company's social responsibility, and its intended role in the growth and
development of the capital markets, must always be kept in mind in choosing the projects and
businesses offered by the market opportunity-set; considered advocacy at the appropriate
forums may also be taken up as a contributory tool.
05
PAGE
Notic of Annual General Meeting
Notice is hereby given that the Third Annual General Meeting of Arif Habib Limited will be held on
8 September 2007 at 11:00 a.m. at the Hotel Avari Towers, Fatima Jinnah Road Karachi to transact
the following business:
Ordinary Business
1)
To confirm minutes of Second Annual General Meeting held on 14 September 2006.
2)
To receive, consider and adopt audited accounts of the company together with the directors'
and auditors' report thereon for the year ended 30 June 2007.
3)
To declare final cash dividend @ 100% i.e. Rs. 10/- per share for the year ended 30 June 2007
as recommended by the directors.
4)
To consider and approve bonus issue at the rate of 10% i.e. one share for every ten shares held
as recommended by the directors.
5)
To appoint auditors of the company and fix their remuneration for the financial year 2007-08.
The directors have recommended to appoint M/s. Rahman Sarfaraz Rahim Iqbal Rafiq, Chartered
Accountants.
Special Business
6)
To pass the following resolution as an ordinary resolution to give effect to the bonus issue:
Resolved that:
"A sum of Rs. 20,000,000/- out of companys' free reserves and unappropriated profits be capitalized
for issuing 2,000,000 fully paid ordinary shares of Rs. 10/- each as bonus shares to be allotted to
those shareholders whose names will appear on the members' register and the entitlement list to
be provided by CDC at the close of business on 31 August 2007, in the proportion of one shares
for every ten shares held i.e. 10%. These shares shall be treated for all purposes as an increase in
paid-up capital of the company and shall rank pari passu in future with existing shares in all respects
except that they shall not qualify for the entitlement of the final dividend declared & being paid and
right shares being offered simultaneously."
Further resolved that:
"Fractional shares to be allocated as a result of distribution of bonus shares be consolidated with
the company secretary for sale in the open market in due course and the proceed be donated to
any charitable trust".
7)
Any other business with the permission of the Chair.
By order of the Board
Karachi
Dated: 28 July 2007
PAGE
06
Haroon Usman
Company Secretary
Notes:
1.
Share transfer books of the company will remain closed from 1 September 2007 to 8 September
2007 (both days inclusive). Transfers received in order at the office of our shares registrar M/s.
Technology Trade (Pvt.) Ltd; Dagia House 241-C Block-2, PECHS off Shahrah-e-Quaideen Karachi
by the close of business on 31 August 2007 will be treated in time.
2.
A member entitled to attend and vote at the meeting may appoint another member as his /
her proxy who shall have such rights as respects attending, speaking and voting at the meeting
as are available to a member.
3.
Procedure including the guidelines as laid down in Circular No. I- Reference No. 3(5-A)
Misc/ARO/LES/96 dated 26 January 2000 issued by Securities & Exchange Commission of
Pakistan:
(i)
Members, proxies or nominees shall authenticate their identity by showing their original
national identity card or original passport and bring their folio numbers at the time of
attending the meeting.
(ii)
In the case of corporate entity, Board of Directors' resolution/power of attorney with
specimen signature of the nominee shall also be produced (unless provided earlier) at the
time of meeting.
(iii) In order to be effective, the proxy forms must be received at the office of our registrar not
later than 48 hours before the meeting, duly signed and stamped and witnessed by two
persons with their names, address, NIC numbers and signatures.
(iv) In the case of individuals, attested copies of NIC or passport of the beneficial owners and
the proxy shall be furnished with the proxy form.
(v) In the case of proxy by a corporate entity, Board of Directors resolution/power of attorney
with specimen signature and attested copies of the NIC or passport of the proxy shall be
submitted alongwith proxy form.
4.
Members are requested to promptly notify any change in address by writing to the office of the
registrar.
5.
Pursuant to rule 6 (iii) of the Companies (issue of capital) Rules 1996, the auditors have certified
that the free reserves and surpluses retained after the issue of bonus shares will not be less
than twenty five percent of the increased capital.
07
PAGE
Directors' Report to the Members
It gives me much pleasure to present the annual report of Arif Habib Limited (AHL) for the financial
year (FY) ended 30 June 2007, together with the audited financial statements for the FY. I present
the statements and the report to you on behalf of the Company's Board of Directors.
By the Grace of the Almighty, AHL did very well during the FY, especially considering the large
variations in the average traded volumes at the exchange during the year. The main features of your
Company's performance are elaborated in the sections below:
Financial results and appropriations
During the FY, AHL earned revenues of PKR 559.23 million and posted net profit after tax of
PKR 321.59 million. This represents earnings per share of PKR 16.08 on a fully diluted basis. While
year-on-year (YOY) increases of 41.42 percent and 66.72 percent respectively were recorded in net
earnings and revenues, a direct comparison is not appropriate because the Company had started
its full operations during the latter half of the second quarter of the previous FY, i.e. in early December,
2005.
At the end of FY 2007, i.e. on 30 June 2007, the paid-in capital of your Company stood at PKR 200
million and its total equity at PKR 597.46 million. This represents a YOY increase of 83.34 percent in
total equity, reflecting the Company's ability to build-up its equity base effectively on the back of
profitable operations.
The Board of Directors has recommended final cash dividend at the rate of 100% and issue of bonus
shares at 10% which shall be appropriated in the current financial year. The Board has further
recommended the issue of 10 percent right share at PKR 100 per share including a premium of PKR
90 per share.
The market
The Karachi stock market remained flat during the first six months of the FY with KSE-100 index
posting a net appreciation of only 0.51% during the period. However, the second half of the FY saw
the market perform very well indeed: the index appreciated by 37.2 percent, taking the total YOY
increase to a shade under 38.0 percent. The strong performance during the second half of the FY
was principally on account of renewed interest of international investors in both primary and secondary
asset markets. The resultant progress towards consolidations and takeovers in the banking sector
remained a major factor in augmenting investor sentiment.
On account of a number of factors, the average daily volumes-the average number of shares traded
per day-were down by a massive 31.70 percent YOY, from 324.30 million shares per day during
FY 2006 to 221.49 million shares per day in FY 2007. One principal reason for this was the two-fold
increase in the direct tax on transactions in listed securities. Despite difficult market conditions during
the first half of the FY, the Company was able to post good financial results, indicating its ability to
perform well in a variety of situations caused by factors not directly under its control. By the Grace
of the Almighty, the Company was able to efficiently utilize the opportunity set presented by the
sustained improvements in values and traded volumes at the exchange during the second half of
the FY.
Outlook
In the new financial year (FY 2007-08), the business outlook appears promising for the Company.
AHL has been able to further enhance the average market share of broking business enjoyed by the
holding company-M/s Arif Habib Securities Limited-that it inherited in December 2005. This
positioning is suitably supplemented by the trends depicting increasing asset values and vastly
improved average turnovers at the exchange in recent months.
PAGE
08
The steps initiated to position your Company to take fuller advantage of its product-markets are being
actively pursued by the management and remain on course. The Company's full service capability
was consolidated during the year under review with the following measures: (a) strengthening, and
increasing the frequency of, quality research output; (b) improved coordination between research and
sales to help clients and the Company more fully utilize the market opportunities; (c) in-depth
fundamental training for the sales professionals; (d) build-up of the Corporate Finance Division-that
was inherited from the parent company at the very start of the FY under review-as a strategically
important measure to help make your Company an even better-diversified financial services provider;
and, (e) capacity building in all areas of the business, including the up-coming commodities desk
using the National Commodity Exchange Limited (NCEL) platform.
The Board is satisfied to report that the Corporate Finance Division closed its first full year with the
Company as a money-making profit centre on full cost allocation basis. The Division was very active
in public offerings at the KSE, including the Offer for Sale (OFS) of the ordinary shares of AHL by its
parent company in December 2006. The Company has also successfully participated in large-ticket
Corporate Finance and Advisory deals.
Public listing
During FY 2007, AHL became a publicly listed company. As reported in the half-yearly report for the
period ended 31 December 2006, AHL's holding company offered 25% of the ordinary shares of AHL
(i.e. 5 million shares) to the general public for subscription through an Offer For Sale (OFS). The offer
price was Rs. 100 per share-including a premium of Rs. 90 per share. This was the single highest
premium on a first-time public offer by a private sector enterprise in the country's history. By the
Grace of Allah, the OFS was heavily over-subscribed, with applications coming from 52 cities and
towns in all four provinces of the country and from Azad Jammu & Kashmir.
The strong public trust evidenced by the response to the OFS was indicative of high expectations
from the Company, its sponsors, Board and its Management. We take this trust very seriously and
continue to do our best to come up to the high standards expected of us. Well before it was listed
at the exchange, the Company voluntarily chose to adopt the highest standards of practice to ensure
fairness and transparency for all stakeholders. Under the advice of the Management, the Board
appointed a Principal Compliance Officer and an alternate to build and implement an effective
Compliance regime on a Company-wide basis. AHL was amongst the first securities brokerage
companies at the KSE to do so voluntarily.
Shareholder returns
As of the date of this report, the shares of AHL were quoted at PKR 291.85 at the KSE. This translates
to a gross return of 191.85 percent and an annualized return of 319.83 percent based on stock price
appreciation since the date the public investor subscribed to the offer. The total shareholder return
generated by AHL well exceeded that provided by the KSE-100 since the Company's public listing:
AHL's relative performance was a positive 169.11 percent, indicating a large alpha, well-supported
by AHL's ability to generate superior shareholder returns.
Corporate governance
Arif Habib Limited is listed at the Karachi Stock Exchange. The company's board and management
are committed to observe the Code of Corporate Governance prescribed for listed companies.
Appropriate accounting policies have been adopted and consistently applied. Preparation of accounts
and accounting estimates are based on reasonable and prudent judgment. International Accounting
09
PAGE
Standards, as applicable in Pakistan, are followed. The system of internal controls is sound in design
and has been effectively implemented. In compliance with the Corporate Governance Code, we
hereby reaffirm that there is no doubt whatsoever about the company's ability to continue as a
going concern and that there has been no material departure from the best practices of corporate
governance, as detailed in the listing regulations.
We further report that no material payment has remained outstanding on account of any taxes,
duties, levies or charges. The company has no outstanding obligations under gratuity or pension
fund except provident fund which is maintained in separate bank account alongwith profit.
A statement showing the company's shares bought and sold by its Directors, Chief Executive Officer,
Chief Financial Officer, Company Secretary and their minor family members is annexed as Annexure-I
(Page 11). A statement showing attendance at Board meetings is annexed as Annexure-II (Page 12).
The pattern of shareholding as required by the Companies Ordinance, 1984 is annexed as Annexure-III
(Page 13).
Auditors
The retiring auditors M/s. Rahman Sarfaraz Rahim Iqbal Rafiq, Chartered Accountants, have offered
themselves for reappointment. The board recommends their reappointment. A resolution proposing
the appointment of M/s. Rehman Sarfaraz Rahim Iqbal Rafiq as auditors of the company for the
financial year 2007-08 will be submitted at the forthcoming Annual General Meeting for approval.
Acknowledgements
The Board of Directors of AHL wishes to place on record its appreciation to all stakeholders of the
Company-clients, regulators, staff, sponsors, the exchanges and the investing public-for their
support, faith and contribution. The hard work, and the resultant performance, by the Company's
employees are also gratefully acknowledged. The Board is grateful to the Securities & Exchange
Commission of Pakistan and to the Karachi Stock Exchange (Guarantee) Limited for their guidance
and support.
For and on behalf of the Board
Karachi
28 July 2007
PAGE
10
Ahmed Reza, CFA
CEO & Managing Director
(Annexure I)
Statement showing shares bought and sold by Directors, CEO, CFO
Company Secretary and the Minor Family Members
From 1 July 2006 to 30 June 2007
S. No.
Name
Designation
Shares
bought
Shares Sold
Remarks
1
Mr. Samad A. Habib
Chairman
148,500
-
-
2
Mr. Ahmed Reza
CEO &
Managing
Director
10,000
5,000
-
3
Mr. Muhammad Yousuf Ahmed
Director
15,000
-
-
4
Mr. Muhammad Rafiq Jangda
CFO &
Director
500
-
-
5
Mr. Abdullah A. Rahman
Director
2,500
-
-
6
Mr. Abdul Majid M. Siddique
Director
500
-
-
7
Mr. Syed Hasan Jafri
Director
500
-
-
8
Mr. Haroon Usman
Company
Secretary
-
-
-
9
Minor Family Members
-
-
-
-
11
(Annexure II)
Statement showing attendance at Board Meetings
from 1 July 2006 to 30 June 2007
S. No.
Name
Attended
Leaves
Granted
Chairman
5
-
1
Mr. Samad A. Habib
2
Mr. Ahmed Reza *
Chief Executive Officer
2
-
3
Mr. Ahmed Reza *
CEO &
Managing Director
3
-
4
Mr. Muhammad Yousuf Ahmed
Director
5
-
5
Mr. Muhammad Rafiq Jangda
CFO &
Director
4
1
6
Mr. Abdullah A. Rahman
Director
5
-
7
Mr. Abdul Majid M. Siddique *
Director
2
1
8
Mr. Syed Hasan Jafri *
Director
3
-
9
Mr. Haroon Usman
Company Secretary
5
-
* Elected as directors, before listing, on 11-11-2006
12
Designation
(Annexure III)
Pattern of shareholding as at 30 June 2007
No. of
shareholders
Shareholding
From
To
Total shares held
160
1
100
15,687
1823
101
500
855,650
436
501
1,000
418,100
406
1,001
5,000
1,002,550
73
5,001
10,000
567,100
20
10,001
15,000
245,513
8
15,001
20,000
154,100
7
20,001
25,000
159,600
4
25,001
30,000
116,500
4
30,001
35,000
135,300
3
35,001
40,000
119,000
3
45,001
50,000
150,000
2
50,001
55,000
109,000
1
55,001
60,000
59,300
1
60,001
65,000
61,500
1
90,001
95,000
94,000
1
95,001
100,000
100,000
1
105,001
110,000
106,500
1
145,001
150,000
149,600
1
165,001
170,000
168,500
1
210,001
215,000
212,500
1
215,001
15,000,000
15,000,000
2958
20,000,000
13
Categories of shareholders as at 30 June 2007
Categories of shareholders
No.
Shares held
Percentage
(%)
7
177,500
0.89
Mr. Samad A. Habib, Chairman
-
148,500
0.75
Mr. Ahmed Reza, Chief Executive
-
10,000
0.05
Mr. Muhammad Yousuf Ahmed
Director
-
15,000
0.08
Mr. Muhammad Rafiq Jangda
Director
-
500
-
Mr. Abdullah A. Rahman
Director
-
2,500
0.01
Mr. Abdul Majid M. Siddique
Director
-
500
-
Syed Hasan Jafri
Director
-
500
-
Bank, Development Financial Institutions &
Non Banking Financial Institutions
-
-
-
Insurance Companies
4
98,000
0.49
EFU General Insurance Ltd.
-
94,000
0.47
Askari General Insurance Co. Ltd.
-
1,500
0.01
Century Insurance Co. Ltd.
-
1,000
-
Saudi Pak Insurance Co. Ltd.
-
1,500
0.01
1
35,000
0.18
80
15,946,500
79.73
1
212,500
1.06
Individuals – Local
2865
3,530,500
17.65
Total
2958
20,000,000
100.00
1
15,000,000
75.00
Directors, Chief Executive & their
Spouse and Minor Childern
Modarabas and Mutual Funds
Other Joint Stock Companies & Funds
Foreign Investors
Shareholders holding 10% or more
14
Statement of Compliance with the
Code of Corporate Governance
This statement is being presented to comply with the Code of Corporate Governance contained in
Regulation No. 37 of listing regulations of Karachi Stock Exchange for the purpose of establishing
framework of good governance, whereby a listed company is managed in compliance with the best
practices of Corporate Governance.
The Company has applied the principles contained in the Code in the following manner:
1.
The Company elects its directors every three years. Seven directors stood elected by the
shareholders of the Company as on 31-01-2007-the date of listing.
2.
The company encourages representation of independent non executive directors and directors
representing minority interests on its Board of Directors. At present the Board includes one
independent non-executive and two non-executive directors and no directors representing
minority shareholders.
3.
The directors have confirmed that none of them is serving as a director in more than ten listed
companies, including this Company.
4.
All the directors have given declaration that they were aware of their duties and powers under
the relevant laws and the Companys' Memorandum and Articles of Association and the listing
regulations of the stock exchange of Pakistan.
5.
All the resident directors of the Company are registered as taxpayers and none of them has
defaulted in payment of any loan to a banking company, a DFI or an NBFI or, being a member
of a stock exchange, has been declared as a defaulter by that stock exchange.
6.
The Company has prepared a 'Statement of Ethics and Business Practices' which has been signed
by the directors and employees of the Company.
7.
The Board has developed a vision/mission statement, and overall corporate strategy and significant
policies of the Company. A complete record of particulars of significant policies alongwith the
dates on which they were approved or amended has been maintained.
8.
All the powers of the Board have been duly exercised and decisions on material transactions,
including appointment and determination of remuneration and terms and conditions of
employment of the CEO and other executive directors, have been taken/ratified by the Board.
9.
The meetings of the Board were presided over by the Chairman and in his absence, by a director
elected by the Board for this purpose and the Board met at least once in every quarter. Written
notices of the Board meetings, alongwith agenda and working papers, were circulated at least
seven days before the meetings. The minutes of the meetings were appropriately recorded and
circulated.
10. The Company conducted in-house orientation courses for its directors during the year to apprise
them of their duties and responsibilities and to keep them informed of the enforcement of new
laws, rules and regulations and amendments thereof.
11. All material information as required under the relevant rules has been provided to the stock
exchanges and to the Securities & Exchange Commission of Pakistan within the prescribed time
limit.
15
PAGE
12. All quarterly, half yearly and annual financial statements presented to the Board for approval
within one month of the closing duly signed by the CEO and the CFO.
13. The Board has approved appointment of CFO, Company Secretary and Head of Internal Audit,
including their remuneration and terms and conditions of employment as determined by the
CEO.
14. The directors' report for this year has been prepared in compliance with the requirements of the
Code and fully describes the salient matters required to be disclosed.
15. The financial statements of the Company were duly endorsed by CEO and CFO before approval
of the Board.
16. The directors, CEO and executives do not hold any interest in the shares of the Company other
than that disclosed in the pattern of shareholding.
17. The Company has complied with all the corporate and financial reporting requirements of the
Code.
18. The Board has formed an audit committee. It comprises three members, all of them are nonexecutive directors including the chairman of the committee.
19. The meetings of the audit committee were held at least once every quarter prior to approval
of interim and final results of the Company and as required by the Code. The terms of reference
of the committee have been formed and advised to the committee for compliance.
20. The Board has set-up an effective internal audit function with employees who are considered
suitably qualified and experienced for the purpose and are conversant with the policies and
procedures of the Company and they are involved in the internal audit function on an ongoing
basis.
21. The statutory auditors of the Company have confirmed that they have been given a satisfactory
rating under the quality control review program of the Institute of Chartered Accountants of
Pakistan that they or any of the partners of the firm, their spouses and minor children do not
hold shares of the Company and that the firm and all its partners are in compliance with
International Federation of Accountants (IFAC) guidelines on code of ethics as adopted by
Institute of Chartered Accountants of Pakistan.
22. The statutory auditors or the persons associated with them have not been appointed to provide
other services except in accordance with the listing regulations and the auditors have confirmed
that they have observed IFAC guidelines in this regard.
23. We confirm that all other material principles contained in the Code have been complied with.
Karachi
28 July 2007
PAGE
16
Ahmed Reza, CFA
CEO & Managing Director
Financial Statments
Review Report to the Members on Statement of Compliance
With Best Practices of Code of Corporate Governance
We have reviewed the Statement of Compliance with the best practices contained in the Code of
Corporate Governance prepared by the Board of Directors of Arif Habib Limited, to comply with
the Listing Regulations of the respective Stock Exchanges, where the Company is listed.
The responsibility for compliance with the Code of Corporate Governance is that of the Board of
Directors of the Company. Our responsibility is to review, to the extent where such compliance can
be objectively verified, whether the Statement of Compliance reflects the status of the Company's
compliance with the provisions of the Code of Corporate Governance and report if it does not. A
review is limited primarily to inquiries of the Company personnel and review of various documents
prepared by the Company to comply with the Code.
As part of the audit of financial statements we are required to obtain an understanding of the
accounting and internal control systems sufficient to plan the audit and develop an effective audit
approach. We have not carried out any special review of the internal control system to enable us
to express an opinion as to whether the Board's statement on internal control covers all controls
and the effectiveness of such internal controls.
Based on our review, nothing has come to our attention, which causes us to believe that the
Statement of Compliance does not appropriately reflect the Company's compliance, in all material
respects, with the best practices contained in the Code of Corporate Governance as applicable to
the Company for the year ended June 30, 2007.
PAGE
Karachi
Rahman Sarfaraz Rahim Iqbal Rafiq
Date: July 28, 2007
Chartered Accountants
18
Auditors' Report To The Members
We have audited the annexed balance sheet of Arif Habib Limited as at June 30, 2007, and the
related profit & 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 the
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 accounts 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 accounts 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 opiruon and to the best of our information and according to the explanations given to
us, the balance sheet, profit & 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, 2007, 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 (Xyril of
1980), was deducted by the company and deposited in the Central Zakat Fund established
under section 7 of that Ordinance.
Karachi
Date: July 28, 2007
Rahman Sarfaraz Rahim Iqbal Rafiq
Chartered Accountants
19
PAGE
Balance Sheet
As At June 30, 2007
BALANCE
Note
Share Capital and Reserves
Authorized capital
50,000,000 (2006: 50,000,000)
Ordinary shares of Rs.10/- each
Issued, subscribed & paid-up capital
Unappropriated profit
4
Non-current liabilities
Long term loan
Current liabilities
Trade and other payables
Markup accrued
Short term borrowing
Taxation
Commitments
5
6
7
8
9
June 2007
Rupees
June 2006
Rupees
500,000,000
500,000,000
200,000,000
397,459,366
597,459,366
200,000,000
125,868,733
325,868,733
-
250,000,000
443,509,955
4,102,412
41,357,424
192,051,363
5,621,869
58,874,379
18,043,931
488,969,791
274,591,542
1,086,429,157
850,460,275
The annexed notes form an integral part of these financial statements.
CHIEF EXECUTIVE
PAGE
20
SHEET
Balance Sheet
As At June 30, 2007
Note
June 2007
Rupees
June 2006
Rupees
Property & equipment
10
10,098,090
8,170,488
Memberships & licences
11
41,600,000
41,600,000
Long term deposits
12
13,971,500
12,870,000
13
14
31,204,000
278,093,975
220,544,999
24,041,405
88,270,642
43,719,964
8,367,311
326,517,271
130,404,600
393,729,041
27,052,714
5,149,932
2,131,711
21,479,632
5,188,929
202,683,228
1,020,759,567
787,819,787
1,086,429,157
850,460,275
Current assets
Investments - at fair value through profit & loss
Trade debts
Receivable against securities transactions
Receivable against CFS transactions
Loans and advances
Deposits and prepayments
Advance Tax
Other receivables
Cash & bank balances
15
16
17
18
19
DIRECTOR
PAGE
21
Profit And Loss Account
PROFITANDLOSSACCOUNT
For The Year Ended June 30, 2007
Note
June 2007
Rupees
June 2006
Rupees
Operating revenue
Capital gain on investments - Net
20
555,372,993
3,853,149
559,226,142
282,232,040
53,202,205
335,434,245
Operating expenses
Operating profit
21
(126,793,028)
432,433,114
(61,424,251)
274,009,994
Finance cost
Other income
Other charges
Net gain on remeasurement of investments at fair value through profit and loss
22
23
24
(71,216,979)
1,108,936
(136,121)
(28,814,323)
-
13
963,307
(69,280,857)
363,152,257
240,693
(28,573,630)
245,436,364
8
(41,357,424)
(204,200)
(18,043,931)
(34,000)
(41,561,624)
321,590,633
(18,077,931)
227,358,433
16.08
11.37
Profit before taxation
Provision for taxation
- Current
- Prior
Profit after taxation
Earnings per share - basic & diluted
25
The annexed notes form an integral part of these financial statements.
CHIEF EXECUTIVE
PAGE
22
DIRECTOR
Cash Flow Statement
CASHFLOWSTATEMENT
For The Year Ended June 30, 2007
Note
Cash flow from operating activities
Profit before taxation
Adjustment for :
Depreciation
Dividend income
Loss on sale of fixed assets
Finance cost
Operating profit before working capital changes
Changes in working capital
(Increase)/Decrease in current assets
Trade debts
Loan and advances
Deposits and prepayments
Other receivables
Increase in current liabilities
Trade and other liabilities
Cash generated from operations
Income tax paid
Finance cost paid
Net cash from operating activities
Cash flow from investing activities
Fixed capital expenditure
Proceeds from sale of fixed assets
Memberships & licences
Dividends received
Long term deposit
Net cash from / (used in) investing activities
Cash flow from financing activities
Dividends paid
Long term loan from parent company
Repayment of long term loan from parent company
Proceeds from issue of share capital
Net cash (used in) / from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
27
June 2007
Rupees
June 2006
Rupees
363,152,257
245,436,364
2,569,675
(43,392,973)
136,121
71,216,979
30,529,802
393,682,059
832,169
(7,419,000)
28,814,323
22,227,492
267,663,856
115,635,066
(18,891,473)
(86,138,931)
(3,178,382)
(360,729,041)
(5,149,932)
(2,131,711)
(5,088,929)
251,458,592
258,884,872
652,566,931
(40,488,463)
(72,736,436)
539,342,032
191,951,363
(181,148,250)
86,515,606
(21,479,632)
(23,192,454)
41,843,520
(9,218,530)
4,585,132
43,392,973
(1,101,500)
37,658,075
(9,002,657)
(36,600,000)
7,319,000
(2,770,000)
(41,053,657)
(50,000,000)
350,000,000
(600,000,000)
(300,000,000)
277,000,107
301,266,163
578,266,270
500,000,000
(250,000,000)
49,970,000
299,970,000
300,759,863
506,300
301,266,163
The annexed notes form an integral part of these financial statements.
CHIEF EXECUTIVE
DIRECTOR
PAGE
23
Statement of Changes in Equity
STATEMENTOFCHANGESINEQUITY
For The Year Ended June 30, 2007
Share Unappropriated
Total
profit
(Rupees)
capital
(Rupees)
(Rupees)
Balance as at June 30, 2005
Issue of share capital
50,030,000
49,970,000
Profit for the period
Interim issue of bonus shares
Balance as at June 30, 2006
-
(1,489,700)
48,540,300
-
49,970,000
227,358,433
227,358,433
100,000,000
(100,000,000)
-
200,000,000
125,868,733
325,868,733
Profit for the period
-
321,590,633
321,590,633
Interim dividend
-
(50,000,000)
(50,000,000)
397,459,366
597,459,366
Balance as at June 30, 2007
200,000,000
The annexed notes form an integral part of these financial statements.
CHIEF EXECUTIVE
PAGE
24
DIRECTOR
Notes to the Accounts
NOTESTOTHEACCOUNTS
For The Year Ended June 30, 2007
1
Status and Nature of Business
1.1 The Company was incorporated on September 07, 2004 under the Companies Ordinance,
1984, as an unquoted Public Limited Company. The Company is member of Karachi, Lahore,
Islamabad Stock Exchanges and National Commodity Exchange. It is registered with SECP
as securities brokerage house. The Company is majority owned subsidiary of Arif Habib
Securities Limited (AHSL) and principally engaged in the business of securities brokerage,
commodities brokerage, IPO underwriting, corporate finance advisory and securities research.
1.2 The Company is listed at the Karachi Stock Exchange (Guarantee) Limited with effect from
January 31, 2007. During the year the holding company Arif Habib Securities Limited offered
25% shares of the Company for sale to the general public which were over subscribed.
AHSL now holds 75% shares of the Company.
2
Statement of Compliance
These financial statements have been prepared in accordance with approved accounting
standards as applicable in Pakistan and the requirements of the Companies Ordinance, 1984.
Approved accounting standards comprise of such International Accounting Standards as notified
under the provisions of the Companies Ordinance, 1984. Wherever, the requirements of the
Companies Ordinance, 1984 or directives issued by the Securities and Exchange Commission
of Pakistan differ with the requirements of these standards, the requirements of the Companies
Ordinance, 1984 or the requirements of the said directives take precedence.
3
Summary of Significant Accounting Policies
3.1 Accounting Convention and Basis of Preparation
These financial statements have been prepared under the `historical cost convention',
except that investments at fair value through profit and loss are measured at their fair
values.
In the process of applying the Company's accounting policies, the management has not
identified any area where significant judgments have been exercised which have material
impact on the financial statements. Further, there are no key assumptions concerning the
future and other key sources of estimating uncertainty at the balance sheet date that have
significant risks of causing a material adjustment within the next financial year.
3.2 Staff Retirement Benefits
The company operates an unrecognized provident fund for all of its eligible employees.
Monthly contributions at the rate of 12.50% of basic salary are made respectively by the
company and the employees.
3.3 Taxation
Provision for current taxation is based on taxable income at current rates of taxation after
taking into account tax rebates and tax credit available, if any. The company provides for
deferred taxation using liability method for all significant taxable temporary differences, if
any.
PAGE
25
Notes to the Accounts
NOTESTOTHEACCOUNTS
For The Year Ended June 30, 2007
3.4 Property, Equipment & Depreciation
Fixed assets are stated at cost less accumulated depreciation. Depreciation on fixed assets
is charged on quarterly basis to income by applying reducing balance method at the rates
specified in fixed assets note. Gains and losses on disposal of fixed assets are taken to
profit and loss account currently. Normal repairs and maintenance are charged to income
as and when incurred.
3.5 Membership Cards and License
These intangibles assets are stated at acquisition cost. Provision is made for decline, in value
of these assets, if required.
3.6 Investments
The management determines the appropriate classification of its investments in accordance
with the requirements of International Accounting Standard 39; 'Financial Instruments:
Recognition and Measurement', at the time of purchase and re-evaluates this classification
on a regular basis. Investments are categorized as follows:
-
At Fair Value Through Profit and Loss
Investments which are acquired principally for the purpose of selling in the near term
or the investments that are part of a portfolio of financial instruments exhibiting short
term profit taking, are classified as investment at fair value through profit and loss.
These are stated at fair values with any resulting gains or losses recognized directly in
the profit and loss account. The fair value of such investments representing listed equity
are determined on the basis of prevailing market prices.
-
Held to Maturity
Investments with fixed or determinable payments and fixed maturity, which the company
has the positive intent and ability to hold to maturity, are classified as held to maturity,
are carried at amortized cost, using the effective yield method less impairment losses,
if so determined.
-
Available for Sale
Investments classified as available for sale are initially measured at cost, being the fair
value of consideration given. At subsequent reporting dates, these investments are
remeasured at fair value (quoted market price), unless fair value cannot be reliably
measured. The investments for which a quoted market price is not available, are
measured at cost. Realized and unrealized gains and losses arising from changes in
fair value are charged to equity of the company.
3.7 Trade Date Accounting
All "regular way" purchases and sales of financial assets are recognized on the trade date,
that is the date on which the company commits to purchase / sell an asset. Regular way
purchases or sales of financial assets are the contract for which requires delivery of assets
within the time frame generally established by regulation or convention in the market.
PAGE
26
Notes to the Accounts
NOTESTOTHEACCOUNTS
For The Year Ended June 30, 2007
3.8 Trade Debts
These are stated net of provision for doubtful debts. Full provision is made against the debts
considered doubtful.
3.9 Sale and Repurchase Agreements
Securities purchased under agreements to resell ('reverse repos') are shown as receivable
against continuous funding system. Securities sold subject to a linked repurchase agreement
('repos') are retained in the financial statements as trading or investment securities and the
counterparty liability is included in borrowings under repurchase agreements. The difference
between sale and repurchase price is treated as income/expense from continuous funding
system.
3.10 Fiduciary Assets
Assets held in trust or in a fiduciary capacity by the company are not treated as assets of
the company and accordingly are not included in these financial statements.
3.11 Provisions
Provisions are recognized when the company has a present legal or constructive obligation
as a result of past events, 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.
3.12 Financial Instruments
Financial instruments carried on the balance sheet include investments, receivables, cash
and bank balances, finances under mark-up arrangements, other payables, deposits,
creditors, accrued and other liabilities. The particular recognition methods adopted are
disclosed in the individual policy statements associated with each item.
3.13 Offsetting of Financial Assets and Financial Liabilities
A financial asset and a financial liability is offset and the net amount is reported in the
balance sheet if the Company has a legally enforceable right to set of the recognized
amounts and either to settle on a net basis or to realize the asset and settle liability
simultaneously.
3.14 Borrowing Costs
The borrowing cost is recognized as an expense in the period in which they are incurred.
3.15 Cash and Cash Equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprises of cash
in hand, bank balances, investments at fair value through profit and loss, receivables against
securities transaction and short term borrowing.
PAGE
27
Notes to the Accounts
NOTESTOTHEACCOUNTS
For The Year Ended June 30, 2007
3.16 Related Party Transactions
The Company account for all transactions at arm's length prices using Comparable
Uncontrolled Price Method.
3.17 Revenue Recognition
(i)
Capital Gain or Loss
Capital gains and losses on sale of marketable securities are recorded on the date of
sale.
(ii) Dividend / Return on Securities
Dividend income is recognized when the right to receive payment is established.
Whereas, return on securities other than shares is recognized on accrual basis.
(iii) Brokerage
Brokerage income is recognized as and when such services are provided.
(iv) Underwriting Commission
Underwriting commission is recognized when the agreement is executed.
(v) Mark-up / Interest
Mark-up income is recognized on a time proportion basis that takes into account the
effective yield.
(vi) Income on CFS
Income on CFS is recognized on accrual basis.
4
Issued, Subscribed and Paid up Capital
2007
2006
Numbers
PAGE
2007
Rupees
2006
10,000,000
10,000,000
Ordinary shares of Rs.10/- each
issued at par fully paid in cash
100,000,000
100,000,000
10,000,000
10,000,000
Ordinary shares of Rs.10/- each
issued as fully paid bonus shares
100,000,000
100,000,000
200,000,000
200,000,000
28
Notes to the Accounts
NOTESTOTHEACCOUNTS
For The Year Ended June 30, 2007
2007
Rupees
5
Long Term Loan
5.1
2006
Rupees
-
250,000,000
5.1 This represents unsecured and interest free loan from its parent company.
6
Trade and Other Payables
Creditors
Due to members of KSE
Accrued expenses
Staff provident fund
Taxation
Other liabilities
7
Short Term Borrowing - Secured
410,648,459
922,446
19,527,309
2,015,513
9,601,824
794,404
443,509,955
-
166,641,488
633,052
23,161,555
661,802
885,768
67,698
192,051,363
58,874,379
This represents balance against short term running finance & other facilities obtained under mark-up arrangements
of Rs.2.50 billion (June 2006: 2.15 billion) from various commercial banks carrying mark-up ranging from 11.50%
to 12.50% (June 2006: 10.69% to 11.50%) per annum calculated on a daily product basis payable quarterly. The
finance facilities are secured against pledge of marketable securities.
8
Taxation
Opening balance
Provided during the period
Adjusted during the period
Closing balance
18,043,931
41,561,624
(18,248,131)
41,357,424
18,077,931
(34,000)
18,043,931
The income tax assessments of the company have been finalized upto and including the tax year 2006.
9
Commitments
Commitment to KSE Clearing House in respect of
trading of securities - (receivable)/payable
(285,741,237)
-
PAGE
29
Notes to the Accounts
NOTESTOTHEACCOUNTS
For The Year Ended June 30, 2007
10 Property & Equipment
As at
July 1,
2006
Particulars
Office equipment
644,278
518,514
1,035,775
6,804,090
Furniture & fixtures
Computer & allied
Vehicles
Rupees June, 07
9,002,657
Rupees June, 06
-
C O S T
Addition/
(Deletion)
398,300
99,130
2,708,713
6,012,387
(5,404,068)
As at June
30, 2007
Rate
%
1,042,578
617,644
3,744,488
7,412,409
9,218,530
(5,404,068)
12,817,119
9,002,657
9,002,657
D E P R E C I A T I O N
As at
the As at June
July 1, For
period
30, 2007
2006
W.D.V As at
June 30,
2007
15
45,445
103,443
148,888
893,690
15
47,697
75,288
122,985
494,659
33
142,057
871,752
1,013,809
2,730,679
20
596,970
1,519,192
(682,815)
1,433,347
5,979,062
832,169 2,569,675
(682,815)
2,719,029
10,098,090
832,169
8,170,488
-
832,169
10.1 Where written down value of a fixed asset falls below Rs.10,000 or any addition is made upto Rs.10,000,
the same is charged directly to Profit & Loss Account.
10.2 Disposal of vehicles
Particulars
Acquisition Accumulated Written
cost
depreciation down value
Sale
proceed
Gain/
(loss)
Buyer's particulars
Motor vehicle
Motor vehicle
541,646
570,154
77,252
81,318
464,394
488,836
420,673
462,017
(43,721)
(26,819)
Negotiation
Negotiation
Sapna Motors, Karachi.
Muhammad Hussain, Jamshed Road, Karachi.
Motor vehicle
Motor vehicle
Motor vehicle
Motor vehicle
874,522
500,000
1,288,000
801,646
162,219
92,747
125,580
40,082
712,303
407,253
1,162,420
761,564
712,303
407,253
1,162,420
700,000
(61,564)
Negotiation
Negotiation
Negotiation
Negotiation
Hasan, Employee
Faisal, Employee
Ahmed Reza, Employee
Muhammad Hussain, Jamshed Road, Karachi.
Motor vehicle
Motor vehicle
400,000
390,600
57,050
38,084
342,950
352,516
342,950
352,516
Negotiation
Negotiation
Humayun, Employee
Izhar, Employee
Motor cycle
37,500
8,483
29,017
25,000
(4,017)
Negotiation
Altaf Hussain Autos, Karachi.
Muhammad Hussain, Jamshed Road, Karachi.
5,404,068
682,815
4,721,253 4,585,132
(136,121)
Negotiation
11 Memberships & Licenses
Membership
-- Karachi Stock Exchange (Guarantee) Limited
-- Lahore Stock Exchange (Guarantee) Limited
-- Islamabad Stock Exchange (Guarantee) Limited
-- National Commodity Exchange of Pakistan Limited
Offices
-- Karachi - five offices
-- Lahore - one office
Booths
-- Karachi - three booths
PAGE
Mode of
disposal
30
-
2007
Rupees
2006
Rupees
15,000,000
7,000,000
4,000,000
1,000,000
27,000,000
15,000,000
7,000,000
4,000,000
1,000,000
27,000,000
10,500,000
2,000,000
12,500,000
10,500,000
2,000,000
12,500,000
2,100,000
41,600,000
2,100,000
41,600,000
Notes to the Accounts
NOTESTOTHEACCOUNTS
For The Year Ended June 30, 2007
2007
Rupees
12 Long Term Deposits
Karachi Stock Exchange (Guarantee) Limited
Lahore Stock Exchange (Guarantee) Limited
Islamabad Stock Exchange (Guarantee) Limited
National Commodity Exchange Limited
National Clearing Company of Pakistan Limited
Central Depository Company Limited
PMCL Mobilink
2006
Rupees
1,210,000
1,480,000
1,000,000
9,406,000
700,000
137,500
38,000
13,971,500
760,000
1,030,000
1,450,000
9,000,000
500,000
100,000
30,000
12,870,000
13 Investments - at Fair Value Through Profit & Loss
Nos. of Shares
Jun.-07
Name of Script
Jun.-06
400,000
100,000
500,000
-
500,000
5,719,500
5,719,500
Cost/ Rate
Average Value
Market Rate
/ company
Jun.-07
Jun.-06
Jun.-07
Jun.-06
Mutual Fund
Meezan Islamic Fund
MCB Dynamic Fund
50.00
100.00
-
20,000,000
10,000,000
30,000,000
-
52.17
103.40
22.76
-
30,000,000
130,163,907
130,163,907
-
240,693
963,307
1,204,000
31,204,000
240,693.00
240,693.00
130,404,600
Cement
Al-Abbas Cement
Grand total
Changes due to Market Value
Opening
Appreciation
14 Trade Debts
Due from KSE and its members-secured/considered good
Due from customers - secured/considered good
Market Value
Jun.-07 Jun.-06
Profit / (Loss)
Jun.-07
Jun.-06
Jun.-07
Jun.-06
-
20,868,000
10,336,000
31,204,000
-
868,000
336,000
1,204,000
-
22.80
31,204,000
130,404,600
130,404,600
1,204,000
240,693
240,693
2007
Rupees
2006
Rupees
20,185,260
257,908,715
278,093,975
11,374
393,717,667
393,729,041
Maximum balance due from related parties with reference to month end balance was Rs. 1,558,489,684/(2006:492,751,561/-).
15 Loans and Advances
To staff
Advance for purchase of office
16 Deposits and Prepayments
Deposits to KSE against future clearing
Prepayments
8,491,405
15,550,000
24,041,405
5,149,932
5,149,932
87,557,191
713,451
88,270,642
1,112,994
1,018,717
2,131,711
PAGE
31
Notes to the Accounts
NOTESTOTHEACCOUNTS
For The Year Ended June 30, 2007
2007
Rupees
17 Advance Tax
Income tax
- Advance
- Presumptive
18 Other Receivables
Dividend receivable
Commission receivable
Other
19 Cash and Bank Balances
Cash in hand
Cash at bank - in current account
20 Operating Revenue
Brokerage income
Dividend income
Income from CFS transactions
Consultancy, underwriting & placement
21 Operating Expenses
Salaries and benefits
Motor vehicle expense
Conveyance and meals
Insurance
Commission
Communication
Printing and stationery
Rent, rates and taxes
Electricity
Entertainment
C.D.C & clearing house charges
Depreciation
Repair and maintenance
Office renovation
Membership and other subscription
Meeting expenses
Legal and professional charges
EOBI Contribution
Auditors remuneration
Advertisement & business promotion
Donation
Others
PAGE
32
21.1
10
21.2
21.3
2006
Rupees
4,131,959
39,588,005
43,719,964
3,435,700
18,043,931
21,479,632
8,367,311
8,367,311
100,000
4,668,512
420,417
5,188,929
15,662
326,501,609
326,517,271
9,006
202,674,222
202,683,228
496,127,548
43,392,973
8,154,366
7,698,106
555,372,993
247,296,730
7,419,000
27,516,310
282,232,040
14,905,850
2,148,109
767,613
1,519,189
34,764,108
1,730,226
1,103,444
1,949,007
501,139
322,211
60,075,861
2,569,675
1,014,370
610,425
1,292,495
149,400
139,160
290,000
182,400
25,000
733,346
126,793,028
5,587,745
922,960
92,681
20,702,759
685,675
363,557
148,481
249,494
224,368
29,618,204
832,169
588,279
411,395
350,500
5,400
149,400
110,000
381,184
61,424,251
Notes to the Accounts
NOTESTOTHEACCOUNTS
For The Year Ended June 30, 2007
21.1 This includes company's contribution to provident fund of Rs.720,547/- (June 2006: 661,802).
2007
Rupees
2006
Rupees
21.2 Auditors Remuneration
Annual audit fee
Half year review
Other certifications
150,000
50,000
90,000
290,000
100,000
10,000
110,000
70,126,348
891,841
198,790
71,216,979
28,220,298
594,025
28,814,323
21.3 None of the directors or their spouses had any interest in donees' fund.
22 Financial Charges
Mark-up on short term borrowing
Bank charges
Mark-up on provident fund
23 Other Income
Profit on Pre-IPO investments & other
Profit on exposure deposit with KSE
24 Other Charges
Loss on sale of assets
93,353
1,015,583
1,108,936
-
136,121
-
25 Earning Per Share - Basic and Diluted
Profit for the period
Number of ordinary shares
Earning per share
321,590,633
227,358,433
20,000,000
20,000,000
16.08
11.37
26 Financial Instruments and Related Disclosures
26.1 Interest/Mark-up Rate Risk Exposure
Interest/ markup rate risk is the risk that the value of a financial instrument will fluctuate due to changes
in the market interest/ markup rates. Sensitivity to interest/ markup rate risk arises from mismatches of
financial assets and liabilities that mature or re-price in a given period. The Company manages these
mismatches through risk management strategies where significant changes in gap position can be adjusted.
Information about the company’s exposures to mark up rate risk based on contractual refinancing and
maturity dates, whichever is earlier, is as follows:
PAGE
33
Notes to the Accounts
NOTESTOTHEACCOUNTS
For The Year Ended June 30, 2007
Interest/mark-up bearing
One month
Over
to one year
one year
Rupees
Rupees
Financial assets
Long term deposits
Investments - at fair value
through profit & loss
Trade debts
Receivable against securities
transactions
Receivable against CFS transactions 220,544,999
Loans and advances
Deposits and prepayments
Other receivables
Cash and bank
220,544,999
Financial liabilities
Loan from parent company
Trade and other payables
Markup accrued
Short term borrowing
Balance sheet gap
220,544,999
Non
Interest/mark-up
bearing
Rupees
2007
Total
Rupees
2006
Total
Rupees
-
13,971,500
13,971,500
12,870,000
-
31,204,000
278,093,975
31,204,000
278,093,975
130,404,600
393,729,041
-
24,041,405
88,270,642
8,367,311
326,517,271
770,466,104
220,544,999
24,041,405
88,270,642
8,367,311
326,517,271
991,011,103
27,052,714
5,149,932
2,131,711
5,188,929
202,683,228
779,210,155
-
433,908,131
4,102,412
-
433,908,131
4,102,412
-
250,000,000
191,165,595
5,621,869
58,874,379
-
438,010,543
438,010,543
505,661,843
-
332,455,561
553,000,560
273,548,312
The interest/mark-up rates on short term borrowing are ranging from 11.5% to 12.5% p.a (2006:10.69%
to 11.5%)
The interest/mark-up rates on securities transactions are ranging from 12% to 18% p.a (2006 :12% - 18%)
26.2 Concentration of Credit Risk and Credit Exposure of the Financial Instruments.
Credit risk is the risk that one party to a financial instrument will fail to discharge obligation and cause the
other party to incur a financial loss.
The company is not exposed to major concentration of credit risk as its debt securities are marketable and
readily traded on the stock exchange. The company seeks to minimize its credit risk exposure by dealing
with customers considered credit worthy against pledge of marketable securities and makes full provision
against those balances considered doubtful of recovery.
26.3 Fair Value of Financial Instruments
Fair value is an amount for which an asset could be exchanged or a liability settled between knowledgeable
willing parties in arm's length transaction. Consequently, differences may arise between the carrying values
and the fair value estimates.
Underlying the definition of fair value is the presumption that the company is a going concern without any
intention or requirement to curtail materially the scale of its operations or to undertake a transaction on
adverse terms.
The carrying value of all the financial assets and liabilities reflected in the financial statements approximate
their fair value.
PAGE
34
Notes to the Accounts
NOTESTOTHEACCOUNTS
For The Year Ended June 30, 2007
26.4 Liquidity Risk
Prudent liquidity risk management implies maintaining sufficient cash and marketable securities and the
availability of funding through an adequate amount of committed credit facilities. Company treasury aims
at maintaining flexibility in funding by keeping regular credit lines with the banks.
2007
Rupees
2006
Rupees
31,204,000
326,517,271
220,544,999
-
130,404,600
202,683,228
27,052,714
(58,874,379)
578,266,270
301,266,163
27 Cash and Cash Equivalents
Investments - at fair value through profit & loss
Cash and bank balances
Receivable against securities transactions
Receivable against CFS transactions
Short term borrowing
28 Related Party Transactions
Related parties comprise parent, subsidiary and associated companies, major shareholders, directors, companies
with common directorship, key management staff and employees.
Transactions with such, are as follows:
Brokerage earned from related parties
Long term loan from parent company - interest free
36,601,768
-
Assets/(Liabilities) transferred by parent company at book value
2,447,028
Sales of cars to employees at book value
2,977,442
4,910,953
250,000,000
(810,335,752)
-
29 Remuneration of Chief Executive, Directors and Executives
29.1 This includes entitlement of commission @ 12.5% on account of sale and purchase transaction and 7.5%
on CFS transactions on behalf of client.
29.2 For the purpose of disclosure those employees are considered as executives whose basic salary exceeds
five hundred thousand rupees in a financial year.
PAGE
35
Notes to the Accounts
NOTESTOTHEACCOUNTS
For The Year Ended June 30, 2007
Chief Executive
Managerial remuneration
House rent allowance
Conveyance
Utilities
Contribution to provident fund
Medical allowance
Commission and performance
bonus
29.1
Number of persons
Directors
2007
2006
-
-
2007
Executives
2006
2007
2006
714,342
321,453
7,200
71,434
89,292
35,717
166,197
74,787
1,800
16,620
20,775
8,310
-
233,811
105,216
900
23,382
29,226
11,691
6,908,067
6,908,067
2,734,467
2,734,467
7,346,609
8,586,047
1,800,545
2,089,034
-
87,600
491,826
1
1
4
3
-
1
The above were provided with vehicles in accordance with the Company's policy.
30 Date of Authorization for Issue
These financial statements have been authorized for issue on July 28, 2007 by the Board of Directors of the
company.
31 General
Figures have been rounded off to the nearest rupee.
CHIEF EXECUTIVE
PAGE
36
DIRECTOR
Form of Proxy
FORMOFPROXY
3rd Annual General Meeting
The Company Secretary
Arif Habib Limited
60-63, 1st Floor, Stock Exchange Building
Stock Exchange Road
Karachi.
I/we _________________________________________ of ______________________ being a member(s)
of Arif Habib Limited holding________________________________________ ordinary shares as per
Registered Folio/CDC A/c. No _______________hereby appoint Mr./Mrs./Miss ____________________
________________________________________of (full address) ________________________________
______________________________________________________________________ or failing him/her
Mr./Mrs./Miss_____________________________________________________________ of (full address)
_____________________________________________________________________________________
(being member of the Company) as my/our Proxy to attend, act and vote for me/us and on my/our
behalf at the Third Annual General Meeting of the Company to be held on September 8, 2007 and
/or any adjournment thereof.
Signed this _______________________________ day of _______________________________ 2007.
Witnesses:
1. Name
Address
NIC No.
Signature
: _____________________________________
: _____________________________________
: _____________________________________
: _____________________________________
2. Name
Address
NIC No.
Signature
:
:
:
:
____________________________________
____________________________________
____________________________________
____________________________________
Signature on
Rs. 5/Revenue Stamp
NOTICE:
1.
A member entitled to attend and vote at the meeting may appoint another member as his / her proxy
who shall have such rights as respects attending, speaking and voting at the meeting as are available
to a member.
2.
Proxy shall authenticate his/her identity by showing his/her original national identity card or original
passport and bring folio number at the time of attending the meeting.
3.
In order to be effective, the proxy forms must be received at the registered office of the company not
later than 48 hours before the meeting duly signed and stamped and witnessed by two persons duly
signed by them with their names, addresses and NIC numbers mentioned on the form.
4.
In the case of individuals attested copies of NIC or passport of the beneficial owners and the proxy shall
be furnished with the proxy form.
5.
In the case of proxy by a corporate entity, Board of Directors resolution/power of attorney with specimen
signature and attested copies of the NIC or passport of the proxy shall be submitted alongwith proxy
form.
PAGE