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Cover Story

It has been declaring regular and modest dividend since commencement of operations

Feb 28 - Mar 05, 2000

First Habib Modaraba (FHM) maintained its steady and balanced growth in 1998-99. It posted operating income of Rs 352 million, before tax profit of Rs 67 million and paid 20 per cent cash dividend for the year. FHM, ever since its inception, has been regularly paying dividend to its certificate holders. It paid the second-highest dividend for 1998-99 among the 52 listed modarabas.

The results appear to be outstanding if one looks at the slow growth of the economy of the country and the performance of other modarabas operating in the country. The outstanding performance of FHM is due to two factors, stringent control on operating expenses and diversified asset portfolio. Asset-wise exposure consist of three main categories. These are plant and machinery and office equipment (50%), vehicles (48%), and furniture and fixture (2%).

Before examining the results in detail it is necessary to review the overall performance of the various sectors. In 1998-99 the country remained in the grip of constantly declining economic activities and most of the indicators of the trend of the economy reflected negative growth. The GDP growth rate came down from 4.3 per cent in 1997-98 to 3.1 per cent in the year under review. The poor GDP growth was mainly due to lower growth of the agriculture, large-scale manufacturing and services sectors.

Contrary to the overall performance of the economy, FHM registered steady and balanced growth. The new leases executed during the year amounted to Rs 303 million compared to Rs 294 million for the previous year. Consequently, the net investment in lease rose from Rs 527 million to Rs 567 million during the corresponding period. The gross lease rental increased from Rs 300 million to Rs 349 million. This shows excellent recovery during the year. Profit after tax improved from Rs 48 million to Rs 65 million — a growth of 35 per cent.

The factors responsible for this outstanding performance, despite economic slow down, were: efficient utilization of funds in good quality earning assets in prudent manner, vigorous monitoring of recovery of rentals and stringent control on operating expenses. While the income increased by 16 per cent the expenses increased by 14 per cent. The efficient operation resulted in improvement in balance sheet footing from Rs 544 million in the previous year to Rs 599 million at the end of June, 1999. While the paid-up capital of FHM is Rs 250 million the total equity of certificate holders was Rs 345 million.

The current assets of FHM mainly comprise of short-term investment in the shares of public limited companies. As on June 30, 1999 total short-term investment was over Rs 28.7 million.

FHM has a diversified certificate holding pattern. It is important to note that 51 per cent certificates are held by individuals while 38 per cent are held by 5 modaraba companies. Balance is held by investment companies, financial institutions and joint stock companies etc.

FHM was floated in 1985 as a perpetual and multipurpose modaraba. Starting with a paid-up capital of Rs 25 million, within 14 years, the amount has increased to Rs 252 million. Drawing the strength from extensive and varied expertise of the Habib Group in the financial, industrial and commercial sectors, FHM enjoys the experience and knowledge of the local market. The most valuable asset of FHM, in day to day operations, is the strength of the management to make timely decision which benefit the certificate holders and the clients.

The growth of FHM, by all standards, is simply phenomenal and shows the incomparable expertise and financial acumen of the management headed by Wazir H. Jafree, chairman and chief executive.

Keeping in view the extensive efforts of the management and the positive impact of the recent measures taken by the government, the buoyancy of the economy is expected to translate into new lease writing. Dividend income of FHM is also expected to improve further in the year 1999-2000.