Phoenix Finance and Investments Limited was incorporated in Bangladesh on 19^th April 1995 as a Public Limited Company under the Companies Act, 1994. The Company obtained License from Bangladesh Bank as a Financial Institution on the 9^th May 1995 as required under Section 4(1) of the Financial Institution Act, 1993. The Company has changed its name to Phoenix Finance and Investments Limited from Phoenix Leasing Company Limited with effect from 1^st February 2007 complying with all the legal requirements in that respect. The company issued shares through Initial Public Offering (IPO) in June 2007 and its shares were listed in both Dhaka Stock Exchange Ltd. and Chittagong Stock Exchange Ltd. on September 27,2007.

 

The company extends Lease Finance for Capital Machinery, Construction and Medical Equipments, Energy Generating Equipments, Office Equipments, all kinds of Road/Marine Transports, Household and other essential items and equipments for Business Enterprises like Mills, Factories, Financial Institutions, Banks and Insurance Companies as well as Educational Institutions, Clinics, Hospitals, Corporate Bodies and Individuals. The company also extends Direct Finance such as Short Term Loan, Term Loan, House Building Loan & Factoring facilities to Established Business Enterprises, Industrial Units and Individuals.

 

The registered office of the company is located at Eunoos Centre (Level-11), 52-53 Dilkusha, Dhaka-1000, Bangladesh. The company is being operated through its Branch offices located at Chittagong, Khulna, Bogra & Dhaka districts in the country.

The accounts are prepared on going concern basis in accordance with the Bangladesh Accounting Standards (BAS) as adopted by the Institute of Chartered Accountants of Bangladesh (ICAB) so far and the Companies Act, 1994, the Financial Institutions Act, 1993 and the Securities and Exchange Commission Rules, 1987 & other applicable rules & regulation.

 

The Leased equipments under the possession of the Lessees are accounted for under direct financing method in accordance with BAS-17 "Leases". The aggregate lease receivable including unguaranteed residual value throughout the lease term are recorded as gross lease receivable while the excess of gross lease receivable over the total acquisition cost including interest during the period of acquiring the lease equipment constitutes the unearned lease income.

 

The unearned lease income is amortized to revenue on a monthly basis over the lease term yielding a constant rate of return over the period. Unrealized income is suspended where necessary in accordance with the requirements of relevant circulars issued by Department of Financial Institutions and Markets (DFIM) of Bangladesh Bank.

 

Direct Finance consists of Short-Term Finance, Long-Term Finance and House Building Finance. Outstanding loans along with the accrued interest thereon are accounted for as Direct Finance Receivable. Interest income on such direct finance is recognized on accrual basis. Interest portion of the installments that becomes receivable is credited to Profit & loss Account.

2.04 Investments

Investment in marketable ordinary shares has been shown at cost or market price whichever is lower. Investment in non-marketable shares has been valued at cost. Full provision for diminution in value of shares as on closing of the year, if required, has been taken into account.

 

Dividend income is accounted for on cash basis and shown in the Profit & Loss Account.

 

Fixed Assets are stated at cost less accumulated depreciation. The cost of fixed assets is the cost of acquisition or construction together with purchase price and other directly attributable costs of bringing the assets to working condition for their intended use.

 

Depreciation on Fixed Assets is calculated on the cost of fixed assets in order to write-off such amounts over the estimated useful lives of such assets. The company follows the straight-line method of depreciation applying annual rates ranging from 5 % to 25 % on fixed assets. Addition to fixed assets is depreciated from the date of acquisition of assets at applicable rates.

 

 

The company has changed the depreciation rate on its Building from 10% to 5% p.a. in the 140^th Board Meeting held on December 30, 2007 considering the longevity of the Building. The effect of the change in accounting estimate on depreciation rate of Building has been recognized prospectively as per Para-36 of BAS-8 "Accounting Policies, Changes in Accounting Estimates and Errors".

Rates of depreciation on Fixed Assets as on December 31, 2007 are as follows:

2. 08 Disposal of Fixed Assets

On disposal of Fixed Assets, the cost and accumulated depreciation are eliminated and gain or loss on such disposal is reflected in the Profit & Loss Account, which is determined with reference to the written down value of the assets and net sale proceeds.

 

The carrying amount of the company’s assets is reviewed at each Balance Sheet date whenever there is any such indication of impairment. If any such indication exists, the assets’ recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of the assets or its cash-generating unit exceeds its recoverable amount. Impairment losses, if any, are recognized in the Profit and Loss Account.

 

Accounts receivables at the balance sheet are stated at amounts, which are considered realizable.

 

2.11 Accrued Expenses and Other Payables

Liabilities are recognized for amounts to be paid in the future for goods and services received, whether or not billed by the creditors.

 

Cash & Cash equivalent consists of short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

 

Cash Flow Statements is prepared principally in accordance with BAS-7 "Cash Flow Statements" and the cash flow from the operating activities has been presented under direct method. A reconciliation of Cash Flows from Operating Activities has been given in Note-39.

 

The company calculates Earning per Share (EPS) by dividing the basic earnings by the weighted average number of ordinary shares outstanding during the year. In accordance with BAS 33 "Earnings Per Share" which has been shown on the face of Profit & Loss Account and the computation of EPS is stated in Note-35.

Basic Earning represents earning for the year attributable to ordinary shareholders. As there were no preference dividends, the net profit after tax for the year has been considered as fully attributable to the ordinary shareholders.

 

Weighted Average number of ordinary shares outstanding during the year represents the number of ordinary shares outstanding at the beginning of the year plus the number of ordinary shares issued during the year multiplied by a time-weighting factor.

 

Provisions have been recognized in the financial statements as follows:

i. When the company has a present obligation, legal or constructive, as a result of past event;

ii. When it is probable that an outflow of resources embodying economic benefits will be required to settle that obligation;

iii. When a reliable estimate can be made of the amount of the obligation.

Transactions in foreign currencies are translated into Bangladeshi Taka at the rate ruling on the transaction date and the assets and liabilities denominated in foreign currencies outstanding at closing date of accounts have been translated into Bangladeshi Taka at the closing date rate.

 

Foreign exchange gains/loses (if any) arising from such translations are recognized in the Profit & Loss Account.

 

The preparation of financial statements in conformity with Bangladesh Accounting Standards (BAS) requires management to make estimates and assumptions that affects certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

2.18 Provision for Classified/NPLs

 

Provision for lease finance, term & house building finance has been made in accordance with FID circular no. 08 dated 03 August 2002, FID circular no. 03 dated 03 May 2006 & FID circular no. 06 dated 20 August 2006 issued by Bangladesh Bank at the following rates:

 

 

Particulars	Rates
General Provision on unclassified (UC) lease, housing and term loan	1%
Provision on Special Mention Account (SMA) of lease, housing and term loan	5%
Provision on substandard (SS) lease, housing and term loan	20%
Provision on doubtful lease, housing and term loan	50%
Provision on bad/loss (BL) lease, housing and term loan	100%

The provision made up to the Balance Sheet date is considered adequate to meet probable losses.

2.19 Employees’ Retirement Benefit-Gratuity

 

The provision is made in respect of all the permanent employees of the company in accordance with the company’s gratuity scheme introduced in 2005 at the rate of one month’s basic pay ruling at the balance sheet date for each completed year of service. In case of an employee has completed more than 180 days service of a calendar year, then it will be considered as a full year. The benefit is allowed to an employee only on completion of minimum 5 (five) years of service with the company. However, adequate provision for the year has been provided in the accounts.

2.20 Staff Provident Fund & Group Insurance Scheme

 

The company operates a Contributory Provident Fund approved by the NBR and Group Insurance Scheme for its permanent employees. Provident fund is administrated by a Board of Trustees and is funded by contribution partly from employees and partly from company at a predetermined rate.

 

The company is a Financial Institution and therefore, the effective tax rate is 45%. Considering temporary allowable and disallowable expenses and income as per Income Tax Law, adequate provision for Income Tax has been provided for the year. However, any short provision if arises shall be accounted for in the year of finalization of assessment.

 

Deferred Tax

 

Pursuant to BAS-12 "Income Taxes" deferred tax is to be provided using the liability method for all temporary timing differences arising between the tax base of assets and liabilities and their carrying value for financial reporting purposes.

 

An associate is an entity over which the company is in a position to exercise significant influence, but has no control or joint control through participation in the financial and operating decisions of the investee. As required by BAS-28 " Investments in Associates" cost method is used for recording this investment. Income is recognized only to the extent that it receives as a distribution from the accumulated net profit of the associated company arising subsequent to the date of acquisition. Distribution received in excess of such profit is considered a recovery of investment and are recorded as a reduction of the cost of investment.

 

2.23 Others

                      i. The figures in the Financial Statements represent Bangladeshi Currency (Taka), which has been rounded off to the nearest Taka.

                        ii.  Comparative information has been shown in respect of year 2006 for all numerical information in the financial statements and also 

            the narrative and descriptive information when it is relevant for understanding of the current year’s financial statements.

The Company has raised its paid –up capital by Tk. 125,000,000 divided into1,250,000 ordinary shares of Tk.100 each through Initial Public Offering (IPO) effective from August 02, 2007.

Classification of shareholders by holding as on December 31,2007 as required by Regulation 37 of the Listing Regulation of Dhaka Stock Exchange Limited and Chittagong Stock Exchange Limited.

 

 

Particulars	Number of Shareholders		Number of Shares		Percentage (%)
Less than 500 Shares	8,024		557,250		16.58
501 to 5,000 Shares	153		216,524		6.44
5,001 to 10,000 Shares	19		136,345		4.06
10,001 to 20,000 Shares	14		192,173		5.72
20,001 to 30,000 Shares	12		280,912		8.35
30,001 to 40,000 Shares	1		38,500		1.14
40,001 to 50,000 Shares	1		46,261		1.38
50,001 to 100,000 Shares	5		414,626		12.33
100,001 to 1,000,000 Shares	8		1,479,284		44.00
Total	8,237		3,361,875		100.00

This reserve is created on 20% of pre-tax profit to meet the minimum requirement in compliance with Clause-06 of the Financial Institution Regulations, 1994 and is made up as follows:

 

	2007		2006
	Taka		Taka
Opening Balance	127,388,254		103,315,177
Addition during the year	32,834,809		24,073,077
Closing Balance	160,223,063		127,388,254

The Board of Directors has recommended 22% Cash Dividend for the year ended December 31, 2007 subject to the approval of the shareholders’ meeting and appropriate authority, if required.

 

The said proposed dividend has not been recognized as a liability in the Balance Sheet in accordance with the BAS-10 "Events after the Balance Sheet Date".

 

BAS-1 "Presentation of Financial Statements" also requires the dividend proposed after the Balance Sheet date but before the financial statements are authorized for issue, be disclosed either on the face of the Balance Sheet as a separate component of equity or the notes to the financial statements. Accordingly, the Company has disclosed on the face of Balance Sheet.

6.00 LONG TERM LOANS

                     This represents the term loans are taken from different Banks and is made up as under:

All the loans are secured by way of first charge ranking Pari-Passu Security Sharing Agreement (PPSSA) among the secured lenders on all fixed and floating assets. The period of such loans ranges from more than 1 year to 5 years and interest rates ranges from 10% to 15%.

 

6.01 Break-up of Loans taken from different Banks:

 

BASIC Bank Ltd.	93,759,678		83,175,283
Bangladesh Bank (SME re-finance)	202,582,553		190,029,263
BRAC Bank Ltd.	21,667,426		31,723,960
Dhaka Bank Ltd.	63,359,602		82,299,874
Mercantile Bank Ltd.	125,557,659		177,467,485
National Bank Ltd.	36,619,940		59,118,435
Prime Bank Ltd.	95,521,453		142,649,453
Pubali Bank Ltd.	382,000,000		272,000,000
Social Investment Bank Ltd.	151,031,250		-
Sonali Bank Ltd.	27,272,727		63,636,363
Southeast Bank Ltd.	28,825,000		62,124,666
Trust Bank Ltd.	60,000,000		80,000,000
United Commercial Bank Ltd.	15,000,000		21,000,000
Uttara Bank Ltd.	73,232,902		103,409,328
Eastern Bank Ltd.	-		14,545,450
Shahjalal Islami Bank Ltd.	-		136,724,023
Total	1,376,430,190		1,519,903,583

7.00 TERM DEPOSITS

Interest bearing deposits are taken from institutions for a minimum period of 6 months and from individuals for a minimum period of 12 months and interest rates range from 13% to 13.75%. Deposits are of revolving in nature and renewed for further periods, hence entire term deposits have been considered as non-current liabilities. Details are as under:

 

8.00 ADVANCE & SECURITY DEPOSITS

This represents amount received from lessee/ clients against finance on the stipulation that amount will be adjustable with the outstanding rental/installment.

 

Details are as under:

 

Lease Finance	99,971,531		96,462,555
House Building Finance	3,372,303		2,760,376
Term Loan	2,834,392		1,735,424
Sundry Deposits	34,686,900		30,090,232
Security Deposits	5,032,013		6,574,181
Total	145,897,139		137,622,768

Purpose of taking advance and security deposits is to secure the finance provided to client. No interest is payable on advance while security deposits are interest bearing. Sundry deposits represent the short rental/installment amount deposited by the clients, which will be adjustable with rentals/installments due after deposited the shortfall amount.

 

This represents interest earned as classified Lease, Term & House Building Finance and kept under this head. This interest is not recognized as income and credited to Interest Suspense Account in accordance with Bangladesh Bank guidelines.

 

 

Deferred tax liability has been recognized in accordance with the provision of BAS –12 "Income Taxes" based on taxable temporary differences in the carrying amount of the assets and its tax base, resulting the deferred tax expenses.

 

Deferred tax liability is arrived at as follows:

 

	2007	2006
	Taka	Taka
Opening Balance	18,283,551	10,802,863
Addition /(Adjustment) made during the year	(7,225,892)	7,480,688
Closing Balance	11,057,659	18,283,551

 

A. Cost		2007  TAKA	2006 TAKA
	Opening Balance	163,433,352	128,665,001
	Addition during the year	159,007,328	35,477,148
	Disposed during the year	(7,239,595)	(708,797)
	Closing Balance	315,201,085	163,433,352
B. Accumulated Depreciation
	Opening Balance	41,873,488	26,463,943
	Charged during the year	18,228,233	16,113,376
	Adjustment during the year	(5,606,305)	(703,831)
	Closing Balance	54,495,416	41,873,488
	Fixed Assets at Cost less Accumulated Depreciation (A – B)	260,705,669	121,559,864

Fixed Assets at written down value Tk. 260,705,669 for the year 2007 include Land & Building situated at Moon Mansion. Details of which given as follows:

 

The Phoenix Finance & Investments Limited purchased jointly on 50:50 basis with Phoenix Insurance Company Limited a piece of land measuring 8 katha 10.13 chattak at Moon Mansion, 12 Dilkusha C/A, Dhaka with building thereon from Bangladesh Italian Marble Works Limited through a Sale Deed No. 4652 dated 30^th June 2005 after getting permission from RAJUK vide its letters no. RAJUK/Estate/2382 dated 11^th June 2005 and RAJUK/Estate/2953 Stha dated 30^th June 2005. Thereafter, the land was duly mutated in the name of Phoenix Finance and Investments Limited and Phoenix Insurance Company Limited by RAJUK and communicated this through its letter dated 29^th August 2005. The companies’ names were also mutated in the record of right in the office of the Assistant Commissioner (Land), Demra Circle, Dhaka vide Mutation case no. 12574/2005. After completion of all formalities the land with building came into the possession under the aforementioned two companies.

 

Long after conclusion of the acquisition and owning of the aforesaid property, RAJUK arbitrarily cancelled its own letters issued by it previously dated 11^th June 2005 (i.e. order for depositing transfer fees) and 30^th June 2005 (i.e. sale permission) through its letter no. RAJUK/Estate/23(4)-1 Stha dated 30^th January 2006. The company was aggrieved by the arbitrary order of RAJUK and filed a writ petition no. 6700 of 2006 dated 31^st July 2006 before the Honorable High Court. The Honorable Court issued order of stay and injunction on RAJUK from taking any steps, which would be adversely affect the purchasers’ right over the scheduled land, initially for a period of 3 (three) months.

 

 

Thereafter on February 14, 2008 the Honorable Court extended the said order of stay till disposal of the rule. At the moment, the said property is under the possession of the two purchasers’ companies namely Phoenix Finance and Investments Limited and Phoenix Insurance Company Limited.

 

Details of Fixed Assets are shown in Annexure A.

 

Particulars	Current Receivable	Long Term Receivable	Total Receivable 2007 Taka
Gross Lease Receivable	1,319,598,067	2,712,573,869	4,032,171,936
Unearned Lease Income	(393,065,740)	(588,491,638)	(981,557,378)
Net Lease Receivable	926,532,327	2,124,082,231	3,050,614,558

 

Particulars	Current Receivable	Long Term Receivable	Total Receivable 2006 Taka
Gross Lease Receivable	1,225,730,034	2,585,121,131	3,810,851,165
Unearned Lease Income	(252,446,562)	(652,831,671)	(905,278,233)
Net Lease Receivable	973,283,472	1,932,289,460	2,905,572,932

 

Out of Net Lease Receivable amount of Tk. 3,050,614,558 against 506 contracts, Tk.2,399,715,022 or 78.66 % was against 119 contracts featuring Tk. 10,000,000 or more per contract.

 

12.01  Aging analysis of Net Lease Receivable

13.00 ADVANCE FOR LEASE FINANCE

This represents disbursements for procurement of Lease Assets. On execution of Lease, advance will be transferred to Gross Lease Receivables.

 

 

Transportation & Vehicle	29,120,000	12,530,000
Machinery & Equipment	646,429,735	589,074,807
Total	675,549,735	601,604,807

14.00 TERM FINANCE – net of current maturity

This represents disbursement of direct credit including Long- Term & Short- Term Finance for the period ranging from 12 months to 60 months. Amount receivable within 1 year has been placed as current assets which is made up as under:

 

	2007		2006
	Taka		Taka
Opening Balance		564,118,536	444,230,780
Disbursement during the year		1,404,417,346	554,178,125
Realization during the year		(826,028,913)	(434,290,369)
Closing Balance		1,142,506,969	564,118,536
Less: Current assets being current maturity		981,098,753	483,721,012
Balance of Long term portion		161,408,216	80,397,524

Disbursement during the year includes Tk. 1,800,000 as advance against Term Finance to be executed as per terms of agreement.

 

This represents loan to individuals and corporate bodies for purchase and construction of apartment for the periods ranging from 5 to 7 years. Loan installment receivable within one year has been placed under current assets. Details are as under:

 

Disbursement during the year includes Tk 9,000,000 as advance against House Building Finance to be executed as per terms of agreement.

 

Provision for doubtful accounts and future losses has been determined by the management on the basis of its judgment and guidelines issued by Bangladesh Bank. The provision has been considered adequate to cover probable future losses. Details are as follows:

 

 

Opening Balance	79,863,176	53,365,142
Provision made during the year	39,310,058	26,498,034
Closing Balance	119,173,234	79,863,176
Segregation of Provision
Lease Finance	92,919,237	64,257,549
Term Finance	21,012,725	11,146,096
House Building Finance	5,241,272	4,459,531
	119,173,234	79,863,176

17.00 INVESTMENT IN SHARES

 

Name of the Company	No. of Shares	Cost price	Market Price as on 31.12.07
Listed Companies
Al-Arafah Islami Bank Ltd.	3,000	1,450,007	1,320,750
Bank Asia Ltd.	18	1,800	9,392
Meghna Vegetables Oil Ltd.	36	3,600	-
Maq Enterprise Ltd.	32	3,200	368
Mark Shilpa & Engineering Ltd.	23	4,600	-
Phoenix Insurance Co. Ltd.	2,502	1,097,661	863,190
Social Investment Bank Ltd.	5,000	2,785,530	2,533,750
Standard Ceramics Industries Ltd.