Investment Banks/Investment Companies: AMZ VENTURES LIMITED - Year Ended June 30, 2006 (Audited)
The venture capital companies play very important role by assisting in the development of new products and services through purchasing equity securities, adding value to a company through active participation, taking higher risks with the expectation of higher rewards, and having a long term orientation.
To realize such objectives, AMZ Ventures Limited (AMZ Ventures) was incorporated in Pakistan as a public limited company on May 13, 2004 under the Companies Ordinance, 1984. The company was licensed to undertake Venture Capital Investments business as a NBFC in accordance with the NBFC (Est. & Reg.) Rules-2003. Its application to SECP for renewal of the License, expired on June 24, 2006 is in process. AMZ Ventures was listed on Karachi Stock Exchange on December 07, 2004. The company is in the process of obtaining credit rating.
AMZ Ventures, sponsored primarily by the AMZ Group, had its paid up capital on June 30, 2006 at Rs 300 million (comprising 22.5 million ordinary class A shares of Rs 10/- each and 7.5 million ordinary class B shares of Rs 10/- each) held by 594 shareholders, of which general public held over 37.35% (class A shares) of the capital. Union Leasing held 21.28% of total capital in the form of class A shares.
Other shareholders together contributing over 12% of capital in the form of class A shares included First Dawood Investment Bank, Guardian Modaraba, Pak Kuwait Investment, Crescent Standard Investment, Orix Leasing, Al-Zamin Leasing and Pakistan Premier Fund. Holding by the Directors, CEO and their children was over 11% (in the form of class A as well as class B shares) while AMZ Technologies held 6.67% of the capital, all class B shares. Seventeen other shareholders also owned nearly 11% of the capital, in the form of class B shares.
Ordinary class B shares have following privileges: (i) As per SECP approval, four votes for each class B share as compared to one vote for class A share, in the election or removal of directors; (ii) entitlement for a period of five completed financial years to receive bonus shares not exceeding 10%; and (iii) an option to acquire a maximum of 20% of the total paid up share capital of the company in cash at par/face value of Rs 10 each.
According to the Directors' Report, AMZ Ventures' first venture capital investment has been in the area of Information Technology, where it has invested the entire proceeds of the public issue (with the permission of SECP), in its fully owned subsidiary, AMZ Access (Private) Limited [previously Go Internet & Software Services (Private) Limited]. AMZ Access is engaged in Business Process Outsourcing, primarily for customers and clients in the USA, with a special focus on the US healthcare and financial sector. Under this structure, the business is sourced in the US, while data production and processing activities are conducted in Pakistan. AMZ Access, in turn fully owns a US based company, AMZ Access Inc, which is responsible for US based acquisition and marketing. Prior to the public issue, AMZ Access Inc had conducted its first acquisition in the US of a medical transcription company, Global Transcription Inc, which is located in St. Louis, Missouri. The Overview hereunder is that of the AMZVentures alone without consolidation with the subsidiary, AMZ Access.
The Auditors in their report to the members state: "Without qualifying our opinion, we draw attention to note 5.2 to the financial statements which describes the reasons for not making provision for impairment loss against the Company's investment in AMZ Access (Private) Limited". The Auditors have also produced an emphasis of matter paragraph from the audit report of another firm of chartered accountants auditing the accounts for the year ended June 30, 2005 as follows: "Without qualifying our opinion, we draw attention to note 4.2 to the financial statements which gives the reasons for not making provision for company's investment in AMZ Access (Private) Limited (formerly Go Internet and Software Services (Private) Limited".
Note 5.2 to the financial statements reads: "No impairment has been provided in these financial statements as the management is confident that the value-in-use to be derived from projected future dividends will exceed the current carrying value".
Note 5.1 also sheds light on the issue: "This represents investment in a 99.67% (2005: 99.64%) owned subsidiary AMZ Access (Private) Limited, a limited liability company incorporated in Pakistan. The investment in subsidiary is stated at cost. Break up value per share of subsidiary as at June 30, 206 is Rs 3.53 (2005: Rs 6.49)".
AMZ Ventures' total assets as on June 30, 2006 increased by 36% to Rs 446 million compared to Rs 327 million as on June 30, 2005. This was largely due to increase in long term investments and loans to AMZ Access, a subsidiary company. Total exposure in AMZ Access exceeded Rs 400 million. These funds had been raised by additional paid up capital and loans from Orix Leasing and the Bank of Punjab. According to the notes to the financial statements, SECP had allowed the company to expose more than 40% of its equity attributable to venture capital investment segment to any single person or group of companies, in relaxation of Rule 22 (a) of NBFC Rules -2003 in terms of Rule 84 of the NBFC Rules.
AMZ Ventures' total revenue during the year ended June 30, 2006 comprised Return on COT transactions through AMZ Securities Rs 0.236 million (2005: Rs 4.390 million) and interest income on long term loan (Rs 80 million) to AMZ Access amounting to Rs 11.388 million (2005: Nil). The Revenue was not adequate to cover the administrative expenses and financial cost and the company ended up with Loss for the Year at Rs 18.106 million (2005: Loss for the year Rs 6.297 million). Performance statistics are given below.
Against book value of Rs 9.19 per share on June 30, 2006, the shares of AMZ Ventures are being quoted these days around Rs 3.70 per share on the Karachi Stock Exchange. The sponsors and the management might reflect on factors causing such situation. Perhaps, the approach adopted by them (as described above) for promotion of venture capital activities in the country is not fully in line with the expectations of common investors.
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Performance Statistics (Rs 000)
(Audited)
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Balance Sheet (As on June 30) 2006 2005
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Capital-Paid-up: 300,000 300,000
Reserves: -24,404 -6,297
Equity: 275,596 293,703
Non-Current Liabilities: 45,187 30,870
Capitalization: 320,783 324,573
Current Liabilities: 124,827 2,795
Total Liabilities: 170,014 33,665
Total Liabilities and Equity: 445,610 327,368
Tangible Fixed Assets: 39,076 39,479
Other Non-current Assets: 385,469 281,849
Current Assets: 21,065 6,040
Total Assets: 445,610 327,368
Contingencies & Commitments: 187,318 59,317
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Ratios:
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Current Ratio: 0.17 2.16
Debt-Equity Ratio: 14:86 10:90
Total Liabilities/Equity-Times: 0.62 0.11
Book Value Per Share - Rs: 9.19 9.79
Price Per Share (2-03-07)- Rs: 3.70 -
Price/Book Value Ratio-Times: 0.40 -
Conting. & Commit/Equity-%: 68% 20%
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Income Statement (Y end J-30) 2006 2005
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Net Revenue: 11,624 4,390
Admn. & Operating Exp.: 11,876 9,937
Financial Charges: 17,854 750
Loss before tax: -18,106 -6,297
Loss for the Year: -18,106 -6,297
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Ratios:
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Admn. & Oper. Exp./Revenue: 102% 226%
Financial charge/Revenue: 154% 17%
Loss for the Year/Revenue: -156% -143%
Loss for the Year/Equity: -7% -2%
Loss Per Share-Rs: -0.60 -0.21
(Loss) ROA: -4% -2%
(Loss) ROCE: -6% -2%
Price/Loss Ratio-Times: -6.13 -
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Cash flow Summary 2006 2005
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Net Cash flow, Operations: -14,234 -8,998
Net Cash flow, Investing: -104,000 -206,172
Net Cash flow, Financing: 117,140 208,127
Change in net Liquidity: -1,094 -7,043
Net Liquidity at beginning: 1,115 8,158
Net Liquidity at end of period: 21 1,115
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COMPANY INFORMATION: : Chairman & Chief Executive: Athar Hanif Naseem Shaikh; Director: Inaam-ul-Haque; Chief Financial Officer: Zeenshan-ur-Rab; Company Secretary: Muhammad Shahid Jamal; Legal Advisors: Mohsin Tayebaly & Co, Barristers & Advocates; Registered Office: 19th Floor, Tower B, Saima Trade Towers, I.I. Chundrigar Road, Karachi-74000; Auditors: Anjum Asim Shahid Rahman, Chartered Accountants; Web Address: www.amzventures.com.
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