Transmission of Half Yearly Report for the Period ended Dec 31, 2022

Half yearly Accounts

For the period ended December 31, 2022

HabibMetro

Modaraba Management

Corporate Information

MODARABA MANAGEMENT COMPANY

Habib Metropolitan Modaraba Management Company (Private) Limited

First Habib Modaraba

A n I s l a m i c F i n a n c i a l I n s t i t u t i o n

Directors' Report

On behalf of the Board of Directors, it is our great pleasure to present the un-audited accounts of the First Habib Modaraba for the six months ended Dec 31, 2022.

Business Operation

Performance of first half of current financial year remained under pressure. Business targets of disbursements and enhancement of financing book was not achieved as per budgeted targets due to economic distress and other business challenges. Disbursement of Rs.5.341 billion was made as compared to Rs.5.065 billion of last corresponding periods. Balance sheet size and profitability also increased with good margins.

Economic Outlook

Currently, Pakistan's economic outlook presents a depressing picture. The first six months of 2022-23 have witnessed considerable uncertainty about country's economic prospects. The large negative impact of the 2022 floods with higher international commodity prices, devaluation of the rupee, decreasing foreign exchange reserve and restrictions on imports have led towards stagflation. The inflation rate has risen to historical peak levels of around 27% in January, 2023, especially of food prices.

The impact of the floods on output of the agricultural sector has been very large. Few major crops have shown declining trends particularly cotton crops. A number of major industries have reduced their output including Textile, Steel, Chemical, Automobile and others. A major factor contributing to the fall in these industries is the shortage of imported intermediate inputs and raw materials due to the restriction and controls imposed on the LCs for import. Continuous upward rise in policy rate of State Bank of Pakistan has also intensified difficulties in businesses. In January, 2023, rate further increase by 1% to 17% and there is expectation of further rise in policy rate due to increasing inflation trends.

The country's current account deficit declined during the first half of this fiscal year (FY23) mainly due to lower import bill. Government's measures to curtail the rising import have put a positive impact on the country's external account. However, due to restriction on LCs for import of raw materials, the crisis has further intensified in industries across the country and severely disrupted supply chain of production.

Recently, government has brought "Mini Budget" and levied new taxes of Rs.170 billion. The new taxes will further increase inflation and cost of doing business which ultimately impact on viability of trade and businesses. The new taxes are imposed in order to meet condition of International Monetary Fund. However, discussion and negotiation is still going on with Fund to revive bailout package of $6.5 billion. Both the sides agreed on a set of measures that can still help to finalize the deal to avoid a looming default. Government is hopeful that they would convince the IMF about its good intentions regarding implementation of all outstanding conditions in a gradual manner.

Current status of merger of Habib Metro Modaraba

Recently, the Honorable High Court has allowed our merger petition of Habib Metro Modaraba (HMM) with and into First Habib Modaraba. Now relevant department of both Modarabas are in process to complete remaining formalities of merger such as closing of Certificate Holders book of HMM for issuance new Certificate of FHM as per Swapping ratio, delisting of HMM from PSX and amalgamation of books of HMM with FHM. The accounts as merged entity will be published at close quarter of 31st March, 2023.

Conclusion

Due to economic stress and slowdown in businesses our disbursements have also affected. Major issues of non-availability auto booking, drastic increase in auto prices including increasing trend of lending rates have badly affected assets procurement and further leveraging capacities. Keeping in view prevailing economic challenges, we expect further slow moving business activities in current year which again impact on our businesses, financing assets portfolio and growth momentum. This situation is also impacting timely repayment of borrowed facilities by the businesses. Re-pricing risks under rising lending rate scenario and high cost of doing business would be major issues of current financial year. Keeping in view of present business circumstances we will cautiously move forward and will be more careful in our existing and new business engagements for new assets financing.

• HALF YEARLY REPORT 2022

HabibMetro

Modaraba Management

Acknowledgment

I would like to express our sincere thanks and gratitude for the continued support and guidance provided by Securities & Exchange Commission of Pakistan and Registrar Modaraba, customers of the Modaraba for their patronage and Certificate holders, investors who have remained committed to FHM. I also appreciate dedication, high level of professionalism and hard work of employees of FHM for smooth operations and achieving satisfactory results in extremely difficult business environment.

For and on behalf of Board of Directors

HALF YEARLY REPORT 2022 5