Shipping: PAKISTAN NATIONAL SHIPPING CORPORATION - Analysis of Financial Statements Financial Year 2003-Financial Year 2007
Pakistan National Shipping Corporation (the Corporation) and its subsidiary companies (together 'the Group') were incorporated under the provision of Pakistan National Shipping Corporation Ordinance, 1979 and the Companies Ordinance, 1984 respectively.
The Group is principally engaged in the business of shipping, including charter of vessels, transportation of cargo and other related services, as well as renting out its properties to tenants under the long term lease agreements. Its registered office is situated in PNSC Building Moulvi Tamizuddin Khan Road, Karachi.
Pakistan National Shipping Corporation (PNSC) is an autonomous corporation, which functions under the control of the Ministry of Ports and Shipping, Government of Pakistan. It manages a fleet of 14 ships, real estate and a repair workshop.
PNSC HAS FOLLOWING SUBSIDIARY COMPANIES:
1. Bolan Shipping (Private) Limited.
2. Chitral Shipping (Private) Limited.
3. Hyderabad Shipping (Private) Limited.
4. Islamabad Shipping (Private) Limited.
5. Khairpur Shipping (Private) Limited.
6. Johar Shipping (Private) Limited.
7. Lalazar Shipping (Private) Limited.
8. Makran Shipping (Private) Limited.
9. Malakand Shipping (Private) Limited.
10. Multan Shipping (Private) Limited.
11. Sargodha Shipping (Private) Limited.
12. Sibi Shipping (Private) Limited.
13. Swat Shipping (Private) Limited.
14. Kaghan Shipping (Private) Limited.
15. Pakistan Co-operative Ship Stores (Private) Limited.
16. Lahore Shipping (Private) Limited [Formerly Pak Nippon Car liner (Private) Limited.
17. Karachi Shipping (Private) Limited [Formerly National Tanker Company (Private) Limited.
18. Quetta Shipping (Private) Limited.
The operations of PNSC include worldwide tramping and chartering operations. It also operates three Aframax tankers on the regional routes. The company manages the following fleet of 10 multi-purpose cargo ships, 03 Aframax tankers and 1 bulk carrier.
In FY06 MV Kaghan, a bulk carrier was added to the fleet making the total fleet size of 15 vessels. The total capacity of its vessels has now increased from 570,466 dwt to 636182 dwt.
PNSC operates on two major routes namely trade area west with regular calls at Karachi, Dubai, Dammam, Abu Dhabi, Kuwait, Bander Abbas, Genoa, Marseilles, Bremen, Antwerp, Tarragona, Casablanca, East/ West Africa and Brazilian ports and the other route called trade area West with regular calls at Karachi, Colombo, Singapore, Xingang, Shanghai, Yokohama, Osaka and Busan.
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Sector-wise cargo liftings were as under:
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SECTOR 2006-2007 2005-2006 2004-2005
FREIGHT TONS FREIGHT TONS FREIGHT TONS
MILLION MILLION MILLION
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Liquid 7.677 8.185 8.138
Dry Bulk 0.343 0.261 0.110
Trade Area - East 0.470 0.493 0.505
Trade Area - West 0.470 0.470 0.448
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Total 8.960 9.409 9.201
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Recent results
PNSC group's turnover for the year was Rs 9,089 million compared to the previous year of Rs 7,924 million, with healthy contribution in respect of freight revenues from both combi vessels and oil tankers. Direct Fleet Expenses increased from Rs 6,239 million to Rs 6,479 million showing a 4% increase over the last year, mainly on account of higher fuel costs and higher overage premiums. This resulted in a gross profit of Rs 2,593 million as against Rs 1,669 million of last year, showing a 55% increase. Administrative and general expenses increased by 21.5% due to normal inflationary factors, such as salary, establishment and relating to disposal of vessel expenses. During the year, surplus funds were placed with banks yielding Rs 479 million in interest earnings as compared to Rs 261 million last year.
During the year MT Shalamar was sold as it had completed its useful operational life. An unfortunate fire incident in PNSC Building took place on 18th February 2007. However, there was no interruption in PNSC's worldwide operations, which continued uninterrupted.
During the year under review, PNSC and its vessel-owning subsidiary companies together performed a total of 671 voyages (inclusive of foreign chartered vessels and slot chartered vessels) and lifted 8.960 million freight tons of cargo as compared to 652 voyages and 9.409 million freight tons of cargo respectively in the previous year.
With the rising current assets and declining current liabilities, PNSC has been able to gradually improve upon its current ratio trend as indicated by the liquidity graph. PNSC has gradually paid off its trade payables and other liabilities and is now sufficiently liquid enough to post a high current ratio trend. Currently the ratio is hovering around 3, which is fairly high, thanks to large amount of investments and expansions in PPE. High amount of liquidity increased the confidence of creditors in the company. The increasing trend from FY05 onwards continued in the year 2007 as well, when the current ratio for the company crossed 4 units. Extremely high liquidity is not at all indicative of higher efficiency, since it shows that the company has some idle amount of cash, thus higher opportunity cost.
Extremely high liquidity position, higher sales and better financial performance, PNSC has enabeled the company to reduce its reliance on debt. Better means of financing with lower associated costs are now being used by the company. As evident from the declining trend in long-term to equity and debt to equity ratios, PNSC has now diverted its focus towards increasing its shareholder base to raise cash. Thus, property plant and equipments are now financed by issuing additional shares, rather than by taking loans. PNSC, however does not enjoy a high leverage but on the contrary does not face interest rate risk since financial expenses are near to the ground.
On the same front, financial charges have reduced significantly, as the company reduced its debt burden. Subsequently, more of the operating income is available for the company to pay off its existing expenses, thus posting an increasing trend in Times Interest Earned ratio, which continued in FY07 as well.
During FY06, profitability of the PNSC has declined mainly on account of high expenditures. Despite the fact that the sales revenue soared tremendously over the years, the top line as well as the bottom line of the company remained depressed. The main contributing factors were higher fuel charges and higher insurance costs due to revaluation of assets. Moreover, the full year effect of depreciation on the revalued assets also contributed towards increase in costs.
These three costs accounted for 43% of the total revenues as against 21.6% for FY04-05. FY05 was far more commendable for the company as net profit margins soared in consequent of increased demand for both dry and liquid cargo and consequent higher freight charges. Gross profit margin also increased on the same grounds. The company has recovered from its lower profit margins that it incurred in FY06, increasing in FY07 on account of higher sales, lower expenses and relatively efficient operations. Healthy contribution in respect of freight revenues from both combi vessels and oil tankers also added to the net profit of the company.
On the contrary ROA and ROE declined a little in FY06 owing to higher total assets and equity respectively, recovering marginally in FY07. Equity increased as a result of increase in share capital and retained earnings. Expansion in the cargo lifting facility as planned by the management is likely to boost the company's financial position further.
Generally, the asset management ability of PNSC registered a tremendous improvement in FY07 mainly on account of better inventory position backed by higher demand and improvement in cargo lifting facility as well lower expenses. As evident from the graph, the inventory turnover (days) has been increasing rapidly. Practically, this is not a good sign for the company as the sales are not increasing by the same proportion as the stores and spares are.
This means that PNSC lags behind in some areas of asset management. On the other hand, Total Assets Turnover (TATO) has also increased which proves better utilization of fixed assets including property plant and equipment. TATO witnessed a sharp decline in FY05 due to more than proportionate increase in the total assets of the company brought about by a change in long term investments in related parties, subsidiary companies, associates and listed companies. Once these investments start pouring in returns, the financial position will further strengthen for PNSC as has been in FY06.
Sales/Equity ratio, signifying efficiency in using equity, increased marginally after falling in FY05 owing to steep downward trend in sales revenue and high equity composition in FY05. It declined in FY07 however, as a result of higher equity as more reliance is now placed on equity financing and much of the retained earnings are ploughed back for further expansion. In general, PNSC has significantly improved upon its asset management ability.
PNSC does not have a praiseworthy historical trend of its market value ratios. However, much of the marketability has improved in FY07. Higher expenditure in terms of cost of production and financial expenses has taken its toll and affected the marketability of the company as much as they affected the profitability. The decline in EPS in FY06 can be explained on the basis of two components. First, the net income of the company declined in FY06 as explained earlier and the second, shareholder base increased thus decreasing the per share earnings. In FY07, better profitability reflected positively on the per share ratios, as evident from the graph.
As against the EPS trend, DPS has remained historically low and PNSC has no outstanding dividend payout as such. Much of the earnings are retained and used for expansionary purposes. Only recently the company increased its per share dividends only marginally, that might reflect investors' confidence in the forthcoming years. Book value in absolute terms has posted a YoY growth. It declined only recently as the number of shares outstanding increased by 10% but recovered in FY07, which can be attributed to higher reserves.
FUTURE OUTLOOK: As part of the fleet renewal/expansion plans, PNSC is continuing to add more vessels to its fleet. The management is also in the process of incorporating two more companies and accordingly total number of subsidiaries will be nineteen.
The above measures are being taken to increase the profitability of the Group and to sustain future growth. As part of the fleet renewal/expansion plans, the company is continuing with its efforts to add more vessels to its fleet. The dry bulk market continues to remain firmer than it has ever been in the past.
This augurs well for the bulker and break bulk portion of PNSC group's ships. However a down turn in tanker freight rates will somewhat dampen this unless the tanker market firms up again. The overall group performance is however likely to remain good.
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PNSC-KEY FINANCIAL DATA
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Income Statement (Rs'000) FY'03 FY'04 FY'05 FY'06 FY'07
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Total Revenue 3631429 2,735,500 2,403,604 7,924,614 9,089,124
Expenditure 2595038 1,886,118 1,540,954 6,255,047 6,495,702
General & Administrative Expense 190226 154,461 217,240 385,297 468,030
Other Expenses 149181 159,173 183,422 144,024 143,509
Operating Profit (EBIT) 696,984 535,748 461,988 1,140,246 1,981,883
Financial Charges 84465 94,509 63,863 75,647 77,353
Other Operating Income 230177 87,335 546,513 331,499 943,526
Net Profit Before Taxes 736223 1,865,568 2,954,231 1,391,106 2,848,056
Net Profit After Taxes 466928 1,633,609 2,781,153 1,238,151 2,336,873
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Balance Sheet (Rs'000) FY'03 FY'04 FY'05 FY'06 FY'07
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Stores & Spares 14,978 14,044 17,665 102,270 444,341
Trade Debts - - - 209,936 557,290
Cash & Bank Balances 1,956,121 2,234,625 1,101,579 4,327,054 907,906
Total Current Assets 3,008,799 2,930,079 4,660,148 5,320,594 6,713,443
Total Non Current Assets 2,083,704 4,525,222 10,273,627 8,279,097 8,177,139
Total Assets 5,092,503 7,455,301 14,933,775 13,599,691 14,890,582
Total Current Liabilities 1,042,329 2,379,937 3,753,978 1,673,151 1,501,020
Total Non Current Liabilities 2,942,083 3,785,613 4,899,611 2,546,722 612,720
Total Liabilities 3,984,412 6,165,550 8,653,589 4,219,873 2,113,740
Paid Up Capital 1,143,406 1,143,406 1,200,576 1,320,634 1,320,634
Total Equity 1,830,853 3,357,588 6,212,201 7,307,353 10,384,335
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LIQUIDITY RATIO FY'03 FY'04 FY'05 FY'06 FY'07
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Current Ratio 2.89 1.23 1.24 3.18 4.47
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ASSET MANAGEMENT FY'03 FY'04 FY'05 FY'06 FY'07
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Inventory Turnover(Days) 1.48 1.85 2.65 4.65 17.60
Total Assets Turnover 0.71 0.37 0.16 0.58 0.61
Sales/Equity 1.98 0.81 0.39 1.08 0.88
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DEBT MANAGEMENT FY'03 FY'04 FY'05 FY'06 FY'07
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Debt to Asset(%) 78.24 82.70 57.95 31.03 14.20
Debt/Equity (Times) 2.18 1.84 1.39 0.58 0.20
Times Interest Earned (Times) 8.25 5.67 7.23 15.07 25.62
Long Term Debt to Equity(%) 160.69 112.75 78.87 34.85 5.90
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PROFITABILITY (%) FY'03 FY'04 FY'05 FY'06 FY'07
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Gross Profit Margin 28.54 31.05 35.89 21.07 28.53
Net Profit Margin 12.86 59.72 115.71 15.62 25.71
Return on Asset 9.17 21.91 18.62 9.10 15.69
Return on Common Equity 25.50 48.65 44.77 16.94 22.50
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PER SHARE FY'03 FY'04 FY'05 FY'06 FY'07
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Earning per share 4.08 14.29 23.17 9.37 17.69
Dividend per share 0.75 0.74 0.81 1.79 1.00
Book value 16.01 29.36 51.74 55.33 78.63
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COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past.
Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].
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