Energy:- KOHINOOR ENERGY LIMITED - -Analysis of Financial Statements Financial Year 2002-H 2001 Financial Year 2008
KEL was incorporated in April 1994 with the aim to actively take part in the prosperity of the country through power generation.
It is a joint venture of Saigols Group of Companies (a well-known multi-industrial group of Pakistan) and Toyota Tsusho Corporation (an eminent consortium of multi-industrial undertakings of Japan.)
KEL is one of the first projects of Independent Power Producers in Pakistan. Its principal activities are to own, operate and maintain a furnace oil power station. WAPDA is the only customer of KEL.
ANALYSIS OF FINANCIAL PERFORMANCE - JUNE 2002- DECEMBER 2007:
The profitability of the company shows a declining trend. Though the profits of the company have been increasing throughout the years, the sales have been increasing at a faster rate than its profits. Record electricity generation of 450,821MW this period demonstrated a load factor of about 83% that accrued to the company in the form of higher electricity sales and hence better sales revenue than the corresponding period last year. The cost of sales have been rising, that have resulted in a slower rate of profit growth.
The company's plant has been undergoing maintenance and overhauling to improve the capacity utilisation and generation. However, the maintenance charges incurred during this period were less than the corresponding period last year due to the completion in maintenance operations of most of the engines and equipment. Moreover, the cost of raw materials consumed has also been increasing. As per the Power Purchase Agreement, because of early achievement of commercial operation date (COD) the company was previously enjoying premium for ten years until June 2007. The end of the above premium, decline in pre-structured power tariff and spending on major maintenance of engines are main reasons of decline in profits of the company in this period.
The return on equity and total assets have been at almost similar levels throughout the period under review as the rates of growth of the equity and assets bases of the company have been almost the same as increase in the profits of KEL. As of December 2007, ROA and ROE are less than half of the level of June 2007. It may be predicted that these ratios may achieve at most a level as of June 2007.
The operating cycle of the company has declined in 2005 and afterwards has maintained a similar level indicating efficient inventory and asset handling. The inventory is converted into sales at a higher rate, hence generating a higher returns over the period. The sales of the company have increased. This has been facilitated by an increase in generation capacity and consequently the load factor of KEL. The maintenance and overhauling of the plants and engines at the company have greatly facilitated this aspect. Two more engines have been overhauled under company's maintenance programme. Though the maintenance charges increased, but were still within the budget.
The increase in receivables of the company may be attributed to higher sales this period. However, this increase may be of some concern. The company may like to consider its credit policy. The company has been paying off its debt consistently and its accounts payables are also less than that in the same period last year. For this reason the company may require cash so that there may exist a need to slightly expedite the collection of receivables.
The debt of the company has been successfully declining as indicated by debt ratios (except times interest earned). This indicates that all of the debts are being paid off consistently and there is no delay in repayment of any loans. Consequently, the debt servicing of the company has improved over the years. The commercial loan of ABN Amro Bank and long-term loan 'B' of International Finance Corporation (IFC) had already fully paid off while the remaining loan 'A' is due to be ended by September 2008. The company is also consistently paying off its current liabilities such as accounts payables to suppliers due to a decline in total debts of the company, the financial costs of KEL have also been declining, that have contributed to relatively better profits in recent years. As a result, the times interest earned of the company has shown a rising trend.
The improving debt profile reduces the financial leverage of the company and implies long term growth and better solvency. This has also meant a greater debt to equity ratio of the company.
The liquidity profile of the company has been generally favourable over the years, with the ratios showing a marked improvement in 2007. The company has made debt retirement one of its highest priorities. Consequently, the current liabilities are being paid off indicating better debt servicing. Liabilities of the trade creditors have been decreasing. Moreover, due to decreasing overall debt burden, the accrued interest charges have also been declining in the recent years. As the liquidity condition of the company eases, KEL's position to meet its obligations is likely to remain comfortable.
The earnings per share of the company have remained around a similar value for most of the years except an increase in the 6 months of 2007. The total number of shares of the company had remained the same all throughout with the annual profits of the company hovering around Rs 700-800 million in most of the years except in 2006 where they crossed the level of 1000 million. The price of KEL's share has hovered around Rs 25-38 in the period under consideration. This explains the fluctuating trend in the price to earnings ratio. The company has paid dividends in almost all years, even though the company is pursuing a policy of plant maintenance and capacity enhancement programmes. The equity has been witnessing increases due to rising unappropriated profits. Hence, the book value per share ratio has shown an upward trend.
FUTURE OUTLOOK:
The Government of Pakistan recently decided to encourage the existing operating IPPs to expand their capacities on a fast-track basis. Accordingly, PPIB, a government window facilitator for private investors, issued a request for proposal for fast-track capacity expansion to the existing operating IPPs including KEL. In response to the request for proposal, KEL has bid to implement a 143MW (net) expansion power project on a piece of newly acquired land of approx. 11.25 acres adjacent to KEL. Moreover, the undergoing maintenance of the KEL's power plant would mean a greater capacity for generation of power. In lieu of the increasing demand scenario prevailing in the economy, the KEL would be better able to cope with the demand. Its sales are likely to rise in the future.
The power plant site has an ongoing proactive approach to safety. Thus, the company has an objective of maintaining a healthy environment in the country. In the long run this is likely to reap benefits for the company in terms of enhanced shareholder and customer value. Right now Pakistan is facing a power shortage of about 3000MW which is being bridged through load-shedding for three to eight hours.
The public sector's limited one-time role to generate additional power is on fast track, which will definitely help to tackle the soaring power shortage. In view of increasing demand, the government has authorised Pakistan Electric Power Company (PEPCO) to set up power projects in the country. Two projects having a combined capacity of 500 megawatts at Nandipur and Chichukimalian have been approved and will be connected to the national grid by the end of this calendar year. The government is encouraging public-private partnership (PPP), particularly in the power sector. With the cooperation of private sector in power generation, it would meet the increasing demand. The government is also setting up a 'special purpose company' by arranging equity of $355 million to finance power generation under the public sector. Similarly, in the first phase of the PPP, 15 Independent Power Producers will produce 28,000MW, which would be commissioned in 2010. The US has also offered technical and financial assistance to Pakistan in the power sector.
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KOHINOOR ENERGY FINANCIALS
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INCOME STATEMENT
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2002 2003 2004 2005 2006 2007 Half year
'07
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Sales 2,129,375 2,397,091 2,335,476 2,918,583 4,984,208 5,333,106 3,334,455
Cost of sales 967,771 1,358,062 1,264,170 1,879,009 3,749,585 4,180,586 2,875,802
Gross profit 1,161,604 1,039,029 1,071,306 1,039,574 1,234,623 1,152,520 458,653
Administration & general expenses 68,166 110,952 108,484 107,120 128,497 230,159 143,984
Operating profit/other income 1,093,438 928,077 962,822 42,331 45,195 21,405 12,863
Operating profit & other income 1,178,147 967,313 1,009,171 974,785 1,151,321 943,766 327,532
Finance costs 330,766 253,964 181,150 161,476 128,262 99,984 42,661
Profit before taxation 847,381 713,349 828,021 813,309 1,023,059 843,782 284,871
Taxation / provision for taxation 18,442 12,650 6,292 7,900 9,800 7,100 3,900
Profit after taxation 828,939 700,699 821,729 805,409 1,013,259 836,682 280971
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BALANCE SHEET
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2002 2003 2004 2005 2006 2007 Half year
'07
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ASSETS
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NON-CURRENT ASSETS
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property, plant, & equipment 5,489,886 5,164,693 4,971,587 4,799,639 4,666,324 4,722,146 4,654,773
Intangible assets 5,661 4,331 6,041 5,226
capital work-in-progress 1,305 9,105 20,898 18,328 11,330 67,959 38,714
Long term loans & deposits 4,780 5,084 4,476 4,350 4,898 4,831 6,870
Total fixed assets 5,495,971 5,178,882 4,996,961 4,827,978 4,686,883 4,800,977 4,705,583
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CURRENT ASSETS
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Stores, spares, & loose tools 187,199 177,551 203,822 285,179 319,578 307,228 352,372
Stock in trade 87,752 120,045 121,076 130,725 144,637 209,416 129,315
inventory 274,951 297,596 324,898 415,904 464,215 516,644 481,687
Current assets-Inventory* 2,108,596 1,665,523 1,532,684 1,527,618 1,581,662 1,875,343 2,001,824
Trade debt 725,284 211,589 280,563 394,102 561,530 1,155,394 1,298,728
Advances, deposits &
other received 174,351 220,769 185,357 260,150 391,218 321,997 450,140
Cash & check balances 1,208,961 1,233,165 1,066,764 873,366 628,914 397,952 252,956
Total current assets 2,383,547 1,963,119 1,857,582 1,943,522 2,045,877 2,391,987 2,483,511
Total Assets 7,879,518 7,142,001 6,854,543 6,771,500 6,732,760 7,192,964 7,189,094
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EQUITY & LIABILITIES
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CAPITAL & RESERVES
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Authorised ordinary
shares/Rs 10 1,700,000 1,700,000 1,700,000 1,700,000 1,700,000 1,700,000 1,700,000
Issued, paid-up/ordinary
shares: Rs 10 1,694,586 1,694,586 1,694,586 1,694,586 1,694,586 1,694,586 1,694,586
Unappropriated profits 2,152,026 2,344,349 2,742,431 3,124,194 3,798,535 4,635,217 4,492,542
Reserve for bonus shares -
Total equity 3,846,612 4,038,935 4,437,017 4,818,780 5,493,121 6,329,803 6,187,128
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NON-CURRENT LIABILITIES
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Long term loans( secured/
Unsecured 2,758,367 2,023,242 1,411,778 805,885 286,965 96,051 0
Staff retirement benefit/Deferred 7,770 14,639 21,678 3,519 2,986 4,030 1,043
Total non-current liabilities 2,766,137 2,037,881 1,433,456 809,404 289,951 100,081 1,043
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CURRENT LIABILITIES
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Finances under mark up 0 0 0 0 0 360,000 280,000
arrangements - secured
Current portion of long term loans 790,133 621,867 626,485 642,912 525,246 192,102 195,113
Creditors, accrued &
other liabilities 411,580 113,866 107,944 413,402 329,314 113,728 427,128
Provision for taxation 65,056 75,264 80,182 87,002 95,128 97,250 98,682
Proposed dividend 254,188 169,459 -
Total current liability 1,266,769 1,065,185 984,070 1,143,316 949,688 763,080 1,000,923
Total liabilities 4,032,906 3,103,066 2,417,526 1,952,720 1,239,639 863,161 1,001,966
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KOHINOOR ENERGY FINANCIALS
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FINANCIAL RATIOS
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2002 2003 2004 2005 2006 2007 Half year
'07
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LIQUIDITY RATIOS
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Current ratio 1.88 1.84 1.89 1.70 2.15 3.13 2.48
Quick Ratio 1.66 1.56 1.56 1.34 1.67 2.46 2.00
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ASSET MANAGEMENT
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Operating cycle(days) 169.10 76.47 93.33 99.91 74.09 74.09 75.09
Inventory turnover (days) 46.48 44.69 50.08 51.30 33.53 34.87 52.00
Days sales outstanding (days) 122.62 31.78 43.25 48.61 40.56 77.99 140.22
Total assets turnover 0.27 0.34 0.34 0.43 0.74 0.74 0.46
Sales-Equity 0.55 0.59 0.53 0.61 0.91 0.84 0.54
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DEBT MANAGEMENT
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Total debt to total asset 51.18% 43.45% 35.27% 28.84% 18.41% 12.00% 13.94%
Long term debt to assets 71.91% 50.46% 32.31% 16.80% 5.28% 1.58% 0.02%
Times-interest-earned 3.56 3.81 5.57 6.04 8.98 9.44 7.68
Debt to equity 1.05 0.77 0.54 0.41 0.23 0.14 0.16
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PROFITABILITY
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Return on total assets 11% 10% 12% 12% 15% 12% 4%
Return on equity 22% 17% 19% 17% 18% 13% 5%
Gross profit on sale 55% 43% 46% 36% 25% 22% 14%
Profit margin on sales 39% 29% 35% 28% 20% 16% 8%
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MARKET RATIO
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Price/earning ratio 2.78 6.61 7.18 5.47 4.32 7.59 19.16
Dividend per shares 3.00 2.50 2.50 2.00 1.00 0.98
Book Value per share 22.70 23.83 26.18 28.44 32.42 37.35 37.35
EPS 4.89 4.13 4.85 4.75 5.98 4.94 4.94
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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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