Siemens (Pakistan) Engineering

Siemens (Pakistan) Engineering (PSX: SIEM) was established in Pakistan in 1953 as a public limited company. In addition to executing projects under contracts, it also sells electronic and electrical capital goods.

Shareholding pattern

As of September 30, 2019, close to 75 percent of shares are held by the associated companies, undertaking, and related parties. This category solely includes Siemens AG, Germany. Around 13 percent shares are held by banks within which The Bank of Punjab holds majority of the shares. Some 5 percent shares are with the general public whereas the directors of the company own less than 1 percent shares in the company. The remaining about 7 percent are with the rest of the category of shareholders.

Historical operational performance

The company has various business segments; power and gas (PG), power generation services (PS), energy management (EM), digital factory (DF), process industries and drives (PD), mobility (MO) and LAS. “MO division deals with mobility and infrastructure solution, services and projects and LAS deals with logistic and airport solutions and services”.

During MY16, topline grew by almost 10 percent. Although local sales of goods made the highest contribution to revenue in value terms, it had declined year on year, whereas execution of contracts, both, in and out of Pakistan increased along with rendering of services, again, both, in and outside of the country. However, cost of sales and services made a large part of the revenue, at near 91 percent, leaving little room for absorption of costs. More than 50 percent of costs were concentrated with purchase of goods and services. However, in MY15, cost of production and services stood at 95 percent which meant that gross margin had improved in comparison. This reflected in a positive before tax figure that was crippled with a high tax expense. Thus, the company posted a loss of Rs 109 million for the year.

By MY17, the company had done way with its discontinued operations that were presented in annual accounts until MY16. In MY17, topline grew incredibly by 43 percent. Almost 59 percent of the revenue came from execution of contracts that more than doubled year on year. The higher revenue was also accompanied by reduction in costs as a percentage of revenue; costs made 83 percent of revenue, down from last year’s 91 percent. This resulted in an improvement of gross margin to almost 17 percent. The higher other expenses were related with WPPF while financial income on amounts placed with banks under deposit accounts supported the bottomline that crossed the Rs 1 billion mark. Thus, the company posted the highest net margin since MY15 at 7.6 percent.

In MY18, the company saw another increase in its revenue by 34 percent. Energy management was the major contributor to the total revenue pie. Most of it was due to execution of high value energy transmission projects in Pakistan and Afghanistan. Cost of production and services at 83 percent of revenue reduced minutely, growing gross margins marginally to close to 17 percent. Although other income increased in value terms, it did not suffice to match the unprecedented rise in taxation expense that stood beyond Rs 1 billion. While, in value terms, bottomline had grown by 5 percent, net margin had actually reduced to 6 percent, down from 7.6 percent in MY17.

In MY19, the company saw topline reducing for the first time since MY15 by 14.6 percent. This was attributed to major projects completion in Afghanistan in the previous year in addition to limited opportunities due to unfavorable macroeconomic factors in the country. Note that the year began after the general elections that brought with it a great deal of uncertainty in terms of the business environment. Combined with a lower revenue, was a higher cost of production and services, at almost 85 percent, that reduced gross margins which was worsened by lower other income and a higher than usual finance expense. The latter was as a result of higher interest rates. Thus, net margin reduced to 4 percent.

Recent results and future outlook

A year after the general elections, when the economy was somewhat stabilizing, it was hit by a pandemic that resulted in a lock down. This adversely affected the financials of the company as is seen in the year on year decline in topline by 28 percent during 9MMY20. Cost of production and services also increased to near 93 percent compared to same period last year’s 80 percent. This vastly affected the profitability as gross margin dropped to 7 percent, while bottomline was negative at Rs 305 million, compared to 9MMFY19’s net profit of Rs 877 million.

Given the current situation of a second wave of coronavirus, the company plans to focus on the current available opportunities while also trying to curtail costs in order to maintain profitability.