Power Generation and Distribution: SOUTHERN ELECTRIC POWER COMPANY LIMITED - Year Ended June 30, 2005 (Audited)
Southern Electric Power Company Limited (Sepcol) was incorporated in Pakistan on December 20, 1994 as a public limited company under the Companies Ordinance, 1984. Sepcol is listed on all three stock exchanges in Pakistan.
The company domiciled in Islamabad, has established a 115 MW power generation station near Raiwind, Lahore. On
June 30, 2005 Sepcol had 4,567 shareholders, of which 4,446 individuals held 45% of the total paid up capital of Rs 1.367 billion. The sponsors and associated companies held 36% of the total shares, while the rest of the shares are widely distributed among a large number of corporate entities including banking institutions and insurance companies.
Sepcol is one of the Independent Power Producers (IPPs) in Pakistan. Its principal activity is to own, operate, generate and maintain a furnace oil power station with the net capacity of 110 MW (gross capacity 115.2MW).
The diesel engines for power generation, if not properly maintained, may be de-rating at a faster rate, possibly exposing the company to higher cost of spares and stores. The company has been pursuing purchase and installation of an 18.9MW MAN B&W diesel engine/generator with complete scope of supply and the letters of credit have been established. Besides additional revenue, the new engine will help reduce the load on the existing five engines and minimise liquidated damages for failure to dispatch when called upon by Wapda.
The demand of dispatch from Wapda during the year under review was higher than the last year. The load factor for FY05 stood at 39% as compared with 33% of FY04. During the year 398,365 MWH of electricity was dispatched to Wapda while in the previous year the company could dispatch 336,767 MWH.
Sepcol plant has been operated and maintained by British Columbia Hydro International Power Development Corporation under an Operation and Maintenance (O&M) contract with the company. The significant contracts that the company has include a 30-years (originally 22-years) agreement with the government on project implementation, with Wapda for power purchase and with PSO for fuel supply.
In terms of the Power Policy, the IPPs including Sepcol enjoy a number of incentives, some of which include: (i) Profit derived from electric power generation are exempt from income tax.
The IPPs are also exempt from minimum tax on turnover; (ii) Energy Fee or Energy Purchase Price is recognised on transmission of electricity to Wapda, whereas Capacity Fee or Capacity Purchase Price (CPP) is billed and recognised on monthly basis.
CPP is linked to plant availability and the contractual net capacity of the power plant and mostly covers all fixed charges including return on equity as well as debt servicing in respect of the debt raised for implementation of the power generation facility. CPP is payable in full as per contract even tough demand for electricity is low from WAPDA. From investors' point of view, these features are the main attraction of the IPPs. Sepcol has been making handsome net profit even though load factor has been low (2001: 18%, 2002:32%, 2003: 42% and 2004: 33%).
Sepcol has been facing liquidity crunch with current ratio at less than one during FY05 and FY04. Debt/equity ratio is not unreasonable but there is not much scope for additional borrowing. Now that the Dependable Capacity has reportedly been confirmed by Wapda at 110 MW, revenue will further increase. Profitability is also expected to increase if the company is able to control excessive consumption of fuel and spares.
Higher turnover during the year under review at Rs 2.59 billion (2004: Rs 2.26 billion) made possible due to higher dispatch requirement by Wapda at 39% (2004: 34%) could not be reflected into net profit which was Rs 62.2 million only (2004: Rs 234.2 million). ROE works out to 3% (2004: 10%). As compared to sales, cost of fuel during FY05 was 50% compared to 41% in FY04. The Directors in their Report attribute lower profitability to the heavy consumption of spare parts for the major overhauling of the engines and temporary reduction in the Dependable Capacity by Wapda to 95.8MW from October 4 to April 2005. Performance statistics are given below.
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Balance Sheet (Rs in Million) (Audited) (Audited)
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As on June 30, 2005 2004
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Capital-Paid-up: 1,367 1,242
Reserves: 1,070 1,132
Equity: 2,437 2,374
Surplus on Revalue of FA: 0 0
Shareholders Equity: 2,437 2,374
LT and deferred liabilities: 2,875 3,454
Capitalisation: 5,312 5,828
Current Liabilities: 2,198 1,513
Total Liabilities and Equity: 7,510 7,341
Tangible Fixed Assets: 6,515 6,621
LT Advances and deferred: 0 0
Current Assets: 995 720
Total Assets: 7,510 7,341
Contingencies & Commitments: 900 437
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Ratios:
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Current Ratio: 0.45:1 0.48:1
Debt-Equity Ratio: 54:46 59:41
Book Value per share - Rs: 17.83 19.11
Price per Share (15-12-05)-Rs: 11.30 -
Price/Book Value Ratio: 0.63 -
Conting & Commit/Equity: 0.37 0.18
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Income Statement (Rs MM)
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Year ended June 30, 2005 2004
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Sales (net of sales tax): 2,591 2,261
Gross Profit: 479 675
Operating Profit: 397 590
Profit before Taxation: 63 234
Profit after Taxation: 63 234
Cash Dividends %: 0% 15%
Cash Dividend - amount: 0 186
Dividend Payout ratio: 0% 79%
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Ratios:
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Gross Profit/Sales: 18% 30%
Operating Profit/Sales: 15% 26%
Profit after Tax/Sales: 2% 10%
Net profit/Equity: 3% 10%
ROA: 1% 3%
ROCE: 1% 4%
Dividend Payout ratio: 0% 79%
Earnings Per Share - (Rs): 0.46 1.88
Inventory Turnover (times): 16.61 27.91
Receivable Turnover (times): 7.88 8.44
Price/Earning Ratio: 24.52 -
Asset Turnover (times): 0.35 0.31
Days Inventory: 22 13
Days Receivable: 46 43
Debt Service Cover (times): 0.79 1.45
Cash flow Summary (Rs MM) 2005 2004
Net Cash flow, Operations: 552 897
Net Cash flow, Investing: 1 -10
Net Cash flow, Financing: -551 -500
Change in net Liquidity: 2 387
Net Liquidity at beginning: 9 -378
Net Liquidity at end of period 11 9
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Capacity (GWh)
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Installed Capacity- GWh: 1,025 1,025
Actual Production-(GWh)
Actual energy delivered- GWh: 398 337
Load Factor*: 39% 33%
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-- Generation is dependent on the load demanded by WAPDA
COMPANY INFORMATION: Chairperson: Sughra Mahmood; Chief Executive: Ali Mahmood; Director: Klaus Triendl; Chief Operating Officer: Amjad Awan; Chief Financial Officer: Shamsul Aziz; Company Secretary: Salman Rahim; Auditors: Taseer Hadi Khalid & Co, Chartered Accountants; Registered Office: 6th Floor, Razia Sharif Plaza, 90 West, Jinnah Avenue, Blue Area, Islamabad- 44000; Plant: Raiwind, District Lahore; Web Address: www.sepcol.com
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