Generates Electricity : HUB POWER COMPANY LIMITED - Analysis of Financial Statements Financial Year 2002- Financial Year 2007
Hub Power Company is a large private-sector power company, and its 1,200MW plant is located 60 km from Karachi in Hub. Hubco generates electricity by four 323MW oil-fired units that are supplied by a 78km long pipeline from Pakistan State Oil.
The Hub power station is the first and largest power station being financed by the private sector in Southern Asia and one of the largest private power projects in the country. The Hub power station was the first project successfully co-financed by several governments, the World Bank, international private sector lenders and investors. Hubco is listed on Karachi, Lahore, Islamabad and Luxembourg Stock Exchanges and has over 17,000 Pakistani and international shareholders. The principal activities of the company are to own, operate and maintain an oil-fired power station with a net capacity of 1200MW located at the Hub River estuary in Balochistan. Its sole customer is Wapda.
RECENT RESULTS, HY07, 3 MONTHS ENDED SEPTEMBER:
During the period under review, the plant operated at an average load factor of 71%. A unit of Hubco was shut down in October 2007 for its planned major overhaul. This would improve its operating capacity. Turnover for the quarter was Rs 13,191 million (2006: Rs 11,725 million), operating costs were Rs 12,086 million (2006: Rs 10,638 million). Turnover and operating costs increased due to higher fuel prices. The higher operating costs offset the increase in the turnover. Despite this, the company earned a net profit of Rs 607 million, with an earnings per share of Rs 0.52, compared to a net profit of Rs 722 million and earnings per share of Rs 0.62 in the corresponding quarter last year. The cash balances of the company also increased implying a better liquidity position for the company.
ANALYSIS OF FINANCIAL PERFORMANCE FY02-FY07
LIQUIDITY RATIOS:
The current ratio of the company reached its peak in 2005 but has declined in the subsequent years. Hubco paid off significant amount of long-term loan in FY04 onwards, allocating more current assets for per unit of current liability. Its cash balances have decreased quite tremendously. In addition, Wapda is delaying its release of payments that is posing liquidity problems for the company. The company continues to discharge its liabilities as they become due. During the year, the company repaid two tranches of long-term loan facilities of Rs 979 million that were due in July 2006 and January 2007.
PROFITABILITY RATIOS:
Hubco has been able to capitalize on its increasingly high load factor and high capacity. In addition, Hubco has remained a consistent high performer in the industry. The manifestation of efficiency amidst the competitive industrial and economic scenario can be seen in net profit and gross profit margin trends. However, the down turns in the trend are attributable to the uncontrollable risks such as interest rate risk, price risks etc.
Both the turnover and the operating costs were higher in 2007 mainly on account of higher electricity generation. The electricity generation doubled from last year's.
As can be seen the annual capacity of the plant has increased over the years. In the FY07 the energy output increased substantially owing to high load factor load and operation and maintenance of the power plant as per the international standards. Increased demand for power also fuelled better sales revenue for the company and the company dispatched 7214 GWhs of electricity corresponding to the load factor of 68.6%. Financing costs also decreased owing to retirement of debt. However, the overall decline in profits is due to higher operating costs because of higher load factor.
DEBT MANAGEMENT RATIOS:
Hubco's major financing comes through the acquisition of long-term debt. The company continues to allocate funds on various capital expenditure projects such as up gradation, procurement of parts etc. However, a striking feature of the company is the efficient payment of the loan. This along with the rising equity has kept the long-term debt to equity ratio low. In fact, all the debt ratios have been showing a decreasing trend over the years owing to the same reason.
The company also retired its two major loans this year that further decreased the debt ratios. The decrease in the financial charges has been for the same reason. The interest paying ability of the company has also been improving in the recent years. The company has obtained a running finance facility from National Bank, Standard Chartered and MCB of Rs 6 billion.
Asset Management Ratios: Soaring demand for electricity along with expansion has enabled Hubco to post a healthy inventory turnover ratio trend. The operating cycle is erratic and mainly led by wavering trend of DSO. This means that the company takes a considerable amount of time in recovering its receivables.
Higher demand and increased generation capacity of the company has given an upthrust to sales and net income of the company over the years, resulting in higher total asset turnover of the company. Because of the rising power demand and better incentives in the Budget 2008, the company will be better able to capitalize on its efficiency in augmenting its overall asset management ability. Sales-to-equity ratio has also posted an increasing trend mainly because of high sales revenue backed by higher demand for electricity. The company has also obtained running finance facility from three banks to enable it to continue supplying uninterrupted power to the country.
MARKET VALUE RATIOS:
The earnings per share of the company has declined due to decreased net income of the company. The price to earnings ratio on the other hand has increased due to a higher market price.
Relatively less number of subscribers enjoy large share in the company's stockholder equity. The dividend per share has decreased as the company is retaining its profits to meet its liabilities and to finance its expansion.
FUTURE OUTLOOK:
The impact of the budget 07-08 will be positive in the long term since the government has announced mega projects namely construction of Neelum-Jhelum dam, Bhasha Daimer Dam. Some of the mega projects are currently underway. The successful completion of these mega projects will help to overcome the power shortages. Out of the total PSDP allocation, power sector will get Rs 84 billion. Also, an amount of Rs 73 billion outside the PSDP amount has been allocated to the sector. Moreover, reduction of customs duty from 40% to 35% has been proposed on industrial diesel power generating units.
New power policy will be announced soon. This will have an augmented effect on the company's financials. Plans have also been made to accelerate the exploration of indigenous coal while the import of coal in the short run for the power sector will be encouraged. An allocation of Rs 60 billion including foreign aid of Rs 30 billion has been made for the power sector for 2007-08.
One more favorable step announced in the budget is the subsidy of Rs 98 billion to Wapda and KECS to improve their financial health. This is positive for the sector as a whole as well as for Hubco since in the previous years cash flow problems of Wapda and KESC tended to spillover onto power producers. Hence, the payment of dues by Wapda to Hubco will reflect positively on the company's financials.
The running finance facility acquired by the company is likely to help achieve its aim of providing an uninterrupted power supply to the country. This would increase its sales and revenue and help ease its liquidity position. In accordance with the company's initiative to develop new projects, the company received an approval from the Federal Government for a 225MW RFO fired power plant at Narowal that is anticipated to be inaugurated in 2010.
The company is presently working towards this. The board has also approved Rs 733 million for this purpose. Hubco has also initiated discussions with many lenders for an optimal financing plan. This will enable Hubco to better meet its obligations and achieve a higher profitability in the coming years. Moreover, it will also ease out problems occurring due to delayed payments of Wapda.
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POWER COMPANY LIMITED-KEY FINAN
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Income Statement (Rs '000) Dec'02 Dec'03 Dec'04 Dec'05 Dec'06 Dec'07
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Total Revenue 21,367,251 19,513,668 16,002,782 16,978,466 27,911,386 44,130,911
Cost of Goods Sold 11,538,638 11,022,007 8,106,637 9,821,498 23,553,045 39967042
General & Administrative
Expenses 216,576 213,666 230,628 194,244 280,729 252919
Operating Profit (EBIT) 10,535,012 8,728,061 7,686,127 7,193,691 4,345,933 4077736
Financial Charges 3,248,565 2,626,275 2,223,163 1,808,242 1,557,496 1417499
Net Income 7,286,447 6,101,786 5,462,964 5,385,449 2,788,437 2654237
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Balance Sheet (Rs.'000) Dec'02 Dec'03 Dec'04 Dec'05 Dec'06 Dec'07
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Stores & Spares 521,657 521,657 543,782 562,680 592,486 612870
Cash & Bank Balances 9,196,318 6,478,098 5,803,750 6,038,136 3,363,306 742861
Total Current Assets 17,496,975 12,945,880 12,472,945 10,971,232 9,593,915 12512840
Total Non Current Assets 46,068,421 42,600,126 39,307,630 35,664,503 33,921,477 32480675
Total Assets 63,565,396 55,546,006 51,780,575 46,635,735 43,515,392 44993515
Total Current Liabilities 13,426,159 10,833,770 8,894,489 4,729,730 4,264,980 7651861
Long Term Liabilities 23,961,796 18,681,642 13,243,975 10,234,193 9,265,207 8289571
Total Liabilities 37,387,955 29,515,412 22,138,464 14,963,923 13,530,187 15,941,432
Share Capital 11,571,544 11,571,544 11,571,544 11,571,544 11,571,544 11,571,544
Total Equity 26,177,441 26,030,594 29,642,111 31,671,812 29,985,205 29052263
LIQUIDITY RATIO Dec'02 Dec'03 Dec'04 Dec'05 Dec'06 Dec'07
Current Ratio 1.30 1.19 1.40 2.32 2.25 1.64
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ASSET MANAGEMENT Dec'02 Dec'03 Dec'04 Dec'05 Dec'06 Dec'07
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Inventory Turnover(Days) 8.79 9.62 12.23 11.93 7.64 17.21
Day Sales Outstanding (Days) 59.03 32.23 42.30 30.62 37.90 64.74
Operating Cycle (Days) 67.82 41.85 54.53 42.55 45.54 85.66
Total Asset turnover 0.34 0.35 0.31 0.36 0.64 0.98
Sales/Equity 0.82 0.75 0.54 0.54 0.93 0.00
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DEBT MANAGEMENT Dec'02 Dec'03 Dec'04 Dec'05 Dec'06 Dec'07
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Debt to Asset(%) 58.82 53.14 42.75 32.09 31.09 35.43
Debt/Equity (Times) 2.43 2.13 1.75 1.47 1.45 1.55
Times Interest Earned (Times) 3.24 3.32 3.46 3.98 2.79 2.88
Long Term Debt to Equity(%) 91.54 71.77 44.68 32.31 30.90 28.53
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PROFITABILITY (%) Dec'02 Dec'03 Dec'04 Dec'05 Dec'06 Dec'07
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Gross Profit Margin 46.00 43.52 49.34 42.15 15.61 9.45
Net Profit Margin 34.10 31.27 34.14 31.72 9.99 6.01
Return on Asset 11.46 10.99 10.55 11.55 6.41 5.90
Return on Common Equity 27.83 23.44 18.43 17.00 9.30 9.14
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PER SHARE Dec'02 Dec'03 Dec'04 Dec'05 Dec'06 Dec'07
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Earning per share 6.30 5.27 4.72 4.65 2.39 2.29
Price earning ratio 4.52 7.57 7.29 6.25 10.29 0.00
Dividend per share 7.89 6.89 3.70 2.90 3.84 3.10
Book value 22.62 22.50 24.02 24.37 25.91 25.11
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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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