Electronic: SIEMENS (PAKISTAN) ENGINEERING COMPANY LIMITED - Analysis of Financial Statements Financial Year 2003 - Financial Year 2008
Siemens (Pakistan) Engineering Company Limited is a subsidiary of Siemens Aktiengesellschaft (SAG), which is incorporated in Germany. It is incorporated in Pakistan as a public limited company and its shares are quoted on all the three stock exchanges of Pakistan.
The company is principally engaged in the manufacture, installation and sale of electronic and electrical capital goods and also executes projects under contracts. The company holds the majority shareholding in Carrier Telephone Industries (Private) Limited.
Its major business divisions involve communications, power transmission and distribution, industrial solutions and power generation, automation and drives, medical transportation and appliances and finance and business administrations. Drive for continual improvement supported by focused management's commitment has ensured that Siemens remains the market leader in nearly all of its business divisions.
Siemens has penetrated well in the UAE market of transmission and distribution, despite intense competition. Its major orders, include high voltage grid stations to be constructed in Dubai, orders for transformers and switchboards, SAP software implementation for Pakistan Telecommunication Company Limited, some major orders from mobile operators, New Murree Bulk Water Supply Project and KESC operations and management contracts etc.
Siemens business processes improvement activities are constantly undertaken by its top programme. This in addition to its continual activities for improvement and redefinition of its all processes through the Quality Management System and Siemens specific quality initiatives. Adherence to stringent controls on quality has again made the company possible to achieve re-certification under ISO 9001:2000 standards in FY06 without any non-conformity.
In Q1 of FY06, the company acquired 52.51% shares of Carrier Telephone Industries (Private) Limited (CTI) held by PTCL and took over the management control on December 9, 2005. Amalgamation of Carrier Telephone Industries (Pvt) Limited (CTI) into the Company was another significant event of FY07.
During FY07, the COM Carrier business of Siemens Pakistan was transferred to Nokia Siemens Networks Pakistan (Pvt) Limited on April 1, 2007 and COM Enterprise Network business of the Company was transferred to Siemens Enterprise Communications (Pvt) Limited on August 2, 2007 in line with global carve-out plan provided by the SAG. The company received an aggregate sale price of Rs 2,451 million and the whole transaction resulted in net after tax capital gain of Rs 1,498 million. The company intends to invest the proceeds received to further increase shareholders' value.
PROFITABILITYThe company posted an after tax profit of Rs 1.7 billion. Its profit had declined by 32.33% compared to last year, while it had increased by 237.42% in FY07 to Rs 2.5 billion. The net sales in FY08, stood at Rs 26.9 billion which shows an increase of 22.73% on a year-on-year basis.
However in the past few years, the net sales figure has seen robust increases. The total wealth of Rs 7.2 billion was generated which included the net sales, commission and allowances earned and other operating income. In the current fiscal year, the company did not make any profit from discontinued operations.
The cost of sales represented 76% of overall wealth generated and amounted to Rs 22.9 billion as opposed to last year's contribution of 69%. The cost of sales increased by 21.78%. The marketing and selling expenses have increased by 14.82%.
The operating profit has increased by 48.20%. This is because the commission and allowances have decreased by 34.96%, general administration expenses have decreased by 6.18% and other operating income has increased by 62.47%. Only 3% of the wealth generated this year has been retained for the future growth as against 7% last year. Employees' remuneration has decreased from 10% to 8%.
DISTRIBUTION OF WEALTH The profit margin has declined from 11.33% in FY07 to 6.25% in FY08. This is because of the combination of decline in net profit by 32.33% and increase in the net sales by 22.73%. Return on assets has declined from 14.11% to 6.78% due to a decrease in net profit and an increase in total assets by 40.92%.
The return on equity has declined from 46.37% to 26.70% due to decrease in net profit and an increase in equity by 17.51%. The gross profit margin has, however, shown a slight increase from 14.27% to 14.93%. This is because the increase in net sales of 22.73% was higher than increase in cost of sales of 21.78%.
LIQUIDITYBoth the quick and current ratios have declined slightly in the current year. The quick ratio has declined from 0.93 to 0.90 while the current ratio has declined from 1.20 to 1.15. The quick assets (current assets - inventories) have increased by 40.05% while current liabilities have increased by 51.71%.
The trade receivables have seen a major increase of 67.73%, followed by other receivables of 47.62% and a minor increase in cash and ban balances of 2.88%. Among current liabilities, the greatest can be attributes to trade payables, which have increased by 97.98%.
The provisions have increased by 78.31% while the short term running finance has decreased by 66.22%. The current ratio has declined as the current assets increased by 46.01% while the current liabilities increased 51.71%. The inventories have increased by 44.90%.
ASSET MANAGEMENTThe ratios show an increasing trend for inventory turnover and days sales outstanding ratios which show that the company has a lot of cash tied up and needs improvement in its working capital cycle. The operating cycle has increased from 161.10 days to an alarming 210.48 days. This will worsen liquidity problems in the future if the trend continues.
The inventory turnover ratio has increased from 52.05 days to 61.45 days. This is because the inventories increased at a greater rate of 44.90% compared to increase in net sales of 22.73%. This shows it takes longer to sell the inventories on credit. The DSO ratio has increased from 109.04 days to 149.02 days. This means the company takes 40 days longer to receive cash payments in the current fiscal year.
The company must make its sales terms conditions more stringent. The sales to equity ratio have not shown much increase. It has increased from 4.09 to 4.27. This is a positive sign as the company can add more earnings to shareholders wealth. The total asset turnover has decreased from 1.25 to 1.08. This is because the net sales increased by 22.73% as against total assets, which increased by 40.92%.
The net sales are slightly higher than the total assets which show that the firm will need to wither raise more equity or take loans for expansion as the earnings are not sufficient enough to be retained and reinvested.
DEBT MANAGEMENTThe debt to assets ratio has increased from 0.70 in FY07 to 0.75 in FY08. This is because the total liabilities have increased by 51.17% while the total assets have increased by 40.92%. The debt to equity ratio has increased from 2.29 to 2.94. This is because the debt has increased by 51.17% while the total equity has increased by 17.51%. The long term debt to equity has slightly declined as the long-term liabilities have reduced.
The major contributor to this large increase in liabilities is the long-term liability of employees' long service bonus, which has increased by 102.97%, followed by trade payables that have increased by 97.98% and provisions. The long term liabilities have decreased by 6.68% while the current liabilities have increased by 51.71%. Therefore the current liabilities have contributed to the increase in overall debt of the company.
The TIE ratio has increased from 6.38 to 10.60. This is a positive sign as the financial expenses have declined by 19.92% while the EBIT has increased by 33.05%. The company can thus fulfill its recurring interest expenses. However TIE ratio does not take into account all the financial obligations. Overall the company is over leveraged, as the earnings are not sufficient to cover the debt. Therefore the company should try to curtail its debt burden, especially the short term, as it will also create liquidity problems.
INVESTOR EXPECTATIONSThe earnings per share have declined by 32.33%. The number of outstanding shares remained constant, but the net profit declined by 32.33%. Due to unstable and uncertain macroeconomic situation, the market value of the stock has declined from an all time high of Rs 1689 to Rs 1210 - a decline of 28.36%.
The price to earnings ratio has increased from 5.61 to 5.94 because the market value decreased at a lower rate than earnings per share. The investors still have good expectations about the future performance of the company. However the P/E ratio is still far below 10.35 in FY06.
DIVIDEND AND BOOK VALUE PER SHAREThe dividend per share has increased from Rs 66 in FY06 to Rs 90 in FY07 and FY08. This is due to increase in net sales and profit. Even though the profit for the current year had declined but the dividend per share was kept the same.
This is a positive sign as many companies were not able to pay dividends let alone high dividends in the current fiscal year due to macroeconomic situation of the country. Price to earnings ratio has shown an overall declining trend, but picked up slightly in the current fiscal year.
FUTURE OUTLOOKOrders at hand for Siemens Pakistan, currently depict a healthy outlook with major contributions coming from projects for building grid stations for various customers in Dubai and supply of power and distribution transformers to power generating companies. With adequate orders at hand and new orders of over Rs 30.9 billion during H1'08, the company is well poised to perform well.
The company plans to offer state-of-the-art locally manufactured products in conjunction with local engineering expertise and services from power generation to power transmission and to power distribution. In the recent budget 2008-09, an allocation of Rs 66bn has been made for power sector projects.
The projects will cover all the sub-sectors, power generation, transmission, distribution and alternate energy. About 2,200 MW of power is expected to bring on stream by the early next year. This is also a positive sign for the company's business as it will lead to more energy projects, hence increasing the demand for its products and services.
The company intends to further increase its local presence and strengthen its manufacturing facility with a plan to acquire Heavy Electrical Complex (HEC) which has been offered for sale by the Government of Pakistan under its privatization policy.
The recent trend of infrastructure projects and in particular mega high rise buildings and residential complexes in Pakistan would also serve as business prospects for the future. Government's focus on providing safe and clean water along with better healthcare facilities will also create new project opportunities in Public sector. However such projects opportunities depend on political stability, consistent policies and importantly the improvement in the law and order situation in the country.
The company has come up with a new strategy called Fit4 2010. It calls for incorporating into the company structure four essentials namely People Excellence, Portfolio, Operational Excellence and Corporate Responsibility. The implementation of these attributes is envisioned to make the company match performance of its top competitors by 2010. Throughout the world, Siemens collaborates with hundreds of universities and public and private research institutes.
This enables Siemens to promote and combine expert knowledge and further develop its technology and competency portfolio. Siemens believes in innovation and has made serious investments in R&D. The R&D investment in 2007 stood at Rs 3.4 billion with 32,500 R&D employees worldwide including 17,500 software engineers in 150 R&D locations in over 30 countries around the world producing 7,900 inventions in 2007 resulting in 50,700 active patents.
Moreover, implementation of advanced emergency load management system using substation automation with local expertise in Fauji Fertilizer, Mirpur Mathelo is one of the key achievements by energy automation team. The company has also currently successfully executed power line carrier projects for IPPs eg, Daharki Power Plant, Atlas Power Plant as well as WAPDA, 500kV Ghakkar Project, GEPCO Wazirabad etc.
The recent breakthrough innovations include Somatom Definition (World's first dual source CT), Combined cycle turbine (World's largest and most powerful turbine; reduces pollutants significantly), Ostar-Lighting (Brightest LED at 1000 lumen) which won the prestigious Deutscher Zukunftspreis 2007 award (Award of the German President for Technology and Innovation) Siemens innovations now provide answers in the three sectors: Industry, Energy and Environment and Health Care.
The vision of the company is to remain market leader and technology pace setter, plans to enhance manufacturing capacity with acquisition of HEC and global programme Fit4 2010 and tools of top. However, due to intense competition, there is enormous pressure on its prices, which is not in line with rising prices of the inputs.
The rising inflation and interest rates may have some adverse impact on the growth of market. Furthermore, with uncertainties involved in different segments of the business it is difficult to predict about the results of the company for next fiscal year.
================================================================================================================
SEIMENS (PAKISTAN) ENGINEERING LIMITED - FINANCIALS
================================================================================================================
Balance Sheet FY'03 FY'04 FY'05 FY'06 FY'07 FY'08
----------------------------------------------------------------------------------------------------------------
Property, plant and equipment 496,694 525,462 602,876 737,990 1,532,620 1,589,664
Intangible assets 1,071 43,297 54,392 32,372 6,755 6,051
Long-term investment - - - 500,000 -
Long-term receivables and prepayment 29,441 52,884 400,586 638,396 1,154,164 1,179,717
Deferred tax assets 128,306 125,398 115,365 349,617 402,904 851,611
Total non-current assets 655,512 747,041 1,173,219 2,258,375 3,096,443 3,627,043
Inventories 1,585,478 1,589,546 1,499,812 2,285,213 3,166,741 4,588,682
Trade receivables 1,156,527 946,953 2,597,760 5,098,330 6,634,051 11,127,285
Other receivables 155,504 352,810 873,944 645,097 1,371,873 2,025,133
Investments 8,150 5,450 - - -
Cash and bank balances 813,499 1,348,729 1,743,760 1,767,308 3,311,908 3,407,239
Total current assets 3,719,158 4,243,488 6,715,276 9,795,948 14,484,573 21,148,339
Total assets 4,374,670 4,990,529 7,888,495 12,054,323 17,581,016 24,775,382
----------------------------------------------------------------------------------------------------------------
Share capital and reserves
----------------------------------------------------------------------------------------------------------------
Share capital
----------------------------------------------------------------------------------------------------------------
Issued, subscribed and fully paid-up 77,696 77,696 77,696 77,696 77,696 82,470
Reserves 1,812,935 1,812,935 1,837,528 1,837,528 2,037,528 3,647,218
Retained earnings 511 257,681 545,758 814,972 2,553,194 2,558,569
Total equity 1,891,142 2,148,312 2,460,982 2,730,196 4,668,418 6,288,257
----------------------------------------------------------------------------------------------------------------
Retention money payable - 3,047 37,534 68,843 104,279 87,010
Employees' long service bonus 6,786 7,209 8,002 8,556 9,401 19,081
Total non-current liabilities 6,786 10,256 45,536 77,399 113,680 106,091
----------------------------------------------------------------------------------------------------------------
Trade and other payables 2,170,864 2,650,067 5,032,357 8,302,734 7,058,499 13,974,641
Short-term running finances 773 11,068 104,584 503,690 2,687,826 907,909
Provision for taxation 204,100 170,826 245,036 440,304 1,230,093 1,466,696
Proposed dividend 101,005 - - - 1,139,496 2,031,788
Total current liabilities 2,476,742 2,831,961 5,381,977 9,246,728 12,115,914 18,381,034
----------------------------------------------------------------------------------------------------------------
Total liablilities 2,483,528 2,842,217 5,427,513 9,324,127 12,229,594 18,487,125
Total equity and liabilities 4,374,670 4,990,529 7,888,495 12,054,323 16,898,012 24,775,382
----------------------------------------------------------------------------------------------------------------
Income Statement FY'03 FY'04 FY'05 FY'06 FY'07 FY'08
----------------------------------------------------------------------------------------------------------------
Net sales 5,812,128 7,110,456 13,132,819 19,806,575 21,901,752 26,880,742
Cost of sales (4,769,450) (5,858,319) (11,368,224) (17,411,915) (18,776,623)(22,866,881)
Gross profit 1,042,678 1,252,137 1,764,595 2,394,660 3,125,129 4,013,861
Marketing and selling expenses (445,547) (532,000) (744,098) (967,655) (986,460) (1,132,642)
General administration expenses (101,217) (147,891) (217,183) (219,999) (570,943) (535,643)
Operating profit 622,884 786,631 1,383,165 1,822,353 1,815,859 2,691,173
Other operating expenses (35,002) (49,321) (106,358) (163,493) - -
Financial expenses (35,570) (39,598) (94,107) (250,721) (316,939) (253,792)
Other operating income 64,607 63,004 50,199 104,745 206,776 184,202
EBIT 652,489 800,314 1,327,006 1,763,605 2,022,635 2,691,173
Profit before tax 616,919 760,716 1,232,899 1,512,884 3,462,202 2,564,203
Income tax expense (266,948) (348,154) (454,053) (777,494) (980,880) (885,135)
Profit for the year 349,971 412,562 778,846 735,390 2,481,322 1,679,068
----------------------------------------------------------------------------------------------------------------
LIQUIDITY RATIOS FY'03 FY'04 FY'05 FY'06 FY'07 FY'08
----------------------------------------------------------------------------------------------------------------
Quick Ratio 0.86 0.94 0.97 0.81 0.93 0.90
Current Ratio 1.50 1.50 1.25 1.06 1.20 1.15
----------------------------------------------------------------------------------------------------------------
PROFITABILITY RATIOS FY'03 FY'04 FY'05 FY'06 FY'07 FY'08
----------------------------------------------------------------------------------------------------------------
Profit Margin 6.02% 5.80% 5.93% 3.71% 11.33% 6.25%
Gross profit margin 17.94% 17.61% 13.44% 12.09% 14.27% 14.93%
Return on Assets 8.00% 8.27% 9.87% 6.10% 14.11% 6.78%
Return on Equity 18.51% 19.20% 31.65% 26.94% 46.37% 26.70%
----------------------------------------------------------------------------------------------------------------
ASSET MANAGEMENT RATIOS FY'03 FY'04 FY'05 FY'06 FY'07 FY'08
----------------------------------------------------------------------------------------------------------------
Inventory Turnover(Days) 98.20 80.48 41.11 41.54 52.05 61.45
Day Sales Outstanding (Days) 71.63 47.94 71.21 92.67 109.04 149.02
Operating cycle (Days) 169.84 128.42 112.32 134.20 161.10 210.48
Total Asset Turnover 1.33 1.42 1.66 1.64 1.25 1.08
Sales/Equity 3.07 3.31 5.34 7.25 4.09 4.27
----------------------------------------------------------------------------------------------------------------
DEBT MANAGEMENT RATIOS FY'03 FY'04 FY'05 FY'06 FY'07 FY'08
----------------------------------------------------------------------------------------------------------------
Debt to Asset 0.57 0.57 0.69 0.77 0.70 0.75
Debt to Equity Ratio 1.31 1.32 2.21 3.42 2.29 2.94
Long Term Debt to Equity(%) 0.36 0.48 1.85 2.83 2.12 1.69
Times Interest Earned 18.34 20.21 14.10 7.03 6.38 10.60
----------------------------------------------------------------------------------------------------------------
MARKET RATIOS FY'03 FY'04 FY'05 FY'06 FY'07 FY'08
----------------------------------------------------------------------------------------------------------------
Earnings per share 44.89 53.10 100.24 94.65 300.87 203.60
Price/Earnings Ratio 7.91 9.04 6.69 10.35 5.61 5.94
Dividend per share 26.00 50.00 54.00 66.00 90.00 90.00
Book value per share 243.40 276.50 316.75 351.39 648.89 762.49
No of Shares issued (in thousands) 7,770 7,770 7,770 7,770 8,247 8,247
----------------------------------------------------------------------------------------------------------------
Top of Form
----------------------------------------------------------------------------------------------------------------
1,210
----------------------------------------------------------------------------------------------------------------
Bottom of Form
----------------------------------------------------------------------------------------------------------------
Market prices(Year End) 355 480 671 980 1,689
================================================================================================================
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].
Comments
Comments are closed.