PAKISTAN INTERNATIONAL CONTAINER TERMINAL LIMITED - Analysis of Financial Statements Financial Year 2003 - March 2008
Pakistan International Container Terminal Limited (PICT) is the only container terminal in Pakistan sponsored and owned by Pakistanis and the only port infrastructure project whose shares are traded on the Karachi Stock Exchange.
Furthermore, it is the first port infrastructure project in Pakistan financed by International Finance Corporation (IFC). In June 2002, Premier Mercantile Services Ltd (PMS), as sponsors of the project, entered into an Implementation Agreement (IA) with Karachi Port Trust (KPT) to design, construct, operate and transfer after 21 years a modern container terminal project at berths 6-9, East Wharf, Karachi Port. The container terminal project commenced commercial operations in August 2002, with a cost of USD 30 million. Within six weeks of taking over possession of the container terminal area from KPT along with the existing container handling equipment of PMS, the project started generating business and paying royalty and land rental to KPT.
The terminal currently has 4 ship-to-shore (STS) quay cranes, 2 mobile harbour cranes, 10 rubber tyred gantry (RTG) cranes and other ancillary equipment. Phase 4 equipment, two quayside cranes and 10 rubber tyred gantry cranes also arrived in September 2008 which will significantly add to berth and yard handling capacity. The dedicated area for the terminal is 220,000 square metres. PICT has also procured land at the Northern Bypass, which will develop as an off-dock container depot to extend efficient services to the customers. The quay wall length is 600 metres. Amongst the present container terminals in Pakistan, PICT has the deepest designed berths, with a planned alongside depth of 13.5 metres and a current alongside depth of 12.2 metres.
PICT has constantly enhanced its container handling capacity since the completion of Phase-I in 2004, achieving an impressive annual growth rate; a growth of 37 percent in 2007-08 to 472,137 TEUs (twenty-foot equivalent container units) from 345,802 TEUs (2007). PICT now serves 4 weekly shipping services and handles on average 27 container vessels a month. PICT has also installed the first quayside crane in Pakistan that can lift two empty containers at the same time - thereby doubling its crane productivity on empty container moves. The development process is a four-phase work, out of which three have already been completed. Once the development of the all four-phase has been completed, PICT will have the capacity to handle over 550,000 twenty-foot equivalent container units (TEUs) per annum. PICT has also commenced e-clearance of cargo under the new Custom's PACCS System (Pakistan Customs Computerised System).
In FY08, the company installed and commissioned 6MEV dual scan scanner which has enabled PICT to non-intrusive examination of containers. In other words, it allows PICT to scan containers without even opening them. PICT has been the first in Pakistan and second in the world to install this facility. Along with this, new softwares have also been implemented in order to provide improved services.
During the year 2007, the company achieved a growth in container handling capability by almost 37%. The revenues of the company have also grown significantly by 43% and so an increase in net profit before tax was also witnessed by 42%. PICT aims at increasing the shareholder value by reinvesting its major portion of earnings in the company to support expansion plans in order to capture a significant share in the Pakistan's total container throughput.
RECENT RESULTS
In FY08, (June07-June08) the company has been successful in keeping up its growth and maintained an impressive growth in container volumes and revenue. The handling capacity increased to 472,137 TEUs from 345,802 TEUs a colossal growth of 37%. The graph shows a constant growth in TEUs and boxes every year owing to rapid technological advancement and managerial expertise. As the result of consistent efforts, the company realised a net growth in revenue of 43% in FY08 but to match this operational cost of the terminal rose by 31% dominated by increase in salaries, royalties, stevedoring and employees retirement benefits (Rs 4075 million from Rs 2996 million in FY07). Similarly, administrative expenses also raised by 30% thus absorbing most of the impact on profits due to expansion. It is important to note that the financial costs also rose by 12% as the debt servicing cost increased due to leveraging of the company. Most of the borrowed funds are US dollar dominated, so the exchange rate impacts are inevitable, as a result, the PICT experienced a loss of Rs 244.24 million in FY08 due to depreciation of the rupee against the dollar. In the current period FY08 the profit after tax has grown by a significant 60% to Rs 529.26 million as compared to Rs 331.19 million in FY07.
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SUMMARY
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FY08 FY07 Change (Rs) Change (%)
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Revenue 3,134.06 2,186.06 948 43%
Gross Profit 1,325.60 808.07 517.53 64%
Finance Cost 2,003.69 1,794.93 208.76 12%
Operating Profit 1,185.61 699.61 486 69%
Profit before Tax 740.99 520.12 220.87 42%
Profit after Tax 529.26 331.19 198.07 60%
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PICT has shown a praiseworthy trend in its current ratio till FY07. The Y-o-Y growth in liquidity signifies efficiency on part of the company to enhance its current asset position and pay off its liabilities. Since PICT acquired long-term loans to finance its development, this amount is adversely affecting the current ratio as a portion (Rs 366 million) of this long-term liability comes due. Even though the current ratio has fallen in this year but it is still in a safe zone as it hovers around 2.0 assuring the company's ability to meet its liabilities as they become due.
Since FY04 there has been a growing trend of liquidity which might imply that the company is not effectively utilising its current assets and some funds are left idle thus increasing the opportunity cost. The dip in FY04 was in line with a greater than proportionate increase in the current liabilities of the company followed by a very large increase in the trade payables and other liabilities for financing the expansion in property plant and equipment (PPE) and Phase-I project. After that, PICT has consistently improved its liquidity trend, increasing rapidly while simultaneously outpacing its competitors.
Unlike the falling trend in the past few years, the company managed to show a growing profit trend in FY08 owing to rapid expansion of business. The gross profits soared as high as 42%, which is commendable. If we observe closely, the net profit did not show an increase proportional to gross profit, as there was a high financial cost of debt servicing. Profitability trend has generally weakened over the years except in FY05 when it took a rapid upturn. PICT posted a growth of 230% in its gross turnover, as a result of which profitability figures rose considerably. The increase in sales can be partly attributed to the increase in volumes and partly to the increase in tariffs in the same year after the commissioning of the new gantry cranes. The rapid decline in later years is because of the high base effect arising from higher than proportionate increase in sales revenue. Subsequently the profit margins declined in FY07 as well owing to the above-mentioned reason.
ROA and ROE trends were more or less parallel to the trends of gross profit margins and net profit margins, following the same pattern on account of the aforementioned reasons. PICT has been able to enhance its profitability on account of increased sales backed by expansions. The central contribution in the improved performance was the significant reinvestment of the profits back into the business. The ROA and ROE has been on a rise since most of the growth is financed through loans rather than equity. Leveraging is helpful as far as the profits are flowing, it can remorseful effect if the profit stream is affected for any reason.
The profit distribution has seen some changes on discretion of the management. The profit share to employees, Karachi Port Trust, lenders and retained reserve has fallen significantly while the profit share of Government of Pakistan has increased from a mere 15% to almost 3 times high 45% in FY08. The changes in profit distribution could affect decisions of potential investors and shatter the confidence of existing shareholders. The owner ship comprised of various parties with Jahangir Siddiqui and Premier Mercantile Services having 19.52% and 34.31% of total ordinary shares while the redeemable preference shares with numerous lenders and financiers.
As mentioned before the development process had multiple phases, the financing of Phase-I, Phase-II and Phase-III expansions have increased the debt ratios for PICT. The major chunk of debt came from International Finance Corporation (IFC); Rs1.277 billion and the OPEC Fund; Rs 877 million for International Development. Financial charges soared as a result, affecting the net income of the company. Part of the expansion was financed through raising ordinary shares through right issues and preference shares.
The financial charges increased substantially in FY05. This is due to the fact that until FY04 the borrowing costs related to the mark-up on US dollar loans for the Phase I expansion were being capitalised. During FY05, the grace period of the loan expired and the company started the repayment of these loans. As a result, the company's operating profit rose considerably. During FY06 and FY07, the financial charges increased further due to the increase in mark-up on the foreign loans acquired for Phase-II and increase in mark-up on the lease of Phase-III assets. As evident from the trends depicted in the debt management graphs, debt to assets ratio, long-term debt to equity ratio as well as debt-equity ratios has increased over the years. The debt paying ability of the company as a result witnessed a wavering trend in consequent of the fluctuating trend in the financial charges. Debt continues to be the major source of financing and at the same time a riskier mode posing the company to the interest rate risk as the SBP has followed a tight monetary policy stance for the sake of curbing inflation.
The book value of PICT is commendable. The company has increasingly reinvested the major part of the profits back into the company's expansion projects. Furthermore, the shareholder base also increased in FY04 to finance the expansions. This in turn increased the share capital for PICT. Increasing book value signifies increasingly high investors' confidence. EPS has also increased after falling in FY04 when the company increased its right shares and preference shares to finance its expansion. P/E multiple has posted an erratic trend nevertheless. There has been redeemable preference share issue which is helpful from the company's as well as ordinary shareholders point of view as they are going to reap the benefits in medium to long term.
PICT's utilisation of assets is praiseworthy. The declining inventory turnover (days) signifies rapid turnover and conversion of stores and spares into sales. Furthermore, DSO ratio has also decreased over the years with the increase in cash sales, reflecting company's prudent policies to change its credit sales into cash sales as quickly as possible. Thus, the operating cycle for PICT has reduced considerably over the years and remains superior to the competitors. Sales/equity and TATO (total assets turnover) have also climbed up in continuously till FY08. PICT raised its tariffs, positively affecting the company's sales revenue and thus improving asset management ratios.
FUTURE PLANS
Recently KPT has deepened the Karachi Port channel for which the company has equipped itself with latest equipments to handle the large vessels. Furthermore, PICT has planned to set up the latest scanning and radioactivity detection system. This will enable the company to employ the most modern methods of non-intensive custom examination by scanning the containers without opening them. Also, with the rapid expansion in container handling capacity, PICT is all set to face the forthcoming competition. The company has also installed electric powered RTGs, which are fuel efficient to give a performance edge to PICT. Along with technological advancement, the company is developing an inland container depot at Northern Bypass, which will further expand the handling capacities of containers. The fourth phase PICTs development will be completed in June 2009 to handle 750,000 TEUs per year. On the financial front the company is vulnerable to the threats of hike in LIBOR which might add the debt servicing costs, as all the long-term loans and foreign loans. Apart from these concerns, PICT has generally performed well in all areas a more concentrated effort towards improving the marketability of the shares will further augment its presence in the stock market.
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PICTL-KEY FINANCIAL DATA
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Income Statement (Rs' 000) Jun'03 Jun'04 Jun'05 Jun'06 Jun'07 Jun'08
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Total Revenue 186,433 372,596 1,232,275 1,707,760 2,186,064 3,134,065
Terminal Operating cost 130,898 260,525 695,915 1,067,086 1,377,999 1,808,469
General & Administrative Expenses 25,257 51,981 128,026 143,836 175,664 227,523
Operating Profit (EBIT) 30,278 60,090 408,334 496,838 632,401 1,098,073
Financial Charges 1,174 18,903 73,419 88,963 179,493 200,369
Other Operating Income 3,301 4,437 4,070 42,705 67,210 87,532
Net Profit Before Taxes 32,404 45,624 338,985 450,580 520,118 740,994
Net Profit After Taxes 18,905 25,511 225,015 291,270 331,197 529,260
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Balance Sheet (Rs '000) Jun'03 Jun'04 Jun'05 Jun'06 Jun'07 Jun'08
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Stores & Spares 23,709 44,977 72,923 118,505 168,465 222,021
Trade Debts 47,074 67,168 124,345 168,309 137,846 249,275
Cash & Bank Balances 101,978 133,237 521,461 756,442 380,540 390,458
Total Current Assets 185,925 285,936 788,135 1,208,598 1,259,583 1,659,777
Total Non Current Assets 372,604 1,648,846 1,752,484 2,453,055 3,132,590 4,094,505
Total Assets 558,529 1,934,782 2,540,619 3,661,653 4,392,173 5,754,282
Total Current Liabilities 99,225 267,403 292,491 421,978 446,766 847,931
Total Non Current Liabilities 31,830 984,953 1,040,689 1,744,324 2,136,869 2,586,553
Total Liabilities 131,055 1,252,357 1,333,180 2,166,302 2,583,635 3,434,484
Paid Up Capital 408,569 638,008 938,008 938,008 938,008 1,089,610
Total Equity 427,474 682,424 1,207,439 1,495,351 1,808,538 2,319,798
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LIQUIDITY RATIO Jun'03 Jun'04 Jun'05 Jun'06 Jun'07 Jun'08
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Current Ratio 1.87 1.07 2.69 2.86 2.82 1.96
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ASSET MANAGEMENT Jun'03 Jun'04 Jun'05 Jun'06 Jun'07 Jun'08
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Inventory Turnover(Days) 45.78 43.46 21.30 24.98 27.74 25.50
Days Sales Outstanding (DSO) 90.90 64.90 36.33 35.48 22.70 28.63
Operating Cycle 136.68 108.35 57.63 60.46 50.44 54.14
Total Assets Turnover 0.33 0.19 0.49 0.47 0.50 0.54
Sales/Equity 0.44 0.55 1.02 1.14 1.21 1.35
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DEBT MANAGEMENT Jun'03 Jun'04 Jun'05 Jun'06 Jun'07 Jun'08
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Debt to Asset(%) 23.46 64.73 52.47 59.16 58.82 59.69
Debt/Equity (Times) 0.31 1.84 1.10 1.45 1.43 1.48
Times Interest Earned (Times) 25.78 3.18 5.56 5.58 3.52 5.48
Long Term Debt to Equity(%) 7.45 144.33 86.19 116.65 118.15 111.50
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PROFITABILITY (%) Jun'03 Jun'04 Jun'05 Jun'06 Jun'07 Jun'08
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Gross Profit Margin 29.79 30.08 43.53 37.52 36.96 42.30
Net Profit Margin 10.14 6.85 18.26 17.06 15.15 16.89
Return on Asset 3.38 1.32 8.86 7.95 7.54 9.20
Return on Common Equity 4.42 3.74 18.64 19.48 18.31 22.81
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PER SHARE Jun'03 Jun'04 Jun'05 Jun'06 Jun'07 Jun'08
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Earning per share 2.33 0.43 3.30 3.61 3.44 5.62
Price-Earnings ratio - 53.49 7.42 21.37 20.53 13.91
Book value 10.46 10.70 12.87 15.94 19.28 21.29
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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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