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Print 2010-02-08
Bank: Packaging Solutions: PACKAGES LIMITED - Financial Statements Analysis 2003 Q 2008 - 2003 Q 2009
Established in 1956 as a joint venture between the Ali Group of Pakistan and Akerlund and Rausing of Sweden, Packages Limited provides premium packaging solutions for exceptional value to individuals and businesses.
We are the only packaging facility in Pakistan offering a complete range of packaging solutions including offset printed cartons, shipping containers and flexible packaging materials to individuals and businesses world-wide. Our clientele includes illustrious names such as Unilever and Pakistan Tobacco Company, who have been our customers for over 50 years. We employ over 3000 people and had sales of over US $100 million in 2004.
Listed on all three stock exchanges in Pakistan, Packages Limited has maintained a long-time credit rating of AA. Our joint ventures and business alliances with some of the world's biggest names reflect our forward-looking strategy of continuously improving customer value through improvements in productivity.
Packages has always been at the forefront of new developments in packaging research and has pioneered several innovations, including the use of wheat straw as a raw material for paper and board manufacture. Our on-site paper and board mill, established in 1968, has constantly increased its production capacity. A new plant with even greater capabilities is planned for the near future.
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PACKAGES LIMITED
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Symbol: PKGS
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Current Rate: Rs 147.75
Turnover: Rs 53436
Outstanding Shares: 84379504
Market Capitalization: Rs 12467071716
EPS( 3Q'09) Rs 49.90
Price/Earnings (3Q'09) 3.08
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FINANCIAL PERFORMANCE
Packages has shown a drastic improvement in their operations over the period of 3Q'09. The sales figures have risen and achieved high profits compared to 3Q'08.
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For the third quarter Cumulative
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Jul - Sep Jul - Sep Jan - Sep Jan - Sep
2009 2008 2009 2008
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Financial - Rupees in million
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Invoiced sales - net 3,436 3,177 10,107 9,131
EBITDA (from operations) 425 318 725 805
Depreciation and amortisation (341) (228) (958) (652)
Finance costs (310) (561) (979) (1,261)
Investment income / capital gain 116 481 9,144 806
Other operating expenses / income (net) 65 29 95 78
Impairment loss - net - - (1,758) -
(Loss)/ profit before tax (45) 39 6,270 (224)
Profit / (loss) after tax 44 31 4,210 (214)
Earnings per share - basic -rupees 0.52 0.37 49.90 (2.53)
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Looking into the profitability ratios, firstly the Profit Margin, it increased from -2.83% in 3Q'08 to 35.30% in 3Q'09. This shows that the company's activities has been on a positive note and has resulted in the huge profit. One of the main reason for this is the high increase in the investment income which amounted to Rs9.143bn in 3Q'09.The investment income was mainly on account of Gain of disposal of investment in Tetra Pak Pakistan Limited, where the entire shareholding has been disposed off.
Gross Profit Margin, however has shown a decrease in 3Q'09 compared to 3Q'08 as the percentage fell from 7.11% to 3.45% respectively, owing to higher cost of sales.
Both ROA and ROE showed a similar trend compared to Profit Margin in 3Q'09, as ROA increased from -0.61% (3Q'08) to 11.57% (3Q'09). And ROE increased from -1.31%(3Q'08) to 18%(3Q'09).
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Nine Nine
months months Change
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2009 2008
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Local sales 11,507,037 10,197,694 12.84%
Export sales 420,149 459,276 -8.52%
11,927,186 10,656,970 11.92%
Gross profit 411,879 757,868 -45.65%
Investment income 9,143,345 806,036 1034.36%
Profit / (loss) after taxation 4,210,300 -213,811 -2069.17%
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LIQUIDITY
Liquidity condition became much better in 3Q'09 compared to 3Q'08. Current Ratio improved from 1.98x to 3.98x respectively and the Quick Ratio also showed an increasing trend as it increased from 0.58 (3Q'08) to 1.23 (3Q'09).
DEBT MANAGEMENT
In 3Q'09 the gearing ratio had improved as the company was able to repay off its debts in 3Q'09. This has led to decline in the debt ratios such as Debt to Asset, Debt to Equity and Long Term Debt to Equity.
Firstly the Debt to Asset ratio which declined to 0.23 in 3Q'09 from 0.43 in 3Q'08. The two main factors for the decline is the decrease in the current portion of the long term finance and also the decrease in the long term finance which decreased by 37.5% in 3Q'09. These two change has led to overall decline in the gearing ratios for the company.
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Nine Nine
Months Months Change
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2009 2008
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Current portion of long-term finance - 550,000 100%
Long-term finances 7,970,577 12,304,400 -35.22%
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The D/E ratio declined to 0.35 in 3Q'09 from 0.92 in 3Q'08, due to repayment of debt in 3Q'09.
Similarly, the Long Term Debt To Equity Ratio also showed a similar trend as it improved from 0.76 in 3Q'08 to 0.34 in 3Q'09.
FINANCIAL PERFORMANCE
LIQUIDITY
The liquidity situation for Packages has mostly maintained consistency. From 1.48 (CY06) it showed a sharp increase to 2.46 (CY07). This increase came due to a 15% YoY decrease in current liabilities and a 41% YoY increase in current assets. The decrease in liabilities was fueled by a large decrease in finances under markup arrangements (68% YoY).
The current ratio decreased in CY08 from a high of 2.46 to 1.50. The main basis of the decrease was the large increase in current assets (42% YoY) amid a larger increase in current liabilities (134% YoY). Again the main cause for the change was a large change in finances under markup arrangements. Such finances increased by a gargantuan 545% (from CY07 to CY08). All current assets showed modest growths.
ASSET MANAGEMENT RATIOS
Since CY05, the inventory turnover has continued rising. In four years the inventory turnover has risen from 68.42 (CY05) to 113.12 (CY08). Increase in the inventory turnover reflects the greater increase in sales as against the stock in trade and the stores & spares. In CY08 the inventory turnover increased to 113.12 on the back of a 37% YoY increase in stock in trade and stores & spares.
The day sales outstanding (DSO) had increased slowly from CY03 to CY05. It decreased slightly in CY06 to 32.74 from 34.60 (CY05) due to increase in trade debts (4.65% YoY) and a greater increase in sales (11% YoY).
The sales to equity ratio has shown a continued decline (from CY03 to CY07), though it increased in CY08. Sales have increased exponentially showing increasing rates of growth. The year on year increase in sales for the last three years was: 11% (CY06), 17% (CY07) and 36% (CY08). But even with increasing sales, the ratio has continued to decline. This shows that the increase in sales is dwarfed by the increase in equity (except for CY08). In CY06, when sales increased by 11% YoY, the increase in equity was of 76.74% YoY. Thus the ratio decreased from 1.06 to 0.66. In CY07, the equity increased by 32.9% while the sales increased by 17%. In CY08, the sales again increased (by 36% YoY), but the equity decreased by 10.45%. Though paid-up capital (15% YoY) and general reserve (19% YoY) increased, a huge decrease in unappropriated profit (about -104% YoY) brought about the decline in the equity. This decrease can be attributed to the loss that Packages faced in CY08.
Total assets turnover has also being declining for the last many years, except CY08. Again as mentioned before, the sales have been increasing consistently over the years. Therefore, the decrease in the ratio can only be attributed to the larger increases in total assets. Total assets increased by 95.16% in CY06 and 47.48% in CY07. The increase in CY08 was low in relation (4.77% YoY). Compared to these, the increase in sales was: 11% (CY06), 17% (CY07) and 36% (CY08). Thus except for CY08, the increases in sale were lower than the increases in assets. The Bulleh Shah project had contributed hugely to the increases in assets.
The major increases could be seen under the heads of property, plant & equipment and investments. Property, plant & equipment increased by 237.38% (CY07) which translates into an increase of 7.29 billion rupees. Investments increased by 732.74% (CY06), from around 700 million rupees to around 5.77 billion. Investments again increased by 74.53% (CY07), adding around 4.3 billion rupees to the balance sheet. In CY08, the turnover improved to 0.41.
This progress was witnessed due to a lower increase in assets as compared to the increase in sales. Amongst assets, investments and long term loans & deposits decreased (-17% and -36% YoY respectively), while rates of growth in other assets slowed down considerably. Overall, assets increased by only 4%, as compared to 47% (CY07).
DEBT MANAGEMENT RATIOS
The debt to asset ratio has showed a constant increase from CY05 (when it was 33.43). This signifies that the debt is increasing at a greater rate (22.89% YoY CY08) than the assets (4.77% YoY CY08). We can easily atribute this to the recent expansionsionary activity undertaken by Packages.
The debt to equity ratio had until CY07 been under one. That meant that the debt for Packages had remained lesser than its equity. Now (CY08) the ratio has increased to 1.15. This was caused by Packages facing a loss, which reduced its unappropriated profits by 104% YoY. Thus the increase in the ratio was fueled by the decrease in equity. Until CY08, the debt had remained lesser than equity. That means that more than fifty precent of the assets were backed by equity.
The long term debt to equity ratio quickened growth from CY05 to CY07. The growth slowed in CY08 (when the ratio showed 80.78). As mentioned before, the equity increased consistently from CY03 to CY07, after which it decreased in CY08.
For Packages, long term debt has increased continually from CY03 to CY07. This increase has been fueled by large increases in long term finances (+500% YoY in CY06 & +105% YoY in CY07). In CY08, total long term debts decreased slightly by 1.18%. This should have led to a decrease in the ratio. Instead it appeared as an increase due to the greater decrease in equity (-10.45% YoY).
PROFITABILITY RATIOS
Of the profitability ratios, the return on asset, the net profit margin and the return on common equity have all shown a similar trend. They depressed in CY05, and then spiked in CY06. Since then, they have showed a downward movement.
The gross profit margin, on the other hand, has shown a consistent decline since CY03 (when it was 18.97). Sales have shown continued increases throughout (CY03-CY08), with the year on year rate of increase jumping from 16.75% (CY07) to 35.68% (CY08). Sales in CY08 touched an all time high of 14 billion rupees. On the other hand, gross profit is decreasing due to the increasing cost of goods. The cost of goods being sold is increasing continuously due to inflation and increase in imported raw material costs along with increase in power and fuel charges. In CY08, it spiked by 44.09% reaching 11.28 billion rupees. Therefore, though the sales are increasing, they are not translating into higher profits for the company. The gross profit decreased by -7.36% (CY07) and -21.34% (CY08). As mentioned above, the costs increased due to very high amounts of inflation witnessed in 2008.
From CY03 to CY05, the net profit margin remained around twelve and thirteen. It spiked in CY06, reaching 67.58. This huge increase was due to a large increase in the net profit on the back of high investment income. Investment income increased 824.75% YoY, ie from around 0.6 billion to around 5.6 billion rupees. This coupled with a low tax expense translated into a huge - 500% YoY increase in net profit. Since CY06, the trend has shifted towards a decreasing net profit margin. In CY08, the net profit declined by -104.53% which took packages into the red. This decline is attributed to the huge increase in financing costs (352.42% YoY), due to the devaluing of the Pakistani rupee. Packages has many debts outstanding in foreign currencies. Thus devaluation had a large impact on its financial position. Another major cause for decrease was the fall in investment income (78.5% YoY). Thus currently (CY08), the net profit margin stands around -1.37% which depicts a net loss for the company. Though this loss may be temporary, due to unusual market difficulties (high inflationary pressures, high rupee devaluation) of the CY08, the fact that the gross margin has continued to decrease is alarming.
The return on assets (ROA) depicts the amount of income generated as per the assets. It is proportional to the net profit of the company depending upon the trend of the assets. Packages has shown a continued increase in the amount of its assets (though the rate has slowed). The net profit had showed a decrease (CY03 - CY05) followed by a spike (CY06) and then again a decrease (CY07 - CY08). The ROA has also followed this trend. It spiked from 8.74 (CY05) to 26.91 (CY06). It then started falling and was -0.56 in CY08. The negative value of the ratio is a bit disconcerting as it shows that each rupee in asset value is producing a loss for the company.
The return on common equity (ROE) has also followed the trend of the net profit margin. The ROE increased when profits increased and decreased when profits decreased. The equity for the company has continued to increase due to good profits (except in CY08) and issuance of new shares. Total equity increased by 76.74% in CY06 and 32.90% in CY07, before decreasing by 10.45% in CY08. The fall in equity in CY08 was due to the large decrease in unappropriated profits (-104.53 YoY) even though new shares worth around 110 million rupees were issued. Thus since CY06 when the ROE peaked (44.62), it has continued to decline. Currently (CY08), the ROE stands at -1.2 which signifies a negative return. The negative value is significant because it suggests that any investment in the company would produce negative returns, ie would not yield a return.
MARKET VALUE
The EPS for the company remained a little under 20 from CY03 to CY05. It spiked in CY06 reaching 87.3 and then started declining. For CY07, EPS was 51.27 while for CY08, it was -2.32. The sudden increase in CY06 was due to a large increase in earnings (net profit increased 500.85% YoY) with no increase in the number of outstanding shares. The subsequent fall (CY07) was due to issuance of new shares and a decrease in net profit (-29.09% YoY). In CY08, the company witnessed a loss. This loss translated into a negative EPS. Furthering its fall was the issuance of new shares.
The book value for the company shows the value of ownership per share of the investors. The book value had shown a continuous increase since CY03 to CY07 (at an average of 35.95% per annum). It decreased in CY08. The reason for the increase was that the equity was increasing at a greater rate than the issuance of new shares. Continuous profits were being added to the general reserve and the unappropriated profits sections. This increased the equity for the company from around 3 billion rupees in CY03 to around 18 billion rupees in CY07, at a average of around 3 billion per year. This boosted the book value. In CY08, the number of shares outstanding increased as new shares were issued. Also, total equity decreased due to a huge decrease in unappropriated profit (-104.53% YoY). This had a negative impact on the book value, and thus the book value decreased to 192.85 (CY08).
The dividends per share have also shown also decreased. For CY03 and CY04, the per share dividend was set at 8.5. This decreased to 6 per share for CY06 and CY07. There was no dividend given in CY08 due to the loss faced by the company. This decrease in dividend payout is not a unique aspect of Packages. CY08 was a very difficult year for businesses globally and especially in Pakistan. High inflation wreaked havoc with the demands for goods and decreased the buying power of the consumers. High rupee devaluation led to higher costs of goods (for imports and import derivatives) and also higher costs of financing (external/foreign debts). Both factors led to poorer performance of companies generally. Packages Ltd decided not to give dividends for CY08, as its performance was poor.
FUTURE OUTLOOK
Considering the current economic condition and the global recovery on the rise, there are bright prospects for Packages to enhance their performance in the future. Moreover the investors have gained confidence in the company in the period of 3Q'09 as the below graph shows.
The positive performance of the company has resulted in high EPS of Rs49.9 for 3Q'09 and promises to increase in future as well.
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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