Siemens (Pakistan) Engineering

Siemens (Pakistan) Engineering (PSX: SIEM) was set up as a public limited company in 1953. It sells electronic and electrical capital goods while also executing projects under contracts.

Siemens (Pakistan) Engineering operates several business segments such as power and gas (PG), power generation services (PS), energy management (EM), digital factory (DF), process industries and drives (PD), mobility (MO) and LAS. “MO division deals with mobility and infrastructure solution, services and projects and LAS deals with logistic and airport solutions and services”.

Shareholding pattern

As at September 30, 2020, close to 75 percent shares of the company were held under associated companies, undertaking and related parties that solely includes Siemens AG, Germany. Around 13 percent shares are held under NIT & ICP while another over 5 percent shares are with the general public. The remaining over 7 percent shares is with the rest of the shareholder categories.

Historical operational performance

The company has seen revenue declining only twice since MY15, in MY19 and MY20. Since MY15, revenue has been growing and has been relatively stable after MY17.

In MY17, revenue registered a growth of 43 percent, crossing Rs 14.5 billion. During the year, the company eliminated its discontinued operations that were shown in the accounts until MY16. Of the 43 percent growth in topline, 59 percent of total revenue was sourced from execution of contracts that doubled year on year. As a result, production cost reduced from consuming nearly 91 percent of revenue in MY16, to over 83 percent in MY17. Therefore, gross margin grew from 9.2 percent in the previous year, to 16.7 percent in MY17. This also trickled down to the bottomline that crossed the Rs 1 billion mark after incurring losses for the last two years. While other expenses were abnormally higher due to WPPF, finance expense was positive due to finance income exceeding finance cost. Finance income was largely generated from amounts placed in deposit accounts. Thus, net margin was recorded at an all time high of 7.6 percent.

In MY18 too, the company witnessed a double-digit revenue growth, at 34 percent. Major contribution to revenue was made by the energy management division as the company executed high value energy transmission projects in Pakistan and Afghanistan. Production was only marginally lower, hovering around 83 percent of revenue. Therefore, gross margin was also more or less stable at 16.9 percent. Although other income was unusually higher year on year, as a share of revenue, however, it remained less than 1 percent. So, while operating margin increased on its basis, net margin was negatively impacted, at a lower 5.9 percent, compared to 7.6 percent in MY17, due to an unprecedented rise in taxation. The latter was recorded at over Rs 1 billion.

After growing consecutively for three years, revenue contracted in MY19 at 14.6 percent. This was as a result of completion of projects that had been ongoing in the previous year. In addition, due to the general elections being held, the current period also saw instability in the economy along with unfavorable macroeconomic factors. Production cost increased to nearly 85 percent of revenue that caused gross margin to decrease to 15 percent. However, the decrease in operating and net margin was more pronounced due to the fall in other income that fell from Rs 117 million in MY18 to Rs 22 million in MY19. In addition, due to rising interest rates, finance expense also escalated to 1.4 percent of revenue. Thus, net margin was recorded at 4.25 percent.

Revenue in MY20 was lower by 23 percent due to the negative impact created by the outbreak of the Covid-19 pandemic. This resulted in a halt in production, business and economic activities for nearly three months. Majority of the drop in revenue was associated with execution of contracts that registered a 40 percent fall, from Rs 9.5 billion in MY19 to Rs 5.7 billion in MY20. The loss in revenue was reflected in the reduced gross margin at 6.9 percent. With further expenses incurred and negligible support from other income, the company incurred a loss of Rs 496 million, and a net margin of negative 3.9 percent.

Recent results and future outlook

As lockdowns eased and business activities resumed, revenue for the company registered a rise in MY21 by 12 percent. Although the first half of MY21 saw lower revenue, it did witness a marked improvement in new orders coming primarily from the transmission business. Revenue improved in the third quarter and possibly continued in the last quarter as well, since the annual revenue for MY21 registered a 12 percent rise. Production cost reverted to 83 percent for the year, allowing gross margin to improve to 16.9 percent for the year. This also trickled down to the bottomline that was also supported by additional revenue coming in from gain on sale of assets. Thus, net margin was recorded at a positive 5.9 percent.

With the new variant on the horizon, and the simultaneous mass immunization programs, uncertainty continues to exist. At the same time, prospects for renewable power generation, transmission and distribution sector will remain.