Pakistan National Shipping Corporation and its subsidiary companies were incorporated under the provision of Pakistan National Shipping Corporation Ordinance, 1979 and the Companies Ordinance, 1984 respectively.
The board of directors consists five directors appointed by Federal government and two directors appointed by the shareholders. The group is principally engaged in the business of shipping, including charter of vessels, transportation of cargo, and other related services. The group is also engaged in renting out its properties under long-term lease agreements.
Pakistan National Shipping Corporation (PNSC) is an autonomous corporation, which functions under the overall control of the Ministry of Ports and Shipping, Government of Pakistan. It also manages real estate and a repair workshop.
The group consists of a holding company: Pakistan National Shipping Corporation and subsidiary companies:
-- Bolan Shipping (Private) Limited
-- Chitral Shipping (Private) Limted
-- Hyderabad Shipping (Private) Limited
-- Islamabad Shipping (Private) Limited
-- Johar Shipping (Private) Limited
-- Kaghan Shipping (Private) Limited
-- Karachi Shipping (Private) Limited
-- Khairpur Shipping (Private) Limited
-- Lahore Shipping (Private) Limited
-- Lalazar Shipping (Private) Limited
-- Makran Shipping (Private) Limited
-- Malakand Shipping (Private) Limited
-- Multan Shipping (Private) Limited
-- Pakistan Co-operative Ship Stores (Private) Limited
-- Quetta Shipping (Private) Limited
-- Sargodha Shipping (Private) Limited
-- Shalamar Shipping (Private) Limited
-- Sibi Shipping (Private) Limited
-- Swat Shipping (Private) Limited
The group owns 55 percent of the share capital of Pakistan Cooperative Ship Stores (Private) Limited and 100 percent of the share capital of the remaining eighteen subsidiary companies. All the fully owned subsidiaries of the group operate one vessel/tanker each with the exception of Hyderabad Shipping (Private) Limited, Karachi Shipping (Private) Limited, Lalazar Shipping (Private) Limited, Malakand Shipping (Private) Limited, Shalamar Shipping (Private) Limited, Sibi Shipping (Private) Limited, Makran Shipping (Private) Limited and Chitral Shipping (Private) Limited which currently do not own any vessel/tanker ie 10 vessels.
In 2009, PNSC disposed of two vessels during the period, namely MV-Makran and MV-Chitral.
In FY06 MV Kaghan, a bulk carrier was added to the fleet making a total fleet size of 15 vessels. The total capacity of the PNSC-managed vessels is 536,821 DWT (dead weight tonnage which is the displacement at any loaded condition minus the lightship weight), 325,254 GRT (gross register tonnage representing the total internal volume of a vessel) and 179,307 NRT (net register tonnage is the volume of cargo the vessel can carry; ie the Gross Register Tonnage less the volume of spaces that will not hold cargo.
PNSC operates on two major routes namely trade area west with regular calls at Karachi, Dubai, Dammam, Abu Dhabi, Kuwait, Bander Abbas, Genoa, Marseilles, Bremen, Antwerp, Tarragona, Casablanca, East/ West Africa and Brazilian ports and the other route called trade area East with regular calls at Karachi, Colombo, Singapore, Xingiang, Shanghai, Yokohama, Osaka and Busan.
RECENT RESULTS 3Q10
The consolidated revenues of the group for the 9 months March 31, 2010 were Rs 5,583 million (including Rs 1,365 million from PNSC) as against Rs 9,504 million for the corresponding period last year showing a decrease of 41%. Gross profit for the nine months to 31 March 2010 was Rs 951 million as against Rs 2,449 million last year showing 61% decrease. After tax profits for the company decreased 64% from Rs 1.94 billion to Rs 0.697 billion. The earnings per share for the 9 months period ended March 31, 2010 were Rs 5.28 as against Rs 14.69 for the corresponding period last year.

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PNSC GROUP OF COMPANIES
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Rs in '000                        Quarter ended  Quarter ended  3 Quarter ended  3 Quarter ended
                                   Mar 31, 2009   Mar 31, 2010     Mar 31, 2009     Mar 31, 2010
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REVENUES                              2,736,653      2,017,473        9,503,931        5,583,116
EXPENDITURE                           1,828,754      1,566,899        7,055,271        4,632,268
GROSSPROFIT                             907,899        450,574        2,448,660          950,848
PROFIT BEFORE INTEREST & TAX (EBIT)     793,809        447,870        2,390,812        1,086,259
PROFIT BEFORE TAXATION(EBT)             793,081        446,897        2,341,137        1,079,244
PROFIT AFTER TAXATION                   649,452        361,035        1,940,106          697,134
EPS                                        4.92           2.73            14.69             5.28
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PNSC
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Rs in '000                        Quarter ended  Quarter ended  3 Quarter ended  3 Quarter ended
                                   Mar 31, 2009   Mar 31, 2010     Mar 31, 2009     Mar 31, 2010
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REVENUES                                737,276        309,008        2,841,753        1,538,829
EXPENDITURE                             352,029         91,830        1,609,904          661,092
GROSSPROFIT                             385,247        217,178        1,231,849          877,737
PROFIT BEFORE INTEREST & TAX (EBIT)     461,657        220,303        1,370,730        1,037,343
PROFIT BEFORE TAXATION(EBT)             461,308        219,719        1,322,556        1,031,573
PROFIT AFTER TAXATION                   325,269        139,934          944,460          677,401
EPS                                        1.06           2.46             5.13             7.15
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PNSC GROUP PNSC
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Rs in '000                      Audited      Unaudited         Audited      Unaudited
                          June 30, 2009   Mar 31, 2010   June 30, 2009   Mar 31, 2010
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Cash and bank balances        2,223,490      4,659,427       2,217,680      4,653,165
Taxation-net                    252,268        305,270         276,666        334,921
NET ASSETS                   16,699,177     17,042,868       7,036,145      7,360,103
Reserves                     14,557,934     15,110,744       4,814,590      5,101,071
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NON-CURRENTLIABILITIES
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Deferred liabilities            219,894        261,174         219,894        261,174
EQUITY &LIABILITY            16,699,177     17,042,868       7,036,145      7,360,103
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The consolidated revenue for PNSC group for the 3Q10 were 41.3% lower than 3QFY09. It decreased from Rs 9.503 billion to Rs 5.583 billion in FY10. The steep fall in overall revenue is attributed to 62.4% reduction in chartering revenues from Rs 4.93 billion to Rs 1.85 billion. However, freight revenues for the company have also fallen from Rs 4.514 billion to 3.669 billion in 3Q10. There was slight increase of 2% in rental income amounting to Rs 59 million but it was insignificant.
PNSC group revenue consists 33% contribution from chartering revenues, 66% contribution from freight revenues and 1% revenue only from freight income in 3Q10.
PNSC revenues alone have fallen from Rs 2.841 billion to Rs 1.538 billion showing 45% decline. PNSC contributes 27% to the PNSC group revenue.
The direct and indirect expenses both decreased in 3Q10. Overall expenses for PNSC group decreased 34.3% (PNSC only 58.9%) in 3Q10 to Rs 4.632 billion as compared to Rs 7.041 billion in the same period corresponding year.
Overall, revenue decreased more as compared to expenses resulting in 61% reduction in gross profit for PNSC group reaching Rs 950 million.
In 3Q10, PNSC group was successful in curbing its operating expenses by 26% to Rs 192 million. However, administrative expenses for PNSC group increased by 6% to Rs 404 million. Operating income of the group showed positive sign by jumping from Rs 583 million to Rs 732 million.
Earnings before interest and tax equaled to Rs 1.086 billion. Finance cost for the company was only 7 million showing the company is primarily financed with equity. Profit before taxation for the 3Q10 totalled to Rs 1.079 billion. Profit after tax plunged to Rs 697 million from year earlier Rs 1940 billion showing 64% decrease over all.
Comparing March 31, 2010 to June 30, 2009, it has been found that the non-current assets of the company increased by 28.8% amounting to Rs 11.953 billion, the current assets decreased by 30.6% from Rs 9.093 billion to Rs 6.308 billion, the current liabilities decreased by 27.1% from Rs 1.672 billion to Rs 1.219 billion which was positive for the company. Overall, the net assets of the company increased from Rs 16.699 billion to Rs 17.042 billion showing 2.1% growth. Property, plant and equipment showed considerable growth increasing from Rs 8.264 billion to Rs 10.917 billion showing 32.1% growth.
On further analysis, two critical situations have been found on current asset side. One was increase in trade debts by 11.4% to Rs 888 million although the sales went down. Secondly, large amount of cash and bank balance on balance sheet, which almost doubled from Rs 2.223 billion to Rs 4.65 billion. The PNSC group did not have any short-term investments on March 31, 2010. On liability and equity side, only 2% comprises of non-current liability and the rest consists of equity. The equity attributable to the group increased to Rs 16.43 billion from Rs 15.88 billion. Deferred liabilities for the group increased from Rs 219 million to Rs 26 million.
Overall, profitability of the company deteriorated after the 3Q10 reports. The gross profit margin and profit margin of the group reduced to 17% and 12.5% from 25.8% and 20.4% in the same period last year. Return on assets and return on equity position also descended to 4.1% and 4.2% from 11.6% and 11.8% in the same period last year. This was reflected in decrease earnings per share from Rs 14.69 to Rs 5.28. Current assets and current liability both decreased by 30.6% and 27.1%. Thus, current ratio remained slightly above 5.1 same as last year.

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Sector                  2008-2009       2007-2008       2006-2007
                     FREIGHT TONS    FREIGHT TONS    FREIGHT TONS
                          Million         Million         Million
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Liquid                      7.665           7.561           7.677
Dry Bulk                    0.273           0.959           0.343
Trade Area - East           0.314           0.398           0.470
Trade Area - West           0.432           0.533           0.470
Total                       8.684           9.451           8.960
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The consolidated revenue for PNSC group for FY09 was 6.7% higher than FY08. It increased from Rs 10.753bn to Rs 11.474bn in FY09. This increase is credited to the increased voyages in the current year as well as the enlarge freight tons for the current year. Total freight however decreased for FY09. It decreased by approximately 8.1% from 9451 million to 8684 million tons. Except the liquid sector, the other entire shipping sector showed some signs of decrease in freight tons.
Total expenditure too showed a considerable increase in FY09. It showed an increase of approximately 15.5%. This was attributed to a substantial increase of direct fleet expenses that inflated from Rs 7.25 billion to Rs 8.39 billion in FY09. Sub-category of expenses includes general and other expenses, operating expenses, which too showed an increasing trend for the current year, which affected the profitability of the company (analyzed later).
The current year showed an increase in the liquidity position of the company. The current ratio increased by 21% in FY09. It increased from 4.37x in FY08 to 5.29x in FY09. This has resulted because of a greater proportion increase of current assets with respect to current liabilities.
The reason for this increase could be credited to the following. There was a considerable increase of trade debts (receivables) in FY09, a 41% increase shown in FY09. Similarly other sub-category of current assets too showed a rising trend such as deposits and short-term payments showed a 123% increase in the current year, then short-term investments increased from Rs 3.113 billion to Rs 5.11 billion in FY09. Loan advances too showed an increase of approximately 95%.
Considering the other side of the balance sheet, the current liabilities has not shown a proportionate increase compared to current assets. There has been a decrease in the provisions of damage claims, which shows the effectiveness of the company's performance as they are able to complete their voyages with incurring less claimable damages. However, if we see the industry average, PNSC has been able to manage their liquidity above the industry level, which ranges from 1.72-2.32x comparing different companies. This shows that PNSC has not utilized their current assets up to the mark and has kept idle assets, which could be utilized in other areas to generate revenue.
Debt management has shown a declining trend for FY09. Considering our first variable, which is debt to asset ratio. PNSC has maintained 0% gearing ratio. There has been no debt taken by PNSC in FY09. This shows that the investment made to the assets are purely equity base or the debt has been repaid. This has been a good performance compared to the industry average of other companies. The other variables such as long-term debt to equity also shows the same result as there is nil gearing, mentioned above. The similar result can be calculated for debt to equity section. The company is able to continue its declining trend of debt management and has able to achieve nil gearing in FY09.
However considering the TIE ratio, there has been an increase in TIE ratio (56.30 in FY09 from 20.93 in FY08). This has been because of the substantial decrease in financial costs or interest expense for the year FY09. It decreased by 69% in FY09. This has resulted due to ability of the company to pay off its debt in FY09 and has no outstanding debt in the current year. This also shows the conservative nature of the company.
Now coming to the industry average, debt management of PNSC has been performing well compared to other companies. The gearing ratio for the industry would normally stand between 20-45%, however PNSC has nil gearing for the current year.
Considering the profitability of PNSC in FY09, there has been a mixed trend in certain ratios calculated. First the gross profit margin, there has been a decrease from 32.33% in FY08 to 26.69% in FY09. This is basically attributed to an increase in direct fleet expenses incurred by the company. This considerable increase has resulted in lower gross profit margin in FY09.
Coming to the net-profit margin, we can see the same trend as it is for gross profit margin. It decreased from 22.7% to 20.16% in FY09. This again can be seen as the general and other expenses increased in a great proportion to the revenues earned. Though the financial costs were reduced, it couldn't play much role in increasing the net profit as huge expenses were incurred. The major sub-category that showed an increase in the direct expenses was the fuel expenses which showed a 4.3% and claims which showed a 33% increase in FY09.
Then the next ratio is return on asset, which on the other hand showed an upward trend. The ROA increased from 10.88% in FY08 to 12.59% in FY09. This shows how effectively company manages its assets employed and how much return do they get on the assets. Though its low compared to previous years, it has still showed a slight increase in the current year, mainly because of the net-profit increase with a less proportionate increase in assets.
ROE also showed an increase in FY09. It raised from 12.81% in FY08 to 14.61 in FY09. The increase in net-profit superceded the growth in equity section. Hence the results showed an upward trend. This also shows that the performance of the company has been on a decline for the past years, however they have shown signs of recovery this year, by effective management of their resources which have resulted in their ROA as well as ROE.
Considering the industry average, PNSC more or less stayed on the line with industry when it comes to the profitability. Some companies even posted loss such as Maersk, however PNSC despite such turbulent economy conditions post a growth in sales. The only part where PNSC faltered where the expenses which it incurred heavily in FY09.
Considering the TATO ratio and sales/equity, we see an increasing trend for both ratios. TATO has increased from 48% in FY08 to 62% in FY09. And the sales/equity too showed an upward trend in FY09. It increased from 56% to 72% in FY09. This shows that PNSC has improved its asset management ability in the current year, as they are able to efficiently use their resources to generate volume revenues in FY09. Such performance has led to greater name for the company in the industry.
The third ratio has also showed the same increasing trend as the previous two did. The ITO (Inventory Turnover Days): PNSC has shown a quite improvement in this area. Inventory turnover shows how much days does the company takes to sell off its inventory.
The ratio increased from 15.40 days in FY08 to 14.44 days in FY09. Though it has been a deteriorating trend for the past 3 years, it showed a sign of recovery in FY09. PNSC took extra days in selling off their inventory because of large inventory holding in previous years. This reduced, as there has been a decline in the holding of inventory by 6.5%. Such improvement can lead to the performance that was showed in previous years.
Marketability of PNSC showed a huge decline over the past year. The market price has nearly halved in FY09. This is because the company has been facing constrains in their profitability for past 2-3 years. Considering the earning per share, there has been an increase in this ratio from Rs 18.54 to Rs 19.54 in FY09, this is basically due to an increase in the net-profit seen in the current year. Moreover dividend per share also saw a rise, as there was 30% cash dividend announced this year, this increased the total cash dividend paid out this year, hence DPS increased from Rs 3.10 to Rs 4.10.
However, the biggest slum could be seen in price-earning ratio, the traders are not ready to higher prices for the shares of PNSC in the market, because of severe effects in profitability and their expenses which constraints their growth in income. Therefore there was a decline of Rs 5 to Rs 2.4 in FY09.
FUTURE OUTLOOK
In line with PNSC's expansion/replacement plans, the Corporation acquired two Aframax Tankers. The first, named MT Lahore was delivered in February 2010, and the second MT Karachi was delivered in April 2010. In addition, PNSC is actively working on an acquisition plan to add five more dry cargo vessels to its fleet, to replace the vessels scrapped in the last year.
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].