Shipping: PAKISTAN NATIONAL SHIPPING CORPORATION - Analysis of Financial Statements Financial Year 2005 - 1H 2011

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 of 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. The Group's registered office is situated in PNSC Building Moulvi Tamizuddin Khan Road, Karachi.
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 manages a fleet of 9 ships (consisting of bulk carriers, Oil tankers, and Combi-Vessels), 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) Limited
-- Hyderabad Shipping (Private) Limited
-- Islamabad Shipping (Private) Limited
-- Khairpur Shipping (Private) Limited
-- Johar Shipping (Private) Limited
-- Lalazar Shipping (Private) Limited
-- Makran Shipping (Private) Limited
-- Malakand Shipping (Private) Limited
-- Multan Shipping (Private) Limited
-- Sargodha Shipping (Private) Limited
-- Sibi Shipping (Private) Limited
-- Swat Shipping (Private) Limited
-- Kaghan Shipping (Private) Limited
-- Pakistan Co-operative Ship Stores (Private) Limited
-- Lahore Shipping (Private) Limited [Formerly Pak Nippon Car liner (Private) Limited]
-- Karachi Shipping (Private) Limited [Formerly National Tanker Company (Private) Limited]
-- Quetta Shipping (Private) Limited
The operations of PNSC include world-wide tramping and chartering operations. It also operates three AFRAMAX tankers on regional routes. The company manages the following fleet of 10 Multi Purpose Cargo Ships, 3 Oil Tankers, and 1 Bulk Carrier.

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Sector             2004-2005  2005-2006  2006-2007  2007-2008  2008-2009  2009-2010

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                    Freight    Freight    Freight    Freight     Freight    Freight

                      tons        tons       tons       tons       tons        tons

                    million     million    million    million    million    million

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Liquid                8.14        8.19       7.68       7.56       7.67        7.23

Dry Bulk              0.11        0.26       0.34       0.96       0.27        0.23

Trade Area- East      0.45        0.47       0.47       0.53       0.43        0.21

Trade Area- West      0.51        0.49       0.47        0.4       0.31        0.26

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RECENT RESULTS (1HFY11)
Revenues fell down to Rs 899 million in 1H11 as compared to Rs 1229 million in the same period last year, major decline being in chartering revenue. Accordingly, the fleet expenditures have declined to Rs 404 million as compared to Rs 561 million in the same period last year. Gross profit was lower at Rs 488 million as compared to Rs 660 million in the same period last year. Administrative and general expenditures along with financial charges were higher at Rs 597 million as compared to Rs 390 million in the same period last year. Along with this, other operating income was considerably lower at Rs 365 million in 1H11 as compared to Rs 541 million in the same period last year due to lower income from bank deposits. Although dividend income has seen a substantial increase, it failed to overcome the overall decline in operating income. Due to all the above factors, PAT was considerably lower at Rs 238 million as compared to Rs 537 million in the same period last year.
FINANCIAL PERFORMANCE
The Consolidated Revenue for the group stood at Rs 7.85 million in FY10 compared to Rs 11.47 million in 2009 due to depressed freight rates and global economic downturn. It had fallen by 31.8%. The major chunk of the revenue that the Company generated came from its shipping business. Out of its freight, income from combi vessels and bulk carrier fell drastically by 40.5% and 62.5% respectively. Amongst the chartered vessels, income from oil tanker stood at Rs 5.24 million in 2010 compared to Rs 1.44 million in 2009. The number of trips declined to 538 from 637 and cargo declined to 7.921 million freight tones as compared to 8.684 million freight tones.
Total expenditure for the year 2010 decreased by 50.52%. The cost of trading was composed of direct and indirect fleet expenses. Direct expenses, which formed a greater portion of Direct Expense, decreased by approximately Rs 2 million. Gross profit margin decreased in 2010 to 19.30% from 26.3% in 2009. Amongst administrative and general expenses, salaries and allowances had swollen in the current year due to contribution of Rs 9.113 million towards Provident Fund. In addition, provision against doubtful debts had increased most considerably by 137.58%. Finance cost was half of what it was in 2009.
Due to decline in volume along with lower margins, PAT amounted to Rs 967 million in 2010 as compared to Rs 2312 million in 2009. As a result, net profit margin plunged in 2010 from 20.16% to 12.33%.
During the year under review, PNSC and its vessel-owning subsidiary companies together performed a total of 538 voyages and lifted 7.922 million freight tons in 2010 compared to 637 voyages and 8.684 million freight tons in the year 2009.
Return on assets for PNSC fell in 2010 as PAT fell by 58% while assets increased by 6% only. Return on common equity on the other hand, saw a decline from 14.03% to 5.39%.
In the year under consideration the current assets fell by 58.5% to an amount of Rs 3.769 Billion. The major decreases were seen in Trade debts (-42% as compared to FY09), loans & advances (-49.4% compared to FY09) and short-term investments (-76% compared to FY09). Other than that cash and bank balances fell by 40.9%. The level of liquidity remained within its average value as compared from Company's history but it decreased from a high of 5:1 ratio to a low of 3:1.
As far as how PNSC manages its debt, we observe that its debt to asset as well as its debt to equity ratios have fallen to 0.08 and 0.09 respectively. The reason being that liabilities for the year 2010 have decreased while assets have shown an increment. Secondly, debt to equity ratio has been continuously declining since 2003 onwards which is a positive sign indicating that the company has a conservative attitude in using debt financing policy.
Long-term debt to equity has decreased drastically from as high as almost 79% in 2005 to as low as a meagre 1.6% in 2010 telling us that the company in its past few years has well managed its debt especially long-term debt.
Times Interest Earned ratio is quite impressive for the current period 2009-10 where it has raised from 49.06 to 69.32.
In the year 2010, PNSC has shown a lower asset turnover ratio from 0.62 in 2009 to 0.40 in 2010. The reason behind this was that 2010 was an unfavourable year for PNSC. Sales revenue was 32% less than the recorded sales in 2009.
Earnings per share had decreased from 17.51 to 7.33 due to lower net income recorded in 2010 while number of outstanding shares remained constant at 1.32 billion. Dividend per share has been low and consistent throughout the 5years. Market Value on the other hand has been recorded as high as Rs 103.62 in FY'05 and as low as 39.88 in FY10. As a result Price Earnings ratio saw a rise from 2.6 in 2009 to 5.4 in 2010.
FUTURE OUTLOOK
PNSC is in the process of replacing its old vintage vessels with under ten years old second hand Japanese built vessels in Phase I and then shall embark upon ordering new built/buying resale vessels in Phase II for its development/expansion programme.
PNSC envisions joint ventures with local private business partners and regional countries in both dry and wet cargoes. It is also seeking status of shipping agency for all government/semi-government cargoes. There are expectations of expansion in its fleet and trade.
COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
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Copyright Business Recorder, 2011