PAKISTAN NATIONAL SHIPPING CORPORATION - Analysis of Financial Statements Financial Year 2005-1Q Financial Year 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 worldwide 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 2007-200 2008-2009 2009-2010
Freight tons Freight tons Freight tons Freight tons Freight tons Freight 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 (1QFY11)
PNSC is the dominant player in sea trade in Pakistan and according to the World Bank the corporation is 'deterring investment and preventing a level playing field.' The Government owns 89.1% of the shares while private investors and institutions own 7.3% and 3.6% shares respectively.
The global shipping industry has seen a steady recovery since the 2008 economic recession. The Baltics dry index, an international benchmark of shipping rates has seen substantial volatility over the past year. During 1QFY11, the rates rose substantially on the back of higher economic activity. PNSC was a beneficiary of this increase in rates and saw double-digit rise in sales and profits during the period.
Sales rose to Rs 2,157.780 million in first quarter of the current financial year marking a 25% increase over same period last year. This was on the back of near doubling of revenue from its oil tankers, which offset a decline in revenue from all other vessels.
EPS stood at Rs 2.66 compared to Rs 1.07 in the same period last year. Net profit rose by an astounding 148% over the same period last year to Rs 351.557 million. Gross Profit Margin increased to 25% from 15% in same period last year. Similarly, Net Profit Margin increased to 16% from 8% in the same period last year. This was mostly due to the 25% rise in sales (due to higher freight rates) against a nominal 10% rise in costs.
The company has a Debt-to-Equity ratio of 0.07 and is thus highly unleveraged. The company is in the process of acquiring several new vessels to expand its operations. It is likely to rely on internal financing as well as raising substantial debt to finance these purchases. The company announced no interim dividends during the first quarter, consistent with its long-standing policy of retaining cash.
Due to PNSC's low financial leverage and the low volumes of shares owned by the public, the beta is 0.772, signifying that its stock is less volatile than the broader KSE-100.
Going forward profitability is dependent on the freight rates which have shown a decline since the company's first quarter ended on September 30, 2010. The company is undergoing massive expansion and it is likely that EPS will rise substantially over the medium term as new vessels are inducted into the fleet.
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 tonnes.
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 2,312 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 and 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 PNSC's debt is concerned, it is observed that its debt to asset and debt to equity ratios have fallen to 0.08 and 0.09 respectively. The reason being the 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 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 5 years. Market value on the other hand has been recorded as high as Rs 103.62 in FY05 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 10 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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