Shipping: PAKISTAN NATIONAL SHIPPING CORPORATION - Analysis of Financial Statements Financial Year 2008 - 2001 Q 2010
OVERVIEW (December 23 2009): Pakistan National Shipping Corporation (PNSC) 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 the federal government and two directors appointed by the shareholders. The group is principally engaged in the business of shipping, including the charter of vessels, transportation of cargo, and other related services.
It is also engaged in renting out its properties under the long-term lease agreements. Its registered office is situated at PNSC Building Moulvi Tamizuddin Khan Road, Karachi. PNSC is an autonomous body, which functions under the control of Ministry of Ports and Shipping, Government of Pakistan. It manages a fleet of 14 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] and 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, three oil tankers, and one bulk carrier. In FY06, MV Kaghan, a bulk carrier was added to its 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 G.R.T (gross register tonnage representing the total internal volume of a vessel) and 179,307 N.R.T (net register tonnage is the volume of cargo the vessel can carry; ie the gross register tonnage less the volume of spaces that do 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 West with regular calls at Karachi, Colombo, Singapore, Xingiang, Shanghai, Yokohama, Osaka and Busan.
Sector 2008-2009 2007-2008 2006-2007
Freight Tons Freight Tons Freight Tons
Million Million Million
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
RECENT RESULTS 1Q10
The PNSC Group achieved a turnover of Rs 1,732.951 million (including Rs 585.349 million from PNSC as compared to Rs 3,562.810 million (including Rs 1,385 million from PNSC) for the similar period last year. The decline in freight earnings was as per expectations, due to global shipping crisis. Gross profit for the period ended September 30, 2009 was Rs 267.086 million as against Rs 535.55 million for the same period last year.
The chartering revenues fell down by 61.11% to Rs 703 million, while the freight revenues fell down by 41.1% to Rs 1013 million. As per decline in the revenue, the fleet expenditures also declined by nearly 50%. Despite this, the gross profit declined by 50% to Rs 267 million. Other administrative expenses showed an increasing trend due to the inflationary pressures, however, the financial charges declined substantially. PAT was recorded at Rs 141.5 million. The future outlook is fairly flat, as the international recession seems far from over with Dubai sending new waves of shocks in the slowly recovering global economy.
The consolidated revenue for PNSC group for the 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 tons 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 7.25bn to Rs 8.39bn 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.
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 3.113bn to Rs 5.11bn 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 provisions of the 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 FY'09. 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-based, 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. Net profit margin also showing the same trend as it is for the 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, but couldn't play any role in increasing the net profit as the company incurred huge expenses. The major sub-category that showed an increase in the direct expenses was the fuel expenses which showed a 4.3% and the 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 it's low compared to the previous years, it has still shown 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. The 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 witnessed 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. This is the one major concern for the company as it has reduced its market worth for 2 consecutive years, which has dented upon the reputation of the company. Moreover, investors are not ready to invest because of the reasons mentioned above; hence the company needs to revive the trust of the investors by effectively managing its resources and assets.
The company has invested in new vessels and dispatched the old ones. This shows that the new vessels can be used effectively to show better performance in future and earn higher revenues. One of the concerns that still remain in light is the financial meltdown decreasing the demand for freight delivery. This has greatly dented the profitability of the company.
However global recovery is on the rise and the Pakistan economy has also shown a sign of recovery, which is a good sign for the company and the company can assure themselves of better business opportunities in future. Global recovery can also mean the use of Gwadar port in future. PNSC can capitalize on this opportunity for their business activity.