Financial Statement

Analysis of
the Sui Southern Gas
Company
For the Financial year 2009-2010
Course
Analysis of Financial Statements
Course Instructor
Mr. Abdul Ghaffar

Group Members
Murtaza Asgher Ali
Muhammad Faraz
Umer
Yousuf Hatim
2
Contents

Contents
................................................................................................................................... 3
Industry information...................................................................................................4
Liquefied Petroleum Gas (LPG)................................................................................5
Compressed Natural Gas (CNG)..............................................................................6
Liquefied Natural Gas (LNG)....................................................................................6
Company Information – Sui Southern Gas Company..................................................7
Analysis of director’s report.......................................................................................9
Analysis of Auditor’s Report.....................................................................................13
Analysis of Profit and Loss statements.....................................................................15
Ratio Analysis........................................................................................................15
Working Capital
........................................................................................................................... 15
Activity Ratios....................................................................................................15
Liquidity Ratios.................................................................................................. 18
Solvency Ratios..................................................................................................20
Profitability Ratios..............................................................................................21
Market Ratios.....................................................................................................23
Analysis of the Statement of Changes in Equity
................................................................................................................................. 26
Computation of Growth Rate of Dividend..............................................................26
Computation of Fair Value.....................................................................................27
Computation on the basis of Break-up Value (Book Value)................................27
Computation on the basis of Earnings...............................................................27
Conclusion................................................................................................................ 29

3
Industry information

The supply of gas has exhibited an increase of 1.6 percent during July-March 2009-
10. The increase in supply owes to higher production of 1.6 percent in natural gas
during the period under review. Due to this increase in availability of natural gas,
the overall consumption of gas remained higher during the period. Furthermore, the
sector wise consumption of gas suggests that the household, commercial, fertilizer
and transport sector witnessed positive growth in consumption of gas during 2008-
09.

More recently, with the exception of cement and power sectors, many major sectors
have witnessed positive growth rates during July-March FY10 (see Table 13.4). The
consumption of gas by industry has witnessed a significant increase of 5.3 percent
during July-March 2009-10 especially after the decline of 1.1 percent during 2008-
09. The increase in industrial consumption owes to rise in domestic demand for
manufacturing production during the period.

The maximum decline of 72.7 percent has been witnessed in cement sector’s gas
consumption on the back of contraction in its external demand during the period
along with the switch over to coal for production. Decline in power sector’s gas
consumption is based on the inter-corporate circular debt reason. On the other
hand, gas consumption in the transport sector increase due to shift from imported
fuel oil to relatively cheaper source of gas during Jul-March 2009-10.

The importance of natural gas to the country has been increasing rapidly. As on
January 1st 2010, the balance recoverable natural gas reserves have been
estimated at 28.33 trillion cubic feet. The average production of natural gas during
July‐March 2009‐10 was 4,048.76 million cubic feet per day (mmcfd) as against
3,986.53 (mmcfd) during the corresponding period of last year, showing an increase

4
of 1.56 percent. Natural gas is used in general industry to prepare consumer items,
to produce cement and to generate electricity. In the form of CNG, it is used in
transport sector and most importantly to manufacture fertilizer to boost the
agricultural sector. Currently 28 private and public sector companies are engaged
in oil and gas exploration & production activities. Company wise total natural gas
production is presented in Table 13.8.

Liquefied Petroleum Gas (LPG)

Liquefied Petroleum Gas (LPG) contributes about 0.7 percent of the country’s total
energy supply mix.

The main objective to enhance the use of LPG is to stop deforestation in the areas
where the supply of natural gas is technically not viable. As a result of
government’s investor friendly policies, LPG supplies have gradually increased. The
corner stone of LPG Policy is to ensure enhanced availability of LPG at a competitive
price to the end consumer. LPG marketing companies have imported around
62,920.3 MT of LPG during July‐March, 2009‐10.

5
Compressed Natural Gas (CNG)

In an effort to reduce dependency on other fuels as well as to improve the

environment, the use of CNG in vehicles is being encouraged. Due to existing price
differential between CNG & Petrol, vehicles are being converted to CNG and
approximately 2.0 million vehicles are using CNG in the country. The number of
CNG Stations is ever increasing with an increase in the vehicle conversion rate
resultantly there are about 3,116 established CNG Stations operational in the
country. With an investment of over

Rs.70 Billion, Pakistan at present is the largest CNG user country in the world. In
addition, the

Government has recently approved the project of “Private‐Public Partnership Based

Environment

Friendly Public Transport System for Major Urban Centers of Pakistan” which is
being actively pursued with the provincial governments leading to gradual phase
out of diesel operated intra‐city urban transport to achieve import substitution.

Liquefied Natural Gas (LNG)

The Government is encouraging LNG import by the private sector. Accordingly,

Pakistan Mashal LNG

Project (PMLP) was conceived to cater for the energy need of the country as
envisioned in the 25 year

National Energy Security Plan and identified in the Energy Gap Coverage Strategy.

PMLP is to be set‐up on an integrated basis whereby a private sector project

developer will manage the entire supply chain including procurement and shipping
of 3.5 million tons per annum LNG, construction and operation of an onshore LNG
receiving terminal, and delivery of 500 MMCFD regasified LNG to the SSGC’s system
in Karachi. Mashal (Phase‐I) will be based on Floating Storage and Regasification
Unit (FSRU).

6
Company Information – Sui Southern Gas Company

The Sui Southern Gas Company (SSGC) (Formerly Sui Gas Transmission Company
Limited) was formed in 1954. The Company in its present shape was formed on
March 30, 1989 following a series of mergers of three pioneering companies,
namely Sui Gas Transmission Company Limited, Karachi Gas Company Limited and
Indus Gas Company Limited.

Sui Southern Gas Company is Pakistan's leading integrated gas company. The
company is engaged in the business of transmission and distribution of natural gas
in southern part of Pakistan. Sui Southern Gas Company transmission system
extends from Sui, Baluchistan to Karachi, Sind.

The company also owns and operates the only gas meter manufacturing plant in
the country, under an agreement with Schlumberger Industries, France. The
Company is listed on the Karachi, Lahore and Islamabad Stock Exchanges.

The company is engaged in the business of transmission and distribution of natural

gas besides construction of high pressure transmission and low pressure
distribution systems.

SSGCL transmission system extends from Sui in Baluchistan to Karachi in Sind

comprising over 3,220 KM of high pressure pipeline ranging from 12 - 24" in
diameter. The distribution activities covering over 1200 towns in the Sind and
Baluchistan are organized through its regional offices. An average of about 388,828
million cubic feet (MMCFD) gas was sold in 2009-2010 to over 2.2 million industrial,
commercial and domestic consumers in these regions through a distribution
network of over 37,000 Km. The company also owns and operates the only gas
meter manufacturing plant in the country, having an annual production capacity of
over 750,000 meters.

The Company has an authorized capital of Rs. 10 billion of which Rs 6.7 billion is
issued and fully paid up. The Government owns the majority of the shares which is
presently over 70%

7
The Company is managed by an autonomous Board of Directors for policy
guidelines and overall control. Presently, SSGC's Board comprises 14 members. The
Managing Director/Chief Executive is nominee of Government of Pakistan (GOP) and
has been delegated with such powers by the Board of Directors as are necessary to
effective conduct the business of the company.

8
Analysis of director’s report

We are pleased to present and share with you, our valued shareholders, the
Company’s 56th Annual Report and the audited financial statements for the year
ended 30 June 2010, together with the Auditor»s Report thereon, including
highlights of major achievements, new initiatives and other notable aspects of the
Company’s operations.

With a distribution and transmission network spread over 40,000 kms, serving more
than 2.24 million customers, SSGC can be easily rated as one of the largest
integrated natural gas companies in the region. By winning the ‘Brands of the Year’
Award this year, the Company has once again proved that it is the best utility
company in the country. Your company has maintained a strong national presence
with its ever-growing customer base by providing prompt and credible service that
can be compared with any world class utility.

As our valued shareholders are well aware, in numerous public hearings held by Oil
and Gas Regulatory Authority (OGRA) over the past five years for revenue
determination, SSGC strongly pleaded its case for relaxing the stringent
Unaccounted for- Gas (UFG) and HR benchmarks the former had imposed on it which
also included recognition of non-operating income from non-licensed activities. The
unrealistic benchmarks set by OGRA made it extremely difficult for the Company to
maintain its infrastructure. As a result, the Company’s profits were largely eroded
because of higher UFG which invoked heavy penalties. OGRA’s timely action gave
your Company a much needed fiscal space.

During the recent OGRA hearing spread over two days in Islamabad to determine
the total revenue requirement for FY 2009-10, your Company formed a formidable
team, which through valid commercial and legal explanations, was able to convince
the Authority, thus resulting in a win-win situation for SSGC and its customers and
shareholders. OGRA’s positive evaluation of this long pending macro issue which led
to a revision of Unaccounted-for-Gas (UFG) benchmark and recognition of the
Company»s non-operating income, is a historic decision and deserves
commendation.

9
Consequent to OGRA’s landmark decision, the Company’s after tax profit grew to Rs.
4,399 million as compared to Rs. 256 million in the last fiscal year.

The timely OGRA determination without increasing customer tariffs will help your
Company generate substantial internal cash flow for rapid implementation of
rehabilitation plans as well for constructing expensive infrastructure for imported
LNG and transnational piped gas. It will also facilitate the Company in implementing
the 5-year UFG reduction plan that will improve profits and make available much
needed saved gas to industries and the power sector. While OGRA»s determination
this year will result in lesser penalty and, consequently, higher profits, your
Company realizes that controlling UFG remains a huge challenge. In fact, if the
planned steps are not taken immediately to plug and repair pipeline leakages and
adopt effective measures to eliminate gas theft while at the same time rectify some
major defects in meters and meter reading, the menace of ever increasing UFG will
only worsen in the days to come. We need to therefore exercise maximum restraint
and plough back our increased profits into much greater productive use for the
health of the Company.

The Company’s Board of Directors has supported the management’s 5-year UFG
plan to bring down the losses. The plan envisages rehabilitating 5,750 kms of supply
mains, augmenting 713 kms pipelines and rectifiying underground and overhead
leakages. The management undertook a massive organizational restructuring plan
with the support of the Board to put the utility back on the road to growth and
profitability. To rationalize the re-structuring process, two operational business units,
each headed by a DMD, have been created. Such a system promises better control
and accountability as we enter the next fiscal year more determined than ever to
tackle the nagging issue of UFG with a renewed plan and unparalleled vigour.

During the year, the Company also held productive meetings with World Bank
(Energy Mission) whereby it was able to convince the Bank with detailed proposals
to provide a loan of US$115 million for gas pipeline and affiliated infrastructure
improvement.

On the other hand, in the year under review, the Company completed a number of
transmission and distribution projects including installation of new SMSs and
upgradation of old ones. These projects have resulted in minimizing UFG to an
appreciable extent.

10
The Distribution Department demonstrated an inventive approach by designing and
constructing in-house automated pressure management system for managing
pressures on its Town Border Stations with the objective of curbing gas losses.

In accordance with the directives of the Government of Pakistan the Company

formulated a plan to install 5 LPG Air-mix plants in remote and inaccessible regions
in its franchise areas. The Noshki plant was commissioned in July 2010 whereas the
construction of plants at KotGhulam Muhammad in Sindh and Surab in Balochistan is
moving as per schedule.

The Customer Services Division contributed immensely in pinning down UFG by

surpassing the PUG meter replacement target of 59,740 it had set for itself by
replacing 85,000, a record 42% increase. Its Billing Department contributed a
volume of 2.5 bcf towards UFG reduction while the Recovery Section further
intensified campaign against gas bill defaulters. Also gas sales continued and gas
bills to a customer-base of 2.2 million were raised regularly with a monthly sale of
around Rs. 10 billion.

The Surveillance and Monitoring Department also played a pivotal role in cracking
down on gas theft through regular raids while taking practical steps such as
installation of cyber locks and setting up of ultrasonic meters to help monitor meter
reversals. The Measurement Department also took new initiatives for curbing gas
losses by installing Differential Pressure Gauge and advanced Remote Monitoring
System on all SMSs to detect gas theft.

During the year, the Meter Manufacturing Plant produced a record 745,000 gas
meters. In its pursuit of continuous technological enhancement, the Plant gave
special attention to the development of Pakistan-specific V-3 meters. Plans are afoot
to produce ACD G-1.6 gas meters which will replace the existing G-1.6 meters.

Through Technical Advisory Services (TAS), your Company continued to contribute

towards energy efficiencies through co-generation and combined cycle systems in
the design of 100 captive power plants, leading towards anticipated annual gas
savings of around 34 mmcfd.

11
This year as devastating floods ravaged the country, SSGC exhibited a heightened
sense of corporate responsibility by carrying out a massive relief campaign. The
campaign involved shipping food stuff and medicines to especially set-up relief
camps in Shikarpur, Dadu, Larkana and Thatta where the dedicated Company staff
along with a team of doctors and paramedics has so far taken care of more than
12,000 flood affectees. A Crisis Management Cell has been created, which, on a
round-the-clock basis, is monitoring the overall flood situation as well as the status
of relief camps. I deeply commend those dedicated company personnel who have
been involved in this extraordinary service beyond the call of their normal duties.
They have done the company proud.

This year»s theme ‘Surmounting Challenges, Together We Can» aptly sums up the
Company»s action plan to methodically tackle the infrastructural and financial issues
facing the Company. As we embark into the next fiscal year, the Company’s human
resource - its most valuable asset - is all set to work collectively towards
consolidating the Company’s position as Pakistan’s premier utility.

12
Analysis of Auditor’s Report
We have audited the annexed balance sheet of Sui Southern Gas Company Limited
(‘the Company’) as at June 30, 2010 and the related profit and loss account,
statement of comprehensive income, cash flow statement and statement of
changes in equity together with the notes forming part thereof, for the year then
ended and we state that we have obtained all the information and explanations
which, to the best of our knowledge and belief, were necessary for the purposes of
our audit.

It is the responsibility of the Company’s management to establish and maintain a

system of internal control, and prepare and present the above said statements in
conformity with the approved accounting standards and the requirements of the
Companies Ordinance, 1984. Our responsibility is to express an opinion on these
statements based on our audit.

We conducted our audit in accordance with the auditing standards as applicable in

Pakistan. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the above said statements are free of any
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the above said statements. An audit also
includes assessing the accounting policies and significant estimates made by
management, as well as, evaluating the overall presentation of the above said
statements. We believe that our audit provides a reasonable basis for our opinion
and, after due verification, we report that:

(a) In our opinion, proper books of account have been kept by the
Company as required by the Companies Ordinance, 1984;

(b) In our opinion:

(i) The balance sheet and profit and loss account together with the notes
thereon have been drawn up in conformity with the Companies Ordinance,
1984, and are in agreement with the books of account and are further in
accordance with accounting policies consistently applied, except for the
changes as stated in note 3.1 (a) to the financial statements, with which we
concur;

(ii) The expenditure incurred during the year was for the purpose of the
Company’s business; and

(iii)The business conducted, investments made and the expenditure incurred

during the year were in accordance with the objects of the Company;

13
 (c) In our opinion and to the best of our information and according to the
explanations given to us, the balance sheet, profit and loss account, statement
of comprehensive income, cash flow statement and the statement of changes
in equity, together with the notes forming part thereof conform with approved
accounting standards as applicable in Pakistan, and, give the information
required by the Companies Ordinance, 1984, in the manner so required and
respectively give a true and fair view of the state of the Company’s affairs as
at June 30, 2010 and of the profit, total comprehensive income, its cash flows
and changes in equity for the year then ended; and

(d) In our opinion, no Zakat was deductible at source under the Zakat and
Ushr Ordinance, 1980 (XVIII of 1980).

(e) As more fully explained in note 26.1 to the unconsolidated financial

statements, amounts receivable from Karachi Electric Supply Company
Limited, Jamshoro Power Generation Company Limited and Sui Northern Gas
Pipelines Limited aggregated to Rs. 35,912 million including interest accrued
on their balances and amounts of Rs. 37,084 million is payable to Oil and Gas
Development Company Limited, Pakistan Petroleum Limited, Government
Holding (Private) Limited including interest on their balances. The settlement
of these debts is dependent on resolution of inter corporate circular debts. In
this matter, our opinion is not qualified.

The financial statements of the Company for the year ended June 30, 2009 were
audited by another firm of Chartered Accountants, who in their audit report dated
September 29, 2009, expressed an unqualified opinion, but included two
paragraphs of emphasis.

14
Analysis of Profit and Loss statements
Ratio Analysis
Working Capital

Year 2010 2009 2008

Current Assets 67,834,7 61,032,6 36,279,1
86 00 68
Current 66,631,2 57,923,0 33,455,8
Liabilities 97 04 15
Working 1,203,4 3,109,5 2,823,3
Capital 89 96 53

Interpretation - Working capital measures how much in liquid assets a company

has available to build its business. The number can be positive or negative,
depending on how much debt the company is carrying.it is clearly seen that the
working capital is declining with the passage of each financial year. It was only in
2009 when the working capital is the highest.

Activity Ratios

Inventory Turnover

Year 2010 2009 2008

Cost of Goods 104,936, 108,709, 69,238,2
Sold 801 660 36
Average 2,342,93 1,930,26 1,530,74
Inventory 4.5 0 6.5
Inventory 44.79 56.32 45.23
Turnover

Inventory Turnover in days

Year 201 200 200

0 9 8
Days per Year 360. 360. 360.
00 00 00
Inventory Turnover 44.7 56.3 45.2
9 2 3
Inventory Turnover 8.04 6.39 7.96
in Days

Interpretation - Inventory turnover reflects how frequently a company flushes

15
inventory from its system within a given financial reporting period. The measure
can be computed for any type of inventory—materials and supplies used in
manufacturing or service delivery, work in progress (WIP), finished products, or all
inventory combined. Inventory turnover is approximately the same in 2008 and
2010, while the year 2009 was comparatively good where the turnover increased to
56.32 and it the cycle completed in around 6.39 days.

Account Receivable Turnover

Year 2010 2009 2008

Net Sales 107,736, 108,151,0 76,642,39
781 87 9
Average Receivable 38,191,9 26,306,61 18,053,05
36 6.5 0.5
Account Receivable 2.82 4.11 4.25
Turnover

Account Receivable Turnover in days

Year 201 200 200

0 9 8
Days per Year 360. 360. 360.
00 00 00
Receivable Turnover 2.82 4.11 4.25
Receivable Turnover 127. 87.5 84.8
in Days 62 7 0

Interpretation - SSGC being a monopolistic company and the only supplier of gas
in the southern region should have a sustained receivable turnover. The turnover
ratio keeps worsening as the time passes by, but in 2010 the turnover in days
peaked too much (127 days from 87 days) and this is surely not anything good.

Account Payable Turnover

Year 2010 2009 2008

Purchases 105,236,4 109,235, 69,514,5
80 330 93
Average Account 49,909,01 40,462,1 27,809,4
Payable 5.5 87 79
Payable Turnover 2.11 2.70 2.50

Payment period in days

Year 201 200 200

16
 0 9 8
Days per Year 360. 360. 360.
00 00 00
Payable Turnover 2.11 2.70 2.50
Payment Period In 170. 133. 144.
Days 73 35 02

Interpretation -A short-term liquidity measure used to quantify the rate at which

a company pays off its suppliers. In case of SSGC, where the receivable turnover in
days worsen by the passage of year so does the payable turnover. In 2010, it took
them around 171 days to clear of supplier payments.

Fixed Asset Turnover

Year 2010 2009 2008

Net sales 107,736, 108,151, 76,642,39
781 087 9
Average Fixed 41,223,0 37,472,5 33,527,76
Asset 83 00 0.5
Fixed Asset 2.61 2.89 2.29
Turnover
Interpretation - A higher fixed-asset turnover ratio shows that the company has
been more effective in using the investment in fixed assets to generate revenues.
Year 2009 was quite better than the other two years where the FA turnover stays
highest at 2.89. It is fairly acceptable in 2010 too.

Total Asset Turnover

Year 2010 2009 2008

Net sales 107,736,78 108,151,08 76,642,399
1.00 7.00 .00
Average Total 105,656,79 86,128,384. 66,811,363
assets 6.00 00 .50
Total Asset 1.02 1.26 1.15
Turnover

Interpretation - Asset turnover measures a firm's efficiency at using its assets in

generating sales or revenue. There isn’t any significant difference between the total
asset turnover ratios. It peaked in the year 2009 and then declined.

Operating Cycle

Year 201 200 200

0 9 8
Inventory Turnover in 8.04 6.39 7.96
Days

17
Receivable Turnover in 127. 87.5 84.8
Days 62 7 0
Operating Cycle 135. 93. 92.
66 96 76

Interpretation - Operating cycle is the average length of time between when a

company purchases items for inventory and when it receives payment for sale of
the items. SSGC has an inclining operating cycle; it was 135 days in 2010.
Comparatively much higher than in both the years.

Cash Cycle

Year 201 200 200

0 9 8
Operating Cycle 135. 93.9 92.7
66 6 6
Payment Period in 170. 133. 144.
Days 73 35 02
Cash Cycle - - -
35.0 39.3 51.2
8 9 6

Interpretation - The cash conversion cycle attempts to measure the amount of

time each net input dollar is tied up in the production and sales process before it is
converted into cash through sales to customers. SSGC has a negative cash cycle, a
good sign for investors.

Liquidity Ratios

Current Ratio

Year 2010 2009 2008

Current Asset 67,834,786 61,032,600 36,279,168
.00 .00 .00
Current 66,631,297 57,923,004 33,455,815
Liabilities .00 .00 .00
Current Ratio 1.02 1.05 1.08

Interpretation - Current ratio is a liquidity ratio that measures a company's ability

to pay short-term obligations. Current ratio is declining every year depicting the
fact that the company is gradually deteriorating its liquidity.

Quick Ratio

Year 2010 2009 2008

Current Assets 67,834,78 61,032,60 36,279,16
6 0 8

18
Inventory 2,492,774 2,193,095 1,667,425
Prepayments 182,944 110,812 267,422
65,159,06 58,728,69 34,344,32
Quick Assets 8 3 1
Current 66,631,29 57,923,00 33,455,81
Liabilities 7 4 5
Quick Ratio 0.98 1.01 1.03

Interpretation - The quick ratio measures a company's ability to meet its short-
term obligations with its most liquid assets, the higher the ratio, the better the
position of the company. Quick ratio is also declining every year depicting a loss of
liquidity.

Cash Ratio

Year 2010 2009 2008

Cash 620,884.00 1,477,155. 4,356,300.
00 00
Marketable 0.00 0.00 0.00
Securities
Current Liabilities 66,631,297 57,923,004 33,455,815
.00 .00 .00
Cash Ratio 0.01 0.03 0.13

Interpretation - The cash ratio is most commonly used as a measure of company

liquidity. It can therefore determine if, and how quickly, the company can repay its
short-term debt. The cash ration too is declining every year. It fell sharply from
2008-2009.

Cash Flow from Operations Ratio

Year 2010 2009 2008

Cash Flow from 4,876,999. - 4,827,737.
Operations 00 5,189,456. 00
00
Current Liabilities 66,631,297 57,923,004 33,455,815
.00 .00 .00
CFO Ratio 0.07 -0.09 0.14

Interpretation - The operating cash flow ratio can gauge a company's liquidity in
the short term. Due to a negative cash flow in 2009, the CFO ratio is a negative
value. Compared to the year 2008 the ratio almost halved in 2010.

19
Solvency Ratios

Debt Ratio

Year 2010 2009 2008

Total 96,687,277. 90,870,406. 61,387,778
Liabilities 00 00 .00
Total Assets 110,759,62 100,553,93 71,702,838
2.00 0.00 .00
Debt Ratio 0.87 0.90 0.86

Interpretation - A debt ratio of greater than 1 indicates that a company has more
debt than assets, meanwhile, a debt ratio of less than 1 indicates that a company
has more assets than debt. Based on this fact SSGC is maintaining a balanced
amount of debts and assets.

Debt to Equity Ratio

Year 2010 2009 2008

Long term 30,055,980 32,947,402 27,931,963
liabilities .00 .00 .00
Total SHE 14,072,345 9,683,524. 10,315,060
.00 00 .00
Debt to Equity 2.14 3.40 2.71
Ratio

Interpretation - Debt-equity ratio indicates what proportion of equity and debt

that the company is using to finance its assets. It was the highest in 2009, while
dropped sharply in 2010.

Debt to Capital Ratio

Year 2010 2009 2008

Long term 30,055,980. 32,947,402. 27,931,963
Liabilities 00 00 .00
Total Liabilities & 110,759,62 100,553,93 71,702,838
SHE 2.00 0.00 .00
Debt to Capital 0.27 0.33 0.39

Interpretation - The debt-to-capital ratio gives users an idea of a company's

financial structure, or how it is financing its operations, along with some insight into
its financial strength. The ratio is fairly strong in all three years however it declined
a little in 2010.

20
Interest Coverage Ratio

Year 2010 2009 2008

EBIT 12,029,307 4,826,487. 4,752,301
.00 00 .00
interest Expense 5,015,893. 4,409,792. 2,370,674
00 00 .00
Interest Coverage 2.40 1.09 2.00
Ratio

Interpretation - A ratio used to determine how easily a company can pay interest
on outstanding debt. Depending on this assumption, it seems that in 2010 the
company is in really good conditions to pay off its debts. All because of the high
EBIT.

Financial Leverage

Year 2010 2009 2008

Total Assets 110,759,62 100,553,93 71,702,838
2.00 0.00 .00
Total Equity 14,072,345. 9,683,524.0 10,315,060
00 0 .00
Financial 7.87 10.38 6.95
Leverage

Interpretation - The degree to which an investor or business is utilizing borrowed

money. The total equity is the highest in 2010 however it is properly balanced its
utilization in the asset side causing the ratio to decline.

Profitability Ratios

Gross Profit Margin

Year 2010 2009 2008

Gross Profit 2,799,980.0 -558,573.00 7,404,163.
0 00
Net sales 107,736,78 108,151,08 76,642,399
1.00 7.00 .00
Gross Profit 0.03 -0.01 0.10
Margin

Interpretation - A financial metric used to assess a firm's financial health by

revealing the proportion of money left over from revenues after accounting for the
cost of goods sold. The GPM was negative in 2009 due to Gross loss; however it is
on the path of regaining strength.

21
Operating Profit Margin

Year 2010 2009 2008

Operating Profit 3,388,754.0 - 2,979,911.
0 1,182,936.0 00
0
Net Sales 107,736,78 108,151,08 76,642,399
1.00 7.00 .00
Operating Profit 0.03 -0.01 0.04
Margin
Interpretation - Operating margin is a measurement of what proportion of a
company's revenue is left over after paying for variable costs of production such as
wages, raw materials, etc. SSGC’s operating profit margin showed a shortfall in
2009 however it recovered in 2010 due to better performance.

Net Profit Margin

Year 2010 2009 2008

Net Profit 4,399,145.0 257,485.00 991,067.00
0
Net Sales 107,736,78 108,151,08 76,642,399
1.00 7.00 .00
Net Profit 0.041 0.002 0.013
Margin

Interpretation - This number is an indication of how effective a company is at cost

control. The higher the net profit margin is, the more effective the company is at
converting revenue into actual profit. This statement is held true for SSGC where a
sufficient increase of profit margin is in 2010.

Return on Sales

Year 2010 2009 2008

Net Profit 4,399,145.0 257,485.00 991,067.00
0
Net Sales 107,736,78 108,151,08 76,642,399
1.00 7.00 .00
Return on 0.041 0.002 0.013
Sales

Interpretation - This measure is helpful to management, providing insight into

how much profit is being produced per dollar of sales. The year 2010 shows a good
ROS because of its better performance in that fiscal period.

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Return on Assets

Year 2010 2009 2008

EBIT 12,029,307. 4,826,487. 4,752,301.
00 00 00
Average Total 105,656,79 86,128,384 66,811,363
Assets 6.00 .00 .50
Return on 0.114 0.056 0.071
Assets

Interpretation - ROA gives an idea as to how efficient management is at using its

assets to generate earnings. In case of SSGC the management had been utilizing
the assets fairly well, the boosted figure of 11.4% in 2010 is a clear evidence of
this.

Return on Equity

Year 2010 2009 2008

Net Profit 4,399,145. 257,485.0 991,067.00
00 0
Average SHE 11,877,934 9,999,292. 10,026,981
.50 00 .50
Return on 0.370 0.026 0.099
Equity

Interpretation - Return on equity measures a corporation's profitability by

revealing how much profit a company generates with the money shareholders have
invested. The year 2010 shows a 37% return on each of the dollar invested,

Market Ratios

Fair Value per Share

Year 2010 2009 2008

EPS 6.55 0.38 1.48
P/E Multiple 2.43 36.49 19.00
Fair Value per 15.910 14.000 28.060
Share

Interpretation - Fair value is used as a certainty of the market value of an asset

(or liability) for which a market price can be determined (usually because there is
no established market for the asset). It is the highest in 2008 due to an increased
PE multiple. In 2010 the earnings are fairly high however, the reduced PE multiple is
balancing its effect.

23
Earnings per Share

Year 2010 2009 2008

Earnings for CS 4,399,145. 257,485.0 991,067.0
00 0 0
No. of Shares 671,174.3 671,174.3 671,174.3
Outstanding 0 0 0
Earnings per Share 6.554 0.384 1.477

Interpretation - The portion of a company's profit allocated to each outstanding

share of common stock. Earnings per share serve as an indicator of a company's
profitability. The impact of the global recession is clearly seen in 2009, however the
company regained strength in 2010 and it is far better than in 2008.

Dividend per share

Year 2010 2009 2008

Dividend 1,006,761. 0.00 838,967.8
45 8
No. of Shares 671,174.3 671,174.3 671,174.3
Outstanding 0 0 0
Dividend per Share 1.500 0.000 1.250

Interpretation - Dividend per share (DPS) is a simple and intuitive number. It is

the amount of the dividend that shareholders have (or will) receive for each share
they own. Due to better performance the company declared a dividend of Rs. 1.5
per share along with giving out stock dividends.

Dividend pay-out Ratio

Year 2010 2009 2008

Dividend 1,006,761. 0.00 838,967.8
45 8
Net Profit 4,399,145. 257,485.0 991,067.0
00 0 0
Dividend Pay-out 0.229 0.000 0.847
Ratio

Interpretation - The DPR (it usually doesn’t even warrant a capitalized

abbreviation) measures what a company’s pays out to investors in the form of
dividends. Due to no dividends in 2009, there isn’t any dividend payout. If
compared to 2008, the dividend payout ratio has declined in 2010.

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Break-up Value per Share

Year 2010 2009 2008

Total SHE 14,072,345 9,683,524. 10,315,060
.00 00 .00
No. of Shares 671,174.30 671,174.3 671,174.30
Outstanding 0
Break-up Value 20.967 14.428 15.369

Interpretation - A measure used by owners of common shares in a firm to

determine the level of safety associated with each individual share after all debts
are paid accordingly. Break-up value of SSGC shows a clear rise since 2008. It did
decline in 2009 due to the global recession however it spiked again in 2010.

Dividend Cover

Year 2010 2009 2008

Earnings for CS 4,399,145. 257,485.0 991,067.0
00 0 0
Dividend 1,006,761. - 838,967.8
45 8
Dividend Cover 4.370 - 1.181

Interpretation - Dividend cover is a measure of the ability of a company to

maintain the level of dividend paid out, higher the cover, the better the ability of a
company to maintain dividends if profits drop. If compared to 2008, a change of
3.139 is fairly acceptable and the company seems to be maintaining dividends near
future.

Dividend Yield

Year 2010 2009 2008

Dividend per 1.50 0.00 1.25
Share
Market Price Per 15.91 14.00 28.06
Share
Dividend Yield 0.094 0.000 0.045

Interpretation - Dividend yield shows how much a company pays out in dividends
each year relative to its share price. In case of SSGC, there weren’t any dividends
paid out in 2009 so the change of 9.4% from 2009-2010 is relatively adequate.

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 Analysis of the Statement of Changes in Equity

A statement of changes in equity shows all changes in owner’s equity for a period of
time. The purpose of the statement of changes in equity is to provide readers with
the useful information on how the capital or fund of an entity is utilized and used.
Since it shows the movements of equity and accumulated earnings and losses, the
readers can depict on where the company’s equity came from and where did it go.

2008 2009 2010

2008 2009 2010
Year (%) (%) (%)
Share Capital (Rs. 10 6,711,74 6,711,7 6,711,74
65.07% 69.31% 47.69%
par) 3 43 3
234,86
Capital Reserves 234,868 234,868 2.28% 2.43% 1.67%
8
2,232,79 2,384,7 2,872,53
Revenue Reserves 21.65% 24.63% 20.41%
4 94 3
Unrealized gain/loss 143,866 93,813 83,489 1.39% 0.97% 0.59%
Un-appropriated 258,30 4,169,71
991,789 9.61% 2.67% 29.63%
profits 6 2
Total Shareholders' 10,315, 9,683, 14,072, 100.00 100.00 100.00
Equity 060 524 345 % % %

Computation of Growth Rate of Dividend

Growth Rate of Dividend is the annualized percentage rate of growth that a
particular stock's dividend undergoes over a period of time. The time period
included in the analysis can be of any interval desired, and is calculated by using
the least squares method, or by simply taking a simple annualized figure over the
time period.

The dividend growth rate is necessary in order to use the dividend discount model,
which is a security pricing model that assumes that a stock's price is determined by
the estimated future dividends, discounted by the excess of internal growth over
the firm's estimated dividend growth rate.

Year 2010 2009 2008

Dividend 1,006,761. 0.00 838,967.8
45 8
No. of Shares 671,174.3 671,174.3 671,174.3
Outstanding 0 0 0
Dividend per Share 1.500 0.000 1.250

26
 Dividend (2010) = Dividend (2008) [1+growth Rate] n-1

1,006,761.45 = 838,967.88 [1+growth Rate] 3-1

1,006,761.45/838,967.88 = [1+growth Rate] 2

1.1999 = [1+growth Rate] 2

1.0954 = 1+growth Rate

Growth Rate = 0.095

Growth Rate = 9.54%

Computation of Fair Value

Fair value is used as a certainty of the market value of an asset (or liability) for
which a market price can be determined (usually because there is no established
market for the asset).

Computation on the basis of Break-up Value (Book Value)

Year 2010 2009 2008

Total SHE 14,072,345 9,683,524. 10,315,060
.00 00 .00
No. of Shares 671,174.30 671,174.3 671,174.30
Outstanding 0
Break-up Value 20.967 14.428 15.369

Market Price (at June 30, 2010) = 15.91

Market Price < Breakup Value (2010)

15.91 < 20.967

Computation on the basis of Earnings

Year 2010 2009 2008

Earnings for CS 4,399,145. 257,485.0 991,067.0
00 0 0
No. of Shares 671,174.3 671,174.3 671,174.3
Outstanding 0 0 0
Earnings per Share 6.554 0.384 1.477

27
Fair Value = Earnings per share x PE Ratio

Fair Value = 6.55 x 2.43

Fair Value = 15.9165

Now, Market Price = 15.91

Hence, Market Price = Fair Value

28
Conclusion

Sui Southern Gas Company Limited Key Recent Developments

• Jan 28, 2010: 4Gas Wins Approval To Build Floating LNG Terminal At Port
Qasim, Pakistan

• Dec 24, 2009: First Tri-Star And SSGC Enter Into Gas Supply Agreement For
Supply Of Natural Gas

• Dec 14, 2009: Hycarbex And SSGC Sign EWT-GSPA Agreement

• May 05, 2009: Hycarbex Signs Gas Sales Agreement With SSGC For Haseeb
#1 Well

• Jan 30, 2009: American Energy Announces Allocation Of Gas For Haseeb #1
Well In Yasin Block

Sui Southern Gas Company Limited (SGGC) is engaged in the transmission and
distribution of natural gas. The company is also engaged in the manufacturing and
selling of gas meters. SGGC is a provider of high pressure transmission and low
pressure distribution systems. The company owns and operates a network of high-
pressure gas pipelines to supply gas. The gas is supplied to customers belonging to
a franchise area covering more than 1,200 towns in the Sind and southern Pakistan.
The transmission system of the company comprises of 3,200 km of high pressure
pipeline having a diameter of 12 – 24 inches. The company principally operates in
Pakistan.

29