Professional Documents
Culture Documents
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
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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
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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
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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) 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.
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Compressed Natural Gas (CNG)
Rs.70 Billion, Pakistan at present is the largest CNG user country in the world. In
addition, the
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.
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.
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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 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%
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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.
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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.
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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.
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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.
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.
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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.
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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.
(a) In our opinion, proper books of account have been kept by the
Company as required by the Companies Ordinance, 1984;
(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
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(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).
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.
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Analysis of Profit and Loss statements
Ratio Analysis
Working Capital
Activity Ratios
Inventory Turnover
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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.
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.
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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
Operating Cycle
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Receivable Turnover in 127. 87.5 84.8
Days 62 7 0
Operating Cycle 135. 93. 92.
66 96 76
Cash Cycle
Liquidity Ratios
Current Ratio
Quick Ratio
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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
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.
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Solvency Ratios
Debt Ratio
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.
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Interest Coverage 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
Profitability Ratios
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Operating Profit Margin
Return on Sales
22
Return on Assets
Return on Equity
Market Ratios
23
Earnings per Share
24
Break-up Value per Share
Dividend Cover
Dividend Yield
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.
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.
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Dividend (2010) = Dividend (2008) [1+growth Rate] n-1
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Fair Value = Earnings per share x PE Ratio
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Conclusion
• 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
• 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.
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