05 October 2004	Tuesday	19 Shaban 1425

KARACHI, Oct 4: Sui Southern Gas Company has a flair for beating analysts' expectations. Last year everyone was looking at the board room for cash dividend of Rs1.75 per share -- the same as announced the year before; the actual, nonetheless, came out higher at Rs1.80 per share.

For FY04, the company announced financial results and appropriations on Thursday. Cash dividend was proposed at Rs1.50 (15 per cent), which would be approved by the shareholders at the annual general meeting to be held on October 27, at Karachi.

A year ago, when the SSGC had made after tax profit of Rs1.44 billion, no one really thought that the utility would be able to touch that mark for FY03 and analysts were visualizing decrease in net earnings.

The projected figures varied, but the major reason forwarded by analysts for the expected decrease in earnings was the same: Reduction in operating assets, after the sale of gas purification plant at Sui to Pakistan Petroleum Limited.

Since the company's profitability was linked to net operating assets, divestment of gas purification plant would reflect negatively on SSGC's FY03 results, analyst thought. And for the latest FY04, market was not expecting profitability to dip as it did. Net sales for the year ended June 30, 2004 increased by 29 per cent to Rs44.8 billion, from Rs34.8 billion the previous year.

Sales were net of gas development surcharge in the sum of Rs2.6bn for the year under review and Rs1.3 billion the earlier year. The benefit of higher net sales did not, however, travel down to the bottom-line and the utility reported sizeable drop of 31 per cent in after tax profit to Rs997m, from Rs1.44 billion the previous year.

Earning per share (eps) for the year under review worked out at Rs1.49; compared with Rs2.16 for FY03. On the closing stock price of Monday at Rs25.25, SSSGC is trading on a price-to-earnings (p/e) multiple of 16.9 times and offers dividend yield of 5.9 per cent.

The drop in earnings for the latest year ended June 30, 2004 was attributed by analysts to inadmissibility of certain expenditure by Oil and Gas Regulatory Agency (OGRA). The Regulatory Agency was understood to have penalized the company for not meeting the line losses target of 6.5 per cent.

It did not allow the utility adjustment of line losses in excess of the target. Analysts also thought that the reason for the plunge in profit was due to increase in cost of sales by 38 per cent to Rs38.7 billion, from Rs28.1 billion.

As the company operates on formula of 17 per cent fixed return on average fixed assets, its profit nose-dived in 4Q04 to Rs69 million, compared with average of almost Rs309 million per quarter during the first three quarters of the year (1Q: Rs306 million; 2Q: Rs302 million; 3Q: Rs319 million).

During the year, there was 5 per cent increase in transmission and distribution costs, which rose to Rs5.4 billion, from Rs5.2 billion the year ago. The 38 per cent rise in cost of sales during the year under review was attributable to rise in wellhead prices and change in composition of gas purchased -- less from Sui and increasingly larger quantity from newer fields such as Badin, Miano and Bhit, which are costlier because of being benchmarked with crude oil. The rising international crude oil prices would continue to impact cost of gas.

Gross profit for the year ended June 30, 2004 decreased 10 per cent to Rs6.1 billion, from Rs6.8 billion last year and operating profit slipped 7 per cent to Rs7.1 billion, from Rs7.7 billion with the gross profit margin at 14 per cent; operating margin at 16 per cent and net margin at 2 per cent; all down from last year's 19; 22 and 4 per cent, respectively.

SSGC had chalked out plans for massive expansion, requiring Rs34 billion over five years. But the utility must seek permission of OGRA before launching on the annual capital expenditure (capex).

For FY05, the company had planned capex in the sum of Rs6.8 billion. The regulator was said to have approved capex in the sum of Rs2.5 billion. Major portion of capital expansion was likely to be incurred on enhancing SSGC's pipeline network from new gas fields that had started operations.