Академический Документы
Профессиональный Документы
Культура Документы
EXECUTIVE SUMMARY
MBA-SF-Group A
Page 1 of 23
The main purpose of this report is to come out with a critical analysis of the financial
performance of a Salalah Port Services Company S.A.O.G during financial years of 2005 to
2006 compared with similar business company, such as Port Services Corporation
S.A.O.G.( Port of Sultan Qaboos). Also, the importance of this financial analysis to arrive at
specific recommendations and make a decision based on qualitative and quantitative
techniques.
This report is divided in to three parts; the first part of the report is the general business
overview of the Salalah Port Service Company, the second part is the ratios analysis of the
Salalah Port Service Company and the final part is the comparison of Salalah Port Service
Company with its competitor the Sultan Qaboos Port Company.
There is a third Port in Oman (Port of Sohar) which is a joint venture between the
government of Oman and Rotterdam Port (50/50). It started its first operation December
2006. The financial information is not available because the company is not registered as a
public shareholders company in Muscat Securities Market. Therefore, the comparison will
be restricted between Port of Salalah and Port of Sultan Qaboos.
The financial analysis of the both mentioned companies were made based on the
published Balance Sheet, Cash Flow Statement and Income Statement for 2005 and 2006.
Furthermore, the Chairman’s report and Directors report of both the companies were read
and discussed for a better analysis. The financial reports 2007 of both companies were not
published at the time of writing this report.
Ratios are highly important profit tools in financial analysis that help financial analysts
implement plans that improve profitability, liquidity, financial structure, reordering, leverage,
and interest coverage. Although ratios report mostly on past performances, they can be
predictive too, and provide lead indications of potential problem areas as we are trying to
do here between these two years (2005 -2006). The followings ratios have been used in
this report: Profitability, Efficiency, Liquidity, Financial Gearing and Investment.
• Expansion of non-current assets; this has increased by 21% (from R.O 42,150 m to R.O
50,903 m). Sales revenue, expanded slightly more by 4% from R.O 26,737 m to R.O 27,918
which is less expansion than non-current assets.
• Expansion in the element of working capital: inventories slight increased by about 6 %,
trade receivable has not changed. There is no major expansion in the working capital due
to the period of high inflection.
• Increase in cash balance: the cash balance increased from R.O 1691 m to R.O 5486 m by
224 % more between 2005 and 2006. This leaves the company in comfortable situation
from the Bank.
• Apparent dept capacity: comparing the non-current assets with the long term borrowings
implies that the business has very high capacity on security on further borrowing. This is
because of potential lenders usually look at the value of assets that can be offered as
security when assessing from requests.
• High operation profit: though sales revenue expanded by 4% only between 2005 and 2006,
both direct operating cost and operating expenses rose by 10% and 13% with increase in
both profit and operating profit by 11%.
MBA-SF-Group A
Page 2 of 23
TABLE OF CONTENTS
EXECUTIVE SUMMARY...............................................................................1
1.INTRODUCTION.........................................................................................4
1.1 Port of Salalah..........................................................................................4
1.2 Port of Sultan Qaboos (PSQ)...................................................................4
2. RATIO ANALYSIS FOR SALALAH PORT COMPANY FOR THE YEARS
2005 & 2006....................................................................................................5
2.1. PROFITABILITY......................................................................................5
2.1.1. GROSS PROFIT MARGIN...................................................................5
2.1.2. OPERATING PROFIT MARGIN...........................................................5
2.1.3. RETURN ON ORDINARY SHAREHOLDERS FUNDS (ROSF) .........6
2.1.4. RETURN ON CAPITAL EMPLOYED (ROCE).....................................6
2.1.5. CONCLUSION......................................................................................6
2.2. EFFICIENCY ...........................................................................................7
2.2.1. AVERAGE SETTLEMENT PERIOD FOR TRADE RECEIVABLES....7
2.2.2. SALES REVENUE TO CAPITAL EMPLOYED RATIO........................8
2.2.3. CONCLUSION......................................................................................8
2.3. LIQUIDITY...............................................................................................8
2.3.1 CURRENT RATIO ................................................................................8
2.3.2 ACID TEST RATIO ...............................................................................9
2.3.3. OPERATING CASH FLOWS TO MATURING OBLIGATIONS ..........9
2.3.4. CONCLUSION......................................................................................9
2.4. FINANCIAL GEARING..........................................................................10
2.4.1 GEARING RATIO ...............................................................................10
2.5. INVESTMENT .......................................................................................10
2.5.1 DIVIDEND PAYOUT RATIO ...............................................................10
2.5.2 DIVIDEND YIELD RATIO ...................................................................11
2.5.3. EARNINGS PER SHARE.................................................................11
2.5.4. PRICE/EARNINGS (P/E) RATIO........................................................11
3.RATIO ANALYSIS - COMPARISON WITH SULTAN QABOOS PORT
COMPANY (COMPETITOR) .......................................................................12
3.1. PROFITABILITY....................................................................................12
3.2. EFFICIENCY.........................................................................................13
3.3. LIQUIDITY.............................................................................................14
3.4. FINANCIAL GEARING..........................................................................14
3.5. INVESTMENT........................................................................................14
4.CONCLUSION ..........................................................................................15
5. REFERENCES.........................................................................................16
6.APPENDIX A.............................................................................................17
7.APPENDIX B.............................................................................................23
MBA-SF-Group A
Page 3 of 23
1. INTRODUCTION
This port is designed and equipped with the latest technology in terminal operation
equipment such as, Pan Panamax Cranes designed for the second generation vessels,
and the biggest cranes in the world were first ordered by Port of Salalah. Salalah is located
in the middle of the growing markets at the Indian Ocean Rim with about 2 billion
consumers. Its strategic location directly at the main shipping lane between Europe and the
Far East (East-West trading roots) this will provide easy access to the main markets. Next
to the port the Government of Oman declared a Free Zone company to be formed (Salalah
Free Zone Company), and currently the Free Zone Company is functioning and there are
several factories already operational.
Port of Sultan Qaboos was the first international Port in Oman, It is operated and managed
by Port Services Corporation, the port was mainly focusing on conventional cargo from
1976-1981, then the port has developed its current berths to sustain container vessels by
1983-1984, first operational system to handle containers was 1985, early 1990 there was
further enhanced for another two berths to handle multi purpose vessels.
Port of Sultan Qaboos is an ideal transshipment hub for the upper Gulf and Red Sea ports
trade flows. Oman's premier maritime gateway enjoys a prime location in the politically
stable Sultanate of Oman. This port is situated in a natural harbor 250 Kilometers south of
the Strait of Hormuz on the Indian Ocean coast of the Arabian Peninsula.
MBA-SF-Group A
Page 4 of 23
2. RATIO ANALYSIS FOR SALALAH PORT COMPANY FOR THE
YEARS 2005 & 2006
Financial ratios can be used to indicate and examine the performance of the company; they
help in implementing plans to improve profitability, expansion and growth.
Although ratios report mostly on past performances, they can be predictive too, and provide
lead indications of potential problem areas as we are trying to do here for the years (2005
-2006).
2.1. PROFITABILITY
We will analyze the profitability effects on the company performance and progress based
on the following topics as in the table 1(Refer to Appendix B):
Gross Profit Margin.
Operating Profit Margin
Return on Ordinary Shareholders Funds (ROSF).
Return on Capital Employed (ROCE).
Gross profit margin ratio shows the percentage of the gross profit (which is the difference
between sales revenue and the cost of sales) over the sales revenue generated by the
company for the same period. The higher the revenue the better is the ratio. Though, the
company has a growth in the revenue due to the increase in volumes of containers during
2006, but resulting in lower gross profit margin about 45.03 % in 2006 comparing to 48.03
% in 2005. It is noticed that there is an increase in the direct operating cost from
13,896,000 OMR in 2005 to 15,348,000 OMR in 2006. The company should take good
efforts to decrease its direct operating cost in order to improve its gross profit margin.
The operating profit margin shows the percentage of the net profit of a business over the
sales revenue for the same period. The operating profit margin for the company has
decreased from 20.35 % to 19.78% by 0.57 %. Apparently, this is due to the high direct
operating cost conducted in 2006 which mainly was focused in additional recruitment
during 2006 to fulfil the requirement. This heavily impacted the consumption of fuel and
required additional repair and maintenance. However, the overall operating profits has
increased and as well as the revenue by 27,918,000 OMR.
MBA-SF-Group A
Page 5 of 23
2.1.3. RETURN ON ORDINARY SHAREHOLDERS FUNDS (ROSF)
The ROSF ratio compares the net profit available to the owners with the shareholders stake
in the company for the same year. Though, the company has slightly succeeded in
increasing its net profits from 4,095 in 2005 to 4,154 during 2006. The company has a
decline in ROSF by 1.01 % due to an increase in the legal reserve and retained Earnings,
whereas the share capital remained the same amount. Usually, 10% of net profit is held as
a cumulative reserve. Also, the market share value of the company has increased which
resulted in this increase of the retained earring during 2006.
The ROCE ratio compares the net profit (before interest and taxation) generated by
company to the long term capital invested in the company during the same period. There is
a decline in the ROCE of the company by 2.27 % in 2006. The company has paid
2,262,000 OMR as deferred tax in year 2006. This is was due to an earlier agreement with
the government of an exemption of tax paid for utilizing the general cargo terminal and
2005 was the first year the payment is due that cause the reduction in ROCE during 2006.
In addition, the company has paid a higher amount for the non-current loans which are
purchase of new cranes, artg’s(rubber, tired, gantry) & prime movers for the additional
berths 5& 6 about 23,339,000 OMR by comparing with 15,344,000 OMR in 2005. This is
part of the master plan for the expansion of the Salalah Port for the next 20 years as a long
term investment.
2.1.5. CONCLUSION
It can be observed from the above discussion that the company performance has declined
although not significantly. However, this does not reflect the actual picture of the indicated
increase in volume which requires placement of additional equipment which impacted the
current year as in the Figure 1. Usually, the pay off of such investment comes within the
coming years. The master plan of this terminal is going to be one of the biggest
transhipment hubs in the Middle East with not less than 50 gantry cranes at the moment
they have only 6 berths and 80 cranes. (www. portofsalalah.com)
MBA-SF-Group A
Page 6 of 23
PROFITABILITY
60
50 48.02
45.03
40
%
30
20.35 19.78
20
15.13 14.12
12.21
9.94
10
Figure-1
2.2. EFFICIENCY
0
Table 2
The company has improved its figure in average period for trade receivables for the years
of 2005 and 2006 which; it has been reduced from 51.78 to 49.58 days. The collection of
debtors has improved which is a good sign of debt management.
MBA-SF-Group A
Page 7 of 23
2.2.2. SALES REVENUE TO CAPITAL EMPLOYED RATIO
The sales revenue to capital employed ratio examines how effectively the total assets of
the company (share capital plus reserve plus non current liabilities) are being used to
generate sales revenue. The ratio has decreased for the year 2006. This is mainly due to
expansion plans as the company is still in continue growth stage. Also, it is normal to see
that heavy investment is injected in this stage.
2005 2006
Current Ratio 1.63 1.92
Acid test ratio 1.46 1.73
Operating cash flows to maturing obligations 1.02 0.99
Table 3
The operating cash flows to maturing obligation ratio compares cash generated from
operating activities (which is taken from cash flow statement ) to the company current
liabilities. The ratio has declined to 0.99 from 1.02; this indicates that the current operating
cash flow is not sufficient to cover the current liabilities for the company.
2.3.4. CONCLUSION
It can be observed from the above ratios indications; the company does have a suitable
liquidity margin to meet its short term obligations. This was mainly illustrated in improving
the company current asset and reducing its current liabilities from 2005 to 2006 see
Figure-3. However, the decline in the operating cash flow need to be a concern for the
company and further strategic improvement must be applied such as improving the
efficiency of the operation staff by maximizing their output which will be positively reflecting
in the cash flow generated from operating activities.
LIQUIDITY
1.92
2
1.73
1.8 1.63
1.46
1.6
1.4
1.2 1.02 0.99
% 1
0.8
0.6
0.4
0.2
Figure-3
0
MBA-SF-Group A
Current Ratio Acid test ratio Operating cash
Page 9 of 23
flows to maturing
obligations
2.4. FINANCIAL GEARING
Any organization needs for the financial gearing because of two possible reasons: first,
there are insufficient funds from the owners or the company willing to increase the returns
for the company. By using available information of the Salalah Port Company, we will cover
the gearing ratio calculation only.
2.5. INVESTMENT
From an investment point of view, the following are the most essential and common ratios
to help and guide the investors in his/ her decision (table 3) and Figure 4:
2005 2006
Dividend payout ratio 43.69 43.07
Dividend cover ratio 2.27 2.31
Dividend yield 1.96 1.90
Earnings per share 22.8 23.1
Cash gen from ops per share 0.51 0.48
P/E ratio 22.37 22.94
Table 3
MBA-SF-Group A
Page 10 of 23
2.5.2 DIVIDEND YIELD RATIO
Dividend yield ratio calculates the dividend per share over the company current market
value per share. The above ratio has considerably decreased to 1.89 from 1.96 which will
not encourage the new investors. This is due to the higher value of the share in 2006 was
5.299 OMR compare with 5.1 OMR in 2005.
The price/ earring ratio relates the market value per share to the earring per share. The
company has a slight increase in P\E ratio from 22.37 OMR in 2005 to 22.94 OMR in 2006.
This is the investor indicator regarding studying the overall market performance in the same
sector. Investor would definitely compare this with peer group and other business sectors
before investing.
Investment
45
40
35
30
25
Ratios
2005
20
2006
15
10
0
Dividend Dividend cover Dividend yield Earnings per Cash gen from P/E ratio
payout ratio ratio share ops per share
Figure- 4
MBA-SF-Group A
Page 11 of 23
3. RATIO ANALYSIS - COMPARISON WITH SULTAN QABOOS PORT
COMPANY (COMPETITOR)
In order to demonstrate the actual performance of the Salalah Port Company during 2005
and 2006, we need to benchmark it with another company that having same sort of service
which is Sultan Qaboos Port Company as a competitor. The below Table 4 shows all the
essential ratios which have been calculated based on the companies annual performance
report. The percentage values of the below table have been derived in the ratio table as
seen in Appendix B.
3.1. PROFITABILITY
Sultan Qaboos Port has achieved an excellent year by scoring high revenues by 3
million OMR more, whereas the Salalah Port had only almost 1.2 million OMR
which is already reflected in the gross profit margin see Figure-5.
The decline in both ROSF and ROCE in 2006 for Salalah port was due to the
higher value for the non-current loans. In the other hand, Sultan Qaboos Port has a
significant increase in both and this is may due to high operating profits by 1.5 M
OMR more in 2006 and there are no long term loans.
MBA-SF-Group A
Page 12 of 23
Profitability Ratios-2006
24.93
Net Profit Margin
19.78
15.58
ROCE
9.94
18.81
ROSF
14.12
Figure-5
3.2. EFFICIENCY 0 10 20 30 40 50 60 70
The Sultan Qaboos Port has processed its assets very effectively and productively
by 0.9 times in 2006 which indicates an increase from previous year, whereas the
Salalah Port has lower ratio about 0.6 in 2006 times and declined from previous
year as can be seen in Figure 6. This is due to the fact that the equipment in Port
Of Sultan Qaboos are old and their efficiency is at the maximum, where Port of
Salalah equipment are still new and they are still working on maximizing the
efficiency, as well as purchasing new equipment and staffing for them, while the
volumes have yet to increase, Port of Salalah is implementing lean and six sigma
methods to improve their efficiency.
MBA-SF-Group A
Page 13 of 23
Efficiency Ratios- 2006
49.58
50
45
40 35.65
35
30
25
20
15
10
0.6
Figure-6 0.9
5
3.3. LIQUIDITY
0
SALALAH PORT SULTAN QABOOS PORT
The total assets of Port of Salalah are almost twice the total assets of Port Sultan
Qaboos. Although, Port of Sultan Qaboos is the main port for the country and it
Avgsince
was built Settlement
1970s. period for receivables Sales revenue to capital employed r
Current ratio and Acid test ratio are nearly same for both in 2006, but it is
noticeable that Sultan Qaboos Port has sharp reduction for both ratios in 2005 to
2006.
The cash generated from operations to maturing obligations, both ports have
declined comparing their results with 2005 and Port of Sultan Qaboos decline was
higher than Port of Salalah. But overall the cash generated from operation is Port of
Sultan Qaboos is still 0.25 higher than Port of Salalah.
• Salalah Port relies directly to the banking funds and their gearing ratio was 56% in
2006 since it is developing and expanding, with building new berths and equipment
company whereas, -as expected- Sultan Qaboos Port having very low banking
funds since it is established long back.
3.5. INVESTMENT
4. CONCLUSION
Profitability, efficiency, liquidity, and investment ratios indicated that Sultan Qaboos Port is
performing better in terms of short term investment, this port has reached its maturity level
and geographically has no more limits for expansion, most of its equipment has zero
depreciation and therefore their reliant on external finance is low.
Where it is a totally different game in Port of Salalah since it is in the growing phase and all
its equipment are new, all the berths are from reclaimed land and their master plan to be
the leading terminal in the Middle East where their distance to the world trade lines (East-
west) is so close, For such reason they are heavily relaying on external funds.
At the moment Port of Salalah is the second biggest terminal in the Middle East, and the
only terminal in the area equipped to handle the new generation container vessels (415
meters long).Showing that it is in the growing stages and paying almost 10% return on
shares this is an encouraging indication.
Historically, the cash flow performance of the Salalah Port’s business has been strong.
Also, it has been able to cover its financial charges and debt service from operating cash
flows during the period. However, the business may still want to examine the magnitude of
cash impact from changes in some key financial factors known as “cash flow drives”.
The Salalah Port has to work hard on the coming years to maintain its ROSF and ROCE
because we have seen a decline in the performance during 2006 on the mentioned factors.
In additional, the company’s non-current liabilities have declined due to paying of the long
term loans. However, the decline in the operating cash flow needed to be a concern for the
company for its further strategic improvement. ( as per http://www.salalahport.com/)
Currently the percentage of the market share of the ports are as follow: Port of Sultan
Qaboos is 96% of the import and export , Port of Salalah is less than 3% and Port of Sohar
is 1%, this is based on reports from ministry of commerce and industry. This percentage is
gradually changing with the free zone coming in Salalah and the industrial area developing
in Sohar, it is expected that both Port of Salalah and Sohar are gradually increasing their
market share to exceed 60% of the market share between them. The country is planning to
divert most of the trade to these two ports and limit the Port of Sultan Qaboos to Crouse
vessels a current break-bulk cargo, limited container vessels.
MBA-SF-Group A
Page 15 of 23
5. REFERENCES
MBA-SF-Group A
Page 16 of 23
6. APPENDIX A
MBA-SF-Group A
Page 17 of 23
MBA-SF-Group A
Page 18 of 23
MBA-SF-Group A
Page 19 of 23
MBA-SF-Group A
Page 20 of 23
MBA-SF-Group A
Page 21 of 23
MBA-SF-Group A
Page 22 of 23
7. APPENDIX B
Ratio Companies
Port of Salalah Sultane Qaboos Port
Cash generated from ops per share = Cash generated from ops less preference 0.483 0.506 0.664 0.511
dividend
Number of ordinary shares in issue
MBA-SF-Group A
Page 23 of 23