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Financial Analysis of Petroleum Company of Trinidad and Tobago For the years 2006 to 2011

Financial Statement Analysis BAUD 6350 Facilitator: Cohort: Group: Members: Mr. Andre Taitt EMBA 24 Jabawokee Dianne Dhanpath, Ryan Isava, Shami Maharaj, Sean Balkisoon

PETROLEUM COMPANY OF TRINIDAD AND TOBAGO LIMITED

Petroleum Company of Trinidad and Tobago Limited (PETROTRIN) is incorporated in the Republic of Trinidad and Tobago. The company is primarily engaged in integrated petroleum operations which include exploration, development and production of hydrocarbons and the manufacturing and marketing of petroleum products. The sole shareholder is the Government of the Republic of Trinidad and Tobago (GORTT). The registered office is the Administration Building, Pointe-a-Pierre, Trinidad and Tobago, West Indies.

The petroleum industry in Trinidad and Tobago is one of the oldest in the world (older than Venezuela and Saudi Arabia), with exploratory drilling beginning about 1857. The first deposits of crude oil were found at Aripero and Guapo (about eight miles south of San Fernando in South Trinidad) in the l860s. This led to the discovery and development of oilfields at Forest Reserve, Point Fortin, Tabaquite and Barrackpore in South Trinidad but it was not until l908 that commercial production began. The first export shipment was made from Brighton, La Brea in l910.

The Company was incorporated in January, 1993 culminating a series of acquisitions and mergers commencing in 1974.The following are subsidiaries of PETROTRIN:
1. COPCO in the Cayman Islands.

Caribbean Oil Purchase Company Limited (COPCO) is an exempted limited liability company incorporated under the laws of the Cayman Islands.

2. Trintomar

Trinidad and Tobago Marine Petroleum Company Limited (Trintomar) is principally engaged in developing and producing natural gas from the Pelican Field which originally formed part of the South East Coast Consortium area.
3. Petrotrin Trinmar Operations

Petrotrin Trinmar Operations is a marine based operations located in the Soldado fields off Trinidads South-West Coast.
4. TNA United Kingdom

Trinidad Northern Areas Limited (TNA) was formed for the specific purpose of assigning rights to explore, drill, develop, and produce oil and natural gas from certain geological areas within the jurisdiction of Trinidad and Tobago.
5. PEAPSL Trinidad and Tobago

Petrotrin EAP Services Limited (PEAPSL) provides counseling services for employees, their families and third parties.

FINANCIAL ANALYSIS EXECUTIVE SUMMARY A review of Petroleum Company of Trinidad and Tobago Limited (Petrotrin) performance for a five (5) period from 2006 to 2011. Petrotrin operations is integrated in the exploration, development and production of hydrocarbons and the manufacturing and marketing of petroleum products, therefore the price of oil and gas on the world market will affect the company financial outlay. Total daily production of oil and gas, together with final product from the refinery division directly affect the profitability of the company. The review revealed that net profitability after peaking in 2008, fell drastically in 2009 indirect relations to the price of oil. Although the price of oil fell in 2009, the company increased its borrowing to finance the construction of a Gas To Liquid (GTL) plant, this result in heavy financial losses, because the plant never went into production.

OBJECTIVES This exercise was undertaken to analyse the financial performance of Petrotrin over the five year period 2006 to 2010 to determine whether it is beneficial to invest in this company. This was done by comparing the Balance Sheets and Income Statements for the period. The various Financial Ratios were compared to determine whether there are areas of concern in terms of the companys Liquidity and Long term debt paying abilities. The companys performance was measured using the profitability ratios.

RESOURCES The data analyzed were taken from the financial consolidated reports from Petrotrin for the years 2006 to 2011. Resources analyzed include income statements, balance sheets and statements of oil prices. An analysis was done on the company liquidity ratio, profitability and investor analysis.

SIGNIFICANT FINANCIAL EVENTS Analysis of the balance sheets showed that borrowings for non-current liabilities doubled from 5 million to 10 million in the year 2009. The income statements showed that profit before taxes decreased significantly from over 5 million dollars in 2008 to a loss of $895, 753.00 in 2009. Operating profits decreased significantly in 2009.

DETAILED RESULTS Vertical Common-Size Income Statement


Consolidated Year ended September 30 2010 Continuing operations: Revenue Cost of sales Gross profit Administrative expenses Marketing expenses Other operating expenses Impairment Losses Other operating income Operating profit (results from operating activities) Finance income Finance costs Finance costs - net Share of loss of jointly controlled entity Profit before tax Tax Profit for the year from continuing operations Discontinued operations: Profit for the year from discontinued operations Profit for the year Other Comprehensive income: Currency Translation differences Other Comprehensive income for the period, net of income tax Total comprehensive (expense)/income for the year Profit / Loss Attributable to: Equity holders of the Company Minority interest 2009 Restated 2008 Restated 2007 Restated 2006 Restated

100% 87.9% 12.1% -4.0% -0.5% -0.1% -4.3% 0.6% 3.9% 0.0% -0.9% -0.9% 0.0% 3.0% -3.5% -0.5% 0.0% -0.5% -0.1% -0.1% -0.6% 0.0% -0.5% 0.0% -0.5%

100% 93.0% 7.0% -3.6% -0.4% -0.2% -3.7% 0.9% -0.1% 0.1% -1.7% -1.6% -2.4% -4.1% 0.0% -4.0% 0.2% -3.8% 0.6% 0.6% -3.2% 0.0% -3.8% 0.0% -3.8%

100% 84.1% 15.9% -2.3% -0.2% -0.6% 0.0% 0.5% 13.2% 0.2% -0.5% -0.4% -0.2% 12.7% -6.8% 5.8% 0.3% 6.1% 0.0% 0.0% 0.0% 0.0% 6.1% 0.0% 6.1%

100% 84.9% 15.1% -3.3% -0.4% -0.1% 0.0% 0.5% 11.8% 0.3% -0.8% -0.5% -0.2% 11.2% -5.9% 5.3% 0.2% 5.5% 0.0% 0.0% 0.0% 0.0% 5.5% 0.0% 5.5%

100% 85.6% 14.4% -2.3% -0.4% -0.1% 0.0% 0.5% 12.0% 0.2% -1.2% -0.9% 0.0% 11.0% -5.9% 5.1% 0.1% 5.2% 0.0% 0.0% 0.0% 0.0% 5.2% 0.0% 5.2%

Highlights: Gross profits (GP) showed a relatively stable increase year to year from 2006 to 2008, in 2009 there was a significant drop in GP due to a higher percentage of cost of sales. In 2010 GP rebounded but was still not at the same level of margin as in the 2006 to 2008 period.

Horizontal Common-Size Income Statement


Consolidated Year ended September 30 2010 Continuing operations: Revenue Cost of sales Gross profit Administrative expenses Marketing expenses Other operating expenses Impairment Losses Other operating income Operating profit (results from operating activities) Finance income Finance costs Finance costs - net Share of loss of jointly controlled entity Profit before tax Tax Profit for the year from continuing operations Discontinued operations: Profit for the year from discontinued operations Profit for the year Other Comprehensive income: Currency Translation differences Other Comprehensive income for the period, net of income tax Total comprehensive (expense)/income for the year Profit / Loss Attributable to: Equity holders of the Company Minority interest -10% 134% -63% 25% 180% 464% 108% 384% 100% 100% 0% -10% 172% -63% 448% 181% 282% 108% 100% 100% 27% 60% -10% -32% -1% -67% 179% 181% 176% 104% 103% 105% 100% 100% 100% 101% 103% 85% 172% 109% 35% N/A 122% 33% 8% 79% 96% 2009 Restated 85% 93% 42% 134% 87% 105% N/A 162% 0% 44% 123% 142% 175% 172% 131% 72% 58% 116% 101% 158% 70% 50% 100% 100% 100% 100% 100% 2008 Restated 155% 153% 172% 154% 89% 673% 2007 Restated 103% 102% 108% 145% 99% 104% 2006 Restated 100% 100% 100% 100% 100% 100%

-10%

-63%

181%

108%

100%

Highlights:

Significant increase in revenues in 2008 2009 revenues was less than 2006 Gross Profit was substantially high in 2008 In 2009 GP was less than half that of 2006 Profit for the year from continuing operations increases in 2008 were more favorable than GP and Revenues 2009 (Loss) for the year from continuing operations was significant as compared to 2006 2010 rebounded but the margin compared to 2006 was still negative.

FIVE YEAR COMPARISON LIQUIDITY Accounts Receivables Turnover decreased from 2007 to 2009 which would be positive but increased in 2010 which would be negative Accounts Receivable Turnover in days increased from 2007 to 2009 which would be negative but decreased in 2010 which would be positive Inventory Turnover decreased in 2007, increased in 2008, decreased by 40% in 2009 and increased again 2010 which suggests some instability Inventory Turnover in days steadily increased suggesting that there is a longer turnover period Operating cycle steadily increased which would be negative Working Capital increased by four million in 2007 and slightly over the next two years which would be positive, however there was a significant decreased in 2010 which would be negative Current Ratio increased slightly in 2007, decreased slightly 2008, increased again in 2009 and decreased in 2010 this would be negative Acid-test Ratio increased slightly in 2007, decreased slightly 2008, increased again in 2009 and decreased in 2010 this would be negative

Cash Ratio increased slightly in 2007, decreased slightly 2008, increased again in 2009 and decreased drastically in 2010 this would be negative Sales to Working Capital decreased by 50% in 2007, decreased slightly 2008, decreased again by 50% in 2009 and increased in 2010 which would be positive

LIQUIDITY ANALYSIS Accounts Receivables Turnover Accounts Receivable Turnover in days Inventory Turnover Inventory Turnover in days Operating cycle Working Capital Current Ratio Acid-test Ratio Cash Ratio Sales to Working Capital

2010 6.29 58 7.36 50 108 $3,765,8 79 1.54 1.04 0.35 5.00

2009 5.15 71 6.88 53 124 $6,603,1 72 2.27 1.75 1.08 3.52

2008 10.01 36 11.37 32 69 $5,914,0 85 2.04 1.40 0.52 6.98

2007 11.05 33 9.47 39 72 $5,565,8 71 2.31 1.66 0.97 7.22

2006 13.93 26 10.69 34 60 $1,755,3 19 1.43 0.92 0.47 14.69

Summary-Liquidity Most of the Liquidity ratios declined. Receivables declined which would be negative and resulted in a steadily declining operating cycle. Working Capital showed an increase in 2010 which was an improvement. The Current Ratio kept wavering, so did the cash ratio as well as sales to working capital. Overall liquidity is cause for concern.

LONG TERM PAYING DEBT Times Interest earned increased rapidly over 2007 and 2008 but reduced drastically in 2009. Increased significantly in 2010 so this is looking good Fixed Charge coverage Debt Ratio is good but it increased slightly. Debt / Equity Ratio okay and increased slightly. Debt to tangible net worth increased drastically in 2007 declined in 2008, further declined in 2009 but increased in 2010 which does not look good

LONG-TERM DEBT PAYMENT ABILITY Times Interest earned Fixed Charge coverage Debt Ratio Debt / Equity Ratio Debt to tangible net worth

2010 9.09 0.70 2.36 5.12

2009 2.31 0.68 2.12 4.21

2008 37.07 0.63 1.69 4.30

2007 25.24 0.69 2.21 8.49

2006 12.58 0.64 1.79 6.05

Summary-Long Term Paying Debt

Most of the long term debt paying ratios declined. The debt and debt/equity ratios declined which are not good. The long term debt paying ability does not look good at this time.

PROFITABILITY ANALYSIS Net profit margin peaked in 2008, but fell off sharply in 2009 recovering moderately in 2010. Operating income margin shows the same trend suggesting that the decline was not due to increased finance costs. Indeed Gross Profit Margin also shows the same trend which is actually related to the higher cost of sales which increased from a low of 84.1% in 2008 to 93.0% in 2009 recovering moderately to 87.9% in 2010. This is partly due to declining in-house crude oil production and the consequent need for greater crude oil imports, also aging plant reducing operation efficiency of the refinery. Additionally decreased sales volumes since 2008 are due in part to the Petro-Caribe agreement. The Total Asset Turnover shows that that there has been a general decline over the 5 year period reviewed, although in 2008 there was a peak in Total Asset Turnover this was related to windfall revenues due to external market forces resulting in abnormally high oil prices. On examination of the Operating Asset Turnover, it shows decline since 2006, which suggests that the increase in operating assets over the period has failed to generate increased revenue. Looking further still at the Sales to Fixed Assets ratio shows even more sensitivity, that is showing the greatest decline than either of the Total Asset Turnover or the Operating Asset Turnover ratio. This suggests that the non productive assets are largely associated with the Fixed Assets, those of property, plant and equipment. This is largely the result of the World GTL project venture which failed to startup and generate revenue despite almost $ 7 Billion TTD invested.

The combined effect of the poor Net Profit Margin and the Total Asset Turnover results in poor Return on Assets. The Return on Operating Assets paints a similar picture. The Return on Investment paints a dismal picture which falls from a high of 16.45% in 2006 to negative ROI in 2009, recovering slightly to end at 1.07% in 2010. Given that financing over the period has been with long term debt this is very poor. Indeed this is potentially disastrous given that Petrotrin secured bond financing in 2009 for its refinery upgrade at 9.75%.

PROFITABILITY ANALYSIS Net Profit Margin Total Asset Turnover Return on Assets Operating Income Margin Operating Asset Turnover Return on Operating Assets Sales to Fixed Assets Return on Investment ROI Return on Total Equity Return on Common Equity Gross Profit Margin Avg Oil Price

2010 1.51% 0.80 1.21% 8.20% 1.06 8.73% 1.75 1.07% 3.93% 3.93%

2009 -2.29% 0.73 -1.67% 3.63% 1.02 3.72% 1.93 -2.74% -4.84% -4.84%

2008 5.84% 1.47 8.58%

2007 5.28% 1.20 6.33%

2006 5.14% 1.39 7.16%

13.22% 11.79% 11.95% 2.24 2.02 2.52

29.56% 23.77% 30.13% 4.83 4.26 5.92 16.45%

10.04% 7.25%

24.97% 19.11% 19.99% 24.97% 19.11% 19.99% 15.89% 15.12% 14.39% $99.58 $56.54 $60.40

12.13% 7.02% $68.92 $49.15

18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2005

ProfitabilityAnaly sis

2006 2007 Gross Profit Margin

2008 Net Profit Margin

2009 2010 OperatingIncome Margin

2011

30% 25% 20% 15% 10% 5% 0% 2005 2006 Return on Operating Assets 2007 2008 2009 Return on Assets 2010 2011 Return on Investm ent ROI Return on Total Equity

8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2005 2006 2007 Total Asset Turnover 2008 OperatingAsset Turnover 2009 2010 Salesto Fixed Assets 2011

$120 $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 2005 2006 2007

AvgOil Price

2008 AvgOil Price

2009

2010

2011

INVESTOR ANALYSIS Financial leverage went from being relatively insignificant in years 2006 to 2008, but has increased significantly to 1.30 in 2010. This financial leverage increase however has not increased profitability, as earnings per share peaked at $1.07 in 2008, but has seen two consecutive years of loss since. In the period examined there were no dividend payouts, and all earnings were retained. The retained earnings of the profitable years in 2006 to 2008 has increased the book value over the 5 year period, however the peak book value at the close of 2008 was $4.74, since then two consecutive years of loss, the book value has been slightly eroded. INVESTOR ANALYSIS Degree of Financial Leverage Earnings per Share Percentage of Earnings Retained Dividend Payout Ratio Dividend Yield Book Value per Share 2010 130% ($0.06) 100% $4.35 2009 61% ($0.37) 100% $4.42 2008 103% $1.07 100% $4.74 2007 104% $0.64 100% $3.51 2006 109% $0.59 100% $2.92

InvestorAnalysis
140% 120% 100% 80% 60% 40% 20% 0% 2005 2006 2007 Degree of Financial Leverage 2008 2009 2010 Percentage of Earnings Retained 2011

$5.00 $4.00 $3.00 $2.00 $1.00 $0.00 2005 -$1.00 2006 2007 2008 2009 2010 2011

Earnings per Share

Book Value per Share

SUMMARY In general the years 2006 to 2010 does not look good for Petrotrin in terms of liquidity. The debt position appears to be good. Profitability does not appear good. On a personal note, I will not invest money in this company, the risk are too high, the price of oil and gas is very volatile and with the age of the plants and equipments together with dwindling production, it is not advisable to invest in this company.

ATTACHMENT I
Consolidate d Balance She et as at Septe mbe r 30 2010 ASSETS: Non-current assets Propert y, plant and equipment Intangible assets Retirement benefit asset pension benefits Cash in escrow Investments-available for sale Investments in subsidiaries Investment in jointly cont rolled entity Deferred income tax assets T axes recoverable C urrent assets Inventories Loans receivable Receivables and prepayment s Cash and cash equivalent s 2009 2008 2007 Re stated 2006 Restate d

$14,805,113 $5,335,201 $1,675,000 $114,434 $5,566 $1 $530,683 $4,635


$22,470,633

$11,419,810 $4,984,105 $1,752,800 $114,855 $4,126 $1 $533,502 $756,163


$19,565,362

$8,292,863 $6,534,638 $1,556,900 $113,187 $4,068 $244,617 $527,960 $62,817


$17,337,050

$6,201,813 $5,898,434 $1,421,800 $112,567 $4,760 $82,863 $1,429,232 $608,552


$15,760,021

$4,359,459 $4,667,417 $1,379,900 $108,342 $4,731 $62,793 $1,223,694 $834,420


$12,640,756

$3,493,046 $1,232 $4,766,952 $2,429,644


$10,690,874

$2,701,927 $618 $3,480,785 $5,622,375


$11,805,705

$3,251,785 $266,579 $5,072,582 $2,946,771


$11,537,717 $90,310

$2,675,765 $71,607 $2,933,334 $4,109,761


$9,790,467 $9,466 $9,799,933 $25,559,954

$2,065,949 $5,040 $1,851,553 $1,944,361


$5,866,903 $0 $5,866,903 $18,507,659

Non-current asset s held-for-sale $10,690,874 Total asse ts EQ UITY AND LIABILITIES Equity C apital and re se rve s attributable to e quity holde rs of the Company Share capital Retained earnings Currency translation differences $33,161,507 $11,805,705 $31,371,067

$11,628,027 $28,965,077

$2,272,274 $7,616,656 $59,124


$9,948,054

$2,272,274 $7,754,928 $92,215


$10,119,417

$2,272,274 $8,602,185 ($41,109)


$10,833,350

$2,272,274 $5,827,266 ($44,476)


$8,055,064

$2,272,274 $4,444,121 $11,463


$6,727,858

Minori ty intere st in e quity Total equity Liabi litie s Non-current liabilitie s Borrowings Deferred income tax liabilities Retirement benefit obligation medical expenses Provisions

($65,522)
$9,882,532

($70,073)
$10,049,344

($69,827)
$10,763,523

($85,650)
$7,969,414

($97,773)
$6,630,085

$9,981,795 $1,439,883 $1,456,000 $3,476,302


$16,353,980

$10,504,599 $1,514,716 $1,343,400 $2,756,475


$16,119,190

$5,284,730 $1,903,984 $1,206,100 $4,092,798


$12,487,612

$5,440,197 $3,362,828 $937,800 $3,615,653


$13,356,478

$796,068 $2,942,065 $875,500 $3,152,357


$7,765,990

C urrent liabili tie s T rade and ot her payables Current income tax liabilities Borrowings Bank overdraft and short-term loans Provisions Liabilities direct ly associated with non-current assets classified as held-for-sale $6,924,995 Total liabilities Total equity and l iabilities $23,278,975 $33,161,507 $5,202,533 $21,321,723 $31,371,067

$3,659,826 $798,099 $495,858 $1,966,965 $4,247


$6,924,995

$3,021,381 $789,217 $107,156 $1,233,335 $51,444


$5,202,533

$3,674,927 $888,003 $100,221 $912,688 $70,101


$5,645,940 $68,002 $5,713,942 $18,201,554 $28,965,077

$2,614,942 $1,345,887 $96,151 $60,245 $79,815


$4,197,040 $37,022 $4,234,062 $17,590,540 $25,559,954

$2,094,125 $776,846 $107,697 $1,061,221 $71,695


$4,111,584 $0 $4,111,584 $11,877,574 $18,507,659

ATTACHMENT II
C onsolidated Income State me nt for the Ye ar e nding Septe mber 30 2010 C ontinuing ope rations: Revenue Cost of sales Gross profit Administrative expenses Marketing expenses Other operating expenses Impairment Losses Other operating income 25,942,414 (22,796,612) $3,145,802 (1,030,524) (118,130) (13,322) (1,118,535) 143,459 2009 Restate d 22,024,555 (20,479,422) $1,545,133 (802,069) (93,853) (39,293) (813,160) 190,339 ($12,903) $800,257 24,741 (371,456) (346,715) (536,135) $774,690 (908,630) ($133,940) $391,771 ($895,753) 9,995 ($885,758) ($503,573) 205,457 $5,296,340 $5,296,340 73,355 (216,221) (142,866) (72,518) $5,080,956 (2,742,277) $2,338,679 $2,338,679 $136,583 $3,116,728 $3,116,728 $88,310 ($211,803) ($123,493) ($40,105) $2,953,130 ($1,558,312) $1,394,818 $1,394,818 $117,591 $3,082,641 $3,082,641 $55,908 ($300,870) ($244,962) 2008 Re stated 40,059,061 (33,692,732) $6,366,329 (926,660) (96,165) (252,621) 2007 Restate d $26,440,667 ($22,442,843) $3,997,824 ($871,798) ($106,914) ($38,967) 2006 Restated $25,788,950 ($22,078,041) $3,710,909 ($599,887) ($108,430) ($37,542)

O pe rating profit (re sults from ope rating activiti es) $1,008,750 O pe rating profit (re sults from ope rating activiti es) $2,127,285 Finance income Finance costs Finance costs - net Share of loss of jointly controlled ent ity Profit before tax T ax Profit for the year from continuing operations Profit for the year from continuing operations Discontinued operations: Profit for the year from discontinued operations Profit for the year O the r C omprehensive income: Currency T ranslation differences ($32,872) ($133,940) 4,574 (238,634) (234,060)

$0
$2,837,679 ($1,512,287) $1,325,392 $1,325,392

$39,302 ($846,456)

102,448 $2,441,127

$64,441 $1,459,259

$22,863 $1,348,255

$132,277 $132,277 ($714,179)

Other Comprehensive income for the period, net of income ($32,872) tax T otal comprehensive (expense)/income for t he year Profit / Loss Attributable to: Equity holders of the Company Minority interest ($138,272) $4,332 ($133,940) ($166,812)

($847,257) $801 ($846,456)

$2,426,077 15,050 $2,441,127

$1,446,790 $12,469 $1,459,259

$1,345,012 $3,243 $1,348,255