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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

The Company was incorporated in January. Caribbean Oil Purchase Company Limited (COPCO) is an exempted limited liability company incorporated under the laws of the Cayman Islands.PETROLEUM COMPANY OF TRINIDAD AND TOBAGO LIMITED Petroleum Company of Trinidad and Tobago Limited (PETROTRIN) is incorporated in the Republic of Trinidad and Tobago. La Brea in l910. The registered office is the Administration Building. 1993 culminating a series of acquisitions and mergers commencing in 1974. Tabaquite and Barrackpore in South Trinidad but it was not until l908 that commercial production began. The company is primarily engaged in integrated petroleum operations which include exploration. Point Fortin. . The sole shareholder is the Government of the Republic of Trinidad and Tobago (GORTT). COPCO in the Cayman Islands. The petroleum industry in Trinidad and Tobago is one of the oldest in the world (older than Venezuela and Saudi Arabia). The first export shipment was made from Brighton. West Indies. Trinidad and Tobago. 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. development and production of hydrocarbons and the manufacturing and marketing of petroleum products. This led to the discovery and development of oilfields at Forest Reserve. with exploratory drilling beginning about 1857. Pointe-a-Pierre.The following are subsidiaries of PETROTRIN: 1.

drill. PEAPSL Trinidad and Tobago Petrotrin EAP Services Limited (PEAPSL) provides counseling services for employees. 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. their families and third parties. . 5. 3. TNA United Kingdom Trinidad Northern Areas Limited (TNA) was formed for the specific purpose of assigning rights to explore. and produce oil and natural gas from certain geological areas within the jurisdiction of Trinidad and Tobago. Petrotrin Trinmar Operations Petrotrin Trinmar Operations is a marine based operations located in the Soldado fields off Trinidad’s South-West Coast.2. develop. 4.

together with final product from the refinery division directly affect the profitability of the company. fell drastically in 2009 indirect relations to the price of oil. Resources analyzed include income statements. The company’s performance was measured using the profitability ratios. balance sheets and statements of oil prices. . development and production of hydrocarbons and the manufacturing and marketing of petroleum products. the company increased its borrowing to finance the construction of a Gas To Liquid (GTL) plant. 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. because the plant never went into production. RESOURCES The data analyzed were taken from the financial consolidated reports from Petrotrin for the years 2006 to 2011. This was done by comparing the Balance Sheets and Income Statements for the period. An analysis was done on the company liquidity ratio. profitability and investor analysis. Total daily production of oil and gas. The various Financial Ratios were compared to determine whether there are areas of concern in terms of the company’s Liquidity and Long term debt paying abilities. therefore the price of oil and gas on the world market will affect the company financial outlay. Although the price of oil fell in 2009.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. The review revealed that net profitability after peaking in 2008. this result in heavy financial losses.

. The income statements showed that profit before taxes decreased significantly from over 5 million dollars in 2008 to a loss of $895.00 in 2009. 753.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. Operating profits decreased significantly in 2009.

1% -4.5% -0.2% 12.2% 5.5% 0.5% 13.0% -3.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.0% 0.0% -3.8% 0.0% 0.4% -0.9% -0.0% -0.5% 100% 93.1% 15.5% -0.6% 0.0% 6.1% 0.1% -1.0% 0.2% 0.2% -5.8% 0.3% -0.3% -0.5% 0.0% 0.3% 0.4% -4.9% 12.1% 0.6% 3.9% 5. in 2009 there was a significant drop in GP due to a higher percentage of cost of sales.6% 0.8% 5.5% 0.0% 0.7% -6.0% -0.2% 0.0% 0.3% 6.1% -4.0% 5.2% 0.5% 12.0% 3.5% 100% 85.1% 5.4% -2.0% -4.6% 14.2% -0.2% -1.2% -3.4% -0.4% -0.0% -0.2% 0.0% 5.9% 0.9% 15.6% 0.0% 0.2% -0.1% 0.2% 11.9% 0.8% 0.1% 0.0% 0.0% -3.3% 0.8% 0.0% 0.9% -0.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 .0% 0.0% 0.9% 5.1% -0.3% -0.9% -2.8% -0.1% 0.8% 100% 84.1% 0. . 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% 87.0% -5.0% 7.2% -3.1% 0.5% -0.0% 5.3% -0.5% 11.1% 100% 84.5% -0.7% -1.1% -0.0% 6.4% -0.0% 0.5% 0.6% -0.9% 0.7% 0.0% 0.0% -0.6% -3.6% -2.1% -3.5% -0.2% Highlights: Gross profits (GP) showed a relatively stable increase year to year from 2006 to 2008.0% 0.0% -3.0% -0.0% 5.2% -0.0% 11. In 2010 GP rebounded but was still not at the same level of margin as in the 2006 to 2008 period.

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% .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 .

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. decreased slightly 2008.-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. 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. · · 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. increased again in 2009 and decreased in 2010 this would be negative .

04 1.0 85 2.40 0.755.35 5.3 19 1.05 33 9. Working Capital showed an increase in 2010 which was an improvement.43 0. .15 71 6.08 3.31 1.765.93 26 10.Cash Ratio increased slightly in 2007.37 32 69 $5. Receivables declined which would be negative and resulted in a steadily declining operating cycle.52 2008 10.66 0.69 Summary-Liquidity Most of the Liquidity ratios declined. decreased slightly 2008.8 79 1. The Current Ratio kept wavering. so did the cash ratio as well as sales to working capital.01 36 11.00 2009 5. 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. increased again in 2009 and decreased drastically in 2010 this would be negative Sales to Working Capital decreased by 50% in 2007.98 2007 11.29 58 7.47 14.8 71 2.88 53 124 $6.1 72 2. decreased slightly 2008.69 34 60 $1.27 1.92 0.22 2006 13.914.603.565.36 50 108 $3.75 1.97 7.52 6.47 39 72 $5. Overall liquidity is cause for concern.54 1.04 0.

Increased significantly in 2010 so this is looking good Fixed Charge coverage Debt Ratio is good but it increased slightly.68 2.05 Summary-Long Term Paying Debt .21 2008 37.63 1.58 0. Debt / Equity Ratio okay and increased slightly.69 4.12 4.79 6.24 0.49 2006 12. 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 9.21 8.31 0.LONG TERM PAYING DEBT Times Interest earned increased rapidly over 2007 and 2008 but reduced drastically in 2009.69 2.70 2.36 5.64 1.09 0. Debt to tangible net worth increased drastically in 2007 declined in 2008.07 0.30 2007 25.12 2009 2.

This is largely the result of the World GTL project venture which failed to startup and generate revenue despite almost $ 7 Billion TTD invested. Operating income margin shows the same trend suggesting that the decline was not due to increased finance costs. it shows decline since 2006. The Total Asset Turnover shows that that there has been a general decline over the 5 year period reviewed. This suggests that the non productive assets are largely associated with the Fixed Assets. but fell off sharply in 2009 recovering moderately in 2010. On examination of the Operating Asset Turnover. . PROFITABILITY ANALYSIS Net profit margin peaked in 2008.Most of the long term debt paying ratios declined. 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. that is showing the greatest decline than either of the Total Asset Turnover or the Operating Asset Turnover ratio. This is partly due to declining in-house crude oil production and the consequent need for greater crude oil imports. Additionally decreased sales volumes since 2008 are due in part to the Petro-Caribe agreement.9% in 2010. plant and equipment. also aging plant reducing operation efficiency of the refinery. which suggests that the increase in operating assets over the period has failed to generate increased revenue.1% in 2008 to 93.0% in 2009 recovering moderately to 87. those of property. The long term debt paying ability does not look good at this time. Looking further still at the Sales to Fixed Assets ratio shows even more sensitivity. The debt and debt/equity ratios declined which are not good. 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.

89% 15.39 7.93% 3.13% 7.73 -1.93 -2.95% 2. Given that financing over the period has been with long term debt this is very poor.80 1.74% -4.63% 1.22% 11.45% in 2006 to negative ROI in 2009.75%.58 $56.99% 24.52 29.29% 0.15 .93% 2009 -2.84% -4. The Return on Operating Assets paints a similar picture.77% 30.97% 19.11% 19.75 1.97% 19.99% 15.26 5. The Return on Investment paints a dismal picture which falls from a high of 16. Indeed this is potentially disastrous given that Petrotrin secured bond financing in 2009 for its refinery upgrade at 9.58% 2007 5.28% 1.84% 1.92 16.16% 13.02 3.11% 19.07% 3.25% 24.14% 1.40 12.The combined effect of the poor Net Profit Margin and the Total Asset Turnover results in poor Return on Assets.33% 2006 5.79% 11.24 2.84% 2008 5. 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 1.92 $49.02% $68.54 $60.20% 1.73% 1.51% 0.06 8.83 4.07% in 2010.02 2.72% 1.47 8.67% 3.20 6.39% $99.56% 23. recovering slightly to end at 1.04% 7.12% 14.13% 4.45% 10.21% 8.

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0 1.0 7.0 5.0 4.0 6.0 0.0 3.0 2.18% 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 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 .

however the peak book value at the close of 2008 was $4. This financial leverage increase however has not increased profitability.06) 100% $4. but has increased significantly to 1. The retained earnings of the profitable years in 2006 to 2008 has increased the book value over the 5 year period. In the period examined there were no dividend payouts.35 2009 61% ($0.37) 100% $4. and all earnings were retained. as earnings per share peaked at $1.07 in 2008. the book value has been slightly eroded.42 2008 103% $1.59 100% $2. but has seen two consecutive years of loss since.74. since then two consecutive years of loss.INVESTOR ANALYSIS Financial leverage went from being relatively insignificant in years 2006 to 2008.92 .74 2007 104% $0.64 100% $3. INVESTOR ANALYSIS Degree of Financial Leverage Earnings per Share Percentage of Earnings Retained Dividend Payout Ratio Dividend Yield Book Value per Share 2010 130% ($0.07 100% $4.30 in 2010.51 2006 109% $0.

00 2005 -$1.00 2006 2007 2008 2009 2010 2011 Earnings per Share Book Value per Share .00 $2.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 $3.00 $1.00 $0.00 $4.

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

274 $8.944.800 $3.933.599 $1.190 $5.754.302 $16.487.813 $5.068 $244.400 $2.559.731 $62.419.903.694 $834.345.705 $31.903 $18.683 $4.810 $4.475 $16.965 $4.ATTACHMENT I Consolidate d Balance She et as at Septe mbe r 30 2010 ASSETS: Non-current assets Propert y.716 $1.713.119.659.002 $5.440.927 $618 $3.161.584 $0 $4.851.444 $5.800 $112.068 $2.574 $18.874 $2.064 $2.278.021.274 $7.429.067 $3.105 $1.954 $2.933 $25.480.470.942.817 $17.414 ($97.476.522) $9.760 $82.371.785 $266.221 $71.000 $114.065 $875.124 $9.798 $12.335 $51.245 $79.274 $4.362.617 $527.272.476) $8.567 $4.675.234.942 $1.980 $10.247 $6.540 $25.119.434 $1.773) $6.984 $1.828 $937.659 Non-current asset s held-for-sale $10.701.846 $107.100 $4.799.310 $2.966.690.537.717 $90.021 $4.109) $10.201.924.504.805.887 $96.827.553 $1.756.765.900 $113.232 $4.113 $5.356. 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 $14.969.688 $70.514.232 $608.507.882.444.523 ($85.109.049.197 $3.111.420 $12.040 $1.217 $107.863 $1.077 $2.061.898.161.795 $1.202.334 $4.565.659 .954 $2.223.439.667.111.928 $92.785 $5.645.187 $4.201 $1.690.995 Total liabilities Total equity and l iabilities $23.883 $1.215 $10.092.995 $3.266 ($44.940 $68.272.054 $2.723 $31.866.761 $9.156 $1.874 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 $33.607 $2.675.077 $2.507 $5.478 $796.765 $71.727.417 $1.644 $10.760.633 $11.705 $3.284.793 $1.556.903 $0 $5.027 $28.984.927 $888.635 $22.466 $9.233.695 $4.344 ($69.379.877.362 $8.073) $10.357 $7.826 $798.272.085 $9.638 $1.965.960 $62.342 $4.507.582 $2.628.274 $5.197.855 $4.805.040 $37.766.965.800 $114.003 $100.201.185 ($41.552 $15.863 $6.429.815 $4.763.805.321.674.274 $7.350 $2.067 $11.866.952 $2.614.602.151 $60.337.335.055.534.579 $5.507 $11.101 $5.421.359.050 $6.656 $59.272.459 $4.858 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 ($65.493.353.790.292.375 $11.858 $1.206.771 $11.533 $3.532 ($70.417 $2.065.924.251.272.022 $4.752.099 $495.554 $28.949 $5.756 $3.202.616.094.981.697 $1.990 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 $6.833.126 $1 $533.948.072.612 $5.630.640.000 $3.827) $10.152.622.456.942 $18.559.163 $19.566 $1 $530.343.946.371.125 $776.650) $7.900 $108.584 $11.730 $1.381 $789.590.533 $21.434 $5.653 $13.121 $11.046 $1.467 $9.975 $33.062 $17.615.502 $756.361 $5.500 $3.463 $6.221 $912.

818 $1.105) $2.287) $1.366.870) ($244.255 $132.796.457 $5.555 (20.041) $3.459.667 ($22.414 (22.997.338.940) ($166.082.728 $88.296.116.788.082.118.332 ($133.312) $1.259 $1.024.872) ($133.127 $1.583 $3.728 $3.325.426.621) 2007 Restate d $26.493) ($40.078.940) 4.798) ($106.863 $1.077 15.679 ($1.448 $2.243 $1.940) $391.469 $1.030.459 2009 Restate d 22.338.257 24.512.456) $2.710.630) ($133.612) $3.339 ($12.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 25.116.012 $3.558.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 ($32.750 O pe rating profit (re sults from ope rating activiti es) $2.459.953.296.802 (1.442.302 ($846.392 $1.130) (13.742.329 (926.866) (72.221) (142.135) $774.824 ($871.542) O pe rating profit (re sults from ope rating activiti es) $1.293) (813.277) $2.325.524) (118.908 ($300.479.422) $1.446.872) tax T otal comprehensive (expense)/income for t he year Profit / Loss Attributable to: Equity holders of the Company Minority interest ($138.145.962) 2008 Re stated 40.692.348.803) ($123.394.179) Other Comprehensive income for the period.061 (33.641 $3.950 ($22.060) $0 $2.340 $5.345.715) (536.257) $801 ($846.259 $22.355 (216.753) 9.133 (802.285 Finance income Finance costs Finance costs .771 ($895.818 $117.348.591 $3.127.887) ($108.255 .634) (234.160) 190.790 $12.741 (371.903) $800.069) (93.837.277 ($714.441 $1.277 $132.843) $3.127 $64.165) (252.272) $4.909 ($599.310 ($211.942.456) 102.679 $2.956 (2.441.430) ($37.340 73.812) ($847.059.853) (39.679 $136.545.535) 143.392 $39.573) 205.050 $2.995 ($885.758) ($503.441.641 $55.967) 2006 Restated $25.690 (908.080.732) $6.518) $5.574 (238.130 ($1.440.008.456) (346.914) ($38.322) (1. net of income ($32.394.660) (96.