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Financial Viability Analysis of Government Printing Press
November 1st 2009
Final Draft Report
Financial Viability Analysis of Government Printing Press
Table of Contents Section
1. Government Printing Press (GPP)
2. Accounting & Reporting System & Issues 3. Limitation of Financial Analysis 4. Financial Highlights
4.1 4.2 4.3 4.4 4.5 Income Statement of GPP Lahore Balance Sheet of GPP Lahore Income Statement of GPP Bahawalpur Balance Sheet of GPP Bahawalpur Combined Income Statement
5 6 7
7 8 9 10 11
5. Financial Analysis
5.1 5.2 5.3 5.4 Key Financial Numbers for Lahore Analysis of Financial Numbers – GPP Lahore Key Financial Numbers for Bahawalpur Analysis of Financial Numbers – Bahawalpur
12 16 19 23
6. Cost Benefit Analysis 7. Conclusion & Recommendation Appendix A: Approved Financial Statements Appendix B: SWOT Analysis Appendix C: Review of the Ferguson’s Report on GPP 8. Introduction
8.1 8.2 8.3 8.4 Objective Report Summary Key Recommendations Strengths & Weaknesses of the Ferguson Report
26 27 30 31 32 32
32 32 34 34
Financial Viability Analysis of Government Printing Press ii .
Financial Viability Analysis of Government Printing Press List of Acronyms and Abbreviations COGS EBITDA GPP GoPB LT ROA ROC ROE Cost of Goods Sold Earnings before Interest Taxation Depreciation and Amortisation Government Printing Press Government of Punjab Long Term Return on Assets Return on Capital Employed Return on Equity iii .
especially given the high degree of inflation that has been observed in the paper industry. The copies of the financial statements provided by the GPP are placed at Appendix A for record and verification of the results and numbers quoted in this report. Government Printing Press (GPP) This report provides a financial viability analysis of the GPP based on the financial statements and records between 2004-2008 that were provided by the GPP and were verified to be correct. one based in Lahore and one in Bahawalpur. The officials also informed that under the current capacity if GPP was to run two shifts of 10 hours each it would require around 7 Tonnes of 1 Controller GPP and previous report on Industries Department done by Ferguson’s in 2006 4 . 1.Financial Viability Analysis of Government Printing Press 1. to make available to Government of the Punjab a printing facility that could cater for the voluminous printing requirements of the Government on a timely basis. this information is not backed by the evidence provided in the financial statements. and to make available to Government of the Punjab a printing facility for undertaking ‘secret’ printing notwithstanding the cost considerations. however. All these accounts have been audited by the Commercial Audit wing of AG Office.1 Introduction GPP is an attached department of the Industries Department. GPP runs two presses. The primary reasons to establish GPP1 may be stated as: to make available to the Government of Punjab a printing facility that could meet the printing requirements of the Government in a cost efficient manner. Some numbers in the analysis have been modified after a sensibility check and any such errors are reported accordingly. Government of the Punjab. Its main purpose is to provide printing services to various departments of Government of the Punjab. Another reason for establishing the GPP was that at the time of its establishment there was insufficient capacity in the private sector to undertake the large and urgent printing requirements of the government. This report must be read in continuation of the Inception Report produced for the project to cover the project back ground. GPP has complained that the government has kept their budget constant at Rupees 3 Million over the last few years. It must also be noted that similar provincial printing presses also continue to exist in all the other provinces as well. GPP operates under a budget transfer from the government. According to GPP officials this stance of the government has significantly affected the performance of GPP.
000 copies of the provincial budget in 4 days. The current business practice is to evenly spread the allocated budget over ¾ of a year and in many instances GPP have had to ask for additional funds to buy paper. In terms of staff size GPP over the last ten years has seen its staff size shrink significantly to around 200 individuals from 1700 at one point. This will reduce the asset value of GPP. GPP claimed that this printing runs into hundreds and thousands of pages every week. This has added to their existing unutilised capacity. Accounting & Reporting System & Issues The accounts of GPP are maintained on a cash receipt and disbursement basis. 5.000 forms for the Green Tractor Scheme last year for the Agriculture Department within a very short time period and the payment chalans were not received even after a significant delay. 1. Trading and 2 Reference notification was provided by the GPP. 2. Another concern raised by them was the hostile attitude of departments towards them and significant delays by other government departments to clear their due payments. Moreover. Example of this includes weekly printing of gazette notifications. 5 . adjacent to the Lahore premises of GPP. GPP also carries out some work for the government free of charge. Glue Binding Machine Rs. The financial statements provided by the GPP’s officials comprise of the Balance Sheet.Financial Viability Analysis of Government Printing Press paper every day. GPP were given permission to use their depreciation reserve fund to purchase two refurbished machines costing a total of Rupees 8 Million. the above discussion points to the direction that GPP is still in use by the government.5 Million and Paper Cutting Machine Rs. buy a Folding machine for Rs. Recent developments at GPP include: 60 Kanals2 of land has been taken away from GPP and allocated to the District Sessions Courts. all the machines available at the press in Lahore (14 in number) are in good working condition.0 Million.5 Million. At this rate the total budget of Rupees 3 Million will only last for a month or so. GPPs claim to fame this year was them being able to print the initial 10. P&DD has also recently approved a PC-1 for GPP to build a new hall at a cost of Rs. This highlights that GPP currently possesses significant idle capacity. not established as part of the current exercise but it will be useful to quantify whether this spreading of budget is due to lack of budget or lack of work/sub-optimal use of capacity as the financial information provided negates this claim. Although.563 Million. however only meagrely. It is also noted that the financial accounts do not account for the value of land under use by GPP. 2. In short. which will lower the opportunity cost. For example. GPP printed around 600. 1. The system of recording is single entry.
The financial management system is inadequate and it is extremely difficult for an independent person to judge the completeness of information. It can be argued. depending on the nature of printing. The price charged to the department is calculated by a base line formula designed by the Finance Department. It is further recommended that accounts of GPP are fully audited to fill current gaps in the information. GPP. structurally is very different to a private sector commercial organisation. As a result. GPP is not allowed to do any printing services for the private sector and hence has to rely solely on the demand raised by the government departments. it is impractical to ensure the completeness regarding the recording of all transactions that have occurred during the period. Production Account. Once this element was corrected the statements for 2008 very showing a net loss as compared to a net profit position as quoted in the reported/audited accounts. GPPs business model is very simple. At the start of the financial year GPP submits their budget requirements to the Industries Department. hence the analysis provided must be read in light of this spectrum. costing. some jobs are more profitable and some are loss making. neither has the capacity to compute cost-based pricing for individual jobs. Neither of them was able to provide reasonable justifications and also agreed that the accounting system was inadequate and most of the figures in the balance sheet were not supported by any evidence.Financial Viability Analysis of Government Printing Press Profit and Loss account. This is then provided to GPP. like other PSOs. 3. TheIndustries Department gets the budgeted amount from the Finance/Treasury and purchases paper and other material for GPP. During the analysis. that GPP.. However. In the absence of a double entry system of accounting and non-adherence to the accrual basis of accounting. the demand. Several inconsistencies were observed (which will be discussed in this report later) and discussions were held with the GPP officials and staff from AG Office commercial audit wing. The departments send in their requests. It is recommended that GPP should adopt proper double entry accounting systems and standards to ensure proper accrual based accounting. sustainability and financial stability. Store/Stock Account of Book Depot Sale and Schedule of Fixed Assets. for example the closing stock of 2007 was reported differently as compared to the starting stock of 2008. The GPP is not allowed. there is no formal proof to quantify this claim but it makes sense due to the umbrella cost structure that exists. The financial numbers only reflect the commercial angle and sense of an entity. GPP records this transaction as a sale. the sale price and the budgeted paper are all pre-decided for GPP and limited autonomy is allowed to GPP to function. Material Account. some major anomalies were observed. In other words. Limitation of Financial Analysis The financial analysis of an entity is normally conducted to establish understanding about its profitability. is just part in the cash cycle where treasury releases money to industries to buy paper for GPP and department retransfers that cash back to 6 . The aforesaid accounts have been prepared directly from underlying records and registers on a proforma basis. deposit the money with the treasury and provide a copy of the chalan form to GPP.
070.107.00 1.351.00 576.00 Figures in Pak Rs.00 6.00 4.00 58.272.900.00 15.200.743.949.024.988.826.988.00 44.958.310.028.866.733.605.724.278.139 which is different from the closing stock figure which was equal to 9.733.278. This can then be compared with the private sector costs to get an idea if GPP is costlier or cheaper.00 945.586.039.695.958.180.990.606.00 336.660.175.711.320.00 108.975.826. 7.875.264.379.00 20.294.00 40.00 1.905. 7 .00 17.00 1.5188.8.131.522.479.356.988.307.485.71 10. Given the limited flexibility / autonomy in the working of the press the financial numbers below must be read based on this business / work model of GPP.00 2.Financial Viability Analysis of Government Printing Press treasury by getting their print jobs done.983.691.512. Balance Sheet and Asset Information on GPP over the last five years.321.00 4.603.507.518.00 9.00 1.00 2.254.061.00 13.00 53.852.120.00 8.372.847.00 4.00 6.00 43.556.769.00 752.268.450.00 3.743.00 68.00 . This information is represented and deduced by re-developing the GPP’s original financial statements in a more user friendly format.378.346.106.71 45.00 824. To conclude the section.00 6. Based on this working in the analysis done below the report has tried to estimate the true cost of printing on an annual basis.00 698.743.527.523.392.26 Million as compared to the financial accounts showing a profit of Rupees 285.00 2004-05 52. The above accounts have made this adjustment which has resulted in a net loss of Rupees 2.967.00 1. it is re-iterated that the GPP is not designed to effectively cost its printing. decide on suitable profit margins or decide on the scope of its work.826.00 8.00 3.592.104.00 1.00 5.341.304.636.00 1.465.00 62.00 62.00 1.323.356.743.00 2007-08 78.00 750.167.436.29 42. Sales Other income Total revenue O/B: Stock Recieved during the Year C/B: Stock Cost of Goods Sold Gross Profit Employee Related Expence Running & Administration Depreciation Controller's Office Expence Others Interest on Capital Total Expenditure Net Profit 39.00 2006-07 68.771.00 2. The report at Appendix B also provides a SWOT analysis of GPP articulating the information discussed above and that contained in the Ferguson’s report of 2006.762.521.29 12.00 884.2.00 1.00 6.225.00 51.031.00 507.00 3.259.929. 4.198.378.00 105.061.772.00 1.139 which is not same as closing balance The opening balance for stock in 2008 was reported to be Rs.992.244.00 774.683.295. 4.636.724.840.603. This cost figure can be compared by the total volume of work printed by GPP to get an idea of average cost of printing.798.00 2005-06 58.912.636.419.743.00 477.620.00 80. Financial Highlights This section provides the Income Statement.325.306.521.00 12.00 105.00 40.925.928.292.00 2.410.253.1 Income Statement of GPP Lahore 2003-04 43.272.982.00 9.00 1.407.535.258.00 10.544.018.00 Note: The Accounts stated the opening balance of stock in 2008 as 7.00 53.762.00 12.263.180.724.555.605.349.823.392.00 15.696.076.662.074.
00 41.514.000. It is strongly recommended that the balance sheet be re-written after verifying the sources of all numbers and also including land as part of fixed assets.674.578. the figures for creditors and debtors are remarkably high and have stayed stagnant over the period shown above.00 7.460.00 120.00 7.074. This shows that the increase in sales and cost of sales do not necessarily imply that GPP is producing more prints.00 125.958.00 8.190.810.00 2004-05 60.00 126.125.00 44.810.530.981.979.780.901.112.718.089.00 3.810.894.71 71.743.946.00 3.635.334.00 136. however.230.716.846. On the Expenditure side where the absolute size of any element is not alarming.924.810.00 1.090.839.901.00 7.00 120. this increase is even less than the paper inflation (paper price have doubled in last 5 years). 8 .00 616.011.00 6.462.00 102.616.033.00 37.920.924.00 616.849.839.545.635.490.00 81.581.611.00 5. Similarly the stock and work in progress have increased significantly.662. the two biggest cost heads “Controllers office share” and “others” have consistently increased and are also the least transparent in financial records.514.00 2005-06 52.00 6.716.132. However.810.387. 4.00 44. The error reported in 2008 was due to wrong calculation of profit as discussed above.71 84.00 118.71 99.00 17.00 7.616.00 54.741.340.00 128.289.00 147.627.00 3.227.775.039.767.00 55.71 84.743.00 Figures in Pak Rs.616.891.180.00 8.586.00 6.665.2 Balance Sheet of GPP Lahore 2003-04 49.472.00 84.901.406.519.00 57.00 2007-08 50. No reasonable explanation exists for this entry and it is presumed that this is just a balancing entry to balance off the balance sheet.00 10.Financial Viability Analysis of Government Printing Press Both the sales and cost of sales have been steadily increasing at almost the same pace.296.767.546.00 102.627.00 43.519.00 791.00 54.190.494.417.847.289.027.000.00 71.027.288.107.460.959.190.544.904.00 6.00 50.551.00 85.417.00 761.545.767.125.00 44.689.785.000.494. The capital calculation method is also not consistent and included a significant entry under the head of ‘receipts from other sources’.230.502.844.208.00 81.00 45.455.71 2.00 85.000.519.168.00 85.71 The balance sheet shows reasonable amount of liquidity and solvency for GPP mainly due to no long terms liabilities being accumulated. it may well be producing less and this rise may well be fully attributed to increase in prices.00 6.298.00 3.139.00 130. Current Assets: Debtors Stock Material Stock Work in progress cash in Hand Secuirity Deposit Total Current Assets Long Term Assets: Fixed Assets Total LT Assets Total Assets Current Liabilities Creditors 7.981.019.773.748.300.697.00 44.521.762.00 139.000.847.00 45.289.218.814.00 2006-07 50.814.362.198.00 Long Term Liabilities Total Liabilities 54.790.027.430.105.00 8.218.746.00 81.718.552.308.00 3. Given the accounting controls these numbers are seriously questionable.019.878.00 50.589.061.00 Net Assets Financed By: Capital Error Total Financing 71.552.00 6.00 3.494.785.322.00 6.
026.977.00 1.3 Income Statement of GPP Bahawalpur 2003-04 12.00 7.00 657.018. In the year ended 2007-08 they have recorded a profit of over Rupees 5 Million.6184.108.40.206.00 508. The last year figures are not reflective of previous year trends.499.409.00 5.945.658.2.00 949.198.202.068.975.00 1.810.00 NA 9.00 9.104.309.00 150.684.613.00 3.977.833.00 .439.00 3.00 3.00 2.506.00 3.Financial Viability Analysis of Government Printing Press 4.00 2.460.387.00 82.741.00 8.291.121.211.00 8.121.00 The sales figures recorded for the Bahawalpur press are much more variable as compared to the Lahore Press.00 3.653.647.809.397.977.182.869.00 50.00 2.249.686.342.524.249.00 139.912.328.137.253.000.00 360.920.599.00 6.00 626.631.00 1.672.00 6.00 1.121.00 1.637.559.328.630.328.376.00 388.00 978.00 244.00 383.743.637.064.00 7.00 Figures in Pak Rs.506.733.00 NA 12.00 1.787.202.026.559.00 3.00 407.00 2005-06 220.127.116.118.392.945.002. This has been a result of both a high level of closing stock reducing cost of goods sold and a sudden increase in sales and gross margin in the last year.00 NA 16.00 69.00 556.00 NA 11.750.075.121.00 4.127.00 77.556.00 7.414. Below (Section 4.163.952.00 610. Sales Other income Total revenue O/B: Stock Recieved during the Year C/B: Stock Cost of Goods Sold Gross Profit Employee Related Expence Running & Administration Depreciation Controller's Office Expence Others Interest on Capital Total Expenditure Net Profit 8.00 101.00 2006-07 11.00 2004-05 9.488.142.524.00 5.137.565.00 NA 9.00 9.00 662.305.256.925.00 8. yet is not quantifiable in accounts.637.789. If we combine the numbers of GPP-Lahore and GPP-Bahawalpur the expense will run over three million a year.00 589.728.00 1.215.647.677.00 725.734.154.794.998.261.5) we have provided a combined income statement of the GPP (this statement do not account for internal transfers if there were any) 9 .361.521.038.000.00 82.765.428.414.998. On the expenditure side again the Controller’s Office Expense is the biggest head.00 348.085.00 2007-08 16.00 3.776.050.393.00 1.00 4.050.00 4.00 3.382.760.031.491.125.00 4.007.00 3.
00 896.00 11.317.795. No reasonable explanation exists for this entry and it is presumed that this is just a balancing entry to balance off the balance sheet.054.184.436.795. the figures for material stock and stock of finished goods are remarkably high and have gradually creeped up over the period shown above.121.212.00 5.736.00 11.4 Balance Sheet of GPP Bahawalpur 2003-04 3.130.00 22.00 19.857.00 662.00 18.201.962. However.127.715.000. It is strongly recommended that the balance sheet be re-written after verifying the sources of all numbers and also including land as part of fixed assets.954.460.00 2007-08 5. 10 .033.00 18.357.352.00 18.00 1.998.991.00 14.00 The balance sheet shows reasonable amount of liquidity and solvency for GPP mainly due to no long terms liabilities being accumulated.00 2005-06 3.00 7.00 8.00 3.080.201.175.Financial Viability Analysis of Government Printing Press 4.016.106.097.701. The capital calculation method is also not consistent and includes a significant entry under the head of ‘cross book transfer’.00 22.597.00 22.752. Given the accounting controls these numbers are seriously questionable.00 1.362.977.171.00 1000 2.242.761.00 1000 1.00 5.352.00 3.996.004.00 18.050.00 11.00 7.835.00 1.609.857.00 19.00 25.113.568.00 1.00 10.693.250. However.00 17.00 19.598.00 4.099.00 12.000.00 1.857.016.266.153.00 20.175.00 2004-05 4.229.903.829.00 2006-07 3.00 Net Assets Financed By: Capital Error Total Financing 5.853.121.568. The accounts for GPP Lahore make no such provisions.122.189.00 712.526.911.915.020.309. it is not clear why it is showing up on the liability side.991.140.00 1.00 1000 5.00 2.568.00 1.00 21.661.00 1.700.954.00 19.00 395.695.00 1. Current Assets: Debtors Stock Material Stock Work in progress cash in Hand Secuirity Deposit Total Current Assets Long Term Assets: Fixed Assets Total LT Assets Total Assets Current Liabilities Creditors Depreciation Reserve Long Term Liabilities Total Liabilities 1.954.00 20.704.137.991.00 24.825.661.835.00 1.104.186.065.647.00 15.106.782.818.104.22.168. During discussions it was informed that the depreciation reserve fund is where GPP can access financing from machinery and is maintained at the Finance Department.522.214.171.1242.275.175.171.00 1000 2.00 762.997.693.795.00 896.00 1.422.602.637.00 422.136. On the liability side a figure for depreciation reserves has been placed which was significantly high until 2004-05 but since then has dropped significantly.121.00 12.693.00 11.00 9126.96.36.1991.058.00 12.250.609.00 4.00 Figures in Pak Rs.00 943.387.559.097.549.978.090.850.205.904.
243.108.452.827.368.457.700.00 3. it is important to note that on average GPP has charged/covered about Rupees 4 Million in interest on government’s invested capital per annum.511.00 3.376.565.00 21.702.306.461.00 2007-08 94.492.327.949.891.437.107.087.042.776.006.00 2.00 13.00 10.852.376.454.931.378.00 1.985.956.00 258.00 2005-06 68.674.139 which is not same as closing balance The combined income statement looks slightly more reasonable as compared to the individual income statements.00 4.625.00 2.357.928.361.414.00 1.754.506.00 481.167.00 13.770.00 1.264.297.520.00 14.419.00 2006-07 79.00 245.931.770. However.00 12.180.050.807.830.29 15.073.022.00 3. A reason for this may be in-appropriate or inconsistent recording of stock and material purchased hence artificially lowering the cost of goods sold.956.003.070.674.00 4.702.00 56.00 856.466. hence neutralising the dips in performance.620.225.069.209.366.375.840.00 9.00 1.899.113.147.091.272.231.00 1.461.784.245.00 63.426.444.486.925.234.00 187.00 1.00 58.865.591.342.793.353.634.855.266.555.358.805.00 6. On the expense side again “others” and “controllers’ office expenses” are the biggest heads.00 19.198. The reason for this being that in years when Lahore press did poorly the Bhawalpur press did well and vice versa.00 Figures in Pak Rs.015.891.848.466.261.71 53.469.00 25.356. 11 .00 774.00 884.00 2.00 907.00 1.00 6.00 2.3188.8.131.52. Combining the incomes statements the GPP is comfortable covering its costs and generating a net positive profit over its recorded information.440.013.00 15.00 69.732.29 50.160.496.260.00 2.00 2.625.00 79.00 61.00 3.028.00 960.877.723.999.346.809.202.00 2.324.565.715.061.700.5 Combined Income Statement 2003-04 55.00 47.00 Note: The Accounts stated the opening balance of stock in 2008 as 7.00 4.00 10.00 1.00 96.00 3.00 70.247.00 68.71 14.620.00 3.684.995.421.743.029.500.902.852.870.00 15.00 24.369.338.00 52.00 184.108.40.2061.00 2004-05 62.00 7.381.187.956. The sales have more steadily increased whilst the cost of production has been more variable.00 12.00 776.Financial Viability Analysis of Government Printing Press 4.00 9.252.793.00 3.320.00 7.00 12. Sales Other income Total revenue O/B: Stock Recieved during the Year C/B: Stock Cost of Goods Sold Gross Profit Employee Related Expence Running & Administration Depreciation Controller's Office Expence Others Interest on Capital Total Expenditure Net Profit 48.036.863.387.00 142.
341 17.407. debtors and fixed assets.107.027.379 2.494. Depreciation Interest on Capital Benefits & Assistance Estimated Cost to Government for Printing Conducted Growth in Sales Growth in Estimated Cost PV of Estimated Sales PV of Estimated Cost NPV as going concern Capital Reciept from other source Fixed Assets Current assets Current liabilities 43.592 1.636 2004-05 52.539 NA NA 47.392 105.726 84.460 117.852.419.378 13.485 1.716 15.295.125.031.450 2.292 884.743.321.545.213 12% -10% 62.346 39.112.078 477.223 1.827 6.707 42.304.1 Financial Analysis Key Financial Numbers for Lahore 2003-04 43.122 2006-07 68.030.349.455. However. 42.259 1.351 6.616.820.691.792 8.028.718.070.126.325.959.372 12.004 7.502.603 2. 12 . The calculation for capital is also incorrect as it is based on ‘receipt from other sources’ which is non-accountable. Based on these calculations the net present value of as going concern comes to around Rs.946 44.378.924 139.253. Sales Other Income Cost of Sales Gross Profit Salary Costs Running Costs Other Costs Controllers Office Exp.545 1.406 45.175.905 3. However.771 558.844 51.802 15% -21% 407.153.306 1.292 84.089. According to the auditors this figure represents the paper and material purchased by industries department and provided to GPP.847 71.801.230 129.999 365.070 6.982.743.507.627 120.743.636 591.014. the figures are unreasonably high in comparison to the material and paper received from industries.929 15.512.278 45. it must be noted that growth in sales figure is significantly variable whereas the cost figure is progressively rising. Figures in Pak Rs.310 750.589.327 16% -15% 78.392 824.012.603 5.826 51.342.190.272 2005-06 58.264.520 32.720.024 507.952.745 7.167 1.578.225 576.660 - The table below shows the key facts and figures of GPP Lahore Press.362.018 105.768 54.066.294 3.967 4.814 Note: PV of Estimated Sales and Cost is calculated on grwth perpetuity basis Above figures have been summarised from the financial accounts provided and prepared by GPP.711 3.990 12.738.901 52. It is believed that this figure is used as a balancing item on the balance sheet and is significantly large due to improper accounting for creditors. 5.417.635 120.290 25. By keeping in view the business process of GPP an estimated cost to government for printing services procured from GPP has been determined.288 55.847. Similarly based on these cost estimates and growth in sales present value of sales and costs have been calculated by assuming a net capital discount rate of 15%.678 752.106.2 million. This figure provides an estimate of what government is actually spending to conduct its printing services that are procured from GPP.356.900 1.594 21% -9% 53.928 62.695.416.875 945.624.214.398 2007-08 78.592.023.978.178.733 108.198 40.320 698.Financial Viability Analysis of Government Printing Press 5.019.104.925 1.773 45.535 774.840.949 1.514 81.556.785 85.411.436 4.254. The figures for ‘receipt from other sources’ shows a big hole in the accounting records.
00 50.000.000.000. 285 thousand.000. The trends show that the GPP is maintaining a constant gross profit margin over its cost.000.00 Shows over the years running expense has increased lowering net profitability.00 Gross Profit Net Profit ‐ 2003‐04 ‐5.00 30. hence this increase is most likely representing the increase in size due to inflation rather than increase in real volumes.000.00 2004‐05 2005‐06 2006‐07 2007‐08 5.000.00 10. However.00 ‐ 2003‐04 2004‐05 2005‐06 2006‐07 2007‐08 Sales COGS GPP working on an almost constant Gross Profit due to pre determined pricing. as highlighted earlier the costing approach currently in place uses umbrella calculations.00 10.00 40.000.00 80.000.000.00 70. The cumulative inflation in the paper and printing industry over the last five years has been around 100%.000. However. Most of the variation in gross profit margins has come due to changes in level of stock materials.000. Trend of Sales and Cost of Goods Sold 90. hence profitability per activity cannot be determined.00 60. 1.000.00 20. In the last financial year (2007-08) GPP-Lahore ran into net losses. The net profit is almost averaging near zero or a few thousands in positive.000. the accounts show that they were running a profit of Rs.000.000. 13 . This was a result of quoting a wrong entry for opening balance of material for 2008.000.000. 2.000.000.000.Financial Viability Analysis of Government Printing Press The charts provided below provide a graphic view of some key indicators for GPP-Lahore.000.00 15. The reported entry was around two million lower than the closing entry and as a result of this correction the value turned negative.000.000.000. Trend of Gross Profit and Net Profit 20.000.000.000. As it is clear by looking at the trend that the growth in sales and cost of goods sold is extremely gradual.
The third largest expenditure head is the “expense for controller’s office”.000.000.000.000.000.00 30.000.000.Financial Viability Analysis of Government Printing Press 3.00 60.00 ‐ 2003‐04 2004‐05 2005‐06 2006‐07 2007‐08 Withdrawl from treasury Remittance into Treasury From an outset analysis GPP is comfortably remitting more into treasury than what is being withdrawn.00 70. other large item is ‘others’ which is again unaccounted for. these figures do not reflect the transfer of paper and material from industries department. Withdrawal & Deposit into Treasury 90. Percentage Split of Revenue 100% 80% 60% 40% 20% 0% 2003‐04 ‐20% 2004‐05 2005‐06 2006‐07 2007‐08 Net Profit Benefits & Assistance Interest on Capital Depreciation Others Controllers Office Exp.000.00 20. 4.000.000. However.00 50.000. The current balance sheet and financial numbers are not credible enough to read too much into this chart.00 40.000.000. Administration Pay & Allowances COGS COGS account for around 75% of the usage of sales.000.000.000.00 80. 14 . It is not clear from the accounts and information provided as to where this amount is used as the administration expense also charges salaries of permanent staff and utility expenditure.00 10. The ‘others’ expense has significantly increased over the last 2 years.000.000.
000.000. the analysis stated in Ferguson’s report and the discussion held with GPP auditors there is little credibility in these numbers.000.00 ‐ 2003‐04 2004‐05 2005‐06 2006‐07 2007‐08 Current liabilities Current assets Shows adequate liquidity.00 Creditors 30.Financial Viability Analysis of Government Printing Press 5.000.000.000.000.00 20. Creditors to Debtors 70. the numbers look artificially high and static.00 60.00 140.000. 15 . given the condition of the accounts.000.000.00 60.00 40.000.000. Current Assets to Current Liabilities 160.000.00 120.000.000.00 100.00 ‐ 2003‐04 2004‐05 2005‐06 2006‐07 2007‐08 Debtors Again the liquidity position of GPP remains fairly stable with debtors being greater than creditors.000. however the figures are remarkably static over the years.00 20.000.000. 6.000.00 80.00 50.000.000.000.000.000.00 40.000. Furthermore. However.000.000.000.000.00 10.000.
11% 22.47% 101.09% current assets / Current Ratio current liabilitties Net working capital / total Net Working Capital Ratio assets Solvency Lt.59% 4. As GPP do not indulge in cost based pricing they more or less operate on the constant margins.12% 0.10 78. The main reason for this is fixation of chargeable price guidelines by the finance department.72 NA 0.80% -1.67 75.137.596.40% 70.059 2.05% 67. however.81% -2.21% 84. The working capital however has been rising over time representing accumulation in current assets. The validity of the value of currents assets is questionable.11% 82.057 3. Summary of Key Ratios Profitability Gross Profit Ratio Net Profit Ratio Return on Assets Return on Capital Employed Asset Turn Over Ratio Liquidity Net Working Capital Current assets current liabilities 61.18% 3.78% 0.71% 2.31% 59.10 Gross Profit/Income Net Profit/Income Net Profit after Tax/total Assets Net profit after tax/ net worth Sales / average total assets 9. The implication of this fall is that most of the gross profit is being eaten up by the expenditure.38% 2.75% 0. The figures on net profit margin represent a sharp decline as net profit margin is nearly averaging at ‘zero’.53 NA 0.53% -2.53% 58.309.71 NA 0.83% 64.08% 0.55 NA 0.892 2.500.76% 57. In expenditure.27% 0.53% 19.35% 2.liabilities/(Equi ty+Long term liabilities) Total borrowing/total equity Total borrowings/total equity Total liabilities/equity 48.54 The gross profit has averaged at around 20% over the last 5 years.03% 0.Financial Viability Analysis of Government Printing Press 5. A large proportion of current assets consist of material stock and work in progress.26% 22.59% 1. If this interest figure is added back the margins will improve significantly.2 Ratio Analysis of Financial Numbers – GPP Lahore Formula used 2003-04 2004-05 2005-06 2006-07 2007-08 1.44% 25. GPP is charging a significant amount of interest payable to government on capital employed. 16 .441 2.610.70 94.52 75.132 2.15% Gearing Ratio NA NA NA NA NA Borowing Ratio NA NA NA NA NA Debt to Asset Ratio Debt to Equity Ratio NA 3. Debt to equity ratio shows that GPP has enough on its balance sheets to pay off its liabilities. The liquidity and solvency ratios are all in comfortable zone as GPP has no loans or debts outstanding.
605 53.0 60.321.507.485 30% 6.387.606.278 10% 45.5 55. The figures represent reasonable revenue growth however if we account for paper inflation the real impact will be minimal.065 -2% 2.340 68.1 50.465.852.462 78.295.826 365 237.362. This statement can be further qualified by looking at net profit margins which are averaging at almost zero and gross margins just hovering in the region of 20%.356.3 44.195.772.356.9 50.546.720. The EBIDA figures are reasonable and represent that GPP is generating enough income to maintain itself.0 Note: There was an error in 2007-08 accounts which underestimated the COGS by Rs.967 40.578.379 365 233.2 52.378 12% 13.258.769.852.259 365 415. in the table above the corrected figures have been used which reflect a net loss for the year 2007-08.847 44.814 68. 2.990 COGS GROWTH NA 3% GROSS PROFIT 4.264 *As a gov't entity.070.9 51.826 16% 51.578.716 80.512.726.505 -72% (2.866) 9% 89% 3% 1% 23% 76% 11% 0% 23% 77% 10% 5% 25% 75% 9% 3% 20% 77% 2% -3% 49.535 365 420.683.292 12.6 45. 17 .841.341 12% 17.704.Financial Viability Analysis of Government Printing Press 2.450 -8% 1.894 52. The price of paper has almost doubled in the last 5 years3.5 Million and hence reported a profit.545 GROSS PROFIT GROWTH NA 199% EBIDA* 1.982.304. Plain A4 paper prices have doubled in the last five years.3 45.120 40.556.502. So the cumulative growth of around 65% in the revenue is merely covering the rise in prices and costs.733 365 351.031.900 9% 5.683.307 365 204.178. GPP does not pay any taxes MARGINS (as a % of Revenue) GROSS PROFIT COGS EBIDA PROFIT Days Outstanding Receiveables Sales 360 Days Outstanding Days Outstanding Creditors Sales 360 Days Outstanding 58.490 43.139 EBIDA GROWTH NA 389% NET PROFIT 336.278 365 281.826 68.823 80.929 22% 15.455.499 5% 1.826 365 270. Income Statement Ratios INCOME STATEMENT (PKR) 2003-04 2004-05 2005-06 2006-07 2007-08 REVENUE 44.662. Although the numbers of days have declined over the years the time lag for making 3 Based on market rates and information.852.278 365 324.089.066 5.307 18% 62.606.455 58.785 53.691.356.733 REVENUE GROWTH NA 20% COGS 39.014.514 58.090. The outstanding days of debtors and creditors are showing unusual results with significantly large number of days for outstanding balances.605 365 455.325.465. However.
Financial Viability Analysis of Government Printing Press payments and realising payments is still sub-optimal.901 43.105.656.296.227 41.689. Balance Sheet Ratios RATIO ANALYSIS (PKR) CURRENT RATIO Current Assets Current Liabilities Ratio 2003-04 2004-05 2005-06 2006-07 2007-08 117.771 6% 84.033 131.004 43.639 -2% 15.919.123.455.340 74% 78. Return on assets employed is almost negligible due to low net profits and extremely large current assets. if the interest charged on capital (technically the payoff on capital) is taken account for the return of capital employed improves slightly.695.494.979.578.697 137.278 52.119 69.10 129.854. their accounts shows significant amount of unutilised material year after year.362.555.878.551 55. Return on capital is again low if net profit is used.096 50.334.356.519 83. Both these entries negate the claim that they are short of working capital.592.551 55.387.494.027.288 55.814 1% 750.706 0% 125. However.790. However.431.979. given the current market discount rates are 15-20% for SME businesses the return figures above are not adequate.514 2.419.911 0% 136.847.691.289 81.901 85.726 71. Based on the information recorded in the 18 .705 51.636 3% 71.334.847 2.894 115% 58.012.166 25.404 3% 2.878.101.767 82.701.530.396. And the most recent year recorded a loss of around Rs.304. The above figures confirm that GPP is currently carrying its load although the administration expense is reaching at the level similar to the gross profit.748 136.289 78.554 2% 126.074 131.720.775 57. As shown above.272 7% 85.24% 55.775 54.636 7% 81.70 139.785 2.662.284.259 49.455 89% 68.993.502. This may be just because of inaccurate and incomplete accounting for creditors and debtors.14% 54.91% 57.143 2% 3.595 0% 5.105.826 50.780 54.535 60.616.342.227 50.7220.127.116.110 1% CAPACITY RATIOS BEG MATERIAL STOCK END MATERIAL STOCK AVERAGE MATERIAL STOCK MATERIAL USED UTILISATION AVERAGE 57.608 160.981 93.218.21% 44.374 46.581 147.581 127.748 108.033 128.767 102.379 50.689.554 87.163 28.334.112.519 84.030.049.807 1% 128.546.027.775 29.486.775 57. however.844 51.852.190.530.52 120.190.406 45.589.616.038.67 120.296.04% Debtors to Sales Sales Debtors Ratio 43.814 2. However as pointed out earlier in the report these assets represent static value of material stock and work in progress. GPP has often complained about lack of material to carry out required jobs.780 44.578.743.663 125.946 44.074 126.089.490 114% 52.072. 3. except for the last year the utilisation has been significantly low.462 64% The liquidity position is exceptionally strong with current assets being three times greater than current liabilities.090.011 43.773 45.716 3.308.264.822.353. On top of this they have also recorded significant amount of work in progress on their balance sheets.754.959. 2 Million.10 RETURN ON ASSETS BEG TOTAL ASSETS END TOTAL ASSETS AVE TOTAL ASSETS * Does not include land RETURN ON CAPITAL BEGINNING EQUITY ENDING EQUITY AVERAGE EQUITY RETURN ON CAPITAL INTEREST ON CAPITAL ROC INCL'D INTEREST 91.374 -2% 3.
728 (2.648 25% -1% 8.054 422.080.052.945 6.150 0% 0% 8. 25. Sales Other Income Cost of Sales Gross Profit Salary Costs Running Costs Other Costs Controllers Office Exp.647.342 1.613 1.761.853 1.439 9.976 22. Similarly based on these cost estimates and growth in sales present value of sales and costs have been calculated by assuming a net capital discount rate of 15%.104.773 348.524.436 2.056.390 1.630 101.018 82.428 1.202 8.912.215.997.382.125 2004-05 9.611.949 407.568.789 50.609 11.328.631 589.328 6.835 896.4 million.526 24.253.869 The table below shows the key facts and figures of GPP Lahore Press.833 221.249.016.121 1.991.000 383. Figures in Pak Rs.106 472.182 949.743.250.031.106.026 7.392 139.242.3 Key Financial Numbers for Bahawalpur 2003-04 12.387 3.317 1.121.521.414. it must be noted that growth in sales figure as well as the cost figure is extremely variable with large positive and negative swings.124 610.352 15.562 25.920 4.127 334.782 Note: PV of Estimated Sales and Cost is calculated on grwth perpetuity basis Above figures have been summarised from the financial accounts provided and prepared by GPP-Bahawalpur.439 -5% 41% 78.506 657.175 943.085.741.180.858 508.090.201 1.672 69.469.734.556 252.171 1.647 18.007 1.701. This figure provides an estimate of what government is actually spending to conduct its printing services that are procured from GPP.068 2007-08 16. 19 . based on the inconsistencies and errors in the accounting system it is very likely the both the assets figure and the capital employed are over stated.397 437.419 -11% 20% 8.393.075 3.256 1.309.409 5.695 11.733 150.720. If this were to be the case the return of assets and capital will improve significantly.Financial Viability Analysis of Government Printing Press financial accounts it is not possible to calculate the idle capacity of GPP.491 978.539 53. The calculation for capital is also inconsistent over the years and hence cannot be trusted.977 2005-06 9. By keeping in view the business process of GPP an estimated cost to government for printing services procured from GPP has been determined.609.760 188.661 20.097. GPP is running at very low margins in terms of return on assets and return on capital employed.000 77.142 388.121. However.728.857 19.795. The figures stated in the table above are different from those in the accounts as corrections have been made.653 8. However.428.565.822 -17% -21% 10.261) 2006-07 11.227 662. however it is reasonable to state based on their material utilisations that it will be less than 50%.693. Based on these calculations the net present value of as going concern comes to around Rs.376 2.952 360.140.903 19.198 1.684. 5.499 82.936 244.173 5.904.291. Depreciation Interest on Capital Benefits & Assistance Net Profit Estimated Cost to Government for Printing Conducted Growth in Sales Growth in Estimated Cost PV of Estimated Sales PV of Estimated Cost NPV as going concern Capital Fixed Assets Current assets Current liabilities 9.
Furthermore.000. however recently the margin has increased.00 16. Trend of Sales and Cost of Goods Sold 18.000.00 ‐ 2003‐04 2004‐05 2005‐06 2006‐07 2007‐08 Sales COGS The trend is much more variable as compared with Lahore.000.000.000.00 8.000.00 ‐ 2003‐04 ‐2.000.00 2004‐05 2005‐06 2006‐07 2007‐08 Gross Profit Net Profit The trends shows that the expenditure have remained fairly stable over time.000.000.000. This behaviour is a result of changing vales of closing stock.000.Financial Viability Analysis of Government Printing Press The charts provided below provide a graphic view of some key indicators for GPP-Lahore. the last year sales figure and cost of goods sold do not reflect the trend over the last four years.000.00 6.000.00 8.00 2.000. resulting in a consistent differential between the net and gross profit trends.00 ‐4.00 12.00 6. In year the value of closing stock is relatively high the gross margins have suddenly shot up.000.000.00 2.00 10.000.00 4.000.000. 2.000. 1.000. This could also be a result of some accounting manipulation as records are highly inconsistent. The data represents a massive increase in sales and a reduction in COGS.00 14.000. Trend of Gross Profit and Net Profit 10. hence.000.000.000.000.000.000.00 4.000. 20 .000.000.000.
00 6.000.000.00 2.000. Profit has been variable. 4.00 ‐ 2003‐04 2004‐05 2005‐06 2006‐07 2007‐08 Withdrawl from treasury Remittance into Treasury Withdrawals have been greater than deposits into treasury – and remittance figures are considerably lower than sales and no debtors exist so data is inconsistent. Administration Pay & Allowances COGS COGS on average account for around 55% of the usage of sales.000.000.000. 21 . other large item is ‘controllers share’ which is again unaccounted for.000.000. The third largest use is the interest that is charged on capital.00 4.00 8.000. Percentage Split of Revenue 100% 80% 60% 40% 20% 0% 2003‐04 ‐20% 2004‐05 2005‐06 2006‐07 2007‐08 Net Profit Benefits & Assistance Interest on Capital Depreciation Others Controllers Office Exp.Financial Viability Analysis of Government Printing Press 3.00 10. The ‘others’ expense has significant increased over the last 2 years. Withdrawal & Deposit into Treasury 12.000.000.000.
000.000.000.00 500.000. Current Assets to Current Liabilities 30.000.00 ‐ 2003‐04 2004‐05 2005‐06 2006‐07 2007‐08 Current liabilities Current assets Shows adequate liquidity.000.000.000.00 25.000.Financial Viability Analysis of Government Printing Press 5.500.000.500.00 3.000. Creditors to Debtors 3.500.00 2. finished goods stocks and high values of unutilised material.000.000.00 ‐ 2003‐04 2004‐05 2005‐06 2006‐07 2007‐08 Debtors 22 .000. however the resultant increase in current assets over the years is due to higher value of work in progress.000.000.000.000. 6.00 5.00 Creditors 1.000.00 20.00 2.00 10.000.000.00 1.000.00 15.
16% 1.87% Gearing Ratio NA NA NA NA NA Borowing Ratio NA NA NA NA NA Debt to Asset Ratio Debt to Equity Ratio NA 0.99 Gross Profit/Income Net Profit/Income Net Profit after Tax/total Assets Net profit after tax/ net worth Sales / average total assets 30.33% 76. Similarly to GPP Lahore the press has adequate capital cover to maintain its work.31% 73.Financial Viability Analysis of Government Printing Press 5.88% 49.872.86% 9.15 NA 0. Key Financial Ratios Profitability Gross Profit Ratio Net Profit Ratio Return on Assets Return on Capital Employed Asset Turn Over Ratio Liquidity Net Working Capital Current assets current liabilities 4.06% -11.06% 0.22% 69.855 10.56% 111.02% 25.360.89% 27.63% 30.32% 2.4 Ratio Analysis of Financial Numbers – Bahawalpur Formula used 2003-04 2004-05 2005-06 2006-07 2007-08 1.571 2. The liquidity position is extremely strong as there are no outstanding debts.14% 1.64% 35.64% current assets / Current Ratio current liabilitties Net working capital / total Net Working Capital Ratio assets Solvency Lt.10 NA 0.602.639.08 15.156 9.19% 73.10 The Bahawalpur press is much more profitable as compared with Lahore both in terms of generating high returns on assets employed and capital.53 14.94% -14.02 NA 0.78 NA 0.27% 33.635 37.liabilities/(Equi ty+Long term liabilities) Total borrowing/total equity Total borrowings/total equity Total liabilities/equity 44.05% 23.76% -24.39% 58.27% 54.077 8.82% 12.19% 1.21% 65. 23 .08% 8.58 10.40% 72.101.33 17.70% 1.
Financial Viability Analysis of Government Printing Press 2.382.524.506 133% 6.0 1.031.945 365 - 3. whereas in previous years it was averaging at around 70%.068 16.127 NA 1.647.075 NA 3.524.653 365 - 11.121.080.903 9.5 2.328 365 47.647.121.202 365 91.728. It is also evidenced in the table above that in 2008 the cost of goods sold only represented 42% of the usage of income.202 NA 8.977 9.249.202 365 - 9.376 -21% 2.106 -58% 232% -1.834 -48% 101. However.5 The profit margins and returns are higher as compared to GPP Lahore.026 365 13.734.026 365 - 16.397 4. EBITDA is also significant and reaching up to 40 in 2008.414.328.328 -21% 6. This entry will reduce profit significantly in 2009.684.393.261) 244.125 9.100 NA 1.624.565.8 422.8 1.945 41% 6.647.121. however the trends are much more variable.611.414.945 365 48.085.695 12.242.806 -284% NA (2.653 11.920 23% -11% 1. Income Statement Ratios INCOME STATEMENT (PKR) REVENUE REVENUE GROWTH COGS COGS GROWTH GROSS PROFIT GROSS PROFIT GROWTH EBIDA* EBIDA GROWTH NET PROFIT 2003-04 2004-05 2005-06 2006-07 2007-08 12.026 -1% 20% 8.249.309.328 365 - 9. 24 .215.524.647 9.653 365 61.952 -21% 846.173 16.870 1.769 400% 5. as highlighted earlier in the report the figures are 2008 are extremely different to other years and show a significant profit due to high stock end value which has lowered the cost of goods sold.782 11.439 -9% 9.291.275.140.869 MARGINS (as a % of Revenue) GROSS PROFIT COGS EBIDA PROFIT Days Outstanding Receiveables Sales 360 Days Outstanding Days Outstanding Creditors Sales 360 Days Outstanding 30% 70% 13% 9% 30% 70% 9% 1% 13% 87% -16% -24% 35% 65% 11% 2% 58% 42% 40% 33% 12.414.912.256 7.384.561.249.
782 37.945 1% 20.185.491 10% 12.104.758 1.611.760 -11% 18.171 3.715 7.903 10.082 74.026 NA 16.911 20.097.592 -12% 21.986 12.704. The financial viability is limited due to the very nature of GPP where the government is the client and the government is the owner deciding on what to charge for goods produced.991.911 25.406.121 19.795. Specific problems are that balancing errors are as large as total sales figures.58 11.184.080.417 422.695 2.186 1% 662.653 NA 11.474.414.034 38.806 18. The material stock is some years have been higher than recorded sales yet GPP on several occasions have complained about lack of working material.715 10.90% 14.151.962 23.058 14. Based on the information provided whereas GPP has historically been able to cover its costs is running on low levels of profitability.437 23% 2.058 11.803 1.53 16.903.383 5.549.833 37% 5.648 1% 949.733 37. The accounts being prepared by GPP are seriously flawed especially the entries made on the balance sheet.630 9% 11. .446.08 15.734.783.996 17.279.104.173 8.249.506.202 NA NA 9.568.345 28.777.393.502 13.973.647. 25 .097.171 11.201 8. Balance Sheet Ratios RATIO ANALYSIS (PKR) CURRENT RATIO Current Assets Current Liabilities Ratio 2003-04 2004-05 2005-06 2006-07 2007-08 7.602.140.251.020.201 18.205 14.241.205 21.780 3.066 5.211.937.012.996 10.33 19.250 16.266 3.416 7.101 1% 17.Financial Viability Analysis of Government Printing Press 3.991.958 3.005 25% 978.985.658.502 18.597.175 22. the creditors and debtors change inconsistently and remain extremely high as compared to the level of sales.795.131. The remaining ratios on the balance sheet are reasonably well set.211.693.102.075. This would have reduced the opportunity cost of maintaining GPP.844.328 NA 9. recently almost 61 Kanals of this land has been transferred to the Judiciary department.201 12.277 28% 388.250 2. GPP originally had around 92 Kanals of land under its processions.953.454.175 19.87% Debtors to Sales Sales Debtors Ratio 12.242.524.184.038.02% 12.376 3.161 -15% 589. although the Bahawalpur press is slightly more profitable. The market value of that land is significant due to its prime location.829.630 4.121 15.568.121.978 19.945 - The major issue here is capacity utilization.99 RETURN ON ASSETS BEG TOTAL ASSETS END TOTAL ASSETS AVE TOTAL ASSETS ROA * Does not include land RETURN ON CAPITAL BEGINNING EQUITY ENDING EQUITY AVERAGE EQUITY RETURN ON CAPITAL INTEREST ON CAPITAL ROC INCL'D INTEREST 9.266.266.201 9.82% 7.54% 10. The Press is maintaining high levels of material stock and hence not utilising its full potential.246.978 20.835 21.647 9.556 6% 19. The return of assets would be even lower if the land being used by GPP is taken into account.602.704.549.829.409 30% CAPACITY RATIOS BEG MATERIAL STOCK END MATERIAL STOCK AVERAGE MATERIAL STOCK MATERIAL USED UTILISATION AVERAGE 6. However.715.
the caveat here is that most likely the accounts are not maintaining accurate record of real assets and it may be a case where these assets are significantly over stated. In terms of all the assets involved GPP on average costs the government somewhere between Rs. 55 Million a year in return of all the printing that is done by GPP. This amount is a tiny fraction of the overall budget of the Punjab Government. the benefit of GPP being able to provide last minute urgent support cannot be discounted. 210 Million at Book Value. 55 Million by the volume to get an average price that government pays for its printing. GPP (Lahore and Bahawalpur) accounts show that their average asset holding is around Rs. The second element is not as important as under formal contracts and reasonable checks and balances one can maintain secrecy within the private sector as well. In other words the net drain on treasury of the Punjab Government is around Rs. It is imperative that one should compare the cost of printing at GPP by taking a cost approach and not sales price charged to the client departments. In such a scenario this cost would be low. This figure takes into account that given the nature of the business of GPP the difference between sales and this cost goes back to the government in any case. This cost has somewhat reduced as the original land holding was around 100 Kanals. however a brief cost and benefit analysis is provided based on the financial information provided by GPP. 12/13 Million a year. Using the information provided it is estimated that on average GPP printing costs the government around Rupees 55 Million. This figure is almost 50% of the total services that GPP offers to the government. A detailed economic cost benefit analysis is beyond the scope of this project. GPP offers the government the option to conduct any amount of printing without being pressurised or taken advantage off. On the benefits side GPP potentially offers two major benefits. this analysis stays incomplete as there was no ready information available on the total volume of printing done by GPP. The other major cost of GPP is the 31 kanal of prime land that it occupies in Lahore. However.Financial Viability Analysis of Government Printing Press 6.50-100 Million a year. However. If the volume was available one could easily divide Rs. Government is also maintaining a capital interest in GPP with average invested capital in the region of Rs. (i) urgent government printing especially the provincial budget and (ii) secret printing work of the government. 110 Million. It is impossible to put a numeric value on 26 . Given in actual terms GPP is just a cost centre providing printing services the opportunity cost of land should be carefully evaluated. Cost Benefit Analysis GPP currently offers printing services to all the departments of government of Punjab. If this capital was to be withdrawn and again placed in an interest bearing account it would yield a minimum of Rs. If these assets were to be sold off at book value and the proceeds kept in an interest bearing account it would yield around Rs 30 million a year. However.
27 • • . At times closing and opening balances for a FY are dissimilar. on requests made by the government and prices being fixed by the government. this increase is even less than the rate of inflation in paper. Both the sales and cost of sales have been steadily increasing at almost the same pace for both presses . However. This suggests that the volume of work has gradually diminished. This raises a big question on the profits figures being generated. However. 7. the analysis of GPP must be read with the understanding that GPP’s business model is not designed to be competitive or profit driven. A decision to close off continue with GPP would require a broader consensus between the key decision makers. Based on the in-depth analysis of the accounting systems and controls in Ferguson report and the findings under the current project the balance sheet accounting in extremely inconsistent and lack explanation of various entries. recommendations and strengths and weaknesses of the Ferguson’s report is provided at Appendix C to this report). The end recommendation of the report is that government should seriously consider revaluation and liquidation of GPP.Financial Viability Analysis of Government Printing Press the benefit that GPP can provide in attending to urgent and priority needs of the government. The only emphasis should be on governance and efficient utilisation of resources. In years where the closing stock value is very high the gross and net profit has been much higher. The financial numbers above do reflect that GPP is weak in controlling its costs and optimising the use of its resources. Conclusion & Recommendation Based on the financial numbers of GPP and arguments made in the above section it can be concluded that financial viability of GPP is very small aspect of any decision that the government intends to take about GPP. relatively more expenditure is being conducted under the head of “others” and “Controller’s office expense”. The Ferguson’s report also found that the inventory systems are pretty weak and inadequate. The net profitability of both the presses (Lahore and Bahawalpur) is significantly dependent on the value of closing stocks of material. As a result the stock figures may or may not represent the actual stock. The key conclusion for the above analysis can be summarised by the following highlights: • • Financial accounting of GPP is very poor and unreliable. The basic model of GPP is to provide printing services to the government. There is a danger that in such a case profits figure may be artificially inflated. The financial analysis suggests that GPP is viable in isolation but suffers from inadequate governance. The expenditure items are pretty reasonable and do not reflect any major detractors. A simple sensitivity calculation suggests that on average a 1% overstatement in closing balance will inflate profits by 17%. however. This area has also been identified in the Ferguson’s report (A review covering findings. lack of controls hence operates at lower efficiency as compared to the private sector. These expenses need to be curtailed or explicitly explained.
The other notable element is that these numbers are remarkably static over the years which raises a question or confirms the statement made in Ferguson’s report on incomplete and inadequate financial record keeping capacity.Financial Viability Analysis of Government Printing Press • The balance sheet calculations are inconsistent with overlapping entries. little governance. Revaluation of all assets and incorporating the value of land on the balance sheet. This capital calculation on the balance sheet needs to be fixed to represent the actual equity/employment of government resources. However. The amount of capital calculated each year includes an entry named ‘receipt from other sources’ for which no justification has been provided or exists in any other part of the financial statements. as concluded in the Ferguson’s report and also confirmed by the financial analysis that GPP cannot compete with the private sector printing services due to weak monitoring on resources. especially for GPP Lahore are extremely high and in some cases almost equalling the value of sales. Preparation of proper double entry accounting heads and audit of last three years accounts to eliminate all the errors in the accounting procedures and records. If GPP is left on its own the validity of its records may become more questionable and so would the cost that the government is bearing for the printing services. the market value of these machines is significantly high as compared to the scrap value. Due to low asset value the return on capital is probably overestimated as shown by the ratios above. • • To improve governance and management following recommendations are being made: 1. However. weak financial controls and measures and above all little autonomy to operate as a private sector business. This economic cost may come out be significantly higher than what has been reported in the financial numbers above. Under current analysis the main area of concern is that GPP is losing significant efficiency due to inadequate and improper management of it assets and putting strong financial disciplines in place. 2. The creditors and debtors figures. Based on the previous work on GPP and the current analysis the following recommendation is being made as the preferred option: 28 . the assets do not include the value of land in its assets schedule. This will also provide the government with an opportunity to analyse the true economic cost of retaining GPP. Furthermore. The above actions will assist the government in making a more informed decision whether to continue with GPP or not. The income statement also charges interest on the capital engaged and if the figure for capital is under or over stated the error will also trickle down in the income statement affecting net profitability. Capacity building of GPP Staff to understand the financial management is also required to ensure efficient allocation of resources. This entry in some years is even larger than sales recorded for that period. Finally the assets on the balance sheet are almost at their scrap value as most of the machines are now over 20 years old.
however. The stagnancy/low growth in sales suggests that over time the volume of work at GPP is on a downward trend. As reported earlier a 1% correction in closing stock will reduce profits by around 17%. Finally. Based on above discussion it is recommend that government must seriously consider winding down GPP after revaluating all its assets and stocks as discussed above. It is quite clear that GPP is not financially profitable and viability is also questionable due to profit levels being highly sensitive to closing stock value. The secrecy argument was explored in the Ferguson’s report.Financial Viability Analysis of Government Printing Press 1. is a weak argument given government can enforce secrecy agreements through contracts. There is no evidence that GPP offers a better quality or cheaper printing facility to the government. 29 . This will be prudent decision in smart sizing the structure of government and reducing the administrative burdens on key departments. GPP is just an extra administrative head under the industries department eating up time and other resources whilst failing to provide much economic benefit. The private sector printing industry is extremely competitive keeping printing rates at reasonable profit margins.
Appendix A: Approved Financial Statements .
Appendix B: SWOT Analysis Strengths Committed leadership Significant capacity to print large jobs Dedicated printing services available to the government at all times Maintenance of historic government records Free printing services for the government Staff motivated to justify their employability and existence Weaknesses Not being managed as a commercial entity Fixed line budgets and availability of capital Non-cash transactions Inadequate answerability Inadequate management and operational controls No incentive outperform to Opportunities Lot of unutilised / idle capacity Possibility of attracting private sector investment if government decides to sell off or go into a PPP Threats Closure of GPP Government approving projects to let GPP purchase new machines but to do not increase the working capital Low Book value of machines may invite rent seeking behaviour by private sector in negotiating a PPP High levels of wastage Inadequate workers skill of Cannot compete with private sector as not allowed to purchase second hand machinery .
1 Diagnostics The diagnostic methodology applied by the Ferguson report looked at the following aspects: • Regulatory Framework: This section of the report laid out the basic guidelines and parameters that GPP has to follow to deliver its printing services in line with the procedures of the government. which could either be liquation/privatisation/or restructuring as a public sector entity Suggest options for undertaking government printing work ensuring secrecy and speed Suggest an action plan. Business Process Analysis: This section of the report simply maps out the processes and procedures followed by GPP for procurement. The purpose of this section is not to critique the work done by Ferguson but in-fact is to provide a quick overview and identify the strengths and weaknesses in terms of the utility of the report. The work done by Ferguson was expected to encompass the assessment of financial and operational efficiency with the view of recommending an implementable future course also considering the options to liquidate/privatise or restructure GPP. This review is not based on deliverables against TORs but to measure the effectiveness for achieving the conceived outcome for GPP.Appendix C: Review of the Ferguson’s Report on GPP 8. costing and change management procedures. • . Both these elements are also important from a financial viability angle as such restriction will lead to lack of opportunities and no incentive to increase profit margins or control costs. 8.1 Objective The main objective of the Ferguson Report was to conduct an in-depth analysis of the operations of GPP. evaluation of its necessity and recommendation of alternatives or reforms for revamping of GPP to make it more efficient and productive. for putting the recommended strategy into operation. propose future course of action.2 Report Summary 8.1. Introduction This section provides a review of the report done by Ferguson’s on GPP. in terms of financial and service provision efficiency. in comparison to (similar) private printing press Evaluate the necessity or otherwise of having a government-owned enterprise for doing government printing work and in the light of the evaluation. complete with specific timelines. • • • The overall project outcome was to enhance the efficiency of GPP affairs to improve financial prudence and cost to the government. 8. The Key terms of reference for the Ferguson report were: • Make the assessment of the assets and performance of GPP. production. The important areas under this aspect were the restriction on GPP to do private or semi-private work and the fixation of the sale price by the government.2.
However. the PCP had much more • . This highlights the fact that significant operational inefficiency of GPP may be due to lack of autonomy. dispatched and stores. • Financial Analysis: This section lists the accounting procedure used by GPP to record its affairs. however. It was also reported that GPP has inadequate systems and processes to ensure due diligence for government’s secret work and quality control. It correctly points out in this section that financial accounting capacity in GPP is significantly weak and several inconsistencies are present in their reported numbers. Ferguson’s report did not acknowledge the fact that GPP has limited control over its decisions and processes and is bound to prioritise work based on the direction of the government. It is important to highlight the report only did a mapping exercise and not an analysis of the processes. Furthermore. The agreed KPI’s included: o o o o o o o o o o Actual production as compared to normal/standard production capacity Percentage utilization of available capacity in machine hours Average number of units produced per machine hour Labour cost as a percentage of total cost of production Overhead cost as percentage of total cost of production Number of orders reworked in comparison with total work orders completed Number of NOCs issued due to capacity/time/technology constraints Actual wastage as compared to normal/standard wastage Number of work orders rejected as compared to total work orders delivered Number of work orders delayed as compared to total work orders delivered The Ferguson team showed their inability to calculate any of these performance indicators owing to incomplete and inappropriate record keeping by GPP. the section has listed out the accounts provided by GPP highlighting some errors in the accounts. billing. • Operational Analysis: This section of the report provided a set of key performance indicators based on which Ferguson was to conduct an efficiency analysis of GPP.costing. sales. This section also listed out some jobs that were massively delayed by GPP. The report does mention that all the priority work was delivered on time. It was also reported that in 2005-06 GPP only catered for 25% of the total printing work procured by the Punjab Government. Comparison with Similar Other Presses: This section listed the working of the Printing Corporation of Pakistan (PCP) and concluded that on functional side both presses were quite similar. The report showed its inability to calculate or analyse the overall working capacity of the press and to provide an estimate of idle capacity. for example a comparison of processes with other printing presses may have been useful to identify gaps or to reduce extra procedures without compromising on the due diligence. the report failed to mention forcefully that this delay is not normally due to inefficiency but ‘priority’ work superseding the nor routine work.
The reporting procedures. 8. It is not a critique or judgement of the work done by Ferguson’s which should be benchmarked against their TORs.4.autonomy in-terms of operational activities and also maintains formal audited accounts and proper record keeping. It is a tool to provide a reliable service to the government in order they an meet their urgent printing requirement. It also provides basic gaps in terms of quality control issues. GPP is only providing services to the government so in a sense is not a public good. due diligence to maintain secrecy of government work and some examples of significant delays in work being carried out. The report provides a detailed map of how everyday business is managed at the press. This element would have required a detailed discussion with key decision makers and an indepth economic cost benefit analysis and scenario building. The main recommendations made by the Ferguson Report are presented below: 8. dispatching and storing of work is clearly marked. It brings together a lot of useful information concerning GPP which highlights the working of the process.3 • • • • Key Recommendations GPP should undergo a separate exercise to prepare more reliable and proper financial information so that meaningful estimates of the costs can be deduced.4 Strengths & Weaknesses of the Ferguson Report This section provides a broad utility of the report to key decision makers. 8. Another strength of the report is that it lists all the assets that are in procession of GPP and also lays down the financial accounts. This highlights the lack of financial control within the organisation. In view that 75% of the public sector printing work is being done by private presses the argument to have government owned press is weak If the secret printing argument is still valid then GPP should be retained. Although this element was part of the TORs for Ferguson the methodology that was used was incapable of proving a meaningful answer to this element. The cost benefit section) above highlights some direction that can assist decision makers to retain or let go of GPP. The section did not provide any meaningful comparison with the presses being run in the private sector except confirming that the printing technology being used by GPP was similar to private sector. restructuring will be required to improve efficiency The way forward for the government could be either retain GPP if ‘secrecy’ is a valid argument or government should exit through privatisation or liquidation. however. The financial figures quoted on accounts were double checked with receipts at the treasury and several discrepancies were reported. It has picked up several errors and omissions in the accounts. The report also provides issues with costing and lack of information that is available with GPP.1 Strengths The report is very strong in terms of its mapping exercise for GPP. The report provides an informing document to the government clearly . work processes. • Necessity of a Government owned Printing Press: It is very difficult to conclude any meaningful result from this section of the report.
Several errors and inconsistencies were observed in the financial accounts of GPP. The report (probably beyond the scope) has limited use for GPP decision maker to bring in interventions that will improve the flaws in their financial management. .4. It is again noted that this not a critique of the quality or quantity of work done by Ferguson but cover issues that a decision maker may be interested in whilst making a decision of future course of action for GPP. This section lacks a detailed economic cost benefit analysis of the recommended options.2 Weaknesses On the other hand there are several questions that the Ferguson report is not able to answer. When covering the operational side the report has provided some very important key performance indicators. Under this condition those KPIs should then be developed which are actually measurable given the information available. the report covers all aspects of the workings of GPP and correctly identifies the key problematic areas which include inadequate financial management. The decision makers would require a detailed functional analysis and clear economic cost and benefit to make a decision on GPP.highlighting that reform at GPP will result in some improvement. weak processes and little due diligence. 8. The use of defining KPIs is only realised if the organisation is able to measure them. Under the Ferguson’s exercise the section only provided how PCP works and no comparison of efficiency levels or procedures were provided. The report only provides a mapping of the business processes at GPP. This aspect is probably the most important element in frame of reforming GPP. However. Overall. A value loss analysis can help the decision maker to focus on reforming those aspects of the process that are severely detracting value. The report also provides a brief logical step by step procedure if the government intends to liquidate or privatise GPP. to enhance utility of this section GPP must be provided support to redo their accounting on proper format to establish the real financial position of the organisation. Finally in the recommendation sections the reports needs to be augmented for a decision maker to come up with an informed decision. It provides some stakeholder views on their usage of GPP as a preferred place for their printing jobs. The elements provided in the report are a step by step guide to privatise or liquidate no analysis of how much will it cost or the economic benefit was provided. To make it more useful for decision makers this section should also include the changes that are required to restructure GPP so that it can improve its comparative efficiency. GPP may need severe capacity building to generate such numbers. the report did not calculate any of those indicators along which GPP can measure its performance. It by no means can be a substitute for an economic cost benefit analysis which evaluates the functions and resource requirements in terms of economic opportunity cost. Though. The report only maps out the financial accounts and lists the issues. it is solely based on the financial numbers generated by GPP. However. The comparison with other printing presses only partially answers the question and is more like mapping exercise. it was stated that not enough information was available to calculate the KPIs. A detailed exercise is required to analyse the difference in work processes and to identify value loss/inefficiency at each step of production. It does not provide initiatives or changes that are required to improve the efficiency of GPP. In the section below a cost benefit analysis is provided. however.