Shell Pakistan – profits return

2022 was a slow year Shell Pakistan Limited (PSX: SHEL) in terms of profitability as the company announced a loss after tax of Rs72 million for the year versus a profit of Rs4.5 billion. The decline in earnings came mostly from weaker 2HCY22.

Previously in 2021, the oil marketing multinational company posted growth in profits that continued during the first half of 2022 with higher volumetric sales of petroleum products. However, CY22 financial performance was subject to weaker macroeconomic factors that led to slippages in the company’s earnings

Shell Pakistan’s revenue growth in CY22 was recorded at an impressive 66 percent year-on-year. However, this rise in the topline was primarily due to higher prices of petroleum products. The volumetric sales for Shell Pakistan were down due to weaker demand in the country and economic slowdown. Shell’s volumes for motor spirit (petrol) and diesel (HSD) during the 2HCY22 were down by 13 and 30 percent year-on-year, respectively. Another factor that dented volumetric sales during 2022 were the floods as overall industry demand was significantly pushed down and resulted in inventory losses.

Shell Pakistan’s bottomline was pulled down by 3.7 times higher other expenses as massive currency depreciation resulted in exchange losses; and also 63 percent year-on-year higher finance cost in a high interest rate environment. And despite three times rise in other income, the company’s profit after tax fell into the negative territory as the company incurred higher taxation due to turnover tax.

However, the company has been gearing towards increasing its footprint; as per the analyst briefing details for the first three quarters of 2022, the company has been investing in storage facilities and had successfully commissioned 20 sites with 14 more sites expected to be commissioned during 4QCY22 with 40 more sites planned for 2023.