Not many in the market closely follow the second largest oil marketing company of Pakistan, Shell, - but those who do, were taken by surprise with the annual financial results of the company announced last Friday.
The firm managed to capitalize on favourable external circumstances despite inefficiencies resulting from over running of administrative expenses.
Shell managed to post earnings of Rs37.4/share, an immense improvement when compared to the heavy loss of Rs25.2/share incurred in the corresponding period a year ago. The massive turnaround in the fortune stems mainly from reduced volatility in international oil prices during the period, unlike the previous years crazy fluctuations in global oil prices.
Although, the company managed to increase its volumetric sales and maintain its market share in diesel and petrol segments, its topline slipped marginally compared with prior years sales. That is because average global oil prices remained lower by 38 percent during CY09.
The gross margins, however, more than doubled to 8 percent on the back of sizeable inventory gains in the first half with little to zero inventory losses in the second half, as oil prices largely moved in a narrow band of $70-80/bbl, unlike the crudes massive swings in 2008, when prices volleyed between a low of $34/bbl and a high of $147/bbl.
Unlike its nearest competitor though, Shell could not contain the administrative and distribution expenses, especially in the final quarter. What caused such an increase in managing the operations is yet to be known in the absence of detailed accounts, but whatever was the reason, it somewhat neutralized the firms otherwise superior top line performance in latter half of the year.
There, however, was a savior in the form of a relatively stable rupee during CY09, especially in the last quarter and a half - the story much resembled the one of oil prices, where the rupee depreciated in absolute terms but it was slow and steady, which resulted in a sharp reduction in exchange losses - wiping off the burden on the bottom line caused by higher administrative costs.
All the positives aside, the company still faces stiff challenges as government receivables have mounted to Rs4.5 billion mainly comprising of the Price Differential Claims and Petroleum Levy. Although, the management is in touch with the government, the delays can put constrains on the working capital and cash management in the future.
Going forward, the oil prices still hold the key and if they remain range bound as expected - Shell would welcome it with an open heart, as all what the company would want is to avoid a sequel of 2008 which resulted in high inventory losses.
Having said that, the firms negligible share in the black oil segment makes it incomparable to the biggest player in the market as furnace oil remains the single largest driver in Pakistans OMCs industry.
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SHELL P&L
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(Rs mn) CY09 CY08 % chg
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Net sales 156,000 163,151 -4%
Cost of sales 143,098 156,699 -9%
Gross profit 12,902 6,451 100%
Gross margin 8.27% 3.95% 109%
Admin & distribution cost 7,223 5,984 21%
Finance cost 1,401 1,522 -8%
Other operating expenses 1,285 2,713 -53%
PAT 2,563 -1,726
EPS (Rs) 37.42 -25.20
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Source: KSE notice
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