Attock Refinery's recently announced operating results for a fiscal year 2009 are a major disappointment. The firm posted a staggering 83pc decline in net earnings as its operations took a series of hits - from falling global crude oil prices to rising inventory losses and a reduction in deemed duty.
The company, which surprised analysts by announcing lower-than-expected EPS of Rs11.92, also let investors down by deviating from its historical policy of paying dividends - retaining all what it earned.
ATRL's revenue growth was checked by 30 percent decline in international crude oil prices, while lower production levels ensured the rest. The company operated at roughly 86 percent capacity, producing 13 million barrels, down 12 percent over last year.
Although, the company attributed the decline in production levels mainly to the inter-corporate circular debt in its third quarter report, the reality might just be different. A cursory look at ATRL's balance sheet reveals that it has not been on the receiving end of circular debt with its payables nearly three times higher than its receivables by the end of third quarter. Therefore, the fear of declining margins in case of operating at full capacity may have been the sole reason behind less than optimal production.
But it's not just the revenues. The firm's gross margins also took a battering as huge inventory losses in the first half of FY09 led to operating losses - thus crippling the profitability. Moreover, the government's decision to reduce deemed duty on certain products from 10 percent to 7.5 percent further squeezed the margins.
Profits from refinery operations that fell 80 percent were hit further by higher effective tax rate, which doubled to 62 percent. Furthermore, the onetime gain (Rs43/share) made by selling its stake in APL during FY08, makes FY09's performance look even worse due to high base effect.
Going forward, the firm is expected to improve its performance both in operational and profitability terms as volatility in international crude is expected to be lower in the current fiscal year. This should help the firm operate at full capacity and also earn healthier gross margins and avoid inventory losses. The company's power plant has also commenced operations, which should serve it well in times of sky rocketing electricity tariffs for the industrial sector.
The implementation of Euro-II, however, remains an unanswered question as the company still demands change in pricing formula and suitable profitability conditions - despite having a massive Rs10 billion in reserves.
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ATRL P&L
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Rs (mn) FY09 FY08 % chg
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Sales 77,261 93,654 -18%
Cost of sales 75,342 89,646 -16%
Gross profit 1,918 4,008 -52%
Gross margin % 2.48% 4.28% -42%
Finance cost 1,472 1,244 18%
Profit from refinery operations 406 2,008 -80%
Income from non-refinery operations 611 4,140 -85%
PAT 1,017 6,148 -83%
EPS (Rs) 11.92 72.08 -83%
DPS (Rs) - 8.00 -100%
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Source: company results
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