Shell Pakistan posts Rs 1.988 billion as after tax loss

Shell Pakistan Limited has posted Rs 1.988 billion as after tax loss in the half year period ended June 30, 2012 as compared to after tax profit of Rs 1.407 billion in the corresponding period in 2011. The board of directors of the company in its meeting held on Thursday declared that the company's per share loss stood at Rs 23.23 in the period under review against earning per share of Rs 16.44 in the same period last year.
According to the financial results sent to Karachi Stock Exchange, the company's sales decreased to Rs 119.428 billion in the first half of 2012 against Rs 130.417 billion in the same period last year. The other revenue increased to Rs 333.250 million against Rs 246.258 million. The company paid Rs 15.926 billion as sales tax in the first half of 2012 against Rs 14.346 billion paid in the same account in the corresponding period last year.
The company's cost of products sold reduced to Rs 99.836 billion in the first half of 2012 against Rs 108.759 billion in the same period in 2011. The Company's chairman and Chief Executive, Omar Sheikh, in its review said that the overall environment governing the Company's business remained challenging during the first half of 2012. During this period, the Company incurred a loss of Rs 1,988 million as against a profit of Rs 1,407 million in the same period last year.
Key contributors to this result are continual high interest costs for financing receivables owed by the government, having to pay corporate tax in a period of a net loss and low fuel margins. One-off accounting charges recorded during this period, volatile oil prices, depreciating foreign exchange rates, and the continued ban on exports of POL products to Afghanistan during this period have all adversely impacted these results as compared to same period last year.
Despite these challenges, operational activity cash generation has improved from an outflow of Rs 6,846 million in 2011, to an inflow of Rs 3,108 million in 2012. This is driven by improved working capital management and the Company's successful collection of old debts.
"In a double-digit inflationary environment we have managed to reduce overall expenses by 9 percent in the first half of 2012 compared to the same period last year", he said. "Our external borrowings have shrunk to Rs 13,252 million at the end of June 2012 compared to Rs 15,745 million at the end of December 2011. During the first half of 2012, the Company has made significant investments in marketing activities in both the Retail and Lubricants businesses leading to significant growth in motor-gasoline and consumer lubricants sales. About the receivables and financing costs, he said "The Company continues to face financial difficulties due to delays in payment of monies owed to us by the Government. At the end of June 2012, we are still owed: Rs 7,928 million for tax refunds - delayed between 1-3 years, Rs 2,601 million for fuel price subsidies - delayed between 2-9 years."
"We have with great difficulty collected Rs 2,890 million during the first half of 2012 with co-operation from relevant government authorities", he said. However, the rate of progress on collecting these monies is slow, causing the Company to bear significant financing costs on bank borrowings required to fund these receivables." "The management of the Company is continuously engaged with relevant government authorities, and we are hopeful that the government will pay the remaining amount on an expedited basis, to ensure business continuity, growth and investment in this key sector", he said.
About the turnover tax, he said the Company continues to bear the impact of minimum tax on turnover. "The Company pays Corporate Tax even though there is a taxable loss for the first half of 2012, which has unfairly eroded our operating profit performance and is stifling future investment and growth prospects in the industry", he said. "We are in continuous discussions with tax authorities to remove this anomaly and to bring us in line with various allowances and lower rates that are already given to other similarly regulated sectors in the country", he added.
Regarding fuel margins, the chairman and Chief Executive of the company said petrol and diesel margins in Pakistan are regulated and fixed in rupees per litre. These margins are not at a level sufficient to cover steadily rising direct costs of operations and the high cost of financing required for investment in stocks and business assets. In an environment of rising product prices and steady double-digit inflation, this is far from an ideal operating position. "This is a challenging period, not only for the Company but for the wider local and international business operational environment", he said. "Despite this, we will continue to endeavour to manage external challenges and changes within the Company and to make efforts to set us on the path for recovery and future growth", he added.