When oil companies were groaning under the weight of rising oil prices (since second half of FY07 and the upward trend continued to hold in FY08), Pakistan State Oil (PSO) braved the unfriendly weather with great courage and determination and managed to come safely through a difficult period by showing a record net profit of Rs 4.7 billion after tax in FY07.
NOTWITHSTANDING SOME ADVERSE FACTORS, THE COMPANY HAS HAD A PROFIT OF RS 4.7 BILLION: The performance of the company would be highlighted at the Board of Directors meeting being held here on February 15. A cursory look at the performance sheet of the company shows that instead of going bust under pressure it withstood the onslaught and lived up to its reputation which was built up by the late PSO chief Shaukat Mirza and his scheme of things followed earnestly by the people who followed him.
Since PSO was up for privatisation, the PSO management along with the board of management and Government of Pakistan (GOP) took a number of initiatives to enhance the operating efficiency of the company. These strategic decisions resulted in a 300% increase in the value of PSO, from market capitalisation of Rs 19 billion in FY01 to Rs 75 billion in February 2008. The share price rose from Rs 133 in FY01 to Rs 440 in February 2008. This increase would give a direct benefit to the GOP and other shareholders.
Needless to mention that during the first half of fiscal year 2007, international oil prices dropped significantly causing heavy inventory losses not only to domestic players but also to global oil majors like BP and Chevron.
Inventory gains and losses are an integral part of every commodity business. Such phenomena are results of a change or changes in product behaviour, international price variations of products and foreign exchange conversions.
PSO, like other Oil Marketing Companies (OMCs), also absorbed an inventory loss of Rs 0.36 billion in FY07 vs a gain of Rs 2.6 billion in FY06. In addition, OMCs margins were also slashed by Oil and Gas Regulatory Authority (OGRA) owing to a change in price mechanism which resulted in an overall loss of around Rs one billion to PSO. Despite these adverse factors, the company successfully managed to record profit of Rs 4.7 billion. Had these changes/factors not occurred, PSO would have posted much higher profits in 2007 over the prior year.
COMPARATIVE NUMBERS OF 2006 VS 2007 ARE AS FOLLOWS: The primary reason for the fluctuation in profitability is due to the significant impact of changes in international oil prices coupled with revised pricing formula introduced by OGRA, which not only affected PSO but also other companies in the industry.
PSO'S PERFORMANCE WAS FAR BETTER THAN ITS CLOSEST COMPETITOR: Up to 2000 there was a steep decline in the market shares of all the products sold by PSO. From 2001 onwards, when the reform process was initiated, the company regained its industry leadership. In Mogas in 1HFY08 - an all time high market share of 50%, after 15 years was recorded. During the last eight years, PSO gained almost 8% share in Mogas while its closest rival lost 15% share, coming down from 43% to 28%.
Even in diesel, the company managed to record over 60% market share. Similar trends were witnessed in other key products. These reversal trends were achieved by PSO through a team of dedicated professionals who embarked upon the strategic initiatives chalked out by the management team in consultation with the Board.
Salient features include New Vision development to bring gas stations in line with international standards, aggressive marketing and sales promotions, new innovative products like plastic cards, additized gasoline and diesel and introduction of internal packaging for lubricants along with systems improvement and lot more.
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PSO's Performance FY2006 FY2007
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Operating Performance
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Market Share 64.7% 68.6%
Volumes (MT) 9.75 11.8 21%
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Financial Performance (Rs Billion)
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After tax Base Earnings 5.0 6.0 20%
Inventory Gain/(Loss) 2.6 (0.36) (114%)
Reduction in OMC Margins Nil (0.97) (100%)
Others (0.10) Nil
Net Profit after tax 7.5 4.7 (38%)
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Shell's Performance FY2006 FY2007
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Volume (000 Tons) 2,643 2,396 (9%)
Net Profit after tax 3.1 0.7 (78%)
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(Rs billion)
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Avg. Fiscal Year Ended June 30th
Growth 2007 2006 2005 2004 2003 2002
per annum
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% Rs 'billion
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Volumes - kT 2 11,795 9,750 9,684 8,593 10,758 11,460
Revenue 19 411o 353 254 195 206 182
Profit before tax 11 7.12 11.65 9.19 6.26 6.21 5.14
Profit after tax 12 4.69 7.52 5.65 4.21 4.03 3.19
Dividend per share - Rs 15 21.0 34.0 26.0 17.5 16.0 13.0
Earning per share - Rs 12 27.3 43.9 33.0 24.6 23.5 18.6
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2003 2004 2005 2006 2007
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Volumes (000 Tons)
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Black Oil 5,296 2,881 3,766 4,083 6,108
White Oil 5,387 5,580 5,836 5,587 5,607
Others 75 132 82 80 80
Total 10,758 8,593 9,684 9,750 11,795
Earnings from Business 3,940 3,669 3,602 5,026 6,024
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Inventory Gain/(Loss) -
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net of tax 90 543 2,054 2,604 (361)
Extra Ordinary Item * - - - (105) -
Impact of margin reduction
(March 2006) - - - - (973)
Net Profit (as Reported) 4,030 4,212 5,656 7,525 4,690
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