Profits fell and market share dwindled for Shell Pakistan in CY17. A look at CY17 financial performance shows that the multinational’s bottom-line slipped by around 50 percent, year-on-year. While gross margins have stabalised, the decline is earnings for Shell Pakistan can be seen to continue in 2018 as well as the firm posted a 38 percent, year-on-year decline in earnings for 9MCY18.
Common factors for the sluggish performance of the oil marketing segment this year have been the high oil prices and the significant depreciation of the domestic currency versus the greenback. Even though there has been a reasonable increase in cost of sales and other expenses including distribution and administration, significantly high other expenses in 9MCY18 took a toll on the bottom-line of the firm. These other expenses constitute the exchange losses from the rupee depreciation. The company continues to face the burden of receivables and finance cost. As at 30th June 2018, total outstanding receivables for Shell stood at Rs5,494 million.
However, the company has been working on getting back its lost market share as well as increases its presence in the retail side. The firm has also been witnessing a recovery in retail volume along with growth in lubricant sales. Shell’s focus seems to be improvement in operations along with safety. In its 1HCY18 quarterly report, it is highlighted that the company is expanding its fleet size while ensuring safe operations.
Due to depreciation of rupee of around 25 percent in the last 9-10 months, Shell Pakistan has reportedly approached the government to allow the downstream industry to secure profit margins in dollar. This is primarily because of the significant forex exposure in the margins of OMCs, which has affected the firm’s financial performance.
Shell Pakistan plans to invest further in the retail segment to regain the lost market share. This includes investment in white oil pipeline and retail outlets along the CPEC route. It is also part of the consortium that is planning to bring a 600 mmcfd LNG terminal, which is tentatively expected to come online by 2020.
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