Inventory losses dent PSO profits

The longer oil prices remain weak, the higher will be the inventory losses and steeper will be the impact of falling crude oil prices on fuel margins such as that of furnace oil. The largest oil marketing company in the country felt the pinch on earnings for 9MFY15 which took a plunge of 83 percent year-on- year, while the same was in negative for the 3QFY15.
Pakistan State Oil’s (KSE: PSO) revenues saw a decline of about 21 percent year-on-year. the key reason for this decline was the approximately 50 percent drop in average furnace oil margins; mind you, furnace oil makes up for over 45 percent of energy sales by PSO.
While furnace oil remained a problem for the OMC, the improvement in petrol and diesel margins gave some support to the top line.
Gross margins took a hit of 130 basis points from 3.43 percent in 9MFY14 to 2.08 percent in 9MFY15 even though cost of goods sold declined during the period. And while operating costs remained stagnant, inventory losses remained exacerbated. Other income, which usually offers backing to the bottom line retrenched by 47 percent year-on-year in 9MFY15 due to lower penal income from the power sector.
And then there was the finance cost that inched up as well even though circular debt has remained muted for some time.
While oil prices have clenched in the firm’s earnings, the oil supply halt created earlier this year due to the firm’s liquidity position was another reason that put PSO’s profits in jeopardy.
The company’s Board of Directors also announced interim cash dividend of Rs6 per share (60 percent) along with the 9MFY15 financials.

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Pakistan State Oil

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                       1HFY15    YoY    2QFY15     YoY

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Net sales             682,247   -21%   173,930    -30%

Cost of good sold     668,065   -20%   172,286    -29%

Gross profit           14,182   -52%     1,644    -75%

Other income            9,312   -47%     2,590    -11%

Operating exp          10,895     0%     3,111     68%

Operating profits      12,599   -65%     1,123    -85%

Finance cost            8,683    17%     2,741     28%

Profit after tax        3,272   -83%   (1,041)

EPS (Rs)                11.93   -83%    (3.83)

Gross  margin           2.08%            0.95%

Operating  margin       1.85%            0.65%

Net margin              0.48%           -0.60%

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