Pakistan State Oil (PSX: PSO) announced its 1HFY18 financial performance last week amid the concerns of the currency devaluation, and that furnace oil volumes would drag oil marketing sector’s volumes significantly since their curtailment in the power sector. The company announced a decrease of around 15 percent, year-on-year in its 1HFY18 earnings with much of the fall emanating from the second quarter; 2QFY18 profits were down by 38 percent, year-on-year.
The culprit for lower earnings for the state OMC was beyond furnace oil volumes. Where the dwindling furnace oil volumes were a factor, the firm’s revenues were up by 26 percent, year-on-year due to higher crude oil prices during the period and higher volumes and margins on retail products like Motor Gasoline.
Hence, the decline in earnings was seen to come from lower other income. This was primarily due to absence of any receipt of penal income during the latest quarter. According to the company’s press release, the Government of Pakistan had issued PIBs of Rs46 billion to PSO in June 2013 as part of partial circular debt settlement. Maturity of these PIBs in July 2017 has been the key driver for lower interest income and earnings in 1HFY18. Finance cost was lower by 37 percent, year-on-year in 1HFY18. The company’s statement on the financial performance for the period however highlights that the outstanding receivables as of December 31, 2017 stood at Rs313 billion – more than 13 percent than those on June 30, 2017 against supplies to IPPs, GENCOs, PIA and SNGPL resulting in surge in borrowings to Rs119 billion. PSO did not announce any dividend for the quarter, which could highlight some liquidity issues. However, like 3QFYF17, there are chances that the company might announce higher than expected dividend to compensate for nil in the latest quarter
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