The profit growth trajectory had been going well for Shell Pakistan Limited (PSX: SPL) in recent years. The oil marketing company has been able to turn things around significantly in the last couple of years moving from a loss of over a billion rupees in CY14 to a hefty positive bottom-line of over Rs6.7 billion in CY16. However, the company’s earnings increase has been cut short this time as Shell Pakistan’s bottom-line witnessed a squeeze of over 50 percent, year-on-year to a little over Rs3 billion.
The company’s net revenue growth in 2017 remained flat compared to a continuous two-digit decline in the past two years. Gross revenues in 2017 declined by around four percent, year-on-year. The company has been highlighting for some time now that the continued oil price volatility and compliance to regulatory requirements of maintaining strategic stock levels in the country exposes the company to inventory losses. With no growth in cost of sales, the OMC was able to show a six percent, year-on-year growth in gross profits with improvement in gross margins. However, the net margins came under stress during the year due to overall higher operating costs. These include growth in distribution and marketing, administrative and other operating costs.
Also the firm continues to be affected by the mounting receivables from the government. As on September 30, 2017, the total outstanding receivables stood at Rs5,815 million versus Rs4,733 million as on June 30, 2017. However, the company might see some relief on this front as the government has just announced its financing plan for the power sector where it has reportedly also decided to pay about Rs500 million to two leading OMCs — PSO and Shell Pakistan — to clear compensation claims. While Shell has seen slower growth in petroleum volumetric sales as compared to its peers, the firm has been seen to expand its retail presence.
The company’s retail network spans over 790 plus sites. It has also been working towards offering higher quality fuels and engine oils to meet the rising demand in the retail sector.
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