Being one of the oldest multinational companies in Pakistan, Shell's global history dates back to in Indo-Pak 1903 when Shell Transport and Trading Company and Royal Dutch Petroleum Company decided to merge and supply petroleum to Asia. The name of the company in 1928 was Burmah Shell Oil Storage and Distribution Company in India with the merger of Royal Dutch Shell Plc and Burmah Oil Company. Its history started with Burmah Shell Oil Distribution Company of Pakistan, which became Pakistan Burmah Shell (PBS) Limited in 1970 when Pakistani investors gained 51 percent of the shareholding.
Later in 1993, the Burmah Group divested its share from PBS, and Shell Petroleum raised its stake to 51 percent. Today, Shell Petroleum is a 76 percent majority stakeholder in Shell Pakistan Limited. The company is amongst the four oil marketing companies listed on KSE-100, the others being PSO and Attock Petroleum Limited, and Hascol's IPO recently listing it on the bourses.
RECENT BUSINESS OPERATIONS The downstream firm operates in retail, aviation, lubricants and commercial fuels. With a 15 percent share in white-oil market and over 780 retail outlets, SPL is the largest player in the foreign retail segment which provides tailored fuel to over a million customers daily. Five new sites were added to the retail network in 2013. Shell Pakistan launched its latest Retail Visual Identity by setting up five state-of-the-art fuel stations in three regions. These stations symbolise the latest construction, safety and global design standards in the industry and are equipped with Shell's-E branding.
The company is a global leader in lubricants. The lube business is focused on sales of key brands like Rimula, Helix and Advance to high street traders and the transport sector. The company also provides world-class domestic heating oils and wholesale products to business customers. Shell Pakistan Limited is also one of the key suppliers of fuel to IPPs in Pakistan. In 2013, the Lubricants team launched flagship diesel engine oil Rimula R4X, a specialised lubricant that enables customers to save significant cost while protecting engines. The target market for the product is mainly truckers and agriculturalists.
The company has a strong representation in the aviation industry as well. The core inland business for Aviation grew substantially in 2013 driven primarily by entering into yearly contracts with Emirates, Saudi Air and Oman Air at Islamabad. It also won fuelling contracts for Emirates, Cathay Pacific, Turkish Airline and Sri Lankan Airline at the Karachi Airport.
FINANCIAL PERFORMANCE 9MCY14 Shell Pakistan's recovery started in CY13. The rebound in the earnings of the oil marketing company (OMC) has a lot to do with the firm's efforts to increase market share and operational efficiencies. In CY13, the company gained market share in motor gasoline and diesel and significantly improved the profitability of its aviation and jet fuel segment, which translates into 17 percent year-on-year growth.
The firm seems to be continuing its way up the growth ladder by focusing on increasing its market share and operational efficiencies. In 9MCY14, Shell Pakistan's earnings multiplied by more than four times that of 9MCY13.
While the OMC's financial performance in 3QCY14 dwindled due to industry-wide challenges like the financial burden of the overdue receivables from the government, and the continued impact of the minimum tax regime, the spur in earnings for the year so far came from the increase in volumes and cost curtailment. The nine-month period highlights that motor gasoline (petrol) volumes and lubricants exhibited growth in 3QCY14 versus 3QCY13.Shell Pakistan experienced a 90 percent decrease in other operating expenses in 9MCY14. However, the jump in advertising and promotion component of distribution and marketing expenditure in the first nine months of CY14 was double compared to last year. This was primarily due to the money spent in conducting consumer and trade promotions to build brand share of preference for both fuel segment and the lubricant segment.
LIQUIDITY Although Shell Pakistan Limited does not have any long term loans on its balance sheet, the financial position of the company call for attention as it has been trying to sort out its working capital issue through short term loans, thus incurring high financial charges. In the first nine-month period of CY14, Shell Pakistan Limited was able to collect a limited amount of its receivables from the government on account of Petroleum Development Levy refund, whereas the firm is still owed receivables that are pending for one to ten years.
OUTLOOK With only a quarter left for the close of CY14, it can be comfortably assumed that Shell Pakistan would be in a much better place than CY13, and surely CY12. The firm continues to grapple with encounters like rising receivables. Also, regulated margins on petrol and diesel have just recently been increased after remaining too low for some time.
Though the fuel margins have recently been increased, the sliding crude oil prices will have result in inventory losses, however, a respite in circular debt will somewhat write off the negative impact. Another challenge is the impact of minimum tax on turnover regime that charges incomes tax to the company on selling price basis. In a rising price scenario, this practice increases the tax liability.
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Shell Pakistan Limited
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9MCY12 9MCY13 9MCY14
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Profitability
Gross margin 4.82% 4.47% 4.29%
Operating margin 0.94% 0.62% 1.12%
Net margin -1.01% 0.12% 0.46%
ROA -4.19% 0.56% 1.92%
ROE -24.66% 3.52% 11.52%
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Liquidity and Solvency
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Current ratio 0.77 0.85 0.94
Liabilities to assets 0.83 0.84 0.83
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Efficiency
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Total asset turnover 4.15 4.82 4.13
Fixed asset turnover 23.26 29.91 29.23
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Market
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EPS (Rs per share) -18.07 2.00 8.37
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Source: Company accounts
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