After coming on the recovery path in FY13, Shell Pakistan seems to be climbing up the growth ladder by focusing on increasing its market share and operational efficiencies. In its latest financial performance, Shell's earnings for 9MCY14 multiplied by more than four times that of 9MCY13.
While the OMCs financial performance in the latest quarter (3QCY14) dwindled due to industry-wide challenges such as low regulated fuel margins, 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 tantamount to increase in volumes and cost curtailment.
The director's report for the nine-month period highlights that motor gasoline (petrol) volumes and lubricants exhibited growth in 3QCY14 versus 3QCY13. There was a 90 percent decrease in other operating expenses in 9MCY14.
However, the increase in advertising and promotion component of distribution and marketing expenditure in the first nine months of CY14 was twice that of last year. The director's report acknowledges this increase as the money spent in consumer and trade promotions to build brand share of both fuel and lubricant segments.
In the first nine-month period of CY14, Shell 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.
With only a quarter left for the close of CY14, it can be comfortably assumed that Shell would be in a much better place than CY13, and certainly CY12. The firm continues to grapple with challenges like rising receivables. Also, regulated margins on petrol and diesel are a concern for the OMC sector as they consider them very low. And with all this, OMCs are certainly not liking the sliding crude oil prices, which would result in inventory losses for the firms in the coming months.
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Shell Pakistan Limited
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Rs(mn) 9MCY14 9MCY13 YoY 3QCY14 3QCY13 YoY
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Net sales 193,156 184,156 5% 63,412 63,240 0%
Cost of sales 184,878 175,931 5% 60,208 59,562 1%
Gross profit 8,278 8,225 1% 3,204 3,678 -13%
Distribution and Marketing 3,350 2,812 19% 1,144 1,084 6%
Other operating expenses 159 1,518 -90% 28 1,109 -98%
Other income 369 229 61% (523) 137 -482%
Operating profits 2,167 1,139 90% 464 608 -24%
Finance costs 330 446 -26% 86 77 13%
Profit after tax 896 214 318% 165 290 -43%
EPS (Rs/share) 8.37 2.00 319% 1.54 2.61 -41%
Gross margin 4.29% 4.47% 5.05% 5.82%
Operating margin 1.12% 0.62% 0.73% 0.96%
Net margin 0.46% 0.12% 0.26% 0.46%
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