PAKISTAN STATE OIL COMPANY LIMITED: (PSO)

S.KAMAL HAYDER KAZMI
June 09 - 15, 2008

Pakistan State Oil Company Limited (PSO) is a public sector oil marketing company in Pakistan. Despite facing tough competition from the private sector OMCs, PSO has successfully managed to retain its position as the market leader with 68% market share during FY07.

Procurement, storage, marketing of petroleum and related products are the key activities of PSO. The Company has approx 3,700 retail outlets across Pakistan including 1,609 New Vision Outlets. During the FY07, PSO sold 11.8 metric tons of petroleum, oil and lubricant products. PSO serves a wide range of customers throughout Pakistan including retail, Industrial and government/defense sectors etc. PSO is set to install a network that would make a clear contribution to its business performance and that would contribute to the company goals in establishing itself as one of the most hi-tech organization in Government sector. Sales of PSO are directly linked with the international oil prices therefore any fluctuation of oil prices will affect the industry's performance. PSO is a member of the World Economic Forum and represent Pakistan in global decision making process. Pakistan state oil is listed in all stock exchanges in Pakistan. The Pakistan Credit Rating Agency (PACRA) has maintained the long-term and short-term entity ratings of PSO Company Limited (PSO) at "AAA" and "A1+" respectively. These best ratings denote the lowest expectation of credit risk emanating from an exceptionally strong capacity for timely payment of financial commitments.

FINANCIAL PERFORMANCE:

INDICATORS

GROWTH IN 1Q08

LIQUIDITY RATIO:

Current

1.2

Quick Test

0.72

ASSETS MANAGEMENT:

Inventory Turnover

3 times

Fixed Assets Turnover

10.51

Total Assets Turnover

1.1

DEBT MANAGEMENT:

Debt Ratio

0.76

TIE

23.05

PROFITABILITY:

Profit Margin On Sale

2.40%

ROA

2.64%

ROE

11.44%

The Financial performance of PSO Company Limited examines the key business structure, operations, products and revenues. PSO is the oil market leader in Pakistan with a Turnover of over US$ 6.8 billion and a market share of over 80% in Black and 59% in White Oil. A complete dependence on the international oil prices has raised the sales growth of the PSO. From Jan-Mar FY07 to FY08 the net sales were increased by 57% because of hike in oil prices and had its impact in demand of CNG and related products. The current ratio was recorded 1.2 in 1QFY08, which shows the good performance and assets are double than liabilities. PSO has been efficient enough in paying off in short term debt as compared to its competitors. PSO has paid off its liabilities; debt paying ability is likely to decline gradually in future. The inventory turnover was recorded three times; fixed assets turnover 10.51 and total assets turnover 1.1 were recorded in 1Q08 respectively. The assets turnover has also shown a positive figure in better marketing, improved distribution network and implementation of good strategy. The debt ratio was recorded 0.76, time interest earned (TIE) increased by 23.05 in 1Q08, because the gross profit and the amount of EBIT increased. The profitability shows the good performance of the company, the profit margin on sales 2.40%. ROA 2.64% & ROE 11.44% increased during 1Q08 respectively. The company consequently recorded a healthy growth in both profit before tax and profit after tax due to the increase in Net sales.

NON FUEL RETAIL BUSINESS:

Professionals of PSO has started to provide modern facilities to the customers including auto car wash, electronic dispensing units, convenience stores, business centre, internet facilities and Easy Payment Centre for payment of utility and Citibank credit card bills. PSO has launched Loyalty Card, Prepaid Card, use of bank's Visa and Master cards, for fueling at PSO retail outlets. The most recent introduction to the forecourt is the establishment of the 'FedEx' courier service facility.

HEALTH, SAFETY AND ENVIRONMENT (HSE) STEERING COMMITTEE:

It is the Company's policy to perform work in the safest practicable manner, consistent with best industrial practices while adhering completely to the requirements of health and safety codes and practices. By HSE compliance, the HSE Steering Committee meets periodically. The Committee ensures that all PSO operations are environment- friendly and major HSE projects that are being undertaken. The Committee also presents the status on HSE training, incidents and training programs.

FUTURE OUTLOOK:

Energy demand in our country would continue to grow with economic activities as a result of prudent government policies and reforms. PSO Company would maintain momentum in the market place, display steady progress in overall operations and make further prudent investment in strategic projects to generate strong growth and deliver high returns in real terms for its shareholders in years to come. The company should try to maintain its profitability and should be aware of its competitors in the market. The non fuel business will increase its net sale and its net profit. Raise in prices of oil is making a negative impact on petroleum demand and will increase substitute products in the future. However, Furnace Oil (FO) consumption is expected to increase on the back of power shortages and growing gas shortage thereby compelling the government to reply on thermal sources for power generation. All in all, PSO with its innovative strategies is likely to maintain its dominant position in future as well.