SHELL PAKISTAN LIMITED

S.KAMAL HAYDER KAZMI
Research Analyst
, PAGE
Jan 19 - 25, 2009

Shell Pakistan's (SPL) principal activity is to market petroleum and petrochemical products. It also blends and markets various kinds of lubricating oils. Shell is involved in exploration both onshore and offshore and has a stake in Pakistan Refinery, LPG distribution and a 26% share holding in the white oil pipeline. Over the years, Shell has maintained this strong commitment to aviation. It is currently the market leader in aviation fuel supply at more airports than any other international supplier i.e. over 800 airports spanning almost 80 countries. Shell is a superior brand name with a 100-year history in this region.

FINANCIAL PERFORMANCE

FINANCIAL PERFORMANCE

(Rs '000)

INDICATORS SEP 30 , 2008 SEP 30 , 2007
Sales 52,355,593 32,711,501
NON-FUEL RETAIL
-Sales 25,730 35,956
- Others 4,699 4,255
Other revenue 185,820 93,414
  52,571,842 32,845,126
Less: Sales tax 6,275,022 3,884,034
Net revenue 46,296,820 28,961,092
Cost of products sold 45,515,019 26,810,403
Gross profit 781,801 2,150,689
(Loss) / Profit before taxation (2,130,737) 662,403
(Loss) / Profit after taxation (1,195,770) 532,738
(Loss) / EPS Rupees (17.46) 7.78
Source: Shell Pakistan

During the quarter ended Sep 30, 2008, the shell Pakistan's incurred a loss after tax of Rs 1,196 mn as compared to a profit of Rs 533 mn last year. This was primarily due to lower gross margin resulting from declining international oil prices and a corresponding write down of inventory to its net realizable value. This was coupled with high operating expenses on account of significant exchange losses of over Rs 800 mn during this period. High international oil prices had a very positive impact on Oil and Marketing Sector as a whole in FY08. However, despite this, the industry went through its most challenging period this year. Worst ever cash flow crises were faced due to very high increase in GOP receivables on account of Price Differential Claims (PDC). The PDC balance which rose to its highest level international oil prices from US $75/barrel in June 2007 to over $135/barrel in June 2008. During the period the subsidy on diesel increased from Rs 5.21/ltr in June 2007 to Rs 35.42/ltr in June 2008, leading to an increase in borrowing on sector's part and subsequent hike in financial costs. Although, the GOP settled its obligations to a larger extent by end of June 2008, nonetheless, the problem is far from over.

SHELL PAKISTAN IN KSE
DATE OPEN RATE CLOSING RATE
1-Jan-08 406.3 398
31-Jan-08 442.65 447
1-Feb-08 447 450.5
29-Feb-08 478 482
3-Mar-08 482 478
31-Mar-08 478 472.85
1-Apr-08 472.85 474.2
30-Apr-08 475 476
2-May-08 476 474.4
30-May-08 427 415
2-Jun-08 415 419.9
30-Jun-08 409.36 417
1-Jul-08 417 422
31-Jul-08 380 361
1-Aug-08 361 342.95
29-Aug-08 405 410
1-Sep-08 410 411.25
23-Sep-08 310.31 310.31
6-Oct-08 310.31 310.31
30-Oct-08 310.31 310.31
13-Nov-08 310.31 310.31
5-Jan-09 310.31 294.8
15-Jan-09 228.13 216.73
Source: KSE

SHELL PAKISTAN & GANDHARA IND

In 2008, Shell Pakistan Ltd. had signed a 3-year Memorandum of Understanding with Gandhara Industries Limited. Under that agreement Gandhara Industries Limited (GIL) had exclusively recommended Shell Lubricants for all Isuzu vehicles. As per agreement, Shell & GIL (Isuzu) had launched a joint campaign for promoting use of Rimula in Isuzu vehicles. GIL (Isuzu) dealers' network in Pakistan had exclusively been using Shell Rimula as the recommended oil for its diesel engines.

ENERGY CRISIS

Pakistan is in the grip of severe cold weather and citizens are unable to warm their houses because of shortage of electricity and gas. Electricity is expensive and available only for a few hours. Gas pressure in many residential areas is inadequate even for cooking or heating homes. An acute shortage of petrol has affected the mobility of people. Petrol shortage has impacted mostly motorcyclists and luxury car owners who have not converted their vehicles to CNG. Majority of people owning CNG cars had not faced much hardship in getting fuel for their vehicles ever since cold weather set in. Petrol shortage has resulted partly from short petrol supply and partly from storage by vehicles owners. Petrol pumps are also unwilling to stock petrol fearing a price drop.

CONCLUSION

This quarter witnessed one of the most difficult and challenging times for the Country as well as for the oil industry. Our country marked economic slowdown, worsening macro economic indicators, deteriorating law and order situation, rising inflation and an unprecedented depreciation of the Rupee; all of which impacted on company growth and profitability. During the period the Company profitability remained under tremendous pressure on account of rising cost of doing business and increasing interest rates in the market due to a severe liquidity crunch similarly the shortage of Natural Gas, CNG and LPG has followed petrol crisis and almost everyone has been affected. The international prices have been declining to almost lower than $40 a barrel; though recent OPEC supply cut decision may cause an increase in the oil prices. The government has also passed on the price decrease to the consumers. This price decrease may cause an increase in the POL consumption and a shift from gas to petrol. However, there is no doubt that Shell Pakistan plays a leading role in abridging the growing energy demand gap in Pakistan and is representing in all aspects of the upstream and downstream oil business in Pakistan.