20000214

Brief recordings

BY SCANNER

Fuel & Energy

Shell Pakistan Limited

Year Ended June 30, 1999

Overview

Shell Pakistan Ltd. has turned out impressive financial and operating results and has excellent profile of social responsiveness to its stakeholders of all kinds. It has become a trend setter in the unique style of marketing of petroleum products. The share in the company is trading at Rs 302.25 per 10 rupee share which is 30.2 times of par value (Rs 10), 2.6 times, of the book value of the share (Rs 115.53) and 2.6 times of earning per share (Rs 25.12). With annual sales approaching US$ one billion, Shell Pakistan is one of the leading private sector enterprise in Pakistan. Shell has a strong brand name with 100-year history in the region. During recent years, the company has attained impressive growth in the marketing of petroleum products. It has attained enhanced market share at 44% in motor gasoline, 32% in diesel, 42% in lubricants. The company had the initiative of installing aviation specific computer system "Astranovia" at Islamabad Airport (already installed at Karachi) which allows Shell to handle 90% of deliveries and invoicing to its customers.

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The annual accounts ended June 30, 1999 were presented in the 30th AGM of the Company. The Annual Report is stamped "100 ÑÊcentenary year 1999 ÑÊShell in Pakistan."

Shell has a strong brand name with a 100-year history in this region. With annual sales approaching US$ 1 billion, Shell Pakistan is one of the leading private sector companies in Pakistan.

The Company has achieved rapid growth in recent years through a vigorous capital investment programme and by ensuring international standards of service and product quality.

The company, is fully committed to sustainable development like its parent company Ñ Shell Petroleum Company Limited UK. The parent company has 51.6% stake in the equity of this Pakistani subsidiary.

"Shell has been active in both upstream (exploration) and downstream projects (refining, blending, distribution and marketing) to contribute to fulfilling Pakistan's energy requirements. To this end the Royal Dutch Shell Group has interests in three other companies in Pakistan; a 30% stake in Pakistan Refinery Limited, a 67% stake in Burshane (Pakistan) Limited and 100% shareholding of Shell Development and offshore Pakistan B.V." Ñ as mentioned in the Annual Report under review.

The Report under review, highlights the company's performance in the marketing of petroleum products. The Report elaborated that Shell has vast network of 1,200 service stations in Pakistan, most of these are operating under franchise licensing by Shell Pakistan Limited which sells wide-range of petroleum products.

"In 1994, Shell Pakistan introduced its Retail Visual Identity (RVI) to create filling stations that mirror the Shell Groups international standards. Over the past five years 266 sites have received this rebranding treatment, which now accounts for a significant portion of motor gasoline and diesel sales." Ñ as informed through the Report under review.

It is also reported that increased visibility of the Shell's logo has boosted its image and increased market penetration. Shell Pakistan increased its motor gasoline market share to 44% from 35%, for diesel to 32% from 22% and for lubricants to 42% from 28%. The increase is in over six years and as a percentage of products sold by the petroleum and oil marketing companies.

The company's net sales declined to Rs 22,855 million by 9.67% as compared to the preceding year's figure of Rs 25,134 million. The decline in net sales was despite 16.07% rise in gross sales to Rs 49,887 million over preceding year's gross sales of Rs 42,980 million. The main cause of decline in net sales was due to sharp escalation in duties, taxes and levies by 51.4% to Rs 27,032 million over preceding year's amount of Rs 17,846 million.

Sales in terms of volume increased by 11% to 3.51 million tonnes. On the other hand gross profit registered 32.5% rise to Rs 2,921 million over preceding year's Rs 2,204 million.

Gross profit as percentage of net sales was 12.78% (1997-98 Rs 8.77%) and operating profit margin increased to 5.56% (1997-98: Rs 3.79 million).

These operating results are commendable, despite continued difficult economic scenario in the post economic sanctions era. The demand for petroleum products also remained sluggish with two time rise in the price of petroleum products. It has been also reported that industry's motor gasoline volume declined by 5% as consumption fell and at the same time some consumers switched over to alternative energy sources e.g. CNG. Sugar and cement sector and some other sectors were in distress so the company's commercial business was also affected. Despite the showdown, the company showed growth in volume and market share.

The company's focus on novel feature of lubricant marketing at the retail outlets Ñ "free oil change in 5 minutes" has forced the competitors to follow the style. But Shell was first in this type of service, has ensured the leadership in lube sales at retail outlets. The enhancement in service quality by wiping off the windscreen by an efficient young attendant, has also earned the gratitude and loyality of the customers for repeat sales. Shell's efficient service so convincing that customers are confident that its outlets are without meter tempering and adulteration.

"To ensure and maintain high standards of customer service, safety and house keeping at Shell's retail outlets, a dedicated training department trains our dealers and their staff. Training personnel, with the help of three mobile training vans fully equipped with audio and video facilities conduct comprehensive five day Total Quality Retailing courses for dealers and on Ñ site training courses for forecourt staff," as informed by directors.

Shell has been the pace setter in terms of taking the environment issues to prove better citizen having full of social responsiveness. It has done immense service to the community by initiating 'Golden Chain' scheme for pump attendants through the provision of better career prospects and entitlements. These include, among others social security, Eid bonuses, medical benefits, literacy programmes and performance based incentives.

The social responsibility profile of the company is at the top as, Shell acknowledges its responsibility to work within a reliable and robust Health, Safety and Environment (HSE) framework.

The company's net profit at Rs 880.74 million produced corresponding earning per share at Rs 25.12 (1997-98: Rs 16.87) which is substantially higher than preceding year's EPS. The company made impressive cash dividend payout of Rs 12.50 per share as compared to preceding year's Rs 8.50 per 10 rupee share.

In terms of financial and operating ratios and results it can be seen that these were record highest in the company's history. Share capital, shareholders' equity, break-up value of the share, net profit and EPS were the record highest.

In the aviation fuel supply business, the company has extensive portfolio of a turnover of approximately rupees two billion from over 300 million litres. Shell has its presence at six locations across Pakistan with an impressive market share of 35% from sales to both domestic and foreign airlines. Their customer profile, which is impressive, includes PIA, Aero Asia, Bhoja Air, KLM, Lufthansa, Emirates, Qatar Air and Singapore Airlines. Shell is the sole supplier of aviation gasoline in Pakistan with the principal customer being the Pakistan Armed Forces.

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Performance Statistics (Million Rupees)

June 30 1999 1998

Capital & LiabilitiesÉÉÉ

Paid-up Capital: 350.66 350.66

Reserves: 2,233.03 2,233.03

Unapp.Profit: 1,467.65 1,025.23

Shareholders' Equity: 4,051.34 3,608.92

Surplus Revaluation F/A: 2.94 2.94

L.T. Debts: 124.21 100.23

Deferred Taxation: 106.40 51.97

Current Liabilities: 3,446.16 3,159.87

AssetsÉÉÉ

Tangible Fixed Assets: 3,511.30 3,101.40

L.T. Investments: 5.00 5.00

L.T. Loans & Advances: 49.84 40.47

L.t. Deposits & Pre-payments: 12.36 17.75

Current Assets: 4,152.55 3,759.31

Total Assets: 7,731.05 6,923.93

Sales, Profit & PayoutÉÉÉ

Net Sales: 22,855.10 25,133.84

Gross Profit: 2,920.55 2,204.32

Operating Profit: 1,271.24 929.45

Other Income: 246.66 164.48

Depreciation: 328.45 205.09

Financial Charges: 34.48 92.22

Profit Before Taxation: 1,341.14 921.51

Profit After Taxation: 880.74 591.55

Dividend Cash 125% (1999: 85%): 438.32 298.06

Financial RatiosÉÉÉ

Share Price (Rs) 9/2/2000: 302.25 Ñ

Book Value Per Share (Rs): 115.53 102.92

Price/Book Value Ratio: 2.63 Ñ

Debt/Equity Ratio: 3:97 3:97

Current Ratio: 1.20 1.19

Asset Turnover Ratio: 2.96 3.62

Number of Days Trade Debts: 4 4

Number of Days Stock: 18 15

Gross Profit Margin (%): 12.78 8.77

Operating Margin (%): 5.56 3.79

Net Profit Margin (%): 3.85 2.35

EPS (Rs): 25.12 16.87

Price/Earning Ratio: 12.03 Ñ

R.O.E. (%): 21.74 16.39

R.O.A. (%): 11.39 8.54

R.O.C.E. (%): 20.55 15.71

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Company information: Chairman & Chief Executive: D. M. Weston. Director: A. Khawaja. Company Secretary: M. G. Dossa. Registered Office: Shell House, 6-Ch, Khaliquzzaman Road, Karachi-75530. Registered & Share Registration Office: Ferguson Associates (Pvt) Ltd., Karachi.