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PAKISTAN STATE OIL LIMITED
ANALYSIS OF FINANCIAL STATEMENTS
INTRODUCTION
Pakistan State OIL (PSO) came into being in the mid-1970s when the Government of
Pakistan amalgamated three Oil Marketing Companies: Esso Eastern, Pakistan
National Oil (PNO) and Dawood Petroleum as part of its Nationalization Plan.
From 1999 to 2004, PSO had undergone radical changes, both internal and external
and has emerged with a new look and as a market leader with a long term vision. The
company is the only public sector entity in Pakistan that has been competing effectively
with three foreign multinationals, Shell, Caltex and Total.
PSO is currently enjoying over 73% share of Black Oil market and 59% share of White
Oil market. It is engaged in import, storage, distribution and marketing of various POL
products including mogas, high speed diesel (HSD), fuel oil, jet fuel, kerosene, liquified
petroleum gas (LPG),compressed natural gas (CNG) and petrochemicals. PSO also
enjoys around 35% market participation in lubricants and is
blending/marketing Castrol brands, in addition to a wide array of its own.
It is considered as one of the most successful mergers in the history of Pakistan. The
company has retail coverage of over 3,800 outlets, representing 80% participation in
total industry network. The company has been the winner of Karachi Stock Exchange
Top Companies Award for many years and is a member of World Economic Forum.
PSO serves a wide range of customers throughout Pakistan including retail, industrial,
aviation, marine and government/defense sectors. PSO has been meeting the countrys
fuel needs by merging sound business sense with national obligation.
http://en.wikipedia.org/wiki/Government_of_Pakistanhttp://en.wikipedia.org/wiki/Government_of_Pakistanhttp://en.wikipedia.org/wiki/Essohttp://en.wikipedia.org/w/index.php?title=Pakistan_National_Oil&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Pakistan_National_Oil&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Dawood_Petroleum&action=edit&redlink=1http://en.wikipedia.org/wiki/Royal_Dutch_Shellhttp://en.wikipedia.org/wiki/Caltexhttp://en.wikipedia.org/wiki/Total_S.A.http://en.wikipedia.org/w/index.php?title=Black_oil_(Pakistan)&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=White_Oil&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=White_Oil&action=edit&redlink=1http://en.wikipedia.org/wiki/Marketinghttp://en.wikipedia.org/wiki/Mogashttp://en.wikipedia.org/w/index.php?title=High_speed_diesel&action=edit&redlink=1http://en.wikipedia.org/wiki/Fuel_oilhttp://en.wikipedia.org/wiki/Jet_fuelhttp://en.wikipedia.org/wiki/Kerosenehttp://en.wikipedia.org/wiki/Liquified_petroleum_gashttp://en.wikipedia.org/wiki/Liquified_petroleum_gashttp://en.wikipedia.org/wiki/Compressed_natural_gashttp://en.wikipedia.org/wiki/Petrochemicalhttp://en.wikipedia.org/wiki/Castrolhttp://en.wikipedia.org/wiki/World_Economic_Forumhttp://en.wikipedia.org/wiki/World_Economic_Forumhttp://en.wikipedia.org/wiki/Castrolhttp://en.wikipedia.org/wiki/Petrochemicalhttp://en.wikipedia.org/wiki/Compressed_natural_gashttp://en.wikipedia.org/wiki/Liquified_petroleum_gashttp://en.wikipedia.org/wiki/Liquified_petroleum_gashttp://en.wikipedia.org/wiki/Kerosenehttp://en.wikipedia.org/wiki/Jet_fuelhttp://en.wikipedia.org/wiki/Fuel_oilhttp://en.wikipedia.org/w/index.php?title=High_speed_diesel&action=edit&redlink=1http://en.wikipedia.org/wiki/Mogashttp://en.wikipedia.org/wiki/Marketinghttp://en.wikipedia.org/w/index.php?title=White_Oil&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=White_Oil&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Black_oil_(Pakistan)&action=edit&redlink=1http://en.wikipedia.org/wiki/Total_S.A.http://en.wikipedia.org/wiki/Caltexhttp://en.wikipedia.org/wiki/Royal_Dutch_Shellhttp://en.wikipedia.org/w/index.php?title=Dawood_Petroleum&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Pakistan_National_Oil&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Pakistan_National_Oil&action=edit&redlink=1http://en.wikipedia.org/wiki/Essohttp://en.wikipedia.org/wiki/Government_of_Pakistanhttp://en.wikipedia.org/wiki/Government_of_Pakistan -
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INTRODUCTION TO THE PETROLEUM
INDUSTRY
Fy09 witnessed a very sharp fluctuation in international oil prices which touched the
highest level of US$ 141 /bbl in July 2008 against the lowest level of US$ 33/bbl in
December 2008.
During FY 09, a number of internal and external challenges threatened Pakistans
economy, and a shortfall in the energy sector, mainly driven by circular debt, was
among the major problems. During the year under review, supply and consumptions ofenergy in different sectors remained lower then the previous year. This was mainly due
to the overall slow down of our economy caused by inflation coming from very high
energy product prices. This, in particular, had an adverse impact on the performance of
the PSO large scale manufacturing sector.
The Consumption of petroleum products in the country during FY 09 decreased by 1%
compared to the preceding year. Mogas and JPI showed a volumetric growth of 4.2%
and 3.2% respectively, whereas HSD and SKO experienced a downward trend with anegative growth of 7.4% and 21.7% respectively.
On the CNG side, Pakistan became the largest CNG consumer in the worl with 2,700
CNG stations catering to about 2.0 million vehicles as compared to 1.7 million vehicles
during the preceding year, showing an increase of 17.6%.
The consumption of black oil grew to 8.2 million tons. During FY 09, local refineries
produced 9.6 million tons whilst the deficit requirement of around 9.8 million tons was
imported. A significant reduction in the refining capacity of different refineries was
witnessed mainly due to the mounting circular debt.
During FY09, PSO sold 12.9 million tons of POL products (excluding exports of 0.17
million tons) as compared to 13 million tons (excluding exports of 0.11 million tons)
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during the preceding year. The Company was able to maintain its sales despite the
overall economic slowdown and the decline in petroleum products consumption in the
white oil segment.
The Pakistan Credit Rating Agency Limited PARCA has rated Pakistan State OilCompany limited as AA+/A1+ .These ratings denote a very strong capacity for the
timely payment of financial commitments.
RESULTS OF FY 09
Profitability Ratios
Pakistan state oil posted a Lost after tax RS 6,699 million in FY 09 which was 147.66
percent less then the previous year. In the previous year the company reported profit
after tax of 14,054 million.
Moving forth, an assessment of the Profitability shows that the company earned Rs 719
billion revenues in FY09 compared to Rs 583 billion in FY08. This increase can be
accounted to the heavy reliance on PSO for provision of furnace oil. However, despite
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20072006
Profit after tax
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the higher sales the loss after tax stood at Rs 6.7 billion in FY09 vis-a-vis a profit of Rs
14 billion in FY08. It was due to the gross profit margin crashed from 5.15 in FY08 to
0.42 in FY09. The impact on net profit margin was more crucial by all standards as it
plunged from 2.41 to -1.09 owing to heavy inventory losses and exorbitant financial
charges. Financial charges escalated by 356% between FY08 and FY09 as they rose
from previous Rs 1.6 million to Rs 6.3 million. The virtually four fold increase in the
financial charges during the period under observation was a step taken to meet the
liquidity crunch caused by the severe circular debt that had accumulated. In addition to
the heavy inventory losses and the steep financial charges recorded during the FY09,
the devaluation in rupee value was another significant contributor to the fall in
profitability. A 19% depreciation of rupee against the dollar during the FY09
exaggerated the dent in the profitability of PSO as the company imports approximately
80% of the country's POL imports.
0
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2009 2008
revenue
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4
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2009 2008
Gross profit margin
-2
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Net profit margin
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The Return on asset in FY09 was ( 4.36%) as compared to 11.1 % in Fy 08. The return
on owners equity was also very less ( 32.09%) during FY 09 as compared to 45.4 % in
FY 08. The decline in both the returns can be attributed to the loss after tax.
Liquidity Ratios
An overview of the liquidity position of the company shows that the liquidity has dipped
by 13.7% from 1.24 in FY08 to 1.07 in FY09. This problem with liquidity was proactively
addressed by PSO as they introduced various strategies to ensure a better match
between the current assets and current liabilities of the company. In the short-term
however, the current liabilities were covered by short-term borrowings. Furthermore,
PSO recovered Rs. 167 billion from the power sector and another Rs. 39 billion on
account of the Petroleum Development Levy (PDL) from the GOP. These short and
long-term measures were taken to streamline the liquidity stature of the company.
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
2009 2008
Return on asset
Return on equity
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The inventory turnover during FY09 was 24.36 days as it was 10.1 days during FY 08 it
was about 10.1 days. The asset turnover during FY09 was 4.96 times as it was 5.8
times during FY08.
Debt Management Ratios
The debt to asset ratio rose from 75.64 in FY08 to 84.74 in FY09. The debt to equity
ratio and the long-term debt to equity ratios both rose with the debt to equity ratio
growing by 104% as it rose from 310.5 to 635.10. This spike in the debt to equity ratio
was due to severe accumulation of circular debt on accounts of Company's like
HUBCO, KAPCO, PEPCO, and PIA who defaulted on their payments and created acute
liquidity problems. Receivables from these companies amounted to Rs 79 billion and inan attempt to service its obligations to refineries, PSO has to resort to short term
borrowing amounting to Rs 64 billion.
1
1.05
1.1
1.15
1.2
1.25
2009 2008
current ratio
70.00%
75.00%
80.00%
85.00%
90.00%
2009 2008
DEBT TO ASSET RATIO
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However, this cycle of circular debt led to excessive short term borrowing and piling of
financial charges - factors which tarnished the profitability of the company. The Time
Interest Earned (TIE) ratio crashed from 16.4 to -0.89 due to the hike in financial
charges on account of short term borrowings to meet due financial obligations.
The Gearing ratio During FY 09 was 12.11% and it was 7.78% during FY 08. As the
gearing ratio measures the riskiness of the company. So it tells that the company is not
so risky however its gearing ratio has increased by 55.65 percent.
0.00%
100.00%
200.00%
300.00%
400.00%
500.00%
600.00%
700.00%
2009 2008
Debt to equity
-5
0
5
10
15
20
2009 2008
Time Interest Earned
Ratio
0.00%
5.00%
10.00%
15.00%
2009 2008
Gearing ratio
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Owners Equity Ratios
The Dividend Yield ratio during FY 09 was around 2.34% as compared to 5.6 % in FY08 which shows the rate of return received by the shareholders was around 58% less as
compared to FY08.
The price earning ratio during FY 09 was (5.47). As it were 5.1 during FY08. This shows
however the willingness of investors to pay the price of Company share have came
down as compared to the last year.
.
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
2009 2008
Dividend Yield Ratio
-10
-5
0
5
10
2009 2008
Price earning ratio
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The market value per share of Pakistan State Oil during FY09 was around 213.65 which
were also decreased as it was 417.2 during FY 08. The dividend per share during FY09
was around Rs5 which was Rs 23.5 in FY 08 which shows that it is also decreased by
around 78.72%.
Balance Sheet Growth
The total assets of the company grew by 20.7% in FY 09 as compared to FY08 while
the total liabilities grew by 37.86% as compared to FY 08 whereas the Equity of the
company declined by 32.6% as compared to FY 08.
0
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2009 2008
Dividend per share
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2009 2008
Market value per share
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Future outlook
Pakistan State Oil geared towards addressing and meeting the energy challenges of the
country in the face of the limited domestic refining capacity that has resulted in the
import of refined products. The future energy demand in Pakistan is expected to grow,
which is largely due to the expected natural gas constraints for the powe generation
0
50000000
100000000
150000000
200000000
2009 2008
Total Assets
0
50000000
100000000
150000000
2009 2008
Total Liabilities
0
5000000
10000000
15000000
20000000
25000000
30000000
35000000
2009 2008
Total Equity
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sector and reduction in hydro electric potential. In an economic environment that is
marred by mounting circular debt, the company is successful in fulfilling the energy
demand of the country with its prudent utilization of resources.
Pakistan State Oils future performance will be reliant on cost savings, increased salesand high operating efficiencies. In the long term the Company will continue to enhance
its brand equity with aggressive and focused marketing efforts that will utilize the print
and electronic media and will strengthen the companys visibility.
PSO AT A GLANCE
Rs. Million (unless noted)
2009 2008 2007 2006 2005 2004 2003
Sales Volume
(Million Tons)13.2 13.0 11.8 9.8 9.7 8.6 10.8
Profit & Loss Account
Sales Revenue 719,282 583,214 411,058 352,515 253,777 195,130 206,376
Net Revenue 612,696 495,279 349,706 298,250 212,504 161,538 172,446
Gross Profit 3,010 30,024 12,259 17,207 13,746 9,191 8,955
Operating
(Loss) / Profit(5,577) 22,451 7,950 11,264 9,340 6,452 6,484
Marketing &Administrative
Expenses
5,113 4,425 3,748 3,428 3,219 2,634 2,465
(Loss) / Profit
before Tax(11,357) 21,377 7,122 11,418 9,191 6,263 6,209
(Loss) / Profit
after Tax(6,699) 14,054 4,690 7,525 5,656 4,212 4,030
Earning beforeInterest, taxes,
depreciation &
Amortization
(EBITDA)
(3,983) 23,912 9,420 13,385 10,546 7,244 7,113
Copex 694 620 1,609 751 1,506 2,096 1,643
Balance Sheet
Share Capital 1,715 1,715 1,715 1,715 1,715 1,715 1,715
Reserves 19,156 29,250 19,224 19,098 15,830 13,731 11,348
Shareholders' 20,871 30,965 20,939 20,813 17,545 15,446 14,264
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Equity
Property Plant& Equipment
7,056 7,567 8,138 7,674 8,256 7,738 6,437
Net current
assets8,666 22,143 11,128 10,978 7,970 6,309 4,531
Long TermLiabilities
2,528 2,409 2,412 2,299 1,999 1,636 1,358
Profitabiltiy Ratios
Gross Profit
ratio% 0.42 5.15 2.98 4.88 5.42 4.71 4.34
Net Profit ratio % (0.93) 2.41 1.14 2.13 2.23 2.16 1.95
EBITDAmargin
% (0.55) 4.10 2.29 3.80 4.16 3.71 3.45
Return onShareholders'
Equity
% (32.10) 45.39 22.40 36.16 32.24 27.27 30.85
Return on total
assets% (4.37) 11.06 6.28 10.72 10.81 9.93 12.46
Return on
capitalemployed
% 15.5 68.1 35.4 54.1 48.9 40.8 44.90
Asset utilization
Inventory
turnover ratio
(x) 13.9 10.1 11.7 11.5 11.2 13.1 19.7
Debtor
turnover ratio
(x) 12.6 24.6 32.5 38.1 39.9 40.1 35.4
Creditor
turnover ratio
(x) 6.3 9.6 10.8 12.5 13.5 12.2 15.1
Total assetturnover ratio
(x) 5.13 5.78 5.67 5.76 5.36 5.22 6.34
Fixed assetturnover ratio
(x) 98.4 74.3 52.0 44.3 31.7 27.5 36.4
Investment
Earning per
share
Rs. (39.05) 81.94 27.34 43.87 32.98 24.56 23.50
Market valueper share (YearEnd)
Rs. 213.65 417.24 391.45 309.00 386.00 256.75 228.40
Highest Price Rs. 428.79 539.70 418.30 452.30 490.10 316.60 239.50
Lowest Price Rs. 96.00 317.50 280.50 264.65 239.00 232.75 109.90
Break-up value Rs. 121 180 122 121 102 90 76
Price earningratio (P/E)
(x) (5.5) 5.1 14.3 7.0 11.7 10.5 9.7
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Dividend per
share
Rs. 5.0 23.5 21.0 34.0 26.0 17.5 16.0
Bonus share % - - - - - - -
Dividend
payout
% - 28.68 76.81 77.50 78.84 71.25 68.09
Dividend yield % 2.34 5.63 5.36 11.00 6.74 6.82 7.01Dividend cover
ratio
(x) - 3.49 1.30 1.29 1.27 1.40 1.47
Leverage
Debt : Equity
ratio- - - - - - -
Interest Coverratio
(x) - 16.4 6.9 12.7 25.2 34.1 23.6
Current Ratio 1.07 1.24 1.22 1.23 1.24 1.25 1.25
Quick Ratio (x) 0.75 0.57 0.64 0.63 0.62 0.66 0.79
Contribution
Employees as
remuneration2,872 2,438 2,006 1,857 1,870 1,474 1,403
Government astaxes
161,388 85,208 68,096 58,822 38,823 50,942 53,699
Shareholders asdividends
858 4,031 3,602 5,831 4,459 3,002 2,744
Retainedwithin the
business
- 1,100 1,900 1,230 1,210 1,290
Financialcharges to
providers offinance
6,232 1,368 1,158 884 371 189 275
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