PSO H1 profit falls 73pc as inventory losses bite

KARACHI: Pakistan State Oil Company, the country’s largest oil marketing company by revenue and market share, on Monday posted a 73 percent fall in its half-year net profit, hit by slowing sales and inventory losses.
PSO’s net profit in the six months ended December 31, 2014 fell to Rs4.3 billion from Rs15.8 billion in the same period a year earlier, the company said in a statement to the Karachi Stock Exchange.
Analysts said the company booked inventory losses in the second quarter of the current fiscal year on a decline in international oil prices.
“In addition, net sales of the company declined by 17 percent to Rs508 billion in the first-half of the current fiscal year as compared to Rs612 billion in the same period a year ago, said analyst Bilal Shariff of Topline Securities.
“The decline in net sales is due to a 16 percent and 11 percent fall in furnace oil and high-speed diesel volumes, respectively, coupled with falling prices of petroleum products.”
Shariff said a 2.46 percent cut in the company’s gross margin in the first six months of the current fiscal year also hit profits.
“The fall in gross margins is due to significant decline in the furnace oil prices during 1HFY15 that hurt furnace oil margins during the period. Moreover, PSO has incurred inventory losses due to the sharp decline in international oil prices, he added.
The company reported earnings per share of Rs15.76 as compared to Rs58.2 in the same period last year. The company also reported a decline of 54 percent in its other income on account of lower interest income received from Independent Power Producers.
Analysts expect PSO’s earnings to recover in the current fiscal year on the back of higher volumes and prices.
“The sales revenue will increase in the third and fourth quarters, as sales of petroleum products rose tremendously in February 2015 on a monthly basis,” said Furqan Punjani an analyst at BMA Capital.
“The outlook for the next six months is positive, as people have switched to petrol from CNG due to significant decline in price of POL products in recent months,” Punjani said.
PSO in a statement said a declining trend of international oil prices in the first-half of the current fiscal year resulted in heavy inventory losses to the company.
The company has booked inventory losses of Rs2.7 billion in the first six months as compared to inventory gains of Rs6.4 billion in the corresponding period of last fiscal year.
The oil marketing giant said the its total market share stood at 57 percent during the first six months of the current fiscal year down from 63 percent in the same period last year. “Whereas market share of black oil products was 67 percent (IH FY14, 75 percent) and white oil products were 49 percent (1H FY14, 53 percent),” the statement said.
The company said its sale volume of motor gasoline grew by four percent; however, the furnace oil sales volume and the high-speed diesel sales volume both declined by 16 percent and 10 percent, respectively.
“Moreover, the decline in crude oil prices from $109/barrel in July 2014 to $52/barrel in December 2014 during the period under review has also adversely affected the performance of the company, as the company’s margins for motor gasoline and high-speed diesel is fixed amounts per litre, whereas the furnace oil margins are in percentage terms,” the statement added.