PSO profit drops 50% to Rs4.24 billion

Decline comes on back of surge in finance cost

KARACHI: Pakistan State Oil’s (PSO) profit fell by half to Rs4.24 billion in the first half ended December 31, 2018 of the current fiscal year mainly due to a surge in finance cost.

Apparently, the massive 32% rupee depreciation in the last 14 months and company receivables worth billions of rupees from power, aviation and gas sectors forced the oil marketing firm to make high borrowing to run its operations. “The economic downtrend and reduction in the overall market size have impacted the company’s profitability,” PSO said in a statement on Monday.

The company had recorded a profit of Rs8.52 billion in the same six-month period of previous year, according to a notice sent to the Pakistan Stock Exchange (PSX).

Its earnings per share dropped to Rs10.86 in Jul-Dec FY19 compared to Rs21.78 in the same period of last year.

PSO’s share price increased 1.5%, or Rs3.34, and closed at Rs225.84 with trading in 1.06 million shares at the PSX.

Finance cost increased more than double to Rs3.85 billion in Jul-Dec FY19 compared to Rs1.77 billion in the same period of last year.

The company’s net sales increased 9.57% to Rs572.54 billion compared to Rs522.49 billion. Sales in volumetric terms, however, declined notably, the company said in the statement.

“The challenging economic trend in the country, fuelled by rupee devaluation and adverse balance of payments position, resulted in negative growth of 27% in the cumulative liquid fuel market with negative contribution from white oil and black oil of 12% and 60% respectively,” PSO said.

“Black oil volumes have been impacted significantly due to shift in power production towards RLNG (re-gasified liquefied natural gas) in the country.” Despite the challenging economic scenario, PSO led the liquid fuel market in the half year under review with an overall market share of 40.9%.

In spite of the soaring outstanding receivables from the power sector, Pakistan International Airlines (PIA) and Sui Northern Gas Pipelines Limited (SNGPL) as of December 31, 2018, which stood at Rs325 billion (September 30, 2018: Rs310 billion), “PSO maintained the sensitive supply chain by importing 48% of total industry imports and lifting 36% of the total refinery production in the country,” it said.

Major reasons for the reduction in profit were lower gross profit, mainly due to a dip in sales volume of black and white oil, higher inventory loss due to reduction in international oil prices, increase in finance cost due to a sharp hike in discount rate, higher average borrowing levels vs the same period of last year, lower interest income from the power sector and foreign exchange loss on account of rupee devaluation, it said.

Published in The Express Tribune, February 19^th, 2019.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.