Shell Pakistan’s net profit no more

Shell Pakistan switches to losses in first quarter of fiscal year 2011 due to high finance and distribution costs.

KARACHI: Shell Pakistan switched to losses in the first quarter of fiscal year 2011 on the back of high finance and distribution cost.

The oil marketing company posted a loss of Rs731 million in July to September against a profit of Rs689.7 million in the same period last year, according to a notice sent to the Karachi Stock Exchange on Friday.

However, net sales increased 19 per cent on the back of a rise in total volumes sold and an increase in average Arab light crude oil prices. The net sales stood at Rs49 billion in the quarter compared with Rs41 billion in the same period last year.

Increased sales did not translate into a significant rise in gross profit due to minimal inventory gains compared with significant inventory gains recorded in the same period last year, said BMA Capital analyst Muhammad Ali Taufiq. Gross profit plummeted 32 per cent to Rs2.5 billion from last year’s Rs3.7 billion.

Finance cost increased 38 per cent to Rs331 million during the period under review against Rs240 million in the same period last year.

Distribution cost almost doubled to Rs1.49 billion compared with Rs740 million last year.

Deregulation to dampen EPS

The Economic Coordination Committee (ECC) recently approved the deregulation of oil prices along with fixation of margins for oil marketing companies at levels almost 15 per cent below October.

The deregulation is expected to cut Shell earnings per share by 17 per cent, according to Elixir Securities.

Shell will be hit the hardest among peers due to high incidence of turnover tax, high operating expenses and financial charges, said Elixir Securities analyst Azfer Naseem.

Published in The Express Tribune, October 23^rd, 2010.