Shell Pakistan Suffers Massive Loss Due to Rupee Devaluation

Shell Pakistan Limited has announced its financial performance for the first half of 2019, incurring losses of Rs. 1.44 billion. The company had booked a profit of Rs. 1.60 billion in the same period last year.

During the 2nd quarter, the company posted a loss of Rs. 1.70 billion as compared with a profit of Rs. 247 million in the same quarter last year.

However, the net sales of the company grew by 12.50% to Rs. 101.14 billion as compared with Rs. 89.90 billion in the corresponding period. The cost of sales was Rs. 92.72 billion, up by 13.61%, which took the gross profit to Rs. 8.41 billion.

Even though Shell Pakistan was able to maintain and grow its market share in a declining industry, its overall financial results were impacted by some of the macro-economic challenges being faced by the country, primarily due to the devaluation of the rupee and volatility in international oil prices.

In this industry, a large percentage of costs and payables are denominated in foreign currency, thus rupee devaluation had an impact on the cost base and, in turn, on financial performance.

Currency depreciation wreaked havoc on the company’s earnings which were dragged down by a major increase in exchange losses (part of the other expenses)

The company’s other expenses increased by 71%, to Rs. 3.2 billion from Rs. 1.8 billion due to the exchange losses and admin expenses were increased by 17.30% which resulted in an operating loss of Rs. 259.1 million. The rise in finance cost and increase in non-core expenses made a huge dent in the earnings of the company.

The finances of the company have been continuously affected by the overdue receivables from the Government of Pakistan and the increase in State Bank of Pakistan (SBP) policy rate. The State Bank of Pakistan announced its monetary policy during the period and increased the policy rate to 13.25%.

There was a 6.8X increase in finance cost that typically consists of bank charges and mark-up on short term borrowings, which also decreased the earnings. It was posted at Rs. 726.84 million compared to Rs. 93.24 million for the same period last year.

The company posted a loss per share of Rs. 13.53 compared to earnings per share of Rs. 14.98. Shell’s script at the PSX was closed at Rs. 152.27, down by Rs. 4.60 or -2.93% with a turnover of 19,800 shares on Wednesday.

Profit and loss account for the half-year ended June 30, 2019 (Amounts in thousands except for earnings per share)
June 2019
June 2018
% Change
Sales 116,844,907 106,434,056 9.78%
Other revenue 436,810 448,044 -2.51%
Sales tax (16,136,493) (16,976,565) -4.95%
Net revenue 101,145,224 89,905,535 12.50%
Cost of products sold (92,728,582) (81,619,815) 13.61%
Gross profit 8,416,642 8,285,720 1.58%
Distribution and marketing expenses (3,448,858) (2,840,859) 21.40%
Administrative expenses (2,360,077) (2,012,113) 17.29%
Other expenses (3,245,246) (1,897,858) 71.00%
Other income 378,350 268,974 40.66%
Operating (loss) / profit (259,189) 1,803,864
Finance costs (726,846) (93,249) 679.47%
Share of profit of associate – net of tax 460,094 487,224 -5.57%
(Loss) / Profit before taxation (525,941) 2,197,839
Taxation (921,517) (594,463) 55.02%
Net (loss) / profit for the period (1,447,458) 1,603,376
(Loss) / Earnings per share- basic and diluted (Rupees) (13.53) 14.98