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================================================================== Recent Performance (in 000 s) FY 09 FY 10 % Change

=================================================================== Gross Sales Net Sales 719,282,176 877,173,254 21. 95 612,695,589 742,757,951 21. 23 (609,685,478) (713,591,707) 17. 04

Cost of products sold Gross Profit

3,010,111 29,166,244 868. 94 1,451,666 1,479,054 1. 89

Other operating income Operating costs Other income

(10,815,121) (9,411,885) -12. 97 776,686 6,095,348 684. 79

Profit from Operations(EBIT) (5,576,658) 27,328,761 590. 06 Finance cost Taxation Net Profit (6,232,056) (9,882,010) 58. 57 4,658,329 (8,913,556) -291. 35 (6,698,535) 9,049,596 235. 11

RECENT PERFORMANCE (FY10) Fluctuation in international oil prices has rendered the performance of Oil Marketing Companies (OMCs) unpredictable in terms of productivity. While the crude oil has touched $102 per barrel recently while it had receded to below $75 per barrel in August/September 2010. In FY10 POL consumption in the country was recorded to 20. 8 million tons, as compared to 19. 2 million tons last year. The primary reason for this 8% growth has been the increased consumption of Mogas and Fuel Oil. PSO lost 2. 1% share in Mogas as compared to previous year bringing its market share in this product to around 45. 9%. PSO s Mogas volumes increased by 22% whereas the industry volumes grew by 27%. This increase in volumes was reported due to increase usage of generators and more vehicles on the road. Consumption of Black Oil grew to 9. 3 million tons - an increase of 14% over the preceding year. Black Oil demand picked up owing to supply constraints for natural gas. In Black Oil, PSO enhanced its market share appreciably from 85. 8% in FY09 to 88. 3%. The surge was mainly due to increase in demand in power generation sector. Reduced hydro-electric potential also contributed to rise in Fuel Oil consumption. This trend in Fuel Oil consumption is expected to continue in subsequent years. During FY10 demand for motor gasoline increased by over 27% over the preceding year mainly due to 50% increase in cars sales and 44% increase in motor cycles sales, gas shortage in winters, one day holiday of CNG per week and extraordinary increase in use of generators due to frequent power outages. During FY10, local refineries produced 7. 9 million tons while the deficit requirement of around 11. 3 million tons was imported. PSO has over 90% share in import of deficit products in the country. The major chunk of demand was in FO and HSD for which 6. 7 million and 3. 75 million tons were imported respectively by PSO. A significant reduction in the refining capacity of different refineries was witnessed mainly due to the mounting circular debt and lower refining margins. During the period under review, Lubricants market share has increased to 26. 6% as compared to 23. 3% in the last fiscal year. Your company s lubricants maintained the market leader position in the sugar industry segment with 60% share.

PSO has a market share of 22% in CNG industry in FY10. It has shown growth of 13% in FY10 against industry growth of 11% as compared to FY09. Gross sales increased by 21% due to the greater demand for fuel from the power generation sector. However net sales showed a slight less increase due to 72% increase in Inland Freight Equalization Margin. Gross profit increased manifold, since PSO moved from a net loss of Rs 6. 698 billion in 2009 to profit of Rs 9. 050 billion in 2010. Operating costs declined by 13% in FY10 which shows that PSO got better at managing administrative, distribution and marketing expenses. However, other income increased manifold, as PSO received its delayed markup and payments in FY10. EBIT thus showed a 590% increase in FY10. Finance cost increased by 58. 57% in FY10. This was due to the mounting receivables of PSO. These receivables were owed by GoP, various IPPs, WAPDA and KESC. Since such a considerable portion of income was stuck in receivables, PSO has to borrow short term loans from banks, and this resulted in high finance cost. The taxation was also positive and significant this year, as opposed to tax credit which had been received in FY09. Overall, the net profit showed an increase of 235%. FINANCIAL PERFORMANCE (2003-10) An overview of the liquidity position of the company shows that the liquidity dropped from 13. 7% from 1. 24 in FY08 to 1. 07 in FY09 but again stabilized to 1. 14 in FY10. The power generation companies were PSO s main debtors, as well as GoP since PSO was entitled to receive the amount of price differential as compared to world oil prices. The increasing trade debts worsened the liquidity position, but FY10 saw some relief as PSO received some of its payments due. In the short-term, the current liabilities were covered by short-term borrowings. After a depressing profitability scenario and the downward spike in FY09, PSO recovered to a net profit situation in FY10. However, this recovery was not complete, as can be seen from the return on assets which decreased from 11% in FY08 to -4. 7% in FY09 and then recovered to 4. 7% in FY10. While the other profitability ratios, basic earning power, gross profit ratio and net profit ratio followed a similar trend, the return on equity showed the most marked variation. Return on equity decreased from 45. 4% in FY08 to -32. 1% and then increased to 30. The inventory turnover ratio increased from 12. 70 in FY08 through 13. 96 in FY09 to 15. 05 in FY10. This shows that PSO was able to sell more of its inventory throughout the years under review, indicating better inventory management and strong sales position in the market. Likewise, the inventory turnover in days declined. Due to stability in sales, the total assets turnover remained stable over the recent period from 08 to 10, showing that a sufficient amount of sales was generated to justify the investment in assets. However, the day sales outstanding continued to increase from 20. 93 in 2008 through 40. 30 in 2009 to 48. 89 in 2010. This shows the continual weakness of the firm in managing its receivables, and serious implication for the liquidity position. The debt to equity ratio rose from 310. 5% in FY08 to 635. 1% in FY09 but declined to 589. 4% in FY10. The spike in the debt to equity ratio in FY09, due to severe accumulation of circular debt on accounts of companies like HUBCO, KAPCO, PEPCO, and PIA who defaulted on their payments and created acute liquidity problems, was only marginally improved in FY10, since PSO was able to recover only a small portion of its debts. However, this cycle of circular debt led to excessive short-term borrowing and piling of financial charges - factors which has tarnished the profitability of the company. The Time Interest Earned (TIE) ratio crashed from 16. 4 in FY08 to -0. 89 in FY09 due to the hike in financial charges on account of short-term borrowings to meet the financial obligations. The ratio only slightly improved to 2. 77 in FY10, due to the improved net income of the company in 2010. The capitalization ratio likewise showed a peak in FY09 due to dependence on external borrowings to meet payments due to foreign exporters, but capitalization ratio decreased again in FY10 after some recovery in net income. The market value ratios show a great decline in dividend per share from 24 in FY08 to 5 in FY09 due to the liquidity crisis. However dividends further declined to 3 in FY10, since there was no real significant improvement in liquidity position even during FY10. Earnings per share and price earnings ratio showed a similar trend, with the EPS falling from 81. 94 in FY08 to -39. 05 in FY09 and partially recovering to 52. 76 in FY10. Book value per share and market value both followed the other market value ratios. Book value fell from 180. 5 in FY 08 to 120. 6 in FY09 and rebounded to 171. 0 in FY10, whereas market value decline by 47% from 430 in FY08 to 213. 65 in FY09, but increased again by 37% to 292. 26 in FY10.

PSO has a beta of 1. 03 as against a market beta of 1. 00. It shows that PSO has a relatively stable position in the market, the market price of PSO stock closely follows the market trends. This stability is ensured due to PSO s position of market leader, so sales do not decline even in economic downturns. FUTURE OUTLOOK It is expected that future energy demand in the country will continue to grow owing to expected natural gas constraints specifically for power generation sector. PSO plans to acquire a refinery as part of its backward integration strategy to develop a confirmed supply source and reduce reliance on imports. In the current fiscal year, PSO shall focus on improving service at its retail outlets and promoting the environmentfriendly ethanol based gasoline ie E-10. By the end of 2010, PSO plans to have E-10 available at 100 outlets across the country. The circular debt crisis held PSO back in FY10 and it had to shelve its plans for enhancement of the storage network. PSO plans to augment its storage infrastructure to meet the future oil demand. A development/upgradation plan for key storages in line with future Furnace Oil demand for IPPs has been chalked out. PSO is also working on a scoping study to connect Keamari with Port Qasim through a white oil pipeline. It is expected that efficiency and flexibility shall be increased manifold if these two ports are connected to each other through an integrated pipeline system. IFEM deregulation awaits implementation, and if implemented would certainly change market dynamics. PSO is expected to benefit from this deregulation with the largest distribution network in the country. This would result in setting competitive market prices and increase its market share in the southern region. However, Punjab would continue to remain a competitive region.

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