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PAKISTAN STATE OIL LIMITED

ANALYSIS OF FINANCIAL STATEMENTS

INTRODUCTION
Pakistan State OIL (PSO) came into being in the mid-1970s when the Government of Pakistan amalgamated three Oil Marketing Companies: Esso Eastern, Pakistan National Oil (PNO) and Dawood Petroleum as part of its Nationalization Plan. From 1999 to 2004, PSO had undergone radical changes, both internal and external and has emerged with a new look and as a market leader with a long term vision. The company is the only public sector entity in Pakistan that has been competing effectively with three foreign multinationals, Shell, Caltex and Total. PSO is currently enjoying over 73% share of Black Oil market and 59% share of White Oil market. It is engaged in import, storage, distribution and marketing of various POL products including mogas, high speed diesel (HSD), fuel oil, jet fuel, kerosene, liquified petroleum gas (LPG),compressed natural gas (CNG) and petrochemicals. PSO also enjoys around 35% market participation in lubricants and is blending/marketing Castrol brands, in addition to a wide array of its own. It is considered as one of the most successful mergers in the history of Pakistan. The company has retail coverage of over 3,800 outlets, representing 80% participation in total industry network. The company has been the winner of Karachi Stock Exchange Top Companies Award for many years and is a member of World Economic Forum. PSO serves a wide range of customers throughout Pakistan including retail, industrial, aviation, marine and government/defense sectors. PSO has been meeting the countrys fuel needs by merging sound business sense with national obligation.

INTRODUCTION TO THE PETROLEUM INDUSTRY

Fy09 witnessed a very sharp fluctuation in international oil prices which touched the highest level of US$ 141 /bbl in July 2008 against the lowest level of US$ 33/bbl in December 2008. During FY 09, a number of internal and external challenges threatened Pakistans economy, and a shortfall in the energy sector, mainly driven by circular debt, was among the major problems. During the year under review, supply and consumptions of energy in different sectors remained lower then the previous year. This was mainly due to the overall slow down of our economy caused by inflation coming from very high energy product prices. This, in particular, had an adverse impact on the performance of the PSO large scale manufacturing sector. The Consumption of petroleum products in the country during FY 09 decreased by 1% compared to the preceding year. Mogas and JPI showed a volumetric growth of 4.2% and 3.2% respectively, whereas HSD and SKO experienced a downward trend with a negative growth of 7.4% and 21.7% respectively. On the CNG side, Pakistan became the largest CNG consumer in the worl with 2,700 CNG stations catering to about 2.0 million vehicles as compared to 1.7 million vehicles during the preceding year, showing an increase of 17.6%. The consumption of black oil grew to 8.2 million tons. During FY 09, local refineries produced 9.6 million tons whilst the deficit requirement of around 9.8 million tons was imported. A significant reduction in the refining capacity of different refineries was witnessed mainly due to the mounting circular debt. During FY09, PSO sold 12.9 million tons of POL products (excluding exports of 0.17 million tons) as compared to 13 million tons (excluding exports of 0.11 million tons)

during the preceding year. The Company was able to maintain its sales despite the overall economic slowdown and the decline in petroleum products consumption in the white oil segment. The Pakistan Credit Rating Agency Limited PARCA has rated Pakistan State Oil Company limited as AA+/A1+ .These ratings denote a very strong capacity for the timely payment of financial commitments.

RESULTS OF FY 09
Profitability Ratios
Pakistan state oil posted a Lost after tax RS 6,699 million in FY 09 which was 147.66 percent less then the previous year. In the previous year the company reported profit after tax of 14,054 million.

15000 10000 5000 0 -5000 -10000 2009 2008 2007 2006 Profit after tax

Moving forth, an assessment of the Profitability shows that the company earned Rs 719 billion revenues in FY09 compared to Rs 583 billion in FY08. This increase can be accounted to the heavy reliance on PSO for provision of furnace oil. However, despite

the higher sales the loss after tax stood at Rs 6.7 billion in FY09 vis-a-vis a profit of Rs 14 billion in FY08. It was due to the gross profit margin crashed from 5.15 in FY08 to 0.42 in FY09. The impact on net profit margin was more crucial by all standards as it plunged from 2.41 to -1.09 owing to heavy inventory losses and exorbitant financial charges. Financial charges escalated by 356% between FY08 and FY09 as they rose from previous Rs 1.6 million to Rs 6.3 million. The virtually four fold increase in the financial charges during the period under observation was a step taken to meet the liquidity crunch caused by the severe circular debt that had accumulated. In addition to the heavy inventory losses and the steep financial charges recorded during the FY09, the devaluation in rupee value was another significant contributor to the fall in profitability. A 19% depreciation of rupee against the dollar during the FY09 exaggerated the dent in the profitability of PSO as the company imports approximately 80% of the country's POL imports.
800 600 400 200 0 2009 2008 revenue

6 4 2 0 2009 2008 Gross profit margin

3 2 1 0 -1 -2 2009 2008 Net profit margin

The Return on asset in FY09 was ( 4.36%) as compared to 11.1 % in Fy 08. The return on owners equity was also very less ( 32.09%) during FY 09 as compared to 45.4 % in FY 08. The decline in both the returns can be attributed to the loss after tax.

50.00% 40.00% 30.00% 20.00% 10.00% 0.00% -10.00% -20.00% -30.00% -40.00% 2009 2008 Return on asset Return on equity

Liquidity Ratios
An overview of the liquidity position of the company shows that the liquidity has dipped by 13.7% from 1.24 in FY08 to 1.07 in FY09. This problem with liquidity was proactively addressed by PSO as they introduced various strategies to ensure a better match between the current assets and current liabilities of the company. In the short-term however, the current liabilities were covered by short-term borrowings. Furthermore, PSO recovered Rs. 167 billion from the power sector and another Rs. 39 billion on account of the Petroleum Development Levy (PDL) from the GOP. These short and long-term measures were taken to streamline the liquidity stature of the company.

1.25 1.2 1.15 1.1 1.05 1 2009 2008 current ratio

The inventory turnover during FY09 was 24.36 days as it was 10.1 days during FY 08 it was about 10.1 days. The asset turnover during FY09 was 4.96 times as it was 5.8 times during FY08.

Debt Management Ratios

The debt to asset ratio rose from 75.64 in FY08 to 84.74 in FY09. The debt to equity ratio and the long-term debt to equity ratios both rose with the debt to equity ratio growing by 104% as it rose from 310.5 to 635.10. This spike in the debt to equity ratio was due to severe accumulation of circular debt on accounts of Company's like HUBCO, KAPCO, PEPCO, and PIA who defaulted on their payments and created acute liquidity problems. Receivables from these companies amounted to Rs 79 billion and in an attempt to service its obligations to refineries, PSO has to resort to short term borrowing amounting to Rs 64 billion.

90.00% 85.00% 80.00% 75.00% 70.00% 2009 2008 DEBT TO ASSET RATIO

700.00% 600.00% 500.00% 400.00% 300.00% 200.00% 100.00% 0.00% 2009 2008

Debt to equity

However, this cycle of circular debt led to excessive short term borrowing and piling of financial charges - factors which tarnished the profitability of the company. The Time Interest Earned (TIE) ratio crashed from 16.4 to -0.89 due to the hike in financial charges on account of short term borrowings to meet due financial obligations.

20 15 10 5 0 2009 -5 2008 Time Interest Earned Ratio

The Gearing ratio During FY 09 was 12.11% and it was 7.78% during FY 08. As the gearing ratio measures the riskiness of the company. So it tells that the company is not so risky however its gearing ratio has increased by 55.65 percent.
15.00% 10.00% 5.00% 0.00% 2009 2008 Gearing ratio

Owners Equity Ratios

The Dividend Yield ratio during FY 09 was around 2.34% as compared to 5.6 % in FY 08 which shows the rate of return received by the shareholders was around 58% less as compared to FY08.

6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 2009 2008 Dividend Yield Ratio

The price earning ratio during FY 09 was (5.47). As it were 5.1 during FY08. This shows however the willingness of investors to pay the price of Company share have came down as compared to the last year.

10 5 0 2009 -5 2008 Price earning ratio

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The market value per share of Pakistan State Oil during FY09 was around 213.65 which were also decreased as it was 417.2 during FY 08. The dividend per share during FY09 was around Rs5 which was Rs 23.5 in FY 08 which shows that it is also decreased by around 78.72%.

25 20 15 10 5 0 2009 2008 Dividend per share

450 400 350 300 250 200 150 100 50 0 2009 2008

Market value per share

Balance Sheet Growth

The total assets of the company grew by 20.7% in FY 09 as compared to FY08 while the total liabilities grew by 37.86% as compared to FY 08 whereas the Equity of the company declined by 32.6% as compared to FY 08.

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200000000 150000000 100000000 50000000 0 2009 2008 Total Assets

150000000 100000000 50000000 0 2009 2008 Total Liabilities

35000000 30000000 25000000 20000000 15000000 10000000 5000000 0 2009 2008

Total Equity

Future outlook
Pakistan State Oil geared towards addressing and meeting the energy challenges of the country in the face of the limited domestic refining capacity that has resulted in the import of refined products. The future energy demand in Pakistan is expected to grow, which is largely due to the expected natural gas constraints for the powe generation

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sector and reduction in hydro electric potential. In an economic environment that is marred by mounting circular debt, the company is successful in fulfilling the energy demand of the country with its prudent utilization of resources. Pakistan State Oils future performance will be reliant on cost savings, increased sales and high operating efficiencies. In the long term the Company will continue to enhance its brand equity with aggressive and focused marketing efforts that will utilize the print and electronic media and will strengthen the companys visibility.

PSO AT A GLANCE
Rs. Million (unless noted) 2009 2008 2007 2006 2005 2004 2003

Sales Volume (Million Tons)

13.2

13.0

11.8

9.8

9.7

8.6

10.8

Profit & Loss Account Sales Revenue 719,282 583,214 411,058 352,515 253,777 195,130 206,376 Net Revenue 612,696 495,279 349,706 298,250 212,504 161,538 172,446 Gross Profit 30,024 12,259 17,207 13,746 9,191 8,955 3,010 Operating 7,950 11,264 9,340 6,452 6,484 (5,577) 22,451 (Loss) / Profit Marketing & 4,425 3,748 3,428 3,219 2,634 2,465 5,113 Administrative Expenses (Loss) / Profit 7,122 11,418 9,191 6,263 6,209 (11,357) 21,377 before Tax (Loss) / Profit 4,690 7,525 5,656 4,212 4,030 (6,699) 14,054 after Tax Earning before 9,420 13,385 10,546 7,244 7,113 (3,983) 23,912 Interest, taxes, depreciation & Amortization (EBITDA) Copex 620 1,609 751 1,506 2,096 1,643 694 Balance Sheet Share Capital Reserves Shareholders'

1,715 19,156 20,871

1,715 29,250 30,965

1,715 19,224 20,939

1,715 19,098 20,813

1,715 15,830 17,545

1,715 13,731 15,446

1,715 11,348 14,264

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Equity Property Plant & Equipment Net current assets Long Term Liabilities Profitabiltiy Ratios Gross Profit % ratio Net Profit ratio % EBITDA % margin Return on % Shareholders' Equity Return on total % assets Return on % capital employed Asset utilization Inventory turnover ratio Debtor turnover ratio Creditor turnover ratio Total asset turnover ratio Fixed asset turnover ratio Investment Earning per share Market value per share (Year End) Highest Price Lowest Price Break-up value Price earning ratio (P/E) (x) (x) (x) (x) (x)

7,056 8,666 2,528

7,567 22,143 2,409

8,138 11,128 2,412

7,674 10,978 2,299

8,256 7,970 1,999

7,738 6,309 1,636

6,437 4,531 1,358

0.42 (0.93) (0.55) (32.10)

5.15 2.41 4.10 45.39

2.98 1.14 2.29 22.40

4.88 2.13 3.80 36.16

5.42 2.23 4.16 32.24

4.71 2.16 3.71 27.27

4.34 1.95 3.45 30.85

(4.37) 15.5

11.06 68.1

6.28 35.4

10.72 54.1

10.81 48.9

9.93 40.8

12.46 44.90

13.9 12.6 6.3 5.13 98.4

10.1 24.6 9.6 5.78 74.3

11.7 32.5 10.8 5.67 52.0

11.5 38.1 12.5 5.76 44.3

11.2 39.9 13.5 5.36 31.7

13.1 40.1 12.2 5.22 27.5

19.7 35.4 15.1 6.34 36.4

Rs. Rs.

(39.05) 213.65

81.94 417.24

27.34 391.45

43.87 309.00

32.98 386.00

24.56 256.75

23.50 228.40

Rs. Rs. Rs. (x)

428.79 96.00 121 (5.5)

539.70 317.50 180 5.1

418.30 280.50 122 14.3

452.30 264.65 121 7.0

490.10 239.00 102 11.7

316.60 232.75 90 10.5

239.50 109.90 76 9.7

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Dividend per share Bonus share Dividend payout Dividend yield Dividend cover ratio Leverage Debt : Equity ratio Interest Cover ratio Current Ratio Quick Ratio Contribution Employees as remuneration Government as taxes Shareholders as dividends Retained within the business Financial charges to providers of finance

Rs. % % % (x)

5.0 2.34 -

23.5 28.68 5.63 3.49

21.0 76.81 5.36 1.30

34.0 77.50 11.00 1.29

26.0 78.84 6.74 1.27

17.5 71.25 6.82 1.40

16.0 68.09 7.01 1.47

(x) 1.07 0.75

16.4 1.24 0.57

6.9 1.22 0.64

12.7 1.23 0.63

25.2 1.24 0.62

34.1 1.25 0.66

23.6 1.25 0.79

(x)

2,872 161,388 858 -

2,438 85,208 4,031

2,006 68,096 3,602 1,100

1,857 58,822 5,831 1,900

1,870 38,823 4,459 1,230

1,474 50,942 3,002 1,210

1,403 53,699 2,744 1,290

6,232

1,368

1,158

884

371

189

275

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