Corporate results: Pakistan Refinery finally turns profitable

Wednesday, September 4th, 2013 8:30:19 by


On Wednesday, Pakistan Refinery (PRL) announced a spectacular turnaround in fortunes as it converted losses of the previous year to profits in the fiscal year 2012-13.

The country’s third largest refinery has been accumulating losses over the years, which had grown to Rs2.49 billion as of June 30, 2013 casting a shadow on the company’s ability to continue operations, giving rise to its status as a going concern – a term for a company that has the resources needed in order to continue to operate indefinitely, and if a company is not a going concern it means the company has gone bankrupt.

According to a notice sent by the company to the Karachi Stock Exchange, PRL reported a profit of Rs496 million for fiscal 2013, compared to a loss of Rs1.62 billion last year, reflecting a stellar turnaround in fortunes on behalf of the company. The refinery also announced a final cash payout for the year of Rs28.5 per share.

Although PRL’s share in the country’s installed capacity is 17%, it has reported a profit only twice in the last five fiscal years. The stake of foreign entities in the company is as high as 42%, and 60% of the major players in the country’s energy sector are on the company’s board, as revealed by PRL CEO Aftab Husain in an exclusive interview to The Express Tribune. Shell Petroleum, Chevron Global Energy and Pakistan State Oil have 30%, 12% and 18% stakes in PRL, according to its shareholding structure as on March 31, 2013.

Revenues of PRL clocked 4% higher at Rs132 billion over the year, while the refinery managed to boost its refining margins by 148 basis points (a 100 basis points is equal to 1 percentage point) helping to multiply its gross profit by 67 times, owing to favourable pricing mechanism for oil as the government linked the prices with international oil prices besides allowance of 7.5% deemed duty to shield the refining business from volatility in international oil prices.

Deemed duty is a tax the government lets refineries charge in order to sell locally-produced fuel at the same price as imported fuel.

PRL’s expenses grew in line with the operations, however, other income took a 50% drop to Rs186 million in the year. Finance costs took a breather owing to State Bank’s policy of slashing interest rates throughout the year.

Going forward

The notice went on to say that keeping in view the changes in government policy of price determination of oil, things are expected to look bright for the company. However, PRL’s auditors, without qualifying any opinion, say that the present conditions due to a massive accumulation of losses by the company indicate the existence of “material uncertainty” which may cast significant doubt about the company’s ability to continue as a going concern.

Apart from issuing term finance certificates worth Rs4 billion in August to meet the working capital and capital expenditures needs, PRL announced its plans to set up an isomerisation unit to convert naphtha into motor gasoline, which may help the company’s bottom-line growth in the in future as motor gasoline is a better margin product than naphtha.

Published in The Express Tribune, September 5th, 2013.

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