KARACHI, March 9: Shell Gas LPG (Pakistan) Limited—the Liquefied Petroleum Gas (LPG) marketing company— plunged into a loss of Rs18.1 million for the first half of the year to end-December 2001, from a profit of Rs11.4 million in the corresponding period of the previous year.

Top line growth remained impressive 29.7 per cent, with sales valued at Rs188 million for the latest half, against Rs144.6 million in the same period of 2000. But the gross profit dipped to Rs3.8 million, from Rs33.6 million and the margin stood almost completely wiped out at 2.1 per cent, from 23.4 per cent.

Chairman Farooq Rahmatullah attributed the red on the profit and loss account despite higher sales to “higher base stock prices and lower selling prices, which continued to yield the lowest unit margins ever.” He said that the company was able to achieve a grand volume growth of 28.6 per cent to 10,992 tons in 2001 from 8,546 tons in 2000, but that simply was not enough to off-set the loss in margins.

After nearly three decades of operating within a regulated environment, the LPG industry was deregulated on September 15, 2000. Although the initial transition from regulation to deregulation was a smooth one with the LPG marketing companies witnessing significant increase in margins after a prolonged period of margin erosion, but all of it proved short-lived.

Parco reached full production in December 2000. Chairman observed in his half term review that the market was not developed by marketing companies to absorb additional production from Parco. Thus the supply overhang continued to exert pressure on selling prices. “Combined with higher ex-refinery prices, which went up by as much as 30 per cent during January-December 2001, the unit margin for the better part of the year was lower than it has ever been in the history of the LPG business in Pakistan,” the company chairman said.

Shell Gas LPG (Pakistan) Limited was known until late 1999 as Burshane (Pakistan) Limited, but the company changed name to identify itself with the Shell Petroleum Company Limited, England, which owns the majority 67.4 per cent shares in the company. The parent’s holding having been raised through the acquisition of 31.7 per cent stock from Burmah Castrol in 1993.

The share of the par value of Rs10 in Shell Gas LPG, is currently trading at Rs110. Break-up value at December 31, worked out at Rs41.42. At the end of first half, the company held Rs1.32 in current assets against each rupee of current liability. Total assets were valued at Rs551 million.

It may be commented that even as the number of outstanding shares in Shell Gas LPG is too small, both bonus shares and right issues are conspicuous by their absence; bonus at 20 per cent (one-for- five) declared in 1991 was, perhaps, the last. With reserves now scaling to nearly four times the capital of Rs27 million, there appears to be a distinct bonus pregnancy. But that perhaps be best left to management’s judgment. Fixed capital expenditure during the half year under review amounted to the considerable order of Rs171 million, compared with Rs1.8 million in the same period of the earlier year.

Explaining the future strategy, the chairman noted that the company was focussing on market development, portfolio expansion and entry into the industrial and commercial segments. Shell Gas rollout was said to have been extended across more than 13 territories and the target was to add 75 new retail service centres into the first half of 2002 (calendar year).

Perhaps, the greatest benefit that Shell Gas LPG enjoys is the (interest-free) ‘cylinder and regulator deposits’, which at Rs243.1 million on December 31, 2001, accounted for nearly 44 per cent of the company’s total assets. The cylinder and regulator deposits also provided the largest item of Rs94.1 million in company’s cash flow for the period. The liquidity thus provided, enables the company to maintain its borrowings for current needs and, therefore, financial charges at the bare minimum. This of course is not to rob the company, the credit that is its due for maintaining a firm foothold in the increasingly cut-throat competition of the deregulated market.