Pakistan State Oil Research Project

RESEARCH AND ANALYSIS PROJECT FOR BSC (HONS) IN APPLIED ACCOUNTING Business & Financial Performance of Pakistan State Oil The business & Financial Performance of Pakistan State Oil over a Three Year Period Prepared By Mustafa Chohan Mentoring By Faheem Ahmed This project is prepared in accordance with guidelines of `Oxford Brookes University? for BSC (Hons) Business & Financial Performance of Pakistan State Oil Table of Contents

Topic Selection About Pakistan State Oil Products Overview of the Oil & Marketing Industry Research Objectives Framework of RAP Information Gathering Limitations of Collecting Information Ethical Issues While Collecting Information Techniques Ratio Analysis Revenue Trend Analysis Profitability Ratios Leverage Activity Ratios Dividend Ratios SWOT Analysis Conclusions Future Prospects Appendix Skills & Learning Statement noataPseserP yepaerooebiB 2 2 3 3 5 5 6 7 8 8 10 10 12 14 17 20 21 24 25 26 30 53 35 egaP |1 Business & Financial Performance of Pakistan State Oil

Topic Selection I have selected Topic 8, “The Financial & Business analysis of Pakistan State Oil Limited (PSO)” as a subject for my Research & Analysis Project (RAP). Analyzing Business and Financial Position of any organization is one of the core skills for any accountant. I have selected this topic to experience my studies with a real organization. Analysis of financial statements and business environment in an exam question is very different from the practical situations where hundreds of variables affect business.

This project will not only develop my skills in interpreting financial statements but also give me opportunity to understand corporate culture and economic environment. About Pakistan State Oil (Ref: http://www. psopk. com/about_us) Pakistan State Oil is the largest oil marketing company in Pakistan, and is currently engaged in storage, distribution and marketing of various Petroleum, Oil & Lubricant products (POL). PSO is the market leader in Pakistan? s energy sector.

The company has the largest network of retail outlets to serve the automotive sector and is the major fuel supplier to aviation, railways, power projects, armed forces and agriculture sector. PSO came into existence in 1974. The existence of PSO was from various acquisition and mergers exercised by the Government of Pakistan. Graphical representation showing acquisitions and mergers, all mergers are following of acquisition by Government of Pakistan. Pakistan National Oil Dawood Petroleum Limited Premier Oil Company Limited ESSO Eastern Pakistan State Oil 999 The new vision program is launched with the new logo of PSO. egaP |2 Pakistan State Oil Business & Financial Performance of Pakistan State Oil Products (ref: http://www. psopk. com/products_services/) PSO caters to a wide spectrum of customers comprising the retail consumer, various industrial units, government, power projects, aviation and marine sectors of Pakistan. With its network of 3612 retail outlets throughout Pakistan, PSO satisfies 2. 8 million customers a day. PSO is a market leader; the company? s current market share is 82. 3% in the black oil market and 59. 4% in the white oil market.

PSO is not only providing fuel to National power utilities like WAPDA and KESC but also serves the fuel needs of both national & international air carriers, Providing jet fuel into-plane refueling facilities at nine different airports of Pakistan. Furthermore it also fuels ships at Karachi Port, Korangi Fish Harbor & Port Qasim. PSO also caters its customers in at non fuel side which includes ATM’s, Wash Express (High tech car wash), Shop Stop & Quick Service Restaurants. Overview of the Oil & Marketing Industry Pakistan Oil and Marketing Industry (OMI) is one of the most regulated industries in the country. Oil and Gas Regulatory Authority (OGRA)? , `Ministry of Petroleum and Natural Resources (MPNR)? and other Key Governmental Authorities continuously influence and imply strict regulations on industry players. The OMI of Pakistan comprises of ten companies, which includes: Pakistan State Oil Limited (The Market Leader), Shell Pakistan Limited (SPL) the second largest, Caltex Oil (Pakistan) Limited, Total-Parco Pakistan Limited, Attock Petroleum Ltd and others. (Ref: http://www. ocac. org. pk/members. html) Pakistan`s energy sector is highly dependent on oil.

The Pakistan Energy Year Book Fy08 identified that from 2004 to 2008 imported energy has risen from 30% to 35%. This is mainly due to higher import of Petroleum Products. Historically, the country was dependent on oil imports. Now various national and international exploration and production companies are exploring and drilling, but still to meet the deficit large amount of Petroleum Products are being imported. (Ref: http://www. mpnr. gov. pk) egaP |3 Business & Financial Performance of Pakistan State Oil The following chart identifies the long term demand/supply of petroleum products: PROJECTED DEMAND OF PETROLEUM PRODUCTS (Million Tons) 003-2004 Demand of Petroleum Products Production from Local Refineries Surplus Naphtha / Motor gasoline available for exports Deficit of HSD and FO 14. 3 10. 3 1. 3 5 2004-05 15 12 1. 3 5 2010-11 17 11. 3 0. 8 6. 5 2017-18 19 11. 8 0. 8 8. 2 (Ref: Ministry of Petroleum & Natural Resources) The following chart identifies the industry sales from 2005 to 2009. Industry Sales Figure (Tons) 20,000,000 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 2005 2006 2007 2008 2009 Industry Sales Figure (Ref: http://www. ocac. org. k/industrysales. asp) The Industry Sales from 2005 to 2009 has been increased by 24%, which is further expected to rise in future (see supply/demand chart above). MPNR welcomes the potential investors in the country to meet the current deficit and future demand of the petroleum products. egaP |4 Business & Financial Performance of Pakistan State Oil Research Objectives I had many choices for selecting appropriate organization for my RAP; my main interest was to analyze the reasons why PSO has reported loss in year ended June 2009, where its revenue has increased by 23%.

PSO is a nation’s local brand; it provides prestige to the people of Pakistan, the purpose of this project is to learn about success and status in market. The objective of this research includes: a. Analysis of financial statements for year ended June 2007, 2008 and 2009. b. What competitive edge does PSO enjoys with its huge distribution network. c. Responsible companies need to take appropriate steps towards Environment, Health and Safety management. Does PSO commit itself towards these social and corporate responsibilities? d.

According to the pattern of shareholding (June 2009) Government holds 25. 5% of interest in PSO, to what extent does the Government of Pakistan controls and manage the policies of PSO and their affects on performance of the company. Framework of RAP Information gathering is an essential element, and majority of the collection of data is done before starting this RAP. Information Gathering provides the extent to which information is collected from different sources. Reliability and relevancy was the key consideration while collecting information.

Furthermore Ethical Matters are also discussed as a part of information collection. Research analysis commences with financial analysis, in which the revenue trend was firstly considered followed by Profitability, Liquidity, Activity and investors ratios. Non Financial information has been evaluated with SWOT framework. After analyzing financial and non financial matters of PSO, Conclusions are drawn in which research answers and achievements of objectives are discussed. Furthermore before finale future prospects of PSO and its significance are presented. egaP |5

Business & Financial Performance of Pakistan State Oil Information Gathering Gathering information is one of the most important tasks for any analysis. It is true that large volumes of data for large companies are widely available from different sources. Providing sufficient information is one of the core purposes of this RAP. So that proper assessment and conclusions could be drawn. Information of PSO is available from: Annual Reports Stakeholders Pakistan Oil & Gas Regulatory Authority (OGRA) website (www. ogra. org. pk) Ministry of Petroleum and Natural Resources (www. pnr. gov. pk) PSO Official website (www. psopk. com) Pakistan Board of Investment (www. pakboi. gov. pk) Stock Exchanges Press Reports News Papers & Media Other Internet Related Sources (Google, Forums & Other sources) Books (e-Books and ACCA Books: BPP and KAPLAN) Sources provided above does provide required information but the question arises do they provide relevant and reliable information on which it could be relied upon. Sources like official website and audited financial statements do provide reliable and relevant information which are mostly used in this RAP.

Annual Reports: Annual reports are reliable source of information that is publically and easily available. Modern Annual reports are not limited to auditor? s report and audited Financial Statements but also comprises of Company`s performance, future prospects, and other achievements during the year. Unaudited Quarterly Financial Statements are not audited and are issued in order to meet the requirements of Securities and Exchange Commission of Pakistan. They are not audited by external auditors. The RAP avoids the use of information from Unaudited Financial Statements where Annual financial reports are available.

Financial statements in the annual reports assisted in the calculation of ratios and trends for the analysis. Official Website: Official website is also one of the reliable sources of information. Information is easily and in large volume is available on PSO`s website. Information provided above: Overview of Company, PSO history, and product information are all obtained from the official website and from annual reports. PSO website was last updated on 1st February 2010. egaP |6 Business & Financial Performance of Pakistan State Oil Internet: Internet is one of the most powerful tools to get any information. Google E-books search? helped me to search large volume of books in seconds. Oil Company financial analysis in non-technical language by Daniel Johnston is one of the books which provided help for this RAP. Other information (Financial and Non-financial) available on the internet is also used where required. News: News in Pakistan is warm topic at the moment, News channels are hungry about large companies? information that could be discussed on their channels and news papers. Business Recorder and The News were searched online in order to get any information about PSO.

Information collected from these sources is discussed in Financial and Non – Financial Analysis. ACCA Books: Secondary information has been collected from ACCA Course Books (BPP and Kaplan). Computation of ratios, there interpretation and linkage with others ratios were previously learnt from these books, while preparing RAP a quick revision from these books were helpful. Note: Majority of the information has been obtained from PSO official website and annual reports in order to increase reliability of conclusions. Appropriate References has been provided from which the information is obtained.

Limitations for Collecting Information In this section it is demonstrated what limitations arose in course of collecting information for PSO. PSO deals in Oil Marketing & Distribution Sector, where certain jargons were difficult to understand. For example PSO deals in POL products which stand for Petroleum, Oil and Lubricants products. Official website does not provide the full words for such acronyms and understanding of any jargons. Prior to December 2008 SPL have a year end at 30 June, but for 2009 they changed their year end to 31 December.

In order to carry out like with like comparisons, 6 month half year ended December 2008 and 6 months half year ended June 2009 of SPL, were manually merged in order to get full 12 month year and could be compared to 12 month year ended June 2009 of PSO. This is only done with Statement of Comprehensive Income of SPL (Appendix). As far as Statement of Financial Position is concerned it represents a day only, So Therefore for no manual adjustments are made to compare it with PSO June 2009 Statement of Financial Position. egaP |7 Business & Financial Performance of Pakistan State Oil Ethical Issues While Collecting Information

In preparing this RAP it was aimed to carry out all the necessary work within the ethical framework and draw conclusions from the information collected only from the reliable sources. Providing references is one of the ethical requirements of this RAP which is appropriately done. Providing information without disclosing reference may create an understanding that information is self created. Information discussed is self created otherwise stated. This RAP has not fully copied any information from any source except for certain definitions whose references has been appropriately provided.

References are also provided from where information is gathered (Annual Reports and News). * Self Created is referred to term, where information is solely provided by me. Information that could not be obtained through annual reports & official website are obtained from different sources. Appropriate references are provided for such information. Techniques Following are the accounting and business techniques used for the analysis in this RAP: Financial Information Trend Analysis: Trend analysis has been carried out on Revenue.

It is one of the ways to evaluate company trend in terms of growth. They can be useful for investors, creditors, management, and executives. Analysis measures a company? s performance over a certain time period. Ratio Analysis: An analysis of financial ratios including Profitability, Liquidity, Gearing and Asset utilization. Formulae of financial ratios are provided in appendix. Ratio analysis has certain limitations. Some are: ratios in isolation do not provide complete picture they need to be compared to industry averages. In Pakistan Industry Averages are difficult to obtain.

Comparing ratios to other competitors is also problematic as competitors do not always carry out all the same activities in same way as PSO. For example services offered are not offered by SPL. Graphical Representation: Graphical representations are prepared through most commonly used spreadsheet software Microsoft Excel 2007. Analysis includes the graphs and charts of discussed ratios. Presenting information in graphical method is one of the best ways to communicate information. But in order to make graph meaningful we should perform this application to limited number of variables.

Providing too many variables in a single chart may confuse the reader and reduce the understandability. egaP |8 Business & Financial Performance of Pakistan State Oil Non Financial Information SWOT Analysis: SWOT analysis is the most common technique for any analysis. This analysis shall identify Strengths, Weakness, Opportunities and threats. Effective SWOT analysis does not simply require a categorization of information; it also requires some evaluation of the relative importance of the various factors under consideration. (Ref: Text book BPP P3 Business Analysis Chapter Strategic Capability)

Strength in SWOT is like a weapon, shield and a tool depending upon the situation. Strengths that do not match with available opportunities are of limited use. In a short term entities use their strengths to avail benefit from opportunities. In a long term they overcome their weaknesses and convert them into strengths. Strengths also help to move threats away from the entity. Whereas Weaknesses are concerned they are internal and could be overcome by effective strategies. Threats and opportunities are external; companies have less control over these factors.

By the passage of time companies learn how to defend themselves with threats and how to avail opportunities in a best possible way. egaP |9 Business & Financial Performance of Pakistan State Oil Ratio Analysis Ratio analysis is useful because it allows you to see if two figures have moved consistently with one another. You should be concerned if they haven? t. (Ref: Student Accountant December 2009) Revenue Trend Analysis Revenue Trend (Billion Rs. ) 800 600 583 400 254 112 2005 133 2006 719 353 411 SPL PSO 200 0 130 158 2008 178 2009 PSO SPL 2007 PSO is presenting a favorable picture of a rising revenue trend as compared to SPL.

Increase in revenue usually reflects the increased sales volumes or the selling price. The increase in revenue by 16%, 42% and 23% in the last three years are due to increase in Oil Prices throughout the world as PSO`s volumes are not increasing in line with revenue. (See below) Sales Volume (Million Tons) PSO 9. 7 9. 8 11. 8 13 13. 2 2005 2006 2007 2008 2009 e g a P | 11 Business & Financial Performance of Pakistan State Oil The growth in revenue from 2006 to 2009 is in line with SPL. In the year 2007 where competitors were having negative growth (SPL: from 18. 8% to -2. %), here PSO maintained a positive growth. Revenue Growth Rate (%) 45. 0 40. 0 35. 0 30. 0 25. 0 20. 0 15. 0 10. 0 5. 0 0. 0 -5. 0 2006 16. 4 21. 5 12. 7 23. 3 PSO SPL 38. 9 41. 8 18. 8 -2. 2 2007 2008 2009 In the year 2007 PSO was able to capture 46. 2% market share in Motor Gasoline which was highest in past ten years, in the same year PSO was able to maintain its 60. 4% of market share in HSD in a strong competitive environment of 11 companies. As far as total POL consumption is concerned, PSO`s total sales volume grew by 21% whereas the industry total POL sales grew only by 14%.

Furthermore there is an increase in company`s White Oil sales volume during the review period which was mainly due to innovative and aggressive marketing strategies with rapid expansion of New Vision network. (Ref: PSO Annual Report 2007) e g a P | 11 Business & Financial Performance of Pakistan State Oil Profitability Ratios Gross Profit Margin (GPM): It is the ratio of gross profit to sales expressed as a percentage. Ratio is expected to remain same. It is affected by only small number of variables (Selling price, Purchases & Production Cost, Inventory value etc). Gross Profit Margin 12. 00% 10. 0% 9. 60% 7. 50% 4. 90% 6. 00% 4. 00% 2. 00% 0. 00% 2006 2007 2008 4. 90% 3% 5. 10% 1. 27% 0. 42% 2009 PSO 8. 00% SPL As presented in graph PSO at all times reported a GPM which is lower as compared to SPL. It indicates that SPL has tighter control over Cost of Products Sold (COPS) as compared to PSO. The descend in GPM ratio in 2007 was due to sharp decline in international oil prices which lead to significant inventory losses, especially in first half of the year. (Ref: Annual Report 2007) In 2008 PSO achieved impressive performance with a turnover touching Rs. 583 billion showing an increase of 42%.

PSO was the largest corporate entity in Pakistan based on turnover in the year. Profit before tax at Rs. 21. 4 billion and profit after tax at Rs. 14. 1 billion were the highest ever earned by the Company. In the year PSO reported a GPM of 5. 15% which was quite favorable as compared to preceding years. The outstanding performance was mainly due to one time inventory gains, and discontinuance of subsidy by government of Pakistan which leads to increase in selling prices. (Ref: Annual Report 2008) Despite with the increase in revenue by 23% in the year 2009, PSO reported a GPM of only 0. 2%. Gross Profit was excessively low to cover Operating and financing cost as a result PSO reported a net loss of Rs. 6. 7 Billion. The decline in the profitability of the company is mainly attributed to heavy inventory losses suffered during 2009. Due to the decline in international oil prices by 50%, PSO registered Rs. 18. 9 billion on account of inventory losses. In addition to inventory losses devaluation of Pak Rupee against US Dollar severely affected the profitability as majority of the products are imported and paid in Us Dollar. (Ref: Annual Report 2009) e g a P | 12

Business & Financial Performance of Pakistan State Oil Net Profit Margin (NPM): The net profit margin expresses the relationship between total net profit and revenue. Ratio is affected by more variables as compared to GPM as almost all the expenses are taken into consideration. Net Profit Margin 4. 00% 3. 00% 2. 00% 1. 00% 0. 00% -1. 00% -2. 00% -3. 00% -4. 00% -4. 20% 2006 2. 13% 2. 37% 1. 14% 3. 26% 2. 40% PSO SPL 0. 50% 2007 2008 -0. 90% 2009 -5. 00% In the year 2007 NPM declined to 1. 14% whereas in preceding years PSO sustained an average NPM of 2%. In 2007 the volume of sales increased by 20%.

Despite with the increase in volume its operating cost (before other expenses) increased only by 8%. In normal circumstances, Operating Cost increases in line with increase in volume of sales. This represents PSO had a tight control over its Operating Cost. Furthermore a decline in Share in Profits of Associates by 68% and obviously a reduction in GPM had lead to reduction in NPM in 2007 and overall profitability declined by 37%. In the year 2008 PSO Profit after Tax increased by 200% and its NPM increased to 2. 40%. Such an increase in profits is due to increase in revenue by 42% although the volume of sales increased only by 10%.

This indicates large inventory gains and increase in International Oil Prices (See above). Furthermore operating cost (before other expenses) increased by 13%. Unlike 2007 the Operating Cost in 2008 increased more as compared to the sales volume. If the Operating Cost were controlled more tightly as were in 2007 PSO might have resulted a much more better NPM. Other Operating Income (OOI) in the year increased by 9% and Other Income (OI) declined by 26%. This is particularly due to 17% increase in income from Handling, Storage & Other Recoveries, Collectively OI and OOI represent 12% of the Net Profit.

In 2009 PSO had a negative NPM of 0. 93% where SPL had a negative NPM of 4. 20%. In the year 2009 Operating Cost (Before other Expenses) increased by 15% whereas the volume of sales only increased by 1. 5%. PSO had a weak control over operating cost which increases the amount of loss. e g a P | 13 Business & Financial Performance of Pakistan State Oil During the year OOI and OI increased by 4% and 147% respectively. These amounts to some extent reduced the overall losses. Collectively OI and OOI reduced PSO losses by 25% in 2009. Increase in Finance Cost also has a major contribution to the amount of loss (See Interest Cover)

Leverage Debt Equity Ratio: The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders’ equity and debt used to finance a company’s assets. (Ref: http://en. wikipedia. org/wiki/Debt-to-equity_ratio) PSO at all times have a nil D/E ratio which is a positive indication that company financial risk is low. On the competitors side SPL in the year 2007, 2008 and 2009 have a D/E ratio of nil, 18. 4% and 34. 4% respectively. Interest Cover (IC) Ratio: Interest on loan stock must be paid whether or not the company makes a profit.

Interest cover is a measure of the adequacy of a company`s profits relative to its interest payment on its debt. The lower the interest cover, the greater the risk that profit will become insufficient to cover interest payments. (Text Book F9 Kaplan 2008/09 Chapter 16 Capital Structure and Financial Ratios) Interest Cover (Times) 30 25. 2 25 20 15 10 5 0 3. 72 1. 29 12. 7 12. 5 6. 9 8. 7 0 16. 4 SPL PSO 2005 2006 2007 2008 2009 In 2006 PSO and SPL IC ratio was almost same at 12. x times. In 2007 both companies? ratios was severely deteriorated, where PSO managed to keep it at 6. times where SPL ratio declined to 1. 29 times only. In the year 2007 Short Term Borrowings increased by 18% which lead to increase in Finance Cost (FC) by 31%. This has not only increased the financial risk of PSO but also damaged the IC and Profitability ratios in 2007. Despite with deterioration of ratios PSO maintained its `AAA? rating position in PACRA (Ref: Annual Report 2007). e g a P | 14 Business & Financial Performance of Pakistan State Oil In the year 2008 PSO improved its IC ratio this is significantly because of healthy profits in the year (see above).

Finance Cost increased by 18% this is due to increase in „Bank Charges? by 133%, Bank Charges represent 46% of Finance Cost. The reason behind significant increase in Bank Charges was increase in interest rates in the country. A loss in the year 2009 was unable to cover any Finance Cost, but we still need to consider that short term borrowings raised during the year increased Finance Cost by 356%. These borrowings were raised to overcome with Circular Debt Crisis (see below). These have definitely increased the amount of loss and financial risk of the company.

Current Ratio: The current ratio compares a company? s liquid assets with short-term liabilities. The higher the ratio the more liquid the company is. (Ref: Student Accountant February 2007) The current ratio is one of the first things to check on the balance sheet. When viewed with the amount and quality of working capital, the ratio becomes more useful. The current ratio should be greater than 1, which indicates positive working capital. Many oil companies, though, are getting fairly well with current ratio of around 1. 2 (Ref: Oil company financial analysis in nontechnical language By Daniel Johnston)

Current Ratio (Times) 1. 4 1. 2 1. 24 1. 23 1. 13 1. 01 1. 3 1. 22 1. 24 1. 07 1 0. 8 0. 6 0. 4 0. 2 0 1. 06 0. 87 PSO SPL 2005 2006 2007 2008 2009 Prior to the year 2009 PSO maintained an average current ratio of 1. 2, where in 2009 this ratio declined to 1. 07 which is still favorable as compared to SPL. In 2008 PSO`s current liabilities shown a phenomenal increased by 83% this was significantly due to increase in `Trade and other payables? which increased by 96%. Despite the fact with such a huge increase in liabilities PSO current ratio is within trend.

This is because of 85% increase in current assets such an increase is due to Inventory Gains in the year which has hidden the real picture of the ratio (See Quick Ratio below). The declination of ratio in 2009 was due to increase in current liabilities by 39%, whereas current assets increased only by 19%. The Growth in liabilities was significantly due to additional Short Term Borrowings which were increased by 70% as compared to the prior e g a P | 15 Business & Financial Performance of Pakistan State Oil year. „The Annual Report 2009? states that these borrowings were raised to meet the liquidity crisis.

Furthermore the heavy inventory losses contributed to damage the current ratio in the year. If these has not arisen PSO`s might have reported an improved current ratio (See Quick Ratio below). Quick Ratio: A stricter test of liquidity is the acid test ratio which excludes inventory as a current asset. This approach can be justified because for many companies inventory cannot be readily converted into cash. In a period of severe cash shortage, a company may be forced to sell its inventory at a discount to ensure sales. (Ref: Student Accountant February 2007) Quick Ratio (Times) 0. 8 0. 7 0. 0. 5 0. 58 0. 51 0. 58 0. 52 PSO 0. 38 SPL 0. 62 0. 63 0. 75 0. 64 0. 57 0. 4 0. 3 0. 2 0. 1 0 2005 2006 2007 2008 2009 As a standard a quick ratio should be at least 1, but still competitors and industry averages are taken into consideration. As shown in the above figure PSO quick ratio is favorable as compared to SPL. Prior to 2008 PSO`s quick ratio is rising by 0. 01 per annum. Whereas a slight decline and huge rise in 2008 and 2009 respectively. The rise and decline in an International Oil Prices have a significant impacts on PSO`s inventories and hence on Current and Quick ratios.

Inventories represent 29%, 47% & 54% in 2009, 2008 and 2007 respectively of the Total Current Assets. In the year 2008 current ratio has improved and quick ratio has deteriorated, it clearly indicates if there were no inventory gains in 2008 the current ratio have declined. The same could be applied in 2009. As quick ratio which is highest after 2003, if there were no inventory losses in 2009 the current ratio should have provided a favorable picture. e g a P | 16 Business & Financial Performance of Pakistan State Oil Activity Ratios Inventory Turnover: Inventory turnover is one of the most important working capital ratios.

It expresses the number of time inventory sold in a year. The higher the ratio the better it is. An inventory turnover ratio depends on the nature of the business. A fresh fish seller ratio is expected to be much higher as compared to aircraft manufacturer. Inventory Turnover (Times) 16 14 12 10 8 9. 98 10. 75 11. 41 7. 46 PSO 6. 89 SPL 13. 18 14. 98 13. 65 6 4 2 0 2006 2007 The Higher the ratio, the better it is. 2008 2009 Prior to year 2008 SPL inventory turnover ratio is favorable as compared to PSO. In the year 2008 this was not the case although ratio was significantly deteriorated to 7. 6 but still it is slightly favorable as compared to SPL. In 2009 ratio exorbitantly improved to 14. 98, 9. 7% higher than SPL. The reasons of improvement and deterioration depends on the company`s inventory holding policies. Further ratio itself has inherent limitations: Company may overstock to meet future demand, company is purchasing in bulk to enjoy discounts, inventory gains in the year, or it may be due to poor inventory control. As the value of inventory increases the ratio decreases. The reason of deterioration in the year 2008 was an inventory gain. From 2007 to 2008 the amount of inventory increased by 111%.

Similar to this an inventory loss in 2009 contributed to improve the ratio where the amount of inventory decreased by 35%. Furthermore PSO has the widest strategic oil distribution network. This network comprises 81% of the total national storage. From this perspective ratio should have reported adverse movements, notwithstanding with this fact it is improving. e g a P | 17 Business & Financial Performance of Pakistan State Oil Average Collection Period: Average Collection Period is the average number of days required to convert the accounts receivable into cash.

Any changes in accounts receivable policies, such as credit standards, credit terms or collection efforts, will impact the receivables collection period. (Ref: International oil company financial management in nontechnical language By James W. Bush, Daniel Johnston) For Pakistan`s energy sector Circular Debt is a major issue. Circular debt is a term referred to a three entity`s scenario, where entity A owes B, who owes C, who owes A. PSO is one of the long-suffering entity for this crisis. Receviable Collection Period (days) 45 40 35 30 25 20 21 14 12 12 11 3 2006 2007 2008 2009 41 PSO SPL 15 10 5 0

Revenues are important, but they are worthless if not converted into cash effectively. PSO Receivable Collection period is severely damaged in 2008 and 2009, whereas in 2007 it remained same, and was equal to SPL. PSO collection policies are not effective, further more PSO is also facing Circular Debt Crisis for which company heavily rely on Short Term Borrowings whose consequences are previously discussed. As per Samaa. tv news PSO has threatened to cut fuel supply to the Pakistan International Airlines (PIA). PSO has said that it will stop its jet fuel supply from April 1, 2009 to PIA for failure to pay their dues.

As per PSO officials at that date, PIA owes approximately Rs3. 7 billion to the PSO. (Ref: http://www. samaa. tv/NewsDetails. aspx? ID=7333) As per Auditors Report 2009 members were drawn attention to debt of Rs. 14. 2 billion owing to Power sector and Government of Pakistan for which management of PSO believe that it is unlikely to be defaulted. Emphasizing a matter in an audit report means it could be serious if not resolved. e g a P | 18 Business & Financial Performance of Pakistan State Oil Business Recorder has learnt that PSO has warned power sector as well.

Fuel supply will be suspended if it fails to arrange Rs 50 billion immediately, these amounts are owed by Power Sector, and PSO require these funds for Oil Import. Furthermore it is emphasized that if PSO defer for oil import it will damage its creditability in International Oil Market. The report stated that PSO is in worst financial crisis for which the power sector is the main defaulter. (Ref: http://www. brecorder. com/index. php? id=1019751) From the above sources we could clearly conclude that PSO is in severe liquidity crisis, if heavy working capital is not injected immediately these may climb in future.

Average Payment Period: Average payment period is the average number of days in which the company settles its debt. A rule of thumb is that it should be consistent with the Average Collection Period for healthy working capital environment. So payments are only made when cash is received. Average Payment Period (days) 70 60 50 40 30 20 10 48 45 64 66 48 41 40 42 PSO SPL 0 2006 2007 2008 2009 It is worthy notifying that PSO average payment period is inconsistent with the collection period. This is another indication of poor working capital management in PSO.

PSO payment period at all times are worst as compared to SPL. Suppliers might continuously concern PSO for payment and which could be justified with the news report published by Dawn News. As per report refineries has written a letter to ministry stating that PSO owes Rs 53 billion to them. One of the refinery Pakistan Refineries (PRL) states that it would go for shutdown if it did not get Rs 13 Billion by Oct 28. In the letter refineries have also stated that PSO was continuously failing to clear its dues and was using political influence to obtain supplies. (Ref: http://www. dawn. om/wps/wcm/connect/dawn-content-library/dawn/news/business/12oil+refineries+seek+payment+of+dues+threaten+shutdown–bi-10) e g a P | 19 Business & Financial Performance of Pakistan State Oil Dividend Ratios Dividend per Share (DPS) & Dividend Cover: DPS is the amount of dividend per share the shareholder receives. Dividend cover is the ratio which measures how much times a profit is available for dividends, higher the ratio the more satisfactory it is. PSO DPS DPS 26 34 21 23. 5 5 2005 2006 2007 2008 2009 1. 27 2005 Dividend Cover Dividend Cover 3. 49 1. 29 2006 1. 3 2007 2008 0 2009

Majority of the huge investors in Pakistan seek dividends as compared to capital gains. This could be due to several reasons: Capital Gains are one off and are more risky. With the fact that PSO in 2009 reported a loss and huge liquidity crisis, declared a dividend of Rs. 5 per share, for which no cover was available. Prior to 2008 PSO dividend cover ratio has an average of 1. 28 times, whereas in 2008 it was healthier at 3. 5 times. PSO is facing huge liquidity crisis, Circular Debt & inventory losses, in these circumstances it was a poor financial decision to declare dividends.

Company could hold these funds and payoff its creditors, or injected in working capital. It is better to hold dividends rather than threatening its major customers in power and aviation sector (see above). e g a P | 21 Business & Financial Performance of Pakistan State Oil SWOT Analysis Strengths Market Leader and Largest Customer Base PSO is a market leader with largest oil distribution network in Pakistan. As per annual report 2009 PSO represents 80% of the total storage capacity owned by all oil marketing companies. Furthermore PSO comprises 3612 outlets; the huge network helps PSO to counter the strong competitors like SPL and Caltex.

PSO caters 2. 8 million customers a day, fulfilling the needs of Aviation, Locomotive, Power, and other public sectors. PSO also caters the fuel requirements of armed forces of Pakistan. Political Support As per annual report 2009 Federal Government owns 25. 5% holding in PSO. PSO enjoys a strong political support in an industry. The evidence of this was found in a letter written to ministry by the refineries claiming that PSO always able to obtain supplies using political support. (Ref: see above Average Payment Period) Well Diversified PSO since its new vision plan introduced many new non fuel products to its customers.

Which not only supplemented revenues but enhanced the PSO`s image. PSO has introduced quick service restaurants, courier windows, convenience shops; wash express, ATMs and utility bill payment windows for its customers. Such a diversification is not being offered by competitors (Ref: Annual Report 2009) Strong Supply: The contractual terms with Kuwait Petroleum Corporation (KPC) for its oil purchases assures continual supply to PSO. A 30 year relationship is a major strength which protects PSO from frequent price fluctuations in the International Oil Market. (Ref: Annual Report 2009)

Quality Products: PSO mission is to provide top quality products in lowest prices to its customers. On lubricant side most advanced computer equipments have been installed in order to ensure quality products are catered. Furthermore, on retail area Mobile Quality Testing Units are operating in major cities to ensure quality is not compromised anyhow. (Ref: Annual Report 2009) e g a P | 21 Business & Financial Performance of Pakistan State Oil Weaknesses Hedging: Majority of the PSO products are imported and paid in dollars. Due to devaluation of rupee and rise in oil prices PSO always face financial loss in terms of payments.

Despite the fact, PSO do not have any hedging arrangements for dollar. Circular Debt and Liquidity: PSO still have not come up with any potential strategy that could fruitfully take PSO out of Circular Debt crisis. Furthermore the poor liquidity of the company forces management to raise short term borrowings for which PSO profitability has to suffer. No Switching Cost: Despite with the fact that PSO is a strong brand, individual customers have a choice whether they could go for SPL or PSO or somewhere else, hence there is no switching cost. The only thing that individual is cared about is the availability of fuel.

Due to large network of retail outlets this weakness is out of sight. ALTOUGH THEIR NEW FUEL TYPE J10 I. E ATHENOL MIXED GIVES THEM AN EDGE OVER SPL. Opportunities Increasing Demand of POL products: PSO deals in a potential industry which has continuous growth. Due to huge demand there is a deficit, for which there is a further opportunity to meet. Demand has already been discussed in introductory part of this RAP. Upstream Integration: PSO may diversify in upstream integration; this will not only help PSO to reduce its operational cost. But also assure uninterrupted supply.

LNG, LIQUID NATURAL GAS TALK ABOUT IT AS OPPURTUNITY. e g a P | 22 Business & Financial Performance of Pakistan State Oil Threats Highly Regulated Environment: PSO deals in highly regulated environment, where if any unfavorable terms are imposed it will severely affect PSO business. Since OGRA determines the margins, if these are inconsistent or lower then International Oil Prices then PSO may have to face higher cost and lesser revenue which may also result in loss. Uncontrollable factors built-in Cost: PSO costs inherently have an unmanaged risk.

The devaluation of rupee and rise in International Oil Prices both has an impact on PSO import cost. This threat has contributed to increase both the Operational and Financial risk of PSO. Strong Network by Competitors As we discussed that PSO failed to introduce any switching cost to individual customers, there is a threat that if in future competitors manage to build strong network, then PSO may lose market share. CNG NETWORKS e g a P | 23 Business & Financial Performance of Pakistan State Oil Conclusions

Due to the limitation of word count this RAP has finalized the analysis so that conclusions could be drawn. As we have performed analysis on three years we could conclude that PSO`s revenue and profitability is largely dependent on international oil prices, as far as profitability is concerned it is showing a better picture as compared to SPL, Although a loss in the year 2009 was due to heavy inventory loss, and large finance cost. On working capital side PSO seems to be financially weak. Circular debt crisis leads to poor liquidity where PSO has to heavily rely on short term borrowings.

Furthermore PSO inventory creates a significant impacts on financial statements for which it is advised that PSO should carry out hedge activities for both dollar and imports. PSO also requires heavy working capital investment, this could be done through equity issue as if further debt is raised financial risk will increase. PSO as a national brand satisfy fuel needs at a large scale this include from individual consumer to armed forces and from agriculture sector to aviations. PSO with its huge market share does not only prevent new entrants but also force existing to leave market.

With its giant network PSO could easily launch its new products easily; this is proven with its latest launch of environmental friendly Gasoline E 10. PSO is advised to continually expand its distribution network in order to remain a market leader, as we have identified a potential e g a P | 24 Business & Financial Performance of Pakistan State Oil threat that if large multinationals (SPL and Caltex) with the help of their parents manage to build a huge network then PSO`s market share would be affected. PSO at all times build strategies to attract customers, this is mplicit because PSO offers wide range of non fuel products, So that customers have somehow reason to come to PSO, this could be for re fueling, car wash or just to have some snacks on drive. Continuous development towards product leads to build a strong brand image. But still PSO is advised to create a switching cost for individual fuel consumer although it is difficult to do so. Whereas large customers like „companies? are concerned they provide benefits to their employees in terms of fuel, for which PSO is a better choice (Prepaid Fuel Cards which is safe and creates switching cost).

Government of Pakistan with the stake of 25. 5% exercise significant control over PSO`s policies. This is proven by the recent appointment of Managing Director by government to enhance the performance. (Ref: http://www. thenews. com. pk/daily_detail. asp? id=164164) Furthermore we have also discussed how PSO with its political support manage to obtain supplies from local suppliers, although this is not the case where international suppliers are concerned PSO has to fulfill all the formalities in order to get imported supplies.

PSO continually promotes Environment, Health and safety management, the launch of E 10 was also a contribution towards this policy. As per PSO official website it commits itself toward health and safety for which standards have been implemented so that operations and activities are carried in a manner that is protective and environmental friendly. Different facilities of PSO has been implemented with ISO 14001 standards so that managers could have a continual improvement approach. The health and safety is not only restricted to the facilities but also reported to the higher officials on regular basis.

These approaches assist PSO to improve confidence towards its stakeholders. PSO also put its efforts towards corporate social responsibility (CSR), where Education, health care and community building which entails activities for women empowerment, children welfare and relief efforts during and after natural calamities have emerged. (Ref: http://www. psopk. com) Future Prospects (Ref: Annual report 2009) Environmental Friendly Fuels E 10 is environmental friendly petrol which still needs to be launched in other major cities and rural areas of Pakistan.

PSO claims that fuel will not only help the country in reducing its imports but also provide motorists with an economical fuel option. During 2008 PSO has initiated research and development work on BioDiesel. For which PSO has commenced consultation work with different entities in order to achieve results. BioDiesel will further lead to decrease import cost if become successful. Operational e g a P | 25 Business & Financial Performance of Pakistan State Oil PSO has initiated various plans for cost savings, diversification and other operational projects whose ultimate aim is to generate sustainable earnings.

Furthermore with high demand of POL products and energy in Pakistan PSO is likely to serve as a key player with its giant distribution network. Paperless Environment The paper less system is being implemented in large organizations; this does not only lead to save cost but also proves to be environmental friendly. PSO companywide is implementing various applications to improve efficiency and reduce manual work. Previously implement Lotus Notes Workflow application was a revolutionary change. End of Report e g a P | 26 Business & Financial Performance of Pakistan State Oil Appendix

Pakistan State Oil Statement of Comprehensive Income Extracts 2007 Rs. (000) Sales Net Sales Cost of Products Sold Gross Profit Operating Expenses Profit after Operating expenses Other Income Other Operating Income Profit From Interest & Tax Finance Cost 411,057,592 349,706,326 (337,446,896) 12,259,430 (6,012,814) 6,246,616 424,238 1,278,932 7,949,786 (1,158,112) 583,213,959 495,278,533 (465,254,907) 30,023,626 (9,283,021) 20,740,605 313,860 1,396,527 22,450,992 (1,367,898) 719,282,176 612,695,589 (609,685,478) 3,010,111 (10,815,121) (7,805,010) 776,686 1,451,666 (5,576,658) (6,232,056) e g a P | 27 2008 2009

Business & Financial Performance of Pakistan State Oil Share of Profit of Associates Profit Before Taxation Taxation Profit/Loss For The Year 330,306 7,121,980 (2,432,182) 4,689,798 294,318 21,377,412 (7,323,617) 14,053,795 451,850 (11,356,864) 4,658,329 (6,698,535) Shell Pakistan Statement of Comprehensive Income Extracts 2007 2008 Merged 2009* Half year ended Dec 2008 Half year ended June 2009 Rs. 000) Sales Net Sales Cost of Products Sold Gross Profit Operating Expenses Profit After Operating Expenses Other Income Other Operating Income Profit Before Interest & Tax Finance Cost Share of Profit of Associates Profit Before Taxation Taxation Profit For The Year 130,129,844 115,045,434 (108,664,932) 6,380,502 (5,461,240) 919,262 215,322 1,134,584 (878,098) 122,250 378,736 327,923 706,659 157,626,491 139,844,689 (124,694,471) 15,150,218 (6,975,312) 8,174,906 306,453 8,481,359 (970,267) 212,248 7,723,340 (2,586,246) 5,137,094 178,113,858 156,857,245 (154,599,979) 2,257,266 (8,536,905) (6,279,639) 494,200 (5,785,439) (1,879,111) 206,409 (7,458,141) (3,307,636) (10,765,777) 96,111,547 84,900,772 (87,849,668) (2,948,896) (4,839,035) (7,787,931) 337,885 (7,450,046) (976,838) 6,530 (8,420,354) (3,255,887) (11,676,241) 82,002,311 71,956,473 (66,750,311) 5,206,162 (3,697,870) 1,508,292 156,315 1,664,607 (902,273) 199,879 962,213 (51,749) 910,464 *Merged 2009 = half year ended December 2008 + half year ended June 2009

Extracts of Statement of Financial Position of PSO and Shell Pakistan (Rs`000) PSO 2008 SPL 2,008 2007 Assets Non Current Assets Property , Plant & Equipment Intangibles Long Term Investments Other Long Term Assets Total Non Current Assets Current Assets Stores & Spares 2009 2,007 2,009 8,012,317 126,212 2,990,591 1,094,922 7,460,549 105,502 2,701,097 964,180 12,224,042 11,231,328 6,987,025 68,872 2,153,514 5,522,708 14,732,119 7,157,296 2,218,078 6,826,848 2,134,783 6,579,993 2,015,535 3,438,342 12,813,716 483,019 9,444,650 902,767 9,498,295 127,891 115,814 112,143 7,003 13,328 30,286 e g a P | 28 Business & Financial Performance of Pakistan State Oil

Stock in Trade Receivables Other Current Assets Cash & Cash Equivalents Total Current Assets Total Assets Equity & Liabilities Share Capital Reserves Equity Non Current Liabilities* Current Liabilities Trade Payables Provisions Short term Borrowings Other Current Liabilities Total Current Liabilities Total Equity & Liabilities 29,562,055 13,599,966 17,701,085 1,522,276 62,360,067 33,904,728 16,479,443 3,018,640 62,513,273 74,737,315 115,878,692 127,110,020 40,698,209 80,509,830 14,486,224 2,883,118 138,689,524 153,421,643 11,318,110 1,523,253 18,095,523 4,904,940 8,244,054 4,251,325 6,248,864 894,409 6,334,004 872,414 6,373,437 814,530 19,991,639 32,805,355 30,220,209 39,664,859 19,713,632 29,211,927 1,715,190 19,224,027 1,715,190 29,249,864 20,939,217 2,412,371 30,965,054 2,408,746 1,715,190 19,155,595 20,870,785 2,527,738 84,880 547,904 547,904 6,584,640 7,269,520 2,703,066 13,063,734 13,611,638 2,745,410 8,912,867 9,460,771 139,041 41,431,075 688,512 9,064,781 81,067,565 726,116 10,997,908 201,359 51,385,727 74,737,315 944,631 93,736,220 127,110,020 110,123,702 688,512 18,654,526 556,380 130,023,120 153,421,643 17,744,118 3,000,000 16,483,008 1,500,000 11,912,496 6,810,000 2,088,651 22,832,769 32,805,355 5,324,803 23,307,811 39,664,859 889,619 19,612,115 29,211,927 *PSO non-current liabilities do not comprises any interest bearing liabilities 2007 2008 2009 3,601,898 4,030,695 857,595 171,518,901 171,518,901 171,518,901 Dividend Rs. (000) Total Number of Shares

Ratios (2007, 2008 & 2009) PSO 2008 2. 40% 5. 10% 16. 4 1. 24 0. 57 7. 46 SPL 2008 3. 26% 9. 60% 18. 40% 8. 7 1. 3 0. 52 6. 89 2007 Net Profit Margin Gross Profit Margin Debt Equity Ratio Interest Cover Ratio (times) Current Ratio (times) Quick Ratio (times) Inventory Turnover (times) 1. 14% 3. 00% 6. 9 1. 22 0. 64 11. 41 2009 -0. 90% 0. 42% 1. 07 0. 75 14. 98 2007 0. 50% 4. 90% 1. 29 1. 01 0. 58 13. 18 2009 -2. 33% 1. 27% 34. 40% 0. 87 0. 38 13. 65 e g a P | 29 Business & Financial Performance of Pakistan State Oil Average Collection Period (days) Average Payment Period (days) Dividend Per Share Dividend Cover (times) 12 45 21 1. 3 21 64 23. 5 3. 49 41 66 5 – 12 40 13 48 3 42

Ratios Formulae Ratio Net Profit Margin Gross Profit Margin Debt Equity Ratio Interest Cover Ratio (times) Current Ratio (times) Quick Ratio (times) Inventory Turnover (times) Average Collection Period (days) Average Payment Period (days) Dividend Per Share Dividend Cover (times) Formula Profit for the year ? Sales x 100 Gross Profit ? Sales x 100 Interest bearing Long Term Debt ? Total Equity Profit before Interest and Tax ? Finance Cost Current Assets ? Current Liabilities (Current Assets – Inventory) ? Current Liabilities Cost of Product Sold ? Inventory Receivables ? Sales x 365 Payables ? Cost of Products Sold x 365 Dividend ? Total Number of Shares Profit after tax ? Dividend End of Appendix e g a P | 31

Business & Financial Performance of Pakistan State Oil Skills & Learning Statement Skills and Learning Statement (SLS) As per information pack SLS is as important as RAP, here it is demonstrated what practical experience, skills and learning has been achieved from my project. As discussed this RAP has provided me an opportunity to asses a practical organization in the light of my academic skills. Meetings with my mentor provide me a real approach how the meetings should be conducted with potential clients in future. In SLS following are discussed: • • • • Meetings with mentor Assessment of Presentation Questioning and Listening My strengths and weaknesses e g a P | 31

Business & Financial Performance of Pakistan State Oil Learning from Meetings My mentor was Mr. Faheem who is an ACCA teacher as well. Before deciding for a meeting I always have to make sure that meeting time does not conflict with his class timings. Notice board at My College where class timings was provided was really helpful to suggest which timings are not appropriate for my mentor. Once I identified different timings available I email my mentor and wait for a reply. All meetings were held as scheduled. Professionalism is the highest priority for my meetings. As specified in the guidelines, three meetings were held with my mentor. Meeting one – at the outset

My first meeting was held on 1st March 2010, a week after discussion with my mentor to provide me a mentoring service, In that discussion I communicated that I am decided with my topic and the organizations to work on. I have also started work on industrial analysis, for which Mr. Faheem asked me to bring that analysis on the first meeting. Timings of first meeting were decided on Friday 26th Feb 2010, when I received an email from my mentor. In my first meeting as topic and organization was decided, Mr. Fahim asked me why I have decided such a complex industry and huge organization, where I have plenty of options to work for simple companies.

I answered the question same as provided in RAP, further more RAP planning was discussed in first meeting, the overall structure of report and research objectives was also emphasized. PSO in their annual report 2009 provided several computed ratios; by my own those ratios could not be computed especially where ROCE is concerned. Mr. Fahim enlightened that companies follow best possible computations that could provide healthy results; therefore he advised me that I should focus on my own computations. Meeting two – midway through the report Soon after first meeting I started gathering data from different sources which are discussed in RAP. Majority of my project was completed prior to second meeting.

Second meeting was held on 10 March 2010, In second meeting I had plenty of questions to ask my mentor among them the most important was the treatment I did with SPL to come up with 12 months June 2009, there he emphasized on like with like comparisons, and he recommended me to go for some other competitor like Caltex Pakistan. But Caltex Pakistan and others are too small to PSO that analysis would not be able to highlight vital areas. My arguments justified my study and he was agreed with the treatment. In the second meeting it was emphasized about the next steps of the RAP (conclusions, Future prospects and reduction of word count as my word count was exceeding the limit) and schedule, where I specifically requested to arrange third meeting on 15 March 2010 as I was ahead with schedule. e g a P | 32 Business & Financial Performance of Pakistan State Oil Meeting three – towards completion of report

The last meeting was held as per scheduled, in this meeting I was required to present a presentation to my Mentor. Before commencing my Presentation me and my mentor was waiting for the second teacher to come, during that time objectives and conclusions were deeply discussed. I gave 15 – 16 minutes presentation to my mentor and one other teacher in the college auditorium, soon after completing my presentation the other teacher appreciated my presentation skills and provided me some advice on future presentations. The presentation is further discussed in “Assessment of Presentation”. Assessment of Presentation I prepared my Presentation using Microsoft Power Point 2007; this was not the first time I am doing it.

My experiences in Corporate Support Services Private Limited (CSS), where I use to develop Tax presentation for consultants very much helped me that how should I design my own. At the Presentations provided by senior consultants I learnt that People attending do not like to read details on presentation, they focus on cartoons, pictures or some bold text on slides. Furthermore they focus what presenter is trying to communicate by oral, rather than just reading on slide. In my point of view presentation should be simple; fewer details should be provided on slides, my presentation was quite simple and comfortable which was liked by my audience. Prior to my final presentation I practiced it with my cousin, where I learnt answering some relevant questions.

Providing sentences prior to slide was really helpful to communicate the overview of the matter. For example a sentence “3612 retail outlets…” prior to “About Pakistan” slide give an impression that PSO is a large entity. I commenced my presentation with a PSO introduction video, an official video obtained from website. But since it was introductory video, it was least helpful as audience is well aware of it; they seem taking interest on performance and news side where people were uninformed of situation. So in future I shall design audience focused presentations, and shall focus less on introductory side. My observations that people do not like details on slides were purely correct.

As audience was just looking at the heading and pictures I used in my presentation this was also appreciated by other teacher that I tried to communicate orally. During the whole presentation I remained confident and answered all the questions. Sound clips and PSO introductory video was also played in actual presentation. Listening “We were given two ears but only one mouth, because listening is twice as hard as talking. ” (Ref: http://www. drnadig. com/listening. htm) Communication is a two way process, where if there is no receiver on the other end, sending data is useless. Expressing wants, feelings, thoughts and opinions clearly and effectively is e g a P | 33 Business & Financial Performance of Pakistan State Oil ne part of the communication the other part is listening and understanding what others communicate to us. Therefore listening is the vital element for the communication. One of my teachers during his lecture told us the difference between hearing and listening, which I better understood during my meetings. “Hearing is merely the ability of ear to sense sounds around one, but, listening is more of conscious effort to interpret the sounds, requiring concentration of mind. ” (Ref: Wiki Answers: http://wiki. answers. com/Q/What_is_the_difference_between_hearing_and_listening) Attentive listening was the second highest priority after professionalism during meetings.

During meetings I always listen to my mentor without any interruptions. So that message could be properly communicated, this was also done from the mentor`s side. Although due to college premises students and administration staff at several times interrupted the meeting. The problem was resolved when the second meeting was held in my mentor? s private cabin and last one in college auditorium. I am very sharp listener; the quality facilitated me to pick important points during discussions and immediately writing them down in my diary. This has helped me to gain strong understanding for my RAP and helped me that how could I polish my interpretation skills.

During listening patience is also necessary aspect, even if I disagree with my mentor I prevented myself for interrupting him, and discussed so that disagreements could be removed. My practice for presentation to my cousin prior to final meeting provided me indication of ineffectiveness in communication when he was asking questions which were previously answered. The matter was discussed with him who notified that too much oral information is being provided in presentation. Continuous practice without audience resolved the matter . Questioning Questioning is one of the key aspect of any meeting. It helps you to extract knowledge from the others persons mind. It will also help to control the environment, for example if questioning is jumbled it would create complications during meeting.

While questioning it was always kept in mind that relevant questions should be asked and via topic by topic approach. There are two approaches for questioning an Open-ended approach and Close-ended. A close ended approach provides a verification of information for example: Do you know where Italy is? The answer would be, Yes or No or could be some specific one word answer. But open-ended approach if for example asking how would you reach Italy if you know? , would provide much more information. Open-ended questions require greater response as compared to close-ended. Questioning helps to make a picture much clearer, Generally speaking when ever questions are asked to me it helped me better understands my topic. The open-ended approach during e g a P | 34

Business & Financial Performance of Pakistan State Oil meeting leads me to extract as much as knowledge I could from my mentors mind. As that knowledge would reduce complexity for my RAP and helps me to perform analysis in much better way. I always have a volume of questions in my mind which I shortlisted before going for a meeting. Shortlisted questions are noted down in my diary with well manner approach so that questions are not missed or jumbled. The request email prior to meeting also comprises of questions that are shortlisted so that my mentor could also prepare himself for answers. My mentor at first meeting asked me several questions.

His open ended questions about PSO and Oil and Marketing industry and closed ended questions about project completion time, realized me that I have to work a lot, as I was not planned about RAP timetable Questions regarding sources of information were often asked by my mentor, as he was also worried about the reliability of information. Furthermore, while questioning the guidance provided by information pack was also well considered. Questions like how do I pass? , were strictly not asked. Prior to final meeting I gave presentation to my cousin for which I asked him to ask as many question as possible. So I could prepare myself for real presentation to my mentor.

This method really polished me; it was proved when my mentor asked me almost similar questions as my cousin did. My strengths & weaknesses During my RAP I have analyzed my strengths and weaknesses, which I used and countered appropriately. Collecting data from internet was one of my strength which helped me to collect sufficient information from web. Formulating a graph on a spreadsheet was a difficult task as I have little knowledge about this application. Online tutorials and official „Microsoft Help? helped me to counter this weakness. Furthermore no doubt ACCA studies provide me an essential strength to analyze financial statements, which was the most important during the whole RAP, although some of the matters were difficult to understand.

Due to limitation of word count my studies were not fully tested for example, I would like to carry out share price analysis and PESTEL analysis to widen the picture. e g a P | 35 Business & Financial Performance of Pakistan State Oil I have worked for a call centre where I got chance to polish my communication skills. These skills really helped me during meeting and carrying out my project. Several times at my workplace at call centre I have presentations to seniors regarding project. My work at CSS provided me Microsoft Power Point skills which were also very helpful. End of Skills and Learning Statement Presentation e g a P | 36 Business & Financial Performance of Pakistan State Oil The Business & Financial Performance Of Pakistan State Oil Over a Three Year Period By Mustafa Chohan

The Largest Oil Marketing Co. of Pakistan e g a P | 37 Business & Financial Performance of Pakistan State Oil Agenda of Presentation “If you can’t explain it simply, you don’t understand it well enough. ” Albert Einstein About PSO PSO in News Information Gathering Techniques PSO Future Prospects PSO Responsibilities Recommendations Overall Financial Position PSO SWOT Analysis PSO with its 3612 Retail Outlets Fulfill the needs of 2. 8 million customers a day . e g a P | 38 Business & Financial Performance of Pakistan State Oil About PSO ! “ Largest Oil Marketing Company of Pakistan Largest Customer Base Comprises of: Well Diversified Information Gathering “

Annual Reports PSO Official Website “PSOPK. COM” Study Texts Internet & E Books “ e g a P | 39 Aviation , Locomotive , Power , Industrial , Armed Forces , Agricultural & Individual Consumers “ Business & Financial Performance of Pakistan State Oil Techniques “ Trend Analysis “Revenue & Profitability” Ratio Analysis & Limitations of Ratio Analysis Graphical Representation SWOT Analysis Financial Position “ International Oil Prices Devaluation of Rupee Short Term Borrowings Heavy Finance Cost Inventory Gains & Losses Circular Debt Crisis Overall Profitability Dividends “ “ e g a P | 41 Business & Financial Performance of Pakistan State Oil SWOT Analysis Strengths

Market Leader & Largest Customer Base Political Support Well Diversified Strong Supply Quality Products Weaknesses Hedging Circular Debt & Liquidity No Switching Cost Threats Highly Regulated Environment Uncontrollable Factors Built in Cost Strong Network By Competitors Opportunities Increasing Demand of POL Products Upstream Integration Government of Pakistan with the stake of 25. 5% exercise Sign