| Shell Pakistan Ltd - 2010 |
|
Balance Sheet as at December 31, 2010
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Note 2010 2009
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(Rupees `000)
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ASSETS
Non-current assets
Property, plant and equipment 4 6,502,773 7,024,787
Intangible assets 5 1,679,707 289,573
Long-term investments 6 2,547,853 2,312,806
Long-term loans and advances 7 81,960 101,058
Long-term deposits and prepayments 8 190,666 206,542
Long-term debtors 9 11,442 20,919
Deferred taxation 10 1,993,350 2,334,798
13,007,751 12,290,483
Current assets
Stores and spares 11 14,502 15,719
Stock-in-trade 12 12,348,438 13,076,718
Trade debts 13 2,013,358 1,239,213
Loans and advances 14 76,187 60,283
Trade deposits and short-term prepayments 15 305,384 250,050
Other receivables 16 9,686,866 5,851,644
Cash and bank balances 17 1,045,025 869,623
25,489,760 21,363,250
Total assets 38,497,511 33,653,733
Equity and liabilities
Equity
Share capital 18 684,880 684,880
2,096,050 2,096,050
Reserves
Unappropriated profit 5,119,105 5,489,673
7,900,035 8,270,603
LIABILITIES
Non-current liabilities
Liabilities against assets subject to finance lease 19 2,662 1,790
Asset retirement obligation 20 187,104 212,038
189,766 213,828
Current liabilities
Trade and other payables 21 19,936,550 15,970,996
Accrued mark-up 86,350 200,038
Current maturity of liabilities against
assets subject to finance lease 19 15,550 38,808
Short-term running finances utilised under
mark-up arrangements - secured 23 1,586,438 2,453,001
Short-term loans - secured 24 8,400,000 6,000,000
Taxation 382,822 506,459
30,407,710 25,169,302
30,597,476 25,383,130
Total Equity and Liabilities 38,497,511 33,653,733
Contingencies and commitments 25
==========================================================================================Profit and Loss Account for the year ended December 31, 2010==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
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Sales 26 223,813,592 177,110,208
Non-fuel retail
- Sales - 5,356
- Others 1,255 16,975
Other revenue 27 406,520 486,980
224,221,367 177,619,519
Sales tax (26,690,456) (21,619,421)
Net revenue 197,530,911 156,000,098
Cost of products sold 28 (185,403,153) (143,097,916)
Gross profit 12,127,758 12,902,182
Distribution and marketing expenses 29 (4,524,058) (3,376,353)
30 (3,679,805) (3,846,205)
Administrative expenses
3,923,895 5,679,624
Other operating income 31 527,448 492,001
4,451,343 6,171,625
Other operating expenses 32 (738,589) (1,284,990)
Operating profit 3,712,754 4,886,635
Finance cost 33 (1,264,677) (1,401,211)
2,448,077 3,485,424
Share of profit of associate - net of tax 6 596,008 424,585
Profit before taxation 3,044,085 3,910,009
Taxation 34 (1,428,503) (1,347,061)
Profit after taxation 1,615,582 2,562,948
Other comprehensive income
Total comprehensive income for the year 1,615,582 2,562,948
(Rupees)
Earnings per share 35 23.59 37.42
==========================================================================================Cash Flow Statement for the year ended December 31, 2010==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Cash generated from operations 40 4,514,858 5,656,154
Finance costs paid (1,179,132) (1,612,944)
Taxes paid (1,210,692) (363,543)
Long-term loans and advances 19,098 20,624
Long-term deposits and prepayments 15,876 62,482
Mark-up received on short-term deposits 50,380 74,215
Long-term debtors 28,117 96,587
Net cash generated from operating activities 2,238,505 3,933,575
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed capital expenditure (2,019,278) (1,324,547)
Proceeds from disposal of property, plant and equipment 100,007 69,074
Dividend received from associate 360,961 129,977
Net cash used in investing activities (1,558,310) (1,125,496)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (1,970,324) (543,923)
Repayment of liability under finance lease (67,906) (63,955)
Repayment of current portion of long-term loan 2,500,000) -
Net cash used in financing activities (4,538,230) (607,878)
Net (decrease)/increase in cash and cash equivalents (3,858,035) 2,200,201
Cash and cash equivalents at the beginning of the year (5,083,378) (7,283,579)
Cash and cash equivalents at the end of the year 41 (8,941,413) (5,083,378)
==========================================================================================Statement of Changes in Equity for the year ended December 31, 2010===========================================================================================================
Issued, Capital General Unappropriated Total
subscribed reserves - revenue profit
and paid-up share reserves
capital premium
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(Rupees 000)
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Balance as at January 1, 2009 684,880 1,889,048 207,002 3,474,628 6,255,558
Interim dividend for the year ended
December 31, 2009 at Rs. 8 per share - - - (547,903) (547,903)
Total comprehensive income for the year - - - 2,562,948 2,562,948
Balance as at December 31, 2009 684,880 1,889,048 207,002 5,489,673 8,270,603
Final dividend for the year ended
December 31, 2009 at Rs. 25 per share - - - (1,712,198) (1,712,198)
Interim dividend for the year ended
December 31, 2010 at Rs. 4 per share - - - (273,952) (273,952)
Total comprehensive income for the year - - - 1,615,582 1,615,582
Balance as at December 31, 2010 684,880 1,889,048 207,002 5,119,105 7,900,035
===========================================================================================================Notes to and Forming Part of the Financial Statements for the year ended December 31, 20101. THE COMPANY AND ITS OPERATIONS The Company is a limited liability Company incorporated in Pakistan and is listed on the Karachi and Lahore Stock Exchanges. The registered office of the Company is located at Shell House, 6, Ch. Khaliquzzaman Road, Karachi-75530, Pakistan. The Company markets petroleum products and compressed natural gas. It also blends and markets various kinds of lubricating oils. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1. Basis of preparation 2.1.1. These financial statements have been prepared under the historical cost convention, as modified by remeasurement of certain financial assets and financial liabilities at fair value and recognition of certain staff retirement and other service benefits at present value. 2.1.2. These financial statements have been prepared in accordance with the requirements of the Companies Ordinance, 1984 (the Ordinance), directives issued by the Securities and Exchange Commission of Pakistan (SECP) and the approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as are notified under the provisions of the Ordinance. Wherever, the requirements of the Ordinance or directives issued by the SECP differ with the requirements of these standards, the requirements of the Ordinance or the requirements of the said directives have been followed. 2.1.3. The preparation of financial statements in conformity with the above requirements requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company's accounting policies. The areas involving high degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 3. 2.1.4. Initial application of a Standard, Amendment or Interpretation to an existing Standard a).Standards, amendments to published standards and interpretations effective in 2010 and relevant The following amendments to published standards are mandatory for the financial year beginning January 1, 2010: - IAS 17 (Amendment) 'Classification of leases of land and buildings'. The amendment deletes the specific guidance regarding classification of leases of land, so as to eliminate inconsistency with the general guidance on lease classification. As a result, leases of land should be classified as either finance or operating, using the general principles of IAS 17. There is no effect of this amendment on the Company's financial statements. b).Standards, amendments to published standards and interpretations effective in 2010 but not relevant The other new standards, amendments and interpretations that are mandatory for accounting periods beginning on or after January 1, 2010 are considered not to be currently relevant as these do not have any significant effect on the Company's current financial reporting and operations though these may affect the accounting for future transactions and events. c).Standards, amendments to published standards and interpretations that are not yet effective and have not been early adopted by the Company Following new standards, amendments and interpretations to existing standards have been issued but are not effective for the financial year beginning January 1, 2010 and have not been early adopted by the Company: - IAS 24 (Revised), 'Related party disclosures' (effective from January 1, 2011). The revised standard supersedes IAS 24, 'Related party disclosures', issued in 2003. The revised standard clarifies and simplifies the definition of a related party. Application of the revised standard will only impact the format and extent of disclosures presented in the Company's financial statements. - IFRIC 14 (Amendment) 'Prepayments of a minimum funding requirement' (effective for periods beginning on or after January 1, 2011). The amendments correct an unintended consequence of IFRIC 14, 'IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction'. Without the amendments entities are not permitted to recognize as an asset some voluntary prepayments for minimum funding contributions. This was not intended when IFRIC 14 was issued, and the amendment corrects this. The Company's retirement benefit funds are not subject to any minimum funding requirement, hence, these amendments will have no impact on the Company's financial statements. - Amendments to following standards as a result of improvements to International Financial Reporting Standards 2010, issued by IASB in May 2010: � IFRS 7 (Amendment), 'Financial January 1, 2011). The amendment emphasizes the interaction between quantitative and qualitative disclosures about the nature and extent of risks associated with financial instrument. The amendment will only affect the disclosures in the Company's financial statements. � IAS 1 (Amendment) 'Presentation January 1, 2011). The amendment clarifies that an entity will present an analysis of other comprehensive income for each component of equity, either in the statement of changes in equity or in the notes to the financial statements. The amendment will only affect the disclosures in the Company's financial statements. � IAS 34 (Amendment) 'Interim 1, 2011). This amendment provides guidance to illustrate how to apply disclosure principles in IAS 34 and add disclosure requirements around the circumstances likely to affect fair values of financial instruments and their classification, transfers of financial instruments between different levels of the fair value hierarchy, changes in classification of financial assets, changes in contingent liabilities and assets. There are a number of other minor amendments and interpretations to other published standards that are not yet effective, and are also not relevant to the Company and therefore have not been presented here. 2.2. Property, plant and equipment Property, plant and equipment are initially stated at cost and subsequently carried at cost less accumulated depreciation and accumulated impairment losses, if any, except freehold land and capital work-in-progress which are stated at cost less impairment losses, if any. All expenditure connected with specific assets incurred during installation and construction period are carried under capital work-in-progress. These are transferred to specific assets as and when these are available for use. Subsequent costs are included in the asset's carrying amounts or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the profit and loss account as and when incurred. Depreciation is charged to income applying the straight-line method, whereby the depreciable amount of an asset is written off over its estimated useful economic life at the rates given in note 4.1. The residual values, useful lives and depreciation methods are reviewed and adjusted, if appropriate, at each balance sheet date. Depreciation on additions is charged from the month in which an asset is available for use while no depreciation is charged for the month in which an asset is disposed of. Gains / losses arising on disposal of property, plant and equipment are included in profit and loss account in the period of disposal. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount. 2.3. Intangible assets - Computer software Intangible assets are initially stated at cost and subsequently carried at cost less accumulated amortisation and accumulated impairment losses, if any. Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Costs directly associated with acquiring software that have probable economic benefits exceeding one year, are recognised as an intangible asset. Direct costs include the purchase cost of software and related overhead cost. Subsequent directly attributable costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. Computer software costs are amortised from the month when such assets are available for use on a straight-line basis over the asset's useful economic life, at the rate given in note 5.1. The assets carrying amount is written down immediately to its recoverable amount if the carrying amount is greater than its estimated recoverable amount. 2.4. Investments in associates Associates are all entities over which the Company has significant influence but no control, generally represented by a shareholding of 20% to 50% of the voting rights. Investment in associates are accounted for using the equity method of accounting and are initially recognised at cost in accordance with the requirements of IAS 28, 'Investments in Associates'. The Company's share of an associate's post acquisition profits or losses is recognised in the profit and loss account and its share in the post acquisition movement of reserves is recognised in reserves. The cumulative post acquisition movements are adjusted against the carrying value of the investment. When the Company's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Company does not recognize future losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealized gains on transactions between the Company and its associate are eliminated to the extent of the Company's interest in the associate. 2.5. Financial instruments 2.5.1. Financial assets The Company classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables, available for sale and held to maturity. The classification depends on the purpose for which the financial assets were acquired. The management determines the classification of its financial assets at the time of initial recognition. a).Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. A financial asset is classified as held for trading if acquired principally for the purpose of selling in the short term. Assets in this category are classified as current assets. b).Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than twelve months after the balance sheet date, which are classified as non-current assets. The Company's loans and receivables comprise 'trade debts', 'loans, deposits and other receivables' and 'bank balances' in the balance sheet. c).Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of the investments within twelve months of the balance sheet date. d).Held to maturity financial assets Financial assets with fixed or determinable payments and fixed maturity, where management has the intention and ability to hold till maturity are classified as held to maturity. Regular way purchases and sales of financial assets are recognized on the trade date - the date on which the Company commits to purchase or sell the asset. Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value and transaction costs are expensed in the profit and loss account. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables and held to maturity financial assets are carried at amortized cost using the effective interest method. Gains or losses arising from changes in the fair value of the 'financial assets at fair value through profit or loss' category are presented in the profit or loss account within 'other operating income/expenses' in the period in which they arise. Dividend income from financial assets at 'fair value through profit or loss' is recognized in the profit and loss account as part of 'other operating income' when the Company's right to receive payments is established. Gain or loss on sale of investments at 'fair value through profit or loss' are recognized in the profit and loss account as 'gains and losses from investment securities'. When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognized in equity are included in the profit or loss account as 'gains and losses from investment securities'. Interest on available-for-sale securities calculated using the effective interest method is recognized in the profit and loss account as part of 'other operating income'. Dividends on available-for-sale equity instruments are recognized in the profit and loss account as part of 'other operating income' when the Company's right to receive payments is established. The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Company measures the investments at cost less impairment in value, if any. The Company assesses at each balance sheet date whether there is objective evidence that a financial asset or a Group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss - is removed from equity and recognized in the profit and loss account. Impairment losses recognized in profit and loss on equity instruments are not reversed through profit and loss. Impairment testing of trade debts and other receivables are described in note 2.8. 2.5.2. Financial liabilities All financial liabilities are recognised at the time when the Company becomes a party to the contractual provisions of the instrument. A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in respective carrying amounts is recognised in the profit and loss account. 2.5.3. Offsetting of financial assets and liabilities A financial asset and a financial liability are offset and the net amount is reported in the balance sheet if the Company has a legally enforceable right to set-off the recognised amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. 2.6. Stock-in-trade Stock-in-trade is valued at the lower of cost, calculated on a first-in first-out basis, and net realizable value. Cost comprises invoice value, charges like customs duties and similar levies and other direct costs but excludes borrowing cost. Cost for bonded stock, of finished goods comprises invoice value and costs incurred to date. Net realizable value signifies the estimated selling price in the ordinary course of business less costs necessary to make the sale. Stock-in-transit is valued at cost comprising invoice value plus other charges incurred thereon. Provision is made for obsolete and slow moving stock-in-trade based on management's best estimate and is recognized in the profit and loss account. 2.7. Impairment of non-financial assets The carrying amounts of the Company's assets are reviewed at each balance sheet date to determine whether there is any indication of impairment loss. If any such indication exists, the asset's recoverable amount is estimated in order to determine the extent of the impairment loss, if any. An impairment loss is recognised for the amount by which the assets carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less cost to sell and value in use. Impairment losses are charged to the profit and loss account. 2.8. Trade debts and other receivables Trade debts and other receivables are recognised initially at invoice value, which approximates fair value, and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade debts and other receivables is established when there is objective evidence that the Company will not be able to collect all the amount due according to the original terms of the receivable. Significant financial difficulties of the debtors, probability that the debtor will enter bankruptcy and default or delinquency in payments are considered indicators that the trade debt is impaired. The amount of provision is charged to income. Trade debts and other receivables considered irrecoverable are written-off. Exchange gains and losses arising on translation in respect of trade debts and other receivables in foreign currency are added to the carrying amount of the respective receivables. 2.9. Cash and cash equivalents Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents include cash in hand, balances with banks, short-term loans and short-term running finances utilised under mark-up arrangements. 2.10. Provisions Provisions are recognised when the Company has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate can be made of the amount of obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Provision for asset retirement obligation is based on current requirements, technology and price levels and the present value is calculated using amounts discounted over useful economic life of the assets. The liability is recognized (together with a corresponding amount as part of the related property, plant and equipment) once an obligation crystallizes in the period when a reasonable estimate can be made. The effects of changes resulting from revisions to the timing or the amount of the original estimate of the provision are incorporated on a prospective basis. 2.11. Leases 2.11.1. Finance leases Liabilities against assets subject to finance lease are accounted for at the lower of present value of minimum lease payments and fair value of the assets acquired on lease. Outstanding obligations under the lease less finance costs allocated to future periods are shown under liability. Finance costs are allocated to the periods of the lease term so as to produce a constant periodic rate of financial cost on the remaining balance of principal liability for each period. 2.11.2. Operating leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the profit and loss account on a straight-line basis over the period of the lease. 2.12. Trade and other payables Trade and other payables are recognised initially at fair value and subsequently measured at amortised cost, using the effective interest method. Exchange gains and losses arising on translation in respect of liabilities in foreign currency are added to the carrying amount of the respective liabilities. 2.13. Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost, any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the profit and loss account over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Company has an unconditional right to defer settlement of the liability for at least twelve months after the balance sheet date. Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are charged in the profit and loss account in the period in which they arise. 2.14. Retirement and other service benefits 2.14.1. Retirement benefits Except for certain expatriates for whom benefits are provided by membership of their respective Shell retirement benefit funds, staff retirement benefits include: i).Approved funded gratuity and pension schemes Approved funded gratuity schemes for management and unionized staff and contributory pension scheme for management and non-contributory pension scheme for unionized staff. Contributions are made to these schemes on the basis of actuarial recommendations. The actuarial valuations are carried out using the Projected Unit Credit Method. Actuarial gains and losses are accounted for using the corridor method. Under this method, to the extent that any cumulative unrecognized actuarial gain or loss exceeds 10% of the greater of the present value of the defined benefit obligation and the fair value of plan assets, that portion is recognised in income over the expected average remaining working lives of the employees participating in the plan; ii).Approved contributory provident fund Approved contributory provident funds for all employees. Equal monthly contributions are made both by the Company and the employee at the rate of 4.5% of basic salary; and iii).Un-funded post retirement medical benefits Un-funded post retirement medical benefits for all management staff. Annual provision is made in the financial statements for this scheme on the basis of actuarial recommendations. The actuarial valuation is carried out annually using the Projected Unit Credit Method. Actuarial gains and losses are accounted for using the corridor method. Under this method, to the extent that any cumulative unrecognized actuarial gain or loss exceeds 10% of the greater of the present value of the defined benefit obligation and the fair value of plan assets, that portion is recognised in income over the expected average remaining working lives of the employees participating in the plan. Retirement benefits are payable to staff on completion of prescribed qualifying periods of service under these schemes. 2.14.2. Employees' compensated absences The Company accounts for the liability in respect of employees' compensated absences in the year in which these are earned. Provision to cover the obligation under the scheme is made based on the current leave entitlements of employees and by using the current salary levels of employees. 2.15. Taxation 2.15.1. Current Provision for current taxation is based on the taxable income for the year, determined in accordance with the prevailing law for taxation on income, using prevailing tax rates. The charge for current tax also includes tax credits and adjustments, where considered necessary, for prior years determined during the year or otherwise considered necessary for such years. 2.15.2. Deferred Deferred income tax is recognized using the liability method on all temporary differences between the carrying amounts of assets and liabilities for the financial reporting purposes and the amounts used for taxation purposes. Deferred tax asset is recognized for all the deductible temporary differences only to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences, unused tax losses and tax credits can be utilized. Deferred tax asset is reduced to the extent that it is no longer probable that the related tax benefit will be realized. Deferred tax liabilities are recognized for all the taxable temporary differences. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on the tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited in the profit and loss account. 2.16. Foreign currencies Transactions in foreign currencies are accounted for in Pakistani Rupees at the rates prevailing on the date of transaction. Monetary assets and liabilities in foreign currencies are translated into Rupees at the rates of exchange which approximate those prevailing at the balance sheet date. Exchange differences are taken to the profit and loss account. 2.17. Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be measured reliably. Revenue is measured at the fair value of consideration received or receivable on the following basis: -.Sales are recorded when significant risks and rewards of ownership of goods have passed to customers which coincides with dispatch of goods to customers. -.Non-fuel retail income and other revenue (including license fee) is recognised on an accrual basis. -.Dividend income is recognised when the Company's right to receive the dividend is established. 2.18. Functional and presentation currency Items included in the financial statements are measured using the currency of the primary economic environment in which the Company operates. The financial statements are presented in Pakistani Rupees, which is the Company's functional and presentation currency. 2.19. Dividend distribution and appropriation to reserves Dividend distribution and appropriation to reserves are recognized in the financial statements in the period in which these are approved. 3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows: 3.1. Property, plant and equipment and intangible assets The Company reviews appropriateness of the useful life and residual value used in the calculation of depreciation / amortization. Further, where applicable, an estimate of recoverable amount of assets is made for possible impairment on an annual basis. Change in estimates Effective from current year, the Company has revised the annual rates of depreciation for certain operating assets as it would result in a more accurate reflection of depreciation charge over the useful lives of the related assets. Such revision is summarized as follows: ==========================================================================================
Asset category Rates - %
Revised Previous
==========================================================================================
Tanks and pipelines 3-4 4
5 6.67
Lifts Dispensing pumps 6.67 and 20 6.67
Computers auxiliaries 20-25 33.3
Plant and machinery 3-10 5
==========================================================================================The aforementioned change has been accounted for as a change in accounting estimate in accordance with the provisions of IAS-8 'Accounting Policies, Changes in Accounting Estimates and Errors' by adjusting the depreciation charge for current and future periods. Had there been no change in the accounting estimates, the profit after tax for the year would have been higher by Rs. 77,350 thousand.3.2. Stock-in-trade The Company reviews the net realizable value of stock-in-trade to assess any diminution in the respective carrying values. Net realizable value is determined with reference to estimated selling price less estimated expenditures to make the sales. 3.3. Income taxes In making the estimates for income taxes payable by the Company, the management looks at the applicable law and the decisions of appellate authorities on certain issues in the past. Further, the Company uses financial projections, which are prepared using assumptions for key economic and business drivers, to assess realisability of deferred tax assets. 3.4. Provision for retirement and other service benefit obligations The present value of these obligations depends on a number of factors that are determined on actuarial basis using a number of assumptions. Any changes in these assumptions will impact the carrying amount of these obligations. The present values of these obligations and the underlying assumptions are disclosed in notes 36.1.1 and 36.2.1 respectively. 3.5. Provision for impairment of trade debts and other receivables The Company assesses the recoverability of its trade debts and other receivables if there is objective evidence that the Company will not be able to collect all the amount due according to the original terms. Significant financial difficulties of the debtors, probability that the debtor will enter bankruptcy and default or delinquency in payments are considered indicators that the trade debt is impaired. 3.6. Asset retirement obligation The Company reviews the timing and amount of future expenditures annually together with the interest rate to be used to discount the future cash flows. The estimated future expenditure is determined in accordance with local conditions and requirements and on the basis of estimates provided by the Parent Company's technical staff. 4. PROPERTY, PLANT AND EQUIPMENT ==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Operating assets, at net book value 4.1 6,202,640 6,372,690
Capital work-in-progress 4.7 344,304 740,908
6,546,944 7,113,598
Provision for impairment (44,171) (88,811)
6,502,773 7,024,787
==========================================================================================4.1. The following is a statement of operating tangible and intangible fixed assets:=======================================================================================================================================================================================================================================
Year ended December 31, 2010
=======================================================================================================================================================================================================================================
Owned assets Leased assets
Freehold Leasehold Buildings Buildings Tanks and Plant and Air Dispensing Rolling Electrical, Furniture Computers Main Plant and Vehicles; Total
land land on on pipelines machinery conditioning Lifts pumps stock and mechanical office auxiliaries frame machinery
freehold leasehold plant vehicles and fire equipment
land land fighting and other
equipment assets
=======================================================================================================================================================================================================================================
(Rupees'000)
=======================================================================================================================================================================================================================================
At January 01, 2010
Cost 97,009 69,556 97,528 3,607,494 1,576,629 1 40,772 28,053 4,333 1,067,816 370,695 2,519,531 1,010,314 135,359 38,393 116,197 255,019 11,134,698
Accumulated depreciation - 49,604 51,330 1,257,009 796,966 92,646 21,806 1,569 566,488 170,044 804,034 632,1 27 1 02,663 35,488 60,732 1 19,502 4,762,008
Net book value 97,009 1 9,952 46,198 2,350,485 779,663 48,126 6,247 2,764 501,328 200,651 1,715,497 378,1 87 32,696 2,905 55,465 135,517 6,372,690
Year ended December 31, 2010
Opening net book value 97,009 1 9,952 46,1 98 2,350,485 779,663 48,1 26 6,247 2,764 501,328 200,651 1,715,497 378,187 32,696 2,905 55,465 1 35,517 6,372,690
Additions - 3,967 7,597 209,605 71,989 162,969 1,534 - 22,095 19,535 92,217 227,787 16,658 - - 40,794 876,747
Transfers in / (out) - - - - - 55,465 - - - - - - - - (55,465) - -
Disposals / write offs (Note 4.6)
Cost - - - 38,614 76,934 23,997 - - 67,395 44,500 141,930 25,390 - - - 53,312 472,072
Accumulated depreciation - - - (10,946) (34,266) (8,853) - - (37,740) (1 2,578) (57,220) (1 8,070) - - - (44,778) (224,451)
- - - 27,668 42,668 15,144 - - 29,655 31,922 84,710 7,320 - - - 8,534 247,621
Transfers out -
Depreciation charge
for the year - (Note 4.2) - 4,473 2,487 1 79,277 55,847 22,008 3,672 1 93 156,162 61,443 142,544 107,605 9,264 396 - 53,805 799,176
Closing net book value 97,009 19,446 51,308 2,353,145 753,137 229,408 4,1 09 2,571 337,606 126,821 1,580,460 491,049 40,090 2,509 - 1 1 3,972 6,202,640
At December 31, 2010
Cost 97,009 73,523 1 05,1 25 3,778,485 1,571,684 395,941 29,587 4,333 1,022,51 6 345,730 2,469,81 8 1,21 2,71 1 1 52,01 7 38,393 - 242,501 1 1,539,373
Accumulated depreciation - 54,077 53,81 7 1,425,340 818,547 1 66,533 25,478 1,762 684,910 21 8,909 889,358 721,662 111,927 35,884 - 128,529 5,336,733
Net book value 97,009 1 9,446 51,308 2,353,1 45 753,137 229,408 4,1 09 2,571 337,606 1 26,821 1,580,460 491,049 40,090 2,509 - 113,972 6,202,640
=======================================================================================================================================================================================================================================
Year ended December 31, 2009
=======================================================================================================================================================================================================================================
Owned assets year ended December 31, 2009 Leased assets
=======================================================================================================================================================================================================================================
Freehold Leasehold Buildings Buildings Tanks and Plant and Air Dispensing Rolling Electrical, Furniture Computers Main Plant and Vehicle; Total
land land on on pipelines machinery conditioning Lifts pumps stock and mechanical office auxiliaries frame machinery
freehold leasehold plant vehicles and fire equipment
land land fighting and other
equipment assets
=======================================================================================================================================================================================================================================
(Rupees'000)
=======================================================================================================================================================================================================================================
At January 01, 2009
Cost 97,078 69,556 1 04,604 3,541,242 1,675,152 225,839 40,854 8,256 1,304,039 401,602 2,422,066 1,337,851 354,726 91,034 1 53,823 339,242 12,166,964
Accumulated depreciation - 40,989 56,670 1,276,100 856,346 191,784 33,231 5,1 21 753,537 1 95,1 44 922,831 1,043,581 325,228 83,963 84,841 1 71,61 6 6,040,982
Net book value 97,078 28,567 47,934 2,265,142 81 8,806 34,055 7,623 3,1 35 550,502 206,458 1,499,235 294.270 29,498 7,071 68,982 1 67,626 6,125,982
Year ended December 31, 2009
Opening net book value 97,078 28,567 47,934 2,265,142 81 8,806 34,055 7,623 3,1 35 550,502 206,458 1,499,235 294,270 29,498 7,071 68,982 1 67,626 6,125,982
Additions - - - 41 5,766 68,964 1 8,378 - - 42,418 55,809 490,1 05 203,770 1 6,656 - 4,096 37,237 1,353,199
Disposals I write offs (Note 4.6)
Cost 69 - 7,076 349,51 4 1 67,487 1 03,445 12,801 3,923 278,641 86,71 6 392,640 531,307 236,023 52,641 41,722 121,460 2,385,465
Accumulated depreciation - - (6,989) (21 8,631) (112,157) (101,662) (1 2,627) (3,837) (242,1 84) (81,1 67) (296,286) (504,679) (235,649) (52,641 ) (38,345) (115,551 ) (2,022,405)
69 - 87 1 30,883 55,330 1,783 1 74 86 36,457 5,549 96,354 26,628 374 - 3,377 5,909 363,060
Depreciation charge for
the year - (Note 4.2) - 8,615 1,649 1 99,540 52,777 2,524 1,202 285 55,1 35 56,067 1 77,489 93,225 1 3,084 4,1 66 1 4,236 63,437 743,431
Closing net book value 97,009 1 9,952 46,1 98 2,350,485 779,663 48,1 26 6,247 2,764 501,328 200,651 1,71 5,497 378,1 87 32,696 2,905 55,465 1 35,51 7 6,372,690
At December 31, 2009
Cost 97,009 69,556 97,528 3,607,494 1,576,629 1 40,772 28,053 4,333 1,067,81 6 370,695 2,51 9,531 1,01 0,31 4 1 35,359 38,393 116,1 97 255,019 1 1,134,698
Accumulated depreciation - 49,604 51,330 1,257,009 796,966 92,646 21,806 1,569 566,488 1 70,044 804,034 632,1 27 1 02,663 35,488 60,732 119,502 4,762,008
Net book value 97,009 1 9,952 46,1 98 2,350,485 779,663 48,1 26 6,247 2,764 501,328 200,651 1,71 5,497 378,1 87 32,696 2,905 55,465 1 35,51 7 6,372,690
Depreciation rate % per annum - 5 2.50 5 3 to 4 3 to 1 0 6.67 5 6.67 & 20 5 to 20 5 to 1 0 5 to 20 20 to 25 25 5 20
=======================================================================================================================================================================================================================================4.2. The depreciation charge for the year has been allocated as follows:==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Cost of products sold 21,759 18,543
Administrative and marketing expenses 30 777,417 724,888
799,176 743,431
==========================================================================================4.3. Company assets include tanks, dispensing pumps and electrical equipment having a cost of Rs. 722,633 thousand (2009: Rs. 822,591 thousand) which have been installed at dealer sites. Due to the significant number of dealers involved, the particulars of the assets not in the possession of the Company as required by the Fourth Schedule to the Companies Ordinance, 1984 have not been disclosed here.4.4. The following assets with a net book value exceeding Rs 50,000 were disposed off during the year: ================================================================================================================================
Accumulated Net Sales Mode of Disposal Particulars of Buyers
Cost Depreciation Book Proceeds
Value
================================================================================================================================
(Rupees `000)
================================================================================================================================
Buildings on leasehold land 369 212 157 260 Negotiation Tariq Saeed Filling Station
22,844 2,973 19,871 9,365 Negotiation Note 4.5
Tanks and pipelines 137 44 93 181 Negotiation Badin Petroleum Service
287 28 259 150 Negotiation Rewaz Filling Station
393 - 393 208 Negotiation Note 4.5
Dispensing pumps 335 34 301 386 Negotiation Badin Petroleum Service
1,180 814 366 317 Negotiation Rewaz Filling Station
Assets held under finance 1,002 805 197 388 Company Policy Rasheed Ahmad ( Executive)
lease - vehicles 1,005 523 482 691 Company Policy Ejaz Alam ( Executive)
835 685 150 334 Company Policy Tariq Hameed ( Executive)
925 366 559 717 Company Policy Badiuzzaman ( Executive)
1,568 577 991 1,398 Company Policy Amjad Shahabuddin (Executive)
879 678 201 472 Company Policy Sajid Ayub (Executive)
879 759 120 429 Company Policy Sadqain Khoja (Executive)
1,506 1,130 376 847 Company Policy Salman Pervez ( Executive)
1,269 555 714 1,198 Insurance Claim EFU General Insurance
873 813 60 338 Company Policy Kashif Khan (Executive)
873 813 60 338 Company Policy Hassan Bokhari ( Executive)
879 696 183 483 Company Policy Khurram Baghpatti ( Executive)
1,564 921 643 1,011 Company Policy Ms. Gulzar Khoja ( Executive)
915 539 376 580 Company Policy Fareed Khatri ( Executive)
969 868 101 1,052 Negotiation Munir Ahmed (Vendor)
969 848 121 545 Company Policy Imran Alim Mufti (Executive)
879 769 110 440 Company Policy Syed Arif Abbas Naqvi (Executive)
2,750 2,148 602 1,705 Company Policy Yousuf Ali (Executive)
925 677 248 1,148 Company Policy EFU General Insurance
879 625 254 538 Company Policy Mian Mehmood Ahmed Khan (Executive)
915 651 264 560 Company Policy Asfandyar Ali Khan (Executive)
925 658 267 543 Company Policy Muhammad Farooq Ayyub (Executive)
881 473 408 873 Company Policy EFU General Insurance
1,809 780 1,029 1,357 Company Policy Saleem Paracha (Executive)
Rolling stock and vehicles 1,239 173 1,066 1,115 Company Policy Kashif Arshad (Executive)
1,354 284 1,070 1,252 Company Policy Imdad Afzal (Executive)
1,354 284 1,070 1,194 Company Policy Mukhtar A. Khan (Executive)
Electrical, mechanical and 6,763 5,460 1,303 50 Negotiation Polwel Faisalabad
fire fighting equipment 322 159 163 338 Negotiation Badin Petroleum Service
490 44 446 580 Negotiation Badin Petroleum Service
291 178 113 63 Negotiation Rewaz Filling Station
73,155 19,566 53,589 28,333 Negotiation Note 4.5
Furniture, office equipment
and other assets 1,597 705 892 50 Negotiation Asif Iqbal (Vendor)
Plant and machinery 20,503 6,255 14,248 7,533 Negotiation Note 4.5
================================================================================================================================4.5. These represent disposals to various retail site dealers. Due to the significant number of dealers involved, particulars of the disposal above Rs 50,000 as required by the Fourth Schedule of the Companies Ordinance, 1984 have not been disclosed here.4.6. Disposal / write offs of fixed assets include assets written off having a cost of Rs. 285,163 thousand (2009: Rs. 2,362,289 thousand) and a net book value of Rs. 143,447 thousand (2009: Rs. 282,487 thousand). Due to the significant number of line items involved, particulars of the write offs, above Rs. 50,000 as required by the Fourth Schedule of the Companies Ordinance, 1984 have not been disclosed here. 4.7. Capital work-in-progress ==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Buildings on leasehold land 50,252 253,671
Tanks and pipelines 126,333 41,637
Plant and machinery 7,545 1,620
Air-conditioning plant - 1,028
Dispensing pumps 2,091 6,650
Rolling stock and vehicles 17,975 37,238
Electrical, mechanical and fire fighting equipment 136,883 219,233
Furniture, office equipment and other assets 1,221 163,915
Computer auxiliaries - 11,630
Capital stores and spares 2,004 4,286
344,304 740,908
==========================================================================================5. INTANGIBLE ASSETS - Computer software==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
As at January 1
Cost 353,568 288,010
Accumulated amortization (63,995) (275,139)
Net book value 289,573 12,871
Year ended December 31
Opening net book value 289,573 12,871
Additions at cost 5.2 1,579,929 283,295
Disposals:
Cost - 217,737
Accumulated amortization - (217,430)
- (307)
Amortization charge 30 (189,795) (6,286)
Closing net book value 1,679,707 289,573
As at December 31
Cost 1,933,497 353,568
Accumulated amortization (253,790) (63,995)
Net book value 1,679,707 289,573
==========================================================================================5.1. The cost is being amortised over a period of 5 years.5.2. This represents amounts incurred by the Company in respect of implementation and deployment of its Enterprise Resource Planning (ERP) system as part of its business process transformation and streamline project. 6. LONG-TERM INVESTMENTS ==================================================================================================
2010 2009
==================================================================================================
Percentage Amount Percentage Amount
Holding (Rupees '000) Holding (Rupees '000)
==================================================================================================
Investment in associate - unquoted
Pak-Arab Pipeline Company Limited (PAPCO)
18,720,000 (2009: 18,720,000)
ordinary shares of Rs 100 each - note 6.1 26 2,542,853 26 2,307,806
Others - held as available-for-sale - at cost
Arabian Sea Country Club Limited 500,000 - 5,000 - 5,000
(2009: 500,000) ordinary
shares of Rs 10 each 2,547,853 2,312,806
==================================================================================================6.1. Movement of investment in associate ==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Balance at the beginning of the year 2,307,806 2,013,198
Share of profit 916,887 655,621
Share of taxation (320,879) (231,036)
596,008 424,585
Dividend received (360,961) (129,977)
Balance at the end of the year 2,542,853 2,307,806
==========================================================================================Pak-Arab Pipeline Company Limited (PAPCO) commenced its commercial operations in Pakistan in March 2005 as a joint venture between PARCO and oil marketing companies to provide transportation services of petroleum products through the white oil pipeline.The financial year end for PAPCO is June 30. Summarised financial information of PAPCO based on the latest unaudited financial statements for the six months ended December 31, 2010 and the six months ended December 31, 2009, is as follows: ==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Total assets 22,405,025 23,267,999
Total liabilities 12,624,824 14,391,825
==========================================================================================Share of the contingent liabilities based on the latest financial statements of PAPCO for the six months ended December 31, 2010 amounts to Rs. 10,061 thousand (December 31, 2009: Rs. 22,875 thousand).==========================================================================================
Six months Six months
ended ended
December 31, December 31,
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Revenues 3,192,712 3,156,128
Total comprehensive income for the period 1,198,071 889,034
==========================================================================================7. LONG TERM LOANS AND ADVANCES - Considered good==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Due from Directors - notes 7.1 and 7.2 - 465
Less: Receivable within one year - note 14 - (372)
- 93
Due from Executives - notes 7.1 and 7.2 126,005 135,222
Less: Receivable within one year - note 14 (48,759) (52,975)
77,246 82,247
Due from Employees - note 7.2 4,067 617
Less: Receivable within one year - note 14 (3,928) (247)
139 370
Advances to contractors 4,575 18,348
81,960 101,058
==========================================================================================7.1. Reconciliation of the carrying amount of loans and advances to executives and directors====================================================================================
2010 2009
====================================================================================
Directors Executives Directors Executives
====================================================================================
(Rupees `000)
====================================================================================
Balance at the beginning of the year 465 135,222 1,120 116,633
Disbursements - 195,360 92,565
Repayments (465) (204,577) (655) (73,976)
Balance at the end of the year - 126,005 465 135,222
====================================================================================7.2. Loans to staff are unsecured and are given for housing, purchase of motor cars / motorcycles and for other general purpose in accordance with the Company's policy and are repayable over a period of two to five years. Interest is charged on loans given for housing and purchase of motor cars at 1% per annum.The maximum aggregate amounts due from Chief Executive, Directors and Executives at the end of any month during the year were Nil (2009: Nil), Rs. 465 thousand (2009: Rs. 1,033 thousand) and Rs. 126,005 thousand (2009: Rs. 138,874 thousand) respectively. The loans to Directors represent key management personnel loans outstanding at year end. 8. LONG-TERM DEPOSITS AND PREPAYMENTS ==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Deposits 75,564 72,278
Prepayments 115,102 134,264
190,666 206,542
==========================================================================================9. LONG-TERM DEBTORS==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Long-term debtors 9.1 & 13 11,442 20,919
==========================================================================================9.1. These represent amounts due from customers in respect of which the Company has entered into agreements for recovery of outstanding balances over a period of 1 to 6 years.10. DEFERRED TAXATION � NET ==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
This is composed of the following:
Taxable temporary difference arising in respect of
- accelerated tax depreciation (748,048) (823,643)
- investment in associate (66,605) (43,581)
- assets subject to finance lease (45,872) (66,844)
Deductible temporary difference arising in respect of
- short-term provisions 410,416 481,365
- carry forward tax losses 10.1 2,438,707 2,773,292
- liabilities against assets subject to finance lease 4,752 14,209
1,993,350 2,334,798
==========================================================================================10.1. Deferred income tax asset is recognized for tax losses available for carry-forward to the extent that the realization of the related tax benefit through future taxable profits is probable. The aggregate unutilized tax losses as at December 31, 2010 amount to Rs. 7,296,481 thousand (2009: Rs. 7,923,691 thousand), out of which deferred income tax asset has been recognized on tax losses amounting to Rs. 6,967,734 (2009: Rs. 7,923,691) thousand, based on projections of future taxable profits of the Company.11. STORES AND SPARES ==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Stores 20,328 20,971
Spares 52 626
20,380 21,597
Less: Provision for obsolete stores (5,878) (5,878)
14,502 15,719
==========================================================================================12. STOCK-IN-TRADE==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Raw and packing materials 12.1 1,000,955 818,939
Finished products
In hand and in pipeline system 12.1 5,813,090 7,618,435
In White Oil Pipeline 12.2 & 12.3 5,542,310 4,651,123
11,355,400 12,269,558
Less: Provision for impairment 12.5 (7,917) (11,779)
11,347,483 12,257,779
12,348,438 13,076,718
==========================================================================================12.1. Includes, Rs. 797,375 thousand (2009: Rs. 143,019 thousand) in respect of stock-in-transit as at December 31, 2010.12.2. Stock in White Oil Pipeline includes 43,750 MT (2009: 55,750 MT) of High Speed Diesel which has been maintained as line fill necessary for the pipeline to operate. 12.3. Finished goods include depended inventory amounting to Rs. 4,892,863 thousand (2009: Rs. 3,743,318 thousand). 12.4. The above balance includes items costing Rs. 1,441,913 thousand (2009: Rs. 577,441 thousand) which have been valued at their net realizable value amounting to Rs. 1,426,142 thousand (2009: Rs. 564,386 thousand). 12.5. The movement in the provision for expired/obsolete stock is as follows: ==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Balance at beginning of the year 11,779 12,368
Add: Recognized during the year 7,917 9,547
Less: Reversed during the year (11,779) -
Less: Written-off during the year - (10,136)
Balance at end of the year 7,917 11,779
==========================================================================================13. TRADE DEBTS==========================================================================================
Note 2010 2010
==========================================================================================
(Rupees `000)
==========================================================================================
Considered good
- Secured 13.1 255,269 65,980
- Unsecured 13.2 1,769,531 1,194,152
2,024,800 1,260,132
Considered doubtful 671,389 655,172
Trade debts - gross 2,696,189 1,915,304
Less: Provision for impairment 13.3 (671,389) (655,172)
Trade debts - net 2,024,800 1,260,132
========================================================================================== The above trade debts are classified as follows:=============================================================================================
2010
=============================================================================================
Note Long-term Short-term Total
(note 9)
=============================================================================================
(Rupees `000)
=============================================================================================
Trade debts - gross 27,917 2,668,272 2,696,189
Less: Provision for impairment of trade debts 13.3 (16,475) (654,914) (671,389)
11,442 2,013,358 2,024,800
=============================================================================================
2009
=============================================================================================
Note Long-term Short-term Total
(note 9)
=============================================================================================
(Rupees `000)
=============================================================================================
Trade debts - gross 56,034 1,859,270 1,915,304
Less: Provision for impairment of trade debts 13.3 (35,115) (620,057) (655,172)
20,919 1,239,213 1,260,132
=============================================================================================13.1. These debts are secured by way of letters of credit, bank guarantees and security deposits.13.2. Amounts due from related parties, included in trade debts, are as follows: ==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Shell Aviation 101,235 185,338
==========================================================================================13.3. Provision for impairment==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Balance at the beginning of the year 655,172 816,100
Provision made during the year 32 173,712 124,907
Amounts reversed during the year 31 (79,571) (161,595)
Amounts written off during the year (77,924) (124,240)
Balance at the end of the year 671,389 655,172
==========================================================================================13.4. As at December 31, 2010, trade receivables aggregating to Rs. 525,770 thousand (2009: Rs. 904,135 thousand) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The ageing analysis of these trade receivables is as follows:==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Upto 1 month 386,394 508,314
1 to 6 months 69,409 265,643
More than 6 months 69,967 130,178
Balance at the end of the year 525,770 904,135
==========================================================================================13.5. As at December 31, 2010, trade receivables of Rs. 671,389 thousand (2009: Rs. 655,172 thousand) were impaired and provided for. The ageing of these receivables is as follows:==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
1 to 6 months 17,832 99,252
6 months and over 653,557 555,920
671,389 655,172
==========================================================================================14. LOANS AND ADVANCES - Considered good==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Current portion of long term loans
Due from
-Directors - 372
- Executives 48,759 52,975
- Employees 3,928 247
52,687 53,594
Advances to employees 23,500 6,689
76,187 60,283
==========================================================================================15. TRADE DEPOSITS AND SHORT-TERM PREPAYMENTS==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Balances with statutory authorities
- Customs duty - 65,239
- Excise duty - 3,133
- 68,372
Short-term prepayments 305,384 181,678
305,384 250,050
==========================================================================================16. OTHER RECEIVABLES==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Due from Government of Pakistan (GoP) on account of:
Petroleum development levy and other duties 16.1 2,143,552 1,392,797
Price differential claims
- on imported purchases 16.2 295,733 295,733
- on certain POL products 16.3 747,490 910,958
- on imported motor gasoline 16.4 1,991,916 878,128
Sales tax 3,823,001 1,993,702
Inland freight equalisation mechanism 98,796 98,796
9,100,488 5,570,114
Service cost receivable from related parties 16.5 129,604 80,890
Service cost receivable from associate company-PAPCO 3,495 3,263
Inland freight equalisation mechanism 383,104 287,530
Staff retirement benefit schemes 36.1.10 192,658 52,862
Mark-up receivable on short term deposits 2,955 864
Others 80,568 62,127
9,892,872 6,057,650
Less: Provision for impairment (206,006) (206,006)
9,686,866 5,851,644
==========================================================================================16.1. This includes Petroleum development levy recoverable amounting to Rs. 2,070,888 thousand (2009: Rs. 1,332,207 thousand) from the Federal Board of Revenue on account of export sales. The Company has not received any settlement against this receivable during the period and is actively pursuing the matter with the Federal Board of Revenue.16.2. This represents amount receivable on account of price differential on imports and the ex-refinery price on direct and retail sales during the period 1990-2002. 16.3. This represents price differential claims receivable from the Government of Pakistan (GoP). From time to time the GoP agrees to subsidise the petroleum prices by restricting the increase in prices of various petroleum products in order to reduce the burden of rising oil prices on the end consumers. 16.4. This represents price differential claims on account of import of motor gasoline by the Company, being the difference between their landed cost and ex-refinery prices announced by Oil and Gas Regulatory Authority (OGRA). In 2007, the Company as well as other oil marketing companies were asked in a meeting chaired by Director General Oil to import motor gasoline to meet the increasing local demand. Accordingly, oil marketing companies approached the Ministry of Petroleum and Natural Resources (MoPNR) with a proposal for pricing mechanism whereby end consumer price of motor gasoline was proposed to be fixed at weighted average of ex-refinery (import parity) price and landed cost of imported product. Although no response was received from the MoPNR, the Company along with another oil marketing company continued to import motor gasoline on behalf of the industry being confident that price differential on motor gasoline, will be settled as per previous practice i.e. based on the differential between ex-refinery and import cost at the time of filing of cargo with Customs, as imports were being made on MoPNR instructions. During 2009, oil marketing companies approached the MoPNR requesting an expeditious settlement of these claims. Further, the Company along with other affected oil marketing companies also approached MoPNR through letter dated July 23, 2009 requesting for an early settlement of these claims. On October 2, 2009, MoPNR requested that an audited claim be submitted to allow further consideration and resolution of the matter. In December 2009 and March 2010, audits covering the claims for the period October 2007 to September 2009 and October 2009 to December 2009 respectively were completed and the audit reports were forwarded to MoPNR as per their request. Further, on November 24, 2010 audit reports for the period upto July 31, 2010 were submitted by the Company to MoPNR as per their request. Subsequent to balance sheet date, the Company has received an amount of Rs. 454,000 thousand from GoP in respect of these claims. The Company along with other oil marketing companies and Oil Companies Advisory Committee (OCAC) continues to follow up this matter with MoPNR and is confident of recovering this amount in full. The receivable represents the Company's share of differential claim on shared import cargoes of motor gasoline. 16.5. Amounts due from related parties, included in other receivables, are as follows: ==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Shell International Petroleum Company Limited 14,037 31,144
Shell International Limited 17,054 4,994
Shell Netherlands BV 31,208 2,982
Shell Development & Offshore Pakistan 7,216 2,436
Shell Markets (Middle East) Limited 3,235 2,135
Shell Eastern Petroleum (Pte) Limited 16,024 2,132
Shell People Services UK - 1,071
Shell Marketing (Oman) 3,976 -
Shell Gas and Power International BV 7,108 756
Shell Polska Limited 4,239 -
Shell & Turcas Petrol A. S. 4,987 -
Others 20,520 33,240
129,604 80,890
==========================================================================================17. CASH AND BANK BALANCES==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Balances with banks
- current account 985,847 149,210
- savings account 17.1 43,903 695,109
1,029,750 844,319
Cash in hand 15,275 25,304
1,045,025 869,623
==========================================================================================17.1. Balances with banks carry interest at the rate of 5.5% (2009: 4.65% to 6.0%) per annum.18. SHARE CAPITAL 18.1. Authorised capital ============================================================================================
2010 2009 2010 2009
============================================================================================
(Number of shares) (Rupees `000)
============================================================================================
100,000,000 100,000,000 Ordinary shares of Rs. 10 each 100,000,000 100,000,000
============================================================================================18.2. Issued, subscribed and paid-up capital=======================================================================================================================
2010 2009
=======================================================================================================================
Issued as Total Issued as Total
Issued for bonus Issued for bonus
cash share cash share 2010 2009
=======================================================================================================================
(Number of shares) (Rupees `000)
=======================================================================================================================
23,481,000 - 23,481,000 23,481,000 - 23,481,000 Fully paid in cash 234,810 234,810
Issued as fully
- 45,006,913 45,006,913 - 45,006,913 45,006,913 paid bonus shares 450,070 450,070
23,481,000 45,006,913 68,487,913 23,481,000 45,006,913 68,487,913 Closing balance 684,880 684,880
=======================================================================================================================18.3. The Shell Petroleum Company Limited, United Kingdom (immediate parent), a subsidiary of Royal Dutch Shell Plc. (ultimate parent), held 52,123,970 (2009: 52,123,970) ordinary shares of Rs. 10 each at December 31, 2010.19. LIABILITIES AGAINST ASSETS SUBJECT TO FINANCE LEASE 19.1. The Company has entered into lease agreements with various leasing companies for lease of motor vehicles including transport vans. The liability under these agreements are payable by the year 2012 and is subject to finance charge at rates ranging from 12.75% to 19.84% (2009: 14.80% to 19.84%) per annum. An additional charge of 20% is also leviable on overdue rentals. 19.2. The Company intends to exercise its options to purchase the leased assets for Rs. 2,238 thousand (2009: Rs. 2,840 thousand) upon completion of the lease period. 19.3. The amount of future payments for the finance lease and the period in which these payments will become due are as follows: ==========================================================================================
2010 2009
==========================================================================================
Year (Rupees `000)
==========================================================================================
2010 - 40,146
2011 17,219 1,393
2012 1,266 696
2013 994 -
19,479 42,235
Less: Finance charge not due (1,267) (1,637)
Present value of minimum lease payments 18,212 40,598
Less: Current maturity shown under current liabilities (15,550) (38,808)
2,662 1,790
==========================================================================================20. ASSET RETIREMENT OBLIGATION ==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Balance at the beginning of the year 212,038 181,544
Liabilities settled - (2,419)
Reversal of liability 31 (32,651) -
Accretion expense 33 7,717 32,913
(24,934) 32,913
Balance at the end of the year 187,104 212,038
==========================================================================================21. TRADE AND OTHER PAYABLES==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Creditors 21.1 14,031,120 10,820,007
Oil marketing companies 7,607 2,105
Accrued liabilities 2,247,815 2,294,878
Excise and customs duties and development surcharge 106,586 23,341
Dealers' and cartage contractors' security deposits 21.2 407,129 331,481
Security deposits from customers 244,011 310,908
Provision for post retirement
Medical benefits 36.2.2 36,873 31,107
Workers' welfare fund 201,025 151,168
Workers' profit participation fund 21.3 4,193 9,909
Unclaimed dividends 112,639 96,813
Payable to the Earthquake Relief Fund 948 872
Advances received from customers 2,340,451 1,617,458
Other liabilities 21.4 196,153 280,949
19,936,550 15,970,996
==========================================================================================21.1. Amounts due to related parties at the year end aggregated to Rs. 7,792,990 thousand (2009: Rs. 3,538,649 thousand). Particulars of the amounts due to related parties are as follows:==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Pak-Arab Pipeline Company
Limited (Associated Company) 35,490 29,526
Shell International Petroleum Company Limited 3,772,932 1,679,684
Shell International Trading Middle East 2,345,283 861,930
Shell Lubricants Supply Company 946,061 190,568
Shell Brands International AG 292,086 453,493
Shell International BV 139,445 73,165
Shell Information Technology 111,242 86,476
Shell Business Service Centre 45,264 -
Shell International Ltd - SRES 39,809 72,808
Shell Shared Services (Asia) BV 15,150 2,233
Shell & Turks Petrol A. S. 12,141 4,446
Shell People Services Asia SDN BHD 9,475 8,727
Other related parties 28,612 75,593
7,792,990 3,538,649
==========================================================================================21.2. The security deposits are non-interest bearing and are refundable on termination of contracts.21.3. Workers' profit participation fund ==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Balance at the beginning of the year 9,909 (7,269)
Allocation for the year 32 131,476 209,906
141,385 202,637
Add: Amount received - 7,272
Less: Amount paid (137,192) (200,000)
Balance at the end of the year 4,193 9,909
==========================================================================================21.4. Other liabilities include Rs. 130,421 thousand (2009: Rs. 191,730 thousand) in respect.of termination benefits payable to employees under a staff redundancy.plan finalized during 2009. Termination benefits to be paid through post retirement benefit funds have.been accounted for in the funds valuation as disclosed in note 36 to the financial statements.22. ACCRUED MARK-UP ==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Mark-up accrued on:
- short term running finances utilised under
mark-up arrangements 54,576 62,057
- short term loans 31,774 137,981
86,350 200,038
==========================================================================================23. SHORT TERM RUNNING FINANCES UTILISED UNDER MARK-UP ARRANGEMENTS � Secured23.1. The facilities for short term running finances available from various banks aggregate to Rs. 19,890,000 thousand (2009: Rs 19,650,000 thousand). The rates of mark-up range from Re 0.3937 to Re 0.4485 per Rs 1,000 per day (2009: Re 0.3789 to Re 0.4383 per Rs 1,000 per day). The purchase prices are payable on various dates by October 31, 2011. These arrangements are secured by hypothecation of the Company's stock-in-trade, trade debts and other receivables. 24. SHORT TERM LOANS � Secured ==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Short term loans 24.1 8,400,000 3,500,000
Current maturity of long term loans - 2,500,000
8,400,000 6,000,000
==========================================================================================24.1. The above loans have been obtained from various banks and carry mark-up at rates ranging from 13.70% to 14.00% (2009: 13.04% to 15.70%) per annum. The loans are repayable by January 31, 2011. These loans are secured by hypothecation of the Company's stock-in-trade, trade debts and other receivables.25. CONTINGENCIES AND COMMITMENTS 25.1. Contingencies 25.1.1. Infrastructure fee The Sindh Finance Act 1994, prescribed the imposition of an infrastructure fee at the rate of 0.5% of the C&F value of all goods entering or leaving the province of Sindh via sea or air. The Company and several others challenged the levy in constitutional petitions before the High Court of Sindh. These petitions were dismissed as, during their tendency, the nature of the levy was changed by the Government of Sindh through an Ordinance. The Company and others therefore filed civil suits in the High Court of Sindh challenging the amending Ordinance. However, these suits were also dismissed in October 2003. All the plaintiffs preferred intra-court appeals against the dismissal. The intra-court appeals were decided by the High Court in September 2008 wherein it was held that the levy is valid and collectable only from December 12, 2006 onwards and not prior to this date. Being aggrieved by the said judgment, both the Company and the Government of Sindh filed separate appeals before the Supreme Court of Pakistan. The accumulated levy upto December 12, 2006 (held to be invalid by the High Court) amounts to Rs. 603,000 thousand and from then onwards upto December 31, 2010 amounts to Rs. 1,117,842 thousand (Total Rs. 1,720,842 thousand) (2009: Rs. 1,432,721 thousand). However, based on the legal advice obtained, no provision has been made in these financial statements against the levy as the Company's management expects a favourable outcome. 25.1.2. PARCO pipeline fill The Ministry of Petroleum and Natural Resources (MoPNR) has made a claim relating to the loan arranged by the Government of Pakistan (GoP) to the Company to finance the initial fill of the Pak-Arab Refinery Limited (PARCO) Pipeline. MoPNR has calculated the Company's liability by applying the price prevailing on August 11, 2000 to the quantity of fuel supplied at the time of initial fill. The Company maintains that its liability is limited only to the extent of Rs. 78,164 thousand (2009: Rs. 78,164 thousand) which is based on the price prevailing at the time of the initial fill and has been fully paid in March 2007. The claim, if calculated on the August 11, 2000 price as indicated by MoPNR, would amount to Rs.294,000 thousand. Based on legal advice obtained, the management is confident that its exposure in this respect amounted to Rs. 78,164 thousand and consequently no provision has been made for the additional demand raised by MoPNR. 25.1.3. Others The aggregate amount of other claims against the Company not acknowledged as debt as at December 31, 2010 amounted to approximately Rs. 1,921,096 thousand (2009: Rs. 1,777,315 thousand).This includes claims by refineries, amounting to Rs. 996,554 thousand (2009: Rs 991,566 thousand) in respect of delayed payment charges. The Company does not acknowledge the claim including for late payment charges as the delayed payment to refineries arose due to the liquidity crisis faced by oil marketing companies over the past few years caused by non-settlement of price differential claims by the Government of Pakistan. 25.2. Commitments a).Capital expenditure contracted for but not incurred as at December 31, 2010 amounted to approximately Rs.196,710 thousand (2009: Rs. 2,372,504 thousand). b).Commitments for rentals of assets under operating lease agreements as at December 31, 2010 amounted to Rs. 2,361,356 thousand (2009: Rs. 2,500,559 thousand) payable as follows: ==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Not later than one year 147,548 151,042
Later than one year and not later than five years 584,816 581,997
Later than five years 1,628,992 1,767,520
2,361,356 2,500,559
==========================================================================================c).Post-dated cheques have been deposited with the Collector of Customs Port Qasim and Karachi Port Trust in accordance with the Customs' Act 1969 as an indemnity to adequately discharge the liability for the duties and taxes leviable on imports, as required under the Finance Bill 2005. As at December 31, 2010 the value of these cheques amounts to Rs. 6,657,745 thousand (2009: Rs. 9,718,828 thousand). The maturity dates of these cheques extend to June 27, 2011 (2009: June 19, 2010).d).Letters of credit and bank guarantees outstanding as at December 31, 2010 amounts to Rs. 4,220,825 thousand (2009: Rs. 2,851,360 thousand). 26. SALES ==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Local sales 197,597,008 163,727,802
Export sales 27,313,827 14,652,914
Gross sales 224,910,835 178,380,716
Less: Trade discounts and rebates 1,097,243 1,270,508
223,813,592 177,110,208
==========================================================================================27. OTHER REVENUE==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Licence fee charged to dealers 406,520 486,980
==========================================================================================28. COST OF PRODUCTS SOLD==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Opening stock of raw and packing materials 818,939 881,871
Raw and packing materials purchased 6,117,414 4,819,071
Less: Closing stock of raw and packing materials 12 (1,000,955) (818,939)
Raw and packing materials consumed 5,935,398 4,882,003
Add: Manufacturing expenses 201,654 176,433
Cost of products manufactured 6,137,052 5,058,436
Non-fuel retail purchases - 5,943
Opening stock of finished products 12,257,779 8,122,434
Finished products purchased 153,358,681 107,202,694
Duties and levies 28.1 24,997,124 34,966,188
Less: Closing stock of finished products 12 (11,347,483) (12,257,779)
185,403,153 143,097,916
==========================================================================================28.1. Duties and levies==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Petroleum development levy 17,744,710 25,248,981
Carbon duty - 301,524
Customs and excise duty 1,886,442 4,903,360
Inland freight equalisation margin 5,321,917 4,346,010
Others 44,055 166,313
24,997,124 34,966,188
==========================================================================================29. DISTRIBUTION AND MARKETING EXPENSES==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Salaries, wages and benefits 29.1 1,160,149 902,672
Staff training 9,802 15,380
Stores and materials 44,271 44,988
Fuel and power 63,218 70,177
Rent, taxes and utilities 291,192 291,107
Repairs and maintenance 293,193 365,369
Insurance 91,791 79,660
Travelling 182,578 128,656
Advertising and publicity 185,485 401,551
Legal and professional charges 107,303 53,209
Communication and stationery 24,929 17,681
Computer expenses 21,050 18,806
Storage and other charges 98,529 29,364
Others 41,174 54,533
2,614,664 2,473,153
Less: Handling and storage charges recovered (30,968) (40,995)
Secondary transportation expenses 1,940,362 944,195
4,524,058 3,376,353
==========================================================================================29.1. Salaries, wages and benefits include Rs. 66,439 thousand (2009: Rs. 113,818 thousand) in respect of staff retirement benefits.30. ADMINISTRATIVE EXPENSES ==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Salaries, wages and benefits 30.1 556,974 708,272
Staff training 3,978 8,986
Stores and materials 19,088 189
Fuel and power 33,584 27,319
Rent, taxes and utilities 18,592 54,617
Repairs and maintenance 33,014 21,155
Insurance 5,278 4,781
Travelling 41,228 57,896
Advertising and publicity 2,419 22,311
Technical service fee 1,032,223 1,501,114
Trade marks and manifestations licence fee 183,880 157,969
Legal and professional charges 232,214 212,806
Communication and stationery 378,314 224,164
Computer expenses 187,717 121,968
Depreciation - tangible assets 4.2 777,417 724,888
Amortisation - intangible assets 5 189,795 6,286
3,695,715 3,854,721
Level Agreement Less: Costs recovered under
Service Level Agreement from related parties (15,910) (8,516)
3,679,805 3,846,205
==========================================================================================30.1. Salaries, wages and benefits include Rs. 29,898 thousand (2009: Rs. 125,372 thousand) in respect of staff retirement benefits and Rs. 105,276 thousand (2009: Rs. 191,730 thousand) in respect of termination benefits payable to employees under a staff redundancy plan finalized during the year.31. OTHER OPERATING INCOME ==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Income from financial assets / liabilities
Reversal of provision for impairment
of trade debts 13.3 79,571 161,595
Reversal of asset retirement obligation 20 32,651 -
Liabilities no longer payable written back 31.1 213,355 241,834
Mark-up on short-term deposits 52,471 30,380
Mark-up on delayed payments - 4,126
Income from non-financial assets
Sundries 149,400 54,066
527,448 492,001
==========================================================================================31.1. During the year, management conducted a detailed review of old outstanding liabilities. After due verification, liabilities not deemed as payable were written back in the profit and loss account.32. OTHER OPERATING EXPENSES ==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Workers' profit participation fund 21.3 131,476 209,906
Workers' welfare fund 49,961 78,200
Exchange loss 245,078 418,327
Provision for impairment of trade debts 13.3 173,712 124,907
Other receivables written off - 15,104
Provision for impairment of operating assets - 88,811
Auditors' remuneration 32.1 4,693 3,479
Loss on disposal of property, plant and equipment 4,052 11,814
Write off of operating assets 98,922 282,487
Donations 32.2 30,695 27,055
Others - 24,900
738,589 1,284,990
==========================================================================================32.1. Auditors remuneration==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Audit fee 2,700 2,300
Fee for substantiating Inland Freight Equalisation Margin 540 313
Audit of Provident, Pension, Gratuity
and Workers' profit participation funds 190 255
Special certifications and sundry advisory services 903 350
Out of pocket expenses 360 261
4,693 3,479
==========================================================================================32.2. Interest of the Directors or their spouses in the donations made.during the year is as follows:================================================================================================
2010 2009
================================================================================================
Name of Donee and address Names of interested Directors and (Rupees `000)
nature of interest
================================================================================================
Shell LiveWIRE Trust Mr. Zaiviji Ismail bin Abdullah - 2,000 2,000
(Shell House, 6 Ch. Chairman Board of Trustees
Khaliquzzaman Road, Mr. Yousuf Ali - Trustee
Karachi) Mr. Gary Fisher Trustee
Mr. Rafi H. Basheer - Trustee
The Layton Rahmatulla 3,000 3,000
Benevolent Trust Mr. Zaiviji Ismail bin Abdullah - Trustee
(37-C, Phase II, Sunset Mr. Farrokh K. Captain - Trustee
Lane No. 4, DHA, Karachi)
The Kidney Centre Post 6,000 1,000
Graduate Training Institute Mr. Zaiviji Ismail bin Abdullah
(172/R, Rafiqui Shaheed - Member, Board of Governors
Road, Karachi)
The Aga Khan University - 100
Hospital and Medical Mr. Zaiviji Ismail bin Abdullah - Member,
College Resource Development Committee
================================================================================================33. FINANCE COSTS==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Bank charges 186,790 118,341
Accretion expense 20 7,717 32,913
Mark-up on short-term running finances,
short-term loans and long-term loans 1,065,444 1,243,998
Finance charge on liabilities against assets
subject to finance lease 4,726 5,959
1,264,677 1,401,211
==========================================================================================34. TAXATION==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Current
- for the period 1,087,055 778,934
- for prior periods - (187,173)
Deferred 341,448 755,300
1,428,503 1,347,061
==========================================================================================34.1. Relationship between tax expense and accounting profit==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Accounting profit before taxation 3,044,085 3,910,009
Tax rate 35% 35%
Tax on accounting profit 1,065,430 1,368,503
Tax effect of lower tax on certain income of the Company (353,998) (510,892)
Tax impact on account of lower tax rate on
share of profit of associate (149,002) (106,146)
Current tax reversal in respect of prior years - (187,173)
Deferred tax charge in respect of prior years - 213,298
Minimum tax 751,011 568,179
Write-off of carry forward losses 115,062 -
Others - 1,292
Tax expense for the year 1,428,503 1,347,061
==========================================================================================35. EARNINGS PER SHARE35.1. Basic ==========================================================================================
2010 2009
==========================================================================================
Profit after taxation attributable to ordinary shareholders 1,615,582 2,562,948
No. of Shares
Weighted average number of ordinary
shares in issue during the year 68,487,913 68,487,913
==========================================================================================
Rupees
==========================================================================================
Earnings per share 23.59 37.42
==========================================================================================35.2. DilutedThere were no convertible potential ordinary shares in issue as at December 31, 2010 and December 31, 2009. 36. EMPLOYEE BENEFITS 36.1. Pension & Gratuity As mentioned in note 2.14, the Company operates funded gratuity and pension schemes for all its employees. Contributions are made to these schemes on the basis of actuarial recommendations. The latest actuarial valuation was carried out as at December 31, 2010. 36.1.1. Actuarial assumptions The following significant assumptions were used in the valuation of these schemes: ==========================================================================================
2010 2009
==========================================================================================
% per annum
==========================================================================================
- Expected per annum rate of increase in future salaries 12.00 10.60
- Discount rate 14.25 12.75
- Expected per annum rate of return on plan assets 14.25 12.75
==========================================================================================36.1.2. Balance.sheet reconciliation=================================================================================================================================================================
2010 2009
=================================================================================================================================================================
Note
=================================================================================================================================================================
Management Non-Management Total Management Non-Manageme Total
Pension Gratuity Pension Gratuity Pension Gratuity Pension Gratuity
=================================================================================================================================================================
(Rupees 000) (Rupees 000)
=================================================================================================================================================================
Fair value of plan assets 36.1.3 1,805,018 (22,202) 10,036 85,266 1,878,118 1,611,406 73,814 8,700 83,741 1,777,661
Less: Present value of
defined benefit obligation 36.1.4 (1,639,691) (312,376) (4) (61,081) (2,013,152) (1,504,137) (347,424) (4) (52,298) (1,903,863)
Surplus / (deficit) 165,327 (334,578) 10,032 24,185 (135,034) 107,269 (273,610) 8,696 31,443 (126,202)
Actuarial losses / (gains) to be
recognised in future periods
in accordance with the
Company's accounting policy 74,012 37,719 (285) (3,250) 108,196 102,808 67,778 - (10,794) 159,792
Asset / (liability) in respect of
staff retirement benefit schemes 239,339 (296,859) 9,747 20,935 (26,838) 210,077 (205,832) 8,696 20,649 33,590
=================================================================================================================================================================36.1.3. Movement in the fair value of plan assets==========================================================================================================================================================
2010 2009
==========================================================================================================================================================
Management Non-Management Total Management Non-Management Total
Pension Gratuity Pension Gratuity Pension Gratuity Pension Gratuity
==========================================================================================================================================================
(Rupees 000) (Rupees 000)
==========================================================================================================================================================
Fair value of plan assets at the
beginning of the year 1,611,406 73,814 8,700 83,741 1,777,661 1,334,453 59,856 6,620 59,551 1,460,480
Expected return on plan assets 176,140 1,900 1,051 9,747 188,838 199,363 5,695 1,008 10,319 216,385
Contribution by the Company 98,018 22,467 - 69 120,554 77,685 21,875-784 100,344
Contribution by the employees 11,772 - - - 11,772 11,319-11,319
Benefits paid during the year (115,583) (146,231) (3) (2,406) (264,223) (69,393) (36,356)- (2,406) (108,155)
Actuarial gains / (losses)
on plan assets 23,265 25,848 288 (5,885) 43,516 57,979 22,744 1,072 15,493 97,288
Fair value of plan assets at the
end of the year 1,805,018 (22,202) 10,036 85,266 1,878,118 1,611,406 73,814 8,700 83,741 1,777,661
==========================================================================================================================================================36.1.4. Movement in the present value of defined benefit obligation==========================================================================================================================================================
2010 2009
==========================================================================================================================================================
Management Non-Management Total Management Non-Management Total
Pension Gratuity Pension Gratuity Pension Gratuity Pension Gratuity
==========================================================================================================================================================
(Rupees 000) (Rupees 000)
==========================================================================================================================================================
Present value of obligation at the
beginning of the year 1,504,137 347,424 4 52,298 1,903,863 1,301,260 169,793 - 47,507 1,518,560
Current service cost 88,787 17,250 - 2,177 108,214 82,743 17,716 - 2,108 102,567
Interest cost 193,138 21,270 - 6,519 220,927 202,856 24,366 - 7,416 234,638
Benefits paid during the year (115,583) (146,231) (3) (2,406) (264,223) (69,393) (36,356) - (2,406) (108,155)
Past service cost - - - 1,970 1,970 - - - - -
Actuarial losses / (gains) on obli 8,045 7,633 3 523 16,204 99,893 663 4 (2,327) 98,233
Settlements - - - - - (9,606) 11,685 - - 2,079
Curtailments (38,833) 65,030 - - 26,197 (103,616) 159,557 - - 55,941
Present value of obligation
at the end of the year 1,639,691 312,376 4 61,081 2,013,152 1,504,137 347,424 4 52,298 1,903,863
==========================================================================================================================================================36.1.5. Amount recognized in the profit and loss account==========================================================================================================================================================
2010 2009
==========================================================================================================================================================
Management Non-Management Total Management Non-Management Total
Pension Gratuity Pension Gratuity Pension Gratuity Pension Gratuity
==========================================================================================================================================================
(Rupees 000) (Rupees 000)
==========================================================================================================================================================
Current service cost 88,787 17,250 - 2,177 108,214 82,743 17,716 - 2,108 102,567
Interest cost 193,138 21,270 - 6,519 220,927 202,856 24,366 - 7,416 234,638
Expected return on plan assets (176,140) (1,900) (1,051) (9,747) (188,838) (199,363) (5,695) (1,008) (10,319) (216,385)
Past service cost - - - 1,970 1,970 - - - - -
Settlement (loss)/gain - - - - - (9,606) 11,685 - - 2,079
Curtailment (loss)/gain (38,833) 65,030 - - 26,197 (103,616) 159,557 - - 55,941
Net actuarial gain/(loss)
recognised during the year 13,576 11,844 - (1,136) 24,284 10,775 24,767 41 764 36,347
Employee contributions (11,772) - - - (11,772) (11,319) - - - (11,319)
Expense/(reversal) for the
year 68,756 113,494 (1,051) (217) 180,982 (27,530) 232,396 (967) (31) 203,868
Actual return on plan assets 199,405 27,748 1,339 3,862 232,354 257,342 28,439 2,080 25,812 313,673
==========================================================================================================================================================36.1.6. Movement in the asset / (liability) recognized in the balance sheet==========================================================================================================================================================
2010 2009
==========================================================================================================================================================
Management Non-Management Total Management Non-Management Total
Pension Gratuity Pension Gratuity Pension Gratuity Pension Gratuity
==========================================================================================================================================================
(Rupees 000) (Rupees 000)
==========================================================================================================================================================
Balance at the beginning of year 210,077 (205,832) 8,696 20,649 33,590 104,862 4,689 7,729 19,834 137,114
Net (charge)/reversal for the year (68,756) (113,494) 1,051 217 (180,982) 27,530 (232,396) 967 31 (203,868)
Contributions by the Company 98,018 22,467 - 69 120,554 77,685 21,875-784 100,344
Asset/(liability) in respect of staff
retirement benefit schemes 239,339 (296,859) 9,747 20,935 (26,838) 210,077 (205,832) 8,696 20,649 33,590
Current account balance with funds 37,181 104,946 - - 142,127 (25) 18,402 - - 18,377
276,520 (191,913) 9,747 20,935 115,289 210,052 (187,430) 8,696 20,649 51,967
==========================================================================================================================================================36.1.7. Plan assets comprised of the following==========================================================================================================================================================
2010 2009
==========================================================================================================================================================
Management Non-Management Total Management Non-Management Total
Pension Gratuity Pension Gratuity Pension Gratuity Pension Gratuity
==========================================================================================================================================================
(Rupees 000) (Rupees 000)
==========================================================================================================================================================
PIB's, TFC's etc 970,792 38,898 5,958 40,344 1,055,992 982,672 47,572 7,746 67,410 1,105,400
Mutual Fund Units 141,346 43,033 697 11,413 196,489 132,576 40,091 681 11,930 185,278
Cash 730,061 813 3,381 33,509 767,764 496,158 4,556 273 4,401 505,388
Receivable and (payable) balances (37,181) (104,946) - - (142,127) - (18,405) - - (18,405)
1,805,018 (22,202) 10,036 85,266 1,878,118 1,611,406 73,814 8,700 83,741 1,777,661
==========================================================================================================================================================36.1.8. Expected contributions to the above schemes for the year ending December 31, 2011 is Rs. 133,000 thousand.36.1.9. The balances due from / payable to the funds are interest free and repayable on demand. 36.1.10 The break-up of balance receivable from staff retirement benefit schemes is: ==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Total balance receivable in respect of defined benefit schemes 115,289 51,967
Total balance receivable in respect
of defined contribution schemes 77,369 895
192,658 52,862
==========================================================================================36.2. Post retirement medical benefitsThe Company also provides post retirement medical benefits to its management staff. Actuarial valuation of the scheme is carried out annually. The amount recognized in the balance sheet is based on a valuation carried out as at the balance sheet date and is as follows: 36.2.1. Actuarial assumptions ==========================================================================================
2010 2009
==========================================================================================
(Peramum)
==========================================================================================
The following significant assumptions were used in the Valuation of this scheme:
- Discount rate 14.25 12.75
- Expected long-term rate of increase in medical cost 8.75 7.38
==========================================================================================36.2.2. Amount recognised in the balance sheet==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Present value of defined benefit obligation 58,302 53,814
Less: Fair value of plan assets - -
58,302 53,814
Actuarial losses to be recognised in future periods in accordance
with the Company's accounting policy (21,429) (22,707)
Liability recognised at the end of the year 36,873 31,107
==========================================================================================36.2.3. Movement in the liability recognised in the balance sheet==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Balance at the beginning of the year 31,107 29,287
Add: Charge for the year 10,387 6,003
Less: Payments during the year (4,621) (4,183)
Balance at the end of the year 36,873 31,107
==========================================================================================36.2.4. Amount recognised in the profit and loss account==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Current service cost 1,315 1,172
Interest cost 6,576 6,279
Settlement gain - (238)
Curtailment gain - (3,168)
Actuarial loss recognised during the year 2,496 1,958
10,387 6,003
==========================================================================================36.2.5. The effect of a 1% movement in the assumed medical cost trend rate is as follows:==========================================================================================
Increase Decrease
of 1% of 1%
==========================================================================================
Additional expense (Rupees `000)
==========================================================================================
- Effect on the aggregate of the current
service cost and interest cost for the year 1,306 1,033
- Effect on the defined benefit obligation at the end of the year 5,927 7,204
==========================================================================================36.3. Five year data on surplus / deficit of the plans and experience adjustmentsThe Company amortizes gains and losses over the expected remaining service of current plan members. The following table shows the total pension, gratuity and post retirement medical benefit obligation at the end of each year and the proportion thereof resulting from experience loss during the year, similarly, it shows the total pension and gratuity plan assets at the end of each year and the proportion thereof resulting from experience gain during the year. =========================================================================================================
December 31, December 31, December 31, June 30, June 30,
2010 2009 2008 2008 2007
=========================================================================================================
(Rupees `000)
=========================================================================================================
Present value of defined
benefit obligation 2,071,454 1,957,677 1,559,628 1,481,487 1,325,527
Fair value of plan assets 1,878,118 1,777,661 1,460,480 1,500,515 1,371,199
(Deficit) / surplus (193,336) (180,016) (99,148) 19,028 45,672
=========================================================================================================
(Percentage)
=========================================================================================================
Experience adjustments:
(Gain) / loss on obligation 1 (3) - 1 -
Gain / (loss) on plan assets (2) 5 (9) (2) 1
=========================================================================================================36.4. The value of investments made by the staff retirement funds operated by the Company as per their last audited financial statements are as follows:==========================================================================================
2009 2008
==========================================================================================
(Rupees `000)
==========================================================================================
Shell Pakistan Management Staff Provident Fund 499,357 384,818
Shell Pakistan Staff Provident Fund 3,691 3,300
Shell Pakistan Labour Provident Fund 90,981 80,913
Shell Pakistan Management Staff Gratuity Fund 76,386 60,521
Shell Pakistan Labour and Clerical Staff Gratuity Fund 82,029 69,753
Shell Pakistan Management Staff Pension Fund 1,570,307 1,279,781
Shell Pakistan Staff Pension Fund 8,197 5,867
2,330,948 1,884,953
==========================================================================================36.5. Aggregate amount charged in these financial statements in respect of the staff retirement benefit schemes are as follows:==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
- in respect of pension and gratuity schemes 180,982 203,868
- in respect of provident funds 32,224 29,319
- in respect of post retirement medical benefit scheme 10,387 6,003
223,593 239,190
==========================================================================================37. REMUNERATION OF CHIEF EXECUTIVE, DIRECTORS AND.EXECUTIVES=======================================================================================================
2010 2009
=======================================================================================================
Chief Directors Executives Chief Directors Executives
Executive Executive
=======================================================================================================
(Rupees 000) (Rupees 000)
=======================================================================================================
Short-term employee benefits
Managerial remuneration
(including bonus) 30,802 29,293 934,421 22,493 27,515 870,221
Housing:
- Rent 4,650 - - 4,200 - -
- Utilities 1,123 498 23,511 1,225 578 32,461
- Other items 72 144 6,900 1,928 175 6,265
Medical expenses 54 421 26,593 62 510 27,835
36,701 30,356 991,425 29,908 28,778 936,782
Post-employment benefits
Company's contribution to
pension, gratuity and - 4,210 119,037 - 3,497 106,436
provident fund
- - - - - 191,157
Termination benefits 36,701 34,566 1,110,462 29,908 32,275 1,234,375
Number of persons at year end 1 4 467 1 3 504
=======================================================================================================37.1. Aggregate amount charged in the financial statements for the year for fee to 5 Non-Executive Directors was Rs 1,080 thousand (2009: 7 Non-Executive Directors Rs 650 thousand).37.2. In addition, the Chief Executive, Executive Directors and some of the Executives were also provided with free use of Company maintained cars and the Chief Executive was also provided with company furnished accommodation. 38. RELATED PARTY TRANSACTIONS Significant transactions entered by the Company with related.parties are as follows: ==========================================================================================
Note 2010 2009
==========================================================================================
Nature of relationship Nature of transactions (Rupees `000)
==========================================================================================
Associate
Pak Arab Pipeline
Company Ltd. Pipeline charges 813,495 1,145,556
Contribution to staff
retirement benefit / Pension Fund 98,018 77,685
contribution fund Gratuity Fund 22,536 22,659
Provident Fund 30,353 29,469
Other related parties Purchases 88,527,179 62,306,713
Sales 38.1 1,113,071 1,954,661
Technical service
fee charged 38.2 1,032,223 1,501,114
Trade marks and manifestations
license fee charged 38.2 183,880 157,969
Computer expenses charged
(Global Infrastruture
Desktop charges) 38.3 146,482 76,668
ERP implementation charges 1,270,668 -
Expenses recovered from
related parties 352,075 202,463
Other expenses charged
by related parties 244,407 50,697
Legal charges 38 1,024
Gain on disposal of fixed
assets to key management personnel 1,705 1,768
==========================================================================================38.1. Technical services include advice and assistance to the Company in its operations. The fee for these services have been determined on the basis of an agreement between the Company and a related Shell Group Company based on an agreed methodology.38.2. Trade marks and manifestations licence fee and Global Infrastructure Desktop charges are based on the agreements entered into by the Company with Shell Group companies. 38.3. These represent charges in respect of implementation of Company's Enterprise Resource Planning (ERP) system as mentioned in note 5.2 to these financial statements. 38.4. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company directly or indirectly. The Company considers its Chief Executive and Executive Directors to be key management personnel. Particulars of transactions entered into with key management personnel are as per their terms of employment as are disclosed in note 4.4, 7 and 37 to these financial statements. 38.5. Transactions and outstanding balance in respect of the workers' profit participation fund are disclosed in note 21.3 to these financial statements. 38.6. Expenses recovered from / charged by related parties are based on actuals. The related outstanding balances have been disclosed in notes 13, 16 and 21 to these financial statements. 39. INFORMATION ABOUT PRODUCTS As described in note 1 to these financial statements the Company markets petroleum products and compressed natural gas. It also blends and markets various kinds of lubricating oils. Revenues from external customers for products of the Company are as follows: ==========================================================================================
2010 2009
==========================================================================================
Product (Rupees `000)
==========================================================================================
Motor Gasoline 44,716,399 34,221,863
High Speed Diesel 107,341,188 100,348,518
Jet Fuels 37,662,539 23,030,065
Lubricants 11,837,802 12,412,929
Others 22,255,664 7,096,833
223,813,592 177,110,208
==========================================================================================40. CASH GENERATED FROM OPERATIONS==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Profit before taxation 3,044,085 3,910,009
Adjustment for non-cash charges and other items:
Depreciation and amortization charge 988,971 749,717
Accretion expense in respect
of asset retirement obligation 33 7,717 32,913
Reversal of liability in respect
of asset retirement obligation 31 (32,651) -
Provision for impairment of trade debts 32 173,712 124,907
Reversal of provision for impairment of trade debts 31 (79,571) (161,595)
Provision for impairment of operating assets 32 - 88,811
Write off of operating assets 32 98,922 282,487
Loss on disposal of property, plant and equipment 32 4,052 11,814
Share of profit of associate (596,008) (424,585)
Mark-up on short term deposits 31 (52,471) (30,380)
Mark-up on short term running finances and loans 33 1,065,444 1,243,998
Finance charge on liabilities against
assets subject to finance lease 33 4,726 5,959
Working capital changes 40.1 (112,070) (177,901)
4,514,858 5,656,154
==========================================================================================40.1. Working capital changes==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Decrease / (increase) in current assets
Stores and spares 1,217 2,273
Stock-in-trade 728,280 (4,072,413)
Trade debts (886,926) 1,679,311
Loans and advances (15,904) (8,861)
Trade deposits and short term prepayments (55,334) 22,754
Other receivables (3,833,131) 1,829,114
(4,061,798) (547,822)
Increase in current liabilities
Trade and other payables 3,949,728 369,921
(112,070) (177,901)
==========================================================================================41. CASH AND CASH EQUIVALENTS==========================================================================================
Note 2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Cash and bank balances 17 1,045,025 869,623
Short term running finances utilized under mark-up
Arrangements (1,586,438) (2,453,001)
Short term loans 24 (8,400,000) (3,500,000)
(8,941,413) (5,083,378)
==========================================================================================42. FINANCIAL ASSETS AND LIABILITIES42.1. The Company's exposure to interest rate risk on its financial assets and liabilities as the balance sheet date are summarized as follows: =======================================================================================================================================================
2010
=======================================================================================================================================================
Interest / Mark-up bearing Non Interest / Mark-up bearing
Maturity Maturity Maturity Maturity
upto one after one Sub total upto one after one Sub total Total
year year year year
Financial assets
=======================================================================================================================================================
(Rupees '000)
=======================================================================================================================================================
Available-for-sale
Investments - - - - 5,000 5,000 5,000
Loans and receivables
Loans 51,664 76,359 128,023 1,023 1,026 2,049 130,072
- - - - 75,564 75,564 75,564
Deposits Trade debts - - - 2,013,358 11,442 2,024,800 2,024,800
Other receivables - - - 3,637,526 - 3,637,526 3,637,526
Cash and bank balances 43,903 - 43,903 1,001,122 - 1,001,122 1,045,025
95,567 76,359 171,926 6,653,029 93,032 6,746,061 6,917,987
Financial liabilities
Financial liabilities at amortised cost
Trade and other payables - - - 17,247,421 - 17,247,421 17,247,421
Accrued mark-up - - - 86,350 - 86,350 86,350
Liabilities against assets subjectto finance leases 2,662 15,550 18,212 - - - 18,212
Short term running finance utilised
Under mark-up arrangements 1,586,438 - 1,586,438 - - - 1,586,438
Short term loans 8,400,000 - 8,400,000 - - - 8,400,000
9,989,100 15,550 10,004,650 17,333,771 - 17,333,771 27,338,421
On balance sheet gap (9,893,533) 60,809 (9,832,724) (10,680,742) 93,032 (10,587,710) (20,420,434)
=======================================================================================================================================================
2009
=======================================================================================================================================================
Interest / Mark-up bearing Non Interest / Mark-up bearing
Maturity Maturity Maturity Maturity
upto one after one Sub total upto one after one Sub total Total
year year year year
=======================================================================================================================================================
(Rupees '000)
=======================================================================================================================================================
Financial assets
Available-for-sale
Investments - - - - 5,000 5,000 5,000
Loans and receivables
Loans 52,654 81,620 134,274 940 1,090 2,030 136,304
Deposits - - - - 72,278 72,278 72,278
Trade debts - - - 1,239,213 20,919 1,260,132 1,260,132
Other receivables - - - 2,522,154 - 2,522,154 2,522,154
Cash and bank balances 695,109 695,109 174,514 - 174,514 869,623
747,763 81,620 829,383 3,936,821 99,287 4,036,108 4,865,491
Financial liabilities
Financial liabilities at amortised cost
Trade and of the repayable - - - 14,138,013 - 14,138,013 14,138,013
Accrued mark-up - - - 200,038 - 200,038 200,038
Liabilities against assets subject
to finance lease 38,808 1,790 40,598 - - - 40,598
Short term running finance utilised
under mark-up arrangements 2,453,001 - 2,453,001 - - - 2,453,001
Short term loans 6,000,000 - 6,000,000 - - - 6,000,000
8,491,809 1,790 8,493,599 14,338,051 - 14,338,051 22,831,650
On balance sheet gap (7,744,046) 79,830 (7,664,216) (10,401,230) 99,287 (10,301,943) (17,966,159)
=======================================================================================================================================================The on balance sheet gap represents the net amounts of on-balance sheet items.The effective interest / mark-up rates for the monetary financial assets and liabilities are mentioned in the respective notes to the financial statements. 42.2. Financial risk management objectives and policies The Company's activities are exposed to a variety of financial risks namely credit risk, foreign exchange risk, interest rate risk and liquidity risk. The Company finances its operations through equity, borrowings and management of working capital with a view to maintaining an appropriate mix between various sources of finance to minimise risk and provide maximum return to shareholders. 42.2.1. Credit risk Credit risk represents the accounting loss that would be recognised at the reporting date if counter parties failed completely to perform as contracted. Credit risk arises from cash and cash equivalents and deposits with banks and financial institutions, as well as credit exposures to customers, including trade receivables and committed transactions. The maximum credit risk is equal to the carrying amount of financial assets. Out of the financial assets aggregating Rs. 6,917,987 thousand (2009: Rs. 4,865,491 thousand) the financial assets subject to credit risk amount to Rs. 6,902,712 thousand (2009: Rs. 4,840,187 thousand). For banks and financial institutions, only independently rated parties with a minimum rating of A are accepted. For trade receivables, internal risk assessment process determines the credit quality of the customer, taking into account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the management. The utilization of credit limits is regularly monitored. Concentrations of credit risk arise when a number of counterparties are engaged in similar business activities or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations of credit risk indicate the relative sensitivity of the Company's performance to developments affecting a particular industry. The most significant financial asset exposed to credit risk is the trade debts and other receivables of the Company. The utilization of credit limits is regularly monitored. The carrying values of financial assets which are neither past due nor impaired are as under: ==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Loans Deposits 130,072 136,304
75,564 72,278
Trade debts 1,499,030 355,997
Other receivables 3,637,526 2,522,154
Cash and bank balances 1,045,025 869,623
6,387,217 3,956,356
==========================================================================================The credit quality of receivables can be assessed with reference to their historical performance with no or some defaults in recent history, however, no losses. The credit quality of Company's bank balances can be assessed with reference to external credit ratings as follows:==========================================================================================
Bank Rating agency Rating
Short term Long term
==========================================================================================
National Bank of Pakistan JCR-VIS A1+ AAA
Standard Chartered Bank (Pakistan) Limited PACRA A1+ AAA
United Bank Limited JCR-VIS A1+ AA+
Habib Bank Limited JCR-VIS A1+ AA+
Allied Bank Limited PACRA A1+ AA
Askari Bank Limited PACRA A1+ AA
Faysal Bank Limited PACRA A1+ AA
MCB Bank Limited PACRA A1+ AA+
Citibank N.A. PACRA A1+ AA+
Deutsche Bank S&P A-1 A+
Bank of Tokyo Mitsubishi UFJ S&P A-1 A+A+
Limited Pakistan S&P A-1 A+
The Hongkong and Shanghai
Banking Corporation Limited Moody's P-1 Aa3
==========================================================================================42.2.2. Market riskMarket risk is the risk that the value of the financial instruments may fluctuate as a result of changes in market interest rates, foreign exchange rate or the equity prices due to a change in credit rating of the issuer or the instrument, change in market sentiments, speculative activities, supply and demand of securities and liquidity in the market. i).Currency risk Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Foreign currency risk arises mainly where payables exist due to imports of goods and transactions with foreign related parties as well as trade receivables from foreign related parties. The Company obtains forward exchange cover, where necessary and permissible, to hedge foreign currency exposure. The Company primarily has foreign currency exposures in US Dollar (USD), Pounds (GBP) and EURO (EUR). As at December 31, 2010, had the exchange rates of USD, GBP and EUR appreciated or depreciated against the currency with all other variables held constant, the change in post-tax profit would have been as follows: ==========================================================================================
2010 2009
==========================================================================================
Currency Profit
% Rs. 000 % Rs. 000
==========================================================================================
USD lower/higher 10% 424,607 10% 279,356
GBP lower/higher 10% 82,785 10% 14,382
EUR lower/higher 10% 8,848 10% -
========================================================================================== ii).Interest rate riskInterest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. As the Company has no significant interest-bearing assets, the Company's income and operating cash flows are substantially independent of changes in market interest rates. The Company's interest rate risk arises from short-term loans and running finance facilities. Loans and running finance obtained at variable rates expose the Company to cash flow interest rate risk. The Company analyses its interest rate exposure on a regular basis by monitoring existing facilities against prevailing market interest rates and taking into account various other financing options available. At December 31, 2010, if interest rates on Company's borrowings had been 1% higher/lower with all other variables held constant, post tax profit for the year would have been lower/higher by Rs. 64,912 thousand (2009: Rs. 54,945 thousand) mainly as a result of higher/lower interest exposure on variable rate borrowings. iii).Price risk Price risk represents the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in market prices (other then those arising from currency risk or interest rate risk), whether those changes are caused by factors specific to the individual financial instruments or its issuer or factors affecting all similar financial instruments traded in the market. The Company is not exposed to equity securities price risk as currently the Company has no investments in listed securities. 42.2.3. Liquidity risk Liquidity risk is the risk that an enterprise will encounter difficulties in raising funds to meet commitments associated with financial instruments. Through its treasury function, the Company continually monitors its liquidity position and ensures availability of funds by maintaining flexibility in funding by keeping committed credit lines available. The maturity profile of the Company's liabilities based on contractual maturities is disclosed in note 42.1 to these financial statements. 42.3. Capital Risk Management The Company's prime objective when managing capital is to safeguard its ability to contin.ue as a going concern in order to provide adequate returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in the industry, the Company monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings less cash and bank balances. Total capital is calculated as equity as shown in the balance sheet plus net debt. ==========================================================================================
2010 2009
==========================================================================================
(Rupees `000)
==========================================================================================
Total borrowings 10,004,650 8,493,599
Less: Cash and bank balances (1,045,025) (869,623)
Net Debt 8,959,625 7,623,976
Total Equity 7,372,035 8,270,603
Total Capital 16,331,660 15,894,579
Gearing Ratio 54.86% 47.97%
==========================================================================================42.4. Fair value of financial instrumentsThe carrying value of financial instruments reflected in the financial statements approximate their fair values. 43. NON-ADJUSTING EVENT AFTER THE BALANCE SHEET DATE Subsequent to the year end, the Board of Directors of the Company in their meeting held on March 3, 2011have proposed a final cash dividend of Rs. 8.00 per share (80%) (2009 Rs. 25 per share). This is in addition to the interim cash dividend of Rs. 4.00 per share (40%) (2009 Rs 8 per share) resulting in a total cash dividend for the year of Rs.12 per share (2009 Rs. 33 per share) amounting to Rs. 821,856 thousand (2009 Rs. 2,260,101 thousand). The approval of the members for final cash dividend will be obtained in the Annual General Meeting to be held on April 4, 2011. The financial statements for the year ended December 31, 2010 do not include the effect of these appropriations which will be accounted for in the financial statements for the year ending December 31, 2011. 44. CORRESPONDING FIGURES Corresponding figures have been rearranged and reclassified, wherever necessary, for the purpose of comparison. For better presentation following significant reclassification changes have been made during the year: =================================================================================================
Description Head of account of the Head of account of the Rupees '000
financial statements for financial statements for
the year ended the year ended
December 31, 2009 December 31, 2010
=================================================================================================
Operating fixed assets Fixed assets Property, plant & equipment 6,283,879
Capital work-in-progress Fixed assets Property, plant & equipment
Intangible assets Fixed assets Intangible assets 740,908
289,573
=================================================================================================45. GENERALFigures have been rounded off to the nearest thousand. 46. DATE OF AUTHORISATION These financial statements were authorised for issue on March 3, 2011 by the Board of Directors of the Company. |