BOSICOR PAKISTAN LIMITED – Analysis of Financial Statements Financial Year 2004 – 2001 Q 2010

OVERVIEW (January 08 2010): Bosicor Pakistan was incorporated on 9th January 1995 as a public limited company and is listed on all the three stock exchanges of the country. At the time of its inception, the company aimed to operate in the chemical, petroleum/petro-chemical and energy sectors. Bosicor Pakistan started its commercial operations in 2004. It completed its first turnaround on 15th August 2005 after starting the trial operation in November 2003.

The trial operations started with a capacity of 8,000 barrels per day, which was subsequently increased to 18,000 barrels per day. BPL operates a refining facility at Mouza Kund Plant (MKP1), at Mouza Kund in Balochistan.

Bosicor Corporation Limited (BCL) and Abraaj Capital Limited (ACL), (a premier investment firm with specialized experience in private equity investments in the Middle East, North Africa and South Asia (MENASA) region and having executed some of the most compelling and successful transactions in the history of leveraged acquisitions across the region), have joined hands, in 2008, for further expansion of Bosicor ventures in refining and petrochemicals by putting up concurrently our country’s largest refinery and petrochemicals complex.

These projects are being developed in Bosicor Chemicals Pakistan Limited (BCPL), (an under construction Aromatic Complex of 17,100 bpd), and Bosicor Oil Pakistan Limited (BOPL), (an under construction refinery of 115,000 bpd), from the ownership platform of Byco Industries Inc (BII), a joint venture company owned 60% by BCL and 40% by ACL.

This venture has resulted in availability of additional foreign investment of US $135 million in Pakistan. Through the new venture, Abraaj will bring international reputation and foreign currency equity funds for timely completion of the ongoing projects. While Bosicor, in addition to its share in equity, will also contribute its expertise in oil refining, petrochemicals/marketing sector making a combination which will add value in improving the pace of delivery of the growth plan and polishing performance skills.


The refinery industry has been affected negatively by lower gross margins, and the fact that they are not allowed to hedge against negative foreign exchange movements. Bosicor has suffered an operating loss of Rs 360 million. The financial charges in this quarter were over Rs 500 million and Rs 212 million being incurred on account of exchange losses. This has resulted in a loss after tax of Rs 1,065 million during the quarter under review on net sales of Rs 10,016 million as compared to a loss after tax of Rs 2,506 million from net sales amounting to Rs 19,764 million during the corresponding quarter last year.

However, the loss is lesser in 1Q10 because in 1Q09 the exchange losses were tremendous at Rs 1730 million. During the quarter ended September 30, 2009 Bosicor incurred net loss after tax of Rs 1.065 billion and as of that date it has accumulated losses of Rs 11.614 billion (June 30, 2009: Rs 10.597 billion) have resulted in net capital deficiency of Rs 7.693 billion and excess of current liabilities over current assets of Rs 8.896 billion (June 30, 2009: Rs 6.385 billion).


FY09 was one of the most turbulent years in the history of oil refining. The price of crude oil rose to its highest level, and then crashed, as the world economy collapsed due to the banking crisis. It was an extremely difficult time for the refining sector to operate profitably while maintaining commitments to supply the Pakistan fuels market. The global downturn reduced demand for motor fuel products worldwide resulting in depressed refining margins.

During this period there has been a reduction in Diesel demand in the Country, as the transportation sector has witnessed a decline. During this period the company has balanced the throughput of the refinery in order to minimize its losses while maintaining minimal committed volumes to its customers. This has resulted in using less of the refinery capacity than planned.

The company has started getting limited quantity of local crude and has successfully blended it with imported crude oil while retaining product quality and yields. This has not only reduced the refinery’s exposure on currency fluctuations but also reduced the demand for foreign exchange. The company is seeking to increase its allocation of local crude oil and condensate. Good maintenance and operations ensured 100% availability of the 30,000 barrels per day (BPD) crude oil processing capacity at the Oil Refining Business (ORB).

Other improvements included lower fuel and water usage, increased LPG recovery and further enhancement in the recovery of HSD, while maintaining operating costs below the budget. While the immediate outlook of the refining sector, both internationally and locally is not conducive to further investments, the company is completing studies to increase the processing capacity above 35,000 BPD, to implement as the trading scenario changes for the better.

The Petroleum Marketing Business (PMB) formerly known as Oil Marketing Unit has been re-launched with a new vision. The business, which has developed progressively during the last two years, is now growing aggressively. The business after developing 50 retail outlets since its inception and primarily focusing on retail segment is now expanding the canvas by targeting to become a dominant player in the industrial, international and retail segments. Going forward, PMB will be increasing its product portfolio by adding LPG and lubricants as well.


The year 2008-09 has witnessed tremendous variations in crude oil prices. The price of Iranian light crude oil per barrel varied between US $39.81 to US $134.39 and Arabian light crude oil varied between US $39.51 to US $134.09 during the financial year mainly due to an economic downturn emanating mostly from a collapse of demand in the United States and a recession in various world economies. Furthermore, weakening of rupee against the dollar resulted in heavy exchange losses. The volatility of crude oil prices and the steep fall in the value of Pak rupee versus the US dollar during the year is depicted more vividly in following graphs:

The crude throughput after revamp remained higher than that of the prior period whereas it was low compared to the installed capacity. The crude oil processed during the financial year came to 7.037 million barrels as compared to 6.188 million barrels processed during last financial year. The refinery is still confronted with logistics challenges relating to its crude oil deliveries from the terminal at Port Qasim to the site as well as shipments from the refinery to its customers. Both of these operations are carried out through Bowzers/tank lorries, which remained subject to a significant variations on account of tanker/transporters strikes due to hike in diesel prices by the government. This has negatively affected the crude oil throughputs and resultantly, petroleum dispatches at various occasions during the year under review.

The company has achieved gross sales of Rs 54.77 billion and net sales of Rs 44.62 billion during the year as compared to the gross and net sales of Rs 40.09 billion and Rs 35.81 billion respectively for the last year. During the year, the company’s net loss after tax was Rs 10.333 billion as compared to a profit after tax of Rs 15.121 million in the previous year. The loss after tax for 2008-09 has arisen primarily due to exchange losses of Rs 4.4 billion, an operating loss of Rs 4.5 billion and financial charges of Rs 1.78 billion. The company’s performance has been adversely impacted mainly due to highly depressed refining margins, depletion in the value of Pak rupee and liquidity issues resulting from the country’s circular debt problem.

The crude oil processing remained depressed during the year, as the refinery operations were affected in December to February period due to free fall of both crude oil prices and the Pak rupee. Also, the last financial quarter saw unprecedented reduction in margin of HSD over crude oil, thus resulting in negative Gross Refiners’ Margin (GRM) over and above inventory losses. In order to minimize losses, the refinery was operated at minimal throughput levels during negative GRM spells. Also, a financial restructuring package was executed between the company and eight of the leading banks of Pakistan and a Letter of Credit Syndicate was finalized and executed on 28th February 2009.

Due to unprecedented losses incurred during the year, the company faced severe constraints in meeting its financial obligations on due dates and reasonably managed over-dues through tight cash flow monitoring. At this crucial phase, the Company’s Sponsoring Shareholders again showed commitment and endorsed the financial plan prepared by the Management of the Company and arranged financial support amounting to Rs 4.2 billion. This enabled the Company to partially meet the required funding gap from the losses. In addition, the Company has successfully executed long term financing arrangement with a consortium of nine leading banks for Syndicated Term Finance Facility of Rs 5.573 billion to streamline the remaining gap.

Despite the heavy losses, the company was able to bring valuable foreign exchange of 72 million dollars through export of HSD, PMG and naphtha. In addition to this, the company was able to save substantial amount of foreign exchange through import substitution by using local/indigenous crude amounting to 32 million dollars. During the year, actual production in 308 stream/working days was 84.61% of the total 364 planned days. The plant remained shut down for 56 days in period between Dec-Mar, 2009 due to non-availability of crude oil. The average production was 22,848 barrels per day against the optimum planned capacity of 30,000 barrels per day.

PRODUCTION AND CONSUMPTION Bosicor Pakistan Limited’s activities in Pakistan are primarily based on the production and sale of petroleum products The range of products include: light straight run naphtha, liquid petroleum gas (LPG), heavy naphtha, kerosene, motor spirits, high octane blending component, aviation fuels 1 and 4, high speed diesel and furnace oil. The company has a long-term sale and purchase agreement with Pakistan State Oil for marketing of its products.

Share of the petroleum products is about 40 percent of the current energy consumption in Pakistan. This consumption has grown sharply during 1980s at rate of almost 7 percent per annum but it has shown a decreasing trend during 1990s and later it gained the pace during 2004-2005 at about 10 percent per annum. Oil consumption in different energy products is dominated by gasoline and fuel oil. Gasoline in Pakistan consists of high-speed diesel (HSD) and light speed diesel oil (LSDO), while fuel oil is normally used in terms of furnace oil, which is being used, for thermal power generation projects.

Transport and agricultural sectors are the major users of gasoline. Transport sector includes both private and commercial types. In the recent years, a big amount of subsidy was being provided by the government of Pakistan on gasoline due to which, its consumption has increased. But in 2007, increase in oil prices in international market affected the Pakistan economy due to which government has gradually reduced the subsidy levels; as a result, gasoline prices are increasing locally also and affecting the consumption. Secondly, the government is promoting the compressed natural gas (CNG) sector in Pakistan and both encouraging and forcing the transport sector to convert their vehicles to CNG.

This indicates that in the coming years, Pakistan will see reduced consumption of gasoline products. But there is no alternative of gasoline in agriculture sector and as a result, this sector is facing extreme difficulties due to rise of gasoline prices. Furnace oil or fuel oil is normally used for production of electricity via thermal power plants. At the moment, the country is facing extreme energy crisis and government is planning for short-term power generation plants that are oil-based and also encouraging independent power producers to invest in the country. As all the new thermal power plants are oil-based and also the country has now very limited natural gas resources the consumption of furnace oil will also increase in the coming years.

CAPACITY The crude oil distillation revamp project was successfully completed in February 2008 and this raised the production capacity of the company. The project installed a new crude furnace, a pre-flash column, heat exchangers and new pumps at the refinery shutdown in 2007. Now the refinery has a designed capacity of 1.5 million tons per annum and a total production capacity of 30,000 bpd, making it the fifth largest refinery in the sector.

The company is currently working on a project that involves the production of two new tanks for crude oil and nine new tanks for products at a cost of approximately Rs 900 million. The two crude tanks will be the largest of their type in Pakistan and will have a combined capacity of 126,000 tons. The tanks will be completed to receive crude oil from large tankers discharging from the new SPM that is being developed in cooperation with Coastal Refinery limited in 2008.

The medium term objectives of the company are aimed at infrastructure development, which will promote the company towards self-reliance in the supply chain. The company has made investment in a single point mooring to improve freight economy. In the longer term, ie 2009-10, the company will add an isomerisation plant for converting and upgrading light naphtha into environmentally friendly motor gasoline. The gasoline obtained from isomerization can be exported to neighbouring countries at higher rates than naphtha or consumed in the local market with environmental advantages. This will add to the profitability of the company.


The improved profitability position of Bosicor Pakistan Limited took a drastic U-turn in FY09 on the face of adverse conditions that plagued the entire refinery sector. The company has achieved gross sales of Rs 54.77 billion and net sales of Rs 44.62 billion during the year as compared to the gross and net sales of Rs 40.09 billion and Rs 35.81 billion respectively for the last year. Hence gross sales increased by 36.6% and net sales increased by 24.6%. The preceding graph illustrates that the sales performance picked up in the FY09. Local and international sales registered an increase of 36.7% and 35.6% respectively.

These positive trends were set off by the high sales tax and excise duty and Petroleum Development Levy, augmenting the pressure by the already high operating and financial charges. During the year, the company’s net loss after tax was Rs 10.333 billion as compared to a profit after tax of Rs 15.121 million in the previous year. The loss after taxation for 2008-09 has arisen primarily due to exchange losses of Rs 4.4 billion (increased by 248%), an operating loss of Rs 4.5 billion (FY08: Rs 1.7 million) and financial charges of Rs 1.78 billion (increased by 258%). Administrative expenses and selling and distribution expenses rose considerably by around 66.8% and 38.8% respectively.

The company’s performance has been adversely impacted mainly due to highly depressed refining margins, depletion in the value of Pak rupee and liquidity issues resulting from the country’s circular debt problem. This has contributed towards the negative margins earned by the company. Return on assets took a negative dip, though total assets reduced only slightly by 1.38%. Return on equity could not be accurately measured by traditional methods because the negative post tax profit exceeded the available equity and hence totaled to a negative amount of Rs (6.7) billion in FY09 as opposed to Rs 3.5 billion in FY08.

This condition indicates the existence of material uncertainty, which may cast significant doubt about company’s ability to continue as going concern. The financial statements have been prepared using going concern assumption, as the management is confident that all these conditions are temporary, not permanent and would reverse in foreseeable future. During the period under consideration the company successfully finalized the letter of credit facility of Rs 12.300 billion with consortium of banks which enabled the company to ensure adequate supplies of crude oil to the refinery.

The company is also in process to enhance its existing letter of credits limit to Rs 20 billion, which will enable the company to operate at the full refining capacity. The company has also been able to convert its existing outstanding letter of credits amounting to Rs 5.753 billion into long-term loan, which had a positive effect on cash flows of the company. Further, the company’s ability to arrange funds from sponsors/associates when required is yet another positive indicator. Accordingly the sponsors have further agreed to provide funds up to Rs 1 billion by the end of upcoming financial year.

Apart from the refinery operations the company is also targeting its Petroleum Marketing Business which has visibly improved company’s market position in the oil marketing sector and has also enabled the company to diversify its revenue stream. Further the company’s projects in progress like Isomerization Plant, which is expected to commence its operations from the third quarter of 2010, will enable the company to process naphtha, which will ultimately increase the profit margins of the company, and single buoy mooring will reduce the crude/product transportation costs.

Furthermore, the offer to purchase of the Company’s share pursuant to the Listed Companies (Substantial Acquisition of Voting Shares and Takeovers) Ordinance, 2002 has been made subsequent to balance sheet date due to the finalization of an arrangement with Abraaj Capital Limited. Addition of Abraaj as Sponsor of the company along with Bosicor Corporation Ltd, shall substantially add to financial strength and enhance strong shareholder’s support to the company. All these steps contribute towards favorable conditions and mitigate the risks involved, therefore, the preparation of financial statements using the going concern assumption is justified.

The exchange difference arises due to translation of foreign currency liabilities of crude oil and increased to such a great extent due to the depreciation of Pak rupee against the US dollar, especially in the 4th quarter of FY08. Bosicor has been procuring crude oil and arranged for deferred payments without any assistance from the government. This arrangement has cost the company heavily because of the exchange rate depreciation. The company has not received any cover on exchange differential from the government. Pakistani refineries are exposed to exchange rate risks but the government does not provide any mechanism for making future contracts to hedge the risk of unprecedented exchange rate movements on oil imports.


Bosicor Pakistan has not performed well compared to its peers in terms of inventory management. During FY05-FY08, the inventory turnover (days) of the company has been longer than the industry average. In FY09 the asset management ratios show a mixed trend. Inventory turnover reduced significantly from 120 days to 36 days. This is understandable as sales figures have inclined upwards in the same year. The improved ability of the company shows hopeful signs of economic activity despite overall depressed scenario in the country.

Day sales outstanding unfortunately has continued the upward climb going from 32 days in FY08 to 73 days in FY09. This illustrates that BOSICOR Pakistan relatively less efficient in recovering cash from its sales. There was approximately 182% increase in the company’s trade debts/accounts receivables for the period. The high DSO and a considerably reduced inventory turnover results in a smaller operating cycle of 110 days (FY08: 152 days). The asset management capacity as measured by the total asset turnover and sales to equity also tarried below average for all periods.

The sales to equity of the company, which had an upward trend since FY06, fell drastically in FY09. This shows that the company has not been able to generate enough business or sales given its equity base and asset investments. Hence BP is relatively inefficient in managing its assets. It’s worth remembering here that in FY09 Bosicor has recorded a negative equity, which makes it difficult to make conclusive analysis on the company’s asset management abilities.


During FY09, Bosicor Pakistan’s debt to asset and debt to equity ratios registered movements in opposite directions. The company’s total liabilities increased by 26.9% owing to unsecured loans acquired from associated undertakings and also acquisition of new secured long-term loans, including the Syndicated Term Finance of Rs 5.7 billion. This has contributed towards an increase in Debt to Asset ratio to 108% in FY09 from 84% in FY08. The debt to equity ratio has on average remained higher than the other listed refineries. In FY09 the same ratio is negative due to negative equity hence conclusive trend can’t be deduced.

The non-current liabilities decreased by 9.6% in FY09. Short-term borrowings have reduced 78% and trade payables have shrunken 13.9%. The Times Interest Earned (TIE) had dropped slightly in the FY06, compared to the FY05, largely as a result of the mark up on the mounting loans. In the FY07, BOSICOR Pakistan incurred losses even at the gross profit level hence the finance charges led to a further deterioration of the situation.

This did not bode well for the company and raised doubts about the company’s debt financing abilities. However, the situation became better in FY08 as higher sales resulted in higher operating profit for the company. In FY09 this ratio plunged to a dangerous low as the company recorded an operating loss for the year, eroding the company’s ability to cover its financial obligations.


The current ratio of Bosicor Pakistan has declined gradually from FY07 and has taken a deeper plunge in FY09. The ratio has hovered slightly below the industry for the period, indicating the company’s weaker standing in this area. In FY08 the company’s liquidity position went down largely due to a substantial increase in the current liabilities with respect to current assets of the company. In FY09 the current assets reduced by 28% whereas the current liabilities reduced by only 9.6%. This means that the lesser current assets are available to meet the liabilities maturing within one year.

Inventory constitutes 26.8% of total current assets in FY09 relative to 50.9% in FY08. The reduced stock in trade is in line with the increased inventory turnover. However this is not matched by corresponding cash balance rather there has been 73.7% decline in cash balance and 182% increase in receivables. The company’s share prices have fluctuated during the period from Jul 06 to Jun 08. However, the share price has shown a slight downward trend in 2009.


The future energy consumption poses a challenge for the country, mainly because of the projected increase reliance on foreign sources of supplies for crude. Such dependence means that the profitability of the refinery is closely inter-linked with the international petroleum products and crude oil prices, which is subject to more fluctuations.

============================================================== Crude 2007 2010 2015 ============================================================== Million Tons Per Annum ============================================================== Processing Capacity 12.61 22.45 * 33.63** Indigenous Supply of crude 3.86 4.8 4.8 Import Requirement 8.75 17.65 28.83 ============================================================== * Assumes planned refineries (Indus & Bosicor) are operational ** Assumes planned Coastal Refinery is operational ==============================================================

The revision of the Pricing Formula by the Government is not in the interest of the Refinery. The reduction in the deemed duty has been a blow to the profitability, the situation being further augmented by the depreciation of Pak rupee against the US dollar. Issuance of Rs 85bn TFC for the clearance of circular debt has failed to bore desire result in the elimination of the liquidity crunch for the sector.

Of the total disbursed amount, the refinery sector received only Rs 21bn of which Rs 19bn was allocated to Parco (which was adjusted against payable to the GoP) while the residual was disbursed to PRL and BOSI. Whereas the other two listed refineries, NRL and ATRL reaped little fruits of the disbursement.

The coming year is expected to be more stable for the refining industry, in terms of commodity price movements but the outlook for refinery margins will remain poor until motor fuel demand rises sufficiently to fill the available refining capacity. New refining capacity has come on-stream in the Indo-Pak subcontinent, Middle East, China and Vietnam that will delay the recovery in margins. All of the incremental growth in demand is expected to be in developing countries including Pakistan where economic growth is expected to continue. Hence, the Refinery will continue to operate at throughput levels that optimises profitability.

=============================================================================================== Rupees in million =============================================================================================== 2009 2008 2007 2006 2005 2004 =============================================================================================== INVESTOR INFORMATION ———————————————————————————————– Share capital 3,921 3,921 2,451 2,451 2,451 1,750 Shareholders Equity (6,676) 3,529 2,013 2,759 2,562 – Property plant and equipment 14,779 8,565 6,388 3,719 3,274 3,148 Intangible Assets 7 11 14 18 6 – Long Term Deposits & Deferred Cost 57 46 17 5 90 14 Long term investment – – 300 – 29 Trade debts 9,090 3,218 1,079 1,107 888 924 Stock in trade 4,488 11,934 5,177 3,909 1,812 924 Total Current Assets 16,744 23,440 8,524 7,376 3,506 2.001 Total Current Liabilities 23,129 25,592 8,470 6,870 3,472 1.957 Working Capital (6,385) (2,152) 54 506 34 6 Short term borrowings 218 1,000 249 600 761 142 Current Portion of Long Term Liabilities 1,443 606 610 290 54 38 Non Current Liabilities 11,080 1,359 1,723 1,036 842 1,417 Sponsors Loan 4,023 170 – 453 – 600 ———————————————————————————————– PROFIT & LOSS ACCOUNT ———————————————————————————————– Net Sales 44,621 35,806 19,329 17,929 9,999 Cost of Sales 48,530 33,564 19,401 17,304 9,607 Gross Profit / (Loss) (3,909) 2,142 (72) 625 391 Operating (Loss)/Profit (4,504) 1,762 (269) 502 295 Financial Expenses 6,160 1,755 406 286 106 Profit/(Loss) Before Tax (10,327) 184 (628) 301 182 Profit/(Loss) After Tax (10,333) 15 (681) 197 111 (Loss)/ Earning Per Share Rs 10 / share (26.35) 0.04 (2.37) 0.80 0.48 ———————————————————————————————– PERFORMANCE RESULTS ———————————————————————————————– Gross Profit Ratio % (8.76) 5.98 (0.37) 3.48 3.92 Profit Before Tax Ratio % (23.14) 0.51 (3.25) 1.68 1.82 Interest Coverage Ratio Times (4.80) 1 .39 (0.77) 2.11 2.81 Fixed Assets Turnover Times 3.02 4.18 3.03 4.82 3.05 Debt Equity Ratio % 200.90 17.56 39.35 37.56 32.87 Current Ratio 0.72 0.92 1.01 1.07 1.01 1.02 Debtors Turnover Ratio Times 4.91 11.13 17.91 16.20 11.26 – Return on Shareholders’ Equity % (398.80) 0.43 (33.84) 7.14 4.33 Inventory Turnover Ratio Times 11 3 4 4 5 ===============================================================================================


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