Shell outsells
Year 2006 marks unpredecented business growth for the company with highest ever net profit and record sales figures

The No. 1 company couple of years ago might have to wait a little longer if it has to regain the coveted position. Nonetheless, 2006 was a year of unprecedented business results, delivering the company’s highest ever-net profit after tax and record sales figures.

The strong economic factors have resulted in the demand for refined petroleum products of the company growing significantly during 2006. The supply situation remained tight throughout the year and, coupled with shortages of skilled drivers for heavy goods vehicle, posed a substantial strain on logistics resources, in some instances causing temporary shortages of refined product that could be made available to customers.

The retail business remains the most important portfolio segment for the company. During the year, the company opened two retail sites, whilst at year-end a further two sites were at final stages of construction. The company continues to leverage the success in its innovative launch of the improved fuel economy initiative (New Shell Super with Better Mileage), extending it further and making it available for regular petrol. This resulted in strong response from the customer, with total volume crossing the one billion liters milestone a few days before the year-end, making it the fist oil marketing company achieve this mark in Oman. Despite the pressure coming from increased number of sites in the competitors’ network, the company continued to maintain its overall marketing edge as an industry leader with an estimated 50% market share. The average throughput per site in 2006 increased to 8.6 million liters when compared to 7.5 million liters in 2005. Average gross margins from the convenience stores continued to suffer from the negative impact due to higher operating costs in Select stores and increase in cost of FMCG supplies. The fuel card business grew by 20% during the year following a major product launch a year ago improving security and usage features.

The commercial business benefited from the increased economic activity, albeit pricing and competitive terms of trade remain the key factors in this sector. This commercial fuels segment remains the pivotal support for business-to-business segment of the company. “Our focus to grow and sustain this business is a key element of the business strategy in the coming years. Shell Oman Marketing will continue to focus on the basics, and operational excellence to sustain current profitability whilst differentiating customer value propositions in the market to capture fair share of the available opportunities,” said Dr Andrew Wood, Chairman, Shell Oman.

In 2006, jet fuel sales at all airfields in Oman increased by 14% and the volume at Seeb Airport was up by 50% due to Gulf Air changing its hub from Abu Dhabi to Muscat. Both volume and margin targets were exceeded in the aviation business. The company retained 50% of Oman Air business. The company lost a tender representing a significant share of its portfolio in May 2006 as a result of the yearly tendering exercise, but was able to ensure growth coming from other parts of the portfolio.

The year has also been a successful one for the company’s Lubricants Supply Chain LSC division with a total volume growth of 13%. The division also produced a record 76.1 million litre of the finished lubricants for the commercial, retail, marine and exports businesses. The growth trend is expected to continue in 2007, because the demand for Shell lubricants in both the local and export markets is very strong. LSC benefited from a number of cost cutting initiatives. These initiatives have resulted in total saving in excess of RO400,000. A plant expansion study has been conducted in 2006, to upgrade the blending plant capacity, which will provide for the increase in volume demand.

In early 2006, Shell Oman successfully signed off the sales and purchase agreement of petroleum products with Oman Refinery Company, sole supplier of petroleum products in Oman. The planned lifting of fuels from the new Sohar Refinery Company has been delayed from July 2006 to early 2007.

The company also successfully amended its articles of association to allow for an increase in the level of foreign shareholding to 70% from 49% previously. This has enabled the company’s share to attract more demand from a wider segment of investors within the region.

Outlook
The company has had an excellent performance during 2006. When compared with 2005, the share price has increased by more than 60 per cent, dividend levels are up 20%, turnover has been up by more 23 per cent, and the safety performance is demonstrably excellent. However, the competition is expected to remain intense in the years to come. It will continue to execute its retain network development plan in a robust manner. Some part of the company’s business, like supply of international aviation fuels and export lubricants, will be subjected to external factors in terms of the prising competitiveness available at other international locations.

The high demand for lubricants across the region will continue to exert pressure on the supply and availability of raw materials in the region with the resulting impact of higher price as well as supply constraints.

The fuels market normally follows the economic trend of the country and is thus expected to be stable, growing in tandem with the economic activities. Cards business will remain competitive and unit margins are expected to be under pressure. Managing credit will be an ongoing challenge, in a growing market and expanding sales portfolios. New development of road networks and residential areas will open up opportunities for addition of new retail sites where these are needed and viable major infrastructure projects announced by the government previously will see some activities starting out during 2007 and the company would like to ensure that it is ready to handle the stiff competition.

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