Consistency pays
Oman Oil Marketing Company scores a fast turnaround in the second half of the year, and now eyes capitalising on 35% revenue growth in 2005

Oman Oil Marketing Company’s performance would have been better had it not been that the first half of 2006 saw the oil and gas industry struggling with supply issues, with normalcy only being restored in May. In 2006, the company delivered a net profit of RO4 million, an increase of 26.7 per cent over the RO3.2 million reported in 2005. This has been possible because of the following:

Retail: The year 2006 was the most successful ever on the retail front, with record breaking sales contributing handsomely to the company’s turnover and net profit. It also saw the highest level of investment activity in the company’s history. Despite supplier related fuel shortages in the first five months of the year, volumes increased 19 per cent from 2005. The gross margin per litre of fuel also exhibited a very similar trend, due mainly to a change in the fuel mix, aggressive growth in the fuel card business and increased number of stations on the dealer owned company operated (DOCO) model. The company’s efficiency improved further, with average throughput) per site increasing to 5.2 million litres in 2006 from 4.8 million litres in 2005. During the year, nine new filling stations were opened (the most in any one year), with three others receiving major refurbishments.

Commercial Fuels: The commercial fuels business continued to grow, registering a handsome 23 per cent growth in 2006. The growth came even as the business faced a number of challenges including non-availability of products in the required quantum during the first five months of the year (similar to retail) and non-availability of experienced Omani drivers the 100 per cent Omanisation in this area. The business continued to focus on building long-term relationships with its customers to grow with them as also targeting new customers. An area of concern continues to be the high receivables (number of days of sales).

Aviation: Seeb International Airport, the largest in the Sultanate, experienced a significant growth in passengers and fuel sales during 2006. Overall, the company’s aviation volumes increased by 39 per cent over last year even though airport volumes grew only 30 per cent. This sector’s fortune is closely linked to the number of flights coming into and fuelling in the Sultanate. The future of Oman as a refuelling destination will be closely linked to the pricing structure and it is with this in mind that preliminary discussions have taken place to make Oman a competitive location. Success in this area will realise significant revenues for the country and the company.

An area of concern is bidding at sub-optimal prices by several of Oman Oil’s competitors in an effort to boost their market share. Oman Oil, with the active involvement of its marketing partner Air BP, is addressing this through measures which balance customer mix, the range to which customers fly, ability to service customers on time (enabling turnaround of aircraft), leveraging on relationships and its own margins, as it believes that in the longer run value for both the parties involved can be created only this way.

Lubricants: The year 2006 was a turbulent year for the company’s lubricants business, with three price increases during the period resulting from a significant increase in base oil prices, which make up 80 per cent of the cost of a lubricant. These price increases had to be passed onto customers and resulted in some customers shifting to cheaper brands leading to a 9 per cent drop in volumes, especially in the B-to-B segment.

Oman Oil is introducing its own brand of lubricants exclusively for the export market. The brand and pack designs, and sourcing arrangements have been finalised and work is continuing on creating a distribution network in the targeted countries. Dedicated resources for this have been assigned. The year 2007 will see the fruits of this initiative.

Customer Service Centre: A customer service centre was opened during the year with state-of-the-art equipment and dedicated facilities and resources.

Storage and Distribution: The company has initiated changes in its ‘ways of working’ for the logistics and terminal operations, which is expected to significantly increase the utilisation of the existing storage infrastructure and distribution fleet. This initiative, started in late 2006, is expected to reduce distribution cost, the single largest cost component after product cost. Sohar Refinery commenced despatches to marketers in early 2007 and this is also expected to ease the pressure on storage infrastructure.

Balance Sheet
Oman Oil’s balance sheet remains strong with continued focus on debtors and cash management. Whilst overall trade debtors have increased with the increase in the sales, it is heartening to note that the average number of debtor days remains at 48 days. More importantly, the age profile of the debtors has changed with a reduction in the overall age of debtors following the multi-pronged approach initiated by the company in 2005. It has also adopted a largely non-judgmental approach, which is based on historic trends and tends to be on the conservative side, in the methodology used for provisioning of doubtful debts. This has resulted in a charge of RO458,490 during the year to the P&L account. This gets adjusted on a monthly basis depending on the status of the debtors’ accounts. In fact, in the last quarter of 2006 there was a credit of RO120,000 on this count due to recoveries from accounts already provided for.

Outlook
The company has placed itself in a strong position for the future. On the retail front, it has adequate permits in hand and applications in the pipeline to facilitate building for 2007 and 2008; fuel cards will be the growth driver. The launch of ‘Omanoil’ branded lubricants in the overseas markets is also expected to drive growth; at the same time, the continued viability of the existing lubricants business will need to be tightly monitored.

Relationships already in place and leveraging on them as also independent efforts to develop new ones will help drive growth in the commercial fuels segment, aided by the increased economic activity in the country. The aviation industry and business, the company believes, will see strong growth in the future with the planned expansions of the Muscat and Salalah airports.

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