Pso Project

TABLE OF CONTENTS COMPANY PROFILE..................................................................................................................2 INDUSTRY PROFILE..................................................................................................................3 MARKET SEGMENTATION...................................................................................................................3 PORTER INDUSTRY ANALYSIS..............................................................................................................4 PSO MARKETING OPERATIONS............................................................................................4 SALES IN BILLIONS (PAK. RS.)...........................................................................................................5 PSO VS SHELL..............................................................................................................................5 PROFITABILITY OF PSO IN MILLION (PAK. RS.)....................................................................................6 RELATIONSHIP BETWEEN SALES AND PROFITABILITY GROWTH/ DECLINE TRENDS (%)...............................6 PRODUCT MIX MANAGEMENT............................................................................................................7 BCG MATRIX APPROACH FOR PSO...................................................................................................8 BRAND MANAGEMENT & COMMUNICATION..................................................................8 PSO CARDS...................................................................................................................................9 ADVERTISEMENT AND PROMOTIONAL EXPENDITURES PSO VS SHELL...................................................10 DISTRIBUTION & FLEET MANAGEMENT........................................................................10 RETAIL MANAGEMENT..........................................................................................................11 RETAIL FUEL OUTLETS....................................................................................................................11 NON-FUEL RETAIL OUTLETS...........................................................................................................12 THE INDUSTRIAL CONSUMERS...........................................................................................13 VALUE CHAIN – PSO................................................................................................................14 SWOT ANALYSIS.......................................................................................................................14 STRENGTHS....................................................................................................................................14 WEAKNESSES.................................................................................................................................15 OPPORTUNITIES..............................................................................................................................16 THREATS.......................................................................................................................................16 FINANCIAL PROFILE..............................................................................................................17

Company Profile Pakistan State Oil Company

(PSO), is the largest Oil Marketing Company (OMC)

operating in Pakistan and engaged in the storage, distribution and marketing of POL products and is among the country’s largest corporate entities with highest earnings and capitalization. Supported by well-established infrastructure built at par with international standards, comprising around 877,000 million tons storage facilities representing almost 81% of the total storage capacity in the country. PSO has an edge over its competitors in terms of economies of scale and cost effective operations. PSO has always been considered as a blue chip company with market capitalization of around Rs. 50 billion (USD 860 million). The company is the winner of “Karachi Stock Exchange Top Companies Award” and a member of World Economic Forum. The PSO’s retail coverage of over 3,800 outlets which representing 80% participation in total industry network. The rapidly expended international standard New Vision outlets are more than 800. These new outlets accommodate the end user’s needs but also add beauty to the landscape. These outlets are equipped with convenience stores, business centers, Internet facility and CNG facility, etc. To ensure the quality of the products being sold to customers, 16 mobile quality-testing units have been deployed in all major cities to carry on-the-spot checks for quality and quantity. Alongside its retail business, PSO also caters to the fuel demand of the industrial consumers that includes power generation, railways, sugar, textile and steel mills, etc. The company has also been meeting the fuel needs of defense of the nation and maintains on time supplies to armed forces. PSO operates at 8 airports and serves 4 domestic and 18 international airlines under its technical/ commercial license agreement with Air Total International. PSO enjoys over 70% market participation in aviation fuel. PSO participation in Allama Iqbal Airport, Lahore is 100%. PAKISTAN STATE OIL COMPANY LIMITED

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PSO’s LPG business unit, supported by 4 plants with combined capacity of 750 MT/day, is delivering cheap fuel to low-income households and rural areas where natural gas is not available. The trade unit is fully alive of its responsibilities of delivering Kerosene, Light Diesel Oil and Lubricants to end-user via 580 distributors appointed all over Pakistan.

Industry Profile There are four main OMCs in Pakistan that includes PSO, Shell, Caltex and Total. PSO is the market leader by holding overall 67% of market share and with 22% share Shell Pakistan hold second position. Market Share Others 11% Shell 22% PSO 67%

Market Segmentation Petroleum industry is categorized into two main markets according to the nature of the products and their usage. The Whit Oil segment includes MOGAS, Kerosene, Diesel and Jet Oil that are purified fuel. The Black Oil segment represents the products, which are less purified and used in mostly industrial sectors. The White Oil Markets has registered the 2.6% growth while the Black Oil Market faced 15% decline due to low demand in power sector especially by HUBCO.

PAKISTAN STATE OIL COMPANY LIMITED

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PSO holds market leadership in White Oil Market with 59 % and Black Oil Market with 79% participation. White Oil Market

Black Oil Market

Others 41%

Others 21%

PSO 59%

Porter Industry Analysis

PSO Marketing Operations PAKISTAN STATE OIL COMPANY LIMITED

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PSO 79%

The following are five main competitive edges for PSO over its key competitor Shell Pakistan. 1. PSO’s vast storage capacity means ensured supplies. 2. PSO’s vast logistics support meeting huge demands in shorter time. 3. PSO’s widespread depots and divisions to serve the customer better. 4. Quality and Quantity assured through PSO Fleet of Quality Vans. 5. Prepaid, Loyalty, Fleet and Corporate cards add value to customers.

Sales in billions (Pak. Rs.) 206 195

182

135 110

121

116

1998

1999

81

64

66

1994

1995

1996

1997

2000

2001

PSO VS Shell 206.4

182.3

88.9

78.8

2002

2003

PSO

Shell

PAKISTAN STATE OIL COMPANY LIMITED

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2002

2003

Profitability of PSO in million (Pak. Rs.)

4030

3188 2671 2046

2231

2251

1846

1498 1041 696

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Relationship Between Sales and Profitability Growth/ Decline Trends (%)

1994

1995

1996

1997

1998

1999

Profit

Sales

PAKISTAN STATE OIL COMPANY LIMITED

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2000

2001

2002

2003

Product Mix Management The total width of PSO product mix consists of 7-product line, which includes the Castrol series that is the market alliance of PSO in Pakistan. As for concern the length of product mix is contains 87 products by making difference due to size or other verities.

Product Mix for Pakistan State Oil PSO Automotive Oils

PSO Industrial Oils

Castrol Automotive Oils

Castrol Industrial Oils

Passenger Car Motor Oils

Gas Engine Oils

Passenger Car Motor Oils

Marine Engine Oil

Diesel Engine Oils

Hydraulic Oils

Diesel Engine Oils

Gear Fluids

Gear Oils Refrigeration Oils

Break Fluids

HOBC

Circulating Oils

Mineral Turpentine

Premium

Hydraulic Oils

Hexane

Motor Cycles Oils

High Speed Diesel

Turbine Oils

Toluene Xylene

Kerosene

Gear Fluids

Gears Oils

Isopropyl Alcohol

Light Diesel

Break Fluids

Refrigeration Oils

MEK

Cylinder Oils

VAM

Asphaltic Oils

NBA

Cylinder Oils Automotive Greases

Fuel Oils

Solvent Oil

Turbine Oils Motor Cycles Oils

Industrial Chemicals

Furnace Oil

Automotive Asphaltic Oils

Greases

Heat Transfer Oils

Heat Transfer Oils

Metal Working Fluid Slide Way Oils

Metal Working Fluids

Process Oils

Slide Way Oils

Transformer Oils

Industrial Grease

Industrial Greases

6 Product

13 Products

6 Products

12 Products

Product Line Depth

PAKISTAN STATE OIL COMPANY LIMITED

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8 Products

6 Products

BCG Matrix Approach for PSO

Brand Management & Communication Brand Management & Communication at PSO stands at the connection of the company and its customers to integrate the totally different dynamics of the two worlds. It is essentially a balancing act between the external market and the internal capabilities of the company. The department processes, develops and ensures the strength of PSO’s corporate image as well as of products and services. The company has been advertising in the most creative and unique manner. Promotional Campaigns This includes presenting interesting fuel and lubricants promotion campaigns to indulge customers. Mega hoardings Mega hoardings constructed at retail outlets are another classic example, which is not only an extremely cost-effective initiative but also provides the company with an ideal location to advertise and also enhances the outlook of the outlet. PAKISTAN STATE OIL COMPANY LIMITED

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Zoom Signs Another image-building tool and a one-of-its-kind mode of advertising is Zoom Sign. These are 110 feet tall towers, with PSO logo on the top, built at the stations in major cities of Pakistan. These signs that can be seem from a distance are providing PSO with tremendous mileage. Encouraging sports PSO is also keen on encouraging sports in the country and is a major sponsor of SAF Games, various cricket series, golf tournaments and squash championships. PSO Light & Visual Park PSO has also adopted a park now called “PSO Light & Visual Park” in Islamabad where new plantation and lights have been put up along with other beautification activities. Directional and safety signs Activities like putting up of directional and safety signs and overhead gantries in Karachi, Lahore, Islamabad, Saiwal, Peshawar and Faisalabad is the classic example of PSO as a socially ethical organization.

PSO Cards PSO is also offering plastic cards for the retail and industrial consumers according to their requirements. 1. Loyalty Card 2. Prepaid Cards (available in Rs. 500, 1500, 2500 & 5000) 3. Fleet Card for Corporate Vehicles 4. Corporate Card for Corporate employees

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Advertisement and Promotional Expenditures PSO VS Shell (Rs. 100,00,000- crore) 20 22 16 16

2002

2003

PSO

Shell

Distribution & Fleet Management PSO Logistics Department, the most vital link in the company’s supply chain, supported by; •

8,500 Strong Tank Lorry Fleet along with 7000 trained drivers

•

3,800 Railway Wagons

•

480 Lubricant Distributors

•

Pipe Lines

With the introduction of satellite tracking system Logistics Department now constantly monitors the road movement of its fleet. Continuous review of the logistics mechanism has enabled the company to further fine-tune and bring in more efficiency in the modes of production transportation at its disposal. In line with the management’s belief of “Business Partner Concept”, the logistics department has upgraded priority areas at installations and depots, so as to provide basic facilities and amenities to cartage contractors and their crew.

PAKISTAN STATE OIL COMPANY LIMITED

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Imports PSO imports 4 million tones of Fuel Oil & Gas Oil to meet the deficiency due to production constraints in Pakistan. Storage PSO have 877,000 MT Storage capacities, which is representing the 81% of total storage in the Pakistan

Inventory Turnover Rate (PSO VS Shell) 28 21

19

1996

23

21 17

1997

24

23 18

18

15

1998

20

20

16

14

1999

2000

PSO

2001

19

2002

2003

Shell

Retail Management The retail management activities at PSO are divided into two sub areas. The department who is engaged in fuel retail activities represents the Fuel Retail Outlets and department engaged in non-fuel activities like car wash represents the Non Fuel Retail Outlets.

Retail Fuel Outlets Retail Fuel is the core and most vital business segment in PSO, which is responsible for generating 90% of the company’s revenue through sale of PSO products at more than 3,800 Retail Outlets. PAKISTAN STATE OIL COMPANY LIMITED

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New Vision Retail Outlets PSO began it New Vision Retail Outlets (NVRO) in the year 1999 and has 833 NVROs at the end 2003. The NVROs has become the backbone of the company operations and the highest level of significance is given to all matters related to them.

PSO has

developed its NVRO development policy. This policy is to bringing old retail outlets within the parameters of NVRO. CNG Facilities Today there are more than 400 CNG stations throughout the country. Shell Pakistan is providing the CNG facility at only 68 outlets.

Non-Fuel Retail Outlets The Non-Fuel Retail Department is responsible for all the non-fuel facilities at the retail outlets. PSO, being an organization committed to providing value added services to its customers, has facilities at its stations. These includes, Convenience Stores (C-Stores) PSO currently has about 64 operational C-Stores all over Pakistan. These are stocked with a wide range of products such as food items and basic consumer goods. There is special distribution system is developed for C-Stores and finally a number of promotions are also run at regular intervals in conjunction with reputable consumer goods companies. Business Centers Business Centers have been developed at 16 different outlets within various divisions in efforts to provide round-the-clock services to customers. The centers are equipped with all basics such as a fax machine, photocopier, and e-mail facility. Internet facilities PSO has developed Internet facilities at 600 retail outlets. A comprehensive web based e-mail system

has also been put into place to allow dealers and divisions offices to

communicate with Head Office. PAKISTAN STATE OIL COMPANY LIMITED

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Auto Car Washes Recently, as part of the ongoing value addition activities, automatic car washes were introduced at the outlets. Currently, there is one car wash each in the three major cities in Pakistan. • • •

Karachi Lahore Islamabad

ATM Machines PSO has further installed MCB ATM machines at two of its outlets in an effort to make these outlets a one-stop complete service provider. Easy Payment Machines Easy Payment centers are established with Citibank at 17 outlets. These allow the people to easily pay their bills without the hassle of having to stand in long queues. The facility is currently being offered for KESC, SSGC, PTCL, Citibank Credit Cards, Paktel and Instaphone.

The Industrial Consumers The following are major industrial consumers segments for PSO, General Trade For the General Trade segment includes the major customers like, NLC, POF Wah, Police, KMC, KWSB, Gairon, Ruplai Group, Engro Chemicals and Pakistan Steel Mill (Ex-Shell Customer) Defence PSO enjoys a long-standing and deep-rooted relationship with Pakistan Army especially in the Fleet Management Training for senior arm force officers.

PAKISTAN STATE OIL COMPANY LIMITED

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Power Industry In 1994, PSO was the only OMC that made huge investment of around 2.2 billion and aggressively entered the power sector and captured a market share of approximately 88% by supplying products to all power plants.

Value Chain – PSO

SWOT Analysis Strengths 1. Market Share of 70% is one the main strength of PSO. 2. Company reputation in the industrial sectors adds the strengths for PSO. 3. Product quality is also strength especially in industrial sector. 4. Service quality like plastic cards and non-fuel activities adds the value.

PAKISTAN STATE OIL COMPANY LIMITED

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5. Distribution & Fleet network, which covers 81% country retail network, is the key edge on PSO its competitors. 6. Promotional activities add value in brand awareness and attraction of new customers. 7. Innovation like Auto Car Wash helps PSO to differentiate with its main competitors. 8. Storage capacity, which holds 80% of total storage capacity of the country, is also key advantage over its competitors. 9. Technical skills in Fleet management are another strength for PSO. 10. Visionary, capable leadership adds value to PSO strength like their NVRO operations. 11. Financial Stability with strong reserves, paid-up capital adds the trust of stakeholders. 12. Product line width adds long range of products for more revenue opportunities. 13. Castrol brand affiliation with PSO adds strength in terms of brand awareness. 14. Relations with Government one of the key strength of PSO in order to get legal protections.

Weaknesses 1. Lost & Dissatisfied customers are major weakness of PSO as they are causing the perception of inefficient PSO. 2. Old retail outlets are major weakness for PSO as they are not enough capable to compete the Shell, Caltex or Total outlets. 3. Untrained staff at outlets is causing inefficient services. 4. Quality assurance is not so effective to build the image of “Quality & Quantity”.

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Opportunities 1. Afghanistan's Market is the biggest opportunity for OMCs in Pakistan. 2. De-regularities of Oil industry in Pakistan add the opportunity to fill the deficiency in few sectors of petrochemicals markets. 3. Export Opportunities of Black Oil Products is also adding the opportunities by exporting Black Oil products, which is facing downfall due to the introduction Gas Oil. 4. Industrial & Trade growth in Pakistan is also the opportunity for PSO as they are adding revenues in Power sector that is the major customer of PSO.

Threats 1. Risk of forward integration of Supplier is the key threat for PSO and other OMCs in Pakistan. As the example, the PARCO who is one of the main POL product suppliers to OMCs adopt the forward integration strategy by introducing its own OMC with its new business alliance TOTAL and named its OMC as TOTALPARCO. 2. Risk of Diversification in technology is also a key threat for PSO as due to new technology used in industrial sector are causing decline in particular POL products. 3. Availability of 4. Substitutes in Black Oil Market are causing a solid reason for the declining trend in Black Oil Products, which is major threat for PSO.

PAKISTAN STATE OIL COMPANY LIMITED

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Financial Profile (In Millions of Pak. Rs.) Sales Marketing & Administrative Expenses Profit Capital Expenditures Shareholder's Equity

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 64333 66012 80563 109508 121345 115636 135040 195039 182323 206376 616

565

1000

1143

1155

1153

1452

1640

1411

1982

696 322 2255

1041 462 3052

1498 921 4149

2046 821 5533

1846 408 6586

2671 397 8184

2231 967 8986

2251 3188 4030 1254 1430 1643 9808 11253 13063

(Pak Rupee ‘000’) 2003 Sales Related Net Sales Cost of Products Sold Transportation Charges Storage Financial Stability Cash & cash equivalents at the end of the year Reserves Marketing Sales Promotion & Advertisement Communication

2002

PSO

Shell

PSO

Shell

172445775 163490577 138955 62968

77822817 72049466 1108712 41615

153110993 146333600 180251 68734

69042054 64164232 1150285 53609

1228220 11348212

1075698 2233026

1831693 9823176

478764 2233026

200760 46935

223284 99618

159094 30510

161897 98674

Thank you

PAKISTAN STATE OIL COMPANY LIMITED

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