Annual Report 2013 Shell Oman Marketing Company · SHELL OMAN MARKETING COMPANY SAOG PO Box 38, PC...

Annual Report 2013Shell Oman Marketing Company SAOG

HIS MAJESTY SULTAN QABOOS BIN SAID

www.shelloman.com.om

SHELL OMAN MARKETING COMPANY SAOG

PO Box 38, PC 116, Mina Al Fahal,Sultanate of OmanPhone: +968 24 570100Fax: +968 24 570121

Oman:On The MoveThe objective of Shell Oman is to deliver

tangible long-term value for all stakehold-

ers – shareholders, customers, employ-

ees – and ultimately for the nation of

which we are part.

For over 50 years, the Company has

been a key participant in the economy of

Oman and a highly engaged participant

in the progress of the nation. Delivering

consistent, world-class quality products

and services to Oman moving forward...

2

CONTENTS

6 Board of Directors

8 Management Team

10 Directors’ Report

15 Auditor’s Report on Corporate Governance

16 Corporate Governance Report

23 Management Discussion and Analysis

31 Auditor’s Report

32 Financial Statement

3

Retail

51%Aviation

23%

Lubricants

9%

CommercialFuels

13%

Bitumen

4%

Net Profit & EBITA (Earnings before interest, taxes, depreciation and amortization)

RO

‘0

00

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Net ProfitEBITA

EPS & Dividends

bais

a /

Share

(All data based on a equity share face value of 100 baiza)

0

25

50

75

100

125

150Dividend EPS

Return on Average Capital Employed is net profit divided by the average ofopening & closing balances of Capital Employed.

Return on Average Capital Employed (RoACE) & Operating Profit Margin (OPM)

0%

10%

20%

30%

40%

50%

60%

70%

2003

2004

2005

2006

2007

2008

2009

2010

22.69%

3.96%

19,189

121

105

2011

2013

2012

38.62%

3.23%

(RoACE)OPM

Earnings per share (RO) 0.121*

Dividend per share (RO) 0.105*

Dividend Yield (on offer price of RO 4.900) 21.4%*

Dividend Yield (at 31 Dec 2013 price of RO 2.350) 4.5%

* rebased on an equity share face value of 100 baiza following the stock-split in 2006

Balance Sheet (RO million)

2013 2012

Share Capital 10.0 10.0

Reserves 3.6 3.6

Retained Earnings 18.5 16.9

Net Assets 32.1 30.5

Earnings (RO million)

2013 2012

Turnover 430.6 403.6

Gross Profit 41.5 39.2

Other Income 3.8 3.5

Net Operating Expenses (31.5) (28.7)(includes depreciation, interest & amortisation)

Profit before tax 13.8 14.0

Taxation (1.7) (1.7)

Profit after tax 12.1 12.3

Dividends (RO million) 10.5 10.5

12,095

5,575

9,630

2003

2004

2005

2006

2007

2008

2009

2010

2011

2013

2012

5660

Contribution Of Turnover

4

Retail

51%Aviation

23%

Lubricants

9%

CommercialFuels

13%

Bitumen

4%

Net Profit & EBITA (Earnings before interest, taxes, depreciation and amortization)

RO

‘0

00

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Net ProfitEBITA

EPS & Dividends

bais

a /

Share

(All data based on a equity share face value of 100 baiza)

0

25

50

75

100

125

150Dividend EPS

Return on Average Capital Employed is net profit divided by the average ofopening & closing balances of Capital Employed.

Return on Average Capital Employed (RoACE) & Operating Profit Margin (OPM)

0%

10%

20%

30%

40%

50%

60%

70%

2003

2004

2005

2006

2007

2008

2009

2010

22.69%

3.96%

19,189

121

105

2011

2013

2012

38.62%

3.23%

(RoACE)OPM

Earnings per share (RO) 0.121*

Dividend per share (RO) 0.105*

Dividend Yield (on offer price of RO 4.900) 21.4%*

Dividend Yield (at 31 Dec 2013 price of RO 2.350) 4.5%

* rebased on an equity share face value of 100 baiza following the stock-split in 2006

Balance Sheet (RO million)

2013 2012

Share Capital 10.0 10.0

Reserves 3.6 3.6

Retained Earnings 18.5 16.9

Net Assets 32.1 30.5

Earnings (RO million)

2013 2012

Turnover 430.6 403.6

Gross Profit 41.5 39.2

Other Income 3.8 3.5

Net Operating Expenses (31.5) (28.7)(includes depreciation, interest & amortisation)

Profit before tax 13.8 14.0

Taxation (1.7) (1.7)

Profit after tax 12.1 12.3

Dividends (RO million) 10.5 10.5

12,095

5,575

9,630

2003

2004

2005

2006

2007

2008

2009

2010

2011

2013

2012

5660

Financial Highlights

5

Board Of Directors

1. Huda Abdullah Al-Habsi, Director

2. Adil Ismail Al Raisi, Managing Director

3. John Blascos, Chairman

4. Juma Abdullah Khalfan Al-Khamisi, Director

5. Amr Adel, Director1

2 34

5

67 8 9 10

1

2 3

4

5

6

7 8 9 10

6

6. Saleh Nasser Al Araimi, Director

7. Ghalib Fawzy Salim Al Busaidi, Deputy Chairman

8. Scott McDonald, Finance Director

9. Shabib Mohammed Al Darmaki, Director

10. Majan Abdullatif, Board Secretary

7

Management Team Oman on the Move: Our View

Hafidh Al-Ismaily,Distribution & Operations

Manager

Ali Al Lawati,Commercial Lubes Manager

“Oman is strategically postioned to become a gateway for global commerce.”

Adil Ismail Al Raisi,Managing Director

Scott McDonald,Finance Director

Khalid Al Awaisi,Country Aviation Manager

“Better connectivity helps Omani products compete internationally.”

“Every corner of the nation is being linked to its commercial centres.”

“These planned investments will accelerate overall GDP growth.”

“Oman today has the potential to be a regional air transport hub.”

8

Haitham Al Ismaily,Human Resources

& Administration Manager

Said Al Rawahi,Commercial Fuels Manager

Mohammed Al Kindi,Commercial Fleet Manager

“Today’s developments are critical for strengthening Brand Oman.”

Mohammed Al Farsi,GM – External Affairs

& Business Development

Ahmed Hilal,Lubricants Supply Chain Manager

Mohammed Al Balushi,Country Manager - Retail Sales

& Operations

“The growing land, sea and air networks will open up new markets.”

“Investments in national projects have increased employment opportunities nationwide.”

“Oman has the potential to emerge as a world-class logistics hub.”

“The focus on infrastructure and connectivity will pay rich dividends.”

“A vibrant national economy is good news for small businesses too.”

9

Directors’Report

In 2013 the Company’s core business has grown considerably compared to 2012 with 8.1% growth in volumes, led by the Retail, Aviation and Local Lubricants segments with significant headway in Bitumen and Marine.

Dear Shareholders,On behalf of the Board of Directors, I am pleased to present the Directors’ Annual Report of Shell Oman Marketing Company SAOG for the year ended December 31, 2013.

Business EnvironmentOil Prices and production remained robust in 2013 which helped the Sultanate record a budget surplus, resulting from actual oil price realisation of $ 106 per barrel set against a budget of $ 85 per barrel. The 2014 budget has again conservatively assumed that the price of oil will be $ 85 per barrel, well below the 2013 average of $ 106. Daily oil output is planned at 945,000 barrels per day (as against 930,000 barrels per day in 2013).

The economy is forecast to grow at 5%, the same rate as 2013. Budgeted public expenditure amounts to RO 13.5 billion and reflects an increase of 5% compared

with 2013. The Budget acknowledges the dependence on crude oil as the country’s current major source of revenue and, taking into account announced spending commitments, the breakeven oil price is expected to increase to $ 112 per barrel. The budgetary deficit, as announced by Ministry of Finance, is set at 6% of GDP, an increase of 1% over the 2013 deficit number, and is expected to be financed by a combination of borrowings and utilisation of prior year reserves.

The government has stated its intention to develop non-oil revenues and further diversify the economic base; promote private sector involvement in public-private partnering, optimise public subsidies and to encourage domestic and foreign investment.

Financial PerformanceIn 2013 the Company’s core business has grown considerably compared to 2012

with 8.1% growth in volumes, led by the Retail, Aviation and Local Lubricants segments with significant headway in Bitumen and Marine. Challenges remained in retaining and winning profitable volume in the Commercial segments due to increased competitive pressure. Export volumes of Lubricants manufactured in Oman decreased slightly due to lower demand across the Middle East and Central Asia.

For the year ended 2013, revenues were RO 430.6 million, 6.7% higher than last year mainly driven by growth in Retail, Aviation, Bitumen and Local Lubricant sales, offset by continuing challenges in Commercial Fuels and Export Lubricants.

For the year ended 2013, Net Profit was RO 12.09 million compared to RO 12.29 million last year. Basic earnings per share (EPS) were 1.6 % lower than 2012 as the increased revenues from high

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volume growth were offset by the impact of price fluctuations affecting the valuation of Aviation stocks held together with the higher costs in the business (with the higher costs supporting the ability of the Company to capture and service higher volumes to customers in periods ahead). Additionally a significant government bulk fuels contract came to an end, which resulted in once-off costs associated with the termination of a shipping contract and the transfer of fixed assets to the customer.

Net cash generated from operating activities was RO 19.4 million, 4% higher than the same period last year. This is mainly driven by improved working capital balances in 2013.

Business ResultsRetail business delivered encouraging growth of 6.5% in volumes year-on-year, remaining the leading value driver for the Company. The growth in Retail business has been mainly triggered through increased energy demands from a young and growing population in Oman coupled with continuous Government spending on infrastructure and industrial developments across the country.

The Company continued with its long term growth strategy to invest in Retail network and strengthen its footprint across the country. Significant investment was made during the year with 8 new service stations being opened bringing the number of service stations to 159 with many more

new build and site improvement projects in progress.

The business remains focused to deliver its commitment to exceed customer expectations by delivering the best quality fuels and provide customers with the best customer experience every day at every site. The contribution of our business partners remains the driving force in improving our Customer Value Proposition and deliver superior customer experience in order to further grow in a highly competitive market.

The Retail network witnessed a number of marketing activities and exciting promotions during the year targeted at raising brand awareness and focusing on Shell Fuel Quality and Economy which

11

received an excellent response from the customers as reflected in customer surveys.

The Aviation business witnessed a 12% volume growth in 2013 driven by significant expansion of Oman Air and other airlines flying to the country. The Company remains the sole operator at Salalah airport, plus PDO strategic airfields. Though there has been growth in volume, the margins remain under strong competitive pressure.

The long running aviation fuel case with Al Maha Petroleum Company concluded in November 2013 when the Oman Supreme Court declined our appeal. There is no impact on the Company’s Income Statement as a result of this ruling and the company confirms that it considers the case fully concluded.

The Local Lubricants business achieved a successful year recording significant positive volumes and margin improvement on the back of lower base oil prices. The Company continues to have the largest market share in Oman and is the supplier of choice to commercial customers who rely on Shell’s technical superiority and excellent network to deliver superior customer satisfaction.

The Shell Oman Lubricants Blending Plant (which serves Shell Oman local demand and Royal Dutch Shell Group regional customers) continued to be a world class business partner. Export volumes declined by 10% over last year on the back of lower demand in the regional market. However, the new base oil storage facility at Sohar Port has created significant cost reductions and Health, Safety, Security and Environemt (HSSE) benefits for the Company.

The Commercial Fuel and Marine business has grown 6.4% year-on-year in the face of intense competition. For Commercial Fuels the year has been challenging in that whilst the Company has introduced a differentiated Diesel grade “Shell Diesel Extra” which has been welcomed by discerning customers, it has on the other hand lost a significant ground fuels tender which has resulted in once-off costs at the end of the year.

The Marine business recorded steady growth which will only be bolstered in the future by major port projects announced by the Government. Business opportunities and challenges will arise when Port Sultan Qaboos’ commercial activities are shifted to Sohar Port in the latter half of 2014. The Company is well set to meet this key move.

The specialised “high end” segment for Polymer Modified Bitumen (PMB) led the market by bringing Shell’s advanced products and technology to the fast growing Oman sector. During the year, the business continued supplying Muscat International Airport project and Salalah Airport with this high-end product. The segment continues to pursue upcoming major road projects, backed by the recent announcements to increase infrastructure projects and Bitumen quality requirements.

EPS and Dividend Full Year earnings per share for 2013 are 121 baisa compared to 123 baisa in 2012. The Board of Directors is recommending a final dividend of RO 10.5 million i.e. 105 baisa per share, maintaining the same level as the in prior year. This dividend reflects the requirement to provide funding for the increased capital investments required to address the Company’s long term growth ambitions.

Business OutlookFor 2014, the Sultanate has unveiled a budget with expenditure planned at RO 13.50 billion and revenues at RO 11.70 billion. The deficit of RO 1.8 billion, is expected to be covered by the surplus raised in 2013 and from borrowings. RO 1.84 billion has been earmarked for development projects which will maintain the growth momentum of 2013. Significant parts of the budget will be deployed for the improvement of Social Welfare, Health and Education, which will have a positive impact on the economy. Subsidies, including those on fuel, are expected to touch RO 1.4 billion, an increase of 10% over the previous budget.

The economy is expected to continue to grow at 5% in 2014, with inflation stable

at around 1.4%. At the Muscat Securities Market, the index achieved a 17.5% growth which is the highest rise since 2009. The fuel marketing business will normally follow the economic trend of the country and thus expected to be stable, growing with the economic activities. New development in road network and residential area will open up opportunities for addition of new retail sites where it is needed and viable. Major infrastructure projects announced by the government previously will see some activities starting out during 2014, and the Company will ensure that it is ready to position itself to get its share of the new business by investing in new systems and business redesign. In the aviation sector the development of the new Muscat International and other airports continue and should come on stream in the near future. The Company is closely following developments and will pursue opportunities as they arise.

Our Commitment to Sustainable DevelopmentIn line with our Statement of General Business Principles, the Company subscribes to the principle of sustainable development - which means helping meet the world’s growing energy needs in economically, environmentally and socially responsible ways. In short, it’s about helping secure a responsible energy future.

The Company’s more than fifty years performance in Oman is linked to its belief that its success is built on the foundation of solid sustainable development principles and it had since applied this framework to govern all the ways it conducts operations. We optimise positive community benefits and undertake broader contributions to the society through sharing, delivering and excelling in meeting our promises. We are consistently improving how we conduct business by adapting best practices in the areas of health, safety, security and environment and contribute in the development of the economy by hiring local people and working with local suppliers and customers.

Directors’ Report

12

Health, Safety, Security & Environment (HSSE)In 2013 the Company reached its highest ever record for total number of days with no Lost Time Injury (LTI) incidents where the year has ended with a record of 1,717 LTI-free days. This was helped in no small measure by the Company’s commitment to “Goal Zero, No Harm, No Leaks”. Goal Zero has helped build a safety culture in Shell Oman – where no one gets hurt. The Company believes that its licence to operate depends on stakeholder confidence in our ability to keep people safe and manage the environmental impact from our operations. Preventing leaks will improve process safety and reduce the environmental impact of our operations – while we continue to improve our personal safety performance. The Company held a Safety Day for all staff in June 2013 which helped our Goal Zero journey with initiatives such as Life-Saving Rules, Hearts and Minds, and our HSSE processes and procedures.

Risks and ConcernsThe Company forward investment and business plan is built on the assumption of stability in the fixed margin rates in the dominant Retail segment, and this is subject to Government policy.

Internal Control Systems The Board of Directors recognises that good corporate governance has its roots in sound internal controls and a robust risk management programme. The Board affirms its overall responsibility for reviewing the adequacy and the integrity of the Company’s internal control systems and management information systems, including systems for compliance with applicable laws, regulations, rules, directives and guidelines. There was no material losses reported during the current financial year as a result of weaknesses in internal control. The Management of the Company continues to take measures to strengthen the overall internal control environment.

In 2013, extensive new internal controls were rolled out in the area of Retail Card Operations to strengthen our anti-fraud safeguards and to enhance our credit recovery procedures learning from recent years experience. These enhancements will ensure that the Company is not unnecessarily exposed to financials risks and to provide assurance that financial information used for internal reporting and publication is reliable. The controls also help safeguard the Company’s assets while serving as an active mechanism in the prevention and detection of fraud. The management of the Company has adapted a robust system to ensure that these internal controls are being operated in a timely and effective manner.

Board ChangesAt the Annual General Meeting (AGM) in March 2013, the shareholders elected Mrs. Huda Al Habsi as a Director of the Company to fill a temporary vacancy arising from the resignation of a Director in December 2012. Mrs. Al Habsi is the General Manager Marketing, in Omantel. She represents herself on the Board and is to be regarded as an independent and non-executive Director. Her term as Director shall be until the AGM of March 2015.

The Public Authority for Social Insurance, has appointed Mr. Saleh Nasser Al-Araimi as a director of the Company in place of Mr. Ishaq Al-Mawali with effect from October 7, 2013. Mr. Al-Araimi is the General Manager at the Public Authority for Social Insurance and has previously served on the Board of this Company. He is an independent non-executive Director.

Mr. Irshad Al Lawati, a nominee of the Royal Dutch Shell Group, resigned his position as Director of the Company in November 2013. His replacement is Mr. Mazhar Ud Deen, who is a senior Shell executive and is currently the Retail General Manager of Shell Pakistan. He is a non-independent and non-executive Director and has taken office from January 8, 2014.

In AppreciationI take this opportunity to commend His Majesty Sultan Qaboos bin Said and his government for the excellent achievements during 2013. The wise direction and leadership of His Majesty has taken the Country to prosperity since the dawn of the blessed renaissance.

On behalf of the Company, I express my sincere gratitude to our shareholders, the Board of Directors, the Management, our employees, customers, contractors and all our other stakeholders for their loyalty, perseverance, dedication and effort in the face of an ever growing and challenging business environment. For our part, rest assured that as a Board of Directors we remain committed to pursuing all opportunities with a view to maintaining the Company’s expansion and wealth while enhancing shareholders’ value. And finally, we truly are grateful for your constant support as we secure growth and prosperity for the Company.

This will be my last Report to you as Chairman of the Company as I leave Oman to take up another senior position in the Shell Group in The Hague. It has been an absolute honour and a privilege to lead this Company over the last four years and I wish it all success in the years to come. My successor, as Chairman, shall be Mr Chris Breeze another senior Shell executive. I am sure you will extend to him the same level of support and co-operation that you have given me over the last several years.

John BlascosChairman of the Board

Muscat: January 27, 2014

13

FLYING HIGHON ASPIRATIONThe new Muscat International Airport and the Salalah International Airport will be able to handle largest aircraft and over 13 million passengers annually. Sohar, Duqm and Ras al Hadd are the nation’s other emerging aviation hubs.

Artistic impression of Muscat International Airport

14

Auditor’s Report OnCorporate Governance

15

In accordance with the Capital Market Authority (“CMA”) guidelines, we are pleased to present the Corporate Governance Report of Shell Oman Marketing Company SAOG (“the Company”) for the year ended December 31, 2013. The Company’s auditors, Deloitte has issued a separate Factual Findings Report on the Company’s Corporate Governance Report for the year ended December 31, 2013.

Company’s PhilosophyCorporate Governance at Shell Oman Marketing Company SAOG envisages commitment of the Company towards the attainment of high levels of transparency, accountability and business propriety with the ultimate objective of increasing long term shareholders value, keeping in view the needs and interests of all other stakeholders.

Shell Oman Marketing Company SAOG is committed to adopting the best global practices of Corporate Governance and fully supports the guidelines on Corporate Governance issued in June 2002 by the CMA.

Board of DirectorsThe Board comprises Executive and Non-Executive Directors. The present strength of the Board is ten Directors comprising two Executive Directors, five Non-Executive and Independent Directors and three Non-Executive and Non-Independent directors1. The Non-Executive Chairman, the Executive and Non-Executive Directors are accomplished professionals and experts in their respective corporate fields, ensuring proper direction and control of the Company’s activities.

At present all directors are either shareholder or non-shareholder directors. Shareholder directors represent a juristic person owning at least 1,000 shares in the Company. As per the Articles of Association the general meeting has the power to increase the size of the Board by up to two non-shareholder directors.

Functions of the BoardThe Company in general complies with the functions of the Board as per the CMA Code of Corporate Governance. With respect to the selection of the key executives

a selection process applied within the Shell Group is used. The same applies for evaluation of staff where a comprehensive performance and appraisal system of the Shell Group is implemented.

Process of Nomination of the DirectorsAt the ordinary general meeting in March 2012, ten directors have been elected for a period of three years. Juristic persons have nominated seven directors. There are arrangements for the filling of vacancies by the Board itself on a temporary basis and for the appointment of substitutes. The Company has an induction programme for Directors, which covers the business environment and the Company businesses as well as specific corporate governance elements (e.g. Code of Conduct and confidentiality).

Corporate Governance Report

1. Mr. Irshad Moosa Al Lawati, a Non-Executive, Non-Independent director and a nominee of the Shell Group, resigned from the Board on November 17, 2013. On January 8, 2014, the Shell Group nominated Mr Mazhar Ud Deen as his replacement.

Shell Oman is ranked among the best performing MSM-listed companies at OER Top 20 Awards.

16

Director’s Attendance Record and Directorships Held During the Financial Year 2013.

Name of Director PositionBoard

meetings attended

Whether attended last AGM

Directorship in other SAOG Companies

John Blascos Non-Executive Chairman 4 Yes None

Ghalib Fawzy Salim Al Busaidi Non-Executive and Independent Director (Deputy Chairman)

4 No None

Adil Ismail Al Raisi Executive Whole-time Managing Director

5 Yes None

Irshad Moosa Al Lawati Non-Executive Director (up to 17 November 2013)

4 Yes None

Scott Michael McDonald Executive Whole-time Director (Finance)

5 Yes None

Amr Adel Non-Executive Director 3 Yes None

Juma Abdullah Khalfan Al Khamisi

Non-Executive and Independent Director

5 Yes None

Shabib Mohammed Saif Al Darmaki

Non-Executive and Independent Director

5 No Alizz Islamic Bank SAOG

Saleh Nasser Juma Al Araimi Non-Executive and Independent Director (from 7 October 2013)

2 Not applicable

Oman Fisheries Co SAOG Bank Dhofar SAOG

Ishaq Zayed Khalifa Al Mawali Non-Executive and Independent Director (up to 6 October 2013)

3 Yes None

Huda Abdullah Saleh Al-Habsi Non-Executive and Independent Director (from 26 March 2013)

4 Not applicable

None

Entity Represented by Non-Independent Directors

Non Independent Director Entity Represented

John Blascos Shell Petroleum NV

Adil Ismail Al Raisi Shell Gas BV

Irshad Moosa Al Lawati * BV Petroleum Assurantie Maatschappij

Scott Michael McDonald B.V. Dordtsche Petroleum Maatschappij

Amr Adel Shell Overseas Investment BV

*Resigned from the Board on November 17, 2013 (replaced by Mr Mazhar Ud Deen on January 8, 2014)

During the year 2013, the Company held five Board meetings. The dates are January 26, April 28, July 28, October 27, and December 15, 2013. The intervals between the meetings are in line with the CMA required interval of a maximum of four months.

17

The Board of Directors manages and supervises the business and affairs of the Company in a stewardship role. The day-to-day management is delegated to the officers of the Company. Any responsibilities that have not been delegated to the officers or to a committee of the Board remain with the Board.

In order to facilitate proper governance the following information amongst others is provided to the Board:

n Review of operating plans of business, capital budgets and updates;

n Quarterly/annual results of the Company and its business segments;

n Quarterly performance on Health Safety Security and Environment;

n Reports of fatal, serious accidents or dangerous occurrences;

n Directors fees and remuneration;n Minutes of the audit committee;n Issues involving possible public or

product liability claims of substantial nature;

n Any significant industrial relations problems;

n Senior management changes;n Policies / procedures as are deemed

important to place before the board; and

n Related party transactions.

As required by Corporate Governance Guidelines the Board of Directors has adopted Internal Regulations - these include adoption of principles, policies, procedures and practices for doing business and conducting affairs that are commonly used in the Shell Group. As part of this Shell Group Statement of General Business Principles, Health Safety Security and Environment Policies are in place. The Board in general is informed of any changes advised by the Shell Group.

There have been no materially significant related party transactions, pecuniary transactions or relationships between the Company and its Directors that may have potential conflict of interest with

the Company at large during the period in question. The Board has adopted a specific Related Party Transaction procedure to ensure compliance with the corporate governance guidelines.

Company SecretaryThe Board Secretary is Mrs. Majan Abdullatif. She records minutes of every Board meeting whereby decisions are recorded and action items are identified.

Remuneration MattersEach Non-Executive Director is awarded RO 800 as a sitting fee for every Board

Meeting and Annual General Meeting attended, and RO 400 for every audit committee meeting attended. Annual remuneration is awarded as long as the sum of sitting fees does not exceed RO 10,000 and the total remuneration does not exceed RO 15,000 per director. The total remuneration paid to Non-Executive Directors for year ended December 31, 2013 was RO 100,100. Executive Directors are compensated in their salary for service as a board member; they do not receive any separate remuneration or sitting fees.

Details of Directors’ RemunerationThe details of directors remuneration for the year 2013 is as follows:

Sr No Name / Position

Annual remuneration

(Rials)

Sitting Fees

(Rials)

1 John BlascosNon-Executive Director 8,600 4,000

2 Adil Ismail Al RaisiExecutive Whole-time Managing Director Nil* Nil*

3Irshad Moosa Al Lawati**Non-Executive Director; Member Audit Committee (up to 17 November 2013)

7,167 5,200

4 Scott Michael McDonald Executive – Whole-time Finance Director Nil* Nil*

5 Amr Adel Non-Executive Director 8,600 3,200

6 Juma Abdullah Khalfan Al KhamisiNon-Executive Director; Member Audit Committee 8,600 6,400

7 Shabib Mohammed Saif Al DarmakiNon-Executive Director; Member Audit Committee 8,600 5,600

8 Ghalib Fawzy Salim Al BusaidiNon-Executive Director; 8,600 3,200

9 Saleh Nasser Juma Al AraimiNon-Executive Director (from 7 October 2013) 2,867 1,600

10 Ishaq Zayed Khalifa Al MawaliNon-Executive Director (up to 6 October 2013) 5,733 3,200

11 Huda Abdullah Saleh Al Habsi Non-Executive Director (from 26 March 2013) 5,733 3,200

* Total 64,500 35,600

(* A salaried key employee of the company, covered under the top-five executives remuneration below)

** Resigned on November 17, 2013


18

The total benefits such as salaries, bonuses, allowances, share benefits, pension contributions & perquisites paid to the top five members of the management team was RO 605,743 in 2013.

Audit Committee of the BoardThe Audit Committee was reconstituted by the Board in April 2012 in which they appointed a majority of independent directors. Following the resignation of the Audit Committee Chairman, Mr. Abdulsalam Almurshidi in December 2012, Mr. Shabib Mohammed Saif Al-Darmaki who is a Non-Executive, Independent Director was appointed Chairman of the Audit Committee. Mr Irshad Al Lawati resigned from the Board on 17 November, 2013, and his replacement on the Committee is expected to be made in Q1 2014. The committee held four meetings during 2013, which have been minuted.

The audit charter approved by the Board includes the main responsibilities of the Audit Committee as follows:

n Reviewing the annual audited financial statements and the Auditors’ Report on the statements prior to submission to the Board for approval;

n Reviewing and approving the interim financial statements prior to public release and filing;

n Reviewing the scope of external and internal audits;n Reviewing and discussing accounting and reporting policies and changes in accounting

principles;n Assessing the effectiveness of the Company’s internal control systems and procedures,

and the process for identifying principal business risks;n Reviewing compliance with the Code of Conduct;n Reviewing legal matters with counsel;n Reviewing directors and officers expense and related party transactions; andn Meeting with the internal and external auditors independently of management of the

Company.

Attendance record of the Audit Committee Members

Name of DirectorNo. of

meetingsMeetings attended

Shabib Mohammed Saif Al Darmaki 4 4

Juma Abdullah Khalfan Al Khamisi 4 4

Irshad Moosa Al Lawati* 4 3

* Resigned from the Board on 17 November 2013

In consultation with the CMA the Audit Committee continued with the arrangement of using Shell Global Internal Audit as the Company’s internal auditor. These auditors are part of the Shell Global Audit Network and shares in global best practices of the Shell Group, and reports to the Audit Committee of the Board.

Shell Oman receives Corporate Governance Excellence Award 2013 from Capital Market Authority (CMA)

19

Audit and Internal ControlIn consultation with the Audit Committee, the Board of Directors recommended the appointment of external auditors to the annual general meeting. The shareholders have, therefore, appointed Deloitte & Touche LLC as auditors for the financial year 2013.

In accordance with the Corporate Governance Code, the services of Deloitte & Touche LLC are not used where a conflict of interest might occur.

The Audit Committee has reviewed, on behalf of the Board, the effectiveness of internal controls by meeting the internal auditor, reviewing the internal audit reports and recommendations and meeting the external auditor, reviewing the audit findings report and the management letter. The Audit Committee and the Board are pleased to inform the shareholders that, in their opinion, an adequate and effective internal control system is in place.

Annual General MeetingThe Company’s Annual report contains written clarifications on each item on the agenda of the Annual General Meeting so that shareholders are suitably briefed on matters that are to be discussed to enable their effective participation thereat. The Directors encourage shareholders to attend and participate in the Annual General Meeting. Questions posed are, where possible, answered in detail either at the General Meeting itself or thereafter. Shareholders are welcomed to raise queries by contacting the Company at any time throughout the year and not just at the General Meetings.

Means of Communication with the Shareholders and Investors

The Company has its own web site and all vital information relating to the Company and its performance, including quarterly results, official press releases, annual report and governance related policies and procedures are posted on the web site for all interested parties. The Company’s

Share Price Relative Performance

SOM IndexMSM Index

Jan

Mar

Jun

Sep

Dec Jan

Mar

Jun

Sep

Dec Jan

Mar

Jun

Sep

Dec Jan

Mar

Jun

Sep

Dec

2010 2011 2012 2013

160

140

120

100

80

60

40

20

0

website is www.shelloman.com.om.

During the year the Finance Director has had several meetings with banks, fund managers and investment managers to brief them about the company’s performance and field any questions that they might have.

Financial ReportingThe Company presents quarterly public financial announcements that include details of the Company’s business performance and current issues and concerns. As per legal requirements and policy, quarterly and annual results of Company’s performance are published in the leading newspapers in both Arabic and English. The Directors scrutinise these announcements at their Board Meetings prior to publication to ensure that they are accurate and present a clear assessment of the Company’s affairs.

Further the Company entertains specific meetings with analysts and shareholders, upon requests, as appropriate.

Dividend policyThe Company’s dividend policy is to remit the optimum amount of profit, in any operating year, to shareholders. Several factors will be considered whilst making

this decision viz. future investment plans, working capital requirements, ability to borrow funds, and other constraints. If, in accordance with the business plans, funds and profits were likely to be available the Company would like to pay an interim dividend. In line with this policy the Company, is expected to pay a dividend for the year 2013, in April, 2014.

Market Price DataMonthly High/low share price data for financial year 2013.

Month 2013

High Low Volume

January 2.400 2.329 306,634

February 2.333 2.276 407,797

March 2.339 2.227 315,597

April 2.230 2.203 284,215

May 2.249 2.218 225,484

June 2.250 2.218 343,659

July 2.250 2.200 133,805

August 2.250 2.249 135,700

September 2.250 2.249 71,294

October 2.260 2.215 682,633

November 2.370 2.260 271,978

December 2.370 2.350 279,043


Performance in Comparison to Broad Based Index of MSM

20

Distribution of ShareholdingThe Shell Group holds, through 5 wholly-owned Shell subsidiaries, 49 % of the shares, whereas 51% of the shares are held by other investors and traded on the Muscat Security Market. In line with the Commercial Companies Law and the Company’s Articles of Association, 5,000,000 shares of the Company have a preferential characteristic, in that they are multi vote shares. The Shell Group owning those multi-vote shares thereby is able to cast 54,000,000 votes at the ordinary general meeting. This will not itself enable them to control an Extraordinary General Meeting of the Company.

Major Shareholders (as on December 31, 2013)

Shareholder Name No of shares

held Shareholding

%

B.V. Dordtsche Petroleum Maatschappij 20,000,000 20.0

Shell Overseas Investment BV 20,000,000 20.0

Civil Service Employees Pension Fund 9,720,814 9.7

Shell Petroleum NV 8,800,000 8.8

MOD Pension Fund 8,115,990 8.1

Adil Ismail Al RaisiManaging Director

Specific Areas of Non-compliance with the Provisions of Corporate Governance The Company is pleased to inform the shareholders that it is in full compliance with the Corporate Governance Code.

Details of Non-compliance by the CompanyThere are no penalties or strictures imposed on the Company by CMA/MSM or any statutory authority during the period of this report.

Professional Profile of the Statutory AuditorAbout Deloitte & Touche (M.E.):

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms.

Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business

challenges. Deloitte’s more than 200,000 professionals are committed to becoming the standard of excellence.

Deloitte & Touche (M.E.) is a member firm of Deloitte Touche Tohmatsu Limited (DTTL) and is the first Arab professional services firm established in the Middle East region with uninterrupted presence for over 87 years. Deloitte is among the region’s leading professional services firms, providing audit, tax, consulting, and financial advisory services through 26 offices in 15 countries with over 3,000 partners, directors and staff. The Oman Practice currently has three Partners and over 100 professionals.

The total fees paid or due to Deloitte for audit services in 2013 is RO 7,000.

Awards /RecognitionThe Company took part in a CMA sponsored Corporate Governance Excellence Award for the year 2013 and won the second prize in the Services and Insurance sector. The Company has consistently won a prize in every edition of this award.

Acknowledgement by Board of DirectorsThe Directors are required by the Commercial Companies Law 1974,

as amended, and the Capital Market Authority Administrative Decision 5/2007 to prepare financial statements for each financial year which have been made out in accordance with the International Financial Reporting Standards (“IFRS”) to fairly reflect the financial position of the company and its financial performance during the relevant financial period.

In preparing the financial statements, the Directors have:

n selected suitable accounting policies and applied them consistently;

n made judgments and estimates that are reasonable and prudent;

n ensured that all applicable accounting standards have been followed; and

n prepared financial statements on the going concern basis as the Directors have a reasonable expectation, having made enquiries, that the Company have adequate resources to continue in operational existence for the foreseeable future.

The Directors have responsibility for ensuring that the Company keep accounting records which disclose with reasonable accuracy the financial position of the Company and which enable them to ensure that the financial statements comply with Commercial Companies Law of 1974, as amended.

The Board affirms its overall responsibility for the Company’s systems of internal controls and risk management, and for reviewing the adequacy and integrity of those systems. It should be noted, however, that such systems are designed to manage rather than eliminate the risk of failure to achieve business objectives. In addition, it should be noted that any system can provide only reasonable, and not absolute, assurance against material misstatement or loss.

21

Section of Batinah Expressway

ON THE FAST LANE OF PROGRESSThe Batinah Expressway is an arterial 265-kilometre multi-lane carriageway that will enhance road connectivity between regions of Oman, and internationally. Projects like the Batinah and Muscat Expressways, Quriyat-Sur Road and others that are under way, are part of an ambitious plan to expand the national road network by an additional 12,000 kms.

Batinah Expressway

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ManagementDiscussion And AnalysisHealth, Safety, Security & Environment (HSSE)In 2013, the Company closed the year being the consistent leader in the industry on HSSE performance. The overall HSSE performance of the Company was excellent with Zero recordable fatalities and Lost Time Injuries (LTI). A new Goal Zero refresh strategy was launched with key emphasis on preventing harm to people “No Harm” and protecting the environment “No Leak”. This new strategy helped in driving the desired focus on the areas that matters the most to the Company - successful management of HSSE related risks.

HSSE in Retail The Retail business continued its drive to play a leading industry role in promoting best in class HSSE practices in Fuel Service Stations in Oman. This included driving several key changes and initiatives in the way key stakeholders are managed. For example, the first successful and consistent Local Contractor Safety Council Forum was established in Oman which includes all contractors working in the Retail business. This forum focuses on getting senior contractor representatives together each quarter to focus on HSSE related matters. We also launched a new E platform to communicate with our Retailers which enhanced our communication channels to promote and share HSSE communications.

HSSE in Aviation2013 has been another year of high HSSE performance for the Aviation Business with Zero recordable fatalities and Lost Time Injuries (LTI). Six locations out of eight of our aviation locations have managed to win the Shell Global “Goal Zero” HSSE Award, demonstrating the team members’ commitment to maintain high standards of awareness and intervention to ensure safe and compliant operating environment.

HSSE in Distribution In 2013, the Company delivered products to customers with Zero recordable fatalities and Lost Time Injuries (LTI). Our continued attention to reduce the number of product spills has resulted in a significant improvement.

Key to the excellent HSSE performance is the two pronged approach- aligning the key stakeholders on HSSE and ensuring compliance through regular audits coupled with well trained personnel.

HSSE in Lubricants ManufacturingTransport operations remained the number one priority in the Lubricants Business HSSE radar screen throughout 2013. A new lubricants road transport contract was signed with a single professional hauler for all Oman lubricants operations.

Safety Day was a prime highlight which showed staff and contractor’s commitment and involvement in HSSE as different drill scenarios concerned with the lubricant plant operations were practiced.

HSSE in Commercial Fuels and LubricantsA fully flagged Heart and Mind training programme was launched throughout 2013 in the Commercial fuels and lubes department to maintain a culture of managing the risk of road safety exposure to the Company’s Sales and Marketing team. A new Online Journey Management planning tool was also introduced to further effectively manage HSSE related risks associated with long hours business travels. A Stress Management and Resilience Program was rolled out during the year to help staff maintain a healthy work life style.

People Attraction & Recruitment The Company continue to grow in

2013, ending the year with 312 staff compared to 296 in the previous year, ensuring good identification and recruitment of talent despite the strong competing pressures in the market for talent. The Company was able to both replace company leavers and grow new positions, and grow our Omanisation percentage to 90%.

We continued our participation in the annual Career and Training Fair in Sultan Qaboos University. The fair offers great opportunities for the Company’s employees to share their experiences with students and create awareness around careers in Shell Oman. This year we hosted 8 interns in different areas of the business and more potential candidates are identified for future employment opportunities.

Learning & Development Learning and development of employees is a priority in the Company’s people’s agenda. In 2013, we focused on improving the effectiveness of the Individual Development Plans and enhance discussions between employees and line managers.

The company deploys a number of available strategies to help employees develop, both “In Role” and a combination of Online and Face to Face training.

The long established programme delivered to help mid level managers develop was enhanced and delivered in its new format.

Retail

Business EnvironmentIn 2013 the business continued to promote world-class operations excellence standards offering quality fuels and remained committed towards its vision to be the best fuel retailer in Oman; delivering the best value to its customers and shareholders. The retail

23

business experienced a challenging business environment in 2013, with shifting fuel demand patterns, change of regulations, growing customers need and strong competitive pressures. Despite the challenges, the business was able to deliver a robust year on year growth as a result of continuous investment in quality service stations with high throughput. The demand for fuel continues to grow with the Government continuing investment on road and strategic infrastructure across the country.

PerformanceRetail business continued to show a steady year on year growth during 2013 and delivered a historic high in terms of monthly volumes during the month of September. The growth in volume was driven by prior year investments in strategically located service stations coupled with increased customer loyalty through continuously ensuring quality customer experience at service stations. The business continued with its long term growth strategy to invest in Retail Network and strengthen its foot print across the country.

Significant investment was made during the year with 8 new service stations being commissioned bringing the number of service stations to 159 with many more new and site improvement projects in progress. A number of value added projects including 3 KDR (Knock Down and Rebuild) were also delivered during the year as part of the business focus to optimize value from the existing network and enhance customer experience at site.

The business remains focused to deliver its commitment to exceed customer expectations by delivering the best quality fuels and provide customers with the best customer experience every day at every site. The contribution of our business partners remains the driving

force behind continuous improvement on site operations excellence standards aimed at providing a superior customer experience at Shell service stations. During 2013, the top 3 Retailers represented Oman in a ‘Shell Global Retail Smiling Star’ event in Barcelona, held in the presence of the best Shell retailers from more than 70 countries across the world. Further, in order to drive increased customer satisfaction and loyalty ‘Voice of The Customer’ survey has been launched. The survey offers customers a simple mean to give feedback on their experience at the Shell service stations, and is one of the existing Shell global programs that have been rolled out in Oman over the last few years, and aims at translating customer needs into initiatives to remain the first choice of motorists in Oman.

2013 also witnessed changing the operating model of the Convenience Retailing business by giving the opportunity to the current operators to run their existing stores under their brand name. This transition aimed at providing the opportunity to the current operators to grow as SME’s (Small & Medium Enterprises), equipped with their determination and the experience they have gained from operating the Select brand.

Commercial fleet business continued to be an integral part of Retail showing a healthy year on year growth above that of the rest of the retail business with many new customers signed up during the year. Commercial fleet business is in the process of updating its IT infrastructure platform to boost the overall value proposition for its customers.

The business throughout the year launched a number of marketing activities and exciting promotions, aimed at raising the brand awareness and focusing on Fuel Economy and

Quality. The marketing activities received an excellent response from the customers as reflected in the independent Global Customer Tracker Survey results showing the highest growth in recent years in Oman for Shell Brand preference, High Quality Fuel Perception and Customer Satisfaction.

OutlookRetail business will continue to be the dominating segment and a key value driver for the Company. The business is poised for a steady growth sustained by increasing consumer demand, continued government spending on infrastructure and maturing industrial zones in Sohar, Duqum and Salalah increasing avenues for investments. The business however, will have to respond to the challenges of regional shifts in fuel demand, changing regulations and a highly competitive environment. Strategic expansion of network footprint and continuous improvement in customer satisfaction will remain key drivers for growth during 2014. The outlook for 2014 is encouraging and we foresee a stable growth for the retail business.

Commercial

Business EnvironmentIn 2013, the Commercial market continued to be very challenging and competitive with the Government’s continued release of new infrastructure projects. The Company continues to work towards introducing innovative solutions for the market with the introduction of a new product, the Shell Diesel Extra in Q2 2013 for commercial customers. This product enables them to become more efficient operationally and is cost effective.

The Marine sector continued its growth in both Fuels and Lubricants. A significant shift in the Marine market is expected to take effect in 2014; with more vessels

Management Discussion And Analysis

24

anticipated to dock in all three major ports in Oman. The repositioning of the Sultan Qaboos Port has started and our Marine Team has readied itself to take advantage of the changing dynamics.

The Bitumen market continued its growth as more infrastructure projects are coming up in different industry segments. Shell Oman has introduced new technology with the latest product quality to differentiate itself and enhance the bitumen market.

PerformanceThe Commercial Business continued to focus on key Fuel customers through wining major tenders. The sales of Shell Diesel Extra is expected to grow further in the coming years. The Bitumen business supplied specialty grades of bitumen with the support of Shell Group Bitumen technology. Shell has developed a comprehensive specialist product portfolio to meet the needs of different customers.

In Marine we maintained our leadership

position in both Marine Fuel and Lubricants.

OutlookIn 2014 we anticipate major investment projects planned by the government which will attract more investment in the country, and which will reflect in creating more business opportunity in different market segments.

The Company enters 2014 with ambitious strategy to continue its leadership in various market segments. Our focus will be in new differentiated products and technology. Customer service and sales support will always remain the strong base of our execution strategy.

Commercial Lubes

Business EnvironmentGrowth momentum in rising vehicle ownership and ongoing industrialization appears to have sustained in 2013 which in return reflects in a healthy and yet competitive lubricant industry.

Moreover, competition has surged among lubricant brands as a result of increased demand and reduction in global base oil prices. Shell Oman lubricants business has quickly reacted to this change by adapting new initiatives to maintain its market leadership and achieve outstanding results. Despite the dynamics of change in lubricants business this year, the area of focus for the Company revolves around customer retention and development.

PerformanceThe government spending in infrastructure and services has grown in 2013 with the Government Tender Board awarding projects worth millions of Rials. In this regard, Shell Oman lubricants business has signed exclusive lubricants supply agreements with reputed companies in this industry. Shell has also signed a contract to be the sole supplier of lubricants for the Sur-Bid Bid dual carriageway. In addition, we are exclusively providing lubricants to a major contractor at the Duqum port.

25

The other key focus area for Shell lubricants business in 2013 was to drive sales and enhance the Helix brand through the promotion” Win with Shell Helix”. The promotion was designed for the end customers on the high street shops across Oman.

OutlookThe government’s continuous spending plans in infrastructure projects and the expected growth in the automobile industry in Oman in 2014 will create attractive opportunities for the lubricants industry to grow. Shell lubricants business will continue to develop business strategies to increase future revenues and profitability by providing value offerings to target customers and ensuring outstanding customer experience. With the uncertainties in the movement of global base oil prices next year, the lubricant business team is determined to gain market share through product mix optimisation and effective pricing strategies.

Distribution Operations

Business EnvironmentOverall, the business demands increased in 2013 compared to the previous year, resulting in increased delivered volumes. Our renewed road transport contracts have enabled us to focus on HSSE and operational excellence by introducing more state-of-the-art vehicles to the fleet.

In 2013, Shell Oman Distribution Operation again proved its superior capability and prevailed against the adverse weather conditions in ensuring uninterrupted supply of fuels. We were able to meet customer demands in full during the period.

PerformanceIn 2013, overall distribution costs were on target despite growth in delivered volume. This performance was achieved by rigorous implementation of the Distribution Process Improvement Programme, whereby savings in road transport and order fulfilment were

identified in close co-operation with our business partners.

Distribution delivered record volume to the retail network with excellent customer delivery performance statistics. The overall stock-out level was well within target.

All asset integrity investments in Distribution were executed as per plan.

OutlookDistribution is dedicated to reaching Safely - the right products to the right place at the right time for our customers all the time. This is done by focusing on our key value drivers, like HSSE, Unit Cost, Service Level and Competence Development.

This focus will support distribution to achieve the aspired targets in 2014.

Aviation Business

Business EnvironmentThe Aviation sector continues to be


26

intensely competitive with high Jet fuel prices impacting the profitability of the industry. However, in 2013 the aviation business in the country witnessed healthy growth driven by the continual expansion of Oman Air as well as the increased number of Airlines flying into the country. This was reflected in the increase of aircrafts traffic and passengers in both Muscat and Salalah airports which recorded around 15% growth compared to last year.

At Muscat International Airport, the Company continues to be the market leader, servicing Oman Air plus the other key international airlines. However, the stiff competition is driving the margins lower impacting the business profitability.

At Salalah Airport, the business continues to grow mainly driven by growth in the Cargo sector. The Defence volumes continued to contribute to the overall business growth.

PerformanceIn 2013 the Aviation sales grew by 13% compared to 2012. The Business also continues to maintain the highest market share.

The Company has managed to secure its exclusive position at Salalah Airport and both PDO Oil field locations and extended the Concession Agreements.

OutlookThe tourism sector in Oman is expected to record continued growth in 2014, and is expected to grow further when the new airports at Muscat and Salalah are opened in, which we anticipate will have a positive outcome on the Aviation business. Competition pressure will remain intense within the industry.

With buoyant Jet fuel prices, and with fuel being a big portion of the airlines’ total cost, airlines are expected to be more creative in driving their costs down. Marketers will find it challenging to negotiate new contracts in a heavily price driven environment.

The Company intends to secure and grow more profitable footing in the Aviation Business, by targeting to win new Contracts with airlines and the government.

Lubricants Supply Chain

Business Environment Base oil and additives prices showed encouraging reduction in Q1 2013 before stabilizing for the rest of the year, Lubricants Supply Chain has benefited much from the availability of own new base Oil tanks in Sohar allowing better supply planning and price negotiation with suppliers.

Total lubricants volume delivered in 2013 remained similar to that of last year and continued to show more demand on small packs in both Local and Export markets.

PerformanceLubricants Supply Chain maintained high operations excellence performance during 2013 building on the strong

27


Shell Group linkage. The On Time, In Full delivery and Customer Satisfaction Index target to our customers was met.

The Finished Products, Base Oil and Raw materials stock management was a key driver in reducing the working capital and improving the cash flow process in 2013.

Cost saving initiatives in raw material and operating expenditure resulted in improving the competitiveness and the profitability of local and export sales.

By introducing a high level of automation in the Lubricant Plant we were able to meet the high extra demand on small packs. In addition, with robust preventive maintenance and less downtime we were able to meet the production targets. The Plant has ranked #1 in Asset Integrity Process Safety compliance among Shell Plants in the Asia Pacific and Middle East region.

OutlookLubricants Supply Chain as part of the Shell global lubricant business is planning to go through formulation and technology enhancements in order to maintain our leadership position in the market. The plant will be ready for the expected extra demand with a very competitive cost and unbeatable delivery promise.

Social InvestmentIn 2013, Shell Oman maintained a steady focus on sustainable development by undertaking wide range of Corporate Social Responsibility (CSR) initiatives that drive social awareness and contribute towards organic growth of the Company.

The Company continues its role in the Sultanate’s economy by supporting major national events such as Muscat and Salalah festivals that help promote tourism in Oman. To emphasize on Shell Oman’s commitment to promote

road safety awareness in the society, Children’s Shell Traffic Park was set up in Muscat Festival 2013 in partnership with the Royal Oman Police, the Ministry of Education and the Oman Road Safety Association. In addition to that, we collaborated with the Ministry of Education to organise a road safety campaign titled ‘Defensive Driving for Drivers’ in support of the efforts of the Ministry in developing its educational services and standards, and to tackle the traffic accidents-related deaths and injuries statistics that have touched many families in Oman by helping the participating schools efficiently apply the shared expertise and good practices in the field of road safety. Moreover, we continued with our annual nationwide road safety awareness competition ‘Shell Road Safety Awards’ to encourage responsible behaviours by drivers and passengers. Participating teachers and students present their best projects and research reports to address various

28

irresponsible driving behaviours such as speeding, not wearing seatbelts, using mobile phones, dangerous overtaking and keeping insufficient safety distances.

In line with Shell Oman’s CSR initiatives, the Company organized various environmental events such as the ‘Beach Clean-up’ campaign that took place in various regions of Oman, which is an extension of the ‘My Beautiful Oman’ programme. We also continued to encourage environmental friendly behaviours amongst our employees by participating in Earth Hour 2013, promoting recycling, installing water saving devices in the office and introducing many innovative business solutions that reduce the unnecessary usage of paper and energy.

To celebrate the Holy Month of Ramadhan, the Company continued its annual Ramadhan tradition of ‘Ramadhan Food Distribution Drive’ aiming at extending a helping hand to communities in need across Oman, and exercising the power of giving during

the Holy Month. Also, the Company arranged for ‘Qaranqasho’ celebration for our employees and their families with children from the Orphan Care Centre. In addition, a visit to Dar Al Hanan, an initiative of Oman Cancer Association was organized to share Iftaar, fun activities and Eid gifts in an event that aimed to bring smile to the children and families residing at Dar Al Hanan.

In addition, as an ongoing support to non-profit organisations, the Company organized various internal and external initiatives to help raise awareness and funds for the cause of many charity organizations such as Oman Cancer Association, Dar Al Atta, Association of Early Intervention for Children with Disability, Oman Diabetes Association and many others, and we were always fortunate to see active response from our employees towards these initiatives by contributing positively towards the worthy causes in various forms. The CSR initiatives took on a new life as we participated in many charity events such

as the ‘Beat Diabetes Walkathon’, ‘10th Annual Walkathon of Oman Cancer Association’, and also actively took part in blood donation campaigns organized by the Oman Central Blood Bank.

29

Duqum Port

CREATING PORTSOF PROSPERITYThe Port of Duqm is an upcoming world-class maritime hub strategically located close to the one of the busiest sea-lanes for East-West trade. The development at Duqm and other sea terminals at Sohar, Muscat and Salalah reflect Oman’s strong seafaring heritage and future growth.

30

Auditor’s Report

31

2013 2012

Note RO’000 RO’000

Revenue 430,570 403,552

Cost of sales (389,062) (364,398)

Gross profit 41,508 39,154

Other Income 5 3,813 3,506

Selling and distribution expenses (24,840) (22,993)

Administrative expenses (6,570) (5,613)

Operating profit 13,911 14,054

Interest expense (147) (122)

Interest income 23 27

Profit before income tax 13,787 13,959

Income tax expense 8 (1,692) (1,670)

Profit and comprehensive income for the year 12,095 12,289

Basic and diluted earnings per share 22 RO 0.121 RO 0.123

Dividend per share 23 RO 0.105 RO 0.105

The notes on pages 37 to 60 form an integral part of these financial statements.Report of the Auditors - page 31.

Statement of Profit or Loss and Other Comprehensive IncomeFor the year ended 31 December 2013

32

Statement of Financial PositionAt 31 December 2013

2013 2012Note RO’000 RO’000

ASSETSNon-current assetsProperty, plant and equipment 9 21,603 19,378Intangible assets 10 2,663 3,518Deferred tax asset 11 530 409Total non-current assets 24,796 23,305

Current assetsInventories 12 11,805 17,589Receivables and prepayments 13 47,092 39,722Cash at bank and in hand 14 3,527 3,859Total current assets 62,424 61,170

Total assets 87,220 84,475

EQUITYShare capital 15 10,000 10,000Legal reserve 17 3,587 3,587Retained earnings 18,530 16,935Total equity 32,117 30,522

LIABILITIESNon-current liabilitiesEmployee terminal benefits 18 712 618

Current liabilitiesShort term loan 19 6,000 8,000Payable and accruals 20 45,945 42,796Income tax payable 1,809 1,837Provisions 21 637 702

Total current liabilities 54,391 53,335

Total liabilities 55,103 53,953

Total equity and liabilities 87,220 84,475

Net assets per share 25 RO 0.321 RO 0.305

The financial statements on pages 32 to 60 were authorised for issue in accordance with a resolution of the board of directors on 27 January 2014 and signed on their behalf by:

John Blascos Scott McDonald Chairman Finance Director


33

Statement of Changes in Equity For the year ended 31 December 2013

Sharecapital

Legalreserve

Retainedearnings Total

Note RO’000 RO’000 RO’000 RO’000

At 1 January 2012 10,000 3,587 16,346 29,933

Comprehensive income:

Profit for the year - - 12,289 12,289

Transaction with owners:

Dividend paid - 2011 23 - - (11,700) (11,700)

At 1 January 2013 10,000 3,587 16,935 30,522

Comprehensive income:

Profit for the year - - 12,095 12,095

Transaction with owners:

Dividend paid - 2012 23 - - (10,500) (10,500)

At 31 December 2013 10,000 3,587 18,530 32,117


34

Statement of Cash Flows For the year ended 31 December 2013

2013 2012

Note RO’000 RO’000

OPERATING ACTIVITIES

Profit before income tax 13,787 13,959

Adjustments for:

Depreciation 9 4,383 4,439

Amortisation 10 895 798

(Reversal) / provision for employee retention scheme - net 21 (18) 47

Employee terminal benefits expense 18 103 120

Loss / (gain) on disposal of property, plant and equipment 438 (8)

Interest income (23) (27)

Interest expense 147 122

Operating cash flows before payments of employee terminal benefits, environmental liability and working capital changes

19,712 19,450

Employee terminal benefits paid 18 (9) (104)

Environmental liability paid 21 (47) (71)

Working capital changes due to:

Inventories 5,784 (6,484)

Receivables and prepayments (7,370) (8,035)

Payables and accruals 3,149 15,646

21,219 20,402

Income taxes paid (1,841) (1,768)

Net cash generated from operating activities 19,378 18,634

INVESTING ACTIVITIES

Purchase of property, plant and equipment and intangible assets 9-10 (7,113) (8,360)

Proceeds from disposal of property, plant and equipment 27 60

Interest received 23 27

Net cash used in investing activities (7,063) (8,273)

FINANCING ACTIVITIES

Dividends paid 23 (10,500) (11,700)

Interest paid (147) (122)

(Decrease)/ increase in short term loans (2,000) 1,000

Net cash used in financing activities (12,647) (10,822)

Net change in cash and cash equivalents (332) (461)

Cash and cash equivalents at beginning of the year 3,859 4,320

Cash and cash equivalents at end of the year 14 3,527 3,859


35

BUILDING A VIBRANTDESTINATIONThe new Oman Convention & Exhibition Centre is expected to attract visitors from around the world and increase hotel room availability significantly. The centre is one of more than 30 potential sites for tourism-related developments to enhance economic diversification, employment opportunities and investments.

Artisitic impression of Oman Convention & Exhibition CentreArtisitic impression of Oman Convention & Exhibition Centre

36

Notes to the Financial StatementsFor the year ended 31 December 2013

1 Legal status and principal activities

Shell Oman Marketing Company SAOG (the company) is registered in the Sultanate of Oman as a public joint stock company and is primarily engaged in the marketing and distribution of petroleum products and blending of lubricants. The company has its primary listing on the Muscat Securities Market.

The accounts of the company are consolidated in the financial statements of Royal Dutch Shell plc (the ultimate parent company), a company incorporated in the United Kingdom.

2 Summary of significant accounting policies

The principal accounting policies are summarised below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparation

(a) The financial statements are prepared on the historical cost basis and in accordance with International Financial Reporting Standards (IFRS). These also comply with the relevant disclosure requirements of the Commercial Companies Law of 1974, as amended, and the rules and guidelines on disclosure issued by the Capital Market Authority.

(b) The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 4.

Adoption of new and revised International Financial Reporting Standards (IFRSs)

For the year ended 31 December 2013, the Company has adopted all the new and revised standards and interpretations issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for the period beginning on 1 January 2013.

Standards and Interpretations adopted with no effect on the financial statements

The following new and revised Standards and Interpretations have been adopted in these financial statements. Their adoption has not had any significant impact on the amounts reported in these financial statements but may affect the accounting for future transactions or arrangements.

37


2 Summary of significant accounting policies (continued)

2.1 Basis of preparation (continued)

Adoption of new and revised International Financial Reporting Standards (IFRSs) (continued)

Amendments to IFRS 7 Disclosures - Offsetting Financial Assets and Financial Liabilities

The amendments to IFRS 7 require entities to disclose information about rights of offset and related arrangements (such as collateral posting requirements) for financial instruments under an enforceable master netting agreement or similar arrangement.

IFRS 10: Consolidated Financial Statements

IFRS 10 replaces the parts of IAS 27 Consolidated and Separate Financial Statements that deal with consolidated financial statements and SIC-12 Consolidation - Special Purpose Entities.

IFRS 11: Joint arrangements IFRS 11, replaces IAS 31 Interest in Joint Ventures and guidance contained in a related interpretation.

IFRS 12: Disclosure of Interests in Other Entities

IFRS 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities.

IFRS 13: Fair Value Measurement IFRS 13 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements.

Amendments to IAS 1 Presentation of Items of Other Comprehensive Income

The amendments introduce new terminology, whose use is not mandatory, for the statement of comprehensive income and income statement.

Annual Improvements 2009-2011 Cycle Makes amendments to the following standards:

IAS 1 - Clarification of the requirements for comparative information

IAS 16 - Classification of servicing equipment

IAS 32 - Clarify that tax effect of a distribution to holders of equity instruments should be accounted for in accordance with IAS 12 Income Taxes

IAS 34 - Clarify interim reporting of segment information for total assets in order to enhance consistency with the requirements in IFRS 8 Operating Segments.

IFRIC 20: Stripping Costs In the Production Phase of a Surface Mine

IFRIC 20 addresses the diversity in practice in accounting for benefits accruing to the entity from the surface mine stripping activity.

IAS 19 Employee Benefits (as revised in 2011)

IAS 19 (as revised in 2011) changes the accounting for defined benefit plans and termination benefits.

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Adoption of new and revised International Financial Reporting Standards (IFRSs) (continued)

Standards and Interpretations in issue not yet effective

At the date of authorisation of these consolidated financial statements, the following new and revised Standards and Interpretations were in issue but not yet effective:

Effective for annual periods beginning on or after

New IFRS and relevant amendments

IFRS 9: Financial Instruments (as revised in 2010 to include requirements for the classification and measurement of financial liabilities and incorporate existing derecognition requirements)

January 2015

Amendment to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS 27 Separate Financial Statements, to provide ‘investment entities’ (as defined) an exemption from the consolidation of particular subsidiaries.

January 2014

IAS 32 : Financial instruments: presentation, Offsetting Financial Assets and Financial Liabilities: to clarify certain aspects because of diversity in application of the requirements on offsetting.

January 2014

IAS 36: impairment of assets, Recoverable Amount Disclosures for Non-Financial Assets to reduce the circumstances in which the recoverable amount of assets or cash-generating units is required to be disclosed, clarify the disclosures required, and to introduce an explicit requirement to disclose the discount rate used.

January 2014

IAS 39: Financial Instruments: Recognition and Measurement, Novation of Derivatives and Continuation of Hedge Accounting to clarify that there is no need to discontinue hedge accounting if a hedging derivative is novated, provided certain criteria are met.

January 2014

New Interpretations and amendments to Interpretations:

IFRIC 21 – Levies January 2014The directors anticipate that the adoption of the above standards and interpretations in future periods will have no material impact on the financial statements of the Company in the period of initial application.

2.2 Revenue

Revenue from the sale of goods is measured at the fair value of the consideration received or receivable and is recognised when the significant risks and rewards of ownership have been transferred to the buyer, it is probable that future economic benefits will flow to the entity, the amount of revenue and associated costs can be measured reliably, and there is no continuing management involvement with the goods. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved.

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2.3 Directors’ remuneration

The Directors’ remuneration is governed as set out in the Memorandum of Association of the company, the Commercial Companies Law of 1974, as amended and the regulations issued by the Capital Market Authority.

The Annual General Meeting shall determine and approve the remuneration and the sitting fees for the Board of Directors and its sub-committees provided that such fees shall not exceed 5% of the annual net profit after deduction of the legal reserve and the optional reserve and the distribution of dividends to the shareholders and provided that such fees shall not exceed RO 200,000. The sitting fees for each director shall not exceed RO 10,000 in one year.

2.4 End of service benefits and leave entitlements

End of service benefits are accrued in accordance with the terms of employment of the company’s employees at the statement of financial position date, having regard to the requirements of the Oman Labour Law 2003, as amended. Employee entitlements to annual leave and leave passage are recognised when they accrue to employees and an accrual is made for the estimated liability arising as a result of services rendered by employees up to the statement of financial position date. These accruals are included in current liabilities, while that relating to end of service benefits is disclosed as a non-current liability.

Contributions to a defined contribution retirement plan and occupational hazard insurance for Omani employees in accordance with the Omani Social Insurances Law of 1991 are recognised as an expense in the statement of comprehensive income as incurred.

2.5 Foreign currency

Items included in the company’s financial statements are measured using Rial Omani which is the currency of the Sultanate of Oman, being the economic environment in which the company operates (the functional currency). These financial statements are prepared in Rial Omani, rounded to the nearest thousand.

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the transaction date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income.

2.6 Finance costs and income

Finance costs comprise interest cost on borrowings. Finance income comprises interest received or receivable on funds invested. Interest income is recognised in the statement of comprehensive income as it accrues taking into account the effective yield on the asset. Interest expense is recognised in the statement of comprehensive income as it accrues using the effective interest rate method.

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2.7 Income tax

Income tax is calculated as per the fiscal regulations of the Sultanate of Oman.

Income tax on the profit for the year comprises current tax and deferred tax. Income tax is recognised in the statement of comprehensive income except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using the tax rates enacted or substantially enacted at the statement of financial position date, and any adjustment to income taxes payable in respect of previous years.

Deferred tax is provided using the statement of financial position liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantially enacted at the statement of financial position date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the unused tax losses and credits can be utilised. The carrying amount of deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the company intends to settle its current tax assets and liabilities on a net basis.

2.8 Property, plant and equipment

Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately, including major inspection and overhaul expenditure, is capitalised. Subsequent costs are included in the asset’s carrying amount 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 costs of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the statement of comprehensive income during the financial year in which they are incurred.

The cost or valuation of property, plant and equipment is written down to residual value in equal instalments over the estimated useful lives of the assets. The estimated useful lives are:

YearsBuildings 6 - 25Plant and equipment 3 - 7Motor vehicles 3

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2.8 Property, plant and equipment (continued)

Work-in-progress is stated at cost. When the underlying asset is available for use in its intended condition and location, work-in-progress is transferred to the appropriate property, plant and equipment category and depreciated in accordance with depreciation policy of the company.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of financial position date.

Where the carrying amount of an asset is greater than its estimated recoverable amount it is written down immediately to its recoverable amount.

Gains and losses on disposals of property, plant and equipment are determined by reference to their carrying amounts and are taken into account in determining operating profit.

2.9 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Managing Director who manages the company on a day-to-day basis, as per the directives given by the board of directors that makes strategic decisions.

2.10 Intangible assets

Intangible assets are stated at cost, net of amortisation and impairment losses. Subsequent expenditure on intangible assets is capitalised only when it is probable that the associated future economic benefits will flow to the company and the cost can be measured reliably. All other expenditure is expensed as incurred.

Intangible assets with finite lives are amortised from the date when they are available for use. Amortisation is charged to the statement of comprehensive income on a straight-line basis over the useful life of the intangible asset.

2.11 Inventories

Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated cost of completion and estimated cost necessary to make the sale.

The cost of inventories is determined using the first-in-first-out method and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.

Provision is made where necessary for obsolete, slow moving and defective items, based on management’s assessment.

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2.12 Financial assets

The company classifies its financial assets into loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

Loans and receivablesLoans 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 those with maturities greater than twelve months after the end of the reporting period. These are classified as non-current assets. The company’s loans and receivables comprise trade and other receivables and cash and cash equivalents in the statement of financial position (notes 2.13 and 2.14).

2.13 Trade and other receivables

Trade and other receivables are stated at their fair value. Trade debtors are initially recognised at fair value and subsequently are stated at amortised cost using the effective interest rate method less impairment losses. A provision for impairment of trade receivables is established when there is objective evidence that the company will not be able to collect all amounts due according to the original terms of receivables.

2.14 Cash and cash equivalents

Cash and cash equivalents comprise cash in hand, bank balances and short-term deposits with an original maturity of three months or less.

2.15 Impairment

Financial assetsFinancial assets are assessed for indicators of impairment at each reporting date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted.

For financial assets, objective evidence of impairment could include:

n significant financial difficulty of the counterparty;n default or delinquency in payments; orn it becomes probable that the borrower will enter bankruptcy or financial reorganisation.

Certain categories of financial assets, such as trade receivables that are not individually significant, but which are past due, are assessed for impairment on a collective basis.

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2.15 Impairment (continued)

Objective evidence of impairment for a portfolio of receivables could include the company’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the credit period as well as observable changes in national or local economic conditions that correlate with default on receivables.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of a provision account.

When a trade receivable is considered uncollectible, it is directly written off after appropriate approvals and recognised in the statement of comprehensive income within selling and distribution expenses. Subsequent recoveries of amounts previously written off are credited to the statement of comprehensive income.

Non-financial assetsThe carrying amounts of the company’s non-financial assets other than inventories and deferred tax asset are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indications exist then the asset’s recoverable amount is estimated.

An impairment loss is recognised if the carrying amount of an asset or cash generating unit exceeds its value in use and its fair value less costs to sell. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specified to the asset. Impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

2.16 Provisions

A provision is recognised in the statement of financial position when the company has a legal or constructive obligation as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. Provision for environment remediation, resulting from past operations or events, is recognised in the period in which an obligation to a third party arises and the amount can be reliably estimated. Measurement of liabilities is based on current legal requirements and existing technology.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. Where some or all of the economic benefits required to settle a provision are expected to be recovered from third parties, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

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2.17 Dividends

Dividends are recognised as a liability in the period in which the dividends are approved by the company’s shareholders.

Dividends for the year that are approved after the statement of financial position date are dealt with as a non-adjusting event after the statement of financial position date.

2.18 Trade and other payables

Liabilities are recognised for amounts to be paid in the future for goods or services received, whether billed by the supplier or not.

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method.

2.19 Leases

Leases where the lessor retains substantially all the risks and rewards of ownership of the asset are classified as operating leases. Operating lease payments are recognised as an expense in the statement of comprehensive income on a straight line basis over the lease term.

2.20 Share capital

Ordinary and multi-vote shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds.

3 Financial risk management

Financial risk factors

The company’s activities expose it to a variety of financial risks including the effects of changes in market risk (including foreign exchange risk and interest rate risk), credit risk and liquidity risk. The company’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the company. Risk management is carried out by management under policies approved by the Board of Directors.

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3 Financial risk management (continued)

Market risk

Foreign exchange risk

Foreign exchange risk arises where the value of a financial instrument changes due to changes in foreign exchange rates. The company is exposed to foreign exchange risk on sales, purchases and bank deposits that are denominated in foreign currencies. The company’s net exposure to the United States Dollar (USD) resulting from USD denominated sales is offset by USD denominated purchases of base oils, additives, sea freight and other items. Since the Rial Omani is currently pegged to the USD, management believe that the exchange rate fluctuation would have an insignificant impact on the profit. The company’s practice is to utilise USD forward exchange contracts to hedge its exposure in respect of any significant USD denominated bank deposits.

The company has no forward exchange contracts outstanding at 31 December 2013 (2012 - nil).

Interest rate risk

The company’s interest rate risk arises from their short term loan. The company manages its exposure to interest rate risk by utilising only short-term financing at the rates fixed at the time of taking the finance.

Management has estimated the effect on profit for the year due to increase or decrease in interest rates to be insignificant.

Credit risk

Credit risk is the risk of financial loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from cash and cash equivalents, as well as credit exposures to customers. The company has a credit policy in place and exposure to credit risk is monitored on an on-going basis. Credit evaluations are performed on all customers requiring credit over a certain amount. The company requires bank guarantees on higher credit risk customers. The company does not require collateral in respect of all other financial assets.

Investments are made in liquid securities and only with commercial banks in Oman. Management does not expect any counter party to fail to meet its obligations.

Concentration of credit risk arises when a number of counter-parties are engaged in similar business activities, or activities in the same geographic region, 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 or geographical location.

The company has significant concentrations of credit risk with the Government sector. At 31 December 2013, Government organisations in Oman accounted for 38% (2012 - 40%) of the outstanding trade accounts receivable. At 31 December 2013, there were no other significant concentrations of credit risk.

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Financial risk factors (continued)

Credit risk (continued)

Credit risk on other financial assets, including cash and cash equivalents arises from the risk of default of the counterparty, with a maximum exposure equal to the carrying amount of these balances.

Cash and bank balances are placed on deposit with financial institutions in the Sultanate of Oman.

Liquidity risk

The company limits its liquidity risk by ensuring bank facilities are available. The company’s terms of sales require amounts to be paid on an average of 30 days from the date of sale. Trade payables are normally settled within 45 days of the date of purchase. The table below summarises the maturities of the company’s undiscounted financial liabilities at 31 December 2013, based on contractual payment dates and current market interest rates.

2013 Up to one year

RO’000

Payables and accruals 45,945

Provisions 637

Total 46,582

2012

Payables and accruals 42,796

Provisions 702

Total 43,498

Capital risk management

The company’s objectives when managing capital are to safeguard the company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain a commercially defensible capital structure to reduce the cost of capital.

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Financial risk factors (continued)

Capital risk management (continued)

In order to maintain or adjust the capital structure, the company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

Fair value estimation

The face value less any estimated credit adjustments for financial assets and liabilities with a maturity of less than one year are assumed to approximate to their fair values. Financial assets consist of cash and bank balances and trade and other receivables. Financial liabilities consist of payables and accruals.

4 Critical accounting estimates and judgements

The preparation of financial statements in conformity with IFRS 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 company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results.

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 areas requiring a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are set out below.

Impairment of trade receivablesAn estimate of the collectible amount of trade receivables is made when collection of the full amount is no longer probable. For individually significant amounts, this estimation is performed on an individual basis. Amounts which are not individually significant, but which are past due, are assessed collectively and a provision applied according to the length of time past due, based on historical recovery rates.

At the statement of financial position date, gross trade accounts receivable were RO 41,964,813 (2012 - RO 33,509,651) and the provision for doubtful debts was RO 839,219 (2012 - RO 681,359). Any difference between the amounts actually collected in future periods and the amounts expected will be recognised in the statement of comprehensive income.

DepreciationDepreciation is charged so as to write off the cost of the assets over their estimated useful lives. The calculation of useful lives is based on management’s assessment of various factors such as the operating cycles, the maintenance programs, and normal wear and tear using its best estimates.

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5 Other Income

Other income consists of Shell fuel cards income, aviation commission, rental income from filling station dealers, Convenience stores franchisee fees, and throughput and product handling fees for use of the Company’s assets.

6 Segmental information

Business segments

Management has determined the company’s operating segments based on the reports reviewed by the Managing Director, that are used to make strategic decisions.

The Managing Director identifies operating segments based on a business perspective. The reportable operating segments derive their revenue primarily from the sale of refined petroleum products.

The segment information provided to the Managing Director for the reportable segments for the year ended 31 December 2013 is as follows:

2013 2012

RO’000 RO’000

Retail sales 218,608 204,420

Commercial sales 74,266 63,653

Lubricants sales 37,812 41,380

Aviation sales 99,884 94,099

430,570 403,552

7 Employee costs

Employee costs included in selling and distribution and administrative expenses comprise:

2013 2012

RO’000 RO’000

Salaries, wages and bonus 4,282 3,883

Allowances and other benefits 2,719 2,467

7,001 6,350

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8 Income tax

2013 2012

RO’000 RO’000

Income tax expense comprises

Current tax expense 1,813 1,785

Deferred tax credit (121) (115)

1,692 1,670

The company is liable to income tax in accordance with the income tax law of the Sultanate of Oman at the enacted tax rate of 12% on taxable income in excess of RO 30,000. The following is a reconciliation of income taxes calculated on accounting profits at the applicable tax rate with the income tax expense for the year:

2013 2012

RO’000 RO’000

Accounting profit before tax 13,787 13,959

Tax on accounting profit before tax at 12% 1,651 1,671

Add tax effect of:

Non-deductible expenses 41 (1)

Tax charge for the year 1,692 1,670

The company’s tax assessments for the years 2010 to 2013 have not yet been assessed by Oman taxation authorities. The Board of Directors consider that the amount of additional taxes, if any, that may become payable on finalisation of assessment of the open tax years would not be significant to the company’s financial position at 31 December 2013.

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9 Property, plant and equipment

BuildingsPlant andequipment

Motorvehicles

Capitalwork-in-progress Total

RO’000 RO’000 RO’000 RO’000 RO’000Cost

1 January 2012 1,185 46,200 718 2,244 50,347

Acquisitions 164 375 97 4,987 5,623

Disposals (26) (1,533) (108) - (1,667)

Transfers 483 1,744 - (2,238) (11)

1 January 2013 1,806 46,786 707 4,993 54,292

Acquisitions 466 2,107 - 4,500 7,073

Disposals (136) (1,943) (60) - (2,139)

Transfers 1,129 3,391 12 (4,532) -

31 December 2013 3,265 50,341 659 4,961 59,226

Depreciation

1 January 2012 807 30,620 663 - 32,090

Charge for the year 52 4,335 52 - 4,439

On disposals (26) (1,481) (108) - (1,615)

1 January 2013 833 33,474 607 - 34,914

Charge for the year 163 4,193 27 - 4,383

On disposals (5) (1,609) (60) - (1,674)

31 December 2013 991 36,058 574 - 37,623

Net book value

31 December 2013 2,274 14,283 85 4,961 21,603

31 December 2012 973 13,312 100 4,993 19,378

The company’s depots, buildings and lubricant blending plant are constructed on land leased from the Ministry of Oil and Gas based on a lease agreement dated 1 November 2009.

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10 Intangible assets

2013 2012

RO’000 RO’000

Cost

At 1 January 4,576 2,434

Acquisitions 40 2,737

Disposals - (606)

Transfers - 11

At 31 December 4,616 4,576

Amortisation

At 1 January 1058 866

Charge for the year 895 798

On Disposals - (606)

At 31 December 1,953 1,058

Carrying amount

At 31 December 2,663 3,518

Intangible assets represent costs incurred in connection with the acquisition, development and implementation of an Enterprise Resources Planning system and other computer software and is amortised over a period of five years.

11 Deferred tax asset

The deferred tax asset recognised in the statement of financial position is attributable to the following:

At1 January

2013

(Charge) / credit for the

year

At 31 December

2013

RO’000 RO’000 RO’000

Provisions and depreciation 409 121 530

At1 January 2012

(Charge) / credit for the

year

At 31 December

2012

RO’000 RO’000 RO’000

Provisions and depreciation 294 115 409

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12 Inventories

2013 2012

RO’000 RO’000

Petroleum products 8,763 11,248

Raw materials 3,042 6,341

11,805 17,589

13 Receivables and prepayments

Trade receivables 41,965 33,509

Less: allowance for impairment losses (839) (681)

41,126 32,828

Receivables from related parties (note 24) 3,515 4,688

Trade and related party receivables, net of impairment losses 44,641 37,516

Prepayments 1,881 1,681

Other receivables 570 525

47,092 39,722

As at 31 December 2013, trade receivables of RO 839,219 (2012 - RO 681,359) were impaired and provided against. Movements in the allowance for impairment of receivables were as follows:

2013 2012

RO’000 RO’000


Provision for the year 158 455

At 31 December 839 681

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13 Receivables and prepayments (continued)

As at 31 December, the ageing of unimpaired trade receivables is as follows:

Past due but not impaired

TotalUnapplied

Credit

Neither past due nor

impaired< 30 days

30 - 60 days

60 - 90 days >90 days

RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000

2013 41,965 (2,091) 33,961 1,362 4,034 921 3,778

2012 33,509 (1,884) 27,463 890 2,764 1,138 3,138

The amounts are considered to be due within 3 to 45 days from the date of invoice for all customers and the vast majority are unsecured. Unimpaired receivables are expected, on the basis of past experience, to be fully recoverable.

The other classes within receivables and prepayments do not contain impaired assets. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above.

14 Cash at bank and in hand

2013 2012

RO’000 RO’000

Bank balances (56) 1,758

Deposit accounts 3,583 2,101

3,527 3,859

Included in deposit accounts are call deposits of RO 3,189,064 (2012 - RO 1,778,839) denominated in Rial Omani and RO 394,378 (2012 - RO 322,316) denominated in US Dollars, with commercial banks in Oman. These are short term in nature and carry interest at commercial rates. Bank balances and deposit accounts are placed with reputed financial institutions. Hence management believes that the credit risk with respect to these balances is minimal.

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15 Share capital

The company’s authorised, issued and fully paid-up share capital consists of 100,000,000 shares of 100 baisa each (2012 - 100,000,000 shares of 100 baisa each) as follows:

2013 2012

RO’000 RO’000

5,000,000 Multi-vote shares of 100 baisa each 500 500

95,000,000 Ordinary shares of 100 baisa each 9,500 9,500

10,000 10,000

In accordance with Article 6 of the company’s Articles of Association, the holder of each multi-vote share is entitled to two votes at the annual general meetings of the company. A company controlled by the ultimate parent holds all the multi-vote shares.

16 Significant shareholders

At 31 December, shareholders owning more than 5% of the company’s share capital are as follows:

Number of shares % of holding

2013 2012 2013 2012

Multi-vote shares

Shell Overseas Investments BV 5,000,000 5,000,000 5% 5%

Ordinary shares

BV Dordtsche Petroleum Maatschappij 20,000,000 20,000,000 20% 20%

Shell Overseas Investments BV 15,000,000 15,000,000 15% 15%

Civil Service Employees Pension Fund 9,720,814 9,122,963 9.7% 9.1%

Shell Petroleum NV 8,800,000 8,800,000 8.8% 8.8%

MOD Pension Fund 8,115,990 8,136,390 8.1% 8.1%

17 Legal reserve

Article 106 of the Commercial Companies Law of 1974, as amended requires that 10% of a company’s net profit be transferred to a non-distributable legal reserve until the amount of legal reserve becomes equal to at least one-third of the company’s issued share capital. Since the amount of legal reserve has exceeded one-third of the company’s share capital, no further transfers have been made during the year. This reserve is not available for distribution.

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18 Employee terminal benefits

2013 2012

RO’000 RO’000


Increase for the year 103 120

Paid during the year (9) (104)


19 Short term loan

The carrying amount of the company’s short term loan is denominated in Rial Omani. The short term loan is unsecured, carries interest at a commercial rate and is repayable on 5 January 2014. The company has adequate facilities with local banks to repay / rollover the loan to meet its ongoing business requirements. The company is not required to pay any arrangement or commitment fees.

20 Payables and accruals

2013 2012

RO’000 RO’000

Trade payable 37,779 33,413

Accrued expenses 4,914 3,374

Other payables 53 78

Payable to related parties (note 24) 3,199 5,931

45,945 42,796

21 Provisions

Environmental provision 241 288

Provision for employee retention scheme 396 414

637 702Environmental provision


Less: utilised during the year (47) (71)


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21 Provisions (continued)

The company provides for environmental costs based on environmental contamination assessments made on its delivery and storage sites.

Provision for employee retention scheme

2013 2012

RO’000 RO’000


Provided during the year 152 159

Less: utilised during the year (170) (112)


The company has an employee retention scheme designed to enhance benefits to certain employees. The associated provision has been created by charging the statement of comprehensive income and is expected to be utilised after three years of employment in accordance with the scheme.

22 Earnings per share

The calculation of basic earnings per share at 31 December 2013 is based on net profit for the year in the amount of RO 12,095,000 (2012 - RO 12,289,000) and 100,000,000 shares (2012 - 100,000,000 shares).

23 Dividends paid and proposed

Dividends paidDuring the year, dividends of RO 0.105 (2012 - RO 0.117) per share totalling to RO 10,500,000 relating to 2012 were declared and paid (2012 - RO 11,700,000 relating to 2011 were declared and paid).

Proposed dividendThe Board of Directors at their meeting dated 27 January 2014, have proposed a dividend of RO 10,500,000 for the year ended 31 December 2013 (2012 - RO 10,500,000).

Dividend per shareThe calculation of dividend per share is based on proposed final dividend totalling RO 10,500,000 (2012 - RO 10,500,000) and 100,000,000 shares (2012 - 100,000,000 shares) and is subject to approval at the Annual General Meeting.

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24 Related party transactions

The company has entered into transactions with subsidiaries of the ultimate parent and entities over which certain directors are able to exercise significant influence. Terms of these transactions are approved by the Board of Directors and Shareholders.

(i) The transactions with related parties included in the statement of comprehensive income were as follows:

2013 2012

RO’000 RO’000

Sale of goods 38,823 49,881

Purchase of goods and services 27,848 20,375

Service and trademark licence fees 2,002 1,835

Bank interest expense 109 83

Revenue from related party sales in the amount of approximately RO 39 million (2012 - RO 50 million) were to companies controlled by the Shell Group and relate to sales of lubricants and aviation fuel. Other related party sales relate to sales to entities that are controlled by the directors of the company. Related party purchases were from companies controlled by the Shell Group and were primarily for supply of base oils and additives used for lubricant blending.

During the year, two (2012 - two) of the company’s directors were also employees of the company during the year. In their capacity as employees of the company, they earned an aggregate of RO 281,786 (2012- RO 266,183) in salaries and benefits. These two (2012 - two) directors earned no additional remuneration in their separate capacity as directors.

During the year eight (2012 - eight) non-executive directors earned an aggregate amount of RO 100,100 (2012 - RO 108,400) in respect of meeting fees and director’s remuneration.

(ii) Compensation of key management personnel

The remuneration of executive directors and other members of key management during the year were as follows:

2013 2012

RO’000 RO’000

Short-term benefits 560 542

Employees’ end of service benefits 46 48

606 590

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24 Related party transactions (continued)

(iii) Amounts due from and due to related parties are disclosed in notes 13 and 20 respectively.

(iv) Outstanding balances at the year-end arise in the normal course of business. No provision for impairment has been made for 2013 and 2012 in respect of amounts due from related parties.

25 Net assets per share

The calculation of net assets per share is based on net assets at 31 December 2013 in the amount of RO 32,117,000 (2012 - RO 30,522,000) and 100,000,000 shares (2012 - 100,000,000 shares).

26 Financial instruments

The accounting policies for financial instruments have been applied to the line items below:

2013 2012

RO’000 RO’000

Assets as per statement of financial position

Trade and other receivables (excluding prepayments) 45,211 38,041

Cash at bank and in hand 3,527 3,859

48,738 41,900

Liabilities as per statement of financial position

Payables and accruals 45,945 42,796

27 Contingent liabilities

Guarantees

At 31 December 2013, the company has issued guarantees arising in the ordinary course of business, from which it is anticipated that no material liabilities will arise, amounting to RO 1,678,447 (2012 - RO 5,300,235) in respect of contract performance.

Contingency

The Company had contracted with a counterparty to avail shipping services to transport fuel to a customer’s locations in Oman, via a ship owned by the counterparty. The Company lost the customer contract in December 2013 and as a consequence has terminated the shipping contract with the counterparty in the same month. However, the shipping contract stipulates that should the counterparty sell the ship at a loss during the first half year of 2014 then the Company has to pay compensation which is equal to the amount of the loss or US$ 559,000 whichever is lower. Management is of the opinion that the Company will not be required to pay this compensation because it believes that the ship may not be sold during this period and therefore no liability is required to be booked in 2013.

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28 Commitments

(a) The company leases land on which their depots, office and bulk storage facilities are constructed under non-cancellable operating lease agreements. The lease terms are typically between three and ten years. Certain lease agreements are renewable at the end of the lease period at market rate. One land lease is valid for the duration of the company.

At 31 December, future minimum lease commitments under non-cancellable operating leases and other rentals are as under:

2013 2012

RO’000 RO’000

Not later than one year 728 728

Later than one year and not later than five years 2,771 2,771

More than five years 3,415 4,193

6,914 7,692

(b) At 31 December 2013, the company has future capital expenditure commitments amounting to RO 3,852,160 (2012 - RO 2,991,912).

29 Comparative information

The corresponding figures for the previous year have been reclassified in order to conform to the presentation for the current year. Such reclassifications do not affect previously reported profit or shareholders’ equity.

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Annual Report 2013 Shell Oman Marketing Company · SHELL OMAN MARKETING COMPANY SAOG PO Box 38, PC...

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Transcript of Annual Report 2013 Shell Oman Marketing Company · SHELL OMAN MARKETING COMPANY SAOG PO Box 38, PC...