Shell Oman Marketing Company SAOG
61
Annual Reports and Accounts 2012 Shell Oman Marketing Company SAOG
Transcript of Shell Oman Marketing Company SAOG
Annual Reports and Accounts 2012
Shell Oman Marketing Company SAOG
His Majesty Sultan Qaboos bin Said
The Power of Responsibility
“From a small seed a mighty tree grows”, such has been the passion behind the initiatives taken by Shell Oman this year. As a corporate citizen and in keeping with international practises, Shell Oman has actively complied and furthered the cause of social responsibility through its varied initiatives.
The approach behind the diverse programmes designed this year was to start the journey towards societal well-being by first educating our staff and then working towards creating a positive impact on our environment, consumers, employees, stakeholders and community at large.
Our Corporate Social Responsibility (CSR) activities aim at giving back to the community and creating a resilient company with a work culture that encourages efficient deployment of resources and reduction of waste.
Shell Oman is an active partner in championing environmental causes and the holistic well-being of the Sultanate and believes in nurturing a culture that translates into building a stronger company and a stronger nation.
Contents
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
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
4
Earnings per share (RO) 0.123*
Dividend per share (RO) 0.105*
Dividend Yield (on offer price of RO 4.900) 21.4%*
Dividend Yield (at 31 Dec 2012 price of RO 2.370) 4.4%
* rebased on an equity share face value of 100 baiza following the stock-split in 2006
Earnings (RO million)
2012 2011
Turnover 403.4 357.6
Gross Profit 39.0 35.7
Other Income 3.7 3.3
Net Operating Expenses (28.7) (24.7)(includes depreciation, interest & amortisation)
Profit before tax 14.0 14.3
Taxation (1.7) (1.7)
Profit after tax 12.3 12.6
Dividends (RO million) 10.5 11.7
Balance Sheet (RO million)
2012 2011
Share Capital 10.0 10.0
Reserves 3.6 3.6
Retained Earnings 16.9 16.4
Net Assets 30.5 29.9
Retail
51%Aviation
23%
Lubricants
10%
CommercialFuels
16%
Net Profit & EBITA (Earnings before interest, taxes, depreciation and amortization)
RO
‘0
00
1997 - one quarter from inception of the company
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Net Profit
EBITA
2,4233,268
EPS & Dividends
bais
a /
Share
1997 is for one quarter only (All data based on a equity share face value of 100 baiza)
0
25
50
75
100
125
150
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
13
24
DividendEPS
Return on Average Capital Employed is net profit divided by the average ofopening & closing balances of Capital Employed. Net profit for 1997 has been annualised
Return on Average Capital Employed (RoACE) & Operating Profit Margin (OPM)
0%
10%
20%
30%
40%
50%
60%
70%
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
65%
7.45%
2011
2012
12,289
19,291
2011
2012
123
105
2011
2012
40.66%
3.48%
(RoACE)
OPM
HX320W-50
MULTI-GRADE MOTOR OIL 1L
Cleans and protectsolder engines
HX520W-50
PREMIUM MULTI-GRADE MOTOR OIL 1L
Cleans and protectsreducing engine noise
HX710W-40
SYNTHETIC TECHNOLOGY MOTOR OIL 1L
Cleans and protectsfor extra responsivness
ULTRA5W-40
FULLY SYNTHETIC MOTOR OIL 1L
Cleans and protectsfor maximum performance
SUPER REGULAR
New fromShell
SUPER REGULAR
Contribution of Turnover
5
Earnings per share (RO) 0.123*
Dividend per share (RO) 0.105*
Dividend Yield (on offer price of RO 4.900) 21.4%*
Dividend Yield (at 31 Dec 2012 price of RO 2.370) 4.4%
* rebased on an equity share face value of 100 baiza following the stock-split in 2006
Earnings (RO million)
2012 2011
Turnover 403.4 357.6
Gross Profit 39.0 35.7
Other Income 3.7 3.3
Net Operating Expenses (28.7) (24.7)(includes depreciation, interest & amortisation)
Profit before tax 14.0 14.3
Taxation (1.7) (1.7)
Profit after tax 12.3 12.6
Dividends (RO million) 10.5 11.7
Balance Sheet (RO million)
2012 2011
Share Capital 10.0 10.0
Reserves 3.6 3.6
Retained Earnings 16.9 16.4
Net Assets 30.5 29.9
Retail
51%Aviation
23%
Lubricants
10%
CommercialFuels
16%
Net Profit & EBITA (Earnings before interest, taxes, depreciation and amortization)
RO
‘0
00
1997 - one quarter from inception of the company
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Net Profit
EBITA
2,4233,268
EPS & Dividends
bais
a /
Share
1997 is for one quarter only (All data based on a equity share face value of 100 baiza)
0
25
50
75
100
125
150
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
13
24
DividendEPS
Return on Average Capital Employed is net profit divided by the average ofopening & closing balances of Capital Employed. Net profit for 1997 has been annualised
Return on Average Capital Employed (RoACE) & Operating Profit Margin (OPM)
0%
10%
20%
30%
40%
50%
60%
70%
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
65%
7.45%
2011
2012
12,289
19,291
2011
2012
123
105
2011
2012
40.66%
3.48%
(RoACE)
OPM
HX320W-50
MULTI-GRADE MOTOR OIL 1L
Cleans and protectsolder engines
HX520W-50
PREMIUM MULTI-GRADE MOTOR OIL 1L
Cleans and protectsreducing engine noise
HX710W-40
SYNTHETIC TECHNOLOGY MOTOR OIL 1L
Cleans and protectsfor extra responsivness
ULTRA5W-40
FULLY SYNTHETIC MOTOR OIL 1L
Cleans and protectsfor maximum performance
SUPER REGULAR
New fromShell
SUPER REGULAR
Financial Highlights
6
Board of Directors
Sitting from Left to Right:Abdulsalam Mohammed Almurshidi*, DirectorAdil Ismail Al Raisi, Managing DirectorJohn Blascos, ChairmanGhalib Fawzy Al Busaidi, Deputy ChairmanJuma Abdullah Khalfan Al Khamisi, Director
* up to 18 December 2012
7
Standing from Left to Right:Majan Abdullatif, Board SecretaryIshaq Zaid Al Mawali, DirectorScott McDonald, Finance DirectorIrshad Moosa Al Lawati, DirectorShabib Mohammed Al Darmaki, DirectorAmr Adel, Director
8
Management Team
From Left to Right:Said Al Rawahi, Commercial Fuels ManagerAhmed Hilal, Lubricants Supply Chain ManagerKhalid Al-Awaisi, Country Aviation ManagerHafidh Al-Ismaily, Distribution & Operations ManagerAli Al Lawati, Commercial Lubes Manager
9
From Left to Right:Adil Ismail Al Raisi, Managing DirectorScott McDonald, Finance DirectorMohammed Ali Al Farsi, GM-External Affairs & Business DevelopmentEssam Al Busaidy, Human Resources & Administration ManagerMohammed Al Balushi, Country Manager – Retail Sales & Operations
10
Directors’ Report
In 2012 the Company’s Business has grown significantly compared to 2011 with 12% growth in volumes, lead by the Retail, Aviation and local Lubricants segments with significant headway in Bitumen.
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, 2012.
Business EnvironmentOil prices and production remained strong in 2012, which helped the Sultanate boost the budget surplus providing a space for additional governmental
investment allocations during the year. Actual average realised oil price was approximately $109 per barrel, well above the Oman 2012 budget figure of $75 per barrel.
For the 2013 budget, the Oman government has assumed oil prices at $85 per barrel, and daily production level of 930,000 barrels. The budget for the development expenditure programmes of the ministries and the government has been enhanced by 30% to assist with the
completion of infrastructure projects while other considerable portions of the budget are allocated to the enhancement of social welfare, health, education and housing.
Financial PerformanceIn 2012 the Company’s Business has grown significantly compared to 2011 with 12% growth in volumes, lead by the Retail, Aviation and local Lubricants segments with significant headway in Bitumen. Challenges remained in
11
retaining and winning volume in the Commercial segments due to increased competitive pressure. Export volumes of Lubricants decreased due to lower demand across the Middle East and Central Asia.
For the year ended 2012, revenues were RO 403.37 million, 13% higher than same period 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 2012, Net Profit was RO 12.29 million compared to RO 12.60 million last year. Basic earnings per share (EPS) were 2% lower than the same period a year ago as the increased revenues from high 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 in supporting the ability of the Company to capture and service higher volumes to customers in periods ahead).
Net cash generated from operating activities was RO 18.6 million, considerably higher than the same period last year. This is mainly driven by optimised working capital balances in 2012.
Business ResultsThe Retail business remains the leading business segment in your Company, with fuel volumes showing a strong year on year growth. The growth in fuel volume is attributable to enhancement in the road infrastructure and industrial developments across the country increasing the opportunity to roll out new service stations. The strategic locations of the retail network together with superior customer experience remained the key volume drivers for the business. Retail network expansion remained the prime focus to grow with 7 new service
stations (compared to 4 in 2011) being commissioned during the year bringing the number of service stations to 151 by the end of the year and broadening coverage across target locations.
Retail core focus remains on People and Marketing activities to improve our Customer Value Proposition and deliver superior customer experience in order to further grow in a highly competitive market. Shell Oman is proud to have been recognised as having an Omani individual as the best Retail Site Operator in the Royal Dutch Shell global portfolio in 2012.
The Aviation business witnessed a growth in 2012 driven by our customers’ growth and the increased number of airlines flying to the country. Your Company managed to gain the highest market share in Civil Aviation, by securing 50% of National Carrier Oman Air volume as well as serving other key customers at Muscat International Airport such us AACO, Emirates, Air India, Air Blue and Shaheen Air. Your Company puts key emphasis on customer service and has adequately managed the increased business at its exclusive operating concessions at Salalah Airport and PDO strategic airfields whilst maintaining its commitment to operational excellence and outstanding HSSE performance. Our strategic relationship with our key higher margin Jet bulk fuel customers maintained its strength in 2012 and translated into sizeable volume and margin contributions.
The Lubricants business achieved a successful year recording significant positive volumes and margin improvement. The business continued its focus on adopting dynamic pricing strategies and maintaining excellent relationships with its existing customers whilst acquiring new ones in the face of intense competition.
The Shell Oman Lubricants Blending Plant (which serves Shell Oman local demand and Royal Dutch Shell regional
customers) continued to be a world-class business partner. A major improvement in the supply chain for the key Base Oil component went live in 2012, with the establishment of storage facilities in Sohar rather than Dubai, creating significant cost reductions together with HSSE and operational benefits.
The Commercial Fuel business continued to face pressure in 2012 to defend its market share in a market where competition has intensified. The business managed to gain a number of strategic projects in different market segments which are located in different geographical spreads within the Sultanate ensuring presence and penetration as aligned with your Company’s selected growth strategy.
The Marine business is growing year on year and this growth is underpinned for the future by the major port projects announced by the Government and private sector in recent months.
The specialised “high end” segment for Polymer Modified Bitumen (PMB) led the market by bringing Royal Dutch Shell advanced products and technology to the fast growing Oman sector. During the year, the business continued supplying Muscat International Airport project and signed a new contract for Bitumen supply with Salalah Airport. The segment continues to pursue upcoming major road projects, backed by the recent announcements to increase infrastructure projects and Bitumen quality requirements.
Your Company successfully implemented the business transformation and process re-engineering programme – “Downstream One” – and went live as planned on first of January 2012. The programme moved your Company into a world-class, customer focused organisation with simplified and standardised processes across all the ways it conducts businesses. The long run benefits of the programme shall appear successively over the upcoming years.
12
EPS and Dividend Full Year earnings per share for 2012 are 123 baiza compared to 126 baiza in 2011. The Board of Directors is recommending a final dividend of RO 10.5 million i.e. 105 baisa per share, representing a decrease of 10.3% over the prior year’s total final dividend of RO 11.7 million. This lower dividend reflects the requirement to provide funding for the increased investments required to address the Company’s long term growth ambitions.
Business OutlookFor 2013, the Sultanate has unveiled a budget with expenditure planned at RO 12.85 billion and revenues at RO 11.15 billion. Significant parts of the budget will be deployed for the improvement of Social Welfare, Health and Education whilst focus remains on pumping adequate funds into the development of country’s infrastructure. The estimated deficit in the budget is expected to be covered by the surplus raised in 2012 and any increment in oil price above the budgeted $85 per barrel.
The economy is expected to continue on its stable growth path with GDP expected to register a growth of nearly 7% in 2013, with inflation stable at around 3.5%. During the current five-year development plan, the country is expected to set a growth rate target of at least three percent, boosting exports, encouraging investment and devising a strategy to expand productivity.
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 2013, 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 gathers pace with contracts being awarded for these. The Company
is closely following developments and will aggressively pursue opportunities as they arise.
Our Commitment to Sustainable DevelopmentIn line with our Statement of General Business Principles, your 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.
Your 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 adopting best practices in the areas of health, safety
Directors’ Report
13
security and environment and contribute in the development of the economy by hiring local people and working with local suppliers and customers.
Health, Safety, Security & Environment (HSSE)In 2012 your 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 1,352 LTI-free days. During the year, your Company rolled out several initiatives to drive Health, Safety, Security, and Environmental (HSSE) performance to a new horizon. These initiatives included the implementation of a comprehensive road safety focused delivery plan to address the ever challenging road safety risk exposure. In addition, your Company continued to play a leading role in promoting best industry practices in the areas of Health, Safety, Security, and the Environment with the introduction of a professional Facility Management Company in the Retail business. A key objective of this new appointment is to better manage construction staff safety in the rapidly expanding Retail network.
Risks and ConcernsThe Company’s forward investment and business plan is built on the assumption of stability in the fixed margin rates in the dominant Retail segment, and these are subject to stability in 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, although an increase in impaired receivable balances was noted in the year which has resulted in Management review of the controls attached to this area. The Management of your Company continues to take measures to strengthen the overall internal control environment.
In 2012, extensive new internal controls were rolled out to ensure that your Company is not unnecessarily exposed to financial risks and to provide assurance that financial information used for internal reporting and publication is reliable. The controls also help safeguard Company’s assets while serving as an active mechanism in the prevention and detection of fraud. The Management of your company has adapted a robust system to ensure that these internal controls are being operated in a timely and effective manner.
Board ChangesThe Public Authority for Social Insurance, has appointed Mr. Ishaq Al-Mawali as a Director of the Company in place of Mr. Saleh Nasser Al-Araimi with effect from 19 May 2012 Mr. Ishaq Al-Mawali heads the Asset Management-International department at the Public Authority for Social Insurance.
The Ministry of Defence Pension Fund, has appointed Mr. Juma Abdullah Khalfan Al Khamisi as a Director of the Company in place of Mr Atif Abdul Hameed Al Raisy with effect from 29 May 2012. Mr Juma Al Khamisi is the Assistant Director of Recurring Budgets Directorate of Financial Affairs, Office of the Under Secretary.
During the year, Mr. Sarim Sheikh, non-executive Director, has resigned from the Royal Dutch Shell Group and has been replaced by Mr. Amr Adel representing Shell Overseas Investments BV with effect from 22 October 2012. Mr. Adel
is Cluster General Manager for Global Lubricants and Fuels covering Middle East, Central Asia and Pakistan for Royal Dutch Shell where he has over twenty years of experience.
H.E. Abdulsalam Almurshidi, a non-executive Director, has resigned from the Company’s Board of Directors with effect from 18 December 2012. As a result of this resignation, the Company’s board has a temporary vacancy which the board may elect to fill prior to the AGM and will be subject to election at the AGM.
In AppreciationI take this opportunity to commend His Majesty Sultan Qaboos bin Said and his government for the excellent achievements during 2012. 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 your 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 your Company.
John BlascosChairman of the Board
14
Shell Oman’s all-inclusive approach towards creating road safety awareness was boosted by the ‘Children’s Traffic Park’ and the ‘Together for Accident Free Oman Road Show’ initiatives. These activities ascertained that the word of caution reaches the young as well as the seasoned motorists.
OUTCOME:Instilled a sense of responsibility in the community
INITIATIVE:Road Safety Awareness Programmes
Road Safety Awareness ProgrammesCreating Safer Roads
15
Auditor’s Report on Corporate Governance
16
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 2012. 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, 2012.
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.
Corporate Governance Report
Board of DirectorsThe Board comprises Executive and Non-Executive Directors. The present strength of the Board is nine Directors (ten up to 18 December 2012) comprising two Executive Directors, four Non-Executive and Independent Directors and three Non-Executive Directors. 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.
A Non-Executive and Independent Director has resigned from the Board on 18 December 2012 creating a temporary vacancy as at 31 December 2012. This vacancy shall be filled, via an election, at the next AGM in March 2013.
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 all the 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).
17
Director’s Attendance Record and Directorships Held During the Financial Year 2012.
Name of Director PositionBoard
meetings attended
Whether attended last AGM
Directorship in other SAOG Companies
Mr John Blascos Non-Executive Chairman 5 Yes None
Mr Ghalib Fawzy Salim Al Busaidi
Non-executive and independent Director (Deputy Chairman)
5 Yes None
Mr Adil Ismail Al Raisi Executive Whole-time Managing Director
5 Yes None
Mr Irshad Moosa Al Lawati Non-Executive Director 3 Yes None
Mr Scott Michael McDonald Executive Whole-time Director (Finance)
5 Yes None
Mr Sarim Sheikh Non-executive Director (up to 21 October 2012)
2 Yes None
Mr Amr Adel Non-executive Director (from 22 October 2012)
2 Not applicable
None
Mr Atif Abdulhamid Ahmed Al-Raisy
Non-executive and independent Director (up to 28 May 2012)
2 Yes Sohar Power Company SAOG
Mr Juma Abdullah Khalfan Al-Khamisi
Non-executive and independent Director (from 29 May 2012)
3 Not applicable
None
Mr Shabib Mohammed Saif Al Darmaki
Non-executive and independent Director
5 Yes None
Mr Abdulsalam Almurshidi Non-executive and independent Director (up to 18 December 2012)
4 Yes Bank Muscat SAOG
Mr Saleh Nasser Juma Al-Araimi
Non-executive and independent Director (up to 18 May 2012)
1 Yes Oman Fisheries Co SAOG Bank Dhofar SAOGOman Cement SAOG
Mr Ishaq Zayed Khalifa Al-Mawali
Non-executive and independent Director (from 19 May 2012)
3 Not applicable
Al Sharqia Investment Holding Company SAOG
Entity Represented by Non-Independent Directors
Non-Independent Director Entity Represented
Mr John Blascos Shell Petroleum NV
Mr Adil Ismail Al Raisi Shell Gas BV
Mr Irshad Moosa Al Lawati BV Petroleum Assurantie Maatschappij
Mr Scott Michael McDonald B.V. Dordtsche Petroleum Maatschappij
Mr Amr Adel Shell Overseas Investment BV
During the year 2012, the Company held five Board meetings. The dates are January 28, April 21, July 18, October 22, and December18, 2012. The intervals between the meetings are in line with the CMA required interval of a maximum of four months.
18
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, 2012 was RO 108,400. 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 2012 is as follows:
Sr No Name / Position
Annual remuneration
(Rials)
Sitting Fees (Rials)
1 Mr John BlascosNon-Executive Director
8,600 4,800
2 Mr Adil Ismail Al RaisiExecutive Whole-time Managing Director
Nil* Nil*
3 Mr Irshad Moosa Al LawatiNon-Executive Director; Member Audit Committee
8,600 4,000
4 Mr Scott Michael McDonald Executive – Whole-time Finance Director
Nil* Nil*
5 Mr Sarim SheikhNon-Executive Director (up to 21 October 2012)
6,143 2,400
6 Mr Amr Adel Non-Executive Director (from 22 October 2012)
2,457 1,600
7 Mr Atif Abdulhamid Ahmed Al-RaisyNon-Executive Director; Member Audit Committee (up to 28 May 2012)
4,300 3,200
8 Mr Juma Abdullah Khalfan Al-KhamisiNon-Executive Director; Member Audit Committee (from 29 May 2012)
4,300 3,200
9 Mr Shabib Mohammed Saif Al-DarmakiNon-Executive Director; Member Audit Committee
8,600 6,400
10 Mr Ghalib Fawzy Salim Al BusaidiNon-Executive Director;
8,600 4,800
11 Mr Abdulsalam AlmurshidiNon-Executive Director, Member Audit Committee (up to 18 December 2012)
8,600 5,200
12 Mr Saleh Nasser Juma Al AraimiNon-Executive Director (up to 18 May 2012)
4,300 1,600
13 Mr Ishaq Zayed Khalifa Al-MawaliNon-Executive Director (from 19 May 2012)
4,300 2,400
* Total 68,800 39,600
(* A salaried key employee of the company, covered under the top-five executives remuneration below)
Corporate Governance Report
19
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 590,079 in 2012.
Audit Committee of the BoardThe audit committee was reconstituted by the Board in April 2012 in which they appointed four non-executive directors of which three are independent. The Audit Committee Chairman was Mr. Abdulsalam Almurshidi, who is a non-executive, independent Director. (Mr. Abdulsalam Almurshidi resigned from the Board of Director with effect from 18 December 2012). The committee held four meetings during 2012, 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; and
n Meeting with the internal and external auditors independently of management of the Company.
Attendance record of the Audit Committee Members
Name of Director No. of meetings
Meetings attended
Mr Abdulsalam Almurshidi* 4 3Mr Atif Abdulhamid Ahmed Al Raisy (up to May 2012)
2 2
Mr Juma Abdullah Khalfan Al Khamisi (from May 2012)
2 2
Mr Shabib Mohammed Saif Al Darmaki 4 4Mr Irshad Moosa Al Lawati 4 2
*resigned from the Board of Directors on 18 December 2012
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.
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 2012.
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 InvestorsThe Company has its own website 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 website for all interested parties. The Company’s 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
20
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 2012, in April, 2013.
Market Price DataMonthly High / low share price data for financial year 2012.
Month 2012 High Low Volume
January 2.400 2.300 536,992
February 2.300 2.280 365,271
March 2.350 2.250 74,388
April 2.315 2.250 254,601
May 2.442 2.310 488,390
June 2.534 2.450 84,584
July 2.580 2.570 75,260
August 2.570 2.550 110,890
September 2.544 2.397 867,256
October 2.387 2.351 263,091
November 2.387 2.350 178,424
December 2.400 2.350 215,184
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, 2012)
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 9,122,963 9.1
Shell Petroleum NV 8,800,000 8.8
MOD Pension Fund 8,136,390 8.1
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.
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
2009 2010 2011 2012
160
140
120
100
80
60
40
20
0
Performance in Comparison to Broad Based Index of MSM
Corporate Governance Report
21
Adil Ismail Al Raisi Managing Director
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:
Deloitte Touche Tohmatsu Limited, a UK private company limited, a network of member firms around the world devoted to excellence in providing professional services and advice. Deloitte is focused on client service through a global strategy executed locally in over 150 countries. With access to the deep intellectual capital of approximately 200,000 people worldwide, Deloitte delivers services in four professional areas: audit, tax, consulting, and financial advisory services.
Deloitte & Touche in the Middle East 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 2,500 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 2012 is RO 7,000.
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.
22
Shell Oman family participated in the Autism Awareness Walk to extend their support towards children with autism. The event focused on spreading awareness and the appropriate care that can help overcome most challenges related to Autism.
OUTCOME:Sensitised the community about Autism
INITIATIVE:Autism Awareness Walk – To Create Consciousness
Autism Awareness WalkWalking For a Cause
23
Health, Safety, Security & Environment (HSSE)In 2012, your Company set a new record for the total number of days with no Lost Time Injury (LTI) incidents by completing the year with a total of 1,352 LTI-free days. The year witnessed the rollout of several initiatives to drive your Company’s HSSE performance to a new horizon, including the implementation of a comprehensive road safety focused delivery plan to address the ever challenging road safety risk exposure.
HSSE in Retail The year witnessed the rollout of several HSSE programme and initiatives at different levels in the Retail Business. All of these programme and initiatives have been designed to help prevent harm to people and protect your Company’s reputation and the environment. In particular, a series of communication campaigns continued throughout the year to raise awareness about the importance of following the prescribed HSSE procedures when filling into portable fuel containers, Where non-compliance to approved HSSE procedures was recognised to be the key cause of the risk of flash fires in our network. These campaigns targeted site attendants, site managers as well as our valued customers.
Contractor safety, on the other hand, was enhanced through the introduction of a leading industry specialised company to manage your Company Retail Network Facilities. Special attention was given to eliminate and mitigate the HSSE risks associated with high risk activities like working at height with some innovative solutions introduced for the first time in Oman to address these risks. Attention was also given to protect the environment from fuel leaks resulting from pipeline failures by introducing, electronic pipelines leak detection system in the Retail Network.
Security related incidents continued to be a key concern with 8 incidents recorded during the year. In one of these incidents, a site attendant sustained moderate injuries when he was attacked during a robbery incident. As a result, new security risk assessment was conducted and tighter controls introduced to manage the risk.
HSSE in AviationIt has been a good year of HSSE performance with ZERO recordable fatalities and Lost Time Injuries (LTI). Four locations in Aviation won “Goal Zero” HSSE Award for the year. With the exception of one drive-away incident and one vehicle-aircraft accident, your Company has worked close to 163,000 hours without any significant incidents. The members of the team consistently exercised a high standard of awareness and intervention towards ensuring an HSSE Compliant Environment.
HSSE in Distribution In 2012, your Company delivered products with an industry leading HSSE Standards, and with Goal Zero recordable injury and zero Lost time injuries (LTI). Our road safety performance had improved despite the partial rollover in Q1, which reinforced the need to maintain focus. In addition, the zero spill campaign, which was launched during the year has shown a significant reduction in spill related incidents compared to previous years.
Your company has implemented best industry standards by applying the Shell Group’s global control framework requirements and Terminal operation procedure manuals to ensure safe working environment to our people.
A comprehensive asset inspections programme was introduced in 2012 which was one of the important HSSE key controls that helped assure assets integrity at both Mina Al-Fahal and Port Sultan Qaboos fuel terminals.
HSSE in Lubricants ManufacturingSignificant efforts were put throughout 2012 to manage the different HSSE Risks applicable to the Lubricants Supply Chain. The 2012 HSSE plan was derived from the best in class Shell Group HSSE global lubricants plan as well as local focus HSSE concerns.
The phased development of the Hazards and Effects Management Process provided staff with hands on training on how to manage the different hazards and established a new mindset among our staff and contractors.
Road exposure remained the primary risk in the Lubricants Supply Chain HSSE radar screen. The risk was positively managed by closely working with our transport contractors throughout the year. Monthly HSSE meetings were used to bring key stakeholders together where performance was monitored and corrective measures were promptly agreed.
In 2012, the Lubricants Supply Chain team launched an important project to make base oil available in Sohar instead of having it transported by road from Dubai - UAE. In this project, the different grades of base oil were directly shipped and stored at third party storage facilities in the Sohar industrial port area. The stored based oils are then transferred to the Mina Al-Fahal Lube Plant using road tankers. This project dramatically reduced the HSSE road exposure when compared to bringing the product by road from Dubai.
HSSE in Commercial Fuels and LubricantsRoad exposure continued to be the highest safety concern within the business; therefore it was given top priority in the activities conducted by the business internally and externally. On 6th June 2012 we conducted Shell Safety day, the Safety Day campaign helped raise
Management Discussion and Analysis
24
The Company as a strategy continued to expand its network with 7 new service stations being commissioned during the year bringing the number of service stations to 151 by the end of the year.
employee awareness of this particular area of concern and the techniques that can be used to safeguard the individual and other road users.
Moreover, the team worked closely with customers to raise their safety awareness and address safety concerns at our customer sites by conducting regular HSSE site audits and using the information gathered to improve site compliance. In addition, the management team maintained high HSSE management visibility by consistently addressing HSSE
risks and remaining vigilant to ensure effective implementation of the Companies Life Saving Rules (LSR).
People Attraction & Recruitment After the business re-engineering project of the organisation that took place in 2011, HR continued to ensure that the immediate resourcing needs of the businesses are met through structured resourcing mechanisms and resourcing is intended to address the succession plans gaps and future needs
of business local talent, as a result the Company has managed to hire a total of 41 new joiners during 2012.
Learning & Development The Company believes that talent development is one of the key success factors that would help the organisation achieve its aspirations. As part of our efforts to meet this commitment, the HR Team arranged and facilitated a number of learning and development opportunities for our staff. We ensured that learning
Management Discussion and Analysis
25
interventions address development needs for today and the future through the use of a blended learning approach across businesses.
The Company has invested in seven study sponsorship programs across different businesses in 2012. We delivered newly completed cross business modules where 70 employees and supervisors attended sessions on Leadership Attributes, In-role Development and Career Management which was developed early 2012. Leadership development is a key aspect of our training plans; we delivered 3 Front Line Leadership sessions which are supporting and sustaining change, Building high performance teams and difficult conversations. In total, we delivered 50 training days for 351 participants.
Omanisation The commitment towards Omanisation has always been one of the top priorities. So far, the Company managed to achieve 90% Omanisation at the end of Q4 2012 and is proud of its continuing efforts to maintain this high level. The total staff number on 31st December 2012 stood at 298, of which 269 are Omani employees. In addition, Shell Oman has secured overseas development opportunities within the Shell Group for 4 Omanis.
Reward & Recognition We continue to drive improvement in our employee value proposition. In 2012, we implemented a number of improvements in the compensation and benefits area. Our reward and recognition philosophy continues to focus on differentiating performance and improving productivity. We were proud to see our Retail team win a global award in a celebration in South Africa this year.
Retail
Business EnvironmentIn 2012 the business continued to
demonstrate its commitment towards maintaining market leadership through enhancing site operations excellence standards and offering quality fuels to customers. Shell Oman brings, at no cost to the consumer, the “Shell Super” Better Mileage fuel to Oman, in place of the standard Mogas 95 available in the market.
Government continues to spend aggressively in infrastructural development projects through establishment of industrial zones and seaports leading to road network expansion and increasing the opportunity to roll out new filling stations across the nation.
PerformanceRetail segment continued to show a steady YoY growth of 10% during 2012 and delivered a historic high in terms of monthly volumes during the month of October. The strategic network footprint coupled with superior customer experience remained the key volume drivers for the business.
The business continued its drive to pursue excellence in customer satisfaction through its ‘People Make the Difference Real’ – PMTDR programme which is clearly reflected in this year’s finest score yet of Global Mystery Motorist MMP program whereby an independent agency monitors the site standards across the whole network.
Our commitment towards the PMTDR programme has developed our retailers as a key business partner in ensuring highest standards of service at our sites. This has reflected in one Omani independent retailer winning the Shell ‘Global Cluster Retailer of the World’ in the Global Retail Smiling Stars event held in South Africa.
The Company as a strategy continued to expand its network with 7 new service stations being commissioned during the year bringing the number of service stations to 151 by the end of the year,
and broadening coverage across high growth markets. The company continued its partnership with Sinclair Knight Merz and Johnson Controls International, two reputable international engineering companies, to help us built quality service stations and provide safer maintenance services to our retailers, aimed at providing quality services to our customers.
Shell Fleet Cards continued its penetration in the overall retail business, signing a number of new customers contributing in maintaining a stable growth for the business. The cards segment has shown a steady growth compared to the previous year.
Our service stations buzzed with activity during the two marketing promotions during the year promoting Quality and Fuel Economy – one in March and the other one in June & July offering two four wheel drive and Televisions as Lucky draw prizes aligning with the Khareef Festival. The two promotions contributed to the volumes as well as increasing customer goodwill reflected through the Shell Global Customer Tracker Survey, with Shell continuing its leadership in terms of Brand Preference in the Oman market.
OutlookRetail business remains the leading segment for the Company and key priority in the long term strategy. Government spending in infrastructure development and job creation across the country ensures that the Retail sector will continue to grow in the years ahead with increased opportunities for capital investment. With the heavy investment in the retail service stations by the whole market, gaining customer loyalty & maintaining quality service will remain a key differentiator to deliver growth. The outlook for 2013 is bright and we foresee a continued growth for retail business.
26
The key focus areas for retail in 2013 will be increased Network roll-out, enhancing Cards business through improving CVPs, Operational Excellence and refreshed, innovative Marketing campaigns.
Commercial Fuels
Business EnvironmentIn 2012, the Commercial market continued to be competitive and challenging with the Governments continued release of new infrastructure projects offering confidence to the market. New initiatives have been put in place to influence sales and change buying behaviour of customers. The company continues to work towards introducing innovative solutions for the Omani market, drawing upon the expertise of the Global Shell Group, which will bring unique opportunities to reduce costs & emissions for our customers and the environment respectively.
The Marine sector continued its growth in both Fuels and Lubricants. A fundamental shift in the Marine market will take effect in 2013, with the re-designation of Port Sultan Qaboos as a Tourist port, resulting in a shift of non-Tourist traffic to other ports
in Oman. Your company is positioning itself to take advantage of these changing dynamics which occurs in a period of overall increased Marine traffic in Oman.
PerformanceThe Company continued its focus on major core customers in all the segments for fuel, with the strategic plan enabling us to succeed in getting major tenders from industry leaders and the public sector, which helped to level our performance amongst a strongly competitive environment.
The Bitumen business continued supplying unique specialties grades of Bitumen with the support of Shell Group PMB Bitumen technology, to both Muscat and (soon) Salalah airport projects. Shell has developed a comprehensive specialist product portfolio leveraged to meet the needs of many different customer types.
In Marine we maintained our market leader position in both Marine Fuel and Marine Lubricants at ports across Oman.
OutlookThe recent announced 8th Five year plan by the Government started in 2012,
and has illustrated major infrastructure projects for the coming years. Some of the projects have been awarded in Q3 & Q4 of 2012 and construction of these projects will commence in early 2013.
For 2013 we see major investment projects planned by the government which will attract more investment in the country, which will reflect in creating more business opportunity at different market segments.
Your Company marked its entry into 2013 with ambitious strategy to sustain and grow market leadership and value shares in various market segments. Our focus will be in new differentiated products and technology in Fuels and Bitumen, and the rapid expansion of Marine. Customer service and sales support will always remain the centrepiece of our execution strategy.
Commercial Lubes
Business EnvironmentWith slight decrease on base oil prices in 2012 comparing to last year, margins started to improve. In addition, focused
Management Discussion and Analysis
27
strategy was put in place to expand customer base, reinforce long business partnership and improve operational excellence. This has resulted in an increase in local lubes volume in comparison with last year as well as creating more values to our customers.
PerformanceThe Company has successfully won major deals in the Oil & Gas industry by signing a five years contract with Schlumberger which can be renewed up to 20 years in total. Further the Company will be the sole supplier of lubricants for the new Schlumberger project at Nizwa to service heavy equipment for many upstream companies. The Company also managed to secure a contract with Occidental to supply all their three sites at Safta, Wadi Liatham and Mukhaiznah. Moreover, dynamic strategies on customer management and relationships, stakeholder involvement and integrated customer value propositions were core drivers to these successes.
OutlookOutlook for the lubricant industry is promising in 2013 in the light of the government’s increased spending plans on infrastructure projects. This will have a positive knock-on effect on the automobiles industry. Thus, the lubricant business will maintain focus on expanding customer base and strives to achieve high customer satisfaction level. The business will continue to develop innovative business strategies to grasp new market opportunities. Uncertainties over base oil prices will be a key factor in determining product margins with the business equipped to manage this scenario and excel in next year’s targets by adopting strategies focusing on customer pricing and cost leadership.
Distribution Operations
Business EnvironmentOverall, the business demands increased
in 2012 compared to the previous year, Supply & Distribution through its continued focused efforts, were able to deliver record volume and enable business growth.
Distribution’s major focus during 2012 was on the road transport contracts, the biggest single cost item in the company. The road transport team was successful in highlighting areas of optimisation which will add to the competitive advantage to bidding for future commercial, retail and aviation fuel supply contracts.
In 2012 the Company’s distribution team was able to lead the company to significant success during periods of unusual supply patters, demonstrating the robustness of the company’s superior investment in distribution and supply storage compared to the market norm.
PerformanceIn 2012 overall Supply and Distribution delivered each litre of product to customers for less than the prior year and internal plan. This performance was achieved by rigorous implementation of the distribution process improvement program, whereby saving in road transport and Order fulfillment were identified with close cooperation with our business partners.
Operations excellence was a highlight for Distribution in 2012 particularly in the area of operational excellence and managing customer supplies on time through many operational challenges in the year.
Distribution continues to put focus on asset reliability and integrity maintenance, all the planned projects and investment in Distribution for reliability and integrity were executed within plan.
OutlookSupply & Distribution will always dedicate to safely deliver the right product to the right place at the right time at the right cost for our customer. This is done by focusing on our key value drivers
like: HSSE, unit cost, service level and competence development, the one common denominator across this is on ensuring focus on getting the basics right with continuous improvement mindset, it’s all about doing ordinary things extra-ordinarily well.
Our delivery and the sustainability of our good performance, these high benchmarks that we have set ourselves and achieved in 2012 will remain the key theme to achieve the aspired targets in 2013.
Aviation Business
Business EnvironmentThe Aviation sector continues to be highly competitive, and impacting the profitability both of the airlines and oil industries globally. Nevertheless, in 2012 the aviation business in the country witnessed healthy growth driven by the country economical growth and the continual expansion of Oman Air as well as the increased number of airlines flying to the country, and which was reflected in the highest ever record of passengers used both Muscat and Salalah airports with 12% growth compared to last year.
At Muscat International Airport, the Company’s Aviation business gained the highest market share by winning 50% of Oman Air contract for two years and the Arab Airlines Carrier members group for 1 year. In addition, the company was able to retained key customers such Air India, Air Blue and Shaheen Air despite the stiff competition.
Similarly at Salalah Airport, the business continued to grow mainly driven by Oman Air increased flights and growth at the Cargo sector. During the last quarter of 2012, Shell Oman Aviation has secured new customers at Salalah Airport, which will boost volume growth for 2013.
PerformanceOur strategic relationship with our key
28
Jet bulk fuel customers again maintained its strength in 2012, and translated into sizeable volume and margin contribution, and reflects Shell Oman’s focus on operational excellence delivering on time with high HSSE standards at all locations.
In Salalah, Shell Oman is proud to have secured a presence at Salalah International Airport as the sole operator through the extension of the Concession Agreement for 2 further years with Oman Airport Management Company.
Management Discussion and Analysis
OutlookThe tourism sector in Oman continued to grow in 2013, and is expected to grow further in the next few years to come, which we anticipate will have a positive outcome on the Aviation business. Competition pressure remains intense with each marketing company relentlessly in pursuit of growth.
With Jet fuel prices on the rise, 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.
Your Company intends to secure and grow stronger competitive footing in the Aviation segment, by retaining the key government bulk supply contract as well as to continue supporting the growth of Oman Air and the other airlines at Muscat airport through operational excellence and on time delivery.
2013 is expected to show increase in demand from local market with new prospects of attracting new export opportunities.
29
Lubricants Supply Chain (LSC)
Business EnvironmentThe Lubricants Plant continued the focus on the agreed strategy of being a World Class Business Partner to the Commercial Lubricant business, with clear objective of maximizing the profitable growth opportunities. The streamlined platform for LSC operation has been well established to support local and export business in a very competitive manner. Base oil receiving and storage model changing from relying on suppliers facilities in Jabel Ali in UAE to move to our third party operated terminal in Sohar has confirmed to be an excellent supporting asset in achieving competitive product cost with much less complexity and HSSE exposure.
PerformanceIn addition to meeting the Operational Excellence targets in Production, Quality, Maintenance and stock management, the customer deliveries On Time In Full recorded 92% vs. a target of 93%.
In 2012 LSC concentrated on the financial performance, not only by meeting the plan but with more emphasis on cost saving initiatives and opportunities in both operating costs and raw material costs which resulted in a healthy margin to our Local Sales partners and more attraction for export business.
Export market showed a change in the order pattern and trends with more demand on small packs sizes and less Bulk deliveries which negatively impacted the plant production complexity index.
Outlook 2013 is expected to show increase in demand from local market with new prospects of attracting new export opportunities, the plant will be ready to accommodate all possible opportunities supported with competitive cost structure,
highest level of customer satisfaction and HSSE compliance standards.
Social Investment In 2012, the Company kept an unwavering focus on sustainable development by continuing to invest in initiatives centered on social awareness and other activities that drive overall sustainable development.
Shell Oman continues its commitment in promoting tourism by supporting the Muscat Festival and Salalah Tourism Festival, which are major national festivals of Oman. As part of the national awareness campaign to promote road safety awareness, “Let’s Work Together to Reduce Accidents” was launched in partnership with the ROP during GCC Traffic Week 2012. Activities were also organised for school children at the Traffic Safety School managed by the ROP, to educate future road users on traffic safety. Shell, ROP, Ministry of Education and Oman Road Safety Association set up a committee to judge the road safety photo campaign and the winning entries were use as Eid Cards.
Shell Oman’s Corporate Social Responsibility (CSR) included extending a helping hand to needy families during the Holy Month of Ramadan, and to support charitable organisations and NGO’s such as Oman Association for Disabled, Al Noor Association for the Blind, Environment Society of Oman, National Association for Cancer Awareness, Association of Early Intervention – Oman and Autism in Oman.
Shell Oman’s CSR initiatives took on a new life as we participated in the Autism Awareness Walk. The proceeds of the fundraising were donated to The Early Learning Centre that equips children battling Autism with the right tools and necessary skills to reach their full potential.
On World Youth Day, the Company planned and executed the ‘Celebrate
Eid Together’ event in association with Ba9ma, a newly formed non-profit youth organization working towards the betterment of orphans and children battling with autism, mental illness and other disabilities in our society.
On the occasion of The World Health Day we focused on ‘aging and health’ that prompted all employees to focus on their body and their health. Shell Oman also participated in the NACA Cancer Awareness Walkathon in the month of October as a conscious effort to promote good health and healing in additional to the two blood donation camps held in April and December.
Earth Day witnessed the successful launch of environment friendly initiatives such as ‘water saving tap’, and ‘recycling campaign. The objective of these campaigns was to create an eco-friendly environment at work and in the community. The ‘No Smoking Event’ that coincided with ‘World No Tobacco Day’ was an initiative that aimed at spreading awareness about first-hand as well as passive smoking. The event was successfully carried out and was supported by officials from the Ministry of Health.
Shell Oman was also part of the group of companies, led by an Omani SME – The Golden Hornet Company - that helped place Oman in the prestigious Guinness Book of World Records by making the world’s biggest football, which was also done as part of the celebrations of the 42nd National Day of Oman.
30
Shell Oman, in association with Ba9ma, a non-profit organisation, celebrated Eid with children, across Oman, who are battling mental and physical disabilities. The celebrations were directed towards synchronising the society’s thoughts and actions by executing campaigns that create and raise awareness.
Celebrating the True Spirit of Eid
OUTCOME:Reinforced our social responsibility efforts
INITIATIVE:Celebrating Eid with Underprivileged Children
31
Auditor’s Report
32
2012 2011
Note RO’000 RO’000
Revenue 403,376 357,561
Cost of sales (364,398) (321,905)
Gross profit 38,978 35,656
Other Income 5 3,682 3,330
Selling and distribution expenses (20,987) (18,137)
Administrative expenses (7,619) (6,471)
Operating profit 14,054 14,378
Interest expense (122) (84)
Interest income 27 31
Profit before income tax 13,959 14,325
Income tax expense 8 (1,670) (1,723)
Profit and comprehensive income for the year 12,289 12,602
Basic and diluted earnings per share 22 RO 0.123 RO 0.126
Dividend per share 23 RO 0.105 RO 0.117
The notes on pages 37 to 57 form an integral part of these financial statements.Report of the Auditors - page 31.
Statement of Comprehensive IncomeFor the year ended 31 December 2012
33
Statement of Financial PositionAt 31 December 2012
2012 2011Note RO’000 RO’000
ASSETSNon-current assetsProperty, plant and equipment 9 19,378 18,257Intangible assets 10 3,518 1,568Deferred tax asset 11 409 294Total non-current assets 23,305 20,119
Current assetsInventories 12 17,589 11,105Receivables and prepayments 13 39,722 31,687Cash at bank and in hand 14 3,859 4,320Total current assets 61,170 47,112
Total assets 84,475 67,231
EQUITYShare capital 15 10,000 10,000Legal reserve 17 3,587 3,587Retained earnings 16,935 16,346Total equity 30,522 29,933
LIABILITIESNon-current liabilitiesEmployee terminal benefits 18 618 602
Current liabilitiesShort term loan 19 8,000 7,000Payable and accruals 20 42,796 27,150Income tax payable 1,837 1,820Provisions 21 702 726Total current liabilities 53,335 36,696
Total liabilities 53,953 37,298
Total equity and liabilities 84,475 67,231
Net assets per share 25 RO 0.305 RO 0.299
The financial statements on pages 32 to 57 were authorised for issue in accordance with a resolution of the board of directors on 26 January 2013 and signed on their behalf by:
John Blascos Scott McDonald Chairman Finance Director
The notes on pages 37 to 57 form an integral part of these financial statements.Report of the Auditors - page 31.
34
Sharecapital
Legalreserve
Retainedearnings Total
Note RO’000 RO’000 RO’000 RO’000
At 1 January 2011 10,000 3,587 16,744 30,331
Comprehensive income:
Profit for the year - - 12,602 12,602
Transaction with owners:
Dividend paid - 2010 23 - - (13,000) (13,000)
At 31 December 2011 10,000 3,587 16,346 29,933
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 31 December 2012 10,000 3,587 16,935 30,522
The notes on pages 37 to 57 form an integral part of these financial statements.Report of the Auditors - page 31.
Statement of Changes in Equity For the year ended 31 December 2012
35
Statement of Cash Flows For the year ended 31 December 2012
2012 2011
Note RO’000 RO’000
OPERATING ACTIVITIESProfit before income tax 13,959 14,325
Adjustments for:DepreciationAmortisation
910
4,439798
4,175124
Provision for employee retention scheme - net 21 47 39
Employee terminal benefits expense 18 120 108
Gain on disposal of property, plant and equipment (8) (94)
Interest income (27) (31)
Interest expense 122 84
Operating cash flows before payments of employee terminal benefits, environmental liability and working capital changes
19,450 18,730
Employee terminal benefits paid 18 (104) (94)
Environmental liability paid 21 (71) (14)
Working Capital changes due to:Inventories (6,484) 1,265
Receivables and prepayments (8,035) (1,777)
Payables and accruals 15,646 (7,675)
20,402 10,435
Income taxes paid (1,768) (2,003)
Net cash generated from operating activities 18,634 8,432
INVESTING ACTIVITIESPurchase of property, plant and equipment and intangible assets 9/10 (8,360) (5,803)
Proceeds from disposal of property, plant and equipment 60 114
Interest received 27 31
Net cash used in investing activities (8,273) (5,658)
FINANCING ACTIVITIESDividends paid 23 (11,700) (13,000)
Interest paid (122) (84)
Increase in short term loans 1,000 7,000
Net cash used in financing activities (10,822) (6,084)
Net change in cash and cash equivalents (461) (3,310)
Cash and cash equivalents at beginning of the year 4,320 7,630
Cash and cash equivalents at end of the year 3,859 4,320
The notes on pages 37 to 57 form an integral part of these financial statements.Report of the Auditors - page 31.
36
On the occasion of Earth Hour, Shell Oman switched off lightings at the office and monoliths at the Shell service stations. This initiative aimed at educating the community at large about the benefits of saving power and “thereby uniting people to protect the planet.”
Earth HourPledge an Act of Green
OUTCOME:Contributed towards uniting people to protect the planet
INITIATIVE:Earth Hour
37
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 Rules and Guidelines on Disclosure by Issuers of Securities and Insider Trading, with the Rules for Disclosure and Proforma issued by the Capital Market Authority and with the Commercial Companies Law of 1974, as amended.
(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.
(c) Standards and amendments effective in 2012 and relevant for the company’s operations:
For the year ended 31 December 2012, the company has adopted all of the new and revised standards and interpretations issued by the International Accounting Standards Board (IASB) and the IFRS Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for periods beginning on 1 January 2012.
The adoption of these standards and interpretations has not resulted in changes to the company’s accounting policies and has not affected the amounts reported for the current period.
(d) Standards and Interpretations in issue but not yet effective:
At the date of authorisation of these financial statements, the following new and revised Standards and Interpretations were in issue but not yet effective:
Notes to the Financial StatementsFor the year ended 31 December 2012
38
Notes to the Financial StatementsFor the year ended 31 December 2012 (continued)
2 Summary of significant accounting policies (continued)
2.1 Basis of preparation (continued)
Effective for annual periods beginning on
or after
New IFRS and relevant amendments
Financial Instruments
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
Amendments to IFRS 9 and IFRS 7: Mandatory Effective Date of IFRS 9 and Transition Disclosures January 2015
Consolidation, joint arrangements, associates and disclosures
IFRS 10: Consolidated Financial Statements January 2013
IFRS 11: Joint Arrangements January 2013
IFRS 12: Disclosure of Interests in Other Entities January 2013
Amendments to IFRS 10, IFRS 11 and IFRS 12 Consolidated Financial Statements, Joint Arrangements and Disclosures in Other Entities : Transition Guidance and investments entities January 2013
IAS 27: Separate Financial Statements (as revised in 2011) January 2013
IAS 27: Separate Financial Statements amendments for investments entities January 2014
IAS 28: Investments in Associates, reissued as IAS 28 Investments in Associates and Joint Ventures (as revised in 2011) January 2013
Fair value measurement
IFRS 13: Fair Value Measurement January 2013
Revised IFRS
Employee benefits
IAS 19: Employee Benefits (as revised in 2011 for the post- employment benefits and termination benefits) January 2013
Amendments to IFRSs
IAS 1: Presentation of items of other comprehensive income July 2012
IAS 32: Offsetting Financial Assets and Financial Liabilities January 2014
Annual improvements to IFRSs 2009 to 2011 Cycles January 2013
IFRS 7: Disclosures – Offsetting Financial Assets and Financial Liabilities January 2013
New Interpretations and amendments to Interpretations:
IFRIC 20 – Stripping Costs in the Production Phase of a Surface Mine 1 January 2013
The 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.
39
Notes to the Financial StatementsFor the year ended 31 December 2012 (continued)
2 Summary of significant accounting policies (continued)
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.
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 balance sheetstatement 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 balance sheetstatement 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.
40
Notes to the Financial StatementsFor the year ended 31 December 2012 (continued)
2 Summary of significant accounting policies (continued)
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.
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 balance sheetstatement of financial position date, and any adjustment to income taxes payable in respect of previous years.
Deferred tax is provided using the balance sheetstatement 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 balance sheetstatement 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.
41
Notes to the Financial StatementsFor the year ended 31 December 2012 (continued)
2 Summary of significant accounting policies (continued)
2.8 Property, plant and equipment (continued)
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
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 balance sheetstatement 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.
42
Notes to the Financial StatementsFor the year ended 31 December 2012 (continued)
2 Summary of significant accounting policies (continued)
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.
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 receivables
Loans 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 balance sheetstatement 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. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the statement of comprehensive income within ‘selling and distribution expenses’.
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.
43
Notes to the Financial StatementsFor the year ended 31 December 2012 (continued)
2 Summary of significant accounting policies (continued)
2.15 Impairment
Financial assets
Financial 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:• significant financial difficulty of the counterparty;• default or delinquency in payments; or• 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.
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. Subsequent recoveries of amounts previously written off are credited to the statement of comprehensive income.
Non-financial assets
The 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.
44
Notes to the Financial StatementsFor the year ended 31 December 2012 (continued)
2 Summary of significant accounting policies (continued)
2.16 Provisions
A provision is recognised in the balance sheetstatement 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.
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 balance sheetstatement of financial position date are dealt with as a non-adjusting event after the balance sheetstatement 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.
45
Notes to the Financial StatementsFor the year ended 31 December 2012 (continued)
3 Financial risk management
3.1 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.
(a) Market risk
(i) Foreign exchange riskForeign 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 2012 (2011 - nil).
(ii) Interest rate riskThe 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.
(b) Credit riskCredit 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.
46
Notes to the Financial StatementsFor the year ended 31 December 2012 (continued)
3 Financial risk management (continued)
3.1 Financial risk factors (continued)
(b) Credit risk (continued)
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 2012, Government organisations in Oman accounted for 40% (2011 - 34%) of the outstanding trade accounts receivable. At 31 December 2012, there were no other significant concentrations of credit risk.
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.
(c) 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 2012, based on contractual payment dates and current market interest rates.
2012 Up to one yearRO’000
Payables and accruals 42,796Provisions 702Total 43,498
2011 Up to one yearRO’000
Payables and accruals 27,150Provisions 726Total 27,876
47
Notes to the Financial StatementsFor the year ended 31 December 2012 (continued)
3 Financial risk management (continued)
3.2 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.
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.
3.3 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.
(a) 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 balance sheetstatement of financial position date, gross trade accounts receivable were RO 33,509,651 (2011 - RO 28,921,351) and the provision for doubtful debts was RO 681,359 (2011 - RO 225,591). Any difference between the amounts actually collected in future periods and the amounts expected will be recognised in the statement of comprehensive income.
(b) 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.
48
Notes to the Financial StatementsFor the year ended 31 December 2012 (continued)
5 Other IncomeOther 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 2012 is as follows:
2012 2011RO’000 RO’000
Retail sales 204,395 186,453Commercial sales 63,653 61,452Lubricants sales 41,380 50,728Aviation sales 93,948 58,928
403,376 357,561
7 Employee costs
Employee costs included in selling and distribution and administrative expenses comprise:2012 2011
RO’000 RO’000Salaries, wages and bonus 3,883 3,486Allowances and other benefits 2,467 2,357
6,350 5,843
8 Income tax
2012 2011RO’000 RO’000
Income tax expense comprisesCurrent tax expense 1,785 1,832Deferred tax credit (115) (109)
1,670 1,723
(a) 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:
49
Notes to the Financial StatementsFor the year ended 31 December 2012 (continued)
8 Income tax (continued)
2012 2011RO’000 RO’000
Accounting profit before tax 13,959 14,325
Tax on accounting profit before tax at 12% 1,671 1,715Add tax effect of:Non-deductible expenses (1) 8Tax charge for the year 1,670 1,723
(b) The company’s tax assessments for the years 2007 to 2012 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 2012.
9 Property, plant and equipment
BuildingsPlant andequipment
Motorvehicles
Capitalwork-in-progress Total
RO’000 RO’000 RO’000 RO’000 RO’000Cost1 January 2012 1,185 46,200 718 2,244 50,347Acquisitions 164 375 97 4,987 5,623Disposals (26) (1,533) (108) - (1,667)Transfers 483 1,744 - (2,238) (11)31 December 2012 1,806 46,786 707 4,993 54,292
Depreciation1 January 2012 807 30,620 663 - 32,090Charge for the year 52 4,335 52 - 4,439On disposals (26) (1,481) (108) - (1,615)31 December 2012 833 33,474 607 - 34,914
Net book value31 December 2012 973 13,312 100 4,993 19,378
50
Notes to the Financial StatementsFor the year ended 31 December 2012 (continued)
9 Property, plant and equipment (continued)
BuildingsPlant andequipment
Motorvehicles
Capitalwork-in-progress Total
RO’000 RO’000 RO’000 RO’000 RO’000Cost1 January 2011 1,187 41,564 972 4,130 47,853Acquisitions - 1,872 - 2,242 4,114Disposals (2) (1,360) (258) - (1,620)Transfers - 4,124 4 (4,128) -31 December 2011 1,185 46,200 718 2,244 50,347
Depreciation1 January 2011 777 27,868 870 - 29,515Charge for the year 32 4,092 51 - 4,175On disposals (2) (1,340) (258) - (1,600)31 December 2011 807 30,620 663 - 32,090
Net book value31 December 2011 378 15,580 55 2,244 18,257
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.
10 Intangible assets
2012 2011RO’000 RO’000
CostAt 1 January 2,434 745Acquisitions 2,737 1,689Disposals (606) -Transfers 11 -At 31 December 4,576 2,434AmortisationAt 1 January 866 742Charge for the year 798 124On Disposals (606) -At 31 December 1,058 866Carrying Amount At 31 December 3,518 1,568
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.
51
Notes to the Financial StatementsFor the year ended 31 December 2012 (continued)
11 Deferred tax asset
The deferred tax asset recognised in the statement of financial position is attributable to the following:
At1 January 2012
(Charge)/credit for the
yearAt
31 December 2012RO’000 RO’000 RO’000
Provisions and depreciation 294 115 409
At1 January 2011
Credit for the year
At 31 December 2011
RO’000 RO’000 RO’000Provisions and depreciation 185 109 294
12 Inventories
2012 2011RO’000 RO’000
Finished goods- Petroleum products 11,248 7,088Raw materials 6,341 4,017
17,589 11,105
13 Receivables and prepayments
2012 2011RO’000 RO’000
Trade receivables 33,509 28,921Less: allowance for impairment losses (681) (226)
32,828 28,695Receivables from related parties (note 24) 4,688 1,073Trade and related party receivables, net of impairment losses 37,516 29,768Prepayments 1,681 1,609Other receivables 525 310
39,722 31,687
As at 31 December 2012, trade receivables of RO 681,359 (2011 - RO 225,591) were impaired and provided against. Movements in the allowance for impairment of receivables were as follows:
2012 2011RO’000 RO’000
At 1 January 226 164Provision for the year 455 62At 31 December 681 226
52
Notes to the Financial StatementsFor the year ended 31 December 2012 (continued)
13 Receivables and prepayments (continued)
As at 31 December, the ageing of unimpaired trade receivables is as follows: Neither
past due Past due but not impaired
Total nor impaired < 30 days 30 - 60 days 60 - 90 days >90 daysRO’000 RO’000 RO’000 RO’000 RO’000 RO’000
2012 33,509 27,463 667 1,103 1,138 3,1382011 28,695 20,262 2,349 3,655 1,135 1,294
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
2012 2011RO’000 RO’000
Bank balances 1,758 2,427Deposit accounts 2,101 1,893
3,859 4,320
Included in deposit accounts are call deposits of RO 1,778,839 (2011 - RO 1,243,149) denominated in Rial Omani and RO 322,316 (2011 - RO 650,112) 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.
15 Share capital
The company’s authorised, issued and fully paid-up share capital consists of 100,000,000 shares of 100 baizas each (2011 - 100,000,000 shares of 100 baizas each) as follows:
2012 2011RO’000 RO’000
5,000,000 Multi-vote shares of 100 baizas each 500 50095,000,000 Ordinary shares of 100 baizas 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.
53
Notes to the Financial StatementsFor the year ended 31 December 2012 (continued)
16 Significant shareholders
At 31 December, shareholders owning more than 5% of the company’s share capital are as follows:
2012 2011 2012 2011
Number Number % of % of
of shares of shares holding holding
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 9,122,963 9,122,963 9.1% 9.1%
Shell Petroleum NV 8,800,000 8,800,000 8.8% 8.8%
MOD Pension Fund 8,136,390 8,115,990 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.
18 Employee terminal benefits
2012 2011RO’000 RO’000
At 1 January 602 588Increase for the year 120 108Paid during the year (104) (94)At 31 December 618 602
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 3 January 2013 and 9 January 2013. The company is not required to pay any arrangement or commitment fees.
54
Notes to the Financial StatementsFor the year ended 31 December 2012 (continued)
20 Payables and accruals
2012 2011RO’000 RO’000
Trade payable 33,413 22,832Accrued expenses 3,374 3,533Other payables 78 745Payable to related parties (note 24) 5,931 40
42,796 27,150
21 Provisions
2012 2011RO’000 RO’000
Environmental provision 288 359Provision for employee retention scheme 414 367
702 726
Environmental provision2012 2011
RO’000 RO’000At 1 January 359 373Provided during the year - - Less: utilised during the year (71) (14)At 31 December 288 359
The company provides for environmental costs based on environmental contamination assessments made on its delivery and storage sites.
Provision for employee retention scheme2012 2011
RO’000 RO’000At 1 January 367 328 Provided during the year 159 140 Less: utilised during the year (112) (101)At 31 December 414 367
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 2012 is based on net profit for the year in the amount of RO 12,289,000 (2011 - RO 12,602,000) and 100,000,000 shares (2011 - 100,000,000 shares).
55
Notes to the Financial StatementsFor the year ended 31 December 2012 (continued)
23 Dividends paid and proposed
Dividends paid
During the year, dividends of RO 0.117 (2011 - RO 0.130) per share totalling to RO 11,700,000 relating to 2011 were declared and paid (2011 - RO 13,000,000 relating to 2010 were declared and paid).
Proposed dividend
The Board of Directors at their meeting dated 26 January 2013, have proposed a dividend of RO 10,500,000 for the year ended 31 December 2012 (2011 - RO 11,700,000).
Dividend per share
The calculation of dividend per share is based on proposed final dividend totalling RO 10,500,000 (2011 - RO 11,700,000) and 100,000,000 shares (2011 - 100,000,000 shares) and is subject to approval at the Annual General Meeting.
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:2012 2011
RO’000 RO’000Sale of goods 49,881 44,487Purchase of goods and services 20,375 14,187Service and trademark licence fees 1,835 1,565Bank interest expense 83 7
Revenue from related party sales in the amount of approximately RO 50 million (2011 - RO 44 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 (2011 - three) 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 266,183 (2011- RO 296,795) in salaries and benefits. These two (2011 - three) directors earned no additional remuneration in their separate capacity as directors. During the year eight (2011 - seven) non-executive directors earned an aggregate amount of RO 108,400 (2011 - RO 108,400) in respect of meeting fees and director’s remuneration.
56
Notes to the Financial StatementsFor the year ended 31 December 2012 (continued)
24 Related party transactions (continued)
(ii) Compensation of key management personnel
The remuneration of executive directors and other members of key management during the year were as follows:
2012 2011RO’000 RO’000
Short-term benefits 542 587Employees’ end of service benefits 48 58
590 645
(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 2012 and 2011 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 2012 in the amount of RO 30,522,000 (2011 - RO 29,933,000) and 100,000,000 shares (2011 - 100,000,000 shares).
26 Financial instruments The accounting policies for financial instruments have been applied to the line items below:
2012 2011Assets as per balance sheetstatement of financial position RO’000 RO’000
Trade and other receivables (excluding prepayments) 38,041 30,078Cash at bank and in hand 3,859 4,320
41,900 34,398
2012 2011Liabilities as per balance sheetstatement of financial position RO’000 RO’000
Payables and accruals 42,796 27,150
27 Contingent liabilities
Guarantees
At 31 December 2012, 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 5,300,235 (2011 - RO 3,925,551) in respect of contract performance.
57
Notes to the Financial StatementsFor the year ended 31 December 2012 (continued)
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:
2012 2011RO’000 RO’000
Not later than one year 728 517Later than one year and not later than five years 2,771 2,733More than five years 4,193 4,905
7,692 8,155
(b) At 31 December 2012, the company has future capital expenditure commitments amounting to RO 2,991,912 (2011 - RO 2,379,600).
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.
58
OUTCOME:Key social initiatives were addressed and brought to the forefront
INITIATIVE:Shell Oman 2012 Calendar
Shell Oman, invests in the development of not just the economy but also of the community by providing opportunities and launching initiatives to better the lives and directs attention towards holistic growth. The Shell Oman 2012 calendar has been one such initiative.
12 AUGUST 2012
8 JANUARY 2012
اليوم العاملي لل�شباب
اليوم العربي ملحو الأمية
يوم البيئة العمانية
WORLD YOUTH DAY
ARAB LITERACY DAYOMAN ENVIRONMENT DAY
22 APRIL 2012
5 JUNE 2012
يوم الأر�ض
يوم ال�شالمة يف �شل
يوم البيئة العاملي
EARTH DAY
SHELL SAFETY DAYWORLD ENVIRONMENT DAY
Calender 2012Creating a Better Tomorrow – One Day at a Time
احل�صيلة:
هامة اإجتماعية مبادرات على الرتكيز مت
لإظهار اأهميتها
املبادرة:
تقومي �شل العمانية 2012
ل يقت�شر ا�شتثمار �شل
العمانية على تطوير الإقت�شاد
بل اأنها ت�شتثمر يف تنمية
املجتمع كذلك من خالل
اإتاحة الفر�ض وطرح املبادرات
لتطوير احلياة والعمل على
توجيه الإهتمام نحو حتقيق
النمو . ولذا، فاإن تقومي �شل
العمانية لعام 2012 كان
مبادرة اأخرى لتحقيق ذلك.
22 APRIL 2012
5 JUNE 2012
يوم الأر�ض
يوم ال�شالمة يف �شل
يوم البيئة العاملي
EARTH DAY
SHELL SAFETY DAYWORLD ENVIRONMENT DAY
4 FEBRUARY 2012يوم ال�شرطان العاملي
WORLD CANCER DAY
تقومي 2012
من اأجل م�شتقبل م�شرق - يوم واحد يف كل عام
58
