Chevron Lanka PLC -- 2007 Highest ever financial performance

The Sri Lankan economy in 2007 continued to experience numerous challenges, most significantly the government's continued campaign against terrorism which drove up defense expenditures, says Chevron Lubricant's Managing Director Kishu Gomes.

In the company's 2007 Annual Report, Gomes stated that from a commercial standpoint, the growing hostilities adversely affected business confidence and significantly impacted commercial operations in the north and east. Spiralling global oil prices resulted in rising cost of living and inflation remained a key issue in the country during 2007.

The year continued to pose a multitude of challenges not only to Chevron but to every other industry player. Gomes stated that the impact of the spiralling costs of products was heightened by the contraction of the geographic outreach, a result of the hostilities in the north and east. Moreover, the year saw a decline in the growth of the retail market as a result of narrowed disposable incomes amongst Chevron's target audiences whilst commercial and industrial markets posted a healthy rise in the growth rate with the operational commencement of new power generation projects.

Gomes also said that six new licenses were issued in 2007, four of which commenced preliminary operations during the year. He added that the possible setting up of used oil recycling plants adds to the challenges Chevron faces in the market. Despite authorities having confirmed that recycled oil will not be allowed in the domestic market, a monitoring mechanism has to be set up for this purpose.

With the narrowing of the duty margin between finished goods and raw materials of which the difference in duty now amounts to only seven percent, Gomes is forecasting that in the long term, viable and economically contributing commercial entities such as Chevron's will play a limited role in the Sri Lankan market. 'This duty structure will only encourage and allow entities engaged in the import of finished goods to thrive, further constricting role of enterprises such as Chevron. ‘We are strongly of the view that Sri Lanka should in fact be encouraging more investments into manufacture and value addition as opposed to encouraging and import policy in the interest of employment generation and overall wealth creation,' he added.

Chairman of Chevron, Kevin M. Kelley also stated in the Annual Report that the year's financial achievement falls against the backdrop of an increasingly competitive environment. He said external factors including the escalation of violence in the north and east which indirectly affected distribution access to approximately one tenth of the potential lubricant market, continue to pose challenges to the company.

Despite a challenging year, Chevron posted its highest ever financial performance according to its 2007 Annual Report, recording a 34 percent growth in profit after tax of Rs.1.07 billion, up from Rs.806 million the previous year. In addition, a net finance income of Rs.52 million compared to Rs.19 million the previous year and other income of Rs.12 million compared to Rs.5 million the previous year also contributed to the increase in net earnings. Total revenue grew by 12 percent to reach Rs.8.7 billion during the year. Revenue growth was primarily due to higher average per litre selling prices recorded in 2007 as a result of price revisions made by the company during the year due to base oil price increases and the depreciation of the rupee up to the third quarter in 2007.

The report states that although export volumes to the Maldives and Bangladesh recorded a healthy increase during the year, net increase in export revenue recorded only a marginal increase due to the discontinuation of the toll blending of Marine lubricans.

Increase in net cash from operating activities which is recorded at Rs.48 million, amounting to 177 percent over that of the previous year's Rs.6 million mainly reflected higher earnings. The company paid four interim dividends during the year amounting to Rs.750 million which was a 32 percent increased over the previous year.

Earnings per share increased to Rs.17.97 in 2007 compared to Rs.13.45 the pervious year, in line with increased earnings. The dividend per share also recorded an increase of 32 percent over 2006, amounting to a 70 percent payout. (NG)