Lanka IOC PLC (LIOC), which along with the Ceylon Petroleum Corporation (CPC) is the major player in Sri Lanka’s petroleum industry, has posted its highest ever turnover of Rs.47.6 billion in the year ended March 31, 2009 but also suffered a loss topping Rs.1.2 billion.

LIOC Chairman S.V. Narasimhan has told shareholders in the annual report which will be taken up at its August 11 AGM that the volatile global oil market during the year had seriously affected the company’s performance.

"The price of crude reached the highest ever recorded and also witnessed the sharpest fall," he noted. "These extreme positions created uncertainty in respect of import and inventory management."

These developments had consequential effects in the domestic selling price of petroleum products, Narasimhan said, but claimed that LIOC "managed to successfully handle the crisis and show a positive margin in operations."

He admitted that LIOC’s oil hedging operations had not succeeded due to the unprecedented fall in crude prices. However, these losses were not quantified in the annual report.

Reporting that the market is still to recover from low oil prices, the LIOC chief told shareholders that the company was hopeful of posting an improved performance in the current year "due to expected recovery in the domestic prices, improved operational efficiency and higher income from other activities."

LIOC has suffered from changes in the duty structure of petrol during the year under review with margins affected on account of higher Customs duty and VAT revision to 12% with the total impact of duties on petrol consequent to the revision nearly 65%.

"There is an urgent need to review the duty structure and impose a rationalized duty structure with fixed and variable components to accommodate rise and fall in the import prices," Narasimhan said.

"Stability in prices would be possible if the government takes a long term view of the price structure and address the issue keeping the interest of all the stakeholders.

He stressed that government support in the endeavours of the company "is extremely critical and vital" and urged that the government has to ``safeguard the interests of the company as well as the people and adopt a balanced approach."

"The government may have to provide stimulus to the industry through appropriate fiscal policy, tax concession and timely price revision. Your company has been interacting with the government at appropriate levels to protect its interest and also meet the rising expectations of the government and the customers," he said.

Nearly Rs.4.5 billion in Treasury Bills held by LIOC had matured last January and the proceeds have been used by the company to settle outstanding loans, the chairman reported.

They had entered into the bunkering business in November last year and already made significant strides, Narasimhan said. The lubricants business was being consolidated with the dealer and distributor network expanded.

With the end of the conflict in the North, the government was taking proactive measures to boost investments in key sectors and LIOC saw potential opportunities for growth in the energy sector. They would take "appropriate actions" in this regard Narasimhan said.

The company’s Managing Director, Mr. K.R. Suresh Kumar, said that the unprecedented volatile oil market with global prices swinging from an all-time high to a new low within a short time span had seriously impacted on their operations.

"The domestic selling prices could not adjust to the changing international prices. The oil industry suffered a significant loss in the volumes of all products," he said.

"However, your company maintained the volumes at the same level as previous year in the retail segment, despite industry losing nearly 20% of the volumes."

He explained that they had decided not to market diesel from their filling stations due to what he called "huge under-recoveries" in May and June last year saying they had been compelled to increase retail selling prices over what prevailed elsewhere (CPC) resulting in lost volumes.

LIOC has a stated capital of Rs.7.58 billion and retained earnings of nearly Rs.1.2 billion in its books as at March 31, 2009 with total assets running at Rs.20.45 billion and total current liabilities and provisions at Rs.11.67 billion.

Finance cost during the year had increased to Rs.487.1 million from the previous year’s Rs.251.1 million while the tax charge was down to Rs.134 million from Rs.175.2 million a year earlier.

Indian Oil Corporation Limited with 75.12% of the company is the controlling shareholder followed by the National Savings Bank (2.87%) and the Life Fund of the Sri Lanka Insurance Corporation (2.25%). SLIC’s General Fund owns 1.08% of LIOC.

The year’s loss translated to a loss per share of Rs.2.32 against a profit per share of Rs.4.40 the previous year. The directors have not recommended any dividend payment.