Second Annual Report : August 1997

Appendix 1

Aggregate Financial Results of Sapia Members

Sapia consists of the six South African conventional oil refining and marketing companies, i.e. BP, Caltex, Engen, Shell, Total and Zenex. This aggregation of the financial results of their oil refining and marketing activities has been carried out on their behalf by Deloitte and Touche.

Deloitte & Touche aggregated the above financial information from amounts and statistics provided by the Sapia members. Deloitte & Touche did not perform any audit on the information supplied nor was the information verified by them in any way.

The figures reflect the total profits the companies earn from their oil importing, refining and marketing activities, including their export trade. As the companies purchase their crude oil and any refined oil requirements on world markets at ruling international prices, they do not earn any further undisclosed profits.

SALES VOLUMES reached the level of 29,4bn litres in 1996, 52% above the 1990 level.

NET INCOME AFTER TAX, after declining from R1,3bn in 1993 to R0,9bn in 1995, rose in 1996 to R1.4bn. This figure is inflated by R0,6bn stock profits resulting from the increases in the prices of oil in 1996. Adjusting for these stock profits, net income after tax, R0,8bn, falls below the R0,9bn 1995 level.

Favourable factors in 1996 over 1995 were strong volume growth, improved international refining margins, particularly when expressed in rand terms, and the recovery in 1996 of the R0,1bn backlog due in respect of the service differential from previous years. Adjusting for this latter item, which was referred to in last year's annual report, would further depress 1996 income as compared to 1995.

The 1996 net income after tax brings to account an amount of R0,3bn in respect of "slate under recovery". This is income which was not actually received in 1996 and will only be recovered over an extended period of time.

If the slate under recovery, the stock profits and the recovery of the service differential backlog are excluded from the 1996 figure, the 1996 net income after tax would be only R0,4bn.

A 3c/l MARGIN INCREASE, equal to an amount of some R0,3bn after tax, was due to industry in 1996 in terms of the MPAR system. This increase had not been approved by government at the time of going to press. The R0,3bn was not received by industry or accounted for in the 1996 figures above.

TOTAL ASSETS increased significantly from R14.5bn in 1995 to R17.6bn in 1996. This increase reflects both continued capital investment in the industry, R1.4bn in 1996, and the significant increases in the values of stocks and accounts receivable as a result of the increases in rand oil prices which occurred in 1996. The ability of Sapia members to continue with such large investments in fixed and working capital will be dependent on government setting clear policies, which encourage investment, for the industry.

AGGREGATE CAPITAL INVESTMENT for the seven years from 1990 to 1996 was R10.4bn. This exceeded the net income after tax, R7,0bn, over the same period by R3,4bn.

TOTAL INCOME TAX PAYMENTS during the seven years were R3,9bn. In addition to this the members, during this period, collected R66.0bn in taxes and levies on behalf of the State.

AFTER TAX RETURN ON ASSETS recovered from 6,4% in 1995, the lowest level in the decade, to 7,9%. After tax profit, expressed as cents per litre, was 4,7c/l or 2,7c/l before stock profits.

These returns, which are lower than inflation and the return on a bank deposit, do not adequately reward investment in the industry. In addition, the 1996 profits, as noted above included significant stock profits, recoveries of items from earlier years and accruals of amounts not actually received. It is only the stock profits which give the 1996 figures any pretence of adequacy. The after tax return on assets when stock profits are excluded is some 4,5%.