April 4, 2017
Volume 7 Issue 9
Chevron Lanka Records Strongest Year Yet
Chevron Lanka recorded a 13 percent higher profit in 2016 – its best year yet – due to growth in the country’s manufacturing and power generation sectors and increased volumes of exports to the Maldives and Bangladesh.
The Colombo-based subsidiary of American oil giant Chevron recorded a full-year profit of 3.4 billion Sri Lankan rupees (U.S. $22.9 million), up from Rs 3 billion in 2015.
Sales increased 5 percent to Rs 12 million. Chevron Lanka “succeeded in growing volumes consecutively for the last two years despite the prevalence of challenging macroeconomic and industry conditions,” said Managing Director Kishu Gomes in the company’s annual report released last week.
Sales volume increased 7 percent overall, including a 20 percent increase in exports.
The automotive market was challenging, Gomes said. “The sharp decline in motor vehicle imports due to higher tariffs was an impediment to growth in demand.”
Motorcycles accounted for 69 percent of new vehicle registrations, the report noted, a rise from 55 percent in 2015. Three-wheelers made up 11 percent during the year, and new cars made up just 9 percent of total vehicles, which numbered 6.7 million.
In the automotive segment, Chevron Lanka continued setting up new retail lube shops during the year. “We launched marketing campaigns in the digital space during the year, and the response has been extremely good,” Gomes said.
The company passed on the benefit of lower raw material prices by offering promotions to gain market share both in domestic and export markets. “We leveraged on the success of the consumer promotions launched during the previous year and continued the scheme to drive volumes in the channel, offering one liter of engine oil free with consumer packs of 4-liter petrol engine oil and 5-liter diesel engine oil,” he continued. “This promotion proved to be quite popular with consumers and traders alike and resulted in several competitors aping the same in less sophisticated ways.”
The firm also expanded its network of Caltex Star Care-branded service stations, adding several new outlets and rebranding and revamping Star Lube- and Delo Lube-branded outlets.
The Sri Lankan government made some changes to taxes that were a benefit to the company’s sales in the automotive arena, Gomes noted. “Many of the challenges of the past are now being addressed by the authorities concerned, which is a heartening development for the future well-being of the industry. For instance, the HS code for the import of synthetic finished lubricants was not subject to duties. It has recently been reclassified and is now subject to duties similar to mineral-based finished lubricants.”
Unlicensed players operating in the market will continue to be the industry’s “biggest challenge”, he added. “However, the industry on the whole is hopeful of the outcomes of the actions taken by the Ministry of Petroleum Resources Development by way of appointment a committee to look into these illegal activities and instructing the police to apprehend and prosecute the illegal operators.”
The country still needs more regulation, though, he said. “The Public Utilities Commission should be given the powers to regulate the industry. Meanwhile, strict
actions should be taken under existing regulations. An independent lab capable of testing lubricant properties should be established in order to monitor imports.”
The industrial lubricants business proved more lucrative to Chevron Lanka in 2016 despite some notable challenges. “The increased demand for thermal energy due to the lack of rains resulted in higher demand for lubricants from the power plants,” he said. “We were able to secure as well as win back some of the government customers based on competitive bidding.”
“The government was also compelled to reactivate certain thermal power plants that were already phased out and decommissioned due to maturity of tenures in 2015,” the report noted. Favorable conditions in rubber manufacturing sectors also led to higher demand in the segment.
Adverse weather during the year – particularly the flooding in May and droughts during the rest of the year – disrupted demand from the agriculture and fisheries sector.
The construction sector was estimated to have grown, Chevron Lanka said, but if it did, it skewed toward less lubricant-intense types of construction.
“We also achieved another milestone in bulk supplies by shipping to key power generation customers in flexi-tanks, which was a first not only for Sri Lanka but for the Asia-Pacific region of Chevron,” the company said.
Export sales were a key factor for Chevron Lanka in 2016. “Export sales helped in reducing our income tax as income tax for exports is lower,” Gomes explained.
In Bangladesh, “With strong support from its local distributor, [Chevron Lanka] was able to increase penetration levels beyond the capital city of Dhaka and the port city of Chittagong into new areas in South Bengal, such as Khulna, Bogra, Rajshahi, Tangail and Sylhet through the appointment of sub-distributors,” the report continued.
Despite uncertainties in the Maldives, the company surpassed its volumes sold there in 2015. The main contributor to volume growth in that small island nation was its construction industry.
“The more collaborative approach between the two distributors through whom we operate in the Maldives continued to help in optimizing the use of their resources and effort to focus on competitor accounts,” the report said. “This also helped to further strengthen the existing customer relationships through enhanced levels of service and support to current customers. The selective use of in-service oil monitoring programs has also helped both distributors to establish and build product confidence while expanding the volume base.”
Other notable efforts include Chevron Lanka’s launch of Supermatic Scooter Oil aimed at capturing more of the significantly expanding market for scooters in Sri Lanka; and expansion of its sales network to rural areas in the country.