Annual Report 2014 Shell Oman Marketing Companys05.static-shell.com/content/dam/shell-new/local/country/omn/... · Shell Oman is consistently investing ... 23 Management Discussion

Annual Report 2014Shell Oman Marketing Company SAOG

HIS MAJESTY SULTAN QABOOS BIN SAID

SHELL OMAN: INVESTING FOR GROWTH

Shell Oman is consistently investing for growth, across our business.

The most visible feature of our investment is the growing network of service stations across Oman. Besides 166 strategically located service stations, Shell Oman businesses also offer operational excellence in aviation, marine, lubricants supply chain, and commercial fuel.

From our expanding network of service stations, to participation in large-scale infrastructure projects, and building a strong presence at air and sea ports, Shell Oman’s investments not only help grow our market share, but also help fuel the growth of local community businesses across the Sultanate – and contribute to the overall progress of the nation’s economy.

2

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

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

CONTENTS

3

Net Profit & EBITA (Earnings before interest, taxes, depreciation and amortization)

RO

‘0

00

2,000

0

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Net ProfitEBITA

EPS & Dividends

bais

a /

Share

(All data based on a equity share face value of 100 baiza)

0

25

50

75

100

125

150Dividend EPS

Return on Average Capital Employed is net profit divided by the average ofopening & closing balances of Capital Employed.

Return on Average Capital Employed (RoACE) & Operating Profit Margin (OPM)

0%

10%

20%

30%

40%

50%

60%

70%

2004

2005

2006

2007

2008

2009

2010

2011

24.15%

4.26%

16,870

123

92

2012

2014

2013

37.20%

3.87%

(RoACE)OPM

Earnings per share (RO) 0.123*

Dividend per share (RO) 0.092*

Dividend Yield (on offer price of RO 4.900) 18.8%*

Dividend Yield (at 31 Dec 2014 price of RO 2.000) 4.6%

*rebased on an equity share face value of 100 baiza following the stock-split in 2006

Balance Sheet (RO million)

2014 2013

Share Capital 10.0 10.0

Reserves 3.6 3.6

Retained Earnings 20.3 18.5

Net Assets 33.9 32.1

Earnings (RO million)

2014 2013

Turnover 361.5 430.6

Gross Profit 36.3 41.5

Other Income 4.5 3.8

Net Operating Expenses (26.9) (31.5)(includes depreciation, interest & amortisation)

Profit before tax 13.9 13.8

Taxation (1.6) (1.7)

Profit after tax 12.3 12.1

Dividends (RO million) 9.2 10.5

12,278

5,317

8,964

2014

2004

2005

2006

2007

2008

2009

2010

2011

2013

2012

56

93

Retail

64%

Aviation

11%

Lubricants

11%

CommercialFuels

13%

Bitumen

1%

CONTRIBUTION OF TURNOVER

4

Net Profit & EBITA (Earnings before interest, taxes, depreciation and amortization)

RO

‘0

00

2,000

0

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Net ProfitEBITA

EPS & Dividends

bais

a /

Share

(All data based on a equity share face value of 100 baiza)

0

25

50

75

100

125

150Dividend EPS

Return on Average Capital Employed is net profit divided by the average ofopening & closing balances of Capital Employed.

Return on Average Capital Employed (RoACE) & Operating Profit Margin (OPM)

0%

10%

20%

30%

40%

50%

60%

70%

2004

2005

2006

2007

2008

2009

2010

2011

24.15%

4.26%

16,870

123

92

2012

2014

2013

37.20%

3.87%

(RoACE)OPM

Earnings per share (RO) 0.123*

Dividend per share (RO) 0.092*

Dividend Yield (on offer price of RO 4.900) 18.8%*

Dividend Yield (at 31 Dec 2014 price of RO 2.000) 4.6%

*rebased on an equity share face value of 100 baiza following the stock-split in 2006

Balance Sheet (RO million)

2014 2013

Share Capital 10.0 10.0

Reserves 3.6 3.6

Retained Earnings 20.3 18.5

Net Assets 33.9 32.1

Earnings (RO million)

2014 2013

Turnover 361.5 430.6

Gross Profit 36.3 41.5

Other Income 4.5 3.8

Net Operating Expenses (26.9) (31.5)(includes depreciation, interest & amortisation)

Profit before tax 13.9 13.8

Taxation (1.6) (1.7)

Profit after tax 12.3 12.1

Dividends (RO million) 9.2 10.5

12,278

5,317

8,964

2014

2004

2005

2006

2007

2008

2009

2010

2011

2013

2012

56

93

Retail

64%

Aviation

11%

Lubricants

11%

CommercialFuels

13%

Bitumen

1%

FINANCIAL HIGHLIGHTS

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From Left to Right:Mazhar Ud Deen, DirectorShabib Mohammed Al Darmaki, DirectorAmr Adel, Director Saleh Nasser Al Araimi, DirectorHuda Abdullah Al-Habsi, DirectorAdil Ismail Al Raisi, Managing Director

BOARD OF DIRECTORS

6

From Left to Right:Chris Breeze, ChairmanGhalib Fawzy Salim Al Busaidi, Deputy ChairmanScott McDonald, Finance DirectorJuma Abdullah Khalfan Al-Khamisi, DirectorLamees Al Lawati, Board Secretary

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MANAGEMENT TEAM

From Left to Right: 1st RowMohammed Al Balushi, Country Manager – Retail Sales & OperationsHaitham Al Ismaily, Human Resources & Administration ManagerScott McDonald, Finance Director2nd RowMohammed Al Kindi, Commercial Fleet ManagerAli Al Lawati, Commercial Lubes Manager

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From Left to Right: 1st RowAdil Ismail Al Raisi, Managing DirectorMohammed Ali Al Farsi, GM-External Affairs & Business DevelopmentKhalid Al Awaisi, Country Aviation Manager2nd RowSaid Al Rawahi, Commercial Fuels ManagerHafidh Al-Ismaily, Facilities ManagerAhmed Hilal, Lubricants Supply Chain Manager

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2014 net profit was RO 12.28

million compared to RO 12.09 million in 2013. Basic earnings per share (EPS) were 1.5% higher than 2013.

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, 2014.

Business EnvironmentOman’s oil production in 2014 was stable at approximately 945,000 barrels a day. By latest estimates the economy grew at about 5% with public expenditure amounting to RO 13.5 billion. This was an increase of 4.5% compared with 2013. Oil remained the country’s major source of revenue, accounting for about four-fifths of revenue. But the significant fall in oil prices towards the end of the year did not substantially impact the budget in 2014 as average oil prices for the year remained well above the $85/barrel assumed in the budget. The budgetary deficit was about 6% of GDP.

There was a healthy growth in country retail fuels business mainly due to increased energy demands from a young and growing population in Oman coupled with continued government investment in infrastructure and industrial developments across the country.

Financial PerformanceIn 2014 the Company continued to grow in the retail and commercial fleet businesses mainly driven by investment in new sites, operational excellence, on time product delivery and attracting additional commercial fleet card accounts. Total lubricant volumes (export plus domestic) were at the same level as 2013 whereas bitumen volumes reduced as several projects came to an end in 2014.

For the year ended 2014, revenues were RO 361.5 million, 16% lower than last year mainly due to the conclusion of the Oman Air contract and two major government fuel contracts but offset by steady growth in retail and commercial fleet as a result of strategic growth investments.

2014 net profit was RO 12.28 million compared to RO 12.09 million in 2013. Basic earnings per share (EPS) were 1.5 % higher than 2013 as the lower revenues were compensated for by the revision to the depreciation rates, a reduction in operating costs and a focus on higher margin business opportunities.

Net cash generated from operating activities was RO 20.9 million, 7.6% higher than 2013. This was mainly due to a release of working capital previously invested in supporting some of the commercial contracts that ended in early 2014.

DIRECTORS’ REPORT

10

Business ResultsThe retail business delivered steady growth of 5.3% in volumes year-on-year, remaining the leading value driver for the Company. The significant investment in new retail sites, organic growth of existing sites, operational excellence and marketing initiatives were the main drivers for retail growth. In addition, the commercial fleet segment grew its customer base.

The Company continued with its long term growth strategy of investing in its retail network and strengthening its footprint across the country. Significant investment was made during the year with seven new service stations being opened bringing the number of service stations to 166 with many further new build and site improvement projects in progress for early 2015 delivery.

The business remains focused on exceeding customer expectations by delivering the best quality fuels and providing customers with the best customer experience every day at every site. The contribution of our business partners remains vital in improving our customer value proposition and delivering superior customer experience in order to grow further in a highly competitive market.

A major upgrade of the Shell fuel cards IT infrastructure was begun at all the retail sites, allowing significant improvement

in the offering to commercial fleet customers. We expect this project to be fully operational in the first half of 2015 allowing the Company to significantly grow its position in this segment.

We re-shaped our aviation business following the loss of the Oman Air contract at Muscat International Airport and a large government contract. The Company remains the sole operator at Salalah airport, a significant supplier to international airlines at Muscat Airport and also won a 5-year extension tender contract for PDO remote airfields.

The local lubricants business achieved a successful year despite a 7% decrease in volumes compared with 2013. Margins were also under considerable pressure because of increased international base-oil prices for most of the year. To help penetrate the market further the Company appointed a second distributor in the business - to - consumer segment. The Company also launched its next generation motor oil (manufactured by Shell in Oman), “Shell Helix Ultra” with Shell PurePlus Technology, featuring pure base-oil developed from natural gas.

The Company’s lubricants blending plant (which serves the Company’s local demand and Royal Dutch Shell Group’s regional customers) continued to be a world class business. Export volumes were 4% higher than the previous year despite

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the instability in the regional export market. The new base-oil storage facility at Sohar Port created significant cost reductions and health, safety, security and environment (HSSE) benefits for the Company.

The commercial and marine fuel business decreased 19% year-on-year, mostly as a result of the loss of a single significant fuel contract in the face of intense competition. Several customers began fuelling their vehicles with the differentiated diesel grade “Shell Diesel Extra”, realising the benefits of this unique Shell product in the market.

The specialised “high end” segment for polymer modified bitumen (PMB) led the market by bringing Shell’s advanced products and technology to the fast growing Oman sector. During the year, several one-off project phases concluded, such as the Muscat International Airport, resulting in volumes decreasing by 65% compared with 2013. There is positive feedback from our customers for the quality of the product and the service offered by the Company, and new contracts were secured towards the end of 2014.

EPS and Dividend Full Year earnings per share for 2014 were 123 baisa compared to 121 baisa in 2013.

The Board of Directors has agreed an enhanced and ambitious investment programme over the next few years, predominantly in the retail sector, building on the significantly higher growth investments already made in 2014. The Board is proposing a sustainable dividend level to enable this significant growth plan, at 92 baisa per share (2013: 105 baisa per share) for distribution in 2015.

Business OutlookFor 2015, the Sultanate has unveiled a budget with expenditure planned at RO 14.1 billion and revenues at RO 11.6 billion. RO 3.21 billion has been earmarked for investment expenditure includes spending on various development projects which will maintain the growth momentum of 2014. Significant parts of the budget will be deployed for the improvement of social welfare, health and education, which will have a positive impact on the overall economy. Subsidies, including those on fuel, are expected to be about RO 1.3 billion.

Analysts expect the economy to grow at 5% in 2015, with inflation stable at around 2%. The fuel marketing business normally follows the economic trend of the country and we therefore expect it to grow with economic activity. Developments in the Sohar-Al Buraimi phase of the railway project, road network and residential areas will open up new opportunities for additional retail sites. Major infrastructure projects announced by the government earlier will drive commercial opportunities in 2015, and the Company will ensure that it is ready to position itself to grow its share of the new

business. In the aviation sector the final development of the new Muscat International and other airports continues. The Company is closely following developments in this sector with a view to realising any opportunities.

Our Commitment to Sustainable DevelopmentIn line with our Statement of General Business Principles, the Company subscribes to the principle of sustainable development - which means helping meet the country’s growing energy needs in an economically, environmentally and socially responsible way. In short, it’s about helping secure a responsible energy future.

During the Company’s over fifty years of performance in Oman, our belief that success is built on sustainable development principles has governed the way we conduct all our operations. We optimise positive community benefits and undertake broader contributions to society through sharing, delivering and meeting our promises. We are consistently improving how we conduct business by adapting best practices in the areas of health, safety, security and environment and contribute in the development of the economy by hiring Omanis and working with local suppliers and customers.

Health, Safety, Security & Environment (HSSE)A lost time injury incident involving one of the Company’s retail service stations’ maintenance contractor staff was recorded in the first Quarter of 2014. Up to that point we had recorded 1,769 days (almost 5 years) without any recordable lost time injury, which is the best ever record in the Company’s history. Road safety remained a key focus area throughout the year with special emphasis on managing the risks associated with third party driver behaviours as well as other road safety related external factors. Managing these risks requires long term strategies and the involvement of a wide range of external stakeholders to achieve tangible and sustainable improvements. The Company has been pursuing these consistently.

Risks and ConcernsThe Company’s forward investment and business plan assumes stability in the fixed margin rates in the dominant retail segment, and this is subject to Government policy. The Company is testing all investments against various scenarios which may come from lower oil prices to ensure we continue to take robust investment decisions.

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

DIRECTORS’ REPORT

12

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 were no material losses reported during the 2014 financial year as a result of weaknesses in internal controls. The management of the Company continues to take measures to strengthen the overall internal control environment.

In 2014, the Company commenced an upgrade of the Shell cards IT system. When fully functional in 2015, the system will strengthen our anti-fraud safeguards and enhance our credit control. These enhancements will ensure that the Company is not exposed to unnecessary financial risks and will provide further assurance of the financial information used for internal reporting and external publication. The controls will also help safeguard the Company’s assets while serving as an active mechanism for the prevention and detection of fraud. The management of the Company has adapted a robust system to ensure that these internal controls are being operated in a timely and effective manner.

In AppreciationI take this opportunity to commend His Majesty Sultan Qaboos bin Said and his government for the excellent achievements during 2014. 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 Board of Directors, I would like to express my sincere thanks to our shareholders, 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. The Board of Directors remains committed to pursuing all opportunities with a view to maintaining the Company’s expansion and wealth while enhancing shareholders’ value. We are grateful for your constant support as we secure growth and prosperity for the Company.

It has been an honour and privilege to chair the Board of Directors of your Company since January 2014. I would like to take the opportunity to thank my predecessor, John Blascos, for all his hard work as Chairman and to wish him well in his new role in the Shell Group.

Christopher BreezeChairman of the BoardMuscat: January 27, 2015

Munqith Al Masrouri wins the ‘Best Retailer Award’ and ‘Best Retailer in the East Region Award’ at the Shell Smiling Stars event in China in June 2014.

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166Shell Oman Service Stationsare part of the growing network of strategically located retail sites across the nation.

INVESTING FOR GROWTH

14

AUDITOR’S REPORT ONCORPORATE GOVERNANCE

15

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 2014. 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, 2014.

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.

Board of DirectorsThe Board comprises Executive and Non-Executive Directors. The present strength of the Board is ten Directors comprising two Executive Directors, five Non-Executive and Independent Directors and three Non-Executive and Non-Independent 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.

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, 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).

CORPORATE GOVERNANCE REPORT

Shell Oman receives Corporate Governance Excellence Award 2013 from Capital Market Authority (CMA) held in 2014

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During the year 2014, the Company held five Board meetings. The dates are January 27, April 27, July 22, October 27, and December 8, 2014. The intervals between the meetings are in line with the CMA required interval of a maximum of four months.

Director’s Attendance Record and Directorships Held During the Financial Year 2014.

Name of Director PositionBoard

meetings attended

Whether attended last AGM

Directorship in other SAOG Companies

Christopher Breeze Non-Executive Chairman (from January 28, 2014)

4 Yes None

John Blascos Non-Executive Chairman (up to January 27, 2014)

1 Not applicable

None

Ghalib Fawzy Salim Al Busaidi Non-Executive and independent Director (Deputy Chairman)

4 No None

Adil Ismail Al Raisi Executive Whole-time Managing Director

5 Yes None

Mazhar Ud Deen Non-Executive Director (from January 8, 2014)

4 Yes None

Scott Michael McDonald Executive Whole-time Director (Finance)

5 Yes None

Amr Adel Non-executive Director 5 Yes None

Juma Abdullah Khalfan Al-Khamisi Non-Executive and Independent Director

5 Yes Muscat Finance Co. Ltd SAOG

Shabib Mohammed Saif Al-Darmaki

Non-Executive and Independent Director

4 Yes Alizz Islamic Bank SAOG

Saleh Nasser Juma Al Araimi Non-Executive and Independent Director

3 Yes Oman Fisheries Co SAOG Bank Dhofar SAOG

Huda Abdullah Saleh Al-Habsi Non-Executive and Independent Director

5 Yes None

Entity Represented by Non-Independent Directors

Non Independent Director Entity Represented

Christopher Breeze Shell Petroleum NV

Adil Ismail Al Raisi Shell Gas BV

Mazhar Ud Deen BV Petroleum Assurantie Maatschappij

Scott Michael McDonald B.V. Dordtsche Petroleum Maatschappij

Amr Adel Shell Overseas Investment BV

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;

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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; andn 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 Lamees Al Lawati who succeeded Majan Abdullatif in this position. 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, 2014 was RO 107, 200. 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 2014 is as follows:


Sr No Name / Position Annual remuneration

(Rials)Sitting Fees

(Rials)

1 Christopher Breeze Non-Executive Director (from January 28, 2014)

7,167 4,000

2 John BlascosNon-Executive Director (up to January 27, 2014)

1,433 800

3 Adil Ismail Al RaisiExecutive Whole-time Managing Director

Nil* Nil*

4 Mazhar Ud DeenNon-Executive Director

8,600 4,000

5 Scott Michael McDonald Executive Whole-time Finance Director

Nil* Nil*

6 Amr Adel Non-Executive Director

8,600 4,800

7 Juma Abdullah Khalfan Al-KhamisiNon-Executive Director; Member Audit Committee

8,600 6,400

8 Shabib Mohammed Saif Al-DarmakiNon-Executive Director; Member Audit Committee

8,600 5,200

9 Ghalib Fawzy Salim Al BusaidiNon-Executive Director;

8,600 4,000

10 Saleh Nasser Juma Al AraimiNon-Executive Director

8,600 3,200

11 Huda Abdullah Saleh Al-Habsi Non-Executive Director, Member Audit Committee (from April 27, 2014)

8,600 6,000

* Total 68,800 38,400

(* A salaried key employee of the company, covered under the top-five executives remuneration below)

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The total remuneration such as salaries, benefits, bonuses, stock options, pension contributions & perquisites paid to the top five officers of the Company was RO 597,788 in 2014.

Audit Committee of the Board

The Audit Committee was reconstituted by the Board in April 2012 in which they appointed a majority of independent directors. Mr Shabib Al-Darmaki who is a non-executive, independent Director is the Committee’s Chairman. Huda Al Habsi was appointed to the Committee in April 2014 following a vacancy. The committee held four meetings during 2014, 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 DirectorNo. of

meetingsMeetings attended

Shabib Mohammed Saif Al-Darmaki 4 3

Juma Abdullah Khalfan Al-Khamisi 4 4

Huda Abdullah Saleh Al-Habsi* 3 3

* Appointed in April 2014

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 2014.

In accordance with the Corporate Governance Code, the services of Deloitte & Touche LLC are not used where a conflict of interest might occur.

Shell Oman recieves the “Award for Excellence in Corporate Social Responsibility” by AIWA business magazine

19

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 web site 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 web site 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 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 2014, in April, 2015.

Market Price DataMonthly High / low share price data for financial year 2014.

Month 2014 High Low Volume

January 2.360 2.220 209,786

February 2.330 2.200 313,769

March 2.220 2.160 395,452

April 2.180 2.010 205,483

May 2.115 2.095 187,580

June 2.115 1.980 606,077

July 2.110 2.020 118,892

August 2.100 2.000 188,957

September 2.100 2.000 39,810

October 2.025 2.020 112,928

November 2.025 2.020 580

December 2.025 2.000 216,262

Performance in Comparison to Broad Based Index of MSM

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

2011 2012 2013 2014

160

140

120

100

80

60

40

20

0


20

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, 2014)

Shareholder Name No of shares held

Shareholding %

B.V. Dordtsche Petroleum Maatschappij 20,000,000 20.0Shell Overseas Investment BV 20,000,000 20.0Civil Service Employees Pension Fund 9,720,814 9.7Shell Petroleum NV 8,800,000 8.8MOD Pension Fund 8,247,648 8.2

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.

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 & Touche (M.E.):

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms.

Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte’s more than 200,000 professionals are committed to becoming the standard of excellence.

Deloitte & Touche (M.E.) is a member firm of Deloitte Touche

Tohmatsu Limited (DTTL) and is the first Arab professional services firm established in the Middle East region with uninterrupted presence for over 87 years. Deloitte 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 3,000 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 2014 is RO 8,500.

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; andn 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.

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Up to 3%improvement in fuel economy may be achieved using Shell Helix Ultra with PurePlus Technology, Shell’s most advanced motor oil ever*.

INVESTING IN TECHNOLOGY

* Based on ACEA M111 fuel economy results compared with the industry reference oil.

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MANAGEMENTDISCUSSION AND ANALYSIS

Health, Safety, Security & Environment (HSSE)In 2014, the Company maintained a strong HSSE performance with the challenges faced from external factors relating to road safety exposure. Keeping this in mind, road safety remained the key focus area throughout the year with key emphasis on applying appropriate controls to manage the risks associated with third party driver’s behaviours and road conditions.

On the contractor safety side, a Lost Time Injury (LTI) incident involving one of the Company Retail Service Stations maintenance contractor staff was recorded in the first quarter of the year. The incident occurred after recording 1,769 days without any recordable Lost Time Injury (LTI) which is the best ever such record in the Company’s history.

The year witness the rollout of several Health, Safety, Security and Environmental initiatives such as the Shell Life Saving Rules re-energize program, fuel tanker discharge competency certification process, Shell Health Resilience program and Retail business contractors activities risk elimination innovations.

People Attraction & Recruitment In 2014, the Company ended the year with 271 employees

compared with 312 in the previous year. The reduction is due to the completion of a Government specific fuel contract during the year which resulted in the transfer of all employees attached to the contract to their new employers.

The Company sustained its commitment towards Omanisation with 88% of the roles performed by Omanis. This significant achievement has been recognised by government when it awarded the Company the first place in the category of Retail & Marketing segment in the annual “Ministry of Manpower 2014 Award Ceremony”.

The Company continued to identify and recruit Omani talent despite the strong competing pressures in the market. The annual Career and Training Fair at Sultan Qaboos University saw active participation by the Company, where the employees had an opportunity to share their experiences with students and create awareness about careers in the Company.

Learning & Development The Company continues to demonstrate its commitment to being a role model for successful talent development by investing in a number of human resources and skills developmental strategies to help the next generation of Omani professionals realize their potential through a variety

Shell Oman awarded first place in Omanisation in the Retail and Marketing Sector by the Ministry of Manpower.

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of tools such as scholarships for graduates, individual development plans for employees, and supporting staff who are assisted through His Majesty Sultan Qaboos bin Said scholarships programmes.

Learning and development of employees is a cornerstone of the business success of the Company and in 2014, the focus was on improving the effectiveness of the Individual Development Plans and enhance discussions between employees and line managers.

Retail

Business EnvironmentIn 2014, the Company remained focused on delivering its commitment in enhancing the retail experience and creating the best value for its customers. The retail business environment remains challenging, with developing road infrastructure shifting fuel demand, updated regulations, evolving customer expectations and strong competitive pressures. Despite the challenges, the business was able to deliver a robust year on year growth as a result of a continuous investment in quality service stations with high throughput. The demand for fuel continues to grow with the Government continuing investment on road and strategic infrastructure across the country, coupled with

the growth in the population.

PerformanceRetail volumes continue to grow steadily, delivering a historic high in terms of monthly volumes during August 2014, as the significant investment made in the business in recent years drives additional volume growth. The business continued with its long term growth strategy to invest in Retail Network and strengthen its foot print across the country.

The investment programme continues with 7 sites commissioned during the year bringing the number of sites to 166, while a number of sites are currently under construction with planned opening in early 2015. The business, in order to optimize value from the existing network and to enhance customer experience at sites continued its investment in network improvement projects including 4 KDR (Knock Down and Rebuild) along with the individual site care and maintenance programmes.

Commercial fleet business (Shell Cards) continued its penetration in the overall Retail business showing a healthy year-on-year growth with many new customers signed up during the year. A major upgrade of the IT infrastructure is underway at all of its Retail sites, allowing significant

MANAGEMENT DISCUSSION AND ANALYSIS

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improvement in its offer to Commercial Fleet customers and this project is expected to be fully operational in the first half of 2015 allowing the Company to significantly grow its position in this segment.

OutlookRetail business will continue to be the dominating segment and a key value driver for the Company in the long term strategy. With the growth in demand correlated with infrastructural development and the expected growth in population, the business is poised for a steady growth sustained by increasing consumer demand, continued government spending on infrastructure and maturing industrial zones in Sohar, Duqum and Salalah. The business however, will have to respond to the challenges of regional shifts in fuel demand and a highly competitive environment. Strategic expansion of network footprint and continuous improvement in enhancing customer experience at sites will remain key drivers for growth during 2015. The outlook for 2015 is encouraging and we foresee a stable growth for the retail business.

Commercial Fuel:The Commercial Fuel business faced a challenging year due to competitive pressure on volumes and margins.

The Ministry of Defence Grounds Fuel contract was lost in

an open tendering process in the earlier part of the year.

Despite stiff competition, the business managed to win

some vital fuel supply projects to sustain the Company’s

market position. Also, the sales of the new product

“Shell Diesel Extra” started to pick up in construction and

transportation sector, and further growth is anticipated in

the coming period.

The country 2015 budget continues to earmark funds for

the infra-structure e.g. railway project, road dualization,

tourism development amongst others. The Company will

actively pursue any business opportunity that may arise

when these projects get off the ground.

Marine Fuels and Lubricants: Marine business

continued growing in at different ports with the Company

focusing on Duqum and Sohar, which are future growth

opportunities.

Bitumen: The Company signed new bitumen supply

agreements for roads projects, providing our unique

product, Polymer Modified Bitumen (PMB) for these

projects. The business focus shall be to acquire additional

volume in different segments like roads, airports and other

vital projects.

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Commercial Lubricants

Business EnvironmentThe year 2014 witnessed a continuous growth of the Business to Consumer (B2C) segment mainly driven by organic growth and increase in number of vehicles in the country. The main challenge in 2014 was the volatility in the Base Oil prices particularly in the second half of the year putting significant pressure on margins. This was countered through up-selling and cross-selling to our customers, and ensuring the selling of the right product portfolio. The Company continued its efforts in the development of staff through Sales 1st strategy, and continued to focus on customer retention.

PerformanceThis year, the Company capitalised on the growth witnessed in the B2C sector by appointing a second distributor to increase its market share in the Sultanate. This was closely aligned with a focused approach to increase the premium products penetration in Oman. This has been achieved by launching the Helix Horizon product line which is based on PurePlus technology. On the Business to Business (B2B) segment, the Lubricants teams worked closely with key customers to offer trial protocols to up-sell and demonstrate savings using Shell “synthetics” products.

OutlookThe Company will continue to focus on increasing the

premium product penetration with both the B2B and

B2C segments by investing more in sales promotions and

advertising as well as introducing some products that will

fulfil customers’ requirements. In addition, the team will

continue to grow the customer base by having a strong

acquisition strategy as well as continuing to retain existing

customers.

Trading & Supply

Business EnvironmentOverall 2014 volumes at the Mina Al Fahal fuel terminal

decreased marginally as compared with 2013 mainly due

to the loss of some key contracts, off-set by the continuing

increase in Retail business.

The renewed road transport contracts have enabled the

Company to be more competitive in the business, both, on

the commercial and HSSE side.

PerformanceIn 2014, overall trade and supply unit costs were on target

despite decline in volumes. This performance was achieved

by rigorous implementation of process improvement


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programmes coupled with optimization of assets, whereby, savings in road transport and order fulfilment were identified in close co-operation with our business partners.

Trading and Supply Operations delivered record volume to the retail network with excellent customer delivery performance statistics. The overall “stock-out” level was well within target.

OutlookTrading and Supply Operations is dedicated to deliver the right product to the right customer at the right time in a safe manner.

Aviation Business

Business EnvironmentJet fuel prices, which are linked to international prices, fluctuated significantly during the year which created uncertainty in the market. Despite stiff competition at Muscat International Airport, the Company was able to secure Air India, Spice Jet and Turkish Air business. The Company also retained its business with PDO for another five years.

Following a competitive tender exercise, the Company was

unsuccessful in retaining a significant aviation government

contract which expired in March 2014.

Salalah International Airport recorded increase in the

domestic and cargo flights which translated into an

increased volume uplift.

Performance

In Salalah, the Company is proud to have secured its

presence at Salalah Airport as the sole operator through

the extension of the Concession Agreement with Oman

Airport Management Company till the final move to the

new airport in 2015.

Outlook

The tourism sector in Oman continued to grow in 2014,

and is expected to grow further in the next few years with

the opening of new Salalah airport towards mid of 2015

and New Muscat airport by 2016, which shall have a

positive impact on the Aviation business. Competition

pressure remains significant with each fuel marketing

company in pursuit of growth. The company is positioning

itself to play a significant role in the increased size of the

Aviation industry in Oman in the years ahead.

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Lubricants Supply Chain

Business Environment Despite the instability in the regional export markets, the Company maintained approximately the same export volumes as in 2013. The Company’s blending plant remained the main supplier for more than 70% of the regional demand for the Royal Dutch Shell Group supported by its well-known excellent quality and competitive cost.

Performance In 2014, the blending plant produced and delivered around 53 million litres of finished lubricants to both local and export markets, which was 4% higher than 2013 production level. The successful operating and material cost savings plans for 2014 supported the plant in minimizing the impact of base oil price increase during the first 3 quarters of the year.

The delivery promise to our customers showed a dip in Q2 due to delays in receiving materials from Port Sohar after the transfer of operations from Port Sultan Qaboos in Muscat, to Sohar, but the plant was able to recover with excellent performance for the rest of the year achieving around 92% full year OTIF (On Time In Full), a ley operating performance indicator.

The plant maintained its unblemished quality record with zero quality incidents impacting our customers, supported by the strong ISO9001 management system and 100% LLCS (Lubricants Laboratory Correlation Scheme) score.

OutlookThe export market is expected to grow and the Company’s blending plant to remain the main supplier for Shell products to Middle East and GCC countries. With emphasis on the Continues Improvements techniques and opportunities supported by expected reduction in base oil and other materials cost in 2015, product cost is expected to reduce which will allow the plant to continue to produce competitively priced Shell Lubricants.

Social Investments The Company continued to demonstrate its commitment to meet the country’s growing energy demands and contribute to its economic prosperity in a responsible manner by operating safely and reducing its impact on the environment while sharing benefits with the local community. The Company believes in making difference in the society through targeted social investment and a well-planned Corporate Social Responsibility (CSR) strategy.

The CSR strategy targets a range of initiatives that drive


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social awareness and contributes to the wellbeing of the

local community while focusing on major strategic themes;

Road Safety, Tourism, Environment and Education.

The Company has also continued to build on its excellent

long-term relationships with its stakeholders in public and

private sector as well as non-government organizations

and youth charity groups with active Shell Oman staff

participation to ensure the reach of its CSR programmes

to the grassroots level, and to enhance the effectiveness of

such initiatives.

Shell Oman continued its partnership with various charitable organizations through direct financial support as well as organizing and co-sponsoring various internal and external initiatives that help raise awareness and funds for the cause of these organizations.

In recognition of the Company’s consistent and significant achievements that go beyond the balance sheet, it was presented with the prestigious ‘Award for Excellence in Corporate Social Responsibility’ in 2014 by Alam Aliktisaad Wal A’mal (AIWA), Oman’s leading business magazine.

Shell Oman participating in 10th Cancer Awarness Walkathon 2014

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271professionals work at Shell Oman; and approximately 90% of them are Omanis.

INVESTING IN PEOPLE

30

AUDITOR’S REPORT

31

2014 2013

Note RO’000 RO’000

Revenue 361,511 430,355

Cost of sales (325,231) (389,062)

Gross profit 36,280 41,293

Other Income 5 4,523 4,028

Selling and distribution expenses (20,390) (24,840)

Administrative expenses (6,407) (6,570)

Operating profit 14,006 13,911

Interest expense (122) (147)

Interest income 18 23

Profit before income tax 13,902 13,787

Income tax expense 8 (1,624) (1,692)

Profit and total comprehensive income for the year 12,278 12,095

Basic and diluted earnings per share 22 RO 0.123 RO 0.121

Dividend per share 23 RO 0.092 RO 0.105

The notes on pages 37 to 60 form an integral part of these financial statements.Report of the Auditors - page 31.

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

for the year ended 31 December 2014

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STATEMENT OF FINANCIAL POSITION

At 31 December 2014

2014 2013Note RO’000 RO’000

ASSETSNon-current assetsProperty, plant and equipment 9 29,682 21,603Intangible assets 10 1,758 2,663Deferred tax asset 11 430 530Total non-current assets 31,870 24,796

Current assetsInventories 12 11,153 11,805Receivables and prepayments 13 31,013 47,092Cash at bank and in hand 14 4,771 3,527Total current assets 46,937 62,424

Total assets 78,807 87,220

EQUITYShare capital 15 10,000 10,000Legal reserve 17 3,587 3,587Retained earnings 20,308 18,530Total equity 33,895 32,117

LIABILITIESNon-current liabilitiesLong term loan 19 6,000 -Employee terminal benefits 18 799 712Total Non-current liabilities 6,799 712

Current liabilitiesShort term loan 19 1,000 6,000Payable and accruals 20 35,079 45,945Income tax payable 1,509 1,809Provisions 21 525 637Total current liabilities 38,113 54,391

Total liabilities 44,912 55,103

Total equity and liabilities 78,807 87,220

Net assets per share 25 RO 0.339 RO 0.321

The financial statements on pages 32 to 60 were authorised for issue in accordance with a resolution of the board of directors on 27 January 2015 and signed on their behalf by:

Christopher Breeze Scott McDonald Chairman Finance Director


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STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2014

Sharecapital

Legalreserve

Retainedearnings Total

Note RO’000 RO’000 RO’000 RO’000

At 1 January 2013 10,000 3,587 16,935 30,522

Comprehensive income:

Profit for the year - - 12,095 12,095

Transaction with owners:

Dividend paid - 2012 23 - - (10,500) (10,500)

At 1 January 2014 10,000 3,587 18,530 32,117

Comprehensive income:

Profit for the year - - 12,278 12,278

Transaction with owners:

Dividend paid - 2013 23 - - (10,500) (10,500)

At 31 December 2014 10,000 3,587 20,308 33,895


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STATEMENT OF CASH FLOWS


2014 2013Note RO’000 RO’000

OPERATING ACTIVITIESProfit before income tax 13,902 13,787Adjustments for:Depreciation 9 1,966 4,383Amortisation 10 898 895Reversal of provision for employee retention scheme - net 21 (110) (18)Employee terminal benefits expense 18 102 103(Gain) / loss on disposal of property, plant and equipment (35) 438Loss on disposal of intangible assets 7 -Interest income (18) (23)Interest expense 122 147Operating cash flows before payments of employee terminal benefits, environmental liability and working capital changes

16,834 19,712

Employee terminal benefits paid 18 (15) (9)Environmental liability paid 21 (2) (47)Working capital changes due to:Inventories 652 5,784Receivables and prepayments 16,079 (7,370)Payables and accruals (10,866) 3,149

22,682 21,219Income taxes paid (1,824) (1,841)Net cash generated from operating activities 20,858 19,378

INVESTING ACTIVITIESPurchase of property, plant and equipment and intangible assets 9-10 (10,110) (7,113)Proceeds from disposal of property, plant and equipment 100 27Interest received 18 23Net cash used in investing activities (9,992) (7,063)

FINANCING ACTIVITIESDividends paid 23 (10,500) (10,500)Interest paid (122) (147)Decrease in short term loans (5,000) (2,000)Increase in long term loan 6,000 -Net cash used in financing activities (9,622) (12,647)

Net change in cash and cash equivalents 1,244 (332)Cash and cash equivalents at beginning of the year 3,527 3,859Cash and cash equivalents at end of the year 14 4,771 3,527


35

INVESTING IN SOCIETY

For over

10 yearsShell Oman has been partnering with stakeholders like the Ministry of Education and Royal Oman Police to present the Shell Traffic Park to the community in order to educate children about safe behaviours on the road.

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NOTES TO THE FINANCIAL STATEMENTS


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 relevant disclosure requirements of the Commercial Companies Law of 1974, as amended, and the rules and guidelines on disclosure issued by the Capital Market Authority.

(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.

Adoption of new and revised International Financial Reporting Standards (IFRSs)

For the year ended 31 December 2014, the Company has adopted all the new and revised standards and interpretations issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for the period beginning on 1 January 2014.

37



2 Summary of significant accounting policies (continued)

2.2 Standards and Interpretations adopted with no effect on the financial statements

The following new and revised Standards and Interpretations have been adopted in these financial statements. Their adoption has not had any significant impact on the amounts reported in these financial statements but may affect the accounting for future transactions or arrangements.

Amendments to IFRS 10, IFRS 12 and IAS 27: Investment Entities

The amendments to IFRS 10 define an investment entity and require a reporting entity that meets the definition of an investment entity not to consolidate its subsidiaries but instead to measure its subsidiaries at fair value through profit or loss in its consolidated and separate financial statements. Consequential amendments have been made to IFRS 12 and IAS 27 to introduce new disclosure requirements for investment entities.

Amendments to IAS 32: Offsetting Financial Assets and Financial Liabilities

The amendments to IAS 32 clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of ‘currently has a legally enforceable right of set-off’ and ‘simultaneous realisation and settlement’.

Amendments to IAS 36: Recoverable Amount Disclosures for Non-Financial Assets

The amendment to IAS 36 remove the requirement to disclose the recoverable amount of a cash-generating unit (CGU) to which goodwill or other intangible assets with indefinite useful lives had been allocated when there has been no impairment or reversal of impairment of the related CGU. Furthermore, the amendments introduce additional disclosure requirements applicable to when the recoverable amount of an asset or a CGU is measured at fair value less cost of disposal.

Amendments to IAS 39: Novation of Derivatives and Continuation of Hedge Accounting

The amendments to IAS 39 provide relief from the requirement to discontinue hedge accounting when a derivative designated as a hedging instrument is novated under certain circumstances. The amendments also clarify that any change to the fair value of the derivative designated as hedging instrument arising from the novation should be included in the assessment and measurement of hedge effectiveness.

IFRIC 21: Levies IFRIC 21 addresses the issue as to when to recognise a liability to pay a levy imposed by a government. The Interpretation provides guidance on how different levy arrangements should be accounted for, in particular, it clarifies neither economic compulsion nor the going concern basis financial statements preparation implies that an entity has a present obligation to pay a levy that will be triggered by operating in a future period.

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2.3 Standards and Interpretations in issue not yet effective

At the date of authorisation of these consolidated financial statements, the following new and revised Standards and Interpretations were in issue but not yet effective:

Effective for annual periods beginning on or after

New IFRS and relevant amendments

IFRS 9: Financial Instruments 1 January 2018

IFRS 15: Revenue from Contracts with Customers 1 January 2017

Amendment to IFRS 11: Accounting for Acquisition of Interest in Joint Operations 1 January 2016

Amendment to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation

1 January 2016

Amendment to IAS 16 and IAS 41: Agriculture – Bearer Plants. 1 January 2016

Amendment to IAS 19: Employee Benefit Plans – Employee Contributions 1 July 2014

Amendments to IAS 27: Permits use of equity method for investments in subsidiaries, associates and joint ventures when an entity prepares its separate financial statements.

1 January 2016

Amendments to IFRS 10 and IAS 28: Specifies the accounting treatment for gain or loss on sale or contribution of assets between investor and joint ventures based on whether or not the sale or contribution results in a business.

1 January 2016

Annual Improvements to IFRSs 2010 – 2012 cycle 1 July 2014

Annual Improvements to IFRSs 2011 – 2013 cycle 1 July 2014

Annual Improvements to IFRSs 2012 – 2014 cycle 1 January 2016

The directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Company’s in the period of initial application. 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 or prior periods except for IFRS 9: Financial Instruments. IFRS 9 introduces new requirements for the classification and measurement of financial instruments. The management is currently assessing this standard, which may have an impact on the financial statements of the Company as described above.

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2.4 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.

2.5 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.

2.6 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 statement 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 statement 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.

2.7 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.

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2.8 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.

2.9 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 statement of financial position date, and any adjustment to income taxes payable in respect of previous years.

Deferred tax is provided using the statement 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 statement 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.

2.10 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.

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2.10 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 statement 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.

2.11 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.

2.12 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.

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2.13 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.

2.14 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 receivablesLoans 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 statement of financial position (notes 2.13 and 2.14).

2.15 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.

2.16 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.

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2.17 Impairment

Financial assetsFinancial 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:n significant financial difficulty of the counterparty;n default or delinquency in payments; orn 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 and recognised in the statement of comprehensive income within selling and distribution expenses. Subsequent recoveries of amounts previously written off are credited to the statement of comprehensive income.

Non-financial assetsThe 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.

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2.18 Provisions

A provision is recognised in the statement 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.

2.19 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 statement of financial position date are dealt with as a non-adjusting event after the statement of financial position date.

2.20 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.

2.21 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.

2.22 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.

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3 Financial risk management

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.

Market risk

Foreign exchange risk

Foreign 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 2014 (2013 - nil).

Interest rate risk

The company’s interest rate risk arises from their term loans. The company manages its exposure to interest rate risk by utilising only short-term and long 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.

Credit risk

Credit 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.

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3 Financial risk management (continued)

Financial risk factors (continued)

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 2014, Government organisations in Oman accounted for 18% (2013 - 38%) of the outstanding trade accounts receivable. At 31 December 2014, 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.

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 2014, based on contractual payment dates and current market interest rates.

2014Up to one

yearMore than one year Total

RO’000 RO’000 RO’000

Long term loan - 6,000 6,000

Short term loan 1,000 - 1,000

Payables and accruals 35,079 - 35,079

Provisions 525 - 525

Total 36,604 6,000 42,604

2013

Short term loan 6,000 - 6,000

Payables and accruals 45,945 - 45,945

Provisions 637 - 637

Total 52,582 - 52,582

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3 Financial risk management (continued)

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.

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.

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 statement of financial position date, gross trade accounts receivable were RO 24,988,119 (2013 - RO 41,084,813) and the provision for doubtful debts was RO 913,069 (2013 - RO 839,219). Any difference between the amounts actually collected in future periods and the amounts expected will be recognised in the statement of profit or loss and other comprehensive income.

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.

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5 Other income

Other 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 2014 is as follows:

2014 2013

RO’000 RO’000

Retail sales 229,700 218,393

Commercial sales 52,118 74,266

Lubricants sales 38,302 37,812

Aviation sales 41,391 99,884

361,511 430,355

7 Employee costs

Employee costs included in selling and distribution and administrative expenses comprise:

2014 2013

RO’000 RO’000

Salaries, wages and bonus 4,346 4,282

Allowances and other benefits 2,577 2,719

6,923 7,001

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8 Income tax

2014 2013

RO’000 RO’000

Income tax expense comprises

Current tax expense 1,524 1,813

Deferred tax charge / (credit) 100 (121)

1,624 1,692

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:

2014 2013

RO’000 RO’000

Accounting profit before tax 13,902 13,787

Tax on accounting profit before tax at 12% 1,664 1,651

Add tax effect of:

Non-deductible expenses (40) 41

Tax charge for the year 1,624 1,692

The company’s tax assessments for the years 2010 to 2014 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 2014.

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9 Property, plant and equipment

BuildingsPlant and Motor

vehicles

Capitalwork-in-progress Total

RO’000 RO’000 RO’000 RO’000 RO’000

Cost

1 January 2013 1,806 46,786 707 4,993 54,292

Acquisitions 466 2,107 - 4,500 7,073

Disposals (136) (1,943) (60) - (2,139)

Transfers 1,129 3,391 12 (4,532) -

1 January 2014 3,265 50,341 659 4,961 59,226

Acquisitions 62 597 - 9,451 10,110

Disposals - (897) (10) - (907)

Transfers 643 2,473 - (3,116) -

31 December 2014 3,970 52,514 649 11,296 68,429

Depreciation

1 January 2013 833 33,474 607 - 34,914

Charge for the year 163 4,193 27 - 4,383

On disposals (5) (1,609) (60) - (1,674)

1 January 2014 991 36,058 574 - 37,623

Charge for the year 246 1,691 29 - 1,966

On disposals - (832) (10) - (842)

31 December 2014 1,237 36,917 593 - 38,747

Net book value

31 December 2014 2,733 15,597 56 11,296 29,682

31 December 2013 2,274 14,283 85 4,961 21,603

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.

During the year the Company has carried out an exercise to reassess the useful life of property, plant and equipment and accordingly, useful life of certain assets have been changed. The change has been accounted for as a change in accounting estimate in accordance with the requirement of IAS 8 ‘Accounting Policies, Change in Accounting Estimates and Errors’ whereby the effect of these changes are recognized prospectively.

Had the Company not made the above referred change in accounting estimate, profit before tax is estimated to be lower by RO 2,324,000 in the Company’s financial statements.

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10 Intangible assets

2014 2013

RO’000 RO’000

Cost

At 1 January 4,616 4,576

Acquisitions - 40

Disposals (16) -

At 31 December 4,600 4,616

Amortisation

At 1 January 1,953 1058

Charge for the year 898 895

On disposals (9) -

At 31 December 2,842 1,953

Carrying amount

At 31 December 1,758 2,663

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.

11 Deferred tax asset

The deferred tax asset recognised in the statement of financial position is attributable to the following:

At1 January

2014

(Charge) / credit for the

year

At31 December

2014

RO’000 RO’000 RO’000

Provisions and depreciation 530 (100) 430

At1 January 2013

(Charge) / credit for

the year

At 31 December

2013

RO’000 RO’000 RO’000

Provisions and depreciation 409 121 530

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12 Inventories

2014 2013

RO’000 RO’000

Petroleum products 6,198 8,763

Raw materials 4,955 3,042

11,153 11,805

13 Receivables and prepayments

2014 2013

RO’000 RO’000

Trade receivables 24,988 41,084

Less: allowance for impairment losses (913) (839)

24,075 40,245

Receivables from related parties (note 24) 4,782 4,396

Trade and related party receivables, net of impairment losses 28,857 44,641

Prepayments 1,714 1,881

Other receivables 442 570

31,013 47,092

As at 31 December 2014, trade receivables of RO 913,069 (2013 - RO 839,219) were impaired and provided against. Movements in the allowance for impairment of receivables were as follows:

2014 2013

RO’000 RO’000

At 1 January 839 681

Provision for the year 74 158

At 31 December 913 839

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13 Receivables and prepayments (continued)

As at 31 December, the ageing of unimpaired trade receivables is as follows:

Past due but not impaired

Total Unapplied credit

Neither past due nor

impaired< 30 days

30 - 60 days

60 - 90 days

>90 days

RO’000 RO’000 RO’000 RO’000 RO’000 RO’000 RO’000

2014 24,075 (1,135) 20,670 786 1,500 347 1,907

2013 40,245 (2,091) 33,411 1,265 4,019 955 2,686

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

2014 2013

RO’000 RO’000

Bank balances 2,454 (56)

Deposit accounts 2,317 3,583

4,771 3,527

Included in deposit accounts are call deposits of RO 2,166,098 (2013 - RO 3,189,064) denominated in Rial Omani and RO 151,377 (2013 - RO 394,378) 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.

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15 Share capital

The company’s authorised, issued and fully paid-up share capital consists of 100,000,000 shares of 100 baisa each (2013 - 100,000,000 shares of 100 baisa each) as follows:

2014 2013

RO’000 RO’000

5,000,000 Multi-vote shares of 100 baisa each 500 500

95,000,000 Ordinary shares of 100 baisa 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.

16 Significant shareholders

At 31 December, shareholders owning more than 5% of the company’s share capital are as follows:

Number of shares % of holding

2014 2013 2014 2013

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 9,720,814 9,720,814 9.7% 9.7%

Shell Petroleum NV 8,800,000 8,800,000 8.8% 8.8%

MOD Pension Fund 8,247,648 8,136,390 8.2% 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.

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18 Employee terminal benefits

2014 2013

RO’000 RO’000


Increase for the year 102 103

Paid during the year (15) (9)


19 Bank Borrowings

(a) The company obtained a long-term loan (the facility) from an Omani commercial bank on 28 December 2014. The unsecured facility limit is RO 6 million and carries an annual interest rate of 1.55% + 1 month USD London Inter-bank Offered Rate (LIBOR). The loan is repayable in full on 27 December 2017. Interest will be paid monthly in arrears.

(b) 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 1 January 2015. The company has adequate facilities with local banks to repay / rollover the loan to meet its ongoing business requirements. The company is not required to pay any arrangement or commitment fees.

20 Payables and accruals

2014 2013

RO’000 RO’000

Trade payable 28,186 37,779

Accrued expenses 4,240 4,914

Other payables 106 53

Payable to related parties (note 24) 2,547 3,199

35,079 45,945

21 Provisions

Environmental provision 239 241

Provision for employee retention scheme 286 396

525 637

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21 Provisions (continued)

Environmental provision

2014 2013

RO’000 RO’000


Less: utilised during the year (2) (47)


The company provides for environmental costs based on environmental contamination assessments made on its delivery and storage sites.

Provision for employee retention scheme

2014 2013

RO’000 RO’000


Provided during the year 42 152

Less: utilised during the year (152) (170)


The company has an employee retention scheme designed to enhance benefits to certain employees. The associated provision has been created by charging to the statement of profit or loss and other comprehensive income and is expected to be utilised after three years of employment in accordance with the scheme.

22 Basic and diluted earnings per share

The calculation of basic and diluted earnings per share at 31 December 2014 is based on net profit for the year in the amount of RO 12,278,000 (2013 - RO 12,095,000) and 100,000,000 shares (2013 - 100,000,000 shares).

No figure for diluted earnings per share has been presented as the Company has not issued any instruments which would have an impact on earnings per share when exercised.

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23 Dividends paid and proposed

Dividends paidDuring the year, dividends of RO 0.105 (2013 - RO 0.105) per share totalling to RO 10,500,000 relating to 2013 were declared and paid (2013 - RO 10,500,000 relating to 2012 were declared and paid).

Proposed dividendThe Board of Directors at their meeting dated 27 January 2015, have proposed a dividend of RO 9,200,000 for the year ended 31 December 2014 (2013 - RO 10,500,000).

Dividend per shareThe calculation of dividend per share is based on proposed final dividend totalling RO 9,200,000 (2013 - RO 10,500,000) and 100,000,000 shares (2013 - 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 profit or loss and other comprehensive income were as follows:

2014 2013

RO’000 RO’000

Sale of goods 39,191 38,823

Purchase of goods and services 18,403 27,848

Service and trademark licence fees 1,796 2,002

Bank interest expense - 109

Revenue from related party sales in the amount of approximately RO 39 million (2013 - RO 39 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 (2013 - two) 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 296,567 (2013- RO 303,985) in salaries and benefits. These two (2013 - two) directors earned no additional remuneration in their separate capacity as directors.

58



24 Related party transactions (continued)

During the year eight (2013 - eight) non-executive directors earned an aggregate amount of RO 107,200 (2013 - RO 100,100) in respect of meeting fees and director’s remuneration.

(ii) Compensation of key management personnel

The remuneration of executive directors and other members of key management during the year were as follows:

2014 2013

RO’000 RO’000

Short-term benefits 556 560

Employees’ end of service benefits 39 46

595 606

(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 2014 and 2013 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 2014 in the amount of RO 33,895,000 (2013 - RO 32,117,000) and 100,000,000 shares (2013 - 100,000,000 shares).

26 Financial instruments

The accounting policies for financial instruments have been applied to the line items below :

2014 2013

RO’000 RO’000

Assets as per statement of financial position

Trade and other receivables (excluding prepayments) 29,299 45,211

Cash at bank and in hand 4,771 3,527

34,070 48,738

The accounting policies for financial instruments have been applied to the line items below :

2014 2013

RO’000 RO’000

Liabilities as per statement of financial position

Payables and accruals 35,079 45,945

Short term loan 1,000 6,000

Long term loan 6,000 -

42,079 51,945

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27 Contingent liabilities

Guarantees

At 31 December 2014, 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 1,085,699 (2013 - RO 1,678,447) in respect of contract performance.

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:

2014 2013

RO’000 RO’000

Not later than one year 825 728

Later than one year and not later than five years 2,737 2,771

More than five years 2,686 3,415

6,248 6,914

(b) At 31 December 2014, the company has future capital expenditure commitments amounting to RO 5,753,269 (2013 - RO 3,852,160).

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.

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Annual Report 2014 Shell Oman Marketing Companys05.static-shell.com/content/dam/shell-new/local/country/omn/... · Shell Oman is consistently investing ... 23 Management Discussion