Chevron Lubricants Plc (LLUB) announced its 2Q2023 financial results, revealing a yearon-year (YoY) net profit decline of 5.4%, settling at Rs 794 million. This dip in profit is traced back to the broader downturn in the lubricant sector as several economic factors, such as diminished discretionary income in the face of significant tax increases, played a role.
The company’s Q2 revenue followed suit, dropping 13.7% YoY to Rs5.3 billion on the company’s decision to significantly reduce prices – up to 45% across all brands – and a broader industry slump in sales volumes.
According to the Public Utilities Commission of Sri Lanka, the lubricants industry reported a staggering 49.5% YoY contraction in the first quarter of 2023. However, a silver lining appeared with quarterly growth of 8.2% as Sri Lanka began recovering from its recession, backed by a rejuvenation in travel and commercial activities, First Capital noted.
Mirroring industry trends, Chevron recorded a substantial volume decline of 54.4% YoY. Nevertheless, Q1 2023 showcased a 26.0% quarterly rebound – the first uplift after three consecutive quarters of decline. Impressively, Chevron managed to augment its market share from 41.7% in 4Q2022 to 48.6% in 1Q2023, First Capital said.
However, challenges persisted. The Gross Profit for Q2 plummeted by 43.9% YoY to Rs1. 6 billion, with the gross profit margin shrinking to 30.3% from 46.6% in 2Q2022 due to a deliberate shift in Chevron’s product offerings – from high-margin four-litre can sales to low-margin loose oil. Additional economic factors like the depreciation of the domestic currency and recent alterations to import duty structures further strained margins.
Chevron’s operating profits for the quarter also suffered, falling 52.6% to Rs1 billion, and the operating profit margin decreased by 15.5 percentage points to 19%. However, the company efficiently reduced costs by 19.2% to Rs606.5 million, primarily due to cutbacks in sales and distribution expenses and administration.