Tatnefteproduct summed up the results of 2015: fall in sales, unnecessary oil terminals and the new strategy
On 7 April, at the annual meeting of shareholders of the holding company Tatnefteproduct, Director General of JSC TAIF Albert Shigabutdinov has been elected as the chairperson of the Board of Directors. Previously, he headed the Boards of Directors joining the holding companies Nizhnekamskneftehim and Kazanorgsintez. During this period, the petrochemical companies coped with the consequences of crises. Now Tatnefteproduct needs this strategy: by the end of 2015, the company has incurred a loss at about 177 million rubles.
The worst year
Apart from wholesale and retail trade of oil products, their storage the company is engaged in the development of the retail network and related products. Its sales infrastructure covers most regions in Tatarstan; there are petrol stations in Ulyanovsk oblast, Samara oblast, Kirov oblast, the Udmurt Republic, the Chuvash Republic and Mari El Republic. Tatnefteproduct owns oil terminals with storage depot at 192 000 cubic metres. The number of filling stations of JSC Tatnefteproduct from the beginning of 2016 amounted to 134 units, gas stations – 20, out of them 25 filling stations are for lease. The main competitors of the supplier in the market of Tatarstan are the filling stations TAIF, Lukoil, Tatneft.
Summarizing the results of 2015, Director General of Tatnefteproduct Rustam Sabirov called it the worst one, perhaps, in the history of existence of the company. The activities of the enterprise are inevitably affected by what is happening in the economy. The business activity is reducing, organizations are investing less in their development. As a result, in many markets, demand is reducing and sales are falling. In addition, there are problems in the banking sector. Many banks are changing the credit conditions by increasing rates on loans.
The main reasons of the fall in retail sales, Director General of fuel retailer called the loss of amounts due to the economic downturn. Negative dynamics of fuel sales has shrunk the market and has exacerbated the competition. But some competitors continue to invest heavily in its filling stations. For example, Lukoil brought its network up to 50 petrol stations.
Great changes in the market took place due to the commission of TAIF-NK and TANEKO plants. As a result, those factors that were competitive advantage of the company have become a source of additional costs. This applies to oil terminals and transport infrastructure. The branching of the filling station Tatnefteproduct, including the small settlements of Tatarstan, also does not contribute to the equal competition with the leaders.
'The success of today filling stations is determined by the advantages in location and large investments in the construction, reconstruction and its transformation to the fully-fledged filling complex,' believes Rustam Sabirov.
The loss of revenues
Then, Director General of Tatnefteproduct told in details about economic and financial indicators of last year. Procurement prices and retail prices of last year has not provided the company with a planned return on sales. In conjunction with the amount reduction, it allowed fulfilling the revenue plan. There was a shortfall at about 200 million rubles in retail trade, 32 million rubles – at the wholesale trade. Thus, the amount of sales of goods and services (including VAT) amounted to 16.3 billion rubles, it has reduced due to the decrease in turnover. There was a shortfall of 1.4 billion rubles. Sales volume in natural terms was 415 100 tonnes, or 91.8% by 2014.
Retail trade forms up to 71% of gross revenue of the company. The main part of them falls on sales to individuals for cash and bank cards. It is the segment that got the largest losses: sales to individuals have fallen by 13%.
Rustam Sabirov associates the loss of last year with insufficient margins. The average margin for all products in retail amounted to 5.6 thousand rubles per tonne, while the plan was 6.6 thousand rubles per tonne. Due to the decline in sales, Tatnefteproduct's shortfall was 114 million rubles, due to margins — 90 million rubles.
'We must overcome the decline in retail sales. We set very serious tasks, involving large investments, – said Rustam Sabirov.
The wholesale sales volume in 2015 amounted to 196 000 tonnes with the plan of 222 000 tonnes. The largest drop is observed at the sale through the oil terminals.
In 2015, the holding company had eight oil terminals operated. The total volume of trade turnover amounted to 201 000 tonnes, it is 100 000 tonnes less than in 2014. The oil terminals get income mainly from sales volume, from the provision of services on storage of petroleum products, the shipping of petroleum products at filling stations. The main reason fro the continued decline in wholesale revenue, as well as the storage volume, is the sales increase by the plants of TAIF-NK and TANECO.
The market is changing, as oil terminals become unnecessary. Tatnefteproduct is going to terminate many of the depots and to leave only necessary ones. 'Last decade the company has taken many actions to reduce this heritage in the form of obsolete depots. Yes, these tank farms used to create jobs in rayons and tax revenues. But, keeping loyalty to the interests of the Republic and its workers, Tatnefteproduct used to lose revenue from business,' explained Rustam Sabirov.
New strategy. New aims
Its role in the losses of Tatnefteproduct last year was played by the increased credit burden, believes the Director General of the company. The amount of the borrowed funds is 2.051 billion rubles. In 2015, the loan portfolio was reduced by 349 million rubles. But interest rates on the loan balance rose to 12.5% vs. 9.6% in 2014. The company is engaged in the reducing of the existing debt and preventing a new one. In conditions of expensive bank lending, particularly urgent are the issues of working capital management. In recent years, the company has been successfully working to reduce the account receivables of the buyers. The work on the optimization of costs and the increase of management efficiency is being continued. In the framework of measures to reduce costs and the revenueincrease, there has been gained the economic effect at 148 million rubles. This result has been achieved by reducing logistics costs and the accounts receivable.
As a conclusion of his report, Rustam Sabirov noted that the financial results received in 2015 do not suit neither shareholders, nor management, nor employees of the company: 'It is a painful hit, but in the life of the most successful enterprise there may come a period of decline. It is a serious reason to reconsider our strategy development, to set new goals and move decisively forward.' He expressed hope that with the support of the group of companies TAIF the filling station network Tatnefteproduct will be brought to a modern level.
Apparently, it is Director General of JSC TAIF Albert Shigabutdinov who will review the strategy and define new goals for the company. He was elected as the chairperson of the new Board of Directors Tatnefteproduct at the first its meeting.
Now the share of filling stations network belonging to the group of companies TAIF in Tatarstan has reached 27%. At the end of summer of 2015, TAIF took control over the largest fuel retailer of Tatarstan Tatnefteproduct. Earlier this month the deal on acquisition of one of the largest in the Zakamye region networks of filling stations Avtodorstroy has been closed. Such increase of the retail fuel network is associated with the rapid growth of production of fuel at TAIF-NK.