The following case study discusses the current situation ABC Company is facing due to COVID 19 Pandemic. Considering the scenario discussed in the case, while conducting your own online research about the scenario, discuss what strategic choices Shell has in the given Circumstances. Also, describe how shell can come out of such severe losses by executing the strategic choices you identify. (6 Marks)
CASE STUDY: ABC Company
ABC Company Limited has announced financial results for the first quarter that ended March 31st, 2020. The company incurred a huge loss after-tax of Rs. 4.33 billion as compared to a profit of Rs. 256.89 million in the same period last year. Shell’s sales landed at Rs. 41.90 billion, translating into an 8.07% decrease as compared to Rs. 45.58 billion recorded in the corresponding period of the last year.
The sharp decrease in oil prices resulted in exceptionally high inventory losses during the first quarter of 2020 which in turn significantly impacted financial performance. The devaluation of Countryi Rupee against the US dollar by a further 7% and its effects were felt in the overall results of the company.
The cost of sales were reported at Rs. 41.16 billion, up by 3.o6% as compared with Rs. 42.46 billion in the same quarter in 2019. This took the gross profit to Rs. 745.81 million. down by 76.12% as compared to Rs. 3.12 billion recorded last year.
The quarter has been greatly affected by the impact of the unprecedented coronavirus pandemic. The pandemic led to a global economic downturn resulting in crude oil prices sharply declining from $66/barrel in January 2o2o to $22/barrel in March 2020 decreasing by more than 60%, primarily owing to the plunge in global oil demand. The oil industry felt the impact of this volatility in the oil prices which also effected ABC Company.
The company has maintained adequate stocks of products in line with compliance requirements. Consequently, oil marketing companies in Country experienced a reduction in oil consumption as Country’s Motor Gasoline volumes fell by 1o% while High Speed Diesel volumes fell by 29% compared to the same quarter last year. This declining trend in volumes also impacted ABC Company and had a significant effect on its financial performance.
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