Japaul reverts to profitability buoyed by reduced impairment loss

Background

Japaul Oil Maritime Services plc is an indigenous company, incorporated in 1994 under the Companies and Allied Matter Decree of 1990. The company is engaged in service such as maritime operations, dredging services, ship building and repairs, road flow lines and pipelines as well as transportation and logistics.

Further, it is engaged in the crushing and haulage of materials for construction companies and other end users of crushed granites, and offers construction and electro-mechanical services, such as electro- mechanical designing, building, infrastructure, maintenance, fire fighting installation, and air conditional services, as well as ventilation systems.

The company has 6.25 billion shares outstanding with shareholders fund of 15.23 billion as of December 2013.

Financial results for 2013

Japaul Oil and Maritime Services recently released its full-year results, which showed the company growing on the right trajectory of growth as reduced impairment loss surge profits.

For the year ended December 2013, it grew revenue by 6.02 percent year-on-year to N13.02 billion compared with N12.28 billion same periods in the prior year (FY12). The company’s recorded a profit before tax (PBT) of N460.27 million in FY13, from a loss position of N6.58 billion as of FY12.

Profit after tax followed the same growth trajectory as it also jumped to N239.74 million in FY13, from a loss position of N6.77 billion as of 2012FY.

The impressive performance at the bottom-line level was as a result of a 93.08 percent reduction in impairment loss to N525.18 million in FY13, as against N7.58 billion as of 2012FY.

A high impairment loss hinders crimps and inhibits the growth potentials of a company. It means that in 2012, Japaul’s assets are carried at more than their recoverable amount in the past.

According to the International Accounting Standard (IAS) 36, entities are required to conduct impairment tests where there is an indication of impairment of an asset, and the test may be conducted for a ‘cash-generating unit,’ where an asset does not generate cash inflows that are largely independent of those from other assets.

Net margin, a measure of profitability and efficiency, went back to a positive figure of 1.80 percent in FY13, from a loss position of 0.556 percent as of FY12. Operating expense was also down by 5.12 percent in the review period to N3.62 billion compared with N3.83 billion as of 2012FY, while operating expense ratio fell to 27.83 percent in 2013, from 31.18 percent in 2012.

Gearing level also reduced as finance costs declined by 45.03 percent to N1.61 billion in 2013, from N2.95 billion in 2012. The cost control mechanism aggressively applied by the company has also helped reduce cost of sales margin to 54.53 percent in 2013, from 59.27 percent in 2012.

Gross margin, which measures how a firm utilises its prime cost to generate each unit of sales, rose to 45.31 percent in FY13, from 40.63 percent as of 2012FY, thanks to reduced input costs aforementioned.

Return on Average equity and return on average assets were 1.57 percent and 0.65 percent, respectively, and total assets for the year ended December 2013 jumped by 19.36 percent year-on-year to N38.77 billion as against N32.48 billion as of 2012FY.

Share performance and outlook

The company’s share price closed at 50k May 9, 2014, on the floor of the Nigerian Sock Exchange, and

market capitalisation of the company was N3.13 billion on the same day. Price-to-book ratio and price- to-sales ratio were 0.18x and 0.25x, respectively.

BALA AUGIE