Huge Borrowing costs dent Japaul Oil’s bottom line

Huge borrowing costs have dealt a blow on Japaul Oil & Maritime Services Plc’s bottom line as the Nigerian oil-services company posted a loss after tax to end the 2014 financial year.

For the year ended December 2014, Japaul posted a loss after tax of N2.63 billion, from N239.74 million profit positions it recorded the same period of the corresponding year (FY) 2013.

Sales dipped by 18.87 percent to N10.57 billion in 2014 as against N13.03 billion the previous year.

Japaul suffered the blow at the top line due to borrowing costs of N3.15 billion, which represents a 95.95 percent increase from the N1.61 billion recorded last year. The spiralling borrowing costs swallowed up all of the company’s operating profit.

Japaul’s debt to equity (D/E) ratio surged to 131 percent in 2014 from 77.20 percent in 2013. A high D/E ratio means the company has been aggressive in financing its growth with debt.

Japaul obtained a $400 million to $500 million loan facility to finance its offshore business in Africa.

Analysts say that the aforementioned strategy can result in volatile earnings as a result of the additional interest expense.

Japaul had little left after deducting variable costs as operating profit margin, a measure of efficiency reduced to 8.48 percent in 2014 as against 15.96 percent in 2013. Operating margin was down by significantly by 56.96 percent to N2.08 billion.

Cost of sales was down by 10.53 percent to N6.37 billion in 2014 from N7.12 billion in 2013. Cost of sales ratio increased to 60.22 percent in 2014 compared with 54.0 percent last year.

Gross profit fell by 28.98 percent as the company was unable to manage effectively direct costs attributable to projects. Gross profit margin decreased to 55.9% as a result of increased markdowns from 56.6% for the prior period.