• Friday, March 29, 2024
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Conoil Nigeria Plc: Innovative product underpins profit

Mike Adenuga

Investors crave for a company with strong earnings and attractive valuation. This is because they expect to be paid bumper dividend, the reward for taking risk in the entity; after all they could have invested the money in other ventures.

Concoil Nigeria Plc, a major player in the downstream oil and gas industry just released its first quarter financial statement that showed improvement in key performance ratios.

The stellar performance means the company has bolstered the optimism of investors because it isn’t easy to thrive in a harsh and unpredictable macroeconomic environment.   

Nigeria’s economy has been growing sluggishly since the country exited its first recession in 25 years in 2017 as GDP expanded by expanded by 2.01 percent in the three months through March from a year earlier. That compares with 2.4 percent expansion in the fourth quarter.

Inflation rate was 11.40 percent in May, a figure that is higher than the 6 percent and 9 percent central bank target range.

Unemployment rate is at an all time high of 23 percent, as the country dethroned India to become the poverty capital of Africa.

The country’s decrepit infrastructures such as the menacing Apapa gridlock and bad roads has continued to undermine the growth of downstream oil and gas firms that incur additional haulage cost.

Oil marketers are grappling with huge debt brought on by delay in the payment of subsidy arrears by the Federal Government. Consequently, a lot of firms are unable to settle outstanding salaries of workers and pay interest on money borrowed from banks.

Amid these monumentalor or huge challenges, Conoil continues to thrive as it recorded double digit growth in revenue and profit, while it maintains a solid working capital position.

Conoil reported a 13.85 percent increase in revenue to N35.63 billion in March 2019 from N31.81 billion as at March 2018.

A breakdown of sales figure shows revenue from white products- which make up 95 percent of top line- increased by 13.80 percent to N34.02 billion in the period under review as against N29.88 billion as at Marc h 2018.

The growth is coming at a time when most oil marketers are struggling to grow revenue since the Nigerian National Corporation of Nigeria (NNPC) is the sole importer of petroleum products.

Conoil’s costs of sales were up 15.64 percent to N32.67 billion in March 2019 as against N28.25 billion in the previous year. Cost of sales ratio increased to 91.58 percent in the period under review as against 90.25 percent the previous; this means the company spends N91 in input cost to produce each unit of product.

Operating expenses fell by 13.79 percent to N2 billion in the period under review from N2.32 billion the previous year.

Conoil has an excellent cost control mechanism that is responsible for costs being slightly higher than inflation rate. The company was able to prevent costs from escalating through investment in research and development as well as training of employees on new measures and better production and service delivery.

The company’s operating profit was up 28.65 percent to N951.0 million in the period under review as against N739.46 million as at Mach 2018.

Profit before tax (PBT) moved by 53.89 percent to N448 million, as improved operating performance validates management and board of directors’ focus and market penetration strategies.

Profit after tax (PAT) increased by 53.89 percent to N325.17 million in the period under review as against N211.30 million the previous year despite a 54.54 percent increase in total tax liability.

Conoil’s operating profit can cover its current interest payment as interest coverage ratio stood at 1.87 times earnings, which is more than the 1.50 times generally accepted benchmark.

Finance costs were down 3.70 percent to N506.25 million in the period under review as against N525 million the previous year.

The ratio is calculated by dividing a company’s earnings before interest and taxes (EBIT) by the company’s interest expenses for the same period.

The lower the ratio, the more the company is burdened by debt expense. When a company’s interest coverage ratio is only 1.5 or lower, its ability to meet interest expenses may be questionable.

Conoil has utilized the resources of its owners in generating higher profit as return on equity increased to 7 percent in the period under review from 4.67 percent the previous year.

The company also turned each unit produced in sales into higher profit as net margin, a measure of efficiency, improved to 0.91 percent in the period under review as against 0.67 percent the previous year.

Pretax margins followed the same growth trajectory as it increased to 1.34 percent in March 2019 from 0.99 percent the previous year.

Accomplishment

ConOil initiated and executed its first pre-drill site and pipeline survey within one month of award of block Oil Prospecting License (OPL) 113 (now OML 103) in 1991. It remapped Bella structure in OPL 113 and proposed back-to-back appraisal wells for drilling within two weeks of the discovery well.

In 1997, the company became the second E&P company in Nigeria to drill and produce a horizontal well. Was the first E& P company in Nigeria to run the Halliburton Magnetic Resonance and Imaging Log (1997).

Purchased jack-up rigs and converted same to production platforms. Conceptual engineering design and construction supervision were all done by Conoil Nigerian personnel. Was the first E & P company to commission an ocean bottom cable 3D seismic survey in marine/transition zone in Nigeria.

Conoil has operated continuously as a responsible corporate organization in all dealings with stakeholders and executed various community development projects.

Corporate Review

Conoil Plc markets refined petroleum products; and manufactures and markets lubricants and household and liquefied petroleum gas (LPG) for domestic and industrial use in Nigeria. The company retails petrol, diesel, kerosene, gas, and other petroleum products through approximately 300 outlets and stations; markets lubrication and coolant products to commercial, industrial, and retail customers; and manufactures lubricants under the Quatro, Okada Golden Super, and Golden Super brands. Its retail automotive lubricants include multi-grade engine and gasoline engine lubricants, diesel and diesel engine oils, transmission oils, transmission and brake fluids, and two-stroke engine oils.

 

BALA  AUGIE