Rak Unity Petroleum Plc’s rising costs that overwhelmed the significant rise in sales has resulted in very low profit margins, a figure that may erode share holder’s value.
The low profit margins negate the Nigeria fuel marketer’s strategic objective of delivering cost and operating efficiencies for the benefit of its shareholders.
The company’s audited financial statement for the year ended March 2015 showed cost of sales as high as 96.68 percent. This means for every N100 generated in sales, the fuel marketer spent N96.05 on input costs.
The cost of sales ratio is the part of ratio analysis for checking the efficiency of business. A higher figure means a firm is less efficient, and vice versa.
Business Day’s calculations shows the company’s mark up margins was 3.46 percent, lower than most companies in the same line of business.
This means the company is adding less than 5 percent to total costs, to cover the costs of doing business and create a profit.
While margins are slim, the Rak Unity Petroleum net income increased by 67 percent to N89.75 million in the period under review from N53.87 million the previous year.
Operating profit moved by 65.88 percent to N131.15 million in 2015 as against N79.06 million the previous year.
The company’s sales increased to N7.24 billion in 2015 from N3.83 billion the previous year.
Cost of sales moved by 90.40 percent to N7.01 billion in 2015 as against N3.68 billion in 2014. Gross profit jumped by 55.81 percent to N235.12 million in 2015 as against N150.90 million the previous year.
In order to grow its market share and strategically focus on identified markets with strong growth prospects.
Rak Unity Petroleum is planning on acquiring two additional retail stations that will operate under the SO Energy brand, its technical partners.
The company recently said it intends to further drive the effort to grow its bulk sales volume and to take advantage of the deregulation of the AGO market to enhance margins on products.
Proceeds from sale of AGO in the review period was N6.33 billion, representing a 138.80 percent increase from N2.72 billion recorded last year.
Despite the challenging operating environment, Rak Unity Petroleum is giving back to the owners of the business by proposing a final dividend of N0.30.
This represents a payout of 0.16 percent, based on Business Day’s calculations.
The fuel marketer’s return on equity (ROE) increased to 19.09 percent in 2015 compared with 14.10 percent last year.
Total assets fell by 41 percent to N696.14 million in 2015 from N1.18 billion the previous year.
Shareholder’s fund moved to N469.97 million in 2015 as against N380.21 million last year.
Rak Unity Petroleum share price closed at N0.50 on the floor of the exchange while market capitalization was N28.31 million.
BALA AUGIE
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