Conoil Maintains Profitability Despite Recession

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Goddy Egene writes that despite the challenges in the oil sector that led to some companies not paying dividends, Conoil last week reported improved earnings and recommended a higher dividend payout for its shareholders

The crash in oil prices since mid-2014 and the sharp decline in oil production in 2016, severely hurt Nigerian economy such that the country slipped into recession for the first time in 25 years.

Considering the fact that oil accounts for about 80 percent of federal government’s revenue and around 85 per cent of Nigeria’s foreign exchange earnings, the economy slipping into recession did not come as a surprise to many stakeholders and analysts. However, oil prices in the international markets slumped to below $40 per barrel from the high of over $100 while the country’s oil production declined to nearly 30-years low of 1.4 million barrels per day in mid-2016 from around 2.2 million barrels per day earlier in that year.

In all of this, the downstream petroleum sector of the economy was hard hit with negative impact on many operators. The scarcity of foreign exchange, rising cost of funds and liquidity squeeze combined to stifle operations of many of the petroleum marketing companies and was so bad that analysts were already bracing for a decline in the profits of the companies for the 2016 financial year.

Not even the major step taken by the Central Bank of Nigeria (CBN) in June of 2016 to abandon the peg on the national currency, the Naira in a bid to attract liquidity to the foreign exchange market, could help smoothen the operations of the marketers, such that by the end of the second quarter of 2016, major oil marketers stopped importation of premium motor spirit (PMS) also known as petrol as well as Jet-A1aviation fuel, which constitute about 65 percent of the businesses of oil marketing companies.

By the end of 2016, it was a mixed fortune for shareholders of petroleum products marketing companies. While some ended the year with improved performance and declared dividends, others did not pay dividends.

Conoil Plc, is among those companies that were able to put smiles on the faces of their shareholders amidst the challenges in the operating environment. The frontline major fuel marketing company weathered the storm to put smiles on the faces of its teeming shareholders by recommended a dividend that is higher than what was paid the previous year.

Financial performance

According to the audited results for year ended December 31. 2016, released last week, Conoil posted a revenue of N85 billion, up from N82.919 billion in 2015. Cost of sale reduced from N71.381 billion to N70.8 billion in 2016, to bring the gross profit to N14.14 billion, compared with N11.53 billion in 2015.

The company also adopted cost optimisation strategies, which led to a reduction in distribution expenses to N2.534 billion, from N2.69 billion. Similarly, finance cost fell significantly from N3.75 billion to N1.76 billion.

This particularly resulted from a reduction in borrowing that fell by 50.6 per cent from N18.235 billon to N8.99 billion. Following the reduction in bank overdraft, interest paid reduced from N3.752 billion to N1.762 billion.
Consequently, Conoil ended the year with profit before tax of N4.28 billion, showing an increase of 24 per cent above the N3.44 billion in 2015. Profit after tax rose by 23 per cent to N2.397 billion to N2.837 billion.

Also, the company’s margins improved, showing efficient resource management. Gross margins improved from 13 per cent to 16 per cent, while net profit margin stood at 3.3 per cent in 2016, compared with 2.8 per cent in 2015.
Returns on equities increased from 12.9 per cent in 2015 to 15.1 per cent in 2016, while shareholders’ fund also increased to N18.47billion from N17.01 billion.

Accordingly, in line with its history of progressive dividend policy, Conoil Plc has proposed a total dividend payout of N2.15 billion, which translates to 310 kobo per share. The shareholders of the company are expected to ratify the dividend.

In the opinion of capital market operators, this performance has further raised the bar of the strategic positioning of Conoil as a marketer of choice.
Meanwhile, the company has demonstrated that the 2016 performance was by no means a fluke, given its 2017 first quarter (Q1) results ended March 31, 2017, also released last week.
The results showed that Conoil recorded a 29 per cent increase in revenue from N19.04 billion in Q1 2016 to N24.47 in the same period this year. The company recovered from a loss of N860.6 million last year to a profit of N255.1 million in 2017.

Company Explains Performance

Conoil attributed the impressive performance, in spite of all the challenges, to the positive, robust, focused and performance-driven disposition of its Board and Management, who had always set the target to be the best in the industry.
According to the company, all these attributes were backed byhuge investment in the expansion and upgrade of its facilities, efficient management of resources, as well as effective cost control policy.

“Amidst the challenging economic environment, our team proactively identified potential business risks and suggested quick fix solutions to optimally manage and minimize the risks, which helped in achieving efficiency in the way we do our business,” the company stated.

In his message to the shareholders during the annual general meeting (AGM) last year, the Chairman of Conoil Plc, Dr. Mike Adenuga, had assured them of consistent returns on investments and promised that the company would strive to maintain and improve the momentum, focusing more on delivery and growth.

Adenuga noted that the company proactively capitalised on every emerging opportunity in the sector, explored new income streams, while strengthening its income base in the core business segments of retail, lubricants, aviation and specialisedproducts.

According to him, the company has maintained prime position over the years as preferred choice of strategic customers in specialised products such as base oil and Automotive Gas Oil (AGO), known as diesel.
To further consolidate on this market segment, the company has constructed three new tanks to store AGO at its Apapa installation in Lagos, which will increase the AGO storage capacity to over 20 million litres.

Besides, Conoil has also been consolidating its leadership position in the Jet-A1 fuel market with the growing list of its domestic and international airline customers. It recently signed business contracts with the major international airlines – Turkish Airline, Saudi Arabian Airlines and Egypt Air, to fuel their aircraft.
This strategic move, among others, is expected to further boost the performance of the company and deliver better returns on investment going forward.