Kayode Tokede
On the heels of growing operating expenses and net exchange difference, Caverton Offshore Support Group Plc recorded one of the worst result and accounts in its full year ended December 31, 2021.
Though the support and logistics company listed on the Nigerian Exchange Limited (NGX) recorded increase in revenue, several mitigating factors such foreign exchange loss due to local currency devaluation by the Central Bank of Nigeria (CBN) and cost of operating its 27 aircraft play a critical role in the company’s worst performance in over 10 years.
Caverton reported a loss of N5.9billion in 2021 unaudited result and accounts for period ended December 31, 2021 from N1.26billion profit before tax reported in prior year result and accounts.
This simply means that the management of Caverton might not be paying shareholders dividend for the first time in four years.
The management had recommended payment of dividend of 10 kobo per share in respect of the year ended 31 December 2020 (2019: 20 kobo per share). Between 2018 and 2017, it proposed a dividend of N0.25 and N0.15 kobo, respectively.
Apparently, the decline in global oil prices led to lesser contracts for Caverton, as most of its clients struggled to survive the economic hardship necessitated by COVID-19 pandemic in the first half of 2021.
It reflected in the company’s H1 unaudited results as the management battled to manage its operating expenses amid minimal growth in revenue.
The company in H1 2021 reported N18.07billion revenue, 12.4per cent increase from N16.08billion reported in H1 2020, while operating expenses grew significantly by 12 per cent to N11.7billion in H1 2021 from N10.5billion reported in H1 2020.
Reduction in finance cost impacted positively on Profit before tax in H1 2021, gaining about four per cent to N924.5million in H1 2021 from N889.14million in H1 2020.
However, in the nine months of 2021, the support and logistics company was able to enhance revenue amid the relaxation of travel restrictions occasioned by the pandemic and increased economic activities that drove recovery in the aviation sector.
Operating Expenses
But, operating expenses, among other financial parameters continued to amount to put the company’s profit at risk.
Revenue reported in nine months ended September 2021 stood at N27.08billion, an increase of 15 per cent to N23.63billion reported in nine months of 2020, while operating expenses grew by 16.3 per cent to N18.27billion in nine months of 2021 from N15.7billion in nine months of 2020.
Net finance charges thus gained 23 per cent to N3.3billio in nine months of 2021 from N2.67billion in nine months of 2020.
The growth in operating expenses and finance charges dragged Caverton’s profit before tax downward to N1.2billion in nine months of 2021, a decline of 27.4 per cent from N1.54billion reported in nine months of 2020.
Meanwhile, the company’s in the last quarter (Q4) of 2021 performance failed to reflect steady increase in global oil price as revenue dropped by nearly seven per cent to N7.98billion from N8.55billion reported in Q4 2020.
Amounting operating expenses in Q4 2021 grew by 221 per cent to N9.25billion from N2.88billion reported in Q4 2020.
Caverton’s whose business model is such that its logistics services are mostly needed by local and international oil and gas companies in Nigeria when its customers in the oil & gas sectors are making money.
What this means, therefore, is that as global demand for crude oil rises, Caverton had struggle to compete in the support logistics services for local and international oil & gas companies operating in the country.
Currently, Caverton contends with Bristow Helicopters and OAS Helicopters for market share. These two companies are understandably making their own expansion moves with hopes of taking more advantage of the market. More so, Caverton must also ensure to reduce its liabilities and operational costs down.
Expenses Outshines Revenue
For the unaudited December 31, 2021 unaudited results, Caverton recorded N35.06billion revenue from N32.17billion reported in 2020, an increase of about nine per cent. The growth was driven primarily by N33.96billion revenue from helicopter and airplane contracts in 2021 from N30.84billion in 2020.
Helicopter Charter dropped to N956.2million in 2021 from N1.08billion in 2020 to highlight slow activities in the year under review despite ease on COVID-19 restriction movements. With slow activities, Helicopter maintenance contract dropped by 80 per cent to N10.4million in 2021 from N50.9 million in 2020.
From the profit & loss figures, the company reported 48.06 per cent increase in operating expenses to N27.5billion in 2021 from N18.59billion in 2020, driven primarily by 35.13 per cent growth in Aviation fuel, spare parts and consumables to N8.74billion in 2021 from N6.46billion in 2020.
Aircraft insurance premium grew by 29 per cent to N1.69billion in 2021 from N1.32billion in 2020 as Crew salaries also grew by 17.5 per cent to N9.76billion in 2021 from N8.3 billion in 2020 despite slow activities.
Administrative expenses that comprises of employee benefit expense, management expenses, among others dropped by 13.3 per cent to N5.35billion in 2021 from N6.17billion in 2020.
Caverton Offshore Support closed 2021 with net foreign exchange difference of about N3.5billion in 2021 from N2.35billion in 2020.
The breakdown revealed that Exchange gain was at N130.5million in 2021 from exchange loss of N1.35billion in 2020 and exchange loss closed 2021 at N3.6billion in 2021 from N3.7billion gain in 2020.
As regards finance cost, the company reported interest on debts and borrowing of N4.64billion in 2021 from N4.03billion in 2020 as other bank charges rose significantly by 166 per cent to N4.6billion in 2021 from N1.74billion in 2020.
Both the long and short Interest-bearing loans and borrowings grew by 0.4 per cent to N20.92billion in 2021 as against N20.85billion reported in 2020. The short Interest-bearing loans and borrowings moved from N11.11billion to N11.29billion in 2021, while long Interest-bearing loans and borrowings closed 2021 at N9.62billion from N9.7billion reported in 2020.
In all, the company’s profit closed 2021 at N5.9billion loss from N1.18billion reported in 2020. The performance related in Earning Per Share for the year, moving from N0.35 to a loss of N1.77 per share.
Trade, Payables Lifts Liabilities
In the period under review, the company grew its total liabilities by 41per cent to N64 billion from N40.6 billion reported in 2020, driven by increase in trade & other payables.
Trade & other payables gained 106.7per cent to N27.94billion in 2021 from N13.52billion in 2020 to push current liabilities up by 47.4 per cent to N43.3billion in 2021 from N29.35billion in 2020.
Meanwhile, non-current liabilities gained 28.14per cent to N20.77billion in 2021 from N16.21billion in 2020.
The financial position showed a decline of about 28.5 per cent to N15.7 billion in total equity of Caverton in 2021 from N21.96billion reported in 2020. About 46 per cent decline in retained earnings to N7.79billion was responsible in decline in total equity in 2021 from N13.49billion reported in 2020.
However, total assets grew by 18.12 per cent to N79.75billion in 2021 from N67.5billion reported in 2020.
As current assets grew by 47.1 per cent to N36.93billion in 2021 from N25.11billion in 2020, non-current assets moved from N42.41billion in 2020 toN36.93billion in 2021.
Caverton’s capital structure ratios revealed that Net debt/Equity closed 2021 at 1.72x from 0.93x in 2020 as asset turnover dropped to 0.44x in 2021 from 0.48x in 2020.
Working capital closed 2021 at negative N6.3billion from negative N4.23billion in 2020. The negative working capital can affect the company’s longer-term investment effectiveness and its financial strength in covering short-term liabilities.
Strategy to Improve Performance
The Chief Executive Officer, Caverton, Mr. Bode Makanjuola in a statement said the loss was caused by the significant reduction in revenue due to several mitigating factors because of the COVID-19 pandemic which resulted in drop in oil production and net foreign exchange loss due to Naira devaluation against the dollar.
“As a result of this our direct costs increased significantly in 2021,” he said.
He explained further that, “notwithstanding the loss reported in 2021, Caverton has robust reserves to accommodate this loss and a bulk of the reported loss is a one-time charge on our accounts which arose from high start-up costs of our most recent helicopter contract with Chevron.
“To further boost revenues, the Group has been exploring further opportunities within and outside the oil and gas sector. In addition to growing our market share in the oil and gas logistics sector, our primary focus for the year will be on third party training and maintenance.
“Our Maintenance Repair and Overhaul (MRO) facility and our Caverton Aviation Training Centre (CATC), both in Lagos, officially commenced business operation in the 2nd half of 2021. Prospects for training and maintenance is extremely positive as we are in advanced contract negotiations with a number of government and private institutions across Sub-Saharan Africa.”
“CATC full flight simulator gained full certification by EASA, (European Union Aviation Safety Agency), in October 2021. The EASA’s mission is to promote the highest common standards of safety and environmental protection in civil aviation.
“The Agency develops common safety and environmental rules at the European level. With global certification by an internationally recognized body CATC is now suitably qualified to undertake simulator training on the AW139 helicopter for Pilots from Nigeria and any part of the world and we expect this to not only boost the Group’s revenue in the coming year, but also reduce capital flight from Nigeria.”
