ConOil Yet To Fully Recover From Profit Drop.
Conoil Plc, the petroleum products marketing and lubrica
The Kheterpal Singh led manage
Despite the likely profit growth acceleration, the company is still likely to finish well below the five-year peak profit figure it posted at the end of 2016. The petroleum marketer closed the 2018 financial year with an after tax profit of roughly N1.8 billion, up by 14 percent from the preceding year but still down from the 2016 profit high of over N2.8 billion.
The rate of profit growth at the end of the third quarter isn’t strong enough to match the profit figure reported four years ago. The problem is that sales revenue has been down since 2015 from the five-year peak of N128 billion in 2014. After a drop of 35 percent in turnover in 2015, sales revenue has never grown strong enough to match the previous high.
This recorded is however expected to be broken in 2019. Sales revenue is expected to climb to the highest record in several years in the year.
Another challenge is coming from input cost, which has been growing well ahead of turnover and squeezing gross profit margin badly. The rapidly growing cost of sales is the explanation for the company’s inability to achieve a reasonable improvement in gross profit from a leap of close to one-half in turnover at the end of the third quarter of 2019.
Conoil posted sales revenue of N122.7 billion at the end of the third quarter, which is a leap of close to 49 percent year-on-year. This is a break out growth from a moderate improvement of below 6 percent in the 2018 full year.
The full year sales revenue is estimated to be in excess of N150 billion for Conoil for the 2019 operations. That will be a major acceleration from the sales revenue of N122 billion at the end of 2018. The company’s main income line is sales of refined petroleum products, which accounts for 97 percent of turnover.
The increase in sales revenue meant an additional earnings of N37 billion at the end of the third quarter. Of this increase, the company converted just N570 million into gross profit. Cost of sales claimed more than N36 billion of the increase, which is a rise of more than 55 percent year-on-year.
This is in continuation of the pattern in 2018 when input cost grew slightly ahead of sales revenue and gross profit declined at the end of the year. At a little above N11 billion, gross profit increased by only 5 percent compared to close to 50 percent growth in sales revenue.
Further strain on the income statement came from a sharp drop in other operating income, an increase of 23.5 percent in finance expenses to N1.8 and a complete disappearance of other gains after dropping from over N2 billion to N34 million at the end of 2018.
A marginal decline in administrative expenses to N5 billion helped to moderate the impacts of the cost increases and revenue disappointments. A cut of 44 percent in administrative expenses was equally the saving grace that enabled profit improvement in 2018.
The company closed the third quarter operations in September 2019 with an after tax profit of N1.7 billion, which is an increase of 7 percent year-on-year. This is already quite close to the closing profit of roughly N1.8 billion in 2018.
Full-year profit is estimated at N2.3 billion for Conoil for the 2019 financial year. This will be an increase of 28 percent over the profit figure in 2018. It will however remain significantly down from the five-year profit high of over N2.8 billion the company built in 2016.
Conoil closed the third quarter with earnings per share of N2.45 against N2.29 in the same period in 2018. The full year expectation is N3.46 per share for the company in 2019, rising from N2.59 in 2018. It paid a cash dividend of N2 per share for the 2018 operations. An improvement in dividend is anticipated with the strength of the gain in earnings per share.
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