Company Analysis

Conoil: Profit drops on earnings constraints


Conoil is headed for a major drop in profit at the end of 2017 based on the company’s performance at the end of half-year operations in June. Revenue growth remains constrained at well below previous highs. A windfall from interest on delayed subsidy payment, which boosted profit last year, is missing in the current year.
That resulted in a collapse of other operating income – diminishing profit margin from 2.6% in June last year and 3.3% at the end of 2016 to 0.9% in June this year – the lowest net profit margin among petroleum marketers.
Conoil stepped up revenue growth at the end of half year trading, showing promising prospects for improved performance on the sales front compared to a marginal increase last year. The company closed last year with one of the lowest sales revenues in five years, unable to recover from a 35% drop in turnover in 2015.
The outlook for the 2017 financial year indicates that sales revenue growth will most likely step up from marginal to moderate and yet far below the previous highs. Turnover amounted to N44.93 billion at the end of June 2017, an increase of 13.7% year-on-year. Based on the growth rate at half year, the company is expected to gross over N90 billion at the end of the year.
The slow pace of rebuilding sales revenue is the main challenge facing the company. Turnover has thinned down from a peak of about N160 billion in 2013 to below N83 billion at the end of 2015, creeping up to N85 billion in 2016. Delivering profit with a fraction of previous sales revenue is bound to be tough for the company.
Costs are largely under a firm control and yet a deep plunge in profit happened at the end of the first half. That was the highest profit drop and the lowest profit figure among the petroleum marketing companies. A drop of 95% in other operating income undermined profit capacity.
The company closed the period with an after tax profit of N427 million, a 59% drop year-on-year. The full year outlook indicates a bottom line in the region of N900 million for Conoil in 2017. That will be drop of 68% from the after tax profit of N2.84 billion the company posted at the end of 2016. It had frown profit by about 23% last year, recovering for the second year, after a sharp profit fall in 2014.
The company’s profit records follow a pattern of rise and fall and this year appears to be one of a drop. Apart from the drop in other operating income, cost of sales also hindered profit performance. It grew slightly ahead of sales and weakened gross profit margin during the review period.
Other main cost lines were contained, which made possible the moderate profit the company reported at the end of June. These include a 21% drop in distribution cost and flat growths in administrative and finance expenses.
The company earned 62 kobo per share at the end of June 2017, down from N1.50 per share in the same period last year. The full year expectation is N1.30 per share against N4.09 it reported at the end of 2016. The company paid out N3.10 per share in cash dividends last August for its 2016 operations.

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