Conoil released its 2015 Half year results showing pre-tax profits dipped 36% to N360 million. The company reported a loss of N751 million in the first quarter of this year. This essentially means it posted N1.28billion pre-tax profits for the second quarter of the year.
One may be tempted to think that the fortunes of the company has reversed, however that doesn’t seem to be the case. The company reported a profit this quarter (Q2) because it booked a sum of N2.5billion in interest income explaining it as “Interest Income on delayed subsidy payments represents interest received from Petroleum Products Pricing Regulatory Agency on delayed subsidy payments for 2013/2014.” Strange isn’t it?
Whether this interest income will every be repaid in the current subsidy regime is not our primary concern for now. Currently Conoil faces a massive revenue quagmire as its revenues have basically fallen close to 50% in the last one year. The drop in revenue is also a trend that begun since the 4th quarter of 2014. The blame for this fall lies squarely with its white goods segment made up of e sale of Premium Motor Spirit (PMS), Aviation Turbine Kerosene (ATK), Dual Purpose Kerosene (DPK), Low-pour Fuel Oil (LPFO) and Automotive Gasoline / grease Oil (AGO).
The segment which makes up over 90% of its revenue reported a 47% drop year on year having dropped from N74 billion in June 2014 to N39 million in June 2015. Its lubricant section also suffered a 12% drop whilst its LPG section did not record a single sale. As expected, expenses remained the same as the company found it hard to cut further.
How the company hopes to navigate through this challenge remains an issue as most players in the downstream sector are diversifying into the midstream and upstream sectors to improve margin. Even at that the entire oil and gas sector is currently in a bearish season.
The only silver lining for now is the healthy cash balance the company still has as well as its strong working capital. However, consecutive quarters of posting negative operating cash flows remain a huge problem for the company. It still has huge debts of about N17.6billion to repay having managed to pay down about N5.2billion this quarter.
Conoil perhaps may have started a turnaround having announced the resignation of its Managing Director a few weeks ago. The company has also announced plans to invest about N5billion in a lubricant plant and also just recently discovered hydrocarbons in OPL 220. For now, shareholders can only hope for the better as the days of dividend payment and capital appreciation may just be on standby.