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Investors await Capital Oil restructuring

Capital Oil has recorded a loss of N131.61 million to end 2014 financial year, a result that has highlighted investors concern that the petroleum products marketing and gas firm needs to undergo an inevitable restructuring.

Further analysis of Capital Oil’s profitability trends shows it recorded losses of N324.78 million, N53.53 million, N23.04 million and N475.53 respectively from 2010 to 2013 financial year respectively.

Analysts say a scheme of capital reduction and reorganization will enable the company revert to profitability.

These strategies will give the company a leeway to give to owners the desired returns on their investments in form of dividend payment.

Despite reductions in operating and inputs costs in the period under review, analysts say management should intensify on its cost control measures as these strategies will boost bottom lines.

Capital Oil spent 89 percent on input costs to produce each unit of product though this is peculiar to oil and gas firms as they do not control the price of their products.

Also, their low profit margin exposes them to foreign currency risk caused by the devaluation of the naira.

The company couldn’t control direct costs attributable to projects as gross profit fell by 9.21 percent to N224.28 million in 2014 from N247.05 million in 2013.

Cost of sales however reduced by 30.84 percent to N1.88 billion in December 2014 as against N2.72 million last year. Administrative expenses were down by 63.22 percent to N210.76 million in December 2014 compared with N580.01 million at December 2013.

Capital oil’s sales fell by 29.03 percent to N2.10 billion in the period under review as against N2.96 billion the previous year.

The sharpest rise at the top lines was in 2011 when sales surged by 795.69 percent.

The company has been recording negative reserves due to recurring loses.

It recorded a negative reserve of N295.93 million, in 2010; N608.74 million, in 2011; N432.57 million, in 2012; N908.10 million and N1.03 billion in 2013 and 2014 respectively.

The negative reserves eat into total equity as shareholder’s fund took a one or two punch as it fell by 13.47 percent to N822.21 million in December 2014 compared with N950.30 million last year.

Recently, the NSE lifted the full suspension placed on the shares of Capital Oil Plc.

This was following the clearance of the company by the Securities and Exchange Commission (SEC).

Subsequently, the company stocks have been placed on technical suspension upon the receipt of application from the company’s management to do a special placement of 4 billion ordinary shares at N1.00 each and 1.74 billion shares at N0.50 each.

The company’s total assets and market capitalization were N1.70 billion and N2.93 billion respectively.

Source: BALA AUGIE – Businessdayonline

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