Capital Oil losses increase by 650% due to bad debts

Capital Oil’s 2016 audited financial results released to the Nigerian Stock Exchange on Monday, has raised concerns for worry amongst its shareholders, as the company posted a 650 percent increase in losses incurred for the 2016 year.

The results which revealed a loss after tax of N340.3 million was consequent on impairment amounting to N283.2 million.

The company’s impairment for 2016, signified a 1,294 percent increase against N20.3 million recorded for the same period of the previous year (2015).

According to the downstream oil player, allowance for impairment on bad debt represents the company’s estimate of incurred losses in respect of trade and other receivables.
“The provision for impairment represent customers’ balances which could be recovered in future. The write-offs were specific debts which the Company considered irrecoverable.”

The company’s Auditors also viewed trade and other receivables-impairment as a key audit mater, they said “Trade receivables are stated at fair value less appropriate allowance for estimated irrecoverable amounts.

“As disclosed in notes 4, 6 and 26 to the financial statements, the company assesses at each reporting date whether there is objective evidence that a financial asset is impaired. In carrying out this assessment, management relies on the company’s established internal procedures.

Significant measurement uncertainty is involved in this measurement which makes it a key audit matter.” Their report partly read.

Capital Oil however disclosed that impairment loss as at 31st December 2016 represented customers that are not expected to pay their outstanding balance due to economic and other extraneous circumstances. The Company believes that the unimpaired balance that are past due will be collected.

The company’s admittance to a maximum exposure to credit risk affirms the company’s loss suffering as a result of customer’s inability to meet its credit obligations.

Capital Oil said only about seven of the company’s customer’s accounts for about 53 percent of the company’s receivables, trade receivables of over 90 days grew by over 125 percent to N345.3 million from N153.2 in 2015, while gross figure for 2016 stands at n377.6 million compared to N363.2 million in 2015.

The level of debt further puts the company at a liquidity risk as the company may not be able to meet its short term financial demands due to inability to convert credits or hard assets to cash without loss of capital or income.

The company as at 2016 year end recorded a total financial liability of N711.5 million against N708.4 million in 2015, alongside the added exposure of operational and market risk

Highlights of Capital Oil’s FY 2016 results showed that revenue dropped by 26 percent to N840 million from N1.1 billion in December 2015 and cost of sales dropped 26 percent to N731.7 million from N968.7 million recorded in December 2015.

Consequently, Gross Profit dropped 34 percent to N108.6 million from N164.0 million, as admin expenses shot up by over 189 percent to N434.8 million.
Capital Oil reported that finance income dropped by 75 percent to N800,000 from N3.2 million and finance cost increased 20 percent to N20.2 million from N16.7 million.

A loss before tax of N336.9 million was thus recorded for the 2016 financial year, in contrast to N56.2 million recorded as loss in 2015.

The company’s share price has remained stagnant for over a year at its nominal value of 50 kobo. It last rewarded its shareholders in 2001 and currently has a loss per share of 14 kobo.