Puma’s 2017 Performance
Puma Energy (Z) Plc

Puma continues to pride itself over its safety record. This was evident when we reviewed their 2017 annual report for the year under review saw no deaths according to their Board Chairman JJ Sikazwe. In fact, although their record indicated a one point improvement in 2017 compared to 2016, road traffic accidents stood out as the category that needs to be dealt with when compared with others. According to ‘JJ’, “Puma became one of the first companies in Zambia to migrate from the outdated ISO standards and attain accreditation to the improved ISO 9001 and 14001 version 2015”. JJ believes this is a “clear demonstration of Puma’s overall sound environmental management and continuous improvement in the delivery of quality service to its customers”. It is clear that Puma links safety with performance.

On the macro, the Chairman expresses delight over the stable political environment. He believes improved copper prices and a good rainfall season were positives for the company and economy at large. Furthermore, the monetary policy easing by the banking of Zambia was welcome as it helped to slightly improve liquidity.

Sadly, FIZ was not in attendance of their AGM, however during the meeting we anticipate that shareholders would have been advised on some issues that were key audit matters during their last audit by Ernest and Young (EY). According to the independent auditors report in the 2017 AR, three issues stood out: contingent liabilities regarding active legal cases with regulators Competition and Consumer Protection Commission (CCPC) and the Zambia Revenue Authority (ZRA), fair value in relation to property plant and equipment, and VAT and Customers duty receivables. The outcomes of all of these events often lead to revision of the final financial statements (restated accounts) in subsequent publications of the AR.

A diagnosis of the oil marketing company’s 2017 financials reveals some interesting highlights. JJ speaks about a once off event which we found was a heavy K56.4 million that leaked out of the cash flow and income statements as an amount paid to ZRA on the Mining Solvent case (according to 6.1 in the notes to Financial Statements). This bruised the cash flow statement as operating cash flow came in negative for 2017.

However, the company saw a 6.8% increase in revenue, a 32.4% surge in operating profit, a 13.8% reduction in EBITDA and earnings that came 20.1% short of the previous year’s performance. The dip in earnings is attributed to the “once off” aka penalty from ZRA. Return on sales and gross profit margin saw a negligible reduction.

Working capital saw a 19% increase in inventory. More oil remained in the pumps. The working capital cycle went up from 39 days to 51. Of note was the sharp increase in receivable days that went from 33 to 47. Goods sold not being paid on time. Evidence of liquidity constraints in the market no doubt as their receivables shot up by 53%.  Conversely, liquidity concerns within are seen from the financials as current liabilities increased by 73%. A closer look shows a surge in their appetite for overdrafts.

However, they are in no danger of financial risk as there was improvement in their gearing that went from 9% to 4%. Furthermore, the company continues to cover its short term obligations through available cash albeit there is a signal of this position being threatened by the subtle reduction in acid test from 1.24 to 1.04. Walking the tight rope.

Shareholders saw a 14% reduction in the dividend paid in 2017 compared to that paid in 2016. In addition, an improved return on capital employed will be music to investor’s ears. However, their return on equity reduced to 8.9% from 11.6%. Although slightly above inflation rate, it is still below what would be deemed as comparable to a risk free investment in Treasury Bills for example. Furthermore, shareholders will be concerned with the fall in EBITDA.

Going forward, focus will be on how the energy regulation board manages the pricing on fuel in 2018. Furthermore, global commodity prices on oil will be another factor that will keep investors focused. In addition, the significant VAT and Customers Tax receivables due from ZRA will be an issue that will need to be resolved as this may end up being the second “once off” incident.

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