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Aiteo Annual Report 2009 Sowing seeds across new markets Aiteo Energy Resources Limited (Formerly Sigmund Communnecci Limited) Annual report and accounts 31 December 2009

investing in Nigeria since 1999


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Table of Contents

Contents: 2

Message from Management

3

Financial Performance

5

Corporate Overview

6

Business Snapshot

7

Committed to Excellence

8

Social Responsibility

9

Corporate Responsibility

10

Our Market

11

Strategic Priorities

12

Accounts and Financial Information

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Message from Management Caring for people and planet Sowing Seeds Across New Markets In 2008 Sigmund Communecci became Aiteo. This marked a new beginning in the history of the company as it released a new energy that has sparked creativity and efficiency in the way we operate. I am proud to say that our business has continued to grow and we continue to demonstrate leadership in multiple downstream oil and gas activities across Africa. We feel confident that our commercial success in 2009 will have positive ramifications for future growth and the crystallisation of our development plans. In 2009, our revenue grew 15% through the year, up to =N=32bn, while gross profit figures held strong, increasing by almost 10% on 2008 performance. While the international climate is one of caution, our growth remains determined, and we look forward to establishing a greater presence in additional markets over the course of 2010. The team has delivered excellent operational results with operating cash flow ahead of company expectations and a strengthened balance sheet. This success is due in large part to the considerable experience of Aiteo management and staff, and the specialized experts with whom we work with. When organizations seek Nigerian suppliers capable of meeting their oil and gas needs consistently and reliably, Aiteo is always on the short list. Looking ahead, the Company is in a position of strength with the necessary resources in place to deliver the planned 2010 work programme. 2010

will be important for us to retain sight of our short and long-term goals. In order to become a leading, fullservice player across the supply chain in oil and gas sectors, we need to consolidate our business and lay the tracking for growth now and in the future as we expand to meet global challenges. This means looking more closely at how we do business across our organisation, and towards the strategic horizon to expand into new opportunities. Pan-African development and the expansion of our operations in key downstream and upstream spheres will help us remain at the forefront of the Nigerian energy sector. Growth in our storage farms and retail stations in particular will help us further establish our independent presence downstream. With our significant growth in the downstream sector we are now poised to take full advantage of opportunities available in new sectors, in the next twelve months, as we continue to build our business. At the same time we remain cognisant of our responsibilities to the environment, our neighbours and our stakeholders. This is central to the Aiteo message, and should continue to be so. We are a socially responsibility corporate citizen, and retained this focus more vividly than ever in 2009. After our successes and growth in 2009, projections for 2010 show promise of continued growth against a challenging global backdrop. In order to realise our potential, we need to become more efficient, effective and battle-ready for the coming twelve months. The future is Aiteo. [Signature] Benedict Peters Chairman

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Projections for 2010 show promise of continued growth against a challenging global backdrop.

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Financial Performance Highlights from a year of growth

Turnover up 19% 32.2 billion

Gross profit up 10% 10.9 billion

34

11.5

32

11

30

10.5

28

10

26

9.5

24

Profit after tax up 12% 0.7 billion

7

6.5

6

9 2009

2008

Revenue

Our business fared well in 2009, posting solid growth across key performance indicators. A shift in business focus to explore new opportunities and commercial strategies has enabled us to invest and grow in fresh markets, providing much of the momentum behind our performance. Turnover was up 19% from 2008, rising to =N= 32.2bn across our core market areas. This had a knock-on effect on our gross profit figure, which rose 10% on the year, with net profit after tax showing a 12% increase over the same period.

5.5 2009

2008

Gross Profit

2010 Objectives These results mark a robust twelve months for the group commercially allowing the company to continue to contribute to the phenomenal growth of Nigeria’s oil and gas industry. Through innovation and hard work, we have consistently provided real value to private and public organizations. Today, we enjoy relationships with our clients as the company of choice and as a trusted partner in securing energy needs. In the year to follow, we will look to build on these developments and grow more aggressively into new business sectors as part of our journey towards full chain exposure. Through consolidating and reviewing our business practices and targeting new opportunities, we expect to grow at a faster pace in 2010, delivering more possibilities for business development while helping us more readily meet the social and environmental responsibilities we recognise.

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2009

2008

Profit after tax


“These results mark a robust twelve months for the group commercially�

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Revenue Analysis Premium motor spirit sales shrunk by 12% in 2009, with market challenges and a shifting business focus accounting for much of the decline. Revenue from automotive gas and oils more than offset the rate of shrinkage with a buoyant rise of 14%, while a 96% expansion in dualpurpose kerosene helped drive an overall growth in revenues on the year.

Revenue Breakdown 2009

Revenue Breakdown 2008

There was no LFPO trade in 2009, down from =N=1.8bn in 2008, as our strategic priorities encouraged growth in other areas of our business. Turnover was up 19% on the year in aggregate.

PMS

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DPK

AGO

PMS

DPK

AGO


Cost Analysis Wage costs increased by 45% in the 12 month period, up from =N=171,840,000 in 2008 to =N=248,844,033, as we increased staff numbers to help power our expansion into new sectors. It is important that while we continue to increase staffing provision in 2010 we take measures to ensure a slower rate of expansion in the wages and salaries budget for greater cost efficiency. Operational expenses grew at a rate of 67% on the year, as we expanded operations across our downstream markets. It is envisaged that the next twelve months will see operational expenses continue to increase, albeit at a disproportionately slower rate to growth, which is projected to be considerably stronger in 2010.

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Corporate Overview Our mission is fuelling success

Aiteo is a Nigerian oil and gas company specialised in storage, import and retail gas station supply. We will soon be entering new markets, including petroleum exploration and production, refining, LPG and bulk petroleum storage, running gas stations both in Nigeria and the West African region, marketing and supply of petroleum, onshore transportation and distribution, energy field services and shipping. We will also supply lubricants, chemicals, plastic derivatives and additives. We provide the energy that drives human progress. Supplying oil and gas in abundance is one part of the equation. The other is supplying value to our clients, employees and consumers through sound business practices and by creating beneficial relationships that enable mutual success.

Company Facts • Founded in 1999 • Known as Sigmund Communnecci Limited until 2008 • Plans for sustained growth across Africa • Entering new markets

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Core business Storage Aiteo’s strategically located, highcapacity facilities optimise access from land and sea to maximise distribution efficiency. Combined storage capacity: over 200 million litres. Import We operate the MT Vera Cruz, a tanker vessel of 42,000 metric tons dead weight, which enables us to ship a consistent supply of petroleum products. Retail gas station supply The Aiteo fleet of tanker trucks delivers fuel within and across Nigerian borders, ensuring a steady supply of petroleum products for filling stations and their customers.


Asset Snapshot Tank farm CWIP 5.4 billion

Net book value – ₌ 6.2 billion

Plant and machineries 43 million Motor vehicles 111 million

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Leased assets 198 million

Land and buildings 826 million

Furniture and fittings Office equipment 10 million 24 million


s

Business Snapshot Structuring for growth

Our Mission is Fuelling Success We provide the energy that drives human progress. Supplying oil and gas in abundance is one part of the equation. The other is supplying value to our clients, employees and consumers through sound business practices and by creating beneficial relationships that enable mutual success Business Areas At present, we engage in the import, shipping, storage and distribution of oil and gas products in Nigeria and across the wider West African region. These core business areas provide a solid base on which we expect to expand in the year to come, developing a more rounded portfolio of services and commercial interests. Our strategy for 2010 includes a reevaluation of priorities, with a view to diversification across the full oil and gas value chain to drive growth in the immediate future. As new markets emerge and present an array of opportunities, we intend to extend our commercial reach.

our group to account for upstream development, including exploration, while expanding our retail chains at the opposite extreme to ensure fullservice capabilities in 2010.

Having consolidated strong positions in our core markets, aggressive expansion into new sectors and products in 2010 will help facilitate the significant rate of growth we are accounting for group-wide.

Gross Profit Revenue 2009

Projected Markets It is envisaged that we will look to expand our operations into new markets over the coming twelve months, as part of our commitment to becoming Africa’s leading oil and gas company. We will expand

2008

0

5

15

25

35

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Committed to Excellence Building on strong foundations

Aiteo has grown substantially over the last decade, building market share and diversifying its business within the oil and gas sector. This growth has brought economies of scale, better access to capital and improved opportunities to win business. The global financial crisis has strained the balance sheets of industry peers as they see the affects of ailing consumer demand, the resulting uncertainty this has brought to global policy and the tightening of capital markets. During this period, Aiteo has delivered robust growth and reliable performance. Tuning Performance Aiteo has introduced a new initiative to strengthen our institutional and performance management capacity, allowing us to continue to grow effectively, manage risk prudently and improve efficiency. This will allow us to pursue growth and, over time, fulfil our vision of becoming a global leader in the oil and gas sector. Aiteo leadership commissioned PricewaterhouseCoopers (PwC) to implement the initiative. The AITEO Organisation Development Project started its work on November 4 2009, adopting the name Project ACE (Aiteo is Committed to Excellence) to describe the activities. Our Experience Runs Deep Aiteo has contributed to the phenomenal growth of Nigeria’s oil

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and gas industry. Through innovation and hard work, we have consistently provided real value to private and public organisations. Today, we enjoy relationships with our clients as the company of choice and as a trusted partner in securing energy needs. This success is due in large part to the considerable experience of Aiteo management and staff, and the specialised experts with whom we work. When organisations seek Nigerian suppliers capable of meeting their oil and gas needs consistently and reliably, Aiteo is always on the short list.


PwC tasked with reviewing processes, people management and systems • Evaluate current business strategy to understand business direction and goals • Review and design business processes to embed efficiencies in our ways of working • Review and design organisational structure to promote effective business operations • Design human resource systems and policies to guide people management • Develop migration and change management programmes for businesswide execution • Review our information technology and infrastructure to propose improvement page 15


Social Responsibility Putting social responsibility at the heart of the business

Aiteo believes we have a responsibility to the people around us, to our employees and to the environment. We promote education, because without it children lose the chance to prosper and to take the path they would most like to follow. We also employ local people where possible, and we support local initiatives to give back to the places where we operate. We see our business as a chance to make a difference to the people who live where we work, but we also continue to believe that it is not enough on its own. In a globalised economy with one climate, with shared purpose and aspirations, it is our belief that social responsibility does not stop at the gates to our office or the borders of Nigeria. We see the world becoming more connected, not less. And this core value runs through everything we do, from our strategy to reach across new markets in Africa, to our relentless focus on protecting the planet. Not just for today, but for tomorrow and for our children’s generations.

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Steadfast Environmental Commitment We are steadfast in our commitment to building on our progress. Throughout the year we have seen strong performance driven by steps to reduce our carbon footprint, to trade and grow more sustainably and to more broadly lessen our impact on the environment. We also put sustainability at the heart of our business by both making capital investments aimed at advancing energy technology, and by encouraging our talented team to explore new energy innovations. Health and Safety In 2009 we continued to advance our safety performance, introducing and refining new business processes as well as continuing to strengthen our employee safety and wellness programmes. This work will continue into 2010 and will always remain of strategic import to Aiteo’s business, and central to how we judge our success.


“Throughout the year we have seen strong performance driven by steps to reduce our carbon footprint, to trade and grow more sustainably and to more broadly lessen our impact on the environment.�

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Corporate Responsibility Shepherding a new phase in our growthof the business The challenging economic climate tested the strength of our business model during 2009, and we end the year feeling reassured by our growth and by our plans for 2010 and beyond. Plans for 2010 As we enter a new period of growth, marked by our steps to further internationalise and diversify across upstream and downstream activities, we feel confident in our ability to execute effectively and drive revenue growth in 2010. Our Committed to Excellence programme will bring further strength to our IT systems, business processes and people management strategies, allowing us to shepherd the business through the stages anticipated in 2010. We plan to drive efficiencies so that revenue growth materialises into a year-over-year increase in bottom-line results. Greater efficiency will generate cash flow to be ploughed back into supporting growth across upstream and downstream markets, as well as into investments both inside and outside our core business. Rebrand The rebrand from Sigmund Communnecci was managed effectively to ensure a smooth transition for all stakeholders. The new brand better represents the company

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as it charts its new path to become Africa’s largest oil and gas business. Value for Stakeholders 2010 was a strong year not just for our shareholders, but also more broadly for our stakeholders as well. We were pleased to see continued development in strategies to reduce our impact on the environment, to

make a meaningful impact on the communities where we operate and to see employees’ health and safety be treated with the utmost rigour. With the introduction of our Committed to Excellence programme, we expect to see this effort continue to improve even further into 2010.


“Throughout the year we have seen strong performance driven by steps to reduce our carbon footprint, to trade and grow more sustainably and to more broadly lessen our impact on the environment.�

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Our Market Leveraging across the supply chain Since 1999 we have grown to develop a firm hold in the Nigerian oil and gas markets. Nigeria is the twelfth biggest petroleum-producing country in the world, filling 2.7% of the world’s refined fuel demand. At the same time Nigerian GDP is experiencing extensive growth, fuelling domestic demand for oil and gas products. This drives demand for our products through downstream markets at home and abroad, presenting significant opportunities for our business in 2010 and beyond. Domestic demand aside, we trade in a global market with access to clients and partners across boundaries to fuel international demand across our business. Since 1999 we have grown to develop a firm hold in the Nigerian oil and gas markets. Nigeria is the twelfth biggest petroleum-producing country in the world, filling 2.7% of the world’s refined fuel demand. At the same time Nigerian GDP is experiencing extensive growth, fuelling domestic demand for oil and gas products. This drives demand for our products through downstream markets at home and abroad, presenting significant opportunities for our business in 2010 and beyond. Domestic demand aside, we trade in a global market with access to clients and partners across boundaries to fuel international demand across our business.

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The Nigerian Petroleum Market


The Nigerian Petroleum Market Nigeria

Angola

% Share 103 BBL/day

Libya

Algeria

Saudi Arabia

0

2,000

4,000

6,000

8,000

10,000

12,000

The Future The future for our business will see development across a number of new strategic operations, across both downstream and upstream markets. As we move towards becoming an industry leader in Nigeria and the wider region, we expect to benefit from more diverse services and interests in the global energy industry.

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Strategic Priorities Vying for growth in new markets In 2010 we will enter new markets, upstream and downstream, national and international, as we chart ambitious growth plans. While we continue to grow our Nigerian business, we see opportunities to reap economies of scale, lessen risk and strengthen shareholder value by reaching across the African content, both onshore and offshore.

Aiteo is planning investments in areas such as power generation, agriculture, steel, stocks, real estate and emerging technologies. Our portfolio will be balanced across investments with varying degrees of correlation to our core business and varying degrees

of relevance to our sector and the broader commodity market. Our investments in power generation, in particular, are expected to achieve synergies with our existing oil and gas business.

Current assets

The shift towards new upstream and downstream markets will strengthen our existing core businesses and allow us to remain focused on creating long-term returns. By entering markets that, within the supply chain, possess some natural hedges against our existing businesses, we can smoothen yearly results and vie for long-term strategic value. New upstream and downstream markets will bring new opportunities, and will be integral to our eventual target of being a leader in African oil and gas. Investments

Stocks

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Trade debtors

Product deposits

Other debtors & prepayment


New markets on the horizon • Petroleum exploration and production • Refining • LPG and bulk petroleum storage facilities • Gas stations both in Nigeria and the West African region • Petroleum marketing, supply and trading • Onshore transportation and distribution • Energy field services • Lubricant, chemical, plastic derivatives and additive supply • Shipping page 23

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