In Nigeria’s downstream sector, the gloom persists in the first half of 2020

Four months after the Federal Government announced wide-reaching policy measures to deregulate the downstream sector of the petroleum industry, keeping businesses afloat in the sector is still extremely tough.

BusinessDay analysis of five of the major companies operating in the downstream sector namely Ardova (formerly Forte Oil), MRS oil plc, 11 Plc (formerly Mobil), Conoil plc, Eternal Plc, and Total plc revealed the performance of key profitability margins in the first half of 2020.

Ardova’s growing trade and receivable

Result of annual Half-year financial result showed that Ardova plc’s profit after tax plunged to N1.01 billion in second quarter of 2020 from N5.45 billion in the previous year while profit before tax fell sharply from N6.3 billion in 2019 to N1.17 billion in the first half of 2020.

The company’s revenue rose from N82.7 billion in 2019 to N87.3 billion in the first half of 2020 while the cost of sales also rose from N77.2 billion in 2019 to N82 billion. The company’s trade and receivables increased from N16.7 billion in December 2019 to N19.5 billion in the first half of 2020.

Trade receivables are the total amounts owing to a company for goods or services it has sold, which are reflected in invoices that the company has issued to its clients, but has not yet received payments for.

Revenue from lubricants decreased to N7.8 billion from N8.4 billion in the first half of 2019 while revenue from solar system also declined from N27.3 million to N7.3 million in the first half of 2020.

Another bleak year for MRS Oil despite increasing kerosine business

Major petroleum marketer, MRS Oil Plc, may be in for another bleak financial year, for the third time in a row.

Results from the mid-year financial report of June 2020 showed that revenue fell from N29.7 billion in 2019 to N23.6 billion in 2020. The firm made a loss of N329 million in June 2020, a reduction in the N990 million recorded in 2019.

Proceeds from petroleum products, which accounted for about 74 percent of the oil firm’s total top-line, plummeted 21 percent to N17.5 billion, from N22.2 billion recorded a year before, while revenue from Aviation Turbine kerosene (ATK) declined to N1.57 billion from N2.96 billion recorded in the previous year.

Revenue from Automotive Gas Oil (AGO) increased to N2.5 billion in June 2020 compared to N2.4 billion in June 2019, while revenue from Lubricant declined to N1.95 billion, compared to N2.01 billion recorded in the previous year.

Rare capital expenditure for 11plc

11 Plc (formerly known as Mobil Oil Nigeria) saw its revenue decline by 13 percent to N80.5 billion from N92.8 billion recorded in the first half of 2019.

Profit before tax also declined by 39 percent to N3.7 billion from N6.1 billion in June 2019 while profit for the year declined by 40 percent to N2.5 billion from N4.1 billion recorded in the same period.

The major concern for 11pc 2019 financials is the increase in capital expenditure by 444 percent to N11.5 billion from N2.1 billion recorded the previous year while total assets also increased by 16 percent to N94.2 billion from 81.3 billion recorded in the previous year.

Eterna plc’s finance income declined by 94 percent

The annual half-year financial result showed that Eterna plc’s profit after tax plunged to N104 million in the first half of 2020 from N245 million.

The company’s revenue fell sharply by 81 percent to N28.4 billion as at June 2020 while cost of sales also declined by 82 percent to N26.1 percent in June 2020 from N153 billion recorded in the first half of 2019.

Finance income fell to N10.8 million the first half of this year from N197 million recorded in June 2019.

Finance income comprises interest received on outstanding monies and upward adjustments to the fair value, gain on derivatives, net foreign exchange gain and interest income on lease receivables.

Conoil loses 67 percent profit

The mid-year financial report for Conoil showed that revenue fell by 20 percent to N57.4 billion from N72.2 billion recorded in 2019.

Profit before tax declined by 67 percent to N498 million from N1.51 billion in 2019.

Profit for the period declined by 67 percent to N338 million from N1.03 billion recorded in June 2019.

The company retained its share capital of N346 million in June 2020 which was also recorded in June 2019.

Total’s earnings per share was down by 67 percent to N49 per share from N149 per share in the previous year.

Total records a loss despite surge in finance income

The revenue of the company declined by 29 percent to N106 billion in the first half of 2020 from N150 billion recorded in June 2019.

Cost of sales also fell sharply from N134 billion as at June 2019 to N94.3 billion in the first half of 2020.

Total plc recorded a 98 percent surge in finance income to N2.14 billion from N208 million in the first half of 2020.

The company also recorded a loss of N537 million in June 2020, as against the profit of N129 million recorded in the first half of 2019.

Overview

Stakeholders blame this negative performance on old perennial environmental, operational and regulatory challenges. These include poor governance and management of refining assets, low operating margin for operators leading to low Return On Equity (ROE), huge debts/receivables on account of unpaid accumulated subsidy and unpaid interest, and foreign exchange differentials on product importation.

‘‘Despite the partial deregulation of the downstream sector, one major reason dragging earnings is that the official selling prices at the retail end of the market is still regulated by the government so there is no freedom to move prices to the level that will absorb cost and support faster growth in margins’’ said Gbolahan Ologunro, banking analyst at Lagos-based CSL Stockbrokers.

‘‘It will be difficult to ascertain whether there will be an improvement performance in the second half as it would depends on if government allows price to move freely said Ologunro

To overcome these challenges, the umbrella body for the major oil marketers suggested some important strategic steps which include introduction of corporate governance, full deregulation of the sector, and introduction of guilds which will increase the availability of skilled workmen and artisans in the industry.