The billions of naira Africa’s largest oil-producing country squanders due to the absence of full deregulation in Nigeria’s downstream sector is no longer news, but what is new is how firms braced the odds in 2022 to post significant upticks in both top-line and bottom-line figures.
Findings by BusinessDay showed MRS reported its highest half-year profit after tax in four years of N351.8 million in the period ended June 2022.
The major driver for MRS performance is its revenue from Nigeria and the sale of Premium Motor Spirit (PMS) as the downstream oil firm reported a 16.3 percent increase in revenue of N42.7 billion compared to N36.7 billion in the same period of 2021.
The years in which MRS recorded a loss in net income, were the years in which it got it lowest revenue from PMS.
MRS recorded revenue growth across all key products such as PMS, Aviation Turbine Kerosene (ATK), Lubricants and Greases, Liquidified Petroleum Gas (LPG) except Automotive Gas Oil (AGO) which it saw a decline of 15.4 percent from N2.6 billion in half year 2021 to N2.2 billion same period 2022, and Dual Purpose Kerosene (DPK) which it generated no revenue from.
Further analysis by BusinessDay shows the company had a profit margin of 1 percent, showing how the company is managing its expense relative to its revenue.
Also, a 92 percent decline in MRS’s other income from N473 million in half year 2021 to N37.5 million same period 2022 gave a reduction to the company’s income and consequently, the performance in the period.
Read also: Chart of the day: Inventory turnover of Nigeria’s downstream oil firms
The other income consists of N2.4 million from rental and lease income, N19.2 million from sundry income, and N15.8 million from income on storage services.
The company recorded an increase in its administrative expenses as well as selling and distribution expenses. Administrative expenses increased to N2.23 billion as of half year 2022 from N2.20 billion in half year 2021 while selling and distribution expenses increased to N758.9 million in 2022 from N696.9 million in the comparable period of 2021.
In the period under review, MRS finance income and finance cost reduced to N18.4 million from N410.6 million, and its finance cost reduced to N135.7 million from N249 million.
MRS’s total assets grew to N36.4 billion as of half year 2022 from N32.6 billion, in half year 2021 while their liabilities increased to N18.8 billion half year 2022 from N15.6 billion same period 2021.
“With challenges facing petrol business due to absence of full deregulation, oil and gas firms were able to design their models to leverage business opportunities in lubricant, diesel and aviation fuel business,” Ola Alokolaro, partner, energy and infrastructure at Advocaat Law Practice, said.
Analysts believe these firms are expected to sustain their resilience and deliver decent returns to investors even amid poor valuations.
“On a balance of factors, we expect both revenue and earnings growth for the majority of the downstream players. Given that international oil prices trends northward, this would translate to retail prices of deregulated petrol products staying elevated,” said analysts at Meristem Securities.
“Improved economic activities would also translate to higher volume sales, further pushing increasing turnover. This would in turn impact earnings for the period,” said the analysts.
