Insights into how margins of downstream firms performed in 2019
Keeping businesses afloat in the downstream oil and gas sector has become extremely tough. A lot of companies have divested and the few existing ones have reduced their labor force to stay in business.
BusinessDay analysis of four of the major companies operating in the downstream sector namely Eternal Plc, MRS oil plc, 11 Plc (formerly Mobil), and Total plc revealed the performance of key profitability margins in 2019.
Eternal Plc lubricant business offers bright prospects
Result of annual 2019 financial result showed Eterna Plc’s profit after tax plunged to N85.52million in 2019 from N1.01billionn in the previous year while Profit before tax fell sharply from N1.9 billion in 2018 to N125 million.
2019’s Revenue fell from N251.8 billion to N229.4 billion in 2018 while the cost of sales also reduced to N224 billion in 2019 from N247.2 billion in 2018. The company was able to reduce its trade and receivable from N30.8 billion in 2018 to N12.7 billion in 2019.
Further breakdown of the company’s revenue showed income from Trading decreased from N164.6 billion in 2019 compared to N193.7 recorded in the previous year while Revenue from fuel also increased to N55.7 billion from N50.8billion in 2018.
Revenue from lubricants increased to N8.6 billion from N5.7 billion in 2018.
Another bleak year for MRS Oil Nigeria
Major petroleum marketer, MRS Oil Plc, may be in for another bleak financial year, for the second time in a row.
Results for the 12 months ended December 2019; show that revenue fell from N89.5 billion in 2018 to N64.7 billion in 2019. The firm made a loss before tax of N1.58 billion, as against a loss before tax of N1.42 billion in 2018.
Proceeds from petroleum products, which accounted for about 74 percent of the oil firm’s total top-line, plummeted 33 percent to N46.6billion, from N62 billion recorded a year before, while revenue from Aviation Turbine kerosene (ATK) increased to N8 billion from 6.4 billion recorded in the previous year.
Revenue from Automotive Gas Oil (AGO) reduced to N5.8 billion in 2019 compared to N9.4 billion in 2018, while revenue from Lubricant increased to N3.9 billion, compared to N3.4 billion recorded in the previous year.
Unusual capital expenditure for 11plc
In 2019, 11 Plc (formerly known as Mobil Oil Nigeria) revenue grew by 16 percent to N191.6 billion however profit before tax declined by 4 percent to N13.1 billion while profit for the year declined by 5 percent to N8.8 billion.
The major concern for 11pc 2019 financials is the increase in capital expenditure by 512percent to N18.2 billion from 2.9 billion recorded the previous year while total assets also increased by 29 percent to N91.1 billion from 10.6 billion recorded the previous year
Assets sales boost Total’s profit margin
Unaudited result of Total, which distributes and markets refined petroleum products and fuels showed profit slumped by 69.6 percent year-on-year to N2.4bilion in 2019 after revenue declined 5.6 percent, the biggest contraction in sales since a 13.5 decline in 2015.
Total’s underwhelming result comes despite a one-off asset disposal gain of N2.8billion in the year.
“Ex the disposal gain, TOTAL would have reported a c. N341.4mn loss,” analysts at Lagos-based CardinalStone said in a note to clients
Revenue of Total was dragged by a 7.39 percent year-on-year decline in the company’s main segment involving sales of petroleum products (82 percent of total revenue) while segment for Lubricants and other products (18 percent of total revenue) rose 4.1 percent year-on-year.
Analysts at CardinalStone say the revenue setback was a fallout of growing competition in the downstream sector.
Oando and Conoil financial statement were not available as at the time of analyzing the reports.
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.
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.