Keeping businesses afloat in Nigeria’s downstream sector has become extremely tough. A lot of companies have divested and the few existing ones have reduced their labour force to stay in business.
With the absence of full deregulation, the sector witnessed a major setback in the first nine months of 2022 following major disruptions in the supply and distribution chain of Premium Motor Spirit (PMS).
This development raised tension across major cities in Africa’s biggest oil-producing country on account of high methanol in the petrol distributed in the country alongside the availability of petroleum products led to fuel scarcity and the consequent hike in prices and distrust from the public.
Despite these challenges, Conoil, Total Energies, and MRS posted a combined working capital of N31.08 billion in the first nine months of 2022.
According to Investopedia, working capital is a commonly used measurement to gauge the short-term health of an organization.
BusinessDay analysis of the downstream firms’ financial books revealed Conoil, Total Energies, and MRS’ had working capital of N22.08 billion, N5.21 billion, and N3.79 billion respectively while Eterna Ardova recorded N0.85 billion and -N0.24 billion respectively.
“Whilst the working capital is still subject to the total revenue and current assets of the companies, the above figures provide that some of these companies may have negative working capital,” Ayodele Oni, partner, energy practice group at Bloomfield LP said.
He added, “For instance, for Ardova, it seems that the company does not have sufficient funds for operations when compared to others. This may be due to the current liabilities of the company including loans. For others such as Conoil, it shows that the company had more resources for operations or projects within that period.”
“Internally generated funds to finance operational activities is preferable. Where the debt option is adopted, low-bearing interest loans would be better,” Oni said.
Ndubuisi Okereke, a senior lecturer in the petroleum engineering department at the Federal University of Technology Owerri said Ardova’s negative working capital implies the firm’s inflows are not doing so well.
“They will need to refine their strategies going into 2023,” Okereke said.
Total Energies, Ardova, and Conoil recorded the highest operating expenses of N26.75 billion, N12.62 billion, and N5.63 billion while Eterna and MRS recorded N3.98 billion and N4.75 billion in the nine months of 2022.
Ardova recorded the highest cost-of-sales ratio of 94.7 percent, Eterna recorded 93.2 percent, MRS (91.1%), Conoil (88.4%), and Total Energies (86.8%) in the nine months of 2022.
Firm by Firm analysis
Conoil
Conoil’s working capital was at N22.08 billion in the nine months of 2022, which implies the firm has N22.08 billion at its disposal in the short term if it needs to raise money for a specific reason.
The firm’s working capital increased to N22.08 billion in the nine months of 2022, up 22.8 percent from N17.98 billion in the nine months of 2021.
According to Investopedia, a positive working capital means the company’s current assets are more significant than its current liabilities. The company has more than enough resources to cover its short-term debt, and there is residual cash should all current assets be liquidated to pay this debt.
Conoil’s revenue dipped to N90.29 billion in the nine months of 2022, a 10.6 percent decline from N100.98 billion in the corresponding period of 2021.
The firm’s operating expenses grew marginally by 6 percent to N5.63 billion in the nine months of 2022 from N5.32 billion in the nine months of 2021.
Conoil’s cost-of-sales ratio dipped by 88.4 percent from N92 percent in the period reviewed.
The cost of sales dropped to N79.85 billion in the nine months of 2022, a 14.1 percent decrease from N92.94 billion in the corresponding period of 2021.
Inventories grew by a massive 283 percent to N24.87 billion in September 2022 from N6.49 billion in September 2021.
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Total Energies
Total Energies’ working capital was at N5.21 billion in the nine months of 2022, which implies the firm has N5.21 billion at its disposal in the short term if it needs to raise money for a specific reason.
The firm’s working capital increased to N5.21 billion in the nine months of 2022, a huge 714 percent increase from N0.64 billion in the nine months of 2021.
A positive working capital implies Total Energies’ current assets are more significant than its current liabilities which means the company has more than enough resources to cover its short-term debt, and there is residual cash should all current assets be liquidated to pay this debt.
The firm’s revenue surged to N337.19 billion in the nine months of 2022, up 39.2 percent from N242.22 billion in the corresponding period of 2021.
Total Energies’ operating expenses grew 14 percent to N26.75 billion from N23.47 billion in the reviewed period.
The firm’s cost-of-sales ratio amounted to 86.8 percent in the nine months of 2022, indicating a 360 percent basis points increase from 83.2 percent in the nine months of 2021.
The cost of sales grew to N292.53 billion, indicating a 45 percent increase in the nine months of 2022 from N201.64 billion in the nine months of 2021.
Inventories stood at N56.16 billion in September 2022, 89.4 percent from N29.64 billion in September 2021.
MRS
MRS’ working capital was at N3.79 billion in the nine months of 2022, which implies the firm has N3.79 billion at its disposal in the short term if it needs to raise money for a specific reason.
The firm’s working capital jumped to N3.79 billion in the nine months of 2022, a 74 percent increase from N2.18 billion in the nine months of 2021.
A positive working capital implies MRS’ current assets are more significant than its current liabilities which means the company has more than enough resources to cover its short-term debt, and there is residual cash should all current assets be liquidated to pay this debt.
The downstream firm’s revenue climbed 30 percent to N69.15 billion in the nine months of 2022 from N53.23 billion in the nine months of 2021.
Operating expenses grew 5.8 percent to N4.75 billion in the nine months of 2022 from N4.49 billion in the nine months of 2021.
MRS’ cost of sales ratio stood at 91.1 percent, a 220 basis points dip from 93.3 percent in the same period of 2021.
The firm’s cost of sales jumped 27 percent to N63.03 billion in the nine months of 2022 from N49.69 billion in the comparable period of 2021.
MRS’ inventories grew 30.7 percent to N3.11 billion in September 2022 from N6.04 billion in September 2021.
Eternal
Eterna’s working capital was at N0.85 billion in the nine months of 2022, which implies the firm has N0.85 billion at its disposal in the short term if it needs to raise money for a specific reason.
The firm’s working capital dipped 31.4 percent to N0.85 billion from N1.24 billion in the nine months of 2021.
A positive working capital implies Eterna’s current assets are more significant than its current liabilities which means the company has more than enough resources to cover its short-term debt, and there is residual cash should all current assets be liquidated to pay this debt.
The firm’s revenue grew by 50 percent to N91.93 billion from N61.37 billion in the comparable periods.
Operating expenses increased to N3.98 billion in the nine months of 2022, up 16 percent from N3.42 billion in the nine months of 2021.
Eterna’s cost-of-sales ratio stood at 93.2 percent in the nine months of 2022, 20 basis points increase from 93 percent in the nine months of 2021.
The firm’s cost of sales stood at N85.71 billion, indicating a 50.2 percent increase from N57.05 billion in the comparable period.
Eterna’s inventories dipped 32.6 percent to N11.63 billion in September 2022 from N17.27 billion in September 2021.
Ardova
Ardova’s working capital was at -N0.24 billion in the nine months of 2022, which implies the company’s current assets are not enough to pay for all of its current liabilities.
The firm’s working capital stood at a negative working capital of -N0.24 billion from -N0.85 billion in the nine months of 2021.
According to Investopedia, when a working capital calculation is negative, the company’s current assets are not enough to pay for all of its current liabilities. The company has more short-term debt than it has short-term resources. Negative working capital indicates poor short-term health, low liquidity, and potential problems paying its debt obligations as they become due.
Ardova’s revenue grew to N182.59 billion in the nine months of 2022, indicating a 34.1 percent increase from N136.10 billion in the corresponding period of 2021.
The firm’s operating expenses rose to N12.62 billion, a 70.7 percent increase from N7.39 billion in the reviewed period.
Ardova’s cost-of-sales took out 94.7 percent of its total revenue in the nine months of 2022, indicating a 220 percent basis points increase from 92.5 percent in the nine months of 2021.
The cost of sales grew 37.2 percent to N172.84 billion in the nine months of 2022, from N125.93 billion in the comparable period of 2021.
Ardova’s inventories rose to N24.87 billion in the nine months of 2022, indicating a 30.5 percent increase from N19.06 billion in the nine months of 2021.
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