New Telegraph

11 Plc: Hurt by weaker sales, operating cost

The volatility in the overall economic and business climate is taking a negative toll on the earnings of 11 Plc as it is set to exit NSE following shareholders’ approval. CHRIS UGWU writes

 

 

The consequence of rapid devaluation of naira has wiped out billions of naira in market capitalisation for Nigeria’s fledgling oil and gas companies.

 

The COVID-19 crisis has also continued to impact all businesses, with the effect expected to be more pronounced in the near future. Challenges of insecurity and other high cost of operations attributable to poor infrastructure have also continued to make the business operating environment difficult, especially the oil and gas sector of the economy.

 

The industry has also continued to experience sustained pressure on its cash flow due to delay in payments of subsidies resulting in huge financial expenses. 11 Plc (formally Mobil Oil Nigeria Plc), like others, has continued to get its fair share from the mixed fortune as it continues to struggle under pressure of high cost.

 

Market watchers attribute the situation primarily to on-going weak global commodity demand and pricing environment coupled with the rising refining expenditures.

 

The oil firm’s earnings have been heavily hurt following increasing challenging operating milieu. Analysts believed these operating challenges are part of the key reasons the board of directors’ meeting held on February 27, 2020, considered and approved the proposal for the oil firm to voluntarily exit the Nigerian Stock Exchange.

 

That was also the reason the company’s shareholders approved the proposal to voluntarily delist from the Nigerian Stock Exchange as part of the resolutions at the company’s annual general meeting (AGM) held in Abuja recently.

 

According to analysts, the overall, current results reflects 11’s natural vulnerability to volume slowdown due to hash operating environment. When the closing gong rang on Friday, the company’s share price stood at N190.00 Financials 11 Plc ended the Q4’19 not impressive as it delivered a five per cent drop in profit after tax for the Q4 ended December 31, 2019, to N8.855 billion from N9.328 billion posted in 2018.

 

Profit before tax stood at N13.123 billion in 2019 from N13.695 billion in 2018. The unaudited results for period ended December 31, also showed cost of sales rising to N175.035 billion from N148.015 in 2018, accounting for an increase of 18.25 per cent. However , revenue grew by 16 per cent to N191.676 billion from N164.609 billion in 2018.

 

The oil firm opened the year 2020 negative with a report of a  37 per cent drop in profit after tax or the first quarter ended March 2020. According to the company’s report obtained from the Nigerian Stock Exchange (NSE), its profit after tax stood at N1.284 billion for the first quarter, as against N2.039 billion recorded in 2019, representing a drop of 37 per cent. 11 equally recorded 37 per cent decline from N3.018 billion to N1.913 billion in 2020.

 

However, revenue grew by 18 per cent to N54.279 billion from N46.072 billion in 2019. Cost of sales stood at N51.821 billion in 2020 from N42.424 billion in 2019. It reported a 47.7 per cent decline in EPS to N3.42 in its unaudited Q2’20 results due to weaker sales and higher operating cost.

 

Revenue plunged by 43.8 per cent YoY in Q2’20, driven by sales weaknesses in Fuels (-50.1 per cent YoY) and Lubes (-20.3 per cent YoY) segments. Sales of most petroleum products were affected by the imposition of restrictive measures in key economic centres to curb the spread of coronavirus.

 

However, LPG sales rose by 18.4 per cent YoY to N480 million during the review period. Gross margin improved by 96 bps to 9.29 per cent despite the revenue weakness in the quarter. Analysts at CardinalStone Research attributed the reduced cost pressures to the steep decline in crude oil prices, which may have translated to lower raw material costs for Lubricant production.

 

Other income also declined by 4.2 per cent YoY to N1.94 billion in the review quarter, even though earnings from the property business was flat. Overall, after-tax profit contracted by 42.2 per cent YoY to N1.2 billion in Q2’20. In Q2’20, net cash balance slipped into negative territory due to an N11.5 billion CAPEX. Notably, the company has committed a total of N28.4 billion to assets under construction since the start of the year.

 

This expenditure may be related to plans to enter into the hospitality business. 11 reported a 35 per cent drop in profit after tax or the nine months ended September 2020.

 

According to company’s report obtained from the Nigerian Stock Exchange (NSE), its profit after tax stood at N4.12 billion for the third quarter, as against N6.34 billion recorded in 2019, representing a drop of 35 per cent. 11 equally recorded 35 per cent decline in profit before tax from N9.40 billion to N6.14 billion in 2020. Revenue dropped by 19 per cent to N114.75 billion from N141.51 billion in 2019. Cost of sales stood at N106.79 billion in 2020 from N130.03 billion in 2019.

 

A cursory look at the key highlights, according to market watchers, indicates that despite recording decreased indices in the profit and loss margin, the firm still maintained a good balance sheet, which shows that it has been efficient in utilizing its asset and managing its liabilities. A testament to this is an increase in total assets, total noncurrent asset and total equity, all of which helped to boost the firm’s retained income within the period by 10.4 per cent from N39.49 billion to N43.61 billion.

 

Commenting on the result, the Managing Director of the company, Mr. A Oyebanji, said: “The COVID-19 crisis continues to impact all businesses, with the effect expected to be more pronounced in the future. The priority for us is to protect the health, safety and welfare of all stakeholders under our duty of care as well as support the government and its agencies as they work to reduce the impact of the outbreak. “At this stage, it is not possible to determine the financial impact of COVID-19 on our company, given the lack of visibility on the end date of the pandemic or on how long it would continue to impact the Nigerian economy.

 

The company has a strong balance sheet and the board and management are focusing on efforts to mitigate the impact on our business.” Delisting Shareholders of 11 have approved the company’s proposal to voluntarily delist from the Nigerian Stock Exchange. The shareholders also approved the transfer of the real estate portfolio of the oil company to a wholly owned subsidiary, 11 Hospitality Limited.

 

The meeting also approved distribution of N2.98 billion as cash dividend for the 2019 business year, representing a dividend per share of N8.25. The board of directors of 11 Plc had said that as a sequel to its meeting held on February 27, 2020, it considered and approved the proposals for the oil firm to voluntarily exit the Nigerian  Stock Exchange. In a statement obtained from NSE, the company noted that its decision to exit the Nigerian Bourse will be subject to shareholders’ approval at the next Annual General Meeting slated for June 3, 2020, according to the notice filed to the Stock Exchange.

 

In line with the NSE rules, shareholders of the company will have a 90-day window on voluntary delisting to decide on the exit plan to offer shareholders.

 

In addition to this, the oil company also seeks to restructure the company’s business by transferring its real estate unit to 11 Hospitality Limited, the new subsidiary of the company, for optimum return on investment, whilst 11 Plc will concentrate more on the downstream sector of its business. 11 recently finalised discussions with the Asset Management Company of Nigeria to acquire the Lagos Continental Hotel.

 

The company said in a statement filed at the Nigerian Stock Exchange that the acquisition was subject to terms and conditions between both parties. The company said it aimed to diversify its interests, given a challenging environment in the downstream sector of the petroleum industry.

 

According to the statement, the new asset will require significant investment to raise standard from the current state to the level consistent with similar facilities in major cities around the world. It said: “Fuel margins in the industry have remained stagnant for several years in the highly competitive and regulated industry. We anticipate that this asset will contribute positively to earnings and underlines the faith of its stakeholders in the future of the Nigerian economy.

Last line

The continued deterioration in Nigeria’s macro-economic condition has resulted in drop in earnings of many firms, including 11 Plc. However, it is expected that the improvement in microeconomy will help reposition the company.

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