Volatility in the overall economic and business climate has impacted negatively on the earnings of Eterna Oil Plc. Chris Ugwu writes
The oil and gas sector is one of the sectors receiving the hard knock from the country’s volatile business environment. Operating environment for this sector of the economy, like others, has remained very challenging with enormous economic and securities issues.
The effects of COVID-19 and rapid devaluation of naira have wiped out billions of naira in market capitalisation for Nigeria’s fledgling oil and gas companies. Sentiments for equities have been dragged by weaker macroeconomic indicators, which stifled corporate earnings’ expectations and increased appetite for debt securities.
Challenges of insecurity and other high costs 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 flows due to delay in payments of subsidies, resulting in huge financial expenses. Eterna Plc has not been insulated. The share price movement has also depleted considerably among the petroleum and petroleum products distributors quoted on the exchange. It, however, still remains susceptible to the challenges facing the oil and gas business in Nigeria.
Eterna has continued to get its fair share from the mixed fortune as it maintains fluctuations in its financials. The oil marketer, which slipped into loss position in 2019 year end, began the first quarter ended March 2020 also on a loss position has continued with the losses to close the half year unimpressive following rising operational challenges.
Market watchers attributed the situation primarily to the ongoing weaker global commodity demand and pricing environment coupled with the rising refining expenditures.
The share price closed at N2.68 per share when the closing gong rang on Friday. Financials Eterna Oil started the 2019 financial year unimpressive with a post of 33 per cent drop in profit after tax for the first quarter ended March 31, 2019.
The oil firm posted a net profit of N341.444 million during the first quarter of the year as against N510.818 million reported a year earlier, accounting for a drop of 33 per cent.
Profit before tax stood at N502.123 million during the period under review, from N751.203 posted in 2018, equally representing 33 per cent decline. However, revenue grew by 11 per cent from N54.332 billion in 2018 to N60.472 billion in 2019.
It also posted a 88 per cent drop in profit after tax for the half year ended June 30, 2019. According to the unaudited report obtained from the Nigerian Stock Exchange (NSE), the oil firm posted a net profit of N112.228 million during the half year as against N965.274 million reported a year earlier, accounting for a drop of 88 per cent. Profit before tax stood at N165.041 million during the period under review, from N1.419 billion posted in 2018, equally representing 88 per cent decline. The firm’s revenue dropped by 10 per cent from N172.979 billion in 2018 to N155.767 billion in 2019.
Cost of sales stood at N153.488 billion from N170.434 billion while finance charges rose by 308 per cent to close at N827.78 million from N202.872 million. Eterna Oil reported a 87 per cent drop in profit after tax for the nine months ended September 30, 2019. The oil firm reported PAT of N150.185 million in 2019 as against N1.175 billion reported in 2018, representing a drop of 87 per cent.
Profit before tax equally dropped by 87 per cent to N220.861 million in 2019 from N1.728 billion in 2018.
While revenue grew by 3 per cent to N211.258 billion from N205.362 billion in 2018, cost of sales equally grew by 3 per cent from N201.626 billion to N207.604 billion in N2019. Eterna Oil ended the year 2019 in a negative note as it slipped into loss position with a loss after tax of N144.289 million for the financial year ended December 31,2019 as against profit after tax of N1.008 billion recorded in 2018.
According to the audited report obtained from the Nigerian Stock Exchange (NSE), the oil firm posted PBT of N111.440 million in 2019 as against N1.989 billion reported in 2018, representing a drop of 94.39 per cent. While revenue dropped by 8.97 per cent to N229.274 billion from N251.877 billion in 2018, cost of sales stood at N224.324 billion from N247.235 billion in N2018. Eterna Oil began the 2020 financial year on a sustainable loss position.
The oil firm recorded a loss after tax of N358.280 million during the first quarter ended March 31, 2020 from profit after tax of N341.443 million posted in 2019. Loss before tax stood at N274.124 million from pretax profit of N502.123 billion. Revenue dropped by 70.98 per cent from N60.472 billion in 2019 to N17.545 billion in 2020. For the half year ended June 2020, revenue declined by -81.7 per cent to N28.519 billion from N155.767 billion in the previous quarter.
Profit before tax declined by 56.5 per cent to N71.864 million from N165.041 million posted in 2019. Loss after tax stood at N66.580 million from a profit of N112.228 million recorded in 2019. Net assets declined by -0.5 per cent from N12.4 billion to N12.3 billion posted a year earlier. Challenges/way forward
According to reports, Eterna Oil’s Chairman, Shehu Dikko, recently announced to shareholders that the company was on course for a five-year strategic plan designed to take it to a higher level of success.
“As part of executing the plan, we acquired 14 additional retail outlets in 2018. We are consistently measuring our performance against set targets and the board is providing the oversight to ensure that management delivers on the plans,”
Dikko told shareholders at the last annual general meeting in Lagos. The chairman noted that the company remained committed to making sure its operations positively impact communities, which is the reason it keeps maintaining cordial relationships with all host communities including youth groups, women groups, community development groups and paramount rulers.
Mahmud Tukur, Managing Director of Eterna Plc, said the company was expanding its downstream operations despite Nigeria’s challenging operating environment. Making a case for the company’s downstream business, the company boss said Eterna Oil’s growth plan was based on a “longer-term vision” with the knowledge that actual profit margins are at the pumps or at the point of sale.
He said the company operated at high standards at par with the IOCs coupled with local knowledge of the operating environment, thereby giving it a competitive edge in its downstream operations.
“On this, let us first look at the rise of the super independents who have now become majors. We’ve seen new majors beyond the traditional Mobil, Total etc. Now the divestment is the fact that the operating environment is challenging but as a local operator, we know how to operate in this environment,” he said.
Tukur said downstream deregulation was long overdue, and although a very political and sensitive issue, it has rather become imperative for industry growth. Although he commended the Nigerian National Petroleum Corporation (NNPC) for their efforts on availability of products, he, however, noted that supply was still fraught with challenges and associated cost.
Speaking further, Tukur said Eterna’s five-year strategic plan focused on three major areas – oil, lubricants and other new businesses, adding that despite the environmental challenges, the company is looking forward to acquiring additional 200 filling stations within the plan period.
He said apart from lubricant, which is Eterna’s mainstay, venturing into retail stations was part of the new focus, to be contracted through franchising, leasing, and acquisition, to double available capacity.
According to him, “we are not just acquiring stations; we are also getting strategic locations, where we can get value for money.”
He, however, expressed disappointment in supply inequality in the market, and accused NNPC of servicing mainly the majors and big names, which guarantees product availability to consumers. To sustain expansion in the West African/ECOWAS sub-region, Tukur also unveiled plans to raise additional funds by way of debt or equities.
The continued deterioration in Nigeria’s macro-economic conditions following the COVID- 19 outbreak and other operational challenges has resulted in drop of earnings of many firms including Eterna. However, it is expected that the improvement in micro-economy currently will help reposition the company