New Telegraph

Total returns to profitability on ease of lockdown

Ease of restrictions on trade and travel across several countries due to COVID-19 crisis and other policies is beginning to affect earnings of Total Oil Plc positively, writes CHRIS UGWU

 

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 future. 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 flow due to delay in payments of subsidies resulting in huge financial expenses. Total 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 of operating environment.

 

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

 

The oil firm’s earnings, which has been heavily hurt following increasing challenging operating milieu, has gradually returned to profitability as evidenced in first quarter and half year 2021 financials.

 

According to analysts, the overall, current results was due to consistent easing of social distancing measures in Q3 2020 and the jump in PMS prices after government effected full deregulation of the commodity in early September When the closing gong rang on Friday, the company’s share price stood at N203.20 per share.

 

Financials

Total Oil opened 2020 on the red as it slipped into loss position, posting a loss after tax of N163.22 million for the first quarter ended March 31, 2020, as against N474.089 million posted in 2019. Loss before tax stood at N136.99 million from N418.300 million posted in 2019.

 

Revenue dropped by nine per cent from N77.422 billion in 2019 to N70.241 billion.

 

However, cost of sales stood at N62.486 billion in 2020 from N69.286 billion in 2019. In Q2, sales of N36.5 billion declined -50 per cent y/y and -48 per cent q/q respectively.

 

Performance across all segments worsened as a result of imposed movement restrictions during the quarter. Retail, wholesale and aviation sales all declined -52 per cent y/y, -54 per cent y/y and 83 per cent y/y to N20.5 billion, N4.9 billion and N1.1 bilion respectively.

 

The firm posted loss before and after taxes of -N387 million   and -N374 million compared with PBT and PAT of N620 million and N604 million in Q2 2019 respectively.

 

On a q/q basis, the losses widened. H1 2020 sales of N106.7 billion declined -29 per cent y/y; the firm posted losses before and after taxes of -N524 million and -N537 million vs -N418 million and -N474 million in H1 2019 respectively. Total’s loss after taxes of -N374 million compares with our -N240 million estimate.

 

Following the consistent easing of social distancing measures in Q3 and the jump in PMS prices after government effected the full deregulation of the commodity in early September, Total Oil posted a profit after tax of N500.12 million for the nine months ended September, 30, 2020 as against a loss after tax of N204.84 million posted in 2019.

 

Profit before tax stood at N912.89 million from a loss of N116.95 million posted in 2019. Revenue dropped by 32 per cent from N221.84 billion in 2019 to N151.71 billion.

 

However, cost of sales stood at N130.68 billion in 2020 from N196.74 billion in 2019. The impact of the lockdown period, which was aimed at curbing the spread of the virus, affected the revenue of the firm, which may have accounted for the 32 per cent dip in revenue for the period under view.

 

However, the company closed the 2020 financial year on the downside with a decline of nine per cent in profit after tax to N2.063 billion from N2.278 billion in 2019, profit before tax stood at N2.909 billion from N3,070 billion, representing a five per cent increase.

 

Revenue dropped by 30 per cent to N204.721 billion from N292.177 billion in 2019, while cost of sales stood at N173.974 billion from N257.125 billion in 2019.

 

Notwithstanding the decline in Q1 revenue, the oil firm bounced back to profitability with a profit after tax of N2.970 billion for the first quarter ended March 31, 2021, as against a loss of N163.224 million in 2020.

 

Profit before tax stood at N4.351 billion from a loss of N136.996 million in 2020. The revenue declined by five per cent to N66.695 billion in Q1 from N70.241 million in 2020. Cost of sales stood at N55.208 billion as against N62.486 billion in 2020.

 

Total Oil posted a profit after tax of N8.065 billion for the six months ended June, 30, 2021, as against a loss after tax of N537.180 million posted in 2020.

 

Profit before tax stood at N11.778 billion from a loss of N796.920 million posted in 2020. Revenue rose by 42  per cent from N106.704 billion in 2020 to N151.333 billion in 2021.

 

However, cost of sales stood at N125.829 billion in 2021 from N94.304 billion in 2020.

 

According to the unaudited account statement, at the board of directors meeting of July 19, 2021, an interim dividend of N4.00 was declared for the period ended 30th June, 2021.

 

Operational challenges

Chairman of the company, Mr. Stanislas Mittelman, said in the company’s 2020 annual report, that despite the ravages of the virus, security challenges were still very much on the forefront and a cause for concern in the country. “Robberies, kidnappings, social unrest, ethnic and religious aggravations were on the rise.

 

Insecurity was far-reaching, no part of the country has been spared. In October, the country saw several uprisings during which several cities were shut down for business and social activities for days on end. “The Nigerian oil & gas industry has been quite difficult for the downstream sector for the last couple of years.

 

Tiny margins are constantly being further eroded by inflation and very high operating costs brought about by inefficient supply and difficult logistics.

 

On the 18th of March 2020, the Federal Government mandated the Petroleum Products Pricing Regulatory Agency (PPPRA) to modulate prices in accordance with prevailing market dynamics. On the same day, NNPC announced that it would start selling petrol at N125 from the 19th of March (at N20 price reduction).

 

“After this, NNPC announced that going forward, pump price will be determined by market forces, Petroleum Products Pricing Regulatory Authority (PPPRA) will communicate pricing bands every two weeks and that NNPC retail would be treated like any other marketer.

 

It appeared that government had taken a step towards deregulation as this went on for a couple of months with prices undulating as international prices of crude moved downwards.

 

 

However, many other elements to support a full deregulation remain unresolved as we are yet to have a level-playing field as all market players do not have equal access to U.S. dollars for importation at the rate being used in the premium motor spirit (PMS) pricing template.

 

Also, even though PPPRA has since  stopped issuing guidelines for PMS pump prices, ex-depot prices communicated still form the major determinant of pump prices and the Petroleum Equalisation Fund (PEF) charges are still in effect to artificially equalise the price of PMS across the country. In 2020, technically, oil marketing companies could import PMS, but it has been very difficult.

 

“The aforementioned situation was compounded by COVID-19 pandemic, which brought about a very sharp drop in sales across all channels for most part of the year.

 

In a bid to flatten the curve of COVID- 19, some states in Nigeria had a prolonged lockdown and there was widespread movement restrictions in most states, which triggered a downturn in social and economic activities. This affected all aspects of the economy, including your company.

 

“To address this, the company activated ingenious stock and price risk management strategies, worked hard to reduce its fixed costs, improved cash collection and maintained operational excellence at depots despite disruption caused by movement restrictions.”

 

Looking ahead

 

Mittelman said: ‘We are in an era of transformation. As a responsible energy major, Total’s new ambition is to achieve net zero emissions by 2050, together with the society.

 

Leading a transition to cleaner energy is a standard we are quite proud to bear.

 

This is in consonance with the Federal Government of Nigeria’s National Gas Expansion Programme. “Going forward, the Federal Government has announced that Compressed Natural Gas, Liquefied Petroleum Gas and Liquefied Natural Gas are expected be the fuel of choice for many government-owned cars.

 

The Federal Government announced it will work with major and independent oil marketers to ensure that their stations are equipped to handle the transition to dual fuel or gas-only vehicles and, one day, electric cars. Total is poised to be a key player in this diversification.

 

“We expect to jointly achieve carbon neutrality with our customers by working with them to reduce their direct emissions.

 

We shall contribute actively to our customers’ choices and provide them with lower-carbon energy products and, depending on changes in their consumption patterns, help them use less energy and choose energy sources with lower carbon intensity.

 

“We shall also continue to adopt Environmental, Social and Governance policies which will take us towards a reduction of our CO2 emissions.

 

We expect that the passage of the Petroleum Industry Bill with ancillary regulations (which is still being awaited) will impact on the way we do business and our ability to import products. “With the discovery of COVID-19 vaccines, we expect that economic activities will pick up; but we are not yet out of the woods.

 

The year has commenced at a slow pace, but your company is very well positioned and on a sure footing to perform better than last year.”

 

Last line

 

It is expected that flattening of COVID-19 curve and improvement in the micro economy would help reposition the company

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