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Total sustains loss on cost pressure

Volatility in the overall economic and business climate aggravated by COVID-19 is taking negative toll on earnings of Total Oil Nigeria Plc.

 

Oil and gas sector of the Nigerian economy like other sectors has remained very challenging with enormous economic and security issues.

 

The consequence of rapid devaluation of naira and COVID-19 outbreak have wiped out billions of naira in market capitalisation for Nigeria’s fledgling oil and gas companies. 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 struggles under pressure of high cost in the operating environment. Market watchers attribute the situation primarily to the ongoing weaker global commodity demand and pricing environment coupled with the rising refining expenditures.

 

The oil firm’s earnings has been heavily hurt following increasing challenging operating milieu. The oil marketer, which began the first quarter of the year 2019 on a disappointing note, served as a prelude to ending the year with a decline of 70 per cent also began the 2020 on the loss position.

 

According to analysts, the current overall results reflected Total Oil’s natural vulnerability to volume slowdown due to harsh environment following COVID-19 pandemic that is ravaging the world.

 

The share price closed at N 97.50 per share at the closing of gong on Friday reflecting the current market situation.

 

Financials

 

Total Nigeria began the 2019 financial year in the red as it slipped into loss position. The oil firm posted a loss after tax of N474.089 million for the first quarter ended March 31, 2019 as against profit after tax of N1.669 billion reported in 2018.

 

According to the financial results released to the Nigerian stock Exchange (NSE), the oil firm recorded a loss before tax of N418.300 million in Q1 2019 as against profit before tax of N2.628 billion reported in 2018. However, revenue firmed up marginally by two per cent from N75.646 billion in 2018 to N77.422 billion during the period under review.

 

 

Cost of sales stood at N69.286 billion in 2019 from N67.318 billion in 2018, accounting for 2.92 per cent increase. The oil firm reported 98 per cent decline in profit after tax for the half year ended June 2019 to N129.975 million from N5.674 billion in 2018.

 

 

Profit before tax equally dropped by 98 per cent from N8.645 billion in 2018 to N202.092 million in 2019. Revenue decreased by 3 per cent to N150.830 in 2019 billion from N156.268 billion in 2018. Cost of sales stood at N134.099 billion in 2019 from N135.026 billion in 2018.

 

For the Q3 2019, Total Oil Plc posted a loss after tax of N204.844 million loss for the nine months ended September, 30 2019 as against N7.665 billion posted in 2018.

 

Loss before tax stood at N116.950 million from N11.439 billion posted in 2018. Revenue dropped marginally by two per cent from N226.914 billion in 2018 to N221.835 billion. However, cost of sales grew by 0.4 per cent to N196.739 billion in 2019 from N195.941 billion in 2018. Total closed the year on the decline with a post of 70 per cent decrease in profit after tax for the full year ended December, 31 2019.

 

The oil firm in a filing with the Nigerian Stock Exchange said it posted a profit after tax of N2.421 billion in 2019 as against N7.960 billion posted in 2018. Profit before tax stood at N3.652 billion from N12.098 billion posted in 2018. Revenue dropped by six per cent from N307.987 billion in 2018 to N290.883 billion in 2019. However, cost of sales stood at N257.055 billion in 2019 from N273.202 billion in 2018.

 

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.

 

Operational challenges/outlook

 

Addressing shareholders at the AGM, the Chairman of the Company, Mr. Stanislas Mittelman, said: “The company has continued to experience sustained pressure on its cash flows due to late payment of subsidies resulting in huge financial expenses (high and unanticipated interest charges).

 

All of these add significant costs to doing business, had negative impact on our sales and affected our profitability. Oil marketers and private importers in Nigeria had recently demanded total liberalisation of the downstream sector as a major measure to end the culture of waste on fuel subsidy.

 

Emphasising the need for government to have a re-think on the measure to deregulate and libralised the downstream, the stakeholders including Major Oil Marketers Association of Nigeria (MOMAN), Independent Petroleum Marketers Association  of Nigeria (IPMAN) and Depot And Petroleum Products Marketers Association of Nigeria (DAPPMAN), said that only this could pave the way for more attractive investments in the sector.

 

T he unfettered private sector participation and investment, they said in a statement, would be impossible with the current regime of highly regulated downstream market. Chief Executive Officer/ Executive Secretary, MOMAN, Mr. Clement Isong, said that the downstream petroleum industry regulations should be in line with international best practice.

 

The implementation and compliance with these regulations, he said, would feature the the concept of cost recovery and competitive returns on investment. All these would ensure the sustainability of the downstream petroleum industry, Isong said. “As the market players grow their business, they will increasingly become exposed to risk management challenges and will move their capital to areas where return matches the risks.

 

We recommend that government should deregulate pump prices and focus on enforcing compliance with adequate regulations on health, safety, environment and quality,” he said. Isong, however, said that only total deregulation would save the situation. Contending that doing so will help attract more investments to the oil sector, he said only deregulation would encourage the establishment of private refineries and other related infrastructure in the country.

 

The Executive Secretary, DAPPMAN, Mr. Olufemi Adewole, added that the rise in the landing cost of petroleum products has renewed the calls for the full deregulation of the downstream subsector of the nation’s oil and gas industry. The Nigerian National Petroleum Corporation (NNPC), Adewole said, has been the sole importer of petrol into the country as private oil marketers stopped importation due to shortage of foreign exchange and increase in crude oil prices. This has made the landing cost of the product  higher than the official pump price.

 

“In the downstream sector, the NNPC continued to ensure increased Premium Motor Spirit supply and effective distribution across the country. In pursuit of sustained seamless distribution of petroleum products and zero fuel queues across the nation, the corporation has continued to maintain an eagle eye on the daily stock of PMS,” the corporation said in its latest monthly report.

 

“Federal Government had resorted to subsidy regime following an increase in the landing cost of petrol, with the NNPC, which was responsible for about 90 per cent of the importation of the product, bearing the latest subsidy cost on behalf of the government. Also, the National President of IPMAN, Mr. Chinedu Okoronkwo, said that total deregulation of the downstream sector would also attract more investment, generate more jobs and reduce the pressure on foreign reserves.

 

Okoronkwo stressed the need for total deregulation and liberalization of the downstream market to address the persistent challenges in the oil and gas industry. He said that it is expected that deregulation of the downstream move will lead to improved supply, competition and eventually drive down pump prices, as well as encourage investments in refineries and other parts of the downstream sector.

 

The challenges with procuring forex significantly affected marketers’ ability to import petrol in recent times, Okoronkwo said, adding; “Thus, by liberalizing the market, the government expects importers to find ingenious ways to procure forex from autonomous sources and improve product availability.

 

Last line

 

The continued deterioration in Nigeria’s macro-economic condition has resulted in drop in earnings of many firms including Total Oil. However, it is expected that flattening of COVID-19 and improvement in the micro economy would help reposition the company.

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