11 Plc, formerly Mobil Oil Plc, experienced a worse performance in the second quarter than in the first, as loss of sales revenue added yet a new constraint on the path of profitability. There was a U-turn from 18 percent growth in turnover in the first quarter to a drop of 44 percent quarter-on-quarter to N26 billion in the second quarter.
That resulted in a drop of 13 percent in sales revenue year-on-year to N80.5 billion at the end of June 2020. The development extended profit drop from 37 percent in the first quarter to nearly 40 percent to N2.5 billion at half-year. The second quarter saw a profit drop of 42 percent to N1.2 billion.
The much wider drop in profit than turnover means the company is losing profit margin as it is losing sales revenue. The net profit margin is down from 4.5 percent to 3.1 percent over the period in review. This is explained by rising cost – which is led by input cost. The cost of sales declined less rapidly than sales at 11 percent compared to 13 percent, which encroached on gross profit during the period.
At N4.9 billion, gross profit dropped by 35 percent year-on-year against the 13 percent loss of sales. This is explained by an increased claim of input cost on turnover from less than 92 percent in the same period last year to 94 percent at the end of June 2020.
This means it costs the company 94 kobo in input expenses to generate N1 of sales revenue. This is the highest cost margin in several years.
Gross profit margin is therefore insufficient to permit a profitable operation if not for a relatively robust other income – which the company defended at over N4 billion at half-year. While selling and distribution expenses declined and administrative cost increased only moderately, these expenses claimed increased proportions of earnings. This extended the 35 percent drop in gross profit to a 42 percent drop in operating profit to N3.7 billion.
The company continues to enjoy the advantage of a low debt profile. Its interest-bearing debt remains low at N3.6 billion at half-year. This enabled it to cut finance expenses by 44 percent to N141 million at half-year. This is against an increase of 273 percent in finance income to N194 million at the end of June.
The company shifted from net finance cost of N198 million in the same period last year to a net finance income of over N52 million. The increased net finance income helped to temper the effects of rising costs.
11 Plc closed half year operations with a turnover of N80.5 billion – which is a year-on-year drop of 13 percent. The company hasn’t recorded a revenue drop since 2016.
The company closed the half-year operations with an after-tax profit of N2.5 billion, which is a drop of roughly 40 percent year-on-year. This is moving further down on the path of profitability from less than five percent decline at the end of 2019 and a 37 percent drop in the first quarter.
The company’s operations in the second quarter reinforced the unstable records of profit performance that have stretched over several years. In five years to 2019, the company grew profit twice and lost it twice.
11 Plc appears headed for the biggest profit drop in many years in 2020. At 3.1 percent at the end of June 2020, the profit margin is lower than at any time since 2014. It was as high as 8.7 percent in 2016 but has dropped every year since then to 6 percent in 2017, 5.7 percent in 2018, and 4.6 percent in 2019.
The company closed half year operations with earnings per share of N6.98, down from N11.57 per share in the same period in 2019.
The company’s management blamed the effect of the Covid-19 pandemic for the operating difficulties – which it expects to be more pronounced in the future. It said at the end of half-year that it could not determine the financial impact of the pandemic on the company in the light of uncertainty ahead. The extent is able to meet its assurance to mitigate the impact of the pandemic on the company’s operations would be seen in the third quarter.
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