11 Plc, formerly Mobil Oil Plc, experienced a downturn in 2020 and its full-year profit is expected to be the lowest since 2016. Profit was on a downward run all the way from the first quarter to the third, which is very likely to extend to the final quarter.
The petroleum marketing company closed the 2019 operations with a 5 per cent profit decline to N8.8 billion. It suffered a profit drop of 26 per cent quarter-on-quarter to N1.6 billion in the third quarter of last year. The biggest profit drop in recent years is to be expected for 11 Plc for the 2020 financial year.
Loss of sales revenue is the major constraint in operations in the year. Turnover dropped by 30 per cent quarter-on-quarter to N34 billion in the third quarter, sustaining the 44 per cent drop in the second quarter.
That increased the margin of sales revenue drop year-on-year from 13 per cent at the end of June to 19 per cent in September 2020. At roughly N115 billion at the end of the third quarter, the company’s sales revenue was headed for the lowest figure in four years. It had grown turnover by over 16 per cent to N191 billion in 2019.
Profit remained downcast through the year from a drop of 37 per cent in the first quarter to 42 per cent in the second and further to 26 per cent in the third. The nine-month position is a drop of 35 per cent in after-tax profit year-on-year to N4 billion at the end of September last year.
The faster drop in profit than sales indicates a continued loss of profit margin. The reason is that costs generally aren’t going down at an equal pace with revenue. Administrative and finance expenses grew instead at 6 per cent and 59 per cent respectively year-on-year.
Selling and distribution expenses went down by less than 6 per cent, indicating an increased cost incurred to generate the naira of revenue during the period. Input cost again proved sticky and declined slightly below sales revenue at below 18 per cent. This resulted in further encroachment on gross profit during the period.
At N7.9 billion, gross profit dropped by 31 per cent year-on-year against the 19 per cent drop in sales. This is explained by an increased claim of cost of sales on turnover at 93 per cent at the end of September 2020. This means it costs the company 93 kobo in input expenses to generate N1 of sales revenue at the end of the third quarter – the highest cost margin in several years.
The gross profit margin was insufficient to permit a profitable operation if not for a relatively robust other income of N6.3 billion at the end of the third quarter. Generally, expenses claimed increased proportions of the company’s earnings at the end of September 2020. This resulted in a drop of 33 per cent in gross profit to N6.3 billion at the end of the period.
One of the major developments in the third quarter is the swelling of finance expenses to N415 million at the end of the third quarter. This is an increase of 59 per cent year-on-year.
The company toned up its debt profile during the third quarter. Its interest-bearing debts increased from N3.6 billion at half year to over N8 billion at the end of September 2020. This seems to explain a sudden change of events from a drop of 44 per cent in finance expensed at half-year to the 59 per cent rise at the end of the third quarter.
The company’s operations in the third quarter reinforced the unstable profit track the company has followed for several years. In five years to 2019, the company grew profit twice and lost it twice.
11 Plc appears quite likely to report the biggest profit drop in many years, as the earnings reporting season for the 2020 operations draws close. At 3.6 per cent at the end of September 2020, the profit margin is lower than at any time since 2014. It was as high as 8.7 per cent in 2016 but has dropped every year since then to 6 per cent in 2017, 5.7 per cent in 2018 and 4.6 per cent in 2019.
The company closed the third quarter operations with earnings per share of N11.43, down from N17.59 per share in the same period in 2019.
The company’s management said the effect of Covid-19 pandemic impacted the business and it expects this negative impact to be more pronounced going forward. It said it could not determine the financial impact of the pandemic on the company due to a lot of uncertainty yet ahead.
The performance may have been one of the reasons the company is pushing for an exit from the public glare from the end of March 2021. The Oil and Gas firm, 11 PLC, which formally listed on the NSE in 1979, will delist its over 360.592 million ordinary shares from the daily official list of the Nigerian Stock Exchange (NSE) in furtherance of a resolution passed at its last annual general meeting in October 2020.
“The purpose of delisting is to enable the company to explore strategic opportunities, alliances and collaborations that can bolster earnings and/or provide synergized benefits with little or no regulatory obligations,” the energy firm said in an explanatory statement issued Tuesday.
“Shareholders who do not consent to the exit proposal will be in the frame to sell their stakes at N213.90 per ordinary share, “being the highest price at which 11 Plc shares have traded, six (6) months preceding the notice of the AGM at which the resolution to delist was deliberated, as provided by the rules of the Nigerian Stock Exchange.
According to the letter, it will still maintain its public liability company status after delisting, even though its shares will no longer be eligible for trade on the bourse.
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