11 Plc Follows Up and Down Profit Track
11 Plc, formerly Mobil Oil Nigeria has shown records of up and down movements on profit performance and the 2019 financial year appears to be one of a downward turn. Unstable records of profit performance have marked its earnings story long before its rebranding in 2017. In five years to 2018, the company grew profit twice and lost profit twice.
It maintained the alternating rise and fall in profit in 2019 with a drop of 19 percent in after tax profit at the end of the third quarter. This came after a rise of 24 percent in profit in 2018.
The profit pattern is in spite of a stable growth in sales revenue maintained over the past four years to 2019. Unstable growth in profit despite sustaining improvement in sales revenue indicates that the problem at present has to do with costs.
An exceptional item of N2.2 billion caused a profit drop in 2017 and its absence in 2018 provided the strength for profit recovery and growth the company achieved in the year. An increase in input cost ahead of sales was responsible for the profit drop the company suffered at the end of the third quarter of last year.
The company rebranded after the US-based ExxonMobil Oil Corporation, the majority shareholders of Mobil Oil Nigeria pulled out of the Nigerian operation in 2016. ExxonMobil Oil Corporation sold its entire 60 percent equity holding in Mobil Oil Nigeria to Nipco Investment Ltd.
The petroleum products marketing company has continued to face a difficult market despite the change of ownership. The rise and fall pattern of profit performance has continued to follow the company in its new clothing.
It closed the third quarter operations in 2019 with sales revenue of N141.51 billion, which is a year-on-year increase of close to 13 percent. This is a sharp slowdown from an increase of over 31 percent in turnover at the end of 2018.
Turnover is estimated to be in the region of N190 billion for the company at the end of 2019. This will be an increase of 15 percent over the closing revenue figure of about N165 billion in 2018. The company has been able to keep sales revenue growing after a drop in 2015.
Costs also slowed down over the review period but still grew ahead of sales revenue. Cost of sales rose by 16 percent to N130 billion at the end of the third quarter compared to the increase of less than 13 percent in sales revenue.
Cost of sales claimed 92 percent of sales revenue at the end of the third quarter, increasing from below 90 percent in the same period in the preceding year. That caused a decline of 10 percent in gross profit, which amounted to N11.5 billion at the end of September 2019.
The decline in gross profit was reinforced by a decline of 7 percent in other income to N6 billion. A further disappointment came from other operating income line that changed from about N500 million in the same period in the preceding year to an expense of N34 million at the end of the third quarter.
Management held back selling/distribution and administrative expenses from rising but that could not prevent a drop of 15 percent in operating profit to N9.5 billion at the end of the third quarter. Operating profit was flat at the end of 2018 at N13 billion.
Further pressure on the bottom line came from a shift from net finance income to net finance cost position over the review period. This follows a drop of 69 percent in finance income to about N129 million and a rise of close to 18 times in finance expenses to N261 million at the end of September 2019. A net finance income of close to N400 million shifted to a net finance cost of N133 million over the period.
The company closed the third quarter in September 2019 with an after tax profit of N6.3 billion. This is a drop of 19.4 percent year-on-year compared to an increase of 24 percent at the end of 2018.
Closing profit is estimated to be in the region of N8 billion for the company in 2019. The actual figure may differ appreciably from the estimate in view of likely wider margin of decline in profit in the final quarter. In the preceding year, the last quarter contributed less than 17 percent of the full year profit figure.
The company closed the third quarter operations in 2019 with earnings per share of N17.59, down from N21.83 in the same period in 2018. The full year expectation is in the region of N23 per share for 11 Plc in 2019. It earned N25.87 per share in 2018 and gave shareholders a cash dividend of N8.25 per share.
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