Mobil Oil Nigeria's after tax profit drops by 29.5%, lowest in three years - THE CITIZEN
Mobil Oil Nigeria closed its 2012 operations with an unprecedented drop in after tax profit. It however used income from other non-core businesses to dress up the final net profit figure. The company's after tax profit dropped by 29.5% to N2.88 billion, the lowest after tax profit figure in three years.
The company's after tax profit figure had come to a peak of N4.08 billion in 2011. This was however deflated by other comprehensive income, which was a negative figure of N597 million, resulting in a net profit figure of N3.48 billion.
In 2012, other comprehensive income changed from negative to a positive figure of N716 million. It therefore lifted after tax profit to N3.59 billion, slightly above the net profit figure recorded in 2011.
Mobil Oil raised turnover by 30.1% to a new peak of N80.8 billion in 2012. This is a major acceleration from a moderate growth of 6.4% in the preceding year and the strongest revenue growth in several years. Until last year, when the company raised sales revenue to a new peak, turnover had remained below the 2008 peak of N66.74 billion.
Its inability to grow sales revenue seems to be an industry wide problem among petroleum marketing companies. The full year report of Forte Oil shows that turnover dropped by 21.6% in 2012. At the end of the third quarter, sales revenues of Conoil and MRS Oil Nigeria were down by 4.2% and 1.1% respectively. Total and Oando however reported improvements in turnover at the end of the third quarter.
The accelerated growth in sales revenue reported by Mobil in 2012 was attained at a significantly increased cost of products. Cost of sales grew well ahead of sales revenue at about 40% to N72.59 billion. The cost per naira of sales therefore rose during the year from 83.7 kobo in 2011 to 90 kobo in 2012.
The rise in cost of sales caused a drop of 19% in the gross profit figure, which came to N8.21 billion in 2012. The drop was partly countered by an increase of 11% in other income, which amounted to N2.81 billion in the year. There was also a slight moderation of selling and distribution expenses, which increased by 4.1% compared to the 30.1% growth in sales revenue.
Selling and distribution expenses claimed a reduced proportion of sales revenue in 2012 at 6.1% compared to 7.9% in the preceding year. This means that selling and distribution cost per naira of sales revenue declined in 2012.
There was also a moderation of administrative expenses, which grew by 7.3% to about N1.7 billion in the year. The proportion of sales revenue claimed by administrative cost also declined during the review period.
The cost moderation in the observed areas was however unable to fully compensate for the high rise in cost of sales. Consequently, operating profit of the company fell by 29.4% at the end of 2012. Further pressure on revenue also came from interest charges, which rose by 80.1% to N299 million.
The net effect of the revenue and cost developments in the year was a decline in net profit margin from 5.6% in 2011 to 4.4% in 2012. Mobil used to show the highest profit margin among petroleum marketers and now its margins have also come under pressure from rising cost.
The company's full year position is nevertheless a major improvement from the third quarter position when the company reported a profit margin of 2.7%. It still represents industry leading profit margin compared to Oando's net profit margin of 1.9% at the end of the third quarter. It is equally well ahead of Total Nigeria's net profit margin of 2.2% in the third quarter.
The company earned N9.96 per share in 2012, improving from N9.65 in the preceding year. It has declared a dividend of N5.0 per share, which is unchanged from the N5.0 dividend per share paid in 2011. This is a pay-out ratio of 50.2% and a dividend yield of 4.0%.
The company's stock closed at N120.50 in the Nigerian Stock Exchange last Friday. So far, it has risen by 10.3% from the January 2nd opening. The register of shareholders is scheduled to close on 30th April and payment date has been fixed for 4th June 2013.
Major developments in the company's balance sheet during the year include a 30% drop in trade and other receivables, which stood at N5.74 billion at the end of the year. There was a 70.2% advancement in prepayments and 7.7% decline in inventories. There was a slight decline of 1.6% in trade payables during the year.
The company's cash flow position came under pressure as net cash generated from operating activities dropped by 28.1% to N4.97 billion. Increase in investing activities claimed much of the net cash flow from operating activities and the company had to embark on new bank borrowings during the year. A new long-term borrowing of N612 million was contracted in the year and bank overdraft was raised from only N21 million in 2011 to more than N429 million in 2012.
The operating outlook for the company this year indicates that margins are likely to remain tight and high cost of sales could put further pressures on cash flow. There might be a resort to increased bank borrowings, which could reinforce the pressure on margins through higher interest charges. In the event that sales revenue fails to grow reasonably, a further drop in profit from the core business may not be ruled out.