Mobil Oil Nigeria continued to record an unstable pattern of earnings performance in 2013. In the preceding two years, the oil marketing major grew revenue but lost profit. Last year, the pattern changed to a decline in revenue and a big recovery in profit. The cost-revenue behaviour in the year worked out an improvement in profit margin for the company that permitted a 21% growth in profit from a slight decline in revenue.
Turnover amounted to N78.74 billion for Mobil Oil Nigeria in 2013, a decline of 2.5% from the company’s peak earnings record of N80.80 billion in 2012. Sales revenue had grown by 30.1% in the preceding year. The decline in 2013 was anticipated in our forecast figure of N78.8 billion turnover for the company in 2013, which is virtually at par with the actual.
The company began to rebuild its revenue in 2011 after a sustained decline but the recovery and growth trend suffered a slip with the marginal decline in 2013. Earnings performance in the petroleum marketing business generally follows an unstable pattern of rise and fall.
Against the decline in turnover, the company grew after tax profit by 21% to N3.48 billion in 2013. This is a reversal of a drop of 23.2% in the company’s net profit figure in 2012. Actual profit figure is 4.6% below our forecast full year profit of N3.65 billion for Mobil Oil Nigeria in 2013. The company’s profit peak remains the N3.89 billion it posted in 2010.
Improvement in profit margin enabled the company to grow profit against the decline in sales revenue. Net profit margin improved from 3.6% in 2012 to 4.4% in 2013. The company remains the sector leader on profit margin, beating Forte Oil’s net profit margin of 3.9% and Total Nigeria’s 2.2% in 2013.
The strength for the improvement in profit margin for Mobil Oil Nigeria came from a reduction in two major cost lines in 2013. These are cost of sales and interest expenses.
Cost of goods sold declined ahead of sales revenue at 5.2% in 2013 to N68.80 billion. The proportion of revenue devoted to this expense line therefore went down from 89.8% in 2012 to 87.4% in 2013. This permitted an increase of more than 21% in gross profit, which amounted to N9.94 billion at the end of the year. Gross profit margin improved from 10.2% to 12.6% over the review period.
The second development that permitted the improvement in profit margin is a drop in interest cost during the year. Interest expenses fell by 49% to N152 million against an increase of 42% in interest income. The drop in finance charges seem to reflect the complete pay off of a bank overdraft of N429 million at the end of 2012. The company’s long-term borrowings however rose by 77% to N1.09 billion in 2013.
Other major developments in the company’s balance sheet during the year include a drop of 21% in inventories to N4.51 billion, a decline of 7.5% in trade debtors and other receivables to N5.32 billion and a major advance of 295% in cash and bank balances to N692 million. Trade and other payables declined by 14.5% to N7.91 billion while net assets rose by 44.5% to N9.54 billion during the same period.
The developments resulted in a robust cash flow position for the company in the year, which has addressed the initial cash flow pressure facing the company. Net cash generated from operating activities surged by 132% to N11.54 billion. This is against considerably lower growth rates in net cash used for investing and financing activities at 96% and 27% respectively. The company therefore recorded a net increase of 256% in cash flow at N1.15 billion, which has enabled it to cover its negative cash position at the beginning of the financial year.
The company earned N9.65 per share in 2013 against N8.56 it recorded in 2012. It is rebuilding earnings per share after dropping from the peak of N10.77 in 2010 and N10.39 in 2011. The company has declared a dividend of N6.0 per share, improving from N5.0 per share it paid for 2012 operations. Its register will close between 29th – 30th April and payment date is 6th June 2014.
