Nigeria’s indigenous oil and gas company, SEPLAT came up against gusty headwinds in the half year ending June with ghastly consequences to top and bottom lines, which kept its share price on an horizontal trajectory until Friday when prices shot up.
The company’s less than inspiring financials should be a wake up call for a spirited and better performance in the next six months. Revenue of the oil company quoted on the Nigerian Stock Exchange (NSE) and the London Stock Exchange (LSE) had a setback up to a quarter of the 2019 half year revenue, dropping to N80.1 billion from N108.97 billion. First quarter sales were hit by disruptions to the global oil supply chain occasioned by the coronavirus pandemic. The company’s second quarter dipped along those lines, leading to the revenue challenge.
The company’s cost of sales almost grew by half in the period to N67.2 billion from N45.44 billion, hurting gross profit, which took a tumble of more than three quarters to N12.92 billion from N63.53 billion.
The company was also not able to hold down operating costs as they rose across board; admin expenses by 18.7 percent; Impairment losses on financial assets by 58.7 percent and Impairment losses on non-financial assets by a whopping 100 percent.
Rising operating and finance costs pushed up operating loss to negative N38.7 billion from N42.68 billion. As a result, operating margin sank to a negative 48.3 percent from N39.2 percent. Net finance cost was up 105 percent to N11.94 billion from N5.8 billion to set up pretax losses of N49.84 billion from gains of N36.96 billion. This caused pretax margin to yield to gravity, sinking by a negative 62.2 percent from 34 percent.
Net profit responded by taking a fall to negative N37.78 billion from N37.5 billion with a consequent drop in net profit margin to a negative 47.2 percent from 34.4 percent.
But the SEPLAT share price was up Friday 4th of August to N400 from N385, rising by N15, seemingly against the run of play. Rebounding oil price, now at $46, could be a reason for the company’s stock leading the gainers table on that day. If oil price continues to trace that path, not only will the company stocks rise, its financial position will be strengthened.
Commenting on the company performance, former CEO, Austin Avuru, said, “Seplat has delivered a robust performance despite the unprecedented crises we have experienced since March. Our continued resilience is possible as a result of our financial strength, our careful management of risk and our prudent approach to capital allocation. Unlike many in our industry, we were able to protect our 2019 dividend and increase our capital investment to ensure continued growth.
“Our oil hedging strategy and gas revenues continue to protect the business from price volatility, we are achieving substantial cost reductions from our suppliers and are managing our own costs even more carefully in this challenging period. Thanks to the excellent relationships we have with our Government partners and supply chain, our NPDC receivables have fallen and we are managing our payments equitably. The cash position is also robust because our careful management of debt has ensured that the majority of obligations mature in 2022 and 2023. We are operating within our covenants on all our lines of debt. “
It now behooves new CEO, Roger Brown, to up the ante and improve H2 performance to, at the least, maintain shareholders’ value. He began that race on August 1.
Brown is expected to lead SEPLAT in her latest aspirations following the retirement of Austin Avuru on July 31, 2020 after 10 years.
Brown joined SEPLAT in 2013 as the CFO and played a key role in the successful dual listing of the Company in 2014 on both the London and Nigerian Stock Exchanges. Similarly, since joining SEPLAT, he has played significant roles in various asset acquisitions by the Company.
Brown played critical roles in the company’s successful landmark deals, Initial Public Offering (IPO) and financial structure of debt and acquisitions, as well as increased returns to shareholders. He is very familiar with the local and global business environments and institutions. As the new CEO, he is expected to work towards fortifying this record.
Brown brings to the CEO role, a deep knowledge of the Company in his over 6 years as the CFO and a member of the Board. He has strong financial, commercial and Mergers and Acquisition (M&A) experience as well as proven people skills which will be an asset as the Company embarks on the next phase of its growth plan. One area of priority for SEPLAT is to ensure that liquidity and cash flow of the company remains strong and that the company’s balance sheet maintains its resilience and robustness.