Seplat Petroleum: Another high speed drop in profit

Seplat Petroleum Development Company continued to lose profit at galloping speed in the 2015 operations. The company’s full year result for 2015 shows a further drop in sales revenue and another sharp fall in after tax profit – reducing profit to a small fraction of the 2013 peak.

The rate of drop in profit in the year accelerated after the company lost more than one-half of its preceding year’s profit in 2014. The petroleum drilling and exporting company has come under pressure from the drop in crude oil prices as well as rising cost, which have set profit crashing.

At N112.97 billion, sales revenue dropped by 26.4% in dollar terms in the year, which moderated to a decline of 9.2% in naira due to the impact of the local currency depreciation. This is a sustaining drop in turnover from the company’s three-year peak sales revenue of N136.66 billion in 2013.

A sustaining favourable trend for the company however is the increasing contribution of gas sales to revenue, which is moderating the decline in crude oil sales. Revenue from gas sales multiplied three and half times to N15.25 billion in 2015, accounting for 13.5% of turnover compared to only 3.5% in 2014. Price of gas is not linked to that of crude oil, which has provided a moderating factor to the drop in crude oil prices.

Austin Avuru, the company’s chief executive officer, said the improved performance in gas revenue was driven by a 34% increase in the average realised gas price to US$2.55 and a 119% increase in volumes. He said the increase in volume is a result of a successful installation of a new gas processing facility, which has doubled overall gross processing capacity to 300 MMscfd.

Other favourable developments on the income statement in the year include the appearance of other operating income of N3.07 billion, which was completely absent in the accounts in the preceding year. An exchange loss of N2.75 billion in 2014 changed to a gain of N1.53 billion in 2015 and also changes in fair value consideration shifted from negative N182 million to an income of N1.44 billion in 2015.

After tax profit dropped by about 68% at the end of the 2015 financial year, as profit capacity was undermined by increases in cost of sales and finance charges. The company reported an after tax profit of N12.99 billion against the profit figure of N40.48 billion it posted in 2014. The 2014 profit figure was a fall of 52.6% from the company’s peak profit figure of N85.43 billion in 2013.

Cost of sales rose by 25.8% to N63.71 billion against the decline of 9.2% in sales revenue. This means it cost the company an additional 26 kobo to generate a naira of sales revenue in 2015. Cost of sales therefore claimed a significantly increased share of sales revenue at 56.4% compared to 40.7% in 2014.

The cost-income ratio increased further in the year, resulting in a sustaining decline in profit margin. Gross profit margin went down from 59.3% in 2014 to 43.6% in 2015. Net profit margin continues to drop rapidly from 62.5% at the end of 2013 to 32.5% in 2014 and further to 11.5% at the end of 2015.

The biggest cost increase that undermined profit performance in the year happened in respect of finance costs, which more than doubled at 109% to N16.55 billion. This follows a sharp increase of 174% in long-term interest bearing debts amounting to over N121 billion at the end of the year. Short-term debts however decline by about 10% to stand at nearly N58 billion.

The company earned N24 per share in 2015, a drop from N79 in 2014. With that, it has lost its position as the highest earner on per share basis company among companies listed on the Nigerian Stock Exchange. Nestle Nigeria has reclaimed its leadership of the market by earnings per share with about the N30 per share it earned in 2015.