Seplat Petroleum Development Plc, an independent indigenous Nigerian upstream exploration and production company, has released its financial statement for the first quarter (Q1) ended March 31, 2020.
Most of the company’s performance indicators were negative as it has been caught up in the global oil market crisis. A summary of the quarterly performance shows that the oil and gas firm recorded an 18.2% decrease in revenue, dropping from $159.5 (N48.9 billion) in Q1 2019 to $130.5 (N42.4 billion) in Q1 2020. There was a huge drop in gross profit, with the company recording $33.1 (N10.8 billion) in Q1 2020 as against the $81.4 (N24.9 billion) recorded for the same period in 2019. This represents a massive 59.3%.
The profit before tax/loss shows a loss of $105.8 (N34.3 billion) in Q1 2020 as against a profit of $35.8 (N10.9 billion) which was recorded for the corresponding period in 2019. This represents a huge 395.5% decrease.
Reason for the loss
A cursory view of the financial statement shows that the company booked N47.5 billion in impairments, as the company decided to revalue its oil and gas assets following the crash in oil prices. Included in Seplat’s assets is its interest in oil and gas mining licenses, whose values are tied to the price of crude oil. The company provided the following explanation in its notes to accounts:
“Impairment gain on financial assets relates to the reversal of previously recognised impairment losses on other receivables. During the period, the group recognised an impairment loss of N47.5 billion ($146 million) on its non-financial assets. The impairment is primarily as a result of re-assessment of future cash flows from the Group’s oil and gas properties due to a significant fall in oil prices.”
The impairments resulted in a loss after tax of N34.6 billion ($106.5 million).
A defiant Austin Avuru, the CEO of Seplat, shifted focus to its gas business, explaining that it was less exposed to the price drop currently ravaging the upstream sector.
“We have the benefit of long-term contracted gas revenues that are insulated from oil market volatility,” he said.
The CEO also tried to comfort investors who may be worried about the company’s ability to continue to meet its cash flow obligations.
“We are achieving substantial cost reductions from our suppliers and managing our own costs even more carefully in this unprecedented and challenging period. We are in constant dialogue with partners on monies owed and are pleased to report that our cash flow remains robust and we have significant cash in reserve. This, coupled with the majority of our debt repayment obligations extending beyond 2021, gives us confidence that we can continue to operate comfortably within the covenants on all lines of debt.”
Despite the apparent defiant tone by the CEO and the management of Seplat, the company still faces significant headwinds of drops in oil prices and cut in output forced by OPEC. Even with its optimism about gas, crude oil still represents about 83% of revenues at N34.9 billion, compared to gas at N7.5 billion. For Seplat to meet up with its cash obligations and running cost, it still needs revenues from crude oil.
Seplat is also quick to cite its crude oil hedges and low cost of production of US$7.7/boe, though it still needs to pay for the cost of running operations. When oil prices were above $50/bbl Seplat spent about 47% of its revenues as the cost of sale and another 20% of gross profits on OPEX. Gross margins fell to 25% this quarter from 51% the same period last year. Despite its hedge, the company could suffer more losses, especially from inventory pile-ups and loss of business.
Seplat expects production of 47-57 kboepd (inc. Eland 6-10kbopd) for the full year, subject to market conditions, and hedged 1.5MMbbls at US$45/bbl from Q1 to Q3 2020.
How foreign exchange risks and others affect the Nigerian pension industry
A report has analysed risks militating against the Pension industry in Nigeria.
Despite being one of the fastest-growing sectors in the Nigerian financial services industry, the Nigerian pension industry has been affected by various risks, such as the volatility in the foreign exchange and other factors.
However, these risks have harsh consequences on the retirement income of contributors. For example, in Nigeria, whilst the pension assets in the last decade have grown by 21% annually, the growth in the value of assets when converted to USD, has been about 11% over the same period.
This is according to a recent report released on Pension Sector Forum by ARM Pension, with the theme “Pension Assets Risk Management in the Face of Uncertainties”
All other things being equal, the findings revealed that the Defined Contribution Pension scheme assets on a 10- year time frame, grew faster than Defined Benefits (CAGR 8.4% pa vs 4.8% pa). Increased member coverage and higher contributions were probable factors responsible for the growth. In addition, most retirees might not have enough funds to maintain a decent standard of living, as retirement risk has been transferred to them.
Other risks outlined in the summit include; interest rate risk, political risk, operation risk, and key macroeconomic risks such as unemployment, GDP, inflation, currency among others.
With regards to who bears the retirement risk, 68% of the risk is borne from one’s sources, while 38% is from outside sources.
The report also stated that the total pension contributions received in the industry from 2017- 2019, was almost equally split between the private and public sectors at the end of Q3 2019.
Explore Economic and Financial Data on the Nairametrics Research Website
In mitigating the risks inherent in the Nigerian pension industry, experts at the summit called for increased collaboration among stakeholders, engagement with all regulators, increased advocacy for corporate governance, increased awareness, and sensitization of contributors by stakeholders among others as viable options going forward.
- As of June 2020, only 11.3% of the Nigerian labour force had opened retirement savings accounts (RSAs), while pension assets stand at less than 10% of GDP.
- The total number of funds under management currently stands at N11.1 trillion.
- There are currently over 9.04 million subscribers and 32 operators.
To view the report, click to download HERE
Nigerian fintech companies raised $600 million in five years – McKinsey Report
McKinsey report has revealed that Nigeria’s fintech companies have raised over $600 million in funding in the last six years.
In a space of five years, Nigeria’s fintech companies have raised over $600 million in funding, attracting 25% ($122 million) of the $491.6 million raised by African tech startups in 2019 alone – second only to Kenya, which attracted $149 million. The period under review is 2014- 2019.
This information is contained in a recently published report by McKinsey titled “Harnessing Nigeria’s Fintech Potential.” The report highlighted the combination of youthful demographic, increasing smartphone penetration, and concerted efforts to driving financial inclusion as factors that interplay to produce conducive and thriving enabler or platform for the fintech firms in Nigeria.
The report outlined some of the feedback against fintech companies ranging from poor user experience, underwhelming value-added from using some of the financial products, low returns on savings, and limited access to investment opportunities.
The report also showed that Nigerian fintech companies are primarily focused on payments and consumer lending, having allotted an aggregate of 39% on payments to consumers, SMEs, and corporate FSP, and an additional 25% to consumer lending. The breakdown is depicted below.
Source: McKinsey report, 2020.
On the driving factors behind the increasing choice of payment and consumer lending as an area of concentration by fintech companies, a part of the report read thus;
“The factors driving growth in each of these segments vary. Payment-focused solutions have surged over the past two years, spurred in part, by the central bank’s financial inclusion drive and favorable regulatory policies, including revised Know Your Customer (KYC) requirements for lower-tier accounts and incentives, to accelerate development of agent networks across the country. Paga, OPay, Cellulant, and Interswitch’s QuickTeller compete with mobile banking applications and bank unstructured supplementary service data (USSD) channels to send and receive transactions and bill payments.
“Fintech activity in lending is picking up, thanks to the fact that fintechs are able to leverage payment data to determine lending risk more easily, and utilize smartphones as a distribution channel. For example, fintech startups such as Carbon and Renmoney have successfully leveraged alternative credit-scoring algorithms, to provide instant, unsecured, short-term loans to individuals. A few fintechs, such as Migo, have also stepped up to offer unsecured working-capital loans to SMEs with minimal documentation. Banking fintech solutions have been fast followers here, with leading banks launching digital lending platforms like Quick Credit by GTBank and Quickbucks by Access Bank.”
In general, access, convenience, and trust have all played key roles in the increasing use of fintech products. For example, in the last six months, 54% of consumers have reported increased usage of their fintech products
Why this matters
In line with the National Financial Inclusion goals of 2020, and owing to the fact that despite the remarkable progress recorded by traditional banking institutions, the vast majority of consumers are underserved. Hence, the issue of accessibility especially in remote areas, affordability, and user experience have been a front-burner issue.
The aforementioned issues have created an opening that fintechs have been quick to take advantage of, providing enhanced propositions across the value chain, to address major points in affordable payments, quick loans, and flexible savings and investments among others.
Fintech accounted for only 1.25% of retail banking revenues in 2019, signaling a room for development. Despite recording a growth of fintech investments in Nigeria to the tune of approximately $460 million in 2019, majority of these investments were from external investors. This was only a small fraction (1.27%) of the $36 billion invested in fintech globally.
The report opined that full optimization of fintech companies in Nigeria can stimulate economic activity, by creating a multiplier effect, and can drive progress towards development goals. Economic impact will primarily come from expanding revenue pools and attracting foreign direct investment to the country. The sector can unlock a plethora of economic benefits by driving increased fintech productivity, capital, and labour hours through digitization of financial services.
PenCom recovers N17.51billion from defaulting employers, imposes penalties
N17.51 billion was recovered by PenCom from employers who refused to remit pensions from workers’salaries
The National Pension Commission has recovered N17.51 billion from employers that refused to remit deducted monthly pensions from their workers’ salaries to their Retirement Savings Accounts with the respective Pension Fund Administrators.
This was disclosed by the Commission in its 2020 second quarter report which was released on Friday.
Out of the N17.51 billion, the principal contribution was N8.89 billion, while the penalty imposed on the employers was N8.63 billion.
The report read, “Following the issuance of demand notices to some defaulting employers whose outstanding pension contribution liabilities had been established by the recovery agents, 16 of the affected employers remitted the sum of N261.33 million representing principal contribution of N152.79million and penalty of N108.54million during the quarter. This brought the total recoveries made from inception as at June 30, 2020 to N17.51billion.”
According to the report, one batch of NSITF lump sum payment application totalling N225,442.72 was however received on behalf of five NSITF members during the quarter.
It said the application was processed and five members’ contributions were transferred to their bank accounts.
Consequently, it added, the cumulative sum of N2.94billion had been paid into the bank accounts of 36,551 NSITF contributors as lump sum/one off payment from inception to June 30.
For the quarter ended June 30, the commission said it processed monthly pension payments totalling N62.25million in respect of 3,629 NSITF pensioners.
As of June 30, it said the total pension payment to NSITF pensioners amounted to N4.73billion.
The commission added that it reviewed the request for the payment of attributable income to eligible NSITF members and granted a “no objection” for payment of N2.92billion to 165,954 eligible NSITF members whose NSITF contributions were refunded to their RSAs or bank accounts as of December 2018.