Connect with us
nairametrics

Business News

Defiant Seplat books N42.4 billion loss as crude oil prices force new strategy

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

Published

on

Austin Avuru, Chief Executive Officer, Seplat Petroleum

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.

READ ALSO: Banks that hedged against 2020 Oil price crash

Reason for the loss

GTBank 728 x 90

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).

Deal book 300 x 250
GTBank 728 x 90

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.

READ MORE: IMF approves $3.4 billion for Nigeria, largest emergency support so far

“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.”

More losses?

Fidelity ads

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.

READ ALSO: Oil prices drop to 21-year low as demand and storage crises persist

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.

Chike Olisah is a graduate of accountancy with over 15 years working experience in the financial service sector. He has worked in research and marketing departments of three top commercial banks. Chike is a senior member of the Nairametrics Editorial Team. You may contact him via his email- [email protected]

Click to comment

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Financial Services

How foreign exchange risks and others affect the Nigerian pension industry 

A report has analysed risks militating against the Pension industry in Nigeria.

Published

on

This is why you should make voluntary contributions to your pension fund

Despite being one of the fastest-growing sectors in the Nigerian financial services industry, the Nigerian pension industry has been affected by various riskssuch 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 USDhas been about 11% over the same period. 

READ: PenCom recovers N17.51billion from defaulting employers, imposes penalties

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. 

GTBank 728 x 90

Other risks outlined in the summit includeinterest rate risk, political risk, operation risk, and key macroeconomic risks such as unemployment, GDP, inflation, currency among others. 

READ: Is Zenith Bank thriving on the strength of sound financial indices?

With regards to who bears the retirement risk, 68% of the risk is borne from one’s sources, while 38% is from outside sources. 

GTBank 728 x 90

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

Way Forward 

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. 

Key Highlights  

  • 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. 

READ: Why May was bad for your Pension funds

To view the report, click to download HERE

Fidelity ads

Continue Reading

Financial Services

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.

Published

on

fintechs, commercial banks, Events in FinTech industry in 2019, Nigeria's fintech industry 2020: The growth frontier of the new decade

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. 

READ: BOOM: CBN issues new circular that could force banks to lend to nearly everyone.

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 lendinghaving 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. 

GTBank 728 x 90

READ: This is where PSB, CBN got it all wrong

Source: McKinsey report, 2020. 

READ: Banks Vs Fintechs – Who should be Afraid? (Part Two)

GTBank 728 x 90

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. PagaOPayCellulant, 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. 

READ: PenCom recovers N17.51billion from defaulting employers, imposes penalties

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 

READ: Key ‘side-hustles’ Nigerian Bankers supplement their income with

Fidelity ads

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. 

READ: CBN grants licenses to 3 Payment Service Banks

Conclusion 

Fintech accounted for only 1.25of 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. 

READNew report details how Nigerian fintech companies are expanding their business scopes

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.  

Coronation ads
Continue Reading

Business

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

Published

on

Nigeria’s Pension Asset increased by N228 billion in October, PFAs increase investment in infrastructure to N40.52 billion   

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.

READ: CBN says 22 banks to restructure over 35,000 loans due to COVID-19

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.”

GTBank 728 x 90

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.

READ: Ngige accuses NSITF management of embezzling N48 billion and awarding fake contracts

It said the application was processed and five members’ contributions were transferred to their bank accounts.

GTBank 728 x 90

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.

READ: Private Sector drives industry growth, as PenCom remits N7.4bn into RSA

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.

READ: Leaked memo: CBN instructs banks to block bank account of 38 companies for “forex abuse”

Fidelity ads

Continue Reading
Advertisement
Advertisement
Advertisement
ikeja electric
Advertisement
Patricia
Advertisement
FCMB ads
Advertisement
Advertisement
IZIKJON
Advertisement
Fidelity ads
Advertisement
first bank
Advertisement
bitad
Advertisement
deals book
Advertisement
financial calculator
Advertisement
deals book
Advertisement
app
Advertisement