Deferred tax dragged Seplat Petroleum's 2018 profit down

Seplat Petroleum Development Plc released its full-year (FY) 2018 financial statement which shows a 65.16% increase in revenue (year-on-year) to N228.39 billion. However, profit after tax (PAT) fell by 44.68% YoY to N44.87 billion. The Management proposed a final dividend of $0.05 per share which translates to a dividend yield of 2.57%, based on the last traded price.

With regards to the income statement, we highlight the following:

Increased production and high Oil price provided support for the significant rise in revenue:

Seplat’s revenue rose by 65.16% YoY to N228.39 billion due to improvement in the oil production and oil price during the period under review. The Oil production rose by 35.06% YoY, this is driven by 37.39% in revenue from OMLs 4, 38 & 41 despite a 9.40% fall in revenue from OML 53. Also, the rally in the Oil price to an average of $70.1 per barrel in 2018 from an average of $50.4 per barrel in 2017 provided backbone for the significant revenue growth. In this same vein, Crude oil revenue which contributes c79.14% to the total revenue grew by 61.32% YoY.

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Improvement in operational efficiency

Due to the significant increase in the revenue, the Gross Profit and PBT Margin rose to 52.43% and 35.30% from 46.91% and 9.73% respectively. Also, Cost to Sales Ratio fell to 47.57% from 53.09% despite 47.98% YoY growth in Cost of Sales which is being offset by 65.16% increase in revenue.

Significant growth in Profit Before Tax while Profit After Tax on the fall

The PBT grew by 499.19% within the periods under review while the PAT fell by 44.68% YoY owing to payment of cN35.75 billion in Income Tax Expenses as SEPLAT accounted for a negative figure of N28.06 billion in Deferred tax expenses in 2018.

With regards to the balance sheet statement, we highlight:

Marginally decline in Seplat’s Total Assets:

Despite an increase in Capital Expenditure in 2018, the total assets of the company fell marginally by 2.99% to N775.66 billion from N799.55 billion due to reduction on Deferred Tax by 37.90% and Trade and other receivables by 55.88%. We must assert that the Capital Investment grew from $33 million in 2017 to $88 million in 2018 and the company has a $200 million CAPEX Guidance for 2019.

Strong Cash Balance:

Seplat’s Cash and Bank Balances rose by 34.26% YoY in 2018 to N179.51 billion from N133.70 billion. This demonstrates the firm’s strong cash position as Cash Flow from Operating Activities remains high. Also, as the company issued $350,000,000 9.25% Senior Notes due 2023. The Notes were issued on March 21, 2018 and listed on the Euro MTF market of the Luxembourg Stock Exchange.

Decline in Return on Shareholders and Assets:

Due to the slump in Profit After Tax by 44.68%, the Return on Average Equity fell to 9.43% in 2018 from 19.40% in 2017 while the Return on Average Asset fell to 5.70% in 2018 from 11.08% in 2017.