Mrs Oil: Grappling With High Cost Of Sales | Independent Newspapers Limited
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Mrs Oil: Grappling With High Cost Of Sales

Posted: Sep 24, 2015 at 12:00 am   /   by   /   comments (0)

By Andy Nssien


Mrs Oil Plc, in spite of the volatile socio-political operating environment which found expression in high cost of sales, distribution and administrative expenses, amongst others, was able to make a silk purse out of a sow’s ear, last year.  Easily,  one of the largest downstream operators in the country, the company is still grappling with the challenges of  plugging the holes drilled on the bottom line by these hiccups, even as  it announced last week, its first half results for this year.

Full Year 2014 Performance

The company recorded a turnover of N92.3 billion in 2014  as against N87.8 billion in 2013 which translates to a 5 percent increase. This improvement in turnover was spurred by increase in Premium Motor Spirit (PMS), Aviation Turbine Kerosene (ATK) and Dual Purpose Kerosene (DPK) sales as a result of the implementation of strategic initiatives aimed at capturing market share.

Profit Before Tax (PBT) decreased by 9 percent in 2014 from N1.4 billion in 2013 to N1.3 billion. Profit After Tax (PAT) witnessed marginal improvement from N0.6 billion in 2013 to N0.7 billion in 2014, reflecting 18 percent, due to some tax adjustments.

Proposed dividend for the year stood at N223.5 million, up from    N190.3 million; Earnings per share increased to N2.94  from N2.5; while dividend declared per 50k share rose to 74.93k from  23.34k in 2013.

Finance Cost

One of the challenges of the company has been how to contain the high  finance costs which stood at N1.4 billion, up  by 78 percent from N784.5 million in 2013.  Affected items  in this category were; interest expense, which rose  by 150 percent to N613.5 million from N245.5 million; Net foreign exchange loss by 56 percent, to N712.7 million  from N455.7 million; and bank charges by 22 percent, to N101.3 million from N83.2 million in the previous year.


These  involved selling and distribution expenses, administrative expenses and net finance cost, all of which have had a telling effect on the  bottom line, rising by 74 percent  to N6.9 billion from N4.0 billion incurred in 2013.  Some of the affected items are;  auditor’s remuneration which rose from N24.9 million to N27.2 million;  impairment loss on employees and other receivables, from N32 million to N71.7 million; and contract labour, from N372 million to N456.4 million.

However, during the period, the company was able to cut down on advertising expense which stood at N35.2 million, down from N57 million; consultancy expense, from N707 million to N147 million;  freight expense, from N650 million to N443 million last year.  Even so, the company’s cost effective measures were not potent enough to halt the  aggregate cost of sales, selling & distribution expenses and administrative expenses which increased to N91.2 billion from N89.5 billion entered in 2013.

Bank Overdraft And Other Short Term Borrowings

The company continued to reel under the heat of interest payments arising from overdraft and  short term loans.

Total borrowings comprising overdraft and other short term facilities stood at N11.6 billion as against N15.8 billion in 2013. Bank overdraft accounted for  N1.7 billion, up from N1.3 billion, while import finance facilities was N9.8 billion as against N14.5 billion in the previous year.

Interest rates on these facilities ranged between 18 percent to 22 percent per an-num (2013: 18% – 20%). However, for the bank overdraft, as a result of an agreement with one of the bankers, interest is calculated net of the amount of fixed deposits held with the banker. Where the fixed deposit held is in excess of the overdraft, interest income is earned.  The net interest expense incurred in the year relating to overdrafts and short term borrowings amounted to N212.13 million (2013: N242.44 mil-lion).   

The company was also involved in Import Finance Facilities which represents short term borrowings obtained to fund letters of credits for product importation. These facilities are either secured with products financed, domiciliation of Petroleum Products Pricing Regulatory Agency (PPPRA) payments or the Company’s sinking fund account with a balance of  N9.33 billion as at year end (2013: N9.18 billion).

Segment Operations

The debilitating effect of high cost of sales manifested in the company’s three service lines;  Retail/Commercial & Industrial, Aviation, and Lubricants.  Of the total revenue generated in the three segments in 2013 which stood at N87.8 billion, cost of sales claimed N83 billion or 95 percent.  For last year, the company’s efforts only reduced the rate to 92 percent as the cost of sales consumed N85.4 billion out of the total revenue of N92.3 billion earned during the period. Highest hit segment last year, was the Retail/Commercial & Industrial which cost of sales chopped off 93 per cent of the revenue which stood at N76.5 billion, a slight improvement from  95 percent  recorded in 2013 when the company generated N74.3 billion. This segment accounted for 84 percent of the total cost of sales  in 2014, down from 86 per cent registered in the previous year. Next, was Aviation which claimed 14 per cent, up from 11 percent, while Lubes accounted for 2 percent, down from 3 percent  of aggregate cost of sales in 2013.

Half Year 2015 Results

The half-year results of the company for the period ended June 2015 indicated a declining turn over by  22 percent, of N36.9 billion as against N47.2 billion in the corresponding period in  2013. Cost of sales dropped by 22.4 per cent to N34 billion, while distribution/administration expenses fell by 2.2 per cent to N2.7 billion. Profit before tax stood at N64 million, as against N463.8 million, while profit after tax dropped to N37.6 million, from N315 million earned in similar period in 2013.

The dwindling profit after tax margin  from 0.6 per cent to 0.2 percent recorded in the first half of this year, demands that the downstream operator should put its shoulders to the wheel, even as the second half of the year promises a better operating environment.


The Company was incorporated as a privately owned Company in 1969, and was converted to a Public Limited Liability Company quoted on the Nigerian Stock Exchange in 1978, as a result of the 1977 Nigerian Enterprises Promotions Decree. The Company is domiciled in Nigeria and its shares are listed on the Nigerian Stock Exchange (NSE).

Following the creation of Chevron Texaco in 2001 from the merger between  Chevron Texaco Corporation and former Texaco Incorporated, Texaco Nigeria became an integral part of the new corporation.

On March 2009, there was an acquisition of Chevron Africa Holdings Limited by Corlay Global SA of Moffson Building, Republic of Panama. By virture of this foreign transaction, Mrs Africa Holdings Limited gained control of all assets of Chevron Nigeria Holdings Limited, Bermuda.